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AAON Reports Second Quarter Sales and Earnings

TULSA, Okla., Aug. 03, 2017 (GLOBE NEWSWIRE) -- AAON, Inc. (NASDAQ:AAON) today announced its operating results for the second quarter and six months ended June 30, 2017. 

In the quarter ended June 30, 2017, net sales were $101.3 million, down 1.0% from $102.3 million in 2016. Net income was $13.8 million, a decline of 6.3% from $14.7 million in the same period a year ago. Net sales for the six months ended June 30, 2017 were $187.4 million, decreasing 0.2% from $187.7 million in 2016. Net income for the six months ended June 30, 2017 was $24.0 million, off 8.6% from $26.3 million in 2016.

Our backlog at June 30, 2017 increased 20% to $83.5 million, from $69.3 million for the same period a year ago.

Consistent with the results of the first quarter of 2017, during the second quarter of 2017 increases in manufacturing costs restricted gross profits which declined 3.3% to $31.7 million (31.3% of sales) versus $32.7 million (32.0% of sales) as compared to the second quarter of 2016. This increase is primarily due to higher raw material (steel) prices.

Selling, general and administrative expenses, impacted by unusually higher warranty expenses, increased $1.4 million or 13.4% to $12.0 million (11.8% of sales) from $10.6 million (10.3% of sales) as compared to the second quarter of 2016. The Company has been working on modifications and refinements to its warranty policy. These modifications more clearly define what qualifies as a valid warranty claim and place a deadline on when claims may be submitted. This has increased our warranty reserves and increased our warranty expense for the first six months of 2017. Going forward, the Company expects warranty expense will return to historical levels and the new policy will improve our customer satisfaction as well as financial control of the warranty process and supplier relationships, thereby creating significant benefit to the Company.

Earnings per diluted share in the second quarter of 2017 were $0.26, down 3.7% from $0.27 for the same period in 2016, based upon 53.2 million and 53.6 million shares outstanding at June 30, 2017 and 2016, respectively. Earnings per diluted share for the six months ended June 30, 2017 were $0.45, a decrease of 4.3% from $0.47 in 2016, based upon 53.2 million and 53.6 million shares outstanding at June 30, 2017 and 2016, respectively.

Norman H. Asbjornson, CEO, said, "As previously announced, we have had significant changes in our manufacturing supervisory personnel. In April, our Vice President of Manufacturing and Tulsa Plant Manager both retired, after more than 60 years of combined service to the Company. Mike Crews, our Vice President of Operations, and Hunter Mattocks, Director of Manufacturing, are working hard to make the transition and we have the utmost confidence in their abilities. However, there is a somewhat lengthy learning curve associated with the transition process and our revenue for the first half of the year reflects the short-term challenges created by these changes in addition to the difficult labor markets. Nonetheless, our incoming order rate remains strong (with backlog rising to $83.5 million at June 30, 2017) and we expect to see excellent improvement in our revenue growth once we complete the transition process."

Mr. Asbjornson further added, "While our Water-Source Heat Pump has already won industry awards for design, performance and serviceability, we are awaiting AHRI certification which will enhance our sales and marketing program. In addition, we are currently integrating some of the cutting-edge manufacturing technology from the new line into our existing product lines with the expectation of gaining additional efficiencies."

Mr. Asbjornson concluded, “Our financial condition at June 30, 2017 remains strong with a current ratio of 2.9:1 (including cash and short-term investments totaling $51.8 million) and we continue to operate debt free."

The Company will host a conference call today at 4:15 P.M. Eastern Time to discuss the second quarter results. To participate, call 1-888-241-0551 (code 43149283); or, for rebroadcast, call 1-855-859-2056 (code 43149283).

AAON, Inc. is engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment consisting of standard, semi-custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps and coils. Since the founding of AAON in 1988, AAON has maintained a commitment to design, develop, manufacture and deliver heating and cooling products to perform beyond all expectations and demonstrate the value of AAON to our customers.

Certain statements in this news release may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended. 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.

/EIN News/ --

AAON, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
  Three Months Ended
 June 30,
  Six Months Ended
 June 30,
  2017   2016   2017   2016
  (in thousands, except share and per share data)
Net sales $ 101,326     $ 102,319     $ 187,404     $ 187,741  
Cost of sales 69,648     69,572     130,740     129,263  
Gross profit 31,678     32,747     56,664     58,478  
Selling, general and administrative expenses 11,971     10,561     22,501     19,474  
Loss (gain) on disposal of assets 48     (12 )   47     (20 )
Income from operations 19,659     22,198     34,116     39,024  
Interest income 71     67     131     141  
Other income, net 34     10     45     127  
Income before taxes 19,764     22,275     34,292     39,292  
Income tax provision 5,970     7,550     10,281     13,016  
Net income $ 13,794     $ 14,725     $ 24,011     $ 26,276  
Earnings per share:              
Basic $ 0.26     $ 0.28     $ 0.46     $ 0.47  
Diluted $ 0.26     $ 0.27     $ 0.45     $ 0.47  
Cash dividends declared per common share: $ 0.13     $ 0.11     $ 0.13     $ 0.11  
Weighted average shares outstanding:              
Basic 52,615,366     53,036,009     52,624,782     53,028,224  
Diluted 53,151,134     53,574,702     53,176,425     53,563,676  


AAON, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
  June 30, 2017   December 31, 2016
Assets (in thousands, except share and per share data)
Current assets:      
Cash and cash equivalents $ 33,552     $ 24,153  
Certificates of deposit 5,520     5,512  
Investments held to maturity at amortized cost 12,732     14,083  
Accounts receivable, net 43,114     43,001  
Income tax receivable 809     6,239  
Note receivable 26     25  
Inventories, net 63,075     47,352  
Prepaid expenses and other 888     616  
Total current assets 159,716     140,981  
Property, plant and equipment:      
Land 2,233     2,233  
Buildings 83,401     78,806  
Machinery and equipment 168,375     158,216  
Furniture and fixtures 13,458     12,783  
Total property, plant and equipment 267,467     252,038  
Less: Accumulated depreciation 142,839     137,146  
Property, plant and equipment, net 124,628     114,892  
Note receivable 667     657  
Total assets $ 285,011     $ 256,530  
       
Liabilities and Stockholders' Equity      
Current liabilities:      
Revolving credit facility $     $  
Accounts payable 14,108     7,102  
Dividends payable 6,849      
Accrued liabilities 34,293     31,940  
Total current liabilities 55,250     39,042  
Deferred revenue 1,542     1,498  
Deferred tax liabilities 9,895     9,531  
Donations 577     561  
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, 52,615,921 and 52,651,448 issued and outstanding at June 30, 2017 and December 31, 2016, respectively 210     211  
Additional paid-in capital      
Retained earnings 217,537     205,687  
Total stockholders' equity 217,747     205,898  
Total liabilities and stockholders' equity $ 285,011     $ 256,530  



AAON, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
  Six Months Ended
 June 30,
  2017   2016
Operating Activities (in thousands)
Net income $ 24,011     $ 26,276  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 7,281     6,346  
Amortization of bond premiums 29     151  
Provision for losses on accounts receivable, net of adjustments 141     (42 )
Provision for excess and obsolete inventories 260     308  
Share-based compensation 3,529     2,043  
Loss (gain) on disposition of assets 47     (20 )
Foreign currency transaction gain (24 )   (48 )
Interest income on note receivable (13 )   (14 )
Deferred income taxes 364     (1,851 )
Changes in assets and liabilities:      
Accounts receivable (254 )   (8,417 )
Income taxes 5,430     4,033  
Inventories (15,983 )   (1,934 )
Prepaid expenses and other (272 )   (550 )
Accounts payable 6,801     1,848  
Deferred revenue 118     220  
Accrued liabilities and donations 2,295     1,252  
Net cash provided by operating activities 33,760     29,601  
Investing Activities      
Capital expenditures (16,847 )   (15,825 )
Proceeds from sale of property, plant and equipment 7     1  
Investment in certificates of deposits (5,280 )   (4,112 )
Maturities of certificates of deposits 5,272     6,000  
Purchases of investments held to maturity (13,241 )   (9,782 )
Maturities of investments 14,063     3,801  
Proceeds from called investments 500     1,010  
Principal payments from note receivable 26     26  
Net cash used in investing activities (15,500 )   (18,881 )
Financing Activities      
Borrowings under revolving credit facility     761  
Payments under revolving credit facility     (761 )
Stock options exercised 1,573     1,255  
Repurchase of stock (9,368 )   (7,233 )
Employee taxes paid by withholding shares

 
(1,066 )   (441 )
Net cash used in financing activities (8,861 )   (6,419 )
Net increase in cash and cash equivalents 9,399     4,301  
Cash and cash equivalents, beginning of period 24,153     7,908  
Cash and cash equivalents, end of period $ 33,552     $ 12,209  

Use of Non-GAAP Financial Measures

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, provides 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
 June 30,
  Six Months Ended
 June 30,
   
  2017   2016   2017   2016
  (in thousands)
Net Income, a GAAP measure $ 13,794     $ 14,725     $ 24,011     $ 26,276  
Depreciation 3,643     3,175     7,281     6,346  
Amortization of bond premiums 13     68     29     151  
Share-based compensation 1,884     1,095     3,529     2,043  
Interest income (85 )   (135 )   (161 )   (292 )
Income tax expense 5,970     7,550     10,281     13,016  
EBITDAX, a non-GAAP measure $ 25,219     $ 26,478     $ 44,970     $ 47,540  

 

For Further Information:
Jerry R. Levine  
Phone: (914) 244-0292 
Fax: (914) 244-0295
Email: jrladvisor@yahoo.com

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