What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-27 compared with 2022-02-28 · 283 added, 287 removed, 830 unchanged (41% of the section changed)

25 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory – manual inventory adjustments

As described in Note 2 to the financial statements, the Company reports inventory using the first in, first out (“FIFO”) method, which involves manual adjustments recorded to the general ledger such as inventory variance, inventory allowance and labor and overhead adjustments, which had the potential to be larger or require more judgment during the year ended December 31, 2021, where the Company experienced changes in the prices of certain raw materials due to the COVID-19 pandemic.

As described in Note 2 to the financial statements, the Company reports inventory using the first in, first out (“FIFO”) method, which involves manual adjustments recorded to the general ledger such as inventory variance, inventory allowance and labor and overhead adjustments, which had the potential to be larger or require more judgment during the year ended December 31, 2022, where the Company experienced changes in the prices of certain raw materials due to the COVID-19 pandemic, as well as supply chain challenges.

These manual adjustments have been identified as a critical audit matter.

The principal considerations for our determination such manual inventory adjustments as a critical audit matter are these manual adjustments require substantial use of management estimates and requires the Company to have effective inventory valuation processes.

The principal considerations for our determination such manual inventory adjustments are a critical audit matter are these manual adjustments require substantial use of management estimates and require the Company to have effective inventory valuation processes.

Significant management judgments and estimates utilized to determine manual inventory adjustments are subject to estimation uncertainty and require significant auditor subjectivity in evaluating the reasonableness of those judgments and estimates.

2 unchanged sentences

• We recalculated the Company’s standard costing of inventory which approximated FIFO by obtaining FIFO buildups and inspected underlying documents for a sample of raw materials.

• We assessed the reasonableness of management’s inventory reserve by recalculating the reserve using management’s inputs, and evaluated those inputs for reasonableness.

• We assessed the reasonableness of management’s inventory reserve by recalculating the reserve using management’s inputs.

• We tested labor and overhead rate changes by recalculating the rates used and tested any adjustments recorded to the general ledger.

BasX, LLC Acquisition

As described in Note 4 to the financial statements, the Company acquired a controlling interest in BasX, LLC (“BasX”) in December 2021 and the assets acquired, the liabilities assumed and contingent consideration payable were estimated and recorded at fair value as of the transaction date, for which the Company utilized a valuation specialist.

We identified the estimation of the fair value of the intangible assets acquired and contingent consideration payable in the acquisition of BasX as a critical audit matter.

The principal considerations for our determination that the estimation of the fair value of the intangible assets acquired and contingent consideration payable in the acquisition of BasX as a critical audit matter are that there was a high degree of estimation uncertainty due to significant judgments with respect to the selection of the valuation methodologies applied, the assumptions used to estimate the future revenues and cash flows, including revenue growth rates and forecasted costs, discount rates, royalty rates, and obsolescence of intellectual property.

This required an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the fair value of the intangible assets acquired and contingent consideration payable, including the need to involve valuation specialists.

Our audit procedures responsive to the estimation of the fair value of the intangible assets acquired and contingent consideration payable for the acquisition of BasX included the following procedures, among others.

• We tested the design and operating effectiveness of controls relating to management’s review of the assumptions used to develop the future revenues and cash flows, the reconciliation of future revenues and cash flows prepared by management to the data used in the third-party valuation report, and the aforementioned valuation inputs and methodologies applied.

• Utilized a valuation specialist to evaluate:

◦ The methodologies used and whether they were acceptable for the underlying assets or operations by performing an independent calculation.

◦ The appropriateness of the royalty rates attributed to both intellectual property and trademarks and the obsolescence of intellectual property using our understanding of BasX’s business and historical financial results, intellectual property and trademarks and the Company’s future plans.

◦ The appropriateness of the discount rates by recalculating the weighted average costs of capital.

◦ The qualifications of the Company’s valuation specialist based on their credentials and experience.

• Tested the revenue growth rates and forecasted costs of BasX by comparing such items to the historical operating results of the acquired entity and by assessing the likelihood or capability of the acquired entity to undertake activities or initiatives underpinning significant drivers of growth in the forecasted period.

/s/ GRANT THORNTON LLP

57 unchanged sentences

Selling, general and administrative expenses 110,823 68,598 60,491

(Gain) loss on disposal of assets and insurance recoveries ( 21 ) ( 6,478 ) 337

Gain on disposal of assets and insurance recoveries ( 12 ) ( 21 ) ( 6,478 )

Income from operations 126,761 69,253 101,836

Interest (expense) income, net ( 2,627 ) ( 132 ) 88

Other income (expense), net 61 51 ( 46 )

Other income, net 399 61 51

Income before taxes 124,533 69,182 101,975

28 unchanged sentences

Stock repurchased and retired ( 320 ) ( 1 ) ( 22,465 ) — ( 22,466 )

Contingent consideration (Note 4)

— — 66,000 — 66,000

Dividends — — — ( 19,947 ) ( 19,947 )

23 unchanged sentences

Share-based compensation 13,700 11,812 11,342

(Gain) loss on disposition of assets and insurance recoveries ( 21 ) ( 6,478 ) 337

Foreign currency transaction gain ( 1 ) ( 12 ) ( 27 )

Gain on disposition of assets and insurance recoveries ( 12 ) ( 21 ) ( 6,478 )

Foreign currency transaction loss (gain) 41 ( 1 ) ( 12 )

Interest income on note receivable ( 22 ) ( 24 ) ( 24 )

2 unchanged sentences

Accounts receivable ( 56,306 ) ( 9,737 ) 19,859

Income tax receivable ( 1,136 ) ( 3,815 ) 5,129

Income taxes 18,195 ( 1,136 ) ( 3,815 )

Inventories ( 71,409 ) ( 45,955 ) ( 9,726 )

Contract assets ( 9,402 ) 1,886 —

Prepaid expenses and other 1,374 ( 2,364 ) ( 329 )

Prepaid expenses and other long-term assets ( 2,367 ) 1,374 ( 2,364 )

Accounts payable 11,574 10,899 ( 2,155 )

Contract liabilities 13,882 ( 229 ) —

Deferred revenue 447 1,010 425

Accrued liabilities and donations ( 1,690 ) 2,203 7,124

Extended warranties 1,314 447 1,010

Accrued liabilities and other long-term liabilities 16,945 ( 1,690 ) 2,203

Net cash provided by operating activities 61,318 61,183 128,814

1 unchanged sentence

Capital expenditures ( 54,024 ) ( 55,362 ) ( 67,802 )

Cash paid for building (Note 4)

( 22,000 ) — —

Cash paid in business combination, net of cash acquired ( 249 ) ( 103,430 ) —

1 unchanged sentence

Insurance proceeds — — 6,417

Investment in certificates of deposits — — ( 6,000 )

Maturities of certificates of deposits — — 6,000

Principal payments from note receivable 48 54 52

2 unchanged sentences

Borrowings under revolving credit facility 225,758 40,000 —

Proceeds from financing obligation, net of issuance costs — — 6,614

Payment related to financing costs — — ( 301 )

Payments under revolving credit facility ( 194,754 ) — —

Principal payments on financing lease ( 115 ) — —

Stock options exercised 23,140 21,148 21,418

3 unchanged sentences

Net cash provided by (used in) financing activities 17,357 18,735 ( 29,626 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 78,801 ) 37,915 42,379

Net increase (decrease) in cash, cash equivalents and restricted cash 2,462 ( 78,801 ) 37,915

Cash, cash equivalents and restricted cash, beginning of year 3,487 82,288 44,373

6 unchanged sentences

is a Nevada corporation which was incorporated on August 18, 1987.

Our operating subsidiaries include AAON, Inc., an Oklahoma corporation, AAON Coil Products, Inc., a Texas corporation, and BasX, Inc.

(dba BasX Solutions), an Oregon corporation (collectively, the “Company”).

Our operating subsidiaries include AAON, Inc., an Oklahoma corporation, AAON Coil Products, Inc., a Texas corporation, and BasX, Inc., an Oregon corporation (collectively, the “Company”).

The consolidated financial statements include our accounts and the accounts of our subsidiaries.

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.

Recent Developments

On December 10, 2021, we closed on the acquisition of all of the issued and outstanding equity ownership of BasX, LLC, doing business as BasX Solutions ("BasX") (Note 4).

We have included the results of BasX’s operations in our consolidated financial statements beginning December 11, 2021.

On December 29, 2021, BasX, LLC converted to a C-Corporation, BasX, Inc., and is subject to income tax.

Summary of Significant Accounting Policies

Principles of Consolidation

These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

All inter-company accounts and transactions have been eliminated.

Our financial statements consolidate all of our affiliated entities in which we have a controlling financial interest.

Because we hold certain rights that give us the power to direct the activities of two variable interest entities ("VIEs") (Note 18) that most significantly impact the VIEs economic performance, combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in those VIEs.

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, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization characterized the coronavirus ("COVID-19") a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.

The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy.

Our manufacturing operations are considered a critical infrastructure industry, as defined by the U.S.

Department of Homeland Security, as such, the decrees issued by national, state, and local governments in response to the COVID-19 pandemic have had minimal impact on our operations except for higher than normal employee absenteeism in our manufacturing facilities.

Notable absenteeism occurred the latter part of June 2020 at our Tulsa, OK facilities which resulted in reduced shipments and longer lead times in the second quarter 2020.

Additionally, our Longview, TX facility suffered from COVID-19 related absenteeism during the quarter ending September 30, 2021, which reduced the production of coils that were needed to complete units at both our Longview, TX and Tulsa, OK facilities.

We had continuous operations during the years ended December 31, 2021 and December 31, 2020, except for events unrelated to COVID-19 described below.

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 utilizes sanitation stations and performs additional cleaning and sanitation throughout the day.

We witnessed increases in some of our raw material prices, especially in copper and steel, which appear to be an effect of COVID-19, and we continue to make strategic purchases of materials when we see opportunities.

We have managed the increase in the cost of raw materials through price increases for our products which began to be realized in late 2021.

Although we have experienced some supply chain challenges related to specific manufacturing parts, due to our strong vendor relationships as well as our favorable liquidity position, we have experienced minimal disruption to our supply chain due to COVID-19.

The magnitude of the impact of the COVID-19 pandemic remains unpredictable and could unfavorably impact our business.

However, the direct effects of the COVID-19 pandemic has had no significant impact on our planned cash outflows for raw materials, dividend payments, or capital expenditures.

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

We are continually monitoring the progression of the pandemic, including new COVID-19 variants, and their potential effect on our consolidated financial position, results of operations and cash flows.

Inflation and Labor Market

In late 2021 and throughout 2022, we have witnessed increases in our raw material and component prices.

Due to our favorable liquidity position, we continue to make strategic purchases of materials when we see opportunities.

We continue to manage the increase in the cost of raw materials through price increases for our products.

We have also experienced supply chain challenges related to specific manufacturing parts, which we have managed through our strong vendor relationships as well as expanding our list of vendors.

Additionally, we continue to experience challenges in a tight labor market, especially the hiring of both skilled and unskilled production labor.

We have implemented the following wage increases to remain competitive and to attract and retain employees:

• In March 2021, we awarded annual merit raises for an overall 5.0% increase to wages.

• In July 2021, we increased starting wages for our production workforce by 7.0%.

We also have put a cost of living increase of 3.5 % in place in October 2021 for all employees below the Director level.

• In October 2021, we implemented a cost of living increase of 3.5% in place for all employees

below our Senior Leadership Team ("SLT") which consists of officers and key members of management.

• In March 2022, we awarded annual merit raises for an overall 3.0% increase to wages.

• In October 2022, we implemented a cost of living increase of 3.5% in place for all employees

below the SLT level.

We will continue to implement human resource initiatives to retain and attract labor to further improve productivity and production efficiencies.

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

However, COVID-19 has had no significant impact on our planned cash outflows for raw materials, dividend payments, or capital expenditures.

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

We are continually monitoring the progression of the pandemic, including new COVID-19 variants, and its potential effect on our financial position, results of operations and cash flows.

Planned Plant Maintenance

Despite efforts to mitigate the impact of inflation, supply chain issues and the tight labor market, future disruptions, while temporary, could negatively impact our consolidated financial position, results of operations and cash flows.

First Quarter 2021 Planned Maintenance and Adverse Weather

During the fourth quarter of 2020, we made the strategic decision to shut down our Tulsa, OK and Longview, TX manufacturing facilities to perform planned and necessary maintenance during the last week of December 2020 as well several days in early January 2021.

Although we lost several production days due to this shut down, we do not believe that the impact of the shut down had a material adverse effect on the results of our operations, financial position and cash flows as of and for the year ending December 31, 2021.

Impact of February 2021 Weather

In February 2021, record-breaking winter storms affected Oklahoma and Texas, causing sustained below freezing temperatures, hazardous driving conditions, rolling blackouts, water main breaks, and a host of other weather related issues.

1 unchanged sentence

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.

Although we lost several production days in mid-February 2021, we do not believe that the impact of this weather event had a material adverse effect on the results of our operations, financial position and cash flows as of and for the year ending December 31, 2021.

Cash and Cash Equivalents

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 series offerings.

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 these units will be immediately reallocated to other product production, providing us additional manufacturing capacity with minimal costs.

The workforce from the these production lines 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 7), within cost of sales on our consolidated statements of income, by approximately $ 1.2 million during the year ended December 31, 2022.

Change in Estimate

During the first quarter of 2022, a review of the Company's useful lives for certain sheet metal manufacturing equipment at our Longview, Texas facilities resulted in a change in estimate that increased the useful lives from between ten and twelve years to fifteen years.

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 year ended December 31, 2022.

We do not believe the impact of these events had a material adverse effect on our consolidated financial position, results of operations and cash flows.

Summary of Significant Accounting Policies

Principles of Consolidation

These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

All inter-company accounts and transactions have been eliminated.

Our financial statements consolidate all of our affiliated entities in which we have a controlling financial interest.

Because we hold certain rights that give us the power to direct the activities of two variable interest entities ("VIEs") (Note 17) that most significantly impact the VIEs economic performance, combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in those VIEs.

On December 10, 2021, we closed on the acquisition of all of the issued and outstanding equity ownership of BasX, LLC, doing business as BASX Solutions.

On December 29, 2021, BasX, LLC converted to a C-Corporation, BasX, Inc.

("BASX"), and is subject to income tax.

We have included the results of BASX’s operations in our consolidated financial statements beginning December 11, 2021.

C ash and Cash Equivalents

We consider all highly liquid temporary investments with original maturity dates of three months or less to be cash equivalents.

2 unchanged sentences

However, management believes that the Company’s counterparty risks are minimal based on the reputation and history of the institutions selected.

Certificates of Deposit

We held no certificates of deposit at December 31, 2021 and 2020.

Restricted Cash

Restricted cash held at December 31, 2021 consist of bank deposits and highly liquid, interest-bearing money market funds held for the purpose of the Company's qualified New Markets Tax Credit program (Note 18) to benefit an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations.

Restricted cash held at December 31, 2022 and December 31, 2021 consists of bank deposits and highly liquid, interest-bearing money market funds held for the purpose of the Company's qualified New Markets Tax Credit program (Note 17) to benefit an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations.

The Company’s restricted cash is held in a financial institutions in amounts that exceed the insurance limits of the Federal Deposit Insurance Corporation.

1 unchanged sentence

Accounts and Note Receivable

We adopted ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326) , as amended, as of January 1, 2020.

The ASU requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected, which would include accounts receivable.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.

The adoption of this ASU did not have a material effect on our financial statements.

Accounts and note receivable are stated at amounts due from customers, net of an allowance for credit losses.

9 unchanged sentences

No other customer accounted for more than 10.0% of our sales during 2022, 2021, and 2020.

One customer, Texas AirSystems LLC, accounted for more than 10.0% of our accounts receivable balance at December 31, 2022.

No customers accounted for more than 10.0% of our accounts receivable balance at December 31, 2021.

Two customers, Texas AirSystems LLC and Johnson Barrow Inc., accounted for more than 10% of our accounts receivable balance at December 31, 2020.

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) or average cost method.

6 unchanged sentences

Depreciation is computed using the straight-line method over the following estimated useful lives:

Buildings 3 - 40 years

Buildings and leasehold improvements 3 - 40 years

Machinery and equipment 3 - 20 years

3 unchanged sentences

In November 2020, we reached a final settlement with our insurance carrier, resulting in a net cumulative gain of $ 6.4 million, which is included in the consolidated statements of income.

The received proceeds will be used in future periods to make improvements to the current roof at our plant and office facilities in Tulsa, Oklahoma to extend the overall useful life.

The received proceeds were used to make improvements to the current roof at our plant and office facilities in Tulsa, Oklahoma to extend the overall useful life.

In January 2023, we purchased additional real property and improvements for our AAON Coil Products operations in Longview, Texas for $ 3.6 million.

This additional property consists of 64,000 square feet of warehouse space that will enable the continued growth of our AAON Coil Products operations.

Business Combinations

8 unchanged sentences

The carrying amount of the Company’s revolving line of credit, and other payables, approximate their fair values either due to their short term nature, the variable rates associated with the debt or based on current rates offered to the Company for debt with similar characteristics.

We adopted ASU No.

2018-13, Fair Value Measurements (Topic 820), as amended, as of January 1, 2020.

The ASU includes additional disclosure requirements for unrealized gains and losses for Level 3 fair value measurements and significant observable inputs used to develop Level 3 fair value measurements.

There was not a material impact to financial statements upon adoption.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

19 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 December 31, 2021, approximately $ 19.7 million of goodwill Indefinite-lived intangible assets consist of trademarks and trade names and are also subject to at least annual impairment testing.

Indefinite-lived intangible assets consist of trademarks and trade names and are also subject to at least annual impairment testing.

Goodwill and indefinite-lived intangible assets are not amortized, but instead are evaluated for impairment at least annually.

1 unchanged sentence

To perform this assessment, we first consider qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit and indefinite-lived intangible assets exceeds their carrying amount.

If we conclude that it is more likely than not that the fair value of a reporting unit and indefinite-lived assets does not exceed their carrying amount, we calculate the fair value for the report unit and indefinite-lived assets and compare the amount to their carrying amount.

If we conclude that it is more likely than not that the fair value of a reporting unit and indefinite-lived assets does not exceed their carrying amount, we calculate the fair value for the reporting unit and indefinite-lived assets and compare the amount to their carrying amount.

If the fair value of a reporting unit and indefinite-lived asset exceeds their carrying amount, the reporting unit and indefinite-lived assets are not considered impaired.

6 unchanged sentences

A considerable amount of management judgment and assumptions are required in performing the impairment tests.

The changes in the carrying amount of goodwill were as follows:

Years Ended December 31,

(in thousands)

Balance, beginning of period

$ 85,727 $ 3,229

Additions due to acquisitions (Note 4)

Decreases due to acquisition adjustments (Note 4)

Balance, end of period 81,892 85,727

Contingent Consideration

8 unchanged sentences

For the years ended December 31, 2022, 2021, and 2020 research and development costs amounted to approximately $ 46.8 million, $ 16.6 million, and $ 17.4 million, respectively.

The significant increase for the year ended December 31, 2022 was related to the inclusion of a full year of operations of BASX (Note 4), as well as our commitment to product performance and innovation.

Advertising costs are expensed as incurred.

21 unchanged sentences

Share-based compensation expense is recognized on a straight-line basis over the service period of the related share-based compensation award.

Historically, stock options and restricted stock awards, granted to employees, vest at a rate of 20 % per year.

Restricted stock awards granted to directors historically vest one-third each year or, if granted on or after May 2019, vest over the shorter of directors' remaining elected term or one-third each year.

As of March 2021, all new grants of stock options and restricted stock awards, granted to employees, vest at a rate of 33.3 % per year.

Historically, stock options and restricted stock awards, granted to employees, vested at a rate of 20 % per year.

Restricted stock awards granted to directors historically vest over the shorter of directors' remaining elected term or one-third each year.

Beginning March 2021, all new grants of stock options and restricted stock awards granted to employees, vest at a rate of 33.3 % per year.

Forfeitures are accounted for as they occur.

2 unchanged sentences

Forfeitures are accounted for as they occur.

The PSUs cliff vest on December 31, 2023.

The PSUs cliff vest at the end of their respective service period.

Share-based compensation expense is recognized on a straight-line basis over the service period of PSUs.

13 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.

Other costs not related to contract performance, such as indirect labor and materials, small tools and supplies, operating expenses, field rework and back charges are charged to expense as incurred.

Other costs not related to contract performance, such as indirect labor and materials, small tools and supplies,

operating expenses, field rework and back charges are charged to expense as incurred.

Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined.

2 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.

Sales allowances and customer incentives are treated as reductions to sales and are provided for based on historical experiences and current estimates.

Sales of our products are moderately seasonal with the peak period being May-October of each year.

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

However, in recent years, given the increases in demand of our product and increases in our backlog, sales has become more constant throughout the year.

Product Warranties

A provision is made for the estimated cost of maintaining product warranties to customers at the time the product is sold based upon historical claims experience by product line.

The Company records a liability and an expense for estimated future warranty claims based upon historical experience and management’s estimate of the level of future claims.

Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the liability and expense in the current year.

The Company also sells extended warranties on parts for various lengths of time ranging from six months to 10 years.

19 unchanged sentences

Provisions for losses expected under these programs are recorded based on the Company’s estimates of the aggregate liabilities for the claims incurred.

Product Warranties

A provision is made for the estimated cost of maintaining product warranties to customers at the time the product is sold based upon historical claims experience by product line.

The Company records a liability and an expense for estimated future warranty claims based upon historical experience and management’s estimate of the level of future claims.

Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the liability and expense in the current year.

New leases entered into by the Company are assessed at lease inception for proper lease classification.

At December 31, 2022, all of our leases are classified as operating leases.

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

These leases are not recorded on our consolidated balance sheets as of December 31, 2022 and 2021, and the rent expense for these short-term leases is not significant.

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 payments.

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.

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.

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.

Use of Estimates

The preparation of financial statements in conformity with U.S.

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Because these estimates and assumptions require significant judgment, actual results could differ

from those estimates and could have a significant impact on our results of operations, financial position, and cash flows.

Because these estimates and assumptions require significant judgment, actual results could differ from those estimates and could have a significant impact on our results of operations, financial position, and cash flows.

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:

revenue recognition, business combinations, the allowance for credit losses, inventory reserves, warranty accrual, workers compensation accrual, medical insurance accrual, share-based compensation, and income taxes.

The most significant estimates include, but are not limited to, inventory valuation, 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, business combinations, revenue percentage of completion and estimated costs to complete.

Actual results could differ materially from those estimates.

Revenue Recognition

The following tables show disaggregated net sales by reportable segment (see Note 23) by major source, net of intercompany sales eliminations.

As the BasX segment was not applicable during the years ended December 31, 2020 and 2019, this segment has been excluded from the tables.

The following tables show disaggregated net sales by reportable segment (Note 22) by major source, net of intercompany sales eliminations.

Year Ended December 31, 2022

18 unchanged sentences

Outdoor Mechanical Rooms 820 464 — 1,284

Cleanroom Systems — — 2,288 2,288

Data Center Cooling Solutions — — 1,688 1,688

Water-Source Heat Pumps 10,831 10,343 — 21,174

13 unchanged sentences

$ 458,957 $ 55,594 — $ 514,551

1 BasX was acquired by the Company on December 10, 2021, as such, the only applicable period presented for BasX is December 11, 2021 through December 31, 2021.

1 BASX was acquired by the Company on December 10, 2021, as such, the only applicable periods presented for BASX is the year ended December 31, 2022 and December 11, 2021 through December 31, 2021.

Other sales include freight, extended warranties and miscellaneous revenue.

2 unchanged sentences

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.

The potential future issuance of the Shares is contingent upon BasX meeting certain post-closing earn-out milestones during each of 2021, 2022, and 2023 under the terms of the MIPA Agreement.

The Company funded the BasX acquisition cash portion of the purchase price and related transaction costs with cash on hand.

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 first quarter of 2022.

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.

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

We incurred $ 4.4 million in transaction fees related to the acquisition of BasX which are included in selling, general, and administrative expenses on our consolidated statement of income.

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

The potential future issuance of the Shares is contingent upon BASX meeting certain post-closing earn-out milestones during each of 2021, 2022, and 2023 under the terms of the MIPA Agreement (Note 16).

The Company funded the acquisition cash portion of the purchase price and related transaction costs with cash on hand.

Additionally, as a condition to closing, the Company entered into a real estate purchase agreement with BasX Properties, LLC, an affiliate of BasX, LLC, 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 closed this real estate transaction on May 31, 2022, which terminated the related lease (Note 5).

We incurred $ 4.4 million in transaction fees related to the acquisition which are included in selling, general, and administrative expenses on our consolidated statement of income for the year ended December 31, 2021.

We have included the results of BASX’s operations in our consolidated financial statements beginning December 11, 2021.

2 unchanged sentences

Goodwill was calculated and recognized consistent with acquisition accounting, resulting in the pushdown of $ 78.7 million in goodwill as of December 31, 2022.

The following table presents the allocation of the consideration paid to the assets acquired and liabilities assumed, based on their fair values as of December 10, 2021, in the acquisition of BasX described above, which was still preliminary at December 31, 2021.

The provisional amounts are subject to change as the Company continues to evaluate the information required to complete the valuation through the measurement period.

We expect to complete our valuation in the first quarter of 2022.

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

The revisions indicated below were recorded during the first quarter of 2022.

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

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

Final Allocation Estimated Allocation as of December 31, 2021 Revisions

(in thousands)

13 unchanged sentences

Consideration paid $ 103,679 $ 103,430 $ 249

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

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

Final Allocation Estimated Allocation as of December 31, 2021 Revisions

(in thousands)

2 unchanged sentences

Customer relationships 47,547 48,684 ( 1,137 )

53,842 55,163 ( 1,321 )

Indefinite-lived intangible assets

3 unchanged sentences

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

Goodwill of $ 16.5 million is tax deductible upon close of the acquisition.

Goodwill of $ 47.1 million was tax deductible upon completion of the final allocation of consideration paid to the assets acquired and liabilities acquired.

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 are achieved.

Pro Forma Results of Operations (unaudited)

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

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

The following unaudited pro forma consolidated results of operations for the years ended December 31, 2021 and 2020 are presented as if the combination had been made on January 1, 2020.

10 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.

We adopted ASU No.

2016-02 , Leases (Topic 842) , as amended, as of January 1, 2019, using the transition method, which became effective upon the date of adoption.

The transition method allows entities to initially apply the new leases standard at the adoption date (January 1, 2019) and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.

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

All of our leases are classified as operating leases.

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

These leases are not recorded on our consolidated balance sheets as of December 31, 2021 or 2020, and 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 4), 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 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.

At December 31, 2020, we had operating lease right-of-use assets of $ 1.6 million and current and noncurrent operating lease obligations of $ 0.2 million and $ 1.4 million within accrued liabilities and other long-term liabilities, respectively, on our consolidated balance sheets.

The Company has lease arrangements for certain administrative, manufacturing and warehousing facilities and equipment.

Currently, all leases are classified as operating leases.

Balance Sheet Classification 2022 2021

(in thousands)

Right-of-use assets Right of use assets $ 7,123 $ 16,974

Current lease liability Accrued liabilities 1,254 1,580

Noncurrent lease liability Other long-term liabilities 5,993 15,467

Through the acquisition of BASX (Note 4), we acquired various leases for plant/office space and equipment, which were classified as operating leases.

Through May 2022, BASX's manufacturing and office facility in Redmond, Oregon was leased from a related party (Note 21).

On May 31, 2022, we completed the real estate transaction discussed in Note 4 and the associated operating lease was terminated.

Since 2018, the Company has leased the manufacturing, engineering and office space used by our operations in Parkville, Missouri.

In October 2022, the Parkville, Missouri lease was amended to expand our manufacturing and office space from 51,000 square feet to 86,000 square feet.

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

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

In November 2022, the Company entered into a lease arrangement for additional storage facilities in Tulsa, Oklahoma to support our operations.

The lease will add an additional 198,000 square feet to our operations.

The lease term will expire October 31, 2025.

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

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.

We vacated the property and cancelled the lease at the end of 2022.

Accounts Receivable

10 unchanged sentences

$ 549 $ 506 $ 353

Provisions (recoveries) for expected credit losses, net of adjustments

Provisions for expected credit losses, net of adjustments

Accounts receivable written off, net of recoveries

16 unchanged sentences

Balance, end of period $ 4,527 $ 1,787 $ 3,261

During the third quarter of 2022, we 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 (Note 1).

Some related components and parts cannot be used in other products or sold through our parts business.

As a result, we increased our provision for excess and obsolete inventory, within cost of sales on our consolidated statements of income, by approximately $ 1.2 million during the year ended December 31, 2022.

Intangible Assets

13 unchanged sentences

Amortization expense $ 3,599 $ 246 $ 234

Excluding the impact of any future acquisitions, the Company anticipates amortization expense to be $ 3.7 million for each of the years ended 2022 through 2026.

Note Receivable

In connection with the closure of our Canadian facility on May 18, 2009, we sold land and a building in September 2010 and assumed a note receivable from the borrower secured by the property.

The C$ 1.1 million, 15 year note has an interest rate of 4.0 % and is payable to us monthly, and has a C$ 0.6 million balloon payment due in October 2025 .

Interest payments are recognized in interest income.

The current and long-term portions of this note receivable are included in other prepaid expenses and other and other long-term assets, respectively, on our balance sheet.

We evaluate the note for impairment on a quarterly basis.

We determine the note receivable to be impaired if we are uncertain of its collectability based on the contractual terms.

At December 31, 2021 and 2020, there was no impairment.

Excluding the impact of any future acquisitions, the Company anticipates amortization expense to be approximately $ 3.6 million for each of the years ended 2023 through 2027.

Supplemental Cash Flow Information

7 unchanged sentences

Non-cash capital expenditures 1,919 ( 3,714 ) 2,843

The Company has warranties with various terms from 18 months for parts, data center cooling solutions, and cleanroom systems to 25 years for certain heat exchangers.

The Company has product warranties with various terms 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.

The Company has an obligation to replace parts if conditions under the warranty are met.

13 unchanged sentences

Accrued Liabilities and Other Long-Term Liabilities

At December 31, accrued liabilities were comprised of the following:

Accrued liabilities were comprised of the following:

(in thousands)

7 unchanged sentences

Donations, short-term 637 438

Accrued income taxes 12,472 —

Employee vacation time 6,329 4,362

Operating lease liability, short-term 1,580 202

Extended warranties, short-term 1,330 1,593

Lease liability, short-term 1,254 1,580

Other 2,734 2,375

Total $ 78,630 $ 50,206

At December 31, other long-term liabilities were comprised of the following:

O ther long-term liabilities were comprised of the following:

(in thousands)

Long-term operating lease obligation $ 15,467 $ 1,369

Long-term donations 334 496

Lease liability $ 5,993 $ 15,467

Extended warranties 4,539 3,042

Donations and other 976 334

Total $ 11,508 $ 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 December 31, 2021, we had a $ 40.0 million balance outstanding under the Revolver.

We have one standby letter of credit totaling $ 1.8 million as of December 31, 2021 and 2020.

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

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 December 31, 2022 and December 31, 2021, we had an outstanding balance under the Revolver of $ 71.0 million and $ 40.0 million, respectively.

We had one standby letter of credit totaling $ 0.8 million as of December 31, 2022 and 2021, respectively.

Borrowings available under the Revolver at December 31, 2022, were $ 128.2 million.

The Revolver expires on November 24, 2026.

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.

At December 31, 2021, 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 year ended December 31, 2021.

At December 31, 2022 and 2021, the weighted average interest rate of our Revolver was 3.0 % and 1.3 %, 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 years ended December 31, 2022 and 2021, respectively.

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.

3 unchanged sentences

At December 31, 2022, our leverage ratio was 0.46 to 1.0, which meets the requirement of not being above 3 to 1.

The previous revolving credit facility allowed for maximum borrowings of $ 30.0 million with an interest rate of LIBOR plus 2.0 %.

The previous revolving credit facility, prior to November 24, 2021, allowed for maximum borrowings of $ 30.0 million with an interest rate of LIBOR plus 2.0 %.

There were no fees associated with the unused portion of committed amounts under the previous revolving credit facility.

As of December 31, 2020, we had no balance outstanding under our previous revolving credit facility.

At December 31, 2020, the weighted average interest rate of our revolving credit facility was 2.6 %.

On January 18, 2022, we updated our standby letter of credit to $ 820,000 .

As of February 28, 2022, we had $ 55,000,000 of outstanding borrowings under our Revolver.

The provision for income taxes consists of the following:

4 unchanged sentences

Deferred ( 13,332 ) 3,669 13,027

Total $ 10,424 $ 22,966 $ 13,320

Income tax provision $ 24,157 $ 10,424 $ 22,966

The provision for income taxes differs from the amount computed by applying the statutory Federal income tax rate before the provision for income taxes.

5 unchanged sentences

Change in valuation allowance — % 1.0 % — %

Excess tax benefits related to share-based compensation ( 7.8 ) % ( 3.2 ) % ( 2.6 ) %

Excess tax benefits related to share-based compensation (Note 14)

( 2.4 ) % ( 7.8 ) % ( 3.2 ) %

Return to provision ( 0.3 ) % — % 0.1 %

Oklahoma amended tax returns — % — % ( 1.3 ) %

Research and development tax credits ( 2.1 ) % ( 1.1 ) % ( 0.9 ) %

Other ( 0.9 ) % 0.2 % 0.2 %

15.1 % 22.5 % 20.0 %

Effective tax rate 19.4 % 15.1 % 22.5 %

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%.

As a result of these changes, the Company adjusted its state deferred tax assets and liabilities in the second quarter of 2021 using the newly enacted rate for the periods when they are expected to be realized.

This resulted in a benefit of $ 0.8 million included in the table above under State income taxes, net of Federal benefit, for the year ending December 31, 2021.

During the year ending December 31, 2021, the Company recorded an excess tax benefit of $ 5.4 million as compared to $ 3.2 million during 2020, an increase of 68.8 %.

The increase 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 and three months ended December 31, 2021.

We earn investment tax credits from the state of Oklahoma’s investment tax credit program for generally 1% of the qualified assets to be taken over 5 years.

We use the flow-through method of accounting for the investment tax credits.

We have credit carryforwards totaling $ 3.7 million that have estimated expirations starting in 2035.

Upon completion of the Company's 2018 tax return in 2019, the Company recorded additional benefit due to higher than expected research and development credit of $ 0.6 million.

Additionally in 2019, the Company determined it could take advantage of an additional 1 % tax credit in Oklahoma for years in which the Company's location was deemed to be within an enterprise zone.

The additional Oklahoma credit for being in an enterprise zone, or otherwise allowable under Oklahoma law, resulted in a benefit of $ 1.2 million.

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

We use the flow-through method of accounting for the investment tax credits earned on eligible tangible asset expenditures.

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 December 31, 2022, we have credit carryforwards totaling $ 3.1 million that have estimated expirations starting in 2035.

We also earn research and development tax credits as defined under Section 41 of the Internal Revenue Code.

To qualify for the research and development tax credits, we perform annual studies that identifies, documents, and

supports eligible expenses related to qualified research and development activities.

Eligible expenses include but are not limited to supplies, material and internal wages.

With the addition of BASX in December 2021 (Note 4), we identified additional eligible expenses related to qualified research and development activities.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

2 unchanged sentences

Deferred income tax assets (liabilities):

Accounts receivable and inventory reserves $ 625 $ 1,052

Allowance for credit losses and inventory reserves $ 1,337 $ 625

Warranty accrual 4,184 3,675

1 unchanged sentence

Share-based compensation 7,440 7,568

Intangibles 993 ( 33 )

Research & development expenses 11,265 —

Oklahoma investment credit carryforward 3,115 3,404

6 unchanged sentences

Net deferred income tax liabilities $ ( 18,661 ) $ ( 31,993 )

In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 174, research and development expenses incurred after December 31, 2021 are required to be capitalized and amortized over 5 years.

The amortization requirements for tax purposes is a mid-year convention, meaning that the tax amortization is 10% in the year of acquisition, 20% in the following 4 years, and 10% in the final year.

Estimated Section 174 research and developments costs for the year ended December 31, 2022 were $ 46.8 million.

This resulted in a reduction of our deferred tax liability of approximately $ 11.3 million for the year ended December 31, 2022.

Realization of deferred tax assets, including the associated credit carryforwards, is dependent upon generating sufficient taxable income in the appropriate tax jurisdiction.

2 unchanged sentences

These deductions can vary from year to year and, consequently, the amount of income taxes paid in future years will vary from the amounts paid in prior years.

We file income tax returns in the U.S.

and state tax returns jurisdictions.

We file income tax returns in the U.S., state and foreign income tax jurisdictions.

We are subject to U.S.

examinations for tax years 2018 to present.

income tax examinations for the tax years 2018 to present, and to non-U.S.

income tax examinations for the tax years 2017 to present.

In addition, we are subject to state and local income tax examinations for tax years 2017 to present.

2 unchanged sentences

Share-Based Compensation

On May 22, 2007, our stockholders adopted a Long-Term Incentive Plan (as amended, “LTIP”) which provided an additional 3.3 million shares that could be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance units and performance awards, in addition to the shares from the previous plan, the 1992 Plan.

Since inception of the LTIP, non-qualified stock options and restricted stock awards have been granted with a five year vesting schedule.

Under the LTIP, the exercise price of shares granted may not be less than 100 % of the fair market value at the date of the grant.

On May 24, 2016, our stockholders adopted the 2016 Long-Term Incentive Plan (as amended, “2016 Plan”) which provides for approximately 8.9 million shares, comprised of 3.4 million new shares provided for under the 2016 Plan, approximately 0.4 million shares that were available for issuance under the previous LTIP that are now authorized for issuance under the 2016 Plan, approximately 2.6 million shares that were approved by the stockholders on May 15, 2018, and an additional 2.5 million shares that were approved by the stockholders on May 12, 2020.

On May 24, 2016, our stockholders adopted the 2016 Long-Term Incentive Plan (“2016 Plan”) which provides for approximately 8.9 million shares, comprised of 3.4 million new shares provided for under the 2016 Plan, approximately 0.4 million shares that were available for issuance under the previous LTIP that are now authorized for issuance under the 2016 Plan, approximately 2.6 million shares that were approved by the stockholders on May 15, 2018, and an additional 2.5 million shares that were approved by the stockholders on May 12, 2020.

Under the 2016 Plan, shares can be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance awards, dividend equivalent rights, and other awards.

Under the 2016 Plan, the exercise price of shares granted may not be less than 100 % of the fair market value at the date of the grant.

The 2016 Plan is

administered by the Compensation Committee of the Board of Directors or such other committee of the Board of Directors as is designated by the Board of Directors (the “Committee”).

The 2016 Plan is administered by the Compensation Committee of the Board of Directors or such other committee of the Board of Directors as is designated by the Board of Directors (the “Committee”).

Membership on the Committee is limited to independent directors.

1 unchanged sentence

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 December 31, 2021, 2020, and 2019 using a Black Scholes-Merton Model:

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 years ended December 31, 2022, 2021, and 2020 using a Black Scholes-Merton Model:

2022 2021 2020

14 unchanged sentences

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

Range of Number Remaining Average

Exercise of Contractual Exercise Intrinsic

Prices Shares Life Price Value

(in thousands)

$ 8.17 - 40.87

538,335 4.84 $ 30.32 $ 26,440

$ 41.37 - 41.37

361,231 6.37 41.37 13,748

$ 42.42 - 79.81

124,098 8.17 45.60 4,198

Total 1,023,664 5.79 $ 36.07 $ 44,386

The following is a summary of stock options vested and exercisable as of December 31, 2020:

Range of Number Remaining Average

Exercise of Contractual Exercise Intrinsic

Prices Shares Life Price Value

(in thousands)

$ 7.18 - 36.95

543,646 5.33 $ 28.33 $ 20,820

$ 37.00 - 40.87

1,978 7.09 38.50 56

$ 41.37 - 66.98

194,697 7.87 41.59 4,875

Total 740,321 6.00 $ 31.85 $ 25,751

The following is a summary of stock options vested and exercisable as of December 31, 2019:

Average Weighted

Range of Number Remaining Average

23 unchanged sentences

The fair value of restricted stock awards is based on the fair market value of AAON common stock on the respective grant dates, reduced for the present value of dividends.

At December 31, 2022, unrecognized compensation cost related to unvested restricted stock awards was approximately $ 4.4 million which is expected to be recognized over a weighted average period of 1.6 years.

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

5 unchanged sentences

Unvested at December 31, 2022 144,826 $ 50.00

At December 31, 2021, unrecognized compensation cost related to unvested restricted stock awards was approximately $ 4.3 million which is expected to be recognized over a weighted average period of 2.05 years.

The Company has awarded performance stock units ("PSUs") to certain officers and employees under our 2016 Plan.

Unlike our restricted stock awards, the PSUs are not considered legally outstanding and do not accrue dividends during the vesting period.

The PSUs vest based on the level of achievement with respect to the Company's three year total shareholder return ("TSR") benchmarked against similar companies included in the capital goods sector of the S&P SmallCap 600 Index.

The TSR measurement period is the three years ending December 31, 2023.

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.

We have awarded performance restricted stock units ("PSUs") to certain officers and employees under our 2016 Plan.

Unlike our restricted stock awards, these PSUs are not considered legally outstanding and do not accrue dividends during the vesting period.

These PSUs vest based on the level of achievement with respect to the Company's total shareholder return ("TSR") benchmarked against similar companies included in the capital goods sector of the S&P Smallcap 600 Index.

The TSR measurement period is three years .

At the end of the measurement period, each award will be converted into AAON 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 December 31, 2022 is $ 2.0 million and is expected to be recognized over a weighted average period of approximately 2.0 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 year ended December 31, 2021 using a Monte Carlo Model:

December 31, 2021

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 years ended December 31, 2022 and 2021, using a Monte Carlo Model:

Expected dividend rate $ 0.38 $ 0.38

2 unchanged sentences

Expected life (in years) 2.80 2.80

The expected term of the PSUs is based on the remaining service period ending December 31, 2023.

The expected term of the PSUs is based on their remaining performance period.

The risk-free interest rate is based on the U.S.

7 unchanged sentences

Unvested at December 31, 2022 1

62,659 $ 54.92

1 Consists of 14,817 PSUs cliff vesting December 31, 2024 and 47,842 PSUs cliff vesting December 31, 2025.

Key Employee Awards

2 unchanged sentences

The potential future issuance of the Key Employee Awards is contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ending 2021, 2022, and 2023 as defined by the MIPA Agreement and continued employment with the Company.

At the end of the earn-out period, ending December 31, 2023, each eligible Key Employee Award will vest and be converted into common stock.

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 December 31, 2021 is $ 1.5 million and is expected to be recognized over a weighted average period of approximately 2.0 years.

At the end of the earn-out period, ending December 31, 2023, each eligible Key Employee Award will vest and be converted into AAON common stock.

The fair value of Key Employee Awards was 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 December 31, 2022 is $ 1.0 million and is expected to be recognized over a weighted average period of approximately 1.0 year.

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

1 unchanged sentence

Unvested at December 31, 2021 26,599 $ 80.18

Granted 26,599 80.18

Forfeited — —

15 unchanged sentences

Restricted stock 3,105 2,519 3,030

PSUs 958 525 —

Key employee awards 1,052 44 —

21 unchanged sentences

Contributions, net of forfeitures, made to the defined contribution plan $ 15,475 $ 9,724 $ 9,091

Profit Sharing Bonus Plan

We maintain a discretionary profit sharing bonus plan under which approximately 10 % of pre-tax profit from consolidated AAON Oklahoma and AAON Texas is paid to eligible employees on a quarterly basis in order to reward employee productivity.

Eligible employees are regular full-time employees of AAON Oklahoma or AAON Texas 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.

Profit Sharing Bonus Plans

We maintain a discretionary profit sharing bonus plan under which approximately 10.0 % of pre-tax profit from AAON Oklahoma and AAON Coil Products is paid to eligible employees on a quarterly basis in order to reward employee productivity.

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.

BASX has a separate employee incentive program (EIP), under which 5.0 % 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.

Years Ended December 31,

1 unchanged sentence

(in thousands)

Profit sharing bonus plan expense $ 8,526 $ 11,593 $ 7,448

Profit sharing bonus plan and employee incentive plan expense $ 14,009 $ 8,526 $ 11,593

Employee Medical Plan

We self-insure for our employees' health insurance.

At AAON Oklahoma and AAON Coil Products, w e 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.

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.

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 heath insurance plan deductibles.

In addition, the Company matches 175.0 % of a participating AAON Oklahoma and AAON Coil Products employee's allowed contributions to a qualified health saving account to assist employees with our heath 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.

Years Ended December 31,

2 unchanged sentences

Medical claim payments $ 10,459 $ 9,640 $ 9,060

Health saving account payments 3,482 3,476 3,265

Health saving account contributions 3,862 3,482 3,476

Stockholders’ Equity

Stock Repurchase

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 Board has authorized two active stock repurchase programs for the Company.

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.

1 unchanged sentence

Agreement Execution Date Authorized Repurchase $ Expiration Date

May 16, 2018 1

$ 15 million March 1, 2019

March 5, 2019 1

$ 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.

1 unchanged sentence

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 of 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.

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.

The Company repurchases shares of AAON stock from 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.

Lastly, the Company also had a stock repurchase arrangement by which employee-participants in our 401(k) Plan were entitled to have shares of AAON stock in their accounts sold to the Company.

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.

Our repurchase activity is as follows:

6 unchanged sentences

Total 243,276 $ 13,755 $ 56.54 320,298 $ 22,466 $ 70.14 565,882 $ 31,229 $ 55.19

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

Inception to Date

5 unchanged sentences

Total 14,680,690 $ 276,765 $ 18.85

Subsequent to December 31, 2021 and through February 23, 2022, the Company repurchased 5,120 shares for $ 0.4 million from employees for payment of statutory tax withholdings on stock transactions and 37,923 shares for $ 2.4 million from our 401(k) savings and investment plan.

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

Board approval is required to determine the date of declaration and amount for each semi-annual dividend payment.

Our recent dividends are as follows:

At the discretion of the Board of Directors, we pay cash dividends.

Board approval is required to determine the date of declaration and amount for each cash dividend payment.

Our cash dividends for the three years ended December 31, 2022 are as follows:

Declaration Date Record Date Payment Date Dividend per Share

8 unchanged sentences

On December 10, 2021, we closed on the acquisition of BASX (Note 4).

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.

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 AAON stock, par value $ 0.004 per share.

The shares do not accrue dividends.

1 unchanged sentence

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 February 28, 2022, the Company has not issued any shares related to the contingent consideration to the former owners of BasX.

As of December 31, 2022, 486,286 shares related to the 2021 earn-out milestone have 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 February 22, 2023.

New Markets Tax Credit

12 unchanged sentences

The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement.

Noncompliance with applicable requirements could result in the Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the Investor for any loss or recapture of the NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations.

under the applicable statute of limitations.

The Company does not anticipate any credit recapture will be required in connection with this financing arrangement.

8 unchanged sentences

Commitments and Contingencies

We are subject to various claims and legal actions that arise in the ordinary course of business.

Havtech Litigation

On January 24, 2022, one of the Company’s former independent sales representative firms, Havtech, LLC (and its affiliate, Havtech Parts Division, LLC, collectively “Plaintiffs”), filed a complaint (the “Complaint”) in the Circuit Court for Howard County, Maryland ( Havtech, LLC, et al., v.

AAON, Inc., et al.

The Complaint challenged the Company’s termination of its business relationship with Plaintiffs.

The Company removed the action to the United States District Court for the District of Maryland (Northern Division) and moved to dismiss the Complaint.

Plaintiffs’ First Amended Complaint (“First Amended Complaint”) was entered by the court on July 28, 2022.

The First Amended Complaint asserts that the Company improperly terminated Plaintiffs and seeks damages alleged to be no less than $ 48.6 million, plus fees and costs.

The Company filed its Answer to First Amended Complaint on January 31, 2023.

The Company believes that Plaintiffs’ claims are without merit and intends to vigorously defend itself.

Other Matters

The Company is involved from time to time in claims and lawsuits incidental to our business arising from various matters, including alleged violations of contract, product liability, warranty, environmental, regulatory, personal injury, intellectual property, employment, tax and other laws.

We closely monitor these claims and legal actions and frequently consult with our legal counsel to determine whether they may, when resolved, have a material adverse effect on our financial position, results of operations or cash flows and we accrue and/or disclose loss contingencies as appropriate.

We have concluded that the likelihood is remote that the ultimate resolution of any pending litigation or claims will be material or have a material adverse effect on the Company’s business, financial position, results of operations, or cash flows.

We do not believe these matters will have a material adverse effect on our business, financial position, results of operations or cash flows.

We are occasionally party to short-term, cancellable and occasionally non-cancellable, fixed price contracts with major suppliers for the purchase of raw material and component parts.

1 unchanged sentence

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 December 31, 2021.

We had no material contractual purchase obligations as of December 31, 2022, except as noted below.

On April 27, 2022, the Company entered into a purchase and sale agreement with a third-party manufacturer to purchase certain assets to design and manufacture fan wheels for the purchase price of $ 6.5 million.

As of December 31, 2022, we have paid approximately $ 3.5 million related to this agreement, which is included in other long-term assets and property, plant and equipment, with the remaining $ 3.0 million included in accounts payable and other long-term assets on our consolidated balance sheets.

The final payment will be made in 2023.

New Accounting Pronouncements

3 unchanged sentences

ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements and notes thereto.

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers .

Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree.

Historically, such amounts were recognized by the acquirer at fair value in acquisition accounting.

The guidance should be applied prospectively to acquisitions occurring on or after the effective date.

The guidance is effective for years beginning after December 15, 2022, including interim periods within those years.

Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued.

We adopted this standard at the beginning of the fourth quarter of 2021.

Upon adoption, this update did not have a material effect on our consolidated financial position or result of operations.

Earnings Per Share

2 unchanged sentences

Dilutive common shares consist primarily of stock options and restricted stock awards.

Dilutive shares related to the contingent consideration payable to former owners of BasX (Note 4) are included in the calculation of diluted weighted average shares once it is determinable that BasX will satisfy the post-closing earn-out milestones under the terms of the MIPA agreement.

The shares will be included in basic weighted average share once they are legally issued and no longer contingent.

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

6 unchanged sentences

Effect of dilutive shares related contingent consideration 2

199,303 23,092 —

Diluted weighted average shares 54,097,072 53,728,989 53,061,169

5 unchanged sentences

1 Dilutive shares related to stock options, restricted stock, PSUs and Key Employee Awards (Note 14)

2 Dilutive shares related contingent shares issued to former owners of BasX (Note 4)

2 Dilutive shares related to contingent shares issued to former owners of BASX (Note 4)

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 and CEO/President.

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 4), at December 31, 2021, the Company leased an office 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 a member of the Company's executive management team.

The Company also periodically makes sales to a board member for parts.

From December 10, 2021 through May 31, 2022 (Note 4 ) , 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.

Following is a summary of transactions and balances with affiliates:

6 unchanged sentences

Due from affiliates $ 432 $ 547

ASC 280, Segment Reporting , establishes the standards for reporting information about segments in financial statements.

In applying the criteria set forth in ASC 280, the Company has determined that it has three reportable segments for financial reporting purposes.

The Company has determined that it has three reportable segments for financial reporting purposes.

Management evaluates the performance of its business segments primarily on gross profit.

Beginning in the fourth quarter of 2021, due to the acquisition of BasX and internal leadership reporting changes, the Company reevaluated its reportable segments for disclosure purposes.

The Company has conformed its segment reporting accordingly and has reclassified comparative prior period information to reflect this change.

The Company's chief decision maker ("CODM"), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and income from operations.

1 unchanged sentence

AAON Oklahoma:

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.

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.

AAON Oklahoma designs, manufactures, sells, and services standard, semi-custom, and custom heating, ventilation, and air conditioning ("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 in Tulsa, Oklahoma as well as online.

Through our Norman Asbjornson Innovation Center ("NAIC") research and development laboratory facility in Tulsa, Oklahoma, the Company is able to test units under various environmental conditions.

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

AAON Coil Products:

AAON Coil Products designs and manufactures a selection of our standard, semi-custom, and custom HVAC systems.

In addition, AAON Coil Products designs and manufactures various heating and cooling coils to be used in HVAC systems, mostly for the benefit of AAON Oklahoma and AAON Coil Products.

AAON Coil Products also designs and manufactures various heating and cooling coils to be used in HVAC systems, mostly for the benefit of AAON Oklahoma and AAON Coil Products.

AAON Coil Products consists of operations at our Longview, Texas facilities.

BasX provides product development design and manufacturing of custom engineered air handling systems including high efficiency data center cooling solutions, cleanroom solutions, HVAC systems and modular solutions.

BASX provides product development design and manufacturing of custom engineered air handling systems including high efficiency data center cooling solutions, cleanroom HVAC systems, commercial/industrial HVAC systems, and modular solutions.

Additionally, BASX designs and manufactures cleanroom environmental control systems to support hospital surgical suites, pharmaceutical process facilities, semiconductor and electronics manufacturing, laboratory and isolation and modular cleanrooms for facility flexibility.

BASX consists of operations at our Redmond, Oregon facility.

1 unchanged sentence

Transactions between segments are recorded based on prices negotiated between the segments.

The “Other and eliminations” category in the Total Assets table below includes assets at our non-operating entity AAON, Inc., Nevada corporation, that are not allocated to the reportable segments, as well as intercompany eliminations.

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

Years Ended December 31,

7 unchanged sentences

Inter-segment sales 30,932 24,250 21,552

External sales 117,653 4,083 —

Inter-segment sales 79 — —

Eliminations ( 34,262 ) ( 26,754 ) ( 24,235 )

7 unchanged sentences

AAON Coil Products 68,013 62,534

BASX 35,578 28,662

Total long-lived assets $ 317,322 $ 275,036

2 unchanged sentences

AAON Coil Products — —

BASX 143,269 152,619

Total intangible assets and goodwill $ 146,498 $ 155,848

2 unchanged sentences

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not Applicable.

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 8. Financial Statements and Supplementary Data