What changed in this filing

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Item 1. Financial Statements

2022-11-07 compared with 2022-08-08 · 209 added, 166 removed, 801 unchanged (32% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

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

25 unchanged sentences

Accounts payable $ 48,613 $ 29,020

Dividends payable 10,096 —

Accrued liabilities 61,780 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, 53,127,055 and 52,527,985 issued and outstanding at June 30, 2022 and December 31, 2021, respectively

Common stock, $ .004 par value, 100,000,000 shares authorized, 53,214,971 and 52,527,985 issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 87,949 81,654

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

7 unchanged sentences

Interest expense, net ( 954 ) ( 10 ) ( 1,694 ) ( 11 )

Other income, net 220 39 241 56

Other income (expense), net 54 ( 19 ) 295 37

Income before taxes 35,800 20,108 78,764 63,836

12 unchanged sentences

Consolidated Statements of Stockholders' Equity

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Common Stock Paid-in Retained

11 unchanged sentences

Dividends net of refunds for cancelled cash dividends — — — ( 10,088 ) ( 10,088 )

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

Three Months Ended June 30, 2022

Balances at September 30, 2022 53,215 $ 213 $ 87,949 $ 435,696 $ 523,858

Three Months Ended September 30, 2022

Common Stock Paid-in Retained

1 unchanged sentence

(in thousands)

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

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

Net income — — — 27,473 27,473

4 unchanged sentences

Dividends net of refunds for cancelled cash dividends — — — 8 8

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

Six Months Ended June 30, 2021

Balances at September 30, 2022 53,215 $ 213 $ 87,949 $ 435,696 $ 523,858

Nine Months Ended September 30, 2021

Common Stock Paid-in Retained

8 unchanged sentences

Dividends net of refunds for cancelled cash dividends — — — ( 9,964 ) ( 9,964 )

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

Three Months Ended June 30, 2021

Balances at September 30, 2021 52,420 $ 210 $ 11,966 $ 388,103 $ 400,279

Three Months Ended September 30, 2021

Common Stock Paid-in Retained

1 unchanged sentence

(in thousands)

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

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

Net income — — — 15,581 15,581

4 unchanged sentences

Dividends net of refunds for cancelled cash dividends — — — 4 4

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

Balances at September 30, 2021 52,420 $ 210 $ 11,966 $ 388,103 $ 400,279

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

1 unchanged sentence

Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

September 30,

Operating Activities (in thousands)

Net income $ 61,478 $ 52,572

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 25,624 22,532

5 unchanged sentences

Gain on disposition of assets ( 12 ) ( 15 )

Foreign currency transaction (gain) loss 9 ( 11 )

Foreign currency transaction loss (gain) 42 ( 1 )

Interest income on note receivable ( 17 ) ( 19 )

10 unchanged sentences

Accrued liabilities and other long-term liabilities 12,857 1,525

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

Net cash provided by operating activities 43,414 74,703

Investing Activities

12 unchanged sentences

Employee taxes paid by withholding shares ( 978 ) ( 1,537 )

Net cash provided by financing activities 65,740 45

Cash dividends paid to stockholders ( 10,096 ) ( 9,964 )

Net cash provided by (used in) financing activities 28,149 ( 11,942 )

Net increase in cash, cash equivalents and restricted cash 7,781 20,185

31 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, 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.

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, estimated future use of leased property, 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 six months ended June 30, 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 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.

The Company also utilizes sanitation stations and performs additional cleaning and sanitation throughout the day.

We had continuous operations during the nine months ended September 30, 2022.

Although future disruptions and costs are expected to be temporary, there is significant uncertainty around the duration and overall impact to our business operations.

15 unchanged sentences

This decision was based on the expected employee absenteeism as well as the expected rolling blackouts caused by the increased demand on the electrical and natural gas power grids.

WH Series and WV Series Water Source Heat Pump Units

As part of the normal course of business, management is continually monitoring the profitability of the Company's various product lines.

During the third quarter of 2022, management made the decision to no longer produce our small packaged geothermal/water-source heat pump units consisting of the WH Series horizontal configuration and WV Series vertical configuration, from one-half to 12 1/2 tons ("WH/WV").

These WH/WV units are produced solely out of the AAON Oklahoma facility.

Production of the remaining WH/WV backlog is expected to continue through the first quarter of 2023.

A majority of the long-lived assets used in the production of the WH/WV units will be immediately reallocated to other product production, providing us additional manufacturing capacity with minimal costs.

The workforce from the WH/WV production line will also be reallocated to other product production lines.

Management has identified some related components and parts that cannot be used in other products or sold through our parts business;

therefore, we have increased our provision for excess and obsolete inventory (Note 6), within cost of sales on our consolidated statements of income, by approximately $ 1.0 million during the three and nine months ended September 30, 2022.

Management does not believe this decision will have a significant future impact on the AAON Oklahoma reportable segment or the Company's overall operations, financial results and cash flows.

Accounting Policies

7 unchanged sentences

Quoted prices in active markets for identical assets and liabilities that we have the ability to access at the measurement date.

Inputs (other than quoted prices included within Level 1) that are either directly or indirectly observable for the asset or liability, including (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for i dentical or similar assets or liabilities in inactive markets, (iii) inputs other than quoted prices that are observable for the asset or liability, and (iv) inputs that are derived from observable market data by correlation or other means.

Inputs (other than quoted prices included within Level 1) that are either directly or indirectly observable for the asset or liability, including (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in inactive markets, (iii) inputs other than quoted prices that are observable for the asset or liability, and (iv) inputs that are derived from observable market data by correlation or other means.

Unobservable inputs for the asset or liability including situations where there is little, if any, market activity for the asset or liability.

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

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

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

7 unchanged sentences

Revenue Recognition

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

Three Months Ended June 30, 2022

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

Three Months Ended September 30, 2022

AAON Oklahoma AAON Coil Products BasX Total

10 unchanged sentences

$ 179,169 $ 30,504 $ 32,932 $ 242,605

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

AAON Oklahoma AAON Coil Products BasX 1

8 unchanged sentences

$ 122,136 $ 16,435 $ — $ 138,571

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

AAON Oklahoma AAON Coil Products BasX Total

10 unchanged sentences

$ 476,517 $ 79,193 $ 78,480 $ 634,190

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

AAON Oklahoma AAON Coil Products BasX 1

9 unchanged sentences

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.

As the BasX segment was not applicable for the three and nine months ended September 30, 2021, it has been excluded from the tables for those periods.

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

1 unchanged sentence

The Company has formal cancellation policies and generally does not accept returns on these units.

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.

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 $ 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.

The amount of payments to our Representatives were $ 10.8 million and $ 9.5 million for the three months ended September 30, 2022 and 2021, respectively.

The amount of payments to our Representatives were $ 28.7 million and $ 34.5 million for the nine months ended September 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.

On November 18, 2021, the Company entered into a membership interest purchase agreement (the “MIPA Agreement”) to acquire 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 common stock, par value $ 0.004 per share (the "Shares").

5 unchanged sentences

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.

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

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.

The products BasX manufactures are highly engineered, customized products, fully complimenting AAON's existing business.

3 unchanged sentences

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 indicated below were recorded during the first quarter of 2022.

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

2 unchanged sentences

Allocation as of

December 31, 2021 Revision

December 31, 2021 Revisions

(in thousands)

17 unchanged sentences

Allocation as of

December 31, 2021 Revision

December 31, 2021 Revisions

(in thousands)

8 unchanged sentences

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

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.

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 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

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

Three months ended Nine months ended

September 30, 2021 September 30, 2021

(in thousands, except per share data)

9 unchanged sentences

The following table presents the balances by lease type:

Balance Sheet Classification June 30, 2022 December 31, 2021

Balance Sheet Classification September 30, 2022 December 31, 2021

Operating Leases

2 unchanged sentences

Noncurrent lease liability Other long-term liabilities $ 1,153 $ 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.

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

During the acquisition of BasX on December 10, 2021 (Note 3), we acquired various leases for plant/office space and equipment, which are classified as operating leases.

2 unchanged sentences

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.

During the second quarter of 2022, this lease was classified as a finance lease as the Company had the option to and was reasonably certain to purchase the underlying assets in 2023.

However, during the third quarter of 2022, it was determined that the Company would no longer purchase the land or facility and terminate the lease due to unforeseen facility structural issues.

As we currently expect to vacate this property in the next several months and terminate this lease we have reassessed our lease estimate and classified the remaining expected term of the lease as an operating lease.

We do not expect the vacating of the leased property to have a significant effect on the Company's overall operations, financial results and cash flows.

Subsequent to September 30, 2022, we amended our Parkville, Missouri lease to expand our manufacturing and office space from 51,000 square feet to 86,000 square feet.

The amended lease will provide for approximately 31,000 square feet of additional manufacturing and engineering space and for approximately 4,000 square feet of additional office space.

The amended lease extends the lease term through December 31, 2032.

Accounts Receivable

Accounts receivable and the related allowance for credit losses are as follows:

September 30,

2022 December 31, 2021

3 unchanged sentences

$ 134,073 $ 70,780

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Allowance for credit losses:

10 unchanged sentences

The components of inventories and related changes in the allowance for excess and obsolete inventories account are as follows:

September 30,

2022 December 31, 2021

6 unchanged sentences

$ 176,888 $ 130,270

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Allowance for excess and obsolete inventories:

5 unchanged sentences

Balance, end of period $ 3,065 $ 2,292 $ 3,065 $ 2,292

Management has identified some related components and parts that cannot be used in other production or sold through our parts business;

therefore, we have increased our provision for excess and obsolete inventory, within cost of sales on our consolidated statements of income, by approximately $ 1.0 million during the three and nine months ended September 30, 2022.

Intangible assets

Our intangible assets consist of the following:

June 30, 2022 December 31, 2021

September 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 Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

(in thousands)

2 unchanged sentences

Supplemental Cash Flow Information

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Supplemental disclosures:

4 unchanged sentences

Non-cash capital expenditures $ 306 $ ( 1,052 ) $ 985 $ ( 2,897 )

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 Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Warranty accrual:

8 unchanged sentences

Accrued liabilities were comprised of the following:

September 30,

2022 December 31, 2021

10 unchanged sentences

Lease liability, short-term 522 1,580

Property taxes 2,221 1,787

Extended warranties, short-term 1,345 1,532

Other 2,771 649

1 unchanged sentence

Other long-term liabilities were comprised of the following:

September 30,

2022 December 31, 2021

6 unchanged sentences

On May 27, 2022, we amended our $ 100.0 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.

As of September 30, 2022 and December 31, 2021, we had $ 76.3 million and $ 40.0 million outstanding under the Revolver, respectively.

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

Borrowings available under the Revolver at September 30, 2022 were $ 122.9 million.

The Revolver expires on May 27, 2027.

3 unchanged sentences

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

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.

The weighted average interest rate on borrowings outstanding on our the Revolver was 3.5 % and 2.5 % for the three and nine months ended September 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 nine months ended September 30, 2022.

If SOFR cannot be determined pursuant to the definition, as defined by the Revolver agreement, any outstanding affected 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 June 30, 2022, we were in compliance with our financial covenants, as defined by the Revolver.

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

At September 30, 2022, our leverage ratio was 0.65 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 Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 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 Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 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 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.

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

During the nine months ended September 30, 2022, the Company recorded an excess tax benefit of $ 1.3 million as compared to $ 3.8 million during the same period in 2021, a decrease of 67 %.

The decrease was primarily due to timing of stock option exercises as a result of our high stock price during the nine months ended September 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 June 30, 2022, we have investment tax credit carryforwards of approximately $ 3.7 million.

As of September 30, 2022, we have investment tax credit carryforwards of approximately $ 4.4 million.

These credits have estimated expirations from the year 2038 through 2042.

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 six months ended June 30, 2022 and 2021 using a Black Scholes-Merton Model:

Six months ended

June 30, 2022 June 30, 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 nine months ended September 30, 2022 and 2021 using a Black Scholes-Merton Model:

Nine months ended

September 30, 2022 September 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 June 30, 2022:

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

Prices Number

7 unchanged sentences

Total 1,661,447 5.78 $ 40.74 $ 24,008

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

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

Prices Number

15 unchanged sentences

( 145,856 ) 49.45

Outstanding at June 30, 2022

Outstanding at September 30, 2022

3,349,374 $ 44.73

Exercisable at June 30, 2022

Exercisable at September 30, 2022

1,661,447 $ 40.74

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 total pre-tax compensation cost related to unvested stock options not yet recognized as of September 30, 2022 is $ 14.9 million and is expected to be recognized over a weighted average period of approximately 1.8 years.

The total intrinsic value of options exercised during the nine months ended September 30, 2022 and 2021 was $ 6.7 million and $ 15.1 million, respectively.

The cash received from options exercised during the nine months ended September 30, 2022 and 2021 was $ 11.0 million and $ 14.6 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 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.

At September 30, 2022, unrecognized compensation cost related to unvested restricted stock awards was approximately $ 4.9 million, which is expected to be recognized over a weighted average period of approximately 1.8 years.

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

4 unchanged sentences

( 10,811 ) 47.51

Unvested at June 30, 2022

Unvested at September 30, 2022

143,429 $ 49.65

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 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

The total pre-tax compensation cost related to unvested PSUs not yet recognized as of September 30, 2022 is $ 2.2 million and is expected to be recognized over a weighted average period of approximately 2.2 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 nine months ended September 30, 2022 and 2021 using a Monte Carlo Model:

Nine months ended

September 30, 2022 September 30, 2021

Expected dividend rate $ 0.38 $ 0.38

10 unchanged sentences

16,851 $ 87.78

Unvested at June 30, 2022

( 5,031 ) 62.14

Unvested at September 30, 2022

60,766 $ 55.23

Key Employee Awards

4 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 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.

The total pre-tax compensation cost related to unvested Key Employee Awards not yet recognized as of September 30, 2022 is $ 1.3 million and is expected to be recognized over a weighted average period of approximately 1.3 years.

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

2 unchanged sentences

26,599 $ 80.18

Unvested at June 30, 2022

Unvested at September 30, 2022

26,599 $ 80.18

1 unchanged sentence

A summary of share-based compensation is as follows:

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Grant date fair value of awards during the period:

38 unchanged sentences

Administrative expenses are paid for by Plan participants.

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

The Company paid no administrative expenses during the nine months ended September 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 Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 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 Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

BasX has a separate employee incentive program (EIP) under which 5 % of BasX's pre-tax profit, plus certain add backs, is paid ratably to eligible employees based on days-of-pay during the fiscal year.

Eligible employees are regular full-time and part-time employees who have worked during the year and are still employed when the EIP payment is made following the end of the fiscal year, excluding members of BasX's senior leadership team and any employee paid commissions or royalties.

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

(in thousands)

Profit sharing bonus plan expense $ 2,146 $ 2,919 $ 4,815 $ 5,051

Profit sharing bonus plan and employee incentive plan expense $ 4,137 $ 2,358 $ 8,952 $ 7,409

Employee Medical Plan

We self-insure for our employees' health insurance.

Eligible employees are regular full-time employees who are actively employed and working.

Participants are expected to pay a portion of the premium costs for coverage of the benefits provided under the Plan.

At AAON Oklahoma and AAON Texas, we self-insure for our employees' health insurance, and make medical claim payments up to certain stop-loss amounts.

We estimate our self-insurance liabilities using an analysis provided by our claims administrator and our historical claims experience.

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 Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Eligible employees are regular full-time employees who are actively employed and working.

Participants are expected to pay a portion of the premium costs for coverage of the benefits provided under the Plans.

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

BasX is insured for healthcare coverage through a third party.

Eligible employees are regular full-time employees who are actively employed and working.

Participants are expected to pay a portion of the premium costs for coverage of the benefits provided under the Plans.

In addition, the Company contributes certain amounts for BasX's employees enrolled in a high deductible plan to a qualified health savings account to assist employees with health insurance plan deductibles.

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

(in thousands)

Medical claim payments $ 2,043 $ 2,033 $ 3,989 $ 3,846

Medical premium payments $ 3,429 $ 2,342 $ 7,418 $ 6,188

Health saving account contributions 968 888 2,871 2,621

4 unchanged sentences

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

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

(in thousands, except share and per share data)

18 unchanged sentences

The Board has authorized three stock repurchase programs for the Company.

The Company may purchase shares on the open market from time to time, up to a total of 5.7 million shares.

The Company may purchase shares on the open market from time to time.

The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market.

5 unchanged sentences

$ 20 million March 4, 2020

March 13, 2020 $ 20 million ** 2

March 13, 2020 $ 20 million November 9, 2022

November 3, 2022 $ 50 million ** 2

1 The 2018 and 2019 purchase authorizations were executed under 10b5-1 programs.

6 unchanged sentences

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.

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.

1 unchanged sentence

Our repurchase activity is as follows:

Six Months Ended

June 30, 2022 June 30, 2021

Nine Months Ended

September 30, 2022 September 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 June 30, 2022

Inception to September 30, 2022

(in thousands, except share and per share data)

4 unchanged sentences

14,593,422 $ 271,931 $ 18.63

Subsequent to September 30, 2022 and through November 3, 2022, the Company repurchased a total of 86,633 shares for $ 4.8 million through our open market repurchase program.

As of November 3, 2022, the Company has approximately $ 8.2 million remaining for open market repurchases under our current stock repurchase program which expires on November 9, 2022 .

On November 3, 2022, the Board of Directors approved an updated stock repurchase plan with repurchases under the plan not to exceed $ 50 million.

The current repurchase plan will expire at the Board of Directors discretion.

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

11 unchanged sentences

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 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.

As of September 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 November 3, 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 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.

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

On April 27, 2022, the Company entered into a purchase and sale 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 August 4, 2022 we have paid approximately $ 1.0 million related to this agreement.

As of November 3, 2022 we have paid approximately $ 3.5 million related to this agreement, which is included in other long-term assets on the consolidated balance sheets.

Related Parties

5 unchanged sentences

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

Three Months Ended Six Months Ended

2022 June 30,

2021 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

(in thousands)

1 unchanged sentence

Payments to affiliates 30 23 1,033 153

September 30,

2022 December 31,

8 unchanged sentences

AAON Oklahoma designs, manufactures, sells and services standard, semi-custom and custom HVAC systems, designs and produces controls solutions for all of our HVAC units and sells retail parts to customers through our two retail part stores.

Through the NAIC research and development laboratory facility, AAON Oklahoma is able test units units under various environmental conditions.

Through the NAIC research and development laboratory facility, AAON Oklahoma is able test units under various environmental conditions.

AAON Oklahoma includes the operations of both our Tulsa, Oklahoma and Parkville, Missouri facilities, our NAIC research and development laboratory facility and two retail parts locations.

8 unchanged sentences

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Net Sales (in thousands)

5 unchanged sentences

Inter-segment sales 8,037 5,508 24,047 16,979

24,579 — 45,548 —

External sales 32,932 — 78,480 —

Inter-segment sales 61 — 61 —

Eliminations ( 9,096 ) ( 6,325 ) ( 26,265 ) ( 19,005 )

5 unchanged sentences

1 BasX was acquired on December 10, 2021.

June 30, 2022 December 31, 2021

September 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