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
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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. Piang
Zam Piang
Pedro Pina-Valles
Jose Pineda
Maria Plata
Susanne Poindexter
Basant Pokhrel
Renu Pokhrel
Mark Pool
Timothy Pool
Ardeshir Pouraryan
Phillip Powell
Rudy Powell
Greg Powers
Jeffery Powers
Jose Prado-Huerta
Lian Pu
Alma Puga
Javier Quezada
Caleb Quigley
Jesus Quinones
Cold Rain
Nimalakirthi
Rajasinghe
Antonia Ramirez
Jose Ramirez
Raymon Ramirez
William Ramirez
Nandy Ramirez B
Robert Ratliff
Kyle Ratzlaff
Terry Ratzloff
Robert Rayno
Thomas Read
Sandra Reader
Joseph Reagh
Diego Rebollar
Jose Recio-Gomes
Peggy Redden
James Reed
Freeman Reed, Jr.
Margaret Reeves
Alberto Rendon
Svyatoslav Reshetov
Thomas Reynolds
David Ribbe
Angela Rideout
Brett Riegel
Delmecio Riser
Stephen Riser
James Ritchie
Genoveva Rivera
Luis Rivera Mendoza
Laura Roberson
Paul Roberts
John Roberts
Benton Robinson
Michael Robinson
Jeffery Robison
Alex Rodriguez
Diana Rodriguez
Edgar Rodriguez
Gilberto Rodriguez
Hector Rodriguez
Maria Rodriguez
Melvin Rodriguez
Rivelino Rodriguez
Teresa Rodriguez
J Rodriguez-Flores
Don Rogers
Lidia Rojas
Nelson Rojas
Carolina
Rojas-Gonzalez
Terry Rombach
Richard Romo
David Ruiz
Ricardo Ruiz
Vicente Ruiz
Ava Russell
Jimmy Russell
Miguel
Saez Sepulveda
Adan Salazar
Nora Salazar
Walter Salazar
David Saldivar
Jose Saldivar
Maria Saldivar
Miguel Saldivar
Victor Saldivar
Diana Salinas
Beatriz Sanchez
Betty Sanchez
Estevan Sanchez
Esperanza
Sanchez Ruiz
Luis Sanchez-Lopez
Ivelisse
Sanchez-Rivera
Christina Sanders
Tanisha Sanders
Michael Sandor, Jr.
Jason Sanford
Cin Sang
Thang Sang
Thiam Sang
Agustin Santana
Reinaldo Santana
Hector Santiago
Wenceslao Santiago
Carlos
Santiago Torrez
Humberto Santillan
Ignacio Santillan
Pedro Santillan
Angela Santillano
Bennett Sapp
David Sarant
Richard Satterfield
Erick Sawyer
William Scharosch
Brummett Scott
Joseph Scott
Kenneth Scott
Vivian Scroggins
Marcus Seip
Carrol Shackelford
Gregory Shaw
Ontario Shaw
Thomas Shaw
Kathy Sheffield
Kathleen Shepard
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Sweetie Smith
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John Soler
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AAON, Inc.
2425 South Yukon Avenue • Tulsa, OK 74107
918.583.2266 • Fax: 918.583.6094
AAON Coil Products, Inc.
203 Gum Springs Road • Longview, TX 75602
903.236.4403 • Fax: 903.236.4463
aaon.com