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What changed in AAON, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of AAON, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+263 added−231 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-28)

Top changes in AAON, INC.'s 2024 10-K

263 paragraphs added · 231 removed · 177 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

69 edited+14 added−10 removed39 unchanged
Biggest changeThe size of these markets is determined primarily by the number of commercial and industrial building completions and replacement demand from existing buildings. The replacement market consists of products installed to replace existing units/components that are worn or damaged and products to upgrade certain components, such as low leakage dampers, high efficiency heat exchangers and modern controls components.
Biggest changeProducts - AAON Brand AAON branded products are manufactured for, and installed on or beside, commercial and industrial buildings of all sizes. The total addressable market for AAON branded products is determined primarily by the number of new commercial and industrial building projects and the replacement demand from existing commercial and industrial buildings.
Air Quality Products The ASHRAE, a professional association with a goal of advancing HVAC systems designs and construction, established an Epidemic Task Force in 2020 and determined several recommendations to mitigate the spread of the virus, including humidity control, air filtration, increased outdoor air ventilation, and air disinfection.
Air Quality Products ASHRAE, a professional association with a goal of advancing HVAC systems designs and construction, established an Epidemic Task Force in 2020 and determined several recommendations to mitigate the spread of the virus, including humidity control, air filtration, increased outdoor air ventilation, and air disinfection.
Prior to 2020, a vast majority of commercial buildings used 4 filtration levels of MERV 4 to MERV 8, which has always been acceptable for filtering out typical particulates in the air stream.
Prior to 2020, a vast majority of commercial buildings used filtration levels of MERV 4 to MERV 8, which has always been acceptable for filtering out typical particulates in the air stream.
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. The Company also sells extended warranties on parts for various lengths of time ranging from six months to ten years.
Our warranty policy for the RQ series covers parts for two years from the 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. The Company also sells extended warranties on parts for various lengths of time ranging from six months to ten years.
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.
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, the AIM Act, regulations promulgated under these Acts and any other federal, state or local laws or regulations governing environmental matters.
Our condensing unit, the CF Series, is available from two to 70 tons and can be configured as an Alpha Class ASHP. Our air handling units consist of the indoor H3 and V3 Series and the modular M2 Series, as well as air handling unit configurations of the RQ, RN, RZ, and SA Series units.
Our condensing unit, the CF Series, is available from two to 70 tons and can be configured as an Alpha Class ASHP. 3 Our air handling units consist of the indoor H3 and V3 Series and the modular M2 Series, as well as air handling unit configurations of the RQ, RN, RZ, and SA Series units.
Our business strategy involves mass semi-customization leveraging flexible computer-aided manufacturing systems to produce highly configurable equipment. We differentiate from other HVAC manufacturers by combining the low unit costs of mass production processes with the flexibility of individual customization.
Our strategy involves mass semi-customization leveraging flexible computer-aided manufacturing systems to produce highly configurable equipment. We differentiate from other HVAC manufacturers by combining the low unit costs of mass production processes with the flexibility of individual customization.
Business Segments The Company conducts its business through three business segments: AAON Oklahoma, AAON Coil Products, and BASX. AAON Oklahoma: AAON Oklahoma engineers, manufactures, and sells, semi-custom, and custom HVAC systems, designs and manufactures controls solutions, and sells retail parts to customers through retail part stores and online.
Business Segments The Company conducts its business through three business segments: AAON Oklahoma, AAON Coil Products, and BASX. AAON Oklahoma: AAON Oklahoma engineers, manufactures and sells semi-custom and custom HVAC systems, designs and manufactures controls solutions, and sells aftermarket parts to customers through retail part stores and online.
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).
Warranties Our product warranty policy is the earlier of one year from the date of first use or 18 months from the date of shipment for parts only, including controls; 18 months for data center cooling solutions and cleanroom systems; five years for compressors; 15 years on aluminized steel gas-fired heat exchangers; 25 years on stainless steel heat exchangers; and ten years on gas-fired heat exchangers in our historical RL products.
AAON H3/V3 Series energy recovery wheel air handling units provide energy efficient 100% outside air ventilation by recovering energy that would otherwise be exhausted from a building. In addition to the equipment we manufacture, we design and produce high-performance controls solutions that enhances our equipment’s unique features and capabilities.
AAON H3/V3 Series energy recovery wheel air handling units provide energy-efficient 100% outside air ventilation by recovering energy that would otherwise be exhausted from a building. In addition to the equipment we manufacture, we design and produce high-performance controls solutions that enhance our equipment’s unique features and capabilities.
We are committed to environmental responsibility and continue to make progress toward reducing greenhouse gas ("GHG") emissions, increasing paint byproduct 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.
We are committed to environmental responsibility and continue to make progress toward reducing greenhouse gas (“GHG”) emissions, increasing paint byproduct 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.
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. 9
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. 10
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.
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 2023 as a critical solution that meets the increasing demand for building decarbonization in cold climates.
AAON Coil Products: AAON Coil Products engineers and manufactures a selection of our semi-custom, and custom HVAC systems as well as a variety of heating and cooling coils to be used in HVAC systems, mostly for the benefit of AAON Oklahoma, AAON Coil Products, and BASX. AAON Coil Products consists of operations at our Longview, TX manufacturing facilities.
AAON Coil Products: AAON Coil Products engineers and manufactures a selection of our semi-custom, and custom HVAC systems as well as a variety of heating and cooling coils to be used in HVAC systems, mostly for the benefit of AAON Oklahoma, AAON Coil Products, and BASX. AAON Coil Products consists of operations at our Longview, Texas manufacturing facilities.
We participate in an energy demand response program through 8 the public utility provider to reduce demand during peak hours.
We participate in an energy demand response program through the public utility provider to reduce demand during peak hours.
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.
The report also highlights achievements and long-term targets related to greenhouse gas emissions, paint byproduct material 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 are tracking our energy usage intensity before and after these updates. We also opened the Customer Exploration Center in 2023, a net-zero facility powered by solar and geothermal energy. In the area of material management, we focus on recycling, reducing, reusing and sourcing more environmentally-friendly materials into our processes.
We are tracking our energy usage intensity before and 9 after these updates. We also opened the Exploration Center in 2024, a net-zero facility powered by solar and geothermal energy. In the area of material management, we focus on recycling, reducing, reusing and sourcing more environmentally friendly materials into our processes.
Item 1. Business. Overview AAON, Inc., a Nevada corporation, (“AAON Nevada”) was incorporated on August 18, 1987. Our operating subsidiaries include AAON, Inc., an Oklahoma corporation ("AAON Oklahoma"), AAON Coil Products, Inc., a Texas corporation ("AAON Coil Products"), and BASX, Inc., an Oregon corporation ("BASX").
Item 1. Business. Overview AAON, Inc., a Nevada corporation, (“AAON Nevada”) was incorporated on August 18, 1987. Our operating subsidiaries include AAON, Inc., an Oklahoma corporation (“AAON Oklahoma”), AAON Coil Products, Inc., a Texas corporation (“AAON Coil Products”), and BASX, Inc., an Oregon corporation (“BASX”).
The NAIC carries accreditation from AMCA for standards AMCA 210 (aerodynamic performance rating) & AMCA 300 (reverberant room sound testing). Environmental application testing capabilities include -20 to 130°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.
The NAIC carries accreditation from AMCA for standards AMCA 210 (aerodynamic performance rating) & AMCA 300 (reverberant room sound testing). Environmental application testing capabilities include -20 to 130°F testing conditions, up to eight inches per hour rain testing, up to two inches per hour snow testing, and up to 50 mph wind testing.
After an order is deemed firm and is entered into the backlog, lead times to fulfill orders for AAON Oklahoma and AAON Coil Products is generally around 11 weeks. Orders for BASX product, including orders built at AAON Coil Products' Longview location are typically placed months in advance of requested delivery to secure production for those projects.
After an order is deemed firm and is entered into the backlog, lead times to fulfill orders for AAON branded products is generally around 10 - 12 weeks. Orders for BASX branded product, including orders built at AAON Coil Products’ Longview location, are typically placed months in advance of requested delivery to secure production for those projects.
Through portfolio groups, Meriton has an ownership interest in Texas AirSystems and certain other of our sales representatives. The aggregate sales percentages through Meriton-affiliated groups that are in addition to Texas AirSystems’ sales for the years-ended December 31, 2023, 2022 and 2021 accounted for an additional 2.3%, 1.4% and 2.7%, respectively.
Through portfolio groups, Meriton has an ownership interest in Texas AirSystems and certain other of our sales representatives. The aggregate sales percentages through Meriton-affiliated groups that are in addition to Texas AirSystems’ sales for the years-ended December 31, 2024, 2023, and 2022 accounted for an additional 8.0%, 2.3%, and 1.4%, respectively.
BASX custom air handling products are primarily used in commercial, industrial, healthcare, and institutional facilities employing chilled water cooling, packaged direct expansion, heating hot water, indirect gas direct heat, humidification, dehumidification, filtration, and integrated controls. BASX manufactures plenum fans for integration into air handling units as well as for replacement applications. BASX also offers integrated sound performance solutions.
Our BASX branded custom air handling products are primarily used in commercial, industrial, healthcare, and institutional facilities employing chilled water cooling, packaged direct expansion, hydronic heating, indirect gas direct heat, humidification, dehumidification, filtration, and integrated controls. BASX manufactures plenum fans for integration into air handling units and replacement applications. BASX also offers integrated sound performance solutions.
Air Filtration - We standardized a design that uses a backward curved fan wheel, which can accommodate higher airflow and static pressure required for the ASHRAE recommended MERV 13 filtration, the minimum filter level for virus mitigation, with very little reconfiguration.
Air Filtration - Our standard design uses a backward curved fan wheel, which can accommodate higher airflow and static pressure required for the ASHRAE recommended MERV 13 filtration, the minimum filter level for virus mitigation, with very little reconfiguration.
Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period. 5 Major Customers For the years-ended December 31, 2023, 2022, and 2021, Texas AirSystems accounted for approximately 13.8%, 12.4%, and 11.7% of our sales, respectively.
Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period. Major Customers For the years-ended December 31, 2024, 2023, and 2022, Texas AirSystems accounted for approximately 16.4%, 13.8%, and 12.4% of our sales, respectively.
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 Solutions), and Engineered Air. All of our publicly traded competitors are substantially larger and have greater resources than we do.
Our BASX branded products primarily compete with Vertiv (Vertiv Holdings Co.), STULZ (STULZ Air Technology Systems, Inc.), Munters, Silent Aire (Johnson Controls International PLC), Nortek (Nortek Air Solutions), Modine (Modine Manufacturing Co.) and Engineered Air. All of our publicly traded competitors are substantially larger and have greater resources than we do.
We offer three groups of rooftop units: the RQ Series, consisting of five cooling sizes ranging from two to six tons; the RN Series, offered in 28 cooling sizes ranging from six to 140 tons; and the RZ Series, which is offered in 15 cooling sizes ranging from 45 to 261 tons.
We offer three groups of RTUs: the RQ Series, consisting of five cooling sizes ranging from two to five tons; the RN Series, offered in 26 cooling sizes ranging from six to 140 tons; and the RZ Series, which is offered in 15 cooling sizes ranging from 45 to 261 tons.
We achieved Platinum level in this program in 2023 and 2022. 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 achieved Platinum level in this program in 2024 and 2023. Our Environmental, Social and Governance (“ESG”) committee provides oversight for ESG and sustainability activities, sustainability report development and an internal grassroots sustainability committee provides education opportunities, communications and recommendations to the Company on a regular basis.
Unless the context otherwise requires, references in this Annual Report to “AAON”, the “Company”, “we”, “us”, “our”, or “ours” refer to AAON Nevada and our subsidiaries. AAON is a lead producer in heating, ventilation, and air conditioning ("HVAC") systems for commercial and industrial indoor environments.
Unless the context otherwise requires, references in this Annual Report to “AAON”, the “Company”, “we”, “us”, “our”, or “ours” refer to AAON Nevada and our subsidiaries. AAON is a leader in heating, ventilation, and air conditioning (“HVAC”) solutions for commercial and industrial indoor environments.
In 2023, we published our fifth 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.
In 2024, we published our sixth annual Sustainability 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.
To date, our sales have been primarily derived from the domestic market. Foreign sales accounted for approximately $39.9 million, $27.6 million, and $14.8 million of our net sales in 2023, 2022, and 2021, respectively. As a percentage of net sales, foreign sales accounted for approximately 3.4%, 3.1%, and 3.0% of our net sales in each of those years, respectively.
To date, our sales have been primarily derived from the domestic market. Foreign sales accounted for approximately $30.1 million, $39.9 million, and $27.6 million of our net sales in 2024, 2023, and 2022, respectively. As a percentage of net sales, foreign sales accounted for approximately 2.5%, 3.4%, and 3.1% of our net sales in each of those years, respectively.
At our Tulsa, Oklahoma and Longview, Texas facilities, we recycled over 13,678 tons, 14,928 tons, and 13,793 tons of metal in 2023, 2022, and 2021, respectively. Also, through our partnership with a waste to energy facility, we successfully diverted over 694 tons, 668 tons, and 460 tons of waste from landfills in 2023, 2022, and 2021, respectively.
At our Tulsa, Oklahoma and Longview, Texas facilities, we recycled over 15,715 tons, 13,678 tons, and 14,928 tons of metal in 2024, 2023, and 2022, respectively. Also, through our partnership with a waste-to-energy facility, we successfully diverted over 3,020 tons, 694 tons, and 668 tons of waste from landfills in 2024, 2023, and 2022, respectively.
As a result of our strategy to engineer and manufacture innovative HVAC products of the highest performance, efficiency, and value, we are naturally committed to meeting regulatory and certification standards of the relevant standard setting bodies, including the Air-Conditioning, Heating, and Refrigeration Institute (“AHRI”); the American National Standards Institute ("ANSI"); American Society of Heating, Refrigeration and Air-Conditioning Engineers ("ASHRAE"); the AMCA and the International Organization for Standardization ("ISO").
As a result of our strategy to engineer and manufacture innovative HVAC products of the highest performance, efficiency, and value, we are naturally committed to meeting regulatory and certification standards of the relevant standard setting bodies, including the Air-Conditioning, Heating, and Refrigeration Institute (“AHRI”); the American National Standards Institute (“ANSI”); American Society of Heating, Refrigeration and Air-Conditioning Engineers (“ASHRAE”); the Air Movement and Control Association (“AMCA”) and the International Organization for Standardization (“ISO”).
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 20, 2024 February 22, 2023 February 23, 2022 AAON Oklahoma 2,663 2,474 1,979 AAON Coil Products 586 681 574 BASX 607 511 328 Total employees 3,856 3,666 2,881 Our key human capital measures include employee safety, turnover, absenteeism, and production.
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 24, 2025 February 20, 2024 February 22, 2023 AAON Oklahoma 2,747 2,663 2,474 AAON Coil Products 1,043 586 681 BASX 1,022 607 511 Total employees 4,812 3,856 3,666 Our key human capital measures include employee safety, turnover, absenteeism, and production.
Representatives As of December 31, 2023, we employ a sales staff of 82 individuals and utilize approximately 59 independent manufacturer representatives’ organizations (“Representatives”) having 139 offices to market our products primarily in the United States and Canada.
Representatives As of December 31, 2024, we employ a sales staff of 81 individuals and utilize approximately 55 independent manufacturer representatives’ organizations (“Representatives”) having 132 offices to market our products primarily in the United States and Canada.
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 $38.3 million outstanding balance at December 31, 2023. Borrowings available under the revolving credit facility at December 31, 2023, were $159.4 million.
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 $76.5 million outstanding balance at December 31, 2024. Borrowings available under the revolving credit facility at December 31, 2024, were $123.2 million.
We manufacture equipment with more configurability than other "standard" offerings found in the HVAC equipment industry and we do not manufacture equipment that has not been pre-specified by our customers with an emphasis on high customer satisfaction and reduced product delivery channel time. 2 Since day one, AAON has been dedicated to manufacturing and product leadership with innovation through research and development with a specific emphasis on energy performance, durability, efficiency, and indoor air quality.
We manufacture equipment with more configurability than other “standard” offerings found in the HVAC equipment industry and we do not manufacture equipment that has not been pre-specified by our customers. 2 Since day one, AAON has been dedicated to manufacturing and product leadership with innovation through R&D with a specific emphasis on energy performance, durability, efficiency, and indoor air quality.
AAON Oklahoma includes the operations of our Tulsa, OK and Parkville, MO manufacturing facilities, two retail locations, and the Norman Asbjornson Innovation Center ("NAIC") research and development laboratory accredited by the Air Movement and Control Association International, Inc. ("AMCA").
AAON Oklahoma includes the operations of our Tulsa, Oklahoma, Memphis, Tennessee and Parkville, Missouri manufacturing facilities, two retail locations, and the Norman Asbjornson Innovation Center (“NAIC”) research and development laboratory accredited by the Air Movement and Control Association International, Inc. (“AMCA”).
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 have begun the transition to the lower global warming potential R-454B refrigerant.
We opted into additional renewable energy at our Tulsa, Oklahoma, and Redmond, Oregon facilities in 2024, continued to invest and partner on projects that reduce GHG emissions globally and have transitioned to the lower global warming potential R-454B refrigerant.
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 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.
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 and applications.
Sales are made directly to the contractor or end user, with shipments made from our Tulsa, Oklahoma, Longview, Texas, Parkville, Missouri, or Redmond, Oregon facilities to the job site. Shipments from our new Memphis, Tennessee plant are expected to start in early 2025. 5 Historically, our products and sales strategy focused on niche markets and applications.
As a result, portions of the backlog do not turn over within our 11 week lead time. 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).
As a result, portions of the BASX branded product backlog do not turn over within typical lead times for AAON branded products. 6 Competition Our AAON branded products 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 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.
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.
For more information on our business segments' financial position and results of operations, refer to Note 22, "Segments," of the notes to consolidated financial statements. Business and Marketing Strategy Our products serve the commercial, industrial, data center, and cleanroom markets within the HVAC equipment industry.
BASX consists of operations at our Redmond, Oregon manufacturing facilities. For more information on our business segments’ financial position and results of operations, refer to Note 23, “Segments,” of the Notes to Consolidated Financial Statements. Business and Marketing Strategy Our products serve the commercial, industrial, data center, and cleanroom markets within the HVAC equipment industry.
Out of the box, our controls are user-friendly and configurable to provide a variety of HVAC unit application options, in addition, we are able to customize our controls to meet customers’ unique requirements. Products - BASX The products BASX manufactures are highly engineered and customized products, fully complementing our legacy business.
Out of the box, our controls are user-friendly and configurable to provide a variety of HVAC unit application options, in addition, we are able to customize our controls to meet customers’ unique requirements.
Outdoor Air Ventilation - Our innovative use of energy recovery wheels and energy recovery plates combined with its superior humidity control design can help building management follow outdoor ventilation air recommendations while limiting an increase of energy usage and maintaining recommended humidity levels. AAON has been the leader in Dedicated Outdoor Air Systems ("DOAS") for many years.
Outdoor Air Ventilation - Our innovative use of energy recovery wheels and energy recovery plates combined with its superior humidity control design can help building management follow outdoor ventilation air recommendations while limiting an increase of energy usage and maintaining recommended humidity levels.
BASX: BASX engineers, manufactures, and sells an array of custom, high-performance cooling solutions for the rapidly growing hyperscale data center market, ventilation solutions for cleanroom environments in the bio-pharmaceutical, semiconductor, medical and agriculture markets, and highly custom, air handlers and modular solutions for a vast array of markets. BASX consists of operations at our Redmond, OR manufacturing facilities.
BASX branded products are also manufactured in Longview. BASX: BASX engineers, manufactures, and sells an array of custom, high-performance cooling solutions for the rapidly growing hyperscale data center market, ventilation solutions for cleanroom environments in the bio-pharmaceutical, semiconductor, medical and agriculture markets, and highly custom, air handlers and modular solutions for a vast array of markets.
Our packaged RTUs with two stage or variable speed compressors are optimized with high efficiency evaporator and condenser coils and variable speed fans, leading to an AHRI Certified performance up to 20.3 seasonal energy efficiency ratio ("SEER") and 22.5 integrated energy efficiency ratio ("IEER").
Our packaged RTUs with two stage, digital, or variable speed compressors are optimized with high-efficiency evaporator and condenser coils and variable speed fans, leading to an AHRI Certified performance up to 18.0 Seasonal Energy Efficiency Ratio 2 (“SEER2”) and 22.8 integrated energy efficiency ratio (“IEER”).
When configured as Air-Source Heat Pumps ("ASHP"), the RQ and RN Series (2 to 50 tons), are capable of operating in ambient outside temperatures as low as zero degrees Fahrenheit. Known as the AAON Alpha Class, our omni-climate ASHPs are a critical solution that meet the increasing demand for building decarbonization.
When configured as Air-Source Heat Pumps (“ASHP”), the RQ and RN Series (two to 50 tons), are capable of operating in ambient outside temperatures as low as zero degrees Fahrenheit. This class of products, known as AAON Alpha Class™, is a critical, industry-leading solution that meets the increasing demand for commercial building decarbonization.
Two other similar groups, Ambient and Hobbs/Insight, share common ownership of some of our other sales representatives through portfolio groups and for the year-ended December 31, 2023, aggregate sales through their portfolio groups accounted for approximately 11.5% and 10.2% of our sales, respectively.
Two other similar groups, Ambient and AIR Control Concepts, share common ownership of some of our other sales representatives through portfolio groups and for the year-ended December 31, 2024, aggregate sales through their portfolio groups accounted for approximately 14.9% and 9.2% of our sales, respectively.
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 R&D activities, rather than needing to be customer-sponsored.
We must continually develop new and improved products in order to compete effectively and meet evolving regulatory standards in all of our major product lines.
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.
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, to ensure we collectively support our customers across North America.
On October 31st, 2022, the US Department of Energy ("DOE") released their final ruling concerning DX-DOAS. These are systems that condition primarily fresh outside air streams to maintain space comfort and air quality. Starting May 1, 2024 the DOE will begin regulating the efficiency of dedicated outdoor air units separately from other comfort cooling systems.
These are systems that condition primarily fresh outside air streams to maintain space comfort and air quality. On May 1, 2024, the DOE began regulating the efficiency of dedicated outdoor air units separately from other comfort cooling systems. AHRI will begin certifying the performance of DX-DOAS equipment in 2025.
R&D activities have involved the RQ, RN, and RZ (rooftop units), H3, SA, V3, and M2 (air handling units), CF (condensing units), 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 activities have involved the RQ, RN, and RZ (rooftop units), H3, SA, V3, and M2 (air handling units), CF (condensing units), and the SA and SB (self-contained units), as well as component evaluation and refinement, development of control systems and new product development. 7 Our NAIC research and development laboratory facility includes many unique capabilities, which, to our knowledge, exist nowhere else in the world.
Environmental control solutions include modular cleanroom environments, fan filter units, filtered ceiling grids with integral flush mount lighting, pressurized plenums with integral ceiling grids, and hospital surgical suites.
Process cooling solutions include recirculation air handling units and make up air handling units, including the integration of piping systems and controls. Environmental control solutions include modular cleanroom environments, fan filter units, filtered ceiling grids with integral flush mount lighting, pressurized plenums with integral ceiling grids, and hospital surgical suites.
Sales through the portfolio groups of either Ambient or Hobbs/Insight did not account for 10% or more of our sales for any years-ended prior to December 31, 2023. Backlog Our backlog as of February 1, 2024 was approximately $507.7 million. Management considers the orders that make up the backlog to be firm commitments with minimal risk of cancellation.
No other customers or portfolio groups accounted for more than 10% or more of our sales for the years ended December 31, 2024, and 2023, respectively. Backlog Our backlog as of February 1, 2025 was approximately $842.3 million. Management considers the orders that make up the backlog to be firm commitments with minimal risk of cancellation.
Many of our products far exceed these minimum standards and are among the highest efficiency products currently available in the market. A typical commercial building installation requires one ton of air conditioning for every 300-400 square feet or, for a 100,000 square foot building, 250 tons of air conditioning, which can involve multiple units.
A typical commercial building installation requires one ton of air conditioning for every 300-400 square feet or, for a 100,000 square foot building, 250 tons of air conditioning, which can involve multiple units.
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.
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.
The ratio of sales for new construction versus replacement is related to various factors. Generally, the cyclicality of the new construction market impacts this ratio the most over an economic cycle. We purchase certain components, fabricate sheet metal and tubing and then assemble and test the finished products.
The ratio of sales for new construction versus replacement is related to various factors. Generally, the cyclical nature of the new construction market impacts this ratio the most over an economic cycle.
With the NAIC, a world-class research and development ("R&D") laboratory in Tulsa, OK, our products are continuously tested under a variety of extreme environmental conditions to ensure they deliver the ultimate performance, efficiency, and value.
With the NAIC, a world-class research and development (“R&D”) laboratory in Tulsa, Oklahoma, our products are continuously tested under a variety of extreme environmental conditions to ensure they deliver the ultimate performance, efficiency, and value. Also located in Tulsa, Oklahoma, our cutting-edge Exploration Center showcases the engineering, design attributes, and premium build quality of our equipment side-by-side the market alternatives.
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. 7 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.
R&D expenses incurred were approximately $47.3 million, $43.7 million, and $46.8 million in 2024, 2023, and 2022, respectively. 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.
Utilizing variable speed technology, these innovative ASHPs provide energy-efficient heating and cooling throughout the year in virtually any climate. In addition to our legendary RTUs, we offer the SA, SB and M2 Series as indoor packaged, water-cooled or geothermal/water-source heat pump self-contained units with cooling capacities of three to 70 tons.
In addition to our flagship packaged RTUs, we offer a variety of products to meet various market needs: Our SA, SB, and M2 Series consist of indoor packaged, water-cooled or geothermal/water-source heat pump self-contained units with cooling capacities of three to 70 tons.
The Company’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.
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 have become more constant throughout the year.
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.
We work closely with our Representatives to develop and support business plans, develop leadership capabilities, and provide technician training to our representatives and selected contractors. All of which creates a cohesive network of service organizations to better meet the operational and maintenance needs of our customer base.
Our unitary products (RQ and RN Series) are certified with AHRI and the US Department of Energy to ANSI/AHRI 210/240 up to five tons capacity and ANSI/AHRI 340/360 up to 63 tons capacity. 3 Performance characteristics of our products range in cooling capacity from two to 261 tons and in heating capacity from 7,200 to 4,500,000 British Thermal Units ("BTUs").
Our RN, RQ, M2, and SB Series geothermal/water-source heat pumps are AHRI certified in accordance with ANSI/AHRI/ASHRAE/ISO 13256. Our unitary air conditioners and heat pumps (RQ and RN Series) are certified with AHRI and the US Department of Energy (“DOE”) to ANSI/AHRI 210/240 up to five tons capacity and ANSI/AHRI 340/360 from five to 63 tons capacity.
These same capabilities have allowed AAON to develop low ambient air source heat pump products that are unique in being able to address the growing need for these type units that address electrification initiatives and commitments. Our Parkville, Missouri location is home to our new Electronics Prototyping Lab ("Lab") featuring a fully functional SMD (Surface Mount Device) production line.
These same capabilities have allowed AAON to develop low ambient air source heat pump products that are unique in being able to address the growing need for these type of units that address electrification initiatives and commitments. The R&D activities at the BASX Redmond, Oregon facility is focused on developing and validating high-performance solutions paired to customers’ unique specifications.
Our primary finished product consists of a single unit system that generates heating and cooling in a self-contained cabinet, referred to in the industry as “unitary product”. Our other finished products are coils, air handling units, condensing units, makeup air units, energy recovery units, rooftop units, geothermal/water-source heat pumps, and controls.
Our flagship products consist of a single-unit system that generates heating and cooling in a self-contained cabinet, referred to in the industry as “unitary product.” The majority of our unitary products are installed on the rooftop of commercial and industrial buildings and structures. These are known in the industry as "rooftop units," or (“RTUs”).
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.
Our Parkville, Missouri location features our new Electronics Prototyping Lab (“Lab”), which includes a fully functional SMD (“Surface Mount Device”) production line. This production line incorporates automated pick-and-place equipment capable of quickly and accurately placing devices as small as 0.1mm by 0.2mm, utilizing the same technology scale found in cell phones.
BASX data center cooling solutions are focused on providing highly configurable, purpose-built equipment with a focus on efficiency, speed of deployment, and quality. High-performance air-cooled chiller solutions are provided with indirect airside economization and optional adiabatic assisted cooling, and are designed to integrate with high performance computing systems requiring direct to chip cooling.
Products - BASX Brand As a full complement to our AAON branded products, our BASX branded products are highly customized to meet the expectations of even the most discerning customers. Our data center cooling solutions are focused on providing highly configurable, purpose-built equipment with an emphasis on efficiency, performance, speed of deployment, and build-quality.
White space process cooling solutions include fan coil walls, computer room air handling ("CRAH") units, overhead fan coils, in-row coolers, and chilled water air handlers. Packaged solutions include coupled economizing chillers with integrated air handling units, direct evaporative coolers, and packaged direct expansion ("DX") solutions with airside economizers.
White space solutions for a close-coupled IT load management approach include overhead fan coils and in-row coolers. Packaged solutions include coupled economizing chillers with integrated air handling and packaged direct expansion (“DX”) solutions with airside economizers. 4 Our cleanroom products are built to provide environmental control serving critical processes and high-fidelity control for precise industry requirements.
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We are engaged in the engineering, manufacturing, and selling of premium heating, ventilation, and air conditioning equipment consisting primarily of 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 pumps, coils, and controls.
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The Company’s unique approach to designing and manufacturing highly configurable equipment to meet exact needs creates a premier ownership experience with greater efficiency, performance, and long-term value. AAON is headquartered in Tulsa, Oklahoma, where its world-class innovation center and testing capabilities enable continuous advancement toward a cleaner and more sustainable future.
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Also located in Tulsa, OK, our cutting-edge Customer Exploration Center showcases the engineering, design attributes and premium build quality of our equipment side-by-side the market alternatives.
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Other finished products include air-source heat pumps, air handling units, condensing units, makeup air units, energy recovery units, geothermal/water-source heat pumps, coils, and controls. All AAON branded products are created by assembling a combination of sheet metal and tubing fabrication components and pre-manufactured/purchased components such as coils, compressors, fans, and control systems.
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Products - AAON Oklahoma and AAON Coil Products Our rooftop and condensing units are primarily installed on commercial or industrial structures. Our air handling units, self-contained units, geothermal/water-source heat pumps, and coils are suitable for all sizes of commercial and industrial buildings.
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All products undergo rigorous end-of-line testing and inspection prior to being shipped to customers.
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Our RN, RQ, M2, and SB Series, are AHRI certified in accordance with ANSI/AHRI/ASHRAE/ISO 13256.
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Utilizing unrivaled engineering prowess and cutting-edge compressor technology, AAON Alpha Class™ provides energy-efficient heating and cooling throughout the year in virtually any climate.
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BASX cleanroom products are built to provide environmental control serving critical processes and high-fidelity control for precise industry requirements. Process cooling solutions include recirculation air handling units and make up air handling units including integration of piping systems and controls.
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Performance characteristics of our products range in cooling capacity from two to 261 tons and in heating capacity from 24,000 to 4,500,000 British Thermal Units (“BTUs”). Many of our products far exceed DOE minimum efficiency standards and are among the highest efficiency products currently available in the market.
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We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations. 6 Working Capital Practices Working capital practices in the industry center on inventories and accounts receivable.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe 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.
Biggest changeIn 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. 11 We depend on our officers and senior leadership team and the loss of one or more key employees or an inability to attract and retain highly skilled employees could adversely affect our business .
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.
There are costs associated with complying with these disclosure requirements, including 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.
Additionally, should there be a downturn in the market, we could be committed to purchase more materials than necessary for our production and carry excess inventory which could result in additional costs to the business. 12 Risks Related to Electronic Data Processing and Digital Information Our business is subject to the risks of interruptions by cybersecurity attacks.
Additionally, should there be a downturn in the market, we could be committed to purchase more materials than necessary for our production and carry excess inventory which could result in additional costs to the business. 13 Risks Related to Electronic Data Processing and Digital Information Our business is subject to the risks of interruptions by cybersecurity attacks.
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 10 additional administrative efforts and costs.
Certain 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.
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 11 high degree of variability.
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 12 high degree of variability.
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, impacted by wild fires.
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 impacted by wildfires.
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. We may not be able to successfully develop and market new products .
We may not be able to compete successfully against current and future competition and current and future competitive pressures may materially adversely affect our business and results of operations. We may not be able to successfully develop and market new products .
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. We do not maintain key-man insurance for Gary D. Fields or any other member of our senior leadership team.
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. We do not maintain key-person insurance for officers or any members of our senior leadership team.
Our business is affected by a number of economic factors, including the level of economic activity in the markets in which we operate.
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.
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.
We incurred 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 incurred cost to our facilities, specifically costs to store and use the new refrigerant in production; however, those costs were not significant.
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.
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.
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.
This shift in product line could affect production productivity, material costs and aftermarket warranty costs. 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.
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. 13 Our operations could be negatively impacted by new legislation as well as changes in regulations and trade agreements, including tariffs and taxes.
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 of all conflict minerals used in our products through the procedures we may implement.
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.
Additionally, the ability of our competitors to react to material risks will affect our future results. Risks Related to Our Business Our business, results of operations and financial condition may be disrupted and adversely affected by public health pandemics.
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.
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 completely transitioned to a new refrigerant with lower global warming potential for our HVAC systems which was required by the US EPA for any equipment manufactured beginning January 1, 2025.
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.
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.
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.
An excess of or significant claim(s) could lead to the cancellation of our policies and the loss of and inability to find additional insurance carriers.
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.
We always face the possibility of new governmental regulations and policies, from the Federal or state levels, which could have a substantial or even extreme negative effect on our operations and profitability. This could affect equipment we currently manufacture and could have an impact on our product design, operations, and profitability. We anticipate more state regulatory activity in the future.
Accordingly, we began our reasonable country of origin inquiries in fiscal year 2013, with initial disclosure requirements beginning in May 2014.
As a result, in August 2012, the SEC adopted annual disclosure and reporting requirements for those companies that 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.
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.
Additional state regulatory rules can lead to a patchwork of different compliance regulations that may impact the results of each of our operating segments and our consolidated results. 14 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 with any significant regulatory change, delays or other changes to implementation timing could also have a negative impact on our operations and profitability. Additionally, regulations that reduce or eliminate the use of fossil fuels such as natural gas and propane may reduce or eliminate sales of gas fired equipment for which AAON holds a strong market position.
Additionally, regulations that reduce or eliminate the use of fossil fuels such as natural gas and propane may reduce or eliminate sales of gas-fired equipment for which AAON holds a strong market position. This will result in a shift 15 to more air- and water-cooled heat pump-type units to provide space heating.
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.
Our success depends largely upon the continued services of our officers and senior leadership team. We rely on our officers and senior leadership team in the areas of research and development, marketing, production, sales, and general and administrative functions.
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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.
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Our business, results of operations and financial condition may be adversely affected if a public health pandemic interferes with the ability of our employees, suppliers, and other business partners to perform their respective responsibilities and obligations relative to the operations of our business.
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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.
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We monitor the outbreak of any public health pandemic and evaluate the impact on our business as information emerges. The extent to which the impact of a public health pandemic may have on our business, supply chains, and prices of raw materials will depend on future developments, which may be highly uncertain and cannot be predicted.
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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.
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To mitigate certain business risks of departing executives upon termination, on July 30, 2024, the Board of Directors of the Company, upon the recommendation of the Compensation Committee of the Board of Directors (the “Committee”) approved the adoption of the AAON, Inc.
Removed
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.
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Executive Severance Plan (the “Executive Severance Plan”) to provide financial and transitional assistance following a termination of employment under certain circumstances to certain executive-level employees.
Removed
During 2023, 2022, and 2021 we experienced some price increases in our components and raw materials, which appear to be a result of COVID-19 and subsequent inflation, as well as supply chain challenges related to certain manufacturing parts.
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Pursuant to the terms of the Executive Severance Plan, in the event an Eligible Executive’s employment is terminated by us without “cause” or by an Eligible Executive for “good reason” (as each such term is defined in the Executive Severance Plan), subject to the execution of a validly executed, irrevocable release of claims, the Eligible Executive will be eligible to receive the certain benefits defined by the Executive Severance Plan.
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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.
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Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations. We rely extensively on information systems and technology to manage our business and summarize operating results. We are in the process of implementing a new global enterprise resource planning (“ERP”) system.
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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. Risks Related to Our Business Our business can be hurt by economic conditions .
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This ERP system will replace our existing operating and financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of the business.
Removed
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.
Added
The ERP system implementation process has required, and will continue to require, the investment of significant personnel and financial resources. We may not be able to successfully implement the ERP system without experiencing delays, increased costs and other difficulties.
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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.
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If we are unable to successfully design and implement the new ERP system as planned, our financial positions, results of operations and cash flows could be negatively impacted.
Removed
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.
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Additionally, if we do not effectively implement the ERP system as planned or the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess those controls adequately could be delayed.
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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.
Added
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.
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Due to the increased flammability of the new refrigerant, the insurance industry may require higher premiums for companies once the conversion begins.
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Due to the increased flammability of the new refrigerant, the insurance industry may require higher premiums for companies in the future. New York State released a final rule on December 23, 2024, that requires that we change our products to use refrigerants with a 20-year global warming potential less than 10 beginning January 1, 2034.
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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.
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This will require significant research and development as well as equipment could potentially cost significantly more to build. We expect California and Washington state to release similar rules as well as several other states.
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This will result in a shift to more air- and water-cooled heat pump type units to provide space heating. This shift in product line could affect production productivity material costs and aftermarket warranty costs.
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Unfortunately, we will likely see a patchwork of different timing and requirements from various states which could increase the options that we will need to offer which could also increase costs.
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Changes in U.S. or foreign trade policies, including additional tariffs or global trade conflicts, could increase the cost of our products, which could adversely impact the competitiveness of our products. There is currently significant uncertainty about the future relationship between the U.S. and various other countries with respect to trade policies and tariffs.
Added
For example, a former U.S. administration previously called for substantial changes to U.S. foreign trade policy with respect to China and other countries, including the possibility of imposing greater restrictions on international trade and significant increases in tariffs on goods imported into the U.S.
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Other administrations could take a different approach to U.S. foreign trade policy, so there remains uncertainty as to whether trade between the U.S and other countries, including countries in which we operate, may be impacted by these policy shifts. Changes in policy or continued uncertainty could depress economic activity and restrict our access to suppliers or customers.
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Tariffs implemented on our products (or on materials, parts or components we use to manufacture our products) have in the past increased the cost of our products manufactured in the U.S. and imported into the U.S.
Added
If additional tariffs or trade restrictions are implemented on our products (or on materials, parts or components we use to manufacture our products) by the U.S. or other countries, the cost of products manufactured in countries such as China and Mexico and imported into the U.S. or other countries in which we operate could increase further.
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We expect to continue to pass along some of these costs to our customers, but the increased cost could adversely affect the demand for products. These cost increases could adversely affect the demand for our products and/or our profitability, which could have a material adverse effect on our business and our earnings.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur chief information officer assesses our cybersecurity readiness through internal assessment tools as well as third-party control tests, vulnerability assessments, audits and evaluation against industry standards. We have governance and compliance structures that are designed to elevate issues relating to cybersecurity to our chief information officer, such as potential threats or vulnerabilities.
Biggest changeAfter the departure of our Chief Information Officer, our Vice President of Administration has responsibility and oversight for IT. Management assesses our cybersecurity readiness through internal assessment tools as well as third-party control tests, vulnerability assessments, audits and evaluation against industry standards.
Our chief information officer has primary oversight of material risks from cybersecurity threats. Our chief information officer has more than 25 years of experience across various engineering, business and management roles, including leading the development and implementation of information technology strategies and roadmaps for manufacturing automation.
The Company officer with oversight of Information Technology (“IT”) has primary oversight of material risks from cybersecurity threats. Through November 2024, our Chief Information Officer was responsible for IT and had more than 25 years of experience across various engineering, business and management roles, including leading the development and implementation of information technology strategies and roadmaps for manufacturing automation.
We practice our response to potential cybersecurity incidents through regular tabletop exercises, threat hunting and red team exercises. For more information about cybersecurity risks, see the Risk factors discussion in Item 1A of this Form 10-K. Governance of cybersecurity risk management The board of directors, as a whole, has oversight responsibility for our strategic and operational risks.
This process includes risk assessments, security questionnaires, review of vendor security programs, review of available security assessments, reports, and audits. For more information about cybersecurity risks, see the Risk factors discussion in Item 1A of this Form 10-K. Governance of cybersecurity risk management The Board of Directors has oversight responsibility for our strategic and operational risks.
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ITEM 1C. Cybersecurity Cybersecurity risk management and strategy Our cybersecurity risk management is based on recognized cybersecurity industry frameworks and standards, including those of the National Institute of Standards and Technology ("NIST"), the Center for Internet Security ("CIS"), the Computer Objectives for Information and related Technology ("COBIT"), and the International Organization for Standardization ("ISO").
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ITEM 1C. Cybersecurity Cybersecurity risk management and strategy We maintain various information security processes designed to identify and manage material risks from cybersecurity threats to our computer networks, third-party hosted services, communications systems, hardware and software, and data, including personal data, intellectual property and confidential information that is proprietary, strategic or competitive in nature.
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We use these frameworks, together with information collected from 14 internal assessments, to develop policies for use of our information assets, access to specific intellectual property or technologies, and protection of personal information. We protect these information assets through industry-standard techniques, such as multifactor authentication and malware defenses.
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Our cybersecurity function includes representatives from information technology, engineering, information security, legal, impacted business units or products and other departments as applicable and help identify, assess and manage the Company’s cybersecurity threats and risks.
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We also work with internal stakeholders across the company to integrate foundational cybersecurity principles throughout our organization’s operations, including employment of multiple layers of cybersecurity defenses, restricted access based on business need, and integrity of our business information. Throughout the year, we also regularly train our employees on cybersecurity awareness, confidential information protection and simulated phishing attacks.
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The management team is responsible for identifying, assessing and managing cybersecurity risks by monitoring and evaluating potential threats using various methods including, for example, manual and automated tools such as vulnerability scans, penetration tests and system configuration reviews; conducting risk assessments and internal and external audits; and conducting tabletop incident response exercises.
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We engage third-party assessors to conduct penetration testing and measure our program to industry standard frameworks as needed. We also have standing engagements with incident response experts and external counsel. We frequently collaborate with industry experts and cybersecurity practitioners at other companies to exchange information about potential cybersecurity threats, best practices and trends.
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We implement and maintain various technical, physical, and organizational measures, processes, standards and policies designed to manage risks from cybersecurity threats to our systems, including, for example: (1) having an information security incident response plan; (2) maintaining a disaster recovery plan, business continuity program, vulnerability management process and vendor risk management process; (3) conducting periodic risk assessments and employee training on cybersecurity; (4) maintaining security controls in alignment with industry standard security frameworks like National Institute of Standards and Technology (“NIST”) and Center for Internet Security (“CIS”); (5) encrypting and segregating data, having network security controls, access controls, monitoring systems, managing assets and conducting penetration testing; and (6) maintaining cybersecurity insurance.
Removed
Our cybersecurity risk management is an important part of our comprehensive business continuity program and internal risk management. Our information security team periodically engages with a cross-functional group of subject matter experts and leaders to assess and refine our cybersecurity risk posture and preparedness.
Added
Our assessment and management of risks from cybersecurity threats are integrated into the Company’s overall risk management processes.
Removed
We also employ various defensive and continuous monitoring techniques using recognized industry frameworks and cybersecurity standards. Our chief information officer meets with the audit committee periodically to review our information technology systems and discuss key cybersecurity risks.
Added
For example, (1) cybersecurity risk is addressed as a component of the Company’s enterprise risk management program in concert with the audit committee and board of directors; (2) our information security team works with our management team in an effort to prioritize our risk management processes and mitigate cybersecurity threats that are more likely to lead to a material impact to our business; (3) our information 16 security and management team evaluates material risks from cybersecurity threats against our overall business objectives and reports to the audit committee for further communication as required, to evaluate our overall enterprise risk.
Added
We use third-party service providers to assist us in identifying potential risks from cybersecurity threats. For example, these service providers include professional services firms, managed cybersecurity service providers, penetration testing firms and forensic investigators. We have a vendor management process designed to manage cybersecurity risks associated with our use of these providers.
Added
We have governance and compliance structures that are designed to elevate issues relating to cybersecurity to Management, such as potential threats or vulnerabilities. We also employ various defensive and continuous monitoring techniques using recognized industry frameworks and cybersecurity standards. Our information security incident response plan is designed to escalate certain cybersecurity incidents to members of management depending on the circumstances.
Added
The incident response team works with the Company’s management team to help mitigate and remediate cybersecurity incidents of which they are notified. In addition, the Company’s information security incident response plan includes reporting to the board of directors for certain cybersecurity incidents. Management meets with the audit committee periodically to review our information technology systems and discuss key cybersecurity risks.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe expect to be in operation in this facility in late 2024. We lease several properties near our main Redmond, Oregon location. In the aggregate, these properties contain approximately 104,500 square feet of additional warehouse space. Additionally, we lease an office of approximately 4,000 square feet located at 1725 Blankenship Road, West Linn, Oregon.
Biggest changeWe lease several other properties near our main Redmond, Oregon location. In the aggregate, these properties contain approximately 16,000 square feet of warehouse space, 4,000 square feet of office space, and approximately 8.0 arces of land for outdoor storage.
The Exploration Center provides an immersive and educational experience of our products, solutions and our people and also serves as an event hub for our stakeholders, including our customers, employees, representatives and investors. The Exploration Center adds a dimension of customer engagement that showcases our products and our competitors' products and allows our customers to interact with our employees.
The three-story Exploration Center provides an immersive and educational experience of our products, solutions, and our people and also serves as an event hub for our stakeholders, including our customers, employees, representatives, and investors.
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.
In addition to a retail parts store location at our West Plant & Offices, we also own a stand-alone building at 9528 East 51st St., Tulsa, OK 74145 which is utilized as an additional retail parts store to provide our customers more accessibility to our products.
Our operations in Parkville, Missouri, are conducted in a leased plant/office at 8500 NW River Park Drive. This location is home to our Controls design and manufacturing facilities. In October 2022, we modified the existing lease to increased our manufacturing and office space to approximately 86,000 square feet. During mid-2023, we began utilizing this additional space for manufacturing operations.
Our operations in Parkville, Missouri, are conducted in a leased plant/office at 8500 NW River Park Drive, Parkville, MO 64152. This location is home to our Controls design and manufacturing facilities. We also lease a facility primarily used for parts distribution and additional warehouse space.
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, we opened our Exploration Center at our Tulsa location. The Exploration Center is a 28,000 square foot facility located adjacent to the NAIC.
This facility currently consists of twelve test chambers, allowing AAON to meet and maintain industry certifications. This facility is located west of our West Plant and Office Facilities. The Exploration Center is located adjacent to the NAIC.
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 NAIC. The three-story, 134,000 square foot stand alone facility is both an acoustical and a performance measuring laboratory.
Our East Plant and Office facilities sit on an approximate 32.7-acre tract of land and are located at 2425 South Yukon Ave., Tulsa, OK 74107. Our Tulsa location is also home to our engineering research and development laboratory, the NAIC. The three-story, stand-alone facility is both an acoustical and a performance measuring laboratory.
Removed
We believe that all of our facilities are well maintained and are in good condition and suitable for the conduct of our business.
Added
We believe that all of our facilities are well maintained and are in good condition and suitable for the conduct of our business. 17 AAON Oklahoma The following table summarizes our plant and office facilities that support our AAON Oklahoma segment: City & State # of Buildings Manufacturing / Warehouse Office Total Owned facilities (in square feet) West Plant & Offices Tulsa, OK 1 940,000 70,000 1,010,000 NAIC Tulsa, OK 1 125,000 9,000 134,000 Exploration Center Tulsa, OK 1 — 28,000 28,000 Buckaloo Warehouse Tulsa, OK 1 39,000 1,000 40,000 East Plant & Offices Tulsa, OK 1 326,000 16,000 342,000 Flint Warehouse Tulsa, OK 1 48,000 5,000 53,000 Administration Facilities Tulsa, OK 3 11,000 36,000 47,000 Parts Retail Store Tulsa, OK 1 7,500 6,000 13,500 Memphis Plant Memphis, TN 1 702,000 85,000 787,000 Total 11 2,198,500 256,000 2,454,500 Leased facilities Controls Facility Parkville, MO 1 38,000 48,000 86,000 Parts Distribution Tulsa, OK 1 347,000 9,000 356,000 Total 2 385,000 57,000 442,000 Our West Plant and Office facilities, NAIC, Exploration Center, and Buckaloo Warehouse sit on an approximate 87.3-acre tract of land and are located at 2440 South Yukon Ave., Tulsa, OK 74107.
Removed
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.
Added
The Exploration Center adds a dimension of customer engagement that showcases our products and our competitors’ products and allows our customers to interact with our products and employees. We also own two additional warehouses. Our Buckaloo Warehouse is west of our West Plant and Offices.
Removed
Additionally we own 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. 15 In 2023, we acquired an additional 17-acre tract of land adjacent to the east side of the current 12-acre tract.
Added
Our Flint Warehouse is located approximately 3/4 of a mile east of our West and East Plant locations at 2020 South Union Ave., Tulsa, OK 74107 and sits on approximately 5.5 acres. Our Administration Facilities are located approximately 3/4 of a mile east of our West and East Plant locations at 1624 - 1625 West 21st St., Tulsa, OK 74107.
Removed
We also lease a 198,000 square foot warehouse space which is used for additional inventory storage in Tulsa, Oklahoma.
Added
These facilities sit on approximately 3.6 acres. The facilities include additional office and meeting space utilized for company-wide administrative, human resource, and training functions. Our new Human Resources building, which opened in January 2025, enhances our engagement with current and future employees.
Removed
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 lease to a Representative of the Company.
Added
In December 2024, we purchased a facility in Memphis, Tennessee located at 5106 Tradeport Drive, Memphis, TN 38141.
Removed
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. In April 2023, we broke ground on an expansion to our 222,000 square foot building.
Added
This facility, which sits on 35.7 acres, will primarily facilitate the growing demand for BASX products in the data center market as well as AAON products and will also add geographic diversification to AAON's current manufacturing footprint, mitigating certain operational risks and better serving our data center customers.
Removed
The expansion consists of 237,500 square feet of office and manufacturing space that will be dedicated to unit production. We expect that we will be able to utilize this space in late 2024.
Added
This facility is located at 13445 E. 59th St., Tulsa, OK 74134. 18 AAON Coil Products The following table summarizes our plant and office facilities that support our AAON Coil Products segment: City & State # of Buildings Manufacturing / Warehouse Office Total Owned facilities (in square feet) West Plant & Offices Longview, TX 1 435,500 24,000 459,500 East Plant & Offices Longview, TX 1 256,000 7,000 263,000 Parts Store Longview, TX 1 5,000 — 5,000 Kodak Facility Longview, TX 4 62,000 2,000 64,000 Total 7 758,500 33,000 791,500 Both our East and West Plant and Office facilities are located at 203 Gum Springs Road, Longview, TX 75602.
Removed
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.
Added
Our East Plant and Offices sit on approximately 12.9 acres and our West Plant and Offices sit on approximately 22.6 acres. In January 2025, we completed our new expansion of the West Plant which added 225,500 square feet of manufacturing/warehouse space and 12,000 of office space. The new expansion is included in the table amounts above.
Removed
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. In the third quarter of 2023, we broke ground on an approximate 30,000 square foot fabrication facility residing on the one-acre tract of land.
Added
Our retail parts store, which is leased to a Representative of the Company, is located north of our West Plant and Offices at 203 Ford Lane, Longview, TX 75602. Our Kodak Facility is primarily used for additional warehouse space and is located at 115 Kodak Blvd, Longview, TX 75603.
Added
BASX The following table summarizes our plant and office facilities that support our BASX segment: City & State # of Buildings Manufacturing / Warehouse Office Total Owned Facilities (in square feet) Redmond Plant & Offices Redmond, OR 2 203,000 27,000 230,000 Leased Facilities Antler Warehouse Redmond, OR 1 72,000 — 72,000 Sisters Warehouse Sisters, OR 1 27,000 — 27,000 Marshall Warehouse Redmond, OR 1 14,000 — 14,000 Various leased facilities Various 3 16,000 4,000 20,000 Total 6 129,000 4,000 133,000 Our main operations in Redmond, Oregon, are conducted in a plant and office facility at 3500 SW 21st Pl, Redmond, OR 97756.
Added
This facility sits on an approximately 13.8-acre tract of land and is the location of our new 36,000 square foot weld-shop that opened in September 2024.
Added
In addition, we lease facilities for additional warehouse storage located at 601 NE Antler Ave., Redmond, OR 97756 ( “ Antler ” ) and 2895 S.W. 13th Street, Redmond, OR 97756 ( “ Marshall ” ). Our leased facility at 690 W Three Peaks Drive, Sisters, OR, 97759 ( “ Sisters ” ) is used for additional clean room assembly.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOur cash dividends for the three years ended December 31, 2023 are as follows: Dividend Annualized Dividend Declaration Date 1 Record Date Payment Date per Share 2 per Share 2 May 17, 2021 June 3, 2021 July 1, 2021 $0.13 $0.26 November 9, 2021 November 26, 2021 December 17, 2021 $0.13 $0.26 May 18, 2022 June 3, 2022 July 1, 2022 $0.13 $0.26 November 8, 2022 November 28, 2022 December 16, 2022 $0.16 $0.32 March 1, 2023 March 13, 2023 March 31, 2023 $0.08 $0.32 May 18, 2023 June 9, 2023 June 30, 2023 $0.08 $0.32 August 18, 2023 September 8, 2023 September 29, 2023 $0.08 $0.32 November 10, 2023 November 29, 2023 December 18, 2023 $0.08 $0.32 1 Effective with the cash dividend declared on March 1, 2023 (paid on March 31, 2023), the Company moved from semi-annual cash dividends to quarterly cash dividends. 2 Reflects three-for-two stock split effective August 16, 2023.
Biggest changeOur cash dividends for the three years ended December 31, 2024 are as follows: Dividend Annualized Dividend Declaration Date 1 Record Date Payment Date per Share per Share May 18, 2022 June 3, 2022 July 1, 2022 $0.13 $0.26 November 8, 2022 November 28, 2022 December 16, 2022 $0.16 $0.32 March 1, 2023 March 13, 2023 March 31, 2023 $0.08 $0.32 May 18, 2023 June 9, 2023 June 30, 2023 $0.08 $0.32 August 18, 2023 September 8, 2023 September 29, 2023 $0.08 $0.32 November 10, 2023 November 29, 2023 December 18, 2023 $0.08 $0.32 March 5, 2024 March 18, 2024 March 29, 2024 $0.08 $0.32 May 24, 2024 June 7, 2024 June 28, 2024 $0.08 $0.32 August 15, 2024 September 6, 2024 September 27, 2024 $0.08 $0.32 November 13, 2024 November 29, 2024 December 19, 2024 $0.08 $0.32 1 Effective with the cash dividend declared on March 1, 2023 (paid on March 31, 2023), the Company moved from semi-annual cash dividends to quarterly cash dividends.
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, 2018, with the reinvestment of dividends since that date. This table is not intended to forecast future performance of our Common Stock.
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, 2019, with the reinvestment of dividends since that date. This table is not intended to forecast future performance of our Common Stock.
Under the MIPA Agreement, we committed to $78.0 million in the aggregate of contingent consideration to the former owners of BASX, which is payable in approximately 1.56 million shares of AAON stock, par value $0.004 per share. The shares do not accrue dividends.
Under the MIPA Agreement, we committed to $78.0 million in the aggregate of contingent consideration to the former owners of BASX, which was payable in approximately 1.56 million shares of AAON stock, par value $0.004 per share. The shares did not accrue dividends.
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 23, 2024, there were 1,030 holders of record of our common stock.
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 24, 2025, there were 1,271 holders of record of our common stock.
Name and Title of Director or Officer Date of Adoption of Arrangement Duration of the Arrangement Aggregate Number of Securities to be Purchased or Sold Pursuant to the Arrangement Stephen E. Wakefield November 23, 2022 Terminated May 17, 2023 95,788 Vice President and Chief Operating Officer Stephen E.
Name and Title of Director or Officer Date of Adoption of Arrangement Duration of the Arrangement Aggregate Number of Securities to be Purchased or Sold Pursuant to the Arrangement Stephen E. Wakefield November 23, 2022 Terminated May 17, 2023 95,788 Executive Vice President Stephen E. Wakefield September 13, 2023 Terminated December 27, 2023 181,000 Executive Vice President Rebecca A.
As of December 31, 2023, 0.58 million, and 0.73 million shares related to the earn-out milestones for the years ended 2022 and 2021, respectively, have been issued to the former owners of BASX as private placements exempt from registration with the SEC under Rule 506(b), which are included in common stock on the consolidated statements of stockholders' equity.
We previously issued 0.6 million shares and 0.7 million related to the earn-out milestones for the years ended 2022 and 2021, respectively. All shares have been issued as private placements exempt from registration with the SEC under Rule 506(b) and are included in common stock on the consolidated statements of stockholders’ equity.
Wakefield September 13, 2023 Terminated December 27, 2023 181,000 Vice President and Chief Operating Officer 18 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, 2023, 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).
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, 2024, 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).
Company / Index 2018 2019 2020 2021 2022 2023 AAON, Inc. $ 100 $ 142 $ 193 $ 231 $ 220 $ 326 NASDAQ Composite Index 100 137 198 242 163 236 S&P 600 Capital Goods Industry Group Index $ 100 $ 130 $ 150 $ 188 $ 180 $ 249 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.
Company / Index 2019 2020 2021 2022 2023 2024 AAON, Inc. $ 100 $ 136 $ 163 $ 155 $ 230 $ 367 NASDAQ Composite Index $ 100 $ 145 $ 177 $ 119 $ 173 $ 224 S&P 600 Capital Goods Industry Group Index $ 100 $ 116 $ 145 $ 139 $ 192 $ 226 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.
Stockholders of record at the close of business on July 28, 2023 received one additional share for every two shares they held as of that date on August 16, 2023 (ex-dividend date August 17, 2023).
Stockholders of record at the close of business on July 28, 2023, received one additional share for every two shares they held as of that date on August 16, 2023 (ex-dividend date August 17, 2023). All share and per share information has been updated to reflect the effect of this stock split.
Share-Based Compensation Plans - The following is a summary of our share-based compensation plans as of December 31, 2023: 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 161,854 $ 15.02 — The 2016 Long-Term Incentive Plan 1,862,571 $ 29.55 5,070,436 17 Issuer Purchases of Equity Securities - Repurchases during the fourth quarter of 2023, which include repurchases from our employee repurchase program, were as follows: ISSUER PURCHASES OF EQUITY SECURITIES (a) Total Number of Shares (or Units (b) Average Price Paid (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 2023 1,158 $ 54.89 1,158 — November 2023 180 61.00 180 — December 2023 348 70.99 348 — Total 1,686 $ 58.86 1,686 — Contingent Shares Issued in BASX Acquisition - On December 10, 2021, we closed on the acquisition of BASX (Note 4).
Share-Based Compensation Plans - The following is a summary of our share-based compensation plans as of December 31, 2024: 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 75,099 $ 14.42 — The 2016 Long-Term Incentive Plan 2,857,578 $ 40.06 — The 2024 Long-Term Incentive Plan 25,194 $ 88.51 2,714,799 20 Issuer Purchases of Equity Securities - Repurchases during the fourth quarter of 2024, which include repurchases from our employee repurchase program, were as follows: ISSUER PURCHASES OF EQUITY SECURITIES (a) Total Number of Shares (or Units (b) Average Price Paid (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 2024 642 $ 112.72 642 — November 2024 621 134.94 621 — December 2024 3,200 133.04 3,200 — Total 4,463 $ 130.38 4,463 — Contingent Shares Issued in BASX Acquisition - On December 10, 2021, we closed on the acquisition of BASX.
Under the MIPA Agreement, the potential future issuance of the shares is contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ended 2021, 2022, and 2023. We estimated the fair value of contingent consideration related to these shares to be approximately $60.0 million, which is included in additional paid-in capital on the consolidated balance sheets.
Under the MIPA Agreement, the issuance of shares to the former owners of BASX was contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ended 2021, 2022, and 2023. In March 2024, we issued the remaining 0.2 million shares related to the earn-out milestone for the year ended 2023.
Added
As a result of the shares issued in March 2024, the tax basis exceeded the book basis for consideration paid resulting in a deferred tax asset and an increase to additional paid-in capital of 6.4 million, respectively, on our consolidated balance sheet. The deferred tax asset is expected to be amortized over fifteen years.
Added
Authorized Shares Outstanding An amendment to the Company’s Articles of Incorporation to increase its total authorized common shares from 100,000,000 to 200,000,000 was approved by our stockholders on May 21, 2024, at the Company’s Annual Meeting. On July 9, 2024, a Certificate of Amendment was filed with the Nevada Secretary of State to effectuate the increase in authorized shares.
Added
Thompson December 13, 2024 December 31, 2025 91,500 Chief Financial Officer 21 Insider Trading Arrangements and Policies - We have adopted an Insider Trading Policy, applicable to our directors, officers, employees and certain other persons, as well as the Company itself, that governs transactions in securities issued by the Company and we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable NASDAQ listing standards.
Added
The foregoing summary of our Insider Trading Policy is not complete and is qualified in its entirety by reference to the full text of the Insider Trading Policy attached hereto as Exhibit 19.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeConsolidated Results of Operations Years Ended December 31, 2023 2022 (in thousands) Net Sales $ 1,168,518 $ 888,788 Cost of Sales 769,498 651,216 Gross Profit 399,020 237,572 Selling, general and administrative expenses 171,539 110,823 Gain on disposal of assets (13) (12) Income from operations $ 227,494 $ 126,761 The following are highlights of our results of operations, cash flows, and financial condition: • Net sales for 2023 grew 31.5% to $1,168.5 million due to record production rates and price increases realized during the period as compared to the same period in the prior year. • Overall gross margin increased 740 basis points in 2023 due to increased organic volumes for operational efficiencies and better overhead absorption. • We continue to invest in the future growth of the Company as evidenced by our $104.3 million in capital expenditures in 2023, an increase $50.3 million or 93.1% when compared to 2022 . • We completed the repurchase of $25.0 million of shares under our current share repurchase authorization.
Biggest changeConsolidated Results of Operations Years Ended December 31, 2024 2023 (in thousands) Net sales $ 1,200,635 $ 1,168,518 Cost of sales 803,526 769,498 Gross profit 397,109 399,020 Selling, general and administrative expenses 188,014 171,539 Gain on disposal of assets (23) (13) Income from operations $ 209,118 $ 227,494 The following are highlights of our results of operations, cash flows, and financial condition: • Net sales for 2024 grew 2.7% to $1,200.6 million due to an increase in sales of our BASX branded products.
Upon closing of the 2023 NMTC transaction, the Company provided an aggregate of approximately $16.7 million to the Investor, in the form of a loan receivable, with a term of twenty-five years,, bearing an interest rate of 1.0%.
Upon closing of the 2023 NMTC transaction, the Company provided an aggregate of approximately $16.7 million to the 2023 Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%.
Upon closing of the 2024 NMTC transaction, the Company provided an aggregate of approximately $11.0 million to the Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%.
Upon closing the 2024 NMTC transaction, the Company provided an aggregate of approximately $11.0 million to the 2024 Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%.
Our manual adjustments from standard to actual labor and overhead costs contain uncertainties that require management to make assumptions and to apply judgment regarding a number of factors, including inventory turns, supply usage, manufacturing efficiencies, and historical production costs.
Our manual adjustments from standard to actual labor and overhead costs contain uncertainties that require management to make assumptions and apply judgment regarding a number of factors, including inventory turns, supply usage, manufacturing efficiencies, and historical production costs.
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 commercial and industrial new construction markets generally lag behind 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.
The net proceeds from the closing of the 2023 NMTC is included in restricted cash on our consolidated balance sheets required to be used for the 2023 Project. 2024 New Markets Tax Credit - On February 27, 2024, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2024 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2024 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in real estate to facilitate the current expansion of our Longview, Texas manufacturing operations (the “Project”).
The net proceeds from the closing of the 2023 NMTC are included in restricted cash on our consolidated balance sheets required to be used for the 2023 Project. 2024 New Markets Tax Credit - On February 27, 2024, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2024 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2024 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in real estate to facilitate the current expansion of our Longview, Texas manufacturing operations (the “Project”).
This $16.7 million in proceeds plus capital contributed from the 2023 Investor was used to make an aggregate 25 $23.8 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of the NMTCs.
This $16.7 million in proceeds plus capital contributed from the 2023 Investor was used to make an aggregate $23.8 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of the NMTCs.
This $15.9 million in proceeds plus capital contributed from the 2019 Investor was used to make an aggregate $22.5 million loan to a subsidiary of the Company.
This $15.9 million in proceeds plus capital contributed from the 2019 Investor was used to make an aggregate 28 $22.5 million loan to a subsidiary of the Company.
Cash Flows from Financing Activities The change in cash from financing activities in 2023 is primarily related to borrowings under our revolving credit facility to manage our working capital needs, especially strategic purchases of inventory to avoid supply chain delays and the funding of certain capital expenditures, offset by repayments we were able to make due to our increased operating results and financial condition.
Cash Flows from Financing Activities The change in cash from financing activities in 2024 is primarily related to borrowings under our revolving credit facility to manage our working capital needs, especially strategic purchases of inventory to avoid supply chain delays and the funding of certain capital expenditures, offset by repayments we were able to make due to increased operating results and financial condition.
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; 18 months for data center cooling solutions and cleanroom systems; an additional four 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 product warranty policy is the earlier of one year from the date of first use or 18 months from the date of shipment for parts only; 18 months for data center cooling solutions and cleanroom systems; an additional four years for compressors; 15 years on aluminized steel gas-fired heat exchangers; 25 years on stainless steel heat exchangers; and ten years on gas-fired heat exchangers in our historical RL products.
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 2024 and the foreseeable future.
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 2025 and the foreseeable future.
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.
Further, 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.
A detailed discussion of the year to year changes for the years ended December 31, 2022 and 2021 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, 2022.
A detailed discussion of the year-to-year changes for the years ended December 31, 2023, and 2022 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, 2023.
At December 31, 2023, our leverage ratio was 0.15 to 1.0, which meets the requirement of not being above 3 to 1. 2019 New Markets Tax Credit - On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2019 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2019 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2019 Project”).
At December 31, 2024, our leverage ratio was 0.57 to 1.0, which meets the requirement of not being above 3 to 1. 2019 New Markets Tax Credit - On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2019 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2019 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2019 Project”).
These include certain direct and indirect costs such as compensation, manufacturing, and facility costs associated with manufacturing support functions. We continually monitor our labor and overhead standard costs to ensure that standard costs reasonably reflects our actual costs and make manual adjusts the value of inventory accordingly.
These include certain direct and indirect costs such as compensation, manufacturing, and facility costs associated with manufacturing support functions. We continually monitor our labor and overhead standard costs to ensure that standard costs reasonably reflect our actual costs and make manual adjusts the value of inventory accordingly.
The new guidance is intended to update a variety of disclosure requirements. The effective date for each amendment will be the date on with the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. Early adoption is prohibited.
The new guidance is intended to update a variety of disclosure requirements. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. Early adoption is prohibited.
We also purchase from domestic manufacturers certain components, including coils, compressors, motors, and electrical controls. 20 The price levels of our raw materials fluctuate due to various economic factors within the U.S. and global economy.
We also purchase from domestic manufacturers certain components, including coils, compressors, motors, and electrical controls. 23 The price levels of our raw materials fluctuate due to various economic factors within the U.S. and global economy.
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, 2023 and 2022.
Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the years ended December 31, 2024, 2023, and 2022, respectively.
We performed a qualitative assessment as of December 31, 2023 to determine whether it was more likely than not that the fair value of the reporting unit and indefinite-lived assets was greater than the carrying value of the reporting unit and indefinite-lived assets.
We performed a qualitative assessment as of December 31, 2024, to determine whether it was more likely than not that the fair value of the reporting unit and indefinite-lived assets was greater than the carrying value of the reporting unit and indefinite-lived assets.
See Note 18 of the Consolidated Financial Statements for additional information with respect to specific legal proceedings. 29 Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and the Company's discussion and analysis of its financial condition and operating results require management to make estimates and assumptions about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, and expenses in our consolidated financial statements and related notes.
See Note 19 of the Consolidated Financial Statements for additional information with respect to specific legal proceedings. 32 Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require management to make estimates and assumptions about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, and expenses in our consolidated financial statements and related notes.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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, 2023.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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, 2024.
We occasionally increase the price of our products to help offset any inflationary headwinds. In recent years, price increases have been more frequent due to the amount of inflation the business has endured. In 2021, we implemented three price increases.
We occasionally increase the price of our products to help offset any inflationary headwinds. In recent years, price increases have been more frequent due to the amount of inflation the business has endured. In 2021, we implemented three price increases for AAON branded products.
Payment terms for BASX jobs typically require upfront cash to fund the job resulting in cash inflows related to our contract liabilities and cash inflows fluctuate due to job timing and scheduling. 28 The decrease 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.
Payment terms for BASX jobs may require upfront cash to fund the job resulting in cash inflows related to our contract liabilities and cash inflows fluctuate due to job timing and scheduling. 31 The decrease 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 five years.
In 2022, we implemented two significant price increases as well as a recurring 1% monthly price increase beginning June 1, 2022 and ending on April 1, 2023. We reinstated a recurring 1% monthly price increase on October 1, 2023 and carried that through February 1, 2024.
In 2022, we implemented two significant price increases as well as a recurring 1% monthly price increase beginning June 1, 2022, and ending on April 1, 2023, for AAON branded products. We reinstated a recurring 1% monthly price increase on October 1, 2023, and carried that through February 1, 2024, for AAON branded products.
The Company may purchase shares on the open market from time to time. The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market.
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.
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. The Company's chief decision maker ("CODM"), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and income from operations.
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. The Company’s chief decision maker (“CODM”), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and gross profit.
The fair value of restricted stock awards and Key Employee Awards is based on the fair market value of AAON common stock on the respective grant dates.
The fair value of restricted stock awards and Key Employee Awards is based on the fair market value of AAON common stock on the respective grant dates. The fair value of restricted stock awards is reduced for the present value of dividends.
As of December 31, 2023 and December 31, 2022, we had an outstanding balance under the Revolver of $38.3 million and $71.0 million, respectively. We had two standby letters of credit totaling $2.3 million as of December 31, 2023 and one standby letter of credit totaling $0.8 million as of December 31, 2022.
As of December 31, 2024, and December 31, 2023, we had an outstanding balance under the Revolver of $76.5 million and $38.3 million, respectively. We had one standby letter of credit totaling $0.3 million as of December 31, 2024, and two standby letters of credit totaling $2.3 million as of December 31, 2023.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures.
This ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures.
This $11.0 million in proceeds plus capital contributed from the Investor was used to make an aggregate $16.0 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of NMTCs. Stock Repurchase - The Board has authorized stock repurchase programs for the Company.
This $11.0 million in proceeds plus capital contributed from the 2024 Investor was used to make an aggregate $16.0 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of NMTCs.
If the domestic economy were to slow or enter a recession, this could result in a decline in our sales volume and profitability.
If the domestic economy were to slow or enter a recession, this could impact the replacement market, potentially resulting in a decline in our sales volume and profitability.
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.
Board approval is required to determine the date of declaration and amount for each cash dividend payment.
This defers our current period income tax deduction which increased our income tax payments due at the end of 2022. Cash Flows from Investing Activities The capital expenditures increase during 2023 related to our continued investment in our production capabilities.
This defers our current period income tax deduction which increased our income tax payments due at the end of 2022. Cash Flows from Investing Activities The capital expenditures increase during 2024 related to our continued investment in our production capabilities. Purchases during 2024 include additional infrastructure and machinery for both replacement and growth.
To perform this assessment, we first consider qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit and indefinite-lived intangible assets exceeds their carrying amount.
We perform our annual assessment of impairment during the fourth quarter of our fiscal year, and more frequently if circumstances warrant. To perform this assessment, we first consider qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit and indefinite-lived intangible assets exceeds their carrying amount.
Our recent dividends are as follows: Dividend Annualized Dividend Declaration Date 1 Record Date Payment Date per Share 2 per Share 2 May 18, 2022 June 3, 2022 July 1, 2022 $0.13 $0.26 November 8, 2022 November 28, 2022 December 16, 2022 $0.16 $0.32 March 1, 2023 March 13, 2023 March 31, 2023 $0.08 $0.32 May 18, 2023 June 9, 2023 June 30, 2023 $0.08 $0.32 August 18, 2023 September 8, 2023 September 29, 2023 $0.08 $0.32 November 10, 2023 November 29, 2023 December 18, 2023 $0.08 $0.32 1 Effective with the cash dividend declared on March 1, 2023 (paid on March 31, 2023), the Company moved from semi-annual cash dividends to quarterly cash dividends. 2 Reflects three-for-two stock split effective August 16, 2023.
Our recent dividends are as follows: Dividend Annualized Dividend Declaration Date 1 Record Date Payment Date per Share per Share March 1, 2023 March 13, 2023 March 31, 2023 $0.08 $0.32 May 18, 2023 June 9, 2023 June 30, 2023 $0.08 $0.32 August 18, 2023 September 8, 2023 September 29, 2023 $0.08 $0.32 November 10, 2023 November 29, 2023 December 18, 2023 $0.08 $0.32 March 5, 2024 March 18, 2024 March 29, 2024 $0.08 $0.32 May 24, 2024 June 7, 2024 June 28, 2024 $0.08 $0.32 August 15, 2024 September 6, 2024 September 27, 2024 $0.08 $0.32 November 13, 2024 November 29, 2024 December 19, 2024 $0.08 $0.32 1 Effective with the cash dividend declared on March 1, 2023 (paid on March 31, 2023), the Company moved from semi-annual cash dividends to quarterly cash dividends.
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. 27 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. 2023 2022 (in thousands) Operating Activities Net Income $ 177,623 $ 100,376 Income statement adjustments, net 58,166 38,516 Changes in assets and liabilities: Accounts receivable (9,978) (56,306) Income taxes (11,302) 18,195 Inventories (16,226) (71,409) Contract assets (30,043) (9,402) Prepaid expenses and other long-term assets (1,048) (2,367) Accounts payable (18,316) 11,574 Contract liabilities (7,667) 13,882 Extended warranties 2,600 1,314 Accrued liabilities and other long-term liabilities 15,086 16,945 Net cash provided by operating activities 158,895 61,318 Investing Activities Capital expenditures (104,294) (54,024) Cash paid for building (Note 4) — (22,000) Cash paid in business combination, net of cash acquired — (249) Acquisition of intangible assets (5,197) — Other 180 60 Net cash used in investing activities (109,311) (76,213) Financing Activities Borrowings under revolving credit facility 597,111 225,758 Payments under revolving credit facility (629,787) (194,754) Proceeds from financing obligation, net of issuance costs 6,061 — Payment related to financing costs (398) — Principal payments on financing lease — (115) Stock options exercised 33,259 23,140 Repurchase of stock (25,009) (12,737) Employee taxes paid by withholding shares (1,302) (1,018) Cash dividends paid to stockholders (26,445) (22,917) Net cash (used in) provided by financing activities $ (46,510) $ 17,357 Cash Flows from Operating Activities The Company currently manages cash needs through working capital as well as drawing on its line of credit.
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. 30 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. 2024 2023 (in thousands) Operating Activities Net Income $ 168,559 $ 177,623 Income statement adjustments, net 73,343 58,166 Changes in assets and liabilities: Accounts receivable (10,041) (9,978) Income taxes (5,285) (11,302) Inventories 27,080 (16,226) Contract assets (90,626) (30,043) Prepaid expenses and other long-term assets (3,707) (1,048) Accounts payable 16,959 (18,316) Contract liabilities 1,156 (7,667) Extended warranties 1,835 2,600 Accrued liabilities and other long-term liabilities 13,259 15,086 Net cash provided by operating activities 192,532 158,895 Investing Activities Capital expenditures (195,660) (104,294) Acquisition of intangible assets (17,491) (5,197) Other 76 180 Net cash used in investing activities (213,075) (109,311) Financing Activities Borrowings of debt 717,897 597,111 Payments of debt (601,091) (629,787) Proceeds from financing obligation, net of issuance costs 4,186 6,061 Payment related to financing costs (664) (398) Stock options exercised 31,861 33,259 Repurchase of stock (100,034) (25,009) Employee taxes paid by withholding shares (8,037) (1,302) Cash dividends paid to stockholders (26,084) (26,445) Net cash provided by (used in) financing activities $ 18,034 $ (46,510) Cash Flows from Operating Activities The Company currently manages cash needs through working capital as well as drawing on its line of credit.
The Company 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, 2023 and 2022, the weighted average interest rate of our Revolver was 6.3% and 3.0%, respectively.
Applicable margin, ranging from 1.25% - 1.75%, is determined quarterly based on the Company’s leverage ratio. The Company 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.
Lastly, the Company repurchases shares of AAON, Inc. stock from certain of its employees for payment of statutory tax withholdings on stock transactions. All other repurchases from directors or employees are contingent upon Board approval.
The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board. The Company also repurchases shares of AAON, Inc. stock from certain of its employees for payment of statutory tax withholdings on stock transactions. All other repurchases from directors or employees are contingent upon Board approval.
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. Warranty expense is estimated based on the warranty period, historical warranty trends and associated costs, and any known identifiable warranty issue.
Our warranty policy for the RQ series covers parts for two years from the 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.
For the year ended December 31, 2023, the prices for copper, galvanized steel, and stainless steel decreased by approximately 4.5%, 38.9%, and 3.3%, respectively, and aluminum increased by approximately 15.5% from 2022.
For the year ended December 31, 2024, the prices for copper and galvanized steel increased by approximately 3.2% and 1.7%, respectively, while stainless steel and aluminum decreased 27.9% and 1.6%, respectively, from 2023.
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.
No borrowings outstanding during the years ended December 31, 2023 and 2022 If SOFR cannot be determined pursuant to the definition, as defined by the Amended Loan Agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate (“ABR”) loans.
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 2024 is estimated to be approximately $125.0 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.
Our capital expenditure program for 2025 is estimated to be approximately $220.0 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.
Since mid-2021, nonresidential construction spending has been strong, recovering well beyond pre-2020 levels and finishing 2023 near record levels. Recently, however, certain leading indicators, including architectural billings and construction starts, signal a slowing in construction spending within the next 12 months. Furthermore, some economic general indicators are suggesting the general economy is slowing, which could also impact the replacement market.
Since mid-2021, nonresidential construction spending has been strong, recovering well beyond pre-2020 levels and finishing 2024 near record levels. However, over the last 18-24 months, certain leading indicators, including architectural billings and construction starts, signal a slowing in construction spending within the next 12 months.
We will continue to implement human resource initiatives to retain and attract labor to further improve productivity and production efficiencies. 21 Backlog The following table shows our historical backlog levels: December 31, 2023 December 31, 2022 (in thousands) $ 510,028 $ 548,022 While our backlog is down at December 31, 2023 compared to December 31, 2022, our bookings remain strong.
We will continue to implement human resource initiatives to retain and attract labor to further improve productivity and production efficiencies. 24 Backlog The following table shows our historical backlog levels: December 31, 2024 December 31, 2023 (in thousands) $ 867,090 $ 510,028 Our backlog increased approximately 70.0%, to $867.1 million at December 31, 2024, compared to December 31, 2023.
Share-Based Compensation – We measure and recognize compensation expense for all share-based payment awards made to our employees and directors, including stock options, restricted stock awards, performance stock units ("PSUs"), and key employee awards ("Key Employee Awards") based on their fair values at the time of grant.
Should actual claim rates differ from our estimates, revisions to the estimated product warranty liability would be required. 33 Share-Based Compensation – We measure and recognize compensation expense for all share-based payment awards made to our employees and directors, including stock options, restricted stock awards, performance stock units (“PSUs”), and key employee awards (“Key Employee Awards”) based on their fair values at the time of grant.
Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280). The new guidance improves reportable segment disclosures primarily through enhanced disclosures about significant segment expenses and by requiring current annual disclosures to be provided in interim periods.
Upon adoption, this ASU is not expected to have a material impact on the Company’s financial statements and related disclosures. 34 In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280).
Additionally, in order to retain our existing employees, we continue to award periodic raises in addition to our annual merit raises to our employees. 23 Raw Material Costs Twelve month average raw material cost per pound as of December 31: 2023 2022 % Change Copper $ 5.35 $ 5.60 (4.5) % Galvanized Steel $ 0.58 $ 0.95 (38.9) % Stainless Steel $ 3.19 $ 3.30 (3.3) % Aluminum $ 2.54 $ 2.20 15.5 % Selling, General and Administrative Expenses Years Ended December 31, Percent of Sales 2023 2022 2023 2022 (in thousands) Warranty $ 16,165 $ 8,497 1.4 % 1.0 % Profit Sharing 24,590 14,009 2.1 % 1.6 % Salaries & Benefits 53,281 41,351 4.6 % 4.7 % Stock Compensation 9,318 7,025 0.8 % 0.8 % Advertising 2,594 2,353 0.2 % 0.3 % Depreciation & Amortization 13,761 8,050 1.2 % 0.9 % Insurance 5,354 3,755 0.5 % 0.4 % Professional Fees 15,372 5,754 1.3 % 0.6 % Donations 1,242 1,134 0.1 % 0.1 % Other 29,862 18,895 2.6 % 2.1 % Total SG&A $ 171,539 $ 110,823 14.7 % 12.5 % Selling, general and administrative expenses increased $60.7 million or 54.8% during 2023 as compared to the prior year.
As shown in the table below, we have experienced year-over-year fluctuations in the cost of several raw materials. 26 Raw Material Costs Twelve-month average raw material cost per pound as of December 31: 2024 2023 % Change Copper $ 5.52 $ 5.35 3.2 % Galvanized steel $ 0.59 $ 0.58 1.7 % Stainless steel $ 2.30 $ 3.19 (27.9) % Aluminum $ 2.50 $ 2.54 (1.6) % Selling, General and Administrative Expenses Years Ended December 31, Percent of Sales 2024 2023 2024 2023 (in thousands) Warranty $ 16,727 $ 16,165 1.4 % 1.4 % Profit sharing 19,948 24,590 1.7 % 2.1 % Salaries & benefits 58,154 53,281 4.8 % 4.6 % Stock compensation 10,390 9,318 0.9 % 0.8 % Advertising 3,281 2,594 0.3 % 0.2 % Depreciation & amortization 20,542 13,761 1.7 % 1.2 % Insurance 8,303 5,354 0.7 % 0.5 % Professional fees 8,809 15,372 0.7 % 1.3 % Donations 1,682 1,242 0.1 % 0.1 % Other 40,178 29,862 3.3 % 2.6 % Total SG&A $ 188,014 $ 171,539 15.7 % 14.7 % Selling, general and administrative expenses increased 9.6%, or $16.5 million, during 2024 as compared to the prior year.
Because of our high stock price and timing of executive stock option exercises this resulted in an increase to the income tax provision of $3.8 million for the year ended December 31, 2023. 24 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.
The excess tax benefit is related to the timing of stock option exercises and restricted stock vestings as a result of our high stock price during the year ended December 31, 2024. 27 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.
The fair value of restricted stock awards is reduced for the present value of dividends. 30 Goodwill and Indefinite-Lived Intangible Assets – Goodwill represents the excess of the consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities assumed. Indefinite-lived intangible assets consist of trademarks and trade names.
Goodwill and Indefinite-Lived Intangible Assets – Goodwill represents the excess of the consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities assumed. Indefinite-lived intangible assets consist of trademarks and trade names. Goodwill and indefinite-lived intangible assets are not amortized, but instead are evaluated for impairment at least annually.
Commitments and Contractual Agreements We are occasionally party to short-term, cancellable and occasionally non-cancellable, contracts with major suppliers for the purchase of raw material and component parts. We expect to receive delivery of raw materials for use in our manufacturing operations. These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption.
Additionally, we repurchased approximately 1.4 million shares for approximately $108.1 million during 2024 (Note 17). Commitments and Contractual Agreements We are occasionally party to short-term, cancellable and occasionally non-cancellable, contracts with major suppliers for the purchase of raw material and component parts. We expect to receive delivery of raw materials for use in our manufacturing operations.
In 2023, the Company executed a five-year purchase commitment for refrigerants. In 2023, the Company made payments of $10.1 million on this contract. Estimated minimum future payments are $11.9 million, $9.1 million, $10.5 million, and $11.2 million for 2024, 2025, 2026, and 2027, respectively. We had no other material contractual purchase obligations as of December 31, 2023.
Estimated minimum future payments are $9.1 million, $10.5 million, and $11.2 million, for 2025, 2026, and 2027, respectively. We had no other material contractual purchase obligations as of December 31, 2024. Contingencies We are subject to various claims and legal actions that arise in the ordinary course of business.
Income Taxes Years Ended December 31, Effective Tax Rate 2023 2022 2023 2022 (in thousands) Income tax provision $ 45,531 $ 24,157 20.4 % 19.4 % The Company’s estimated annual 2023 effective tax rate, excluding discrete events, was 23.8%. The increase year over year in the overall effective tax rate was primarily due the non-deductible executive compensation.
Income Taxes Years Ended December 31, Effective Tax Rate 2024 2023 2024 2023 (in thousands) Income tax provision $ 38,032 $ 45,531 18.4 % 20.4 % The Company’s estimated annual 2024 effective tax rate, excluding discrete events, was 24.7%.
Collections and payments cycles are on a normal pattern and fluctuate due to timing of receipts and payments. In early 2022, the Company began increasing 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.
In early 2022, the Company began increasing 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; however, as inflationary and supply chain disruptions have decreased, the Company has been able to reduce overall inventory levels.
Working Capital - Our unrestricted cash and cash equivalents decreased $5.2 million from December 31, 2022 to December 31, 2023. As of December 31, 2023, we had $9.0 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.
Working Capital - Our unrestricted cash and cash equivalents decreased $0.3 million from December 31, 2023, to December 31, 2024. As of December 31, 2024, we had $6.5 million in cash and cash equivalents and restricted cash.
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, 2 1 Expiration Date is at Board's discretion.
Our open market repurchase programs are as follows: Agreement Execution Date Authorized Repurchase $ Expiration Date March 13, 2020 $20 million 1 November 9, 2022 November 3, 2022 $50 million 1 February 27, 2024 February 27, 2024 $50 million 1 June 4, 2024 June 4, 2024 $50 million 2 June 14, 2024 February 25, 2025 $100 million ** 3 1 Repurchases made in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. 2 Repurchases made in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended. 3 Expiration Date is at Board's discretion.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). The new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU are effective for annual periods beginning after December 15, 2024.
We adopted this standard for fiscal year ended 2024. Upon adoption, this ASU did not have a material impact on the Company’s financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). The new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures.
The CODM does not evaluate operating segments using asset or liability information. 22 Segment Operating Results for the Years Ended December 31, 2023 and 2022 For the years ended December 31, 2023 Percent of Sales 2 2022 Percent of Sales 1 $ Change % Change (in thousands) Net Sales 2 AAON Oklahoma $ 897,919 76.8 % $ 663,845 74.7 % $ 234,074 35.3 % AAON Coil Products 112,320 9.6 % 107,290 12.1 % 5,030 4.7 % BASX 158,279 13.5 % 117,653 13.2 % 40,626 34.5 % Net sales $ 1,168,518 $ 888,788 $ 279,730 31.5 % Cost of Sales 2 AAON Oklahoma $ 577,852 64.4 % 490,862 73.9 % $ 86,990 17.7 % AAON Coil Products 82,996 73.9 % 73,979 69.0 % 9,017 12.2 % BASX 108,650 68.6 % 86,375 73.4 % 22,275 25.8 % Cost of sales $ 769,498 65.9 % $ 651,216 73.3 % $ 118,282 18.2 % Gross Profit 2 AAON Oklahoma $ 320,067 35.6 % $ 172,983 26.1 % $ 147,084 85.0 % AAON Coil Products 29,324 26.1 % 33,311 31.0 % (3,987) (12.0) % BASX 49,629 31.4 % 31,278 26.6 % 18,351 58.7 % Gross profit $ 399,020 34.1 % $ 237,572 26.7 % $ 161,448 68.0 % 1 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment's net sales.
The CODM does not evaluate operating segments using asset or liability information. 25 Segment Operating Results for the Years Ended December 31, 2024 and 2023 For the years ended December 31, 2024 Percent of Sales 1 2023 Percent of Sales 1 $ Change % Change (in thousands) Net Sales 2 AAON Oklahoma $ 858,711 71.5 % $ 897,919 76.8 % $ (39,208) (4.4) % AAON Coil Products 143,871 12.0 % 112,320 9.6 % 31,551 28.1 % BASX 198,053 16.5 % 158,279 13.5 % 39,774 25.1 % Net sales $ 1,200,635 $ 1,168,518 $ 32,117 2.7 % Cost of Sales 2 AAON Oklahoma $ 556,305 64.8 % 577,852 64.4 % $ (21,547) (3.7) % AAON Coil Products 98,106 68.2 % 82,996 73.9 % 15,110 18.2 % BASX 149,115 75.3 % 108,650 68.6 % 40,465 37.2 % Cost of sales $ 803,526 66.9 % $ 769,498 65.9 % $ 34,028 4.4 % Gross Profit 2 AAON Oklahoma $ 302,406 35.2 % $ 320,067 35.6 % $ (17,661) (5.5) % AAON Coil Products 45,765 31.8 % 29,324 26.1 % 16,441 56.1 % BASX 48,938 24.7 % 49,629 31.4 % (691) (1.4) % Gross profit $ 397,109 33.1 % $ 399,020 34.1 % $ (1,911) (0.5) % 1 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment’s net sales.
Other expenses increased $11.0 million or 58.0% during year due mostly to increased travel, consulting expenses and closing costs related to the 2023 New Market Tax Credit (Note 17).
Other expenses increased 34.5%, or $10.3 million, due to increased travel, consulting expenses, and closing costs related to the 2023 New Market Tax Credit (Note 18). Professional fees decreased 42.7%, or $6.6 million, due to the 2023 litigation settlement (Note 19 ) .
At December 31, 2023, we were in compliance with our financial covenants, as defined by the Revolver. These covenants require that we meet certain parameters related to our leverage ratio.
These covenants require that we meet certain parameters related to our leverage ratio.
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. • In March 2023, we awarded annual merit raises for an overall 3.9% increase to wages.
We have implemented the following wage increases to remain competitive and to attract and retain employees: • In March 2023, we awarded annual merit raises for an overall 3.9% increase to wages. • In March 2024, we awarded annual merit raises for an overall 3.3% increase to wages.
All repurchases are done at current market prices. 26 Our repurchase activity is as follows: 2023 2022 (in thousands, except share and per share data) Program Shares 1 Total $ $ per share 1 Shares 1 Total $ $ per share 1 Open market 402,873 $ 25,009 $ 62.08 183,168 $ 6,823 $ 37.25 401(k) — — — 155,904 5,913 37.93 Employees 21,904 1,302 59.44 25,842 1,019 39.43 Total 424,777 $ 26,311 $ 61.94 364,914 $ 13,755 $ 37.69 1 Reflects three-for-two stock split effective August 16, 2023.
All repurchases are done at current market prices. 29 Our repurchase activity is as follows: 2024 2023 (in thousands, except share and per share data) Program Shares Total $ $ per share Shares Total $ $ per share Open market 1,353,564 $ 100,034 $ 73.90 402,873 $ 25,009 $ 62.08 Employees 92,444 8,037 86.94 21,904 1,302 59.44 Total 1,446,008 $ 108,071 $ 74.74 424,777 $ 26,311 $ 61.94 Dividends - At the discretion of the Board of Directors, we pay cash dividends.
Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures. 31
The amendments in this ASU are effective for annual periods beginning after December 15, 2024. Upon adoption, this ASU is not expected to have a material impact on the Company’s financial statements and related disclosures. In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40).
As noted above, realization of price increases has improved our margin profile along with the slowing of inflation. Additionally, most of the organic growth noted above comes from our AAON Oklahoma segment, significantly improving overhead absorption and margin performance. The increase in net sales at BASX has improved their overhead absorption, thus increasing their gross profit margin year over year.
As noted above, realization of price increases has improved our margin profile along with the slowing of inflation; however, the price increases were offset by flat volumes and lower overhead absorption for the AAON Oklahoma segment.
Due to the absence of warranty history on new products, an additional provision may be made for such products. Our estimated future warranty cost is subject to adjustment from time to time depending on changes in actual warranty trends and cost experience. Should actual claim rates differ from our estimates, revisions to the estimated product warranty liability would be required.
Our estimated future warranty cost is subject to adjustment from time to time depending on changes in actual warranty trends and cost experience.
Total cost of sales and total gross profit are calculated as a percentage of total net sales. 2 Presented after intercompany eliminations. Total net sales increased $279.7 million, or 31.5%, with 17.0% of the increase coming from realization of price increases and the remaining 14.5% coming from increases in organic volume.
Total cost of sales and total gross profit are calculated as a percentage of total net sales. 2 Presented after intercompany eliminations. Total net sales increased $32.1 million, or 2.7%. BASX increased by 25.1%, or $39.8 million, and AAON Coil Products increased 28.1%, or $31.6 million, both primarily related to demand from the BASX branded data center products.
Removed
The year-ended December 31, 2022 was a record year for bookings and our backlog was elevated causing us to extend lead times. Investments made in our facilities and workforce have significantly improved our capacity and operational efficiencies. Production rates are at all time highs, trimming our backlog down to a more manageable size and allowing our lead times to improve.
Added
In 2024, the year-over-year growth rate of nonresidential construction spending slowed significantly, reinforcing the signals from these leading indicators. Furthermore, signals from general economic indicators are mixed regarding the health of the general economy.
Removed
AAON Coil Products had a smaller backlog and along with inefficiencies related to implementing a new production line of BASX product at AAON Coil Products led to smaller year over year increase sales for this segment.
Added
On January 1, 2025, we implemented a one-time 3% price increase for AAON branded products. BASX branded products are priced by job and in most cases, provide the ability to increase the price if the order is outside normal lead times.
Removed
The increase in BASX net sales is primarily related to large jobs in the data center market as a result of the revenue synergies created by being part of AAON. Gross profit as a percent of sales increased to 34.1% during 2023 as compared 26.7% in 2022.
Added
Backlog was up from a year ago at all three segments, with the largest increase at the AAON Coil Products segment, which received over $200.0 million of orders in the fourth quarter. Most of these orders were associated with the BASX branded data center liquid cooling solutions and will be manufactured at our Longview, TX facility.
Removed
As shown in the table below, we've experienced year over year fluctuations in the cost of several raw materials. We implemented multiple price increases during 2022 and 2023 to counteract the increased cost of material. Some of the price increases have yet to be realized.
Added
BASX branded products increased 35.1%, or $58.5 million when compared to 2023, offset by a decrease of our AAON branded products of 2.6%, or $26.4 million when compared to 2023. • We have a strong balance sheet with a leverage ratio of 0.57 and available borrowings under our Revolver of $123.2 million. • We completed the purchase of a building in Memphis, Tennessee for $63.4 million funded with our new Term Loan of $80.0 million, both of which closed in December 2024. • We continue to invest in the future growth of the Company as evidenced by our $213.2 million in capital expenditures in 2024, an increase of $91.4 million or 87.6% when compared to 2023. • We completed the repurchase of $108.1 million of shares for the year ended December 31, 2024.
Removed
As a percentage of sales, selling, general and administrative increased from 12.5% to 14.7%. Most of the increase is due to professional fees that increased $9.6 million due to the litigation settlement (Note 18). Profit sharing increased $10.6 million or 75.5% due to our increased operating results.
Added
AAON Oklahoma sales decreased 4.4%, or $39.2 million due to challenges from the industry-regulated refrigerant transition and nonresidential construction activity that experienced weakened demand throughout 2024 as compared to 2023. Gross profit as a percent of sales decreased to 33.1% during 2024 as compared to 34.1% in 2023.
Removed
In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 162(m), the tax deduction for covered executives of public companies is limited to $1.0 million per individual.
Added
In addition, the AAON Coil Products and BASX segments experienced temporary inefficiencies associated with facility construction to increase future production capacity for increased demand of BASX branded data center products. In order to retain our existing employees, we have increased our starting wage rate considerably in recent years and continue to award periodic wage increases to our employees.
Removed
Borrowings available under the Revolver at December 31, 2023, were $159.4 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.
Added
We occasionally increase the price of our products to help offset any inflationary headwinds. In 2022, we implemented a recurring 1% monthly price increase beginning June 1, 2022, and ending on April 1, 2023. We reinstated the recurring 1% monthly price increase on October 1, 2023, through February 1, 2024.
Removed
The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board. 2 As of December 31, 2023, there is approximately $25.0 million remaining under the current stock repurchase program. The remaining amount available is subject to a Board authorized 10b5-1 plan requiring certain market conditions and requirements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInterest Rate Risk We are exposed to changes in interest rates related to our outstanding debt. As of December 31, 2023, we had an outstanding balance of $38.3 million. For each one percentage point increase in the interest rate applicable to our outstanding debt, our annual income before taxes would decrease by approximately $0.4 million. 32
Biggest changeInterest Rate Risk We are exposed to changes in interest rates related to our outstanding debt. As of December 31, 2024, we had an outstanding balance of $154.9 million. For each one percentage point increase in the interest rate applicable to our outstanding debt, our annual income before taxes would decrease by approximately $1.5 million. 35

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