What changed in this filing

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Item 1. Business

2021-02-25 compared with 2020-02-27 · 124 added, 98 removed, 69 unchanged (76% of the section changed)

General Development and Description of Business

AAON, Inc., a Nevada corporation, (“AAON Nevada”) was incorporated on August 18, 1987.

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Unless the context otherwise requires, references in this Annual Report to “AAON”, the “Company”, “we”, “us”, “our”, or “ours” refer to AAON Nevada and our subsidiaries.

We are 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.

Products and Markets

Our products serve the commercial and industrial new construction and replacement markets.

To date, our sales have been primarily to the domestic market.

Foreign sales accounted for approximately $14.8 million, $14.7 million, and $14.6 million of our sales in 2019, 2018, and 2017, respectively.

As a percentage of sales, foreign sales accounted for approximately 3% , 3% and 4% of our net sales in each of those years, respectively.

We are engaged in the engineering, manufacturing, marketing, and sale of premium 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.

Business and Marketing Strategy

Our products serve the commercial and industrial new construction and replacement markets within the heating, ventilation, and air conditioning (“HVAC”) equipment industry.

Our business strategy involves mass customization that uses flexible computer-aided manufacturing systems to produce standard, semi-custom, and custom outputs and combines the low unit costs of mass production processes with the flexibility of individual customization.

Through a collaborative effort with our independent representative sales offices, we design and manufacture the precise semi-custom product offering that best serves the customer's needs.

Our marketing strategy focuses upon underserved market niches including establishing manufacturing methodologies to support market niche products.

We further focus on developing a company culture focused upon customer satisfaction, reducing product delivery channel time and cost, and continuing with the goal of product and manufacturing technology leadership.

Our product mix, with a heavy investment in research and development, has an emphasis on energy efficiency, environment, and indoor air quality.

Our rooftop and condensing unit markets primarily consist of units installed on commercial or industrial structures of generally less than ten stories in height.

Our air handling units, self-contained units, geothermal/water-source heat pumps, chillers, packaged outdoor mechanical rooms, and coils are suitable for all sizes of commercial and industrial buildings.

The size of these markets is determined primarily by the number of commercial and industrial building completions.

The size of these markets is determined primarily by the number of commercial and industrial building completions and replacement demand from existing buildings.

The replacement market consists of products installed to replace existing units/components that are worn or damaged and products to upgrade certain components, such as low leakage dampers, high efficiency heat exchangers and modern controls components.

Currently, over half of the industry’s market consists of replacement units.

The commercial and industrial new construction market is subject to cyclical fluctuations in that it is generally tied to housing starts, but has a lag factor of six to 18 months.

The commercial and industrial new construction market is subject to cyclical fluctuations in that it is generally tied to housing starts and the general economy, but has a lag factor of six to 18 months.

Housing starts, in turn, are affected by such factors as interest rates, the state of the economy, population growth and the relative age of the population.

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During 2020, approximately 50% of our sales were generated from the renovation and replacement markets and 50% from new construction.

The percentage of sales for new construction vs.

replacement to particular customers is related to the customer’s stage of development.

The ratio of sales for new construction vs.

replacement to particular customers is related to various factors.

Generally, the cyclicality of the new construction market fluctuates this ratio the most over an economic cycle.

To date, our sales have been primarily to the domestic market.

Foreign sales accounted for approximately $11.7 million, $14.8 million, and $14.7 million of our sales in 2020, 2019, and 2018, respectively.

As a percentage of sales, foreign sales accounted for approximately 2%, 3%, and 3% of our net sales in each of those years, respectively.

We purchase certain components, fabricate sheet metal and tubing and then assemble and test the finished products.

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Our other finished products are chillers, packaged outdoor mechanical rooms, coils, air handling units, condensing units, makeup air units, energy recovery units, rooftop units, geothermal/water-source heat pumps, and controls.

We offer four groups of rooftop units:

We offer three groups of rooftop units:

the RQ Series, consisting of five cooling sizes ranging from two to six tons;

the RN Series, offered in 28 cooling sizes ranging from six to 140 tons;

the RL Series, which is offered in 21 cooling sizes ranging from 45 to 240 tons;

and the RZ Series, which is offered in 15 cooling sizes ranging from 45 to 240 tons.

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We manufacture a LF Series air-cooled chiller, a LN Series air-cooled chiller, and a LZ Series chiller and packaged outdoor mechanical room, which are available in both air-cooled condensing and evaporative-condensed configurations, covering a range of four to 540 tons.

BL Series boiler outdoor mechanical rooms are also available with 400-6,000 MBH (1,000 BTU/hr) heating capacity.

FZ Series fluid cooler outdoor mechanical rooms are also available with a range of 50 to 450 tons.

We offer four groups of condensing units:

the CB Series, two to five tons;

the CF Series, two to 70 tons;

the CN Series, 55 to 140 tons;

and the CL Series, 45 to 230 tons.

Our air handling units consist of the indoor F1, H3 and V3 Series and the modular M2 and M3 Series, as well as air handling unit configurations of the RQ, RN, RL, RZ and SA Series units.

Our energy recovery option applicable to our RQ, RN, RL, RZ and SB units, as well as our H3, V3, M2 and M3 Series air handling units, responds to the U.S.

We offer two groups of condensing units:

the CB Series, two to five tons and the CF Series, two to 70 tons.

Our air handling units consist of the indoor F1, H3, and V3 Series and the modular M2 Series, as well as air handling unit configurations of the RQ, RN, RZ, and SA Series units.

Our energy recovery option applicable to our RQ, RN, RZ, and SB units, as well as our H3, V3, and M2 Series air handling units, responds to the U.S.

Clean Air Act mandate to increase fresh air in commercial structures.

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Our air-cooled chillers (LF, LN, and LZ Series) are certified with the Air-Conditioning, Heating, and Refrigeration Institute (“AHRI”) in accordance with AHRI Standard 550/590.

Our water-source heat pump products, including RN, RQ, M2, SB, WH and WV Series, are AHRI certified in accordance with ANSI/AHRI/ASHRAE/ISO 13256.

Our RN, RQ, M2, and SB Series, including our water-source heat pump products (WH, and WV Series), are AHRI certified in accordance with ANSI/AHRI/ASHRAE/ISO 13256.

Our unitary products (RQ, RN, and CB Series) are certified with the AHRI in accordance with AHRI Standard AHRI 210/240 up to 5 tons capacity and AHRI Standard AHRI 340/360 up to 63 tons capacity.

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A typical commercial building installation requires one ton of air conditioning for every 300-400 square feet or, for a 100,000 square foot building, 250 tons of air conditioning, which can involve multiple units.

AAON designs and produces controls solutions for all of our HVAC units including roof top units, air handlers, chillers, and water source heat pumps.

AAON is committed to designing and manufacturing innovative HVAC products of the highest quality, efficiency, and performance.

Our water-source heat pump products recover otherwise wasted energy and employ it to cool, heat, and provide dehumidification to a building, making it one of the most efficient and environmentally friendly systems.

AAON packaged rooftop units with two stage compressors are optimized with high efficiency evaporator and condenser coils and variable speed fans, leading to an AHRI Certified performance up to 19.15 SEER and 20.2 IEER.

AAON H3/V3 Series energy recovery wheel air handling units provide energy efficient 100% outside air ventilation by recovering energy that would otherwise be exhausted from a building.

LZ Series packaged outdoor mechanical rooms are engineered to maximize the efficiency of the complete hydronic system - compressors, condenser, and evaporator.

Factory installed 98% efficiency boilers with pumping packages are available for applications that require hot water.

Energy saving waterside economizers are available for chilled water systems that require cooling at low ambient conditions.

AAON designs and produces controls solutions for all of our HVAC units including rooftop units, air handlers, chillers, and water-source heat pumps.

In addition, we provide controls for variable air volume systems associated with those units, as well as controls products for other HVAC related equipment.

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the Pioneer Silver, Pioneer Gold, Touchscreen Controller, Orion Controller, and terminal block for field installed controls, and factory installed customer provided controls.

Major Customers

One customer, Texas AirSystems, accounted for 10% or more of our sales during 2019, 2018, and 2017.

Sources and Availability of Raw Materials

The most important materials we purchase are steel, copper and aluminum.

We also purchase from other manufacturers certain components, including compressors, electric motors and electrical controls used in our products.

We attempt to obtain the lowest possible cost in our purchases of raw materials and components, consistent with meeting specified quality standards.

We are not dependent upon any one source for raw materials or the major components of our manufactured products.

By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our manufacturing requirements for the foreseeable future.

We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable fixed price contracts with our major suppliers for periods of six to 18 months.

We expect to receive delivery of raw materials from our fixed price contracts for use in our manufacturing operations.

We have not been significantly impacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) that contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo and adjoining countries.

Air Quality Products

The coronavirus disease 2019 ("COVID-19") pandemic has fueled a great deal of concern over best practices in the design and operation of building HVAC systems.

In order to mitigate the spread of COVID-19, influenza, and other similar type respiratory diseases, we have done a great deal of research on what affects the transmission of these diseases and how AAON HVAC systems can be best designed.

The American Society of Heating, Refrigeration and Air-Conditioning Engineers ("ASHRAE"), a professional association with a goal of advancing HVAC systems designs and construction, put together an Epidemic Task Force in 2020 and determined several recommendations to mitigate the spread of the virus, including humidity control, air filtration, increased outdoor air ventilation, and air disinfection.

Humidity control - AAON continues to lead the market in developing energy efficient humidity control with the use of variable capacity compressors and modulating hot gas reheat.

Designing HVAC systems with superior humidity control allows building management to maintain ASHRAE’s recommended ambient relative humidity levels of 40%-60%, the ideal level to inactivate viruses in the air and on surfaces.

Air Filtration - AAON standardizes a design that uses a backward curved fan wheel, which can accommodate higher airflow required for the ASHRAE recommended MERV 13 filtration, the minimum filter level for viruses, with very little reconfiguration.

Prior to 2020, a vast majority of commercial buildings use filtration levels of MERV 4 to MERV 8, which has always been acceptable for filtering out typical particulates in the air stream.

Outdoor Air Ventilation - AAON’s innovative use of energy recovery wheels and energy recovery plates combined with its superior humidity control design can help building management follow outdoor ventilation air recommendations while limiting an increase of energy usage and maintaining recommended humidity levels.

Air Disinfection - AAON has basic design characteristics that allow for an easy installation of ultraviolet lighting and bipolar ionization equipment.

In addition to this equipment offered as options in new AAON units sold, AAON has basic design characteristics that allow for easy installation in AAON units already used in the field.

Overall, AAON is well positioned to accommodate the heightened demand for features that can help mitigate virus transmission and improve air quality.

The features that ASHRAE recommends requires premium designs and configurations that are standard in AAON units.

As a result, we are able to incorporate air quality features into our units, at a minimal price premium and with no delivery delay.

Representatives

We employ a sales staff of 44 individuals and utilize approximately 63 independent manufacturer representatives’ organizations (“Representatives”) having 105 offices to market our products in the United States and Canada.

As of December 31, 2020, we employ a sales staff of 46 individuals and utilize approximately 63 independent manufacturer representatives’ organizations (“Representatives”) having 125 offices to market our products in the United States and Canada.

We also have one international sales organization, which utilizes 28 distributors in other countries.

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Additionally, a number of the Representatives we utilize have their own service organizations, which, in connection with us, provide the necessary warranty work and/or normal service to customers.

Our product warranty policy is:

the earlier of one year from the date of first use or 18 months from date of shipment for parts only, including controls;

Our product warranty policy is the earlier of one year from the date of first use or 18 months from date of shipment for parts only, including controls;

an additional four years for compressors (if applicable);

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25 years on stainless steel heat exchangers (if applicable);

and ten years on gas-fired heat exchangers in RL products (if applicable).

and ten years on gas-fired heat exchangers in our historical RL products (if applicable).

Our warranty policy for the RQ series covers parts for two years from date of unit shipment.

Our warranty policy for the WH and WV Series geothermal/water-source heat pumps covers parts for five years from the date of manufacture.

Our warranty policy for the WH and WV Series geothermal/water-source heat pumps covers parts for five years from the date of installation.

The Company also sells extended warranties on parts for various lengths of time ranging from six months to ten years.

Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period.

Research and Development

Our products are engineered for performance, flexibility and serviceability.

This has become a critical factor in competing in the heating, ventilation and air conditioning (“HVAC”) equipment industry.

We must continually develop new and improved products in order to compete effectively and to meet evolving regulatory standards in all of our major product lines.

All of our Research and Development (“R&D”) activities are self-sponsored, rather than customer-sponsored.

R&D activities have involved the RQ, RN, RL and RZ (rooftop units), F1, H3, SA, V3, M2 and M3 (air handling units), LF, LN and LZ (chillers), CB, CF, CN and CL (condensing units), SA and SB (self-contained units), WH and WV

(water-source heat pumps), FZ (fluid coolers) and BL (boilers), as well as component evaluation and refinement, development of control systems and new product development.

We incurred R&D expenses of approximately $14.8 million, $13.5 million, and $13.0 million in 2019, 2018, and 2017, respectively.

Our Norm Asbjornson Innovation Center ("NAIC") research and development laboratory facility that opened in 2019, includes many unique capabilities that to our knowledge exist nowhere else in the world.

A few features of the NAIC include supply, return, and outside sound testing at actual load conditions, testing up to a 300 ton air conditioning system, testing of up to a 540 ton chiller system and 80 million BTU/hr of gas heating test capacity.

Environmental application testing capabilities include -20 to 140°F testing conditions, up to 8 inches per hour rain testing, up to 2 inches per hour snow testing and up to 50 mph wind testing.

We believe we have the largest sound-testing chamber in the world for testing heating and air conditioning equipment and are not aware of any similar labs that can do this testing while putting the equipment under full environmental load.

The unique capabilities of the NAIC will enable AAON to lead the industry in the development of quiet, energy efficient commercial and industrial heating and air conditioning equipment.

Ten testing chambers within the NAIC allow AAON to meet and maintain AHRI and DOE certification and solidify the Company’s industry position as a technological leader in the manufacturing of HVAC equipment.

Current voluntary industry certification programs and government regulations only go up to 63 tons of air conditioning as that is the largest environmental chamber currently available for testing.

The NAIC contains both a 100 ton and a 540 ton chamber, allowing us to uniquely prove to customers our capacity and efficiency on these larger units.

The NAIC was designed to test units well beyond the standard AHRI rating points and allows us to offer testing services on AAON equipment throughout range our of application.

This capability is vital for critical facilities where the units must perform properly and allows our customers to verify the performance of our units in advance, rather than after installation.

These same capabilities will enable AAON to develop new extended range of operation equipment and prove its capabilities.

Major Customers

One customer, Texas AirSystems, accounted for 10% or more of our sales during 2020, 2019, and 2018.

No other customer accounted for more than 10% of our sales during 2020, 2019, and 2018.

Our backlog as of February 1, 2021 was approximately $103.8 million, compared to approximately $129.2 million as of February 1, 2020.

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however, the orders are subject to cancellation by the customers in which case, cancellation charges apply up to the full price of the equipment.

In the standardized market, we compete primarily with Lennox (Lennox International, Inc.), Trane (Trane Technologies plc), York International (Johnson Controls International plc), Carrier (Carrier Global Corporation), and Daikin (Daikin Industries).

All of these competitors are substantially larger and have greater resources than we do.

Our products compete on the basis of total value, quality, function, serviceability, efficiency, availability of

product, reliability, product line recognition, and acceptability of sales outlets.

However, in new construction where the contractor is the purchasing decision maker, we are often at a competitive disadvantage because of the emphasis placed on initial cost.

In the replacement market and other owner-controlled purchases, we have a better chance of getting business since quality and long-term cost are generally taken into account.

Sources and Availability of Raw Materials

The most important materials we purchase are steel, copper, and aluminum.

We also purchase from other manufacturers certain components, including compressors, electric motors, and electrical controls used in our products.

We attempt to obtain the lowest possible cost in our purchases of raw materials and components, consistent with meeting specified quality standards.

We are not dependent upon any one source for raw materials or the major components of our manufactured products.

By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our manufacturing requirements for the foreseeable future.

We expect to receive delivery of raw materials from our fixed price contracts for use in our manufacturing operations.

Working Capital Practices

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We believe that we will have sufficient funds available to meet our working capital needs for the foreseeable future.

Sales of our products are moderately seasonal with the peak period being July - November of each year due to timing of construction projects being directly related to warmer weather.

In the standardized market, we compete primarily with Lennox International, Inc., Trane (Ingersoll Rand Limited), York (Johnson Controls Inc.) and Carrier (United Technologies Corporation).

All of these competitors are substantially larger and have greater resources than we do.

Our products compete on the basis of total value, quality, function, serviceability, efficiency, availability of product, reliability, product line recognition and acceptability of sales outlets.

However, in new construction where the contractor is the purchasing decision maker, we are often at a competitive disadvantage because of the emphasis placed on initial cost.

In the replacement market and other owner-

controlled purchases, we have a better chance of getting business since quality and long-term cost are generally taken into account.

As of February 11, 2020, we employed 2,290 direct employees and contract personnel.

Our employees are not represented by unions.

Management considers its relations with our employees to be good.

Research and Development

Our products are engineered for performance, flexibility, and serviceability.

This has become a critical factor in competing in the HVAC equipment industry.

We must continually develop new and improved products in order to compete effectively and to meet evolving regulatory standards in all of our major product lines.

AAON is fortunate enough to be able to self-sponsor our Research and Development (“R&D”) activities, rather than needing to be customer-sponsored.

R&D activities have involved the RQ, RN, and RZ (rooftop units), F1, H3, SA, V3, and M2 (air handling units), LF, LN, and LZ (chillers), CB and CF (condensing units), SA and SB (self-contained units), and WH and WV (water-source heat pumps), as well as component evaluation and refinement, development of control systems and new product development.

R&D expenses incurred were approximately $17.4 million, $14.8 million, and $13.5 million in 2020, 2019, and 2018, respectively.

Our Norman Asbjornson Innovation Center ("NAIC") research and development laboratory facility that opened in 2019, includes many unique capabilities, which to our knowledge exist nowhere else in the world.

A few features of the NAIC include supply, return, and outside sound testing at actual load conditions, testing of up to a 300 ton air conditioning system, up to a 540 ton chiller system, and 80 million BTU/hr of gas heating test capacity.

Environmental application testing capabilities include -20 to 140°F testing conditions, up to 8 inches per hour rain testing, up to 2 inches per hour snow testing, and up to 50 mph wind testing.

We believe we have the largest sound-testing chamber in the world for testing heating and air conditioning equipment and are not aware of any similar labs that can conduct this testing while putting the equipment under full environmental load.

The unique capabilities of the NAIC will enable AAON to lead the industry in the development of quiet, energy efficient commercial and industrial heating and air conditioning equipment.

The NAIC currently houses ten testing chambers, with two new additional chambers scheduled to come online in early 2021.

These testing chambers allow AAON to meet and maintain AHRI and U.S.

Department of Energy ("DOE") certification and solidify the Company’s industry position as a technological leader in the manufacturing of HVAC equipment.

Current voluntary industry certification programs and government regulations only go up to 63 tons of air conditioning as that is the largest environmental chamber currently available for testing outside of our facility.

The NAIC contains both a 100 ton and a 540 ton chamber, allowing us to uniquely prove to customers our capacity and efficiency on these larger units.

The NAIC was designed to test units well beyond the standard AHRI rating points and allows us to offer testing services on AAON equipment throughout our range of product application.

This capability is vital for critical facilities where the units must perform properly and allows our customers to verify the performance of our units in advance, rather than after installation.

These same capabilities will enable AAON to develop a new extended range of operation equipment and prove its capabilities.

Patents, Trademarks, Licenses, and Concessions

We do not consider any patents, trademarks, licenses, or concessions to be material to our business operations, other than patents issued regarding our energy recovery wheel option, blower, gas-fired heat exchanger, evaporative-cooled condenser de-superheater, and low leakage damper which have terms of 20 years with expiration dates ranging from 2020 to 2033.

Environmental Matters

Sales of our products are moderately seasonal with the peak period being May-October of each year due to timing of construction projects being directly related to warmer weather.

Environmental & Regulatory Matters

Laws concerning the environment that affect or could affect our operations include, among others, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, regulations promulgated under these Acts and any other federal, state or local laws or regulations governing environmental matters.

We believe that we are in compliance with these laws and that future compliance will not materially affect our earnings or competitive position.

We also strive to protect the environment, work with suppliers who do the same and encompass sustainable business practices in our manufacturing operations.

AAON is dedicated to leading the company into a bright sustainable future.

We have joined Sustainable Tulsa, a local non-profit organization, in creating an AAON Scor3card to implement more sustainable processes throughout all company locations (Tulsa, Longview and Parkville).

We recognize that sustainability is both profitable and economical.

Since 2014, we have changed out our lighting to a much more energy efficient system.

80% of our lighting was Metal Halide and 20% was fluorescent.

Currently, we are about 80-90% LED, and 10-20% fluorescent.

We will be 100% LED by the end of 2020.

The combination of the LED upgrade with our advanced lighting control system, AAON saves about $400,000/year on electricity.

We have also received a similar amount from power company rebates.

These power savings equate to about 5,000,000 kWh saved per year.

The LED lighting has also created a better work environment for our employees and requires less maintenance.

In addition to this, we have installed more energy efficient HVAC systems, air compressors and building insulation.

At the Tulsa facility, paper and metal recycling programs are in place.

Numerous waste streams have been identified by our internal GoGreen employee committee that could be recycled, reused or reduced.

We are also implementing a program to sort all our metals that has been identified to produce more profits.

At the Longview facility, metal, cardboard and wood recycling.

The metal recycling also includes sorting all metals for maximum rebates.

At the Parkville facility, recycling efforts are currently being researched and pursued.

We recover oil in our sheet metal manufacturing area, which is then recycled.

Rags are washed and returned to us be used again, preventing them from entering a landfill.

AAON is also committed to designing and manufacturing innovative HVAC products of the highest quality, efficiency, and performance.

Our water-source heat pump products recover otherwise wasted energy and employ it to cool, heat and provide dehumidification to a building, making it one of the most efficient and environmentally friendly systems.

AAON packaged rooftop units with two stage compressors are optimized with high efficiency evaporator and condenser coils, and variable speed fans leading to an AHRI Certified performance up to 19.15 SEER and 20.2 IEER.

AAON H3/V3 Series energy recovery wheel air handling units provide energy efficient 100% outside air ventilation by recovering energy that would otherwise be exhausted from a building.

LZ Series packaged outdoor mechanical rooms are engineered to maximize the efficiency of the complete hydronic system - compressors, condenser, and evaporator.

Factory installed 98% efficiency boilers with pumping packages are available for applications that require hot water.

Energy saving waterside economizers are available for chilled water systems that require cooling at low ambient conditions.

Since our founding in 1988, AAON has maintained a commitment to design, develop, manufacture and deliver heating and cooling products to perform beyond all expectations and to demonstrate AAON’s quality and value to our customers.

AAON equipment is designed with energy efficiency in mind, without sacrificing premium features and options.

In addition to our high standard of product performance, is a commitment to sustainability for our employees, our stockholders, and our customers.

At AAON, we strive to conduct our business in a socially responsible and ethical manner with a focus on environmental stewardship, team member safety and community engagement.

We comply with industry regulations and requirements while pursuing responsible economic growth and profitability.

AAON participates in a sustainability benchmarking initiative (Sustainable Tulsa Scor3card) through which we set goals, monitor and report in the areas of energy, material management, water, community stewardship, transportation, communication and health.

AAON achieved Platinum level in this program in 2020 and was recognized with the Henry Bellmon Sustainability Award.

We have an active internal sustainability committee that provides education opportunities, communications and recommendations to the company on a regular basis.

Two leading focus areas for AAON are energy efficiency and material management.

In the area of energy efficiency and conservation, AAON has transitioned to over 90% LED lighting leading to considerable cost savings and reduced energy consumption.

The company participates in an energy demand response program and saved over $32,000 by reducing energy loads during peak periods in 2020.

Twenty-seven percent of AAON’s energy portfolio is currently derived from renewable sources, and the company’s carbon footprint has been calculated as part of the Scor3card sustainability benchmarking initiative.

Energy efficiency has been a priority in ongoing capital investments which include the acquisition of new, energy efficient equipment for the production floor, new high-

speed overhead facility doors, the installation of new HVAC equipment, building control systems, the application of heat and light reflective material to production facilities along with other behavioral –based energy efficiency changes.

We are tracking our energy usage intensity before and after these updates.

In the area of material management, there is a focus on recycling, reducing, reusing and sourcing more environmentally-friendly materials into our processes.

AAON recycled over 11,741 tons of metal in 2020.

Our facilities also recycle paper, wood and cardboard where available.

Through our partnership with a waste to energy facility, we successfully diverted over 556 tons of waste from landfills.

We continue to innovate ways to reduce and reuse shipping packaging between facilities and identify new opportunities to reduce or reuse items in our production and administrative areas.

Human Capital Resources

As of February 23, 2021, we employed 2,268 direct employees and contract personnel, a 2.8% decrease when compared to the same period 2020 and a 2.1% increase when compared to 2019.

Our employees are not represented by unions or other collective bargaining agreements.

Management considers its relations with our employees to be good.

We believe our employees are key to achieving our business objectives.

In the early stages of the COVID-19 pandemic, we put COVID-19 prevention protocols in place to minimize the spread of COVID-19 in our workplaces.

These protocols, which remain in place, meet or exceed the Centers for Disease Control guidelines and where applicable, state and local mandates.

Our key human capital measures include employee safety, turnover, absenteeism, and production.

We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located.

We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled and unskilled labor throughout our organization.

Some of our notable health, welfare, and retirement benefits include:

• Employee medical plan (with 175% employer health saving plan match)

• 401(k) Plan (with 175% employer match)

• Profit sharing bonus plan

• Tuition assistance program

• Paid time off

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business