AAON, INC. 10-K Summary: Fiscal Year Ended December 31, 2009
Business Context and Reporting Period
This report covers the fiscal year ended December 31, 2009. AAON, Inc. manufactures and sells air-conditioning and heating equipment, including rooftop units, chillers, and air-handling units, primarily for the commercial and industrial markets in the United States. Foreign sales accounted for less than 5% of total revenue. A significant operational change occurred in September 2009 when the company closed its manufacturing operations in Burlington, Ontario, Canada, reclassifying the facility as held for sale and consolidating production in Tulsa, Oklahoma, and Longview, Texas.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net Sales | $245.3 million | $279.7 million |
| Gross Profit | $67.5 million | $67.2 million |
| Gross Margin | 27.5% | 24.0% |
| Net Income | $27.7 million | $28.6 million |
| Earnings Per Share (Diluted) | $1.60 | $1.60 |
| Operating Cash Flow | $45.2 million | $33.4 million |
| Cash and Equivalents (Year End) | $25.6 million | $0.3 million |
| Working Capital | $65.4 million | $40.6 million |
| Long-Term Debt | $0 (excluding capital leases) | $0.1 million |
Note: 2009 Gross Margin includes a $2.2 million unrealized gain from a copper derivative asset.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 12.3% to $245.3 million, driven by a downturn in the commercial construction market and the closure of Canadian operations.
- Margin Expansion: Despite lower sales, gross margin percentage improved to 27.5% from 24.0%. This was primarily due to lower raw material costs (steel, copper, aluminum), improved production efficiencies, and a $2.2 million unrealized gain on a copper derivative contract.
- Liquidity Improvement: Cash and cash equivalents surged from $269,000 in 2008 to $25.6 million in 2009, fueled by strong operating cash flow ($45.2 million) and reduced borrowing on the revolving credit facility.
- Debt Reduction: The company paid down its revolving credit facility, ending 2009 with no borrowings outstanding compared to $2.9 million in 2008.
Outlook, Risks, and Management Commentary
- Guidance and Capital Expenditures: Management estimates capital expenditures of $7–8 million for 2010, focusing on facility renovations and equipment. No specific revenue guidance was provided, though the company expects to meet working capital needs through operations and its credit facility.
- Market Risks: The company faces risks from the cyclical nature of the construction market, volatility in raw material prices (steel, copper, aluminum), and potential counterparty default on derivative contracts.
- Derivative Strategy: AAON entered a commodity futures contract in Q3 2009 to hedge copper prices for 2010 (2.25 million pounds at $2.383/lb). This resulted in a $2.2 million unrealized gain recorded in 2009.
- Canadian Facility: The Burlington, Ontario facility is listed for sale. Management plans to sell the property within one year.
- Dividends: The company paid $5.9 million in cash dividends in 2009 and accrued $3.1 million for payment in January 2010.
Key Facts for Investor Verification
- Derivative Impact: Verify the sustainability of the 27.5% gross margin, as it includes a $2.2 million non-cash unrealized gain from copper hedging. Excluding this, the margin was 26.6%.
- Canadian Asset Sale: Monitor the progress of the sale of the Canadian facility (carrying value ~$1.5 million) and any potential impairment charges if the sale is delayed.
- Raw Material Exposure: Assess the company's ability to maintain margins if commodity prices rise, given the reliance on steel, copper, and aluminum.
- Backlog Trends: Backlog decreased to approximately $39.8 million as of March 1, 2010, from $45.2 million the prior year, indicating potential softness in near-term demand.
- Debt Covenants: Confirm continued compliance with credit facility covenants (tangible net worth, working capital) as the facility renews in July 2010.