What changed in this filing

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Item 1. Financial Statements

2022-08-08 compared with 2022-05-05 · 233 added, 141 removed, 734 unchanged (34% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Assets (in thousands, except share and per share data)

25 unchanged sentences

Accounts payable $ 36,189 $ 29,020

Dividends payable 10,096 —

Accrued liabilities 60,125 50,206

8 unchanged sentences

Preferred stock, $ .001 par value, 5,000,000 shares authorized, no shares issued

Common stock, $ .004 par value, 100,000,000 shares authorized, 53,065,081 and 52,527,985 issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Common stock, $ .004 par value, 100,000,000 shares authorized, 53,127,055 and 52,527,985 issued and outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 82,078 81,654

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(in thousands, except share and per share data)

5 unchanged sentences

Income from operations 20,453 25,212 43,463 43,673

Interest (expense) income, net ( 190 ) 3

Interest expense, net ( 550 ) ( 4 ) ( 740 ) ( 1 )

Other income, net 220 39 241 56

5 unchanged sentences

Diluted $ 0.30 $ 0.38 $ 0.63 $ 0.69

Cash dividends declared per common share:

$ 0.19 $ 0.19 $ 0.19 $ 0.19

Weighted average shares outstanding:

4 unchanged sentences

Consolidated Statements of Stockholders' Equity

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Common Stock Paid-in Retained

10 unchanged sentences

— — ( 6,000 ) — ( 6,000 )

Refund for cancelled cash dividends — — — 5 5

Dividends net of refunds for cancelled cash dividends — — — ( 10,096 ) ( 10,096 )

Balances at June 30, 2022 53,127 $ 213 $ 82,078 $ 408,215 $ 490,506

Three Months Ended June 30, 2022

Common Stock Paid-in Retained

Shares Amount Capital Earnings Total

(in thousands)

Balances at March 31, 2022 53,065 $ 212 $ 77,574 $ 402,370 $ 480,156

Three Months Ended March 31, 2021

Net income — — — 15,946 15,946

Stock options exercised and restricted 114 1 3,492 — 3,493

stock awards granted

Share-based compensation — — 3,796 — 3,796

Stock repurchased and retired ( 52 ) — ( 2,784 ) — ( 2,784 )

Dividends net of refunds for cancelled cash dividends — — — ( 10,101 ) ( 10,101 )

Balances at June 30, 2022 53,127 $ 213 $ 82,078 $ 408,215 $ 490,506

Six Months Ended June 30, 2021

Common Stock Paid-in Retained

7 unchanged sentences

Stock repurchased and retired ( 170 ) ( 1 ) ( 11,802 ) — ( 11,803 )

Dividends net of refunds for cancelled cash dividends — — — ( 9,968 ) ( 9,968 )

Balances at June 30, 2021 52,416 $ 210 $ 10,998 $ 372,518 $ 383,726

Three Months Ended June 30, 2021

Common Stock Paid-in Retained

Shares Amount Capital Earnings Total

(in thousands)

Balances at March 31, 2021 52,424 $ 210 $ 10,957 $ 361,871 $ 373,038

Net income — — — 20,615 20,615

Stock options exercised and restricted 75 — 2,410 — 2,410

stock awards granted

Share-based compensation — — 3,032 — 3,032

Stock repurchased and retired ( 83 ) — ( 5,401 ) — ( 5,401 )

Dividends net of refunds for cancelled cash dividends — — — ( 9,968 ) ( 9,968 )

Balances at June 30, 2021 52,416 $ 210 $ 10,998 $ 372,518 $ 383,726

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

Operating Activities (in thousands)

4 unchanged sentences

Amortization of right of use assets 143 —

Provision for (recovery of) credit losses on accounts receivable, net of adjustments 288 ( 13 )

Provision for (recovery of) excess and obsolete inventories 220 ( 194 )

Provision for credit losses on accounts receivable, net of adjustments 181 12

Provision for excess and obsolete inventories 148 292

Share-based compensation 6,908 5,793

Gain on disposition of assets ( 12 ) —

Foreign currency transaction gain ( 9 ) ( 8 )

Foreign currency transaction (gain) loss 9 ( 11 )

Interest income on note receivable ( 11 ) ( 19 )

5 unchanged sentences

Contract assets ( 2,820 ) —

Prepaid expenses and other ( 3,588 ) 108

Prepaid expenses and other long-term assets ( 3,066 ) 799

Accounts payable 6,490 10,650

1 unchanged sentence

Deferred revenue 421 574

Accrued liabilities 2,511 58

Accrued liabilities and other long-term liabilities 7,123 300

Net cash (used in) provided by operating activities ( 1,580 ) 62,912

1 unchanged sentence

Capital expenditures ( 27,227 ) ( 33,157 )

Cash paid for building (see Note 3 )

Cash paid in business combination, net of cash acquired ( 249 ) —

4 unchanged sentences

Borrowings under revolving credit facility 94,900 —

Payments under revolving credit facility ( 28,651 ) —

Principal payments on financing lease ( 28 ) —

Stock options exercised 6,385 11,848

29 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

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, data centers cooling solutions, cleanroom systems, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls.

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, data center cooling solutions, cleanroom systems, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls.

Use of Estimates

3 unchanged sentences

We reevaluate our estimates and assumptions as needed, but at a minimum on a quarterly basis.

The most significant estimates include, but are not limited to, inventory reserves, warranty accrual, worker's compensation accrual, medical insurance accrual, income taxes, useful lives of property, plant, and equipment, and share-based compensation.

The most significant estimates include, but are not limited to, inventory reserves, warranty accrual, workers' compensation accrual, medical insurance accrual, income taxes, useful lives of property, plant, and equipment, share-based compensation, revenue percentage of completion and estimated costs to complete.

Actual results could differ materially from those estimates.

2 unchanged sentences

This determination was based on recent and estimated future production levels as well as management’s knowledge of the equipment and historical and future use of the equipment.

The change in estimate was made prospectively and resulted in a decrease to depreciation expense within cost of sales on our consolidated statements of income of $ 1.8 million during the three months ended March 31, 2022.

Impact of COVID-19 Pandemic

The magnitude of the impact of COVID-19 remains unpredictable and we, therefore, continue to anticipate potential supply chain disruptions, employee absenteeism, and additional health and safety costs related to the COVID-19 pandemic that could unfavorably impact our business.

We had continuous operations during the three months ended March 31, 2022.

We had continuous operations during the six months ended June 30, 2022.

Additional precautions have been taken to social distance workers that work in close environments and we have facilitated voluntary on-site COVID-19 vaccine clinics.

41 unchanged sentences

Goodwill represents the excess of the consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities assumed.

At March 31, 2022 $ 50.3 million of goodwill is deductible for income tax purposes.

At June 30, 2022 $ 50.3 million of goodwill is deductible for income tax purposes.

Our indefinite-lived intangible assets consist of trademark and trade names.

8 unchanged sentences

The following tables show disaggregated net sales by reportable segment (see Note 20) by major source, net of intercompany sales eliminations.

As the BasX segment was not applicable during the three months ended March 31, 2021, this segment has been excluded from the table for that period.

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

AAON Oklahoma AAON Coil Products BasX Total

10 unchanged sentences

$ 157,481 $ 26,754 $ 24,579 $ 208,814

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

AAON Oklahoma AAON Coil Products BasX 1

8 unchanged sentences

$ 126,266 $ 17,610 $ — $ 143,876

Six Months Ended June 30, 2022

AAON Oklahoma AAON Coil Products BasX Total

(in thousands)

Rooftop Units $ 260,322 $ — $ — $ 260,322

Condensing Units 242 20,925 — 21,167

Air Handlers — 20,978 4,284 25,262

Outdoor Mechanical Rooms 554 370 — 924

Cleanroom Systems — — 16,285 16,285

Data Center Cooling Solutions — — 23,705 23,705

Water-Source Heat Pumps 4,862 4,151 — 9,013

Part Sales 24,073 — 331 24,404

7,295 2,265 943 10,503

$ 297,348 $ 48,689 $ 45,548 $ 391,585

Six Months Ended June 30, 2021

AAON Oklahoma AAON Coil Products BasX 1

(in thousands)

Rooftop Units $ 194,795 $ — $ — $ 194,795

Condensing Units 642 13,191 — 13,833

Air Handlers — 13,679 — 13,679

Outdoor Mechanical Rooms 641 334 — 975

Water-Source Heat Pumps 6,457 4,633 — 11,090

Part Sales 18,223 — — 18,223

5,484 1,585 — 7,069

$ 226,242 $ 33,422 $ — $ 259,664

1 BasX was acquired by the Company on December 10, 2021.

As the BasX segment was not applicable for the three and six months ended June 30, 2022, it has been excluded from the tables for those periods.

2 Other sales include freight, extended warranties and miscellaneous revenue.

2 unchanged sentences

As a result, many of the Company’s products do not have an alternative use and therefore, for these products we recognize revenue over the time it takes to produce the unit.

The Company measures a contract’s progress on

the basis of the ratio that costs incurred bear to estimated total costs using the input method because, in the Company’s view, such method best depicts the progress toward completion.

Contract costs include direct materials, direct labor, installation, freight and delivery, commissions and royalties.

4 unchanged sentences

For all other products that are part sales or standardized units, the Company recognizes revenue, presented net of sales tax, when it satisfies the performance obligation in its contracts.

As the primary performance obligation in such a contract is delivery of the requested manufactured equipment, we satisfy the performance obligation when the control is passed to the customer, generally at time of shipment.

As the primary performance obligation in such a contract is

delivery of the requested manufactured equipment, we satisfy the performance obligation when the control is passed to the customer, generally at time of shipment.

Final sales prices are fixed based on purchase orders.

18 unchanged sentences

The Representatives’ fee and Third Party Products amounts (“Due to Representatives”) are paid only after all amounts associated with the order are collected from the customer.

The amount of payments to our Representatives were $ 6.5 million and $ 11.0 million for the three months ended March 31, 2022 and 2021, respectively.

The amount of payments to our Representatives were $ 11.4 million and $ 14.0 million for the three months ended June 30, 2022 and 2021, respectively.

The amount of payments to our Representatives were $ 17.9 million and $ 25.0 million for the six months ended June 30, 2022 and 2021, respectively.

Business Combination

On November 18, 2021, the Company entered into a membership interest purchase agreement (the “MIPA Agreement”) to acquire of all of the issued and outstanding equity ownership of BasX, LLC, an Oregon limited liability company, doing business as BasX Solutions.

We closed this transaction on December 10, 2021 for a purchase price of (i) $ 100.0 million payable in cash (not including working capital adjustments), and (ii) up to $ 80.0 million in the aggregate of contingent consideration payable in shares of the Company's stock, par value $ 0.004 per share (the "Shares").

The $ 80.0 million of contingent consideration payable consists of $ 78.0 million payable to the former owners of BasX and $ 2.0 million payable to key employees of BasX whom are now employed by the Company.

2 unchanged sentences

Additionally, as a condition to closing, the Company entered into a real estate purchase agreement with BasX Properties, LLC, an affiliate of BasX, to acquire the principal real property and improvements utilized by BasX for an additional $ 22.0 million, subject to customary closing conditions and adjustments.

The Company expects this real estate transaction to close by the end of the second quarter of 2022.

The Company closed this real estate transaction on May 31, 2022, which terminated the related lease (Note 4).

BasX specializes in the design, engineering and manufacturing of custom, energy efficient cooling solutions for the rapidly growing hyperscale data center market.

BasX also designs and manufactures custom solutions for cleanroom environments for the bio-pharmaceutical, semiconductor, medical and agriculture markets, as well as custom, energy efficient air handlers and modular solutions for a vast array of markets.

BasX also designs and manufactures custom solutions for cleanroom environments for

the bio-pharmaceutical, semiconductor, medical and agriculture markets, as well as custom, energy efficient air handlers and modular solutions for a vast array of markets.

The acquisition of BasX brings the Company exposure to attractive end-markets into which the Company has historically had minimal exposure.

3 unchanged sentences

Goodwill was calculated and recognized consistent with acquisition accounting, resulting in the pushdown of $ 78.7 million in goodwill.

The following table presents the revised allocation of the consideration paid to the assets acquired and liabilities assumed in the acquisition of BasX described above, which was still preliminary at December 31, 2021.

The revisions indicated below were recorded during the three months ended March 31, 2022.

The following table presents the final allocation of the consideration paid to the assets acquired and liabilities assumed in the acquisition of BasX described above, which was still preliminary at December 31, 2021.

The revisions indicated below were recorded during the six months ended June 30, 2022.

The revisions were the results of updates to our preliminary estimates and third party valuation models.

The impact of such revisions on net income for prior periods was not significant.

Revised Allocation as of

March 31, 2022 Estimated

The impact of such revisions on net income were not significant.

Final Allocation Estimated

Allocation as of

17 unchanged sentences

The Company recognized the following definite and indefinite-lived intangible assets as part of the acquisition of BasX:

Revised Allocation as of

March 31, 2022 Estimated

Final Allocation Estimated

Allocation as of

10 unchanged sentences

Goodwill represents a premium paid to acquire the skilled workforce and expanded market opportunities.

Goodwill of $ 47.1 million is tax deductible upon close of the acquisition.

Goodwill of $ 47.1 million was tax deductible upon the completion of the final allocation of consideration paid to

the assets acquired and liabilities assumed.

Future additional amounts of goodwill related to the contingent consideration may become tax deductible in the future if the earn out provisions of the MIPA Agreement are achieved.

1 unchanged sentence

The operations of BasX have been included in our statements of income since the closing date on December 10, 2021.

The following unaudited pro forma consolidated results of operations for the three months ended March 31, 2021 are presented as if the combination had been made on January 1, 2021.

Three months ended

March 31, 2021

The following unaudited pro forma consolidated results of operations for the three and six months ended June 30, 2021 are presented as if the combination had been made on January 1, 2021.

Three months ended Six months ended

June 30, 2021 June 30, 2021

(in thousands, except per share data)

2 unchanged sentences

Earnings per share:

Basic $ 0.41 $ 0.73

Dilutive $ 0.40 $ 0.72

3 unchanged sentences

These results also do not give effect to certain charges that the Company expects to incur in connection with the acquisition, including, but not limited to, additional professional fees and employee integration.

All of our leases are classified as operating leases.

As our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease

Our incremental borrowing rate represents the interest rate which we would pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment.

We have entered into various short-term operating leases with an initial term of twelve months or less.

We have elected the short-term lease measurement and recognition exemption which does not require balance sheet presentation these short-term leases.

The rent expense for these short-term leases is not significant.

The Company’s leases generally require us to pay for insurance, taxes, utilities, and other operating costs.

These payments are not included in the right-of-use asset or lease liability and are expensed as incurred.

Through the acquisition of BasX (Note 3), we acquired various leases for plant/office space and equipment.

We also lease the plant/office space used by our operations in Parkville, MO.

Expense related to these leases is recognized on straight-line basis over the lease term.

Certain of our leases contain escalating lease payments based on predefined increases.

Most leases contain options to renew or terminate.

Right-of-use assets and lease liabilities reflect only the options which the Company is reasonably certain to exercise.

At March 31, 2022, we had operating lease right-of-use assets of $ 16.9 million, current and noncurrent operating lease obligations of $ 1.7 million and $ 15.3 million within accrued liabilities and other long-term liabilities, respectively, on our consolidated balance sheets.

At December 31, 2021, we had operating lease right-of-use assets of $ 17.0 million and current and noncurrent operating lease obligations of $ 1.6 million and $ 15.5 million within accrued liabilities and other long-term liabilities, respectively, on our consolidated balance sheets.

The following table presents the balances by lease type:

Balance Sheet Classification June 30, 2022 December 31, 2021

Operating Leases

Right of use assets Right of use assets $ 1,638 $ 16,974

Current lease liability Accrued liabilities $ 434 $ 1,580

Noncurrent lease liability Other long-term liabilities $ 1,246 $ 15,467

Financing Lease

Right of use assets Right of use assets $ 4,248 $ —

Current lease liability Accrued liabilities $ 4,236 $ —

Noncurrent lease liability Other long-term liabilities $ — $ —

Since 2018, we lease our manufacturing and office space used by our operations in Parkville, MO, which is classified as an operating lease.

During the acquisition of BasX on December 10, 2022 (Note 3), we acquired various leases for plant/office space and equipment, which are classified as operating leases.

Through May 2022, BasX's manufacturing and office facility in Redmond, Oregon was leased from a related party (Note 19).

As as result of the purchase of the manufacturing and office facility on May 31, 2022 the lease was terminated.

On June 1, 2022, the Company entered into a lease agreement for land and facilities in Tulsa, Oklahoma to support our manufacturing operations.

This lease has been classified as a finance lease as the Company has the option to and is reasonably certain to purchase the underlying assets in 2023.

Accounts Receivable

5 unchanged sentences

$ 124,335 $ 70,780

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Allowance for credit losses:

3 unchanged sentences

losses, net of adjustments

Accounts receivable written off, net of recoveries

( 167 ) — ( 167 ) —

Balance, end of period $ 563 $ 518 $ 563 $ 518

11 unchanged sentences

$ 164,001 $ 130,270

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Allowance for excess and obsolete inventories:

7 unchanged sentences

Our intangible assets consist of the following:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Definite-lived intangible assets (in thousands)

7 unchanged sentences

Amortization expense recorded in cost of sales is as follows:

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

(in thousands)

Amortization expense $ 901 $ — $ 1,796 $ 38

Excluding the impact of any future acquisitions, the Company anticipates amortization expense to be $ 3.6 million for each of the years ended 2022 through 2026.

Excluding the impact of any future acquisitions, the Company anticipates amortization expense to be $ 3.6 million for each of the years ending 2022 through 2026.

Supplemental Cash Flow Information

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Supplemental disclosures:

4 unchanged sentences

Non-cash capital expenditures $ 221 $ ( 2,109 ) $ 679 $ ( 1,845 )

Dividends declared $ 10,096 $ 9,970 $ 10,096 $ 9,970

The Company has product warranties with various terms ranging from one year from the date of first use or 18 months for parts, data center cooling solutions, and cleanroom systems to 25 years for certain heat exchangers.

2 unchanged sentences

Changes in the warranty accrual are as follows:

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Warranty accrual:

14 unchanged sentences

Profit sharing 2,329 1,489

Worker's compensation 261 308

Workers' compensation 271 308

Medical self-insurance 1,256 1,943

2 unchanged sentences

Employee vacation time 5,337 4,362

Operating lease liability, short-term 1,683 1,580

Lease liability, short-term 4,670 1,580

Other 4,995 3,968

4 unchanged sentences

Long-term operating lease obligation $ 1,246 $ 15,467

Long-term donations 221 334

Extended warranties 3,562 3,042

Long-term donations and other 687 334

$ 5,495 $ 18,843

Revolving Credit Facility

On November 24, 2021, we amended our revolving credit facility (“Revolver”), to provide for maximum borrowings of $ 100.0 million, with an option to increase to maximum borrowing of $ 200.0 million.

As of March 31, 2022 and December 31, 2021, we had $ 65.0 million and $ 40.0 million outstanding under the Revolver, respectively.

We have one standby letter of credit totaling $ 0.8 million as of March 31, 2022.

Borrowings available under the Revolver at March 31, 2022 were $ 34.2 million.

The Revolver expires on November 24, 2026.

On May 27, 2022, we amended our $ 100 million Amended and Restated Loan Agreement dated November 24, 2021 (“Revolver”), to provide for maximum borrowings of $ 200.0 million.

As of June 30, 2022 and December 31, 2021, we had $ 106.2 million and $ 40.0 million outstanding under the Revolver, respectively.

We have one standby letter of credit totaling $ 0.8 million as of June 30, 2022.

Borrowings available under the Revolver at June 30, 2022 were $ 92.9 million.

The Revolver expires on May 27, 2027.

Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate ("SOFR") plus the applicable margin.

2 unchanged sentences

The applicable fee percentage is determined quarterly based on the Company's leverage ratio.

As of and for the three months ended March 31, 2022, the weighted average interest rate of our the Revolver was 1.3 %.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the three months ended March 31, 2022.

The weighted average interest rate on borrowings outstanding on our the Revolver was 1.9 % and 1.7 % for the three and six months ended June 30, 2022, respectively.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the three and six months ended June 30, 2022.

If SOFR cannot be determined pursuant to the definition, as defined by the Revolver agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate ("ABR") loans.

ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50 %, or (c) daily simple SOFR for a one-month tenor in effect on such day plus 1.00 %.

At March 31, 2022, we were in compliance with our financial covenants, as defined by the Revolver.

At June 30, 2022, we were in compliance with our financial covenants, as defined by the Revolver.

These covenants require that we meet certain parameters related to our leverage ratio.

At March 31, 2022, our leverage ratio was 0.63 to 1.0, which meets the requirement of not being above 3 to 1.

At June 30, 2022, our leverage ratio was 1.06 to 1.0, which meets the requirement of not being above 3 to 1.

The provision (benefit) for income taxes consists of the following:

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

(in thousands)

4 unchanged sentences

The reconciliation of the Federal statutory income tax rate to the effective income tax rate is as follows:

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Federal statutory rate 21.0 % 21.0 % 21.0 % 21.0 %

5 unchanged sentences

On May 21, 2021, the State of Oklahoma enacted House Bill 2960, effectively reducing the corporate income tax rate in Oklahoma from 6% to 4%.

This resulted in an overall reduction of our effective state income tax rate, net of Federal benefit.

During the three months ended March 31, 2022, the Company recorded an excess tax benefit of $ 0.5 million as compared to $ 2.9 million during the same period in 2021, a decrease of 82 % The decrease was primarily due to timing of stock option exercises as a result of our high stock price during the three months ended March 31, 2021.

This resulted in an overall reduction of our effective state income tax rate for the three and six months ended June 30, 2021, net of Federal benefit.

During the six months ended June 30, 2022, the Company recorded an excess tax benefit of $ 0.7 million as compared to $ 3.4 million during the same period in 2021, a decrease of 79 %.

The decrease was primarily due to timing of stock option exercises as a result of our high stock price during the six months ended June 30, 2021.

We earn investment tax credits from the state of Oklahoma’s manufacturing property investment program.

1 unchanged sentence

Under this method, the investment tax credits are recognized as a reduction to our Oklahoma income tax expense in the year they are used.

As of March 31, 2022, we have investment tax credit carryforwards of approximately $ 3.7 million.

As of June 30, 2022, we have investment tax credit carryforwards of approximately $ 3.7 million.

These credits have estimated expirations from the year 2036 through 2040.

17 unchanged sentences

The Committee determines the persons to whom awards are to be made, determines the type, size and terms of awards, interprets the 2016 Plan, establishes and revises rules and regulations relating to the 2016 Plan and makes any other determinations that it believes necessary for the administration of the 2016 Plan.

The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the three months ended March 31, 2022 and 2021 using a Black Scholes-Merton Model:

Three months ended

March 31, 2022 March 31, 2021

The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the six months ended June 30, 2022 and 2021 using a Black Scholes-Merton Model:

Six months ended

June 30, 2022 June 30, 2021

Directors and SLT 1 :

12 unchanged sentences

Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date.

The following is a summary of stock options vested and exercisable as of March 31, 2022:

The following is a summary of stock options vested and exercisable as of June 30, 2022:

Prices Number

7 unchanged sentences

Total 1,779,995 6.20 $ 40.29 $ 27,812

The following is a summary of stock options vested and exercisable as of March 31, 2021:

The following is a summary of stock options vested and exercisable as of June 30, 2021:

Prices Number

15 unchanged sentences

( 46,878 ) 51.19

Outstanding at March 31, 2022

Outstanding at June 30, 2022

3,546,052 $ 44.38

Exercisable at March 31, 2022

Exercisable at June 30, 2022

1,779,995 $ 40.29

The total pre-tax compensation cost related to unvested stock options not yet recognized as of March 31, 2022 is $ 19.7 million and is expected to be recognized over a weighted average period of approximately 2.3 years.

The total intrinsic value of options exercised during the three months ended March 31, 2022 and 2021 was $ 1.9 million and $ 10.7 million, respectively.

The cash received from options exercised during the three months ended March 31, 2022 and 2021 was $ 2.9 million and $ 9.4 million, respectively.

The total pre-tax compensation cost related to unvested stock options not yet recognized as of June 30, 2022 is $ 17.8 million and is expected to be recognized over a weighted average period of approximately 2.1 years.

The total intrinsic value of options exercised during the six months ended June 30, 2022 and 2021 was $ 3.5 million and $ 12.7 million, respectively.

The cash received from options exercised during the six months ended June 30, 2022 and 2021 was $ 6.4 million and $ 11.8 million, respectively.

The impact of these cash receipts is included in financing activities in the accompanying consolidated statements of cash flows.

2 unchanged sentences

common stock on the respective grant dates, reduced for the present value of dividends.

At March 31, 2022, unrecognized compensation cost related to unvested restricted stock awards was approximately $ 5.8 million, which is expected to be recognized over a weighted average period of approximately 2.2 years.

At June 30, 2022, unrecognized compensation cost related to unvested restricted stock awards was approximately $ 5.9 million, which is expected to be recognized over a weighted average period of approximately 2.0 years.

A summary of the unvested restricted stock awards is as follows:

4 unchanged sentences

( 1,225 ) 49.41

Unvested at March 31, 2022

Unvested at June 30, 2022

151,262 $ 49.38

4 unchanged sentences

At the end of the measurement period, each award will be converted into common stock at 0 % to 200 % of the PSUs held, depending on overall TSR as compared to the S&P SmallCap 600 Index benchmark companies.

The total pre-tax compensation cost related to unvested PSUs not yet recognized as of March 31, 2022 is $ 2.6 million and is expected to be recognized over a weighted average period of approximately 2.7 years.

The following weighted average assumptions were used to determine the fair value of the PSUs granted on the original grant date for expense recognition purposes for PSUs granted during the three months ended March 31, 2022 and 2021 using a Monte Carlo Model:

Three months ended

March 31, 2022 March 31, 2021

The total pre-tax compensation cost related to unvested PSUs not yet recognized as of June 30, 2022 is $ 2.6 million and is expected to be recognized over a weighted average period of approximately 2.5 years.

The following weighted average assumptions were used to determine the fair value of the PSUs granted on the original grant date for expense recognition purposes for PSUs granted during the six months ended June 30, 2022 and 2021 using a Monte Carlo Model:

Six months ended

June 30, 2022 June 30, 2021

Expected dividend rate $ 0.38 $ 0.38

10 unchanged sentences

16,851 $ 87.78

Unvested at March 31, 2022

Unvested at June 30, 2022

63,372 $ 56.18

5 unchanged sentences

The fair value of Key Employee Awards is based on the fair market value of AAON common stock on the grant date.

The Key Employee Awards do not accrue dividends.

The total pre-tax compensation cost related to unvested Key Employee Awards not yet recognized as of March 31, 2022 is $ 1.5 million and is expected to be recognized over a weighted average period of approximately 1.8 years.

The total pre-tax compensation cost related to unvested Key Employee Awards not yet recognized as of June 30, 2022 is $ 1.6 million and is expected to be recognized over a weighted average period of approximately 1.5 years.

A summary of the unvested Key Employee Awards is as follows:

2 unchanged sentences

26,599 $ 80.18

Unvested at March 31, 2022

Unvested at June 30, 2022

26,599 $ 80.18

1 unchanged sentence

A summary of share-based compensation is as follows:

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Grant date fair value of awards during the period:

1 unchanged sentence

Options $ 650 $ 205 $ 5,499 $ 6,718

Performance awards 1,862 1,506

PSUs 219 84 2,081 1,590

Restricted stock 1,018 773 3,155 2,173

2 unchanged sentences

Options $ 2,339 $ 2,264 $ 4,379 $ 4,427

Performance awards 185 41

PSUs 292 148 477 189

Restricted stock 843 620 1,522 1,177

27 unchanged sentences

The Plan provides for automatic enrollment and for an automatic increase to the deferral percentage at January 1st of each year and each year thereafter.

Eligible employees are automatically enrolled in the Plan at a 6 % deferral rate and currently contributing employees deferral rates will be increased to 6 % unless their current rate is above 6 % or the employee elects to decline the automatic enrollment or increase.

Eligible employees are automatically enrolled in the Plan at a 6 % deferral rate and currently contributing employees deferral rates will be increased to 6 % unless their current rate is at or above 6 % or the employee elects to decline the automatic enrollment or increase.

Administrative expenses are paid for by Plan participants.

The Company paid no administrative expenses during the three months ended March 31, 2022 and 2021.

The Company paid no administrative expenses during the six months ended June 30, 2022 and 2021.

The Company matches 175 % up to 6 % of employee contributions of eligible compensation.

Additionally, Plan participant forfeitures are used to reduce the cost of the Company contributions.

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

(in thousands)

3 unchanged sentences

Eligible employees are regular full-time employees of AAON Oklahoma or AAON Coil Products who are actively employed and working on the first and last days of the calendar quarter and who were employed full-time for at least three full months prior to the beginning of the calendar quarter, excluding the Company's senior leadership team.

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

(in thousands)

6 unchanged sentences

In addition, the Company matches 175 % of a participating employee's allowed contributions to a qualified health saving account to assist employees with our health insurance plan deductibles.

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

(in thousands)

6 unchanged sentences

The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

(in thousands, except share and per share data)

5 unchanged sentences

Effect of dilutive shares related to contingent consideration 2

— — 204,179 —

Diluted weighted average shares

22 unchanged sentences

The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board.

The Company also has a stock repurchase arrangement by which employee-participants in our 401(k) savings and investment plan are entitled to have shares in AAON, Inc.

The Company also had a stock repurchase arrangement by which employee-participants in our 401(k) savings and investment plan were entitled to have shares in AAON, Inc.

stock in their accounts sold to the Company.

The maximum number of shares to be repurchased is contingent upon the number of shares sold by employee-participants.

The 401(k) Plan was amended in June 2022 to discontinue this program.

No additional shares have been purchased by the Company under this arrangement since June 2022.

Lastly, the Company repurchases shares of AAON, Inc.

stock from certain of its directors and employees for payment of statutory tax withholdings on stock transactions.

All other repurchases from directors or employees are contingent upon Board

stock from certain of its directors and employees for payment of

statutory tax withholdings on stock transactions.

All other repurchases from directors or employees are contingent upon Board approval.

All repurchases are done at current market prices.

Our repurchase activity is as follows:

Three Months Ended

March 31, 2022 March 31, 2021

Six Months Ended

June 30, 2022 June 30, 2021

(in thousands, except share and per share data)

5 unchanged sentences

Our repurchase activity since Company inception, including our current authorized stock repurchase programs, are as follows:

Inception to March 31, 2022

Inception to June 30, 2022

(in thousands, except share and per share data)

4 unchanged sentences

14,557,533 $ 269,876 $ 18.54

Subsequent to March 31, 2022 and through May 2, 2022, the Company repurchased a total of 16,692 shares for $ 0.9 million from our 401(k) savings and investment plan and from our employees for payment of statutory tax withholdings on stock transactions.

At the discretion of the Board, we pay semi-annual cash dividends.

4 unchanged sentences

November 9, 2021 November 26, 2021 December 17, 2021 $ 0.19

May 18, 2022 June 3, 2022 July 1, 2022 $ 0.19

Contingent Shares Issued in BasX Acquisition

On December 10, 2021, we closed on the acquisition of BasX (Note 3).

Under the MIPA Agreement, we committed to $ 78.0 million in the aggregate of contingent consideration to the former owners of BasX, which is payable in approximately 1,037,000 shares of the Company's stock, par value $ 0.004 per share.

The shares do not accrue dividends.

1 unchanged sentence

Based on the final allocation of the consideration paid (Note 3), we estimated the fair value of contingent consideration related to these shares to be approximately $ 60.0 million, which is included in additional paid-in capital on the consolidated balance sheets.

As of March 31, 2022, 486,268 shares related to the year ended 2021 earn-out milestone had been issued to the former owners of BasX as part of a private placement exempt from registration with the SEC under Rule 506(b), which are included in common stock on the consolidated statements of stockholders' equity.

No additional shares have been issued as of May 2, 2022.

As of June 30, 2022, 486,268 shares related to the year ended 2021 earn-out milestone had been issued to the former owners of BasX as part of a private placement exempt from registration with the SEC under Rule 506(b), which are included in common stock on the consolidated statements of stockholders' equity.

No additional shares have been issued as of August 4, 2022.

New Markets Tax Credit

23 unchanged sentences

These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption.

We had no material contractual purchase obligations as of March 31, 2022.

We had no material contractual purchase obligations as of June 30, 2022 except as described below.

On April 27, 2022, the Company entered into a purchase sales agreement with a third party manufacturer to purchase the intellectual property rights to design and manufacture fan wheels for the purchase price of approximately $ 6.5 million.

The purchase price will be paid in three installments over the next 18 months.

As of May 2, 2022 we have paid approximately $ 1.0 million related to this agreement.

As of August 4, 2022 we have paid approximately $ 1.0 million related to this agreement.

Related Parties

The Company purchases some supplies from an entity controlled by the Company’s Executive Chairman.

The Company sometimes makes sales to the Executive Chairman for parts.

Additionally, the Company sells units to an entity owned by a member of the CEO/President's immediate family.

The Company sells units to an entity owned by a member of the CEO/President's immediate family.

This entity is also one of the Company’s Representatives and as such, the Company makes payments to the entity for third party products.

Through the acquisition of BasX (Note 3), at March 31, 2022, the Company leased an manufacturing and office facility in Redmond, Oregon from an entity in which certain members of management have an ownership interest.

Additionally, the Company purchases some supplies from entities controlled by two of the Company’s board members and the Company sometimes makes sales to a board member for parts.

From December 10, 2021 through May 31, 2022 (Note 3), the Company leased a manufacturing and office facility in Redmond, Oregon from an entity in which certain members of BasX management have an ownership interest.

This facility was purchased 100% by the Company on May 31, 2022.

The following is a summary of transactions and balance with affiliates:

Three Months Ended

2022 March 31,

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

(in thousands)

22 unchanged sentences

The Gross Profit amounts shown below are presented after elimination entries.

Three Months Ended

March 31, 2022 March 31, 2021

Three Months Ended Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Net Sales (in thousands)

5 unchanged sentences

Inter-segment sales 8,093 6,087 16,010 11,471

24,579 — 45,548 —

Eliminations ( 8,863 ) ( 6,790 ) ( 17,169 ) ( 12,680 )

2 unchanged sentences

AAON Coil Products 8,474 3,884 15,780 7,269

7,165 — 12,087 —

Gross profit $ 47,376 $ 42,107 $ 93,440 $ 75,264

1 BasX was acquired on December 10, 2021.

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Long-lived assets (in thousands)

9 unchanged sentences

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-Q

Item 1. Financial Statements