What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-02-27 · 263 added, 204 removed, 909 unchanged (34% of the section changed)

25 unchanged sentences

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

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, 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 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.

Our audit procedures related to the manual inventory adjustments included the following, among others.

• We tested the design and operating effectiveness of controls over inventory valuation, including the standard cost updates in the accounting system and the completeness and accuracy of the inputs to the inventory variance calculation and any related adjustments.

• 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.

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

Critical audit matters

Critical audit matters 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.

We determined that there are no critical audit matters.

/s/ GRANT THORNTON LLP

8 unchanged sentences

Restricted cash 8,736 498

Accounts receivable, net of allowance for credit losses of $ 477 and $ 549 , respectively

127,158 70,780

Income tax receivable — 5,723

Accounts receivable, net 138,108 127,158

Inventories, net 213,532 198,939

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Other long-term liabilities 16,807 11,508

New market tax credit obligation (a) 6,449 6,406

New markets tax credit obligations 1

Commitments and contingencies (Note 18)

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Retained earnings 2

612,835 461,657

Total stockholders’ equity 735,224 560,714

Total liabilities and stockholders’ equity $ 941,436 $ 813,903

(a) Held by variable interest entities (Note 17)

1 Held by variable interest entities (Note 17)

2 Reflects three-for-two stock split effective August 16, 2023.

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

8 unchanged sentences

Selling, general and administrative expenses 171,539 110,823 68,598

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

Gain on disposal of assets ( 13 ) ( 12 ) ( 21 )

Income from operations 227,494 126,761 69,253

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

Interest expense, net ( 4,843 ) ( 2,627 ) ( 132 )

Other income, net 503 399 61

3 unchanged sentences

Earnings per share:

Basic $ 1.89 $ 1.12 $ 1.51

Diluted $ 1.86 $ 1.09 $ 1.49

$ 2.19 $ 1.26 $ 0.75

$ 2.13 $ 1.24 $ 0.73

Cash dividends declared per common share 1 :

1 unchanged sentence

Weighted average shares outstanding:

Basic 53,054,986 52,404,199 52,168,679

Diluted 54,097,072 53,728,989 53,061,169

81,156,114 79,582,480 78,606,298

83,295,290 81,145,610 80,593,484

1 Reflects three-for-two stock split effective August 16, 2023.

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

2 unchanged sentences

Common Stock Paid-in Retained

Shares Amount Capital Earnings Total

Capital Earnings 1

(in thousands)

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Stock repurchased and retired ( 480 ) ( 1 ) ( 22,465 ) — ( 22,466 )

Contingent consideration (Note 4)

— — 66,000 — 66,000

Dividends — — — ( 19,947 ) ( 19,947 )

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Stock repurchased and retired ( 425 ) ( 3 ) ( 26,308 ) — ( 26,311 )

Contingent consideration (Note 4)

— — ( 6,000 ) — ( 6,000 )

Dividends — — — ( 26,445 ) ( 26,445 )

Balance at December 31, 2023 81,508 $ 326 $ 122,063 $ 612,835 $ 735,224

1 Reflects three-for-two stock split effective August 16, 2023.

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

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Operating Activities (in thousands)

Net income $ 100,376 $ 58,758 $ 79,009

$ 177,623 $ 100,376 $ 58,758

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

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Amortization of right of use assets 324 324 73

Provision for credit losses on accounts receivable, net of adjustments ( 72 ) 43 153

Provision for excess and obsolete inventories 2,740 629 1,108

(Recoveries of) provision for credit losses on accounts receivable, net of adjustments

( 154 ) ( 72 ) 43

Provision for excess and obsolete inventories, net of write-offs

1,633 2,740 629

Share-based compensation 16,384 13,700 11,812

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

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

Gain on disposition of assets

( 13 ) ( 12 ) ( 21 )

Foreign currency transaction (gain) loss

( 10 ) 41 ( 1 )

Interest income on note receivable

( 21 ) ( 22 ) ( 24 )

Deferred income taxes ( 6,527 ) ( 13,332 ) 3,669

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Net cash provided by operating activities

158,895 61,318 61,183

Investing Activities

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Proceeds from sale of property, plant and equipment 129 12 19

Insurance proceeds — — 6,417

Acquisition of intangible assets ( 5,197 ) — —

Principal payments from note receivable 51 48 54

Net cash used in investing activities

( 109,311 ) ( 76,213 ) ( 158,719 )

Financing Activities

1 unchanged sentence

Payments under revolving credit facility ( 629,787 ) ( 194,754 ) —

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

Payments related to financing costs ( 398 ) — —

Principal payments on financing lease — ( 115 ) —

3 unchanged sentences

Dividends paid to stockholders ( 26,445 ) ( 22,917 ) ( 19,947 )

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

Net cash (used in) provided by financing activities

( 46,510 ) 17,357 18,735

Net increase (decrease) in cash, cash equivalents and restricted cash

3,074 2,462 ( 78,801 )

Cash, cash equivalents and restricted cash, beginning of year 5,949 3,487 82,288

9 unchanged sentences

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

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.

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

Due to our favorable liquidity position, we continued 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.

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below the SLT level.

• In March 2023, we awarded annual merit raises for an overall 3.9% increase to wages.

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

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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 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.

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.

Change in Estimate

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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.

All intercompany accounts and transactions have been eliminated.

Our financial statements also 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 five 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 (Note 4).

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

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Restricted Cash

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.

Restricted cash held at December 31, 2023 and December 31, 2022 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 programs (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 financial institutions in amounts that exceed the insurance limits of the Federal Deposit Insurance Corporation.

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

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To date, our sales have been primarily to the domestic market, with foreign sales accounting for approximately 3.4 %, 3.1 %, and 3.0 % of revenues for the years ended December 31, 2023, 2022, and 2021, respectively.

One customer, Texas AirSystems LLC, accounted for more than 10.0% of our sales during 2022, 2021, and 2020.

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.

For the years-ended December 31, 2023, 2022, and 2021, Texas AirSystems accounted for approximately 13.8 %, 12.4 %, and 11.7 % of our sales, respectively.

Through portfolio groups, Meriton has an ownership interest in Texas AirSystems and certain other of our sales representatives.

The aggregate sales percentages through Meriton-affiliated groups that are in addition to Texas AirSystems’ sales for the years-ended December 31, 2023, 2022 and 2021 accounted for an additional 2.3 %, 1.4 % and 2.7 %, respectively.

Two other similar groups, Ambient and Hobbs/Insight, share common ownership of some of our other sales representatives through portfolio groups and for the year-ended December 31, 2023, aggregate sales through their portfolio groups accounted for approximately 11.5 % and 10.2 % of our sales, respectively.

Sales through the portfolio groups of either Ambient or Hobbs/Insight did not account for 10% or more of our sales for any years-ended prior to December 31, 2023.

As of December 31, 2023 and 2022, Texas AirSystems accounted for approximately 13.5 % and 12.3 %, of our accounts receivable balance, respectively.

The aggregate percentages through Meriton-affiliated groups that are in addition to Texas AirSystems’ accounts receivable as of December 31, 2023 and 2022, accounted for an additional 2.0 % and 3.2 %, respectively.

Two other similar groups, Ambient and Hobbs/Insight, aggregate percentages through their portfolio groups accounted for approximately 16.8 % and 11.5 % of our accounts receivable as of December 31, 2023, respectively.

Accounts receivables of the portfolio groups did not account for 10% or more of our accounts receivable as of December 31, 2022, except for Ambient's aggregate percentage of approximately 10.9 %.

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

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Furniture and fixtures 3 - 15 years

On April 22, 2020, our plant and office facilities in Tulsa, Oklahoma experienced hail related weather damage and we filed a property insurance claim which carried a $ 500,000 deductible.

We did not experience any significant structural damage or any operational interruption as a result of this weather event.

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 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

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

Items categorized in Level 3 include the estimated fair values of

property, plant and equipment, intangible assets, contingent consideration, and goodwill acquired in a business combination.

Items categorized in Level 3 include the estimated fair values of intangible assets, contingent consideration, and goodwill acquired in a business combination.

The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3).

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Assessing the significance of a particular input to a fair value measurement requires judgment, considering factors specific to the asset or liability.

Software Development Costs

We capitalize costs incurred to purchase or develop software for internal use.

Internal-use software development costs are capitalized during the application development stage.

These capitalized costs are reflected in intangible assets, net on the consolidated balance sheets and are amortized over the estimated useful life of the software.

The useful life of our internal-use software development costs is generally 1 - 6 years.

Definite-Lived Intangible Assets

Our definite-lived intangible assets include various trademarks, service marks, and technical knowledge acquired in business combinations (Note 4).

Our definite-lived intangible assets include various trademarks, service marks, and technical knowledge acquired in business combinations (Note 4) or asset acquisition.

We amortize our definite-lived intangible assets on a straight-line basis over the estimated useful lives of the assets.

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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.

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

Goodwill at December 31, 2023 is expected to be tax deductible in future periods.

Indefinite-lived intangible assets consist of trademarks, trade names, and internal-use software.

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

15 unchanged sentences

$ 81,892 $ 85,727

Additions due to acquisitions (Note 4)

Additions due to acquisitions

Decreases due to acquisition adjustments (Note 4)

Balance, end of period 81,892 81,892

The acquisition adjustments were recorded during the first quarter of 2022.

The revisions were the result of the finalization of our preliminary estimates and third party valuation models related to the acquisition of BASX (Note 4) in 2021.

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

Contingent Consideration

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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.

Advertising costs are expensed as incurred and included in selling, general, and administrative expenses on our consolidated statement of income.

Advertising expense for the years ended December 31, 2023, 2022, and 2021 was approximately $ 2.6 million, $ 2.4 million, and $ 1.6 million, respectively.

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The fair value of restricted stock awards is reduced for the present value of dividends.

The Key Employee Awards do not accrue dividends.

The Key Employee Awards and PSUs do not accrue dividends.

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

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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.

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 out consolidated balance sheets.

Company throughout the life of the contract.

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.

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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.

At December 31, 2023 and 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.

1 unchanged sentence

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.

Our incremental borrowing rate represents the interest rate which we would pay to borrow 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.

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

The most significant estimates include, but are not limited to, inventory 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.

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, revenue percentage of completion and estimated costs to complete.

Actual results could differ materially from those estimates.

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Year Ended December 31, 2023

AAON Oklahoma AAON Coil Products BASX 1

AAON Oklahoma AAON Coil Products BASX Total

(in thousands)

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Year Ended December 31, 2022

AAON Oklahoma AAON Coil Products BASX 1

AAON Oklahoma AAON Coil Products BASX Total

(in thousands)

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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

2 unchanged sentences

$ 463,845 $ 66,589 $ 4,083 $ 534,517

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.

1 BASX was acquired on December 10, 2021.

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

Other sales include freight, extended warranties and miscellaneous revenue.

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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.

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, in cash, 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.

We applied pushdown accounting, allowable under ASC 805 "Business Combinations," to "pushdown" our stepped-up basis in the assets acquired and liabilities assumed to BASX's subsidiary financial statements.

The decision to apply pushdown accounting is irrevocable.

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 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)

Accounts receivable 13,699 $ 13,699 $ —

Inventories 2,725 2,725 —

Contract assets 7,635 7,635 —

Prepaid expenses and other 341 341 —

Property, plant and equipment 15,611 15,611 —

Right of use assets 13,169 13,169 —

Intangible assets 68,413 70,329 ( 1,916 )

Goodwill 78,663 82,498 ( 3,835 )

Accounts payable ( 9,388 ) ( 9,388 ) —

Accrued liabilities ( 3,807 ) ( 3,807 ) —

Contract liabilities ( 7,771 ) ( 7,771 ) —

Lease liabilities ( 15,611 ) ( 15,611 ) —

Contingent Consideration - shares of AAON ( 60,000 ) ( 66,000 ) 6,000

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

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)

Definite-lived intangible assets

Intellectual property $ 6,295 $ 6,479 $ ( 184 )

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

53,842 55,163 ( 1,321 )

Indefinite-lived intangible assets

Trademarks 14,571 15,166 ( 595 )

Total intangible assets acquired $ 68,413 $ 70,329 $ ( 1,916 )

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

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

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 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.

Years ended December 31,

The following unaudited pro forma consolidated results of operations for the year ended December 31, 2021 are presented as if the combination had been made on January 1, 2021 and reflects the three-for-two stock split effective August 16, 2023.

Year ended December 31, 2021

(in thousands, except per share data)

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Earnings per share:

Basic $ 1.21 $ 1.54

Dilutive $ 0.78

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

Currently, all leases are classified as operating leases.

All leases are classified as operating leases.

Balance Sheet Classification 2023 2022

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Noncurrent lease liability Other long-term liabilities 10,201 5,993

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.

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

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.

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.

In January 2024, we amended the lease for an additional 157,550 square feet for operations and parts distribution.

The amended lease term will expire November 30, 2029.

We also lease several properties near our Redmond location.

In the aggregate, these leases contain approximately 104,500 square feet of additional warehouse space.

These leases have expiring terms from February 2025 to November 2033.

In July 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.

Total undiscounted future lease payments are as follows:

(in thousands)

Thereafter 6,254

Accounts Receivable

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Provisions for expected credit losses, net of adjustments

( 142 ) 359 43

Accounts receivable written off, net of recoveries

( 12 ) ( 431 ) —

Balance, end of period $ 323 $ 477 $ 549

Inventories are valued at the lower of cost or net realizable value.

Cost is determined by the first-in, first-out (“FIFO”) method.

We establish an allowance for excess and obsolete inventories based on product line changes, the feasibility of substituting parts and the need for supply and replacement parts.

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

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Balance, end of period $ 6,160 $ 4,527 $ 1,787

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.

We continuously evaluate our inventory parts and write off inventory when no alternative use can be found.

As a result, we have increased our provision for excess and obsolete inventory and written off certain related components and parts that cannot be used in other products or sold through our parts business.

Intangible Assets

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Customer relationships 47,547 47,547

Capitalized internal-use software 3,323 —

Accumulated amortization ( 9,838 ) ( 3,807 )

3 unchanged sentences

Total intangible assets, net $ 68,053 $ 64,606

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, 2023, approximately $ 5.5 million is included intangible asset (intellectual property) and approximately $ 1.0 million is included in property, plant and equipment, respectively, on our consolidated balance sheets.

Amortization expense recorded in cost of sales is as follows:

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Amortization expense $ 5,331 $ 3,599 $ 246

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.

Total future amortization expense for finite-lived intangible assets was estimated as follows:

(in thousands)

Thereafter 29,081

Total future amortization expense 52,961

Internal-use software projects in process 521

Total $ 53,482

Supplemental Cash Flow Information

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Total $ 85,508 $ 78,630

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

Other long-term liabilities were comprised of the following:

(in thousands)

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As of December 31, 2023 and December 31, 2022, we had an outstanding balance under the Revolver of $ 38.3 million and $ 71.0 million, respectively.

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

We have two standby letters of credit totaling $ 2.3 million as of December 31, 2023 and one standby letter of credit totaling $ 0.8 million as of December 31, 2022.

Borrowings available under the Revolver at December 31, 2023, were $ 159.4 million.

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

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

These covenants included a financial covenant that we meet certain parameters related to our leverage ratio.

At December 31, 2023, our leverage ratio was 0.15 to 1.0, which meets the requirement of not being above 3 to 1.

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.

The provision for income taxes consists of the following:

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Return to provision 0.2 % ( 0.3 ) % — %

Non-deductible executive compensation 1.7 % — % — %

Research and development tax credits ( 1.2 ) % ( 2.1 ) % ( 1.1 ) %

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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.

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.

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

As part of our expansion projects in Oklahoma, we identified a separate, more advantageous Oklahoma credit program (not 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 year ended December 31, 2023.

As of December 31, 2023, we have investment tax credit carryforwards of approximately $ 3.1 million.

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

In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 162(m), the tax deduction for covered executives of public companies is limited to $1.0 million per individual.

Because of the increase in our stock price and timing of executive stock option exercises this resulted in an increase to the income tax provision of $ 3.8 million for the year ended December 31, 2023.

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.

To qualify for the research and development tax credits, we perform annual studies that identify, document, and support eligible expenses related to qualified research and development activities.

Eligible expenses include but are not limited to supplies, materials, contractor expenses and internal employee wages.

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.

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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.

We believe that it is more likely than not that we may not realize the benefit of our Oklahoma investment tax credit carryforward and, accordingly, have established a valuation allowance against this deferred tax asset.

The amount of income tax that we pay annually is dependent on various factors, including the timing of certain deductions.

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Share-Based Compensation

As discussed in Note 16, the Company declared a three-for-two stock split effective August 16, 2023.

All share and per share information has been updated to reflect the effect of this stock split.

On May 22, 2007, our stockholders adopted a Long-Term Incentive Plan (as amended, “LTIP”) which provided an additional 5.0 million shares that could be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance units, and performance awards.

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 (“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 13.4 million shares, comprised of 5.1 million new shares provided for under the 2016 Plan, approximately 0.6 million shares that were available for issuance under the previous LTIP that are now authorized

for issuance under the 2016 Plan, approximately 3.9 million shares that were approved by the stockholders on May 15, 2018, and an additional 3.8 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.

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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, 2023 and 2022, using a Monte Carlo Model:

2023 2022 2021

Expected dividend rate $ 0.32 $ 0.25 $ 0.25

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Unvested at December 31, 2022

93,982 $ 36.62

Granted 58,130 84.42

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152,112 $ 54.88

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

1 Consists of 22,222 PSUs cliff vesting December 31, 2023, 71,760 PSUs cliff vesting December 31, 2025, and 58,130 PSUs cliff vesting December 31, 2026.

2 The 22,222 PSUs cliff vesting December 31, 2023 were approved by the Compensation Committee and issued to holders in February 2024.

Key Employee Awards

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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.

All pre-tax compensation cost has been recognized as of December 31, 2023.

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

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Unvested at December 31, 2022

39,899 $ 53.45

Forfeited — —

Unvested at December 31, 2023

39,899 $ 53.45

Summary of Share-based Compensation

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Options $ 5,259 $ 6,522 $ 7,010

Restricted stock 3,671 2,517 3,316

PSUs 4,907 2,275 1,622

Restricted stock 4,505 3,671 2,517

Key employee awards — — 1,572

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Options $ 8,810 $ 8,585 $ 8,724

Restricted stock 3,105 2,519 3,030

PSUs 2,561 958 525

Restricted stock 3,977 3,105 2,519

Key employee awards 1,036 1,052 44

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Stock Repurchase

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

The Board has authorized one active stock repurchase programs for the Company.

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

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Agreement Execution Date Authorized Repurchase $ Expiration Date

March 5, 2019 1

$ 20 million March 4, 2020

March 13, 2020 $ 20 million November 9, 2022

November 3, 2022 $ 50 million ** 1, 2

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

1 Expiration Date is at Board's discretion.

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

2 As of December 31, 2023, there is approximately $ 25.0 million remaining under the current stock repurchase program.

The remaining amount available is subject to a Board authorized 10b5-1 plan requiring certain market conditions and requirements.

The Company repurchases shares of AAON stock from employees for payment of statutory tax withholdings on stock transactions.

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(in thousands, except share and per share data)

Program Shares Total $ $ per share Shares Total $ $ per share Shares Total $ $ per share

Program Shares 1

Total $ $ per share 1

Open market 402,873 $ 25,009 $ 62.08 183,168 $ 6,823 $ 37.25 — $ — $ —

401(k) — — — 155,904 5,913 37.93 446,658 20,876 46.74

Directors & employees 17,228 1,019 59.15 22,526 1,590 70.59 23,272 1,169 50.23

Employees 21,904 1,302 59.44 25,842 1,019 39.43 33,789 1,590 47.06

Total 424,777 $ 26,311 $ 61.94 364,914 $ 13,755 $ 37.69 480,447 $ 22,466 $ 46.76

1 Reflects three-for-two stock split effective August 16, 2023.

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

1 unchanged sentence

(in thousands, except share and per share data)

Program Shares Total $ $ per share

Program Shares 1

Total $ $ per share 1

Open market 6,893,924 $ 106,625 $ 15.47

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Total 22,445,813 $ 303,076 $ 13.50

1 Reflects three-for-two stock split effective August 16, 2023.

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

1 unchanged sentence

Our cash dividends for the three years ended December 31, 2023 are as follows:

Declaration Date Record Date Payment Date Dividend per Share

Dividend Annualized Dividend

Declaration Date 1

Record Date Payment Date per Share 2

May 17, 2021 June 3, 2021 July 1, 2021 $ 0.13 $ 0.26

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November 8, 2022 November 28, 2022 December 16, 2022 $ 0.16 $ 0.32

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

March 1, 2023 March 13, 2023 March 31, 2023 $ 0.08 $ 0.32

May 18, 2023 June 9, 2023 June 30, 2023 $ 0.08 $ 0.32

August 18, 2023 September 8, 2023 September 29, 2023 $ 0.08 $ 0.32

November 10, 2023 November 29, 2023 December 18, 2023 $ 0.08 $ 0.32

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.

2 Reflects three-for-two stock split effective August 16, 2023.

We paid cash dividends of $ 26.4 million, $ 22.9 million, and $ 19.9 million in 2023, 2022, and 2021, respectively.

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 received one additional share for every two shares they held as of that date on August 16, 2023 (ex-dividend date August 17, 2023).

Cash was paid in lieu of fractional shares (approximately $ 0.5 million).

All share and per share information has been updated to reflect the effects of this stock split.

The retroactive effect of the stock split resulted in approximately $ 0.1 million reclass between common stock and retained earnings within stockholders' equity on the consolidated balance sheet.

Contingent Shares Issued in BASX Acquisition

As discussed above, the Company declared a three-for-two stock split effective August 16, 2023.

All share and per share information has been updated to reflect the effect of the stock split.

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 AAON 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 1.56 million shares of AAON stock, par value $ 0.004 per share.

The shares do not accrue dividends.

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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 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.

As of December 31, 2023, 0.58 million and 0.73 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.

No additional shares have been issued subsequent to December 31, 2023.

New Markets Tax Credit

2019 New Markets Tax Credit

On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2019 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2019 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2019 Project”).

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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 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 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.

The 2019 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 value attributable to the put/call is nominal.

The 2019 Investor's interest of $ 6.5 million is recorded in New market tax credit obligation on the consolidated balance sheets.

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

2023 New Markets Tax Credit

On April 25, 2023, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2023 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2023 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2023 Project”).

In connection with the 2023 NMTC transaction, the Company received a $ 23.0 million NMTC allocation for the 2023 Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities.

Upon closing of the 2023 NMTC transaction, the Company provided an aggregate of approximately $ 16.7 million to the Investor, in the form of a loan receivable, with a term of twenty-five years , bearing an interest rate of 1.0 %.

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 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'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 the 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.

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 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.

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 Investor’s 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 this financing arrangement.

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

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.

This conclusion was reached based on the following:

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• contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity;

• the Investor lacks a material interest in the underling economics of the project;

• the 2019 Investor and 2023 Investor lacks a material interest in the underling economics of the project;

• the Company is obligated to absorb losses of the VIEs.

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

2024 New Markets Tax Credit

On February 27, 2024, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2024 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2024 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in real estate to facilitate the current expansion of our Longview, Texas manufacturing operations (the “Project”).

In connection with the 2024 NMTC transaction, the Company received a $ 15.5 million NMTC allocation for the Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities.

Upon closing of the 2024 NMTC transaction, the Company provided an aggregate of approximately $ 11.0 million to the Investor, in the form of a loan receivable, with a term of twenty-five years , bearing an interest rate of 1.0 %.

This $ 11.0 million in proceeds plus capital contributed from the Investor was used to make an aggregate $ 16.0 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.

The 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 2024 Investor is subject to 100 percent recapture of the 2024 NMTC 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 2024 NMTC arrangement.

Noncompliance with applicable requirements could result in the 2024 Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the 2024 Investor for any loss or recapture of the 2024 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.

Commitments and Contingencies

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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.

On September 28, 2023, the parties attended a court ordered settlement conference and agreed to resolve the case for $ 7.5 million.

A settlement agreement was entered into on October 25, 2023 and the case has been dismissed with prejudice.

The settlement of $ 7.5 million has been included in selling, general and administrative expenses on our consolidated statement of income.

The final payment was made on October 26, 2023.

Other Matters

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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 December 31, 2022, except as noted below.

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.

In 2023, the Company executed a five-year purchase commitment for refrigerants.

In 2023, the Company made payments of $ 10.1 million on this contract.

Estimated minimum future payments are $ 11.9 million, $ 9.1 million, $ 10.5 million, and $ 11.2 million for 2024, 2025, 2026, and 2027, respectively.

We had no other material contractual purchase obligations as of December 31, 2023.

New Accounting Pronouncements

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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 2023, the FASB issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to SEC's Disclosure Update and Simplification Initiative.

The new guidance is intended to update a variety of disclosure requirements.

The effective date for each amendment will be the date on with the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective.

Early adoption is prohibited.

Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280).

The new guidance improves reportable segment disclosures primarily through enhanced disclosures about significant segment expenses and by requiring current annual disclosures to be provided in interim periods.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740).

The new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures.

The amendments in this ASU are effective for annual periods beginning after December 15, 2024.

Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures.

Earnings Per Share

7 unchanged sentences

Basic weighted average shares 3

81,156,114 79,582,480 78,606,298

Effect of dilutive shares related to stock based compensation 1, 3

3 unchanged sentences

Diluted weighted average shares 3

83,295,290 81,145,610 80,593,484

Earnings per share:

Basic $ 1.89 $ 1.12 $ 1.51

Dilutive $ 1.86 $ 1.09 $ 1.49

$ 2.19 $ 1.26 $ 0.75

$ 2.13 $ 1.24 $ 0.73

Anti-dilutive shares:

Shares 605,480 304,029 364,787

314,108 908,221 456,045

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

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

3 Reflects three-for-two stock split effective August 16, 2023.

Related Parties

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.

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:

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

Years Ended December 31,

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Due from affiliates $ 994 $ 432

Due to affiliates 145 —

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.

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

• 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 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.

• The Company purchases flight time for use of an aircraft partially owned by two members of the Company's executive management team.

• 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 had an ownership interest.

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

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

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AAON Oklahoma:

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 Oklahoma engineers, manufactures, and sells, semi-custom, and custom HVAC systems, designs and manufactures controls solutions, and sells retail parts to customers through retail part stores and online.

AAON Oklahoma includes the operations of our Tulsa, OK and Parkville, MO manufacturing facilities, two retail locations, and the Norman Asbjornson Innovation Center ("NAIC") research and development laboratory accredited by the Air Movement and Control Association International, Inc.

With the NAIC, a world-class research and development ("R&D") laboratory in Tulsa, OK, our products are continuously tested under a variety of extreme environmental conditions to ensure they deliver the ultimate performance, efficiency, and value.

Also located in Tulsa, OK, our cutting-edge Customer Exploration Center showcases the engineering, design attributes and premium build quality of our equipment side-by-side the market alternatives.

AAON Coil Products:

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

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 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.

AAON Coil Products engineers and manufactures a selection of our semi-custom, and custom HVAC systems as well as a variety of heating and cooling coils to be used in HVAC systems, mostly for the benefit of AAON Oklahoma, AAON Coil Products, and BASX.

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

BASX engineers, manufactures, and sells an array of custom, high-performance cooling solutions for the rapidly growing hyperscale data center market, ventilation solutions for cleanroom environments in the bio-pharmaceutical, semiconductor, medical and agriculture markets, and highly custom, air handlers and modular solutions for a vast array of markets.

BASX consists of operations at our Redmond, OR manufacturing facilities.

The following table summarizes certain financial data related to our segments.

16 unchanged sentences

AAON Coil Products 29,324 33,311 10,075

49,629 31,278 887

Gross profit $ 399,020 $ 237,572 $ 137,830

1 BASX was acquired on December 10, 2021.

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

(in thousands)

9 unchanged sentences

Total intangible assets and goodwill $ 149,945 $ 146,498

1 BASX was acquired on December 10, 2021.

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

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

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