AAON
Annual Report 2010

Plain-text annual report

AAON is a global leader in providing equipment with environmentally responsible designs. AAON utilizes extensive product knowledge and state of the art manufacturing to continuously provide a wide variety of energy efficient and earth friendly features to the dynamic marketplace. The success of our commitments can be seen in the consistent growth of our sales and the increasing profitability of the company. COMpANy pROFiLe OutdOOR AiR HANdLiNg uNitS CONdeNSiNg uNitS iNdOOR AiR HANdLiNg uNitS RL SeRieS CL SeRieS H3 SeRieS SA SeRieS V3 SeRieS RN SeRieS CC SeRieS ROOFtOp uNitS M2 SeRieS M3 SeRieS F1 SeRieS RQ SeRieS CB SeRieS RL SeRieS RN SeRieS RQ SeRieS BOiLeR pACkAged MeCHANiCAL ROOMS 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 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. ANNuAl RepORT FiNANCiAL HigHLigHtS Income Data ($000) Net Sales Gross Profit Operating Income Interest Expense Interest Income Depreciation Pre-Tax Income Net Income Earnings Per Share (Basic)1 (Diluted)1 Balance Sheet ($000) Working Capital Current Assets Net Fixed Assets Accumulated Depreciation Cash & Cash Investment Total Assets Current Liabilities Long-Term Debt Stockholders’ Equity Stockholders’ Equity per Diluted Share1 Funds Flow Data ($000) Operations Investments Financing Net Increase (Decrease) in Cash Ratio Analysis Return on Average Equity Return on Average Assets Pre-Tax Income on Sales Net Income on Sales Total Liabilities to Equity Quick Ratio2 Current Ratio Year-End Price Earnings Ratio1 1 Reflects 3-for-2 stock split in August 2007 2 Cash, cash equivalents + receivables/current liabilities. 2010 2009 2008 2007 2006 $244,552 $55,188 $32,715 $45 $258 $9,886 $32,693 $21,894 $1.30 $1.30 $55,502 $91,748 $67,418 $86,307 $2,393 $160,277 $36,246 $0 $116,739 $6.91 $32,152 $(28,276) $(27,200) $(23,246) 18.7% 13.7% 13.4% 9.0% 0.4 1.2 2.5 22 $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 $6.82 $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 $5.41 $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 $5.04 $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 $4.83 $19,428 $(16,781) $(3,333) $(549) 20.0% 13.2% 11.3% 7.4% 0.4 1.1 2.1 19 2010 pReSideNt’S LetteR In 2010, total sales declined only slightly to $244.6 million from $245.3 million a year earlier. Impacted by higher commodity prices, one-time costs associated with the relocation and addition of certain production facilities and restricted pricing flexibility, gross profit decreased 18.3% from $67.5 million (27.5% of sales) to $55.2 million (22.6% of sales). It should be “We maintained our commitment to manufacture noted that the cost of sales in 2009 benefited by $2.2 million resulting from hedging of copper. Our SG&A expenses declined 5.5% to $22.5 million (9.2% of sales) from $23.8 million (9.7% of sales) primarily as a result of decreased profit sharing related to lower net income. Operating income dropped 25.2% from $43.8 million (17.8% of sales) to $32.7 million (13.4% of sales). Pretax income declined similarly to $32.7 million (13.4% of sales) in 2010 from $43.9 million (17.9% of sales), while net income was $21.9 million (9.0% of sales) or $1.30 per share, as compared with $27.7 million (11.3% of sales) or $1.60 per share. Net income in 2009, reflects a gain from copper hedging of $1.4 million or $0.08 per share. Our 2010 tax rate was 33%, compared to 36.8%, due to credits received from programs initiated by State and Federal governments. Our per share calculations are based upon 16.9 million diluted shares outstanding in 2010 and 17.3 million diluted shares in 2009. technologically innovative products that are energy efficient, meet or exceed government standards and produce significant savings to our customers.” StRONg FiNANCiAL CONditiON Our financial condition at December 31, 2010, remained strong. Total current assets were $91.7 million with a current ratio of 2.5:1. Capital expenditures climbed to $17.4 million as compared with $9.8 million a year earlier. We repurchased 822,740 shares of common stock at a total cost of $19.4 million and made dividend payments totaling $9.2 million. We maintained a strong liquid position, with no long-term debt. Total shareholders’ equity at December 31, 2010, was $116.7 million or $7.07 per share, compared to $118.0 million or $6.85 per share at yearend 2009. CApitAL expeNdituReS We continue to witness increasing acceptance of our technologically innovative, highly reliable product lines. Our strong manufacturing and financial base enabled us to diversify both our product mix and customer base. These diversities give the Company significant potential for growth over the intermediate and longer term. In order to meet these future demands, we significantly increased our capital spending for both machinery and plant capacity. In 1998, we purchased a 40-acre tract of land including a 457,000 square foot building. Over the next decade this property was expanded to 713,000 square feet and, by the end of 2008, AAON utilized approximately 40% of the property with the remainder leased to a third party. The lease expired in May of last year and we began to immediately renovate the remaining 330,000 square feet. Dear ShareholDer,We were quite pleased with our sales performance this past year taking into consideration the severely restricted economic environment which caused a 14% decline in non-residential construction. We maintained our commitment to manufacture technologically innovative products that are energy efficient, meet or exceed government standards and produce significant savings to our customers. Aided by wide acceptance of both our improved products and new products introduced during the last two years, we were once again able to increase our share of the market.ANNuAl RepORT “Our financial condition at December 31, 2010, remained strong. Total current assets were $91.7 million with a current ratio of 2.5:1. Capital expenditures climbed to $17.4 million as compared with $9.8 million a year earlier. We repurchased 822,740 shares of common stock at a total cost of $19.4 million and made dividend payments totaling $9.2 million. We maintained a strong liquid position, with no long-term debt. We originally budgeted capital expenditures of $7-8 million customers has been excellent. Since our entire product line now factors in the stock performance of each company compared for 2010. By mid-year it became evident that we would need to requires foam insulation it is necessary for us to buy additional with that of its peers. The Company was also previously honored substantially raise our forecast due to our improving backlog foam manufacturing machinery. Furthermore, we will initiate a in this list for years 2000-2002. and incoming order rate. Furthermore, we determined that two number of new production lines. of our metal fabricating machines would have to be replaced New pROduCtS by early 2011 and three additional machines were necessary to In December 2010, the Federal government passed the 2010 Tax New Federal government regulations require that all commercial accommodate our future growth. We placed deposits on this Relief Act which provides a 100% depreciation allowance on any air conditioning systems larger than 10 tons must be capable of equipment last year and took delivery of the two replacement qualified asset placed in service from September 2010 through varying air volume in accordance with load requirements. The machines at the beginning of this year. The remaining three units December 2011. This allowance continues through 2012, but at full product line of AAON, including the newly designed 2-10 ton will be delivered by June 2011. a reduced rate of 50%. We plan to take full advantage of this tax equipment, meets these requirements. The Company’s variable benefit over the next two years. air volume system is designed with a backward curved fan and By yearend 2010 our capital expenditures had climbed to $17.4 million. We completed a 165,000 square foot facility dedicated ReCOgNitiONS digital scroll compressor which can vary the amount of air into a space, thereby varying the amount of cooling and heating. The to the production of our 16-30 ton line of products and initiated In October, the Company’s RN series rooftop unit and LC series variable air volume system can produce annual energy savings renovation of an additional 165,000 square feet of manufacturing chiller product were named 2010 Product of the Year – Silver and up to 30-40% as compared with competing constant air volume which will house the production of our 26-70 ton product line. Bronze, respectively, in the HVAC/R category by Consulting- systems. This facility is expected to be completed by mid-2011. In total, Specifying Engineer Magazine. These awards add to the 2008 we spent approximately $4.0 million on additional plant capacity announcement that the rooftop product produced by AAON In January, we attended the AHRI Expo, a large industry trade and approximately $13.4 million on machinery and equipment. with Digital Precise Air Control had been voted “Product of the show, where we introduced our new oilless magnetic bearing Year – Gold” in the HVAC category and “Most Valuable Product” centrifugal “break through” chiller system ranging in size from For 2011, we have budgeted total capital expenditures in the for the overall competition. 90 to 540 tons. The response to this product was exceptional. The range of $28-30 million. Approximately 25% of that amount will standard compressor in an air conditioner uses oil as a lubricant. be devoted to enlarging our manufacturing capacity and will Additionally, in May 2009 we were notified by the National The oil circulates throughout the entire refrigeration system. Oil, include the completion of our 26-70 ton product line facility Society of Professional Engineers (NSPE) that the Digital Precise by its nature, reduces heat transfer effectiveness, thereby lowering and the construction of a new 200,000 square foot warehouse Air Control System had been selected to receive the 2009 NSPE the energy efficiency of the equipment. The oilless magnetic and office building which is expected to be finished by year end. Professional Engineers in Industry New Product Award in bearing compressor eliminates the need for lubrication, thus Once completed, we will have 1.2 million square feet of plant and the Large Company category. This prestigious award honors improving the efficiency of the refrigeration cycle. In addition, buildings in our Tulsa facility with manufacturing capability of American companies and their contributions to society. Winning this type of compressor is more efficient than the traditional $800 million to $1 billion depending on our product mix. products were chosen for their exceptional engineering research, scroll compressor. The AAON patented evaporative condenser, design and overall impact on our national economy. combined with the magnetic bearing compressor, creates a The remainder of our capital expenditures will be directed chiller system with very low energy and water consumption toward the purchase of machinery. Over the past three years we Also, for the fourth consecutive year, AAON was selected to the compared to the systems now in the market. This chiller system redesigned our entire product line to include foam composite Forbes “100 Best Small Companies” list, ranking 77th. Inclusion uses approximately 30% less energy and water. The total chiller construction for the cabinets, making for a stronger, more highly on the Forbes list requires companies to meet a series of financial market is estimated to be $700 million annually. We expect to energy efficient product compared with the traditional use of benchmarks, including earnings and sales growth and return gain a modest share of this market over the next two to three fiberglass as the inner liner of the cabinets. The response from our on equity in the past 12 months and over five years. Forbes also years. 2010In 2010, we introduced a newly designed 2-6 ton unitary product market customer may choose our more efficient geothermal unit OuR eMpLOyeeS and a redesigned 5-10 ton line. These products have inner and (water source heat pump system) over the traditional air cooled Our most important asset is our base of trained and knowledgeable outer sheet metal walls filled with foam which create composite system. Furthermore, the American Recovery and Reinvestment employees. In response to the economic challenges of 2009, our construction for the cabinets. In addition, these products are Act of 2009 provides a tax credit for geothermal installations workforce became more flexible and we saw increased participation in manufactured with direct drive blower assemblies and with our which reduces the payback period. This Act played an important training efforts. This combination of outcomes allowed us to support airfoil backward curved fan which produces a far more efficient role in stimulating geothermal product sales this past year. fluctuating manufacturing demands over the past two years, retain product compared with the traditional belt driven, forward our most skilled personnel and respond to the opportunities which curved fan product. We established a strong foothold in that SALeS RepReSeNtAtiVe peRFORMANCe arose in our markets. highly competitive market due to the excellent response to the Our growing market share can be directly attributed to the efforts technological innovations we incorporated into the line. We of our sales representatives. At the end of 2010, AAON had 112 Since our founding, we have distributed 10% of pre-tax profits estimate the size of this market to be in the range of $1.1 to $1.3 offices operating in all 50 states and Canada. The replacement equally to all personnel at each operating subsidiary. The purpose billion or approximately 55-60% of the total unitary rooftop market represented approximately 45% of AAON’s total sales and of this “profit sharing” has been to provide an immediate reward market. This market offers AAON excellent growth potential firm demand in this segment helped to cushion the weakness in for maintaining the subsidiary’s profitability. For a long-term focus, over the intermediate and longer term. demand from new construction. End markets such as education, employees now own nearly 4% of the Company’s outstanding stock healthcare, government, municipal and the military performed through our 401(k) plan which allows employees to benefit, along with geOtHeRMAL relatively well, while we continued to witness a negative tone other shareholders, from share appreciation. AAON matches 50% of The growing acceptance of our redesigned 2-6 ton product in the commercial, industrial and retail sectors. The success of all employee contributions to the Plan up to 9% of compensation and, line enabled our sales in the geothermal market to gain 40% to our product line diversification along with a widening diversity during 2010, we began contributing an amount equal to 1.5% of each approximately $15 million in 2010. Our product, with composite of customers can be directly traced to the efforts of our sales employee’s pre-tax earnings to the 401(k) plan even if the employee cabinet, improved foam technology and enhanced coil design, representatives. They will continue to play a major role in the chose to make no contribution of his or her own. All company is designed to be used as a rooftop product. The replacement Company’s future growth. contributions purchase company stock on the open market using ANNuAl RepORT “Our growing market share can be directly attributed to the efforts of our sales representatives. At the end of 2010, AAON had 112 offices operating in all 50 states and Canada.” tHe ONgOiNg SuCCeSS OF OuR COMpANy CAN Be diReCtLy AttRiButed tO OuR eMpLOyeeS. 2010ANNuAl RepORT “We view our employees as a long-term investment in skills, talent and knowledge. We believe that our approach to personnel increases shareholder value We view our employees as a long-term investment in skills, talent and knowledge. We believe that our approach to personnel increases shareholder value by developing an ownership perspective and a sense of individual responsibility among our employees, while helping them meet their personal financial, health and development by developing an ownership perspective and a sense of individual responsibility among our employees, while goals. OutLOOk helping them meet their personal financial, health and development goals.” Significant strides were made toward improving and enlarging our manufacturing capabilities during one of the most challenging economic periods witnessed in many years. We remain committed to providing the capital necessary in order to produce new, technologically innovative products which meet our either cash contributions from the Company, dividends received blood sugar levels and smoking rates since tracking began customers’ demands while addressing the major industry concern: from company stock or cash from prior divestitures of company for those figures while simultaneously reducing name-brand energy efficiency. Over the past decade, we spent approximately stock within the plan. Shares of AAON stock are later sold to prescription usage. We believe that giving employees direct $115 million on plant renovation, expansion and on the purchase the Company and retired if participants choose to diversify control over their health-care dollars has made our employees of machinery. All of these expenditures were made from our free their holdings or leave the plan. The 401(k) program improves more health-conscious and cost-conscious while keeping health cash flow while remaining debt free. retirement preparedness and encourages employee longevity care costs competitive for the Company and its shareholders. through a six-year benefit vesting structure. We believe that the combination of these two incentives align the interests of our Unfortunately, the recent health care reform legislation has employees with those of our shareholders in a manner designed placed restrictions on our ability to manage a significant aspect to improve capital appreciation and profitability. of our employment costs. Due to the uncertainty surrounding the legislation, we have maintained our “grandfathered” status We are in our third year of offering only a high-deductible health for the 2010-2011 plan year even though our existing plan design plan along with contributions to health savings accounts, wellness covers the level of benefits required under the new regulations. incentives and on-site clinics that are focused on preventative As the regulatory environment surrounding health insurance care. Total medical costs, including the employees’ out-of-pocket develops, we will be closely examining the costs and benefits of costs, are running 30% below the national average cost of just our current plan compared to a non-grandfathered status and the health insurance, which indicates the effectiveness of the current developing health insurance exchanges. However, in preparation plan design from a cost-control perspective. In addition to for the requirement to report the value of health insurance on financial performance, nearly all of the average health indicators, employee W-2s, we have modified our payroll statements. Now, as verified through our annual Health Risk Assessments, have on every payroll statement employees see the full value of all improved since we began to focus on prevention and wellness. We benefits paid on their behalf by the Company in combination have seen improvements in average blood pressure, cholesterol, with their regular earnings. Our growth objectives can be achieved, and enhanced by the continuing commitment and support of our customers, sales representatives and shareholders, as well as with the cooperation of our loyal employees, all of whose names appear at the end of this report. The future growth potential of AAON is in excellent hands and I believe will come to fruition. Sincerely, Norman H. Asbjornson President & CEO March 21, 2011 2010UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] For the fiscal year ended December 31, 2010 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________________ to _____________________________ Commission file number: 0-18953 AAON, INC. (Exact name of registrant as specified in its charter) Nevada (State or other jurisdiction of incorporation or organization) 2425 South Yukon, Tulsa, Oklahoma (Address of principal executive offices) 87-0448736 (IRS Employer Identification No.) 74107 (Zip Code) Registrant’s telephone number, including area code: (918) 583-2266 Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.004 (Title of Class) Rights to Purchase Series A Preferred Stock (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [_] Yes [X] No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. [_] Yes [X] No 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). 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. [X] 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). [X] Yes [_] No [X] Yes [_] No Large accelerated filer [_] Non-accelerated filer [_] Accelerated filer [X] Smaller reporting company [_] Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act.) [_] Yes [X] No 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, 2010) was $386.4 million. As of February 28, 2011, registrant had outstanding a total of 16,492,682 shares of its $.004 par value Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of registrant’s definitive Proxy Statement to be filed in connection with the Annual Meeting of Stockholders to be held May 17, 2011, are incorporated into Part III. 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. pARt ii 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 6. Selected Financial Data. 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 7A. Quantitative and Qualitative Disclosures About Market Risk. 8. Financial Statements and Supplementary Data. 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 9A. Controls and Procedures. 9B. Other Information. pARt iii 10. Directors, Executive Officers and Corporate Governance. 11. Executive Compensation. 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 13. Certain Relationships and Related Transactions. 14. Principal Accountant Fees and Services. pARt iV 15. Exhibits and Financial Statement Schedules. 1 4 6 6 6 7 10 10 20 20 20 21 22 23 23 23 23 25 26 pARt 1 iteM 1. BuSiNeSS. geNeRAL deVeLOpMeNt ANd deSCRiptiON OF BuSiNeSS AAON, Inc., a Nevada corporation, was incorporated on August 18, 1987. We have two operating subsidiaries, AAON, Inc., an Oklahoma corporation and AAON Coil Products, Inc., a Texas corporation. Unless the context otherwise requires, references in this Annual Report to “AAON,” the “Company”, “we,” “us,” “our” or “ours” refer to AAON, Inc., and our subsidiaries. We are engaged in the manufacture and sale of air-conditioning and heating equipment. Our products consist of 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 approximately 5% of our sales in 2010. 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 2010 level of sales of $245 million, we estimate that we have a 14% share of the rooftop market and a 1% share of the coil market. Approximately 55% of our sales now come from new construction and 45% 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 selfcontained 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 manufacture a Model LC Chiller, air cooled, and a Model LL chiller, which is available in both air-cooled condensing and evaporative cooled configurations. ANNuAl RepORT 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. Performance characteristics of our products range in cooling capacity from 20,000 - 4,320,000 BTU’s and in heating capacity from 69,000 - 9,000,000 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 2010, 2009 or 2008. SOuRCeS ANd AVAiLABiLity OF RAw MAteRiALS The most important materials we purchase are steel, copper and aluminum, which are obtained from domestic suppliers. We also purchase from other domestic manufacturers certain components, including compressors, electric motors and electrical controls used in our products. We attempt to obtain the lowest possible cost in our purchases of raw materials and components, consistent with meeting specified quality standards. We are not dependent upon any one source for raw materials or the major components of our manufactured products. By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our manufacturing requirements for the foreseeable future. We attempt to limit the impact of increases in raw materials and purchased component prices on our profit margins by negotiating with each of our major suppliers on a term basis from six months to one year. diStRiButiON We employ a sales staff of 20 individuals and utilize approximately 93 independent manufacturer representatives’ (“Representatives”) organizations having 108 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 and Longview, Texas plants to the job site. 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 aluminized steel gas-fired heat exchangers (if applicable); 25 years on stainless steel heat exchangers (if applicable); and 10 years on gas-fired heat exchangers in RL products (if applicable). With the introduction of the RQ product line in 2010, our warranty policy for the RQ series was implemented to cover parts for two years from date of unit shipment and labor for one year from date of unit shipment. 1 2 2010ANNuAl RepORT ReSeARCH ANd deVeLOpMeNt eNViRONMeNtAL MAtteRS All of our R&D activities are self-sponsored, rather than customer-sponsored. R&D has involved the RQ, RN and RL (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 $3,605,000, $3,074,000 and $2,577,000 in 2010, 2009 and 2008, respectively. BACkLOg Our current backlog as of March 1, 2011, was approximately $37,978,000 compared to approximately $33,569,000 at March 1, 2010. The current backlog consists of orders considered by management to be firm and substantially all of which will be filled by July 1, 2011; however, the orders are subject to cancellation by the customers. wORkiNg CApitAL pRACtiCeS Working capital practices in the industry center on inventories and accounts receivable. Our management regularly reviews our working capital with a view to maintaining the lowest level consistent with requirements of anticipated levels of operation. Our greatest needs arise during the months of July - November, the peak season for inventory (primarily purchased material) and accounts receivable. Our working capital requirements are generally met by cash flow from operations and a bank revolving credit facility, which currently permits borrowings up to $15,150,000. We believe that we will have sufficient funds available to meet our working capital needs for the foreseeable future. We expect to renew our revolving credit agreement in July 2011. 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 As of March 1, 2011, we had 1,394 permanent employees and 26 temporary employees. Our employees are not currently represented by unions. Management considers relations with our employees to be good. 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 which have terms of twenty years with expiration dates ranging from 2016 to 2022. 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. iteM 1A. RiSk FACtORS. 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. 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 RiSk HAViNg LOSSeS ReSuLtiNg FROM tHe uSe OF NONCANCeLABLe Fixed pRiCe CONtRACtS. 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 financial derivative instruments since they meet the normal purchases and sales exemption. 3 4 2010we MAy NOt Be ABLe tO SuCCeSSFuLLy deVeLOp ANd MARket New pROduCtS. we ARe SuBjeCt tO AdVeRSe CHANgeS iN tAx LAwS. ANNuAl RepORT 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. we MAy NOt Be ABLe tO COMpete FAVORABLy iN tHe HigHLy COMpetitiVe HVAC BuSiNeSS. Competition in our various markets could cause us to reduce our prices or lose market share, or could negatively affect our cash flow, which could have an adverse effect on our future financial results. Substantially all of the markets in which we participate are highly competitive. The most significant competitive factors we face are product reliability, product performance, service and price, with the relative importance of these factors varying among our product line. Other factors that affect competition in the HVAC market include the development and application of new technologies and an increasing emphasis on the development of more efficient HVAC products. Moreover, new product introductions are an important factor in the market categories in which our products compete. Several of our competitors have greater financial and other resources than we have, allowing them to invest in more extensive research and development. We may not be able to compete successfully against current and future competition and current and future competitive pressures faced by us may materially adversely affect our business and results of operations. 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. OuR BuSiNeSS iS SuBjeCt tO tHe RiSkS OF iNteRRuptiONS By pROBLeMS SuCH AS COMputeR ViRuSeS. Despite our implementation of network security measures, our services are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. Any such event could have a material adverse affect on our business. expOSuRe tO eNViRONMeNtAL LiABiLitieS COuLd AdVeRSeLy AFFeCt OuR ReSuLtS OF OpeRAtiONS. Our future profitability could be adversely affected by current or future environmental laws. We are subject to extensive and changing federal, state and local laws and regulations designed to protect the environment in the United States and in other parts of the world. These laws and regulations could impose liability for remediation costs and result in civil or criminal penalties in case of non-compliance. Compliance with environmental laws increases our costs of doing business. Because these laws are subject to frequent change, we are unable to predict the future costs resulting from environmental compliance. 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 other than one state sales tax audit. iteM 1B. uNReSOLVed StAFF COMMeNtS. None. iteM 2. pROpeRtieS. Our plant and office facilities in Tulsa, Oklahoma, consist of a 342,000 sq. ft. building (327,000 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). We own both the original facility and the expansion facility. Both plants are of sheet metal construction. The original facility’s manufacturing area is in a heavy industrial type building, with total coverage by bridge cranes, containing manufacturing equipment designed for sheet metal fabrication and metal stamping. The manufacturing equipment contained in the original facility consists primarily of automated sheet metal fabrication equipment, supplemented by presses, press breaks and numerical control punching equipment. Assembly lines consist of three cart-type conveyor lines with variable line speed adjustment, 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 remaining 7,000 square feet are utilized as office space. The facility is built for light industrial manufacturing. An additional, contiguous 15 acres were purchased in 2004 and 2005 for future expansion. We own both the existing plant/office building, and the 15 acres designated for future expansion. iteM 3. LegAL pROCeediNgS. We are not a party to any pending legal proceeding which management believes is likely to result in a material liability and no such action is contemplated by or, to the best of our knowledge, has been threatened against us. 5 6 2010ANNuAl RepORT 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 is contingent upon the number of shares sold. Through December 31, 2010, we repurchased 379,750 shares for an aggregate price of $7,894,792, or an average price of $20.79 per share. We purchased the shares at current market prices. Repurchases during the fourth quarter of 2010 were as follows: iSSueR puRCHASeS OF eQuity SeCuRitieS (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 17,444 5,445 18,912 41,801 $24.41 $25.13 $28.51 $26.36 17,444 5,445 18,912 41,801 - - - - period October 2010 November 2010 December 2010 Total 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 high and low sale prices for our Common Stock during the last two years, as reported by National Association of Securities Dealers, Inc., was as follows: QuARteR eNded March 31, 2009 June 30, 2009 September 30, 2009 December 31, 2009 March 31, 2010 June 30, 2010 September 30, 2010 December 31, 2010 HigH LOw 21.18 21.93 22.32 20.65 23.05 25.26 26.13 29.64 $ $ $ $ $ $ $ $ 14.54 15.95 18.57 18.00 18.64 21.50 20.08 22.91 $ $ $ $ $ $ $ $ On February 28, 2011, there were 1,006 holders of record, and approximately 4,400 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 3-for-2 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 December 14, 2009 and were paid on January 4, 2010. In 2010, dividends were declared to shareholders of record at the close of business on June 10, 2010 and December 1, 2010 and were paid on July 1, 2010 and December 22, 2010. We paid cash dividends of $9.2 million during the year ended December 31, 2010. On November 6, 2007, our Board of Directors authorized a 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. On May 12, 2010, we completed the stock buyback program. Through May 12, 2010, we repurchased a total of 1,800,000 shares under this program for an aggregate price of $36,061,425, or an average price of $20.03 per share. We purchased the shares at current market prices. On May 17, 2010, the Board authorized a new stock buyback program, targeting repurchases of up to approximately 5% (approximately 850,000 shares) of our outstanding stock from time to time in open market transactions. Through December 31, 2010, we repurchased a total of 478,493 shares under this program for an aggregate price of $11,509,433, or an average price of $24.05 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 contingent upon the number of shares sold by employees. Through December 31, 2010, we repurchased 993,155 shares for an aggregate price of $18,042,789, or an average price of $18.17 per share. We purchased the shares at current market prices. 7 8 2010StOCk peRFORMANCe gRApH (1) iteM 6. SeLeCted FiNANCiAL dAtA. ANNuAl RepORT 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, 2005, 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 2010 300.00 250.00 200.00 150.00 100.00 50.00 0.00 2005 2006 2007 2008 2009 2010 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. 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: 2010 2009 2008 2007 2006 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 Financial position at end of Fiscal year: Working capital Total assets Long-term and current debt Total stockholders’ equity (in thousands, except per share data) 244,552 $ 245,282 $ 279,725 $ 262,517 $ 231,460 21,894 $ 27,721 $ 28,589 $ 23,156 $ 17,133 1.30 $ 1.30 $ 0.36 $ 1.61 $ 1.60 $ 0.36 $ 1.63 $ 1.60 $ 0.32 $ 1.24 $ 1.22 $ 0.32 $ 0.93 0.90 0.32 16,799 16,893 17,187 17,309 17,560 17,855 18,628 18,927 18,456 18,968 deCeMBeR 31, 2010 2009 2008 2007 2006 (in thousands) 55,502 $ 65,354 $ 40,600 $ 38,788 $ 36,356 160,277 $ 156,211 $ 140,743 $ 137,140 $ 130,056 0 $ 76 $ 3,113 $ 330 $ 59 116,739 $ 117,999 $ 96,522 $ 95,420 $ 91,592 $ $ $ $ $ $ $ $ $ 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. 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 approximately 5% of our 2010 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. 9 10 2010 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 2010 and 2009 due to the economic environment. Prices decreased by approximately 34% for steel and increased by approximately 155% for aluminum and 210% for copper from December 31, 2008 to December 31, 2010. During 2010, we entered into an aluminum contract for 2011 purchases that was slightly above the average index price as of December 31, 2010. As market prices for aluminum have shown increases since January 1, 2011, our contract price more closely approximates market value in 2011. 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 was in the form of a commodity futures contract. The derivative contract settled monthly beginning in January 2010 and ending in December 2010. The contract was for a total of 2,250,000 pounds of copper at $2.383 per pound. The contract was for quantities equal to or less than those expected to be used in our manufacturing operations. We recorded adjustments of $14,000 and $2.2 million ($1.4 million after tax) to cost of sales from the unrealized gain on derivative assets at fair value in the Consolidated Statements of Income for the years ended 2010 and 2009 respectively. 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 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. 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 aluminized steel gas-fired heat exchangers (if applicable); 25 years on stainless steel heat exchangers (if applicable); and 10 years on gas-fired heat exchangers in RL products (if applicable). Warranty charges on heat exchangers do not occur frequently. With the introduction of the RQ product line in 2010, our warranty policy for the RQ series was implemented to cover parts for two years from date of unit shipment and labor for one year from date of unit shipment. Our plant and office facilities in Tulsa, Oklahoma consist of a 342,000 sq. ft. building (327,000 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. We own both the original facility and the expansion facility. 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. Other 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 and 7,000 sq. ft. of office space). An additional 15 acres were purchased in 2004 and 2005 for future expansion. We own both the existing plant/office building, and the 15 acres designated 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 property was sold in September 2010 for $1.5 million ($0.4 million cash and we are carrying back a $1.1 million note receivable). Set forth below is income statement information and as a percentage of sales for years 2010, 2009 and 2008: 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 yeARS eNdiNg deCeMBeR 31, 2010 2009 (in thousands) 2008 $ 244,552 100.0% $ 245,282 100.0% $ 279,725 100.0% 189,364 55,188 22,473 32,715 (45) 258 (235) 77.4% 22.6% 9.2% 13.4% 0.0% 0.1% 0.1% 177,737 72.5% 212,549 67,545 27.5% 67,176 23,791 43,754 (9) 71 76 43,892 16,171 9.7% 17.8% 0.0% 0.0% 0.1% 17.9% 6.6% 23,788 43,388 (71) 27 724 44,068 15,479 76.0% 24.0% 8.5% 15.5% 0.0% 0.0% 0.3% 15.8% 5.6% 10.2% Income before income taxes 32,693 13.4% Income tax provision 10,799 4.4% Net income $ 21,894 9.0% $ 27,721 11.3% $ 28,589 ReSuLtS OF OpeRAtiONS Key events impacting our cash balance, financial condition and results of operations in 2010 include the following: • We have again taken a leading position in energy savings with the introduction of the direct drive blower which has eliminated the traditional V-belt drive, thus saving energy and maintenance problems associated with the V-belt drives. This has been made possible by advances in electronic motor control by use of variable frequency drive on larger motors and electrically commutated motors on smaller horsepowers. All of this is being further enhanced by requirements on buildings through ASHRAE (American Society of Heating, Refrigerating and Air-Conditioning Engineers) Standard 189-1 which requires one of these concepts on high efficiency buildings at the present time and will be required by ASHRAE Standard 90-1 on January 2012. We also utilize a high performance composite foam panel to eliminate over half of the heat transfer from typical fiberglass insulated panels. All of these innovations increase the demand for our products thus increasing market share. • Released new products and set up new manufacturing lines in the new building addition which was completed at the end of 2009. • We attempt to moderate the volatility of 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 $9.2 million were made in 2010. Dividends payable of $3.1 million were declared in June 2010, released for payment to our transfer agent in June 2010 and paid to stockholders in July 2010. Dividends payable of $3.0 million were declared and paid in December 2010. Dividends payable of $3.1 million were declared in December 2009 and paid in January 2010. • Stock repurchases resulted in cash payments of $19.5 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 at December 31, 2010 with cash on hand of approximately $2.4 million, $1.5 million in certificates of deposit and $9.5 million of current assets in corporate notes and bonds. In view of the current economic environment, our goal remains to maintain a healthy financial condition. • Purchases of equipment and renovations to manufacturing facilities remained a priority. Our capital expenditures were $17.5 million. Equipment purchases create significant efficiencies, lower production costs and allow continued growth in production. We currently estimate dedicating $28 million to $30 million to capital expenditures in 2011 for continued growth. 11 12 2010 Net SALeS SeLLiNg, geNeRAL ANd AdMiNiStRAtiVe expeNSeS ANNuAl RepORT Net sales were $244.6 million, $245.3 million and $279.7 million in 2010, 2009 and 2008, respectively. Sales in 2010 remained substantially level with 2009 due to the favorable reception to our new products and increased market share, despite poor economic conditions which caused non- residential construction spending to decline 14.1%. The decrease in sales in 2009 from 2008 was due to decreased volume related to the economic environment and lower sales from our Canadian operations. The economic environment negatively impacted commercial construction markets with some projects delayed, postponed indefinitely or cancelled. The replacement market was also affected by customers delaying equipment replacement as a cost saving strategy. In 2008, 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. gROSS pROFit Gross margins were $55.2 million, $67.5 million and $67.2 million in 2010, 2009 and 2008, respectively. Gross margins decreased $12.3 million in 2010 from 2009. As a percentage of sales, gross margins were 22.6%, 27.5% and 24.0% in 2010, 2009 and 2008, respectively. The 18.0% decrease in gross margins in 2010 from 2009 was primarily a result of the absence of a derivative related to a copper hedge of $2.2 million that we benefited from in 2009, higher raw material and commodity costs, increased labor expenses to relocate a production line and set up new production lines for the Tulsa building addition and related supplies to stock the new lines, and our inability in the current economic environment to implement price increases to our minimum sales prices for HVAC units. The increase in gross profit in 2009 from 2008, resulted from 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 financial 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 22.6%, 26.6% and 24.0% in 2010, 2009 and 2008, respectively. 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 2010 and 2009 due to the economic environment. Prices decreased by approximately 34% for steel and increased by approximately 155% for aluminum and 210% for copper from December 31, 2008 to December 31, 2010. During 2010, we entered into an aluminum contract for 2011 purchases that was slightly above the average index price as of December 31, 2010. As market prices for aluminum have shown increases since January 1, 2011, our contract price more closely approximates market value in 2011. We entered into a financial derivative instrument in the third quarter of 2009 with a large financial institution to mitigate our exposure to volatility in copper prices. The financial derivative was in the form of a commodity futures contract. The contract was for a total of 2,250,000 pounds of copper at $2.383 per pound. In March 2010, we locked in the settlement price of $3.3975 per pound for the remainder of 2010. The contract was for quantities equal to or less than those used in our manufacturing operations in 2010. The derivative contract began settling in January 2010 and concluded in December 2010. In addition to our financial 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 financial derivative instruments since 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. SG&A were $22.5 million, $23.8 million and $23.8 million in 2010, 2009 and 2008, respectively. As a percentage of sales, SG&A expenses were 9.2%, 9.7% and 8.5% in 2010, 2009 and 2008 respectively. In 2010, compared to 2009, we experienced a decrease in our SG&A expenses. The decrease was primarily due to a decrease in profit sharing expense related to lower net income. 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. iNteReSt expeNSe Interest expense was approximately $45,000, $9,000 and $71,000 in 2010, 2009 and 2008, respectively. The increase in interest expense of approximately $36,000 in 2010 from 2009 was due to increased borrowings on the revolving credit facility. We borrowed $20.8 million from the revolving credit facility during 2010 compared to $10.0 million during 2009. Interest on borrowings is payable monthly at the greater of 4.0% or LIBOR plus 2.5% (4.0% at December 31, 2010). The decrease in interest expense in 2009 from 2008 was due to fewer borrowings on the revolving credit facility. In 2008, we borrowed $46.9 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 $258,000, $71,000 and $27,000 in 2010, 2009 and 2008, respectively. The increase in interest income of approximately $187,000 in 2010 from 2009 was mainly due to interest income from our investments in corporate notes and bonds, see Note 1. Investments Held to Maturity. The increase in interest income in 2009 from 2008 was mainly due to interest income from a tax refund. OtHeR iNCOMe (expeNSe) Other expense was approximately $235,000 in 2010. Other income was approximately $76,000 and $724,000 in 2009 and 2008, respectively. The decrease in other income of approximately $311,000 in 2010 from 2009 was primarily due to the termination of the lease on our expansion facility in May 2009. Prior to the lease expiration in May 2009, other income was predominantly attributable to rental income from our expansion facility. The decrease in other income in 2009 from 2008 was also primarily related to the termination of the lease. We began renovations on the expansion facility to give us increased manufacturing capacity upon expiration of the lease. Our 2010 capital expenditures reflected the 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 state of the economy has negatively impacted the commercial and industrial new construction markets. The 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. 13 14 2010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. geNeRAL Our revolving credit facility provides for maximum borrowings of $15.2 million which is provided by the Bank of Oklahoma, National Association. At December 31, 2010, borrowings available under the revolving credit facility were $14.3 million. Under the line of credit, there is one standby letter of credit totaling $0.9 million. Interest on borrowings is payable monthly at the greater of 4.0% or LIBOR plus 2.5% (4.0% at December 31, 2010). No fees are associated with the unused portion of the committed amount. At December 31, 2010, we had no borrowings outstanding under the revolving credit facility. 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, 2010, 2009 and 2008, 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, 2010 our tangible net worth was $117.0 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 $55.5 million which meets the requirement of being at or above $30.0 million. On July 30, 2010, we renewed the line of credit with a maturity date of July 30, 2011 with terms substantially the same as the previous agreement. Subsequently, as a requirement of our workers compensation insurance, our standby letter of credit was extended with an increase of $1.5 million to $2.4 million and will expire December 31, 2011. We expect to renew our revolving credit agreement in July 2011. We do not anticipate that the current situation in the credit market will impact our renewal. We believe 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 2011 and the foreseeable future. The belief that we will have the necessary liquidity and capital resources is based upon our 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, 2010, 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 $32.2 million, $45.2 million and $33.4 million in 2010, 2009 and 2008, 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 was $21.9 million, $27.7 million and $28.6 million in 2010, 2009 and 2008 respectively. The decrease in net income of $5.8 million in 2010 from 2009 was primarily due to the absence of a derivative related to a copper hedge of $2.2 million ($1.4 million net of tax) that we benefited from in 2009, higher raw material and commodity costs, increased labor expenses to relocate a production line and set up new production lines for the Tulsa building addition and related supplies to stock the new lines, and our inability in the current economic environment to implement price increases to our minimum sales prices for HVAC units. The decrease in net income in 2009 from 2008 was primarily due to lower volume of sales which was a result of the 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 financial derivative asset. Depreciation expense was $9.9 million, $9.1 million and $9.4 million in 2010, 2009 and 2008, respectively. The increase in depreciation is due to the increase in depreciable assets of equipment and building additions. The decrease in depreciation in 2009 was due to the realization of full depreciation of certain capital assets. Share-based compensation was $0.8 million in each of 2010, 2009 and 2008. Both depreciation expense and share-based compensation expense decreased net income, but had no effect on operating cash. ANNuAl RepORT Accounts receivable increased by $6.4 million at December 31, 2010 due primarily to slower customer payments. Accounts receivable decreased by $5.5 million at December 31, 2009 compared to December 31, 2008 and was attributable to a decrease in sales. Accounts receivable increased by $0.9 million at December 31, 2008 compared to December 31, 2007 due to increased sales. Inventories increased by $4.8 million at December 31, 2010 compared to December 31, 2009 due to an increase related to the valuation of inventories associated with higher raw material and component part prices and increased inventory levels associated with an increase in our backlog. Inventories decreased by $7.2 million at December 31, 2009 compared to December 31, 2008. The decrease in inventories in 2009 from 2008 was attributable 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 primarily related to the procurement of inventory to accommodate increased sales. Accounts payable increased by $6.5 million at December 31, 2010 compared to December 31, 2009 due an increase in inventory levels and timing of payments to vendors. Accounts payable decreased by $6.3 million at December 31, 2009 compared to December 31, 2008. The decrease in accounts payable in 2009 from 2008 was attributable to fewer purchases related to lower sales volumes. Accounts payable increased by $0.4 million at December 31, 2008 compared to December 31, 2007 due to the timing of payment to vendors. Accrued liabilities increased by $2.4 million at December 31, 2010 compared to December 31, 2009 due to an increase in amounts due to representatives and payroll partially offset by a decrease in medical self-insurance reserves. Accrued liabilities increased by $0.8 million at December 31, 2009 compared to December 31, 2008. The increase in accrued liabilities in 2009 from 2008 is attributable 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 due to higher workers compensation expenses and higher warranty expenses related to increased sales. Cash Flows Used in Investing Activities. Cash flows used in investing activities were $28.3 million, $9.6 million and $9.6 million in 2010, 2009 and 2008, respectively. Cash flows used in investing activities in 2010 increased significantly from 2009 and were related to a $15.0 million investment with a large financial institution in January 2010. The investments were allocated to cash and money market funds, certificates of deposit, corporate notes and bonds and foreign corporate notes and bonds with a maturity of one year or less. The investments began maturing during 2010 and at December 31, 2010 the investment balance was $11.0 million. The increase was also attributable to manufacturing and equipment purchases and costs to expand our manufacturing facilities. 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 $28 million - $30 million in 2011 for a building addition at the Tulsa facility and machinery and equipment to accommodate anticipated growth. We expect the cash requirements to be provided by cash flows from operations and matured investments. We did not invest in certificates of deposits, money market funds or corporate notes and bonds in 2009 or 2008. Cash Flows Used in Financing Activities. Cash flows used in financing activities were $27.2 million, $10.1 million and $24.5 million in 2010, 2009 and 2008, respectively. The increase in cash flows used in financing activities of $17.1 million in 2010 from 2009 is primarily related to a higher volume of stock repurchases and the payment of $9.2 million in dividends. The decrease in cash flows used in financing activities in 2009 from 2008 was primarily related to lower volume of stock repurchases. 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, 2010 or at December 31, 2009. We had $2.9 million outstanding under the revolving credit facility at December 31, 2008. We accessed $20.8 million, $10.0 million and $46.9 million of borrowings under the line of credit during 2010, 2009 and 2008, respectively. We received cash from stock options exercised of $1.2 million, $1.2 million and $1.7 million and classified the excess tax benefit of stock options exercised and restricted stock awards vested of $0.4 million, $0.7 million and $1.6 million in financing activities in 2010, 2009 and 2008, respectively. 15 16 2010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 $19.6 million for 822,740 shares, $3.1 million for 165,117 shares and $24.8 million for 1,211,538 shares of stock in 2010, 2009 and 2008, 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 3-for-2 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 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 dividends of $9.2 million were paid in 2010. Cash dividends of $5.9 million were paid in 2009, and we accrued a liability for payment of $3.1 million of dividends in January 2010. Cash dividends of $5.8 million were paid in 2008, and $2.8 million in dividends were declared and accrued as a liability in December 2008 for payment in January 2009. COMMitMeNtS ANd CONtRACtuAL AgReeMeNtS The following table summarizes our contractual agreements as of December 31, 2010: pAyMeNtS due By peRiOd CONtRACtuAL OBLigAtiONS tOtAL LeSS tHAN 1 yeAR 1–3 yeARS 4–5 yeARS AFteR 5 yeARS (in thousands) Purchase obligations(1) Total contractual obligations $ $ 1,662 $ 1,662 $ 1,662 $ 1,662 $ - $ - $ - $ - $ - - (1) The purchase obligation consists of an aluminum commitment with one supplier. We expect to receive delivery of raw materials for use in our manufacturing operations. This contract is not accounted for as a derivative instrument because it meets 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 of financial position. 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. ANNuAl RepORT 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. Final sales prices are fixed based on purchase orders. Sales allowances and customer incentives are treated as reductions to sales and are provided for based on historical experiences and current estimates. Our policy is to record the collection and payment of sales taxes through a liability account. We present revenues net of certain payments to our independent manufacturer representatives (“Representatives”). Representatives are national companies that are in the business of providing HVAC units and other related products and services to customers. The end user customer orders a bundled group of products and services from the Representative and expects the Representative to fulfill the order. Only after the specifications are agreed to by the Representative and the customer, and the decision is made to use an AAON HVAC unit, will we receive notice of the order. We establish the amount we must receive for our HVAC unit (“minimum sales price”), but do not control the total order price which is negotiated by the Representative with the end user customer. We are responsible for billings and collections resulting from all sales transactions, including those initiated by our Representatives. The Representatives submit the total order price to us for invoicing and collection. The total order price includes our minimum sales price and an additional amount which may include both the Representatives’ fee and amounts due for additional products and services required by the customer. These additional products and services may include controls purchased from another manufacturer to operate the unit, start-up services, and curbs for supporting the unit (“Third Party Products”). All are associated with the purchase of a HVAC unit but may be provided by the Representative or another third party. The Company is under no obligation related to Third Party Products. The Representatives do not provide us with a break-out of the amount of the total order price over the minimum sales price which includes the Representatives’ fee and Third Party Product amounts (“Due to Representatives”). The Due to Representatives amount is paid only after all amounts associated with the order are collected from the customer. The amount of payments to our Representatives was $51.4 million, $58.0 million and $55.4 million for the years ended December 31, 2010, 2009, and 2008, respectively. 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 aluminized steel gas-fired heat exchangers (if applicable); 25 years on stainless steel heat exchangers (if applicable); and 10 years on gas-fired heat exchangers in RL products (if applicable). With the introduction of the RQ product line in 2010, our warranty policy for the RQ series was implemented to cover parts for two years from date of unit shipment and labor for one year from date of unit shipment. 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. 17 18 2010 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. Historically, actual results have been within management’s expectations. New ACCOuNtiNg pRONOuNCeMeNtS In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy. Separate disclosures need to be made of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements along with a description of the reason for the transfers. Also, disclosure of activity in Level 3 fair value measurements needs to be made on a gross basis rather than as one net number. ASU 2010-06 also requires: (1) fair value measurement disclosures for each class of assets and liabilities, and (2) disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements, which are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Adoption of ASU 2010-06 did not have a material impact on our Consolidated Financial Statements. In February 2010, the FASB issued ASU 2010-09,Topic 855, 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 forwardlooking 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. ANNuAl RepORT 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, 2010. COMMOdity pRiCe RiSk We entered into a financial derivative instrument in the third quarter of 2009 with a large financial institution to mitigate our exposure to volatility in copper prices. We did not incur losses due to counterparty non-performance. We do not use financial derivatives for speculative purposes. Fluctuations in copper commodity prices impacted the value of the financial derivative we held. The financial derivative contract began settling monthly in January 2010 and concluded in December 2010. The contract was for a total of 2,250,000 pounds of copper at $2.383 per pound. In March 2010, we locked in the settlement price of $3.3975 per pound for the remainder of 2010. Prior to locking in the settlement price, we would have been subject to gains which we would have recorded as a financial derivative asset if the forward copper commodity prices increased and losses which we would have recorded as a financial derivative liability if they decreased. We were in an unrealized gain position on the financial derivative asset during 2009 and 2010. We settled the derivative December 2010. We used 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 settled. We did not designate the financial derivative as a cash flow hedge. We recorded changes in the financial derivative’s fair value in earnings based on mark-to-market accounting. For the year ended December 31, 2010, we recorded approximately $14,000 to cost of sales from the unrealized gain on our financial derivative asset at fair value in the Consolidated Statements of Income. 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 2010 and 2009 due to the economic environment. We have included a three-year comparison to show fluctuations in raw materials costs. Prices have decreased by approximately 34% for steel and increased by approximately 155% for aluminum and 211% for copper from December 31, 2008 to December 31, 2010. During 2010, we entered into an aluminum contract for 2011 purchases that was slightly above the average index price as of December 31, 2010. As market prices for aluminum have shown increases since January 1, 2011, our contract price more closely approximates market value in 2011. 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 financial 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 financial derivative instruments since they meet the normal purchases and sales exemption. We do not utilize financial derivative financial instruments to hedge our interest rate risk. We occasionally use financial 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 33. iteM 9. CHANgeS iN ANd diSAgReeMeNtS witH ACCOuNtANtS ON ACCOuNtiNg ANd FiNANCiAL diSCLOSuRe. None. 19 20 2010iteM 9A. CONtROLS ANd pROCeduReS. (C) RepORt OF iNdepeNdeNt RegiSteRed puBLiC ACCOuNtiNg FiRM (A) eVALuAtiON OF diSCLOSuRe CONtROLS ANd pROCeduReS Report of Independent Registered Public Accounting Firm 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: Board of Directors and Stockholders AAON, Inc. ANNuAl RepORT • Our disclosure controls and procedures are designed at a reasonable assurance threshold 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 at a reasonable assurance threshold 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, 2010. (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, 2010, 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 10, 2011 /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer /s/ Kathy I. Sheffield Kathy I. Sheffield Chief Financial Officer We have audited AAON, Inc. (a Nevada Corporation) and subsidiaries’, collectively, the “Company”, internal control over financial reporting as of December 31, 2010, 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 of 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, 2010, 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, 2010 and 2009, 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, 2010 and our report dated March 10, 2011, expressed an unqualified opinion on those consolidated financial statements. /s/ GRANT THORNTON LLP Tulsa, Oklahoma March 10, 2011 (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 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. iteM 9B. OtHeR iNFORMAtiON. None. 21 22 2010 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 2011 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. Our code of ethics can be found on our website at www.aaon.com. We will also 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 2011 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 2011 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 2010, 2009 or 2008. diReCtOR iNdepeNdeNCe The Board of Directors (“Board”) has adopted director independence standards that meet and/or exceed listing standards set by NASDAQ. NASDAQ has set forth six applicable tests and requires that a director who fails any of the tests be deemed not independent. In 2010, the Board affirmatively determined, considering the standards described more fully below, that Messrs. Short, Lackey, McElroy, Levine and Cappy 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. 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; • “executive officer” means an “officer” within the meaning of Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended; and • “immediate family” means spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone (other than employees) sharing a person’s home, but excluding any person who is no longer an immediate family member as a result of legal separation or divorce, death or incapacitation. 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. 23 24 2010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. pARt 4 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 2011 Annual Meeting of Stockholders. iteM 15. exHiBitS ANd FiNANCiAL StAteMeNt SCHeduLeS. (a) Financial statements. See Index to Consolidated Financial Statements on page 29. (b) Exhibits: ANNuAl RepORT (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) Sixth 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 3, 2010 (vi) 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. 25 26 2010 (vii) (viii) (ix) 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. 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. 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 10, 2011 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. Dated: March 10, 2011 Dated: March 10, 2011 Dated: March 10, 2011 Dated: March 10, 2011 Dated: March 10, 2011 Dated: March 10, 2011 Dated: March 10, 2011 Dated: March 10, 2011 /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/ 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 /s/ Joseph E. Cappy Joseph E. Cappy Director 27 28 2010 iNdex tO CONSOLidAted FiNANCiAL StAteMeNtS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ANNuAl RepORT Report of 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 30 31 32 33 34 35 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, 2010 and 2009, 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, 2010. 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, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, 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, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 10, 2011, expressed an unqualified opinion on the effectiveness of internal control over financial reporting. /s/ GRANT THORNTON LLP Tulsa, Oklahoma March 10, 2011 29 30 2010 deCeMBeR 31, 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, 2010 2009 2008 (in thousands, except per share data) $ 244,552 $ 245,282 $ 279,725 189,364 177,737 212,549 55,188 67,545 67,176 22,473 23,791 23,788 32,715 43,754 43,388 (45) 258 (235) (9) 71 76 (71) 27 724 $ $ $ $ 32,693 43,892 44,068 10,799 16,171 15,479 21,894 $ 27,721 $ 28,589 1.30 $ 1.30 $ 0.36 $ 1.61 $ 1.60 $ 0.36 $ 16,799 16,893 17,187 17,309 1.63 1.60 0.32 17,560 17,855 The accompanying notes are an integral part of these statements. AAON, iNC., ANd SuBSidiARieS CONSOLidAted BALANCe SHeetS 2009 (in thousands, except share and per share data) deCeMBeR 31, 2010 Assets Current Assets: Cash and cash equivalents Certificates of deposit Investments held to maturity at amortized cost Accounts receivable, net Note receivable, current Inventories, net Prepaid expenses and other Financial derivative asset 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: Current maturities of long-term debt Accounts payable Dividends payable Accrued liabilities Total current liabilities Deferred tax liabilities Commitments and Contingencies Stockholders’ equity: $ $ $ Preferred stock, $.001 par value, 7,500,000 shares authorized, no shares issued Common stock, $.004 par value, 75,000,000 shares authorized, 16,505,653 and 17,214,979 issued and outstanding at December 31, 2010 and 2009, respectively Additional paid in capital Accumulated other comprehensive income, net of tax Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity $ The accompanying notes are an integral part of these statements. 2,393 1,503 9,520 39,901 26 33,602 656 - - 4,147 91,748 1,328 45,482 100,559 6,356 153,725 86,307 67,418 1,111 160,277 - 15,046 - 21,200 36,246 7,292 - 68 - - 116,671 116,739 160,277 $ $ $ $ 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 31 32 2010 AAON, iNC., ANd SuBSidiARieS CONSOLidAted StAteMeNtS OF StOCkHOLdeRS’ eQuity ANd COMpReHeNSiVe iNCOMe COMMON StOCk SHAReS AMOuNt pAid-iN CApitAL ACCuMuLAted OtHeR COMpReHeNSiVe iNCOMe RetAiNed eARNiNgS tOtAL (in thousands) Balance at December 31, 2007 18,054* $ 73* $ – $ 1,942 $ 93,405 $ 95,420 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 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, 2010 – – 366 – (1,211) – 17,209 – – 170 – (164) – 17,215 – – 113 – (822) – – – 2 – (4) – 71 – – 1 – (1) – 71 – – – – (3) – – – – 28,589 (1,164) – 28,589 (1,164) 27,425 3,307 750 (3,519) – 538 – – 1,938 848 (2,680) – 644 – – – – 778 – 299 – – – – – – 3,309 750 (21,238) (24,761) (5,621) 95,135 (5,621) 96,522 27,721 27,721 – – – (448) (6,201) 299 28,020 1,939 848 (3,129) (6,201) 1,077 116,207 117,999 – – 21,894 21,894 – (1,077) 1,155 78 21,972 1,524 791 (2,959) – – – – – – 1,524 – (16,518) (6,067) 791 (19,480) (6,067) 16,506 $ 68 $ 0 $ 0 $ 116,671 $ 116,739 * Reflects 3-for-2 stock split effective August 21, 2007 The accompanying notes are an integral part of these statements. ANNuAl RepORT AAON, iNC., ANd SuBSidiARieS CONSOLidAted StAteMeNtS OF CASH FLOwS yeARS eNded deCeMBeR 31, OpeRAtiNg ACtiVitieS Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Amortization of bond premiums 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) loss on disposition of assets Unrealized gain on financial derivative asset Deferred income taxes Changes in assets and liabilities: Accounts receivable Inventories Prepaid expenses and other Financial derivative asset Accounts payable Accrued liabilities Net cash provided by operating activities iNVeStiNg ACtiVitieS Proceeds from sale of property, plant and equipment Investment in certificates of deposit Maturities of certificates of deposit Investments held to maturity Maturities of investments Proceeds from assets held for sale 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 2010 2009 2008 (in thousands) $ 21,894 $ 27,721 $ 28,589 9,886 379 (117) - 791 (356) (73) (14) (558) (6,403) (4,814) 431 2,214 6,522 2,370 32,152 136 (2,745) 1,242 (12,018) 2,119 460 (17,470) (28,276) 20,839 (20,839) (76) 1,168 356 (19,480) (9,168) (27,200) 78 (23,246) 25,639 9,061 9,412 - 10 410 848 (703) (59) (2,200) 3,531 5,495 7,243 (660) - (6,334) 842 45,205 135 - - - - - (9,774) (9,639) 9,972 (12,873) (136) 1,236 703 (3,129) (5,874) (10,101) (95) 25,370 269 - 547 - 750 (1,613) (27) - 160 (905) (4,779) 13 - 449 851 33,447 17 - - - - - (9,610) (9,593) 46,865 (43,964) (118) 1,696 1,613 (24,761) (5,791) (24,460) (4) (610) 879 $ 2,393 $ 25,639 $ 269 33 The accompanying notes are an integral part of these statements. 34 2010 AAON, iNC., ANd SuBSidiARieS NOteS tO CONSOLidAted FiNANCiAL StAteMeNtS deCeMBeR 31, 2010 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 approximately 5% of revenues in 2010. No customer accounted for 10% of our sales during 2010, 2009 or 2008 or more than 5% of our accounts receivable balance at December 31, 2010, 2009 or 2008. 1. BuSiNeSS, SuMMARy OF SigNiFiCANt ACCOuNtiNg pOLiCieS ANd OtHeR FiNANCiAL dAtA CASH ANd CASH eQuiVALeNtS ANNuAl RepORT AAON, Inc. is a Nevada corporation which was incorporated on August 18, 1987. Our operating subsidiaries include AAON, Inc., an Oklahoma corporation and AAON Coil Products, Inc., a Texas corporation. The Consolidated Financial Statements include our accounts and the accounts of our subsidiaries. Unless the context otherwise requires, references in this Annual Report to “AAON,” the “Company”, “we,” “us,” “our” or “ours” refer to AAON, Inc., and our subsidiaries. We are engaged in the manufacture and sale of air conditioning and heating equipment consisting of rooftop units, chillers, airhandling 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. Final sales prices are fixed based on purchase orders. Sales allowances and customer incentives are treated as reductions to sales and are provided for based on historical experiences and current estimates. Our policy is to record the collection and payment of sales taxes through a liability account. We present revenues net of certain payments to our independent manufacturer representatives (“Representatives”). Representatives are national companies that are in the business of providing HVAC units and other related products and services to customers. The end user customer orders a bundled group of products and services from the Representative and expects the Representative to fulfill the order. Only after the specifications are agreed to by the Representative and the customer, and the decision is made to use an AAON HVAC unit, will we receive notice of the order. We establish the amount we must receive for our HVAC unit (“minimum sales price”), but do not control the total order price which is negotiated by the Representative with the end user customer. We are responsible for billings and collections resulting from all sales transactions, including those initiated by our Representatives. The Representatives submit the total order price to us for invoicing and collection. The total order price includes our minimum sales price and an additional amount which may include both the Representatives’ fee and amounts due for additional products and services required by the customer. These additional products and services may include controls purchased from another manufacturer to operate the unit, start-up services, and curbs for supporting the unit (“Third Party Products”). All are associated with the purchase of a HVAC unit but may be provided by the Representative or another third party. The Company is under no obligation related to Third Party Products. The Representatives do not provide us with a break-out of the amount of the total order price over the minimum sales price which includes the Representatives’ fee and Third Party Product amounts (“Due to Representatives”). The Due to Representatives amount is paid only after all amounts associated with the order are collected from the customer. The amount of payments to our Representatives was $51.4 million, $58.0 million and $55.4 million for the years ended December 31, 2010, 2009, and 2008, respectively. 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. Cash and cash equivalents consist of bank deposits and highly liquid, interest-bearing money market funds with initial maturities of three months or less. CeRtiFiCAteS OF depOSit We have $1.5 million of current assets in certificates of deposit as of December 31, 2010 with various maturities of less than one year. The certificates of deposit bear interest ranging from 0.5% to 4.3% per annum. We did not invest in any certificates of deposit in 2009 or 2008. iNVeStMeNtS HeLd tO MAtuRity Our investments held to maturity include $9.5 million of current assets in corporate notes and bonds with maturities of less than one year. The investments have moderate risk with S&P ratings ranging from AA+ to BBB-. We did not invest in any investments held to maturity in 2009 or 2008. The following summarizes the amortized cost and estimated fair value of our investments held to maturity: AMORtized COSt(1) gROSS uNReALized gAiN gROSS uNReALized LOSS FAiR VALue (in thousands) Current Assets: Investments held to maturity Total $ $ 9,520 $ 9,520 $ - $ - $ - $ - $ 9,520 9,520 (1) We evaluate for other-than-temporary impairments on a quarterly basis. 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. There are no concentrations of credit risk. 35 36 2010 Accounts receivable and the related allowance for doubtful accounts are as follows: Inventory balances at December 31, 2010 and 2009, and the related changes in the allowance for excess and obsolete inventories for the three years ended December 31, 2010, 2009 and 2008, are as follows: ANNuAl RepORT deCeMBeR 31, 2010 2009 (in thousands) $ $ 40,501 (600) 39,901 $ $ 34,157 (776) 33,381 yeARS eNded deCeMBeR 31, 2010 2009 2008 (in thousands) $ $ 776 617 (734) (59) 600 $ $ 795 629 (630) (18) 776 $ 407 674 (127) (159) $ 795 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 NOte ReCeiVABLe In September 2010, we sold our Canadian facility (see Note 11, Canadian Facility) and assumed a note receivable from one borrower secured by the property. The $1.1 million, fifteen-year note receivable is based on a 4.0% interest rate with a $0.6 million balloon payment due in October 2025. The note calls for monthly combined interest and principal payments beginning in October 2010. Interest payments are recognized in interest income. We evaluate for impairment on a quarterly basis. We determine the note receivable to be impaired if we are uncertain of the collectability of the note based on the contractual terms. The loan is secured through right of return on the property. The loan was current as of December 31, 2010. The note receivable is not considered impaired and no impairment was recorded at December 31, 2010. There are no concentrations of credit risk 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. Raw materials Work in process Finished goods Less: Allowance for excess and obsolete inventories Total, net deCeMBeR 31, 2010 2009 (in thousands) $ 28,560 $ 26,581 3,334 2,058 33,952 (350) 1,835 1,132 29,548 (760) $ 33,602 $ 28,788 yeARS eNded deCeMBeR 31, 2010 2009 2008 (in thousands) Allowance for excess and obsolete inventories: Balance, beginning of period $ 760 $ 350 $ 350 Provision for excess and obsolete inventories Adjustments to reserve Inventories written off Balance, end of period FiNANCiAL deRiVAtiVe 800 (800) (410) 350 $ 1,849 (1,439) - 800 (800) - $ 760 $ 350 We entered into a financial derivative instrument in the third quarter of 2009 with a large financial institution to mitigate our exposure to volatility in copper prices. We monitored our financial derivative and the credit worthiness of the financial institution. We did not incur losses due to counterparty non-performance. We do not use derivatives for speculative purposes. The financial derivative contract began settling monthly in January 2010 and concluded in December 2010. The contract was for a total of 2,250,000 pounds of copper at $2.383 per pound. In March 2010, we locked in the settlement price of $3.3975 per pound for the remainder of 2010. Prior to locking in the settlement price, we would have been subject to gains which we would have recorded as a financial derivative asset if the forward copper commodity prices increased and losses which we would have recorded as a financial derivative liability if they decreased. We were in an unrealized gain position on the financial derivative asset during 2009 and 2010. We settled the derivative at December 31, 2010 and recognized the following derivative assets at fair value in the Consolidated Balance Sheets for the year ended December 31, 2009: type OF CONtRACt iNCOMe StAteMeNt LOCAtiON Derivatives not designated as hedging instruments: Commodity futures contract Derivative assets Total Derivatives not designated as hedging instruments AMOuNt (in thousands) $ 2,200 $ 2,200 We used 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 settled. We did not designate the financial derivative as a cash flow hedge. We recorded changes in the financial derivative’s fair value in earnings based on mark-to-market accounting. We recorded adjustments of $14,000 and $2.2 million ($1.4 million after tax) to cost of sales from the unrealized gain on derivative assets at fair value in the Consolidated Statements of Income for the years ended 2010 and 2009 respectively. 37 38 2010 We recorded the following unrealized gain on our financial derivative asset in the Consolidated Statements of Income for the twelve months ended December 31, 2010 and 2009 respectively: ACCRued LiABiLitieS At December 31, accrued liabilities were comprised of the following: ANNuAl RepORT 2010 2009 (in thousands) $ 7,300 $ 7,200 9,668 2,398 7,975 1,633 855 591 734 1,410 245 377 $ 21,200 $ 19,186 Warranty Due to Representatives1 Payroll Workers’ compensation Medical self-insurance Employee benefits and other Total 1Due to Representatives was previously described as Commissions. We will use the term Due to Representatives going forward to better represent the true nature of these items, which is the excess of the total order price over the minimum sales price, which includes both the Representatives’ fee and Third Party Products. wARRANtieS A provision is made for estimated warranty costs at the time the related products are sold based upon the warranty period, historical trends, new products and any known identifiable warranty issues. Warranty expense was $4.5 million, $4.8 million and $4.0 million for the years ended December 31, 2010, 2009 and 2008, respectively. Changes in the warranty accrual during the years ended December 31, 2010, 2008 and 2007 are as follows: 2010 2009 2008 (in thousands) Balance, beginning of the year $ 7,200 $ 6,589 $ 6,308 Payments made Warranties issued Adjustments related to changes in estimates Balance, end of period (4,405) 3,987 518 (4,211) 4,822 - $ 7,300 $ 7,200 $ (3,608) 3,889 - 6,589 In 2010, the provision for warranties was increased due to the introduction of the RQ product line and the implementation of extended warranty provisions for the RQ series. type OF CONtRACt iNCOMe StAteMeNt LOCAtiON Financial derivative not designated as hedging instruments: Commodity futures contract Cost of sales Total financial derivative not designated as hedging instruments type OF CONtRACt iNCOMe StAteMeNt LOCAtiON Derivatives not designated as hedging instruments: Commodity futures contract Cost of Sales Total Derivatives not designated as hedging instruments AMOuNt (in thousands) $ 14 $ 14 AMOuNt (in thousands) $ 2,200 $ 2,200 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. Depreciation expense on property, plant and equipment is recorded primarily to cost of sales with an immaterial amount recorded to selling, general, and administrative expenses using the straight-line method over the following estimated useful lives: deSCRiptiON Buildings Machinery and Equipment Furniture and Fixtures iMpAiRMeNt OF LONg-LiVed ASSetS yeARS 10-40 3-15 2-5 We evaluate long-lived assets for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. When an indicator of impairment has occurred, management’s estimate of undiscounted cash flows attributable to the assets is compared to the carrying value of the assets to determine whether impairment has occurred. If an impairment of the carrying value has occurred, the amount of the impairment recognized in the financial statements is determined by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value. Management determined no impairment was required during 2010, 2009 or 2008. 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 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 1.4 million pounds of aluminum in the form of legally binding commitments at $1.138 per pound or $1.6 million. 39 40 2010 ANNuAl RepORT eARNiNgS peR SHARe pROFit SHARiNg BONuS pLAN Basic net income per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share assumes the conversion of all potentially dilutive securities and is calculated by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus all potentially dilutive securities. Dilutive common shares consist primarily of stock options and restricted stock awards. The following table sets forth the computation of basic and diluted earnings per share: Numerator: Net income Denominator: Denominator for basic earnings per share – Weighted average shares Effect of dilutive stock options Denominator for diluted earnings per share – Weighted average shares Earnings per share Basic Diluted 2010 yeARS eNded, 2009 2008 (in thousands except share and per share data) $ 21,894 $ 27,721 $ 28,589 16,798,777 17,186,930 17,560,295 94,151 122,038 294,568 16,892,928 17,308,968 17,854,863 $ $ 1.30 1.30 $ $ 1.61 1.60 $ $ 1.63 1.60 Anti-dilutive shares Weighted average exercise price 81,000 226,950 308,250 $ 22.84 $ 15.64 $ 16.63 AdVeRtiSiNg Advertising costs are expensed as incurred. Advertising expense was approximately $877,000, $761,000 and $635,000 for the years ended December 31, 2010, 2009 and 2008, respectively. ReSeARCH ANd deVeLOpMeNt 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 $3.8 million, $4.8 million and $5.1 million for the years ended December 31, 2010, 2009 and 2008, 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 to the traditional 401(k), effective July 2010, eligible employees were given the option of making an after-tax contribution to a Roth 401(k) or a combination of both. 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 $97,000, $81,000 and $93,000 for the years ended 2010, 2009 and 2008, 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 $1.7 million, $1.2 million and $1.4 million in 2010, 2009 and 2008, respectively. FAiR VALue MeASuReMeNtS 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. Research and development costs are expensed as incurred. Research and development expense was $3.6 million, $3.1 million and $2.6 million for the years ended December 31, 2010, 2009 and 2008, respectively. FiNANCiAL deRiVAtiVe FAiR VALue MeASuReMeNtS 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. Our financial derivative asset consisted of a forward purchase contract that was measured at fair value using the quoted prices in the COMEX commodity markets which is the lowest level of input significant to measurement. The measurement is based on pricing for instruments similar but not identical to the contract we settled. These prices were based upon regularly traded commodities on COMEX. The financial derivative contract began settling monthly in January 2010 and ending in December 2010. The contract was for a total of 2,250,000 pounds of copper at $2.383 per pound. We locked in the settlement price of $3.3975 per pound. We settled the derivative in December 2010. 41 42 2010 We used 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 settled. We did not designate the financial derivative as a cash flow hedge. We recorded changes in the financial derivative’s fair value in earnings based on mark-to-market accounting. For the year ended December 31, 2010, we recorded approximately $14,000 to cost of sales from the unrealized gain on our financial derivative asset 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 SigNiFiCANt uNOBSeRVABLe iNputS LeVeL 3 tOtAL (in thousands) $ - $ 2,200 $ - $ 2,200 Assets: Derivative Assets SuBSeQueNt eVeNtS In February 2011, a severe snowstorm in the Tulsa area caused property damage to a roof over a portion of our manufacturing facility at 2425 South Yukon Ave. The company does not expect the repair of the property damage or the temporary interruption in our manufacturing processes to have a material impact on our Consolidated Financial Statements. New ACCOuNtiNg pRONOuNCeMeNtS In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy. Separate disclosures need to be made of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements along with a description of the reason for the transfers. Also, disclosure of activity in Level 3 fair value measurements needs to be made on a gross basis rather than as one net number. ASU 2010-06 also requires: (1) fair value measurement disclosures for each class of assets and liabilities, and (2) disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements, which are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Adoption of ASU 2010-06 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. ANNuAl RepORT 2. SuppLeMeNtAL CASH FLOw iNFORMAtiON Interest payments of approximately $45,000, $9,000 and $71,000 were made during the years ended December 31, 2010, 2009 and 2008, respectively. Payments for income taxes of $7.8 million, $10.0 million and $12.7 million were made during the years ended December 31, 2010, 2009 and 2008, respectively. We sold the $1.5 million asset held for sale and recorded a $1.1 million note receivable in September 2010. As of December 31, 2010, we have received $0.4 million in cash payments related to the sale. Cash dividends of $9.2 million were paid in 2010. Cash dividends $5.9 million were paid in 2009, and we accrued a liability for payment of $3.1 million of dividends in January 2010. Cash dividends of $5.8 million were paid in 2008, and $2.8 million in dividends were declared and accrued as a liability in December 2008 for payment in January 2009. 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, 2010, were $14.3 million. Interest on borrowings is payable monthly at the greater of 4.0% or LIBOR plus 2.5% (4.0% at December 31, 2010). 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, 2010. 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. At December 31, 2010, 2009 and 2008, 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, 2010 our tangible net worth was $117.0 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 $55.5 million which meets the requirement of being at or above $30.0 million. On July 30, 2010, we renewed the line of credit with a maturity date of July 30, 2011 with terms substantially the same as the previous agreement. Subsequently, as a requirement of our workers compensation insurance, our standby letter of credit was extended with an increase of $1.5 million to $2.4 million and will expire December 31, 2011. We expect to renew our revolving credit agreement in July 2011. We do not anticipate that the current situation in the credit market will impact our renewal. 4. deBt Short-term debt at December 31, 2010 and 2009 consisted of notes payable totaling approximately $0 and $76,000 due in 2011 and 2010, respectively. In 2010 and 2009, respectively, the notes payable were 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. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. The income tax provision consists of the following: Current Deferred yeARS eNdiNg deCeMBeR 31, 2010 2009 2008 (in thousands) $ 10,241 558 $ 10,799 $ $ 19,529 (3,358) 16,171 $ $ 16,163 (684) 15,479 43 44 2010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 yeARS eNdiNg deCeMBeR 31, 2010 2009 2008 (in thousands) 35% 4% (6%) 33% 35% 4% (2%) 37% 35% 3% (3%) 35% The “Other” tax rate primarily relates to the domestic production activity credit, certain domestic credits and a change in rate applied to deferred taxes. 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 deCeMBeR 31, 2010 2009 2008 (in thousands) $ 342 $ 572 $ 2,385 1,311 109 4,147 7,796 - (504) $ $ 2,544 1,297 (790) 3,623 7,820 - (494) $ $ $ $ $ 7,292 $ 7,326 $ 446 2,567 1,262 (40) 4,235 7,247 (2,265) (400) 4,582 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. There are no unrecognized tax benefits that if recognized would impact the effective tax rate at December 31, 2010. Therefore, there are no related accruals for interest and penalties related to unrecognized tax benefits at December 31, 2010. As of December 31, 2010, we are subject to U.S. Federal income tax examinations for the tax years 2007 through 2010, and to non-U.S. income tax examinations for the tax years of 2007 through 2010. In addition, we are subject to state and local income tax examinations for the tax years 2006 through 2010. 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 $446,000, $484,000 and $400,000 at December 31, 2010, 2009 and 2008, 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, 2010 is $1.1 million and is expected to be recognized over a weighted-average period of 2.3 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, 2010, 2009 and 2008: 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 2010 2009 2008 1.53% 45.37% 2.63% 7 years 0% 1.53% 45.29% 2.44% 8 years 31% 1.87% 47.47% 2.53% 7 years 0% 1.87% 46.94% 2.62% 8 years 31% 1.72% 45.16% 3.08% 7 years 0% 1.72% 44.47% 3.05% 8 years 31% 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 grant date. The following is a summary of stock options outstanding as of December 31, 2010: OptiONS OutStANdiNg OptiONS exeRCiSABLe RANge OF exeRCiSe pRiCeS 9.68 – 10.82 11.29 – 15.99 16.13 – 20.68 21.42 – 27.45 Total NuMBeR OutStANdiNg At deCeMBeR 31, 2010 weigHted AVeRAge ReMAiNiNg CONtRACtuAL LiFe weigHted AVeRAge exeRCiSe pRiCe AggRegAte iNtRiNSiC VALue NuMBeR exeRCiSABLe At deCeMBeR 31, 2010 weigHted AVeRAge exeRCiSe pRiCe 68,900 172,800 118,800 59,000 419,500 3.18 6.61 6.92 9.41 6.53 $ 10.24 $ 14.59 18.47 23.66 $ 16.25 $ 17.97 13.62 9.74 4.55 14.42 68,900 $ 92,200 50,800 1,000 212,900 $ 10.24 13.93 18.18 21.42 13.79 45 46 2010 A summary of option activity under the plan is as follows: OptiONS SHAReS weigHted AVeRAge exeRCiSe pRiCe weigHted AVeRAge ReMAiNiNg CONtRACtuAL teRM AggRegAte iNtRiNSiC VALue ($000) 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 Granted Exercised Forfeited or Expired Outstanding at December 31, 2010 Exercisable at December 31, 2010 928,933 50,000 (348,075) (51,282) 579,576 93,000 (164,013) (48,050) 460,513 81,000 (99,613) (22,400) 419,500 212,900 $ $ 9.47 16.64 4.87 15.76 12.29 15.92 7.53 17.00 14.22 22.70 11.73 18.02 16.25 13.79 6.53 4.89 $ $ 5,017 3,071 The weighted average grant date fair value of options granted during 2010 and 2009 was $9.86 and $6.87, respectively. The total intrinsic value of options exercised during December 31, 2010, 2009 and 2008 was $2.4 million, $3.3 million and $6.4 million, respectively. The cash received from options exercised during December 31, 2010, 2009 and 2008 was $1.2 million, $1.2 million and $1.7 million, respectively. The impact of these cash receipts is included in financing activities in the accompanying Consolidated Statements of Cash Flows. A summary of the status of the unvested stock options is as follows: Unvested at January 1, 2010 Granted Vested Forfeited Unvested at December 31, 2010 SHAReS 216,200 81,000 (74,500) (16,100) 206,600 weigHted AVeRAge gRANt dAte FAiR VALue $ 6.77 9.86 6.41 7.39 $ 8.06 The total grant date fair value of options vested during December 31, 2010 and 2009 was $0.5 million and $0.5 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. ANNuAl RepORT 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 2010 and 2009 was $22.24 and $19.72 per share, respectively. We recognized approximately $344,000, $364,000 and $350,000 at December 31, 2010, 2009 and 2008, respectively in pre-tax compensation expense related to restricted stock awards in the Consolidated Statements of Income. In addition, as of December 31, 2010, unrecognized compensation cost related to unvested restricted stock awards was approximately $431,000 which is expected to be recognized over a weighted average period of 1.6 years. A summary of the unvested restricted stock awards is as follows: Unvested at January 1, 2010 Granted Vested Forfeited Unvested at December 31, 2010 SHAReS 33,250 14,850 (19,000) (1,050) 28,050 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, 2010, 2009 and 2008, the excess tax benefits of stock options exercised and restricted stock awards vested was $0.4 million, $0.7 million and $1.6 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 On November 6, 2007, we began a 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. On May 12, 2010, we completed the stock buyback program. Through May 12, 2010, we repurchased a total of 1,800,000 shares under this program for an aggregate price of $36,061,425, or an average price of $20.03 per share. We purchased the shares at current market prices. On May 17, 2010, the Board authorized a new stock buyback program, targeting repurchases of up to approximately 5% (approximately 850,000 shares) of our outstanding stock from time to time in open market transactions. Through December 31, 2010, we repurchased a total of 478,493 shares under this program for an aggregate price of $11,509,433, or an average price of $24.05 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, 2010, we repurchased 993,155 shares for an aggregate price of $18,042,789, or an average price of $18.17 per share. We purchased the shares at current market prices. 47 48 2010 12. QuARteRLy ReSuLtS (uNAudited) The following is a summary of the quarterly results of operations for the years ending December 31, 2010 and 2009: ANNuAl RepORT 2010 Net sales Gross profit Net income Earnings per share: Basic Diluted 2009 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) $ 49,309 12,994 5,118 0.30 0.30 $ 64,531 15,506 5,821 0.34 0.34 $ 64,886 12,497 5,173 0.31 0.31 $ 65,826 14,191 5,782 0.35 0.35 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* *Includes the impact of the unrealized gain from the derivative. 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, 2010, we repurchased 379,750 shares for an aggregate price of $7,894,792, or an average price of $20.79 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 3 for 2 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. Cash dividends of $9.2 million were paid in 2010. Cash dividends of $5.9 million were paid in 2009, and we accrued a liability for payment of $3.1 million of dividends in January 2010. Cash dividends of $5.8 million were paid in 2008, and $2.8 million in dividends were declared and accrued as a liability in December 2008 for payment in January 2009. 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 a form 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 BALANCe At 6/30/09 $ 280 389 $ 669 AdditiONAL ACCRuAL (in thousands) CHARged tO expeNSe $ 26 - $ 26 $ 306 389 $ 695 We reclassified certain fixed assets 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. No additional depreciation expense was taken on the building as of October 1, 2009. In September 2010, we sold the building and land. The sale price was $1.5 million which was equivalent to the carrying value of the assets held for sale on our Consolidated Balance Sheets. We assumed a note receivable from one borrower secured by the property. The $1.1 million, fifteen-year note receivable is based on a 4.0% interest rate with a $0.6 million balloon payment due in October 2025. The note calls for monthly combined interest and principal payments beginning in October 2010. Interest payments are recognized in interest income. The products previously manufactured at the Canadian facility will be produced by the Tulsa, Oklahoma and Longview, Texas facilities in the future. 49 50 2010CONSeNt OF iNdepeNdeNt RegiSteRed puBLiC ACCOuNtiNg FiRM We have issued our reports dated, March 10, 2011, 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, 2010. 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). Exhibit 23.1 /s/ GRANT THORNTON LLP Tulsa, Oklahoma March 10, 2011 ANNuAl RepORT Exhibit 31.1 I, Norman H. Asbjornson, certify that: CeRtiFiCAtiON 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: 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; 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): a) b) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 10, 2011 /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer 51 52 2010 I, Kathy I. Sheffield, certify that: CeRtiFiCAtiON Exhibit 31.2 I have reviewed this Annual Report on Form 10-K of AAON, Inc. 1. 2. 3. 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; In connection with the Annual Report of AAON, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2010, 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: 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) 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 operations. 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: March 10, 2011 /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer ANNuAl RepORT 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 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; 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): a) b) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 10, 2011 53 /s/ Kathy I. Sheffield Kathy I. Sheffield Chief Financial Officer CeRtiFiCAtiON puRSuANt tO 18 u.S.C. SeCtiON 1350, AS AdOpted puRSuANt tO SeCtiON 906 OF tHe SARBANeS-OxLey ACt OF 2002 Exhibit 32.2 In connection with the Annual Report of AAON, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kathy I. Sheffield, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and our results of operations. March 10, 2011 /s/ Kathy I. Sheffield Kathy I. Sheffield Chief Financial Officer 54 2010 OFFiCeRS BOARd OF diReCtORS Back row (from left to right): A.H. McElroy, II, Jerry R. Levine, Jack E. Short, Paul K. Lackey, Jr. Front row (from left to right): John B. Johnson, Jr., Norman H. Asbjornson, Joseph E. Cappy NORMAN H. ASBjORNSON President/CEO jOHN B. jOHNSON, jR. Secretary jOSepH e. CAppy was elected a director of the Company in 2010. From 1997 to 2003, Mr. Cappy served as the Chairman, President and CEO of DollarThrifty Automotive Group. From 1987 to 1997 he was Vice President of Chrysler Corporation. From 1982 to 1987 he was President and CEO of American Motors Corporation. 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, jrladvisor@yahoo.com Executive Offices 2425 South Yukon Avenue, Tulsa, Oklahoma 74107 Common Stock NASDAQ-AAON 55 56 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 Edgar Acevedo Estronz Maria D. Acosta Maria L. Acosta Martha Acosta Martin Acosta Andres Acosta-Lujan Enriqueta Adame Derrick Adams Gary Adams Larry Adams Robert Adams Rodney Adams Ryan Adams Timothy Adams Brian Adkins Maria Aguayo Arturo Aguilar Miguel Aguilera Ali Al Rubaye Daniel Alagdon Martha Alanis Socorro Alba Julio Albino James Alexander Shannon Alford Brendan Allen Donald Allen Kevin Allen Earl Alston Enrique Alvarado Felipe Alvarado Wuilson Idomeli Alvarado Jorge Alvarado Vargas Michael Amburgey Anthony Anderson Colton Anderson Elbert Anderson James Anderson John Anderson Jose Andrada Margarito Angeles Daniel Anselme Wesley Anselme Alfredo Antonio Daniel Aponte Lorenzo Aragon Clyde Archer Jose Areguin Uriel Arellano Guerra Maria Arredondo Gerardo Arroyo Eleazar Arroyo Alvarez Norman Asbjornson Scott Asbjornson David Ashlock Gary Ashmore Derik Audas Dwight Austin Ivan Avalos Jesus Avelar Saldivar Joseph Avila Orlando Ayala Nora Backus Richard Backus Dwight Baker Eric Baker Jennifer Barbee Carolyn Barber Candy Barbosa Gregory Barker, Jr. Justin Barlett Daniel Barnard David Barnett Ana Barragan De Alteneh Cesar Barraza Jose Barrios Nereyda Barrios De Perez Benigno Barrios Orozco Rosa Barro Maria Barron Teresa Barron Michael Bass John Bassett Kevin Battles Stuart Baugh Jason Bazan Robert Beasley, Jr. Daniel Beck Lionel Beckman Kevin Begley Michael Bell Guzman Benitez Ofelia Benitez Bonnie Benson Michael Benson James Berden Ida Bermudez Elliot Berryhill Sergio Beserra Robert Black Seth Black Vickie Black Brian Blackmon Debbie Blackmon Matthew Blakley Maria Blanco Elvin Bledsoe David Blevins Justin Blevins Aaron Bodovsky Gene Boese Albert Boggus Lun Boih Scott Bolden James Bond Michael Boney Debra Booher William Boone Ronnie Booth Rosendo Botello Demetrius Boyd John Boyd Robert Boyd Brian Bradford Myoshia Bradley Christopher Brantley Arlando Brewer Terry Brewster Shahani Britt Arlunda Brooks Bernardo Brooks David Brown Jermaine Brown Freddie Brown, Iii Ronald Brown, Jr. Johnny Brown, Jr. Christopher Bryant William Bryant Jon Buck Lloyd Bumbard Jason Bunnell Kelli Burkes Monica Burns Thomas Burns, Jr. Shannon Burtch Lavar Burton Stephen Burton Douglas Burtrum Wayne Bush Tina Bush Jones Verenice Bustos Rhett Butler Rosa Butler Jeremy Byram Michael Cable Janibal Cabudoy Alejandro Cadena Dora Cadena Jose Cadenas Cleveland Cage, Jr. Jerry Cain Margarito Calderon Jorge Calixto Elizabeth Calvillo Cesar Calzada Lazaro Cama Maria Camacho Jose Camas-Padilla Adrian Campbell David Campbell Arthur Candler Yong Cantrell Carlos Caraballo Mariani Refugio Carachure Jorge Carcamo Billy Carder Todd Carner Vincent Carson Larry Carter, Jr. James Cason Warren Castleberry Detrick Castor Patrick Castorena Soledad Castro Jose Castro M Romualdo Castro Villegas Hector Cazares Elvis Cerda Francisco Cervantes Guadalupe Chairez- Galan Patrick Chapman Sergio Charles Clark Chase Josh Chattillon Edgar Chavez Gregory Chavez Ramiro Chavez Rita Chavez Jose Chavez Perez Dale Cherry Daniel Cherry Adan Chicas Larenzo Chiles Kham Cin Sian Cin Dim Cing Man Cing Nem Cing Justin Claiborne George Clark John Clark Stephanie Cleveland William Cleveland Cary Clingan Brenda Coats Kenneth Cochran Kenneth Cochran, Jr. Troy Cockrum Arthur Cole Joel Coleman Latoya Coleman Charles Collins Laura Collins Ronald Collins Stephen Collins Dale Conkwright Jude Connolly Emilio Contreras Roberto Contreras Thomas Contreras Maria Cook Mark Cook Dwayne Cooks Michael Coolidge Scott Coon Donna Coonfield James Cooper Alvis Copeland Pablo Cordova Cordova Arlene Corell Elaine Corkhill Steven Corley Dusty Cornelius Alberto Corona Fernando Corona Roberto Corona Eduardo Cortez Rosa Cortez Kenneth Cotham Jonathan Coti Curtis Counce Billy Cox Jerry Cox Maxine Cox Adrian Crabtree Richard Craite Steven Crase Devin Creech Juan Crespo- Maisonet Mikel Crews Darrell Crow Carolyn Crutchfield Jose Cuadroz Victory Cullom, Ii Robert Cummings Gene Curtis Kevin Cyrus Hau Dal Christopher Daniels Gwendolyn Daniels John Daniels Kyle Daniels Minh Dao William Daugherty Jenifur Davidson Byron Davis Carolyn Davis Cathy Davis Jerry Davis Marleitta Davis Matthew Davis Rhonda Davis Richard Davis Samuel Davis Cookie Davison Wilfredo De Jesus Otilia De Jones Matilde De La Torre Alvaro De Leon Mendoza Pedro De Los Santos, Jr. Freddie Deboe Bobby Degraffenreid Ismael Delapaz Eva Delatorre Jerry Delmar Juana Delobo Andres Delos Santos Raquel Deluna Bruce Derr Audencia Devilla Roy Deville Charles Deweese Cheikh Diallo Ciin Dim Man Dim Cin Ding Dedric Dishmon Homer Dodd Rickey Dodson Edreys Dominguez Pablo Dominguez Cin Don Thang Dop Mui Jennifer Dossman Jodi Doty Suanne Doty Michael Drew Cathryn Dubbs Charles Duke Linda Dunec Cortney Dunn Ralph Durbin Yolanda Durham Randy Dwiggins Wendell Easiley Stephen Edmonds Harvey Ellis Gregory English Tinisha English Eva Enriquez Steven Ervin Blanca Escobar Jose Escobedo Teresa Escobedo Norberto Esparza- Torres Leonardo Espinoza Flores Engracia Espinoza Navarro Jesus Estrada- Gonzalez Stephen Etter Gilda Etumudor Calvin Eubanks Gareth Evans Otis Evans Reginald Everidge, Jr. Shawn Fairley James Fannin Richard Faust Robert Fergus Elizabeth Ferguson Catalina Fernandez Fabiola Fernandez Samuel Fields Jesse Figueroa Christian Figueroa Mauras Sterlyn Finch Mack Finkley, Jr. Anthony Fisher Bruce Fisher Anthony Fizer Copotenia Fletcher, Jr. Alejandro Flores Carolina Flores Efigenia Flores Juana Flores Laura Flores Francisco Flores Esparza Ruby Floyd Vicky Floyd Mark Fly Sharon Fontenot Harold Ford Sheila Forrest Alex Foster Bradley Foster Christopher Foster Frederick Foster Jacob Foster Michael Foster Joseph Fowler Loretta Fowlkes Stephen Fox Kenneth Foyil Phillip Frank Damion Franklin Warren Franklin Revonda Franks Matthew Frederick Gary Frederiksen, Jr. Gregory Freeman Olga French Angel Frias Barry Friend Wade Fuller Rony Gadiwalla Jeff Galapon Ranulfo Galicia Brenda Galindo James Galindo Maria Galindo John Gall Belinda Galvan Ma Galvan Maria Galvan Angel Garcia Nicklaus Garcia Roberto Garcia Isidro Garcia Arriaga Norma Garibay Patrick Garrett, Sr. Carlos Garza Pedro Garza Ralph Gasaway Steve Geary James George Mohanad Gharrawi Penny Glossinger Jim Goekler Gary Goff Emmett Goins Benjamin Goldman Elpidio Gomez Hector Gomez Jose Gomez Maria Gomez Moises Gomez Maria Gomez Medina Daniel Gomez-Sigala Adrian Gonzalez Imelda Gonzalez John Gonzalez Marisela Gonzalez Raul Gonzalez Victor Gonzalez Barry Goodson Dale Graham Buenas Granados Jermaine Grant Jesse Green, Jr. John Griffin Ronald Grimes Daniel Groff Carolina Guillen Ronald Guinn Cassie Gunn Mark Gutierrez Georgina Guzman Nancy Hackney Christopher Halcomb Joshua Halfpap Dennis Hall Jack Hall Kelly Hall Koren Hall Stephen Hall Scott Hamilton Otis Hamilton Jeffrey Hammer Jerry Hammonds Damien Hammons Sam Hammoud Samir Hammoud Donald Harden Brandon Harper Brandy Harris Richard Harris Stacey Harris Marcus Harry Robi Hartmann Heather Haskins James Hasselbring Troy Hatfield Vung Hau Kevin Hawkins Thomas Hawkins Adam Hawley Billy Hawley, Jr. William Hays Tim Hefflin Stephen Hegvold Claude Henderson Daniel Henderson Jennifer Henderson Mike Hensley Kevin Henson Alejandro Hernandez Armando Hernandez Corcina Hernandez Eliu Hernandez Francisco Hernandez Lily Hernandez Luis Hernandez Marcus Hernandez Maria Hernandez Mariano Hernandez Oscar Herrera Rosas Mark Heston Takeo Higa Brenda Higgins Larry Highfield Dewayne Hightower Quinton Hilburn James Hill John Hill Joshua Hill Travis Hill Bobby Hillburn Austin Hines Willie Hines, Jr. Juan Hinojosa Tyson Hinther Clyde Hitchye Bon Hoang Samuel Hobson Bryan Holland Donna Holloway Lawrence Honel Stephen Hoover Gary Horn Terri Horn Wilburn Horner, Jr. Stanley Horton Jerry Houston David Howard Larry Howard Do Ngaih Huai Nuam Huai Lydia Hudson Philip Hudson Ruben Huerta Anthony Huffman Abner Hughes Jimmy Hughes Derrick Huisenga Rosario Huizar Dylan Hutchcraft Ronald Hutchcraft Gary Hutchins Tan Huynh Joseph Ibeh Okechukwu Ibeh Alexander Ignatenkov Samuel Ingram Tim Ingram, Sr. Michael Isham Daniel Iya Belinda Jackson Jeff Jackson Danny Jacot Alma Jacquez Jose Jamaica Mckinley James Alejandro Jaramillo Rachael Jennings Jason Jewell Genelle Jimboy Maria Jimenez Vincent Jimenez Pedro Jimenez-Delfin Frederick Jimmerson Christopher Johnson Ed Johnson Holly Johnson Jamy Johnson Lakendrick Johnson Sylvia Johnson Cheryl Jones Danny Jones David Jones Dean Jones Djuan Jones Fedeldrick Jones Henry Jones Raymon Jones Remia Jones Rose Jones Terry Jones Timothy Jones Danny Jones, Jr. James Jones, Jr. Rodney Jordan Sean Jordan Gregorio Juarez Jaime Juarez Samuel Jumelles Lopez Leandro Jumelles Nunez Brian Justice Garrett Kaiser Patrick Kaiser Hau Kam Dal Kap Lian Kap Ngin Kap Thang Kap Sung Kar Brian Kastl Eryn Kavanaugh Tuang Kawi Richard Keaton Aaron Kelly Jerry Kennard, Jr. Gregg Kennedy Antony Khai Do Khai En Khai John Khai Lang Khai Mang Khai Nang Khai Pau Khai Peter Khai Thang H. Khai Thang S. Khai Go Kham Mung Kham Ngun Kham Pavel Kharabora Kirk Khillings Khai Khual Dai Khup Kap Khup Khan Khup Ngin Khup Thang Khup Alan Kilgore Andrew Kilgore Cin K. Kim Cin T. Kim Cing Kim Kap Kim Thang Kim Jimmy Kimbley Cody King Joseph King Lori King Randy King Russell King Roger Kinkade, Jr. David Knebel Robert Knuth Scott Koscheski James Koss Edward Kracke, Ii Robert Krafjack Larry Kreps Mikhail Krupenya Karl Kuenemann Laura Kyle Carmelo Laboy Ramos Mike Lafond Giang Lai Do Lal George Lam Mang Lam Cole Lambert Deborah Lane Donald Laney Pum Lang Ugin Lang Kap Langh Martin Larsen Michael Lavallee Kevin Law Bill Lawson Jeffrey Lawson Ronald Lawson Anh Le Lai Le Michel Lebel Jose Lebron Gralind Lee Jacqueline Lee Rhonda Lee Kevin Lee, Jr. 58 57 Matthew Leeper Brandon Leger Hugo Lerma Boy Let Cin Lian Do Lian Gin Lian Hau Lian Kam Lian Sing Lian Tha Lian Thang Lian Tuan Lian Ping Lin Jerry Lincoln Thomas Lincoln William Lindsay Rene Livesey John Livingston Devin Lloyd Jonathan Lockmiller Samuel Lockridge Michael Lollis Linda Longoria Arturo Lopez Margarito Lopez Rafael Lopez Rebecca Lopez Thomas Lopez Carlos Lopez Rodriguez Johnny Lopez, Jr. Quin Love Paul Lowery Oscar Lozano Jarrod Ludlow Quannah Ludlow Cing Lun Mariana Luna Jose Macias Jorge Madrigal Monica Magana N Mai Carlos Malone Jeffrey Maly Ciin Man Cing Man Maria Mancilla Dal Mang Gin Mang Kam Mang Kham Mang Khup Mang Lian Mang Nang Mang Ngin Mang Suan Mang Evelyn Manning Adam Mansfield Georgina Manzo De Barrera Paul Mapes William Markwardt Ma Marquez De- Gilbreath Ana Marroquin Fernando Marroquin Eco Marshall Jevon Marshall Angel Martinez Barbara Martinez Francisco Martinez Javier Martinez Juan Martinez Karen Martinez Laura Martinez Miguel Martinez Kenneph Martinez Baez Francisco Martinez Leon Hector Martinez Molina Gabriel Martinez Servin Florentino Martin- Romo Timothy Marvin Thomas Masengale, Jr. Beverley Mason James Mason Artemus Matthews John Mattingly Charles Mattocks, Iv Ron Mauch Antonio Mauricio Christopher Maxwell Leonard Maxwell Courtney Mcafee Deborah Mcateer Tina Mcbeath Robert Mcbowman Christopher Mcclain Dirk Mcclellan Roy Mcconnell Corey Mccowan Debra Mccowan Wesley Mccowan, Jr. Marc Mccuin Michael Mccuin Kathy Mcculloch Loyd Mcdaniel Randall Mcdaniel Sharon Mcdaniel Stacy Mcdonald James Mcelroy Deborah Mcfarlin Joshua Mcgee Charles Mcgraw Mark Mcillwain Kyle Mckelvey Michael Mckenzie Domingo Mcknight Sean Mcniel Gina Means Brittaney Medders Patricia Medina J Medina Olvera James Melda Manuel Melendez Hernandez Silvestre Mendez Gonzales Vernon Merceal, Jr. Kevin Merideth Vivian Meyer Ronald Mikel Glenn Milam D’marcus Miles Michael Miles Ranulfa Milian Chris Miller Jennifer Miller Mykea Miller Brian Mingle Bruce Minton Scarlett Miranda Dallas Mitchell Johnny Mize, Ii Jay Modisette Ronald Modlin Irma Moguel Tammy Mohaupt Braulio Moises-Lee Jose Molina Natalie Montano Enoc Montes Nohemi Montes Robert Montgomery Clay Moo Jon Moody Herbert Moore James Moore Marc Moore Maria Moore Tony Moore Alfonso Moran Tony Morehead Berta Moreno Matthew Morgan Myron Morgan David Morgerson Jaylon Morris Shannon Morrison Desron Morrow Marcus Morrow Phillip Moss, Jr. Clayton Mote Darrell Mote Stephanie Mounce Gary Mount Eddie Moura, Jr. Do Muang Eric Mulliniks Gin L. Mung Gin S. Mung Kai Mung Kam Mung Khai Mung Lang Mung Lian Mung Pau Mung Pum Mung Suaan Mung Suan G. Mung Suan S. Mung Thang Mung Thawng Mung Vum Mung Vung Mung Jesus Munoz Eduardo Murillo- Munoz Johnny Musgrave David Myers Sing Nang Marcus Naranjo Vincent Nash Go Naulak Jose Nava Maria Nava Abel Navejas Clayton Neal Mark Neal Samuel Neale Natalie Neilson Kathleen Nelson Ronald Nelson Ciin Neu Robert Neu Cing Ngaih Duong Nguyen Gam Nguyen Hoang-Chi Nguyen Phuoc Nguyen Thanh Nguyen Dim Niang Leen Niang Kenneth Nichols 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 Alexander Ofosu Rickey Ogans John Ogle Ruben Olan Garcia Maria Olivas De Torres Scotty Oliver Anthony Oliveras Eric Olson Sunday Omasere James O’neill, Jr. James O’neill, Sr. Benjamin Orme Leticia Orona Margarita Orona Glens Orona Moreno Margarita Orozco Dehuizar Carlos Orozco-Torres David Osborne Jennifer Overmeyer Tommy Owens, Jr Martin Ozura-Carrillo Gerard Pacheco Guillermo Pacheco Mark Page Edmundo Paiz Michael Palmer J Paniagua Noemi Paniagua Belmonte Larry Parker Jason Pate Jeanetta Pate Joshua Pate Justin Pate Corry Patterson Chin Pau Cia Pau Ciang Pau Dal Pau Gin D. Pau Gin S. Pau Kam L. Pau Kam S. Pau Liang Pau Nang Pau Thang Pau Thang L. Pau Thang T. Pau Vaden Paulsen Justin Paulson Larry Pearson Travis Pearson Vladimir Peniaz Jamal Pennington Shamata Pentecost Morris Peoples, Iii Toni Perantie Cesar Perez Sergio Perez Ma Lourdes Perez Perez Maurice Perkins Deray Perry John Peters Ladrue Peters Heather Peterson Daniel Peurifoy Randy Phelps Nicholas Phifer Alexander Phillips Brandon Phillips Louis Phillips Michael Phillips Mang Pi Thang Pi Tuang Pi Thang K. Piang Thang L. Piang Zam Piang Pedro Pina-Valles Jose Pineda Fernando Pineda, Jr. Clifford Pitchford Susanne Poindexter Basant Pokhrel Renu Pokhrel Mark Pool Timothy Pool Milton Porter Richard Porter Ardeshir Pouraryan Mark Powell Phillip Powell Rudy Powell Greg Powers Jeffery Powers Jose Prado Lee Prince Jason Provencher Lian Pu Alma Puga Daniel Puga, Jr. Javier Quezada Jesus Quinones Lucas Quintanilla Cold Rain Nimalakirthi Rajasinghe Antonia Ramirez Raymon Ramirez William Ramirez Nandy Ramirez B Robert Ratliff Kyle Ratzlaff Terry Ratzloff Robert Rayno Curtis Rayon Thomas Read Sandra Reader Joseph Reagh Diego Rebollar Diego A. Rebollar Miguel Rebollar Jose Recio-Gomes Peggy Redden James Reed Freeman Reed, Jr. Margaret Reeves Alberto Rendon Rodolfo Renteria Svyatoslav Reshetov Maria Reyes De Arroyo Thomas Reynolds Robert Riddell Angela Rideout Brett Riegel Delmecio Riser Stephen Riser James Ritchie Hillary Rite Genoveva Rivera John Roberts Benton Robinson Michael L. Robinson Michael W. Robinson Alex Rodriguez Diana Rodriguez Edgar Rodriguez Felipe Rodriguez Gilberto Rodriguez Hector Rodriguez Maria Rodriguez Melvin Rodriguez Rivelino Rodriguez J Rodriguez-Flores Don Rogers Jake Rogers Albert Rohde Charles Roininen Lidia Rojas Nelson Rojas Terry Rombach Oscar Rose Lane Ross Shaunda Rowe Richard Rowe, Jr. Thomas Royal Ricardo Ruiz Vicente Ruiz Ava Russell Jimmy Russell Kimberly Russell Miguel Saez Sepulveda Adan Salazar Alberto Salazar Nora Salazar Walter Salazar David Saldivar Maria Saldivar Miguel Saldivar Victor Saldivar Jose Saldivar Orepeza Diana Salinas Jessica Samaroo Robert Sams Beatriz Sanchez Betty Sanchez Tara Sanchez Esperanza Sanchez Ruiz Luis Sanchez-Lopez Christina Sanders Tanisha Sanders Michael Sandor, Jr. Jason Sanford Cin Sang Thang Sang Thiam Sang Zam Sang Agustin Santana Reinaldo Santana Wenceslao Santiago Harold Santiago Torres Carlos Santiago Torrez Ignacio Santillan Pedro Santillan David Sarant Richard Satterfield Erick Sawyer William Scharosch Bucklusio Schartz Richard Schumpert Brummett Scott Dajuane Scott Joseph Scott Kenneth Scott Vivian Scroggins Marcus Seip Carrol Shackelford Jackie Sharpe Ontario Shaw Otis Shaw Thomas Shaw Thomas Shaw, Jr. Douglas Sheehan Kathy Sheffield Brandon Shelton Kathleen Shepard Jackie Shephard Lynnda Shepherd Shane Shepherd Barbara Shipman Nelson Sierra Oscar Sierra- Matamoros Cory Simmons Daai Sing Kap Sing Thang Sing Russell Singleton Roy Sissons Michael Skinner Ian Slattery Debi Sloan Larry Slone Raymond Slovacek Brett Smith Darrell Smith Dustin Smith Jeffrey Smith Jordan Smith Owen Smith Renaldo Smith Ricardo Smith Ryan Smith Sweetie Smith Robert Smith, Ii Wilbert Smith, Jr. Jose Solares Malcolm Soles Mercedes Soles Maria Solis Nemisia Solis Wiley Sorrels Paula Sosa Kevin Souvannasing Denney Sowder Ronnie Sparks Elda Spears Jameson Spires Michael Sportel Jennifer Spratling Richard Sprowles Jess St George Lawana Stane Larry Stanton Lekitha Stephenson Russell Sterrett Charles Stirens Brent Stockton Michael Straub Billy Strength Brandon Strong Khup Suan Mang Suan Pau Nang Sum Rosa Summers Marcus Syas Eric Sypert James Taber Go Tang William Tankersley Joe Tart Cody Tate Larry Tate Mark Tate Tenna Tatum Mung Tawng Charles Taylor Deborah Taylor Eric Taylor Thomas Taylor Andrea Teakell Kevin Teakell Robert Teis Cin K. Thang Cin L. Thang Cin Lian Thang Dal Thang Go Thang Kam Thang Kham Thang Mang Thang Pau S. Thang Pau Z. Thang Suan Thang Tual Thang Tuan L. Thang Tuan S. Thang Lian Thang Lam John Thang Pi Cin Thawng Lang Thawng Zam Thawng De’mario Thomas Gerald Thomas Lee Thomas Cheryl Thomason Shaun Thompson Tuan Thung Ted Tiger Dustin Tiner Gabriela Tirado William Tobar Christopher Toles Breny Tornes Reinaldo Torres Jose Torres Gonzalez Heip Tran Hieu Tran Tuong Tran Marisol Trejo Martin Trevino-Saldana Mark Tribble Ha Trinh Juanito Tronzon Juan Trujillo Kam Tuang Kham Tuang Suum Tuang Thang L. Tuang Thang L. Tuang Joseph Tubbs Gin Tung Kaam Tung Thawng Tung Paul Turbe Charles Turner Demeco Turner Richard Twilling Phyllis Tyiska James Tyler Jesus Tzul Pernell Underwood Tony Urich Maria Urquiza Yadira Urquiza Allen Vang Christopher Vang Pleng Vang Sua Vang John Vanness Joel Vanscoy, Jr. Cergio Vargas Jose Vargas Chris Vasquez Shawn Vawter Juan Vazquez Jose Vega Antonio Velasco Salomon Velasquez James Velde Juan Vences Angel Venegas Salome Vera Laura Vergara James Verhamme George Verrett Teresa Victory Efrain S. Villa Efrain Sanchez Villa Selina Viramontes Cuong Vo Suong Vo Tong Vo Thu-Chung Thi Vu Lian Vum Ning Vung Stephen Wakefield Diana Walker Joshua Walker Roderick Walker Gene Walker, Jr. Mark Walkup Barry Wall Leslie Wallis, Jr. Stacey Walters William Wamsley Gayle Ward Phillip Ward Billy Warden, Ii Perry Warner Vielka Washington Steven Watkins Demetria Webb George Webb Kyle Webb Anthony Welch John Wells Kyle Wells Jimmy West Sharon West Deborah Whitaker Harvey Whitaker Allyn White Brian White Joseph White Sean White Timothy White David Whitlock Steven Whorton Christopher Wiles Jackie Wiles Jerry Wiles Sherri Wilkins Duane Wilkinson James Wilkinson Barbara Williams Chante Williams Cheray Williams Donna Williams Robert Williams Vandoil Williams James Williamson Jeremy Williamson Jarvoris Willis Brandi Wilson Charles Wilson Daniel Wilson Isaac Wilson James Wilson Richard Wilson Roderick Wilson, Sr. Thomas Wingo Wanda Winkfield Whitney Winn Micah Wisdom Edward Wofford John Wold Justin Wolf James Wolfe, Iv Curtis Wood Ronald Wood Jim Wyrick Linda Wyrick Ector Yancey, Jr. Jack Yang Morgan Yeubanks Kathryn Young Keith Young Patricia Young Josh Youngs Nikolay Zagorodniy Lang Zah Lang Jorge Zaragoza Derrick Zarnt Aurora Zavaleta Luis Zepeda Juan Zermeno Virginia Zermeno 60 59 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 

Continue reading text version or see original annual report in PDF format above