efficiency
AAON is a global leader in providing equipment with
environmentally responsible designs. AAON utilizes
extensive product knowledge and state of the art
manufacturing to continuously provide a wide variety
of energy efficient and earth friendly features to the
dynamic marketplace. The success of our commitments
can be seen in the consistent growth of our sales and
the increasing profitability of the company.
ef fi ci en cy COmpAny prOfile
OutdOOr Air HAndling units
indOOr Air HAndling units
RM SeRieS
RL SeRieS
H2 SeRieS
SA SeRieS
V2 SeRieS
HB SeRieS
RN SeRieS
M2 SeRieS
M3 SeRieS
F1 SeRieS
COndensing units
CHillers
BOiler
CL SeRieS
CA SeRieS
LL SeRieS AiR—CoNdeNSed
LL SeRieS
eVApoRAtiVe—CoNdeNSed
BL SeRieS
CC SeRieS
CB SeRieS
LC SeRieS AiR—CoNdeNSed
CustOm units
rOOftOp units
MN SeRieS
dt SeRieS
NJ SeRieS
RL SeRieS
RN SeRieS
RM SeRieS
HB SeRieS
AAON is engaged in the engineering, manufacturing, marketing and sales of air conditioning and heating equipment consisting
of residential and commercial semi–custom and custom products, including: air handling units, geothermal and water source heat
pumps, condenser and condensing units, chillers, boilers, mechanical penthouses, rooftop units, makeup air units, heat recovery units
and coils. Since the founding of AAON in 1988, AAON has maintained a commitment to design, develop, manufacture and deliver
heating and cooling products to perform beyond all expectations and demonstrate the value of AAON to our customers. AAON
provides specific and unique solutions for individual customer requirements.
AnnuAl RepoRt
finAnCiAl HigHligHts
Income Data ($000)
Net Sales
Gross Profit
Operating Income
Interest Expense
Interest Income
Depreciation
Pre-Tax Income
Net Income
Earnings Per Share
(Basic)1
(Diluted)1
Balance Sheet ($000)
Working Capital
Current Assets
Net Fixed Assets
Accumulated Depreciation
Cash & Cash Investment
Total Assets
Current Liabilities
Long-Term Debt
Stockholders’ Equity
Stockholders’ Equity per Diluted Share1
Funds Flow Data ($000)
Operations
Investments
Financing
Net Increase (Decrease) in Cash
Ratio Analysis
Return on Average Equity
Return on Average Assets
Pre-Tax Income on Sales
Net Income on Sales
Total Liabilities to Equity
Quick Ratio2
Current Ratio
Year-End Price Earnings Ratio1
1 Reflects 3-for-2 stock split in August 2007
2 Cash, cash investments + receivables/current liabilities.
2008
2007
2006
2005
2004
$279,725
$67,176
$43,388
$71
$27
$9,412
$44,068
$28,589
$262,517
$57,369
$35,666
$10
$8
$9,665
$35,343
$23,156
$231,460
$43,890
$25,831
$81
$24
$9,146
$26,198
$17,133
$185,195
$35,291
$17,814
$16
$67
$8,503
$18,332
$11,462
$171,885
$26,864
$11,650
$38
$183
$5,732
$12,379
$7,521
$1.63
$1.60
$1.24
$1.22
$0.93
$0.90
$0.62
$0.60
$0.40
$0.39
$40,600
$80,118
$60,550
$72,269
$269
$140,743
$39,518
$121
$96,522
$5.61
$38,788
$76,295
$60,770
$63,579
$879
$137,140
$37,507
$239
$95,420
$5.29
$33,447
$(9,593)
$31,247
$(10,751)
$(24,460)
$(20,036)
$(610)
$591
29.8%
20.3%
15.8%
10.2%
0.5
1.0
2.0
13
24.8%
16.9%
13.5%
8.8%
0.4
1.1
2.0
16
$36,356
$70,759
$59,222
$54,182
$288
$130,056
$34,403
$-
$91,592
$4.95
$19,428
$(16,781)
$(3,333)
$(549)
20.0%
13.2%
11.3%
7.4%
0.4
1.1
2.1
19
$33,372
$62,950
$50,581
$45,062
$1,837
$113,606
$29,578
$59
$79,495
$4.33
$11,966
$(8,189)
$(4,200)
$(157)
15.2%
10.1%
9.9%
6.2%
0.4
1.2
2.1
20
$27,939
$55,998
$49,229
$37,017
$3,994
$105,227
$28,059
$167
$71,171
$3.84
$16,159
$(11,741)
$(9,857)
$(5,192)
10.9%
7.1%
7.2%
4.4%
0.5
1.1
2.0
27
08
president’s letter
Dear Shareholder,
Not only are we devoted to increasing the operating
Return on average equity
This past year was an eventful one for AAON. We celebrated
efficiency of the equipment we manufacture, we are also
is
an
important financial
our twentieth year in business and, despite the difficult
intent on improving the efficiency of our manufacturing and
measurement. It exhibits the
economic environment, we achieved record results for both
administrative processes. These improvements have led to a
Company’s ability to deploy its
sales and earnings. We benefited from stable raw material
noticeable gain in productivity. Specifically, since 2005 our
investment dollars to generate
prices in the last half of the year and, as our manufacturing
sales increased 51.0% from $185.2 million to $279.7 million,
earnings growth.
In 2008,
and marketing efforts continued to mature, our gross margins
while our net income rose 148.7% from $11.5 million to $28.6
our return on average equity
exhibited further improvement. SG&A expenses increased,
million. During that same period, it is significant to note that
advanced to 29.8% from 24.8%
reflecting both higher warranty accruals and bad debt
our total employee count remained essentially the same, at
a year earlier.
reserves, however, operating margins were still able to widen
approximately 1,400.
significantly.
AnnuAl RepoRt
“We celebrated our
twentieth year in
business and, despite
the difficult economic
environment, we
achieved record
results for both sales
and earnings. We
benefited from stable
raw material prices
We continued to intensify our manufacturing effort to provide
products which focus on energy efficiency and quality. Aided
by the excellent response to the innovations recently
introduced into our product lines, we posted a
6.6% increase in total sales to $279.7 million
from $262.5 million. Gross profits in 2008
rose 17.1% to $67.2 million (24.0% of sales)
compared to $57.4 million (21.9% of sales)
in 2007. SG&A expenses increased 9.7%
to $23.8 million (8.5% of sales) from
$21.7 million (8.3% of sales), however,
operating margins improved to record
levels as operating income climbed
21.6% to $43.4 million (15.5% of
sales) from $35.7 million (13.6% of
sales). Net income increased 23.3%
to $28.6 million or $1.60 per diluted
share from $23.2 million or $1.22
per diluted share. The per share
calculations are based upon 17.9
million diluted shares outstanding
in 2008 and 18.9 million diluted
shares outstanding in 2007.
Strong Financial Condition
Our financial condition at December 31, 2008, remained
strong. Total current assets were $80.1 million with a current
ratio of 2.0. Despite $9.6 million of capital expenditures, the
repurchase of our common stock at a cost of $24.8 million, and
dividend payments of $5.8 million, we maintained a strong
liquid position while having minimal long-term debt. In 1999
and 2002, the Company initiated stock repurchase programs
of 1.1 million shares and 1.9 million shares, respectively, with
AAON’s
excellent financial
performance
was
again
acknowledged by the financial
in the last half of
community. Once again, for
the year and, as our
the second consecutive year,
AAON was selected to the
Forbes
200
Best
Small
Companies list, ranking 150th.
Inclusion on the Forbes list
manufacturing and
marketing efforts
continued to mature,
our gross margins
requires companies to meet a
exhibited further
shares repurchased at a cost of $36 million. In November 2007,
series of financial benchmarks
improvement.”
the Board of Directors authorized a new stock buyback of up
to 10% (approximately 1.8 million shares) of the outstanding
common stock. By the end of 2007, we acquired 690,300
shares at a cost of $13.0 million. During the past year we
acquired 1,001,958 additional shares at a cost of $20.7 million.
In addition, we bought 79,750 shares of stock from certain
including return on equity,
sales growth and profit growth over the past year and also over
five years. The Company was also previously honored in this
listing for three consecutive years from 2000-2002.
Capital Expenditures
directors of the Company and 129,830 shares from AAON’s
In order to accommodate our future growth, we continue to
401(k) savings and investment plan. We spent $4.1 million
expand both our plant and machinery capacity. In 2008, we
on these purchases. We funded these stock buybacks out
spent $9.6 million on capital improvements with emphasis on
of our cash flow. We believe our sizeable cash flow
enlarging our RL (45-230 tons) production line, doubling our
can be best utilized by repurchasing our common stock at
RN (26-70 tons) production line and adding two air handler
prices that do not reflect our true value.
lines as well as increasing our warehouse and storage space.
08 For 2009, we are budgeting
capital expenditures of between
$7-8 million. The bulk of
these expenditures will be
devoted to completing the
programs started last year.
In addition, we plan to
increase our machinery
capacity with the purchase
of
additional metal
fabricating
equipment
At the end of 2008, our
machinery
capabilities
could accommodate annual
volume of up to $350-$400
million depending upon our
product mix.
SA SeRieS
This
lease
expires
on
May 31, 2009. We will
begin
to
renovate
the
property in the last half
of the year. Eventually,
we
expect
to utilize
this total space which
could
double
our
manufacturing capacity
to $700-$750 million.
We
are
extremely
pleased to have been
acknowledged by our
customers this past year.
In Consulting-Specifying
In 1998, we purchased a 40 acre tract of
land
including a 457,000 square
foot manufacturing/
warehouse building. This property has been expanded to
683,000 square feet and by the end of 2008 we utilized 39%
of the property with the remainder leased to a third party.
Engineer’s
annual
product
competition, a panel of judges chose gold, silver
and bronze winners in 11 different categories. The “Product of
the Year Awards” recognize the top new products in Mechanical,
Electrical and Plumbing engineering categories, which
includes HVAC systems. Entries were screened by a panel of
engineers and the finalists were presented in the Specifiers’
“Once again, for the second consecutive
Guide published in the May 2008 issue. AAON’s Digital
year, AAON was selected to the Forbes
200 Best Small Companies list, ranking
150th. Inclusion on the Forbes list requires
companies to meet a series of financial
benchmarks including return on equity,
Precise Air Control (D-PAC) not only won the gold medal
in the HVAC segment, but was also named the overall 2008
Most Valuable Product.
The demand for manufactured products that are more energy
efficient and environmentally friendly from both customers
sales growth and profit growth over the
and regulators has changed the character of production
past year and also over five years.”
methods throughout the HVAC industry. Over the past four
Energy-Quality
manufacture of double wall composite foam panels for the
In addition, AAON has become the industry leader in the
“We have expended the capital, time and
labor to develop a product line which
AnnuAl RepoRt
years, AAON has expended a significant amount of capital
approximately 60% of our product line. By 2010 we anticipate
and manpower to redesign its product line to meet these
our entire product line will include the direct drive blower
demands.
assemblies as a standard item.
Our entire product line is designed to use R410A, an
The Variable Capacity Scroll Compressor
environmentally friendly refrigerant. This adheres to the EPA
mandate that by 2010 all manufactured HVAC equipment
must use refrigerants that do not contain chlorine, thereby
reducing the effect of ozone depletion in the atmosphere.
This compressor is the first major advance for the smaller
(less than 50 tons) sized equipment market we have witnessed
in the past two decades. The compressor varies the volume
cabinets of its products. Foam, rather than fiberglass, creates
is regarded as the most technologically
a cabinet which is lighter, stronger and better insulated. The
innovative in our business. These
thermal resistance, R-value, of these cabinets is more than four
times that of the traditional fiberglass product. The response
from our customers to this new feature has been exceptional.
At year-end 2008 approximately 60% of our total sales included
the new foam insulation as a standard feature. We expect that,
innovations, which directly address
the two major industry concerns,
energy efficiency and environmental
compatibility, have met with very positive
by the end of the third quarter of this year, our entire product
response from our customers.”
line will be manufactured using foam insulation.
We have taken another significant step toward
increasing the efficiency of our product line,
thereby improving the performance and
creating further energy savings. Three years
ago we introduced our direct drive blower
assemblies that operate without drive belts,
which eliminate the need to adjust or replace
fan belts. These assemblies operate with our
airfoil backward curved fan, creating a blower
system that is much more efficient than the
traditional belt-driven forward curved fan
system. Presently these assemblies are available on
lC SeRieS AiR—
CondenSed
08
AnnuAl RepoRt
of refrigerant flowing through the cooling system, allowing
witness increased demand for our water cooled products since
Our Employees
the compressor to match the load needed by the unit. This
they are used in geothermal installations.
modulating capability has yielded energy savings of between
10-40% over conventional control techniques. In addition,
Sales Representatives’ Performance
Our ability to attract and retain talented personnel remains a
critical component to the Company’s success. The design of
our compensation and benefit programs attempts to reward
the compressor will run for a longer time, dehumidifying the
air and cycling the compressor on and off less, resulting in
Once again, our sales representatives provided a major
employees for attaining goals that help both the Company
catalyst to our revenue growth, while enabling the Company
and themselves while respecting each person’s individuality
additional energy savings.
Geothermal
to continue diversifying its customer mix. At the end of
and personal responsibility.
2008, our representatives’ network had 106 offices in all 50
states and Canada. The diversification of our customer mix
The sharing of profits equally among employees is one of
The air-cooled condenser has traditionally been used in the
combined with our innovative product line, emphasizing a
our largest motivational tools for near-term achievement.
rooftop market as it is both less expensive and less complicated
more environmentally friendly and energy efficient product,
We calculate
the pre-tax profits at each operating
to install than water-cooled condensers. While the water-
enabled AAON to obtain a growing share of the market. With
subsidiary and distribute 10% of those profits equally to all
cooled equipment is more energy efficient, the higher costs
the help of our manufacturers’ representatives we were able to
employees who were employed for the full calendar quarter.
involved have usually restricted demand for this product.
offset weakness in demand in some of our end markets while
The structure of this program provides rewards to employees
Geothermal tax incentives have recently been enacted at both
witnessing growth in other market segments. We believe they
from the early stage of their employment and motivates
the federal and state levels that will provide tax savings for
will continue to play a major role and contribute significantly
employees to maximize quarterly performance. To create
both developers and users of geothermal energy. We expect to
to our future growth.
a longer performance horizon, the company 401(k) plan
creates an equity position
for employees that rewards
“Once again, our
sales representatives
length of employment along
provided a major
with company stock growth.
catalyst to our revenue
Since 2004,
the company
has moved its 401(k) plan to
an aggressive, active system
which automatically enrolls
growth, while enabling
the Company to
continue diversifying
its customer mix.
employees
upon
their
At the end of 2008,
first day of work. We also
our representatives’
instituted automatic increases
up to 15% of income for
current participants and re-
enrollment
for employees
network had 106
offices in all 50 states
and Canada.”
who may not be participating. The company matches employee
contributions 50% through the first 9% of income saved.
the ongoing SuCCeSS of ouR CompAny CAn be diReCtly AttRibuted to ouR employeeS.
September
Purchase of John Zink Air
Conditioning Division.
September
Purchase of John Zink Air
Conditioning Division.
December
Formed AAON Coil Products, a Texas Corporation,
as a subsidiary to AAON, Inc. (Nevada) and
purchased coil making assets of Coils Plus.
December
Formed AAON Coil Products, a Texas Corporation,
as a subsidiary to AAON, Inc. (Nevada) and
purchased coil making assets of Coils Plus.
March
Purchase of property with 26,000
square foot building adjacent to
AAON Coil Products plan in Longview,
Texas. Issued a 10% stock dividend.
March
Purchase of property with 26,000
square foot building adjacent to
AAON Coil Products plan in Longview,
Texas. Issued a 10% stock dividend.
Spring
AAON purchased, renovated
and moved into a 184,000
square foot plant in Tulsa,
Oklahoma.
Introduced a new product line of
rooftop heating and air
conditioning units 2-140 tons.
Spring
AAON purchased, renovated
and moved into a 184,000
square foot plant in Tulsa,
Oklahoma.
Introduced a new product line of
rooftop heating and air
conditioning units 2-140 tons.
September
One-for-four reverse stock
split. Retired $1,927,000
of subordinated debt.
September
One-for-four reverse stock
split. Retired $1,927,000
of subordinated debt.
September
September
Completed expansion of the
Completed expansion of the
Tulsa facility to 332,000
Tulsa facility to 332,000
square feet.
square feet.
April
AAON received
U.S. patent for
Blower Housing
assembly.
April
AAON received
U.S. patent for
Blower Housing
assembly.
October
U.S. patent granted
to AAON for air
conditioner with
energy recovery
heat wheel.
October
U.S. patent granted
to AAON for air
conditioner with
energy recovery
heat wheel.
Fall
Fall
Expanded rooftop product line
Expanded rooftop product line
to 230 tons. Introduced evaporative
to 230 tons. Introduced evaporative
condensing energy savings feature.
condensing energy savings feature.
3-for-2 stock split.
3-for-2 stock split.
May
Purchase of the assets of
Air Wise, of Mississauga,
Ontario, Canada.
May
Purchase of the assets of
Air Wise, of Mississauga,
Ontario, Canada.
June
Initiation of a semi-annual cash
dividend for AAON shareholders.
June
Initiation of a semi-annual cash
dividend for AAON shareholders.
June
3-for-2 stock split.
June
3-for-2 stock split.
Spring
Completed Tulsa, Oklahoma,
and Longview, Texas, plant
additions yielding a total
exceeding one million square feet.
Spring
Completed Tulsa, Oklahoma,
and Longview, Texas, plant
additions yielding a total
exceeding one million square feet.
July
July
AAON added as a
AAON added as a
member of the Russell
member of the Russell
2000® Index.
2000® Index.
November
Introduction of light
commercial/residential
product lines.
November
Introduction of light
commercial/residential
product lines.
March
Modular air handlerproduct
extended to 50,000 CFM
March
Modular air handlerproduct
extended to 50,000 CFM
October
AAON Listed in Forbes ‘200
Best Small Companies’
December
AAON rings closing
bell atNASDAQ
October
AAON Listed in Forbes ‘200
Best Small Companies’
December
AAON rings closing
bell atNASDAQ
88
’88’89’90’91’92 ’93’94’4495’96’97’98
’88’89’90’91’92 ’93’94’4495’96’97’98
93
92
95
94
91
90
98
97
92
91
90
89
89
96
96
88
98
93
95
94
97
December
Listed on NASDAQ Small
Cap—Symbol “AAON.”
December
Listed on NASDAQ Small
Cap—Symbol “AAON.”
Summer
Summer
Became a publicly traded company
Became a publicly traded company
with the reverse acquisition of Diamond
with the reverse acquisition of Diamond
Head Resources (now “AAON, Inc.”),
Head Resources (now “AAON, Inc.”),
a Nevada corporation.
a Nevada corporation.
August
August
AAON, an
AAON, an
Oklahoma corporation,
Oklahoma corporation,
was founded.
was founded.
November
Listed on the
NASDAQ National
Market System.
November
Listed on the
NASDAQ National
Market System.
January
Introduced a desiccant heat
recovery wheel option available
on all AAON rooftop units.
January
Introduced a desiccant heat
recovery wheel option available
on all AAON rooftop units.
December
Purchased 40 acres with
457,000 square foot plan
and 22,000 square foot
office space located across
from Tulsa facility.
December
Purchased 40 acres with
457,000 square foot plan
and 22,000 square foot
office space located across
from Tulsa facility.
Spring
AAON Coil Products purchased,
renovated and moved into a 110,000
square foot plant in Longview, Texas.
Spring
AAON Coil Products purchased,
renovated and moved into a 110,000
square foot plant in Longview, Texas.
November
AAON yearly shipments exceed
$100 million. Received U.S. patent
for Dimpled Heat Exchanger Tube.
November
AAON yearly shipments exceed
$100 million. Received U.S. patent
for Dimpled Heat Exchanger Tube.
99
’99’00’01’02’03 ’04’4405 ’06’6607
’0808
’99’00’01’02’03 ’04’4405 ’06’6607
00
00
03
06
03
02
02
05
99
07
01
01
’0808
07
August
3-for-2
stock split
05
06
04
July
Started production of
polyurethane foam-filled
double-wall construction
panels for rooftop and chiller
products using newly purchased
manufacturing equipment.
04
July
Started production of
polyurethane foam-filled
double-wall construction
panels for rooftop and chiller
products using newly purchased
manufacturing equipment.
October
AAON, listed in
FORBES Magazine’s
“Hot Shots 200 Up & Comers.”
October
AAON, listed in
FORBES Magazine’s
“Hot Shots 200 Up & Comers.”
April
AAON introduces factory
engineered and assembled
packaged mechanical
room, which includes a
boiler and all piping and
pumping accessories.
April
AAON introduces factory
engineered and assembled
packaged mechanical
room, which includes a
boiler and all piping and
pumping accessories.
August
3-for-2
October
October
stock split
• AAON rings opening
• AAON rings opening
bell at NASDAQ
bell at NASDAQ
• AAON voted “Most Valuble
• AAON voted “Most Valuble
Product” and “Product of
Product” and “Product of
the Year” by Consulting-
the Year” by Consulting-
Specifying Engineer
Specifying Engineer
Magazine
Magazine
• AAON listed in Forbes’
• AAON listed in Forbes’
200 Best Small Companies
200 Best Small Companies
Fall
Industry introduction of the
modular air handler and
chiller products.
Fall
Industry introduction of the
modular air handler and
chiller products.
August
AAON received U.S. Patent
for Plenum Fan Banding.
August
AAON received U.S. Patent
for Plenum Fan Banding.
08 AnnuAl RepoRt
“Our previous
These changes encourage
Assessments and on-site clinics focusing on preventative care.
achievements could not
have been accomplished
and our future goals
will not be reached
employees to build an
The expected savings allowed us to contribute a fixed amount
equity
position with
to participants in the assessment’s health savings account as a
the company from their
means to allow them to promptly and directly see the benefits
first day of employment
of the new type of health plan. We also provide a matching
although they need to
contribution when employees direct income toward their
without the confidence
remain
employed
for
health savings account. This match promotes preparation
and cooperation of
our customers, sales
representatives and
shareholders as well
as the loyalty of our
dedicated employees, all
of whose names appear
at the end of this report.”
six years to benefit fully.
for future expenses while allowing employees to participate
Even though matching
immediately from their improved health care cost control.
funds
are
used
to
When we renew our plan this year we will have a more
purchase company stock
complete picture of the cost patterns associated with this style
on the open market, plan
of health care coverage, which will allow us to further refine
participants can choose
and improve our health care benefits. At this time the trends
customers. We have also introduced a number of new products
to sell their AAON stock
are promising and plan participants have adjusted very well to
which will give the Company entrance into new markets and
to the company at market
the new structure.
prices at any time to
enable us to further diversify our customer mix. Finally, we
have expanded both our machinery and manufacturing capacity
diversify their holdings.
We encourage our employees to increase their skills through
which will allow us to accommodate our future growth. We have
Participants can also choose to use funds obtained by the sale
both on-site and off-site training opportunities. In addition to
positioned AAON to meet the future demand for its products
of company stock to later purchase shares of the company
providing a variety of industry-specific training at our facilities,
and embark on a path of accelerated growth once the economy
stock on the open market. Through these actions the plan has
we reimburse employee tuition expenses for a broad range of
begins to recover.
increased employee retirement preparedness while creating
education. We believe that our effort to train employees, for not
ownership of more than 3% of the Company’s outstanding
only their current position but also for potential advancement,
Our previous achievements could not have been accomplished
stock. We believe that our 401(k) program reduces longer
benefits our shareholders through improved profitability.
and our future goals will not be reached without the confidence
term concerns for retirement while rewarding longevity and
shareholder value improvement.
Outlook
After the success of last year’s trial, we moved all employees to
our high-deductible health savings plan. We found by allowing
employees to reduce their premiums and save the money tax-
free that medical expenditures are made more judiciously.
During the test period, the high-deductible participants
expended significantly less per participant on medical care
than did the other participants. Knowing that there was some
sample bias, we still chose to move completely into a high-
deductible structure paired with our existing Personal Health
The present economic environment is without question the
most restricted we have witnessed since the inception of the
Company two decades ago. However, we remain quite positive
regarding the Company’s future outlook. Our optimism is
based upon a number of factors. Specifically, we have expended
the capital, time and labor to develop a product line which
is regarded as the most technologically innovative in our
business. These innovations, which directly address the two
major industry concerns, energy efficiency and environmental
compatibility, have met with very positive response from our
and cooperation of our customers, sales representatives and
shareholders as well as the loyalty of our dedicated employees,
all of whose names appear at the end of this report.
Sincerely,
Norman H. Asbjornson
President & CEO
April 10, 2009
08 UNItED StAtES
SECURItIES AND ExChANGE COmmISSION
Washington, D.C. 20549
FORm 10-K
tABle Of COntents
item numBer And CAptiOn
pAge numBer
[3]
[ ]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________________ to _____________________________
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
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.
q Yes q No
3
q Yes q No
3
3
q Yes q 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.
3
q
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Large accelerated filer q Accelerated filer q Non-accelerated filer q Smaller reporting company q
3
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act.)
q Yes q No
3
The aggregate market value of the common equity held by non-affiliates computed by reference to the closing price of registrant’s common
stock on the last business day of registrant’s most recently completed second quarter (June 30, 2008) was $332.8 million.
pARt i
1. Business.
1A. risk fACtOrs.
1B. unresOlved stAff COmments.
2. prOperties.
3. legAl prOCeedings.
4. suBmissiOn Of mAtters tO A vOte Of seCurity HOlders.
pARt ii
5. mArket fOr registrAnt’s COmmOn equity, relAted stOCkHOlder
mAtters And issuer purCHAses Of equity seCurities.
6. seleCted finAnCiAl dAtA.
7. mAnAgement’s disCussiOn And AnAlysis Of finAnCiAl COnditiOn
And results Of OperAtiOns.
7A. quAntitAtive And quAlitAtive disClOsures ABOut mArket risk.
8. finAnCiAl stAtements And supplementAry dAtA.
9. CHAnges in And disAgreements witH ACCOuntAnts On
ACCOunting And finAnCiAl disClOsure.
9A. COntrOls And prOCedures.
9B. OtHer infOrmAtiOn.
pARt iii
10. direCtOrs, exeCutive OffiCers And COrpOrAte gOvernAnCe.
11. exeCutive COmpensAtiOn.
12. seCurity OwnersHip Of CertAin BenefiCiAl Owners And
mAnAgement And relAted stOCkHOlder mAtters.
13. CertAin relAtiOnsHips And relAted trAnsACtiOns.
14. prinCipAl ACCOuntAnt fees And serviCes.
As of February 23, 2009, registrant had outstanding a total of 17,184,764 shares of its $.004 par value Common Stock.
pARt iV
DOCUMENTS INCORPORATED BY REFERENCE
15. exHiBits And finAnCiAl stAtement sCHedules.
Portions of registrant’s definitive Proxy Statement to be filed in connection with the Annual Meeting of Stockholders to be held
May 19, 2009, are incorporated into Part III.
1
4
5
6
6
6
7
9
10
18
19
19
19
20
21
21
21
21
23
24
1
pARt 1
item 1. buSineSS.
geneRAl deVelopment And deSCRiption of buSineSS
AAON, Inc., a Nevada corporation, was incorporated on August 18, 1987. Our subsidiaries include AAON, Inc., an Oklahoma
corporation, AAON Coil Products, Inc., a Texas corporation, AAON Canada, Inc., d/b/a Air Wise, an Ontario corporation and
AAON Properties, Inc., an Ontario corporation. AAON Properties is the lessor of property in Burlington, Ontario, Canada, to
AAON Canada. Unless the context otherwise requires, references in this Annual Report to “AAON,” the “Company”, “we,” “us,” “our”
or “ours” refer to AAON, Inc., and our subsidiaries.
We are engaged in the manufacture and sale of air-conditioning and heating equipment. Our products consist of both standardized
and custom rooftop units, chillers, air-handling units, make-up air units, heat recovery units, condensing units, coils and boilers.
pRoduCtS And mARketS
Our products serve the commercial and industrial new construction and replacement markets. To date virtually all of our sales have
been to the domestic market. Foreign sales accounted for less than 5% of our sales in 2008.
Our rooftop and condenser markets consist of units installed on commercial or industrial structures of generally less than 10 stories
in height. Our air-handling units, chillers, coils and boilers 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 that 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, we emphasize the replacement market.
Based on our 2008 level of sales of $280 million, we estimate that we have a 13% share of the rooftop market and a 1% share of
the coil market. Approximately 54% of our sales now come from new construction and 46% from renovation/replacements. The
percentage of sales for new construction vs. replacement to particular customers is related to the customer’s stage of development.
With the recent economic downturn and decrease in residential housing starts, the ratio of our sales between new construction and
renovation/replacement could change. Although the volatile economic conditions did not significantly affect our business in 2008,
the impact the economy will have on us in 2009 is still unknown.
We purchase certain components, fabricate sheet metal and tubing and then assemble and test the finished products. Our 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. Our other finished products are coils, air-handling units, condensing
units, make-up air units, heat recovery units, and boilers. Coils consist of a sheet metal casing with tubing and fins. Air-handling
units consist of coils, blowers and filters. Condensing units consist of coils, fans and compressors, which, with the addition of a
refrigerant-to-water heat exchanger, become chillers. Make-up air units, heat recovery units and boilers consist of boilers and a sheet
metal cabinet.
We offer five groups of rooftop units. Our HB Series consisting of four cooling sizes ranging from two to five tons; our RM and RN
Series offered in 21 cooling sizes ranging from two to 70 tons; our RL Series, which is offered in 15 cooling sizes ranging from 40
to 230 tons; and our HA Series, which is a horizontal discharge package for either rooftop or ground installation, which we offer in
eight sizes ranging from seven and one-half to 50 tons. We also produce customized rooftop products with direct (MN Series) and
indirect (DT Series) heating in sizes as required.
We also manufacture a Model LL chiller, which is available in both air-cooled condensing and evaporative cooled configurations.
Our air-handling units consist of the F1 and H/V Series, the modular (M2 and M3) Series and a customized NJ Series.
AnnuAl RepoRt
Our heat recovery option applicable to our RM, RN and RL units, as well as our M2, M3 and NJ Series air handlers, respond to the
U.S. Clean Air Act mandate to increase fresh air in commercial structures. Our products are designed to compete on the higher
quality end of standardized products.
Performance characteristics of our products range in cooling capacity from 28,000 - 4,320,000 BTU’s and in heating capacity from
69,000 - 6,000,000 BTU’s. All of our products meet the Department of Energy’s efficiency standards, which 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.
We have developed and are beginning to market a residential condensing unit (CB Series) and air handlers (F1 Series) as well as
boilers (BL Series).
mAjoR CuStomeRS
No customer accounted for 10% of our sales during 2008, 2007 or 2006.
SouRCeS And AVAilAbility of RAw mAteRiAlS
The most important materials we purchase are steel, copper and aluminum, which are obtained from domestic suppliers. We also
purchase from other domestic manufacturers certain components, including compressors, electric motors and electrical controls
used in our products. We attempt to obtain the lowest possible cost in our purchases of raw materials and components, consistent
with meeting specified quality standards. We are not dependent upon any one source for raw materials or the major components
of our manufactured products. By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our
manufacturing requirements for the foreseeable future.
We attempt to limit the impact of increases in raw materials and purchased component prices on our profit margins by negotiating
with each of our major suppliers on a term basis from six months to one year.
diStRibution
We employ a sales staff of 20 individuals and utilize approximately 91 independent manufacturer representatives’ organizations
having 106 offices to market our products in the United States and Canada. We also have 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 our
Tulsa, Oklahoma; Longview, Texas; and Burlington, Ontario, Canada plants to the job site. Billings are to the contractor or end user,
with a commission paid directly to the manufacturer representative.
Our products and sales strategy focus on niche markets. The targeted markets for our equipment are customers seeking products of
better quality than offered, and/or options not offered, by standardized manufacturers.
To support and service our customers and the ultimate consumer, we provide parts availability through our 106 sales offices and have
factory service organizations at each of our plants. Also, a number of the manufacturer representatives we utilize have their own
service organizations, which, in connection with us, provide the necessary warranty work and/or normal service to customers.
Our product warranty policy is: the earlier of one year from the date of first use or 18 months from date of shipment for parts only;
an additional four years for compressors (if applicable); 15 years on gas-fired heat exchangers (if applicable); and 25 years on stainless
steel heat exchangers (if applicable).
ReSeARCh And deVelopment
All of our R&D activities are company-sponsored, rather than customer-sponsored. R&D has involved the HB, RM, RN, RL, NJ,
DT and MN (rooftop units), F1, H/V, M2, M3 and NJ (air handlers), LL (chillers), CB (condensing units) and BL (boilers), as well as
component evaluation and refinement, development of control systems and new product development. We incurred research and
development expenses of approximately $2,577,000, $2,483,000 and $1,974,000 in 2008, 2007 and 2006, respectively.
1
2
Part 108 bACklog
Our current backlog as of March 1, 2009, was approximately $45,182,000 compared to approximately $51,365,000 at March 1, 2008.
The current backlog consists of orders considered by management to be firm and substantially all of which will be filled by August 1,
2009; 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. Our management regularly reviews our
working capital with a view to maintaining the lowest level consistent with requirements of anticipated levels of operation. Our
greatest needs arise during the months of July - November, the peak season for inventory (primarily purchased material) and accounts
receivable. Our 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. We believe that we will have sufficient funds available to meet our working
capital needs for the foreseeable future. We expect to renew our revolving credit agreement in July 2009. We do not anticipate that
the current situation in the credit market will impact our renewal.
SeASonAlity
Sales of our products are moderately seasonal with the peak period being July - November of each year.
Competition
In the standardized market, we compete primarily with Lennox International, Inc., Ingersoll Rand Limited, Johnson Controls Inc.,
Mestek Inc. and United Technologies Corporation. All of these competitors are substantially larger and have greater resources than
we do. In the custom market, we compete with many larger and smaller manufacturers. Our products compete on the basis of total
value, quality, function, serviceability, efficiency, availability of product, product line recognition and acceptability of sales outlet.
However, in new construction where the contractor is the purchasing decision maker, we are often at a competitive disadvantage
because of the emphasis placed on initial cost. In the replacement market and other owner-controlled purchases, we have a better
chance of getting the business since quality and long-term cost are generally taken into account.
employeeS
AnnuAl RepoRt
item 1A. RiSk fACtoRS.
The following risks and uncertainties may affect our performance and results of operations.
ouR buSineSS CAn be huRt by the CuRRent eConomiC downtuRn.
Our business is affected by a number of economic factors, including the level of economic activity in the markets in which we operate.
The current state of the United States economy has negatively impacted the commercial and industrial new construction markets.
The current decline in economic activity in the United States could materially affect our financial condition and results of operations.
Sales in the commercial and industrial new construction markets correlate closely to the number of new homes and buildings that
are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates
and other macroeconomic factors over which we have no control. In the Heating, Ventilation, and Air Conditioning (“HVAC”)
business, a decline in economic activity as a result of these cyclical or other factors typically results in a decline in new construction
and replacement purchases, which could result in a decrease in our sales volume and profitability.
we mAy be AdVeRSely AffeCted by pRoblemS in the AVAilAbility, oR inCReASeS in the pRiCeS, of RAw mAteRiAlS
And ComponentS.
Problems in the availability, or increases in the prices, of raw materials or components could depress our sales or increase the costs
of our products. We are dependent upon components purchased from third parties, as well as raw materials such as steel, copper
and aluminum. We enter into cancelable and noncancelable contracts on terms from six months to one year for raw materials and
components at fixed prices. However, if a key supplier is unable or unwilling to meet our supply requirements, we could experience
supply interruptions or cost increases, either of which could have an adverse effect on our gross profit.
we mAy not be Able to SuCCeSSfully deVelop And mARket new pRoduCtS.
Our future success will depend upon our continued investment in research and new product development and our ability to continue
to realize new technological advances in the HVAC industry. Our inability to continue to successfully develop and market new
products or our inability to achieve technological advances on a pace consistent with that of our competitors could lead to a material
adverse effect on our business and results of operations.
As of March 1, 2009, we had 1,303 permanent employees and 57 temporary employees. The 53 employees of AAON Canada are
represented by unions. Management considers relations with our employees to be good.
we mAy inCuR mAteRiAl CoStS AS A ReSult of wARRAnty And pRoduCt liAbility ClAimS thAt would negAtiVely
AffeCt ouR pRofitAbility.
pAtentS, tRAdemARkS, liCenSeS And ConCeSSionS
We do not consider any patents, trademarks, licenses or concessions to be material to our business operations, other than patents
issued regarding our heat recovery wheel option, blower, gas-fired heat exchanger and evaporative condenser desuperheater.
enViRonmentAl mAtteRS
Laws concerning the environment that affect or could affect our 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. We believe that we presently comply with these laws and that future compliance will
not materially adversely affect our earnings or competitive position.
AVAilAble infoRmAtion
Our Internet website address is http://www.aaon.com. Our 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 our Internet website as soon as reasonably practical after we electronically file such material with, or
furnish it to, the SEC.
The development, manufacture, sale and use of our products involve a risk of warranty and product liability claims. Our product
liability insurance policies have limits that, if exceeded, may result in material costs that would have an adverse effect on our future
profitability. In addition, warranty claims are not covered by our product liability insurance and there may be types of product
liability claims that are also not covered by our product liability insurance.
we mAy not be Able to Compete fAVoRAbly in the highly CompetitiVe hVAC buSineSS.
Competition in our various markets could cause us to reduce our prices or lose market share, or could negatively affect our cash
flow, which could have an adverse effect on our future financial results. Substantially all of the markets in which we participate
are highly competitive. The most significant competitive factors we face are product reliability, product performance, service and
price, with the relative importance of these factors varying among our product line. Other factors that affect competition in the
HVAC market include the development and application of new technologies and an increasing emphasis on the development of
more efficient HVAC products. Moreover, new product introductions are an important factor in the market categories in which our
products compete. Several of our competitors have greater financial and other resources than we have, allowing them to invest in
more extensive research and development. We may not be able to compete successfully against current and future competition and
current and future competitive pressures faced by us may materially adversely affect our business and results of operations.
3
4
08 the loSS of noRmAn h. ASbjoRnSon Could impAiR the gRowth of ouR buSineSS.
item 2. pRopeRtieS.
AnnuAl RepoRt
Norman H. Asbjornson, the founder of AAON, Inc., has served as our President and Chief Executive Officer from inception to date.
He has provided the leadership and vision for our growth. Although important responsibilities and functions have been delegated
to other highly experienced and capable management personnel, our products are technologically advanced and well positioned for
sales into the future and we carry key man insurance on Mr. Asbjornson, his death, disability or retirement, could impair the growth
of our business. We do not have an employment agreement with Mr. Asbjornson.
ouR StoCkholdeR RightS plAn And Some pRoViSionS in ouR bylAwS And neVAdA lAw Could delAy oR pReVent A
ChAnge in ContRol.
Our stockholder rights plan and some provisions in our bylaws and Nevada law could delay or prevent a change in control, which
could adversely affect the price of our common stock.
AAon’S buSineSS iS SubjeCt to the RiSkS of inteRRuptionS by pRoblemS SuCh AS ComputeR ViRuSeS.
Despite our implementation of network security measures, our services are vulnerable to computer viruses, break-ins and similar
disruptions from unauthorized tampering with our computer systems. Any such event could have a material adverse affect on our
business.
expoSuRe to enViRonmentAl liAbilitieS Could AdVeRSely AffeCt ouR ReSultS of opeRAtionS.
Our future profitability could be adversely affected by current or future environmental laws. We are subject to extensive and changing
federal, state and local laws and regulations designed to protect the environment in the United States and in other parts of the world.
These laws and regulations could impose liability for remediation costs and result in civil or criminal penalties in case of non-
compliance. Compliance with environmental laws increases our costs of doing business. Because these laws are subject to frequent
change, we are unable to predict the future costs resulting from environmental compliance.
item 1b. unReSolVed StAff CommentS.
None.
The plant and office facilities in Tulsa, 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 Avenue (the “original
facility”), and a 563,000 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 (2440 South Yukon Avenue). Both plants are
of sheet metal construction.
The original facility’s manufacturing area is in a heavy industrial type building, with total coverage by bridge cranes, containing
manufacturing equipment designed for sheet metal fabrication and metal stamping. The manufacturing equipment contained in
the original facility consists primarily of automated sheet metal fabrication equipment, supplemented by presses, press breaks and
numerical control 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. We use 22,000 sq. ft. for office space, 20,000 sq. ft. for
warehouse space and 80,000 sq. ft. for two production lines; an additional 106,000 square feet is utilized for sheet metal fabrication.
The remaining 357,000 sq. ft. (presently leased) will afford us additional plant space for long-term growth. The expansion facility is
39% (228,000 sq. ft.) utilized by us and 61% leased to a third party through May 31, 2009 at which time the facility will be remodeled
to give us increased manufacturing capacity. The 2009 capital expenditures budget reflects the projected outlay to remodel the
facility.
Our operations in Longview, Texas, are conducted in a plant/office building at 203-207 Gum Springs Road, containing 258,000
sq. ft. on 14 acres. The manufacturing area (approximately 251,000 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. An additional, contiguous 15 acres were
purchased in 2004 and 2005 for future expansion.
Our operations in Burlington, Ontario, Canada, are located at 279 Sumach Drive, consisting of an 82,000 sq. ft. office/manufacturing
facility on a 5.6 acre tract of land.
Production at these facilities averaged approximately $23.3 million per month in 2008, which is approximately 67% of the estimated
current production capacity. Management deems our facilities to be nearly ideal for the type of products we manufacture.
item 3. legAl pRoCeedingS.
We are 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 our knowledge, has been threatened against us.
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, 2008 through December 31, 2008.
5
6
08 pARt 2
item 5. mARket foR RegiStRAnt’S Common equity, RelAted StoCkholdeR mAtteRS And iSSueR
puRChASeS of equity SeCuRitieS.
Our Common Stock is traded on the NASDAQ National Market under the symbol “AAON”. The range of closing prices for our
Common Stock during the last two years, as reported by National Association of Securities Dealers, Inc., was as follows:
quARteR ended
March 31, 2007*
June 30, 2007*
September 30, 2007*
December 31, 2007
March 31, 2008
June 30, 2008
September 30, 2008
December 31, 2008
high
low
19.67 $ 16.46
21.38 $ 16.47
23.01 $ 18.61
21.96 $ 16.60
20.52 $ 15.88
22.92 $ 17.60
22.85 $ 16.91
21.20 $ 12.92
$
$
$
$
$
$
$
$
* All prices adjusted to reflect a 3 for 2 stock split effected August 21, 2007
On February 23, 2009, there were 1,003 holders of record, and approximately 2,000 beneficial owners, of our Common Stock.
On February 14, 2006, the Board of Directors voted to initiate a semi-annual cash dividend. We initially paid Board of Director
approved semi-annual dividends of $0.20 per share. The Board of Directors approved future dividend payments of $0.16 per share
related to the stock split effective August 21, 2007.
In 2008, dividends were declared to shareholders of record at the close of business on June 12, 2008 and paid on July 3, 2008 and
declared to shareholders of record at the close of business on December 12, 2008 and paid on January 2, 2009. We paid cash dividends
of approximately $5.8 million and declared dividends payable of approximately $2.8 million for the year ended December 31, 2008.
Following repurchases of approximately 12% of our outstanding Common Stock between September 1999 and September 2001,
we announced and began another stock repurchase program on October 17, 2002, targeting repurchases of up to approximately
1,987,500 shares of our outstanding stock. On February 14, 2006, the Board of Directors approved the suspension of our repurchase
program. Through February 14, 2006, we had repurchased a total of 1,886,796 shares under this program for an aggregate price of
$22,034,568, or an average of $11.68 per share. We purchased the shares at the current market price.
On November 6, 2007, our Board of Directors authorized a new stock buyback program, targeting repurchases of up to approximately
10% (1.8 million shares) of our outstanding stock from time to time in open market transactions. Through December 31, 2008, we
repurchased a total of 1,692,258 shares under this program for an aggregate price of $33,710,939, or an average of $19.92 per share.
We purchased the shares at the current market price.
On July 1, 2005, we entered into a stock repurchase arrangement by which employee-participants in our 401(k) savings and
investment plan are entitled to have shares of AAON stock in their accounts sold to us to provide diversification of their investments.
The maximum number of shares to be repurchased is unknown under the program as the amount is contingent on the number of
shares sold by employees. Through December 31, 2008, we repurchased 630,906 shares for an aggregate price of $10,102,687, or an
average price of $16.01 per share. We purchased the shares at the current market price.
AnnuAl RepoRt
On November 7, 2006, the Board of Directors authorized us to repurchase shares from certain Directors following their exercise
of stock options. The maximum number of shares to be repurchased is unknown under the program as the amount is contingent
on the number of shares sold by Directors. Through December 31, 2008, we repurchased 340,375 shares for an aggregate price of
$6,957,423, or an average price of $20.44 per share. We purchased the shares at the current market price.
Repurchases during the fourth quarter of 2008 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
October 2008
November 2008
December 2008
Total
17,395
18,821
4,050
40,266
StoCk peRfoRmAnCe gRAph (1)
$15.15
$17.80
$19.62
$16.84
17,395
18,821
4,050
40,266
-
-
-
-
The following graph compares our cumulative total shareholder return, the NASDAQ Composite and the peer group named below.
The graph assumes a $100 investment at the closing price on January 1, 2003, and reinvestment of dividends on the date of payment
without commissions. This table is not intended to forecast future performance of our Common Stock.
CompulSion of 5 yeAR CumulAtiVe totAl RetuRn
ASSumeS initiAl inVeStment of $100
deCembeR 2008
200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
7
8
2003
2004
2005
2006
2007
2008
AAON INC.
S&P 500 Index
New Peer Group
Old Peer Group
Part 208
The new peer group consists of Lennox International, Inc.; Ingersoll Rand Limited; Johnson Controls Inc.; Mestek Inc.; and United
Technologies Corporation. The old peer group consists of Trane, Inc.; Lennox International, Inc.; Mestek, Inc.; LSB Industries, Inc.;
and United Technologies Corporation. All companies in the peer groups are in the business of manufacturing air conditioning and
heat exchange equipment.
(1) Securities and Exchange Commission (“SEC”) filings sometimes “incorporate information by reference.” This means we are
referring you to information that has previously been filed with the SEC, and that this information should be considered as part of the
filing you are reading. Unless we specifically state otherwise, this Stock Performance Graph shall not be deemed to be incorporated
by reference and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933 as amended,
or the Securities Exchange act of 1934, as amended.
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:
2008
2007
2006
2005
2004
yeAR ended deCembeR 31,
Net sales
Net income
Earnings per share:
Basic
Diluted
Cash dividends declared per common share
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
$
(in thousands, except per share data)
279,725 $
262,517 $
231,460 $
185,195 $
171,885
28,589 $
23,156 $
17,133 $
11,462 $
7,521
1.63 $
1.60 $
0.32 $
1.24 $
1.22 $
0.32 $
0.93 $
0.90 $
0.32 $
0.62 $
0.60 $
- $
0.40
0.39
-
17,560
17,855
18,628
18,927
18,456
18,968
18,510
19,125
18,653
19,385
deCembeR 31,
finAnCiAl poSition At end of fiSCAl yeAR:
2008
2007
2006
2005
2004
Working capital
Total assets
Long-term and current debt
Total stockholders’ equity
(in thousands)
$
$
$
$
40,600 $
38,788 $
36,356 $
33,372 $
27,939
140,743 $
137,140 $
130,056 $
113,606 $
105,227
3,113 $
330 $
59 $
167 $
275
96,522 $
95,420 $
91,592 $
79,495 $
71,171
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 August 21, 2007, we completed a three-for-two
stock split. The shares outstanding and earnings per share disclosures have been restated to reflect the stock split.
AnnuAl RepoRt
item 7. mAnAgement’S diSCuSSion And AnAlySiS of finAnCiAl Condition And ReSultS of
opeRAtionS.
oVeRView
We engineer, manufacture and market air-conditioning and heating equipment consisting of standardized and custom rooftop units,
chillers, air-handling units, make-up units, heat recovery units, condensing units, coils and boilers. Custom units are marketed and
sold to retail, manufacturing, educational, medical and other commercial industries. We market units to all 50 states in the United
States and certain provinces in Canada. Foreign sales are less than 5% of our 2008 sales as the majority of all sales are domestic.
We sell our products to property owners and contractors through a network of manufacturers’ representatives and our internal sales
force. Demand for our 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, we emphasize 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 high volume raw materials used in our manufacturing processes are steel, copper and aluminum, which are
obtained from domestic suppliers. The raw materials market was volatile during 2008 due to the economic environment. Raw
materials pricing had steadily increased from the beginning of 2006 until the second half of 2008 when pricing sharply decreased.
We experienced raw materials price increases of approximately 70% for steel, 18% for aluminum and 19% for copper from 2006
through the second quarter of 2008. Prices decreased by approximately 40% for steel, 76% for aluminum and 62% for copper from
June 30, 2008 to December 31, 2008. We attempt to limit the impact of price increases on these materials by entering cancelable and
noncancelable fixed price contracts with our major suppliers for periods of 6 -12 months.
Selling, general, and administrative (“SG&A”) costs include our internal sales force, warranty costs, profit sharing and administrative
expense. Warranty expense is estimated based on historical trends and other factors. Our product warranty policy is: the earlier
of one year from the date of first use or 18 months from date of shipment for parts only; an additional four years on compressors
(if applicable); 15 years on gas-fired heat exchangers (if applicable); and 25 years on stainless steel heat exchangers (if applicable).
Warranty charges on heat exchangers do not occur frequently.
Our office facilities 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 563,000 square foot manufacturing/
warehouse building and a 22,000 square foot office building (the “expansion facility”) located across the street from the original
facility at 2440 S. Yukon Avenue. We utilize 39% of the expansion facility and the remaining 61% is leased to a third party. The third
party lease expires May 31, 2009, at which time the facility will be remodeled to give us increased manufacturing capacity. The 2009
capital expenditures budget reflects the projected outlay to remodel the facility.
We conduct other operations in a plant/office building at 203-207 Gum Springs Road in Longview, Texas, containing 258,000 square
feet (251,000 sq. ft. of manufacturing/warehouse and 7,000 sq. ft. of office space). An additional 15 acres of land was purchased for
future expansion in 2004 and 2005 in Longview, Texas.
Our operations in Burlington, Ontario, Canada, are located at 279 Sumach Drive, consisting of an 82,000 sq. ft. office/manufacturing
facility on a 5.6 acre tract of land.
9
10
08
Set forth below is income statement information and as a percentage of sales for years 2008, 2007 and 2006:
net SAleS
AnnuAl RepoRt
Net sales
Cost of sales
Gross profit
Selling, general and
administrative expenses
Income from operations
Interest expense
Interest income
Other income (expense), net
yeAR ended deCembeR 31,
2008
2007
(in thousands)
2006
$ 279,725
100.0% $ 262,517
100.0% $ 231,460
100.0%
212,549
67,176
23,788
43,388
(71)
27
724
76.0%
24.0%
8.5%
15.5%
0.0%
0.0%
0.3%
205,148
78.1%
187,570
57,369
21.9%
43,890
21,703
35,666
(10)
8
(321)
35,343
12,187
8.3%
13.6%
0.0%
0.0%
(0.1%)
13.5%
4.7%
18,059
25,831
(81)
24
424
26,198
9,065
81.0%
19.0%
7.8%
11.2%
0.0%
0.0%
0.1%
11.3%
3.9%
7.4%
Income before income taxes
44,068
15.8%
Income tax provision
15,479
5.6%
Net income
$ 28,589
10.2% $ 23,156
8.8% $ 17,133
ReSultS of opeRAtionS
Key events impacting our cash balance, financial condition, and results of operations in 2008 include the following:
• An increase in the volume of sales on all product lines due to market share gains and effective moderation of commodity
costs with purchase agreements and pricing strategies affecting gross margin, resulted in significantly higher revenues and
net income. The large volume of sales also lowered the effect of major fixed costs in general and administrative expenses and
occupancy expenses.
• We remained the leader in the industry for environmentally-friendly, energy efficient and quality innovations, utilizing R410A
refrigerant and phasing out pollutant causing R22 refrigerant. The phase out of R22 began at the beginning of 2004. We also utilize
a high performance composite foam panel to eliminate over half of the heat transfer from typical fiberglass insulated panels. We
continue to utilize sloped condenser coils, and access compartments to filters, motor, and fans. All of these innovations increase
the demand for our products thus increasing market share.
• In February 2006, our Board of Directors initiated a program of semi-annual cash dividend payments. Cash payments of $5.8
million were made in 2008 ($2.9 million paid in January and July 2008, respectively), and $2.8 million was accrued as a liability
for payment in January 2009.
• Stock repurchases of our stock from employee’s 401(k) savings and investments plan was authorized in 2005. Stock repurchases
of our stock from directors was authorized in 2006. Stock repurchases of our stock from the open market was authorized and
initiated in November 2007. Total repurchases resulted in cash payments of $24.8 million. This cash outlay is partially offset
by cash received from options exercised by employees as a part of an incentive bonus program. The cash received in 2008 from
options exercised was $1.7 million.
• Borrowings under the line of credit were $46.9 million and approximately $71,000 in interest expense was paid in 2008. Borrowings
under the line of credit where interest is accrued are relatively short and generally paid off within the month incurred or the
following month. At the end of 2008 there was $2.9 million outstanding on the line of credit.
• Purchases of equipment and renovations to manufacturing facilities remained a priority. AAON’s capital expenditures were $9.6
million. Equipment purchases create significant efficiencies, lower production costs and allow continued growth in production.
We currently estimate dedicating $7.0 million to $8.0 million to capital expenditures in 2009 for continued growth.
Net sales were $279.7 million, $262.5 million and $231.5 million in 2008, 2007 and 2006, respectively. Sales increased $17.2 million
or 6.6% which was attributable to an increase in volume of product sold related to our new and redesigned products being favorably
received by our customers, the diversified customer mix of products, active marketing by sales representatives and pricing strategies
implemented in order to keep up with increasing raw material costs. The increase in sales in 2007 of $31.0 million or 13.4% was
attributable to an increase in volume of product sold related to our new and redesigned products being favorably received by our
customers, active marketing by sales representatives and pricing strategies implemented on 90% of our product lines in the second
quarter in order to keep up with increasing raw material costs. New commercial construction steadily improved throughout 2007
and 2006, contributing to growth of the market.
gRoSS pRofit
Gross margins in 2008, 2007 and 2006 were $67.2 million, $57.4 million and $43.9 million, respectively. As a percentage of sales,
gross margins were 24.0%, 21.9% and 19.0% for the years ended 2008, 2007 and 2006. The increase in gross profit for 2008, resulted
from pricing strategies implemented and production and labor efficiencies, as sales volume increased. We saw a decrease in raw
material costs in the second half of the year, which also contributed to higher gross profits. Management anticipates the moderation
of commodity costs through relationships with suppliers and price decreases in certain commodity costs, if realized, should enhance
gross margins. Due to an increase in the volume of sales, actual gross profit for 2008 increased by $9.8 million from 2007, and by
$13.5 million from 2006 to 2007.
The principal high volume raw materials used in our manufacturing processes are steel, copper and aluminum, which are obtained
from domestic suppliers. The raw materials market was volatile during 2008 due to the economic environment. Raw materials pricing
had steadily increased from the beginning of 2006 until the second half of 2008 when pricing sharply decreased. We experienced
raw materials price increases of approximately 70% for steel, 18% for aluminum and 19% for copper from 2006 through the second
quarter of 2008. Prices decreased by approximately 40% for steel, 76% for aluminum and 62% for copper from June 30, 2008 to
December 31, 2008. We attempt to limit the impact of price increases on these materials by entering cancelable and noncancelable
fixed price contracts with our major suppliers for periods of 6 -12 months.
We also purchase from other domestic manufacturers certain components, including compressors, electric motors and electrical
controls used in our products. The suppliers of these components are significantly affected by the raw material costs as steel, copper
and aluminum are used in the manufacturing of their products. While raw material costs decreased in the last half of the year,
increases in component parts were experienced throughout 2008. We instituted several price increases to customers from 2006 to
2008 in an attempt to offset the continued increases in steel, copper, aluminum, and component parts. We attempt to limit the impact
of price fluctuations on these materials by entering into cancelable and noncancelable fixed price contracts with our major suppliers
for periods of 6-12 months.
Selling, geneRAl And AdminiStRAtiVe expenSeS
Selling, general and administrative expenses were $23.8 million, $21.7 million and $18.1 million for the years ended 2008, 2007 and
2006. The increase in selling, general and administrative expenses is due primarily to an increase in selling related expenses, warranty
expense caused by increased sales, increase in profit sharing resulting from an increase in net income, and an overall increase in
general and administrative expenses. In 2007, the increase in selling, general and administrative expenses was primarily caused
by an increase in sales expenditures for an increased sales force and active marketing, increases in salaries for selling, general and
administrative personnel and an increase in profit sharing. There were additional non-cash compensation costs for the fair value of
stock options granted to employees in accordance with the adoption of Statement of Financial Accounting Standards (“SFAS”) No.
123R, Share-Based Payment (“SFAS 123R”).
inteReSt expenSe
Interest expense was approximately $71,000, $10,000 and $81,000 for the years ended 2008, 2007 and 2006. The increase in interest
expense of approximately $61,000 in 2008 was due to higher average borrowings under the revolving credit facility as a result of
a decrease in net cash provided by operations related to the stock repurchases. The decrease in interest expense of approximately
$71,000 from 2006 to 2007 was due to a decrease in average borrowings under the revolving credit facility and interest rates. Interest
on borrowings is payable monthly at the Wall Street Journal prime rate less 0.5% or LIBOR plus 1.6%, at our election (3.50% at
December 31, 2008). Average borrowings under the revolving credit facility are typically paid in full within the month of borrowing
or the following month.
11
12
08
AnnuAl RepoRt
Cash Flows Used in Investing Activities. Cash flows used in investing activities were $9.6 million, $10.8 million and $16.8 million
in 2008, 2007 and 2006, respectively. The decrease in cash flows used in investing activities in 2008 and 2007 was $1.2 million and
$6.0 million, respectively, and primarily related to a decrease in capital expenditures. Management utilizes cash flows provided from
operating activities to fund capital expenditures that are expected to increase growth and create efficiencies. Due to anticipated
production demands, we expect to expend approximately $7.0 million to $8.0 million in 2009 for a building expansion, a building
renovation of the leased facility and equipment. We expect the cash requirements to be provided from cash flows from operations.
We did not invest in any certificates of deposits in 2008 and 2007, respectively. A previously invested certificate of deposit matured
in the first quarter of 2006.
Cash Flows Used in Financing Activities. Cash flows used in financing activities were $24.5 million, $20.0 million and $3.3 million
in 2008, 2007 and 2006, respectively. The increase of cash used in financing activities primarily relates to cash dividends declared
and paid and the continued repurchase of our stock.
We occasionally utilize the revolving line of credit as described below in “General” to meet certain short-term cash demands based
on our current liquidity at the time. We have $2.9 million of borrowings outstanding under the line of credit at December 31, 2008.
We had no net borrowings under the revolving line of credit at December 31, 2007. We accessed $46.9 million and $12.1 million of
borrowings under the line of credit during 2008 and 2007, respectively. We utilized the revolving line of credit in 2006 for short-term
demands in the amount of $53.7 million.
We received cash from stock options exercised of $1.7 million and $2.4 million and classified the excess tax benefit of stock options
exercised and restricted stock awards vested of $1.6 million and $3.0 million in financing activities in 2008 and 2007, respectively.
We received cash from stock options exercised for the year ended 2006 of approximately $1.3 million and classified the excess tax
benefit of stock options exercised of $1.9 million.
We repurchased shares of stock under the Board of Directors authorized stock buyback programs in 2008, 2007 and 2006. We
repurchased shares of stock from employees’ 401(k) savings and investment plan, Directors, and the open market in 2008 in the
amount of $24.8 million for 1,211,538 shares of stock. We repurchased shares of stock from employees’ 401(k) savings and investment
plan, Directors, and the open market in 2007 in the amount of $20.8 million for 1,082,736 shares of stock and in 2006 in the amount
of $3.9 million for 250,500 shares of stock.
On February 14, 2006, the Board of Directors voted to initiate a semi-annual cash dividend. We initially paid Board of Director
approved semi-annual dividends of $0.20 per share. The Board of Directors approved future dividend payments of $0.16 per share
related to the stock split effective August 21, 2007.
Cash dividend payments of $5.8 million were made in 2008, and $2.8 million in dividends were declared and accrued as a liability
in December 2008 for payment in January 2009. Cash dividend payments of $5.0 million were made in 2007, and $2.9 million in
dividends were declared and accrued as a liability in December 2007 for payment in January 2008. Cash dividend payments of $2.5
million were made in 2006, and $2.5 million in dividends were declared and accrued as a liability in December 2006 for payment in
January 2007. Board of Director approval is required to determine the date of declaration for each semi-annual payment.
inteReSt inCome
Interest income was approximately $27,000, $8,000 and $24,000 in 2008, 2007 and 2006 respectively. The increase in interest income
is due to interest paid for repurchased stock shares that were held in transit by the transfer agent in early 2008.
otheR inCome (expenSe)
Other income was approximately $724,000 in 2008. Other expense was approximately $321,000 in 2007. The change in other
income (expense) was primarily related to foreign currency losses that result from operations in Canada in 2008 and 2007. Other
income was approximately $424,000 in 2006. Other income is attributable primarily to rental income from our expansion facility.
All expenses associated with the facility that are allocated to the rental portion of the building are included in other income. We plan
to continue to rent the expansion facility until the lease term expires on May 31, 2009.
impACt of CuRRent eConomiC ConditionS
Our business is affected by a number of economic factors, including the level of economic activity in the markets in which we operate.
The current state of the United States economy has negatively impacted the commercial and industrial new construction markets.
The current decline in economic activity in the United States could materially affect our financial condition and results of operations.
Sales in the commercial and industrial new construction markets correlate closely to the number of new homes and buildings that
are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates
and other macroeconomic factors over which we have no control. In the Heating, Ventilation, and Air Conditioning (“HVAC”)
business, a decline in economic activity as a result of these cyclical or other factors typically results in a decline in new construction
and replacement purchases, which could result in a decrease in our sales volume and profitability. Although the volatile economic
conditions did not significantly affect our business in 2008, the impact the economy will have on us in 2009 is still unknown.
AnAlySiS of liquidity And CApitAl ReSouRCeS
Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the
occasional use of the revolving bank line of credit based on our current liquidity at the time.
Cash Provided by Operating Activities. Net cash provided from operating activities has fluctuated from year to year. Net cash
provided by operating activities was $33.4 million, $31.2 million and $19.4 million in fiscal years 2008, 2007 and 2006, respectively.
The year-to-year variances are primarily from results of changes in net income, accounts receivable, inventories, accounts payable
and accrued liabilities.
Net income for fiscal year 2008 was $28.6 million, an increase of $5.4 million from 2007. The increase in net income during fiscal
years 2008 and 2007 compared to fiscal years 2007 and 2006 was primarily due to increased volume of sales, adjusted pricing
strategies, fluctuations in raw materials costs, innovative and efficient products, and improved production efficiencies.
Depreciation expense was $9.4 million, $9.7 million and $9.1 million for the years ended December 31, 2008, 2007 and 2006,
respectively. The decrease in depreciation is due to the realization of full depreciation of certain capital assets. We adopted SFAS
123R in 2006. Share-based compensation was $0.8 million, $0.6 million and $0.5 million in 2008, 2007 and 2006, respectively. Both
depreciation expense and share-based compensation expense decreased net income but had no effect on operating cash.
Accounts receivable balances did not significantly fluctuate in 2008 even though sales increased. Accounts receivable increased
during 2007 and 2006 from the increase in sales. Accounts receivable increased by $0.9 million at December 31, 2008 compared to
December 31, 2007. The increase at December 31, 2007 from December 31, 2006 was $1.8 million.
Inventories increased by $4.8 million, $2.1 million and $5.8 million at December 31, 2008, 2007 and 2006, respectively. The increase
in 2008 was attributable to procurement of inventory to accommodate an increase of sales. The leading factor in the increase in 2007
and 2006 is primarily related to the valuation of inventories due to higher raw material and component parts costs.
Accounts payable and accrued liabilities decreased by $1.3 million at December 31, 2008 and increased by $4.9 million and $4.3
million at December 31, 2007 and 2006. The decrease in 2008 is primarily due to timing of payments to vendors and a decrease in
workers’ compensation expense. The increase in 2007 is due to an increase in commissions payable related to the increase in sales,
timing of commissions payable and payments to vendors.
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08
geneRAl
Our revolving credit facility provides for maximum borrowings of $15.2 million which is provided by the Bank of Oklahoma,
National Association. Under the line of credit, there is one standby letter of credit totaling $1.0 million. The letter of credit is a
requirement of our workers compensation insurance and was extended in 2008 and will expire on December 31, 2009. Interest
on borrowings is payable monthly at the Wall Street Journal prime rate less 0.5% or LIBOR plus 1.6%, at our election (3.50% at
December 31, 2008). No fees are associated with the unused portion of the committed amount.
At December 31, 2008, we had $2.9 million outstanding under the revolving credit facility. At December 31, 2007, we had no
borrowings outstanding under the revolving credit facility. Borrowings available under the revolving credit facility at December 31,
2008, were $11.3 million. At December 31, 2008 and 2007, we were in compliance with our financial ratio covenants. The covenants
are related to our tangible net worth, total liabilities to tangible net worth ratio and working capital. At December 31, 2008 our
tangible net worth was $96.5 million. Our total liabilities to tangible net worth ratio was 2.2. Our working capital was $40.6 million.
On July 30, 2008, we renewed the line of credit with a maturity date of July 30, 2009. We expect to renew our revolving credit
agreement in July 2009. We do not anticipate that the current situation in the credit market will impact our renewal.
On July 12, 2007, our Board of Directors approved a three-for-two stock split of our outstanding stock for shareholders of record as
of August 3, 2007. The stock split was treated as a 50% stock dividend which was distributed on August 21, 2007. As a result of the
stock split, our Board of Directors adjusted the dividend paid per share to $0.16. The applicable share and per share data for 2007
and 2006 included herein has been restated to reflect the stock split
Management believes projected cash flows from operations and our bank revolving credit facility (or comparable financing) will
provide us the necessary liquidity and capital resources for fiscal year 2009 and the foreseeable future. The belief that we will have
the necessary liquidity and capital resources is based upon management’s knowledge of the HVAC industry and our place in that
industry, our ability to limit our growth if necessary, our ability to authorize dividend cash payments, and our relationship with our
existing bank lender. For information concerning our revolving credit facility at December 31, 2008, see Note 3 to the Consolidated
Financial Statements, Revolving Credit Facility.
AnnuAl RepoRt
CommitmentS And ContRACtuAl AgReementS
The following table summarizes our long-term debt and other contractual agreements as of December 31, 2008:
pAymentS due by peRiod
(in thousands)
ContRACtuAl finAnCiAl obligAtionS
totAl
leSS thAn
1 yeAR
1–3 yeARS
4–5 yeARS
AfteR 5
yeARS
Long-term debt and capital leases
Purchase commitments1
Total contractual obligations
$
$
163 $
91 $
4,738
4,738
4,901 $
4,829 $
72 $
-
72 $
- $
-
- $
-
-
-
1 Purchase commitments consist primarily of copper commitments. In the normal course of business we expect to purchase
approximately $4.7 million of raw materials in the form of legally binding commitments.
The fixed rate interest on long-term debt includes the amount of interest due on our fixed rate long-term debt. These amounts do not
include interest on our variable rate obligation related to the revolving credit facility.
We are a party to several short-term, cancelable and noncancelable, fixed price contracts with major suppliers for the purchase of
raw material and component parts.
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 our results of operations, financial position and cash flows. We reevaluate our estimates and
assumptions on a monthly basis.
The following accounting policies may involve a higher degree of estimation or assumption:
Revenue Recognition – We recognize revenues from sales of products when the products are shipped and the title and risk of
ownership pass to the customer. Selling prices are fixed based on purchase orders or contractual agreements. Sales allowances and
customer incentives are treated as reductions to sales and are provided for based on historical experiences and current estimates.
For sales initiated by independent manufacturer representatives, we recognize revenues net of the representatives’ commission. Our
policy is to record the collection and payment of sales taxes through a liability account.
Allowance for Doubtful Accounts – Our allowance for doubtful accounts is estimated to cover the risk of loss related to accounts
receivable. We establish 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. The evaluation of these factors involves complex, subjective judgments. Thus, changes in these factors or changes in
economic circumstances may significantly impact our Consolidated Financial Statements.
Inventory Reserves – We establish a reserve for inventories based on the change in inventory requirements due to product line
changes, the feasibility of using obsolete parts for upgraded part substitutions, the required parts needed for part supply sales,
replacement parts and for estimated shrinkage.
Warranty – A provision is made for estimated warranty costs at the time the product is shipped and revenue is recognized. The
warranty period is: the earlier of one year from the date of first use or 18 months from date of shipment for parts only; an additional
four years on compressors (if applicable); 15 years on gas-fired heat exchangers (if applicable); and 25 years on stainless steel heat
exchangers (if applicable). Warranty expense is estimated based on the warranty period, historical warranty trends and associated
costs, and any known identifiable warranty issue. Warranty charges associated with heat exchanges do not occur frequently.
15
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08
Due to the absence of warranty history on new products, an additional provision may be made for such products. Our estimated
future warranty cost is subject to adjustment from time to time depending on changes in actual warranty trends and cost experience.
Should actual claim rates differ from our estimates, revisions to the estimated product warranty liability would be required.
Medical Insurance – A provision is made for medical costs associated with our Medical Employee Benefit Plan, which is primarily
a self-funded plan. A provision is made for estimated medical costs based on historical claims paid and potential significant future
claims. The plan is supplemented by employee contributions and an excess policy for claims over $100,000 each.
Stock Compensation – We adopted SFAS 123R, effective January 1, 2006. Applying this standard to value equity-based compensation
requires us to use significant judgment and to make estimates, particularly for the assumptions used in the Black-Scholes valuation
model, such as stock price volatility and expected option lives, as well as for the expected option forfeiture rates. In accordance
with SFAS 123R we measure the cost of employee services received in exchange for an award of equity instruments using the Black-
Scholes valuation model to calculate the grant-date fair value of the award. The compensation cost is recognized over the period of
time during which an employee is required to provide service in exchange for the award, which will be the vesting period.
Historically, actual results have been within management’s expectations.
new ACCounting pRonounCementS
In September 2006, the FASB released SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value and establishes
a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value
measurements. Although SFAS 157 applies to (and amends) the provisions of existing authoritative literature, it does not, of itself,
require any new fair value measurements or establish valuation standards. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Adoption of SFAS 157 did not have a
material impact on our Consolidated Financial Statements.
In February, 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
(“SFAS 159”), which creates an alternative measurement treatment for certain financial assets and financial liabilities. SFAS 159
permits fair value to be used for both the initial and subsequent measurements on an instrument by instrument basis, with changes
in the fair value to be recognized in earnings as those changes occur. This election is referred to as the fair value option. SFAS 159
also requires additional disclosures to compensate for the lack of comparability that will arise from the use of the fair value option.
SFAS 159 is effective for fiscal years beginning after November 15, 2007. The fair value option has not been elected for any financial
assets or liabilities at December 31, 2008.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS 141R”), which replaced FASB Statement 141,
Business Combination, which changes the accounting for business combinations and noncontrolling interests. Among other things,
when compared to the predecessor guidance SFAS 141R will require (i) more assets acquired and liabilities assumed to be measured
at fair value as of the acquisition date, (ii) liabilities related to contingent consideration to be remeasured to fair value each subsequent
reporting period, and (iii) acquirer in preacquisition periods to expense all acquisition-related costs. SFAS 141R must be applied
prospectively for fiscal years beginning after December 15, 2008. We do not expect adoption of SFAS 141R to have a material impact
on our Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an Amendment
of ARB No. 51 (“SFAS 160”), which changes the accounting and reporting for minority interests, which will be recharacterized as
noncontrolling interests and classified as a component of equity. SFAS 160 must be adopted no later than January 1, 2009. We do
not expect adoption of SFAS 160 to have a material impact on our Consolidated Financial Statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment
of FASB Statement No. 133 (“SFAS 161”), which requires enhanced disclosures about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended (“SFAS 133”) and its related interpretations and (iii) how derivative
instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 will be
effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We do not expect
adoption of SFAS 161 to have a material impact on our Consolidated Financial Statements.
AnnuAl RepoRt
In June 2008, the Emerging Issues Task Force (“EITF”) issued No. 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (“EITF 03-6-1”), which addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in
computing earnings per share (“EPS”) under the two-class method. EITF 03-6-1 will be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented will be
adjusted retrospectively to conform to the provisions of EITF 03-6-1. We are evaluating the expected impact of adoption of EITF
03-6-1.
In December 2008, the FASB issued FSP No. FAS 132 R-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (“FAS 132R-
1”), which provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan
and requires employers to provide more transparency about the assets held by retirement plan and the concentrations of risk in those
plans. FAS 132 R-1 will be effective for fiscal years beginning after December 15, 2009. We do not expect the adoption of FAS 132
R-1 to have a material impact on our Consolidated Financial Statements.
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. While the recent
adverse economic climate has not yet impacted the business of AAON, there can be no assurances that economic conditions will not
adversely affect our business in the future. We undertake 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.
We are subject to interest rate risk on our revolving credit facility, which bears variable interest based upon a prime or LIBOR rate.
We had $2.9 million outstanding as of December 31, 2008.
Foreign sales accounted for less than approximately 5% of our sales in 2008 and we accept payment for such sales in U.S. and
Canadian dollars; therefore, we believe we are not exposed to significant foreign currency exchange rate risk on these sales. Foreign
currency transactions and financial statements are translated in accordance with SFAS No. 52, Foreign Currency Translation. We
use the U.S. dollar as our functional currency, except for the Canadian subsidiaries, which use the Canadian dollar. Adjustments
arising from translation of the Canadian subsidiaries’ financial statements are reflected in accumulated other comprehensive income.
Transaction gains or losses that arise from exchange rate fluctuations applicable to transactions denominated in Canadian currency
are included in the results of operations as incurred. The exchange rate of the Canadian dollar to the United States dollar was $0.8196
and $1.0193 at December 31, 2008 and 2007, respectively.
The principal high volume raw materials used in our manufacturing processes are steel, copper and aluminum, which are obtained
from domestic suppliers. The raw materials market was volatile during 2008 due to the economic environment. Raw materials pricing
had steadily increased from the beginning of 2006 until the second half of 2008 when pricing sharply decreased. We experienced
raw materials price increases of approximately 70% for steel, 18% for aluminum and 19% for copper from 2006 through the second
quarter of 2008. Prices decreased by approximately 40% for steel, 76% for aluminum and 62% for copper from June 30, 2008 to
December 31, 2008. We attempt to limit the impact of price increases on these materials by entering cancelable and noncancelable
fixed price contracts with our major suppliers for periods of 6 -12 months.
We do not utilize derivative financial instruments to hedge our interest rate, foreign currency exchange rate or raw materials price
risks.
17
18
08 AnnuAl RepoRt
item 8. finAnCiAl StAtementS And SupplementARy dAtA.
The financial statements and supplementary data are included commencing at page 28.
(C) RepoRt of independent RegiSteRed publiC ACCounting fiRm
Report of Independent Registered Public Accounting Firm
item 9. ChAngeS in And diSAgReementS with ACCountAntS on ACCounting And finAnCiAl
diSCloSuRe.
Board of Directors and Stockholders
AAON, Inc.
None.
item 9A. ContRolS And pRoCeduReS.
(A) eVAluAtion of diSCloSuRe ContRolS And pRoCeduReS
At the end of the period covered by this Annual Report on Form 10-K, our management, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation
of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer believe
that:
• Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the
reports we file 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
• Our 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 our management, and made known to our Chief Executive Officer and Chief Financial Officer,
particularly during the period when this Annual Report was prepared, as appropriate to allow timely decisions
regarding the required disclosure.
AAON’s Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures and concluded
that these controls and procedures were effective as of December 31, 2008.
(b) mAnAgement’S AnnuAl RepoRt on inteRnAl ContRol oVeR finAnCiAl RepoRting
The management of AAON, Inc. and our subsidiaries is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to provide reasonable assurance to our management and Board of
Directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
In making our assessment of internal control over financial reporting, management used the criteria issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our assessment,
we believe that, as of December 31, 2008, our internal control over financial reporting is effective based on those criteria.
Our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting.
Date: March 10, 2009
19
/s/ Norman H. Asbjornson
Norman H. Asbjornson
Chief Executive Officer
/s/ Kathy I. Sheffield
Kathy I. Sheffield
Chief Financial Officer
We have audited AAON, Inc. (a Nevada Corporation) and subsidiaries’ (collectively, the Company) internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2008, based on criteria established in Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of AAON, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements
of income, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December
31, 2008 and our report dated March 10, 2009 expressed an unqualified opinion on those consolidated financial statements.
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
March 10, 2009
(d) ChAngeS in inteRnAl ContRol oVeR finAnCiAl RepoRting
There have been no changes in internal control over financial reporting that occurred during the fourth quarter of 2008 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
item 9b. otheR infoRmAtion.
None.
20
08
pARt 3
item 10. diReCtoRS, exeCutiVe offiCeRS And CoRpoRAte goVeRnAnCe.
The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated by reference to
the information contained in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection
with our 2009 Annual Meeting of Stockholders.
Code of ethiCS
We adopted a code of ethics that applies to our principal executive officer, principal financial officer and principal accounting officer
or persons performing similar functions, as well as other employees and directors. We will 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.
The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K is incorporated by reference to the information
contained in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our 2009
Annual Meeting of Stockholders.
item 12. SeCuRity owneRShip of CeRtAin benefiCiAl owneRS And mAnAgement And RelAted
StoCkholdeR mAtteRS.
The information required by Item 403 and Item 201(d) of Regulation S-K is incorporated by reference to the information contained
in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our 2009 Annual
Meeting of Stockholders.
item 13. CeRtAin RelAtionShipS And RelAted tRAnSACtionS.
tRAnSACtionS with RelAted peRSonS
Our Code of Conduct guides the Board of Directors in its actions and deliberations with respect to related party transactions.
Under the Code, conflicts of interest, including any involving the directors or any Named Officers, are prohibited except under any
guidelines approved by the Board of Directors. Only the Board of Directors may waive a provision of the Code of Conduct for a
director or a Named Officer, and only then in compliance with all applicable laws and rules and regulations. We did not enter into
any new related party transactions and have no preexisting related party transactions in 2008 or 2007, respectively.
diReCtoR independenCe
The Board of Directors (“Board”) has adopted director independence standards that meet and/or exceed listing standards set
by NASDAQ. NASDAQ has set forth six applicable tests and requires that a director who fails any of the tests be deemed not
independent. In 2008, the Board affirmatively determined, considering the standards described more fully below, that Messrs. Short,
Lackey, McElroy, and Stephenson are independent. Upon the resignation of Mr. Pantaleoni, followed by the subsequent election
of Mr. Levine, the Board affirmatively determined that Mr. Levine is independent. As a result of his position as our President, Mr.
Asbjornson does not qualify as independent under the standards set forth below. The Board has determined that Mr. Johnson should
not be deemed independent, because he is a member of the law firm that serves as our General Counsel. In addition, each member
of the Audit Committee and the Compensation Committee is independent.
AnnuAl RepoRt
Our director independence standards are as follows:
It is the policy of the Board that a majority of the members of the Board consist of directors independent of the Company and of our
management. For a director to be deemed “independent,” the Board shall affirmatively determine that the director has no material
relationship with us or our affiliates or any member of the senior management or his or her affiliates. In making this determination,
the Board applies, at a minimum and in addition to any other standards for independence established under applicable statutes and
regulations as outlined by the NASDAQ listing standards Rule 4200, the following standards, which it may amend or supplement
from time to time:
• A director who is, or has been within the last three years, an employee of the Company, or whose immediate family
member is, or has been within the last three years a Named Officer, can not be deemed independent. Employment
as an interim Chairman or Chief Executive Officer will not disqualify a director from being considered independent
following that employment.
• A director who has received, or who has an immediate family member who has received, during any twelve-month
period within the last three years, more than $60,000 in direct compensation from us, other than director and
committee fees and benefits under a tax-qualified retirement plan, or non-discretionary compensation for prior service
(provided such compensation is not contingent in any way on continued service), can not be deemed independent.
Compensation received by a director for former service as an interim Chairman or Chief Executive Officer and
compensation received by an immediate family member for service as one of our non-executive employees will not be
considered in determining independence under this test.
• A director who (A) is, or whose immediate family member is, a current partner of a firm that is our external auditor;
(B) is a current employee of such a firm; or (C) was, or whose immediate family member was, within the last three
years (but is no longer) a partner or employee of such a firm and personally worked on our audit within that time can
not be deemed independent.
• A director who is, or whose immediate family member is, or has been within the last three years, employed as an
executive officer of another company where any of our present Named Officers at the time serves or served on that
company’s compensation committee can not be deemed independent.
• A director who is a current employee or general partner, or whose immediate family member is a current executive
officer or general partner, of an entity that has made payments to, or received payments from us for property or services
in an amount which, in any of the last three fiscal years, exceeds the greater of $200,000 or 5% of such other entity’s
consolidated gross revenues, other than payments arising solely from investments in our securities or payments under
non-discretionary charitable contribution matching programs, can not be deemed independent.
For purposes of the independence standards set forth above, the terms:
• “affiliate” means any of our consolidated subsidiaries and any other company or entity that controls, is controlled by
or is under common control with us;
• “executive officer” means an “officer” within the meaning of Rule 16a-1(f) under the Securities Exchange Act of 1934,
as amended; and
• “immediate family” means spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law,
brothers- and sisters-in-law and anyone (other than employees) sharing a person’s home, but excluding any person
who is no longer an immediate family member as a result of legal separation or divorce, death or incapacitation.
21
22
Part 308 The Board undertakes an annual review of the independence of all non-employee directors. In advance of the meeting at which this
review occurs, each non-employee director is asked to provide the Board with full information regarding the director’s business and
other relationships with us and our affiliates and with senior management and their affiliates to enable the Board to evaluate the
director’s independence.
Directors have an affirmative obligation to inform the Board of any material changes in their circumstances or relationships that may
impact their designation by the Board as “independent.” This obligation includes all business relationships between, on the one hand
Directors or members of their immediate family, and, on the other hand, us and our affiliates or members of senior management and
their affiliates, whether or not such business relationships are subject to any other approval requirements.
item 14. pRinCipAl ACCountAnt feeS And SeRViCeS.
Incorporated by reference to our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection
with our 2009 Annual Meeting of Stockholders.
AnnuAl RepoRt
pARt 4
item 15. exhibitS And finAnCiAl StAtement SCheduleS.
(a)
Financial statements.
See Index to Consolidated Financial Statements on page 26.
(b)
Exhibits:
(3)
(4)
(10.1)
(10.2)
(21)
(23)
(31.1)
(31.2)
(32.1)
(32.2)
(A)
(A-1)
(B)
(B-1)
Articles of Incorporation (i)
Article Amendments (ii)
Bylaws (i)
Amendments of Bylaws (iii)
Third Restated Revolving Credit and Term Loan Agreement and related documents (iv)
(A)
(A-1) Third Amendment to Third Restated Revolving Credit and Term Loan Agreement (v)
(B)
Rights Agreement dated February 19, 1999, as amended (vi)
AAON, Inc. 1992 Stock Option Plan, as amended (vii)
AAON, Inc. 2007 Long-Term Incentive Plan, as amended (viii)
List of Subsidiaries (ix)
Consent of Grant Thornton LLP
Certification of CEO
Certification of CFO
Section 1350 Certification – CEO
Section 1350 Certification – CFO
(i)
(ii)
(iii)
Incorporated herein by reference to the exhibits to our Form S-18 Registration Statement No. 33-18336-LA.
Incorporated herein by reference to the exhibits to our Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, and to our Forms 8-K dated March 21, 1994, March 10, 1997, and March 17, 2000.
Incorporated herein by reference to our Forms 8-K dated March 10, 1997, May 27, 1998 and February 25,
1999, or exhibits thereto.
(iv)
Incorporated by reference to exhibit to our Form 8-K dated July 30, 2004.
(v)
Incorporated herein by reference to exhibit to our Form 8-K dated August 13, 2008.
(vi)
(vii)
Incorporated by reference to exhibits to our 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 our Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, and to our Form S-8 Registration Statement No. 33-78520, as amended.
(viii)
Incorporated herein by reference to Appendix B to our definitive Proxy Statement for the 2007 Annual
Meeting of Stockholders filed April 23, 2007.
(ix)
Incorporated herein by reference to exhibits to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2004.
23
24
Part 408
SignAtuReS
index to ConSolidAted finAnCiAl StAtementS
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.
Dated: March 10, 2009
AAON, INC.
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.
Report of Independent Registered Public Accounting Firm – Grant Thornton LLP
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
pAge
27
28
29
30
31
32
Dated: March 10, 2009
Dated: March 10, 2009
Dated: March 10, 2009
Dated: March 10, 2009
Dated: March 10, 2009
Dated: March 10, 2009
Dated: March 10, 2009
Dated: March 10, 2009
25
/s/ Norman H. Asbjornson
Norman H. Asbjornson
President and Director
(principal executive officer)
/s/ Kathy I. Sheffield
Kathy I. Sheffield
Vice President and Treasurer
(principal financial officer
and principal accounting officer)
/s/ John B. Johnson, Jr.
John B. Johnson, Jr.
Director
/s/ Charles C. Stephenson, Jr.
Charles C. Stephenson, Jr.
Director
/s/ Jack E. Short
Jack E. Short
Director
/s/ Paul K. Lackey, Jr.
Paul K. Lackey, Jr.
Director
/s/ A.H. McElroy II
A.H. McElroy II
Director
/s/ Jerry R. Levine
Jerry R. Levine
Director
AnnuAl RepoRt
26
08
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
AAON, Inc.
We have audited the accompanying consolidated balance sheets of AAON, Inc. (a Nevada corporation) and subsidiaries (collectively,
the Company) as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity and
comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008. 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 the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position
of AAON, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United
States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AAON,
Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
March 10, 2009 expressed an unqualified opinion thereon.
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
March 10, 2009
AnnuAl RepoRt
AAon, inC., And SubSidiARieS
ConSolidAted bAlAnCe SheetS
deCembeR 31,
2008
2007
(in thousands, except share and per share data)
ASSetS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other
Deferred tax assets
Total current assets
Land
Buildings
Machinery and equipment
Furniture and fixtures
Total property, plant and equipment
Less: Accumulated depreciation
Property, plant and equipment, net
Note receivable, long-term
Total assets
liAbilitieS And StoCkholdeRS’ equity
Current liabilities:
Revolving credit facility
Current maturities of long-term debt
Accounts payable
Dividends payable
Accrued liabilities
Total current liabilities
Other long-term liabilities
Deferred tax liabilities
Commitments and Contingencies
Stockholders’ equity:
Preferred stock, $.001 par value, 7,500,000
shares authorized, no shares issued
Common stock, $.004 par value, 75,000,000 shares
authorized, 17,208,733 and 18,054,246 issued and
outstanding at December 31, 2008 and 2007, respectively
Additional paid in capital
Accumulated other comprehensive income, net of tax
Retained earnings
Total stockholders’ equity
$
269 $
38,804
36,382
428
4,235
80,118
2,153
36,371
87,219
7,076
132,819
72,269
60,550
75
140,743
2,901
91
14,715
2,773
19,038
39,518
121
4,582
-
71
538
778
95,135
96,522
879
38,813
31,849
442
4,312
76,295
2,354
32,211
82,872
6,912
124,349
63,579
60,770
75
137,140
-
91
15,059
2,943
19,414
37,507
239
3,974
-
73
-
1,942
93,405
95,420
27
Total liabilities and stockholders’ equity
$
140,743 $
137,140
The accompanying notes are an integral part of these statements.
28
08 AAon, inC., And SubSidiARieS
ConSolidAted StAtementS of inCome
yeAR ending deCembeR 31,
2008
2007
2006
(in thousands, except per share data)
AAon, inC., And SubSidiARieS
ConSolidAted StAtementS of StoCkholdeRS’ equity And CompRehenSiVe inCome
Common StoCk
ShAReS Amount
pAid-in
CApitAl
ACCumulAted
otheR
CompRehenSiVe
inCome
RetAined
eARningS
totAl
(in thousands)
AnnuAl RepoRt
$
279,725 $
262,517 $
231,460
Balance at December 31, 2005
18,351*
$
74*
$
–
$
513 $ 78,908 $ 79,495
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense
Interest income
Other income (expense), net
Income before income taxes
Income tax provision
Net income
Earnings per share:
Basic
Diluted
Cash dividends declared per common share
Weighted average shares outstanding:
Basic
Diluted
212,549
205,148
187,570
67,176
57,369
43,890
23,788
21,703
18,059
43,388
35,666
25,831
(71)
(10)
27
8
724
(321)
44,068
35,343
15,479
12,187
(81)
24
424
26,198
9,065
28,589 $
23,156 $
17,133
1.63 $
1.60 $
0.32 $
1.24* $
1.22* $
0.32* $
0.93*
0.90*
0.32*
17,560
17,855
18,628*
18,927*
18,456*
18,968*
$
$
$
$
* Reflects three-for-two stock split effective August 21, 2007.
The accompanying notes are an integral part of these statements.
29
Comprehensive income:
Net income
Foreign currency translation
adjustment
Total comprehensive income
Stock options exercised,
including tax benefits
Share-based compensation
Stock repurchased and retired
Dividends
Balance at December 31, 2006
Adjustment for the adoption of
FASB Interpretation (FIN) No. 48
Comprehensive income:
Net income
Foreign currency translation
adjustment
Total comprehensive income
Stock options exercised,
including tax benefits
Share-based compensation
Stock repurchased and retired
Dividends
Balance at December 31, 2007
Comprehensive income:
Net income
Foreign currency translation
adjustment
Total comprehensive income
Stock options exercised and
restricted stock awards vested,
including tax benefits
Share-based compensation
Stock repurchased and retired
Dividends
–
–
408*
–
(251)*
–
18,508*
–
–
613*
–
(1,067)*
–
18,054*
–
–
366
–
(1,211)
–
–
–
1*
–
(1)*
–
74*
–
–
4*
–
(5)*
–
73*
–
–
2
–
(4)
–
–
–
3,107
500
(3,422)
–
185
–
–
5,420
582
(6,187)
–
–
–
–
3,307
750
(3,519)
–
–
17,133
17,133
154
–
–
–
–
667
–
–
–
(432)
(4,943)
90,666
(396)
154
17,287
3,108
500
(3,855)
(4,943)
91,592
(396)
–
23,156
23,156
1,275
–
–
–
–
1,942
–
–
–
1,275
24,431
5,424
582
(14,581)
(20,773)
(5,440)
93,405
(5,440)
95,420
–
28,589
28,589
(1,164)
–
–
–
–
–
–
–
(21,238)
(5,621)
(1,164)
27,425
3,309
750
(24,761)
(5,621)
Balance at December 31, 2008
17,209
$
71
$
538
$
778 $ 95,135 $ 96,522
* Reflects three-for-two stock split effective August 21, 2007
The accompanying notes are an integral part of these statements.
30
08
AAon, inC., And SubSidiARieS
ConSolidAted StAtementS of CASh flowS
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation
Provision for losses on accounts receivable
Share-based compensation
Excess tax benefits from stock options exercised and
restricted stock awards vested
Gain on disposition of assets
Deferred income taxes
Changes in assets and liabilities:
Accounts receivable
Inventories, net
Prepaid expenses and other
Accounts payable
Accrued liabilities
Net cash provided by operating activities
Investing Activities
Proceeds from sale of property, plant and equipment
Proceeds from matured certificate of deposit
Investment in certificate of deposit
Capital expenditures
Net cash used in investing activities
Financing Activities
Borrowings under revolving credit facility
Payments under revolving credit facility
Borrowings (payments) of long-term debt
Stock options exercised
Excess tax benefits from stock options exercised and
restricted stock awards vested
Repurchase of stock
Cash dividends paid to stockholders
Net cash used in financing activities
Effects of exchange rate on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
yeAR ended deCembeR 31,
2008
2007
2006
(in thousands)
$
28,589 $
23,156 $
17,133
9,412
547
750
9,665
203
582
9,146
(59)
500
(1,613)
(2,998)
(27)
(108)
(1,852)
–
160
(124)
(510)
(905)
(4,779)
13
449
851
33,447
(1,760)
(2,095)
(172)
(1,370)
6,268
31,247
(4,197)
(5,790)
776
4,178
103
19,428
17
123
–
–
–
–
3,000
–
(2,000)
(9,610)
(10,874)
(17,781)
(9,593)
(10,751)
(16,781)
46,865
12,142
53,706
(43,964)
(12,142)
(53,706)
(118)
1,696
271
2,426
1,613
2,998
(24,761)
(20,773)
(5,791)
(4,958)
(24,460)
(20,036)
(4)
(610)
879
131
591
288
$
269 $
879 $
(108)
1,256
1,852
(3,855)
(2,478)
(3,333)
137
(549)
837
288
AnnuAl RepoRt
AAon, inC., And SubSidiARieS
noteS to ConSolidAted finAnCiAl StAtementS
December 31, 2008
1. buSineSS, SummARy of SignifiCAnt ACCounting poliCieS And otheR finAnCiAl dAtA
AAON, Inc. is a Nevada corporation which was incorporated on August 18, 1987. Our subsidiaries include AAON, Inc., an Oklahoma
corporation, AAON Coil Products, Inc., a Texas corporation, AAON Canada, Inc., d/b/a Air Wise, an Ontario corporation and
AAON Properties, Inc., an Ontario corporation. AAON Properties is the lessor of property in Burlington, Ontario, Canada, to
AAON Canada. The Consolidated Financial Statements include our accounts and the accounts of our subsidiaries. Unless the
context otherwise requires, references in this Annual Report to “AAON,” the “Company”, “we,” “us,” “our” or “ours” refer to AAON,
Inc., and our subsidiaries.
We are engaged in the manufacture and sale of air conditioning and heating equipment consisting of standardized and custom
rooftop units, chillers, air-handling units, make-up air units, heat recovery units, condensing units, coils and boilers. All significant
intercompany accounts and transactions have been eliminated.
ReVenue ReCognition
We recognize revenues from sales of products when the products are shipped and the title and risk of ownership pass to the customer.
Selling prices are fixed based on purchase orders or contractual agreements. Sales allowances and customer incentives are treated
as reductions to sales and are provided for based on historical experiences and current estimates. For sales initiated by independent
manufacturer representatives, we recognize revenues net of the representatives’ commission. Our policy is to record the collection
and payment of sales taxes through a liability account.
Common StoCk Split
On July 12, 2007, our Board of Directors approved a three-for-two stock split of the outstanding stock for shareholders of record as of
August 3, 2007. The stock split was treated as a 50% stock dividend which was distributed on August 21, 2007. The applicable share
and per share data for 2007 and 2006 included herein has been restated to reflect the stock split.
CuRRenCy
Foreign currency transactions and financial statements are translated in accordance with Financial Accounting Standards Board
(“FASB”) Statement No. 52, Foreign Currency Translation. We use the U.S. dollar as our functional currency, except for the Canadian
subsidiaries, which use the Canadian dollar. Adjustments arising from translation of the Canadian subsidiaries’ financial statements
are reflected in accumulated other comprehensive income. Transaction gains or losses that arise from exchange rate fluctuations
applicable to transactions denominated in Canadian currency are included in the results of operations as incurred.
uSe of eStimAteS
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 our results of operations, financial position and cash flows. We reevaluate our estimates and
assumptions on a monthly basis.
The accompanying notes are an integral part of these statements.
31
32
08 1. buSineSS, SummARy of SignifiCAnt ACCounting poliCieS And otheR finAnCiAl dAtA
(Continued)
1. buSineSS, SummARy of SignifiCAnt ACCounting poliCieS And otheR finAnCiAl dAtA
(Continued)
uSe of eStimAteS (Continued)
inVentoRieS (Continued)
The most significant estimates include the allowance for doubtful accounts, inventory reserves, warranty accrual, medical insurance
accrual, and share-based compensation. Actual results could differ materially from those estimates.
Inventory balances at December 31, 2008 and 2007, and the related changes in the allowance for excess and obsolete inventories for
the three years ended December 31, 2008, 2007 and 2006, are as follows:
AnnuAl RepoRt
ConCentRAtionS
Our customers are concentrated primarily in the domestic commercial and industrial new construction and replacement markets.
To date, virtually all of our sales have been to the domestic market, with foreign sales accounting for less than 5% of revenues in
2008. No customer accounted for 10% of our sales during 2008, 2007 or 2006 or more than 5% of our accounts receivable balance
at December 31, 2008 or 2007.
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
We grant credit to our customers and perform ongoing credit evaluations. We generally do not require collateral or charge interest.
We establish 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
deCembeR 31,
2008
2007
(in thousands)
$
$
39,599
(795)
38,804
$
$
39,220
(407)
38,813
yeAR ended deCembeR 31,
2008
2007
2006
(in thousands)
Allowance for doubtful accounts:
Balance, beginning of period
Provision for losses on accounts receivable
Adjustments to provision
Accounts receivable written off, net of recoveries
$
$
407
674
(127)
(159)
Balance, end of period
$
795
$
266
625
(422)
(62)
407
$
685
589
(648)
(360)
$
266
Raw materials
Work in process
Finished goods
Less: Allowance for excess and obsolete inventories
deCembeR 31,
2008
2007
(in thousands)
$
32,212
$
27,651
2,545
1,975
36,732
(350)
1,760
2,788
32,199
(350)
Total, net
$
36,382
$
31,849
Allowance for excess and obsolete inventories:
Balance, beginning of period
Provision for excess and obsolete inventories
Adjustments to reserve
Balance, end of period
pRopeRty, plAnt And equipment
yeAR ended deCembeR 31,
2008
2007
2006
(in thousands)
$
350
800
(800)
$
350
$
350
-
-
-
-
$
350
$
350
$
350
Property, plant and equipment are stated at cost. Maintenance and repairs, 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:
deSCRiption
Buildings
Machinery and equipment
Furniture and fixtures
impAiRment of long-liVed ASSetS
yeARS
10-40
3-15
2-5
We evaluate 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. Management determined no impairment was required during 2008, 2007 and 2006.
inVentoRieS
CommitmentS And ContRACtuAl AgReementS
Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method. We establish
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.
We are a party to several short-term, cancelable and noncancelable, fixed price contracts with major suppliers for the purchase of raw
material and component parts. During 2009, in the normal course of business we expect to purchase approximately $4.7 million of
copper in the form of legally binding commitments.
33
34
08
1. buSineSS, SummARy of SignifiCAnt ACCounting poliCieS And otheR finAnCiAl dAtA
(Continued)
1. buSineSS, SummARy of SignifiCAnt ACCounting poliCieS And otheR finAnCiAl dAtA
(Continued)
CommitmentS And ContRACtuAl AgReementS (Continued)
eARningS peR ShARe
AnnuAl RepoRt
We entered into the following legally binding copper commitments to lock in pricing due to the volatility in the market during
2008:
poundS peR month
monthS
pRiCe
totAl
(in thousands)
120
25
25
12
12
12
2.41
2.02
2.21
(in thousands)
$
3,469
606
663
$
4,738
ACCRued liAbilitieS
At December 31, accrued liabilities were comprised of the following:
Warranty
Commissions
Payroll
Workers’ compensation
Medical self-insurance
Other
Total
wARRAntieS
2008
2007
(in thousands)
$
6,589
$
6,308
8,816
1,883
610
886
254
8,851
2,175
1,127
608
345
$
19,038
$
19,414
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 $4.0 million, $4.0 million and $2.4 million
for the years ended December 31, 2008, 2007 and 2006, respectively.
Changes in the warranty accrual during the years ended December 31, 2008, 2007 and 2006 are as follows:
Balance, beginning of the year
Payments made
Warranties issued
Changes in estimate related to preexisting warranties
2008
2007
2006
$
6,308
(3,608)
3,889
-
(in thousands)
$
5,572
(3,321)
3,757
300
$
6,282
(3,128)
4,343
(1,925)
Balance, end of period
$
6,589
$
6,308
$
5,572
In 2007, the provision for warranties was increased due to an extension in the warranty period. In 2006, the provision for warranties
was decreased due to a change in estimate related to preexisting warranties occurring in the fourth quarter of 2006. The change in
estimate was due to factors stated above, such as current information on historical trends and a reduction in identifiable warranty
issues.
Basic net income per share is calculated by dividing net income by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per share assumes the conversion of all potentially dilutive securities and is
calculated by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus all
potentially dilutive securities. Dilutive common shares consist primarily of stock options and restricted stock awards.
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Net income
Denominator:
Denominator for basic earnings per share –
Weighted average shares
Effect of dilutive stock options
Denominator for diluted earnings per share –
Weighted average shares
Earnings per share
Basic
Diluted
2008
yeARS ended,
2007*
2006*
(in thousands except share and per share data)
$
28,589
$
23,156
$
17,133
17,560,295
18,628,029
18,456,108
294,568
299,015
511,486
17,854,863
18,927,044
18,967,594
$
$
1.63
1.60
$
$
1.24
1.22
$
$
0.93
0.90
Anti-dilutive shares
Weighted average exercise price
308,250
282,100
269,250
$
16.63
$
17.81
$
16.19
* Reflects three-for-two stock split effective August 21, 2007.
AdVeRtiSing
Advertising costs are expensed as incurred. Advertising expense was approximately $635,000, $784,000 and $549,000 for the years
ended December 31, 2008, 2007 and 2006, respectively.
ReSeARCh And deVelopment
Research and development costs are expensed as incurred. Research and development expense was $2.6 million, $2.5 million and
$2.0 million for the years ended December 31, 2008, 2007 and 2006, respectively.
Shipping And hAndling
We incur shipping and handling costs in the distribution of products sold that are recorded in cost of sales. Shipping charges that
are billed to the customer are recorded in revenues.
35
36
08
1. buSineSS, SummARy of SignifiCAnt ACCounting poliCieS And otheR finAnCiAl dAtA
(Continued)
1. buSineSS, SummARy of SignifiCAnt ACCounting poliCieS And otheR finAnCiAl dAtA
(Continued)
pRofit ShARing bonuS plAn
new ACCounting pRonounCementS (Continued)
AnnuAl RepoRt
We maintain 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 in order to reward employee productivity. Eligible employees are regular full-time employees who
are actively employed and working on the first day of the calendar quarter and remain continuously, actively employed and working
on the last day of the quarter and who work at least 80% of the quarter. Profit sharing expense was $5.1 million, $4.2 million and $3.3
million for the years ended December 31, 2008, 2007 and 2006, respectively.
defined ContRibution plAn - 401(k)
We sponsor a defined contribution benefit plan (“the Plan”). Eligible employees may make contributions in accordance with the Plan
and IRS guidelines. In addition, effective May 30, 2005, the Plan was amended to provide for automatic enrollment and provided for
an automatic increase to the deferral percent at January 1st of each year and each year thereafter, unless the employee elects to decline
the automatic increase and enrollment. Beginning with pay periods after May 30, 2005, the one year enrollment waiting period was
waived. Administrative expenses we paid for the plan were approximately $93,000, $98,000 and $85,000 for the years ended 2008,
2007 and 2006, respectively.
After January 1, 2007, our matching increased to 50% of the employee’s salary deferral up to the first 9% of compensation. From
January 1, 2006 to December 31, 2006, we matched 50% of the employee’s salary deferral up to the first 7% of compensation. We
contribute in the form of cash and direct the investment to shares of AAON Stock. No other purchases of AAON stock are permitted.
Employees are 100% vested in salary deferral contributions and vest 20% per year at the end of years two through six of employment
in employer matching contributions. We made matching contributions of $1.4 million, $1.3 million and $1.0 million in 2008, 2007
and 2006, respectively.
new ACCounting pRonounCementS
In September 2006, the FASB released SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value and establishes
a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value
measurements. Although SFAS 157 applies to (and amends) the provisions of existing authoritative literature, it does not, of itself,
require any new fair value measurements or establish valuation standards. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Adoption of SFAS 157 did not have a
material impact on our Consolidated Financial Statements.
In February, 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
(“SFAS 159”), which creates an alternative measurement treatment for certain financial assets and financial liabilities. SFAS 159
permits fair value to be used for both the initial and subsequent measurements on an instrument by instrument basis, with changes
in the fair value to be recognized in earnings as those changes occur. This election is referred to as the fair value option. SFAS 159
also requires additional disclosures to compensate for the lack of comparability that will arise from the use of the fair value option.
SFAS 159 is effective for fiscal years beginning after November 15, 2007. The fair value option has not been elected for any financial
assets or liabilities at December 31, 2008.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS 141R”), which replaced FASB Statement 141,
Business Combinations, which changes the accounting for business combinations and noncontrolling interests. Among other things,
when compared to the predecessor guidance SFAS 141R will require (i) more assets acquired and liabilities assumed to be measured
at fair value as of the acquisition date, (ii) liabilities related to contingent consideration to be remeasured to fair value each subsequent
reporting period, and (iii) acquirer in preacquisition periods to expense all acquisition-related costs. SFAS 141R must be applied
prospectively for fiscal years beginning after December 15, 2008. We do not expect adoption of SFAS 141R to have a material impact
on our Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an Amendment
of ARB No. 51 (“SFAS 160”), which changes the accounting and reporting for minority interests, which will be recharacterized as
noncontrolling interests and classified as a component of equity. SFAS 160 must be adopted by us no later than January 1, 2009. We
do not expect adoption of SFAS 160 to have a material impact on our Consolidated Financial Statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - an Amendment
of FASB Statement No. 133 (“SFAS 161”), which requires enhanced disclosures about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended (“SFAS 133”) and its related interpretations and (iii) how derivative
instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 will be
effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We do not expect
adoption of SFAS 161 to have a material impact on our Consolidated Financial Statements.
In June 2008, the Emerging Issues Task Force (“EITF”) issued No. 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (“EITF 03-6-1”), which addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in
computing earnings per share (“EPS”) under the two-class method. EITF 03-6-1 will be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented will be
adjusted retrospectively to conform to the provisions of EITF 03-6-1. We are evaluating the expected impact of adoption of EITF
03-6-1.
In December 2008, the FASB issued FSP No. FAS 132 R-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (“FAS
132R-1”), which provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement
plan and requires employers to provide more transparency about the assets held by retirement plan and the concentrations of risk in
those plans. FAS 123 R-1 will be effective for fiscal years beginning after December 15, 2009. We do not expect the adoption of FAS
132 R-1 to have a material impact on our Consolidated Financial Statements.
SegmentS
Management has reviewed our business operations and determined that we have two operating segments as defined in SFAS 131,
Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”). We have a domestic and foreign operating
segment. The domestic operating segment includes the operations of AAON, Inc. and AAON Coil Products, Inc. The foreign
operating segment includes the operations of AAON Canada and AAON Properties. Management has determined that the foreign
operating segment does not constitute a separate reporting segment based on the quantitative threshold tests of SFAS 131. We sell
similar products with similar economic characteristics to similar classes of customers. The technologies and operations are highly
integrated. Revenues and costs are reviewed monthly by management on a product line basis as a single business segment.
2. SupplementAl CASh flow infoRmAtion
Interest payments of approximately $71,000, $10,000 and $81,000 were made during the years ended December 31, 2008, 2007 and
2006, respectively. Payments for income taxes of $12.7 million, $10.2 million and $6.5 million were made during the years ended
December 31, 2008, 2007 and 2006, respectively. Dividends payable of $2.8 million and $2.9 million were accrued as of December
31, 2008 and 2007 and paid on January 3, 2009 and 2008, respectively.
37
38
08 3. ReVolVing CRedit fACility
The tax effect of temporary differences giving rise to our deferred income taxes at December 31 is as follows:
AnnuAl RepoRt
Our revolving credit facility provides for maximum borrowings of $15.2 million which is provided by the Bank of Oklahoma, National
Association. Under the line of credit, there is one standby letter of credit totaling $1.0 million. The letter of credit was a requirement
of our workers compensation insurance and has been renewed and will expire December 31, 2009. Interest on borrowings is payable
monthly at the Wall Street Journal prime rate less 0.5% or LIBOR plus 1.6%, at our election (3.50% at December 31, 2008). No fees
are associated with the unused portion of the committed amount.
At December 31, 2008, we had $2.9 million borrowed under the revolving credit facility. We had no borrowings outstanding under
the revolving credit facility at December 31, 2007. Borrowings available under the revolving credit facility at December 31, 2008,
were $11.3 million. At December 31, 2008 and 2007, we were in compliance with our financial ratio covenants. The covenants are
related to our tangible net worth, total liabilities to tangible net worth ratio and working capital. At December 31, 2008 our tangible
net worth was $96.5 million. Our total liabilities to tangible net worth ratio was 2.2. Our working capital was $40.6 million. On July
30, 2008, we renewed the line of credit with a maturity date of July 30, 2009. We expect to renew our revolving credit agreement in
July 2009. We do not anticipate that the current situation in the credit market will impact our renewal.
4. debt
Short-term debt at December 31, 2008 and 2007 consisted of notes payable totaling approximately $91,000 due in 2009 and 2008,
respectively. In 2008 and 2007, respectively, the notes payable are due in monthly installments of $7,588, with an interest rate of
4.148%, related to a computer capital lease.
5. inCome tAxeS
We follow 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,
2008
2007
2006
(in thousands)
$
$
16,163
(684)
15,479
$
$
12,631
(444)
12,187
$
$
9,556
(491)
9,065
The reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:
The “Other” tax rate primarily relates to certain domestic credits.
Federal statutory rate
State income taxes, net of federal benefit
Other
yeAR ending deCembeR 31,
2008
2007
2006
(in thousands)
35%
3%
(3%)
35%
35%
3%
(3%)
35%
35%
4%
(4%)
35%
Net current deferred assets and (liabilities) relating to:
Valuation reserves
Warranty accrual
Other accruals
Other, net
Net long-term deferred (assets) and liabilities relating to:
Depreciation and amortization
NOL
Share-based compensation
2008
2007
2006
(in thousands)
$
446
$
295
$
2,567
1,262
(40)
4,235
7,247
(2,265)
(400)
$
$
2,456
1,430
131
4,312
6,376
(2,019)
(383)
$
$
$
$
$
4,582
$
3,974
$
240
2,172
1,492
50
3,954
5,492
(1,242)
(189)
4,061
The total net operating loss (“NOL”) deferred tax asset of approximately $2.3 million relates to AAON Canada. The NOL’s originating
in 2008, 2007 and 2006 will expire in twenty years, nineteen years and eighteen years, respectively. The NOL’s originating in 2005
will expire in 7 years.
We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Effective January 1, 2007, we
adopted FIN 48.
The total amount of unrecognized tax benefits is as follows:
Balance at January 1, 2008
Change as a result of tax positions taken during an earlier period
Change as a result of tax positions taken during the current period
Change as a result of settlements with tax authorities
Change as a result of a lapse of the applicable statute of limitations
Balance at December 31, 2008
(in thousands)
$
253
-
-
(168)
(35)
$
50
The total amount of unrecognized tax benefits that if recognized would impact the effective tax rate is approximately $50,000.
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. At December 31, 2008 and
2007, we had accrued approximately $6,000 and $110,000 for the potential payment of interest and penalties, respectively.
The total amount of unrecognized tax benefits at December 31, 2008 is approximately $50,000 related to tax positions for which it is
reasonably possible that the total amounts could significantly decrease during the next twelve months. This amount represents the
unrecognized tax benefits comprised of items related to determination of state nexus and intercompany charges. Resolution of these
tax benefits will occur during the year ending December 31, 2009. As of December 31, 2008, we are subject to U.S. Federal income
tax examinations for the tax years 2005 through 2008, and to non-U.S. income tax examinations for the tax years of 2005 through
2008. In addition, we are subject to state and local income tax examinations for the tax years 2004 through 2008.
39
40
08
6. ShARe-bASed CompenSAtion
We have historically maintained a stock option plan for key employees, directors and consultants (“the 1992 Plan”). The 1992 plan
provided for 4.4 million shares of common stock to be issued 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 prior to May 25, 2004,
vest one year from the date of grant and are exercisable for nine years thereafter. Options granted to directors on or after May 25,
2004, vest one-third each year, commencing one year after the date of grant. 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.
On May 22, 2007, our stockholders adopted a Long-Term Incentive Plan which provides an additional 750,000 shares that can
be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance units and performance
awards. Since inception of the Plan, non-qualified stock options and restricted stock awards have been granted with the same vesting
schedule as the previous plan. Under the LTIP, the exercise price of shares granted may not be less than 100% of the fair market value
at the date of the grant.
We apply the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R Share-Based Payment (“SFAS 123R”).
The compensation cost is based on the grant date fair value of stock options issued calculated using a Black-Scholes-Merton Option
Pricing Model, or the grant date fair value of a restricted share less the present value of dividends, in accordance with the provisions
of SFAS 123R.
We recognized approximately $400,000 and $526,000 for the year ended December 31, 2008 and 2007, respectively, in pre-tax
compensation expense related to stock options in the Consolidated Statements of Income. The total pre-tax compensation cost
related to unvested stock options not yet recognized as of December 31, 2008 is $1.1 million and is expected to be recognized over a
weighted-average period of 2.1 years.
The following assumptions were used to determine the fair value of the unvested stock options on the original grant date for expense
recognition purposes for options granted during the years ended December 31, 2008, 2007 and 2006:
Directors and Officers:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life
Forfeiture rate
Employees:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life
Forfeiture rate
2008
2007
2006
1.72%
45.16%
3.08%
7.0 yrs
0%
1.72%
44.47%
3.05%
8.0 yrs
31%
N/A
N/A
N/A
N/A
N/A
1.67%
41.92%
4.61%
6.3 yrs
28%
2.05%
42.76%
5.05%
8.0 yrs
0%
2.05%
42.33%
4.84%
6.3 yrs
28%
41
AnnuAl RepoRt
The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free
interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the
grant date. Volatility is based on historical volatility of our stock. We initiated a dividend payout in the second quarter of 2006. We
initially used the Board of Director approved semi-annual dividends of $0.20 per share through July 3, 2007 to calculate the expected
dividend yield. The Board of Directors approved future dividend payments of $0.16 per share related to the stock split effective
August 21, 2007 and the table above was adjusted to reflect the change.
The following is a summary of stock options outstanding as of December 31, 2008:
optionS outStAnding
numbeR
outStAnding
At
deCembeR 31,
2008
weighted
AVeRAge
RemAining
ContRACtuAl
life
weighted
AVeRAge
exeRCiSe
pRiCe
AggRegAte
intRinSiC
VAlue
optionS exeRCiSAble
numbeR
exeRCiSAble
At
deCembeR 31,
2008
weighted
AVeRAge
exeRCiSe
pRiCe
82,913
174,563
33,900
54,000
234,200
579,576
0.78
4.10
6.71
7.69
8.01
5.69
3.85
8.94
11.60
14.79
17.29
17.03
11.94
9.28
6.09
3.59
$ 12.29
$ 11.12
82,913
139,763
22,500
23,600
68,200
336,976
3.85
8.47
11.64
14.53
17.32
$ 9.76
RAnge of
exeRCiSe
pRiCeS
0.00 – 3.85
5.73 – 11.29
11.40 – 12.00
12.68 – 15.55
15.99 – 21.01
Total
A summary of option activity under the plan as of December 31, 2008, is as follows:
optionS
ShAReS
Outstanding at December 31, 2005
Granted
Exercised
Forfeited or Expired
Outstanding at December 31, 2006
Granted
Exercised
Forfeited or Expired
Outstanding at December 31, 2007
Granted
Exercised
Forfeited or Expired
Outstanding at December 31, 2008
Exercisable at December 31, 2008
1,670,520
269,251
(406,950)
(71,325)
1,461,496
139,188
(573,374)
(98,377)
928,933
50,000
(348,075)
(51,282)
579,576
336,976
weighted
AVeRAge
exeRCiSe pRiCe
5.01
15.93
3.09
11.11
7.33
15.98
4.24
14.80
9.47
16.64
4.87
15.76
12.29
9.76
$
weighted
AVeRAge
RemAining
ContRACtuAl
teRm
AggRegAte
intRinSiC
VAlue ($000)
5.69
4.14
$
$
4,980
3,747
42
08
The weighted average grant date fair value of options granted during 2008 and 2007 was $6.95 and $7.07, respectively. The total
intrinsic value of options exercised during the year ended December 31, 2008 and 2007 was $6.4 million and $8.7 million, respectively.
The cash received from options exercised during the year ended December 31, 2008 and 2007 was $1.7 million and $2.4 million,
respectively. The impact of these cash receipts is included in financing activities in the accompany Consolidated Statements of Cash
Flows.
A summary of the status of the unvested stock options for the year ended December 31, 2008, is as follows:
Unvested at January 1, 2008
Granted
Vested
Forfeited
Unvested at December 31, 2008
ShAReS
335,300
50,000
(92,700)
(50,000)
242,600
weighted AVeRAge
gRAnt dAte fAiR VAlue
$
$
6.49
6.95
6.23
6.48
6.68
The total fair value of shares vested during the year ended December 31, 2008 was approximately $577,000.
During 2007, the Compensation Committee of the Board of Directors authorized and issued restricted stock awards to key employees
and directors. The restricted stock award program offers the opportunity to earn shares of AAON Common Stock over time, rather
than options that give the right to purchase stock at a set price. Restricted stock awards granted to directors vest one-third each year.
All other restricted stock awards vest at a rate of 20% per year. Restricted stock awards are grants that entitle the holder to shares of
common stock subject to certain terms. The fair value of restricted stock awards is based on the fair market value of AAON common
stock on the respective grant dates, reduced for the present value of dividends.
These awards are recorded at their fair value on the date of grant and compensation cost is recorded using straight-line vesting over
the service period. The weighted average grant date fair value of restricted stock awards granted during 2008 and 2007 was $19.34
and $20.85 per share, respectively. We recognized approximately $350,000 and $56,000 for the year ended December 31, 2008 and
2007, respectively in pre-tax compensation expense related to restricted stock awards in the Consolidated Statements of Income. In
addition, as of December 31, 2008, unrecognized compensation cost related to unvested restricted stock awards was approximately
$685,000 which is expected to be recognized over a weighted average period of 1.7 years.
A summary of the unvested restricted stock awards for the year ended December 31, 2008, is as follows:
Unvested at January 1, 2008
Granted
Vested
Forfeited
Unvested at December 31, 2008
ShAReS
37,850
16,850
(11,550)
(700)
42,450
SFAS 123R requires that cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative
compensation costs be classified as financing cash flows. For the twelve months ended December 31, 2008 and 2007, the excess tax
benefits of stock options exercised and restricted stock awards vested was $1.6 million and $3.0 million respectively.
AnnuAl RepoRt
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 our 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 our Common Stock. The rights become
exercisable after a person has acquired, or a tender offer is made for, 15% or more of our Common Stock. 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 our Common Stock having a market value equal to two times the exercise price.
The rights may be redeemed by us for $0.001 per right until a person or group has acquired 15% of our Common Stock. The rights
expire on August 20, 2012.
8. StoCk RepuRChASe
Following repurchases of approximately 12% of our outstanding common stock between September 1999 and September 2001,
we announced and began another stock repurchase program on October 17, 2002, targeting repurchases of up to an additional 2.0
million shares of our outstanding stock. On February 14, 2006, the Board of Directors approved the suspension of our repurchase
program. Through February 14, 2006, we had repurchased a total of 1,886,796 shares under this program for an aggregate price of
$22,034,568, or an average of $11.68 per share. We purchased the shares at the then current market price.
On November 6, 2007, we began a new stock buyback program, targeting repurchases of up to approximately 10% (1.8 million
shares) of our outstanding stock from time to time in open market transactions. Through December 31, 2008, we had repurchased
a total of 1,692,258 shares under this program for an aggregate price of $33,710,939, or an average price of $19.92 per share. We
purchased the shares at the current market price.
On July 1, 2005, we entered into a stock repurchase arrangement by which employee participants in AAON’s 401(k) savings and
investment plan are entitled to have shares of AAON stock in their accounts sold to us to provide diversification of their investments.
The maximum number of shares to be repurchased is unknown under the program as the amount is contingent on the number of
shares sold by employees. Through December 31, 2008, we repurchased 630,906 shares for an aggregate price of $10,102,687, or an
average price of $16.01 per share. We purchased the shares at the current market price.
On November 7, 2006, the Board of Directors authorized us to repurchase shares from certain directors following their exercise
of stock options. The maximum number of shares to be repurchased is unknown under the program as the amount is contingent
on the number of shares sold by directors. Through December 31, 2008, we repurchased 340,375 shares for an aggregate price of
$6,957,423, or an average price of $20.44 per share. We purchased the shares at the current market price.
9. diVidendS
On February 14, 2006, the Board of Directors voted to initiate a semi-annual cash dividend. We initially paid Board of Director
approved semi-annual dividends of $0.20 per share. The Board of Directors approved future dividend payments of $0.16 per share
related to the stock split effective August 21, 2007.
Dividends were declared to shareholders of record at the close of business on June 12, 2008 and December 12, 2008 and paid on
July 3, 2008 and January 2, 2009. We paid cash dividends of $5.8 million and declared dividends payable of $2.8 million for the year
ended December 31, 2008. Cash dividend payments of $5.0 million were made in 2007, and $2.9 million in dividends were declared
and accrued as a liability in December 2007 for payment in January 2008.
43
44
08
AnnuAl RepoRt
Exhibit 23.1
ConSent of independent RegiSteRed publiC ACCounting fiRm
We have issued our reports dated March 10, 2009, with respect to the consolidated financial statements and internal control over
financial reporting included in the Annual Report of AAON, Inc. on Form 10-K for the year ended December 31, 2008. We hereby
consent to the incorporation by reference of said reports in the Registration Statements of AAON, Inc. on Forms S-8 (File No. 333-
52824, effective December 28, 2000 and File No. 333-151915, effective June 25, 2008).
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
March 10, 2009
10. ContingenCieS
We are 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 our results of operations or financial position.
11. quARteRly ReSultS (unAudited)
The following is a summary of the quarterly results of operations for the years ending December 31, 2008 and 2007:
2008
Net sales
Gross profit
Net income
Earnings per share:
Basic
Diluted
2007
Net sales
Gross profit
Net income
Earnings per share:
Basic
Diluted
mARCh 31
quARteR ended
june 30
SeptembeR 30
deCembeR 31
(in thousands, except per share data)
$
65,456
$
74,781
$
79,279
$
60,209
15,652
6,434
0.36
0.35
17,990
7,760
0.43
0.43
20,018
8,355
13,516
6,040
0.49
0.47
0.35
0.35
mARCh 31
quARteR ended
june 30
SeptembeR 30
deCembeR 31
(in thousands, except per share data)
$
58,628
$
70,835
$
70,907
$
62,147
15,722
6,317
0.34*
0.33*
15,598
6,877
0.37*
0.36*
13,640
5,382
12,409
4,580
0.29
0.28
0.25
0.24
*Reflects three-for-two stock split effective August 21, 2007.
45
46
08
I, Norman H. Asbjornson, certify that:
I, Kathy I. Sheffield, certify that:
CeRtifiCAtion
CeRtifiCAtion
Exhibit 31.1
AnnuAl RepoRt
Exhibit 31.2
1.
2.
3.
I have reviewed this Annual Report on Form 10-K of AAON, Inc.
Based on my knowledge, this 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 report;
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
1.
2.
3.
I have reviewed this Annual Report on Form 10-K of AAON, Inc.
Based on my knowledge, this 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 report;
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including our consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including our consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, 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 of internal control
over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 10, 2009
47
/s/ Norman H. Asbjornson
Norman H. Asbjornson
Chief Executive Officer
Date: March 10, 2009
/s/ Kathy I. Sheffield
Kathy I. Sheffield
Chief Financial Officer
48
08
CeRtifiCAtion puRSuAnt to
18 u.S.C. SeCtion 1350,
AS Adopted puRSuAnt to
SeCtion 906 of the SARbAneS–oxley ACt of 2002
Exhibit 32.1
In connection with the Annual Report of AAON, Inc. (the “Company”), on Form 10-K for the year ended December 31,
2008, 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
AnnuAl RepoRt
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,
2008, 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 our results of
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and our results of
operations.
operations.
March 10, 2009
/s/ Norman H. Asbjornson
Norman H. Asbjornson
Chief Executive Officer
March 10, 2009
/s/ Kathy I. Sheffield
Kathy I. Sheffield
Chief Financial Officer
49
50
08
OffiCers
BOArd Of direCtOrs
AnnuAl RepoRt
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.
kAthy i. 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.
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
over 40 years.
dAVid e. knebel
has served as Vice
President of Sales for the
Company since 2005.
Mr. Knebel has been
in the heating and air
conditioning industry
for 39 years, holding
positions in design,
research, software
development, engineering,
teaching, sales and senior
management.
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 of the
Company.
Front row, left to right:
John B. Johnson, Jr., Norman H. Asbjornson
& Charles C. Stephenson, Jr.
Back row, left to right:
Paul K. Lackey, Jr., A.H. McElroy, II,
Jack E. Short & Jerry R. Levine
noRmAn h. ASbjoRnSon President/CEO
john b. johnSon, jR. Secretary
ChARleS C. StephenSon, jR. has served
as a director of the Company since 1996.
From 1987 to January 2006, Mr. Stephenson
served as Chairman of the Board of Vintage
Petroleum, Inc., based in Tulsa, Oklahoma.
jACk e. ShoRt was elected to the Board
in July 2004 and is the Chairman of the
Audit Committee. Mr. Short was
employed by PriceWaterhouseCoopers for
29 years and retired as the managing partner
of the Oklahoma practice in 2001.
A.h. mCelRoy, ii was elected as a director
of the Company in 2007. From 1997 to
present, Mr. McElroy has served as President
and CEO of McElroy Manufacturing, Inc.,
a manufacturer of fusion equipment and
fintube machines.
pAul k. lACkey, jR. was elected as a director
of the Company in 2007. From 2001 to
present, Mr. Lackey has served as CEO and
president of NORDAM, a privately held
aerospace company.
jeRRy R. leVine has served as a director of
the Company since 2008. Since 1999 Mr.
Levine has provided investor and shareholder
relations services and advice to the Company.
COrpOrAte dAtA
transfer Agent and Registrar–
Progressive Transfer Company,
1981 East Murray-Holladay
Road, Suite 200,
Salt Lake City, Utah 84117
Auditors–Grant Thornton LLP,
2431 East 61st Street, Suite 500,
Tulsa, Oklahoma 74136
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
51
52
08 tHAnks tO Our emplOyees
WILLIAM ABBOTT
LUIS ACOSTA
MARIA D. ACOSTA
MARIA L. ACOSTA
MARTHA ACOSTA
MARTIN ACOSTA
ROGELIO ACOSTA
GUERRERO
ANDRES ACOSTA-LUJAN
DANIEL ADAIR
ENRIGUETA ADAME
ANGELA ADAMS
DERRICK ADAMS
GARY ADAMS
LARRY ADAMS
RODNEY ADAMS
ISAAC ADERINBOYE
RITA ADIMARI
BRIAN ADKINS
KAREN AFRIFAH
MARIA AGUAYO
ARTURO AGUILAR
HUMBERTO AGUILAR
MIGUEL AGUILERA
PRITESH AHLUWALI
ROSHANLAL AHLUWALIA
TAIWO AINA
DANIEL ALAGDON
MARTHA ALANIS
ENRIQUE ALAVATA
IMELDA ALBA
SOCORRO ALBA
JULIO ALBINO
NORMAN ALBRIGHT
JAMES ALEXANDER
MICHAEL ALEXANDER
SHANNON ALFORD
BRENDAN ALLEN
CARNELL ALLEN
DONALD ALLEN
KEVIN ALLEN
TARIK ALSAADI
JENNIFER ALSTON
FELIPE ALVARADO
MICHAEL AMBURGEY
JEHAD AMIREH
JOSE ANDRADA
MARGARITO ANGELES
WESLEY ANSELME
ALFREDO ANTONIO
URIEL ARELLANO
GUERRA
JOSE ARGUMEDO-RUIZ
RONDELL ARMSTRONG
MARIA ARREDONDO
GERARDO ARROYO
ELEAZAR ARROYO
ALVAREZ
NORMAN ASBJORNSON
SCOTT ASBJORNSON
GARY ASHMORE
DWIGHT AUSTIN
IVAN AVALOS
JESUS AVELAR SALDIVAR
JOSEPH AVILA
ORLANDO AYALA
JOSE AYVAR
NORA BACKUS
RICHARD BACKUS
JASWINDER BADESHA
JAHANGIR BAHRAQMI
DWIGHT BAKER
ERIC BAKER
JOHN BALDWIN
SARBJIT BANWAIT
CAROLYN BARBER
RAY BARBER
CANDY BARBOSA
JUSTIN BARLETT
DANIEL BARNARD
DAVID BARNETT
CESAR BARRAZA
MARIBEL BARRIOS
NEREYDA BARRIOS DE
PEREZ
BENIGNO BARRIOS
OROZCO ROSA BARRO
MARIA BARRON
ANDREW BASS
MICHAEL BASS
JAMES BATES
BOYD BATTLES
STUART BAUGH
ELLIOTT BAYHYLLE
JASON BAZAN
SHANNON BECK
MICHAEL BEHREND
ELOY BELLO-CRUZ
GUZMAN BENITEZ
OFELIA BENITEZ
BONNIE BENSON
IDA BERMUDEZ
SERGIO BESERRA
LYNUS BINKLEY, III
THOMAS BIRD
CHERYL BIRMINGHAM
MARCUS BLACK
SETH BLACK
VICKIE BLACK
KEVIN BLACKBOROW
BRIAN BLACKMON
MARIA BLANCO
DAVID BLEVINS
JIMMY BLEVINS
JUSTIN BLEVINS
AARON BODOVSKY
GENE BOESE
JAMES BOND
DEBRA BOOHER
WILLIAM BOOZIER
RICHARD BOREN
ALEXANDER BOTELLO
ANTHONY BOTELLO
ROSENDO BOTELLO
SHAWN BOUGH
DEMETRIUS BOYD
BRIAN BRADFORD
KEYLON BRADLEY
MYOSHIA BRADLEY
CHRISTOPHER
BRANTLEY
RAYNOR BRENTON
ARLANDO BREWER
BOBBY BREWER
TERRY BREWSTER
SHAHANI BRITT
ARLUNDA BROOKS
BERNARDO BROOKS
MITCHELL BROOKS
DAVID BROWN
JERMAINE BROWN
JAMES BROWN, IV
MACEO BRUMLEY
CHRISTOPHER BRYANT
WILLIAM BRYANT
ANNA BUI
KELLI BURKES
BILLY BURNS
MONICA BURNS
SHANNON BURTCH
DOUGLAS BURTRUM
JOSEPH BUSH
WAYNE BUSH
TINA BUSH JONES
ANGELICA BUSTOS
AARON BUTLER
JOHN BUTLER
ROSA BUTLER
BERRY BUZZARD
DORA CADENA
JESUS CADENA
CLEVELAND CAGE, JR.
MARGARITO CALDERON
DANIELLE CALHOUN
JORGE CALIXTO
ELIZABETH CALVILLO
LAZARO CAMA
JOSE CAMAS-PADILLA
DAVID CAMPBELL
JASON CAMPBELL
ARTHUR CANDLER
YONG CANTRELL
REFUGIO CARACHURE
JORGE CARCAMO
MARIA CARDENAS
JUSTIN CARDOZA
KEITH CARPENTER
MODESTO CARRERA
MACEDONIO CARRILLO-
RUIZ
VINCENT CARSON
ALEJANDRO CARTAGENA
JAMES CARTER
LARRY CARTER, JR.
GARY CASSIDAY
WARREN CASTLEBERRY
SOLEDAD CASTRO
JOSE CASTRO
ANTONIO CHABEZ, JR.
JUSTO CHAGOYA
GUADALUPE CHAIREZ-
GALAN
JOHN-MARK CHAMBERS
JOSHUA CHAPMAN
PATRICK CHAPMAN
SERGIO CHARLES
RASEAN CHARVIS
CLARK CHASE
JOSH CHATTILLON
ADALBERTO CHAVEZ
GREGORY CHAVEZ
JOHN CHAVEZ
DALE CHERRY
DANIEL CHERRY
MICHAEL CHERRY
ADAN CHICAS
WILLIAM CHRISTOPHER
NEM CING
GEORGE CLARK
JOHN CLARK
MORRIS CLARK
RICHARD CLARK
FLOYD CLEGHORN
STEPHANIE CLEVELAND
WILLIAM CLEVELAND
STEVEN COATNEY
BRENDA COATS
KENNETH COCHRAN
LATOYA COLEMAN
RONALD COLLINS
DALE CONKWRIGHT
JONATHAN CONNELL
GERARDO CONTRERAS
MARIA COOK
MARK COOK
MICHAEL COOLIDGE
SCOTT COON
DONNA COONFIELD
JAMES COOPER
LISA COOPER
AURELIA CORDOVA
ELAINE CORKHILL
ALBERTO CORONA
BLANCA CORONA
HERON CORONA
ROBERTO CORONA
EDUARDO CORTEZ
ROSA CORTEZ
WESLEY COVEY
BILLY COX
CHRISTINE COX
HOPE COX
JERRY COX
JOHN COX
PATRICK COX
ADRIAN CRABTREE
ELLIOTT CRAIG
GREGORY CRAIGHEAD
RICHARD CRAITE
STEVEN CRASE
DEVIN CREECH
JUAN CRESPO-MAISONET
MIKEL CREWS
DONALD CROMWELL, JR.
DARRELL CROW
DRUMMOND CROWE
CAROLYN CRUTCHFIELD
JOSE CUADROZ
VICTORY CULLOM, II
ROBERT CUMMINGS
JAMES CURLEY
GENE CURTIS
OLIVER CYRUS, III
BOGDAN CZEMIAWSKI
GWENDOLYN DANIELS
JOHN DANIELS
WILLIAM DAUGHERTY
JENIFUR DAVIDSON
ANGELA DAVIS
BYRON DAVIS
CAROLYN DAVIS
CATHY DAVIS
DAVE DAVIS
ERIC DAVIS
JERRY DAVIS
JORDAN DAVIS
LASHONDA DAVIS
MARCUS DAVIS
MARLEITTA DAVIS
RICHARD DAVIS
SAMUEL DAVIS
TARA DAVIS
TYMESIA DAVIS
JAMES DAVIS, III
SIDNEY DAVIS, JR.
WILFREDO DE JESUS
OTILIA DE JONES
MATILDE DE LA TORRE
ALVARO DE LEON
MENDOZA
BOBBY DEGRAFFENREID
MAGALI DEJESUS
ISMAEL DELAPAZ
EVA DELATORRE
LUCERO DELEON
MENDOZA
ALBERTO DELEON-
CASTILLO
JUANA DELOBO
ANDRES DELOS SANTOS
RAQUEL DELUNA
RODRIGO DELUNA
SUSANNA DENNIS
JATINDER DEOL
SURJIT DEOL
BRUCE DERR
AUDENCIA DEVILLA
ROY DEVILLE
CHARLES DEWEESE
CHEIKH DIALLO
CLAUDRAUS DICKENS
CARL DIKA
CIN DING
HOMER DODD
RICKEY DODSON
EDREYS DOMINGUEZ
MARTIN DOMINGUEZ
PABLO DOMINGUEZ
JENNIFER DOSSMAN
JODI DOTY
HAROLD DOUGLAS
MICHAEL DRAEGER
MICHAEL DREW
CATHRYN DUBBS
JERROLD DUBBS
BRIAN DUCKETT
CAROLYN DUESLER
CRAIG DUKE
LINDA DUNEC
BUDDY DUNN
CHRISTOPHER DUNN
CORTNEY DUNN
JASON DUNPHY
FRANCISCO DURAN
TORRES
RALPH DURBIN
YOLANDA DURHAM
JAMES DUROY
RANDY DWIGGINS
WENDELL EASILEY
DAVID ECHEVARIA
STEPHEN EDMONDS
MARK EDWARDS
EARL ELLIOTT
HARVEY ELLIS
TINISHA ENGLISH
EVA ENRIQUEZ
BELMONDO EPPS
BLANCA ESCOBAR
TERESA ESCOBEDO
NORBERTO ESPARZA-
TORRES
LEONARDO ESPINOZA
FLORES
GUSTAVO ESPITIA
JESUS ESTRADA-
GONZALEZ
GILDA ETUMUDOR
CALVIN EUBANKS
GREGORY EUBANKS
OTIS EVANS
REGINALD EVERIDGE, JR.
SHAWN FAIRLEY
JOSE FELIX-GALVAN
ROBERT FERGUS
ELIZABETH FERGUSON
CATALINA FERNANDEZ
DAVID FERNANDEZ
FABIOLA FERNANDEZ
SAMUEL FIELDS
JESSE FIGUEROA
STERLYN FINCH
BRUCE FISHER
JASON FISHER
ANTHONY FIZER
WAYNE FLASKA
COPOTENIA FLETCHER,
JR.
ANA FLORES
CAROLINA FLORES
EFIGENIA FLORES
JUANA FLORES
LAURA FLORES
RUBY FLOYD
VICKY FLOYD
MARK FLY
HECTOR FONTANEZ-
ZAYAS
KENNETH FONTENOT
SHARON FONTENOT
SHEILA FORREST
JAMES FORTIN
CHRISTOPHER FOSTER
FREDERICK FOSTER
LETRELL FOSTER
LORETTA FOWLKES
KENNETH FOYIL
PHILLIP FRANK
WARREN FRANKLIN
REVONDA FRANKS
GARY FREDERIKSEN, JR.
GREGORY FREEMAN
OLGA FRENCH
ANGEL FRIAS
WADE FULLER
ANGELIA FULTON CREWS
RONY GADIWALLA
RANULFO GALICIA
MALISSA GALINDO
MARIA GALINDO
JOHN GALL
MA GALVAN
MARIA GALVAN
ANGEL GARCIA
MAXIMO GARCIA
NICKLAUS GARCIA
ROBERTO GARCIA
MARIA GARCIA GARCIA
GLITER GARCIA LOPEZ
JOEL GARCIA
MALDONADO
ISIDRO GARCIA
MARTINEZ
NORMA GARIBAY
PATRICK GARRETT, SR.
CARLOS GARZA
RALPH GASAWAY
STEVE GEARY
JAMES GEORGE
AMRIK GILL
WILBERT GILMORE
EDWARD GITONGA
PENNY GLOSSINGER
GARY GOFF
EMMETT GOINS
HECTOR GOMEZ
JOSE GOMEZ
MARIA GOMEZ
MOISES GOMEZ
JOSE GOMEZ-MORENO
DANIEL GOMEZ-SIGALA
CHRISTOPHER
GONZALES
ADRIAN GONZALEZ
IMELDA GONZALEZ
MANUEL GONZALEZ
MARTIN GONZALEZ
NAYELI GONZALEZ
VICTOR GONZALEZ
BARRY GOODSON
STANLEY GORDON
DALE GRAHAM
BUENAS GRANADOS
CARLA GRAVES
ZAINAB GRAVES
MARIA GRAY
JESSE GREEN, JR.
JOHN GRIFFIN
RONALD GRIMES
DANIEL GROFF
CAROLINA GUILLEN
CASSIE GUNN
REMIA GUTHERY
ISAAC GUTIERREZ
MARIA GUTIERREZ
EVELYN GUTIERREZ
LAINEZ
ERASMO GUZMAN
GEORGINA GUZMAN
NANCY HACKNEY
ALLEN HADDOCK
JACK HALL
KELLY HALL
STEPHEN HALL
LESLIE HALL, JR.
RITA HALLER
RAYMOND HAMBLEN
SCOTT HAMILTON
JEFFREY HAMMER
SAM HAMMOUD
ROBERT HANNA
DONALD HARDEN
MARQUIS HARLIN
GLEN HARRIS
JERRY HARRIS
KENNY HARRIS
STACEY HARRIS
ROBI HARTMANN
HEATHER HASKINS
DONALD HATLEY
KENNETH HAVARD
JEREMY HAWKE
CARL HAWKINS
KEVIN HAWKINS
BILLY HAWLEY, JR.
BRANDON HAYNES
THEODORE HEATH
TIM HEFFLIN
STEPHEN HEGVOLD
DANIEL HENDERSON
DEMETRIUS HENDERSON
MIKE HENSLEY
ALVARO HERNANDEZ
ARMANDO HERNANDEZ
CORCINA HERNANDEZ
FRANCISCO D.
HERNANDEZ
FRANCISCO O.
HERNANDEZ
JOSE HERNANDEZ
LILY HERNANDEZ
LUIS HERNANDEZ
MARIA HERNANDEZ
MARIANO HERNANDEZ
DONALD HICKMAN
DANNY HIDALGO
TAKEO HIGA
BRENDA HIGGINS
LARRY HIGHFIELD
BRIAN HIGHT
DEWAYNE HIGHTOWER
JUAN HINOJOSA
TYSON HINTHER
CLYDE HITCHYE
BON HOANG
SAMUEL HOBSON
SANDRA HOFFMAN
JARROD HOGGATT
BRYAN HOLLAND
JAMES HOLLINGSWORTH
DONNA HOLLOWAY
LAWRENCE HONEL
STEPHEN HOOVER
TERRI HORN
WILBURN HORNER, JR.
DANIEL HORRELL
STANLEY HORTON
JERRY HOUSTON
DAVID HOWARD
LARRY HOWARD
ZAM HTANG
CLARENCE HUBBELL
LYDIA HUDSON
PHILIP HUDSON
ANTHONY HUFFMAN
BILLY HUGHART
JIMMY HUGHES
ROSARIO HUIZAR
RONALD HUTCHCRAFT
GARY HUTCHINS
TAN HUYNH
OKECHUKWU IBEH
ALEXANDER
IGNATENKOV
SAMUEL INGRAM
ANTHONY INKTON
TIM IRWIN
MELHAM JABR
BELINDA JACKSON
JEFF JACKSON
LARRY JACKSON
MAVIS JACKSON, JR.
DELLA JACOBS
DANNY JACOT
ALMA JACQUEZ
JOSE JAMAICA
MCKINLEY JAMES
FRANCES JARAMILLO
DONNA JENKINS
JASON JEWELL
GENELLE JIMBOY
MARIA JIMENEZ
RAUL JIMENEZ
VINCENT JIMENEZ
FERNANDO JIMENEZ
RIVERA
JUAN JIMENEZ, JR.
PEDRO JIMENEZ-DELFIN
FREDERICK JIMMERSON
KAREN JOBE
ED JOHNSON
REX JOHNSON
SYLVIA JOHNSON
THURLIN JOHNSON, II
PETE JOHNSON, JR.
ANTONIO JONES
DANNY JONES
DAVID JONES
DETERRIOUS JONES
DJUAN JONES
KELLI JONES
ROSE JONES
JAMES JONES, JR.
JASON JORDAN
JAIME JUAREZ
LEANDRO JUMELLES
NUNEZ
PATRICK KAISER
ALEX KAP
NGIN KAP
BRIAN KASTL
RICHARD KEATON
AARON KELLY
DANIEL KEMP
GREGG KENNEDY
DO KHAI
EN KHAI
LANG KHAI
MANG KHAI
NANG K. KHAI
NANG Z. KHAI
PETER KHAI
GO KHAM
NGUN KHAM
PAVEL KHARABORA
KIRK KHILLINGS
DAI KHUP
NGIN KHUP
THANG KHUP
RENA KIGHT
ALAN KILGORE
ANDREW KILGORE
SUAN KIM
THANG KIM
MICHAEL KIMMONS
DAVID KING
JOSEPH KING
LORI KING
RANDY KING
RUSSELL KING
STEPHEN KINSEY
BRYAN KIRK
LARRY KIRKLAND
ALEKSANDR KIRYUKHIN
FEDIR KLYUCHNYK
DAVID KNEBEL
ROBERT KNUTH
ANATOLI
KONOVALCHUK
JOHN KOSKINEN
JAMES KOSS
EDWARD KRACKE, II
ROBERT KRAFJACK
MIKHAIL KRUPENYA
KARL KUENEMANN
LAURA KYLE
MIKE LAFOND
RENATO LALATA
GEORGE LAM
COLE LAMBERT
JEFFERY LANDRUM
DEBORAH LANE
DONALD LANEY
UGIN LANG
MARTIN LARSEN
MICHAEL LAVALLEE
ROGER LAVIGNE
DAVID LAWSON
JEFFREY LAWSON
RONALD LAWSON
MICHEL LEBEL
JOSE LEBRON
JACQUELINE LEE
RHONDA LEE
MATTHEW LEEPER
PATRICIA LENNOX
HUGO LERMA
RONALD LESTER
DAVID LIAN
HAU LIAN
KAM LIAN
SING LIAN
THANG LIAN
PING LIN
JERRY LINCOLN
THOMAS LINCOLN
WILLIAM LINDSAY
ANTHONY LITTLE
RENE LIVESEY
JOEL LOCKMILLER
FRANKLIN LOGAN, JR.
DUSTIN LONG
LISA LONG
LINDA LONGORIA
ALONZO LOPEZ
ANA LOPEZ
ARTURO LOPEZ
GABRIEL LOPEZ
MARGARITO LOPEZ
RAFAEL LOPEZ
RAUL LOPEZ
THOMAS LOPEZ
MA DE LOPEZ CUEVA
JOHNNY LOPEZ, JR.
JOSE LOPEZ-FACIO
VINCENT LOWE
PAUL LOWERY
OSCAR LOZANO
JARRAD LUDLOW
QUANNAH LUDLOW
ANA LULE
MARIANA LUNA
KELLY LYBARGER
GREGORY MACK
JORGE MADRIGAL
ALEJANDRO MAGANA
MONICA MAGANA
SYED MAHMOOD
N MAI
BARBARA MALONE
CARLOS MALONE
JEFFREY MALY
LANG MANG
LIAN MANG
NGIN MANG
SEI KHO LUN MANG
VUNG MANG
ERIC MANN
EVELYN MANNING
ADAM MANSFIELD
RAUL MANZO
GEORGINA MANZO DE
BARRERA
RODOLFO MARCIAS
FLORES
WILLIAM MARKWARDT
MA MARQUEZ DE-
GILBREATH
MARGARITO MARQUINA-
GONZALEZ
TRAVIS MARR
ANA MARROQUIN
ECO MARSHALL
ROYAL MARSHALL, JR.
AMANDA MARTINEZ
ANGEL MARTINEZ
JAVIER MARTINEZ
JERRY MARTINEZ
JUAN MARTINEZ
KAREN MARTINEZ
OBDULIA MARTINEZ
KENNEPH MARTINEZ
BAEZ
FRANCISCO MARTINEZ
LEON
HECTOR MARTINEZ
MOLINA
FLORENTINO MARTIN-
ROMO
TIMOTHY MARVIN
THOMAS MASENGALE,
JR.
BEVERLEY MASON
JAMES MASON
ERIK MASSEY
CHARLES MATTOCKS, IV
EVERARDO MATUL
RON MAUCH
ANTONIO MAURICIO
LEONARD MAXWELL
LANCE MAYBERRY
DUANE MAYFIELD
JACQUELINE MAYFIELD
TERRELL MAYFIELD
DANNY MAZALICA
VLADO MAZILICA
COURTNEY McAFEE
DEBORAH McATEER
TINA McBEATH
ROBERT McBOWMAN
CHRISTOPHER J.
McCLAIN
CHRISTOPHER K.
McCLAIN
DIRK McCLELLAN
ROY McCONNELL
DEBRA McCOWAN
WESLEY McCOWAN, JR.
PAULA McCRARY
SHAWN McCRARY
MARC McCUIN
ROBERT McCULLEY
KATHY McCULLOCH
FLORENCE McDANIEL
LOYD McDANIEL
ROSE McDANIEL
SHARON McDANIEL
JAMES McELROY
DEBORAH McFARLIN
DAPHNE McGEE
TERRY McGEE, II
JARROD McKISICK
DOMINGO McKNIGHT
GINA MEANS
PATRICIA MEDINA
SERGIO MEDINA
JAMES MELDA
KEVIN MENDENHALL
JESUS MENDOZA
JOSE MENDOZA
VERNON MERCEAL, JR.
JOHNNY MERRELL
VIVIAN MEYER
RONALD MIKEL
GLENN MILAM
MICHAEL MILES
RANULFA MILIAN
CHRIS MILLER
MYKEA MILLER
DUANE MILLS
MICHAEL MILTON
BRIAN MINGLE
BRUCE MINTON
SCARLETT MIRANDA
HUBERT MITCHELL
JAY MODISETTE
RONALD MODLIN
IRMA MOGUEL
BRAULIO MOISES-LEE
STAN MOLDUCH
JOSE MOLINA
STEVEN MOLSTER
JOSE MONREAL
MARIA MONSIVAIS
ENOC MONTES
CLAY MOO
JON MOODY
KEVIN MOORE
MARC MOORE
MARIA MOORE
TONY MOORE
ISRAEL MORA
JUAN MORA
ALFONSO MORAN
RON MOREHEAD
TONY MOREHEAD
BERTA MORENO
AMBER MORGAN
MATTHEW MORGAN
DAVID MORGERSON
MARCUS MORROW
CLAYTON MOTE
DARRELL MOTE
ISSA MOUID
DO MUANG
ROBERT MUIRHEAD
THERESA MUISE
ERIC MULLINIKS
GIN MUNG
KAI MUNG
LANG MUNG
NANG MUNG
SIAN MUNG
SUAAN MUNG
SUAN MUNG
TUAL MUNG
VUM MUNG
JESUS MUNOZ
EDUARDO MURILLO
JOHNNY MUSGRAVE
JUNE MUSGRAVE
DAVID MYERS
ASAD NAKHAEI
SING NANG
MARCUS NARANJO
VINCENT NASH
GO NAULAK
JOSE NAVA
MARIA NAVA
ABEL NAVEJAS
CLAYTON NEAL
SAMUEL NEALE
ANTHONY NEGRETE
NATALIE NEILSON
KATHLEEN NELSON
NATHANIEL NELSON
RONALD NELSON
HOANG-CHI NGUYEN
TIEN NGUYEN
KAREN NILES-BLAYER
HANK NOESKE
JERRY NOLAN
CHRISTOPHER NORFLEET
WILLIE NORFLEET
ROBERT NORFLEET, JR.
ERIC NORRIS
DEBRA NOTHNAGEL
STEVE NOVAK
KANG NU
JOHN NUTT
DEANGELO OAKLEY
MICHAEL O’BRIEN
ALEXANDER OFOSU
JOHN OGLE
RUBEN OLAN GARCIA
MARIA OLIVAS DE
TORRES
SCOTTY OLIVER
ANTHONY OLIVERAS
ERIC OLSON
JAMES O’NEILL, JR.
JAMES O’NEILL, SR.
LUIS OQUENDO ALBERTO
LETICIA ORONA
MARGARITA ORONA
MARGARITA OROZCO
DEHUIZAR
CARLOS OROZCO-
TORRES
JULIO ORTEGA, JR.
ROSA ORTIZ MAIZONET
SANDRA OSBERN
KATIE OSBORNE
IDOWU OSIFESO
JENNIFER OVERMEYER
JUAN OYOLA
MARTIN OZURA-
CARRILLO
GUILLERMO PACHECO
LUIS PACHECO
EDMUNDO PAIZ
AIXA PALACIOS
J PANIAGUA
NOEMI PANIAGUA
BELMONTE
JARED PARKER
JOSE PARRA
JEANETTA PATE
CORRY PATTERSON
CIA PAU
LIANG PAU
THANG PAU
VADEN PAULSEN
TRAVIS PEARSON
ANTONIO PEDIGO
KIMBERLY PEEKS
CHRIS PENCZAK
VLADIMIR PENIAZ
SHAMATA PENTECOST
SERGIO PERALTA
CESAR PEREZ
JUANA PEREZ
JUSTINA PEREZ
SERGIO PEREZ
MA LOURDES PEREZ
JOSEPH PERKINS
JOHN PETERS
LADRUE PETERS
EMIL PETROV
DANIEL PEURIFOY
SONG PHAN
RANDY PHELPS
NICHOLAS PHIFER
LOUIS PHILLIPS
CIN PI
THANG K. PIANG
THANG L. PIANG
ALEXIA PIERSON
PEDRO PINA-VALLES
JOSE PINEDA
WALTER PINTO
JAMES PIPPIN
CLIFFORD PITCHFORD
MARIA PLATA
BASANT POKHREL
RENU POKHREL
VELMA POLLEY
MARK POOL
TIMOTHY POOL
ANDREW POSAS
ARDESHIR POURARYAN
PHILLIP POWELL
RUDY POWELL
GREG POWERS
JEFFERY POWERS
JOSE PRADO-HUERTA
TONY PRATT
ALMA PUGA
VAN GIOAN QUANG
JAVIER QUEZADA
JESUS QUINONES
SAHIR RAFAH
COLD RAIN
NIMALAKIRTHI
RAJASINGHE
FERDINAN RALAT
ANTONIA RAMIREZ
JOSE RAMIREZ
RAYMON RAMIREZ
WILLIAM RAMIREZ
NANDY RAMIREZ B
JERRY RAMSEY
ROBERT RATLIFF
KYLE RATZLAFF
TERRY RATZLOFF
ROBERT RAYNO
THOMAS READ
SANDRA READER
JOSEPH REAGH
DIEGO REBOLLAR
JOSE RECIO-GOMES
PEGGY REDDEN
JAMES REED
FREEMAN REED, JR.
CYNTHIA REESE
MARGARET REEVES
DARREN REISS
EVERETT REITZ
JACKIE REMY
ALBERTO RENDON
DAVID RENEAU
ISAGANI REQUINTINA
HEATHER REYNOLDS
THOMAS REYNOLDS
DAVID RIBBE
ANGELA RIDEOUT
BRETT RIEGEL
DELMECIO RISER
JOY RISER
STEPHEN RISER
FRANKLIN RISNER
JAMES RITCHIE
CARLOS RIVERA
GENOVEVA RIVERA
LUIS RIVERA MENDOZA
LAURA ROBERSON
PAUL ROBERTS
JOHN ROBERTS
JUSTIN ROBERTS
BENTON ROBINSON
MICHAEL ROBINSON
NICKY ROBINSON
JEFFERY ROBISON
ANTHONY RODERMUND
VOLODYMYR
RODOVNSKY
ALEX RODRIGUEZ
DIANA RODRIGUEZ
EDGAR RODRIGUEZ
GILBERTO RODRIGUEZ
HECTOR RODRIGUEZ
IDA RODRIGUEZ
MARIA RODRIGUEZ
MELVIN RODRIGUEZ
RIVELINO RODRIGUEZ
TERESA RODRIGUEZ
URIEL RODRIGUEZ
J RODRIGUEZ-FLORES
DON ROGERS
LIDIA ROJAS
NELSON ROJAS
CAROLINA ROJAS-
GONZALEZ
TERRY ROMBACH
RICHARD ROMO
DELINA ROSS
DMITRI RUDNITSKI
RICARDO RUIZ
VICENTE RUIZ
AVA RUSSELL
JIMMY RUSSELL
NARINDER SAHOTA
ADAN SALAZAR
FRED SALAZAR
NORA SALAZAR
WALTER SALAZAR
DAVID SALDIVAR
JOSE SALDIVAR
MIGUEL SALDIVAR
VICTOR SALDIVAR
DIANA SALINAS
BEATRIZ SANCHEZ
BETTY SANCHEZ
DELVIN SANCHEZ
ESTEVAN SANCHEZ
SERAFIN SANCHEZ
ESPERANZA SANCHEZ
RUIZ
FELIPE SANCHEZ, JR.
LUIS SANCHEZ-LOPEZ
EDWIN SANCHEZ-
MONTEZ
IVELISSE SANCHEZ-
RIVERA
ALICIA SANDERS
CHRISTINA SANDERS
SCOTT SANDERS
TANISHA SANDERS
DAVINDERPAL SANDHU
HARNEK SANDHU
MICHAEL SANDOR, JR.
JASON SANFORD
THANG SANG
ADRIAN SANTACRUZ
AGUSTIN SANTANA
REINALDO SANTANA
HECTOR SANTIAGO
MIGUEL SANTIAGO
WENCESLAO SANTIAGO
CARLOS SANTIAGO
TORREZ
HUMBERTO SANTILLAN
IGNACIO SANTILLAN
PEDRO SANTILLAN
ANGELA SANTILLANO
DAVID SAPICO
BENNETT SAPP
DAVID SARANT
RICHARD SATTERFIELD
ERICK SAWYER
WILLIAM SCHAROSCH
BRUMMETT SCOTT
COREY SCOTT
KENNETH SCOTT
VIVIAN SCROGGINS
MARCUS SEIP
HUGHGO SEWELL
CARROL SHACKELFORD
VANESSA SHARP
GREGORY SHAW
ONTARIO SHAW
THOMAS SHAW
KATHY SHEFFIELD
KATHLEEN SHEPARD
JACKIE SHEPHARD
BARBARA SHIPMAN
CONSUELA SHORE
RASCHID SHOWOLE
NELSON SIERRA
OSCAR SIERRA-
MATAMOROS
TABATHA SIKES
VIENCHA
SIMMALAVONG
CORY SIMMONS
MITCHELL SIMMONS, JR.
PATRICK SIMPSON
JAMES SIMPSON, II
KAP SING
THANG SING
KULWINDER SINGH
RUSSELL SINGLETON
MICHAEL SKINNER
LARRY SLONE
BRETT SMITH
CORDARION SMITH
RENALDO SMITH
RICARDO SMITH
RYAN SMITH
SWEETIE SMITH
MICHAEL SMOLINIEC
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MALCOLM SOLES
IRASEMA SOLIS
MARIA SOLIS
NEMISIA SOLIS
PAULA SOSA
KEVIN SOUVANNASING
RONNIE SPARKS
ELDA SPEARS
SUSAN SPENCER
MICHAEL SPORTEL
RICHARD SPROWLES
JESS ST GEORGE
LAWANA STANE
LEKITHA STEPHENSON
STEPHEN STEPP
MICKEAL STEVENSON
BRENT STOCKTON
ADAM STOKER
DEBRA STRASBOURG
MICHAEL STRAUB
BILLY STRENGTH
ERIC SUAREZ
MICHAEL SULLENS
NANG SUM
ROSA SUMMERS
STANLEY SWAIM
GARY SWARER
SHBRONE SWYGERT
MARCUS SYAS
ERIC SYPERT
JAMES TABER
PEDRO TALAVERA
BRIAN TALLEY
WILLIAM TANKERSLEY
JOE TART
LARRY TATE
TENNA TATUM
CHARLES TAYLOR
ERIC TAYLOR
FLESHIA TAYLOR
JEFF TAYLOR
THOMAS TAYLOR
ANDREA TEAKELL
KEVIN TEAKELL
ROBERT TEIS
CIN THANG
KAM THANG
KHAM THANG
SUAN THANG
TUAN L. THANG
TUAN S.THANG
ZAM THANG
LANG THAWNG
ZAM THAWNG
LEE THOMAS
CHARLES THOMASON
DAVID THOMPSON
WESLEY THURMOND, II
GABRIELA TIRADO
WILLIAM TOBAR
CHRISTOPHER TOLES
MOLLY TOMPKINS
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CARLOS TORRES ARCE
CARMEN TORRES DE
GUZMAN
GIRALDO TORRES-
CHAVES
CREMERIS TOWNS
HAI TRAN
PHUOC TRAN
UT TRAN
MARISOL TREJO
MARTIN TREVINO-
SALDANA
MARK TRIBBLE
HA TRINH
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THANG TUANG
JOSEPH TUBBS
THAWNG TUNG
PAUL TURBE
PHYLLIS TYISKA
JAMES TYLER
JAMES TYO
JESUS TZUL
PERNELL UNDERWOOD
NNAMDI URIM
MARIA URQUIZA
YADIRA URQUIZA
RAQUEL VALDEZ
ALLEN VANG
SHANNON VANN
JOHN VANNESS
JOEL VANSCOY, JR.
JAVIER VARGAS
JOSE VEGA
ANTONIO VELASCO
ROMAN VELASQUEZ
JAMES VELDE
JOSE VELEZ GONZALEZ
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JUAN VENCES
ANGEL VENEGAS
SALOME VERA
LAURA VERGARA
JAMES VERHAMME
GEORGE VERRETT
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EFRAIN VILLA
SELINA VIRAMONTES
CUONG VO
SUONG VO
TONG VO
NING VUNG
STEPHEN WAKEFIELD
DIANA WALKER
JERMAINE WALKER
JOSHUA WALKER
RODERICK WALKER
THEODORE WALKER
GENE WALKER, JR.
DAVID WALKUP
PHILLIP WALLACE
REBECCA WALLACE
LESLIE WALLIS, JR.
MERLYN WALTERS
STACEY WALTERS
YAN WANG
GAYLE WARD
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PERRY WARNER
ANTOWYN WARREN
DONALD WASHINGTON
SAM WASHINGTON
VIELKA WASHINGTON
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DEMETRIA WEBB
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SHARON WEST
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JUSTIN WHITE
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CURTIS WOOD
MITCHELL WOOD
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LINDA WYRICK
ECTOR YANCEY, JR.
KATHRYN YOUNG
PATRICIA YOUNG
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NIKOLAY ZAGORODNIY
LANG ZAH LANG
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LUIS ZEPEDA
JUAN ZERMENO
VIRGINIA ZERMENO
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905.631.9161 • Fax: 905.631.5753
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