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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
this equipment offered as options in new units sold, our basic design characteristics allow for easy installation in units already used in the field.
Overall, we are well positioned to accommodate the heightened demand for features that can help mitigate virus transmission and improve indoor air quality. The features that ASHRAE recommends require premium designs and configurations that are standard in our units. As a result, we are able to incorporate air quality features into our units at a minimal price premium and with no delivery delay.
Representatives
As of December 31, 2022, we employ a sales staff of 69 individuals and utilize approximately 64 independent manufacturer representatives’ organizations (“Representatives”) having 127 offices to market our products primarily in the United States and Canada. Sales are made directly to the contractor or end user, with shipments being made from our Tulsa, Oklahoma, Longview, Texas, Parkville, Missouri, or Redmond, Oregon facilities to the job site.
Historically, our products and sales strategy focused on niche markets. However, market trends related to the COVID-19 pandemic and indoor air quality, decarbonization and energy efficiency, and higher energy prices, have positioned us to focus on a wider spectrum of the nonresidential HVAC equipment industry. The targeted markets for
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
contractor or end user, with shipments being made from our Tulsa, Oklahoma, Longview, Texas, Parkville, Missouri, or Redmond, Oregon facilities to the job site.
Historically, our products and sales strategy focused on niche markets. However, market trends related to the COVID-19 pandemic and indoor air quality, decarbonization and energy efficiency, and higher energy prices, have positioned us to focus on a wider spectrum of the nonresidential HVAC equipment industry. The targeted markets for our equipment are customers seeking products of higher performance and better quality than those offered, and/or options not offered, by standardized manufacturers.
To support and service our customers and the ultimate consumer, we provide parts availability through our Representatives' sales offices, as well as our two Tulsa, Oklahoma operated retail parts stores, to serve the local markets. We also have factory service organizations at each of our facilities. Additionally, a number of the Representatives we utilize have their own service organizations, which, in connection with us, provide the necessary warranty work and/or normal service to customers.
We have a program focused on increasing service capabilities across our North America Representative network, by assisting Representatives with business plans, providing training, and creating a cohesive network of service organizations to better meet the operational and maintenance needs
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
operated retail parts stores, to serve the local markets. We also have factory service organizations at each of our facilities. Additionally, a number of the Representatives we utilize have their own service organizations, which, in connection with us, provide the necessary warranty work and/or normal service to customers.
We have a program focused on increasing service capabilities across our North America Representative network, by assisting Representatives with business plans, providing training, and creating a cohesive network of service organizations to better meet the operational and maintenance needs of our customer base.
Warranties
Our product warranty policy is the earlier of one year from the date of first use or 18 months from date of shipment for parts only, including controls; 18 months for data center cooling solutions and cleanroom systems; five years for compressors (if applicable); 15 years on aluminized steel gas-fired heat exchangers (if applicable); 25 years on stainless steel heat exchangers (if applicable); and ten years on gas-fired heat exchangers in our historical RL products (if applicable). Our warranty policy for the RQ series covers parts for two years from date of unit shipment. Our warranty policy for the WH and WV Series geothermal/water-source heat pumps covers parts for five years from
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
for compressors (if applicable); 15 years on aluminized steel gas-fired heat exchangers (if applicable); 25 years on stainless steel heat exchangers (if applicable); and ten years on gas-fired heat exchangers in our historical RL products (if applicable). Our warranty policy for the RQ series covers parts for two years from date of unit shipment. Our warranty policy for the WH and WV Series geothermal/water-source heat pumps covers parts for five years from the date of installation.
AAON, INC. also sells extended warranties on parts for various lengths of time ranging from six months to ten years. Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period.
Major Customers
One customer, Texas AirSystems LLC, accounted for 10% or more of our sales during 2022, 2021, and 2020. No other customer accounted for more than 10% of our sales during 2022, 2021, and 2020. One customer, Texas AirSystems LLC, accounted for more than 10% of our accounts receivable balance at December 31, 2022. No customers accounted for more than 10% of our accounts receivable balance at
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
Systems LLC, accounted for 10% or more of our sales during 2022, 2021, and 2020. No other customer accounted for more than 10% of our sales during 2022, 2021, and 2020. One customer, Texas AirSystems LLC, accounted for more than 10% of our accounts receivable balance at December 31, 2022. No customers accounted for more than 10% of our accounts receivable balance at December 31, 2021.
Backlog
Our backlog as of February 1, 2023 was approximately $547.3 million, compared to approximately $347.6 million as of February 1, 2022. The current backlog consists of orders considered by management to be firm and our goal is to fill orders within approximately 25 weeks after an order is deemed to become firm; however, the orders are subject to cancellation by the customers in which case, cancellation charges apply up to the full price of the equipment.
Competition
Our AAON Oklahoma and AAON Coil Products product offerings primarily compete with Lennox (Lennox International, Inc.), Trane (Trane Technologies plc), York International (Johnson Controls International PLC), Carrier (Carrier Global Corporation
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
by management to be firm and our goal is to fill orders within approximately 25 weeks after an order is deemed to become firm; however, the orders are subject to cancellation by the customers in which case, cancellation charges apply up to the full price of the equipment.
Competition
Our AAON Oklahoma and AAON Coil Products product offerings primarily compete with Lennox (Lennox International, Inc.), Trane (Trane Technologies plc), York International (Johnson Controls International PLC), Carrier (Carrier Global Corporation), and Daikin (Daikin Industries). Our BASX product offerings primarily compete with Vertiv (Vertiv Holdings Co.), STULZ (STULZ Air Technology Systems, Inc.), Munters, Silent Aire (Johnson Controls International PLC), Nortek (Nortek Air Management), and Engineered Air.
All of our publicly traded competitors are substantially larger and have greater resources than we do. Our products compete on the basis of total value, quality, function, serviceability, efficiency, availability of product, reliability, product line recognition, and acceptability of sales outlets. Historically, our premium equipment was sold at a higher average price compared to most of the competition. In the replacement market and other owner-controlled purchases, we have been
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
ek (Nortek Air Management), and Engineered Air.
All of our publicly traded competitors are substantially larger and have greater resources than we do. Our products compete on the basis of total value, quality, function, serviceability, efficiency, availability of product, reliability, product line recognition, and acceptability of sales outlets. Historically, our premium equipment was sold at a higher average price compared to most of the competition. In the replacement market and other owner-controlled purchases, we have been successful at taking market share due to the total value proposition and lower cost of ownership our products provide to building owners over the life span of the equipment. In the new construction market where the contractor is the purchasing decision maker, we were often at a competitive disadvantage because of the emphasis placed on initial cost. However, due to operational efficiency improvements we made over the last several years, the cost of our semi-custom equipment is more comparable to the standard equipment market. As a result, the value proposition of our higher quality equipment is now more attractive, making us more competitive in both the new construction and replacement markets.
Resources
Sources and Availability of Raw Materials
The most important materials we purchase are steel, copper, and aluminum. We also purchase from other manufacturers certain components, including coils
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
on initial cost. However, due to operational efficiency improvements we made over the last several years, the cost of our semi-custom equipment is more comparable to the standard equipment market. As a result, the value proposition of our higher quality equipment is now more attractive, making us more competitive in both the new construction and replacement markets.
Resources
Sources and Availability of Raw Materials
The most important materials we purchase are steel, copper, and aluminum. We also purchase from other manufacturers certain components, including coils, compressors, electric motors, and electrical controls used in our products. We attempt to obtain the lowest possible cost in our purchases of raw materials and components, consistent with meeting specified quality standards. We are not dependent upon any one source for raw materials or the major components of our manufactured products. By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our manufacturing requirements for the foreseeable future.
We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations.
Working Capital Practices
Working capital practices in the industry center on inventories and
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
of our manufactured products. By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our manufacturing requirements for the foreseeable future.
We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations.
Working Capital Practices
Working capital practices in the industry center on inventories and accounts receivable. Our management regularly reviews our working capital with a view of maintaining the lowest level consistent with requirements of anticipated levels of operation and expected supply chain restraints. Our working capital requirements are generally met by cash flow from operations and a bank revolving credit facility, which currently permits borrowings up to $200.0 million and had a $71.0 million outstanding balance at December 31, 2022. Borrowings available under the revolving credit facility at December 31, 2022, were $128.2 million. We believe that we will have sufficient funds available to meet our working capital needs for the foreseeable future.
Research and Development
Our products are engineered for performance, flexibility, and serviceability. This has become a critical factor
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
currently permits borrowings up to $200.0 million and had a $71.0 million outstanding balance at December 31, 2022. Borrowings available under the revolving credit facility at December 31, 2022, were $128.2 million. We believe that we will have sufficient funds available to meet our working capital needs for the foreseeable future.
Research and Development
Our products are engineered for performance, flexibility, and serviceability. This has become a critical factor in competing in the HVAC equipment industry. We must continually develop new and improved products in order to compete effectively and to meet evolving regulatory standards in all of our major product lines.
We self-sponsor our Research and Development (“R&D”) activities, rather than needing to be customer-sponsored. R&D activities have involved the RQ, RN, and RZ (rooftop units), H3, SA, V3, and M2 (air handling units), CB (condensing unit), and the SA and SB (self-contained units), as well as component evaluation and refinement, development of control systems and new product development. R&D expenses incurred were approximately $46.8 million, $16.6 million, and $17.4 million in 202
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
-sponsored. R&D activities have involved the RQ, RN, and RZ (rooftop units), H3, SA, V3, and M2 (air handling units), CB (condensing unit), and the SA and SB (self-contained units), as well as component evaluation and refinement, development of control systems and new product development. R&D expenses incurred were approximately $46.8 million, $16.6 million, and $17.4 million in 2022, 2021, and 2020, 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.
Our NAIC research and development laboratory facility includes many unique capabilities, which, to our knowledge, exist nowhere else in the world. A few features of the NAIC include supply, return, and outside sound testing at actual load conditions, testing of up to a 300 ton air conditioning system, up to a 540 ton chiller system, and 80 million BTU/hr of gas heating test capacity. Environmental application testing capabilities include -20 to 140°F testing conditions, up to
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
.
Our NAIC research and development laboratory facility includes many unique capabilities, which, to our knowledge, exist nowhere else in the world. A few features of the NAIC include supply, return, and outside sound testing at actual load conditions, testing of up to a 300 ton air conditioning system, up to a 540 ton chiller system, and 80 million BTU/hr of gas heating test capacity. Environmental application testing capabilities include -20 to 140°F testing conditions, up to 8 inches per hour rain testing, up to 2 inches per hour snow testing, and up to 50 mph wind testing. We believe we have the largest sound-testing chamber in the world for testing heating and air conditioning equipment and are not aware of any similar labs that can conduct this testing while putting the equipment under full environmental load. The unique capabilities of the NAIC will enable us to lead the industry in the development of quiet, energy efficient commercial and industrial heating and air conditioning equipment.
The NAIC currently houses twelve testing chambers. These testing chambers allow us to meet and maintain AHRI and U.S. Department of Energy ("DOE") certification and solidify the Company’s industry position as a technological leader in the manufacturing of HVAC equipment. Current voluntary industry certification
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
conduct this testing while putting the equipment under full environmental load. The unique capabilities of the NAIC will enable us to lead the industry in the development of quiet, energy efficient commercial and industrial heating and air conditioning equipment.
The NAIC currently houses twelve testing chambers. These testing chambers allow us to meet and maintain AHRI and U.S. Department of Energy ("DOE") certification and solidify the Company’s industry position as a technological leader in the manufacturing of HVAC equipment. Current voluntary industry certification programs and government regulations only go up to 63 tons of air conditioning as that is the largest environmental chamber currently available for testing outside of our facility. The NAIC contains both a 100 ton and a 540 ton chamber, allowing us to uniquely prove to customers our capacity and efficiency on these larger units.
The NAIC was designed to test products well beyond the standard AHRI rating points and allows us to offer testing services on our equipment throughout our range of product application. This capability is vital for critical facilities where the units must perform properly and allows our customers to verify the performance of our units in advance, rather than after installation. These same capabilities will enable AAON to develop a new extended range of operational products and prove their capabilities.
Our Parkville, Missouri location is
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
efficiency on these larger units.
The NAIC was designed to test products well beyond the standard AHRI rating points and allows us to offer testing services on our equipment throughout our range of product application. This capability is vital for critical facilities where the units must perform properly and allows our customers to verify the performance of our units in advance, rather than after installation. These same capabilities will enable AAON to develop a new extended range of operational products and prove their capabilities.
Our Parkville, Missouri location is home to our new Electronics Prototyping Lab ("Lab") featuring a fully functional SMD (Surface Mount Device) production line. The production line incorporates automated pick-and-place equipment able to quickly and accurately place devices as small as 0.1mm by 0.2mm, the same technology scale used in cell phones. The production line also includes a profiled reflow oven to assure reliability in the finished prototypes. The Lab has allowed us to increase our speed to market and incorporate cutting-edge technology into our control designs. In addition, it allows our Controls Engineering team to utilize their hardware and software skills to outpace our Competitors in responding to market changes and upsets.
Patents, Trademarks, Licenses, and Concessions
We do not consider any patents
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
the same technology scale used in cell phones. The production line also includes a profiled reflow oven to assure reliability in the finished prototypes. The Lab has allowed us to increase our speed to market and incorporate cutting-edge technology into our control designs. In addition, it allows our Controls Engineering team to utilize their hardware and software skills to outpace our Competitors in responding to market changes and upsets.
Patents, Trademarks, Licenses, and Concessions
We do not consider any patents, trademarks, licenses, or concessions to be material to our business operations, other than those described below.
We hold several patents that relate to the design and use of our products. We consider these patents important, but no single patent is material to the overall conduct of our business. We proactively obtain patents to further our strategic intellectual property objectives. We own certain trademarks we consider important in the marketing of our products and services, and we protect our marks through national registrations and common law rights. Our patents have legal terms of 20 years with expiration dates ranging from 2023 to 2039.
AAON, INC.’s trademarks, certain of which are material to its business, are registered or otherwise legally protected in the U.S.
Seasonality
Historically, sales of our products were
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
We proactively obtain patents to further our strategic intellectual property objectives. We own certain trademarks we consider important in the marketing of our products and services, and we protect our marks through national registrations and common law rights. Our patents have legal terms of 20 years with expiration dates ranging from 2023 to 2039.
AAON, INC.’s trademarks, certain of which are material to its business, are registered or otherwise legally protected in the U.S.
Seasonality
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 increase in demand of our products and increase in our backlog, sales has become more constant throughout the year.
Environmental & Regulatory Matters
Laws concerning the environment that affect or could affect our operations include, among others, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, regulations promulgated under these Acts and any other federal, state or local laws or regulations governing environmental matters. We believe that we are in compliance with these laws and that future compliance will not materially affect our
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
Environmental & Regulatory Matters
Laws concerning the environment that affect or could affect our operations include, among others, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, regulations promulgated under these Acts and any other federal, state or local laws or regulations governing environmental matters. We believe that we are in compliance with these laws and that future compliance will not materially affect our earnings or competitive position.
Since our founding in 1987, we have maintained a commitment to design, develop, manufacture, and deliver heating and cooling products to perform beyond all expectations and to demonstrate our quality and value to our customers. Our equipment is designed with energy efficiency in mind, without sacrificing premium features and options. In addition to our high standard of product performance, is a commitment to sustainability for our employees, our stockholders, and our customers. We strive to conduct our business in a socially responsible and ethical manner with a focus on environmental stewardship, team member safety and community engagement. We comply with industry regulations and requirements while pursuing responsible economic growth and profitability.
In 2022, we published our fourth annual environmental, social, and governance ("ESG") report sharing
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
, without sacrificing premium features and options. In addition to our high standard of product performance, is a commitment to sustainability for our employees, our stockholders, and our customers. We strive to conduct our business in a socially responsible and ethical manner with a focus on environmental stewardship, team member safety and community engagement. We comply with industry regulations and requirements while pursuing responsible economic growth and profitability.
In 2022, we published our fourth annual environmental, social, and governance ("ESG") report sharing our approach in the material areas of stakeholder engagement, innovation and efficiency, environmental responsibility, climate change, occupational health and safety, talent attraction and retention, diversity and inclusion, community engagement and investment, corporate governance and ethics and compliance. The report also highlights achievements and long-term targets related to greenhouse gas emissions, hazardous waste recycling, and non-fossil fuel consuming products. We participate in a sustainability benchmarking initiative (The Sustainability Alliance Scor3card) through which we monitor and report in the material areas of energy, material management, water,
community stewardship, transportation, communication, and health. We achieved Platinum level in this program in 2022 and 2021. Our ESG committee provides oversight for ESG activities, ESG report development and an internal grassroots sustainability
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
targets related to greenhouse gas emissions, hazardous waste recycling, and non-fossil fuel consuming products. We participate in a sustainability benchmarking initiative (The Sustainability Alliance Scor3card) through which we monitor and report in the material areas of energy, material management, water,
community stewardship, transportation, communication, and health. We achieved Platinum level in this program in 2022 and 2021. Our ESG committee provides oversight for ESG activities, ESG report development and an internal grassroots sustainability committee provides education opportunities, communications and recommendations to the Company on a regular basis.
We are committed to environmental responsibility and continue to make progress toward reducing greenhouse gas ("GHG") emissions, increasing hazardous waste recycling from our facilities and increasing the percentage of non-fossil fuel powered units we produce. Our approach toward emissions reduction and climate change includes product solutions for our customers and improvements to our own facilities. Approximately one-quarter of our energy portfolio is currently derived from renewable sources, and the Company's Scope 1 and 2 emissions (emissions that occur from sources that are controlled or owned by an organization and emissions associated with the purchase of electricity, steam, heat, or cooling) are being tracked. We opted into an additional percentage of renewable energy at our Tulsa, Oklahoma facilities in
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
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produce. Our approach toward emissions reduction and climate change includes product solutions for our customers and improvements to our own facilities. Approximately one-quarter of our energy portfolio is currently derived from renewable sources, and the Company's Scope 1 and 2 emissions (emissions that occur from sources that are controlled or owned by an organization and emissions associated with the purchase of electricity, steam, heat, or cooling) are being tracked. We opted into an additional percentage of renewable energy at our Tulsa, Oklahoma facilities in 2022, continued to invest and partner on projects that reduce GHG emissions globally and selected to begin the transition to the lower global warming potential R-454B refrigerant starting in 2023. We continue to develop and manufacture non-fossil fuel consuming units to provide the most sustainable commercial HVAC equipment in the market and announced the zero degree cold air-source heat pump in 2022 as a critical solution that meets the increasing demand for building decarbonization in cold climates.
In the area of energy efficiency and conservation, our Tulsa, Oklahoma and Longview, Texas facilities have transitioned to over 95% LED lighting in our facilities leading to considerable cost savings and reduced energy consumption. Our Redmond, Oregon facilities are installing LED lights into any new fixtures in their current facility and
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
sustainable commercial HVAC equipment in the market and announced the zero degree cold air-source heat pump in 2022 as a critical solution that meets the increasing demand for building decarbonization in cold climates.
In the area of energy efficiency and conservation, our Tulsa, Oklahoma and Longview, Texas facilities have transitioned to over 95% LED lighting in our facilities leading to considerable cost savings and reduced energy consumption. Our Redmond, Oregon facilities are installing LED lights into any new fixtures in their current facility and working towards retrofitting old fixtures to LED. We participate in an energy demand response program through the public utility provider to reduce demand during peak hours. Energy efficiency has been a priority not only in product development, but also in overall capital investments which include the acquisition of new, energy efficient equipment for the production floor, new high-speed overhead facility doors, the installation of new HVAC equipment, building control systems, the application of heat and light reflective material to production facilities, along with other behavioral-based energy efficiency changes. We are tracking our energy usage intensity before and after these updates.
In the area of material management, we focus on recycling, reducing, reusing and sourcing more environmentally-friendly materials into our processes. At our Tulsa, Oklahoma and Longview, Texas facilities, we recycled over
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
equipment for the production floor, new high-speed overhead facility doors, the installation of new HVAC equipment, building control systems, the application of heat and light reflective material to production facilities, along with other behavioral-based energy efficiency changes. We are tracking our energy usage intensity before and after these updates.
In the area of material management, we focus on recycling, reducing, reusing and sourcing more environmentally-friendly materials into our processes. At our Tulsa, Oklahoma and Longview, Texas facilities, we recycled over 14,928 tons and 13,793 tons of metal in 2022 and 2021, respectively. Also, through our partnership with a waste to energy facility, we successfully diverted over 668 tons and 460 tons of waste from landfills in 2022 and 2021, respectively. We have identified hazardous waste recycling partners for paint products at both our Tulsa, Oklahoma and Longview, Texas facilities. We also recycle paper, wood, and cardboard where available. We continue to innovate ways to reduce and reuse shipping packaging between facilities and identify new opportunities to reduce or reuse items in our production and administrative areas.
Human Capital Resources
Our employees are not represented by unions or other collective bargaining agreements. Management considers its relations with our employees to be good. The following
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
2021, respectively. We have identified hazardous waste recycling partners for paint products at both our Tulsa, Oklahoma and Longview, Texas facilities. We also recycle paper, wood, and cardboard where available. We continue to innovate ways to reduce and reuse shipping packaging between facilities and identify new opportunities to reduce or reuse items in our production and administrative areas.
Human Capital Resources
Our employees are not represented by unions or other collective bargaining agreements. Management considers its relations with our employees to be good. The following table represents the number of our direct employees and contract personnel we employed on each respective date:
As of
As of
As of
February 22, 2023
February 22, 2022
February 23, 2021
AAON Oklahoma
2,474
1,979
1,778
AAON Coil Products
681
574
490
BASX1
511
328
Total employees
3,666
2,881
2,268
1 BASX was acquired by the Company on December 10, 2021.
Our key human capital measures include employee safety, turnover, absenteeism, and production. We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
,474
1,979
1,778
AAON Coil Products
681
574
490
BASX1
511
328
Total employees
3,666
2,881
2,268
1 BASX was acquired by the Company on December 10, 2021.
Our key human capital measures include employee safety, turnover, absenteeism, and production. We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled and unskilled labor throughout our organization. Some of our notable health, welfare, and retirement benefits include:
Employee medical plan (with 175% employer health saving plan match)
401(k) Plan (with 175% employer match)
Profit sharing bonus plan
Tuition assistance program
Paid time off
Paid parental leave
Military pay
Available Information
Our Internet website address is http://www.aaon.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
plan match)
401(k) Plan (with 175% employer match)
Profit sharing bonus plan
Tuition assistance program
Paid time off
Paid parental leave
Military pay
Available Information
Our Internet website address is http://www.aaon.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, will be available free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information on our website is not a part of, or incorporated by reference into, this annual report on Form 10-K.
Copies of any materials we file with the SEC can also be obtained free of charge through the SEC’s website at http://www.sec.gov, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, or by calling the SEC at 1-800-732-0330.
Item 1A. Risk Factors.
The following risks and uncertainties may affect our performance
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ticker:AAON
name:AAON, INC.
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
into, this annual report on Form 10-K.
Copies of any materials we file with the SEC can also be obtained free of charge through the SEC’s website at http://www.sec.gov, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, or by calling the SEC at 1-800-732-0330.
Item 1A. Risk Factors.
The following risks and uncertainties may affect our performance and results of operations. The discussion below contains “forward-looking statements” as outlined in the Forward-Looking Statements section above. Our ability to mitigate risks may cause our future results to materially differ from what we currently anticipate. Additionally, the ability of our competitors to react to material risks will affect our future results.
Risks Related to the COVID-19 Pandemic
Our business, results of operations, financial condition, cash flows, and stock price can be adversely affected by pandemics, epidemics, or other public health emergencies, such as COVID-19.
In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak resulted in governments around the world
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The report is about the company's financial status.
risks will affect our future results.
Risks Related to the COVID-19 Pandemic
Our business, results of operations, financial condition, cash flows, and stock price can be adversely affected by pandemics, epidemics, or other public health emergencies, such as COVID-19.
In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, vaccination or testing mandates and other measures. In addition, governments and central banks in several parts of the world enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.
We are considered a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Although we have continued to operate our facilities to date consistent with federal guidelines and state and local orders, the outbreak of COVID-19 and any preventive or protective actions taken by governmental authorities may have a material adverse effect on our operations, supply chain, customers, and transportation networks, including
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The report is about the company's financial status.
central banks in several parts of the world enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.
We are considered a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Although we have continued to operate our facilities to date consistent with federal guidelines and state and local orders, the outbreak of COVID-19 and any preventive or protective actions taken by governmental authorities may have a material adverse effect on our operations, supply chain, customers, and transportation networks, including business shutdowns or disruptions. During 2022 and 2021 we experienced price increases in our components and raw materials, especially copper and steel, which appear to be a result of COVID-19, as well supply chain challenges related to certain manufacturing parts.
Even though the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which may adversely impact our stock price and our ability to access capital markets. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report, such as those
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The report is about the company's financial status.
-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which may adversely impact our stock price and our ability to access capital markets. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report, such as those relating to our products and financial performance.
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Risks Related to Our Business
Our business can be hurt by economic conditions
Our business is affected by a number of economic factors, including the level of economic activity in the markets in which we operate. Sales in the commercial and industrial new construction markets correlate to the number of new homes and buildings that are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, and other macroeconomic factors over which we have no control. In the HVAC business, a decline in economic activity as a result of these cyclical or other factors typically results in a decline in new construction and replacement purchases which could impact our sales volume and profitability.
Our results of operations and financial
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The report is about the company's financial status.
and industrial new construction markets correlate to the number of new homes and buildings that are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, and other macroeconomic factors over which we have no control. In the HVAC business, a decline in economic activity as a result of these cyclical or other factors typically results in a decline in new construction and replacement purchases which could impact our sales volume and profitability.
Our results of operations and financial condition could be negatively impacted by the loss of a major customer.
From time to time in the past we derived a significant portion of our sales from a limited number of customers, and such concentration may continue in the future. In 2022, 2021, and 2020, one customer, Texas AirSystems LLC accounted for more than 10% of our sales. The loss of, or significant reduction in sales to, a major customer could have a material adverse effect on our results of operations, financial condition and cash flow. Further, the addition of new major customers in the future could increase our customer concentration risks as described above.
Our results of operations and financial condition could be negatively impacted by the loss of a major third-party representative.
We are dependent on our
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0, one customer, Texas AirSystems LLC accounted for more than 10% of our sales. The loss of, or significant reduction in sales to, a major customer could have a material adverse effect on our results of operations, financial condition and cash flow. Further, the addition of new major customers in the future could increase our customer concentration risks as described above.
Our results of operations and financial condition could be negatively impacted by the loss of a major third-party representative.
We are dependent on our third-party representatives to market and sell our products. If such relationships were terminated for any reason, it could materially and adversely affect our ability to generate revenues and profits. Certain of our competitors with greater financial resources than us could target our third-party representatives for exclusive sales channels. We may not be able to secure additional third-party representatives who will effectively market our products in certain geographical areas. In addition, adding new representatives requires additional administrative efforts and costs. If we are unable to establish new representative relationships or continue current relationships, our business, financial condition, and results of operations could be materially and adversely affected.
We may incur material costs as a result of warranty and product liability claims that would negatively affect our profitability
The development, manufacture, sale and use of our products involve a risk of
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not be able to secure additional third-party representatives who will effectively market our products in certain geographical areas. In addition, adding new representatives requires additional administrative efforts and costs. If we are unable to establish new representative relationships or continue current relationships, our business, financial condition, and results of operations could be materially and adversely affected.
We may incur material costs as a result of warranty and product liability claims that would negatively affect our profitability
The development, manufacture, sale and use of our products involve a risk of warranty and product liability claims. Our product liability insurance policies have limits that, if exceeded, may result in material costs that would have an adverse effect on our future profitability. An excess of or significant claim(s) could lead to the cancellation of our polices and the loss of and inability to find additional insurance carriers. In addition, warranty claims are not covered by our product liability insurance and there may be types of product liability claims that are also not covered by our product liability insurance.
We depend on our senior leadership team and the loss of our Chief Executive Officer or one or more key employees or an inability to attract and retain highly skilled employees could adversely affect our business
Our success depends largely upon the continued services of our officers and senior leadership team. In particular, our Chief
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of and inability to find additional insurance carriers. In addition, warranty claims are not covered by our product liability insurance and there may be types of product liability claims that are also not covered by our product liability insurance.
We depend on our senior leadership team and the loss of our Chief Executive Officer or one or more key employees or an inability to attract and retain highly skilled employees could adversely affect our business
Our success depends largely upon the continued services of our officers and senior leadership team. In particular, our Chief Executive Officer ("CEO"), Gary D. Fields, is critical to our vision, strategic direction, culture, and overall business success. Furthermore, Mr. Fields' extensive industry knowledge and sales-channel experience would be difficult to replace. We also rely on our senior leadership team in the areas of research and development, marketing, production, sales, and general and administrative functions. From time to time, there may be changes in our senior leadership team resulting from the hiring or departure of senior leadership team members, which could disrupt our business. While we have a robust succession plan in place for each one of our officers and senior leadership team members, the loss of one or more could have a serious adverse effect on our business.
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We do not maintain key-man insurance for Gary D. Fields
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of research and development, marketing, production, sales, and general and administrative functions. From time to time, there may be changes in our senior leadership team resulting from the hiring or departure of senior leadership team members, which could disrupt our business. While we have a robust succession plan in place for each one of our officers and senior leadership team members, the loss of one or more could have a serious adverse effect on our business.
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We do not maintain key-man insurance for Gary D. Fields or any other member of our senior leadership team. Other than the employment agreements negotiated with certain employees of BASX, we do not have employment agreements with our officers or senior leadership team members that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The employment agreements with the employees of BASX guarantee certain compensation, such as salary and benefits, and employment terms. We do not believe the terms or conditions of these agreements are outside the standard expectation of another employee at a similar level.
Operations may be affected by natural disasters, especially since most of our operations are performed at a single location.
Natural disasters such as tornadoes, ice storms and fires, as well as accidents, acts of terror, infection,
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terminate their employment with us at any time. The employment agreements with the employees of BASX guarantee certain compensation, such as salary and benefits, and employment terms. We do not believe the terms or conditions of these agreements are outside the standard expectation of another employee at a similar level.
Operations may be affected by natural disasters, especially since most of our operations are performed at a single location.
Natural disasters such as tornadoes, ice storms and fires, as well as accidents, acts of terror, infection, and other factors beyond our control could adversely affect our operations. Our facilities are in areas where tornadoes are likely to occur, and the majority of our operations are at our Tulsa, Oklahoma facilities. With the acquisition of BASX in 2021, we now have operations in an area that is, historically, effected by wild fires. The effects of natural disasters and other events could damage our facilities and equipment and force a temporary halt to manufacturing and other operations, and such events could consequently cause severe damage to our business. We maintain insurance against these sorts of events; however, this is not guaranteed to cover all the losses and damages incurred. Furthermore, we may experience increases in our insurance premium costs in relation to these matters that may have a material adverse effect upon our business, liquidity
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The report is about the company's financial status.
area that is, historically, effected by wild fires. The effects of natural disasters and other events could damage our facilities and equipment and force a temporary halt to manufacturing and other operations, and such events could consequently cause severe damage to our business. We maintain insurance against these sorts of events; however, this is not guaranteed to cover all the losses and damages incurred. Furthermore, we may experience increases in our insurance premium costs in relation to these matters that may have a material adverse effect upon our business, liquidity, financial condition, or results of operations.
If we are unable to hire, develop or retain employees, it could have an adverse effect on our business.
We compete to hire new employees and then seek to train them to develop their skills. We may not be able to successfully recruit, develop, and retain the personnel we need. Unplanned turnover or failure to hire and retain a diverse, skilled workforce, could increase our operating costs and adversely affect our results of operations.
Variability in self-insurance liability estimates could impact our results of operations.
We self-insure for certain employee health insurance and workers’ compensation insurance coverage up to a predetermined level, beyond which we maintain stop-loss insurance from a third-party insurer. Our aggregate exposure varies from year to year based upon the number
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The report is about the company's financial status.
, develop, and retain the personnel we need. Unplanned turnover or failure to hire and retain a diverse, skilled workforce, could increase our operating costs and adversely affect our results of operations.
Variability in self-insurance liability estimates could impact our results of operations.
We self-insure for certain employee health insurance and workers’ compensation insurance coverage up to a predetermined level, beyond which we maintain stop-loss insurance from a third-party insurer. Our aggregate exposure varies from year to year based upon the number of participants in our insurance plans. We estimate our self-insurance liabilities using an analysis provided by our claims administrator and our historical claims experience. Our accruals for insurance reserves reflect these estimates and other management judgments, which are subject to a high degree of variability. If the number or severity of claims for which we self-insure increases, it could cause a material and adverse change to our reserves for self-insurance liabilities, as well as to our earnings.
Risks Related to Our Brand and Product Offerings
We may not be able to compete favorably in the highly competitive HVAC business
Competition in our various markets could cause us to reduce our prices or lose market share, which could have an adverse effect on our future financial results. Substantially all of the
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ticker:AAON
name:AAON, INC.
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The report is about the company's financial status.
or severity of claims for which we self-insure increases, it could cause a material and adverse change to our reserves for self-insurance liabilities, as well as to our earnings.
Risks Related to Our Brand and Product Offerings
We may not be able to compete favorably in the highly competitive HVAC business
Competition in our various markets could cause us to reduce our prices or lose market share, which could have an adverse effect on our future financial results. Substantially all of the markets in which we participate are highly competitive. The most significant competitive factors we face are product reliability, product performance, service, manufacturing lead-times, and price, with the relative importance of these factors varying among our product line. Other factors that affect competition in the HVAC market include the development and application of new technologies and an increasing emphasis on the development of more efficient HVAC products. Moreover, new product introductions are an important factor in the market categories in which our products compete. Several of our competitors have greater financial and other resources than we have, allowing them to invest in more extensive research and development. We may not be able to compete successfully against current and future competition and current and future competitive pressures faced by us may materially adversely affect our business and results of
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name:AAON, INC.
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The report is about the company's financial status.
include the development and application of new technologies and an increasing emphasis on the development of more efficient HVAC products. Moreover, new product introductions are an important factor in the market categories in which our products compete. Several of our competitors have greater financial and other resources than we have, allowing them to invest in more extensive research and development. We may not be able to compete successfully against current and future competition and current and future competitive pressures faced by us may materially adversely affect our business and results of operations.
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We may not be able to successfully develop and market new products
Our future success will depend upon our continued investment in research and new product development and our ability to continue to achieve new technological advances in the HVAC industry. Our inability to continue to successfully develop and market new products or our inability to implement technological advances on a pace consistent with that of our competitors could lead to a material adverse effect on our business and results of operations. Furthermore, our continued investment in new product development may render certain legacy products and components obsolete resulting in increased inventory obsolescence expense that may have a material adverse effect upon our financial condition or results of operations.
Risks Related to Material Sourcing and Supply
We may be adversely affected by problems in the availability, or increases in the prices
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The report is about the company's financial status.
new products or our inability to implement technological advances on a pace consistent with that of our competitors could lead to a material adverse effect on our business and results of operations. Furthermore, our continued investment in new product development may render certain legacy products and components obsolete resulting in increased inventory obsolescence expense that may have a material adverse effect upon our financial condition or results of operations.
Risks Related to Material Sourcing and Supply
We may be adversely affected by problems in the availability, or increases in the prices, of raw materials and components
Problems in the availability, or increases in the prices, of raw materials or components could depress our sales or increase the costs of our products. We are dependent upon components purchased from third parties, as well as raw materials such as steel, copper and aluminum. Occasionally, we enter into cancellable and non-cancellable contracts on terms from six to 18 months for raw materials and components. However, if a key supplier is unable or unwilling to meet our supply requirements, we could experience supply interruptions or cost increases, either of which could have an adverse effect on our gross profit.
We risk having losses resulting from the use of non-cancellable contracts.
Historically, we have attempted to limit the impact of price fluctuations on commodities by
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
copper and aluminum. Occasionally, we enter into cancellable and non-cancellable contracts on terms from six to 18 months for raw materials and components. However, if a key supplier is unable or unwilling to meet our supply requirements, we could experience supply interruptions or cost increases, either of which could have an adverse effect on our gross profit.
We risk having losses resulting from the use of non-cancellable contracts.
Historically, we have attempted to limit the impact of price fluctuations on commodities by entering into non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations. These contracts are not accounted for using hedge accounting since they meet the normal purchases and sales exemption.
Risks Related to Electronic Data Processing and Digital Information
Our business is subject to the risks of interruptions by cybersecurity attacks.
We depend upon information technology infrastructure, including network, hardware and software systems to conduct our business. Despite our implementation of network and other cybersecurity measures, our information technology system and networks could be disrupted due to technological problems, a cyber-attack, acts of terrorism, severe weather, a solar event, an electromagnetic event, a natural disaster, the age and condition
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exemption.
Risks Related to Electronic Data Processing and Digital Information
Our business is subject to the risks of interruptions by cybersecurity attacks.
We depend upon information technology infrastructure, including network, hardware and software systems to conduct our business. Despite our implementation of network and other cybersecurity measures, our information technology system and networks could be disrupted due to technological problems, a cyber-attack, acts of terrorism, severe weather, a solar event, an electromagnetic event, a natural disaster, the age and condition of information technology assets, human error, or other reasons. To date, we have not experienced a material impact to our business or operations resulting from cyber-security or other similar information attacks, but due to the ever-evolving attack methods, as well as the increased amount and level of sophistication of these attacks, our security measures may not be adequate to protect against highly targeted sophisticated cyber-attacks, or other improper disclosures of confidential and/or sensitive information. Additionally, we may have access to confidential or other sensitive information of our customers, which, despite our efforts to protect, may be vulnerable to security breaches, theft, or other improper disclosure. Any cyber-related attack or other improper disclosure of confidential information could have a material adverse effect on our business, as well as other negative consequences,
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
of sophistication of these attacks, our security measures may not be adequate to protect against highly targeted sophisticated cyber-attacks, or other improper disclosures of confidential and/or sensitive information. Additionally, we may have access to confidential or other sensitive information of our customers, which, despite our efforts to protect, may be vulnerable to security breaches, theft, or other improper disclosure. Any cyber-related attack or other improper disclosure of confidential information could have a material adverse effect on our business, as well as other negative consequences, including significant damage to our reputation, litigation, regulatory actions, and increased cost.
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We are reliant on information technology.
We are reliant on information technology in all aspects of our business, operated and maintained by the Company as well as under control of third parties. If we do not invest sufficient capital in a timely manner to acquire, develop, or implement new information technologies or maintain or upgrade current information technologies, we could suffer outages as well as be at a competitive disadvantage within our industry which could have a material adverse effect upon our financial condition and results of operations.
Risks Related to Governmental Regulation and Policies
Exposure to environmental liabilities could adversely affect our results of operations
Our future profitability could be adversely affected by current or future environmental laws. We are subject to
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The report is about the company's financial status.
not invest sufficient capital in a timely manner to acquire, develop, or implement new information technologies or maintain or upgrade current information technologies, we could suffer outages as well as be at a competitive disadvantage within our industry which could have a material adverse effect upon our financial condition and results of operations.
Risks Related to Governmental Regulation and Policies
Exposure to environmental liabilities could adversely affect our results of operations
Our future profitability could be adversely affected by current or future environmental laws. We are subject to extensive and changing Federal, state and local laws and regulations designed to protect the environment in the United States and in other parts of the world. These laws and regulations could impose liability for remediation costs and result in civil or criminal penalties in case of non-compliance. Compliance with environmental laws increases our costs of doing business. Because these laws are subject to frequent change, we are unable to predict the future costs resulting from environmental compliance.
We are subject to potentially extreme governmental regulations and policies.
We always face the possibility of new governmental regulations, policies and trade agreements which could have a substantial or even extreme negative effect on our operations and profitability. Several intrusive component part governmental regulations are in process. If these proposals become final rules, the effect would be the regulation of
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The report is about the company's financial status.
pliance with environmental laws increases our costs of doing business. Because these laws are subject to frequent change, we are unable to predict the future costs resulting from environmental compliance.
We are subject to potentially extreme governmental regulations and policies.
We always face the possibility of new governmental regulations, policies and trade agreements which could have a substantial or even extreme negative effect on our operations and profitability. Several intrusive component part governmental regulations are in process. If these proposals become final rules, the effect would be the regulation of compressors and fans in products for which the Department of Energy does not have current authority. This could affect equipment we currently manufacture and could have an impact on our product design, operations, and profitability.
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo and adjoining countries. As a result, in August 2012, the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals in their products. Accordingly, we began our reasonable country of origin inquiries in fiscal year 2013, with initial disclosure requirements beginning in May 2014. There are costs associated with complying with these disclosure requirements, including for due diligence
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transparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo and adjoining countries. As a result, in August 2012, the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals in their products. Accordingly, we began our reasonable country of origin inquiries in fiscal year 2013, with initial disclosure requirements beginning in May 2014. There are costs associated with complying with these disclosure requirements, including for due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. As there may be only a limited number of suppliers offering “conflict free” conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.
Our operations could be negatively impacted by new legislation as
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
be only a limited number of suppliers offering “conflict free” conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.
Our operations could be negatively impacted by new legislation as well as changes in regulations and trade agreements, including tariffs and taxes. Unfavorable conditions resulting from such changes could have a material adverse effect on our business, financial condition and results of operations.
We are subject to adverse changes in tax laws.
Our tax expense or benefits could be adversely affected by changes in tax provisions, unfavorable findings in tax examinations, or differing interpretations by tax authorities. We are unable to estimate the impact that current and future tax proposals and tax laws could have on our results of operations. We are currently subject to state and local tax examinations for which we do not expect any major assessments.
We are subject to international regulations that could adversely affect our business and results of operations.
Due to our use of Representatives in foreign markets, we are subject to many laws
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name:AAON, INC.
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
adversely affected by changes in tax provisions, unfavorable findings in tax examinations, or differing interpretations by tax authorities. We are unable to estimate the impact that current and future tax proposals and tax laws could have on our results of operations. We are currently subject to state and local tax examinations for which we do not expect any major assessments.
We are subject to international regulations that could adversely affect our business and results of operations.
Due to our use of Representatives in foreign markets, we are subject to many laws governing international relations, including those that prohibit improper payments to government officials and commercial customers, and restrict
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where we can do business, what information or products we can supply to certain countries and what information we can provide to a non-U.S. government, including but not limited to the Foreign Corrupt Practices Act, U.K. Bribery Act and the U.S. Export Administration Act. Violations of these laws, which are complex, may result in criminal penalties or sanctions that could have a material adverse effect on our business, financial condition and results of operations.
Changes in legislation or government regulations or policies could adversely effect on our results of operations.
Our sales, gross margins and profitability could be directly impacted by changes in legislation or government regulations or policies. Specifically, changes in
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ticker:AAON
name:AAON, INC.
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
to the Foreign Corrupt Practices Act, U.K. Bribery Act and the U.S. Export Administration Act. Violations of these laws, which are complex, may result in criminal penalties or sanctions that could have a material adverse effect on our business, financial condition and results of operations.
Changes in legislation or government regulations or policies could adversely effect on our results of operations.
Our sales, gross margins and profitability could be directly impacted by changes in legislation or government regulations or policies. Specifically, changes in environmental and energy efficiency standards and regulations related to global climate change are being implemented to curtail the use of hydrofluorocarbons which are used in refrigerants that are essential to many of our products. Our inability or delay in developing or marketing products that match customer demand while also meeting applicable efficiency and environmental standards may negatively impact our results.
We are transitioning to a new refrigerant with lower global warming potential for our HVAC systems and must be fully compliant under current governmental regulations by 2025. We expect to incur costs associated with this transition related to the purchase of the new refrigerant as well as additional sensors and detectors on our HVAC systems. In addition, we expect to incur cost to our facilities, specifically costs to store and use the new refrigerant in production; however
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
also meeting applicable efficiency and environmental standards may negatively impact our results.
We are transitioning to a new refrigerant with lower global warming potential for our HVAC systems and must be fully compliant under current governmental regulations by 2025. We expect to incur costs associated with this transition related to the purchase of the new refrigerant as well as additional sensors and detectors on our HVAC systems. In addition, we expect to incur cost to our facilities, specifically costs to store and use the new refrigerant in production; however, we do not expect these costs to be significant. Due to the increased flammability of the new refrigerant, the insurance industry may require higher premiums for companies once the conversion begins. Furthermore, due to the expected increased demand of the newer refrigerants as well as the older hydrofluorocarbon refrigerants (as they are phased out), we expect to see increased manufacturing costs related to purchases of refrigerants and could see higher costs for future warranty claims.
Future legislation or regulations relating to environmental policies, product certification, product liability, taxes, amount and availability of tax incentives and other matters, may impact the results of each of our operating segments and our consolidated results.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
hydrofluorocarbon refrigerants (as they are phased out), we expect to see increased manufacturing costs related to purchases of refrigerants and could see higher costs for future warranty claims.
Future legislation or regulations relating to environmental policies, product certification, product liability, taxes, amount and availability of tax incentives and other matters, may impact the results of each of our operating segments and our consolidated results.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our manufacturing areas are heavy industrial type buildings, with some coverage by overhead cranes, containing manufacturing equipment designed for sheet metal fabrication, metal stamping and tube forming. The manufacturing equipment contained in the facilities consists primarily of automated sheet metal fabrication equipment, supplemented by presses and tube bending equipment. Assembly lines consist of cart-type and roller-type conveyor lines with variable line speed adjustment. Subassembly areas and production line manning are based upon line rates set by production management.
We own and lease our properties and facilities, as further described below. We believe that all of our facilities are well maintained and are in good condition and suitable for the conduct of our business.
AAON Oklahoma
Our plant and office facilities in Tulsa, Oklahoma, consist of a 342,000 square foot
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
equipment. Assembly lines consist of cart-type and roller-type conveyor lines with variable line speed adjustment. Subassembly areas and production line manning are based upon line rates set by production management.
We own and lease our properties and facilities, as further described below. We believe that all of our facilities are well maintained and are in good condition and suitable for the conduct of our business.
AAON Oklahoma
Our plant and office facilities in Tulsa, Oklahoma, consist of a 342,000 square foot building (327,000 square feet of manufacturing/warehouse space and 15,000 square feet of office space) located on a 12-acre tract of land at 2425 South Yukon Avenue; a 940,000 square foot manufacturing/warehouse building and a 70,000 square foot office building located on an approximately 79-acre tract of land across the street from the original facility (2440 South Yukon Avenue); and a 40,000 square foot building used as warehouse space located on a 6-acre tract. We also lease a 198,000 square foot warehouse space which is used for additional inventory storage.
15
In addition to a retail parts store location at our Tulsa facilities, we also own a 13,500 square foot stand alone building
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
,000 square foot office building located on an approximately 79-acre tract of land across the street from the original facility (2440 South Yukon Avenue); and a 40,000 square foot building used as warehouse space located on a 6-acre tract. We also lease a 198,000 square foot warehouse space which is used for additional inventory storage.
15
In addition to a retail parts store location at our Tulsa facilities, we also own a 13,500 square foot stand alone building (7,500 square foot warehouse and 6,000 square foot office) which is utilized as an additional retail parts store to provide our customers more accessibility to our products. The stand alone parts store building is on approximately one acre and is located at 9528 E 51st St in Tulsa, Oklahoma.
Our Tulsa location is also home to our engineering research and development laboratory, the Norman Asbjornson Innovation Center ("NAIC"). The three-story, 134,000 square foot stand alone facility is both an acoustical and a performance measuring laboratory. This facility currently consists of twelve test chambers, allowing AAON to meet and maintain industry certifications. This facility is located west of the 940,000 square foot manufacturing/warehouse building at 2440 South Yuk
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
st St in Tulsa, Oklahoma.
Our Tulsa location is also home to our engineering research and development laboratory, the Norman Asbjornson Innovation Center ("NAIC"). The three-story, 134,000 square foot stand alone facility is both an acoustical and a performance measuring laboratory. This facility currently consists of twelve test chambers, allowing AAON to meet and maintain industry certifications. This facility is located west of the 940,000 square foot manufacturing/warehouse building at 2440 South Yukon Avenue.
In 2023, our Exploration Center will open at our Tulsa location. The Exploration Center is a 28,000 square foot facility located adjacent to the NAIC. The Exploration Center will provide an immersive and educational experience of our products, solutions and our people and also serve as an event hub for our stakeholders, including our customers, employees, Representatives and investors. The Exploration Center will add a dimension of customer engagement that doesn't currently exist, showcasing our products and our competitors products and allowing our customers to interact with our employees.
Our operations in Parkville, Missouri, are conducted in a leased plant/office at 8500 NW River Park Drive, containing approximately 51,000 square feet. This location is home to our Controls design and manufacturing facilities. In
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
also serve as an event hub for our stakeholders, including our customers, employees, Representatives and investors. The Exploration Center will add a dimension of customer engagement that doesn't currently exist, showcasing our products and our competitors products and allowing our customers to interact with our employees.
Our operations in Parkville, Missouri, are conducted in a leased plant/office at 8500 NW River Park Drive, containing approximately 51,000 square feet. This location is home to our Controls design and manufacturing facilities. In October 2022, we modified the existing lease to expand to approximately 86,000 square feet and expect to be able to utilize the additional space beginning in the second quarter of 2023.
AAON Coil Products
Our plant and office facilities in Longview, Texas, consist of a 263,000 square foot building (256,000 square feet of manufacturing/warehouse space and 7,000 square feet of office space) located on a 13-acre tract of land, a 222,000 square foot building (210,000 square feet of manufacturing/warehouse space and 12,000 square feet of office space) located on an approximately 22-acre tract of land, and a 5,000 square foot building utilized as a retail parts store which we
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
consist of a 263,000 square foot building (256,000 square feet of manufacturing/warehouse space and 7,000 square feet of office space) located on a 13-acre tract of land, a 222,000 square foot building (210,000 square feet of manufacturing/warehouse space and 12,000 square feet of office space) located on an approximately 22-acre tract of land, and a 5,000 square foot building utilized as a retail parts store which we lease to a Representative of the Company. All of these facilities are located on Gum Springs Road.
In January 2023, we purchased additional real property and improvements consisting of 64,000 square feet of warehouse space located on a 10-acre tract of land at 115 Kodak Boulevard in Longview, Texas.
BASX
Our operations in Redmond, Oregon, are conducted in a plant/office at 3500 SW 21st Place, containing approximately 194,000 square feet (169,000 square feet of manufacturing/warehouse space and 25,000 square feet of office space) on a 13-acre tract of land and a leased manufacturing/warehouse building containing approximately 15,000 square feet at 2895 SW 13th Street.
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
ak Boulevard in Longview, Texas.
BASX
Our operations in Redmond, Oregon, are conducted in a plant/office at 3500 SW 21st Place, containing approximately 194,000 square feet (169,000 square feet of manufacturing/warehouse space and 25,000 square feet of office space) on a 13-acre tract of land and a leased manufacturing/warehouse building containing approximately 15,000 square feet at 2895 SW 13th Street. Additionally, we lease an office of approximately 4,000 square feet located at 1725 Blankenship Road, West Linn, Oregon.
In August 2022, we purchased additional real property of approximately one-acre adjacent to the plant/office at 3500 SW 21st Place, to facilitate future growth of our operations at BASX.
Item 3.
Legal Proceedings.
See Note 18 of the Consolidated Financial Statements.
Item 4. Mine Safety Disclosure.
Not applicable.
PART II
16
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information -
Our common stock is quoted on the NASDAQ Global Select Market under the symbol “AAON”. As
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
21st Place, to facilitate future growth of our operations at BASX.
Item 3.
Legal Proceedings.
See Note 18 of the Consolidated Financial Statements.
Item 4. Mine Safety Disclosure.
Not applicable.
PART II
16
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information -
Our common stock is quoted on the NASDAQ Global Select Market under the symbol “AAON”. As of the close of business on February 22, 2023, there were 955 holders of record of our common stock.
Dividends -
At the discretion of the Board of Directors, we pay cash dividends. Board approval is required to determine the date of declaration and amount for each cash dividend payment.
Our cash dividends for the three years ended December 31, 2022 are as follows:
Declaration Date
Record Date
Payment Date
Dividend per Share
May 15, 2020
June 3, 2020
July 1, 2020
$0.19
November 10, 2020
November 27, 2020
December 18, 2020
$0.19
May 17
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
for each cash dividend payment.
Our cash dividends for the three years ended December 31, 2022 are as follows:
Declaration Date
Record Date
Payment Date
Dividend per Share
May 15, 2020
June 3, 2020
July 1, 2020
$0.19
November 10, 2020
November 27, 2020
December 18, 2020
$0.19
May 17, 2021
June 3, 2021
July 1, 2021
$0.19
November 9, 2021
November 26, 2021
December 17, 2021
$0.19
May 18, 2022
June 3, 2022
July 1, 2022
$0.19
November 8, 2022
November 28, 2022
December 16, 2022
$0.24
The following is a summary of our share-based compensation plans as of December 31, 2022:
EQUITY COMPENSATION PLAN INFORMATION
Plan category
(a)Number of securities to be issued upon exercise
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
18, 2022
June 3, 2022
July 1, 2022
$0.19
November 8, 2022
November 28, 2022
December 16, 2022
$0.24
The following is a summary of our share-based compensation plans as of December 31, 2022:
EQUITY COMPENSATION PLAN INFORMATION
Plan category
(a)Number of securities to be issued upon exercise of outstanding options, warrants and rights
(b)Weighted-average exercise price of outstanding options, warrants and rights
(c)Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
The 2007 Long-Term Incentive Plan
119,208
22.62
The 2016 Long-Term Incentive Plan
1,257,805
42.31
3,599,896
Repurchases during the fourth quarter of 2022, which include repurchases from our open market, 401(k) and employee repurchase programs, were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
(a)TotalNumberof Shares(or Units
(b)AveragePricePaid
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
Plan
119,208
22.62
The 2016 Long-Term Incentive Plan
1,257,805
42.31
3,599,896
Repurchases during the fourth quarter of 2022, which include repurchases from our open market, 401(k) and employee repurchase programs, were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
(a)TotalNumberof Shares(or Units
(b)AveragePricePaid(Per Share
(c)
Total Number
of Shares (or
Units) Purchased
as part of
Publicly Announced
(d)
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that may yet be
Purchased under the
Period
Purchased)
or Unit)
Plans or Programs
Plans or Programs
October 2022
87,049
55.33
87,049
November 2022
23
65.00
23
December 2022
196
76.66
196
Total
87,268
55.38
87,268
17
Comparative Stock Performance Graph
The following performance graph compares our cumulative total shareholder return for the Company’s common stock for
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
the
Period
Purchased)
or Unit)
Plans or Programs
Plans or Programs
October 2022
87,049
55.33
87,049
November 2022
23
65.00
23
December 2022
196
76.66
196
Total
87,268
55.38
87,268
17
Comparative Stock Performance Graph
The following performance graph compares our cumulative total shareholder return for the Company’s common stock for the five-year period ending on December 31, 2022, compared to an overall stock market index (the NASDAQ Composite Index) and the Company’s peer group index (S&P 600 Capital Goods Industry Group Index). We believe the S&P 600 Capital Goods Industry Group Index best represents our relative peer group based on our current business and market capitalization. The graph assumes that $100 was invested at the close of trading December 31, 2017, with the reinvestment of dividends since that date. This table is not intended to forecast future performance of our Common Stock.
This stock performance graph is not deemed to be “soliciting material” or otherwise be considered to be “filed” with the SEC or subject to Regulation 14A or
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
Industry Group Index best represents our relative peer group based on our current business and market capitalization. The graph assumes that $100 was invested at the close of trading December 31, 2017, with the reinvestment of dividends since that date. This table is not intended to forecast future performance of our Common Stock.
This stock performance graph is not deemed to be “soliciting material” or otherwise be considered to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (Exchange Act) or to the liabilities of Section 18 of the Exchange Act, and should not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing.
Item 6.
Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
18
Overview
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity of the Company for the year ended December 31, 2022. This discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
to the extent the Company specifically incorporates it by reference into such a filing.
Item 6.
Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
18
Overview
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity of the Company for the year ended December 31, 2022. This discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8,
Financial Statements and Supplementary Data
. A detailed discussion of the year to year changes for the years ended December 31, 2021 and 2020 is not included herein and can be found in Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations
section of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
Description of the Company
We engineer, manufacture, market, and sell premium air conditioning and heating equipment consisting of standard, semi-custom, and custom rooftop units, data center cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units,
makeup air units, energy recovery units, condensing units
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
,
Management's Discussion and Analysis of Financial Condition and Results of Operations
section of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
Description of the Company
We engineer, manufacture, market, and sell premium air conditioning and heating equipment consisting of standard, semi-custom, and custom rooftop units, data center cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units,
makeup air units, energy recovery units, condensing units, geothermal/water-source heat pump, coils, and controls. These products are marketed and sold to retail, manufacturing, educational, lodging, supermarket, data centers, medical and pharmaceutical, and other commercial industries. We market our products to all 50 states in the United States and certain provinces in Canada.
Our business can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate. The uncertainty of the economy negatively impacted the commercial and industrial new construction markets in 2020 and the first half of 2021. Since August 2021, however, nonresidential construction has been recovering. In the third quarter of 2022, the market returned to pre-pandemic levels. Currently, architectural bill
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
United States and certain provinces in Canada.
Our business can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate. The uncertainty of the economy negatively impacted the commercial and industrial new construction markets in 2020 and the first half of 2021. Since August 2021, however, nonresidential construction has been recovering. In the third quarter of 2022, the market returned to pre-pandemic levels. Currently, architectural billings and nonresidential construction starts are at historically high levels, signaling the nonresidential construction market will continue to be strong over the next nine to 12 months. Furthermore, although some economic indicators are suggesting the general economy is slowing, the replacement market remains strong. Nevertheless, both the new construction and replacement markets are cyclical. If the domestic economy were to slow or enter a recession, this could result in a decrease in our sales volume and profitability. Sales in the commercial and industrial new construction markets generally lag the housing market, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, the state of the economy and other macroeconomic factors over which we have no control. Sales in the replacement markets are driven by various
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
both the new construction and replacement markets are cyclical. If the domestic economy were to slow or enter a recession, this could result in a decrease in our sales volume and profitability. Sales in the commercial and industrial new construction markets generally lag the housing market, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, the state of the economy and other macroeconomic factors over which we have no control. Sales in the replacement markets are driven by various factors, including general economic growth, the Company's new product introductions, fluctuations in the average age of existing equipment in the market, government regulations and stimulus, change in market demand between more customized, higher performing HVAC equipment and lower priced standard equipment, as well as many other factors. When new construction is down, we emphasize the replacement market.
We sell our products to property owners and contractors mainly through a network of independent manufacturers’ Representatives. This go-to-market strategy is unique compared to most of our larger competitors in that most control their sales channel. We value the independent sales channel as we think it is a more effective way of increasing market share. Although we concede full control of the sales process with this strategy, the entrepreneurial aspect of the independent sales channel attracts the most talent
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
. When new construction is down, we emphasize the replacement market.
We sell our products to property owners and contractors mainly through a network of independent manufacturers’ Representatives. This go-to-market strategy is unique compared to most of our larger competitors in that most control their sales channel. We value the independent sales channel as we think it is a more effective way of increasing market share. Although we concede full control of the sales process with this strategy, the entrepreneurial aspect of the independent sales channel attracts the most talent and provides greater financial incentives for its salespeople. Furthermore, the independent sales channel sells different types of equipment from various manufacturers, allowing it to operate with more of a solutions-based mindset, as opposed to an internal sales department of a manufacturing company that is incentivized to only sell its equipment regardless if it is the best solution for the end customer. We also have a small internal sales force that supports the relationships between the Company and our sales channel partners. BASX sells highly customized products for unique applications for a more concentrated customer base and an internal sales force is more effective for such products.
The principal components of cost of sales are labor, raw materials, component costs, factory overhead, freight out, and engineering expense. The principal high volume raw materials used in our manufacturing processes are
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
equipment regardless if it is the best solution for the end customer. We also have a small internal sales force that supports the relationships between the Company and our sales channel partners. BASX sells highly customized products for unique applications for a more concentrated customer base and an internal sales force is more effective for such products.
The principal components of cost of sales are labor, raw materials, component costs, factory overhead, freight out, and engineering expense. The principal high volume raw materials used in our manufacturing processes are steel, copper, and aluminum, and are obtained from domestic suppliers. We also purchase from domestic manufacturers certain components, including coils, compressors, motors, and electrical controls.
The price levels of our raw materials fluctuate given that the market continues to be volatile and unpredictable as a result of the uncertainty related to the U.S. economy and global economy. For the year ended December 31, 2022, the prices for copper, galvanized steel, stainless steel and aluminum increased approximately
13.4%, 14.5%, 61.0%, and 14.0%, respectively, from 2021.
We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
result of the uncertainty related to the U.S. economy and global economy. For the year ended December 31, 2022, the prices for copper, galvanized steel, stainless steel and aluminum increased approximately
13.4%, 14.5%, 61.0%, and 14.0%, respectively, from 2021.
We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations.
19
We occasionally increase the price of our products to help offset any inflationary headwinds. In 2021, we implemented three price increases. In 2022, we implemented two significant price increases as well as a recurring 1% monthly price increase effective June 1, 2022.
Additionally, we continue to experience challenges in a tight labor market, especially the hiring of both skilled and unskilled production labor. We have implemented the following wage increases to remain competitive and to attract and retain employees:
In March 2021, we awarded annual merit raises for an overall 5.0% increase to wages.
In July
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
In 2022, we implemented two significant price increases as well as a recurring 1% monthly price increase effective June 1, 2022.
Additionally, we continue to experience challenges in a tight labor market, especially the hiring of both skilled and unskilled production labor. We have implemented the following wage increases to remain competitive and to attract and retain employees:
In March 2021, we awarded annual merit raises for an overall 5.0% increase to wages.
In July 2021, we increased starting wages for our production workforce by 7.0%.
In October 2021, we implemented a cost of living increase of 3.5% in place for all employees
below our Senior Leadership Team ("SLT") which consists of officers and key members of management.
In March 2022, we awarded annual merit raises for an overall 3.0% increase to wages.
In October 2022, we implemented a cost of living increase of 3.5% in place for all employees
below the SLT level.
We will continue to implement human resource initiatives to retain and attract labor to further improve productivity and production efficiencies.
Backlog
The following table shows our historical backlog levels:
December 31, 2022
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
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YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
key members of management.
In March 2022, we awarded annual merit raises for an overall 3.0% increase to wages.
In October 2022, we implemented a cost of living increase of 3.5% in place for all employees
below the SLT level.
We will continue to implement human resource initiatives to retain and attract labor to further improve productivity and production efficiencies.
Backlog
The following table shows our historical backlog levels:
December 31, 2022
December 31, 2021
(in thousands)
548,022
260,164
AAON, INC. has increased our backlog both through the acquisition of BASX and organic growth due primarily to favorable lead times and increased overall demand.
Consolidated Results of Operations
Years Ended December 31,
2022
2021
(in thousands)
Net Sales
888,788
534,517
Cost of Sales
651,216
396,687
Gross Profit
237,572
137,830
Selling, general and administrative expenses
110,823
68,598
Gain on disposal of assets
(12)
(21)
Income from operations
126,761
69,253
20
The following are highlights of our results of operations, cash
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ticker:AAON
name:AAON, INC.
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31,
2022
2021
(in thousands)
Net Sales
888,788
534,517
Cost of Sales
651,216
396,687
Gross Profit
237,572
137,830
Selling, general and administrative expenses
110,823
68,598
Gain on disposal of assets
(12)
(21)
Income from operations
126,761
69,253
20
The following are highlights of our results of operations, cash flows, and financial condition:
Our backlog has been at record levels during all of 2022. New bookings from BASX were a record for that business as it benefited from a strong pipeline of projects in the data center and semiconductor markets. Revenue synergies from the BASX acquisition has increased bookings for AAON Coil Products as well. Bookings continue to be strong primarily due to our favorable lead times and strong end-market demand.
Net sales for 2022 grew 66.3% to $888.8 million due to organic growth, the addition of BASX revenues and price increases realized during the year.
Overall gross margin increased 90 basis points in 2022, as the increased costs of material and labor were offset by increased efficiencies of operations as well as price
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has increased bookings for AAON Coil Products as well. Bookings continue to be strong primarily due to our favorable lead times and strong end-market demand.
Net sales for 2022 grew 66.3% to $888.8 million due to organic growth, the addition of BASX revenues and price increases realized during the year.
Overall gross margin increased 90 basis points in 2022, as the increased costs of material and labor were offset by increased efficiencies of operations as well as price increases.
We continue to invest in the future growth of the Company as evidenced by our $54.0 million in capital expenditures and $22.0 million for the purchase of the BASX building.
We report our financial results based on three reportable segments: AAON Oklahoma, AAON Coil Products, and BASX, which are further described in Item 1 and Item 8. AAON, INC.'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.
Segment Operating Results for the Years Ended December 31, 2022 and 2021
For the years ended December
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AAON Coil Products, and BASX, which are further described in Item 1 and Item 8. AAON, INC.'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.
Segment Operating Results for the Years Ended December 31, 2022 and 2021
For the years ended December 31,
2022
Percent of Sales2
2021
Percent of Sales2
$ Change
% Change
(in thousands)
Net Sales3
AAON Oklahoma
663,845
74.7
463,845
86.8
200,000
43.1
AAON Coil Products
107,290
12.1
66,589
12.5
40,701
61.1
BASX1
117,653
13.2
4,083
0.8
113,570
2781.5
Net sales
888,788
534,517
354,271
66.3
Cost of Sales3
AAON Oklahoma
490,862
73.9
336,
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.1
AAON Coil Products
107,290
12.1
66,589
12.5
40,701
61.1
BASX1
117,653
13.2
4,083
0.8
113,570
2781.5
Net sales
888,788
534,517
354,271
66.3
Cost of Sales3
AAON Oklahoma
490,862
73.9
336,977
72.6
153,885
45.7
AAON Coil Products
73,979
69.0
56,514
84.9
17,465
30.9
BASX1
86,375
73.4
3,196
78.3
83,179
2602.6
Cost of sales
651,216
73.3
396,687
74.2
254,529
64.2
Gross Profit3
AAON Oklahoma
172,983
26.1
126,868
27.4
46,115
36.3
AAON Coil Products
33,311
31.0
10,075
15.1
23
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3,196
78.3
83,179
2602.6
Cost of sales
651,216
73.3
396,687
74.2
254,529
64.2
Gross Profit3
AAON Oklahoma
172,983
26.1
126,868
27.4
46,115
36.3
AAON Coil Products
33,311
31.0
10,075
15.1
23,236
230.6
BASX1
31,278
26.6
887
21.7
30,391
3426.3
Gross profit
237,572
26.7
137,830
25.8
99,742
72.4
1 BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021.
2 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment's net sales. Total cost of sales and total gross profit are calculated as a percentage of total net sales.
3 Presented after intercompany eliminations.
21
Total net sales
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,742
72.4
1 BASX was acquired on December 10, 2021. We have included the results of BASX's operations in our consolidated financial statements as of December 11, 2021.
2 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment's net sales. Total cost of sales and total gross profit are calculated as a percentage of total net sales.
3 Presented after intercompany eliminations.
21
Total net sales increased $354.3 million, or 66.3%, with the addition of inorganic sales from the acquisition of BASX contributing to 19.5% of our growth. Net sales also grew through price increases of $100.0 million and organic sales volumes, product mix and other of $149.8 million.
AAON Coil Products gross profit increased significantly to 31.0%. Price increases were realized more quickly for AAON Coil Products given their smaller backlog, which is the primary driver of the increase in gross margin for this segment. Additionally, the new manufacturing building for AAON Coil Products was completed in early 2021, resulting in increased capacity and operational efficiencies during 2022 as compared to 2021.
As shown in the table below, we
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mix and other of $149.8 million.
AAON Coil Products gross profit increased significantly to 31.0%. Price increases were realized more quickly for AAON Coil Products given their smaller backlog, which is the primary driver of the increase in gross margin for this segment. Additionally, the new manufacturing building for AAON Coil Products was completed in early 2021, resulting in increased capacity and operational efficiencies during 2022 as compared to 2021.
As shown in the table below, we've experienced increases in the cost of our raw materials. We have implemented multiple price increases during 2021 and 2022 to counteract the increased cost of material. Some of the 2022 price increases have yet to be realized. Additionally, in order to attract new employees and remain competitive in tight labor markets, we implemented several wage increases in late 2021 and throughout 2022.
Raw Material Costs
Twelve month average raw material cost per pound as of December 31:
2022
2021
% Change
Copper
5.60
4.94
13.4
Galvanized Steel
0.95
0.83
14.5
Stainless Steel
3.30
2.05
61.0
Al
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and remain competitive in tight labor markets, we implemented several wage increases in late 2021 and throughout 2022.
Raw Material Costs
Twelve month average raw material cost per pound as of December 31:
2022
2021
% Change
Copper
5.60
4.94
13.4
Galvanized Steel
0.95
0.83
14.5
Stainless Steel
3.30
2.05
61.0
Aluminum
2.20
1.93
14.0
Selling, General and Administrative Expenses
Years Ended December 31,
Percent of Sales
2022
2021
2022
2021
(in thousands)
Warranty
8,497
6,351
1.0
1.2
Profit Sharing
14,009
8,526
1.6
1.6
Salaries & Benefits
41,351
23,458
4.7
4.4
Stock Compensation
7,025
5,543
0.8
1.0
Advertising
2,353
1,616
0.3
0.3
Depreciation & Amortization
8,050
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,351
1.0
1.2
Profit Sharing
14,009
8,526
1.6
1.6
Salaries & Benefits
41,351
23,458
4.7
4.4
Stock Compensation
7,025
5,543
0.8
1.0
Advertising
2,353
1,616
0.3
0.3
Depreciation & Amortization
8,050
2,924
0.9
0.5
Insurance
3,755
3,010
0.4
0.6
Professional Fees
5,754
7,245
0.6
1.4
Donations
1,134
738
0.1
0.1
Other
18,895
9,187
2.1
1.7
Total SG&A
110,823
68,598
12.5
12.8
Warranty expense increased consistent with our increase in net sales but decreased as a percentage of sales, as we continue to focus on our commitment to reliability and quality.
Salaries and benefits increased $17.9 million, with a full year of BASX included accounting
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738
0.1
0.1
Other
18,895
9,187
2.1
1.7
Total SG&A
110,823
68,598
12.5
12.8
Warranty expense increased consistent with our increase in net sales but decreased as a percentage of sales, as we continue to focus on our commitment to reliability and quality.
Salaries and benefits increased $17.9 million, with a full year of BASX included accounting for $10.5 million of the increase. The remaining increase was primarily attributable to overall increased headcount and the impact of employee pay increases that went into effect during 2021 and in 2022.
Depreciation and amortization expense at BASX was $4.5 million, accounting for the majority of the change period over period. Profit sharing increased for AAON Oklahoma and AAON Coil Products by $4.8 million due to increased operating results, while profit sharing at BASX increased by $0.7 million as a result of a full year of BASX's employee incentive program.
22
Professional fees decreased mostly due to the transaction costs associated with the acquisition of BASX (Note 4) of $4.4 million included in 2021
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5 million, accounting for the majority of the change period over period. Profit sharing increased for AAON Oklahoma and AAON Coil Products by $4.8 million due to increased operating results, while profit sharing at BASX increased by $0.7 million as a result of a full year of BASX's employee incentive program.
22
Professional fees decreased mostly due to the transaction costs associated with the acquisition of BASX (Note 4) of $4.4 million included in 2021. Excluding $3.8 million of other SG&A at BASX, other SG&A increased $5.9 million attributable mainly to consulting services and increased travel expenses due to lighter COVID-19 restrictions in 2022.
Income Taxes
Years Ended December 31,
Effective Tax Rate
2022
2021
2022
2021
(in thousands)
Income tax provision
24,157
10,424
19.4
15.1
During the year ended December 31, 2022, the Company recorded an excess tax benefit of $3.0 million as compared to $5.4 million in 2021, a decrease of 45.3%. The decrease was primarily due to timing of stock option exercises and restricted stock
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Tax Rate
2022
2021
2022
2021
(in thousands)
Income tax provision
24,157
10,424
19.4
15.1
During the year ended December 31, 2022, the Company recorded an excess tax benefit of $3.0 million as compared to $5.4 million in 2021, a decrease of 45.3%. The decrease was primarily due to timing of stock option exercises and restricted stock vesting and our high stock price during the first and second quarter of 2021.
The decrease in excess tax benefits was partially offset by an increase of $1.8 million in research and development tax credits as defined under Section 41 of the Internal Revenue Code. To qualify for the research and development tax credits, we perform annual studies that identifies, documents, and supports eligible expenses related to qualified research and development activities. Eligible expenses include but are not limited to supplies, material and internal wages. With the addition of BASX in December 2021 (Note 4), we identified additional eligible expenses related to qualified research and development activities.
Liquidity and Capital Resources
Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the
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for the research and development tax credits, we perform annual studies that identifies, documents, and supports eligible expenses related to qualified research and development activities. Eligible expenses include but are not limited to supplies, material and internal wages. With the addition of BASX in December 2021 (Note 4), we identified additional eligible expenses related to qualified research and development activities.
Liquidity and Capital Resources
Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the use of the revolving bank line of credit based on our current liquidity at the time.
Working Capital -
Our unrestricted cash and cash equivalents increased $2.6 million from December 31, 2021 to December 31, 2022. As of December 31, 2022, we had $5.9 million in cash and cash equivalents and restricted cash.
Revolving Line of Credit
Our revolving credit facility ("Revolver"), as amended and restated, provides for maximum borrowings of $200.0 million. As of December 31, 2022 and December 31, 2021, we had an outstanding balance under the Revolver of $71.0 million and $40.0 million, respectively. We had one standby letter of
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2022, we had $5.9 million in cash and cash equivalents and restricted cash.
Revolving Line of Credit
Our revolving credit facility ("Revolver"), as amended and restated, provides for maximum borrowings of $200.0 million. As of December 31, 2022 and December 31, 2021, we had an outstanding balance under the Revolver of $71.0 million and $40.0 million, respectively. We had one standby letter of credit totaling $0.8 million as of December 31, 2022 and 2021, respectively. Borrowings available under the Revolver at December 31, 2022, were $128.2 million. The Revolver expires on May 27, 2027.
Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate ("SOFR") plus the applicable margin. Applicable margin, ranging from 1.25% - 1.75%, is determined quarterly based on the Company's leverage ratio. AAON, INC. is also subject to letter of credit fees, ranging from 1.25% - 1.75%, and a commitment fee, ranging from 0.10% - 0.20
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, 2027.
Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate ("SOFR") plus the applicable margin. Applicable margin, ranging from 1.25% - 1.75%, is determined quarterly based on the Company's leverage ratio. AAON, INC. is also subject to letter of credit fees, ranging from 1.25% - 1.75%, and a commitment fee, ranging from 0.10% - 0.20%. The applicable fee percentage is determined quarterly based on the Company's leverage ratio. At December 31, 2022 and 2021, the weighted average interest rate of our Revolver was 3.0% and 1.3%, respectively. Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the years ended December 31, 2022 and 2021.
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. ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate
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the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the years ended December 31, 2022 and 2021.
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. 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, 2022, we were in compliance with our financial covenants, as defined by the Revolver. These covenants require that we meet certain parameters related to our leverage ratio. At December 31, 2022, our leverage ratio was 0.46 to 1.0, which meets the requirement of not being above 3 to 1.
23
New Market Tax Credit Obligation
On October 24, 2019, the Company entered into a transaction with a
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2, we were in compliance with our financial covenants, as defined by the Revolver. These covenants require that we meet certain parameters related to our leverage ratio. At December 31, 2022, our leverage ratio was 0.46 to 1.0, which meets the requirement of not being above 3 to 1.
23
New Market Tax Credit Obligation
On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “Project”). In connection with the 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 Project.
Upon closing of the NMTC transaction, the Company provided an aggregate of approximately $15.9 million to the Investor, in the form of a loan receivable, with a term of twenty
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plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “Project”). In connection with the 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 Project.
Upon closing of the NMTC transaction, the Company provided an aggregate of approximately $15.9 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 $15.9 million in proceeds plus capital contributed from the Investor was used to make an aggregate $22.5 million loan to a subsidiary of the Company. This financing arrangement is secured by equipment at the Company's Longview, Texas facilities and a guarantee from the Company, including an unconditional guarantee of NMTCs.
Stock Repurchase
The Board has authorized stock repurchase programs for the Company. AAON, INC. 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
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the Company's Longview, Texas facilities and a guarantee from the Company, including an unconditional guarantee of NMTCs.
Stock Repurchase
The Board has authorized stock repurchase programs for the Company. AAON, INC. 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:
Agreement Execution Date
Authorized Repurchase $
Expiration Date
March 13, 2020
$20 million
November 9, 2022
November 3, 2022
$50 million
*1
1 Expiration Date is at Board's discretion. AAON, INC. is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board.
AAON, INC. also had a stock repurchase arrangement by which employee-participants in our 401(k) Plan were entitled to have shares in AAON, Inc. 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
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's discretion. AAON, INC. is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board.
AAON, INC. also had a stock repurchase arrangement by which employee-participants in our 401(k) Plan were entitled to have shares in AAON, Inc. 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 from certain of its directors and employees for payment of statutory tax withholdings on stock transactions. All other repurchases from directors or employees are contingent upon Board approval. All repurchases are done at current market prices.
Our repurchase activity is as follows:
2022
2021
(in thousands, except share and per share data)
Program
Shares
Total $
$ per share
Shares
Total $
$ per share
Open market
122,112
6,823
55.87
401(k)
103,936
5,913
56.89
297,772
20,876
70.11
Directors and employees
17,228
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are done at current market prices.
Our repurchase activity is as follows:
2022
2021
(in thousands, except share and per share data)
Program
Shares
Total $
$ per share
Shares
Total $
$ per share
Open market
122,112
6,823
55.87
401(k)
103,936
5,913
56.89
297,772
20,876
70.11
Directors and employees
17,228
1,019
59.15
22,526
1,590
70.59
Total
243,276
13,755
56.54
320,298
22,466
70.14
Inception to Date
(in thousands, except share and per share data)
Program
Shares
Total $
$ per share
Open market
4,327,367
81,616
18.86
401(k)
8,308,368
171,789
20.68
Directors and employees
2,044,955
23,360
11.42
Total
14,680,690
276,765
18.85
24
Dividends
At the discretion of the Board of Directors, we
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and per share data)
Program
Shares
Total $
$ per share
Open market
4,327,367
81,616
18.86
401(k)
8,308,368
171,789
20.68
Directors and employees
2,044,955
23,360
11.42
Total
14,680,690
276,765
18.85
24
Dividends
At the discretion of the Board of Directors, we pay cash dividends. Board approval is required to determine the date of declaration and amount for each cash dividend payment.
Our recent dividends are as follows:
Declaration Date
Record Date
Payment Date
Dividend per Share
May 17, 2021
June 3, 2021
July 1, 2021
$0.19
November 9, 2021
November 26, 2021
December 17, 2021
$0.19
May 18, 2022
June 3, 2022
July 1, 2022
$0.19
November 8, 2022
November 28, 2022
December 16, 2022
$0
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2021
July 1, 2021
$0.19
November 9, 2021
November 26, 2021
December 17, 2021
$0.19
May 18, 2022
June 3, 2022
July 1, 2022
$0.19
November 8, 2022
November 28, 2022
December 16, 2022
$0.24
Based on historical performance and current expectations, we believe our cash and cash equivalents balance, the projected cash flows generated from our operations, our existing committed revolving credit facility (or comparable financing), and our expected ability to access capital markets will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations in 2023 and the foreseeable future.
Off-Balance Sheet Arrangements -
We are not party to any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources.
25
Statement of Cash Flows
The table below reflects a summary of our net cash flows provided by operating
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
expenditures and other liquidity requirements associated with our operations in 2023 and the foreseeable future.
Off-Balance Sheet Arrangements -
We are not party to any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources.
25
Statement of Cash Flows
The table below reflects a summary of our net cash flows provided by operating activities, net cash flows used in investing activities, and net cash flows provided by financing activities for the years indicated.
2022
2021
(in thousands)
Operating Activities
Net Income
100,376
58,758
Income statement adjustments, net
38,516
46,566
Changes in assets and liabilities:
Accounts receivable
(56,306)
(9,737)
Income taxes
18,195
(1,136)
Inventories
(71,409)
(45,955)
Contract assets
(9,402)
1,886
Prepaid expenses and other long-term assets
(2,367)
1,374
Accounts payable
11,574
10,899
Contract liabilities
13,882
(229
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
46,566
Changes in assets and liabilities:
Accounts receivable
(56,306)
(9,737)
Income taxes
18,195
(1,136)
Inventories
(71,409)
(45,955)
Contract assets
(9,402)
1,886
Prepaid expenses and other long-term assets
(2,367)
1,374
Accounts payable
11,574
10,899
Contract liabilities
13,882
(229)
Extended warranties
1,314
447
Accrued liabilities and other long-term liabilities
16,945
(1,690)
Net cash provided by operating activities
61,318
61,183
Investing Activities
Capital expenditures
(54,024)
(55,362)
Cash paid for building (Note 4)
(22,000)
Cash paid in business combination, net of cash acquired
(249)
(103,430)
Other
60
73
Net cash used in investing activities
(76,213)
(158,719)
Financing Activities
Borrowings under revolving credit facility
225,758
40,000
Payments under revolving credit facility
(194,754)
Principal payments on financing lease
(115
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
(55,362)
Cash paid for building (Note 4)
(22,000)
Cash paid in business combination, net of cash acquired
(249)
(103,430)
Other
60
73
Net cash used in investing activities
(76,213)
(158,719)
Financing Activities
Borrowings under revolving credit facility
225,758
40,000
Payments under revolving credit facility
(194,754)
Principal payments on financing lease
(115)
Stock options exercised
23,140
21,148
Repurchase of stock
(12,737)
(20,876)
Employee taxes paid by withholding shares
(1,018)
(1,590)
Cash dividends paid to stockholders
(22,917)
(19,947)
Net cash provided by financing activities
17,357
18,735
26
Cash Flows from Operating Activities
AAON, INC. currently manages cash needs through working capital as well as drawing on its line of credit as needed. Collections and payments cycles are on a normal pattern and fluctuate due to timing of receipts and payments.
The decrease in cash flows from receivables was a result of a larger volume of sales in the fourth quarter of 2022 in addition to
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
)
(19,947)
Net cash provided by financing activities
17,357
18,735
26
Cash Flows from Operating Activities
AAON, INC. currently manages cash needs through working capital as well as drawing on its line of credit as needed. Collections and payments cycles are on a normal pattern and fluctuate due to timing of receipts and payments.
The decrease in cash flows from receivables was a result of a larger volume of sales in the fourth quarter of 2022 in addition to higher priced receivables at the end of 2022. AAON, INC. has also increased the purchase of inventory to take advantage of favorable pricing opportunities and also to mitigate the impact of future supply chain disruptions on our operations. Payment terms for BASX jobs typically require upfront cash to fund the job resulting in cash inflows related to our contract liabilities.
The increase in cash flows from income taxes is primarily due to the 2017 Tax Cuts & Jobs Act, which requires research and development expenses incurred after December 31, 2021 to be capitalized and amortized over 5 years. This defers our current period income tax deduction which increased our income tax payments for 2022.
The increase in cash flows from accrued and other long-term liabilities is primarily related to
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
YOU are a financial analyst. You are reading a report of a company.
The report is about the company's financial status.
fund the job resulting in cash inflows related to our contract liabilities.
The increase in cash flows from income taxes is primarily due to the 2017 Tax Cuts & Jobs Act, which requires research and development expenses incurred after December 31, 2021 to be capitalized and amortized over 5 years. This defers our current period income tax deduction which increased our income tax payments for 2022.
The increase in cash flows from accrued and other long-term liabilities is primarily related to the increase in amounts due to Representatives (timing of receipts and payments), employee profit sharing, and increases in accrued payroll and employee benefits.
Cash Flows from Investing Activities
Net cash outflows from investing activities decreased in 2022 as compared to 2021 primarily due to the cash paid for the acquisition of BASX (Note 4) in December 2021. The cash paid for building is related to the purchase of the BASX office and manufacturing facility in May 2022 (Note 4).
Our capital expenditure program for 2023 is estimated to be approximately $135.0 million. Many of these projects are subject to review and cancellation at the discretion of our CEO and Board of Directors without incurring substantial charges.
Cash Flows from Financing Activities
The
cik:824142
ticker:AAON
name:AAON, INC.
exchange:Nasdaq
filing_type:10-K
|
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