UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008 or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________.
Commission file number: 0-18953
AAON, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0448736
------ ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2425 South Yukon, Tulsa, Oklahoma 74107
---------------------------------------
(Address of principal executive offices)
(Zip Code)
(918) 583-2266
--------------
(Registrant's telephone number, including area code)
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.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large accelerated filer |_| Accelerated filer |X|
Non-accelerated filer |_| Smaller reporting company |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
As of June 30, 2008 registrant had outstanding a total of 17,281,448 shares of
its $.004 par value Common Stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AAON, Inc., and Subsidiaries
Consolidated Balance Sheets
(unaudited)
June 30, 2008 December 31, 2007
------------------------------------------------
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents $ 505 $ 879
Accounts receivable, net 49,555 38,813
Inventories, net 31,389 31,849
Prepaid expenses and other 725 442
Deferred tax assets 4,459 4,312
------------------------------------------------
Total current assets 86,633 76,295
Property, plant and equipment
Land 2,323 2,354
Buildings 32,403 32,211
Machinery and equipment 83,903 82,872
Furniture and fixtures 7,000 6,912
------------------------------------------------
Total property, plant and equipment 125,629 124,349
Less: Accumulated depreciation 68,379 63,579
------------------------------------------------
Property, plant and equipment, net 57,250 60,770
Notes receivable, long-term 75 75
------------------------------------------------
Total assets $ 143,958 $ 137,140
================================================
Liabilities and Stockholders' Equity
Current liabilities:
Revolving credit facility $ 4,087 $ -
Current maturities of long-term debt 91 91
Accounts payable 18,023 15,059
Dividends payable 2,848 2,943
Accrued liabilities 24,837 19,414
------------------------------------------------
Total current liabilities 49,886 37,507
Other long-term liabilities 194 239
Deferred tax liabilities 3,576 3,974
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 7,500,000 shares authorized, no
shares issued - -
Common stock, $.004 par value, 75,000,000 shares authorized,
17,281,448 and 18,054,246 issued and outstanding at June 30, 2008
and December 31, 2007, respectively 71 73
Additional paid-in capital - -
Accumulated other comprehensive income, net of tax 1,706 1,942
Retained earnings 88,525 93,405
------------------------------------------------
Total stockholders' equity 90,302 95,420
------------------------------------------------
Total liabilities and stockholders' equity $ 143,958 $ 137,140
================================================
The accompanying notes are an integral part of these statements.
-1-
AAON, Inc., and Subsidiaries
Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended
June 30, 2008 June 30, 2007 June 30, 2008 June 30, 2007
-------------------------------------------------------------------------------------
(in thousands, except per share data)
Net sales $ 74,781 $ 70,835 $ 140,237 $ 129,463
Cost of sales 56,791 55,237 106,595 98,143
---------------- ---------------- ---------------- ----------------
Gross profit 17,990 15,598 33,642 31,320
Selling, general and
administrative expenses 6,129 5,270 12,031 11,017
---------------- ---------------- ---------------- ----------------
Income from operations 11,861 10,328 21,611 20,303
Interest expense and other (16) 3 (19) (7)
Interest income 6 3 27 6
Other income, net 117 82 247 270
---------------- ---------------- ---------------- ----------------
Income before income taxes 11,968 10,416 21,866 20,572
Income tax provision 4,208 3,539 7,672 7,378
---------------- ---------------- ---------------- ----------------
Net income $ 7,760 $ 6,877 $ 14,194 $ 13,194
================ ================ ================ ================
Earnings per share:
Basic $ 0.43 $ 0.37* $ 0.79 $ 0.71*
================ ================ ================ ================
Diluted $ 0.43 $ 0.36* $ 0.78 $ 0.69*
================ ================ ================ ================
Cash dividends declared per common share: $ 0.16 $ 0.16* $ 0.16 $ 0.16*
================ ================ ================ ================
Weighted average shares outstanding:
Basic 17,740 18,691* 17,894 18,627*
================ ================ ================ ================
Diluted 18,145 19,336* 18,302 19,492*
================ ================ ================ ================
* Reflects three-for-two stock split effective August 21, 2007.
The accompanying notes are an integral part of these statements.
-2-
AAON, Inc., and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(unaudited)
Accumulated
Other
Common Stock Paid-in Comprehensive Retained
Shares Amount Capital Income Earnings Total
--------------------------------------------------------------------------------------
(in thousands)
Balance at December 31, 2007 18,054 $ 73 $ - $ 1,942 $ 93,405 $ 95,420
Comprehensive income:
Net income - - - - 14,194 14,194
Foreign currency
translation adjustment - - - (236) - (236)
------------
Total comprehensive income 13,958
Stock options exercised, including
tax benefits 72 - 623 - - 623
Share-based compensation - - 413 - - 413
Stock repurchased and retired (845) (2) (1,036) - (16,226) (17,264)
Dividends declared - - - - (2,848) (2,848)
--------------------------------------------------------------------------------------
Balance at June 30, 2008 17,281 $ 71 $ - $ 1,706 $ 88,525 $ 90,302
======================================================================================
The accompanying notes are an integral part of these statements.
-3-
AAON, Inc., and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Six Months Six Months
Ended Ended
June 30, 2008 June 30, 2007
---------------------------------------------------------
(in thousands)
Operating Activities
Net income $ 14,194 $ 13,194
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,838 4,660
Provision for losses on accounts receivable 13 234
Share-based compensation 413 311
Excess tax benefits from stock options exercised (229) (1,814)
Gain on disposition of assets (1) (11)
Deferred income taxes (615) (676)
Changes in assets and liabilities:
Accounts receivable (10,832) (9,439)
Inventories, net 414 (4,821)
Prepaid expenses and other (283) (247)
Accounts payable 3,393 1,324
Accrued liabilities 5,279 7,105
---------------------------------------------------------
Net cash provided by operating activities 16,584 9,820
---------------------------------------------------------
Investing Activities
Proceeds from sale of property, plant and equipment 1 21
Capital expenditures (1,390) (7,209)
---------------------------------------------------------
Net cash used in investing activities (1,389) (7,188)
---------------------------------------------------------
Financing Activities
Borrowings under revolving credit facility 12,853 8,898
Payments under revolving credit facility (8,766) (8,898)
Payments of long-term debt (45) (54)
Stock options exercised 394 1,000
Excess tax benefits from stock options exercised 229 1,814
Repurchase of stock (17,264) (2,932)
Cash dividends paid to stockholders (2,943) (2,465)
---------------------------------------------------------
Net cash used in financing activities (15,542) (2,637)
---------------------------------------------------------
Effect of exchange rate on cash (27) 43
---------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (374) 38
---------------------------------------------------------
Cash and cash equivalents, beginning of year 879 288
---------------------------------------------------------
Cash and cash equivalents, end of period $ 505 $ 326
=========================================================
The accompanying notes are an integral part of these statements.
-4-
AAON, Inc., and Subsidiaries
Notes to the Consolidated Financial Statements
June 30, 2008
(unaudited)
1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. AAON, Inc. ("the Company")
believes that the disclosures made in these financial statements are adequate to
make the information presented not misleading when read in conjunction with the
financial statements and the notes thereto included in the Company's latest
audited financial statements which were included in the Form 10-K Report for the
fiscal year ended December 31, 2007, filed by the Company with the SEC. In the
opinion of management, the accompanying financial statements include all normal,
recurring adjustments required for a fair presentation of the results of the
periods presented. Operating results for the six months ended June 30, 2008, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2008.
Revenue Recognition
The Company recognizes revenues from sales of products when the products are
shipped and the title and risk of ownership pass to the customer. Selling prices
are fixed based on purchase orders or contractual agreements. Sales allowances
and customer incentives are treated as reductions to sales and are provided for
based on historical experiences and current estimates. For sales initiated by
independent manufacturer representatives, the Company recognizes revenues net of
the representatives' commission. The Company's policy is to record the
collection and payment of sales taxes through a liability account.
Common Stock Split
On July 12, 2007, the Company's Board of Directors approved a three-for-two
stock split of the Company's outstanding stock for shareholders of record as of
August 3, 2007. The stock split was treated as a 50% stock dividend which was
distributed on August 21, 2007. The applicable share and per share data for all
periods included herein has been restated to reflect the stock split.
Currency
Foreign currency transactions and financial statements are translated in
accordance with Financial Accounting Standards Board ("FASB") Statement 52,
Foreign Currency Translations. The Company uses the U.S. dollar as its
functional currency, except for the Canadian subsidiaries, which use the
Canadian dollar. Adjustments arising from translation of the Canadian
subsidiaries' financial statements are reflected in accumulated other
comprehensive income. Transaction gains or losses that arise from exchange rate
fluctuations applicable to transactions denominated in Canadian currency are
included in the results of operations as incurred.
New Accounting Pronouncements
In September 2006, the FASB released SFAS No. 157, Fair Value Measurements
("SFAS 157"). SFAS 157 defines fair value and establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. Although SFAS 157 applies to (and
amends) the provisions of existing authoritative literature, it does not, of
itself, require any new fair value measurements or establish valuation
standards. SFAS 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. Adoption of SFAS 157 did not have a material impact on the Company's
Consolidated Financial Statements.
-5-
In February, 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, which creates an alternative
measurement treatment for certain financial assets and financial liabilities.
SFAS 159 permits fair value to be used for both the initial and subsequent
measurements on an instrument by instrument basis, with changes in the fair
value to be recognized in earnings as those changes occur. This election is
referred to as the fair value option. SFAS 159 also requires additional
disclosures to compensate for the lack of comparability that will arise from the
use of the fair value option. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. Adoption of SFAS 159 did not have a material impact on
the Company's Consolidated Financial Statements. The Company did not elect the
fair value option for any assets or liabilities.
2. ACCOUNTS RECEIVABLE
The Company grants credit to its customers and performs ongoing credit
evaluations. The Company generally does not require collateral or charge
interest. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends,
economic and market conditions and the age of the receivable. Past due accounts
are generally written off against the allowance for doubtful accounts only after
all collection attempts have been exhausted.
Accounts receivable and the related allowance for doubtful accounts are as
follows:
June 30, December 31,
2008 2007
------------------------------------------------------
(in thousands)
Accounts receivable $ 49,849 $ 39,220
Less: Allowance for doubtful accounts (294) (407)
------------------------------------------------------
Total, net $ 49,555 $ 38,813
======================================================
Six Months Ended
June 30, June 30,
2008 2007
------------------------------------------------------
(in thousands)
Allowance for doubtful accounts:
Balance, beginning of period $ 407 $ 266
Provision for losses on accounts receivable 326 411
Adjustments to provision (313) (177)
Accounts receivable written off, net of recoveries (126) (4)
------------------------------------------------------
Balance, end of period $ 294 $ 496
======================================================
3. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method. The Company establishes an allowance for
excess and obsolete inventories based on product line changes, the feasibility
of substituting parts and the need for supply and replacement parts. Inventory
balances at June 30, 2008 and December 31, 2007, and the related changes in the
allowance for excess and obsolete inventories account for the six months ended
June 30, 2008 and 2007 are as follows:
June 30, December 31,
2008 2007
------------------------------------------------------
(in thousands)
Raw materials $ 27,951 $ 27,651
Work in process 1,556 1,760
Finished goods 2,232 2,788
------------------------------------------------------
31,739 32,199
Less: Allowance for excess and obsolete inventories (350) (350)
------------------------------------------------------
Total, net $ 31,389 $ 31,849
======================================================
-6-
Six Months Ended
June 30, June 30,
2008 2007
------------------------------------------------------
(in thousands)
Allowance for excess and obsolete inventories:
Balance, beginning of period $ 350 $ 350
Provision for excess and obsolete inventories 200 200
Adjustments to reserve (200) (200)
------------------------------------------------------
Balance, end of period $ 350 $ 350
======================================================
4. ACCRUED LIABILITIES
At June 30, 2008 and December 31, 2007, accrued liabilities were comprised of
the following:
June 30, December 31,
2008 2007
------------------------------------------------------
(in thousands)
Warranty $ 6,500 $ 6,308
Commissions 9,953 8,851
Payroll 4,038 2,175
Income taxes 985 -
Workers' compensation 1,126 1,127
Medical self-insurance 597 608
Other 1,638 345
------------------------------------------------------
Total $ 24,837 $ 19,414
======================================================
5. SUPPLEMENTAL CASH FLOW INFORMATION
Interest payments of $19,000 and $7,000 were made for the six months ended June
30, 2008 and 2007, respectively. Payments for income taxes of $4.7 million and
$3.8 million were made during the six months ended June 30, 2008 and 2007,
respectively. Dividends payable of $2.8 million and $2.5 million were accrued as
of June 30, 2008 and 2007 and paid in July 2008 and 2007, respectively.
6. REVOLVING CREDIT FACILITY
The Company's 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 approximately
$1.3 million. The letter of credit is a requirement of the Company's workers
compensation insurance which has been renewed and will expire December 31, 2008.
Interest on borrowings is payable monthly at the Wall Street Journal prime rate
less 0.5% or LIBOR plus 1.6%, at the election of the Company (4.06% at June 30,
2008). No fees are associated with the unused portion of the committed amount.
At June 30, 2008, the Company had $4.1 million borrowed under the revolving
credit facility and had no borrowings outstanding under the revolving credit
facility at December 31, 2007. Borrowings available under the revolving credit
facility at June 30, 2008, were $9.8 million. The credit facility requires the
Company to maintain certain financial ratios. The total liabilities to tangible
net worth ratio has been waived for the period ended June 30, 2008, and was
revised in the renewed line of credit agreement that matures July 30, 2009. The
Company is in compliance with all other financial ratio covenants.
-7-
7. STOCK COMPENSATION
The Company maintains a stock option plan for key employees, directors and
consultants. The Company's stock option 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, the
stockholders of the Company adopted a Long-Term Incentive Plan which provides an
additional 750,000 shares that can be granted in the form of stock options,
stock appreciation rights, restricted stock awards, performance units and
performance awards. Since inception of the Plan, non-qualified stock options and
restricted stock awards have been granted with the same vesting schedule as the
previous plan.
The Company applies the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123(R) Share-Based Payment ("SFAS 123R"). The
compensation cost is based on the grant date fair value of stock options issued
calculated using a Black-Scholes-Merton Option Pricing Model, or the grant date
fair value of a restricted share, in accordance with provisions of SFAS 123R.
The Company recognized approximately $105,000 and $117,000 for the three months,
and approximately $229,000 and $276,000 for the six months ended June 30, 2008
and 2007, respectively, in pre-tax compensation expense related to stock options
in the Consolidated Statements of Income. The total pre-tax compensation cost
related to unvested stock options and unvested restricted stock not yet
recognized as of June 30, 2008, is $1.2 million and is expected to be recognized
over a weighted-average period of 2.1 years.
The following assumptions were used to determine the fair value of the unvested
stock options on the original grant date for expense recognition purposes for
options granted during the six months ended June 30, 2008 and 2007.
Six Months Ended
June 30, 2008 June 30, 2007
---------------------------------------------
Directors and Officers:
Expected dividend yield 1.71% N/A
Expected volatility 43.52% N/A
Risk-free interest rate 2.84% N/A
Expected life 8.0 yrs N/A
Forfeiture rate 0% N/A
Employees:
Expected dividend yield 1.71% 1.74%
Expected volatility 42.55% 41.99%
Risk-free interest rate 2.84% 4.70%
Expected life 6.3 yrs 6.3 yrs
Forfeiture rate 28% 28%
The expected term of the options is based on evaluations of historical and
expected future employee exercise behavior. The risk-free interest rate is based
on the U.S. Treasury rates at the date of grant with maturity dates
approximately equal to the expected life at the grant date. Volatility is based
on historical volatility of the Company's stock. The Company initiated a
dividend payout in the second quarter of 2006. Previously, the Company used
Board of Director approved semi-annual dividend payouts of $0.20 per share
through July 3, 2007, to calculate the expected dividend yield. The Board of
Directors has approved future dividend payments of $0.16 per share and the table
above was adjusted to reflect the rate change.
-8-
A summary of stock options outstanding as of June 30, 2008, is as follows:
Options Outstanding Options Exercisable
--------------------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Aggregate Number Average
Range of Outstanding at Contractual Exercise Intrinsic Exercisable at Exercise
Exercise Prices June 30, 2008 Life Price Value June 30, 2008 Price
-------------------------------------------------------------------------------------------------------------------------------
$2.67 - $3.85 307,320 0.84 $ 3.20 $ 16.06 307,320 $ 3.20
$5.73 - $11.29 221,613 4.43 8.56 10.70 185,913 8.12
$11.40 - $12.00 43,500 7.11 11.67 7.59 26,400 11.77
$12.68 - $15.55 49,600 7.40 14.33 4.93 25,200 14.43
$15.99 - $21.01 241,850 8.44 17.29 1.97 51,900 17.40
------------------------------------------------------------------------------------------------------
Total 863,883 4.58 $ 9.59 $ 12.44 596,733 $ 6.82
======================================================================================================
A summary of option activity as of June 30, 2008, is as follows:
Weighted
Average
Remaining Aggregate
Weighted Average Contractual Intrinsic
Stock Options Shares Exercise Price Term Value ($000)
---------------- ------------------ ---------------- --------------
Outstanding at January 1, 2008 928,933 $ 9.47
Granted 24,000 16.96
Exercised (56,050) 7.03
Forfeited or Expired (33,000) 15.94
---------------- ------------------
Outstanding at June 30, 2008 863,883 9.59 4.58 $ 8,358
================ ================== ================ ==============
Exercisable at June 30, 2008 596,733 $ 6.82 2.99 $ 7,423
================ ================== ================ ==============
The weighted average grant date fair value of options granted during the six
months ended June 30, 2008 and 2007 was $6.69 and $6.74, respectively. The total
intrinsic value of options exercised during the six months ended June 30, 2008
and 2007 was approximately $0.7 million and $5.4 million, respectively. The cash
received from options exercised during the six months ended June 30, 2008 and
2007, was approximately $0.4 million and $1.0 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 unvested stock options for the six month period ended June 30,
2008, is as follows:
Weighted Average
Grant Date
Shares Fair Value
----------------- ----------------------
Unvested at January 1, 2008 335,300 $ 6.49
Granted 24,000 6.69
Vested (59,150) 6.13
Forfeited (33,000) 6.48
----------------- ----------------------
Unvested at June 30, 2008 267,150 $ 6.60
================= ======================
The Company also grants restricted stock awards to employees and directors.
These awards are recorded at their fair values on the date of grant and
compensation cost is recorded using straight-line vesting over the service
period. The Company recognized approximately $68,000 for the three months, and
approximately $184,000 for the six months ended June 30, 2008 in pre-tax
compensation expense related to restricted stock awards in the Consolidated
Statements of Income. In addition, as of June 30, 2008, unrecognized
compensation cost related to non-vested restricted stock awards was
approximately $823,000 which is expected to be recognized over a weighted
average period of 1.9 years.
-9-
A summary of the unvested restricted stock awards for the six month period ended
June 30, 2008, is as follows:
Shares
----------------------
Unvested at January 1, 2008 37,850
Granted 14,850
Vested (9,950)
Forfeited (700)
----------------------
Unvested at June 30, 2008 42,050
======================
During 2008 and 2007, the Compensation Committee of the Board of Directors
authorized and issued restricted stock to the officers and directors of the
Company. 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 granted to directors vest
one-third each year. All other restricted stock vests 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 grants is
based on the fair market value of AAON common stock on the respective grant
dates, reduced for the present value of dividends.
8. EARNINGS PER SHARE
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.
Three Months Ended Six Months Ended
June 30, 2008 June 30, 2007 June 30, 2008 June 30, 2007
-------------------------------------------------------------------------------
(in thousands, except share and per share data)
Numerator:
Net income $ 7,760 $ 6,877 $ 14,194 $ 13,194
Denominator:
Denominator for basic earnings per share -
Weighted average shares 17,740,165 18,691,371* 17,894,388 18,626,594*
Effect of dilutive employee stock options
and restricted stock awards 405,321 645,024* 407,821 865,902*
--------------- -------------- -------------- -------------
Denominator for diluted earnings per share -
Weighted average shares 18,145,486 19,336,395* 18,302,209 19,492,496*
=============== ============== ============== =============
Earnings per share:
Basic $ 0.43 $ 0.37* $ 0.79 $ 0.71*
Diluted $ 0.43 $ 0.36* $ 0.78 $ 0.69*
Anti-dilutive shares 309,400 280,650*
Weighted average exercise price** $ 16.78 $ 15.83*
* Reflects three-for-two stock split effective August 21, 2007.
**Reflects the weighted average exercise value of stock options as 42,050 and
11,700 restricted stock awards as of June 30 2008 and 2007, respectively do
not carry an exercise value.
-10-
9. INCOME TAXES
The Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various state and foreign jurisdictions. Effective January 1,
2007, the Company adopted FIN 48. The total amount of unrecognized tax benefits
at June 30, 2008, is six thousand dollars related to tax positions for which it
is reasonably possible that the total amounts could significantly decrease
during the next twelve months. This amount represents the unrecognized tax
benefits comprised of items related to determination of state nexus and
intercompany charges. Resolution of the tax benefits related to state nexus will
occur through a voluntary compliance program, which was initiated during 2007.
The Company recognizes accrued interest and penalties related to unrecognized
tax benefits in income tax expense. At June 30, 2008, the Company had accrued
six thousand dollars and zero dollars for the potential payment of interest and
penalties, respectively.
As of June 30, 2008, the Company is subject to U.S. Federal income tax
examinations for the tax years 2005 through 2007, and to non-U.S. income tax
examinations for the tax years of 2005 through 2007. In addition, the Company is
subject to state and local income tax examinations for the tax years 2002
through 2007.
The total amount of unrecognized tax benefits that if recognized would affect
the effective tax rate is nine thousand dollars.
10. STOCK REPURCHASE
Following repurchases of approximately 12% of its outstanding Common Stock
between September 1999 and September 2001, the Company announced and began
another stock repurchase program on October 17, 2002, targeting repurchases of
up to an additional 10% (2.0 million shares) of its outstanding stock. On
February 14, 2006, the Board of Directors approved the suspension of the
Company's repurchase program. Through February 14, 2006, the Company had
repurchased a total of 1,886,796 shares under this program for an aggregate
price of $22,034,568, or an average price of $11.68 per share. The Company
purchased the shares at the then current market price.
On November 6, 2007, the Board authorized a new stock buyback program, targeting
repurchases of up to approximately 10% (1.8 million shares) of the outstanding
stock of the Company from time to time in open market transactions at prevailing
market prices. The Company purchases the shares at the current market price.
Through June 30, 2008, the Company repurchased a total of 1,468,458 shares under
this program for an aggregate price of $29,025,809, or an average price of
$19.77 per share.
On July 1, 2005, the Company entered into a stock repurchase arrangement by
which employee-participants in AAON's 401(k) savings and investment plan are
entitled to have shares of AAON stock in their accounts sold to the Company 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 June 30, 2008, the Company
repurchased 556,716 shares for an aggregate price of $8,785,435, or an average
price of $15.78 per share. The Company purchases the shares at the current
market price.
On November 7, 2006, the Board of Directors authorized the Company to repurchase
shares from certain directors following their exercise of stock options. The
maximum number of shares to be repurchased is unknown under the program as the
amount is contingent on the number of shares sold by directors. Through June 30,
2008, the Company repurchased 271,625 shares for an aggregate price of
$5,468,298, or an average price of $20.13 per share. The Company purchases the
shares at the current market price.
11. CONTINGENCIES
The Company is subject to claims and legal actions that arise in the ordinary
course of business. Management believes that the ultimate liability, if any,
will not have a material effect on the Company's results of operations or
financial position.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
AAON, Inc. ("the Company") engineers, manufactures and markets air-conditioning
and heating equipment consisting of standardized and custom rooftop units,
chillers, air-handling units, make-up units, heat recovery units, condensing
units, coils and boilers. Custom units are marketed and sold to retail,
manufacturing, educational, medical and other commercial industries. The Company
markets units to all 50 states in the United States and certain provinces in
Canada. International sales are less than five percent as the majority of all
sales are domestic.
The Company sells its products to property owners and contractors through a
network of manufacturers' representatives and its internal sales force. Demand
for the Company's 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, the Company
emphasizes the replacement market.
The principal components of cost of goods sold are labor, raw materials,
component costs, factory overhead, freight out and engineering expense. The
principal raw materials used in The Company's manufacturing processes are steel,
copper and aluminum. The Company experienced raw materials price increases of
approximately 70% for steel, 18% for aluminum and 19% for copper from June 30,
2006 to June 30, 2008. The Company reviewed and adjusted current pricing
strategies and created efficiencies in production and continued relationships
with suppliers in order to mitigate the economic factors of increasing commodity
prices. The major component costs include compressors, electric motors and
electronic controls, which also increased due to increases in commodities.
Selling, general, and administrative ("SG&A") costs include the Company's
internal sales force, warranty costs, profit sharing and administrative expense.
Warranty expense is estimated based on historical trends and other factors. The
Company's warranty on its products is: for parts only, the earlier of one year
from the date of first use or 18 months from date of shipment; compressors (if
applicable), an additional four years; on gas-fired heat exchangers (if
applicable), 15 years; and on stainless steel heat exchangers (if applicable),
25 years. Warranty charges on heat exchangers occur infrequently.
The office facilities of the Company consist of a 337,000 square foot building
(322,000 sq. ft. of manufacturing/warehouse space and 15,000 sq. ft. of office
space) located at 2425 S. Yukon Avenue, Tulsa, Oklahoma (the "original
facility"), and a 563,000 square foot manufacturing/warehouse building and a
22,000 square foot office building ("the expansion facility") located across the
street from the original facility at 2440 S. Yukon Avenue. The Company utilizes
39% of the expansion facility and the remaining 61% is leased to a third party.
Other operations are conducted in a plant/office building at 203-207 Gum Springs
Road in Longview, Texas, containing 258,000 square feet (251,000 sq. ft. of
manufacturing/warehouse and 7,000 sq. ft. of office space). An additional 15
acres of land was purchased for future expansion in 2004 and 2005 in Longview,
Texas.
The Company's operations in Burlington, Ontario, Canada, are located at 279
Sumach Drive, consisting of an 82,000 sq. ft. office/manufacturing facility on a
5.6 acre tract of land.
-12-
Set forth below is unaudited income statement information with respect to the
Company for the periods ended June 30, 2008 and 2007:
Three Months Ended Six Months Ended
June 30, 2008 June 30, 2007 June 30, 2008 June 30, 2007
------------------------------------------------- -------------------------------------------------
(In thousands)
Net sales $ 74,781 100% $ 70,835 100% $ 140,237 100% $ 129,463 100%
Cost of sales 56,791 75.9% 55,237 78.0% 106,595 76.0% 98,143 75.8%
----------------------- ----------------------- ----------------------- -----------------------
Gross profit 17,990 24.1% 15,598 22.0% 33,642 24.0% 31,320 24.2%
Selling, general and
administrative expenses 6,129 8.2% 5,270 7.4% 12,031 8.6% 11,017 8.5%
----------------------- ----------------------- ----------------------- -----------------------
Income from
operations 11,861 15.9% 10,328 14.6% 21,611 15.4% 20,303 15.7%
----------------------- ----------------------- ----------------------- -----------------------
Interest expense and
other (16) 0.0% 3 0.0% (19) 0.0% (7) 0.0%
Interest income 6 0.0% 3 0.0% 27 0.0% 6 0.0%
Other income, net 117 0.1% 82 0.1% 247 0.2% 270 0.2%
----------------------- ----------------------- ----------------------- -----------------------
Income before
income taxes 11,968 16.0% 10,416 14.7% 21,866 15.6% 20,572 15.9%
Income tax provision 4,208 5.6% 3,539 5.0% 7,672 5.5% 7,378 5.7%
----------------------- ----------------------- ----------------------- -----------------------
Net income $ 7,760 10.4% $ 6,877 9.7% $ 14,194 10.1% $ 13,194 10.2%
======================= ======================= ======================= =======================
Results of Operations
Key events impacting our cash balance, financial condition, and results of
operations for the six months ended June 30, 2008, include the following:
o An increase in sales on product lines due to commercial construction
growth and market share gains, and effective moderation of commodity
costs with purchase agreements and pricing strategies.
o The Company remained the leader in the industry for
environmentally-friendly, energy efficient and quality innovations,
utilizing R410A refrigerant and phasing out pollutant causing R22
refrigerant. The phase out of R22 began in early 2004. The Company
also utilizes a high performance composite foam panel to eliminate
over half of the heat transfer from typical fiberglass insulated
panels. The Company continues to utilize sloped condenser coils, and
access compartments to filters, motor, and fans. All of these
innovations increase the demand for the Company's products thus
increasing market share.
o In February 2006, the Board of Directors initiated a program of
semi-annual cash dividend payments. Cash payments of $5.0 million were
made in 2007, and $2.9 million were made in January 2008. Dividends
were declared in the second quarter of 2008 and accrued. Payment of
cash dividends occurred in July 2008 in the amount of $2.8 million.
o Stock repurchases of Company stock from employee's 401(k) savings and
investments plan was authorized in 2005. Stock repurchases of Company
stock from directors was authorized in 2006. Stock repurchases of
Company stock from the open market was authorized in 2007. Total
purchases resulted in cash payments of $17.3 million. This cash outlay
is partially offset by cash received from options exercised by
employees as a part of an incentive bonus program. The cash received
in the six months ended June 30, 2008 from options exercised was
approximately $0.4 million.
o Purchases of equipment to create efficiencies remained a priority. The
Company's capital expenditures were $1.4 million. Equipment purchases
create significant efficiencies, lower production costs and allow
continued growth in production. The Company currently estimates it
will spend approximately $7.0 million to $10.0 million on capital
expenditures in 2008 for continued growth.
-13-
Net Sales
Net sales increased $4.0 million or 5.6% to $74.8 million from $70.8 million for
the three months, and increased $10.7 million or 8.3% to $140.2 million from
$129.5 million for the six months ended June 30, 2008, compared to the same
periods in 2007. Increased sales were attributable to an increase in volume of
product sold related to the Company's new and redesigned products being
favorably received by its customers, active marketing by sales representatives
and from certain pricing strategies implemented on 90% of the Company's product
lines. Management anticipates continued growth throughout 2008.
Gross Profit
Gross profit increased $2.4 million or 15.4% to $18.0 million from $15.6 million
for the three months, and increased $2.3 million or 7.3% to $33.6 million from
$31.3 million for the six months ended June 30, 2008, compared to the same
periods in 2007. Gross margins were 24.1% compared to 22.0% for the three
months, and 24.0% compared to 24.2% for the six months ended June 30, 2008 and
2007, respectively. The increase in gross margins for the three months and
slight decrease for the six months was a result of pricing strategies
implemented, higher sales volume and production and labor efficiencies.
Steel, copper and aluminum are high volume materials used in the manufacturing
of the Company's products, which are obtained from domestic suppliers. The
Company experienced raw materials price increases of approximately 70% for
steel, 18% for aluminum and 19% for copper from June 30, 2006 to June 30, 2008,
causing increased inventory costs. The Company also purchases from other
domestic manufacturers certain components, including compressors, electric
motors and electrical controls used in its products. The suppliers of these
components are significantly affected by the rising raw material costs, as
steel, copper and aluminum are used in the manufacturing of their products;
therefore, the Company is also experiencing price increases from component part
suppliers. The Company continues to monitor these costs and price units
accordingly. The Company instituted several price increases to customers from
2005 to 2008 in an attempt to offset the continued increases in steel, copper
and aluminum. The Company attempts to limit the impact of price increases on
these materials by entering into cancelable fixed price contracts with its major
suppliers for periods of 6-12 months.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $0.8 million or 15.1% to
$6.1 million from $5.3 million for the three months, and increased $1.0 million
or 9.1% to $12.0 million from $11.0 million for the six months ended June 30,
2008, compared to the same periods in 2007. The increase was primarily caused by
an increase in selling related expenses, warranty expense related to increased
sales, profit sharing due to increased net income and an overall increase in
general and administrative expenses.
Other Income
Other income was $117,000 and $82,000 for the three months, and $247,000 and
$270,000 for the six months ended June 30, 2008 and 2007, respectively. Other
income is attributable primarily to rental income from the Company's expansion
facility. All expenses associated with the facility that are allocated to the
rental portion of the building are included in other income. The Company plans
to continue to rent the expansion facility until it is needed for increased
capacity. Other income also includes foreign currency gains and losses that
result from operations in Canada.
Analysis of Liquidity and Capital Resources
The Company's working capital and capital expenditure requirements are generally
met through net cash provided by operations and the revolving bank line of
credit.
Cash Flows Provided by Operating Activities. Net cash provided by operating
activities increased in the six months ended June 30, 2008 by $6.8 million from
the six months ended June 30, 2007. The increase was due primarily to changes in
net income and inventory.
-14-
Cash Flows Used in Investing Activities. Cash flows used in investing activities
were $1.4 million and $7.2 million for the six months ended June 30, 2008 and
2007, respectively. The decrease in cash flows used in investing activities in
2008 was primarily related to lower capital expenditures of $1.4 million for
additions to manufacturing facilities, machinery and equipment compared to $7.2
million for the same period in 2007. Capital expenditures in 2007 related to
building renovations and machinery and equipment to further automate production.
Management utilizes cash flows provided from operating activities to fund
capital expenditures that are expected to spur growth and create efficiencies.
The Company is currently in line with budgeted capital expenditures of
approximately $7.0 million to $10.0 million in 2008 for equipment requirements.
The Company expects its cash requirements to be provided from cash flows from
operations.
Cash Flows Used in Financing Activities. Cash flows used in financing activities
were $15.5 million and $2.6 million for the six months ended June 30, 2008 and
2007, respectively. The increase of cash used in financing activities primarily
relates to the continued repurchase of the Company's stock, borrowings under the
revolving credit facility and cash dividends paid to stockholders.
The Company repurchased shares of stock from employees' 401(k) savings and
investment plan and other incentive plans, the open market and directors for the
six months ended June 30, 2008, in the amount of approximately $17.3 million for
844,798 shares of stock. There were shares of stock repurchased for a total of
$2.9 million for the same period in 2007.
The Company received cash from stock options exercised of approximately $394,000
and classified the tax benefit of stock options exercised of approximately
$229,000 in financing activities for the six months ended June 30, 2008. The
cash received for options exercised and income tax effect partially offset the
stock repurchase and dividend payments for the six months ended June 30, 2008.
The cash received from stock options exercised for the same period in 2007 was
$1.0 million and the tax benefit of stock options exercised was $1.8 million.
The Company's 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 approximately
$1.3 million. The letter of credit is a requirement of the Company's workers
compensation insurance which has been renewed and will expire December 31, 2008.
Interest on borrowings is payable monthly at the Wall Street Journal prime rate
less 0.5% or LIBOR plus 1.6%, at the election of the Company (4.06% at June 30,
2008). No fees are associated with the unused portion of the committed amount.
At June 30, 2008, the Company had $4.1 million borrowed under the revolving
credit facility and had no borrowings outstanding under the revolving credit
facility at December 31, 2007. Borrowings available under the revolving credit
facility at June 30, 2008, were $9.8 million. The credit facility requires the
Company to maintain certain financial ratios. The total liabilities to tangible
net worth ratio has been waived for the period ended June 30, 2008, and was
revised in the renewed line of credit agreement that matures July 30, 2009. The
Company is in compliance with all other financial ratio covenants.
Management believes the Company's bank revolving credit facility, or comparable
financing, and projected cash flows from operations will provide the necessary
liquidity and capital resources to the Company for fiscal year 2008 and the
foreseeable future. The Company's belief that it will have the necessary
liquidity and capital resources is based upon its knowledge of the heating,
ventilation, and air conditioning ("HVAC") industry and its place in that
industry, its ability to limit the growth of its business if necessary, its
ability to authorize dividend cash payments, and its relationship with its
existing bank lender. For information concerning the Company's revolving credit
facility at June 30, 2008, see Note 6 to the Company's Consolidated Financial
Statements, Revolving Credit Facility.
In February 2006, the Board of Directors authorized a semi-annual cash dividend
payment. Cash dividends were declared in December 2007 and were paid in January
2008 in the amount of $2.9 million. Cash dividends of $2.8 million and $2.5
million were declared and accrued for in June 2008 and 2007, and paid in July
2008 and 2007, respectively. Prior to 2006, no cash dividends had been declared
or paid. Board of Director approval is required to determine the date of
declaration for each semi-annual payment.
On July 12, 2007, the Company's Board of Directors approved a three-for-two
stock split of AAON's 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, the Company
adjusted the dividend paid per share to $0.16. The applicable share and per
share data for all periods included herein has been restated to reflect the
stock split.
-15-
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 the Company's results of operations, financial position
and cash flows. The Company reevaluates its estimates and assumptions on a
monthly basis.
There have been no significant changes in critical accounting policies or
management estimates since the year ended December 31, 2007. A comprehensive
discussion of the Company's critical accounting policies and management
estimates is included in Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Annual Report on Form 10-K
for the year ended December 31, 2007.
New Accounting Pronouncements
In September 2006, the FASB released SFAS No. 157, Fair Value Measurements
("SFAS 157"). SFAS 157 defines fair value and establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. Although SFAS 157 applies to (and
amends) the provisions of existing authoritative literature, it does not, of
itself, require any new fair value measurements or establish valuation
standards. SFAS 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. Adoption of SFAS 157 did not have a material impact on the Company's
Consolidated Financial Statements.
In February, 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, which creates an alternative
measurement treatment for certain financial assets and financial liabilities.
SFAS 159 permits fair value to be used for both the initial and subsequent
measurements on an instrument by instrument basis, with changes in the fair
value to be recognized in earnings as those changes occur. This election is
referred to as the fair value option. SFAS 159 also requires additional
disclosures to compensate for the lack of comparability that will arise from the
use of the fair value option. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. Adoption of SFAS 159 did not have a material impact on
the Company's Consolidated Financial Statements. The Company did not elect the
fair value option for any assets or liabilities.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Words such
as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", "will", and variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions, which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date on which they
are made. The Company undertakes no obligation 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.
-16-
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is subject to interest rate risk on its revolving credit facility
which bears variable interest based upon a prime or LIBOR rate. At June 30,
2008, the Company had $4.1 million borrowed under the revolving credit facility.
Foreign sales accounted for less than 5% of the Company's sales for the six
months ended June 30, 2008, and the Company accepts payment for such sales in
U.S. and Canadian dollars; therefore, the Company believes it is not exposed to
significant foreign currency exchange rate risk on these sales. Foreign currency
transactions and financial statements are translated in accordance with FASB
Statement No. 52, Foreign Currency Translation. The Company uses the U.S. dollar
as its functional currency, except for the Canadian subsidiaries, which use the
Canadian dollar. Adjustments arising from translation of the Canadian
subsidiaries' financial statements are reflected in accumulated other
comprehensive income in the Consolidated Statements of Stockholders' Equity and
Comprehensive Income. Transaction gains or losses that arise from exchange rate
fluctuations applicable to transactions are denominated in Canadian currency and
are included in the results of operations as incurred. The exchange rate of the
United States dollar to the Canadian dollar was $0.9881 and $0.9416 at June 30,
2008 and 2007, respectively.
Important raw materials purchased by the Company are steel, copper and aluminum,
which are subject to price fluctuations. The Company attempts to limit the
impact of price increases on these materials by entering cancelable fixed price
contracts with its major suppliers for periods of 6 -12 months, however; in 2007
cost increases in basic commodities, such as steel, copper and aluminum,
severely impacted profit margins. Continued volatility in prices may impact
profit margins in future periods.
The Company does not utilize derivative financial instruments to hedge its
interest rate or raw materials price risks.
-17-
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report on Form 10-Q, the
Company's management, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's Chief Executive Officer
and Chief Financial Officer believe that:
o The Company's disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company in the
reports it files 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
o The Company's disclosure controls and procedures operate such that
important information flows to appropriate collection and disclosure
points in a timely manner and are effective to ensure that such
information is accumulated and communicated to the Company's
management, and made known to the Company's Chief Executive Officer
and Chief Financial Officer, particularly during the period when this
Quarterly Report was prepared, as appropriate to allow timely
decisions regarding the required disclosure.
AAON's Chief Executive Officer and Chief Financial Officer have evaluated the
Company's disclosure controls and procedures and concluded that these controls
and procedures were effective as of June 30, 2008.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting that
occurred during 2008 that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
-18-
PART II - OTHER INFORMATION
Item 1A. Risk Factors.
There have been no material changes from risk factors as previously disclosed in
the Company's Form 10-K in response to Item 1A, to Part I of its Form 10-K.
Item 2. Unregistered Sales of Equity and Securities and Use of Proceeds.
Following repurchases of approximately 12% of its outstanding Common Stock
between September 1999 and September 2001, the Company announced and began
another stock repurchase program on October 17, 2002, targeting repurchases of
up to an additional 10% (2.0 million shares) of its outstanding stock. On
February 14, 2006, the Board of Directors approved the suspension of the
Company's repurchase program. Through February 14, 2006, the Company had
repurchased a total of 1,886,796 shares under this program for an aggregate
price of $22,034,568, or an average price of $11.68 per share. The Company
purchased the shares at the then current market price.
On November 6, 2007, the Board authorized a new stock buyback program, targeting
repurchases of up to approximately 10% (1.8 million shares) of the outstanding
stock of the Company from time to time in open market transactions at prevailing
market prices. The Company purchases the shares at the current market price.
Through June 30, 2008, the Company repurchased a total of 1,468,458 shares under
this program for an aggregate price of $29,025,809, or an average price of
$19.77 per share.
On July 1, 2005, the Company entered into a stock repurchase arrangement by
which employee-participants in AAON's 401(k) savings and investment plan are
entitled to have shares of AAON's stock in their accounts sold to the Company 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 June 30, 2008, the Company
repurchased 556,716 shares for an aggregate price of $8,785,435, or an average
price of $15.78 per share. The Company purchases the shares at the current
market price.
On November 7, 2006, the Board of Directors authorized the Company to repurchase
shares from certain directors following their exercise of stock options. The
maximum number of shares to be repurchased is unknown under the program as the
amount is contingent on the number of shares sold by directors. Through June 30,
2008, the Company repurchased 271,625 shares for an aggregate price of
$5,468,298, or an average price of $20.13 per share. The Company purchases the
shares at the current market price.
Repurchases during the second quarter of 2008 were as follows:
(d) Maximum
(c) Total Number Number (or
of Shares (or Approximate Dollar
(a) Total (b) Units) Purchased Value) of Shares (or
Number of Average as Part of Units) that May Yet
Shares (or Price Paid Publicly Be Purchased Under
Units) Per Share Announced Plans the Plans or
Period Purchased (or Unit) or Programs Programs
---------------------------------------------------------------------------------------
April 2008 11,061 $ 18.71 11,061 -
May 2008 325,870 $ 20.40 325,870 -
June 2008 404,827 $ 21.35 404,827 -
---------------------------------------------------------------------------------------
Total 741,758 $ 20.89 741,758 -
=======================================================================================
-19-
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Stockholders held on May 20, 2008, Jack E.
Short was reelected as a director for a three-year term by a vote of 16,370,190
shares "For", 166,567 shares "Against" and 265,447 shares "Abstain". In
addition, at the Annual Meeting Jerry R. Levine was elected to the position on
the Board of Directors formerly held by Anthony Pantaleoni. This was approved by
a vote of 16,543,984 shares "For", 576 shares "Against" and 257,644 shares
"Abstain". Other directors whose terms of office continued after the meeting
are: Norman H. Asbjornson, John B. Johnson, Jr. and Charles C. Stephenson, Jr.,
whose terms end in 2009, and Paul K. Lackey, Jr. and A. H. McElroy II whose
terms end in 2010.
Item 5. Other Information.
The Board of Directors voted to initiate a semi-annual cash dividend of $0.16
per share to the holders of the outstanding Common Stock of the Company as of
the close of business on June 12, 2008, the record date, and payable on July 3,
2008.
-20-
Item 6. Exhibits.
(a) Exhibits
(i) Exhibit 31.1 Section 302 Certification of CEO
(ii) Exhibit 31.2 Section 302 Certification of CFO
(iii) Exhibit 32.1 Section 1350 Certification of CEO
(iv) Exhibit 32.2 Section 1350 Certification of CFO
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAON, INC.
Dated: August 5, 2008 By: /s/ Norman H. Asbjornson
--------------------------------
Norman H. Asbjornson
President/CEO
Dated: August 5, 2008 By: /s/ Kathy I. Sheffield
--------------------------------
Kathy I. Sheffield
Vice President/CFO
-21-