What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-27 compared with 2024-02-28 · 366 added, 345 removed, 827 unchanged (46% of the section changed)

11 unchanged sentences

We have audited the accompanying consolidated balance sheets of AAON, Inc.

(a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

(a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 27, 2025 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

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.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated 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 consolidated 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 consolidated 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.

Revenue Recognition

As described further in Notes 2 and 3 to the consolidated financial statements, the Company recognized net sales of $1,201 million for the year ended December 31, 2024.

Revenue from certain contracts to design and manufacture highly customized units is recognized on an over time basis, as progress is made toward satisfying the performance obligations of each contract.

Changes in job performance, job conditions, and estimated profitability may result in revisions to cost and income, and are estimated and recognized by the Company throughout the life of certain contracts.

We identified revenue recognized over time related to certain of the Company’s contracts with customers as a critical audit matter.

The principal consideration for our determination that revenue recognized over time related to certain of the Company’s contracts with customers is a critical audit matter is the high degree of auditor effort in performing procedures and evaluating audit evidence related to over time contracts with customers.

Our audit procedures related to revenue recognized over time related to certain of the Company’s contracts with customers included the following, among others.

• We tested the effectiveness of controls over revenue recognition, including management’s determination of the estimated cost to complete and recorded progress toward fulfillment of the performance obligation.

• We tested the appropriateness of over-time revenue recognition for a sample of contracts with customers.

• We tested the appropriateness of revenue recognition for certain over-time contracts, including agreeing cost inputs to source documents, such as purchase orders, third-party invoices, and shipping documents, and evaluating the estimated costs to complete.

• We evaluated estimates made by the Company by analyzing the gross margin on completed contracts compared to historical estimates for those contracts to test the Company’s estimation process.

/s/ GRANT THORNTON LLP

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Accounts receivable, net 147,434 138,108

Income tax receivable 4,115 —

Inventories, net 187,420 213,532

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Total current assets 488,212 408,954

Property, plant and equipment:

Land 15,438 8,537

Buildings 205,841 169,156

Machinery and equipment 391,366 342,045

Furniture and fixtures 40,787 30,033

Total property, plant and equipment 653,432 549,771

Accumulated depreciation 283,485 245,026

Property, plant and equipment, net 510,356 369,947

Intangible assets, net 68,053 64,606

Goodwill 81,892 81,892

Intangible assets, net and goodwill 160,152 149,945

Right of use assets 15,436 11,774

Other long-term assets 242 816

Deferred tax assets 836 —

Total assets $ 1,175,234 $ 941,436

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Current liabilities:

Debt, short-term $ 16,000 $ —

Accounts payable 44,645 27,484

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Total current liabilities 174,905 126,749

Revolving credit facility, long-term 38,328 71,004

Debt, long-term 138,891 38,328

Deferred tax liabilities — 12,134

1 unchanged sentence

New markets tax credit obligations 1

16,113 12,194

Commitments and contingencies (Note 19)

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Retained earnings 755,310 612,835

612,835 461,657

Total stockholders’ equity 824,582 735,224

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1 Held by variable interest entities (Note 18)

2 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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Earnings per share:

$ 2.19 $ 1.26 $ 0.75

$ 2.13 $ 1.24 $ 0.73

Basic $ 2.07 $ 2.19 $ 1.26

Diluted $ 2.02 $ 2.13 $ 1.24

Cash dividends declared per common share:

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Weighted average shares outstanding:

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.

Basic 81,473,131 81,156,114 79,582,480

Diluted 83,629,502 83,295,290 81,145,610

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

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Common Stock Paid-in Retained

Capital Earnings 1

Shares Amount Capital Earnings Total

(in thousands)

Balance at December 31, 2020 78,337 $ 317 $ 5,161 $ 345,387 $ 350,865

Balances at December 31, 2021 $ 78,792 $ 318 $ 81,654 $ 384,198 $ 466,170

Net income — — — 100,376 100,376

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Dividends — — — ( 22,917 ) ( 22,917 )

Balance at December 31, 2021 78,792 318 81,654 384,198 466,170

Balances at December 31, 2022 80,138 322 98,735 461,657 560,714

Net income — — — 177,623 177,623

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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, 2022 80,138 322 98,735 461,657 560,714

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

Net income — — — 168,559 168,559

1 unchanged sentence

stock awards granted

Contingent shares issued (Note 17)

243 1 6,363 — 6,364

Share-based compensation — — 16,729 — 16,729

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Balance at December 31, 2024 $ 81,437 $ 326 $ 68,946 $ 755,310 $ 824,582

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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Amortization of right of use assets 189 324 324

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

Provision for (recoveries of) credit losses on accounts receivable, net of adjustments

715 ( 154 ) ( 72 )

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

Provision for credit losses on contract assets, net of adjustments

(Recoveries of) provision for excess and obsolete inventories, net of write-offs

( 968 ) 1,633 2,740

Share-based compensation 16,729 16,384 13,700

Gain on disposition of assets

( 13 ) ( 12 ) ( 21 )

Foreign currency transaction (gain) loss

( 10 ) 41 ( 1 )

Interest income on note receivable

( 21 ) ( 22 ) ( 24 )

Other ( 4 ) ( 44 ) 7

Deferred income taxes ( 6,606 ) ( 6,527 ) ( 13,332 )

13 unchanged sentences

Capital expenditures ( 195,660 ) ( 104,294 ) ( 76,024 )

Cash paid for building (Note 4)

— ( 22,000 ) —

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

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Financing Activities

Borrowings under revolving credit facility 597,111 225,758 40,000

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

Borrowings of debt 717,897 597,111 225,758

Payments of debt ( 601,091 ) ( 629,787 ) ( 194,754 )

Proceeds from financing obligation, net of issuance costs 4,186 6,061 —

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Dividends paid to stockholders ( 26,084 ) ( 26,445 ) ( 22,917 )

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

18,034 ( 46,510 ) 17,357

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

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

( 2,509 ) 3,074 2,462

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

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

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

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

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Inflation and Labor Market

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.

In 2022, raw material and component prices rose, but by 2023, inflation slowed, leading to some stabilization in these prices.

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

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

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

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

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

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

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

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

below the SLT level.

• 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.

• In March 2024, we awarded annual merit raises for an overall 3.3 % increase to wages.

We continue to implement human resource initiatives to retain and attract labor to further increase production capacity.

Beginning in 2023, initiatives included changing our employee paid time off policy, historically awarded in arrears at the beginning of each quarter, to accrue ratably over each pay period.

Additionally, we enhanced our benefits for short-term disability, life insurance, paid parental leave, and paid military leave.

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

First Quarter 2021 Planned Maintenance and Adverse Weather

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

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

In addition to significant absenteeism as a result of employees being unable to travel to and from work due to inadequate transportation and/or hazardous road conditions, the Company made the decision to shut down the Tulsa, OK and Longview, TX plants for several days.

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

WH Series and WV Series Water Source Heat Pump Units

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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.

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

Change in Estimate

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

During the first quarter of 2022, a review of the Company’s useful lives for certain sheet metal manufacturing equipment at our Longview, Texas facilities resulted in a change in estimate that increased the useful lives from between 10 and 12 years to 15 years.

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

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

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

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

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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.

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

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

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

C ash and Cash Equivalents

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The aggregate sales percentages through Meriton-affiliated groups that are in addition to Texas AirSystems’ sales for the years-ended December 31, 2024, 2023, and 2022 accounted for an additional 8.0 %, 2.3 %, and 1.4 %, 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.

Two other similar groups, Ambient and AIR Control Concepts, share common ownership of some of our other sales representatives through portfolio groups and for the year-ended December 31, 2024, aggregate sales through their portfolio groups accounted for approximately 14.9 % and 9.2 % of our sales, respectively.

In 2023, aggregate sales for Ambient and AIR Control Concepts accounted for approximately 11.5 % and 10.2 % of our sales respectively.

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

No other customers or portfolio groups accounted for more than 10% or more of our sales for the years ended December 31, 2024, and 2023, respectively.

As of December 31, 2024, and 2023, Texas AirSystems accounted for approximately 10.3 % and 13.5 %, 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, 2024, and 2023, accounted for an additional 6.3 % and 2.0 %, 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 %.

Two other similar groups, Ambient and AIR Control Concepts, aggregate percentages through their portfolio groups accounted for approximately 19.3 % and 6.6 % of our accounts receivable as of December 31, 2024, respectively, and 16.8 % and 11.5 % as of December 31, 2023.

Additionally, one customer accounted for 21.1 % of our accounts receivable balance as of December 31, 2024.

No other customers or portfolio groups accounted for more than 10% or more of our accounts receivable as of December 31, 2024, and 2023, respectively.

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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The carrying amounts of cash and cash equivalents, receivables, accounts payable, and accrued liabilities approximate fair value because of the short-term maturity of the items.

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

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

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

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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.

These capitalized costs are reflected in intangible assets, net and goodwill 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 between one to six years .

Definite-Lived Intangible Assets

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

Our definite-lived intangible assets include customer relationships, internal-use software and other intellectual property acquired in business combinations 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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If we conclude that it is more likely than not that the fair value of a reporting unit and indefinite-lived assets does not exceed their carrying amount, we calculate the fair value for the reporting unit and indefinite-lived assets and compare the amount to their carrying amount.

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

If the fair value of a reporting unit and indefinite-lived asset exceeds

their carrying amount, the reporting unit and indefinite-lived assets are not considered impaired.

If the carrying amount of the reporting unit and indefinite-lived assets exceeds their fair value, the reporting unit and indefinite-lived assets are considered to be impaired and the balance is reduced by the difference between the fair value and carrying amount of the reporting unit and indefinite-lived assets.

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

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

Years Ended December 31,

(in thousands)

Balance, beginning of period

$ 81,892 $ 85,727

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

As part of a business combination, we agreed to issue shares of the Company's common stock based on certain milestones in accordance with the acquisition agreement.

As part of the acquisition of BASX (Note 17) in 2021, we agreed to issue shares of the Company’s common stock based on certain milestones in accordance with the acquisition agreement.

This contingent consideration is valued at fair value on the acquisition date and is included in additional paid-in capital on the consolidated balance sheets.

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For the years ended December 31, 2024, 2023, and 2022 research and development costs amounted to approximately $ 47.3 million, $ 43.7 million, and $ 46.8 million, respectively.

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

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

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The Company’s share-based compensation plans provide for the granting of stock options, restricted stock, and performance stock units (“PSUs ” ).

In conjunction with the acquisition of BASX (Note 4), we awarded performance awards to key employees ("Key Employee Awards") of BASX.

In conjunction with the acquisition of BASX in 2021, we awarded performance awards to key employees (“Key Employee Awards”) of BASX.

The fair values of stock options are estimated at the date of grant using the Black-Scholes-Merton option valuation model.

The fair value of the PSUs is estimated on the date of grant using the Monte Carlo Model.

The use of the Black-Scholes-Merton option valuation model and the Monte Carlo Model requires the input of subjective assumptions such as:

the expected volatility, the expected term of the grant, expected market performance, risk-free rate, and expected dividend yield for stock options.

The use of the Black-Scholes-Merton option valuation model and the Monte Carlo Model requires the input of subjective assumptions such as the expected volatility, the expected term of the grant, expected market performance, risk-free rate, and expected dividend yield for stock options.

The fair va lue of restricted stock awards and Key Employee Awards is based on the fair market value of AAON common stock on the respective grant dates.

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

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

Stock options and restricted stock awards, granted to employees, vested at a rate of 33 % per year.

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

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

Forfeitures are accounted for as they occur.

Historically, if the employee or director is retirement eligible (as defined by the Long Term Incentive Plans) or becomes retirement eligible during service period of the related share-based compensation award, the service period is the lesser of 1) the grant date, if retirement eligible on grant date, or 2) the period between grant date and retirement eligible date.

All share-based compensation awards granted on or after March 1, 2020 to retirement eligible employees or directors contain a one-year employment requirement (minimum service period) or the entire award is forfeited.

All share-based compensation awards granted contain a one-year employment requirement (minimum service period) or the entire award is forfeited.

If the employee or director is retirement eligible (as defined by the Long Term Incentive Plans) or becomes retirement eligible during service period of the related share-based compensation award, the service period is the lesser of 1) the grant date (plus one year), if retirement eligible on grant date, or 2) the period between grant date (plus one year) and retirement eligible date.

Forfeitures are accounted for as they occur.

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Forfeitures are accounted for as they occur.

The Key Employee Awards cliff vest on December 31, 2023.

Share-based compensation expense is recognized on a straight-line basis over the service period of the Key Employee Awards when it is probable that the performance conditions will be satisfied.

The Key Employee Awards are subject to several service and performance conditions, as defined by the Key Employee Award agreement, which allows the holder to retain an amount of the awards as a result of certain termination conditions or change in common control.

Forfeitures are accounted for as they occur.

The Key Employee Awards cliff vested on December 31, 2023.

Share-based compensation expense was recognized on a straight-line basis over the service period of the Key Employee Awards as the performance conditions were satisfied.

The Key Employee Awards were subject to several service and performance conditions, as defined by the Key Employee Award agreement, which allowed the holder to retain an amount of the awards as a result of certain termination conditions or a change in common control.

Forfeitures were accounted for as they occurred.

Derivative Instruments

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

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

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

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

1 unchanged sentence

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 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.

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 Company recognizes revenue, presented net of sales tax, when it satisfies the performance obligation in its contracts.

For certain manufactured equipment contracts and parts sales, 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.

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

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

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

Product Warranties

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These other related products and services may include controls purchased from another manufacturer to operate the unit, start-up services, and curbs for supporting the unit (“Third Party Products”).

All are associated with the purchase of a HVAC unit but may be provided by the Representative or another third party.

All are associated with the purchase of an HVAC unit but may be provided by the Representative or another third party.

Only after the specifications are agreed to by the Representative and the customer, and the decision is made to use an AAON HVAC unit, will we receive notice of the order.

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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 an amount equal to the lease payments over a similar term in a similar economic environment.

Our incremental borrowing rate represents the interest rate that 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.

1 unchanged sentence

Most leases contain options to renew or terminate.

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

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

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

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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, 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, 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.

Revenue Recognition

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

Disaggregated Revenue Disclosures

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

Segment Brands Produced Brand Products

AAON Oklahoma AAON Rooftop units and aftermarket parts

AAON Coil Products AAON / BASX Condensing units, air handling products, data center cooling solutions, and geothermal/water-source heat pumps

BASX BASX Data center cooling solutions, cleanroom products, and air handling products

Year Ended December 31, 2024

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(in thousands)

Rooftop Units $ 804,254 $ — $ — $ 804,254

Condensing Units 61 42,739 — 42,800

Air Handlers — 44,040 17,790 61,830

Outdoor Mechanical Rooms 208 298 — 506

Cleanroom Systems — — 45,191 45,191

Data Center Cooling Solutions — 8,247 93,052 101,299

Water-Source Heat Pumps 3,128 12,770 — 15,898

Part Sales 66,413 6 1,277 67,696

Other 23,855 4,220 969 29,044

AAON Products $ 858,711 $ 116,931 $ — $ 975,642

BASX Products — 26,940 198,053 224,993

$ 858,711 $ 143,871 $ 198,053 $ 1,200,635

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(in thousands)

Rooftop Units $ 579,363 $ — $ — $ 579,363

Condensing Units 302 46,287 — 46,589

Air Handlers — 47,442 14,434 61,876

Outdoor Mechanical Rooms 612 855 — 1,467

Cleanroom Systems — — 47,020 47,020

Data Center Cooling Solutions — — 53,522 53,522

Water-Source Heat Pumps 11,529 8,797 — 20,326

Part Sales 52,927 — 671 53,598

Other 19,112 3,909 2,006 25,027

AAON Products $ 897,919 $ 104,073 $ — $ 1,001,992

BASX Products — 8,247 158,279 166,526

$ 897,919 $ 112,320 $ 158,279 $ 1,168,518

Year Ended December 31, 2022

AAON Oklahoma AAON Coil Products BASX 1

AAON Oklahoma AAON Coil Products BASX Total

(in thousands)

Rooftop Units $ 398,461 $ — $ — $ 398,461

Condensing Units 762 25,989 — 26,751

Air Handlers — 26,589 95 26,684

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

Part Sales 41,127 1 — 41,128

Other 11,844 3,203 12 15,059

AAON Products $ 663,845 $ 107,290 $ — $ 771,135

BASX Products — — 117,653 117,653

$ 663,845 $ 107,290 $ 117,653 $ 888,788

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.

Business Combination

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

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

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

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

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

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

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.

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 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)

Revenues $ 611,158

Net income 63,491

Earnings per share:

Dilutive $ 0.78

These unaudited pro forma results include adjustments necessary in connection with the acquisition.

The unaudited consolidated 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 acquisition had been completed on the date indicated, nor is it indicative of the future operating results of the Company.

The unaudited pro forma results do not reflect events that either have occurred or may occur after the acquisition date, including, but not limited to, the anticipated realization of operating synergies in subsequent periods.

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

Aftermarket part sales were $ 76.9 million, $ 67.7 million, $ 53.6 million for each of the years ended December 31, 2024, 2023, and 2022, respectively.

Contract Assets and Liabilities

Opening and closing balances of contract assets and contract liabilities are as follows:

2024 2023 2022

(in thousands)

Contract assets $ 135,820 $ 45,194 $ 15,151

Allowance for credit losses ( 399 ) — —

Contract assets, net 135,421 45,194 15,151

Contract liabilities ( 14,913 ) ( 13,757 ) ( 21,424 )

Total, net $ 120,508 $ 31,437 $ ( 6,273 )

Costs and estimated earnings on uncompleted contracts and related billings are as follows:

(in thousands)

Costs incurred on uncompleted contracts $ 133,593 $ 92,394

Estimated earnings 97,074 66,280

230,667 158,674

Contract billings to date ( 112,786 ) ( 127,433 )

Allowance for credit losses ( 399 ) —

Completed contracts, unbilled 3,026 196

Total, net $ 120,508 $ 31,437

Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period was $ 12.5 million, $ 21.4 million, and $ 7.5 million for each of the years ended December 31, 2024, 2023, and 2022, respectively.

Typically, we expect to satisfy performance obligations relating to uncompleted in-process contracts within one year or less, however, timing of performance obligations can vary from timing of payment, production scheduling and timing of customer installation requirements.

Increases in contract assets are mainly due to the increased production and increased demand of our BASX branded products.

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

Lease expiration dates, including expected renewal options, range from February 2025 to November 2033, with the weighted average remaining term being 6.6 years.

The discount rates used to calculate the present value of lease payments range from 1.3 % to 6.6 % as of December 31, 2024.

All leases are classified as operating leases.

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

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

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

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

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.

The lease term is through December 2032.

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

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

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

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.

The amended lease term will expire January 2039.

In July 2023, the Company entered into a lease agreement with a start date of September 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.

The lease term will expire November 2033 with additional renewal options.

We also lease six properties near our Redmond location.

In the aggregate, these leases contain approximately 61,000 square feet of additional warehouse space, office space, as well as outside storage.

These leases have expiring terms from February 2025 to May 2028.

Total undiscounted future lease payments are as follows:

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

2024 2023 2022

(in thousands)

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$ 323 $ 477 $ 549

Provisions for expected credit losses, net of adjustments

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

720 ( 142 ) 359

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Balance, end of period $ 1,038 $ 323 $ 477

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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Finished goods 456 2,910

219,692 203,466

Total, gross 192,612 219,692

Allowance for excess and obsolete inventories ( 5,192 ) ( 6,160 )

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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.

Property, Plant and Equipment

Our property, plant and equipment consist of the following:

Property, plant and equipment:

(in thousands)

Land $ 17,148 $ 15,438

Buildings 315,854 205,841

Machinery and equipment 436,891 391,366

Furniture and fixtures 50,105 40,787

Total property, plant and equipment 819,998 653,432

Accumulated depreciation 309,642 283,485

Property, plant and equipment, net $ 510,356 $ 369,947

Depreciation expense is as follows:

Years Ended December 31,

2024 2023 2022

(in thousands)

Depreciation expense $ 54,000 $ 41,137 $ 31,507

Intangible Assets and Goodwill

Intangible Assets

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Total intangible assets, net $ 78,260 $ 68,053

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:

Amortization expense is as follows:

Years Ended December 31,

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Amortization expense $ 8,735 $ 5,331 $ 3,599

The weighted-average amortization period for definite-lived intangible assets are as follow as of December 31, 2024:

Intellectual property 17.3

Customer relationships 10.9

Capitalized internal-use software 2.7

Definite-lived intangible assets 11.4

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

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Total $ 63,689

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

Years Ended December 31,

2024 2023 2022

(in thousands)

Balance, beginning of period

$ 81,892 $ 81,892 $ 85,727

Decreases due to acquisition adjustments

— — ( 3,835 )

Balance, end of period $ 81,892 $ 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 17) in 2021.

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

Supplemental Cash Flow Information

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Interest paid $ 2,811 $ 4,817 $ 2,412

Income taxes paid, net 63,376 19,293 7,891

Income taxes paid, Federal 39,394 50,200 15,742

Income taxes paid, State 10,530 13,176 3,551

Operating activities - other:

Gain on disposition of assets

$ ( 23 ) $ ( 13 ) $ ( 12 )

Foreign currency transaction loss (gain)

Interest income on note receivable

( 18 ) ( 21 ) ( 22 )

Total, other $ ( 4 ) $ ( 44 ) $ 7

Non-cash investing and financing activities:

Non-cash capital expenditures $ 202 $ 287 $ 1,919

Contingent shares issued (Note 17)

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.

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Payments made ( 12,959 ) ( 11,274 ) ( 6,584 )

Provisions 16,165 8,497 6,351

Assumed in business combination (Note 4)

Balance, end of period $ 20,573 $ 15,682 $ 13,769

Warranty expense 16,727 16,165 8,497

Balance, end of period $ 24,341 $ 20,573 $ 15,682

Warranty expense by reportable segment (Note 23) is as follows:

Years Ended December 31,

2024 2023 2022

(in thousands)

AAON Oklahoma $ 13,446 $ 13,126 $ 6,069

AAON Coil Products 1,931 1,706 1,599

BASX 1,350 1,333 829

Total $ 16,727 $ 16,165 $ 8,497

Accrued Liabilities and Other Long-Term Liabilities

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Total $ 20,743 $ 16,807

Revolving Credit Facility

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

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

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

On December 16, 2024, we amended our Amended and Restated Loan Agreement dated November 24, 2021 (as amended, “Amended Loan Agreement”), to include an $ 80.0 million term loan (“Term Loan”).

The Amended Loan Agreement provides for a $ 200.0 million revolving credit facility (the “Revolver”) and an option to increase the maximum borrowings to $ 300.0 million.

(in thousands)

Total Revolver Commitment $ 200,000 $ 200,000

Revolver borrowings outstanding 76,467 38,328

Standby letters of credit 300 2,300

Borrowings available under the Revolver $ 123,233 $ 159,372

The Revolver expires on May 27, 2027.

(in thousands)

Term loan, short-term $ 16,000 $ —

Term loan, long-term 62,424 —

Total Term Loan $ 78,424 $ —

The Term Loan is payable in equal monthly installments, plus interest, over 60 months, expiring December 16, 2029.

Interest Rates

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

The outstanding amount under the Term Loan bears interest at the SOFR plus a credit spread adjustment of 0.10 % per annum plus the Applicable Margin.

Applicable margin, ranging from 1.25 % - 1.75 %, is determined quarterly based on the Company’s leverage ratio.

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

At December 31, 2023, 2022, and 2021, the weighted average interest rate of our Revolver was 6.3 %, 3.0 %, and 1.3 %, respectively.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the years ended December 31, 2024, 2023, and 2022, respectively.

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

Weighted average interest rate of our borrowings outstanding are as follows:

Years Ended December 31,

2024 2023 2022

Revolver 6.3 % 6.3 % 3.0 %

1 Funds were borrowed on December 16, 2024.

No borrowings outstanding during the years ended December 31, 2023 and 2022

If SOFR cannot be determined pursuant to the definition, as defined by the Amended Loan Agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate (“ABR”) loans.

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

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

As of December 16, 2024, as defined by the Amended Loan Agreement, if the SOFR cannot be determined any outstanding balance will bear interest at the Prime Rate in effect on such day.

Debt Covenants

At December 31, 2024, we were in compliance with our financial covenants as defined by the Amended Loan Agreement.

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

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Effective tax rate 18.4 % 20.4 % 19.4 %

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

This resulted in 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 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 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.

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

The Company recorded an excess tax benefit of $ 16.4 million for the year ended December 31, 2024, as compared to $ 8.9 million and $ 3.0 million during the same periods in 2023 and 2022, respectively.

The excess tax benefit is related to the timing of stock option exercises as a result of our high stock price during the year ended December 31, 2024.

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.

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 $ 4.3 million and $ 3.8 million for the years ended December 31, 2024, and 2023, respectively.

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

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Other, net 3,079 1,673

42,361 34,494

Valuation allowance — ( 3,115 )

Net deferred income tax assets 57,922 42,361

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Total deferred income tax liabilities ( 57,086 ) ( 54,495 )

Net deferred income tax liabilities $ ( 12,134 ) $ ( 18,661 )

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

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

Net deferred income tax asset (liabilities) $ 836 $ ( 12,134 )

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

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

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

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

The Company’s estimated annual 2024 effective tax rate, excluding discrete events, is approximately 24.7 %.

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

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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.

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.

On May 22, 2007, our stockholders adopted a Long-Term Incentive Plan (as amended, “2007 Plan”) 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 2007 Plan, the exercise price of shares granted may not be less than 100 % of the fair market value at the date of the grant.

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

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 2007 Plan 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.

On May 21, 2024, our stockholders adopted the 2024 Long-Term Incentive Plan (“2024 Plan”) which provides for approximately 2.7 million new shares and approximately 3.7 million shares that were issued and outstanding under the 2016 Plan (as of May 21, 2024) that are now authorized for issuance under the 2024 Plan.

The 3.7 million shares issued and outstanding under the 2016 Plan are only eligible for issuance under the 2024 Plan upon forfeiture, expiration, or cancellation.

Under the 2024 Plan and previously under the 2016 Plan (collectively, the “LTIP Plans”), shares can be granted in

the form of stock options, stock appreciation rights, restricted stock awards, performance awards, dividend equivalent rights, and other awards.

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

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

Membership on the Committee is limited to independent directors.

The Committee may delegate certain duties to one or more officers of the Company as provided in the 2016 Plan.

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 Committee may delegate certain duties to one or more officers of the Company as provided in the LTIP Plans.

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

The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the years ended December 31, 2024, 2023, and 2022 using a Black Scholes-Merton Model:

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Unvested at December 31, 2024 144,292 $ 61.01

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

We have awarded PSUs to certain officers and employees under our LTIP Plans.

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

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Granted 48,181 106.24

Additional payout 1

Vested ( 21,919 ) 58.53

Forfeited ( 11,085 ) 69.38

1 unchanged sentence

169,348 $ 68.12

1 The additional number of PSUs earned based on a 110% achievement at December 31, 2023 for awards vesting in 2024.

2 Consists of 68,850 PSUs cliff vesting December 31, 2024, 54,761 PSUs cliff vesting December 31, 2025, and 45,737 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.

3 The 68,850 PSUs cliff vesting December 31, 2024 were approved by the Compensation Committee and issued to holders in January 2025.

Key Employee Awards

Subject to the MIPA Agreement (Note 4), the Company granted awards to key employees of BASX ("Key Employee Awards").

Unlike our restricted stock awards under the 2016 Plan, the Key Employee Awards are not considered legally outstanding and do not accrue dividends during the vesting period.

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

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

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

As part of the December 2021 acquisition of BASX, the Company granted 39,899 Key Employee Awards.

Unlike our restricted stock awards under the LTIP Plans, the Key Employee Awards are not considered legally outstanding and do not accrue dividends during the vesting period.

The issuance of the Key Employee Awards was contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ending 2021, 2022 and 2023 as defined by the BASX acquisition membership interest purchase agreement (“MIPA Agreement”) and continued employment with the Company.

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

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

The weighted average grant date fair value of the key awards was $ 53.45 .

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

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

Shares Weighted Average Grant Date Fair Value

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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Restricted stock 5,157 4,505 2,275

Key employee awards — — 1,572

Total $ 19,772 $ 14,671 $ 12,468

12 unchanged sentences

Restricted stock 1,064 720 241

Key Employee Awards $ 282 $ — $ —

Total $ 16,393 $ 8,858 $ 2,956

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Profit Sharing Bonus Plans

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

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

BASX has a separate employee incentive program ("EIP"), under which 5.0 % of BASX's pre-tax profit, plus certain add backs, is paid ratably to eligible employees based on days-of-pay during the fiscal year.

We maintain a discretionary profit sharing bonus plan under which approximately 8.5 % of pre-tax profit ( 10 % prior to January 1, 2024) from the Company is paid to eligible employees on a quarterly basis in order to reward employee productivity.

Eligible employees are regular full-time non-exempt employees of the Company who are actively employed and working on the first and last day of the calendar quarter.

BASX employees are eligible to participate in the discretionary profit sharing bonus plan on January 1, 2024.

Prior to January 1, 2024, BASX had a separate employee incentive program (“EIP”) under which 5.0 % of BASX’s pre-tax profit, plus certain add backs, was paid ratably to eligible employees based on days-of-pay during the fiscal year.

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

This incentive program ended December 31, 2023.

Years Ended December 31,

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Employee Medical Plan

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

We self-insure for our employees’ health insurance and make medical claim payments up to certain stop-loss amounts.

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

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

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

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

BASX is insured for healthcare coverage through a third party.

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

In addition, the Company matches 175.0 % of a participating employee's allowed contributions to a qualified health saving account to assist employees with our health insurance plan deductibles.

BASX employees joined the Company's medical plan and benefits on January 1, 2024.

BASX was insured for healthcare coverage through a third party through December 31, 2023.

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

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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.

This healthcare coverage ended December 31, 2023.

Years Ended December 31,

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Stockholders’ Equity

Stock Repurchase

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

Stock Repurchases

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

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

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

Our open market repurchase programs are as follows:

Our authorized open market repurchase programs during the periods are as follows:

Agreement Execution Date Authorized Repurchase $ Expiration Date

March 13, 2020 $ 20 million November 9, 2022

March 13, 2020 $ 20 million 1

November 9, 2022

November 3, 2022 $ 50 million 1

February 27, 2024

February 27, 2024 $ 50 million 1

June 4, 2024 $ 50 million 2

June 14, 2024

February 25, 2025 $100 million ** 3

1 Repurchases made in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

2 Repurchases made in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

3 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.

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

All repurchases are done at current market prices.

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

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

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

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

Lastly, the Company repurchases shares of AAON, Inc.

stock related to the LTIP Plans (Note 15) at current market prices.

Our repurchase activity is as follows:

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(in thousands, except share and per share data)

Program Shares 1

Total $ $ per share 1

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

Open market 1,353,564 $ 100,034 $ 73.90 402,873 $ 25,009 $ 62.08 183,168 $ 6,823 $ 37.25

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Total 1,446,008 $ 108,071 $ 74.74 424,777 $ 26,311 $ 61.94 364,914 $ 13,755 $ 37.69

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:

Inception to Date

(in thousands, except share and per share data)

Program Shares 1

Total $ $ per share 1

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

401(k) 12,462,552 171,789 13.78

Directors & employees 3,089,337 24,662 7.98

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.

Cash Dividends

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

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

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

Our recent cash dividends are as follows:

Dividend Annualized Dividend

Declaration Date 1

Record Date Payment Date per Share 2

Record Date Payment Date per Share per Share

May 18, 2022 June 3, 2022 July 1, 2022 $ 0.13 $ 0.26

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

May 18, 2022 June 3, 2022 July 1, 2022 $ 0.13 $ 0.26

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

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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 $ 26.1 million, $ 26.4 million, and $ 22.9 million in 2024, 2023, and 2022, respectively.

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

The shares do not accrue dividends.

Under the MIPA Agreement, the potential future issuance of the shares is contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ended 2021, 2022, and 2023.

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, 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.

On December 10, 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 was payable in approximately 1.56 million shares of AAON stock, par value of $ 0.004 per share.

The shares did not accrue dividends.

Under the MIPA Agreement, the issuance of shares to the former owners of BASX was contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ended 2021, 2022, and 2023.

In March 2024, we issued the remaining 0.2 million shares related to the earn-out milestone for the year ended 2023.

As a result of the shares issued in March 2024, the tax basis exceeded the book basis for consideration paid resulting in a deferred tax asset and an increase to additional paid-in capital of 6.4 million, respectively, on our consolidated balance sheet.

The deferred tax asset is expected to be amortized over fifteen years.

We previously issued 0.6 million shares and 0.7 million related to the earn-out milestones for the years ended 2022 and 2021, respectively.

All shares have been issued as private placements exempt from registration with the SEC under Rule 506(b) and are included in common stock on the consolidated statements of stockholders' equity.

Authorized Shares Outstanding

An amendment to the Company’s Articles of Incorporation to increase its total authorized common shares from 100,000,000 to 200,000,000 was approved by our stockholders on May 21, 2024, at the Company’s Annual Meeting.

On July 9, 2024, a Certificate of Amendment was filed with the Nevada Secretary of State to effectuate the increase in authorized shares.

New Markets Tax Credit

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In connection with the 2019 NMTC transaction, the Company received a $ 23.0 million NMTC allocation for the Project and secured low-interest financing and the potential for future debt forgiveness related to the 2019 Project.

Upon closing of the 2019 NMTC transaction, the Company provided an aggregate of approximately $ 15.9 million to the 2019 Investor, in the form of a loan receivable, with a term of twenty-five years , bearing an interest rate of 1.0 %.

Upon closing of the 2019 NMTC transaction, the Company provided an aggregate of approximately $ 15.9 million to the 2019 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0 %.

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.

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

The 2019 Investor’s interest of $ 6.5 million is recorded in new markets tax credit obligations 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.

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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 %.

Upon closing of the 2023 NMTC transaction, the Company provided an aggregate of approximately $ 16.7 million to the 2023 Investor, in the form of a loan receivable, with a term of 25 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.

The net proceeds from the closing of the 2023 NMTC are 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 2023 Investor's interest of $ 5.8 million is recorded in new markets tax credit obligations 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 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 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:

• the ongoing activities of the VIEs, collecting and remitting interest and fees and NMTC compliance, were all considered in the initial design and are not expected to significantly affect performance throughout the life of the VIE;

• 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 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.

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 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 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 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.

Upon closing of the 2024 NMTC transaction, the Company provided an aggregate of approximately $ 11.0 million to the 2024 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0 %.

This $ 11.0 million in proceeds plus capital contributed from the 2024 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 the NMTCs.

The net proceeds from the closing of the 2024 NMTC are included in restricted cash on our consolidated balance sheets required to be used for the 2024 Project.

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 2024 Investor's interest of $ 3.8 million is recorded in new markets tax credit obligations 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, 2023 Investor, and 2024 Investor are each subject to 100 percent recapture of the 2019, 2023, and 2024 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 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.

The Company is required to be in compliance with various regulations and contractual provisions that apply to the 2019 NMTC arrangements, 2023 NMTC arrangements, and 2024 NMTC arrangements, respectively.

Noncompliance with applicable requirements could result in the 2019 and/or 2023 and/or 2024 Investors' projected tax benefits not being realized and, therefore, require the Company to indemnify the 2019 Investor, 2023 Investor, and 2024 Investor for any loss or recapture of the 2019 NMTC, 2023 NMTC, and 2024 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 any of these financing arrangements.

The 2019 Investor, 2023 Investor, and 2024 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, 2023 NMTC, or 2024 NMTC arrangements, respectively.

Commitments and Contingencies

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

We expect to receive delivery of raw materials for use in our manufacturing operations.

We expect to receive delivery of raw

materials for use in our manufacturing operations.

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, 2024, except as noted below.

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.

In 2024 and 2023, the Company made payments of $ 11.7 million and $ 10.1 million on this contract, respectively.

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

We had no other material contractual purchase obligations as of December 31, 2024.

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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.

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

Early adoption is prohibited.

4 unchanged sentences

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.

We adopted this standard for fiscal year ended 2024.

Upon adoption, this ASU did not 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).

2 unchanged sentences

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

In November 2024, the FASB issued ASU No.

2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40).

The new guidance requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions.

This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses.

This ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, 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.

Earnings Per Share

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Basic weighted average shares 81,473,131 81,156,114 79,582,480

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

Effect of dilutive shares related to stock based compensation 1

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Diluted weighted average shares 83,629,502 83,295,290 81,145,610

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

Earnings per share:

$ 2.19 $ 1.26 $ 0.75

$ 2.13 $ 1.24 $ 0.73

Basic $ 2.07 $ 2.19 $ 1.26

Dilutive $ 2.02 $ 2.13 $ 1.24

Anti-dilutive shares:

314,108 908,221 456,045

Shares 235,188 314,108 908,221

1 Dilutive shares related to stock options, restricted stock, PSUs and Key Employee Awards (Note 15)

2 Dilutive shares related to contingent shares issued to former owners of BASX (Note 17)

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

Related Parties

9 unchanged sentences

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.

• The Company sells units to an entity owned by a member of the CEO’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.

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

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

• The Company leases flight time of an aircraft partially owned by our President/COO and Vice President.

• 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.

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

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

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

AAON Oklahoma:

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

AAON Oklahoma includes the operations of our Tulsa, Oklahoma, Memphis, Tennessee and Parkville, Missouri 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, Oklahoma, 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, Oklahoma, our cutting-edge 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 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.

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

BASX branded products are also manufactured in Longview.

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.

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

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, cost of sales, and gross profit directly attributable to our segments.

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

Due to the integrated nature of our Company as well as the increasing production of both AAON and BASX branded products across different segments, other costs and expenses, such as selling, general and administrative including corporate expense, are evaluated and resources allocated at a consolidated level.

The following table summarizes certain financial data related to our segments and significant segment expenses and other segment items regularly reviewed by our CODM.

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

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

The cost of sales and gross profit amounts shown below are presented after elimination entries.

Years Ended December 31,

4 unchanged sentences

Inter-segment sales 6,336 4,324 3,251

Eliminations ( 6,336 ) ( 4,324 ) ( 3,251 )

Net sales 858,711 897,919 663,845

Cost of sales 1

556,305 577,852 490,862

Gross profit 302,406 320,067 172,983

AAON Coil Products

1 unchanged sentence

Inter-segment sales 38,373 38,831 30,932

Eliminations ( 38,373 ) ( 38,831 ) ( 30,932 )

Net sales 143,871 112,320 107,290

Cost of sales 1

98,106 82,996 73,979

Gross profit 45,765 29,324 33,311

External sales $ 198,053 $ 158,279 $ 117,653

2 unchanged sentences

Net sales 198,053 158,279 117,653

AAON Oklahoma $ 320,067 $ 172,983 $ 126,868

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

Cost of sales 1

149,115 108,650 86,375

Gross profit 48,938 49,629 31,278

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.

Consolidated gross profit $ 397,109 $ 399,020 $ 237,572

1 Presented after intercompany eliminations.

The reconciliation between consolidated gross profit to consolidated income from operations is as follows:

Consolidated gross profit $ 397,109 $ 399,020 $ 237,572

Selling, general and administrative expenses 188,014 171,539 110,823

Gain on disposal of assets ( 23 ) ( 13 ) ( 12 )

Consolidated income from operations $ 209,118 $ 227,494 $ 126,761

The following table presents long-lived assets by reportable segment, which includes property and equipment, net and operating lease assets:

(in thousands)

4 unchanged sentences

Total long-lived assets $ 525,792 $ 381,721

The following table presents intangible assets and goodwill, net, by reportable segment:

(in thousands)

Intangible assets and goodwill

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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-K

Item 8. Financial Statements and Supplementary Data