AAON, Inc. — FY2015 Form 10-K
Reporting period: Year ended December 31, 2015; quarterly figures are included for the fourth quarter. AAON manufactures and sells commercial and industrial HVAC equipment, primarily in the United States. About 55% of 2015 sales came from renovation and replacement markets and 45% from new construction.
Financial performance and position
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Net sales | $358.6 million | $356.3 million | +0.6% |
| Gross profit / margin | $108.7 million / 30.3% | $108.3 million / 30.4% | Margin down 0.1 percentage point |
| Operating income | $71.3 million | $68.0 million | +4.8% |
| Net income | $45.7 million | $44.2 million | +3.6% |
| Diluted EPS | $0.84 | $0.80 | +5.0% |
| Operating cash flow | $52.9 million | $52.3 million | +1.2% |
| Capital expenditures | $21.0 million | $16.1 million | +$4.9 million |
| Working capital at year-end | $80.8 million | $82.2 million | Down $1.4 million |
Fourth-quarter sales were $97.2 million versus $84.7 million in Q4 2014; net income was $12.9 million versus $10.5 million. FY2015 total units sold rose 7.2% to 18,576, while sales were nearly flat; management attributed the difference largely to increased unit volume at the Longview facility, where average selling prices were lower.
Year-end cash and cash equivalents were $7.9 million, down from $22.0 million. The balance sheet also included $12.0 million of certificates of deposit and $17.5 million of held-to-maturity investments. There was no revolving-credit borrowing; $29.2 million remained available under a $30 million facility. Total assets were $232.9 million and stockholders’ equity was $178.9 million. The filing reports no outstanding debt at year-end.
Changes, outlook, and notable items
- SG&A declined to $37.4 million from $40.6 million, mainly because 2014 included substantially higher charitable donations; lower warranty expense also contributed. The effective tax rate increased to 35.9% from 35.3%.
- AAON repurchased $37.1 million of stock in 2015, including approximately $25 million in open-market purchases, and paid $11.9 million in dividends. Dividends declared per share rose to $0.22 from $0.18.
- Management estimated 2016 capital expenditures of approximately $32.7 million, primarily including construction of a new research and development lab. Management said expected operating cash flow, available cash and investments, and committed financing should meet foreseeable liquidity needs. It expected to renew the credit line in July 2016 on favorable terms; this is not a guarantee.
- Backlog at February 1, 2016 was approximately $52.3 million versus $49.5 million a year earlier. Orders are generally filled within 60–90 days after becoming firm but may be cancelled.
- Management described 2015 new construction demand as unpredictable and uneven and emphasized replacement-market sales. Commodity prices were mixed: copper, galvanized steel and stainless steel declined year over year, while aluminum increased.
- Key risks include economic and construction-market cyclicality, raw-material and component availability and pricing, intense competition, product development and warranty exposure, regulatory changes, cybersecurity, dependence on Tulsa-area operations, and succession risk related to founder and CEO Norman Asbjornson. One customer represented at least 10% of 2015 sales; the filing does not identify the customer or provide its precise share.
- The company early adopted a deferred-tax balance-sheet presentation standard retrospectively; prior-year balance-sheet classifications changed, but income, equity and cash flows did not. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Identity and sales concentration of the customer representing 10% or more of FY2015 revenue.
- Whether the expected 2016 credit-facility renewal is completed and on what terms.
- Delivery and funding of the planned $32.7 million capital program, including the R&D lab, and its effect on cash generation.
- Whether sales growth and margins can improve despite flat FY2015 revenue growth and lower average prices on added unit volume.
- Backlog conversion and cancellation levels, together with developments in construction demand, commodity costs and warranty claims.
- Progress on CEO succession planning and operational resilience given the concentration of operations in Tulsa.