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AAON Inc.$35.75$.05.14%

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 AAON Reports Record Revenue and Earnings for 2016 Despite a Slump in Fourth Quarter Results
   Thursday, February 23, 2017 7:04:08 AM ET

AAON, INC. (AAON ), today announced its results for the fourth quarter and year 2016. Sales in the fourth quarter were $91.7 million, down 5.7% from $97.2 million in 2015. Net income was $11.4 million, declining 11.8% from $12.9 million in the same period a year ago. Sales for the year 2016 reached a record level, $384.0 million, representing a gain of 7.1% compared to $358.6 million in 2015. Net income for 2016 was also a record, $53.4 million, rising 16.7% compared to $45.7 million in 2015.

Earnings for the fourth quarter of 2016 and 2015 were $0.21 and $0.24 per diluted share, down 12.5%, based upon 53.4 million and 54.0 million diluted shares outstanding, respectively. Earnings per diluted share for the years 2016 and 2015 were $1.00 and $0.84, representing a gain of 19.0%, based upon 53.4 million and 54.5 million diluted shares outstanding, respectively.

Norman H. Asbjornson, CEO, stated, "We believe the sales rate slowed in the fourth quarter as our customers paused to await and absorb the November election results and the impact they could have on the business environment. In addition, we witnessed a decided shift in our product mix toward lower priced units. This may have been a by-product of the concern surrounding the political atmosphere. Nevertheless, while our unit volume increased 12.5% in 2016, our sales growth advanced only 7.1%."

Mr. Asbjornson continued, "We’ve been successful in controlling our total costs and maintaining our gross profit margin. Our gross margin last year climbed to 30.8% compared to 30.3% the year earlier. He continued, "Our balance sheet remained quite strong. At year end 2016 the current ratio was 3.6:1 (including cash and cash equivalents of $43.7 million). We continued to operate debt-free and our return on average stockholder equity was 27.7% in 2016 compared with 25.1% a year earlier."

Mr. Asbjornson concluded, "Our Water-Source Heat Pump production is ramping up, albeit at a somewhat slower rate than expected to assure delivery of quality product to customers. We are confident that the WSHP line will continue to show steady improvement throughout next year. Our backlog in 2016 decreased from $57.1 million to $49.1 million. Our business is somewhat seasonal, usually slowing in the fourth quarter. We are closely monitoring our raw material costs which play a major role in our ability to maintain gross margins. While 2017 will present certain challenges, we are encouraged by the tone of business witnessed since the beginning of the year. The incoming order rate and backlog have strengthened and are running at record first quarter levels. Despite some headwinds, we believe that we can achieve record sales and earnings in 2017."

The Company will host a conference call today at 3:30 P.M. (Eastern Time) to discuss the fourth quarter and year 2016 results. To participate, call 1-888-241-0551 (code 72961943); or, for rebroadcast, call 1-855-859-2056 (code 72961943).

AAON, Inc. is a manufacturer of air conditioning and heating equipment consisting of rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, self-contained units and coils. Its products serve the new construction and replacement markets. The Company has successfully gained market share through its "semi-custom" product lines, which offer the customer value, quality, function, serviceability and efficiency.

Certain statements in this news release may be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933. Statements regarding future prospects and developments are based upon current expectations and involve certain risks and uncertainties that could cause actual results and developments to differ materially from the forward-looking statements.

AAON, Inc. and Subsidiaries
Unaudited Consolidated Statements of Income
                                             Three Months Ended                  Years Ending
                                             December 31,                        December 31,
                                             2016              2015              2016               2015
                                             (in thousands, except share and per share data)
Net sales                                    $     91,668      $     97,229      $     383,977      $     358,632
Cost of sales                                65,158            67,648            265,897            249,951
Gross profit                                 26,510            29,581            118,080            108,681
Selling, general and administrative expenses 8,632             9,859             38,506             37,438
Gain on disposal of assets                   --                --                (20           )    (59           )
Income from operations                       17,878            19,722            79,594             71,302
Interest income, net                         69                74                292                161
Other income (expense), net                  (10          )    (18          )    105                (124          )
Income before taxes                          17,937            19,778            79,991             71,339
Income tax provision                         6,517             6,830             26,615             25,611
Net income                                   $     11,420      $     12,948      $     53,376       $     45,728
Earnings per share:
Basic                                        $     0.22        $     0.24        $     1.01         $     0.85
Diluted                                      $     0.21        $     0.24        $     1.00         $     0.84
Cash dividends declared per common share:    $     0.13        $     0.11        $     0.24         $     0.22
Weighted average shares outstanding:
Basic                                        52,891,879        53,680,995        52,924,398         54,045,841
Diluted                                      53,419,948        54,036,021        53,449,754         54,481,484
AAON, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
                                                                                                                                                           December 31,
                                                                                                                                                           2016             2015
Assets                                                                                                                                                     (in thousands, except share and per share data)
Current assets:
Cash and cash equivalents                                                                                                                                  $      24,153    $      7,908
Certificates of deposit                                                                                                                                    5,512            10,080
Investments held to maturity at amortized cost                                                                                                             14,083           12,444
Accounts receivable, net                                                                                                                                   43,001           50,024
Income tax receivable                                                                                                                                      6,239            4,702
Note receivable                                                                                                                                            25               23
Inventories, net                                                                                                                                           47,352           38,499
Prepaid expenses and other                                                                                                                                 616              533
Total current assets                                                                                                                                       140,981          124,213
Property, plant and equipment:
Land                                                                                                                                                       2,233            2,233
Buildings                                                                                                                                                  78,806           68,806
Machinery and equipment                                                                                                                                    158,216          143,100
Furniture and fixtures                                                                                                                                     12,783           11,270
Total property, plant and equipment                                                                                                                        252,038          225,409
Less: Accumulated depreciation                                                                                                                             137,146          124,348
Property, plant and equipment, net                                                                                                                         114,892          101,061
Certificates of deposit                                                                                                                                    --               1,880
Investments held to maturity at amortized cost                                                                                                             --               5,039
Note receivable                                                                                                                                            657              661
Total assets                                                                                                                                               $      256,530   $      232,854
Liabilities and Stockholders’ Equity
Current liabilities:
Revolving credit facility                                                                                                                                  $      --        $      --
Accounts payable                                                                                                                                           7,102            6,178
Accrued liabilities                                                                                                                                        31,940           37,235
Total current liabilities                                                                                                                                  39,042           43,413
Deferred revenue                                                                                                                                           1,498            698
Deferred tax liabilities                                                                                                                                   9,531            8,706
Donations                                                                                                                                                  561              1,119
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued
Common stock, $.004 par value, 100,000,000 shares authorized, 52,651,448 and 53,012,363 issued and outstanding at December 31, 2016 and 2015, respectively 211              212
Additional paid-in capital                                                                                                                                 --               --
Retained earnings                                                                                                                                          205,687          178,706
Total stockholders’ equity                                                                                                                                 205,898          178,918
Total liabilities and stockholders’ equity                                                                                                                 $      256,530   $      232,854
AAON, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
                                                                                  Years Ending December 31,
                                                                                  2016            2015            2014
Operating Activities                                                              (in thousands)
Net income                                                                        $   53,376      $   45,728      $   44,158
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation                                                                      13,035          11,741          11,553
Amortization of bond premiums                                                     249             266             688
Provision for losses on accounts receivable, net of adjustments                   (25        )    (48        )    (22        )
Provision for excess and obsolete inventories                                     625             178             135
Share-based compensation                                                          4,357           2,891           2,178
Gain on disposition of assets                                                     (20        )    (59        )    (305       )
Foreign currency transaction (gain) loss                                          (22        )    139             74
Interest income on note receivable                                                (28        )    (30        )    (36        )
Deferred income taxes                                                             825             1,172           (2,111     )
Write-off of note receivable                                                      --              --              --
Changes in assets and liabilities:
Accounts receivable                                                               7,048           (5,884     )    (5,007     )
Income tax receivable                                                             (1,537     )    312             (257       )
Inventories                                                                       (9,478     )    (1,059     )    (5,613     )
Prepaid expenses and other                                                        (83        )    76              (305       )
Accounts payable                                                                  654             (5,109     )    3,512
Deferred revenue                                                                  417             189             782
Accrued liabilities and donations                                                 (5,470     )    4,852           4,094
Net cash provided by operating activities                                         63,923          55,355          53,518
Investing Activities
Capital expenditures                                                              (26,604    )    (20,967    )    (16,127    )
Proceeds from sale of property, plant and equipment                               28              63              319
Investment in certificates of deposits                                            (4,112     )    (6,680     )    (9,940     )
Maturities of certificates of deposits                                            10,560          6,098           9,310
Purchases of investments held to maturity                                         (10,384    )    (14,183    )    (6,880     )
Maturities of investments                                                         10,021          11,408          14,197
Proceeds from called investments                                                  3,514           1,013           3,029
Principal payments from note receivable                                           52              54              63
Net cash used in investing activities                                             (16,925    )    (23,194    )    (6,029     )
Financing Activities
Borrowings under revolving credit facility                                        761             --              --
Payments under revolving credit facility                                          (761       )    --              --
Stock options exercised                                                           2,063           2,795           1,318
Repurchase of stock                                                               (19,317    )    (36,558    )    (29,066    )
Employee taxes paid by withholding shares                                         (823       )    (585       )    (218       )
Cash dividends paid to stockholders                                               (12,676    )    (11,857    )    (9,656     )
Net cash used in financing activities                                             (30,753    )    (46,205    )    (37,622    )
Net increase (decrease) in cash and cash equivalents                              16,245          (14,044    )    9,867
Cash and cash equivalents, beginning of period                                    7,908           21,952          12,085
Cash and cash equivalents, end of period                                          $   24,153      $   7,908       $   21,952

Use of Non-GAAP Financial Measure

To supplement the Company’s consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP"), an additional non-GAAP financial measure is provided and reconciled in the following table. The Company believes that this non-GAAP financial measure, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results. The Company believes that this non-GAAP financial measure enhances the ability of investors to analyze the Company’s business trends and operating performance.

EBITDAX

EBITDAX (as defined below) is presented herein and reconciled from the GAAP measure of net income because of its wide acceptance by the investment community as a financial indicator of a company’s ability to internally fund operations.

The Company defines EBITDAX as net income, plus (1) depreciation, (2) amortization of bond premiums, (3) share-based compensation, (4) interest (income) expense and (5) income tax expense. EBITDAX is not a measure of net income or cash flows as determined by GAAP.

The Company’s EBITDAX measure provides additional information which may be used to better understand the Company’s operations. EBITDAX is one of several metrics that the Company uses as a supplemental financial measurement in the evaluation of its business and should not be considered as an alternative to, or more meaningful than, net income, as an indicator of operating performance. Certain items excluded from EBITDAX are significant components in understanding and assessing a company’s financial performance. EBITDAX, as used by the Company, may not be comparable to similarly titled measures reported by other companies. The Company believes that EBITDAX is a widely followed measure of operating performance and is one of many metrics used by the Company’s management team, and by other users of the Company’s consolidated financial statements.

The following table provides a reconciliation of net income (GAAP) to EBITDAX (non-GAAP) for the periods indicated:

                              Three Months Ended          Years Ending
                              December 31,                December 31,
                              2016          2015          2016          2015
                              (in thousands)
Net Income, a GAAP measure    $  11,420     $  12,948     $   53,376    $   45,728
Depreciation                  3,488         3,154         13,035        11,741
Amortization of bond premiums 33            98            249           266
Share-based compensation      1,185         815           4,357         2,891
Interest (income) expense     (102      )   (172      )   (541       )  (427       )
Income tax expense            6,517         6,830         26,615        25,611
EBITDAX, a non-GAAP measure   $  22,541     $  23,673     $   97,091    $   85,810
For Further Information:
Jerry R. Levine
Phone: (914) 244-0292
Fax: (914) 244-0295
Email: jrladvisor@yahoo.com

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