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STRATEGIC PLAN REPORT
KELSEY KRAUSE, ZACHARY LYONS, MARK SEBZDA,
TIMOTHY WALKER, THOMAS YEUTTER
TEAM 7
SAINT JOSEPH’S UNIVERSITY
BUS 495: DO9

i
TABLE OF CONTENTS
E X E C U T IV E S U M M A R Y i
C O M P A N Y B A C K G R O U N D 1
O V E R V IE W 1
B R IE F H IS T O R Y 2
G O V E R N A N C E 3
M IS S IO N A N D V A L U E S 5
B U S IN E S S S C O P E 5
P R O D U C T S E G M E N T S 5
G E O G R A P H IC M A R K E T S 6
S U P P L Y C H A IN 6
C O M P E T IT IV E A N A L Y S IS 7
IN T E R N A L A U D IT 9
S T R E N G T H S 9
W E A K N E S S E S 1 2
F IN A N C IA L C O N D IT IO N 1 6
E X T E R N A L A U D IT 1 7
O P P O R T U N IT IE S 1 7
T H R E A T S 1 9
A A O N IN T H E IN D U S T R Y 2 0
S T R A T E G IC IS S U E S 2 2
O B J E C T IV E S 2 3
O V E R A L L B U S IN E S S O B J E C T IV E 2 3
O B J E C T IV E 1 2 4
S T R A T E G IC C H O IC E & IM P L E M E N T A T IO N 2 5
S T R A T E G Y 1 2 5
S T R A T E G Y 2 2 8
S T R A T E G Y 3 3 0
E V A L U A T IO N A N D C O N T R O L 3 3
A P P E N D IX 3 5
W O R K S C IT E D 4 6

i
EXECUTIVE SUMMARY
AAON, Inc. was formed in 1989 with the acquisition of the Air Conditioning Division of
the John Zink Company. Two plants currently house all operations, the main plant residing in
Tulsa, Oklahoma and a secondary plant in Longview, Texas. The company’s operating activities
include the making of semi-custom heating, ventilation, and air condition units. AAON custom
designs, builds, and sells a wide variety of heating, ventilation, and air conditioning (HVAC)
units, including rooftop units, packaged outdoor mechanical rooms, self-contained units, outdoor
air handling units, condensing units, coils, and water-source heat pumps. AAON prides itself on
providing units with the highest energy efficiency in mind. The quality and efficiency of the
company’s products are the advantages comparatively to competition. AAON sells a majority of
their units within the United States, but hold a presence in Canada as well. AAON faces several
strategic issues related to their current business processes. These issues must be addressed in
order for the company to be as successful as possible within such a competitive industry.
In order for AAON to grow overall market share, three strategies have been developed as
well as how each strategy is to be implemented. The first strategy highlighted in this report is to
penetrate into the indoor farming market. The next strategy suggested is to expand the residential
HVAC unit market in which the company currently holds. Finally, the third strategy is to
increase sales in Canada.
This report provides background information about AAON and their business activities, a
detailed internal and external analysis, the identification of strategic issues and objectives, and
our recommendations for how AAON will implement three strategies to address these issues.

1
COMPANY BACKGROUND
O V E R V IE W
AAON, Inc. designs, manufactures and sells semi-custom heating, ventilation and air
conditioning (HVAC) equipment for commercial and residential use. Their extensive product
catalog spans eleven categories: Air Handling Units, Condensers and Condensing Units, Chillers
and Outdoor Mechanical Rooms, Self-Contained Units, Packaged Rooftop Units, Geothermal
Heat Pumps, Air-Source Heat Pumps, Water-Source Heat Pumps, Natatorium and Pool Room
Units, Controls, and Coils.1
These products are manufactured and sold across the United States
with about 4% of their distribution to certain provinces in Canada.2
Headquartered in its original manufacturing location in Tulsa, Oklahoma, AAON, Inc.
employs roughly 1,300 people – 300 of which are employed by AAON Coil Products, a
subsidiary of AAON, Inc., and sit at the company’s secondary manufacturing site in Longview,
Texas. Upwards of 5,000 commercialized HVAC units are made in the Tulsa plant per year.
AAON Coil Products produces nearly 30,000 coils, produced to finish air conditioning units and
other similar products, are turned out for every shipment to the Tulsa plant as needed.3
AAON
Coil Products alone pulls in an annual $151.9M per year; AAON, Inc. as a whole recorded 2015
sales at $358.6M.4
Illustrious credentials in the recent years has allowed AAON to position itself in the
HVAC industry as a fruitful, innovative company. Listed in the Forbes’ 200 Best Small
Companies in October 2001, AAON received their first notable acknowledgement in the
market. Up to present day, Forbes’ has praised AAON in their renowned business magazine
seven times. AAON has generated so much buzz in the market that President and CEO Norman
1
http://aaon.com/about
2
AAON – Company Description. Hoovers.
3
https://www.news-journal.com/news/2016/oct/02/aaon-builds-ac-unitsto-order-for-customers/
4
http://aaon.com/Documents/Investors/2015/AAON_Annual_Report_2015.pdf

2
Asbjornson has been invited to the New York Stock Exchange multiple times to ring the opening
and closing bells. Such achievements give third party evidence confirmation that AAON is a
growing, profitable company.5
More recently, plans have been finalized on a “Norm Asbjornson
Hall” at Montana State University’s College of Engineering and Honors College. Asbjornson
donated nearly $50M to his alma mater to ensure the future of the engineering industry. Brett
Gunnink, dean of the College of Engineering at MSU noted, “with this building we strive to
create a place where teams of students, faculty and staff will create the innovations necessary to
improve the human condition for future generations.”6
B R IE F H IS T O R Y
AAON began with the purchase of the John Zink Company Air Conditioning Division in
1989. Norman H. Asbjornson took the role of President and Chief Executive Officer of the
newly formed AAON Inc., and continues to sustain that role presently. Once the division was
purchased from the John Zink Company, Asbjornson and his team bought and renovated a
manufacturing plant in Tulsa, Oklahoma. AAON’s employees and machinery moved into the
plant and introduced a new product line of rooftop heating and air conditioning, thus beginning
the stage of taking orders and creating financial success through their innovative business
practices. In December of 1990, not long after the company started, AAON was listed on the
Nasdaq SmallCap. This is testimony to the initial success of AAON, since in order to be on the
Nasdaq SmallCap a company must meet the criteria of having either $5M in stockholders’
equity, $50M in market capitalization, or $750K in net income. Later, in November 1993,
AAON would be listed on the Nasdaq National Market System.
5
https://www.aaon.com/documents/investors/2013/aaon_2013_annualreport.pdf
6
http://www.constructionequipmentguide.com/msu-finalizes-asbjornson-hall-plans/30249

3
The first expansion of AAON products was when AAON Coil Products, a Texas
Corporation, was formed as a subsidiary to AAON, Inc., a Nevada Corporation. This expansion
allowed the company to extend their product selection and expand to new niche markets within
the HVAC industry. Throughout the years, AAON has expanded numerous times, specifically to
increase the size of their facilities; the Tulsa facility alone expanded from 184,000 square feet to
over one million square feet. Product lines were included in this expansion - the rooftop product
line development in the fall of 2001 included an evaporative condensing energy savings feature.7
G O V E R N A N C E
Key officers include President and CEO, Norman H. Asbjornson who has served in this
position with AAON since its inception following the purchase of the John Zink Company in
1989. Although he has held his titles since the company’s inception, all of his corporate
responsibilities have been delegated to those in positions inferior to him as he has announced his
plans to retire at some point in the near future. Under him sits Kathy Sheffield, who is currently
the Senior Vice President of Administration since 2012, although she has held other leadership
roles spanning across 25 years of experience with AAON, such as Company Treasurer and Vice
President of the Company. Robert G. Fergus serves as Vice President of Manufacturing since
1989. Scott M. Asbjornson, son of CEO Norman Asbjornson, serves as the Company’s Vice
President of Finance as well as the Chief Financial Officer. Rebecca Thompson, the company’s
Chief Accounting Officer, has been working for AAON in this position since 2012. Finally,
Samuel Neale serves as the Vice President of AAON, Inc. and has served in other positions
within the HVAC industries for well over 15 years.8
7
https://www.aaon.com/Documents/Investors/2013/AAON_2013_AnnualReport.pdf
8
http://aaon.com/Documents/Governance/AAON_Officers_150724.pdf

4
AAON Inc.’s executive team and Board of Directors (BOD) work to maximize overall
company profit in the interest of their shareholders. BOD members include CEO Norman
Asbjornson, Jack Short, a former PricewaterhouseCoopers employee, “Ken” Lackey, Jr., who is
also the chairman of the Governance Committee and has served as the CEO of a manufacturing
company in the past. “Chip” McElroy II is Chairman of the Compensation Committee and also
serves as the CEO of McElroy Manufacturing, Inc., a privately held manufacturing company that
is headquartered in Tulsa, not far from AAON’s Tulsa manufacturing plant. Jerry Levine has
served as a Board Member for AAON for nearly 40 years, specifically holding the title of
securities analyst. Finally, Gary Fields has worked in several positions within the HVAC
industry for roughly 35 years, and was elected as a BOD member in 2015 based on his current
position as the President of an HVAC business development and consultation firm in the hopes
of developing solid strategies that will add extra value to AAON.9
Furthermore, AAON has established a Governance Committee that meets at least twice
per year or more, as needed and seen fit by the BOD. This Committee meets to discuss the
structure of and positions held by the Board. The Governance Committee essentially helps
create the Board of Directors and tailor positions based on what the company needs guidance on
at that point in time. The Committee has the power to suggest and elect new Board members or
even vote members off the Board. They have the ability to search for new candidates that would
ultimately add value to the company in some way. The Committee can even go as far as
determining retirement ages, roles and responsibilities, and succession planning.10
Other BOD
committees include the Compensation and Audit Committees, who meet as needed to determine
top-level yearly salaries and oversee the company’s financial reporting processes, respectively.
9
http://aaon.com/Documents/Governance/AAON_Board_of_Directors_160804.pdf
10
http://aaon.com/Documents/Governance/CorporateGovernance.pdf

5
M IS S IO N A N D V A L U E S
The mission of AAON is to be a world leader in creating comfortable and healthy indoor
environments, efficiently through their manufacturing of premium HVAC equipment. AAON
prides itself on delivering the best and most efficient products to the HVAC industry by
“defining quality and building comfort.” 11
Their 2015 Annual Report states: “In 2015 we
continued to build the foundation for future growth while achieving consistent profitability. As
the leading manufacturer of innovative, high-value heating and cooling products, we have a
commitment to exceed our customer’s expectations.” Moving forward, the company plans to
capitalize on the growing marketplace opportunity of geothermal and water-source heat pump
products to solidify their innovative nature while simultaneously capturing a new consumer for
their products.12
BUSINESS SCOPE
S E G M E N T A N A L Y S IS
AAON’s target market is small to mid-sized construction sites with specific needs and
flexible budgets. Some of the factors which influence AAON’s yearly demand for these products
include economic growth, interest rates, and new construction starts. AAON claims that when
new construction markets are slowing or recessing, they shift their focus towards the replacement
market, but still target customers with niche needs. This was largely the case for 2015, as AAON
heavily promoted the opportunity for property owners to replace their existing products with
AAON units. Under normal market conditions, AAON focuses on their niche markets by
providing products which their competitors cannot. These products include items such as higher
quality parts, customized unit shapes, and most other needs. They try to reach customers who are
willing to pay a premium for these customized units, which is part of their value proposition.
11
http://aaon.com/About
12

6
Some examples of the way in which AAON segments their customers include: contractors,
property owners with AAON products, property owners without AAON products, or customers
who are looking for a premium priced but long term investment in their cooling system.13
G E O G R A P H IC M A R K E T S
In 2015, AAON made the decision to restructure their geographic segments. They
redistributed their four territories into seven new territories, each of which is assigned a regional
manager. This change was made to better accommodate their customers and provide a more
specialized and focused quality of service between the managers, sales reps, and customers. Over
90% of AAON’s sales are through their network of representatives, so it is very important that
they prioritize their relationships with this network. Roughly 96% of AAON’s sales are
generated from the United States, while the remaining 4% come from a handful of provinces in
Canada. 14
S U P P L Y C H A IN
Raw materials such as steel, copper, aluminum, tubing, and gears are purchased from
various industry suppliers that AAON works closely with. Steel is purchased within the United
States as well as some areas overseas. Other materials AAON uses in the production of their
HVAC units and systems are purchased domestically and locally sourced whenever possible
from Texas and Oklahoma; companies like Elliot Electric
Supply and Longview McCoy’s are dependent on our
purchase of their raw materials. Elliot Electric Supply
stated that AAON accounts for a sizable portion of their
customer sales and they work diligently to ensure they
accommodate the volume of materials needed as AAON
13
14
CORE
COMPETENCY
AAON is extremely capable of
effective networking efforts;
through its brokers and
suppliers, the company
prioritizes its relationships and
strategic partnerships.

7
continues to grow.15
They purchase their raw materials from numerous outlets at a low cost
without sacrificing quality. AAON engages in fixed-price contracts with their major suppliers
for periods of six to eighteen months at a time to cut back on market fluctuation.16
AAON’s products are designed, manufactured, engineered, and sold in the United States
from their plants in Tulsa, OK and Longview, TX, which the company prides itself on. Coil
products that are manufactured in the Longview plant are used to complete AAON HVAC units
that are made in the Tulsa plant. These coils are shipped from Longview to Tulsa as needed to
complete the units that utilize these coil products.
AAON’s HVAC units and systems are then sold through original equipment
manufacturer representatives as well as their own personal sales forces. These products are sold
to property owners and contractors in the new construction and replacement markets, both
industrially and residentially. AAON’s major customers include retail chains such as
McDonald’s, Walmart, and Home Depot. It is important to note that Home Depot does not sell
AAON products, but utilizes their HVAC systems to power their stores. Schools, offices, and
healthcare facilities also purchase HVAC systems and units from AAON that are tailored to fit
their exact needs. 17
C O M P E T IT IV E A N A L Y S IS
The sales of the Commercial HVAC industry total nearly $3.3 billion per year
collectively while Residential HVAC sales total around $68.4 billion. Many companies like
AAON aggressively compete with one another to achieve the highest sales possible year after
year. AAON’s first major competitor is Modine Manufacturing Company, a “Global Leader in
Thermal Management Technology and Solutions.” Modine, celebrating its 100th
anniversary, is
15
16
17

8
a large global company that employs over 7,100 people worldwide; its sales reached nearly $1.5
billion in 2015. Operating in the Vehicular (powertrain and engine) and Industrial (building
HVAC and coils) markets, its products include EGR Coolers, Condensers, Oil Coolers, Liquid
Charge Air Coolers, Data Center Chillers, and Copper Coils. Modine “strives to be recognized
as the most trusted brand in HVAC and coils [by] providing integrated thermal solutions,
differentiated through innovation.” The company has five manufacturing facilities that serve
North America, the United Kingdom, South Africa, and the Middle East; while the company
focuses chiefly on their vehicular segments, roughly 13% of Modine’s net sales come from their
HVAC equipment. That being said, Modine has a market share of nearly 5.6% of the
Commercial HVAC Industry. Furthermore, the company expects to see an average growth of
around 9 to 17% over the next five years in their HVAC business.18
AAON’s second major competitor, Lennox International Inc., has been in the HVAC
industry since 1895. Lennox aims to drive shareholder value by positioning themselves for
margin expansion, specifically through winning the marketplace with strategic investments in
their products and distribution. The company believes they are well positioned for said margin
expansion over the next several years and aim to participate heavily in growing markets with
high demand. Lennox achieves nearly 88% of its sales in North and South America, while the
rest are generated from Europe and Asia-Pacific. Lennox operates within three business
segments: residential heating and cooling, commercial heating and cooling, and refrigeration.
Much of their business success is driven by their affordable products, stemming from low cost
suppliers based in Asia. Lennox is then able to pass on this cost savings to their end consumer.
However, there are a plethora of consumer reports stating that Lennox’s HVAC units are
18
http://files.shareholder.com/downloads/AMDA-1J38G2/3300798101x0x865411/0DB97BE9-233C-41C2-AD50-
E9771B1F0206/Modine_InvPres_-_120815_Final.pdf

9
expensive to repair and maintain, and that they simply do not work as advertised. In fact, there
are pending lawsuits against Lennox involving product liability and labor relations. Still, it is
important to recognize how successful Lennox’s residential segment is; over half (54%) of
Lennox’s total revenue has been from residential heating and cooling in 2015; majority of these
sales stem from the replacement market, while very little come from new construction projects.
With sales totaling $3.5 billion in 2015, Lennox achieves a market share of nearly 5.1% of the
Residential HVAC market and 26.8% of the Commercial HVAC industry. What makes Lennox
even more interesting, is the fact that they have nearly 190 brick and mortar stores; Lennox Parts
Plus offers customers and consumers the opportunity to purchase Lennox parts in-store rather
than going through a middle man contractor to replace items within their Lennox product.19
INTERNAL AUDIT
S T R E N G T H S
One major strength of AAON is its ability to offer innovative, forward-looking products.
Its cutting edge research and development practices allow the company to work toward getting
better products to the market faster than their competition. A personal interview with Robert
Clothier, an industry professional of over 30 years, revealed that AAON is a well-trusted and
sought out company for any and all projects because of their expertly designed equipment: “I
always choose AAON systems when I can for projects at work.” Clothier is a senior project
manager on the HVAC team of a mid-sized contracting company. “AAON units are just built
much better than everyone else’s – Lennox, Modine, and the others just don’t compare to an
AAON unit. They’re custom built which is great because you know what you’re getting is the
perfect piece of equipment built to do exactly what you need it for. Plus, you know it’s going to
19
http://www.lennoxinternational.com/share/presentations/2015/LII%202015%20ICM%20Presentation.pdf

10
last a long while.” They are continuously updating their
current product portfolio to change with new technologies
and customer tastes and preferences. “We are adding some
new products to the line called energy recovery and high-
efficiency gas heat,” noted Vice President of AAON Inc.,
Sam Neale. Energy recovery rolled out this year, while gas
heat is due for the first quarter of 2017. However, both of these features will be made optional to
stay within their commitment to mass customization for their customers.20
Much of AAON’s
success can be attributed to their innovative nature in regards to certain products such as their
foam-insulated HVAC cabinets as well as an environmentally friendly refrigerant liquid.21
Research and development is such a crucial part of AAON’s business model, so much so that
they just broke ground on a brand new innovation lab, set to finish by the end of 2018. Three
stories and 75,000 square feet will be dedicated to the research on their current products
regarding efficiency, industry standards, and environmentally friendly practices in addition to
making these products better.22
Another key strength of AAON is its large customer
demand, generated from its ability to customize its products.
Sam Neale mentioned that purchasing an HVAC system from
AAON is comparable to purchasing a car – customers have
several makes and models of HVAC units and systems to
choose from and even have options regarding the different
20
21
22
http://www.achrnews.com/articles/131977-aaon-breaks-ground-on-new-engineering-research-and-development-
lab
CORE
COMPETENCY
AAON is very good at making
HVAC units higher quality
and more efficiently than the
rest of the HVAC industry due
to the company’s extensive
R&D efforts.
CORE
COMPETENCY
AAON is able to give the
customer exactly what they
want and need through “mass
customization,” something the
competition does not offer.

11
features of the unit, all the way down to the specific color they want it to be.23
This large
customer demand can be found through AAON’s extensive backlog of orders; in March of 2015,
nearly $55.4M in orders were waiting to be fulfilled. Although it might seem risky to have
customer orders backed up and waiting to be completed, this is a very good thing for AAON
because it shows them that people are waiting to get exactly what they want from their HVAC
systems. Additionally, majority of the company’s production is done in-house, which keeps the
cost of high volume production low.24
AAON can then pass on their money savings to their
customers, giving them the best possible product at an affordable price.
One of AAON’s greatest strengths is its ability to trademark and patent the technology
and products they produce. AAON prides itself on having reliable, quality, durable, serviceable,
and high efficient products to provide to their customer. Throughout the years, they have
accumulated many patents on their products, 63 to be exact,
which allows the company to exclusively make, use, and sell
their branded products.25
Most notably, the company received
patents for an air conditioner with an energy recovery heat
wheel (October 1998), the De-Superheater for Evaporative Air
Conditioning (April 2004), and a Plenum Fan Banding
(August 2005). This attests to how AAON has continuously improved their product line
throughout the years, always creating new ways to generate income. By introducing these new
23
24
25
http://patft.uspto.gov/netacgi/nph-
Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=%2Fnetahtml%2FPTO%2Fsearch-
bool.html&r=0&f=S&l=50&co1=AND&d=PTXT&s1=aaon&Page=Prev&OS=aaon&RS=aaon
CORE
COMPETENCY
AAON is the only company
that is able to produce and
utilize the technology and
products they manufacture.

12
products available to the market, AAON has increased shipments as well throughout the years,
having exceeded $100M in shipments in November 1998 and $300M in December 2012.26
AAON’s last major strength is their ability to finance their business. The company’s
financial documents over the past several years show a lack of debt, resulting in efficient
operations of the company. AAON finances its business primarily through cash on-hand; it is
also important to note that the company has nearly $29M available to borrow from the Bank of
Oklahoma if they ever need to do so.27
From a financial standpoint, this is exceedingly
important; it shows overall good health of the company in addition to steady growth. Over the
past five years, AAON’s compound annual growth rate has not decreased. Revenues have also
increased year over year, with an average annual growth rate of 8.1% taken from analyzing net
revenues from 2013 to present day. This number shows slow, but steady improvement in the
five-year span from 2011 to 2015. Through this quick glance, it is clear to see that AAON is
growing at a rapid pace for their industry.28
W E A K N E S S E S
Presently, AAON operates chiefly in
the Commercial HVAC Industry. The
company serves only seven defined markets;
manufacturing facilities, commercial
buildings, and educational facilities are the
company’s largest segments, totaling 62% of
AAON’s business focus while lodging, office spaces, health care, and religious spaces make up
26
https://www.aaon.com/Documents/Investors/2013/AAON_2013_AnnualReport.pdf
27
28
FI G U R E 1 : A A O N M A R K E T S E G M E N T S

13
the remaining markets at 38%.29
Furthermore, AAON is a relatively smaller player in the
Commercial HVAC Industry; the company does not operate
globally like other major competitors. With sales totaling
$358.6M in 2015, AAON has a market share of about 10.8%
of the commercial HVAC Industry. These facts combined
make for a large weakness in AAON’s business practices; the
company outperforms competition in regards to quality and
efficiency*, yet achieves much smaller sales, resulting in a lesser market share and underserved
markets.
Another key weakness of AAON is their self-admitted dependency on their president and
CEO, Norm Asbjornson. AAON notes in their 10k that the loss, disablement, or retirement of
their CEO could greatly contribute to the impairment of the growth of AAON.30
Such a strong
reliance on a single person within the company could greatly inhibit AAON from advancing in
their industry if something were to happen to their CEO in the near future. Relying solely on
their CEO for company development and innovation is a one-track mindset that will entrench
AAON in stagnant business practices. Instead, AAON should focus on spreading innovation
over the entirety of the company rather than depending upon on one person to make the decisions
for everyone. This will allow AAON to flourish creatively and continue to advance beyond
current practices.
Spring boarding off of the previous weakness, it can be divulged through careful
exploration of the company culture that AAON edges toward being a more conservative
*Specific efficiency data will be discussed in greater detail in the Financial Condition section
29
https://www.aaon.com/Documents/Investors/2015/AAON_Investor_Presentation_Q4_2015_160324.pdf
30
https://www.aaon.com/Documents/Investors/2015/AAON_Annual_Report_2015.pdf
PAIN POINT
Even though AAON is a more
efficient company compared to
its competitors, it has unseen
market potential as well as
relatively low sales and market
share compared to the rest of
the industry.

14
company compared to the rest of the industry. One major tip-
off was the fact that although AAON has a large sum of money
that is available to borrow with the Bank of Oklahoma; despite
this contractual agreement, AAON is reluctant to borrow
money to finance their business operations and instead prides
themselves on being “virtually debt-free.”31
The company’s
lack of financial leverage can be seen as inhibiting since AAON is not capitalizing on acquiring
debt to enhance their productivity. As previously mentioned, AAON’s productivity is already
top-notch with their backlog of orders, nodding at their remarkable customer demand as well as
their ability to “mass customize” to give the customer exactly what they want. Deducing that
AAON is a risk averse company from the information gathered about corporate culture may be
correct, however this does not coincide with their research and development practices where
AAON strays away from their conservative side and risks failure to change the industry by
offering innovative, forward-thinking products. Borrowing money to fund company initiatives
toward growth or expansion may be a crucial factor that AAON is missing in its attempt to
dominate the HVAC industry.
Moreover, despite being a risk averse company, AAON risks losing sales, inventory, and
raw materials by only having two manufacturing facilities. The company even states in their
latest 10k document:
“Natural disasters such as tornadoes, and ice storms, as well as accidents… and other
factors beyond our control could adversely affect our operations. Especially, as our
facilities are in areas where tornadoes are likely to occur… the effects of natural disasters
and other events could damage our facilities and equipment and force a temporary halt to
manufacturing and other operations, and such events could consequently cause severe
damage to our business.”32
31
https://www.aaon.com/Documents/Investors/2015/AAON_Annual_Report_2015.pdf
32
http://aaon.com/Documents/Investors/2015/AAON_2015_10K.pdf
PAIN POINT
AAON is a very conservative
company; their reluctance to
borrow money to finance
business operations and heavy
reliance on their CEO can
greatly inhibit them from
company expansion.

15
A majority of the company’s production is done in their Tulsa plant, meaning that if
something were to happen here, it would have a direct impact on AAON’s end of year financials.
In fact, in 2011 Tulsa experienced record snowstorms which caused several roof collapses in
AAON’s plant. The manufacturing facility was closed for nearly nine days, inhibiting
production for the rest of that quarter and threw off the production schedule for the rest of the
year, which greatly impacted 2011’s profits.33
The company has skated by on thin ice with only
two manufacturing facilities while its competition spreads their risk out with five or more plants.
Finally, although AAON prides themselves on being designed, manufactured,
engineered, and sold in the United States, this can momentously halt future growth. As
previously mentioned, 96% of 2015 sales come from inside the United States; however, new
construction and replacement of HVAC units will have a market cap in this geographic region at
some point in time. Additionally, the company’s international sales of 4% stemming from
certain provinces in Canada have also seen a decline; 6% of
sales came from these Canadian provinces in 2014.34
AAON’s overdependence on the US market could be
concerning in light of any political or economic adversity in
the United States, putting the company at a major
disadvantage compared to its competition which has a global
reach.
33
http://www.marketwired.com/press-release/AAON-Reports-2011-and-Fourth-Quarter-Results-NASDAQ-AAON-
1631516.htm
34
PAIN POINT
AAON is extremely over-
dependent on their existing US
manufacturing facilities and
distribution channels, putting
them at a disadvantage
compared to their competition
and the rest of the industry.

16
F IN A N C IA L C O N D IT IO N
After examining AAON’s financial statements, it is evident that the company is
financially stable5
. From 2013 to 2015 we can see upward trends, based on the financial ratios,
from year to year that show improvements in the financial condition of the company. Without
any major red flags, it is safe to say that AAON is in a good financial position in today’s
economic climate. Three years of AAON’s
historical financial data can be found in
Appendix A.
The liquidity of AAON is one
characteristic that stands out. By
calculating the company’s liquidity ratios,
it is easy to see that AAON has maintained
good liquidity from 2013 to 2015.
Although there is a slight decrease in
liquidity from year to year, it does not pose
a major concern. With the Quick (1.9) and
Current Ratios (2.8) both above 1, AAON is still in a position to repay any debts that they may
incur in an emergency situation.
In addition to its good liquidity, AAON posts good profitability measures. From 2013 to
2015, increases in every measure in this category can be measured. This means that AAON has
improved its ability to generate earnings without increasing its cost to do so. AAON is currently
attaining a Net Profit Margin of 12.2% along with a Gross Profit Margin of 30.3%. This is in line
with 2014’s numbers and a slight step above from 2013, which saw a Gross Profit Margin of
27.9% and a Net Profit Margin of 11.6%.

17
The only red flag that arises from examining the data in their financial statements stems
from the “Debt Measures” section. AAON has an extremely low Debt-Equity ratio. Although
this is not necessarily terrible, it shows that AAON is hesitant to borrow money to fund
operations, which can lead to slow growth in the future. This is especially important because
AAON’s backlog is growing each year. As of February 1, 2015, their backlog was $49.5M, and
as of February 1, 2016, their backlog had grown to $52.3M. This is not a huge jump, but if the
company continues to grow at this rate, they may need to take on debt to expand their capacity.
Finally, AAON does have a relatively low Debt Ratio, which hints at the company’s financial
stability. Even though there was an increase from 2013 to 2014, the Debt Ratio hit a low in 2015.
Overall AAON has good financial ratios across the board. Their high liquidity along with
their good profitability margins shows room for growth and improvement in the future. When
taking a look at the historical trends, it is easy to see that AAON has been growing in a very
stable manner. Even though the company may not have the largest Net Income, AAON does
have ratios that are either in line or above industry averages. A strong strategic plan paired with
the proper financing can definitely make room for growth in the near to extended future.
EXTERNAL AUDIT
O P P O R T U N IT IE S
In previous years, the residential housing market has been on the decline. However, the
market has taken a turn positively in recent years. There has been a steady rise year after year of
HVAC units installed in homes completed from 2012 to present. More importantly, especially
for the HVAC industry, 2015 census data revealed that 600,000 out of 624,000 new homes built
in the US included HVAC units35
. This signals the go-ahead on better marketing efforts from
HVAC companies who do residential sales; just for comparison sake, our top competitor,
35
https://www.eia.gov/consumption/residential/reports/2009/air-conditioning.php

18
Lennox, sees two times the sales volume from their residential customers versus their
commercial customers whereas AAON has virtually no defined sales coming from the residential
sector, indicating a great opportunity for the company. Moreover, this growth is not just limited
to residential construction. Data has indicated that there has been a rise in new construction
overall in recent years for commercial spaces such as offices, schools, and the like36
.
Technological advancements play a huge role in the HVAC industry – external technologies
are helping to increase equipment efficiency from both a manufacturing standpoint as well as an
end-user standpoint. Nest Labs Inc., who was purchased by Google in 2014 at $3.2 billion,
introduced the learning thermostat, which is a prime example of an advancement in existing
technologies. This programmable and teachable thermostat learns its user’s energy usage
schedule and adjusts room temperature based on time of day and occupancy and can even be
controlled via wi-fi from the user’s wireless device37
. Integrated control systems, which pull
together common items in a house or building such as heating and air conditioning, lighting, and
security systems, have been on the rise as of lately. This is just one example showing the ever-
changing interfaces of the HVAC industry, with a heavier focus on ease of usability.
Not only are the technologies changing for HVAC, but so are the end users. For more and
more reasons daily, there has been a growing need for heating and cooling in other industries
outside of the traditional HVAC users. Commercial trucking companies have expressed that
there is a demand for temperature-controlled operations, due to various reasons including
increased US food consumption by an ever-increasing US population and shifting distribution
patterns from national to regional, among others.38
Likewise, with the increase in technology
36
https://www.census.gov/construction/nrc/index.html
37
http://arstechnica.com/gadgets/2012/08/a-thermostat-that-learns-three-months-with-the-nest/
38
http://fleetowner.com/fleet-management/temperature-controlled-trucking-poised-take

19
comes an increase in data storage centers nationwide. Nearly 3 million data centers are scattered
across the United States, and have accounted for nearly 2%, or 100 billion kilowatt-hours of US
electricity use since 2013, which is only growing daily. In compliance with other “green”
initiatives occurring in recent years, the Department of Energy seeks to make these data centers
more efficient by reducing how much energy is used at each by 20%.39
Interestingly enough,
efficiency does not come from the computers and hardware used to store this data, but from
efficient cooling systems needed to keep the equipment working properly.
T H R E A T S
Environmental regulations enacted by government bodies such as the Department of Energy
(DOE) and the Environmental Protection Agency (EPA) may cause stringent changes in the way
the HVAC and related industries do business; this is a threat that AAON constantly worries
about. The latest example of this type of regulation change is currently in effect and will force
HVAC and refrigerant manufacturers to discontinue the use hydrofluorocarbons in their products
by 2019.40
Although this is something that AAON has already taken into account and removed
from their products, it still goes to show that the changing state of the environment plays an
integral role in the HVAC industry. To comply with industry standards and be ahead of the
game in regards to environmentally friendly products and practices, AAON must continuously
be researching and developing technology that will allow them to keep their competitive edge.
Something that AAON struggles with is trying to get customers to choose their products over
their competition; customer acquisition and retention drive sales for AAON, yet not everyone
will choose to go with a more expensive project depending on their financial situation. Because
the company sources the best local raw materials for their equipment, so this will bump costs up
39
http://mashable.com/2014/09/30/doe-energy-efficiency/#he8hSTJAkkqT
40
“Cooling Industry to Adjust”

20
for each unit produced. Instead, customers may decide to go with a cheaper option from
AAON’s competition, such as Lennox, to fit their budget. The customer is then sacrificing
quality for price, however this is a main concern for the HVAC industry. Since AAON sources
locally, they cannot compete on price with companies like Lennox who source their raw
materials as well as labor and parts internationally to pass money savings onto their customers.41
AAON Coil Products has been dealing with encroaching competition within the last
several years. Smaller coil companies such as Specialty Coils, Bois D’Arc International, and
Great American Coil have all settled in Longview, Texas and the surrounding areas.42
These
local rivalries may be small, yet they have the capacity to do damage in numbers to AAON’s coil
product sales. Local distributors had the capacity to compete successfully with much larger
competitors in the HVAC industry, much like what AAON does with their own competition.43
A A O N IN T H E IN D U S T R Y
The Boston Consultant Group’s model
defines how a company’s products fare in their
respective industries. AAON and its products
currently have a low market share compared to its
competition and within the industry. However, they
have a fairly high growth rate according to their
annual report and other available financial data. The
ultimate goal is for AAON to grow their market
share to be comparable to their market growth, earning them the status of an industry “star.”
41
HVAC Equipment Manufacturing
42
43
Electrical, Plumbing, & Hardware Wholesalers

21
Appendix C details Porter’s Five Forces and how AAON fares against threats of the
HVAC industry. When analyzing AAON’s current business processes, the company has power
over the suppliers. It is illegal for our suppliers to raise prices or refuse selling to AAON
because the company has contracts with suppliers to keep prices fixed over a length of time.
These constraints are legally binding until they expire at that contract’s termination date. On the
other hand, buyers have power over AAON. This is because they can choose which HVAC
supplier to purchase from. There are many substitutes for our products currently in the market as
there are a lot of competition in the industry, and the HVAC industry is highly competitive for
this very reason. The already established, relatively large companies like Lennox and Modine
rival AAON’s products. The threat of substitution is high for AAON. A combination of
competition and future technology, which could eventually replace AAON units on efficiencies,
is a notable threat to take into account when analyzing the industry. However, it is important to
note that currently, AAON can be substituted on the grounds of a more affordable price, yet its
technology cannot be substituted. Finally, AAON is a relatively “newer” business in the market
and shows that even businesses that are much smaller than their competition can take away a
large sales volume from the market. New entrants to the HVAC market includes even the
smallest, local business which can sometimes see double-digit millions in revenue, and therefore
can be damaging competition to much larger companies like AAON.
Appendix D shows AAON’s SWOT Matrix; internal strengths and weaknesses are listed
in addition to external threats and opportunities that have been previously identified. Strategies
were generated that use strengths to take advantages of opportunities, that overcome weaknesses
to take advantage of opportunities, that use strengths to avoid threats, and that minimize
weaknesses to avoid threats.

22
STRATEGIC ISSUES
Several pain points were identified throughout the weaknesses portion of this paper –
these pain points are strategic issues AAON must address in order to continue on a trajectory
toward growth and business success. Currently, the culture of AAON is evidently conservative,
which cans be concluded from the company’s balance seeing as executive officers decide to
operate the business with relatively no debt. The problem with this that it is harder to grow the
company with such a conservative mindset – incurring debt and borrowing cash allows the
company the opportunity to grow in more than one way, such as new plant construction or
company acquisitions. In the case of AAON, incurring debt could help grow certain market
segments, ultimately growing AAON’s market share. The strategic decision that must be made
from this problem is whether to keep within corporate conservative culture or break the mold by
incurring debt to fund expansion. Accompanying this issue is the intensive internal research on
the market and risk factors associated to predict a significant return on investment.
There are crucial questions the board must address in order to develop strategic decisions
such as whether to develop a new product or push current products into new markets. AAON
distributes HVAC units to an array of different buyers, but there are still underserved markets
within the industry which can be exploited to benefit AAON. The first few strategic decisions
for AAON regarding market segments is which specific segment to penetrate or develop and
whether or not expansion in this market segment will result in a financial loss or gain. Careful
consideration must be made to factor in the cost of time and money. There is also the issue of
determining how to balance production time and inventory allocation that arises when
considering the long-run implications of this implementing this sort of strategic decision.
Another huge decision AAON faces is how to counterbalance the company’s overall the
dependency upon existing United States manufacturing plants and distribution channels. AAON

23
is burdened by a heavy reliance on the hopes of a great year of new construction across the
country; however if there is a bad year for the market as there has been historically, the company
will suffer overall. These factors tie back into the company’s conservative culture. Because
AAON is reluctant to incur debt, they forfeit the chances of new plant construction or company
acquisition to expand their market share within the United States. In order to grow, the company
must figure out how to do so without compensating their values.
OBJECTIVES
O V E R A L L B U S IN E S S O B J E C T IV E
AAON should increase market share by .2% with the following strategies, which is
equivalent to an increase of net sales by $77M by 2018. The team has concluded that AAON’s
ultimate business goal should be market share growth – however, the company is reluctant to do
so through incurring debt and taking financial risks. In order to grow the business, AAON needs
to be slightly risky in other aspects of their operations similar to those already being followed.
The company tends to be riskier when they are thinking from an operations and investing
standpoint, such as in their investment in their R&D and the operations of their core
competencies and capabilities. Leveraging investment and operational risk through the right
kind of strategic expansion such as translating our core competencies to other markets will pave
the way for company growth in the long run by other means than incurring debt.
AAON must carefully select strategic objectives to be met to achieve growth without
physically expanding. The company will do so through a two-fold process of market penetration
and market development. Market penetration will seek to expand core competencies into other
market segments to grow business, while market development will foster existing strategies and
set them up for growth. The team has concluded that AAON should translate their technologies
and HVAC systems to the residential market as well as to the indoor agricultural market.

24
Additionally, AAON will seek to foster existing foreign sales by marketing more heavily in the
Canadian market.
S M A R T O B J E C T IV E 1 :
The application of energy efficient HVAC systems for indoor farming facilities has potential
to generate a great deal of revenue for the company, as well as helps to push AAON’s core
competency of making their machinery more efficient and “green.” Breaking into this growing
market will require producing units curtailed for the indoor farming facilities, which the
company already has the technology and capabilities to do so. AAON already produces systems
that would translate seamlessly into this market, however they will have to spend some money to
market and sell their systems successfully.
Expanding sales to the residential market will be straight incremental growth for AAON, as
this is a brand new market segment for the company. Selling any residential units will only
increase net revenue, and when proper marketing techniques are implemented, this number has
the capacity to grow exponentially for the company in the future. Drawing inferences from
competition like Lennox, residential could grow to a sizable portion of AAON’s business.
Furthermore, AAON already has the technology and equipment available to produce residential
units, so the focus is on effective marketing to generate sales in this new business segment.
To kick start company expansion and growth for the future, the team had to analyze the best
possible route for expansion. Since AAON is reluctant to borrow money to physically expand,
the team decided it would be best for the company to expand its sales reach internationally,
specifically by fostering current foreign sales in Canadian provinces. It is reasonable to strive for
generating further sales expansion in Canada as the company is already marketing their products
in this geographic region. Specific marketing tactics will be executed to cater to the Canadian

25
market to ensure customers from this region stay satisfied with the company and will recommend
it to other businesses.
STRATEGIC CHOICE & IMPLEMENTATION
S T R A T E G Y 1 : IN T E G R A T E A A O N T E C H N O L O G Y IN IN D O O R F A R M IN G
Strategic Objective 1: Integrate AAON units into 45 indoor farms in 3 years to generate
$32M in net sales by penetrating into the market via current sales representatives and by
generating strategic partnerships with indoor farming manufacturers.
The indoor farming industry, sometimes called urban or vertical farming, is the future of
agriculture production, and a strategy to penetrate into the market proves to be advantageous to
AAON’s business. “Creating optimal temperature and humidity conditions is vital to plant
health, so growers devote a good deal of attention to selecting air conditioning equipment”44
.
Humidity and optimal temperature are important functional attributes needed to farm
successfully indoors, which is how AAON can leverage their highly efficient HVAC units to
enter this new market.
Indoor farming is an environmentally friendly venture with both environmental and
economic advantages. Indoor farming eliminates the need for pesticides, terminates agricultural
runoff, and prevents crop loss due to shipping or storage.45
When analyzing the macro-market,
eating healthy is a societal trend that is currently high priority across the globe. Eliminating the
use of pesticides on produce and agricultural runoff supports this healthy eating trend, as well as
protecting the environment from pollution via agricultural runoff. This aligns with AAON’s
mission because the business seeks to be a world leader in creating comfortable and healthy
indoor environments efficiently through their manufacturing of premium HVAC equipment.
44
“The Rise of Asia’s Indoor Agriculture Industry”, Newbean Capital, January 2016, pg. 18
45
https://canwefeedtheworld.wordpress.com/2014/08/08/the-indoor-farming-revolution/

26
The pursuit of penetrating the indoor farming market with the HVAC units AAON, Inc.
produces is a realistic and profitable strategic enterprise. Indoor farming is a relatively modern
idea, but has high potential for immense growth. The demand for a “local food” market has
grown from $1 billion in 2005 to nearly $7 billion in 2014,46
which parallels the demand for
indoor farm buildings to increase accordingly. 30 new commercial-scale indoor farms were
produced in the United States in 2015, doubling 2014’s total of 15 indoor farms.47
AAON is not currently present in the indoor farming industry. With this market
development strategy, we will utilize our employed sales reps as the vehicle for initial contact
with commercial-sized indoor farm building manufacturers. Since our sales representatives are
used as a flexible source of selling the company’s products, there will be no issue in addressing
sales representatives to market our technologies to indoor farm manufacturers. A training video
session for the sales reps online will be sufficient for highlighting proper selling tactics. Creating
a proper training video is very low cost, ranging from $1500 to $3000 per finished minute. The
optimal strategy for sales representatives to contact and sell to manufacturers will be to schedule
in-person meetings to provide the client with information regarding AAON’s HVAC units both
verbally and in company literature. Creating personal relationships via sales representatives and
corporate support with the thought of utilizing these strategic relationships for future business
opportunities is crucial for continuous growth within the industry, once penetrated. Indoor
farming holds the potential to grow on a global scale, which is why generating relationships
presently is an important aspect of the strategy. This would give future opportunities to put our
products in indoor farming building across the globe. The high growth potential of this industry
is another reason for AAON to be a pioneer in developing this for the HVAC industry.
46
http://vegetablegrowersnews.com/article/indoor-agriculture-quickly-gaining-speed/
47
http://www.hortidaily.com/article/16324/$9-billion-potential-of-Indoor-Agriculture-Industry

27
Employing sales representatives will allow AAON to pursue this strategy with little
marketing support, which keeps the overall cost of this strategy low. The one important
marketing technique for developing the indoor farming market is to highlight how AAON’s
climate and humidity control units are compatible with indoor farming ventures on the home
page of AAON’s official website. In order to get into contact with manufacturers, attending
events held by the Association for Vertical Farming, an association with the primary mission of
bringing together experts, policy makers, and newcomers towards collaboration in urban and
vertical farming, would be crucial for getting the word out in the industry. The goal for AAON
regarding attending indoor farming events is to attend one event per quarter for the next three
years, totaling twelve total networking events. Events take place throughout the year and across
the globe, so this equipment has the potential to expand beyond the borders of the United States.
The production aspect of implementing this strategy is already established since AAON
already has the supplies, equipment, and manpower available needed to manufacture units to be
put in indoor farm buildings. Our inventory turnover is nine times annually, which allows
AAON to be flexible in our production capabilities. The equipment needed is already purchased
and paid for in our facilities. Manpower, as in the employees needed in order to complete the
manufacturing process, are employed and trained in order to make these units. Our employees
are able to manufacture units in various sizes, which allows them to be adaptable to the
specifications of the different sized/style units needed. If operations continue on pace with prior
years, a 4% increase from 2013 to 2014 and a 7% increase from 2014 to 2015, making semi-
custom units for indoor farming buildings will be a relatively non-complex process to
implement. This strategy leverages AAON’s ability to manufacture top notch semi-custom units,
as virtually all specifications of buildings can be temperate controlled with our products.

28
A successful implementation will grow the overall objective to grow market share within the
HVAC industry, simultaneously expanding AAON’s business segments, which is advantageous
because it provides another outlet for sales, intrinsically lowering the relative risk of relying on a
handful of segments to generate majority of the product sales. Effective execution of selling
units to indoor farm manufacturers will yield a forecasted total of $32M in net sales by the end of
2018. For every farm we implement AAON units into, there will be incurred net sales of
$720,000. The goal for reaching total net sales of $32M after three years will be reached by
placing units into 7 farms in 2016, 15 farms in 2017, and 23 farms in 2018.
S T R A T E G Y 2 : E X P A N D S A L E S T O T H E R E S ID E N T IA L M A R K E T
Strategic Objective 2: Expand AAON’s sales to the residential market by strategically
targeting home construction companies, like Toll Brothers, and marketing on the
companies official website; ultimately achieving $17M in net sales in 3 years.
AAON will capture the residential market by achieving the sales goal through strategic
alliances with companies, such as Toll Brothers and D.R. Horton. Because AAON primarily
follows a business to business selling model, we will stay consistent with this theme and offer
our product through building companies rather than directly to consumers through stores. By
touting the company’s eco-friendly LEED (Leadership in Energy & Environmental Design)
certified units, cost savings information, and high Department of Energy efficiency ranking,
contractors and consumers will see why AAON is the best choice for implementing an HVAC
unit into their residences. Therefore, the development of AAON’s residential segment can be
more effective by collaborating with at least one of these companies.
AAON will be successful in the residential sector because the units they currently
produce can be scaled and adapted for new applications. In addition to their ability to create
these products, the US census data indicates that the number of new homes has been increasing
by about 9% per year from 2012 to 2015 and the number of AC units in these new houses has

29
followed the same trend. Toll Brothers brought in housing revenues in total of $4,171M in 2015,
up by 30% from their low in 2011. Not only are revenues high, but they also have a backlog of
$3,504M, up 33% from 2010. Toll Brothers is also highly diversified in their North, Mid-
Atlantic, and West segments, but is only present in Florida, North Carolina, and Texas states for
their Southern segment48
. As this market continues to expand, AAON will be able to meet its
sales goal each year by strategically working with Toll Brothers and D.R. Horton contractors to
promote and spread brand awareness. This is relevant because AAON is headquartered out of the
South, and could help Toll Brothers increase their presence there. The potential partnership
between these two companies could yield many benefits for both. Another reason why this
strategy is a viable option is because one of our main competitors, Modine, is moving away from
selling to the residential market and focusing more on their engine product which they sell49
.
This allow for AAON to capture a portion of Modine’s market share of the residential HVAC
market.
In line with residential sales, major real estate companies and home builders are
expanding year by year. Therefore, the development of AAON’s residential segment can be
more effective by collaborating with at least one of these companies. One home building
company, Toll Brothers, brought in housing revenues in total of $4,171M in 2015, up by 30%
from their low in 2011. Not only are revenues high, but they also have a backlog of $3,504M, up
33% from 2010. Toll Brothers is also highly diversified in their North, Mid-Atlantic, and West
segments, but is only present in Florida, North Carolina, and Texas states for their Southern
segment48
. This is relevant because AAON is headquartered out of the South, and could help
48
https://www.tollbrothers.com/documents/10k/tol-20151031.pdf
49
https://www.last10k.com/sec-filings/mod

30
Toll Brothers increase their presence there. The potential partnership between these two
companies could yield mutually beneficial outcomes if properly implemented.
In order to support this strategy with the marketing sector of AAON’s internal business,
strategies to improve brand awareness and highlight core competencies have been developed.
One marketing strategy to increase brand awareness within the residential market is for AAON
to add a subpage on the company’s official website about AAON’s residential units. This page
will include the variety of units AAON offers and their specifications, which will allow for
customers to browse and select a unit. Another marketing strategy to implement is to write
literature to be published on the official website and distributed to each household in which an
AAON residential unit is sold regarding how to operate and troubleshoot the HVAC systems.
This literature should be created so that it is easy enough for the end consumer to understand and
follow. We forecast the successful implementation of this strategy to yield $17 M in total sales
over the next three years by selling 1725 units via the strategy described.
S T R A T E G Y 3 : G R O W E X IS T IN G F O R E IG N S A L E S IN C A N A D A
Strategic Objective 3: Generate $27 M in incremental sales over 3 years through
aggressive marketing in magazines and emails, as well as expanding AAON’s current
Canadian HVAC sales force by 10 new sales representatives.
One of AAON’s pain points the team identified is that they are too dependent upon US
manufacturing facilities and sales. Much of this originates from the pride they have about their
products being designed, manufactured, and sourced in the United States. While our team feels
that this is a great asset to the company, it does not mean that AAON cannot capitalize on this
asset by selling it to other markets so long as they continue to produce American-made
machinery. Their technology is progressive compared to the competition in the HVAC industry,
and there is no reason that they should not expand their sales across the globe since it is their
innovative technology that is changing the way HVAC is done. Although much of the hesitation

31
in expanding AAON lends itself to the company’s conservative nature, capitalizing on existing
foreign sales can begin the process of growth AAON so desperately needs to grow its market
share in the future while remaining consistent with company culture.
Sales in certain Canadian provinces have hovered in the 4 to 6% range for AAON’s
HVAC systems since 2010; this is a decent trend showing that foreign sales are remaining steady
as AAON grows as a whole. The team feels that pushing our geothermal heat pumps, which are
one of the company’s latest in energy saving, efficient HVAC systems, would be the perfect
strategy for expanding sales in Canada. Historically, the Canadian climate tends to be much
colder than that of the United States, emphasizing the need for more heaters especially in the
winter months50
. Fortunately for AAON, Canadian environmental initiatives are similar to those
in the US; the Canadian Green Building Council has now been requiring all machinery to be
LEED compliant in new building construction, both commercially and residentially.51
What
AAON produces far exceeds LEED minimum standards.
In order to reach the sales goal, AAON needs to hire 10 bilingual (French and English)
sales representatives to specifically target selling in Canada to both English and French speaking
Canadians. There are currently 35 English-speaking representatives in Canada and by increasing
the number of workers, this will allow AAON to reach more customers and continue to grow this
sector. AAON currently has the capability to manage these sales representatives under their pre-
existing management structure. It will cost $650,000 to employ these representatives for the next
3 years; each rep generates an average of $600,000 in sales revenue and considering AAON’s
profit margin is about 12%, this means that AAON breaks even on each new hire after only
50
http://climate.weather.gc.ca/historical_data/search_historic_data_e.html
51
http://www.cagbc.org/CAGBC/LEED/CAGBC/Programs/LEED/_LEED.aspx?hkey=54c44792-442b-450a-a286-
4aa710bf5c64

32
about 2 years. Financially and strategically, it is important for AAON to hire these new
representatives.
Expansion on current sales in Canada would translate seamlessly, as Canadians tend to
pay more for top quality products which AAON offers through their niche business practices.52
A higher demand for heaters coupled with our innovative and efficient geothermal heat pump
technology will generate higher sales for the company. This will kick start the end goal of
expansion without sacrificing AAON’s conservative company culture because the company will
grow monetarily rather than through physical expansion.
In order for this strategy implementation to perform at maximum potential, marketing
initiatives have been outlined to pursue. First, the main source of marketing and advertising
AAON will utilize is advertising in Canadian HVAC publications. Specifically, putting literature
about AAON in “Plumbing + HVAC”, the proclaimed “voice of Canada’s mechanical industry”,
will be used to increase brand awareness in Canada. Publishing information about AAON within
“Plumbing + HVAC” magazine will cost approximately $58,000; $55,000 is for the full page ads
12 times per year and $3,000 to pay for a targeting email which will help AAON reach 12,000
new potential clients53
. According to the most recent census data available, 22% of people
residing in Canada speak French. This fact spearheads the subsequent marketing initiatives. To
take advantage of the French speaking population residing in Canada, avoiding the possible loss
of sales within the country due to the language barrier, AAON is to implement French
translations of all AAON product literature available on the company’s official website. This
information is to be translated on a .ca website domain. The cost of doing so involves paying a
translator to transfer the material as well as paying for the domain name. The average translator
52
https://www.godaddy.com/garage/smallbusiness/market/so-youre-thinking-of-marketing-to-canadians-eh/
53
http://plumbingandhvac.ca/wp-content/uploads/2016/10/PHVAC-MediaKit2017.pdf

33
costs $45 USD per hour, while the domain in Canada costs $30 USD (C$40) for three years5455
.
This strategy will increase AAON’s brand affinity within the Canadian market because people
will be able to read literature in their primary language. This will allow us to capture a significant
percentage of the Canadian market, which would otherwise go untapped. By combining
magazine advertising and bi-lingual literature, these marketing objectives along with our selling
capabilities are aimed to capture $27M in net sales within the Canadian HVAC market.
EVALUATION AND CONTROL
As determined from both our analysis of the internal and external data, AAON is a very
profitable company and will continue to gain market share in the HVAC industry. With the
bottom line growing exponentially over the past 10 years, it is time AAON expanded their
operations in order to compete on the next level. To create value for all stakeholders involved
(employees, customers and stockholders) the team must penetrate new markets, while ramping
up sales in existing markets. For each one of these strategies we have provided a three-year
financial analysis detailing the impact each one has on the bottom-line. If AAON were to
implement all three strategies in the next year they would see a 20.1% increase in Net Income by
2018. With AAON’s current size relative to the growth opportunity available this number is very
achievable and should lead to even more growth further down the road. Entering the residential
and vertical farming markets now is essential for future success, as both industries are expected
huge growth down the road. By entering these two markets now, AAON will be able to establish
their brand as a reliable and trustworthy competitor down the road. Thus, giving them a huge
competitive advantage over companies who enter these markets in 5-10 years. These two growth
strategies provide AAON with enormous growth opportunities for the future, while the
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34
aggressive Canadian Initiative provides the company with stable short-term growth leveraging
one of their existing markets that has remained relatively stable of the past 3 years.

35
APPENDIX
A P P E N D IX A : A A O N H IS T O R IC A L F IN A N C IA L D A T A
FOR THE FISCAL
PERIOD ENDING
12/31/15 12/31/14 12/31/13
USD,
MILLIONS
%
USD,
MILLIONS
%
USD,
MILLIONS
%
TOTAL REVENUE 358.6 100.0% 356.3 100.0% 321.1 100.0%
COST OF GOODS SOLD 250.0 69.7% 248.1 69.6% 231.3 72.0%
GROSS PROFIT 108.7 30.3% 108.3 30.4% 89.8 28.0%
OPERATING EXPENSES 37.0 10.3% 36.4 10.2% 33.8 10.5%
OPERATING INCOME 71.7 20.0% 71.9 20.2% 56.0 17.4%
NONOPERATING
EXPENSES
(0.4) 0.1% (3.7) 1.0% 0.3 0.1%
EBIT 71.3 19.9% 68.2 19.2% 56.3 17.5%
INCOME TAX EXPENSE 25.6 7.1% 24.1 6.8% 18.7 5.8%
NET INCOME 45.7 12.8% 44.2 12.4% 37.5 11.7%

36
A P P E N D IX B : P O R T E R ’S F IV E F O R C E S M O D E L – A A O N
SUPPLIER
POWER
Currently, AAON has the power over suppliers. The power of suppliers to drive up the prices
of our inputs are nonexistent – the company is in several 10-15 year contracts with its
suppliers to hold a constant sales rate.
BUYER POWER
The customer has the power to drive down prices with AAON’s current business model.
Buyers have the option to go elsewhere for the products comparable to what AAON sells.
COMPETITIVE
RIVALRY
AAON faces intense competition within the HVAC industry. The already established, larger
companies that compete with AAON hold a larger market share, which is difficult to capture.
THREAT OF
SUBSTITUTION
AAON’s threat of substitution refers to a new technologically advanced HVAC system to be
more environmentally efficient is introduced to the market. This would be a substiture for
AAON’s competitive advantage within the industry. This is less of a threat because although
we can be substituted on price, but not substituted on technology.
THREAT OF NEW
ENTRY
The threat of new entrants for AAON include all small local businesses in the HVAC
industry. These companies take double-digit millions in total revenue away from larger
competitors, much like AAON does compared to its larger competitors. Therefore, new
entrants to the market can sometimes have the upper hand depending on how well they
manage their business.

37
A P P E N D IX C : A A O N S W O T M A T R IX
STRENGTHS WEAKNESSES
- Cutting edge R&D and
innovation processes
- Produces quality HVAC
systems that are more
efficient than the
competition’s systems
- Large customer demand
- Ability to customize
HVAC units
- Trademarks and patents
that allow sole use of
technology and equipment
- Great financing abilities
- Competing in limited
market segments
- Low market share
- Heavy dependence on
CEO, Norm Asbjornson
- Only 2 manufacturing
plants
- Very reluctant to borrow
money and incur debt in
order to finance the
business
- Only 4% of sales are
foreign, virtually a US only
manufacturer
OPPORTUNITIES
- Huge revival in new home
construction throughout the
United States
- Consumer shift toward smarter
technologies, specifically
integrated control systems for
homes and commercial spaces
- Growing need for HVAC and
refrigeration in other industries
- Worldwide “going green”
initiatives
SO STRATEGIES
- Create a new interface for
residential HVAC control
utilizing smart technology
such as a phone app or
integrated systems.
- Expand sales on efficient
machinery and technology
by capitalizing on the “go
green” initiatives.
WO STRATEGIES
- Focus on expanding sales
into new home
construction since AAON
does not currently sell to
this market.
- Build a new HVAC
design to expand our
product lines into other
industries.
THREATS
- Strict environmental
regulations
- Customer preferences; the
customer doesn’t always want
the nicest system but rather the
cheapest
- Encroaching competition can
be fierce and take away crucial
sales dollars from the company
ST STRATEGIES
- Offer HVAC systems
without customizable
options to keep price
affordable, ensuring that
there is an HVAC unit
AAON sells to meet
everyone’s specific needs
- Develop and patent a new
technology to be more
efficient and less harmful to
the environment
WT STRATEGIES
- Expand sales in Canada
to limit competition’s
ability to take away
AAON’s existing
customers.
-

38
A P P E N D IX D : A A O N ’S S T R A T E G Y C H A R T
GOAL STRATEGY TACTICS
MARKET
PENETRATION
Integrate AAON units into 45
indoor farms in 3 years to
generate $32M in net sales by
penetrating into the market via
current sales representatives and
by generating strategic
partnerships with indoor
farming manufacturers.
- Attend one indoor agriculture
tradeshow per quarter
- Market B2B by highlighting
energy efficient systems in
HVAC publication
advertisements (both in print
and online)
- Advertise to B2B market by
emphasizing energy efficient
HVAC equipment for indoor
farming needs in agricultural
publication advertisements (both
in print and online)
Expand AAON’s sales to the
residential market by
strategically targeting home
construction companies, like
Toll Brothers, and marketing on
the companies official website;
ultimately achieving $17M in
net sales in 3 years.
- Website update to add an
“AAON Residential” subpage
- Include 3D HVAC web builder
- Literature on how to operate
and troubleshoot the HVAC
system easy enough for the end
consumer to understand
- Implement a phone app that
allows the user to control the
HVAC in their home while on-
the-go
- Advertise to B2B market
through HVAC and home
construction publications (both
online and in print)
MARKET
DEVELOPMENT
Generate $27 M in incremental
sales over 3 years through
aggressive marketing in
magazines and emails, as well as
expanding AAON’s current
Canadian HVAC sales force by
10 new sales representatives.
- Have option to switch
languages on AAON’s websites
to cater to French speaking
Canadian customers
- Have French translations of
AAON literature available on
the company’s website
- Advertise in Canadian HVAC
publications (both in print and
online)

39
A P P E N D IX E : A A O N C O N S O L ID A T E D IN C O M E S T A T E M E N T (IN
T H O U S A N D S )
12/28/2015
COMMON
SIZE
12/29/2014
COMMON
SIZE
12/31/2013
COMMON
SIZE
NET SALES $358,632 100.0% $356,322 100.0% $321,140 100.0%
COST OF SALES $249,951 69.7% $248,059 69.6% $231,348 72%
GROSS PROFIT $108,681 30.3% $108,263 30.4% $89,792 28%
SELLING GENERAL
AND ADMIN.
EXPENSES
$37,379 10.4% $40,257 11.3% $33,967 10.6%
OPERATING PROFIT $71,302 19.9% $68,006 19.1% $55,825 17.4%
OTHER INCOME
(EXPENSES)
$(124) -0.03% $(36) -0.01% $248 0.1%
INTEREST
EXPENSES, NET
$161 0.04% $276 0.1% $221 0.1%
INCOME FROM
CONTINUING
OPERATIONS
BEFORE INCOME
TAX EXPENSE
$71,339 19.9% $68,246 19.2% $56,294 17.5%
INCOME TAX
EXPENSE
$25,611 7.1% $24,088 6.8% $18,747 5.8%
INCOME FROM
CONTINUING
OPERATIONS
$45,728 12.8% $44,158 12.4% $37,547 11.7%
INCOME (LOSS)
FROM
DISCONTINUED
OPERATIONS
$ - 0.00% $ - 0.00% $ - 0.00%
NET INCOME $45,728 12.8% $44,158 12.4% $37,547 11.7%

40
A P P E N D IX F : A A O N P R O J E C T E D O R G A N IC G R O W T H (IN T H O U S A N D S )
2015 2016 2017 2018 REMARKS
NET SALES $358,632 $371,184 $384,175 $397,621
Sales growth is based on a
CAGR of 3.25% between 2013
to 2015
COST OF SALES $249,951 $258,715 $267,770 $277,142
The rate of COGS was constant
for the past five years at an
average rate of 69.7%. Will
remain at that average
GROSS PROFIT $108,681 $112,468 $116,405 $120,479
SELLING GENERAL AND ADMIN.
EXPENSES
$37,379 $38,313 $39,271 $40,253 Inflation of 2%
OPERATING PROFIT $71,302 $74,155 $77,133 $80,226
OTHER INCOME ( EXPENSES) $(124) $(124) $(124) $(124)
Other income (expenses) will
remain constant
INTEREST EXPENSES, NET $161 $161 $161 $161
Interest expense will remain
constant
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAX EXPENSE
$71,339 $74,192 $77,170 $80,263
INCOME TAX EXPENSE $25,611 $(25,967) $(27,009) $(28,092)
Income tax expense will remain
at 35%
OPERATIONS
$45,728 $48,225 $50,161 $52,171
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS
$ - $ - $ - $ - No operations discontinued
NET INCOME $45,728 $48,225 $50,161 $52,171
Net Income will increase by
12.8%

41
A P P E N D IX G : A A O N S T R A T E G Y 1 F O R E C A S T (IN T H O U S A N D S )
STRATEGY 1 (IN USD) 2016 2017 2018
TOTAL NUMBER OF FARMS 7 15 23
NET SALES $5,040 $10,800 $16,560
COST OF SALES $3,427 $7,344 $11,260
GROSS PROFIT $1,612 $3,456 $5,299
SELLING GENERAL AND ADMIN. EXPENSES $524 $1,123 $1,722
OPERATING PROFIT $1,088 $2,332 $3,576
OTHER INCOME ( EXPENSES) $(50) $(108) $(165)
INTEREST EXPENSES, NET $55 $108 $165
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAX EXPENSE
$1,093 $2,332 $3,576
INCOME TAX EXPENSE $375 $800 $1,226
INCOME FROM CONTINUING OPERATIONS $718 $1,532 $2,350
NET INCOME $718 $1,532 $2,350
STRATEGY 1 2016 2017 2018
TOTAL NUMBER OF FARMS 7 15 23
NET SALES 100.0% 100.0% 100.0%
COST OF SALES 68.0% 68.0% 68.0%
GROSS PROFIT 32.0% 32.0% 32.0%
SELLING GENERAL AND ADMIN. EXPENSES 10.4% 10.4% 10.4%
OPERATING PROFIT 21.6% 21.6% 21.6%
OTHER INCOME ( EXPENSES) -1.0% -1.0% -1.0%
INTEREST EXPENSES, NET 1.1% 1.0% 1.0%
INCOME TAX EXPENSE
21.7% 21.6% 21.6%
INCOME TAX EXPENSE 7.4% 7.4% 7.4%
INCOME FROM CONTINUING OPERATIONS 14.3% 14.2% 14.2%
NET INCOME 14.3% 14.2% 14.2%

42
A P P E N D IX H : A A O N S T R A T E G Y 2 F O R E C A S T (IN T H O U S A N D S )
STRATEGY 2 (IN USD) 2016 2017 2018
TOTAL NUMBER OF HOUSEHOLDS 500 575 650
NET SALES $5,000 $5,750 $6,500
COST OF SALES $3,235 $3,720 $4,205
GROSS PROFIT $1,765 $2,029 $2,294
SELLING GENERAL AND ADMIN. EXPENSES $520 $632 $780
OPERATING PROFIT $1,245 $1,397 $1,514
OTHER INCOME ( EXPENSES) $(50) $(57) $(65)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE
$1,245 $1,403 $1,521
INCOME TAX EXPENSE $427 $481 $521
INCOME FROM CONTINUING OPERATIONS $817 $921 $999
NET INCOME $817 $921 $999
STRATEGY 2 2016 2017 2018
TOTAL NUMBER OF HOUSEHOLDS
500 575 650
NET SALES 100.0% 100.0% 100.0%
COST OF SALES 64.7% 64.7% 64.7%
GROSS PROFIT 35.3% 35.3% 35.3%
OTHER INCOME (EXPENSES) -1.0% -1.0% -1.0%
INCOME TAX EXPENSE
24.9% 24.4% 23.4%
NET INCOME 16.4% 16.0% 15.4%

43
A P P E N D IX I: A A O N S T R A T E G Y 3 F O R E C A S T (IN T H O U S A N D S )
STRATEGY 3 (IN USD) 2016 2017 2018
INCREMENTAL INTERNATIONAL SALES 350 450 600
NET SALES $6,757 $8,687 $11,583
COST OF SALES $4,709 $6,055 $8,073
GROSS PROFIT $2,047 $2,632 $3,509
SELLING GENERAL AND ADMIN. EXPENSES $1,410 $1,611 $1,912
OPERATING PROFIT $636 $1,020 $1,597
OTHER INCOME ( EXPENSES) $135 $86 $115
INCOME TAX EXPENSE
$602 $1,038 $1,620
INCOME TAX EXPENSE $206 $356 $555
INCOME FROM CONTINUING OPERATIONS $396 $682 $1,064
NET INCOME $396 $682 $1,064
STRATEGY 3 2016 2017 2018
INCREMENTAL INTERNATIONAL SALES 350 450 600
NET SALES 100.0% 100.0% 100.0%
COST OF SALES 69.7% 69.7% 69.7%
GROSS PROFIT 30.3% 30.3% 30.3%
OTHER INCOME ( EXPENSES) -2.0% -1.0% -1.0%
INCOME TAX EXPENSE
8.9% 12.0% 14.0%
NET INCOME 5.9% 7.9% 9.2%

44
A P P E N D IX J : A A O N C O M B IN E D F O R E C A S T (IN T H O U S A N D S )
2015 2016 2017 2018
TOTAL %
INCREASE
NET SALES $358,632 $387,981 $409,413 $432,265 21%
COST OF SALES $249,951 $270,087 $284,890 $300,682 20%
GROSS PROFIT $108,681 $117,894 $124,523 $131,582 21%
SELLING GENERAL AND ADMIN.
EXPENSES
$37,379 $40,768 $42,638 $44,667 20%
OPERATING PROFIT $71,302 $77,125 $81,884 $86,915 22%
OTHER INCOME (EXPENSES) $161 $11,639 $12,282 $12,967 -8154.6%
INTEREST EXPENSES, NET $124 $15,519 $16,376 $17,290 -14044.1%
OPERATIONS BEFORE INCOME
TAX EXPENSE
$71,339 $81,005 $85,979 $91,237 27.9%
INCOME TAX EXPENSE $25,611 $27,784 $29,490 $31,294 22.2%
OPERATIONS
$45,728 $53,220 $56,488 $59,943 31.1%
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS
$ - $ - $ - $ - -
NET INCOME $45,728 $53,220 $56,488 $59,943 31.1%

45
2015 2016 2017 2018
TOTAL SALES 100.0% 100.0% 100.0% 100.0%
TOTAL COST OF SALES 69.7% 69.6% 69.6% 69.6%
GROSS PROFIT $ 30.3% 30.4% 30.4% 30.4%
TOTAL SG&A 10.4% 10.5% 10.4% 10.3%
OPERATING PROFIT 19.9% 19.9% 20.0% 20.1%
OTHER INCOME ( EXPENSES) 0.0% -3.0% -3.0% -3.0%
INTEREST EXPENSES, NET -0.0% 4.0% 4.0% 4.0%
OPERATIONS BEFORE INCOME TAX
EXPENSE
19.9% 20.9% 21.0% 21.1%
INCOME TAX EXPENSE @34.3% 7.1% 7.2% 7.2% 7.2%
OPERATIONS
12.8% 13.7% 13.8% 13.9%
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS
0.0% 0.0% 0.0% 0.0%
NET INCOME 12.8% 13.7% 13.8% 13.9%

46
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