What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-05-04 · 239 added, 120 removed, 725 unchanged (33% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

4 unchanged sentences

154,111 127,158

Income tax receivable 2,699 —

Inventories, net 215,408 198,939

24 unchanged sentences

Other long-term liabilities 11,364 11,508

New market tax credit obligation (a) 6,460 6,449

New market tax credit obligation 1

Commitments and contingencies

1 unchanged sentence

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

Common stock, $ .004 par value, 100,000,000 shares authorized, 54,201,863 and 53,425,184 issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Common stock, $ .004 par value, 100,000,000 shares authorized, 54,379,324 and 53,425,184 issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 128,636 98,735

2 unchanged sentences

Total liabilities and stockholders' equity $ 930,051 $ 813,903

(a) Held by variable interest entities (Note 16)

1 Held by variable interest entities (Note 16)

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

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

(in thousands, except share and per share data)

14 unchanged sentences

Cash dividends declared per common share:

$ 0.12 $ 0.19 $ 0.24 $ 0.19

Weighted average shares outstanding:

4 unchanged sentences

Consolidated Statements of Stockholders' Equity

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

Common Stock Paid-in Retained

9 unchanged sentences

Dividends — — — ( 13,004 ) ( 13,004 )

Balances at June 30, 2023 54,379 $ 218 $ 128,636 $ 531,257 $ 660,111

Three Months Ended June 30, 2023

Common Stock Paid-in Retained

Shares Amount Capital Earnings Total

(in thousands)

Balances at March 31, 2023 54,202 $ 217 $ 117,077 $ 492,120 $ 609,414

Three Months Ended March 31, 2022

Net income — — — 45,682 45,682

Stock options exercised and restricted 178 1 7,387 — 7,388

stock awards granted

Share-based compensation — — 4,304 — 4,304

Stock repurchased and retired ( 1 ) — ( 132 ) — ( 132 )

Dividends — — — ( 6,545 ) ( 6,545 )

Balances at June 30, 2023 54,379 $ 218 $ 128,636 $ 531,257 $ 660,111

Six Months Ended June 30, 2022

Common Stock Paid-in Retained

10 unchanged sentences

Dividends — — — ( 10,096 ) ( 10,096 )

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

Three Months Ended June 30, 2022

Common Stock Paid-in Retained

Shares Amount Capital Earnings Total

(in thousands)

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

Net income — — — 15,946 15,946

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

stock awards granted

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

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

Dividends — — — ( 10,101 ) ( 10,101 )

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

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

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

Operating Activities (in thousands)

8 unchanged sentences

Loss (gain) on disposition of assets 12 ( 12 )

Foreign currency transaction gain ( 2 ) ( 9 )

Foreign currency transaction (gain) loss ( 13 ) 9

Interest income on note receivable ( 10 ) ( 11 )

13 unchanged sentences

Capital expenditures ( 60,629 ) ( 27,227 )

Cash paid for building (Note 18 )

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

3 unchanged sentences

Financing Activities

Proceeds from financing obligation, net of issuance costs 6,061 —

Payment related to financing costs ( 398 ) —

Borrowings under revolving credit facility 279,961 94,900

Payments under revolving credit facility ( 272,429 ) ( 28,651 )

Principal payments on financing lease — ( 28 )

Stock options exercised 23,244 6,385

3 unchanged sentences

Net cash provided by financing activities 22,273 65,740

Net (decrease) increase in cash, cash equivalents and restricted cash ( 2,969 ) 2,741

Net increase in cash, cash equivalents and restricted cash 21,716 14,723

Cash, cash equivalents and restricted cash, beginning of period 5,949 3,487

6 unchanged sentences

Our operating subsidiaries include AAON, Inc.

("AAON Oklahoma"), an Oklahoma corporation, AAON Coil Products, Inc., a Texas corporation, and BasX, Inc.

("AAON Oklahoma"), an Oklahoma corporation, AAON Coil Products, Inc.

("AAON Coil Products"), a Texas corporation, and BasX, Inc.

("BASX"), an Oregon corporation (collectively, the “Company”).

39 unchanged sentences

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

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

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.

As part of the normal course of business, management continually monitors 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 half of 2023.

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

Production of the remaining WH/WV backlog was completed during the second quarter 2023.

Accounting Policies

26 unchanged sentences

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

Three months ended March 31,

Six Months Ended June 30,

(in thousands)

12 unchanged sentences

The following tables show disaggregated net sales by reportable segment (Note 19) by major source, net of intercompany sales eliminations.

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

AAON Oklahoma AAON Coil Products BASX Total

10 unchanged sentences

$ 218,214 $ 30,081 $ 35,662 $ 283,957

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

AAON Oklahoma AAON Coil Products BASX Total

11 unchanged sentences

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

Six Months Ended June 30, 2023

AAON Oklahoma AAON Coil Products BASX Total

(in thousands)

Rooftop units $ 376,091 $ — $ — $ 376,091

Condensing units 61 26,607 — 26,668

Air handlers — 24,831 5,638 30,469

Outdoor mechanical rooms 208 212 — 420

Cleanroom systems — — 29,708 29,708

Data center cooling solutions — 3,240 30,353 33,593

Water-source heat pumps 3,128 6,166 — 9,294

Part sales 29,867 1 491 30,359

10,861 2,436 11 13,308

$ 420,216 $ 63,493 $ 66,201 $ 549,910

Six Months Ended June 30, 2022

AAON Oklahoma AAON Coil Products BASX Total

(in thousands)

Rooftop units $ 260,322 $ — $ — $ 260,322

Condensing units 242 20,925 — 21,167

Air handlers — 20,978 4,284 25,262

Outdoor mechanical rooms 554 370 — 924

Cleanroom systems — — 16,285 16,285

Data center cooling solutions — — 23,705 23,705

Water-source heat pumps 4,862 4,151 — 9,013

Part sales 24,073 — 331 24,404

7,295 2,265 943 10,503

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

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

Due to the highly customized nature of many of the Company’s products and each product not having an alternative use to the Company without significant costs to the Company, the Company recognizes revenue over time as progress is made toward satisfying the performance obligations of each contract.

5 unchanged sentences

Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income, and are estimated and recognized by the Company throughout the life of the contract.

The aggregate of costs incurred and income recognized on uncompleted contracts in excess of billings is shown as a contract asset within our consolidated

balance sheets, and the aggregate of billings on uncompleted contracts in excess of related costs incurred and income recognized is shown as a contract liability within our consolidated balance sheets.

The aggregate of costs incurred and income recognized on uncompleted contracts in excess of billings is shown as a contract asset within our consolidated balance sheets, and the aggregate of billings on uncompleted contracts in excess of related costs incurred and income recognized is shown as a contract liability within our consolidated balance sheets.

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.

22 unchanged sentences

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

The amount of payments to our Representatives were $ 13.3 million and $ 6.5 million for the three months ended March 31, 2023 and 2022, respectively.

The amount of payments to our Representatives were $ 13.0 million and $ 11.4 million for the three months ended June 30, 2023 and 2022, respectively, and $ 26.3 million and $ 17.9 million for the six months ended June 30, 2023 and 2022, respectively.

The Company has various lease arrangements for certain manufacturing and warehousing facilities, equipment rental, as well as administrative facilities.

1 unchanged sentence

The following table presents the balances by lease type:

Balance Sheet Classification March 31, 2023 December 31, 2022

Balance Sheet Classification June 30, 2023 December 31, 2022

Operating Leases

6 unchanged sentences

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

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

The lease provides an additional 198,000 square feet to support our operations.

In November 2022, the Company entered into a lease agreement for land and facilities in Tulsa, Oklahoma which provides an additional 198,000 square feet to support our operations.

The lease term will expire October 31, 2025.

On July 28, 2023, the Company entered into a lease agreement with a start date of September 1, 2023, for land and approximately 72,000 square feet of facilities in Redmond, Oregon to support our manufacturing operations.

The lease term is approximately five years with additional renewal options.

This lease will be classified as an operating lease starting in third quarter of 2023.

Accounts Receivable

5 unchanged sentences

$ 154,111 $ 127,158

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

Allowance for credit losses:

4 unchanged sentences

Accounts receivable written off, net of recoveries

— ( 167 ) — ( 167 )

Balance, end of period $ 306 $ 563 $ 306 $ 563

11 unchanged sentences

$ 215,408 $ 198,939

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

Allowance for excess and obsolete inventories:

1 unchanged sentence

Balance, beginning of period $ 4,748 $ 2,007 $ 4,527 $ 1,787

Provision for excess and obsolete 664 220

Provision for (recoveries of) excess and 794 ( 72 ) 1,458 148

obsolete inventories

Inventories written off ( 261 ) ( 64 ) ( 704 ) ( 64 )

2 unchanged sentences

Our intangible assets consist of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Definite-lived intangible assets (in thousands)

7 unchanged sentences

Amortization expense recorded in cost of sales is as follows:

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

(in thousands)

2 unchanged sentences

Supplemental Cash Flow Information

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

Supplemental disclosures:

4 unchanged sentences

Non-cash capital expenditures $ 1,205 $ 221 $ 1,571 $ 679

Dividends declared $ — $ 10,096 $ — $ 10,096

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.

2 unchanged sentences

Changes in the warranty accrual are as follows:

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

Warranty accrual:

32 unchanged sentences

On May 27, 2022, we amended our $ 100.0 million Amended and Restated Loan Agreement dated November 24, 2021 (as amended, “Revolver”), to provide for maximum borrowings of $ 200.0 million.

As of March 31, 2023 and December 31, 2022, we had $ 83.7 million and $ 71.0 million outstanding under the Revolver, respectively.

We have one standby letter of credit totaling $ 0.3 million as of March 31, 2023.

Borrowings available under the Revolver at March 31, 2023 were $ 116.0 million.

As of June 30, 2023 and December 31, 2022, we had $ 78.5 million and $ 71.0 million outstanding under the Revolver, respectively.

We have one standby letter of credit totaling $ 0.3 million as of June 30, 2023.

Borrowings available under the Revolver at June 30, 2023 were $ 121.2 million.

The Revolver expires on May 27, 2027.

On April 20, 2023, we amended the Revolver to allow for the occurrence of transactions associated with the New Markets Tax Credit executed on April 25, 2023 (Note 16).

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.

The weighted average interest rate on borrowings outstanding on the Revolver was 6.0 % and 1.3 % for the three months ended March 31, 2023 and 2022, respectively.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the three months ended March 31, 2023 and 2022.

The weighted average interest rate on borrowings outstanding on the Revolver was 6.3 % and 6.2 % for the three and six months ended June 30, 2023, respectively, as compared to 1.9 % and 1.7 % for the three and six months ended June 30, 2022, respectively.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income for the three and six months ended June 30, 2023 and 2022.

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

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

At March 31, 2023, we were in compliance with our covenants, as defined by the Revolver.

At June 30, 2023, we were in compliance with our covenants, as defined by the Revolver.

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

At March 31, 2023, our leverage ratio was 0.47 to 1.0, which meets the requirement of not being above 3 to 1.

On April 20, 2023, we amended the Revolver to allow for the occurrence of transactions associated with the New Markets Tax Credit executed on April 25, 2023 (Note 16).

At June 30, 2023, our leverage ratio was 0.37 to 1.0, which meets the requirement of not being above 3 to 1.

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

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

(in thousands)

4 unchanged sentences

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

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

Federal statutory rate 21.0 % 21.0 % 21.0 % 21.0 %

4 unchanged sentences

Research and development credits ( 1.2 ) ( 1.5 ) ( 1.3 ) ( 1.2 )

Change in valuation allowance (Oklahoma Investment Credit) ( 5.8 ) — ( 3.2 ) —

Other ( 0.4 ) ( 2.8 ) ( 0.3 ) ( 1.1 )

Effective tax rate 14.4 % 20.8 % 14.5 % 20.9 %

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

We have historically earned investment tax credits from the state of Oklahoma’s manufacturing property investment program.

We use the flow-through method to account for 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 March 31, 2023, we have investment tax credit carryforwards of approximately $ 6.3 million.

As part of our expansion projects in Oklahoma, we identified a separate, more advantageous Oklahoma credit program (non income tax related) which will cause us to discontinue our accumulation of credits for Oklahoma’s manufacturing property investment program after the 2022 tax year.

The Company had investment tax credit carryforwards with a valuation allowance reserved against them as we did not have sufficient taxable income to utilize the carryforwards, in part because we generated more credit each year than we were able to utilize.

Because the Company will not generate additional excess credits after our 2022 tax year, we will be able to use our credit carryforwards against future taxable income and the related valuation allowance was reversed resulting in a one-time benefit of $ 3.1 million to the income tax provision for the three and six months ended June 30, 2023.

As of June 30, 2023, we have investment tax credit carryforwards of approximately $ 4.9 million.

These credits have estimated expirations from the year 2039 through 2043.

17 unchanged sentences

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

The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the three months ended March 31, 2023 and 2022 using a Black Scholes-Merton Model:

Three months ended

March 31, 2023 March 31, 2022

The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the six months ended June 30, 2023 and 2022 using a Black Scholes-Merton Model:

Six months ended

June 30, 2023 June 30, 2022

Directors and SLT 1 :

Expected dividend rate $ 0.48 $ 0.38

Expected (annual) dividend rate $ 0.48 $ 0.38

Expected volatility 37.89 % 35.95 %

1 unchanged sentence

Expected life (in years) 4.0 4.0

Expected dividend rate $ 0.48 $ 0.38

Expected (annual) dividend rate $ 0.48 $ 0.38

Expected volatility 38.52 % 37.29 %

6 unchanged sentences

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

The following is a summary of stock options vested and exercisable as of March 31, 2023:

The following is a summary of stock options vested and exercisable as of June 30, 2023:

Prices Number

15 unchanged sentences

( 38,727 ) 51.88

Outstanding at March 31, 2023

Outstanding at June 30, 2023

2,681,954 $ 49.09

Exercisable at March 31, 2023

Exercisable at June 30, 2023

1,551,628 $ 42.40

The total pre-tax compensation cost related to unvested stock options not yet recognized as of March 31, 2023 is $ 15.2 million and is expected to be recognized over a weighted average period of approximately 1.8 years.

The total intrinsic value of options exercised during the three months ended March 31, 2023 and 2022 was $ 16.7 million and $ 1.9 million, respectively.

The cash received from options exercised during the three months ended March 31, 2023 and 2022 was $ 15.9 million and $ 2.9 million, respectively.

The total pre-tax compensation cost related to unvested stock options not yet recognized as of June 30, 2023 is $ 13.1 million and is expected to be recognized over a weighted average period of approximately 1.6 years.

The total intrinsic value of options exercised during the six months ended June 30, 2023 and 2022 was $ 25.3 million and $ 3.5 million, respectively.

The cash received from options exercised during the six months ended June 30, 2023 and 2022 was $ 23.2 million and $ 6.4 million, respectively.

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

2 unchanged sentences

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

At March 31, 2023, unrecognized compensation cost related to unvested restricted stock awards was approximately $ 6.4 million, which is expected to be recognized over a weighted average period of approximately 1.8 years.

At June 30, 2023, unrecognized compensation cost related to unvested restricted stock awards was approximately $ 6.6 million, which is expected to be recognized over a weighted average period of approximately 1.8 years.

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

4 unchanged sentences

( 1,112 ) 56.35

Unvested at March 31, 2023

Unvested at June 30, 2023

129,833 $ 64.62

4 unchanged sentences

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

The total pre-tax compensation cost related to unvested PSUs not yet recognized as of March 31, 2023 is $ 4.8 million and is expected to be recognized over a weighted average period of approximately 2.1 years.

The following weighted average assumptions were used to determine the fair value of the PSUs granted on the original grant date for expense recognition purposes for PSUs granted during the three months ended March 31, 2023 and 2022 using a Monte Carlo Model:

Three months ended

March 31, 2023 March 31, 2022

Expected dividend rate $ 0.48 $ 0.38

The total pre-tax compensation cost related to unvested PSUs not yet recognized as of June 30, 2023 is $ 5.7 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 six months ended June 30, 2023 and 2022 using a Monte Carlo Model:

Six months ended

June 30, 2023 June 30, 2022

Expected (annual) dividend rate $ 0.48 $ 0.38

Expected volatility 32.71 % 37.60 %

10 unchanged sentences

38,759 126.61

Unvested at March 31, 2023 1

Unvested at June 30, 2023 1

101,418 $ 82.32

6 unchanged sentences

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

The total pre-tax compensation cost related to unvested Key Employee Awards not yet recognized as of March 31, 2023 is $ 0.8 million and is expected to be recognized over a weighted average period of approximately 0.8 years.

The total pre-tax compensation cost related to unvested Key Employee Awards not yet recognized as of June 30, 2023 is $ 0.5 million and is expected to be recognized over a weighted average period of approximately 0.5 years.

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

2 unchanged sentences

26,599 $ 80.18

Unvested at March 31, 2023

Unvested at June 30, 2023

26,599 $ 80.18

1 unchanged sentence

A summary of share-based compensation is as follows:

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

Grant date fair value of awards during the period:

6 unchanged sentences

Options $ 2,311 $ 2,339 $ 4,376 $ 4,379

PSUs 716 292 1,083 477

Restricted stock 1,024 843 1,850 1,522

29 unchanged sentences

Administrative expenses are paid for by Plan participants.

The Company paid no administrative expenses during the three months ended March 31, 2023 and 2022.

The Company paid no administrative expenses during the six months ended June 30, 2023 and 2022.

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

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

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

(in thousands)

5 unchanged sentences

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

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

(in thousands)

10 unchanged sentences

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

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

(in thousands)

5 unchanged sentences

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

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

Three Months Ended

2023 March 31,

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2023 and 2022:

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

(in thousands, except share and per share data)

35 unchanged sentences

Our repurchase activity is as follows:

Three Months Ended

March 31, 2023 March 31, 2022

Six Months Ended

June 30, 2023 June 30, 2022

(in thousands, except share and per share data)

2 unchanged sentences

401(k) — — — 103,936 5,913 56.89

Directors and employees 11,673 1,030 88.24 13,358 804 60.19

Employees 13,083 1,162 88.82 16,183 953 58.89

13,083 $ 1,162 $ 88.82 120,119 $ 6,866 $ 57.16

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

Inception to March 31, 2023

Inception to June 30, 2023

(in thousands, except share and per share data)

4 unchanged sentences

14,693,773 $ 277,927 $ 18.91

Cash Dividends

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

7 unchanged sentences

March 1, 2023 March 13, 2023 March 31, 2023 $ 0.12 $ 0.48

May 18, 2023 June 9, 2023 June 30, 2023 $ 0.12 $ 0.48

1 Effective with the cash dividend declared on March 1, 2023 (paid on March 31, 2023), the Company moved from semi-annual cash dividends to quarterly cash dividends.

On July 7, 2023, the Board of Directors declared a three-for-two stock split of the Company's common stock to be paid in the form of a stock dividend.

Stockholders of record at the close of business on July 28, 2023 will receive one additional share for every two shares they hold as of that date on August 16, 2023 (ex-dividend date August 17, 2023).

Pro Forma Results of Stock Split

The retroactive effect of the stock split, which will occur in the third quarter of 2023, will result in an insignificant (less than $ 0.1 million) reclass between common stock and retained earnings within stockholders' equity on the consolidated balance sheet.

The following table sets forth the pro forma computation of basic and diluted earnings per share for the three and six months ended June 30, 2023 and 2022:

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

(in thousands, except share and per share data)

$ 45,682 $ 15,946 $ 82,496 $ 34,005

Basic weighted average shares

81,439,691 79,642,930 81,263,523 79,488,659

Effect of dilutive shares related to stock based compensation 1

2,029,890 849,885 2,002,199 1,121,997

Effect of dilutive shares related to contingent consideration 2

— — 212,776 306,269

Diluted weighted average shares

83,469,581 80,492,815 83,478,498 80,916,925

Earnings per share:

$ 0.56 $ 0.20 $ 1.02 $ 0.43

$ 0.55 $ 0.20 $ 0.99 $ 0.42

Anti-dilutive shares:

347,368 1,319,331 263,905 987,893

1 Dilutive shares related to stock options, restricted stock, PSUs and Key Employee Awards (Note 12)

2 Dilutive shares related to contingent shares issued to the former owners of BASX (Note 15)

The unaudited pro forma financial information was prepared in accordance with GAAP and is not necessarily indicative of the results of operations that would have occurred if the stock split had been effective before the date indicated above, nor is it indicative of the future operating results of the Company.

Contingent Shares Issued in BASX Acquisition

In December 2021, we closed on the acquisition of BASX.

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 common 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 1.04 million shares of the Company's common stock, par value $ 0.004 per share.

The shares do not accrue dividends.

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

As of March 31, 2023, 389,013 shares and 486,268 shares related to the earn-out milestones for the years ended 2022 and 2021, respectively, have been issued to the former owners of BASX as private placements exempt from registration with the SEC under Rule 506(b), which are included in common stock on the consolidated statements of stockholders' equity.

No additional shares have been issued as of May 2, 2023.

As of June 30, 2023, 0.39 million shares and 0.49 million shares related to the earn-out milestones for the years ended 2022 and 2021, respectively, have been issued to the former owners of BASX as private placements exempt from registration with the SEC under Rule 506(b), which are included in common stock on the consolidated statements of stockholders' equity.

New Markets Tax Credit

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This $ 15.9 million in proceeds plus capital contributed from the 2019 Investor was used to make an aggregate $ 22.5 million loan to a subsidiary of the Company.

This financing arrangement is secured by equipment at the Company's Longview, Texas facilities and a guarantee from the Company, including an unconditional guarantee of NMTCs.

This financing arrangement is secured by equipment at the Company's Longview, Texas facilities and a guarantee from the Company, including an unconditional guarantee of the NMTCs.

This transaction also includes a put/call feature either of which can be exercised at the end of the seven-year compliance period.

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The Company incurred approximately $ 0.3 million of debt issuance costs related to the above transactions, which are being amortized over the life of the transaction.

The 2019 Investor is subject to 100 percent recapture of the 2019 NMTC it receives for a period of seven years, as provided in the Internal Revenue Code and applicable U.S.

Treasury regulations in the event that the financing facility of the Borrower under the transaction (AAON Coil Products, Inc.) becomes ineligible for NMTC treatment per the Internal Revenue Code requirements.

The Company is required to be in compliance with various regulations and contractual provisions that apply to the 2019 NMTC arrangement.

Noncompliance with applicable requirements could result in the 2019 Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the 2019 Investor for any loss or recapture of the 2019 NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations.

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

The 2019 Investor and its majority owned community development entity are considered VIEs and the Company is the primary beneficiary of the VIEs.

Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements.

There are no other assets, liabilities or transactions in these VIEs outside of the financing transactions executed as part of the 2019 NMTC arrangement.

2023 New Markets Tax Credit

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This $ 16.7 million in proceeds plus capital contributed from the 2023 Investor was used to make an aggregate $ 23.8 million loan to a subsidiary of the Company.

This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of NMTCs.

This transaction also includes a put/call feature that either of which can be exercised at the end of the seven-year compliance period.

This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of the NMTCs.

The net proceeds from the closing of the 2023 NMTC is included in restricted cash on our consolidated balance sheets required to be used for the 2023 Project.

This transaction also includes a put/call feature either of which can be exercised at the end of the seven-year compliance period.

The 2023 Investor may exercise its put option or the Company can exercise the call, both of which could serve to trigger forgiveness of a portion of the debt.

The 2023 Investor is subject to 100 percent recapture of the 2023 NMTC it receives for a period of seven years, as provided in the Internal Revenue Code and applicable U.S.

The 2023 Investor's interest of $ 5.7 million is recorded in New market tax credit obligation on the consolidated balance sheets.

The Company incurred approximately $ 0.4 million of debt issuance costs related to the above transactions, which are being amortized over the life of the transaction.

The 2019 Investor and 2023 Investor are each subject to 100 percent recapture of the 2019 and 2023 NMTC, respectively, it receives for a period of seven years, as provided in the Internal Revenue Code and applicable U.S.

The Company is required to be in compliance with various regulations and contractual provisions that apply to the 2023 NMTC arrangement.

Noncompliance with applicable requirements could result in the 2023 Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the 2023 Investor for any loss or recapture of the 2023 NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations.

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

The Company is required to be in compliance with various regulations and contractual provisions that apply to the 2019 NMTC arrangements and 2023 NMTC arrangements, respectively.

Noncompliance with applicable requirements could result in the 2019 and/or 2023 Investors' projected tax benefits not being realized and, therefore, require the Company to indemnify the 2019 Investor and 2023 Investor for any loss or recapture of the 2019 NMTC and 2023 NMTC, respectively, related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations.

The Company does not anticipate any credit recapture will be required in connection with either of these financing arrangements.

The 2019 Investor and 2023 Investor and its majority owned community development entity are considered VIEs and the Company is the primary beneficiary of the VIEs.

Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements.

There are no other assets, liabilities or transactions in these VIEs outside of the financing transactions executed as part of the 2019 NMTC or 2023 NMTC arrangements, respectively.

Commitments and Contingencies

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

We had no material contractual purchase obligations as of March 31, 2023, except as noted below.

We had no material contractual purchase obligations as of June 30, 2023, 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 March 31, 2023, 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.

In April 2023, we purchased several properties near our Tulsa, OK location, including four buildings which will add approximately 47,000 square feet of office space and approximately 53,000 square feet of additional warehouse space.

Additionally, we purchased approximately 14.26 acres immediately adjacent to our Tulsa, OK facilities.

The total amount paid for these properties was approximately $ 10.4 million.

As of June 30, 2023, 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 is expected to be made in 2023.

Related Parties

The following is a summary of transactions and balances with related parties:

Three Months Ended

2023 March 31,

Three Months Ended Six Months Ended

2023 June 30,

2022 June 30,

2023 June 30,

(in thousands)

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Due to affiliates 319 —

The nature of our related party transactions as follows:

The nature of our related party transactions is as follows:

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

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• The Company periodically makes part sales and makes payments to a board member related to a consulting agreement.

• The Company periodically rents space partially owned by the CEO/President for various Company meetings.

• From December 10, 2021 through May 31, 2022, 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.

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

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.

The Company's chief operating 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.

The CODM does not evaluate operating segments using asset or liability information.

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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.

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.

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

Three Months Ended

March 31, 2023 March 31, 2022

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Net Sales (in thousands)

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Gross profit $ 94,018 $ 47,376 $ 171,172 $ 93,440

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Long-lived assets (in thousands)

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

What changed 10-Q

Item 1. Financial Statements