AAON
Annual Report 2009

Plain-text annual report

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. COMpANy pROFiLe OutdOOR AiR HANdLiNg uNitS CONdeNSiNg uNitS iNdOOR AiR HANdLiNg uNitS RL SeRieS CL SeRieS H3 SeRieS SA SeRieS V3 SeRieS RN SeRieS CC SeRieS ROOFtOp uNitS M2 SeRieS M3 SeRieS F1 SeRieS RQ SeRieS CB SeRieS RL SeRieS RN SeRieS RQ SeRieS BOiLeR CHiLLeRS BL SeRieS LL SeRieS AiR—CONdeNSed LL SeRieS eVApORAtiVe—CONdeNSed LC SeRieS AiR—CONdeNSed AAON is engaged in the engineering, manufacturing, marketing and sales of air conditioning and heating equipment consisting Net Increase (Decrease) in Cash of rooftop units, chillers, air-handling units, make-up air units, heat recovery units, condensing units, commercial self-contained 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. 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. ANNuAl RepORT FiNANCiAL HigHLigHtS 2009 2008 2007 2006 2005 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 $245,282 $67,545 $43,754 $9 $71 $9,061 $43,892 $27,721 $1.61 $1.60 $65,354 $96,240 $59,896 $80,567 $25,639 $156,211 $30,886 $0 $117,999 $6.85 $45,205 $(9,639) $(10,101) $25,370 25.8% 17.7% 17.9% 11.3% 0.3 1.9 3.1 12 $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 $1.63 $1.60 $1.24 $1.22 $40,600 $80,118 $60,550 $72,269 $269 $140,743 $39,518 $121 $96,522 $5.61 $33,447 $(9,593) $(24,460) $(610) 29.8% 20.3% 15.8% 10.2% 0.5 1.0 2.0 13 $38,788 $76,295 $60,770 $63,579 $879 $137,140 $37,507 $239 $95,420 $5.29 $31,247 $(10,751) $(20,036) $591 24.8% 16.9% 13.5% 8.8% 0.4 1.1 2.0 16 $231,460 $43,890 $25,831 $81 $24 $9,146 $26,198 $17,133 $0.93 $0.90 $36,356 $70,759 $59,222 $54,182 $288 $130,056 $34,403 $0 $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 $185,195 $35,291 $17,814 $16 $67 $8,503 $18,332 $11,462 $0.62 $0.60 $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 2009 deAR SHAReHOLdeR, Our operating and net income margins We continued to focus on improving our manufacturing efforts and on providing our customers with products that delivered reliability, quality, durability, serviceability and high efficiency. These efforts, combined with the diversification of our product line and our customer mix, served to cushion the severely negative effects of the economy reached record levels last year, while our last year. financial position remained debt-free and highly liquid, despite a decline in our top line performance. We continued to benefit In 2009, total sales declined 12.3% to $245.3 million from $279.7 million. Gross profits in 2008 were $67.2 million (24.0% of sales) and, despite lower sales in 2009, they improved slightly to $67.5 million (27.5% of sales). SG&A expenses remained relatively high, at $23.8 million in both 2009 and 2008, but increased as a percentage of sales from 8.5% in 2008 to 9.7% in 2009 due to the reduction in sales, which reflected increased warranty reserves and various promotional expenses connected with new from stable raw material and component product introductions. pricing while our product pricing remained firm. The Company witnessed an impressive improvement in productivity Our operating income increased slightly to $43.8 million from $43.4 million and margins widened to 17.8% of sales from 15.5% of sales. Net income dipped 3.1% to $27.7 million (11.3% of sales) from $28.6 million (10.2% of sales). Earnings per share were $1.60 in both 2009 and 2008. The per share calculations are based upon 17.3 million diluted shares outstanding in 2009 and 17.9 million diluted shares in 2008. as manufacturing and marketing CANAdiAN pLANt CLOSiNg efforts continued to excel. All of these factors had a beneficial impact on gross margins, which widened once again. In September 2009, we closed our Canadian facility. We had purchased these operations in May 2004 at a cost of $1.8 million. Later that year, we bought additional property at a cost of $1.1 million, in order to relocate, enlarge and expand our production capabilities. The Canadian production has since been moved to our domestic facilities in Tulsa, Oklahoma, and Longview, Texas. Since the inception of its business, we have realized tax benefits from the losses incurred in Canada and, in the first nine months of 2009, this operation contributed sales of $3.5 million and lost $0.8 million or $0.05 per diluted share. The building and land are now up for sale and we expect the transaction to be completed during this year. StRONg FiNANCiAL CONditiON Our financial condition at December 31, 2009, remained strong. Total current assets were $96.2 million with a current ratio of 3:1. Capital expenditures reached $9.8 million, which was approximately the amount spent in 2008. We repurchased 165,117 shares of common stock at a cost of $3.1 million and made dividend payments of $5.9 million. Yet we maintained a strong liquid position, and with no long-term debt. “Our operating and net income margins reached record levels last year, while our financial position remained debt- free and highly liquid, despite a decline in our top line performance.” President’s LetterANNuAl RepORT “Our financial condition at December 31, 2009, remained strong. Total current assets were $96.2 Over the past decade we instituted three common stock repurchase programs. In 1999 the National Society of Professional Engineers (NSPE). In remainder of our expenditures will be devoted to machinery and 2002, two of these programs totalled 3.0 million shares at a cost of $36 million. In announcing the award, Richard Buchanan, Chairman of the purchases including metal fabricating equipment. At the November 2007 the Board of Directors authorized the third stock buyback of up to 10% New Product Award committee said, “this prestigious award end of 2009, our machinery capabilities could accommodate (approximately 1.8 million shares) of the outstanding common stock. Through 2008 we serves to not only recognize the engineering that goes into annual volume of up to $350-400 million depending on our had repurchased almost 1.7 million shares at a total cost of $33.7 million. During the these new products, but also the forward-thinking ability and product mix. past year we acquired an additional 25,546 shares and we purchased 10,000 shares of initiative of the companies who are bringing these products to stock from certain directors of the Company and 129,571 shares from AAON’s 401(k) light.” New pROduCtS savings and investment plan. We funded these stock buybacks out of our cash flow from At the outset of AAON’s business 22 years ago, the first products operations. We believe our sizeable cash flow can best be utilized by repurchasing our In August, Standard and Poor’s Index Services announced that manufactured were rooftop unitary units with 2-10 ton common stock at prices that, we believe, do not reflect AAON’s true value. AAON, Inc. would be added to the S&P Small Cap 600 GICS capacity, serving the commercial and industrial markets. This Building Products Sub-Industry index. Standard and Poor’s is market segment has traditionally been highly competitive due Return on average equity is a measure of how successfully a company uses reinvested the world’s foremost provider of independent credit ratings, to the significant number of companies operating in this size earnings to generate additional earnings. It is used as a general indication of the company’s indices, risk evaluation, investment research and data. range. Over the next two decades, we opted to concentrate our financial efficiency. In 2009 our return on average equity was 25.8% as compared with manufacturing efforts on higher tonnage units (10-230 tons). 29.8% a year earlier. Total shareholders’ equity advanced 22% to $118.0 million or $6.85 Finally, in October, and for the third consecutive year, AAON While these markets are far smaller, there is less competition, per share from $96.5 million or $5.61 per share in 2008. was selected to the Forbes 200 Best Small Companies list, which allows us greater pricing flexibility. million with a tHe COppeR Hedge ranking 58th. Inclusion on the Forbes list requires companies to meet a series of financial benchmarks, including return on We have grown significantly since then, in size and also in current ratio of 3:1. Capital expenditures reached $9.8 million, which was Traditionally, we have entered into cancellable purchase contracts for all of our equity, sales growth and profit growth over the past year and experience. We have built a solid manufacturing and financial commodity needs. Since the fourth quarter of 2008, due to a significant decline in the also over five years. The Company was also previously honored base, while offering a large diversity of HVAC products. We price of commodities, we also entered into non-cancellable contracts, mainly for copper. in this list for three consecutive years from 2000 to 2002. manufacture a complete line of semi-custom and custom As economic conditions continued to worsen, one of our main suppliers of copper encountered some financial difficulties. Fearful that our contracts could not be fulfilled, CApitAL expeNdituReS products which include rooftop units, air handling units, condensing units, chillers, heat recovery units, commercial we entered into a derivative instrument that re-assigned the rights of the non-cancellable We continue to pursue our commitment to expand our plant self-contained units and coils. In addition, we have begun to contract to a large financial institution. The increase in the price of copper through the and machinery capacity in order to meet the demands of our witness increased demand for our geothermal water-cooled last half of 2009 beneficially impacted our financial results, adding approximately $1.4 future growth. In 2009 our capital expenditures were $9.8 equipment. We continue to enjoy growing acceptance of our million to net income or $0.08 per share. million. We spent $3.0 million on the purchase of machinery technologically innovative, highly reliable, product lines. and equipment, with the remainder directed to plant and We continue to have a derivative position, which settles on a monthly basis, as we enter building additions and renovations. A significant portion Fortified by our manufacturing experience and financial this year. We are locked in at a price of $2.38 per pound through December 2010 for a of these expenditures was devoted to completing programs strength, AAON has once again focused its attention on the portion of our expected usage. Since the derivative instrument can be settled at any time, initiated in 2008. we closely monitor the price of the commodity. 2-10 ton markets, bringing the same features which enabled us to gain a strong foothold in larger tonnage products to the approximately ReCOgNitiONS For 2010, depending on the business outlook, we have budgeted smaller sized equipment. capital expenditures of $7-8 million. Once our incoming order the amount spent in 2008.” It is said that success has many suitors, but failure goes to the dance alone. Fortunately, rate begins to firm, signaling an improving business outlook, we In January of 2010, we introduced our redesigned 6-10 ton our dance card was quite full this past year. In June, the Company’s Digital Precise will expand our physical capacity including a new warehouse unitary products and are just now rolling out our newly updated Air Control (D-PAC) rooftop unit was recognized as the 2009 Product of the Year by and parts department at an estimated cost of $3-4 million. The 2-5 ton units. These products will have inner and outer sheet 2009tHe ONgOiNg SuCCeSS OF OuR COMpANy CAN Be diReCtLy AttRiButed tO OuR eMpLOyeeS. ANNuAl RepORT September Purchase of John Zink Air Conditioning Division. September Purchase of John Zink Air Conditioning Division. December December Formed AAON Coil Products, a Texas Corporation, Formed AAON Coil Products, a Texas Corporation, as a subsidiary to AAON, Inc. (Nevada) and as a subsidiary to AAON, Inc. (Nevada) and purchased coil making assets of Coils Plus. 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 Completed expansion of the Tulsa facility to 332,000 square feet. April September AAON received Completed expansion of the U.S. patent for Tulsa facility to 332,000 Blower Housing square feet. 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 April heat wheel. AAON received U.S. patent for Blower Housing assembly. 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. Fall Expanded rooftop product line to 230 tons. Introduced evaporative condensing energy savings feature. 3-for-2 stock split. Fall Expanded rooftop product line to 230 tons. Introduced evaporative condensing energy savings feature. 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 3-for-2 stock split. June 3-for-2 stock split. July AAON added as a member of the Russell 2000® Index. July AAON added as a member of the Russell 2000® Index. November Introduction of light commercial/residential product lines. November Introduction of light commercial/residential product lines. June Initiation of a semi-annual cash dividend for AAON shareholders. June Initiation of a semi-annual cash dividend for AAON shareholders. March Modular air handlerproduct extended to 50,000 CFM March Modular air handlerproduct extended to 50,000 CFM May AAON increases dividend payment by 13% May AAON increases dividend payment by 13% June • AAON Named to the Fortune 40: Best Stocks to Retire On • National Society of Professional Engineers Award AAON 2009 Product of the Year June • AAON Named to the Fortune 40: Best Stocks to Retire On • National Society of Professional Engineers Award AAON 2009 Product of the Year October October AAON Listed in Forbes ‘200 AAON Listed in Forbes ‘200 Best Small Companies’ Best Small Companies’ December December AAON rings closing AAON rings closing bell atNASDAQ bell atNASDAQ August August AAON added to Standard & AAON added to Standard & Poor’s SmallCap 600 Index Poor’s SmallCap 600 Index 88 ’88’89’90’91’92 ’93’94’4495’96’97’98’899 ’88’89’90’91’92 ’93’94’4495’96’97’98’899 98 97 92 91 93 92 95 94 91 90 94 93 96 95 99 98 90 89 89 88 97 96 99 December Listed on NASDAQ Small Cap—Symbol “AAON.” December Listed on NASDAQ Small Cap—Symbol “AAON.” November Listed on the NASDAQ National Market System. January January Introduced a desiccant heat Introduced a desiccant heat recovery wheel option available recovery wheel option available on all AAON rooftop units. on all AAON rooftop units. November Listed on the NASDAQ National Market System. November November AAON yearly shipments exceed AAON yearly shipments exceed $100 million. Received U.S. patent $100 million. Received U.S. patent for Dimpled Heat Exchanger Tube. for Dimpled Heat Exchanger Tube. 00 ’00’01’02’03 ’04’4405 ’06’6607 ’0808 ’00’01’02’03 ’04’4405 ’06’6607 07 06 03 02 06 05 01 00 02 01 07 August 3-for-2 stock split ’0808 ’09’ 09 August 3-for-2 stock split 09 ’09’ 04 03 05 04 July July Started production of Started production of polyurethane foam-filled polyurethane foam-filled double-wall construction double-wall construction panels for rooftop and chiller panels for rooftop and chiller products using newly purchased products using newly purchased manufacturing equipment. manufacturing equipment. October AAON listed in Forbes’ 200 Best Small Companies October AAON listed in Forbes’ 200 Best Small Companies July AAON products receive Dealer Design Awards from ACHR News Summer Became a publicly traded company with the reverse acquisition of Diamond Head Resources (now “AAON, Inc.”), a Nevada corporation. Summer Became a publicly traded company with the reverse acquisition of Diamond Head Resources (now “AAON, Inc.”), a Nevada corporation. August AAON, an Oklahoma corporation, was founded. August AAON, an Oklahoma corporation, was founded. 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. 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. October AAON, listed in FORBES Magazine’s “Hot Shots 200 Up & Comers.” October AAON, listed in FORBES Magazine’s “Hot Shots 200 Up & Comers.” Fall Industry introduction of the modular air handler and chiller products. Fall Industry introduction of the modular air handler and chiller products. April April AAON introduces factory AAON introduces factory engineered and assembled engineered and assembled packaged mechanical packaged mechanical room, which includes a room, which includes a boiler and all piping and boiler and all piping and pumping accessories. pumping accessories. August August AAON received U.S. Patent AAON received U.S. Patent for Plenum Fan Banding. for Plenum Fan Banding. July AAON products receive Dealer Design Awards from ACHR News October • AAON rings opening bell at NASDAQ • AAON voted “Most Valuble Product” and “Product of the Year” by Consulting- Specifying Engineer Magazine • AAON listed in Forbes’ 200 Best Small Companies October • AAON rings opening bell at NASDAQ • AAON voted “Most Valuble Product” and “Product of the Year” by Consulting- Specifying Engineer Magazine • AAON listed in Forbes’ 200 Best Small Companies metal walls filled with foam, making composite construction of production, we will, understandably, incur introductory The American Recovery and Reinvestment Act of 2009 provides a tax for the cabinets. Similar to our competitors, we formerly used marketing and training costs. We expect these factors to have a credit for geothermal installations and helps to reduce the payback a single sheet metal panel with a fiberglass inner liner for our negative impact on our gross margins, but the additional sales period. This tax credit, along with our unique cabinet design and high cabinet construction, which was inferior to our new, stronger should modestly benefit our net income. The 2-10 ton segment operating efficiency, has led to an increase in our geothermal sales of and better insulated composite panels. In addition, these is quite large, contributing as much as 55-60% of the total approximately 300% from 2008 to 2009. products will be manufactured with our direct drive blower unitary rooftop market, which we estimate to be approximately assemblies that operate without drive belts, which eliminates $2.0-2.2 billion annually. Undoubtedly, our decision to expand SALeS RepReSeNtAtiVe peRFORMANCe the need to adjust or replace fan belts. These assemblies also into this market will involve some significant near-term costs. Once again, our sales representatives performed exceedingly well, operate with our airfoil backward curved fan that is much On a longer term basis though, this market segment offers us particularly in the face of a difficult economic climate. At the end of “We continue to pursue our commitment to expand our plant and machinery capacity in order to meet the demands more efficient than the traditional belt driven forward curved excellent growth potential. fan system. We will continue to offer the customer the ability to add certain options to the units. Many other companies are geOtHeRMAL 2009, our network consisted of 106 offices in all 50 states and Canada, and contributed approximately 95% to our total sales. Our market share continues to expand, aided by the diversification of our customer mix. of our future growth. In 2009 our capital expenditures were able to “mass customize” their products, yet they choose not to, Geothermal units, also known as geo-exchange, ground- We witnessed good demand in such end markets as education, health opting to keep their production methods more standardized, source or water-source heating and cooling units, substantially care and government and municipal buildings, which partially offset thereby enabling them to operate in the higher volume, lower reduce electricity consumption in buildings by harnessing the the negative tone in the commercial, industrial and retail sectors. The priced market segments. nearly constant natural temperature of the earth or a body of success of our product line diversification through the introduction $9.8 million.” In order to establish AAON in this crowded arena, we expect The payback for geothermal systems historically ranged from sales representatives. We believe they will continue to be a significant to competitively price our base unit. During the first full year two to 10 years, depending on the energy usage of the building. factor in our future growth. water and exchanging that energy to heat or cool the building. of new innovative products is directly attributable to the efforts of our 2009ANNuAl RepORT “Fortified by our manufacturing experience and financial strength, AAON has once again focused its attention on the 2-10 ton markets, bringing the same features which enabled us to gain a strong foothold in larger tonnage products to the smaller sized equipment.” OuR eMpLOyeeS on preventative care. Our first year using this as our sole health has enabled the Company to diversify both its manufacturing Like many companies with reduced demand in 2009, we were faced with the need to plan offering performed so well that we doubled the Company and customer mix. The response from our customers has been balance our employment costs with production requirements while retaining the talented matching contribution, increased the wellness incentive by excellent. We will continue to expend the capital necessary to and capable personnel who enable this organization to grow and thrive. Our solutions 160%, lowered the maximum out of pocket amount by 45%-70% enlarge our machinery and manufacturing capacity as business focused on reductions through attrition and reduced work schedules. We proactively for nearly all covered employees and introduced a preventative conditions warrant. communicated with our personnel regarding the economic environment facing the medication program. Nearly all covered employees have seen the Company and sought their input in addressing our reduced production requirements. total cost of health care drop since changing from a traditional The challenges that confronted us during the past year could not This resulted in some postponed maintenance work being completed by manufacturing PPO plan, while wellness indicators have improved. By focusing have been met without the cooperation and confidence of our personnel along with numerous unpaid days off being used through a more generous on prevention and wellness, we have seen improvements in blood customers, sales representatives and shareholders, as well as the attendance policy. We believe that this flexible and inclusive means of addressing our pressure, cholesterol, blood sugar levels and smoking rates, while loyalty of our committed employees, all of whose names appear reduced manufacturing demands has allowed us to retain our most skilled personnel simultaneously reducing name-brand prescription usage. Giving at the end of this report. These continuing efforts augur well for and will enable us to respond to opportunities arising in the future. employees more direct control over their health-care dollars has AAON’s future growth. Since our founding, we have distributed 10% of pre-tax profits equally to all personnel at This plan design is expected to benefit employees through Sincerely, an operating subsidiary who worked from the beginning of a quarter through the end of improved health while keeping health care costs competitive for the quarter. Throughout this challenging employment period, our long standing “Profit the Company and its shareholders. Sharing” arrangement has rewarded employees with an equal portion of the profits of the subsidiary for which they work and provided an immediate reward for maintaining the We continue to carefully monitor our personnel situation in Norman H. Asbjornson subsidiary’s profitability. For a long-term focus, our employees now own more than 3% light of economic developments. Our employees are a long-term President & CEO of the Company’s outstanding stock through the 401(k) plan which allows employees to investment in skills, talent and knowledge and we intend to April 14, 2010 made our employees more health-conscious and cost-conscious. benefit, along with other shareholders, from share appreciation. All company shares in remain cautious about any dramatic changes that could hinder the 401(k) plan are purchased on the open market, using either cash contributions from our ability to respond quickly to market opportunities. We the Company, dividends received from company stock or cash from prior divestitures of believe that our approach to personnel will allow us to capitalize company stock in the plan. Shares in the plan are later sold to the Company and retired if upon changing market conditions and maximize shareholder participants diversify their holdings or leave the plan. This program improves retirement value. preparedness and encourages employee longevity through a six-year vesting structure. We believe that the combination of these two incentive structures aligns the interests of OutLOOk our employees with those of our shareholders in a manner designed to improve capital The economic malaise which began in late 2008 continues to appreciation and profitability. grip our industry. While the near term outlook remains clouded, we are bolstered by the significant strides the Company has Our emphasis on individual responsibility and long-term planning also appears in made in our manufacturing capabilities and financial stability. our health plan design. We are in our second year of offering only a high-deductible We have broadened our product line through the introduction health plan along with matching contributions to health savings accounts and wellness of a number of new, technologically innovative products directly incentives in conjunction with our nearly five-year-old on-site clinics which are focused addressing our major industry concern: energy efficiency. This 2009UNITeD STATeS SeCUrITIeS AND exChANge COmmISSION Washington, D.C. 20549 FOrm 10-K [3] [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2009 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) tABLe OF CONteNtS iteM NuMBeR ANd CAptiON pAge NuMBeR 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. Registrant’s telephone number, including area code: (918) 583-2266 pARt ii 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. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). q Yes q No 3 q Yes q No 3 3 q Yes q No q Yes q No 3 q Not Applicable 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, 2009) was $341.8 million. As of February 25, 2010, registrant had outstanding a total of 17,185,037 shares of its $.004 par value Common Stock. 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. Portions of registrant’s definitive Proxy Statement to be filed in connection with the Annual Meeting of Stockholders to be held May 25, 2010, are incorporated into Part III. 15. exhibits and Financial Statement Schedules. DOCUMENTS INCORPORATED BY REFERENCE pARt iV 1 4 5 6 6 6 7 9 10 17 18 19 19 20 21 21 21 21 22 23 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., 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 closed our manufacturing operations and reclassified our Canadian facility as held for sale in September 2009. The products previously manufactured at the Canadian facility will be produced by the Tulsa, Oklahoma, and Longview, Texas, facilities in the future. We are engaged in the manufacture and sale of air-conditioning and heating equipment. Our products consist of rooftop units, chillers, air-handling units, make-up air units, heat recovery units, condensing units, commercial self contained units and coils. pROduCtS ANd MARketS Our products serve the commercial and industrial new construction and replacement markets. To date our sales have been primarily to the domestic market. Foreign sales accounted for less than 5% of our sales in 2009. 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, commercial self contained units, chillers, and coils are applicable to all sizes of commercial and industrial buildings. The size of these markets is determined primarily by the number of commercial and industrial building completions. The replacement market consists of products installed to replace existing units/components 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 2009 level of sales of $245 million, we estimate that we have a 13% share of the rooftop market and a 1% share of the coil market. Approximately 45% of our sales now come from new construction and 55% from renovation/replacements. The percentage of sales for new construction vs. replacement to particular customers is related to the customer’s stage of development. 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 chillers, coils, air-handling units, condensing units, make-up air units, heat recovery units and commercial self-contained units. We offer four groups of rooftop units. Our RQ Series consisting of six cooling sizes ranging from one to six tons; our RN Series offered in 18 cooling sizes ranging from six 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 offered in eight sizes ranging from seven and one-half to 50 tons. We also produce the MN Series rooftop products, in sizes as required. We manufacture a Model LC Chiller, air cooled, and 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 and the modular (M2 and M3) Series. Our heat recovery option applicable to our RQ, RN and RL units, as well as our M2 and M3 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. ANNuAl RepORT Performance characteristics of our products range in cooling capacity from 20,000 - 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). MAjOR CuStOMeRS No customer accounted for 10% of our sales during 2009, 2008 or 2007. 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 and by hedging copper prices in the form of derivatives. 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, prior to the termination of our operations there in September 2009, 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 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 self-sponsored, rather than customer-sponsored. R&D has involved the RQ, RN, RL and MN (rooftop units), F1, H/V, M2 and M3 (air handlers), LC and LL (chillers), CB and CC (condensing units), SA (commercial self-contained 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 $3,074,000, $2,577,000 and $2,483,000 in 2009, 2008 and 2007, respectively. BACkLOg Our current backlog as of March 1, 2010, was approximately $39,844,000 compared to approximately $45,182,000 at March 1, 2009. The current backlog consists of orders considered by management to be firm and substantially all of which will be filled by August 1, 2010; however, the orders are subject to cancellation by the customers. 1 2 2009ANNuAl RepORT wORkiNg CApitAL pRACtiCeS iteM 1A. RiSk FACtORS. 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 2010. We do not expect 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. 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 The following risks and uncertainties may affect our performance and results of operations. OuR BuSiNeSS HAS BeeN 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 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 has resulted 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. As of March 1, 2010, we had 1,165 permanent employees and 13 temporary employees. Our employees are not currently represented by unions. Management considers relations with our employees to be good. we RiSk HAViNg LOSSeS ReSuLtiNg FROM tHe uSe OF NONCANCeLABLe Fixed pRiCe CONtRACtS ANd deRiVAtiVeS. 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. Historically, we attempted to limit the impact of price fluctuations on commodities by entering into noncancelable fixed price contracts with our major suppliers for periods of 6 - 18 months. We expect to receive delivery of raw materials from our fixed price contracts for use in our manufacturing operations. These fixed price contracts are not accounted for as derivative instruments since they meet the normal purchases and sales exemption. In the third quarter of 2009, we began hedging copper prices in the form of derivatives. If future copper prices decline below our contract prices, a corresponding loss would result. Derivative transactions also involve the risk that our counterparty, which currently is one financial institution, may be unable to satisfy their obligations to us. If our counterparty were to default on its obligations to us under a forward purchase contract or seek bankruptcy protection, it could have a material adverse effect on our profit margins. In addition, in the current economic environment and tight financial markets, the risk of counterparty default is heightened, which could result in a larger percentage of our future production being subject to commodity price changes. 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. we MAy iNCuR MAteRiAL COStS AS A ReSuLt OF wARRANty ANd pROduCt LiABiLity CLAiMS tHAt wOuLd NegAtiVeLy AFFeCt OuR pROFitABiLity. 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. 3 4 2009ANNuAl RepORT we MAy NOt Be ABLe tO COMpete FAVORABLy iN tHe HigHLy COMpetitiVe HVAC BuSiNeSS. iteM 2. pROpeRtieS. 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. tHe LOSS OF NORMAN H. ASBjORNSON COuLd iMpAiR tHe gROwtH OF OuR BuSiNeSS. Norman H. Asbjornson, our founder, 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. The plant and office facilities in Tulsa, Oklahoma, consist of a 337,000 sq. ft. 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 693,000 sq. ft. manufacturing/ warehouse building and a 22,000 sq. ft. 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. In the expansion facility 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 sq. ft. is utilized for sheet metal fabrication. The remaining 487,000 sq. ft. is presently being prepared as additional plant space for long-term growth. 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 previous operations (closed in September 2009) in Burlington, Ontario, Canada, were located at 279 Sumach Drive, consisting of an 82,000 sq. ft. office/manufacturing facility on a 5.6 acre tract of land, currently listed for sale. OuR BuSiNeSS iS SuBjeCt tO tHe RiSkS OF iNteRRuptiONS By pROBLeMS SuCH AS COMputeR ViRuSeS. iteM 3. LegAL pROCeediNgS. 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. 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. expOSuRe tO eNViRONMeNtAL LiABiLitieS COuLd AdVeRSeLy AFFeCt OuR ReSuLtS OF OpeRAtiONS. iteM 4. SuBMiSSiON OF MAtteRS tO A VOte OF SeCuRity HOLdeRS. 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. we ARe SuBjeCt tO AdVeRSe CHANgeS iN tAx LAwS. Tax benefits could be adversely affected by changes in tax provisions, unfavorable findings in tax examinations or differing interpretations by tax authorities. We are unable to estimate the impact that current and future tax proposals and tax laws could have on our results of operations. We are not currently under audit by any taxing jurisdiction. iteM 1B. uNReSOLVed StAFF COMMeNtS. None. No matter was submitted to a vote of security holders, through solicitation of proxies or otherwise, during the period from October 1, 2009 through December 31, 2009. 5 6 2009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 Global Select 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 HigH LOw March 31, 2008 June 30, 2008 September 30, 2008 December 31, 2008 March 31, 2009 June 30, 2009 September 30, 2009 December 31, 2009 $ $ $ $ $ $ $ $ 20.52 $ 15.88 22.92 $ 17.60 22.85 $ 16.91 21.20 $ 12.92 20.93 $ 14.81 21.86 $ 16.22 21.97 $ 18.81 20.52 $ 18.01 On February 25, 2010, there were 1,001 holders of record, and approximately 3,500 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 semi-annual dividends of $0.20 per share. The Board of Directors approved dividend payments of $0.16 per share related to the stock split effective August 21, 2007. The Board of Directors approved future dividend payments of $0.18 per share on May 19, 2009. Board approval is required to determine the date of declaration and amount for each semi-annual dividend payment. In 2009, dividends were declared to shareholders of record at the close of business on June 11, 2009 and December 14, 2009 and were paid on July 2, 2009 and January 4, 2010. We paid cash dividends of $5.9 million during the year ended December 31, 2009, and accrued a liability for payment of $3.1 million of dividends in January 2010. 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 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 current market prices. 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, 2009, we repurchased a total of 1,717,804 shares under this program for an aggregate price of $34,192,008, or an average of $19.90 per share. We purchased the shares at current market prices. 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, 2009, we repurchased 760,477 shares for an aggregate price of $12,589,311, or an average price of $16.55 per share. We purchased the shares at current market prices. On November 7, 2006, the Board of Directors authorized us to repurchase shares from certain directors and officers following their exercise of stock options. The maximum number of shares to be repurchased under the program is unknown as the amount is contingent on the number of shares sold. Through December 31, 2009, we repurchased 350,375 shares for an aggregate price of $7,167,623, or an average price of $20.46 per share. We purchased the shares at current market prices. ANNuAl RepORT Repurchases during the fourth quarter of 2009 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 2009 November 2009 December 2009 Total 20,570 5,163 4,607 30,340 StOCk peRFORMANCe gRApH (1) $18.86 $19.70 $19.46 $19.09 20,570 5,163 4,607 30,340 - - - - 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, 2004, 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 2009 250.00 200.00 150.00 100.00 50.00 0.00 2004 2005 2006 2007 2008 2009 AAON INC. S&P 500 Index - Total Returns Peer Group The peer group consists of Lennox International, Inc., Ingersoll Rand Limited, Johnson Controls Inc., and United Technologies Corporation. All companies in the peer group 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. 7 8 2009 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: 2009 2008 2007 2006 2005 yeARS 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) 245,282 $ 279,725 $ 262,517 $ 231,460 $ 185,195 27,721 $ 28,589 $ 23,156 $ 17,133 $ 11,462 1.61 $ 1.60 $ 0.36 $ 1.63 $ 1.60 $ 0.32 $ 1.24 $ 1.22 $ 0.32 $ 0.93 $ 0.90 $ 0.32 $ 0.62 0.60 - 17,187 17,309 17,560 17,855 18,628 18,927 18,456 18,968 18,510 19,125 deCeMBeR 31, Financial position at end of Fiscal year: 2009 2008 2007 2006 2005 Working capital Total assets Long-term and current debt Total stockholders’ equity (in thousands) $ $ $ $ 65,354 $ 40,600 $ 38,788 $ 36,356 $ 33,372 156,211 $ 140,743 $ 137,140 $ 130,056 $ 113,606 76 $ 3,113 $ 330 $ 59 $ 167 117,999 $ 96,522 $ 95,420 $ 91,592 $ 79,495 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 rooftop units, chillers, air-handling units, make- up air units, heat recovery units, condensing units, commercial self-contained units and coils. These products 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 were less than 5% of our 2009 sales. 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 2009 and 2008 due to the economic environment. Prices decreased by approximately 31% for steel, 20% for aluminum and 24% for copper from December 31, 2006 to December 31, 2009. We have entered into contracts that are below the average index price as of December 31, 2009. The lower commodity prices have contributed to our lower cost of goods sold and higher gross margins. We entered into a derivative instrument in the third quarter of 2009 with a large financial institution to mitigate our exposure to volatility in copper prices. The derivative is in the form of a commodity futures contract. The derivative contract settles monthly beginning in January 2010 and ending in December 2010. The contract is for a total of 2,250,000 pounds of copper at $2.383 per pound. The contract is for quantities equal to or less than those expected to be used in our manufacturing operations in 2010. We are subject to claims and legal actions that arise in the ordinary course of business. Management believes that the ultimate liability from these claims and actions, if any, will not have a material effect on our results of operations or financial position. In addition to our derivative instrument, 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 - 18 months. We expect to receive delivery of raw materials from our fixed price contracts for use in our manufacturing operations. These contracts are not accounted for as derivative instruments since they meet the normal purchases and sales exemption. Selling, general, and administrative (“SG&A”) costs include our internal sales force, warranty costs, profit sharing and administrative expenses. 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 plant and office facilities in Tulsa, Oklahoma, consist of a 337,000 sq. ft. building (322,000 sq. ft. of manufacturing/warehouse space and 15,000 sq. ft. of office space) located at 2425 S. Yukon Avenue (the “original facility”), and a 693,000 sq. ft. manufacturing/warehouse building and a 22,000 sq. ft. office building (the “expansion facility”) located across the street from the original facility at 2440 S. Yukon Avenue. In the expansion facility 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 sq. ft. is utilized for sheet metal fabrication. The remaining 487,000 sq. ft. is presently being prepared as additional plant space for long-term growth. Our operations in Longview, Texas, are conducted in a plant/office building at 203-207 Gum Springs Road containing 258,000 sq. ft. (251,000 sq. ft. of manufacturing/warehouse space and 7,000 sq. ft. of office space). An additional contiguous 15 acres were purchased in 2004 and 2005 for future expansion. Our previous operations in Burlington, Ontario, Canada, were located at 279 Sumach Drive, consisting of an 82,000 sq. ft. office/manufacturing facility. The facility was classified as available for sale upon closure of our manufacturing operations in September 2009. We plan to sell the property within one year. 9 10 2009 Set forth below is income statement information and as a percentage of sales for years 2009, 2008 and 2007: Net SALeS ANNuAl RepORT yeARS eNdiNg deCeMBeR 31, 2009 2008 (in thousands) 2007 $ 245,282 100.0% $ 279,725 100.0% $ 262,517 100.0% 177,737 67,545 23,791 43,754 (9) 71 76 72.5% 27.5% 9.7% 17.8% 0.0% 0.0% 0.1% 212,549 76.0% 205,148 67,176 24.0% 57,369 23,788 43,388 (71) 27 724 44,068 15,479 8.5% 15.5% 0.0% 0.0% 0.3% 15.8% 5.6% 21,703 35,666 (10) 8 (321) 35,343 12,187 78.1% 21.9% 8.3% 13.6% 0.0% 0.0% (0.1%) 13.5% 4.7% 8.8% Income before income taxes 43,892 17.9% Income tax provision 16,171 6.6% Net income $ 27,721 11.3% $ 28,589 10.2% $ 23,156 Net sales Cost of sales Gross profit Selling, general and administrative expenses Income from operations Interest expense Interest income Other income (expense), net ReSuLtS OF OpeRAtiONS Key events impacting our cash balance, financial condition and results of operations in 2009 include the following: • 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 in early 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. • We have attempted to moderate certain commodity costs by utilizing purchase agreements and pricing strategies which affect our gross margins. • In February 2006, our Board of Directors initiated a program of semi-annual cash dividend payments. Cash payments of $5.9 million were made ($2.8 million paid in January 2009 and $3.1 million paid in July 2009), and accrued a liability for payment of $3.1 million of dividends in January 2010. • Stock repurchases from our employees’ 401(k) savings and investments plan were authorized in 2005. Stock repurchases from directors and officers were authorized in 2006. Repurchases of our stock from the open market were authorized and initiated in November 2007. Total repurchases resulted in cash payments of $3.1 million. This cash outlay is partially offset by cash received from options exercised by employees as a part of an incentive bonus program of $1.2 million. • We have a strong liquidity position with cash on hand of $25.6 million. In view of the current economic environment, our goal remains to keep a healthy financial condition. • Purchases of equipment and renovations to manufacturing facilities remained a priority. Our capital expenditures were $9.8 million. Equipment purchases create significant efficiencies, lower production costs and allow continued growth in production. We currently estimate dedicating $7-8 million to capital expenditures in 2010 for continued growth. • We expanded a portion of our manufacturing facility in 2009 for future growth. • We closed our manufacturing operations and reclassified our Canadian facility as held for sale in September 2009. The products previously manufactured at the Canadian facility will be produced by the Tulsa, Oklahoma, and Longview, Texas, facilities in the future. Net sales were $245.3 million, $279.7 million and $262.5 million in 2009, 2008 and 2007, respectively. Sales decreased $34.4 million or 12.3% in 2009 from 2008 which was attributable to the decreased volume related to the current economic environment and lower sales from our Canadian operations. The current economic environment has negatively impacted commercial construction markets with some projects delayed, postponed indefinitely or cancelled. The replacement market has also been affected by customers delaying equipment replacement as a cost saving strategy. The increase in sales in 2008 from 2007 was due to an increase in volume of products 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 the then increasing raw material costs. New commercial construction steadily improved throughout 2007, contributing to growth of the market. gROSS pROFit Gross margins were $67.5 million, $67.2 million and $57.4 million in 2009, 2008 and 2007, respectively. Gross margins increased $0.3 million in 2009 from 2008. As a percentage of sales, gross margins were 27.5%, 24.0% and 21.9% in 2009, 2008 and 2007, respectively. The 15% increase in gross margins percentage in 2009 from 2008 was primarily a result of lower material costs, improved production and labor efficiencies, a reduction in manufacturing related expenses and a $2.2 million ($1.4 million net of tax) unrealized gain from a derivative asset included in cost of sales, despite lower net sales and expenses associated with the Canadian facility closure. Our gross margins as a percentage of sales excluding the unrealized gain were 26.6%, 24.0% and 21.9% in 2009, 2008 and 2007, respectively. The increase in gross profit in 2008 from 2007, resulted from pricing strategies implemented and production and labor efficiencies, as sales volume increased. 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. 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 of steel, copper and aluminum used in their products. The raw materials market was volatile during 2009 and 2008 due to the economic environment. Prices decreased by approximately 31% for steel, 20% for aluminum and 24% for copper from December 31, 2006 to December 31, 2009. We have entered into contracts that are below the average index price as of December 31, 2009. The lower commodity prices have contributed to our lower cost of goods sold and higher gross margins. We entered into a derivative instrument in the third quarter of 2009 with a large financial institution to mitigate our exposure to volatility in copper prices. The derivative is in the form of a commodity futures contract. The derivative contract settles monthly beginning in January 2010 and ending in December 2010. The contract is for a total of 2,250,000 pounds of copper at $2.383 per pound. The contract is for quantities equal to or less than those expected to be used in our manufacturing operations in 2010. We are subject to claims and legal actions that arise in the ordinary course of business. Management believes that the ultimate liability from these claims and actions, if any, will not have a material effect on our results of operations or financial position. In addition to our derivative instrument, 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 - 18 months. We expect to receive delivery of raw materials from our fixed price contracts for use in our manufacturing operations. These contracts are not accounted for as derivative instruments since they meet the normal purchases and sales exemption. SeLLiNg, geNeRAL ANd AdMiNiStRAtiVe expeNSeS Selling, general and administrative expenses (“SG&A”) were $23.8 million, $23.8 million and $21.7 million in 2009, 2008 and 2007, respectively. In 2009, our SG&A expenses remained consistent with 2008, despite lower sales volumes in 2009 compared to 2008. Warranty expenses in 2009 increased due to specific warranty items and sales related expenses increased due to our expanded marketing to remain competitive in the current environment. As a percentage of sales, SG&A expenses were 9.7%, 8.5% and 8.3% in 2009, 2008 and 2007, respectively. The increase in SG&A expenses in 2008 from 2007 was 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. 11 12 2009 iNteReSt expeNSe Interest expense was approximately $9,000, $71,000 and $10,000 in 2009, 2008 and 2007, respectively. The decrease in interest expense of approximately $62,000 in 2009 from 2008 was due to fewer borrowings on the revolving credit facility. We borrowed $10.0 million from the revolving credit facility during 2009 compared to $46.9 million during 2008. Interest on borrowings is payable monthly at the greater of 4.0% or LIBOR plus 2.5% (4.0% at December 31, 2009). The increase in interest expense in 2008 from 2007 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. In 2007, we borrowed $12.1 million from the revolving credit facility. Average borrowings under the revolving credit facility are typically paid in full within the month of borrowing or the following month. iNteReSt iNCOMe Interest income was approximately $71,000, $27,000 and $8,000 in 2009, 2008 and 2007, respectively. The increase in interest income of approximately $44,000 in 2009 from 2008 was mainly due to interest income from a tax refund. The increase in interest income in 2008 from 2007 was due to interest paid for repurchased stock that was held in transit by the transfer agent in early 2008. OtHeR iNCOMe (expeNSe) Other income was approximately $76,000 and $724,000 in 2009 and 2008, respectively. The decrease in other income of approximately $648,000 in 2009 from 2008 was due to the termination of the lease on our expansion facility. The increase in other income in 2008 from 2007 was primarily related to foreign currency translations that resulted from operations in Canada. Other expense was approximately $321,000 in 2007. Prior to the lease expiration in May 2009, other income was primarily attributable to rental income from our expansion facility. We began renovations on the expansion facility to give us increased manufacturing capacity upon expiration of the lease. Our 2010 capital expenditures budget reflects the projected outlay to remodel the facility. 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 economy has negatively impacted the commercial and industrial new construction markets. The current decline in economic activity has resulted in a decrease in our sales volume and profitability. 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. ANNuAl RepORT 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 2010 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 adjust dividend cash payments, and our relationship with our existing bank lender. For information concerning our revolving credit facility at December 31, 2009, see Note 3, Revolving Credit Facility. Cash Provided by Operating Activities. Net cash provided from operating activities has fluctuated from year to year. Net cash provided by operating activities was $45.2 million, $33.4 million and $31.2 million in 2009, 2008 and 2007, respectively. The year-to-year variances are primarily from changes in net income, accounts receivable, inventories, accounts payable and accrued liabilities as described below. Net income for 2009 was $27.7 million, a decrease of $0.9 million from $28.6 million in 2008. The decrease in net income in 2009 from 2008 was primarily due to lower volume of sales which was a result of the current economic environment and lower sales from our Canadian operations offset by lower material costs, improved production and labor efficiencies, a reduction in manufacturing related expenses and a $2.2 million ($1.4 million net of tax) unrealized gain from a derivative asset. The increase in net income in 2008 from 2007 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 $9.1 million, $9.4 million and $9.7 million in 2009, 2008 and 2007, respectively. The decrease in depreciation is due to the realization of full depreciation of certain capital assets. Share-based compensation was $0.8 million, $0.8 million and $0.6 million in 2009, 2008 and 2007, respectively. Both depreciation expense and share-based compensation expense decreased net income, but had no effect on operating cash. Accounts receivable decreased by $5.5 million at December 31, 2009 due to a decrease in sales during 2009 compared to December 31, 2008. Accounts receivable increased by $0.9 million at December 31, 2008 compared to December 31, 2007. The increase in accounts receivable in 2008 from 2007 was attributable to an increase in sales. Accounts receivable increased by $1.8 million at December 31, 2007 compared to December 31, 2006 due to increased sales. Inventories decreased by $7.2 million at December 31, 2009 compared to December 31, 2008 due to a decrease in inventory requirements related to lower sales volumes, a decrease related to the valuation of inventories due to lower raw material and component part prices and sales of inventory as part of the Canadian facility closure. Inventories increased by $4.8 million at December 31, 2008 compared to December 31, 2007. The increase in inventories in 2008 from 2007 was attributable to procurement of inventory to accommodate an increase of sales. Inventories increased by $2.1 million at December 31, 2007 compared to December 31, 2006 primarily related to the valuation of inventories due to higher raw material and component part costs. 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. Accounts payable decreased by $6.3 million at December 31, 2009 compared to December 31, 2008 due to fewer purchases related to lower sales volumes. Accounts payable increased by $0.4 million at December 31, 2008 compared to December 31, 2007. The increase in accounts payable in 2008 from 2007 was attributable to timing of payments to vendors. Accounts payable decreased by $1.4 million at December 31, 2007 compared to December 31, 2006 due to the timing of payment to vendors. 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 $0.9 million. Borrowings available under the revolving credit facility at December 31, 2009, were $14.3 million. The letter of credit is a requirement of our workers compensation insurance and was extended in 2009 and will expire December 31, 2010. Interest on borrowings is payable monthly at the greater of 4.0% or LIBOR plus 2.5% (4.0% at December 31, 2009). No fees are associated with the unused portion of the committed amount. At December 31, 2009, we had no borrowings outstanding under the revolving credit facility. 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. At December 31, 2009, 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, 2009 our tangible net worth was $118.0 million which meets the requirement of being at or above $75.0 million. Our total liabilities to tangible net worth ratio was 1 to 3 which meets the requirement of not being above 2 to 1. Our working capital was $65.4 million which meets the requirement of being at or above $30.0 million. On July 30, 2009, we renewed the line of credit with a maturity date of July 30, 2010 with terms substantially the same as the previous agreement. We expect to renew our revolving credit agreement in July 2010. We do not anticipate that the current situation in the credit market will impact our renewal. Accrued liabilities increased by $0.8 million at December 31, 2009 compared to December 31, 2008 due to higher warranty and medical self- insurance reserves related to specific items. Accrued liabilities increased by $0.9 million at December 31, 2008 compared to December 31, 2007. The increase in accrued liabilities in 2008 from 2007 is attributable to higher workers compensation expenses and higher warranty expenses related to increased sales. Accrued liabilities increased by $6.3 million at December 31, 2007 compared to December 31, 2006 due to an increase in commissions payable related to the increase in sales and timing of commissions payable. Cash Flows Used in Investing Activities. Cash flows used in investing activities were $9.6 million, $9.6 million and $10.8 million in 2009, 2008 and 2007, respectively. Cash flows used in investing activities in 2009 did not significantly fluctuate from 2008 and were related to manufacturing and equipment purchases and costs to expand our manufacturing facilities. The decrease in cash flows used in investing activities in 2008 from 2007 was primarily related to lower capital expenditures. Management utilizes cash flows provided from operating activities to fund capital expenditures that are expected to increase growth and create efficiencies. We expect to expend approximately $7-8 million in 2010 for renovation of the previously leased facility and equipment. We expect the cash requirements to be provided by cash flows from operations. We did not invest in any certificates of deposits in 2009, 2008 or 2007. In January 2010, we invested $15.0 million with a large financial institution. The investments were allocated to cash and money market funds, mutual funds, certificates of deposit, corporate notes and bonds and foreign corporate notes and bonds with a maturity of one year or less. 13 14 2009Cash Flows Used in Financing Activities. Cash Flows Used in Financing Activities. Cash flows used in financing activities were $10.1 million, $24.5 million and $20.0 million in 2009, 2008 and 2007, respectively. The decrease in cash flows used in financing activities of $14.4 million in 2009 from 2008 is primarily related to a lower volume of stock repurchases. The increase in cash flows used in financing activities in 2008 from 2007 was primarily related to cash dividends declared and paid and the continued repurchase of our stock. We occasionally utilize our revolving line of credit to meet certain short-term cash demands based on our liquidity at the time. We had no borrowings outstanding under the revolving credit facility at December 31, 2009. We had $2.9 million outstanding under the line of credit at December 31, 2008. We had no borrowings outstanding under the revolving credit facility at December 31, 2007. We accessed $10.0 million, $46.9 million and $12.1 million of borrowings under the line of credit during 2009, 2008 and 2007, respectively. We received cash from stock options exercised of $1.2 million, $1.7 million and $2.4 million and classified the excess tax benefit of stock options exercised and restricted stock awards vested of $0.7 million, $1.6 million and $3.0 million in financing activities in 2009, 2008 and 2007, respectively. We repurchased shares of stock under the Board of Directors authorized stock buyback programs. We also repurchased shares of stock from our employees’ 401(k) savings and investment plan, directors and officers and the open market in the amount of $3.1 million for 165,117 shares, $24.8 million for 1,211,538 shares and $20.8 million for 1,082,736 shares of stock in 2009, 2008 and 2007, respectively. On February 14, 2006, the Board of Directors voted to initiate a semi-annual cash dividend. We initially paid semi-annual dividends of $0.20 per share. 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 included herein has been restated to reflect the stock split. The Board of Directors approved future dividend payments of $0.18 per share on May 19, 2009. Board approval is required to determine the date of declaration and amount for each semi-annual dividend payment. Cash dividend payments of $5.9 million were made in 2009, and we accrued a liability for payment of $3.1 million of dividends in January 2010. 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. COMMitMeNtS ANd CONtRACtuAL AgReeMeNtS The following table summarizes our long-term debt and other contractual agreements as of December 31, 2009: pAyMeNtS due By peRiOd (in thousands) CONtRACtuAL OBLigAtiONS tOtAL LeSS tHAN 1 yeAR 1–3 yeARS 4–5 yeARS AFteR 5 yeARS Long-term capital leases Purchase obligations(1) Total contractual obligations $ $ 76 $ 76 $ 2,332 2,332 2,408 $ 2,408 $ - $ - - $ - $ - - $ - - - (1) Purchase obligations consist primarily of copper and aluminum commitments. We are a party to several short-term, cancelable and noncancelable, fixed price contracts with major suppliers from our fixed price contracts for the purchase of raw material and component parts. We expect to receive delivery of raw materials for use in our manufacturing operations. These contracts are not accounted for as derivative instruments because they meet the normal purchases and sales exemption. We are subject to claims and legal actions that arise in the ordinary course of business. Management believes that the ultimate liability from these claims and actions, if any, will not have a material effect on our results of operations or financial position. The fixed rate interest on long-term capital leases 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. ANNuAl RepORT CRitiCAL ACCOuNtiNg pOLiCieS The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because these estimates and assumptions require significant judgment, future actual results could differ from those estimates and could have a significant impact on 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 exchangers do not occur frequently. 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 $125,000 each. Stock Compensation – We account for equity-based compensation in accordance with FASC Topic 718, Compensation – Stock Compensation. 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. 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. Derivatives – We use derivatives to mitigate our exposure to volatility in copper prices. Fluctuations in copper commodity prices impact the value of the derivatives that we hold. We are subject to gains which we record as derivative assets if the forward copper commodity prices increase and losses which we record as derivative liabilities if they decrease. We record the fair value of the derivative position in the Consolidated Balance Sheets. We use COMEX index pricing to support our fair value calculation, which is a Level 2 input per the valuation hierarchy as the pricing is for instruments similar but not identical to the contract we will settle. We did not designate the derivative as a cash flow hedge. We record changes in the derivative’s fair value currently in earnings based on mark-to-market accounting. The change in earnings is recorded to cost of sales in the Consolidated Statements of Income. We do not use derivatives for speculative purposes. Historically, actual results have been within management’s expectations. 15 16 2009 New ACCOuNtiNg pRONOuNCeMeNtS Commodity Price risk. ANNuAl RepORT In March  2008, the FASB issued FASC Topic 815, Derivatives and Hedging, formerly SFAS No.  161, (“FASC 815”), 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 prior guidance and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  FASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  Adoption of FASC 815 did not have a material impact on our Consolidated Financial Statements. In June 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-01, Topic 105 - Generally Accepted Accounting Principles (“GAAP”) (“ASU 2009-01”), which superseded all accounting standards in U.S. GAAP, aside from those issued by the SEC. The codification does not change or alter existing GAAP. ASU 2009-01 is effective for reporting periods ending after September 15, 2009. We adopted ASU 2009-01 for reporting in the third quarter of 2009. Adoption of ASU 2009-01 did not have a material impact on our Consolidated Financial Statements. In August 2009, the FASB issued ASU 2009-05, Fair Value Measurement and Disclosures: Measuring Liabilities at Fair Value (“ASU 2009-05”), which provides clarification on measuring liabilities at fair value when a quoted price in an active market is not available. ASU 2009-05 is effective for the first reporting period beginning after issuance. We adopted ASU 2009-05 in the fourth quarter of 2009. Adoption of ASU 2009-05 did not have a material impact on our Consolidated Financial Statements. In February 2010, the FASB issued ASU 2010-09, Subsequent Events (“ASU 2010-09”), which discontinues the requirement that entities disclose the date through which they have evaluated subsequent events. ASU 2010-09 is effective upon issuance. We adopted ASU 2010-09 for reporting in the fourth quarter of 2009. Adoption of ASU 2010-09 did not 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. 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. Interest rate risk. We are subject to interest rate risk on our revolving credit facility, which bears variable interest based upon the greater of a rate of 4.0% or LIBOR plus 2.5%. We had no borrowings outstanding under the revolving credit facility as of December 31, 2009. Foreign Currency exchange rate risk. Foreign sales accounted for less than approximately 5% of our sales in 2009 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. We believe our foreign currency exchange rate risk has diminished due to the closure of our manufacturing operations in Canada in September 2009. Foreign currency transactions and financial statements are translated in accordance with FASC Topic 830, Foreign Currency Matters. 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 $0.9505, $0.8196 and $1.0193 at December 31, 2009, 2008 and 2007, respectively. We entered into a derivative instrument in the third quarter of 2009 with a large financial institution to mitigate our exposure to volatility in copper prices. We monitor our derivative and the credit worthiness of the financial institution. We do not anticipate losses due to counterparty non- performance. We do not use derivatives for speculative purposes. Fluctuations in copper commodity prices impact the value of the derivative we hold. We are subject to gains which we record as derivative assets if the forward copper commodity prices increase and losses which we record as derivative liabilities if they decrease. At December 31, 2009, the forward copper commodity prices were higher than our contract price resulting in a gain on derivative assets. The fair value of the derivative settlements from January through December 2010 is $2.2 million and recognized as current derivative assets in the Consolidated Balance Sheets. We use COMEX index pricing to support our fair value calculation, which is a Level 2 input per the valuation hierarchy as the pricing is for instruments similar but not identical to the contract we will settle. We did not designate the derivative as a cash flow hedge. We record changes in the derivative’s fair value currently in earnings based on mark-to-market accounting. As of December 31, 2009, we recorded a $2.2 million ($1.4 million net of tax) adjustment to cost of sales from the unrealized gain on derivative assets at fair value in the Consolidated Statements of Income. Information about our exposure to market risks related to forward copper commodity prices and a sensitivity analysis related to our derivative is presented below: Notional Amount Carrying amount and fair value of assets Fair value with a 5% decrease in forward copper commodity prices Fair value with a 10% decrease in forward copper commodity prices deCeMBeR 31, 2009 (in thousands) 2,250 pounds $ 2,200 $ 1,822 $ 1,444 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 2009 and 2008 due to the economic environment. Prices decreased by approximately 31% for steel, 20% for aluminum and 24% for copper from December 31, 2006 to December 31, 2009. We have entered into contracts that are below the average index price as of December 31, 2009. The lower commodity prices have contributed to our lower cost of goods sold and higher gross margins. We are subject to claims and legal actions that arise in the ordinary course of business. Management believes that the ultimate liability from these claims and actions, if any, will not have a material effect on our results of operations or financial position. In addition to the derivative instrument described above, 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 - 18 months. We expect to receive delivery of raw materials from our fixed price contracts for use in our manufacturing operations. These contracts are not accounted for as derivative instruments since they meet the normal purchases and sales exemption. We do not utilize derivative financial instruments to hedge our interest rate or foreign currency exchange rate risk. We do use derivatives to economically hedge our commodity price risk. iteM 8. FiNANCiAL StAteMeNtS ANd SuppLeMeNtARy dAtA. The financial statements and supplementary data are included commencing at page 27. 17 18 2009 iteM 9. CHANgeS iN ANd diSAgReeMeNtS witH ACCOuNtANtS ON ACCOuNtiNg ANd FiNANCiAL diSCLOSuRe. 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, 2009, our internal control over financial reporting is effective at the reasonable assurance level based on those criteria. Our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting. Date: March 15, 2010 /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer /s/ Kathy I. Sheffield Kathy I. Sheffield Chief Financial Officer ANNuAl RepORT (C) RepORt OF iNdepeNdeNt RegiSteRed puBLiC ACCOuNtiNg FiRM report of Independent registered Public Accounting Firm Board of Directors and Stockholders AAON, Inc. We have audited AAON, Inc. (a Nevada Corporation) and subsidiaries (collectively referred to as the “Company”), internal control over financial reporting as of December 31, 2009, 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, 2009, 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, 2009 and 2008, 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, 2009 and our report dated March 15, 2010, expressed an unqualified opinion on those consolidated financial statements. /s/ GRANT THORNTON LLP Tulsa, Oklahoma March 15, 2010 (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 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. iteM 9B. OtHeR iNFORMAtiON. None. 19 20 2009 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 2010 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 2010 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 2010 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, rules and regulations. We did not enter into any new related party transactions and have no preexisting related party transactions in 2009, 2008 or 2007. 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, cannot 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 $120,000 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), cannot 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 cannot 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 cannot 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, cannot 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; diReCtOR iNdepeNdeNCe • “executive officer” means an “officer” within the meaning of Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended; and 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 2009, the Board affirmatively determined, considering the standards described more fully below, that Messrs. Short, Lackey, McElroy, Stephenson, and Levine are 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. • “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. 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 2010 Annual Meeting of Stockholders. 21 22 2009ANNuAl RepORT SigNAtuReS Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. Dated: March 15, 2010 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. pARt 4 iteM 15. exHiBitS ANd FiNANCiAL StAteMeNt SCHeduLeS. (a) Financial statements. See Index to Consolidated Financial Statements on page 25. (b) Exhibits: (A) (A-1) (B) (B-1) (A) (A-1) (B) (3) (4) (10.1) (10.2) (21) (23) (31.1) (31.2) (32.1) (32.2) 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) Fifth Amendment to Third Restated Revolving Credit and Term Loan Agreement (v) 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, 2009. Dated: March 15, 2010 Dated: March 15, 2010 Dated: March 15, 2010 Dated: March 15, 2010 Dated: March 15, 2010 Dated: March 15, 2010 (vi) (vii) (viii) (ix) 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. Dated: March 15, 2010 Incorporated herein by reference to Appendix B to our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders filed April 23, 2007. Incorporated herein by reference to exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. Dated: March 15, 2010 /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 23 24 2009 iNdex tO CONSOLidAted FiNANCiAL StAteMeNtS report of grant Thornton LLP Independent registered Public Accounting Firm ANNuAl RepORT Report of Grant Thornton LLP Independent Registered Public Accounting Firm 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 26 27 28 29 30 31 Board of Directors and Stockholders AAON, Inc. We have audited the accompanying consolidated balance sheets of AAON, Inc. (a Nevada Corporation) and subsidiaries (collectively referred to as the “Company”) as of December 31, 2009 and 2008, 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, 2009. 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, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009 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. and subsidiaries internal control over financial reporting as of December 31, 2009, 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 15, 2010, expressed an unqualified opinion on the effectiveness of internal control over financial reporting. /s/ GRANT THORNTON LLP Tulsa, Oklahoma March 15, 2010 25 26 2009 AAON, iNC., ANd SuBSidiARieS CONSOLidAted BALANCe SHeetS AAON, iNC., ANd SuBSidiARieS CONSOLidAted StAteMeNtS OF iNCOMe 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 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 yeARS eNdiNg deCeMBeR 31, 2009 2008 2007 (in thousands, except per share data) $ 245,282 $ 279,725 $ 262,517 177,737 212,549 205,148 67,545 67,176 57,369 23,791 23,788 21,703 43,754 43,388 35,666 (9) 71 76 (71) (10) 27 8 724 (321) 43,892 44,068 35,343 16,171 15,479 12,187 27,721 $ 28,589 $ 23,156 1.61 $ 1.60 $ 0.36 $ 1.63 $ 1.60 $ 0.32 $ 1.24* 1.22* 0.32* 17,187 17,309 17,560 17,855 18,628* 18,927* $ $ $ $ * Reflects three-for-two stock split effective August 21, 2007. The accompanying notes are an integral part of these statements. 2008 (in thousands, except share and per share data) deCeMBeR 31, 2009 deCeMBeR 31, Assets Current Assets: Cash and cash equivalents Accounts receivable, net Inventories, net Prepaid expenses and other Derivative assets Assets held for sale, net Deferred tax assets Total Current Assets Property, plant and equipment: 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 Long-term debt, less current maturities Deferred tax liabilities Commitments and Contingencies (See Note 10) 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, 17,214,979 and 17,208,733 issued and outstanding at December 31, 2009 and 2008, respectively Additional paid in capital Accumulated other comprehensive income, net of tax Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity $ $ $ $ 25,639 33,381 28,788 1,087 2,200 1,522 3,623 96,240 1,328 41,697 90,213 7,225 140,463 80,567 59,896 75 156,211 - 76 8,524 3,100 19,186 30,886 - 7,326 - 71 644 1,077 116,207 117,999 156,211 $ $ $ 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 $ 140,743 The accompanying notes are an integral part of these statements. 27 28 2009 AAON, iNC., ANd SuBSidiARieS CONSOLidAted StAteMeNtS OF StOCkHOLdeRS’ eQuity ANd COMpReHeNSiVe iNCOMe AAON, iNC., ANd SuBSidiARieS CONSOLidAted StAteMeNtS OF CASH FLOwS ANNuAl RepORT COMMON StOCk SHAReS AMOuNt pAid-iN CApitAL ACCuMuLAted OtHeR COMpReHeNSiVe iNCOMe RetAiNed eARNiNgS tOtAL 18,508* $ 74* $ 185 $ 667 $ 90,666 $ 91,592 (in thousands) (396) (396) – – 613* – (1,067)* – 18,054* – – 366 – (1,211) – 17,209 – – 170 – (164) – 17,215 $ – – 4* – (5)* – 73* – – 2 – (4) – 71 – – 1 – – 5,420 582 (6,187) – – – – 3,307 750 (3,519) – 538 – – 1,938 – (1) – 848 (2,680) – 71 $ 644 – 23,156 – (14,581) (5,440) 93,405 582 (20,773) (5,440) 95,420 – 28,589 23,156 1,275 24,431 5,424 28,589 (1,164) 27,425 3,309 – – – – – (21,238) (5,621) 95,135 750 (24,761) (5,621) 96,522 1,275 – – – – 1,942 (1,164) – – – – 778 – 27,721 27,721 299 – – – 299 28,020 1,939 848 (3,129) (6,201) $ 1,077 $ 116,207 $ 117,999 – (448) (6,201) – – – Balance at December 31, 2006 Adjustment for FASC Topic 740, Income Taxes 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 Balance at December 31, 2008 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 Balance at December 31, 2009 * Reflects three-for-two stock split effective August 21, 2007 The accompanying notes are an integral part of these statements. 29 OpeRAtiNg ACtiVitieS Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Provision for losses on accounts receivable, net of adjustments Provision for excess and obsolete inventories Share-based compensation Excess tax benefits from stock options exercised and restricted stock awards vested Gain on disposition of assets Unrealized gain on derivative assets Deferred income taxes Changes in assets and liabilities: Accounts receivable Inventories Prepaid expenses and other Accounts payable Accrued liabilities Net cash provided by operating activities iNVeStiNg ACtiVitieS Proceeds from sale of property, plant and equipment 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 yeARS eNded deCeMBeR 31, 2009 2008 2007 (in thousands) $ 27,721 $ 28,589 $ 23,156 9,061 9,412 9,665 10 410 848 (703) (59) (2,200) 3,531 5,495 7,243 (660) (6,334) 842 45,205 135 (9,774) (9,639) 547 - 750 (1,613) (27) - 160 (905) (4,779) 13 449 851 33,447 17 (9,610) (9,593) 203 - 582 (2,998) (108) - (124) (1,760) (2,095) (172) (1,370) 6,268 31,247 123 (10,874) (10,751) 9,972 46,865 12,142 (12,873) (43,964) (12,142) (136) 1,236 703 (3,129) (5,874) (118) 1,696 1,613 (24,761) (5,791) (10,101) (24,460) (95) 25,370 269 (4) (610) 879 271 2,426 2,998 (20,773) (4,958) (20,036) 131 591 288 $ 25,639 $ 269 $ 879 The accompanying notes are an integral part of these statements. 30 2009AAON, iNC., ANd SuBSidiARieS NOteS tO CONSOLidAted FiNANCiAL StAteMeNtS 1. BuSiNeSS, SuMMARy OF SigNiFiCANt ACCOuNtiNg pOLiCieS ANd OtHeR FiNANCiAL dAtA (CONtiNued) ANNuAl RepORT deCeMBeR 31, 2009 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., 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 closed our manufacturing operations and reclassified our Canadian facility as held for sale in September 2009. The products previously manufactured at the Canadian facility will be produced by the Tulsa, Oklahoma, and Longview, Texas, facilities in the future. We are engaged in the manufacture and sale of air conditioning and heating equipment consisting of rooftop units, chillers, air-handling units, make-up air units, heat recovery units, condensing units and coils. 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 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”) Codification (“FASC”) Topic 830, Foreign Currency Matters. 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 most significant estimates include the allowance for doubtful accounts, inventory reserves, warranty accrual, medical insurance accrual, share-based compensation and the fair value of the derivative. Actual results could differ materially from those estimates. CONCeNtRAtiONS Our customers are concentrated primarily in the domestic commercial and industrial new construction and replacement markets. To date, our sales have been primarily to the domestic market, with foreign sales accounting for less than 5% of revenues in 2009. No customer accounted for 10% of our sales during 2009, 2008 or 2007 or more than 5% of our accounts receivable balance at December 31, 2009, 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. Accounts are considered past due when the balance has been outstanding for greater than ninety days. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. Accounts receivable and the related allowance for doubtful accounts are as follows: Accounts receivable Less: Allowance for doubtful accounts Total, net Allowance for doubtful accounts: Balance, beginning of period Provision for losses on accounts receivable Adjustments to provision Accounts receivable written off, net of recoveries Balance, end of period deCeMBeR 31, 2009 2008 (in thousands) $ $ 34,157 (776) 33,381 $ $ 39,599 (795) 38,804 yeARS eNded deCeMBeR 31, 2009 2008 2005 (in thousands) $ $ 795 629 (630) (18) 776 $ $ 407 674 (127) (159) $ 795 $ 266 625 (422) (62) 407 31 32 2009 1. BuSiNeSS, SuMMARy OF SigNiFiCANt ACCOuNtiNg pOLiCieS ANd OtHeR FiNANCiAL dAtA (CONtiNued) 1. BuSiNeSS, SuMMARy OF SigNiFiCANt ACCOuNtiNg pOLiCieS ANd OtHeR FiNANCiAL dAtA (CONtiNued) ANNuAl RepORT iNVeNtORieS 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. Inventory balances at December 31, 2009 and 2008, and the related changes in the allowance for excess and obsolete inventories for the three years ended December 31, 2009, 2008 and 2007, are as follows: Raw materials Work in process Finished goods Less: Allowance for excess and obsolete inventories Total, net deCeMBeR 31, 2009 2008 (in thousands) $ 26,581 $ 32,212 1,835 1,132 29,548 (760) 2,545 1,975 36,732 (350) $ 28,788 $ 36,382 yeARS eNded deCeMBeR 31, 2009 2008 2007 (in thousands) Allowance for excess and obsolete inventories: Balance, beginning of period $ 350 $ 350 $ 350 Provision for excess and obsolete inventories Adjustments to reserve Balance, end of period 1,849 (1,439) 800 (800) - - $ 760 $ 350 $ 350 We increased our allowance for excess and obsolete inventories due to materials from our Canadian facility that will not be utilized at either our Tulsa, Oklahoma or Longview, Texas locations and materials that were phased out due to new products that were introduced in January 2010. deRiVAtiVe We entered into a derivative instrument in the third quarter of 2009 with a large financial institution to mitigate our exposure to volatility in copper prices. We monitor our derivative and the credit worthiness of the financial institution. We do not anticipate losses due to counterparty non- performance. We do not use derivatives for speculative purposes. The derivative is in the form of a commodity futures contract. The derivative contract settles monthly beginning in January 2010 and ending in December 2010. Settlements equal the difference between the monthly average market price or closing market price of copper on a given day and the contract price with the financial institution. The contract is for a total of 2,250,000 pounds of copper at $2.383 per pound. The contract is for quantities equal to or less than those expected to be used in our manufacturing operations in 2010. We are subject to gains which we record as derivative assets if the forward copper commodity prices increase and losses which we record as derivative liabilities if they decrease. At December 31, 2009, the forward copper commodity prices were higher than our contract price resulting in a gain or derivative asset. We recognized the following current derivative assets at fair value in the Consolidated Balance Sheets: type OF CONtRACt BALANCe SHeet LOCAtiON Derivatives not designated as hedging instruments: Commodity futures contract Derivative assets Total Derivatives not designated as hedging instruments FAiR VALue (in thousands) $ 2,200 $ 2,200 We did not designate the derivative as a cash flow hedge. We record changes in the derivative’s fair value currently in earnings based on mark- to-market accounting. We recorded the following $2.2 million ($1.4 million after tax) unrealized gain on derivative assets at fair value in the Consolidated Statements of Income: type OF CONtRACt iNCOMe StAteMeNt LOCAtiON FAiR VALue Derivatives not designated as hedging instruments: Commodity futures contract Cost of Sales Total Derivatives not designated as hedging instruments (in thousands) $ 2,200 $ 2,200 We use COMEX index pricing to support our fair value calculation, which is a Level 2 input per the valuation hierarchy as the pricing is for instruments similar but not identical to the contract we will settle. ASSetS HeLd FOR SALe We reclassified certain fixed assets with a net book value of $1.5 million to assets held for sale upon closure of our Canadian manufacturing operations in September 2009. The assets consist of a building and land valued at the lower of cost or market. The carrying value of the building net of accumulated depreciation is $0.6 million. No additional depreciation expense was taken on the building as of October 1, 2009. The carrying value of the land is $0.9 million. We have contracted with a realtor and plan to sell the property within one year. The products previously manufactured at the Canadian facility will be produced by the Tulsa, Oklahoma and Longview, Texas facilities in the future. pROpeRty, pLANt ANd eQuipMeNt 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 yeARS 10-40 3-15 2-5 33 34 2009 1. BuSiNeSS, SuMMARy OF SigNiFiCANt ACCOuNtiNg pOLiCieS ANd OtHeR FiNANCiAL dAtA (CONtiNued) 1. BuSiNeSS, SuMMARy OF SigNiFiCANt ACCOuNtiNg pOLiCieS ANd OtHeR FiNANCiAL dAtA (CONtiNued) iMpAiRMeNt OF LONg-LiVed ASSetS Changes in the warranty accrual during the years ended December 31, 2009, 2008 and 2007 are as follows: ANNuAl RepORT 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 2009, 2008 and 2007. COMMitMeNtS ANd CONtRACtuAL AgReeMeNtS 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. We expect to receive delivery of raw materials from our fixed price contracts for use in our manufacturing operations. These contracts are not accounted for as derivative instruments because they meet the normal purchases and sales exemption. In the normal course of business we expect to purchase copper and aluminum in the form of legally binding commitments as follows: type peRiOd pOuNdS pRiCe tOtAL Aluminum Copper Copper Copper Copper Total (in thousands, except pricing data) January 2010 – December 2010 January 2010 – March 2010 January 2010 January 2010 January 2010 2,441 102 23 24 19 0.8000 2.4090 2.0225 1.8315 2.2458 $ 1,953 245 47 45 42 $ 2,332 ACCRued LiABiLitieS At December 31, accrued liabilities were comprised of the following: Warranty Commissions Payroll Workers’ compensation Medical self-insurance Employee benefits and other Total wARRANtieS 2009 2008 (in thousands) $ 7,200 $ 6,589 7,975 1,633 591 1,410 377 8,816 1,883 610 886 254 $ 19,186 $ 19,038 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. Despite lower sales volume in 2009 compared to 2008 warranty expenses increased due to specific warranty items. Warranty expense was $4.8 million, $4.0 million and $4.0 million for the years ended December 31, 2009, 2008 and 2007, respectively. Balance, beginning of the year Payments made Warranties issued Changes in estimate related to preexisting warranties Balance, end of period eARNiNgS peR SHARe 2009 2008 2007 (in thousands) $ 6,589 $ 6,308 $ 5,572 (4,211) 4,822 - (3,608) 3,889 (3,321) 3,757 - 300 $ 7,200 $ 6,589 $ 6,308 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: yeARS eNded, 2008 2009 (in thousands except share and per share data) 2007* 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 $ 27,721 $ 28,589 $ 23,156 17,186,930 17,560,295 18,628,029 122,038 294,568 299,015 17,308,968 17,854,863 18,927,044 $ $ 1.61 1.60 $ $ 1.63 1.60 $ $ 1.24 1.22 Anti-dilutive shares Weighted average exercise price 226,950 308,250 282,100 $ 15.64 $ 16.63 $ 17.81 * Reflects three-for-two stock split effective August 21, 2007. 35 36 2009 1. BuSiNeSS, SuMMARy OF SigNiFiCANt ACCOuNtiNg pOLiCieS ANd OtHeR FiNANCiAL dAtA (CONtiNued) 1. BuSiNeSS, SuMMARy OF SigNiFiCANt ACCOuNtiNg pOLiCieS ANd OtHeR FiNANCiAL dAtA (CONtiNued) AdVeRtiSiNg FAiR VALue MeASuReMeNtS ANNuAl RepORT Advertising costs are expensed as incurred. Advertising expense was approximately $761,000, $635,000 and $784,000 for the years ended December 31, 2009, 2008 and 2007, respectively. ReSeARCH ANd deVeLOpMeNt Research and development costs are expensed as incurred. Research and development expense was $3.1 million, $2.6 million and $2.5 million for the years ended December 31, 2009, 2008 and 2007, 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. pROFit SHARiNg BONuS pLAN 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 $4.8 million, $5.1 million and $4.2 million for the years ended December 31, 2009, 2008 and 2007, 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 percentage 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 $81,000, $93,000 and $98,000 for the years ended 2009, 2008 and 2007, 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. 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 $1.2 million, $1.4 million and $1.3 million in 2009, 2008 and 2007, respectively. We follow the provisions of FASC Topic 820, Fair Value Measurements and Disclosures related to financial assets and liabilities that are being measured and reported on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market at the measurement date (exit price). We are required to classify fair value measurements in one of the following categories: Level 1 inputs which are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs which are defined as inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly. Level 3 inputs are defined as unobservable inputs for the assets or liabilities. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. deRiVAtiVe FAiR VALue MeASuReMeNtS Our derivative assets consist of a forward purchase contract that is measured at fair value using the quoted prices in the COMEX commodity markets which is the lowest level of input significant to measurement. The fair value and carrying amount of our derivative assets at December 31, 2009 is $2.2 million. The measurement is based on pricing for instruments similar but not identical to the contract we will settle. These prices are based upon regularly traded commodities on COMEX. Therefore we consider the market for our commodity futures contract to be active, yet the fair values are estimates and are not necessarily indicative of the amounts for which we could settle such instruments currently. We record changes in the derivative’s fair value currently in earnings based on mark-to-market accounting. At December 31, 2009, we recorded a $2.2 million ($1.4 million after tax) adjustment to cost of sales from the unrealized gain on derivative assets at fair value in the Consolidated Statements of Income. The following table presents the fair value of our assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 in the Consolidated Balance Sheets: QuOted pRiCeS iN ACtiVe MARketS FOR ideNtiCAL ASSetS LeVeL 1 SigNiFiCANt OtHeR OBSeRVABLe iNputS LeVeL 2 (in thousands) SigNiFiCANt uNOBSeRVABLe iNputS LeVeL 3 tOtAL Assets Derivative Assests $ - $ 2,200 $ - $ 2,200 37 38 20091. BuSiNeSS, SuMMARy OF SigNiFiCANt ACCOuNtiNg pOLiCieS ANd OtHeR FiNANCiAL dAtA (CONtiNued) SuBSeQueNt eVeNtS We have determined that no subsequent events which require recognition or disclosure in our Consolidated Financial Statements exist. New ACCOuNtiNg pRONOuNCeMeNtS In March  2008, the FASB issued FASC Topic 815, Derivatives and Hedging, formerly SFAS No.  161, (“FASC 815”), 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 prior guidance and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  FASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  Adoption of FASC 815 did not have a material impact on our Consolidated Financial Statements. In June 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-01, Topic 105 - Generally Accepted Accounting Principles (“GAAP”) (“ASU 2009-01”), which superseded all accounting standards in U.S. GAAP, aside from those issued by the SEC. The codification does not change or alter existing GAAP. ASU 2009-01 is effective for reporting periods ending after September 15, 2009. We adopted ASU 2009-01 for reporting in the third quarter of 2009. Adoption of ASU 2009-01 did not have a material impact on our Consolidated Financial Statements. In August 2009, the FASB issued ASU 2009-05, Fair Value Measurement and Disclosures: Measuring Liabilities at Fair Value (“ASU 2009-05”), which provides clarification on measuring liabilities at fair value when a quoted price in an active market is not available. ASU 2009-05 is effective for the first reporting period beginning after issuance. We adopted ASU 2009-05 in the fourth quarter 2009. Adoption of ASU 2009-05 did not have a material impact on our Consolidated Financial Statements. In February 2010, the FASB issued ASU 2010-09, Subsequent Events (“ASU 2010-09”), which discontinues the requirement that entities disclose the date through which they have evaluated subsequent events. ASU 2010-09 is effective upon issuance. We adopted ASU 2010-09 for reporting in the fourth quarter of 2009. Adoption of ASU 2010-09 did not have a material impact on our Consolidated Financial Statements. SegMeNtS We have reviewed our business operations and determined that we have two operating segments as defined in FASC Topic 280, Segment Reporting. 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 through September 2009 at which time manufacturing operations closed and AAON Properties (“Canadian facility”). We have determined that the foreign operating segment does not constitute a separate reporting segment based on quantitative threshold tests. 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 $9,000, $71,000 and $10,000 were made during the years ended December 31, 2009, 2008 and 2007, respectively. Payments for income taxes of $10.0 million, $12.7 million and $10.2 million were made during the years ended December 31, 2009, 2008 and 2007, respectively. Dividends payable of $3.1 million and $2.8 million were accrued as of December 31, 2009 and 2008 and were paid on January 4, 2010 and January 2, 2009, respectively. ANNuAl RepORT 3. ReVOLViNg CRedit FACiLity 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 $0.9 million. Borrowings available under the revolving credit facility at December 31, 2009, were $14.3 million. The letter of credit was a requirement of our workers compensation insurance and was extended in 2009 and will expire December 31, 2010. Interest on borrowings is payable monthly at the greater of 4.0% or LIBOR plus 2.5% (4.0% at December 31, 2009). No fees are associated with the unused portion of the committed amount. We had no borrowings outstanding under the revolving credit facility at December 31, 2009. We had $2.9 million outstanding under the revolving credit facility at December 31, 2008. We had no borrowings outstanding under the revolving credit facility at December 31, 2007. At December 31, 2009, 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, 2009 our tangible net worth was $118.0 million which meets the requirement of being at or above $75.0 million. Our total liabilities to tangible net worth ratio was 1 to 3 which meets the requirement of not being above 2 to 1. Our working capital was $65.4 million which meets the requirement of being at or above $30.0 million. On July 30, 2009, we renewed the line of credit with a maturity date of July 30, 2010 with terms substantially the same as the previous agreement. We expect to renew our revolving credit agreement in July 2010. We do not anticipate that the current situation in the credit market will impact our renewal. 4. deBt Short-term debt at December 31, 2009 and 2008 consisted of notes payable totaling approximately $76,000 and $91,000 due in 2010 and 2009, respectively. In 2009 and 2008, 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 provisions of FASC Topic 740, Income Taxes, including 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 yeARS eNdiNg deCeMBeR 31, 2009 2008 2007 (in thousands) $ 19,529 (3,358) $ 16,171 $ $ 16,163 (684) 15,479 $ $ 12,631 (444) 12,187 The reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: Federal statutory rate State income taxes, net of federal benefit Other The “Other” tax rate primarily relates to certain domestic credits. yeARS eNdiNg deCeMBeR 31, 2009 2008 2007 (in thousands) 35% 4% (2%) 37% 35% 3% (3%) 35% 35% 3% (3%) 35% 39 40 2009 The tax effect of temporary differences giving rise to our deferred income taxes at December 31 is as follows: 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 2009 2008 2007 (in thousands) $ 572 $ 446 $ 2,544 1,297 (790) 3,623 7,820 - (494) 2,567 1,262 (40) 4,235 7,247 (2,265) (400) $ $ $ $ $ $ $ 7,326 $ 4,582 $ 295 2,456 1,430 131 4,312 6,376 (2,019) (383) 3,974 The total net operating loss (“NOL”) deferred tax asset related to AAON Canada was utilized in 2009. We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The total amount of unrecognized tax benefits is as follows: Balance at January 1, 2009 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, 2009 tAx BeNeFit (in thousands) $ 50 - - - (50) 0 $ There are no unrecognized tax benefits that if recognized would impact the effective tax rate at December 31, 2009. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. At December 31, 2009 and 2008, we had accrued approximately $0 and $6,000 for the potential payment of interest and penalties, respectively. As of December 31, 2009, we are subject to U.S. Federal income tax examinations for the tax years 2006 through 2009, and to non-U.S. income tax examinations for the tax years of 2006 through 2009. In addition, we are subject to state and local income tax examinations for the tax years 2005 through 2009. 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 (“LTIP”) 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. ANNuAl RepORT We apply the provisions of FASC Topic 718, Compensation – Stock Compensation. 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. We recognized approximately $484,000, $400,000 and $526,000 at December 31, 2009, 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, 2009 is $0.9 million and is expected to be recognized over a weighted-average period of 2.1 years. The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during December 31, 2009, 2008 and 2007: 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 2009 2008 2007 1.87% 47.47% 2.53% 7.0 yrs 0% 1.87% 46.94% 2.62% 8.0 yrs 31% 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% 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 over time periods equal to the expected life at the grant date. The following is a summary of stock options outstanding as of December 31, 2009: OptiONS OutStANdiNg OptiONS exeRCiSABLe NuMBeR OutStANdiNg At deCeMBeR 31, 2009 weigHted AVeRAge ReMAiNiNg CONtRACtuAL LiFe weigHted AVeRAge exeRCiSe pRiCe AggRegAte iNtRiNSiC VALue NuMBeR exeRCiSABLe At deCeMBeR 31, 2009 weigHted AVeRAge exeRCiSe pRiCe 120,613 33,900 131,500 174,500 460,513 3.41 5.71 8.22 7.18 6.38 $ 9.12 11.60 15.13 17.58 $ 14.22 $ 10.37 7.89 4.36 1.91 $ 6.75 104,113 28,200 33,900 78,100 244,313 $ 8.84 11.62 14.72 17.48 $ 12.74 RANge OF exeRCiSe pRiCeS 5.73 – 11.29 11.40 – 12.00 13.60 – 15.55 15.99 – 21.42 Total 41 42 2009 A summary of option activity under the plan as is as follows: OptiONS SHAReS 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 Granted Exercised Forfeited or Expired Outstanding at December 31, 2009 Exercisable at December 31, 2009 1,461,496 139,188 (573,374) (98,377) 928,933 50,000 (348,075) (51,282) 579,576 93,000 (164,013) (48,050) 460,513 244,313 weigHted AVeRAge ReMAiNiNg CONtRACtuAL teRM AggRegAte iNtRiNSiC VALue ($000) weigHted AVeRAge exeRCiSe pRiCe $ 7.33 15.98 4.24 14.80 9.47 16.64 4.87 15.76 12.29 15.92 7.53 17.00 14.22 12.74 $ 6.38 5.04 $ $ 2,426 1,649 The weighted average grant date fair value of options granted during 2009 and 2008 was $6.87 and $6.95, respectively. The total intrinsic value of options exercised during December 31, 2009, 2008 and 2007 was $3.3 million, $6.4 million and $8.7 million, respectively. The cash received from options exercised during December 31, 2009, 2008 and 2007 was $1.2 million, $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 is as follows: Unvested at January 1, 2009 Granted Vested Forfeited Unvested at December 31, 2009 SHAReS 242,600 93,000 (80,850) (38,550) 216,200 weigHted AVeRAge gRANt dAte FAiR VALue $ 6.68 6.87 6.53 6.97 $ 6.77 The total grant date fair value of options vested during December 31, 2009 and 2008 was $0.5 million and $0.6 million, respectively. During 2007, the Compensation Committee of the Board of Directors authorized and issued restricted stock awards to directors and key employees. 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 2009 and 2008 was $19.72 and $19.34 per share, respectively. We recognized approximately $364,000, $350,000 and $56,000 at December 31, 2009, 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, 2009, unrecognized compensation cost related to unvested restricted stock awards was approximately $466,000 which is expected to be recognized over a weighted average period of 1.5 years. ANNuAl RepORT A summary of the unvested restricted stock awards is as follows: Unvested at January 1, 2009 Granted Vested Forfeited Unvested at December 31, 2009 SHAReS 42,450 7,350 (16,550) - 33,250 FASC Topic 718, Compensation – Stock Compensation 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. During December 31, 2009, 2008 and 2007, the excess tax benefits of stock options exercised and restricted stock awards vested was $0.7 million, $1.6 million and $3.0 million respectively. 7. StOCkHOLdeR RigHtS pLAN During 1999, the Board of Directors adopted a Stockholder Rights Plan (the “Plan”), which was amended in 2002. Under the Plan, stockholders of record on March 1, 1999, received a dividend of one right per share of 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 current market prices. 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, 2009, we had repurchased a total of 1,717,804 shares under this program for an aggregate price of $34,192,008, or an average price of $19.90 per share. We purchased the shares at current market prices. 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, 2009, we repurchased 760,477 shares for an aggregate price of $12,589,311, or an average price of $16.55 per share. We purchased the shares at current market prices. On November 7, 2006, the Board of Directors authorized us to repurchase shares from certain directors and officers following their exercise of stock options. The maximum number of shares to be repurchased under the program is unknown as the amount is contingent on the number of shares sold. Through December 31, 2009, we repurchased 350,375 shares for an aggregate price of $7,167,623, or an average price of $20.46 per share. We purchased the shares at current market prices. 9. diVideNdS On February 14, 2006, the Board of Directors voted to initiate a semi-annual cash dividend. We initially paid semi-annual dividends of $0.20 per share. The Board of Directors approved dividend payments of $0.16 per share related to the stock split effective August 21, 2007. The Board of Directors approved future dividend payments of $0.18 per share on May 19, 2009. Board approval is required to determine the date of declaration and amount for each semi-annual dividend payment. 43 44 2009 Cash dividend payments of $5.9 million were made in 2009, and we accrued a liability for payment of $3.1 million of dividends in January 2010. 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. 10. COMMitMeNtS ANd CONtiNgeNCieS We are subject to claims and legal actions that arise in the ordinary course of business. Management believes that the ultimate liability from these claims and actions, if any, will not have a material effect on our results of operations or financial position. 11. CANAdiAN FACiLity On May 18, 2009 we announced the closure of our Canadian facility and filed an 8-K to that effect. At the same time, we notified the 47 Canadian employees of the expected closure date. The actual closure date was at the end of September 2009. We accrued and charged to expense $0.3 million through December 31, 2009, in closure costs related to employee termination benefits in accordance with Canadian labor laws and regulations. We incurred employee termination costs as well as costs to dispose of inventory. We accrued and charged to expense $0.4 million as an adjustment to our inventory reserve in second quarter 2009 to account for inventory items we did not transfer to our other locations. The following closure costs were included in income from continuing operations in the income statement and paid as of December 31, 2009: Employee termination benefits Inventory reserve adjustments Total 12. QuARteRLy ReSuLtS (uNAudited) BALANCe At 6/30/09 $ 280 389 $ 669 AdditiONAL ACCRuAL (in thousands) CHARged tO expeNSe $ 26 - $ 26 $ 306 389 $ 695 The following is a summary of the quarterly results of operations for the years ending December 31, 2009 and 2008: 2009 Net sales Gross profit Net income Earnings per share: Basic Diluted 2008 Net sales Gross profit Net income Earnings per share: Basic Diluted QuARteR eNded MARCH 31 juNe 30 SepteMBeR 30 deCeMBeR 31 (in thousands, except per share data) $ 63,965 16,934 6,728 0.39 0.39 $ 68,597 18,104 7,097 0.41 0.41 $ 58,492 17,728* 7,741* 0.45* 0.45* $ 54,228 14,779* 6,155* 0.36* 0.36* QuARteR eNded MARCH 31 juNe 30 SepteMBeR 30 deCeMBeR 31 (in thousands, except per share data) $ 65,456 15,652 6,434 0.36 0.35 $ 74,781 17,990 7,760 0.43 0.43 $ 79,279 20,018 8,355 0.49 0.47 $ 60,209 13,516 6,040 0.35 0.35 *Includes the impact of the unrealized gain from the derivative. 45 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, 2009.  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 15, 2010 46 2009CeRtiFiCAtiON CeRtiFiCAtiON Exhibit 31.1 ANNuAl RepORT Exhibit 31.2 I, Norman H. Asbjornson, certify that: I, Kathy I. Sheffield, certify that: 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 15, 2010 47 /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer Date: March 15, 2010 /s/ Kathy I. Sheffield Kathy I. Sheffield Chief Financial Officer 48 2009 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 CeRtiFiCAtiON puRSuANt tO 18 u.S.C. SeCtiON 1350, AS AdOpted puRSuANt tO SeCtiON 906 OF tHe SARBANeS–OxLey ACt OF 2002 ANNuAl RepORT Exhibit 32.2 In connection with the Annual Report of AAON, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2009, 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: In connection with the Annual Report of AAON, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2009, 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 (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. March 15, 2010 /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer operations. March 15, 2010 /s/ Kathy I. Sheffield Kathy I. Sheffield Chief Financial Officer 49 50 2009 OFFiCeRS BOARd OF diReCtORS 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, 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 NormaN H. asbjorNsoN has served as President and a director of the Company since 1988. Mr. Asbjornson has been in senior management positions in the heating and air conditioning industry for over 40 years.RobeRt G. FeRGus has served as Vice President of the Company since 1988. Mr. Fergus has been in senior management positions in the heating and air conditioning industry for 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. 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 which serves as General Counsel of the Company. 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 over 40 years, holding positions in design, research, software development, engineering, teaching, sales and senior management.tHANkS tO OuR eMpLOyeeS William Abbott Luis Acosta Maria D. Acosta Maria L. Acosta Martha Acosta Rogelio Acosta Guerrero Andres Acosta-Lujan Enriqueta Adame Derrick Adams Gary Adams Larry Adams Rodney Adams Ryan Adams Brian Adkins Maria Aguayo Arturo Aguilar Miguel Aguilera Daniel Alagdon Imelda Alba Socorro Alba Julio Albino James Alexander Shannon Alford Brendan Allen Donald Allen Kevin Allen Felipe Alvarado Edin Alvarado Reyes Michael Amburgey Anthony Anderson Jose Andrada Margarito Angeles Wesley Anselme Alfredo Antonio Lorenzo Aragon Clyde Archer Uriel Arellano Guerra Maria Arredondo Gerardo Arroyo Eleazar Arroyo Alvarez Norman Asbjornson Scott Asbjornson Gary Ashmore Dwight Austin Jesus Avelar Saldivar Joseph Avila Orlando Ayala Nora Backus Richard Backus Dwight Baker Eric Baker John Baldwin Luis Banuelos Carolyn Barber Candy Barbosa Gregory Barker, Jr. Daniel Barnard David Barnett Ana Barragan De Alteneh Cesar Barraza Nereyda Barrios De Perez Benigno Barrios Orozco Rosa Barro Maria Barron Michael Bass Boyd Battles Stuart Baugh Jason Bazan Kevin Begley Guzman Benitez Ofelia Benitez Bonnie Benson James Berden Ida Bermudez Sergio Beserra Cheryl Birmingham Marcus Black Seth Black Vickie Black Brian Blackmon Debbie Blackmon Matthew Blakley Maria Blanco David Blevins Justin Blevins Aaron Bodovsky Gene Boese James Bond Debra Booher Ronnie Booth Anthony Botello Rosendo Botello Rudolph Bourgeois, Iii Demetrius Boyd John Boyd Brian Bradford Myoshia Bradley Christopher Brantley Raynor Brenton Arlando Brewer Terry Brewster Shahani Britt Arlunda Brooks Bernardo Brooks David Brown Jermaine Brown Johnny Brown, Jr. Maceo Brumley Christopher Bryant William Bryant Kelli Burkes Billy Burns Monica Burns Thomas Burns, Jr. Shannon Burtch Stephen Burton Douglas Burtrum Wayne Bush Tina Bush Jones Rosa Butler Jeremy Byram Dora Cadena Santiago Cadenas Cleveland Cage, Jr. Margarito Calderon Danielle Calhoun Jorge Calixto Elizabeth Calvillo Cesar Calzada Lazaro Cama Maria Camacho Jose Camas-Padilla Adrian Campbell David Campbell Arthur Candler Yong Cantrell Refugio Carachure Jorge Carcamo Justin Cardoza Todd Carner Vincent Carson Larry Carter, Jr. James Cason Gary Cassiday Warren Castleberry Soledad Castro Jose Castro M Elvis Cerda Justo Chagoya Guadalupe Chairez-Galan Patrick Chapman Sergio Charles Clark Chase Josh Chattillon Adalberto Chavez Gregory Chavez Rita Chavez Dale Cherry Daniel Cherry Scott Chestnut Adan Chicas William Christopher Sian Cin Nem Cing George Clark John Clark Morris Clark Richard Clark Stephanie Cleveland William Cleveland Brenda Coats Kenneth Cochran Latoya Coleman Ronald Collins Dale Conkwright Jude Connolly Gerardo Contreras Maria Cook Mark Cook Michael Coolidge Scott Coon Donna Coonfield James Cooper Lisa Cooper Lorenza Cooper Elaine Corkhill Alberto Corona Blanca Corona Heron Corona Roberto Corona Rosa Cortez Billy Cox Jerry Cox John Cox Patrick Cox Adrian Crabtree Richard Craite Steven Crase Devin Creech Juan Crespo-Maisonet Mikel Crews Darrell Crow Drummond Crowe Carolyn Crutchfield Jose Cuadroz Victory Cullom, Ii Robert Cummings Gene Curtis Oliver Cyrus, Iii Gwendolyn Daniels John Daniels William Daugherty Jenifur Davidson Byron Davis Carolyn Davis Cathy Davis Darryl Davis Jerry Davis Marleitta Davis Richard Davis Samuel Davis Tymesia Davis Wilfredo De Jesus Otilia De Jones Matilde De La Torre Alvaro De Leon Mendoza Freddie Deboe Bobby Degraffenreid Ismael Delapaz Eva Delatorre Lucero Deleon Mendoza Juana Delobo Andres Delos Santos Raquel Deluna Robert Denby Eufemio Depaz Bruce Derr Audencia Devilla Roy Deville Charles Deweese Cheikh Diallo Cin Ding Homer Dodd Rickey Dodson Edreys Dominguez Martin Dominguez Pablo Dominguez Thang Dop Mui Jennifer Dossman Jodi Doty Harold Douglas Michael Drew Cathryn Dubbs Carolyn Duesler Linda Dunec Cortney Dunn Francisco Duran Torres Ralph Durbin Yolanda Durham Randy Dwiggins Wendell Easiley Stephen Edmonds Earl Elliott Harvey Ellis Tinisha English Eva Enriquez Kevin Erickson Blanca Escobar Teresa Escobedo Norberto Esparza-Torres Leonardo Espinoza Flores Jesus Estrada-Gonzalez Stephen Etter Gilda Etumudor Calvin Eubanks Otis Evans Reginald Everidge, Jr. Shawn Fairley Robert Fergus Elizabeth Ferguson Catalina Fernandez Fabiola Fernandez Samuel Fields Jesse Figueroa Sterlyn Finch Jason Fisher Anthony Fizer Wayne Flaska Tyronica Fletcher Copotenia Fletcher, Jr. Carolina Flores Efigenia Flores Juana Flores Laura Flores Ruby Floyd Vicky Floyd Mark Fly Kenneth Fontenot Sharon Fontenot Sheila Forrest Christopher Foster Frederick Foster Loretta Fowlkes Kenneth Foyil Jason Franco Phillip Frank Damion Franklin Warren Franklin Revonda Franks Gary Frederiksen, Jr. Olga French Angel Frias Wade Fuller Rony Gadiwalla Ranulfo Galicia Gregorio Galindo Maria Galindo John Gall Ma Galvan Maria Galvan Angel Garcia Maximo Garcia Nicklaus Garcia Roberto Garcia Maria Garcia Garcia Norma Garibay Patrick Garrett, Sr. Carlos Garza Pedro Garza Ralph Gasaway Steve Geary James George Wilbert Gilmore Penny Glossinger Jim Goekler Gary Goff Emmett Goins Elpidio Gomez Hector Gomez Jose Gomez Maria Gomez Moises Gomez Daniel Gomez-Sigala Alicia Gonerway Adrian Gonzalez Imelda Gonzalez John Gonzalez Manuel Gonzalez Marisela Gonzalez Raul Gonzalez Victor Gonzalez Barry Goodson Dale Graham Buenas Granados Colter Grant Herschell Grayson Jesse Green, Jr. John Griffin Ronald Grimes Daniel Groff Carolina Guillen Ronald Guinn Cassie Gunn Evelyn Gutierrez Lainez Erasmo Guzman Georgina Guzman Nancy Hackney Jack Hall Kelly Hall Stephen Hall Scott Hamilton Jeffrey Hammer Sam Hammoud Robert Hanna Donald Harden Glen Harris Stacey Harris Robi Hartmann Heather Haskins Kenneth Havard Kevin Hawkins Billy Hawley, Jr. Tim Hefflin Stephen Hegvold Daniel Henderson Justin Henderson Kyle Hendrick Mike Hensley Armando Hernandez Corcina Hernandez Francisco Hernandez Lily Hernandez Luis Hernandez Maria Hernandez Mariano Hernandez Takeo Higa Brenda Higgins Larry Highfield Dewayne Hightower Bobby Hillburn Juan Hinojosa Tyson Hinther Clyde Hitchye Bon Hoang Samuel Hobson Bryan Holland Donna Holloway Lawrence Honel Stephen Hoover Terri Horn Wilburn Horner, Jr. Daniel Horrell Stanley Horton Jerry Houston David Howard Larry Howard Zam Htang Lydia Hudson Philip Hudson Anthony Huffman Jimmy Hughes Rosario Huizar Ronald Hutchcraft Gary Hutchins Tan Huynh Okechukwu Ibeh Alexander Ignatenkov Samuel Ingram Daniel Iya Belinda Jackson Jeff Jackson Danny Jacot Alma Jacquez Miguel Jacquez Jose Jamaica Mckinley James Jason Jewell Genelle Jimboy Maria Jimenez Raul Jimenez Vincent Jimenez Pedro Jimenez-Delfin Frederick Jimmerson Ed Johnson Rex Johnson Sylvia Johnson Danny Jones David Jones Djuan Jones Henry Jones Raymon Jones Remia Jones Rose Jones James Jones, Jr. Sean Jordan Jaime Juarez Leandro Jumelles Nunez Brian Justice Patrick Kaiser Hau Kam Alex Kap Dal Kap Do Kap Lian Kap Ngin Kap Brian Kastl Richard Keaton Aaron Kelly Gregg Kennedy Do Khai En Khai Gin Khai John Khai Lang Khai Mang Khai Nang K. Khai Nang Z. Khai Pau Khai Peter Khai Thang Khai Go Kham Ngun Kham Pavel Kharabora Kirk Khillings Dai Khup Ngin Khup Thang Khup Alan Kilgore Andrew Kilgore Suan Kim Thang Kim Joseph King Lori King Randy King Russell King Bryan Kirk Aleksandr Kiryukhin David Knebel Robert Knuth James Koss Edward Kracke, Ii Robert Krafjack Larry Kreps Mikhail Krupenya Karl Kuenemann Laura Kyle Mike Lafond Do Lal Deborah Lane Donald Laney Ugin Lang Kim Langston Martin Larsen Michael Lavallee Jeffrey Lawson Ronald Lawson Lai Le Michel Lebel Jose Lebron Jacqueline Lee Rhonda Lee Matthew Leeper Hugo Lerma Ronald Lester Cin Lian David Lian Hau Lian Kam Lian Sing Lian Thang Lian Tuan Lian Darrin Liggins Ping Lin Jerry Lincoln Thomas Lincoln William Lindsay Anthony Little Rene Livesey Joel Lockmiller Jonathan Lockmiller Dustin Long Linda Longoria Alonzo Lopez Ana Lopez Arturo Lopez Margarito Lopez Rafael Lopez Raul Lopez Thomas Lopez Carlos Lopez Rodriguez Johnny Lopez, Jr. Paul Lowery 53 54 Oscar Lozano Jarrad Ludlow Quannah Ludlow Mariana Luna Michael Lybarger Rodolfo Macias Flores Jorge Madrigal Monica Magana N Mai Barbara Malone Carlos Malone Jeffrey Maly Maria Mancilla Cin Mang Khup Mang Lang Mang Lian Mang Nang Mang Ngin Mang Sei Kho Lun Mang Eric Mann Evelyn Manning Adam Mansfield Raul Manzo Georgina Manzo De Barrera William Markwardt Ma Marquez De-Gilbreath Ana Marroquin Eco Marshall Barbara Martinez Francisco Martinez Javier Martinez Juan Martinez Karen Martinez Laura Martinez Kenneph Martinez Baez Francisco Martinez Leon Hector Martinez Molina Ivan Martinez-Lebron Florentino Martin-Romo Timothy Marvin Thomas Masengale, Jr. Beverley Mason James Mason Erik Massey Charles Mattocks, Iv Ron Mauch Antonio Mauricio Leonard Maxwell Duane Mayfield Courtney Mcafee Deborah Mcateer Tina Mcbeath Robert Mcbowman Christopher J. Mcclain Christopher K. Mcclain Dirk Mcclellan Roy Mcconnell Corey Mccowan Debra Mccowan Wesley Mccowan, Jr. Shawn Mccrary Marc Mccuin Kathy Mcculloch Loyd Mcdaniel Sharon Mcdaniel James Mcelroy Deborah Mcfarlin Terry Mcgee, Ii Domingo Mcknight Gina Means Patricia Medina James Melda Silvestre Mendez Gonzales Vivian Meyer Ronald Mikel Glenn Milam Michael Miles Ranulfa Milian Chris Miller Jesse Miller Mykea Miller Michael Milton Brian Mingle Bruce Minton Scarlett Miranda Jay Modisette Ronald Modlin Irma Moguel Braulio Moises-Lee Jose Molina Jose Monreal Enoc Montes Clay Moo Jon Moody Marc Moore Maria Moore Tony Moore Alfonso Moran Ron Morehead Tony Morehead Berta Moreno Matthew Morgan David Morgerson Jaylon Morris Marcus Morrow Clayton Mote Darrell Mote Marc Moxley Do Muang Eric Mulliniks Kai Mung Kam Mung Lang Mung Lian Mung Nang S. Mung Nang Z. Mung Pum Mung Sian Mung Suaan Mung Suan Mung Thang Mung Thawng Mung Vum Mung Jesus Munoz Eduardo Murillo-Munoz Johnny Musgrave David Myers Noe Nabor Sing Nang Marcus Naranjo Vincent Nash Go Naulak Jose Nava Maria Nava Abel Navejas Clayton Neal Samuel Neale Natalie Neilson Kathleen Nelson Ronald Nelson Hoang-Chi Nguyen Phuoc Nguyen Karen Niles-Blayer David No Hank Noeske Jerry Nolan Christopher Norfleet Willie Norfleet Robert Norfleet, Jr. Richard Norgren Eric Norris Debra Nothnagel John Nutt Deangelo Oakley Michael O’brien Oran Offield Alexander Ofosu John Ogle Ruben Olan Garcia Maria Olivas De Torres Scotty Oliver Anthony Oliveras Eric Olson Della Onditi James O’neill, Jr. James O’neill, Sr. Benjamin Orme Leticia Orona Margarita Orona Margarita Orozco Dehuizar Carlos Orozco-Torres Julio Ortega, Jr. Sandra Osbern Jennifer Overmeyer Juan Oyola Martin Ozura-Carrillo Guillermo Pacheco Edmundo Paiz Alex Palmer J Paniagua Noemi Paniagua Belmonte Jared Parker Jose Parra Jason Pate Jeanetta Pate Corry Patterson Cia Pau Dal Pau Gin Pau Kam Pau Liang Pau Nang Pau Thang Pau Thang L. Pau Vaden Paulsen Travis Pearson Juan Pedroza Kimberly Peeks Vladimir Peniaz Shamata Pentecost Cesar Perez Juana Perez Sergio Perez Ma Lourdes Perez Perez Mike Perry John Peters Ladrue Peters Daniel Peurifoy Song Phan Randy Phelps Nicholas Phifer Tony Phillips Thang Pi Pum Piang Thang K. Piang Thang L. 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