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.
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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
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AAON, Inc.
2425 South Yukon Avenue • Tulsa, OK 74107
918.583.2266 • Fax: 918.583.6094
AAON Coil Products, Inc.
203 Gum Springs Road • Longview, TX 75602
903.236.4403 • Fax: 903.236.4463
aaon.com