Annual Report 2019
Annual Report 2019
Annual Report 2019 ecord sales continued in 2019, with $469.3 million in net sales, an increase of 8.2% Rcompared to 2018. The last three years we focused on passing the baton, as new leadership from within the company began to take over management positions. This transition to a new team of talented leaders resulted in a reduction in the average age of the management team, solidifying the company for long-term success. We invested for future growth, with the opening of a new parts and supply store in Tulsa, the ground breaking of a new manufacturing facility in Longview, the grand opening of the Norman Asbjornson Innovation Center research and development laboratory, and a substantial increase in the number of new and replacement automated sheet metal manufacturing machines. We are now positioned for significant growth. We are dedicated to maintain the lead and deliver the same continued excellence to our stockholders.
Water-Source Heat Pumps (½ - 230 tons) RQ SERIES WV SERIES & RN SERIES WH SERIES SA SERIES Product SB SERIES RZ/RL SERIES M2 SERIES Rooftop Units Family (2-240 tons) RQ SERIES Indoor Air Handling Units (800 - 100,000 + cfm) Company Profile V3 SERIES RZ/RL SERIES RN SERIES AON is engaged in the engineering, manufacturing, marketing and sale of air conditioning and F1 SERIES Packaged Outdoor Mechanical Rooms Aheating equipment consisting of standard, semi-custom and custom rooftop units, chillers, H3 SERIES (4-540 tons) packaged outdoor mechanical rooms, air handling units, condensing units, makeup air units, M3 SERIES LN SERIES SA SERIES LF SERIES energy recovery units, geothermal/water-source heat pumps, coils and controls. Since the founding M2 SERIES BOILER MECHANICAL ROOM of AAON in 1988, AAON has maintained a commitment to design, develop, manufacture and deliver innovative heating and cooling products to perform beyond all expectations and demonstrate the Outdoor Air Handling Units LZ SERIES (800 - 100,000 + cfm) value of AAON to our customers. FLUID COOLER RQ SERIES Condensing Units (2-230 tons) RZ/RL SERIES RN SERIES CL SERIES CB SERIES Self-Contained Units CN SERIES (3-70 tons) SA SERIES CF SERIES SB SERIES Controls Touchscreen M2 SERIES (WSHP, RTU, Controller VCC-X Self-Contained Unit, Coils Split System and Chiller) BOOSTER, HYDRONIC, Pioneer Silver and DX Pioneer Gold
Water-Source Heat Pumps (½ - 230 tons) RQ SERIES WV SERIES & RN SERIES WH SERIES SA SERIES Product SB SERIES RZ/RL SERIES M2 SERIES Rooftop Units Family (2-240 tons) RQ SERIES Indoor Air Handling Units (800 - 100,000 + cfm) V3 SERIES RZ/RL SERIES RN SERIES F1 SERIES Packaged Outdoor Mechanical Rooms H3 SERIES (4-540 tons) M3 SERIES LN SERIES SA SERIES LF SERIES M2 SERIES BOILER MECHANICAL ROOM Outdoor Air Handling Units LZ SERIES (800 - 100,000 + cfm) FLUID COOLER RQ SERIES Condensing Units (2-230 tons) RZ/RL SERIES RN SERIES CL SERIES CB SERIES Self-Contained Units CN SERIES (3-70 tons) SA SERIES CF SERIES SB SERIES Controls Touchscreen M2 SERIES (WSHP, RTU, Controller VCC-X Self-Contained Unit, Coils Split System and Chiller) BOOSTER, HYDRONIC, Pioneer Silver and DX Pioneer Gold
NAIC Research and Development Laboratory Grand Opening Ribbon Cutting with AAON Leadership and Local Dignitaries October 29, 2019
Financial Highlights 2019 2018 2017 2016 2015 Income Data ($000 except per share data) Net Sales 469,333 433,947 405,232 383,977 358,632 Gross Profit 119,425 103,533 123,651 118,165 108,455 Operating Income 67,011 55,351 74,235 78,998 69,969 Interest Income (Expense), Net 66 196 298 292 161 Depreciation and Amortization 22,766 17,655 15,007 13,035 11,741 Pre-Tax Income 67,031 55,500 74,624 79,395 70,006 Net Income 53,711 42,329 53,830 53,020 44,932 Earnings per Share Basic 1.03 0.81 1.02 1.00 0.83 Diluted 1.02 0.80 1.01 0.99 0.82 Balance Sheet ($000 except per share data) Working Capital2 131,521 93,167 104,002 102,287 81,106 Current Assets2 187,549 140,658 153,537 140,786 124,042 Net Fixed Assets 178,094 163,003 142,375 114,892 101,061 Accumulated Depreciation 179,242 166,880 149,963 137,146 124,348 Cash and Cash Equivalents 26,797 1,994 21,457 24,153 7,908 Total Assets2 371,424 307,994 296,590 256,335 232,683 Current Liabilities 56,028 47,491 49,535 38,499 42,936 Long-Term Debt 6,320 - - - - Stockholders’ Equity 290,140 249,443 238,925 208,410 181,124 Stockholders’ Equity per Diluted Share 5.51 4.74 4.50 3.90 3.32 Funds Flow Data ($000) Operations 97,925 54,856 57,994 63,923 55,355 Investments (37,046) (34,635) (31,052) (16,925) (23,194) Financing (18,500) (39,684) (29,638) (30,753) (46,205) Net Increase (Decrease) in Cash 42,379 (19,463) (2,696) 16,245 (14,044) Ratio Analysis Gross Profit 25.4% 23.9% 30.5% 30.8% 30.2% Return on Average Equity 19.9% 17.3% 24.1% 27.2% 25.2% Return on Average Assets 15.8% 14.0% 19.5% 21.7% 19.6% Pre-Tax Income on Sales 14.3% 12.8% 18.4% 20.7% 19.5% Net Income on Sales 11.4% 9.8% 13.3% 13.8% 12.5% Total Liabilities to Equity 28.0% 23.5% 24.1% 23.0% 28.5% Quick Ratio1 2.0 1.3 1.7 2.4 2.0 Current Ratio 3.3 3.0 3.1 3.7 2.9 Year-End Price Earnings Ratio 48.4 43.8 36.3 33.4 28.3 1 = (Cash & cash equivalents + investments + receivables)/current liabilities 2 = Reflects retrospective adoption of ASU 2015-17 7
Gary Fields �resident Norm Asbjornson C�O and �ounder
Letter from the CEO and President Dear Fellow Stockholder, In 2019, we posted another year of record sales and earnings growth despite a number of challenges and internal Gary Fields �resident changes. Beginning in mid-2018, our order backlog level grew significantly. Due primarily to constrained sheet metal production capacity and a significant shortage of effective labor, finished goods during 2019 experienced increased lead-times. We took important steps during 2019 to alleviate these problems. We accelerated our machinery purchases and completely reformed our equipment maintenance program. In addition, we embarked upon a number of important managerial changes including a new sales manager, a new director of engineering, a new head of production control, a new head of purchasing and a new director of manufacturing. It was the largest management shift in the Company’s history and we are pleased to say that all of the people promoted were advanced from our existing workforce. By the end of the third quarter of 2019, we started to overcome these problems. The 2019 fourth quarter sales and margin performance was an indication of these improvements. We believe the significant efforts undertaken during 2019 have strengthened our position in the marketplace and have placed the Company on a path of long-term growth and profitability. Norm Asbjornson C�O and �ounder
STRONG FINANCIAL CONDITION SALES REPRESENTATIVES NETWORK Our financial condition at December 31, 2019 remained We continue to possess the strongest and most respected sales strong. The current ratio was 3.3:1 with unrestricted cash and representative network in the industry. During the past year cash equivalents of $26.8 million. Our capital expenditures in they proved most resilient by operating with the hardship of the past year were $37.2 million and for the current year we significantly extended lead-times. Despite these less than ideal estimate these expenditures to be in the vicinity of $72-$74 lead-times, bookings remained firm throughout the year. million, a record for the Company. Our current roster of representative firms consists of 63 The 2020 capital expenditure program deserves some individual companies, 55 in the United States and 8 in Canada, discussion. We estimate approximately 60% of these with 105 individual offices, 94 in the United States and 11 in expenditures will be devoted to our Tulsa facilities with Canada. almost half of that total devoted to the purchase of sheet metal fabrication equipment. The remaining amount expected to In 2019 we increased our efforts to enlist our sales be spent on our Tulsa facilities will be for the renovation of representatives to focus on parts sales. These sales not only assembly lines and other facility renovations. enhance the service of our customers, but also prove to be an additional profit center for the representatives. The In addition, the Company will make a capital investment of representative network has responded very well, and many $28 million at our Longview, Texas operations, including are currently stocking parts and our water-source heat pump the construction of a new facility adjacent to our existing products to best serve our customers. During 2019 the Longview facility and the purchase of equipment. The current representatives added 5 parts stores to the roster, bringing the Longview facility expansion, which will add 220,000 square total number of representative parts stores to 31. We expect feet to our Longview operations, is expected to be completed they will add 3 to 5 more stores during 2020. In 2019, parts by the fourth quarter of this year. sales gained 24.5% to approximately $35.4 million and for 2020 we estimate sales for this segment to gain 20.0% to $42.5 Total stockholders’ equity was $290.1 million or $5.51 per million. diluted share and our return on average stockholders’ equity was 19.9%. Throughout 2019, we implemented two price Our independent sales representatives are key contributors to increases. Aided by these increases, our backlog at December AAON’s success and were responsible for more than 90% of 31, 2019 was $142.7 million. our total sales during 2019. Armed with our expanded and improved product line, we expect this sales network to once again have excellent sales performance this year. Drawing of Longview Facility Expansion 10 New AAON Parts Store in Tulsa
COMMITMENT TO RESEARCH AND DEVELOPMENT The Company will make a capital We remain dedicated to deploy the necessary financial and investment of $28 million at our human capital to maintain our well-earned reputation as one of the most technologically innovative producers of the Longview, Texas operations, highest quality, most efficient products in the HVAC industry. including the construction of a In October 2019, the Company officially opened the Norman Asbjornson Innovation Center (NAIC) research and development new facility adjacent to our laboratory at our Tulsa facilities. This state-of-the-art laboratory, representing a total investment of $33.0 million, has been met existing Longview facility and with acclaim from both our customers and sales representatives. the purchase of equipment. Its capabilities have already resulted in multiple large-scale orders for AAON equipment, where the customer required testing that was not possible anywhere else. In addition, our product AWARDS AND RECOGNITIONS development activities are already benefiting from the unique capabilities afforded by the NAIC lab. AAON was recognized for excellence in product design in the 16th annual Dealer Design Awards Program sponsored by The Air Conditioning Heating & Refrigeration News magazine. An independent panel of contractors acted as judges in the contest, which had 79 entries. The AAON V3 Series high efficiency gas heater air handling unit was the Bronze Award Winner in the HVAC Commercial Equipment category and the H3 Series energy recovery wheel air handling unit was the Bronze Award Winner in the Ventilation Products category. The ACHR News is the leading trade magazine in the heating, ventilating, air conditioning, and refrigeration industries. Customer Equipment in NAIC Sound Test Chamber AAON was also pleased to have each of its WV Series water-source heat pump and RN Series two-stage compres- sor rooftop unit voted 2019 Product of the Year by the read- WATER-SOURCE HEAT PUMPS ers of Consulting-Specifying Engineer, a monthly publication In 2019, this product line continued to witness strong demand as unit sales increased from 5,334 in 2018 to 7,716 in 2019, or a gain of 44.6%. Sales during that same period grew to $25.5 V3 Series Air Handling Unit million from $14.7 million, or a gain of 73.6%. We introduced with Gas Heat this technically advanced product in 2016 and we were plagued with in-house production problems for the first two years after its introduction. With these problems now behind us, we have enlarged the size of this product line from the originally introduced series of one-half to 5 tons, to 5 through WV Series 12 tons of capacity. For the current year we estimate sales in Water-Source Heat Pump this product line to increase 25.0% to the area of $31.9 million. 11
with a circulation of over 47,000 mechanical, electrical and plumbing engineers. These awards highlight our commitment to OUR EMPLOYEES designing innovative HVAC products of the highest quality and performance. AAON strives to attract and retain a talented workforce using competitive base pay, profit sharing, equity and benefits. We also In December of last year, Oklahoma Magazine selected AAON provide equity compensation to a broad base of our employees to as one of its 2019 Great Companies to Work For. Companies align their interests with those of our stockholders over a longer are selected by utilizing a variety of resources, including an term. AAON employees are automatically enrolled to receive a online application process, a survey of the state’s largest private- robust 401(k) match, in the form of Company stock, from their sector employers and commercial and public-sector studies and first day of employment. In addition, we distribute 10% of our surveys. annual pre-tax earnings equally among nearly all personnel as a more rapid means to reward positive results. Lastly, we provide In addition, we are pleased to report that AAON was recently many personnel equity compensation in various forms to build recognized by 2020 Women on Boards as an Oklahoma “W” internal ownership and ensure that employee interests align with Company, for having 20% or more of its Board seats held by shareholders. It is our belief that motivating our employees to women. Of our current eight-member Board, two positions think and behave like owners of the Company helps drive our are held by women. 2020 Women on Boards is a non-profit success and motivates our team members to strive for results, campaign committed to increasing the percentage of women on commit to continual improvement and save for the future while board to 20% or greater by the year 2020. remaining fully-engaged in the long-term success of AAON. The Association of Fundraising Professionals of Eastern Oklahoma, in recognition of the Company’s many corporate citizenship efforts, presented AAON with a Spirit of Philanthropy Award. AAON is dedicated to corporate social responsibility through our AAON Serves initiative. AAON team members contribute their time and resources by volunteering at local schools, participating in mentoring programs and supporting organizations such as the Tulsa Area United Way, Tulsa Regional STEM Alliance, and Junior Achievement. These efforts were further recognized by the appointment of AAON’s Community Relations Administrator, Stephanie Vickers-Cameron, to the Oklahoma Governor’s Council for Workforce and Economic Development. AAON Team Volunteering with Junior Achievement In 2019, AAON achieved Gold level in the Sustainable Tulsa The employment environment continued to be very Scor3card verification program. Environmental stewardship challenging in 2019 in our primary employment areas. In an and sustainability are integral to AAON’s business strategies effort to attract and retain our workforce, we focused significant and corporate citizenship efforts. AAON is focused on energy increases on our entry-level wage rates. While this materially conservation and waste reduction and we are continuously increased compensation expenses, we believe it has positively looking for ways to measure and improve our performance in contributed to our improved employee retention, along with these important areas. our improved on-boarding and training and our highly competitive 401(k) match which has a six-year vesting schedule. These efforts continue to yield more stability in our 12 recently-hired personnel population and will remain closely
monitored to ensure these initiatives continue to provide positive impacts on both employee retention and productivity measures. OUTLOOK We have passed the managerial baton to a group of talented AAON values the diverse perspectives of our team members, and bright individuals. The age of those managers dropped who not only drive the performance of the Company, but by decades compared to their predecessors. In the course of also participate in its success through their exposure to this management shift, we believe we have solidified AAON’s equity participation. To further engage our team members, intermediate and long-term growth prospects while enhancing we actively seek qualified candidates from within the the Company’s reputation for manufacturing technologically organization for promotion and endeavor to ensure that everyone innovative industry leading products. has an equal opportunity with AAON. To that end, our talent development efforts train team members for advancement We cannot achieve these results without the combined opportunities through a variety of workforce development support and commitment of our customers, sales representatives initiatives as well as our long-standing tuition reimbursement and stockholders. We also continue to benefit from the total program. We are fortunate to have a large number of talented, cooperation and dedicated service of our employees, all of whose engaged and committed team members. We make every effort names appear at the end of this report. to foster an environment where the next generation of AAON leaders are identified and developed in a manner that maximizes We are honored to have each of you with us as we maintain the their ability to contribute to the sustained growth of AAON well lead and pursue sales and earnings growth. into the future. We have passed the managerial baton to a group of talented and Norman H. Asbjornson Chief Executive Officer and Founder bright individuals....we believe we have solidified AAON’s intermediate and long-term growth prospects while Gary D. Fields President enhancing the Company’s reputation March 16, 2019 for manufacturing technologically innovative industry leading products. 13
A Time of Success 1988 - 2008 1988 1992 1996 August Spring DECEMBER AAON, an Oklahoma AAON Coil Products purchased, Purchased 40 acres with 457,000 corporation, was founded. renovated and moved into a 110,000 square foot plant and 22,000 square square foot plant in Longview, Texas. September foot office space located across from SEPTEMBER Tulsa facility. Purchase of John Zink Air Conditioning Division. One-for-four reverse stock split. Retired $1,927,000 of subordinated debt. 1997 1989 APRIL AAON received U.S. patent for Spring 1993 Blower Housing assembly. AAON purchased, renovated and moved into a 184,000 NOVEMBER square foot plant in Tulsa, Oklahoma. Listed on the NASDAQ National Market System. Introduced a new product line of 1998 rooftop heating and air conditioning units 2-140 tons. October Summer U.S. patent granted to AAON for air 1994 conditioner with energy recovery Became a publicly traded company heat wheel. with the reverse acquisition of January Diamond Head Resources (now Introduced a desiccant heat November “AAON, Inc.), a Nevada corporation. recovery wheel option available on AAON yearly shipments exceed all AAON rooftop units. $100 million. Received U.S. patent for Dimple March Heat Exchanger Tube. 1990 Purchased property with 26,000 square foot building adjacent December to AAON Coil Products plant in Longview, Texas. Listed on NASDAQ Small Cap - 1999 Symbol “AAON”. Issued a 10% Stock Dividend SPRING Completed Tulsa, Oklahoma and Longview, Texas plant additions 1995 yielding a total exceeding one 1991 million square feet. December SEPTEMBER Formed AAON Coil Products, a Texas Completed expansion of Corporation, as a subsidiary to the Tulsa facility to 332,000 AAON, Inc. (Nevada) and purchased square feet. coil making assets of Coil Plus.
2000 2003 2006 Fall MAY APRIL Our manufacturers representative Purchased the assets of Air Wise, of AAON introduced factory engineered business grew to more than 100 Mississauga, Ontario, Canada. and assembled packaged mechanical offices, contributing approximately room, which includes a boiler and all 60% of total sales. JULY piping and pumping accessories. Started production of polyurethane JUNE foam-filled double-wall construction panels for rooftop Initiation of a semi-annual cash 2001 and chiller products using newly dividend for AAON shareholders. purchased manufacturing July equipment. AAON added as a member of the OCTOBER 2007 Russell 2000® Index AAON listed in Forbes’ FALL 200 Best Small Companies. March Expanded rooftop product line to Modular Air Handler products 230 tons. extended to 50,000 cfm. Introduced evaporative-cooled AUGUST condensing energy savings feature 2004 3-for-2 stock split. SEPTEMBER OCTOBER 3-for-2 stock split APRIL AAON Listed in Forbes’ 200 Best AAON received U.S. Patent for Small Companies. OCTOBER the De-Superheater for AAON listed in Forbes’ 200 Best Evaporative-Cooled Conditioning DECEMBER Small Companies SEPTEMBER AAON rings closing bell at NASDAQ. AAON received U.S. Patent for DPAC. 2002 NOVEMBER 2008 Introduction of light commercial/ JUNE residential product lines. OCTOBER 3-for-2 stock split AAON rings opening bell at NASDAQ. FALL AAON voted “Most Valuable Industry introduction of the modular 2005 Product” and “Product of the Year” air handler and chiller products. by Consulting-Specifying Engineer Magazine. AUGUST OCTOBER AAON listed in Forbes’ 200 Best Small Companies. AAON listed in Forbes’ AAON received U.S. Patent for Magazine’s “Hot Shots 200 Plenum Fan Banding. Up & Comers.” AAON listed in Forbes’ 200 Best Small Companies.
A Time of Success 2009 - 2019 2009 2011 2013 SUMMER SUMMER May AAON increased dividend payment National Society of Professional Opening of AAON Parts & by 13%. Engineers awarded RQ Series High Supply Store. Efficiency Rooftop Unit - Product AAON named to the Fortune 40 : AAON increases dividend of the Year. Best Stocks to Retire On. payment by 25% 3-for-2 stock split. 3-for-2 stock split National Society of Professional Engineers Award AAON 2009 AAON Geothermal RQ Series wins Product of the Year. Silver in ACHR News Dealer Design SEPTEMBER Competition. Single Zone VAV 25th Anniversary FALL rooftop units win Honorable Mention in ACHR News Dealer AAON rings opening bell AAON added to Standard & Poor’s Design Competition. at NASDAQ. Small Cap 600 Index. Consulting-Specifying Engineer National Society of Professional OCTOBER magazine awarded SB Series Engineers Award AAON 2009 Product of the Year - Bronze. Product of the Year - D-PAC AAON Geothermal RQ Series product named 2011 Product of the Year - DECEMBER AAON listed in Forbes’ 200 Best Silver by Consulting-Specifying Small Companies. Engineer magazine. AAON named top Tulsa area stock value. 2010 2012 2014 JULY SPRING Industry introduction of light AAON RQ Series win ACHR News June commercial geothermal heat pump Dealer Design award. self-contained unit product line. 3-for-2 stock split OCTOBER JULY july AAON RN Series rooftop unit AAON SB Series Self-Contained AAON LN Series Chiller wins ACHR named 2010 Product of the Year Unit Wins ACHR News Dealer New Dealer Design Award - Bronze - Silver by Consulting-Specifying Design Award - Gold Engineer Magazine. SEPTEMBER september AAON LC Series Chiller product AAON donates $3 Million to A Consulting-Specifying Engineer named 2010 Product of the Year - Gathering Place for Tulsa. Bronze by Consulting-Specifying magazine awarded RN Series Engineer Magazine. E-Cabinet Product of the Year - Bronze. AAON Listed in Forbes’ 200 Best Small Companies DECEMBER AAON yearly shipments exceed $300 million.
2015 2017 2019 May April JUNE AAON increases dividend payment First WV Series small packaged AAON Opens Second Parts & Supply by 20% vertical water-source heat pump Store in Tulsa June comes off the production line. August AAON receives Gold Dealer July AAON Breaks Ground on New Facility Design Award in the Ventilation in Longview category. AAON products received Dealer Design Awards from ACHR News. October september september AAON Opens Norman Asbjornson AAON Low Leakage Dampers Innovation Center voted “Product of the Year” AAON V3 Series, Touchscreen by Consulting-Specifying Controller, and WH Series voted December Engineer magazine. Products of the Year by Consulting-Specifying Engineer AAON Honored as One of Oklahoma magazine. Magazine’s Great Companies to Work For 2016 January 2018 AAON received U.S. Patent for the Low Leakage Dampers MARCH WattMaster Controls, Inc. February Acquisition AAON Breaks Ground on New "Norman Asbjornson Innovation May Center" Research and Development Laboratory AAON increase dividend payment by 23% July July AAON LZ Series Packaged Outdoor RN Series with Two-Stage Mechanical Room wins ACHR News Compressors wins ACHR News Dealer Dealer Design Award- Gold Design Award - Bronze september AUGUST Consulting-Specifying Engineer AAON Water-Source Heat Pumps magazine awarded LZ Series Outdoor AHRI Performance Certified Mechanical Room Product of the Year - Gold, Chiller category. September Consulting-Specifying Engineer 30th Anniversary magazine awarded RN Series Horizontal Configuration Rooftop Unit October Product of the Year - Gold, HVAC/R category. AAON rings opening bell at NASDAQ October First WH Series small packaged horizontal water-source heat pump comes off the production line. November AAON increases dividend payment by 18%
NAIC Grand Opening Event NAIC Equipment Testing New AAON Parts Store AAON Parts Store Delivery Truck Longview Facility Ground Breaking NAIC Tours with AAON Representatives �nno�ation for Today& Tomorrow
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ☒ ACT OF 1934 For the fiscal year ended December 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________________ to _____________________________ Commission file number: 0-18953 AAON, INC. (Exact name of registrant as specified in its charter) Nevada 87-0448736 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 2425 South Yukon Ave., Tulsa, Oklahoma 74107 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (918) 583-2266 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock AAON NASDAQ Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes ☒ No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No �nno�ation for Today& Tomorrow
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act.) ☐ Yes ☒ No The aggregate market value of the common equity held by non-affiliates computed by reference to the closing price of registrant’s common stock on the last business day of registrant’s most recently completed second quarter June 30, 2019 was $2,035.2 million. As of February 24, 2020, registrant had outstanding a total of 52,092,212 shares of its $.004 par value Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of registrant’s definitive Proxy Statement to be filed in connection with the Annual Meeting of Stockholders to be held May 12, 2020, are incorporated into Part III.
TABLE OF CONTENTS Page Item Number and Caption Number PART I 1. Business. 2 1A. Risk Factors. 7 1B. Unresolved Staff Comments. 11 2. Properties. 11 3. Legal Proceedings. 11 4. Mine Safety Disclosure. 12 PART II 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 12 6. Selected Financial Data. 14 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 14 7A. Quantitative and Qualitative Disclosures About Market Risk. 24 8. Financial Statements and Supplementary Data. 25 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 62 9A. Controls and Procedures. 62 9B. Other Information. 66 PART III 10. Directors, Executive Officers and Corporate Governance. 66 11. Executive Compensation. 66 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 66 13. Certain Relationships and Related Transactions, and Director Independence. 66 14. Principal Accountant Fees and Services. 66 PART IV 15. Exhibits and Financial Statement Schedules. 67
Forward-Looking Statements This Annual Report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “should”, “will”, and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligations to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that could cause results to differ materially from those in the forward-looking statements include (1) the timing and extent of changes in raw material and component prices, (2) the effects of fluctuations in the commercial/industrial new construction market, (3) the timing and extent of changes in interest rates, as well as other competitive factors during the year, (4) general economic, market or business conditions, and (5) the correction of certain of our previously issued consolidated financial statements, which may affect investor confidence and raise reputational issues. Explanatory Note Error Correction Background The Company noted errors in previously issued financial statements relating to share-based compensation expense for stock options and restricted stock awards held by retirement eligible employees and directors. See Note 2, Error Correction located in Part II, Item 8 - Financial Statements and Supplementary Data for further detail. We do not believe that the errors are quantitatively material to any period presented in our prior financial statements. However, due to the qualitative nature of the matters identified in our review, including the number of years over which the errors occurred, we determined that it would be appropriate to correct the errors in our previously issued consolidated financial statements. Accordingly, we have corrected certain information within this Annual Report on Form 10-K, including our consolidated financial statements at December 31, 2018 and for the years ended December 31, 2018 and December 31, 2017, selected financial data at and for the years ended December 31, 2016 and 2015, and the relevant unaudited interim financial information for the quarterly periods ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018, and March 31, 2018 and the impacted amounts within the accompanying footnotes thereto. Management has evaluated the effects of the error correction regarding the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures and has concluded that a material weakness existed as of December 31, 2019. See Part II, Item 9A - Controls and Procedures for further details. The following parts of this Form 10-K include discussion of or disclosure related to the error corrections: • Part I, Item 1A - Risk Factors • Part II, Item 6 - Selected Financial Data • Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations • Part II, Item 8 - Financial Statements and Supplementary Data • Part II, Item 9A - Controls and Procedures 1
PART I Item 1. Business. General Development and Description of Business AAON, Inc., a Nevada corporation, (“AAON Nevada”) was incorporated on August 18, 1987. Our operating subsidiaries include AAON, Inc., an Oklahoma corporation, and AAON Coil Products, Inc., a Texas corporation. 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. We are engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment consisting of standard, semi-custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps and coils. Products and Markets Our products serve the commercial and industrial new construction and replacement markets. To date, our sales have been primarily to the domestic market. Foreign sales accounted for approximately $14.8 million, $14.7 million, and $14.6 million of our sales in 2019, 2018, and 2017, respectively. As a percentage of sales, foreign sales accounted for approximately 3% , 3% and 4% of our net sales in each of those years, respectively. Our rooftop and condensing unit markets primarily consist of units installed on commercial or industrial structures of generally less than ten stories in height. Our air handling units, self-contained units, geothermal/water-source heat pumps, chillers, packaged outdoor mechanical rooms and coils are suitable for all sizes of commercial and industrial buildings. The size of these markets is determined primarily by the number of commercial and industrial building completions. 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. Currently, over half of the industry’s market consists of replacement units. The commercial and industrial new construction market is subject to cyclical fluctuations in that it is generally tied to housing starts, but has a lag factor of six to 18 months. Housing starts, in turn, are affected by such factors as interest rates, the state of the economy, population growth and the relative age of the population. When new construction is down, we emphasize the replacement market. Based on our 2019 sales of $469.3 million, we estimate that we have approximately a 10% share of the greater than five ton rooftop market and a 2% share of the less than five ton market. During 2019, approximately 50% of our sales were generated from the renovation and replacement markets and 50% from new construction. The percentage of sales for new construction vs. replacement to particular customers is related to the customer’s stage of development. We purchase certain components, fabricate sheet metal and tubing and then assemble and test the finished products. Our primary finished products consist of a single unit system containing heating and cooling in a self-contained cabinet, referred to in the industry as “unitary products”. Our other finished products are chillers, packaged outdoor mechanical rooms, coils, air handling units, condensing units, makeup air units, energy recovery units, rooftop units, geothermal/water-source heat pumps and controls. We offer four 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; the RL Series, which is offered in 21 cooling sizes ranging from 45 to 240 tons; and the RZ Series, which is offered in 15 cooling sizes ranging from 45 to 240 tons. We also 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. 2
Our small packaged geothermal/water-source heat pump units consist of the WH Series horizontal configuration and WV Series vertical configuration, from one-half to 30 tons. We manufacture a LF Series air-cooled chiller, a LN Series air-cooled chiller, and a LZ Series chiller and packaged outdoor mechanical room, which are available in both air-cooled condensing and evaporative-condensed configurations, covering a range of four to 540 tons. BL Series boiler outdoor mechanical rooms are also available with 400-6,000 MBH (1,000 BTU/hr) heating capacity. FZ Series fluid cooler outdoor mechanical rooms are also available with a range of 50 to 450 tons. We offer four groups of condensing units: the CB Series, two to five tons; the CF Series, two to 70 tons; the CN Series, 55 to 140 tons; and the CL Series, 45 to 230 tons. Our air handling units consist of the indoor F1, H3 and V3 Series and the modular M2 and M3 Series, as well as air handling unit configurations of the RQ, RN, RL, RZ and SA Series units. Our energy recovery option applicable to our RQ, RN, RL, RZ and SB units, as well as our H3, V3, M2 and M3 Series air handling units, responds to the U.S. Clean Air Act mandate to increase fresh air in commercial structures. Our products are designed to compete on the higher quality end of standardized products. Our air-cooled chillers (LF, LN and LZ Series) are certified with the Air-Conditioning, Heating, and Refrigeration Institute (“AHRI”) in accordance with AHRI Standard 550/590. Our water-source heat pump products, including RN, RQ, M2, SB, WH and WV Series, are AHRI certified in accordance with ANSI/AHRI/ASHRAE/ISO 13256. Our unitary products (RQ, RN, and CB Series) are certified with the AHRI in accordance with AHRI Standard AHRI 210/240 up to 5 tons capacity and AHRI Standard AHRI 340/360 up to 63 tons capacity. Performance characteristics of our products range in cooling capacity from one-half to 540 tons and in heating capacity from 7,200 to 9,000,000 British Thermal Units ("BTUs"). Many of our units far exceed these minimum standards and are among the highest efficiency units currently available. 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. AAON designs and produces controls solutions for all of our HVAC units including roof top units, air handlers, chillers, and water source heat pumps. In addition, we provide controls for variable air volume systems associated with those units, as well as controls products for other HVAC related equipment. Our controls are easily configurable to provide a wide variety of HVAC unit application options, and we are able to customize our controls, where necessary, to meet unique customers’ requirements. Most of our controls are Underwriters Laboratories category ZPVI2 complaint and BACnet Testing Laboratories certified. In addition our economizer function is California Title 24 certified. All of these factors allow us to provide AAON controls with factory developed, approved and tested sequences of operation to optimize the performance of the AAON units. Other AAON controls options include providing terminal blocks for field-installed controls and factory installed customer provided controls. With all these controls options available to us, we are able to use controls to help sell more AAON equipment. We also offer six control options: the Pioneer Silver, Pioneer Gold, Touchscreen Controller, Orion Controller, and terminal block for field installed controls, and factory installed customer provided controls. Major Customers One customer, Texas AirSystems, accounted for 10% or more of our sales during 2019, 2018, and 2017. 3
Sources and Availability of Raw Materials The most important materials we purchase are steel, copper and aluminum. We also purchase from other manufacturers certain components, including compressors, electric motors and electrical controls used in our products. We attempt to obtain the lowest possible cost in our purchases of raw materials and components, consistent with meeting specified quality standards. We are not dependent upon any one source for raw materials or the major components of our manufactured products. By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our manufacturing requirements for the foreseeable future. We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non- cancellable fixed price contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our fixed price contracts for use in our manufacturing operations. We have not been significantly impacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) that 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. Representatives We employ a sales staff of 44 individuals and utilize approximately 63 independent manufacturer representatives’ organizations (“Representatives”) having 105 offices to market our products in the United States and Canada. We also have one international sales organization, which utilizes 19 distributors in other countries. Sales are made directly to the contractor or end user, with shipments being made from our Tulsa, Oklahoma, Longview, Texas, or our Parkville, Missouri, facilities to the job site. Our products and sales strategy focuses on niche markets. The targeted markets for our equipment are customers seeking products of better quality than those offered, and/or options not offered, by standardized manufacturers. To support and service our customers and the ultimate consumer, we provide parts availability through our Representatives' sales offices, as well as our two Tulsa, Oklahoma AAON operated retail parts stores, to serve the local markets. We also have factory service organizations at each of our plants. 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. 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; 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 RL products (if applicable). Our warranty policy for the RQ series covers parts for two years from date of unit shipment. Our warranty policy for the WH and WV Series geothermal/water-source heat pumps covers parts for five years from the date of manufacture. The Company also sells extended warranties on parts for various lengths of time ranging from six months to ten years. Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period. Research and Development Our products are engineered for performance, flexibility and serviceability. This has become a critical factor in competing in the heating, ventilation and air conditioning (“HVAC”) equipment industry. We must continually develop new and improved products in order to compete effectively and to meet evolving regulatory standards in all of our major product lines. All of our Research and Development (“R&D”) activities are self-sponsored, rather than customer-sponsored. R&D activities have involved the RQ, RN, RL and RZ (rooftop units), F1, H3, SA, V3, M2 and M3 (air handling units), LF, LN and LZ (chillers), CB, CF, CN and CL (condensing units), SA and SB (self-contained units), WH and WV 4
(water-source heat pumps), FZ (fluid coolers) and BL (boilers), as well as component evaluation and refinement, development of control systems and new product development. We incurred R&D expenses of approximately $14.8 million, $13.5 million, and $13.0 million in 2019, 2018, and 2017, respectively. Our Norm Asbjornson Innovation Center ("NAIC") research and development laboratory facility that opened in 2019, includes many unique capabilities that to our knowledge exist nowhere else in the world. A few features of the NAIC include supply, return, and outside sound testing at actual load conditions, testing up to a 300 ton air conditioning system, testing of up to a 540 ton chiller system and 80 million BTU/hr of gas heating test capacity. Environmental application testing capabilities include -20 to 140°F testing conditions, up to 8 inches per hour rain testing, up to 2 inches per hour snow testing and up to 50 mph wind testing. We believe we have the largest sound- testing chamber in the world for testing heating and air conditioning equipment and are not aware of any similar labs that can do this testing while putting the equipment under full environmental load. The unique capabilities of the NAIC will enable AAON to lead the industry in the development of quiet, energy efficient commercial and industrial heating and air conditioning equipment. Ten testing chambers within the NAIC allow AAON to meet and maintain AHRI and DOE certification and solidify the Company’s industry position as a technological leader in the manufacturing of HVAC equipment. Current voluntary industry certification programs and government regulations only go up to 63 tons of air conditioning as that is the largest environmental chamber currently available for testing. The NAIC contains both a 100 ton and a 540 ton chamber, allowing us to uniquely prove to customers our capacity and efficiency on these larger units. The NAIC was designed to test units well beyond the standard AHRI rating points and allows us to offer testing services on AAON equipment throughout range our of application. This capability is vital for critical facilities where the units must perform properly and allows our customers to verify the performance of our units in advance, rather than after installation. These same capabilities will enable AAON to develop new extended range of operation equipment and prove its capabilities. Backlog Our backlog as of February 1, 2020 was approximately $129.2 million, compared to approximately $147.0 million as of February 1, 2019. The current backlog consists of orders considered by management to be firm and our goal is to fill orders within approximately 60 to 90 days after an order is deemed to become firm; however, the orders are subject to cancellation by the customers in which case, cancellation charges apply up to the full price of the equipment. 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. Our greatest needs arise during the months of July - November, the peak season for inventory (primarily purchased material) and accounts receivable. Our working capital requirements are generally met by cash flow from operations and a bank revolving credit facility, which currently permits borrowings up to $30 million and had no balance outstanding at December 31, 2019. We believe that we will have sufficient funds available to meet our working capital needs for the foreseeable future. Seasonality Sales of our products are moderately seasonal with the peak period being July - November of each year due to timing of construction projects being directly related to warmer weather. Competition In the standardized market, we compete primarily with Lennox International, Inc., Trane (Ingersoll Rand Limited), York (Johnson Controls Inc.) and Carrier (United Technologies Corporation). All of these competitors are substantially larger and have greater resources than we do. Our products compete on the basis of total value, quality, function, serviceability, efficiency, availability of product, reliability, product line recognition and acceptability of sales outlets. However, in new construction where the contractor is the purchasing decision maker, we are often at a competitive disadvantage because of the emphasis placed on initial cost. In the replacement market and other owner- 5
controlled purchases, we have a better chance of getting business since quality and long-term cost are generally taken into account. Employees As of February 11, 2020, we employed 2,290 direct employees and contract personnel. Our employees are not represented by unions. Management considers its relations with our employees to be good. Patents, Trademarks, Licenses and Concessions We do not consider any patents, trademarks, licenses or concessions to be material to our business operations, other than patents issued regarding our energy recovery wheel option, blower, gas-fired heat exchanger, evaporative- cooled condenser de-superheater and low leakage damper which have terms of 20 years with expiration dates ranging from 2020 to 2033. Environmental Matters Laws concerning the environment that affect or could affect our operations include, among others, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, regulations promulgated under these Acts and any other federal, state or local laws or regulations governing environmental matters. We believe that we are in compliance with these laws and that future compliance will not materially affect our earnings or competitive position. We also strive to protect the environment, work with suppliers who do the same and encompass sustainable business practices in our manufacturing operations. AAON is dedicated to leading the company into a bright sustainable future. We have joined Sustainable Tulsa, a local non-profit organization, in creating an AAON Scor3card to implement more sustainable processes throughout all company locations (Tulsa, Longview and Parkville). We recognize that sustainability is both profitable and economical. Since 2014, we have changed out our lighting to a much more energy efficient system. 80% of our lighting was Metal Halide and 20% was fluorescent. Currently, we are about 80-90% LED, and 10-20% fluorescent. We will be 100% LED by the end of 2020. The combination of the LED upgrade with our advanced lighting control system, AAON saves about $400,000/year on electricity. We have also received a similar amount from power company rebates. These power savings equate to about 5,000,000 kWh saved per year. The LED lighting has also created a better work environment for our employees and requires less maintenance. In addition to this, we have installed more energy efficient HVAC systems, air compressors and building insulation. At the Tulsa facility, paper and metal recycling programs are in place. Numerous waste streams have been identified by our internal GoGreen employee committee that could be recycled, reused or reduced. We are also implementing a program to sort all our metals that has been identified to produce more profits. At the Longview facility, metal, cardboard and wood recycling. The metal recycling also includes sorting all metals for maximum rebates. At the Parkville facility, recycling efforts are currently being researched and pursued. We recover oil in our sheet metal manufacturing area, which is then recycled. Rags are washed and returned to us be used again, preventing them from entering a landfill. AAON is also committed to designing and manufacturing innovative HVAC products of the highest quality, efficiency, and performance. Our water-source heat pump products recover otherwise wasted energy and employ it to cool, heat and provide dehumidification to a building, making it one of the most efficient and environmentally friendly systems. AAON packaged rooftop units with two stage compressors are optimized with high efficiency evaporator and condenser coils, and variable speed fans leading to an AHRI Certified performance up to 19.15 SEER and 20.2 IEER. 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. LZ Series packaged outdoor mechanical rooms are engineered to maximize the efficiency of the complete hydronic system - compressors, condenser, and evaporator. Factory installed 98% efficiency boilers with pumping packages are available for applications that require hot water. Energy saving waterside economizers are available for chilled water systems that require cooling at low ambient conditions. 6
Available Information Our Internet website address is http://www.aaon.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, will be available free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information on our website is not a part of, or incorporated by reference into, this annual report on Form 10-K. Copies of any materials we file with the SEC can also be obtained free of charge through the SEC’s website at http:// www.sec.gov, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, or by calling the SEC at 1-800-732-0330. Item 1A. Risk Factors. The following risks and uncertainties may affect our performance and results of operations. The discussion below contains “forward-looking statements” as outlined in the Forward-Looking Statements section above. Our ability to mitigate risks may cause our future results to materially differ from what we currently anticipate. Additionally, the ability of our competitors to react to material risks will affect our future results. Our business can be hurt by economic conditions. Our business is affected by a number of economic factors, including the level of economic activity in the markets in which we operate. Sales in the commercial and industrial new construction markets correlate to the number of new homes and buildings that are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates and other macroeconomic factors over which we have no control. In the HVAC business, a decline in economic activity as a result of these cyclical or other factors typically results in a decline in new construction and replacement purchases which could impact our sales volume and profitability. Our results of operations and financial condition could be negatively impacted by the loss of a major customer. From time to time in the past we derived a significant portion of our sales from a limited number of customers, and such concentration may continue in the future. In 2019, 2018, and 2017, one customer, Texas AirSystems, accounted for more than 10% of our sales. The loss of, or significant reduction in sales to, a major customer could have a material adverse effect on our results of operations, financial condition and cash flow. Further, the addition of new major customers in the future could increase our customer concentration risks as described above. We may be adversely affected by problems in the availability, or increases in the prices, of raw materials and components. Problems in the availability, or increases in the prices, of raw materials or components could depress our sales or increase the costs of our products. We are dependent upon components purchased from third parties, as well as raw materials such as steel, copper and aluminum. Occasionally, we enter into cancellable and non-cancellable contracts on terms from six to 18 months for raw materials and components at fixed prices. However, if a key supplier is unable or unwilling to meet our supply requirements, we could experience supply interruptions or cost increases, either of which could have an adverse effect on our gross profit. We risk having losses resulting from the use of non-cancellable fixed price contracts. Historically, we have attempted to limit the impact of price fluctuations on commodities by entering into non- cancellable fixed price contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our fixed price contracts for use in our manufacturing operations. These fixed price contracts are not accounted for using hedge accounting since they meet the normal purchases and sales exemption. 7
We may not be able to successfully develop and market new products. Our future success will depend upon our continued investment in research and new product development and our ability to continue to achieve new technological advances in the HVAC industry. Our inability to continue to successfully develop and market new products or our inability to implement technological advances on a pace consistent with that of our competitors could lead to a material adverse effect on our business and results of operations. We may incur material costs as a result of warranty and product liability claims that would negatively affect our profitability. The development, manufacture, sale and use of our products involve a risk of warranty and product liability claims. Our product liability insurance policies have limits that, if exceeded, may result in material costs that would have an adverse effect on our future profitability. In addition, warranty claims are not covered by our product liability insurance and there may be types of product liability claims that are also not covered by our product liability insurance. We may not be able to compete favorably in the highly competitive HVAC business. Competition in our various markets could cause us to reduce our prices or lose market share, which could have an adverse effect on our future financial results. Substantially all of the markets in which we participate are highly competitive. The most significant competitive factors we face are product reliability, product performance, service and price, with the relative importance of these factors varying among our product line. Other factors that affect competition in the HVAC market include the development and application of new technologies and an increasing emphasis on the development of more efficient HVAC products. Moreover, new product introductions are an important factor in the market categories in which our products compete. Several of our competitors have greater financial and other resources than we have, allowing them to invest in more extensive research and development. We may not be able to compete successfully against current and future competition and current and future competitive pressures faced by us may materially adversely affect our business and results of operations. The loss of Norman H. Asbjornson could impair the growth of our business. Norman H. Asbjornson, our founder, has served as our Chief Executive Officer from inception to date and President from inception to November 2016. He has provided the leadership and vision for our strategy and growth. Although important responsibilities and functions have been delegated to other highly experienced and capable management personnel, and our products are technologically advanced and well positioned for sales well into the future, the death, disability or retirement of Mr. Asbjornson could impair the growth of our business. We do not have an employment agreement with Mr. Asbjornson. The Board of Directors attempts to manage this risk by continually engaging in succession planning concerning Mr. Asbjornson (as well as other key management personnel), as demonstrated by the Board’s appointment of Gary D. Fields as President of AAON in November 2016. Our business is subject to the risks of interruptions by cybersecurity attacks. We depend upon information technology infrastructure, including network, hardware and software systems to conduct our business. Despite our implementation of network and other cybersecurity measures, our information technology system and networks could be disrupted or experience a security breach from computer viruses, break- ins and similar disruptions from unauthorized tampering with our computer systems. Our security measures may not be adequate to protect against highly targeted sophisticated cyber-attacks, or other improper disclosures of confidential and/or sensitive information. Additionally, we may have access to confidential or other sensitive information of our customers, which, despite our efforts to protect, may be vulnerable to security breaches, theft, or other improper disclosure. Any cyber-related attack or other improper disclosure of confidential information could have a material adverse effect on our business, as well as other negative consequences, including significant damage to our reputation, litigation, regulatory actions and increased cost. 8
Exposure to environmental liabilities could adversely affect our results of operations. Our future profitability could be adversely affected by current or future environmental laws. We are subject to extensive and changing federal, state and local laws and regulations designed to protect the environment in the United States and in other parts of the world. These laws and regulations could impose liability for remediation costs and result in civil or criminal penalties in case of non-compliance. Compliance with environmental laws increases our costs of doing business. Because these laws are subject to frequent change, we are unable to predict the future costs resulting from environmental compliance. We are subject to potentially extreme governmental regulations and policies. We always face the possibility of new governmental regulations, policies and trade agreements which could have a substantial or even extreme negative effect on our operations and profitability. Negotiations during the summer of 2013 mitigated some of the negative effects of the Department of Energy Final Rule, Regulatory Identification No. 1904-AC23, published on March 7, 2011. However, certain additional testing and listing requirements are still in place and scheduled to be phased in. Several other intrusive component part governmental regulations are in process. If these proposals become final rules, the effect would be the regulation of compressors and fans in products for which the Department of Energy does not have current authority. This could affect equipment we currently manufacture and could have an impact on our product design, operations and profitability. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo and adjoining countries. As a result, in August 2012, the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals in their products. Accordingly, we began our reasonable country of origin inquiries in fiscal year 2013, with initial disclosure requirements beginning in May 2014. There are costs associated with complying with these disclosure requirements, including for due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering “conflict free” conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement. Our operations could be negatively impacted by new legislation as 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. In the fourth quarter of 2019, we identified a material weakness in our internal control over financial reporting. Our failure to establish and maintain effective internal control over financial reporting could result in material misstatements in our financial statements and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our outstanding stock to decline. During the year ended December 31, 2019, we identified a material weakness in our internal control over financial reporting related to the appropriate policies and procedures in place to properly recognize share-based compensation for retirement eligible participants in our Long-Term Incentive Plans. For further information regarding this matter, please refer to Item 9A. Controls and Procedures.As a result of such weakness, management, with the oversight of the Audit Committee, determined to correct our consolidated financial statements at December 31, 2018 and for the years ended December 31, 2018 and December 31, 2017, selected financial data at and for the years ended December 31, 2016 and 2015, each of the unaudited quarterly periods for September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, September 31, 2018, June 30, 2018 and March 31, 2018 and the impacted amounts within the accompanying footnotes thereto. 9
Management’s ongoing assessment of internal control over financial reporting may in the future identify additional weaknesses and conditions that need to be addressed. Any failure to improve our internal control over financial reporting to address identified weaknesses in the future, if they were to occur, could prevent us from maintaining accurate accounting records and discovering material accounting errors, which in turn, could adversely affect our business and the value of our outstanding stock. We reached a determination to correct certain of our previously issued consolidated financial statements, which may affect investor confidence and raise reputational issues. As discussed in the Explanatory Note preceding Item 1, Business, in Note 2, Error Correction, and in Note 25, Quarterly Results (Unaudited), in this Annual Report on Form 10-K, we reached a determination to correct our consolidated financial statements at December 31, 2018 and for the years ended December 31, 2018 and December 31, 2017, selected financial data at and for the year ended December 31, 2016 and 2015, and each of the unaudited quarterly periods September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, September 31, 2018, June 30, 2018 and March 31, 2018. As a result, we have become subject to a number of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise reputational issues for our business. We are subject to adverse changes in tax laws. Our tax expense or benefits could be adversely affected by changes in tax provisions, unfavorable findings in tax examinations or differing interpretations by tax authorities. We are unable to estimate the impact that current and future tax proposals and tax laws could have on our results of operations. We are currently subject to state and local tax examinations for which we do not expect any major assessments. We are subject to international regulations that could adversely affect our business and results of operations. Due to our use of representatives in foreign markets, we are subject to many laws governing international relations, including those that prohibit improper payments to government officials and commercial customers, and restrict where we can do business, what information or products we can supply to certain countries and what information we can provide to a non-U.S. government, including but not limited to the Foreign Corrupt Practices Act, U.K. Bribery Act and the U.S. Export Administration Act. Violations of these laws, which are complex, may result in criminal penalties or sanctions that could have a material adverse effect on our business, financial condition and results of operations. Operations may be affected by natural disasters, especially since most of our operations are performed at a single location. Natural disasters such as tornadoes and ice storms, as well as accidents, acts of terror, infection and other factors beyond our control could adversely affect our operations. Especially, as our facilities are in areas where tornadoes are likely to occur, and the majority of our operations are at our Tulsa facilities, the effects of natural disasters and other events could damage our facilities and equipment and force a temporary halt to manufacturing and other operations, and such events could consequently cause severe damage to our business. We maintain insurance against these sorts of events; however, this is not guaranteed to cover all the losses and damages incurred. If we are unable to hire, develop or retain employees, it could have an adverse effect on our business. We compete to hire new employees and then seek to train them to develop their skills. We may not be able to successfully recruit, develop and retain the personnel we need. Unplanned turnover or failure to hire and retain a diverse, skilled workforce, could increase our operating costs and adversely affect our results of operations. Variability in self-insurance liability estimates could impact our results of operations. We self-insure for employee health insurance and workers’ compensation insurance coverage up to a predetermined level, beyond which we maintain stop-loss insurance from a third-party insurer for claims over $225,000 and $750,000 for employee health insurance claims and workers’ compensation insurance claims, respectively. Our aggregate exposure varies from year to year based upon the number of participants in our insurance plans. We estimate our self-insurance liabilities using an analysis provided by our claims administrator and our historical 10
claims experience. Our accruals for insurance reserves reflect these estimates and other management judgments, which are subject to a high degree of variability. If the number or severity of claims for which we self-insure increases, it could cause a material and adverse change to our reserves for self-insurance liabilities, as well as to our earnings. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. As of December 31, 2019, we own all of our Tulsa, Oklahoma, and Longview, Texas, facilities, consisting of approximately 1.76 million square feet of space for office, manufacturing, warehouse, assembly operations and parts sales. We believe that our facilities are well maintained and are in good condition and suitable for the conduct of our business. Our plant and office facilities in Tulsa, Oklahoma, consist of a 342,000 sq. ft. building (327,000 sq. ft. of manufacturing/warehouse space and 15,000 sq. ft. of office space) located on a 12-acre tract of land at 2425 South Yukon Avenue, and a 940,000 sq. ft. manufacturing/warehouse building and a 70,000 sq. ft. office building located on an approximately 85-acre tract of land across the street from the original facility (2440 South Yukon Avenue) (the “Tulsa facilities”). Our manufacturing area is in heavy industrial type buildings, with some coverage by overhead cranes, containing manufacturing equipment designed for sheet metal fabrication and metal stamping. The manufacturing equipment contained in the facilities consists primarily of automated sheet metal fabrication equipment, supplemented by presses. Assembly lines consist of six cart-type conveyor lines and one roller-type conveyor line with variable line speed adjustment, which are motor driven. Subassembly areas and production line manning are based upon line speed. In 2019, we opened our new engineering research and development laboratory at the Tulsa facilities, since named the Norman Asbjornson Innovation Center. The three-story 134,000 square foot stand alone facility is both an acoustical and a performance measuring laboratory. The new facility consists of ten test chambers allowing AAON to meet and maintain industry certifications. This facility is located West of the 940,000 sq. ft. manufacturing/ warehouse building at 2425 South Yukon Avenue. The Norman Asbjornson Innovation Center is substantially complete and expected to reach full operational status in mid-2020. In addition to a retail part store location at our Tulsa facilities, we also own a 13,500 sq. ft. stand alone building (7,500 sq. ft. warehouse and 6,000 sq. ft. office) which is utilized as an additional retail parts store to provide our customers more accessibly to our products. The building is on approximately one acre and is located at 9528 E 51st St in Tulsa, Oklahoma. Our operations in Longview, Texas, are conducted in a plant/office building at 203-207 Gum Springs Road, containing 263,000 sq. ft. on 39 acres. The manufacturing area (approximately 256,000 sq. ft.) is located in three 120-foot wide sheet metal buildings connected by an adjoining structure. The remaining 7,000 square feet are utilized as office space. The facility is built for light industrial manufacturing. In August 2019, construction began on a 220,000 sq. ft. building expansion adjacent to our current Longview, Texas facilities. The new building is expected to be completed in late 2020 and will be used for both coil warehouse storage and equipment manufacturing operations. Our operations in Parkville, Missouri, are conducted in a leased plant/office at 8500 NW River Park Drive, containing 48,000 sq. ft. We believe that the leased facility is well maintained and in good condition and suitable for the conduct of our business. Item 3. Legal Proceedings. We are not a party to any pending legal proceeding which management believes is likely to result in a material liability and no such action has been threatened against us, or, to the best of our knowledge, is contemplated. 11
Item 4. Mine Safety Disclosure. Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is quoted on the NASDAQ Global Select Market under the symbol “AAON”. The table below summarizes the intraday high and low reported sale prices for our common stock for the past two fiscal years. As of the close of business on February 24, 2020, there were 973 holders of record of our common stock. Quarter Ended High Low March 31, 2018 $40.25 $32.50 June 30, 2018 $39.03 $29.05 September 30, 2018 $43.30 $32.84 December 31, 2018 $44.90 $31.55 March 31, 2019 $46.69 $33.52 June 30, 2019 $52.50 $44.36 September 30, 2019 $53.27 $43.34 December 31, 2019 $51.07 $42.57 Dividends - At the discretion of the Board of Directors, we pay semi-annual cash dividends. Board approval is required to determine the date of declaration and amount for each semi-annual dividend payment. Our recent dividends are as follows: Declaration Date Record Date Payment Date Dividend per Share May 16, 2017 June 9, 2017 July 7, 2017 $0.13 November 7, 2017 November 30, 2017 December 21, 2017 $0.13 May 18, 2018 June 8, 2018 July 6, 2018 $0.16 November 8, 2018 November 29, 2018 December 20, 2018 $0.16 May 20, 2019 June 3, 2019 July 1, 2019 $0.16 November 6, 2019 November 27, 2019 December 18, 2019 $0.16 The following is a summary of our share-based compensation plans as of December 31, 2019: EQUITY COMPENSATION PLAN INFORMATION (c) Number of securities (a) (b) remaining available for Number of securities to Weighted-average future issuance under be issued upon exercise exercise price of equity compensation plans of outstanding options, outstanding options, (excluding securities Plan category warrants and rights warrants and rights reflected in column (a)) The 2007 Long-Term Incentive Plan 270,427 $ 17.11 — The 2016 Long-Term Incentive Plan 268,522 $ 34.11 2,565,799 12
Repurchases during the fourth quarter of 2019, which include repurchases from our open market, 401(k) and employee repurchase programs, were as follows: ISSUER PURCHASES OF EQUITY SECURITIES (c) (d) (a) (b) Total Number Maximum Number (or Total Average of Shares (or Approximate Dollar Number Price Units) Purchased Value) of Shares (or of Shares Paid as part of Units) that may yet be (or Units (Per Share Publicly Announced Purchased under the Period Purchased) or Unit) Plans or Programs Plans or Programs October 2019 30,725 $ 47.32 30,725 — November 2019 20,201 49.93 20,201 — December 2019 37,617 49.76 37,617 — Total 88,543 $ 48.95 88,543 — Comparative Stock Performance Graph The following performance graph compares our cumulative total shareholder return, the NASDAQ Composite and a peer group of U.S. industrial manufacturing companies in the air conditioning, ventilation, and heating exchange equipment markets from December 31, 2014 through December 31, 2019. The graph assumes that $100 was invested at the close of trading December 31, 2014, with reinvestment of dividends. Our peer group includes Lennox International, Inc., Ingersoll Rand Limited, Johnson Controls Inc., and United Technologies Corporation. This table is not intended to forecast future performance of our Common Stock. Comparison of Five Year Cumulative Total Return Assumes Initial Investment of $100 December 31, 2019 250 225 200 175 150 125 100 2014 2015 2016 2017 2018 2019 AAON Inc. NASDAQ Peer Group 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. 13
Item 6. Selected Financial Data. The following selected financial data should be read in conjunction with our Financial Statements and Supplementary Data thereto included under Item 8 of this report and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7. Years Ended December 31, Results of Operations: 2019 2018 2017 2016 2015 (in thousands, except per share data) Net sales $ 469,333 $ 433,947 $ 405,232 $ 383,977 $ 358,632 Net income (a) $ 53,711 $ 42,329 $ 53,830 $ 53,020 $ 44,932 Earnings per share: Basic (a) $ 1.03 $ 0.81 $ 1.02 $ 1.00 $ 0.83 Diluted (a) $ 1.02 $ 0.80 $ 1.01 $ 0.99 $ 0.82 Cash dividends declared per common share: $ 0.32 $ 0.32 $ 0.26 $ 0.24 $ 0.22 December 31, Financial Position at End of Fiscal Year: 2019 2018 2017 2016 2015 (in thousands) Working capital (a) $ 131,521 $ 93,167 $ 104,002 $ 102,287 $ 81,106 Total assets (a) 371,424 307,994 296,590 256,335 232,683 Revolving credit facility ————— New market tax credit obligation 6,320 — — — — Total stockholders’ equity (a) 290,140 249,443 238,925 208,410 181,124 (a) We have corrected previously reported consolidated financial data for fiscal years ended 2018, 2017, 2016 and 2015, as well as the related balance sheets. See Note 2, Error Correction, in Item 8, Financial Statements and Supplementary Data, for additional information. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Overview The following discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, Financial Statements and Supplementary Data. Correction of an Error We have corrected our previously issued consolidated financial statements contained in this Annual Report on Form 10-K. Refer to the Explanatory Note preceding Item 1, Business, for background on the correction, the fiscal periods impacted, control considerations, and other information. In addition, we have changed certain previously reported financial information at December 31, 2018 and for the years ended December 31, 2018 and December 31, 2017 in this Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to information within the Results of Operations section. See Note 2, Error Correction, in Item 8, Financial Statements and Supplementary Data, for additional information related to the correction of an error. 14
Description of the Company We engineer, manufacture, market and sell air conditioning and heating equipment consisting of standard, semi- custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pump, coils and controls. These products are marketed and sold to retail, manufacturing, educational, lodging, supermarket, medical and other commercial industries. We market our products to all 50 states in the United States and certain provinces in Canada. Our business can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate. The recent uncertainty of the economy has negatively impacted the commercial and industrial new construction markets. A further decline in economic activity could result in a decrease in our sales volume and profitability. Sales in the commercial and industrial new construction markets correlate closely to the number of new homes and buildings that are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates and other macroeconomic factors over which we have no control. We sell our products to property owners and contractors through a network of manufacturers’ representatives and our internal sales force. The demand for our products is influenced by national and regional economic and demographic factors. The commercial and industrial new construction market is subject to cyclical fluctuations in that it is generally tied to housing starts, but has a lag factor of six to 18 months. Housing starts, in turn, are affected by such factors as interest rates, the state of the economy, population growth and the relative age of the population. When new construction is down, we emphasize the replacement market. The new construction market in 2019 continued to be unpredictable and uneven. Thus, throughout the year, we emphasized promotion of the benefits of AAON equipment to property owners in the replacement market. The principal components of cost of sales are labor, raw materials, component costs, factory overhead, freight out and engineering expense. The principal high volume raw materials used in our manufacturing processes are steel, copper and aluminum. We also purchase from other manufacturers certain components, including compressors, motors and electrical controls. The price levels of our raw materials fluctuate given that the market continues to be volatile and unpredictable as a result of the uncertainty related to the U.S. economy and global economy. For the year ended December 31, 2019, the prices for copper, galvanized steel, stainless steel and aluminum decreased approximately 3.2%, 5.8%, 2.3% and 1.6%, respectively, from 2018. For the year ended December 31, 2018, the prices for copper, galvanized steel and stainless steel increased approximately 4.7%, 18.2%, 11.8% and 6.4%, respectively, from 2017. We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non- cancellable fixed price contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our fixed price contracts for use in our manufacturing operations. The following are highlights of our results of operations, cash flows, and financial condition: • We started to realize the price increases put in place in 2018 and early 2019. • We saw improvement in our gross margin despite sheet metal fabrication downtime and changes in personnel. • Overall units sold increased approximately 4.6% for the year ended 2019, as compared to the same period last year. • We continue to see growth and improvement in our water-source heat pump line that increased revenues by $10.8 million. • Our warranty expense has stabilized and we expect to see continued improvement. • We spent $37.2 million in capital expenditures in 2019, continuing our work on such projects as our new research and development lab, water-source heat pump production line and additional Salvagnini machines that will increase our sheet metal capacity. • Our order intake level continued to support our high backlog. 15
Results of Operations Units sold for years ended December 31: 2019 2018 2017 Rooftop Units 14,448 15,273 16,003 Condensing Units 1,738 2,007 2,252 Air Handlers 2,372 2,500 2,577 Outdoor Mechanical Rooms 33 38 64 Water Source Heat Pumps 7,716 5,334 2,485 Total Units 26,307 25,152 23,381 Year Ended December 31, 2019 vs. Year Ended December 31, 2018 Net Sales Years Ended December 31, 2019 2018 $ Change % Change (in thousands, except unit data) Net sales $ 469,333 $ 433,947 $ 35,386 8.2 % Total units 26,307 25,152 1,155 4.6 % Most of the increase in revenues is due to our price increases in 2018 which were realized during 2019. Additionally, our parts sales and water-source heat pumps sales continue to grow with increases of $7.0 million and $10.8 million, respectively. Cost of Sales Years Ended December 31, Percent of Sales 2019 2018 2019 2018 (in thousands) Cost of sales $ 349,908 $ 330,414 74.6 % 76.1 % Gross Profit $ 119,425 $ 103,533 25.4 % 23.9 % The principal components of cost of sales are labor, raw materials, component costs, factory overhead, freight out and engineering expense. The principal high volume raw materials used in our manufacturing processes are steel, copper and aluminum. As shown below, our average raw material prices decreased during the year, a trend we expect to continue into 2020. The Company also maintained a steady level of workforce throughout 2019. The Company continues to improve its labor and overhead efficiencies and expects improvements to continue as new sheet metal machines were placed into service in the last quarter of 2019 and early 2020. Twelve month average raw material cost per pound as of December 31: 2019 2018 % Change Copper $ 3.63 $ 3.75 (3.2)% Galvanized Steel $ 0.49 $ 0.52 (5.8)% Stainless Steel $ 1.30 $ 1.33 (2.3)% Aluminum $ 1.79 $ 1.82 (1.6)% 16
Selling, General and Administrative Expenses Years Ended December 31, Percent of Sales 2019 2018 2019 2018 (in thousands) Warranty $ 8,047 $ 8,807 1.7 % 2.0 % Profit Sharing 7,448 6,165 1.6 % 1.4 % Salaries & Benefits 13,394 12,638 2.9 % 2.9 % Stock Compensation 6,690 4,733 1.4 % 1.1 % Advertising 818 762 0.2 % 0.2 % Depreciation 1,524 950 0.3 % 0.2 % Insurance 805 1,235 0.2 % 0.3 % Professional Fees 2,738 2,441 0.6 % 0.6 % Donations 1,137 933 0.2 % 0.2 % Bad Debt Expense 91 174 —% —% Other 9,385 9,356 2.0 % 2.2 % Total SG&A $ 52,077 $ 48,194 11.1 % 11.1 % The Company experienced a decrease in warranty claims paid of 13.4% in 2019. Our profit sharing expenses are up due to higher earnings. Depreciation has increased due to our continued expansion of our facilities. The Company makes company wide equity grants each year that cause our increases in stock compensation. We raised our minimum wage twice during 2019 and work to keep our salaries consistent with market rates to help retain employees. Income Taxes Years Ended December 31, Effective Tax Rate 2019 2018 2019 2018 (in thousands) Income tax provision $ 13,320 $ 13,171 19.9 % 23.7 % Upon completion of the Company's 2018 tax return in 2019, the Company recorded additional benefit due to higher than expected research and development credit of $0.6 million. Additionally in 2019, the Company determined it could take advantage of an additional 1% tax credit in Oklahoma for years in which the Company's location was deemed to be within an enterprise zone. The additional OK Credit for being in an enterprise zone, or otherwise allowable under Oklahoma law, resulted in a benefit of $1.2 million. Year Ended December 31, 2018 vs. Year Ended December 31, 2017 Net Sales Years Ended December 31, 2018 2017 $ Change % Change (in thousands, except unit data) Net sales $ 433,947 $ 405,232 $ 28,715 7.1 % Total units 25,152 23,381 1,771 7.6 % Most of the increase in revenues is due to our price increase from November 2017. Additionally, our parts sales and water-source heat pumps sales continued to grow with increases of $6.4 million and $4.7 million, respectively. 17
Cost of Sales Years Ended December 31, Percent of Sales 2018 2017 2018 2017 (in thousands) Cost of sales $ 330,414 $ 281,581 76.1 % 69.5 % Gross Profit $ 103,533 $ 123,651 23.9 % 30.5 % The principal components of cost of sales are labor, raw materials, component costs, factory overhead, freight out and engineering expense. The principal high volume raw materials used in our manufacturing processes are steel, copper and aluminum. As shown below, our raw material prices increased during the year. Additionally, in January 2018, the Company paid all employees a one-time bonus of $1,000 per employee as a result of the Tax Cuts and Jobs Act (the “Act”) which lowered the federal corporate tax rate from 35% to 21%. This bonus increased cost of sales by $1.9 million, excluding taxes and benefits. The Company maintained a higher level of workforce through the end of 2017 and beginning of 2018 in anticipation of our growing business. The growth in order intake during the beginning of 2018 did not occur as quickly as anticipated. Twelve month average raw material cost per pound as of December 31: 2018 2017 % Change Copper $ 3.75 $ 3.58 4.7 % Galvanized Steel $ 0.52 $ 0.44 18.2 % Stainless Steel $ 1.33 $ 1.19 11.8 % Aluminum $ 1.82 $ 1.71 6.4 % Selling, General and Administrative Expenses Years Ended December 31, Percent of Sales 2018 2017 2018 2017 (in thousands) Warranty $ 8,807 $ 11,233 2.0 % 2.8 % Profit Sharing 6,165 8,414 1.4 % 2.1 % Salaries & Benefits 12,638 11,586 2.9 % 2.9 % Stock Compensation 4,733 4,396 1.1 % 1.1 % Advertising 762 1,735 0.2 % 0.4 % Depreciation 950 720 0.2 % 0.2 % Insurance 1,235 1,005 0.3 % 0.2 % Professional Fees 2,441 1,888 0.6 % 0.5 % Donations 933 724 0.2 % 0.2 % Bad Debt Expense 174 179 —% —% Other 9,356 7,491 2.2 % 1.8 % Total SG&A $ 48,194 $ 49,371 11.1 % 12.2 % The Company experienced a decrease in warranty claims paid of 9% in 2018. Additionally, the Company had a change in estimate in how it calculates its estimated failure rate that is applied to sales to estimate our potential future liability for warranty claims. This change in estimate reduced our accrual, and thus our expense, by $0.9 million. Our profit sharing expenses are also down due to lower earnings. Our advertising expense decreased due to cost savings on our annual sales show. Professional fees have increased related to additional services and work 18
performed for the Wattmaster acquisition. These fees are not expected to be recurring. Our other expenses have increased due to sales concessions granted to our customers. Income Taxes Years Ended December 31, Effective Tax Rate 2018 2017 2018 2017 (in thousands) Income tax provision $ 13,171 $ 20,794 23.7 % 27.9 % The Tax Cuts and Jobs Act was enacted on December 22, 2017. The overall effective tax rate decreased from 27.9% to 23.7% due to the reduced corporate rate of 35% to 21% in 2018. At the end of 2017, we recorded a $3.7 million reduction in expense due to the remeasuring of our deferred taxes due to the Act. Liquidity and Capital Resources Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the occasional use of the revolving bank line of credit based on our current liquidity at the time. Working Capital - Our cash, cash equivalents and restricted cash increased $42.4 million from December 31, 2018 to December 31, 2019. As of December 31, 2019, we had $44.4 million in cash, cash equivalents and restricted cash. Revolving Line of Credit - On July 26, 2018 we renewed our $30.0 million line of credit (“BOK Revolver”) with BOKF, NA dba Bank of Oklahoma (“Bank of Oklahoma”). Under the line of credit, there was one standby letter of credit of $1.7 million as of December 31, 2019. At December 31, 2019 we have $28.3 million of borrowings available under the revolving credit facility. No fees are associated with the unused portion of the committed amount. As of December 31, 2019 and 2018, there were no outstanding balances under the revolving credit facility. Interest on borrowings is payable monthly at LIBOR plus 2.0%. The weighted average interest rate was .0426 and .042 for the years ended December 31, 2019 and 2018, respectively. At December 31, 2019, we were in compliance with all of the covenants under the BOK Revolver. We are obligated to comply with certain financial covenants under the BOK Revolver. These covenants require that we meet certain parameters related to our tangible net worth and total liabilities to tangible net worth ratio. At December 31, 2019, our tangible net worth was $290.1 million, which meets the requirement of being at or above $175.0 million. Our total liabilities to tangible net worth ratio was 0.3 to 1.0 which meets the requirement of not being above 2 to 1. On October 24, 2019 we amended the BOK Revolver to allow for the occurrence of transactions associated with the New Markets Tax Credit transaction (Note 19). This amendment also removed section 8.1.4 which required our Chief Executive Officer, Norman Asbjornson, to maintain ownership of 25% of the Company. As Mr. Norman Asbjornson does not currently, and has not for several years maintained this level of ownership, a limited waiver of default was also added to the amendment. New Market Tax Credit Obligation - On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “Project”). In connection with the NMTC transaction, the Company received a $23.0 million NMTC allocation for the Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities. 19
Upon closing of the NMTC transaction, the Company provided an aggregate of approximately $15.9 million to the Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%. This $15.9 million in proceeds plus capital contributed from the Investor was used to make an aggregate $22.5 million loan to a subsidiary of the Company. This financing arrangement is secured by equipment at the Company's Longview, Texas facilities, and a guarantee from the Company, including an unconditional guarantee of NMTCs. Stock Repurchase - The Board has authorized three stock repurchase programs for the Company. The Company may purchase shares on the open market from time to time, up to a total of 5.7 million shares. The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market. Our open market repurchase programs are as follows: Agreement Execution Date Authorized Repurchase $ Expiration Date June 2, 2016 $25 million April 15, 2017 May 16, 2018 $15 million March 1, 2019 March 5, 2019 $20 million March 4, 2020 The Company also has a stock repurchase arrangement by which employee-participants in our 401(k) savings and investment plan are entitled to have shares in AAON, Inc. stock in their accounts sold to the Company. The maximum number of shares to be repurchased is contingent upon the number of shares sold by employee- participants. Lastly, the Company repurchases shares of AAON, Inc. stock from certain of its directors and employees for payment of statutory tax withholdings on stock transactions. All other repurchases from directors or employees are contingent upon Board approval. All repurchases are done at current market prices. Our repurchase activity is as follows: 2019 2018 2017 (in thousands, except share and per share data) Program Shares Total $ $ per share Shares Total $ $ per share Shares Total $ $ per share Open market 5,799 $ 200 $ 34.46 252,272 $ 8,374 $ 33.19 8,676 $ 284 $ 32.69 401(k) 419,963 19,386 46.16 497,753 18,472 37.11 467,580 16,336 34.94 Directors and employees 28,668 1,207 42.11 33,751 1,097 32.49 45,878 1,614 35.19 Total 454,430 $ 20,793 $ 45.76 783,776 $ 27,943 $ 35.65 522,134 $ 18,234 $ 34.92 Inception to Date (in thousands, except share and per share data) Program Shares Total $ $ per share Open market 4,101,566 $ 69,806 $ 17.02 401(k) 7,467,739 119,927 16.06 Directors and employees 1,981,929 19,582 9.88 Total 13,551,234 $ 209,315 $ 15.45 Dividends - At the discretion of the Board of Directors, we pay semi-annual cash dividends. Board approval is required to determine the date of declaration and amount for each semi-annual dividend payment. 20
Our recent dividends are as follows: Declaration Date Record Date Payment Date Dividend per Share May 16, 2017 June 9, 2017 July 7, 2017 $0.13 November 7, 2017 November 30, 2017 December 21, 2017 $0.13 May 18, 2018 June 8, 2018 July 6, 2018 $0.16 November 8, 2018 November 29, 2018 December 20, 2018 $0.16 May 20, 2019 June 3, 2019 July 1, 2019 $0.16 November 6, 2019 November 27, 2019 December 18, 2019 $0.16 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 2020 and the foreseeable future. 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 used in financing activities for the years indicated. 2019 2018 2017 (in thousands) Operating Activities Net Income $ 53,711 $ 42,329 $ 53,830 Income statement adjustments, net 42,440 28,513 21,022 Changes in assets and liabilities: Accounts receivable (13,412) (2,832) (7,516) Income tax receivable 5,129 (4,448) 4,591 Inventories 2,557 (5,598) (23,698) Prepaid expenses and other (329) (528) 98 Accounts payable 280 (1,176) 3,043 Deferred revenue 425 412 258 Accrued liabilities 7,124 (1,816) 6,366 Net cash provided by operating activities 97,925 54,856 57,994 Investing Activities Capital expenditures (37,166) (37,268) (41,713) Cash paid for business combination — (6,377) — Purchases of investments (6,000) (16,201) (18,521) Maturities of investments and proceeds from called investments 6,000 25,145 29,112 Other 120 66 70 Net cash used in investing activities (37,046) (34,635) (31,052) Financing Activities (Payments) borrowings under revolving credit facility, net — — — Proceeds from financing obligation, net of issuance costs 6,614 — — Payment related to financing costs (301) — — Stock options exercised 12,625 4,987 2,259 Repurchase of stock (19,586) (26,846) (16,620) Employee taxes paid by withholding shares (1,207) (1,097) (1,614) Cash dividends paid to stockholders (16,645) (16,728) (13,663) Net cash used in financing activities $ (18,500) $ (39,684) $ (29,638) 21
Cash Flows from Operating Activities Cash flows from operating activities increased in 2019 mainly as a result of our continuing operations results which included the full year of price increases enacted during 2018, combined with an overall decrease in the average cost of inventory raw materials in 2019. In 2018, the Company's cash flows were tighter due to our capital expenditures and business combination that was completed during the year. For 2019, the Company saw an increase in customer prepayments and lower warranty claims that decreased our liability payments. Our increased federal and state tax credits created additional cash inflows. Cash Flows from Investing Activities Cash flows from investing activities increased marginally in 2019 as compared to 2018. Cash flows from investing activities are primarily affected by the timing of our capital expenditures and purchase/maturity of investments with available cash. Additionally, we paid approximately $6.4 million in 2018 related to our February 2018 business combination. The capital expenditures for 2019 relate to the completion of our R&D lab and water-source heat pump lines, along with expansion of our Longview facility. Our capital expenditure program for 2020 is estimated to be approximately $73.2 million. Many of these projects are subject to review and cancellation at the discretion of our CEO and Board of Directors without incurring substantial charges. Cash Flows from Financing Activities Cash flows from financing activities is primarily affected by the timing of stock options exercised by our employees. Cash flows from stock options exercised increased to the increase in our publically traded stock price. Additionally, we received approximately $6.6 million in net proceeds in 2019 related to the New Markets Tax Credit transaction (Note 19). 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. Commitments and Contractual Agreements We had no material contractual purchase agreements as of December 31, 2019, except for one contractual purchase obligation for approximately $2.5 million that expires in December 2020. Contingencies We are subject to various claims and legal actions that arise in the ordinary course of business. We closely monitor these claims and legal actions and frequently consult with our legal counsel to determine whether they may, when resolved, have a material adverse effect on our financial position, results of operations or cash flows and we accrue and/or disclose loss contingencies as appropriate. We have concluded that the likelihood is remote that the ultimate resolution of any pending litigation or claims will be material or have a material adverse effect on the Company’s business, financial position, results of operations or cash flows. 22
Critical Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires 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. We base our estimates, assumptions and judgments on historical experience, current trends and other factors believed to be relevant at the time our consolidated financial statements are prepared. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and assumptions, and such differences could be material. We believe the following critical accounting policies affect our more significant estimates, assumptions and judgments used in the preparation of our consolidated financial statements. Inventory Reserves – We establish a reserve for inventories based on the change in inventory requirements due to product line changes, the feasibility of using obsolete parts for upgraded part substitutions, the required parts needed for part supply sales, replacement parts and for estimated shrinkage. Warranty – A provision is made for estimated warranty costs at the time the product is shipped and revenue is recognized. 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; 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 RL products (if applicable). Our warranty policy for the RQ series covers parts for two years from date of unit shipment. Our warranty policy for the WH and WV Series geothermal/water-source heat pumps covers parts for five years from the date of manufacture. Warranty expense is estimated based on the warranty period, historical warranty trends and associated costs, and any known identifiable warranty issue. 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. Stock Compensation – We measure and recognize compensation expense for all share-based payment awards made to our employees and directors, including stock options and restricted stock awards, based on their fair values at the time of grant. Compensation expense is recognized on a straight-line basis over the service period of the related share-based compensation award. Forfeitures are accounted for as they occur. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The use of the Black-Scholes- Merton option valuation model requires the input of subjective assumptions such as: the expected volatility, the expected term of the options granted, expected dividend yield and the risk-free rate. The fair value of restricted stock awards is based on the fair market value of AAON common stock on the respective grant dates, reduced for the present value of dividends. New Accounting Pronouncements Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification. We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements and notes thereto. In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes. The ASU includes simplification of accounting for income taxes for franchise taxes, step up in tax basis for goodwill as part of a business combination and interim reporting of enacted changes in tax laws. The ASU is effective for the Company beginning after December 15, 2020. We do not expect ASU 2019-12 will have a material effect on our consolidated financial statements and notes thereto. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurements: Changes to the Disclosure Requirement for Fair Value Measurements. The ASU includes additional disclosure requirements for unrealized gains and losses for Level 3 fair value measurement and significant observable inputs used to develop Level 3 fair value 23
measurements. The ASU is effective for the Company beginning after December 15, 2019. We do not expect ASU 2018-13 will have a material effect on our consolidated financial statements and notes thereto. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Commodity Price Risk We are exposed to volatility in the prices of commodities used in some of our products and, occasionally, we use fixed price cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months to manage this exposure. 24
Item 8. Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 26 Consolidated Balance Sheets 28 Consolidated Statements of Income 29 Consolidated Statements of Stockholders’ Equity 30 Consolidated Statements of Cash Flows 31 Notes to Consolidated Financial Statements 32 25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders AAON, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of AAON, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 26, 2020 expressed an adverse opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Inventory – manual inventory adjustments As described in Note 3 to the Company’s financial statements, the Company reports inventory using the first in, first out (“FIFO”) method, which involves manual adjustments recorded to the general ledger such as inventory variance, inventory allowance and labor and overhead adjustments. These manual adjustments have been identified as a critical audit matter. The principal consideration for our determination such manual inventory adjustments as a critical audit matter is these manual adjustments require substantial use of management estimates and requires the Company to have effective inventory valuation processes. Significant management judgments and estimates utilized to determine manual inventory adjustments are subject to estimation uncertainty and require significant auditor subjectivity in evaluating the reasonableness of those judgments and estimates. 26
Our audit procedures related to the manual inventory adjustments included the following, among others. • We tested the design and operating effectiveness of controls over inventory valuation, including the standard cost updates in the accounting system and the completeness and accuracy of the inputs to the inventory variance calculation and any related adjustments. • We verified the Company’s standard costing of inventory approximated FIFO by obtaining FIFO buildups and inspected underlying documents for a sample of raw materials. • We assessed the reasonableness of management’s inventory reserve by recalculating the reserve using management’s inputs, and evaluated those inputs for reasonableness. • We tested labor and overhead rate changes by recalculating the rates used and tested any adjustments recorded to the general ledger. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2004. Tulsa, Oklahoma February 26, 2020 27
AAON, Inc. and Subsidiaries Consolidated Balance Sheets December 31, 2019 2018 (in thousands, except share and Assets per share data) Current assets: Cash and cash equivalents $ 26,797 $ 1,994 Restricted cash 17,576 — Accounts receivable, net 67,399 54,078 Income tax receivable 772 5,901 Note receivable 29 27 Inventories, net 73,601 77,612 Prepaid expenses and other 1,375 1,046 Total current assets 187,549 140,658 Property, plant and equipment: Land 3,274 3,114 Buildings 101,113 97,393 Machinery and equipment 236,087 212,779 Furniture and fixtures 16,862 16,597 Total property, plant and equipment 357,336 329,883 Less: Accumulated depreciation 179,242 166,880 Property, plant and equipment, net 178,094 163,003 Intangible assets, net 272 506 Goodwill 3,229 3,229 Right of use assets 1,683 — Note receivable, long-term 597 598 Total assets $ 371,424 $ 307,994 Liabilities and Stockholders’ Equity Current liabilities: Revolving credit facility $ — $ — Accounts payable 11,759 10,616 Accrued liabilities 44,269 36,875 Total current liabilities 56,028 47,491 Deferred tax liabilities 15,297 9,259 Other long-term liabilities 3,639 1,801 New market tax credit obligation (a) 6,320 — Commitments and contingencies Stockholders’ equity: Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued — — Common stock, $.004 par value, 100,000,000 shares authorized, 52,078,515 and 51,991,242 issued and outstanding at December 31, 2019 and 2018, respectively 208 208 Additional paid-in capital 3,631 — Retained earnings 286,301 249,235 Total stockholders’ equity 290,140 249,443 Total liabilities and stockholders’ equity $ 371,424 $ 307,994 (a) Held by variable interest entities (Note 18) The accompanying notes are an integral part of these consolidated financial statements. 28
AAON, Inc. and Subsidiaries Consolidated Statements of Income Years Ended December 31, 2019 2018 2017 (in thousands, except share and per share data) Net sales $ 469,333 $ 433,947 $ 405,232 Cost of sales 349,908 330,414 281,581 Gross profit 119,425 103,533 123,651 Selling, general and administrative expenses 52,077 48,194 49,371 Loss (gain) on disposal of assets 337 (12) 45 Income from operations 67,011 55,351 74,235 Interest income, net 66 196 298 Other (expense) income, net (46) (47) 91 Income before taxes 67,031 55,500 74,624 Income tax provision 13,320 13,171 20,794 Net income $ 53,711 $ 42,329 $ 53,830 Earnings per share: Basic $ 1.03 $ 0.81 $ 1.02 Diluted $ 1.02 $ 0.80 $ 1.01 Cash dividends declared per common share: $ 0.32 $ 0.32 $ 0.26 Weighted average shares outstanding: Basic 52,079,865 52,284,616 52,572,496 Diluted 52,635,415 52,667,939 53,078,734 The accompanying notes are an integral part of these consolidated financial statements. 29
AAON, Inc. and Subsidiaries Consolidated Statements of Stockholders’ Equity Common Stock Paid-in Retained Shares Amount Capital Earnings Total (in thousands) Balance at December 31, 2016 52,651 $ 211 $ — $ 208,199 $ 208,410 Net income — — — 53,830 53,830 Stock options exercised and restricted 293 1 2,258 — 2,259 stock awards granted Share-based compensation — — 6,313 — 6,313 Stock repurchased and retired (522) (2) (8,571) (9,661) (18,234) Dividends — — — (13,653) (13,653) Balance at December 31, 2017 52,422 210 — 238,715 238,925 Net income — — — 42,329 42,329 Stock options exercised and restricted 353 1 4,986 — 4,987 stock awards granted Share-based compensation — — 7,862 — 7,862 Stock repurchased and retired (784) (3) (12,848) (15,092) (27,943) Dividends — — — (16,717) (16,717) Balance at December 31, 2018 51,991 208 — 249,235 249,443 Net income — — — 53,711 53,711 Stock options exercised and restricted 542 2 12,623 — 12,625 stock awards granted Share-based compensation — — 11,799 — 11,799 Stock repurchased and retired (454) (2) (20,791) — (20,793) Dividends — — — (16,645) (16,645) Balance at December 31, 2019 52,079 $ 208 $ 3,631 $ 286,301 $ 290,140 The accompanying notes are an integral part of these consolidated financial statements. 30
AAON, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, 2019 2018 2017 Operating Activities (in thousands) Net income $ 53,711 $ 42,329 $ 53,830 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,766 17,655 15,007 Amortization of bond premiums — 13 47 Amortization of debt issuance costs 7 — — Provision for losses on accounts receivable, net of adjustments 91 174 179 Provision for excess and obsolete inventories 1,454 152 264 Share-based compensation 11,799 7,862 6,313 Loss (gain) on disposition of assets 337 (12) 45 Foreign currency transaction (gain) loss (27) 55 (59) Interest income on note receivable (25) (27) (25) Deferred income taxes 6,038 2,641 (749) Changes in assets and liabilities: Accounts receivable (13,412) (2,832) (7,516) Income tax receivable 5,129 (4,448) 4,591 Inventories 2,557 (5,598) (23,698) Prepaid expenses and other (329) (528) 98 Accounts payable 280 (1,176) 3,043 Deferred revenue 425 412 258 Accrued liabilities and donations 7,124 (1,816) 6,366 Net cash provided by operating activities 97,925 54,856 57,994 Investing Activities Capital expenditures (37,166) (37,268) (41,713) Cash paid in business combination — (6,377) — Proceeds from sale of property, plant and equipment 69 13 10 Investment in certificates of deposits (6,000) (7,200) (5,280) Maturities of certificates of deposits 6,000 10,080 7,912 Purchases of investments held to maturity — (9,001) (13,241) Maturities of investments held to maturity — 14,570 19,700 Proceeds from called investments — 495 1,500 Principal payments from note receivable 51 53 60 Net cash used in investing activities (37,046) (34,635) (31,052) Financing Activities Proceeds from financing obligation, net of issuance costs 6,614 — — Payment related to financing costs (301) — — Stock options exercised 12,625 4,987 2,259 Repurchase of stock (19,586) (26,846) (16,620) Employee taxes paid by withholding shares (1,207) (1,097) (1,614) Cash dividends paid to stockholders (16,645) (16,728) (13,663) Net cash used in financing activities (18,500) (39,684) (29,638) Net increase (decrease) in cash, cash equivalents and restricted cash 42,379 (19,463) (2,696) Cash, cash equivalents and restricted cash, beginning of year 1,994 21,457 24,153 Cash, cash equivalents and restricted cash, end of year $ 44,373 $ 1,994 $ 21,457 The accompanying notes are an integral part of these consolidated financial statements. 31
AAON, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2019 1. Business Description AAON, Inc. is a Nevada corporation which was incorporated on August 18, 1987. Our operating subsidiaries include AAON, Inc., an Oklahoma corporation and AAON Coil Products, Inc., a Texas corporation (collectively, the “Company”). The Consolidated Financial Statements include our accounts and the accounts of our subsidiaries. We are engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment consisting of standard, semi-custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils and controls. 2. Error Correction We have corrected herein our consolidated financial statements at December 31, 2018 and for the years ended December 31, 2018 and December 31, 2017, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections. The unaudited interim financial information for the quarterly periods ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, has also been corrected and is included in Note 25, Quarterly Results (Unaudited). The 2019 quarterly corrections will be reflected in the filing of our future 2020 unaudited interim consolidated financial statement filings in Quarterly Reports on Form 10-Q. Error Correction Background The Company noted errors in previously issued financial statements relating to share-based compensation expense for stock options and restricted stock awards held by retirement eligible employees and directors. As defined by our Long-Term Incentive Plans (Note 16), stock options and restricted stock awards are fully vested when an active employee or director meets certain retirement eligibility requirements. We corrected the financial statements to recognize all share-based compensation, related to retirement eligible employees or directors, by the earlier of the grant date (if retirement eligible on grant date) or ratably from grant date to retirement eligible date. The corrected financial statements also include corrections for the tax effect of the share-based compensation corrections as well as the corrections' impact on our prior periods' employees profit sharing bonus plan (Note 17). We do not believe that the errors are quantitatively material to any period presented in our prior financial statements. However, due to the qualitative nature of the matters identified in our review, including the number of years over which the errors occurred, we determined that it would be appropriate to correct the errors in our previously issued consolidated financial statements. Accordingly, we have corrected our consolidated financial statements and the impacted amounts within the accompanying footnotes thereto. 32
Description of Tables The following tables represent our corrected consolidated statements of income, statements of stockholders' equity, and statements of cash flows for the years ended December 31, 2018 and December 31, 2017, as well as our corrected consolidated balance sheet at December 31, 2018. The values as previously reported for years ended 2018 and 2017 were derived from our Annual Report on Form 10-K for the year ended December 31, 2018 filed on February 28, 2019. Consolidated Statements of Income Year Ended December 31, 2018 Year Ended December 31, 2017 Previously Previously Reported Corrections As Corrected Reported Corrections As Corrected (in thousands, except per share data) Net sales $ 433,947 $ — $ 433,947 $ 405,232 $ — $ 405,232 Cost of sales 330,414 — (a) 330,414 281,835 (254) (a) 281,581 Gross profit 103,533 — 103,533 123,397 254 123,651 Selling, general and administrative expenses 47,755 439 (b) 48,194 49,249 122 (b) 49,371 (Gain) loss on disposal of assets (12) — (12) 45 — 45 Income from operations 55,790 (439) 55,351 74,103 132 74,235 Interest income, net 196 — 196 298 — 298 Other (expense) income, net (47) — (47) 91 — 91 Income before taxes 55,939 (439) 55,500 74,492 132 74,624 Income tax provision 13,367 (196) (c) 13,171 19,994 800 (c) 20,794 Net income $ 42,572 $ (243) $ 42,329 $ 54,498 $ (668) $ 53,830 Earnings per share: Basic $ 0.81 $ — $ 0.81 $ 1.04 $ (0.02) $ 1.02 Diluted $ 0.81 $ (0.01) $ 0.80 $ 1.03 $ (0.02) $ 1.01 Cash dividends declared per common $ 0.32 $ — $ 0.32 $ 0.26 $ — $ 0.26 share: Weighted average shares outstanding: Basic 52,284,616 — 52,284,616 52,572,496 — 52,572,496 Diluted 52,667,939 — 52,667,939 53,078,734 — 53,078,734 (a) The share-based compensation correction to cost of sales for the year ended December 31, 2017 was approximately $0.3 million. There was no correction required for the year ended December 31, 2018 for cost of sales. (b) The share-based compensation correction to selling, general and administrative expenses for the years ended December 31, 2018 and 2017 was approximately $0.5 million and $0.1 million, respectively. Included in the correction to selling, general and administrative expenses is a correction to our employee profit sharing bonus plan (Note 17) of approximately $0.1 million and $0.1 million for the years ended December 31, 2018 and 2017, respectively. (c) The correction to income taxes is the tax affect of the share-based compensation correction discussed above. 33
Consolidated Balance Sheets December 31, 2018 Previously Reported Corrections As Corrected Assets (in thousands, except share and per share data) Current assets: Cash and cash equivalents $ 1,994 $ — $ 1,994 Accounts receivable, net 54,078 — 54,078 Income tax receivable 6,104 (203) (a) 5,901 Note receivable 27 — 27 Inventories, net 77,612 — 77,612 Prepaid expenses and other 1,046 — 1,046 Total current assets 140,861 (203) 140,658 Property, plant and equipment: Land 3,114 — 3,114 Buildings 97,393 — 97,393 Machinery and equipment 212,779 — 212,779 Furniture and fixtures 16,597 — 16,597 Total property, plant and equipment 329,883 — 329,883 Less: Accumulated depreciation 166,880 — 166,880 Property, plant and equipment, net 163,003 — 163,003 Intangible assets, net 506 — 506 Goodwill 3,229 — 3,229 Note receivable, long-term 598 — 598 Total assets $ 308,197 $ (203) $ 307,994 Liabilities and Stockholders’ Equity Current liabilities: Revolving credit facility $ — $ — $ — Accounts payable 10,616 — 10,616 Accrued liabilities 37,455 (580) (b) 36,875 Total current liabilities 48,071 (580) 47,491 Deferred tax liabilities 10,826 (1,567) (a) 9,259 Other long-term liabilities 1,801 — 1,801 Commitments and contingencies Stockholders’ equity: Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued — — — Common stock, $.004 par value, 100,000,000 shares authorized, 51,991,242 and 52,422,801 issued and outstanding at December 31, 2018 and 2017, respectively 208 — 208 Additional paid-in capital — — — Retained earnings 247,291 1,944 (c) 249,235 Total stockholders’ equity 247,499 1,944 249,443 Total liabilities and stockholders’ equity $ 308,197 $ (203) $ 307,994 (a) The correction to income tax receivable and deferred tax liability are the tax effect of the share-based compensation corrections. (b) This is the cumulative reduction of our employee profit sharing bonus plan (Note 17) liability as a result of the share-based compensation correction. The prior period costs will be recovered through our estimated 2019 fourth quarter payment which will be paid in early 2020. (c) See descriptions of the stockholders' equity in the consolidated statements of stockholders' equity for the year ended December 31, 2018 in sections below. 34
Consolidated Statements of Stockholders’ Equity Common Stock Paid-in Retained Shares Amount Capital Earnings Total As Previously Reported (in thousands) Balance at December 31, 2017 52,422 $ 210 $ — $ 237,016 $ 237,226 Net income — — — 42,572 42,572 Stock options exercised and restricted 353 1 4,986 — 4,987 stock awards granted Share-based compensation — — 7,374 — 7,374 Stock repurchased and retired (784) (3) (12,360) (15,580) (27,943) Dividends — — — (16,717) (16,717) Balance at December 31, 2018 51,991 208 — 247,291 247,499 Correction Impacts Balance at December 31, 2017 — — — 1,699 1,699 Net income — — — (243) (243) Stock options exercised and restricted — — — — — stock awards granted Share-based compensation — — 488 — 488 Stock repurchased and retired — — (488) 488 — Dividends — — — — — Balance at December 31, 2018 — — — 1,944 1,944 As Corrected — Balance at December 31, 2017 52,422 210 — 238,715 238,925 Net income — — — 42,329 42,329 Stock options exercised and restricted 353 1 4,986 — 4,987 stock awards granted Share-based compensation — — 7,862 — 7,862 Stock repurchased and retired (784) (3) (12,848) (15,092) (27,943) Dividends — — — (16,717) (16,717) Balance at December 31, 2018 51,991 $ 208 $ — $ 249,235 $ 249,443 See descriptions of net income in the consolidated statement of income for the year ended December 31, 2018 in the section above. 35
Consolidated Statements of Stockholders’ Equity Common Stock Paid-in Retained Shares Amount Capital Earnings Total As Previously Reported (in thousands) Balance at December 31, 2016 52,651 $ 211 $ — $ 205,687 $ 205,898 Net income — — — 54,498 54,498 Stock options exercised and restricted 293 1 2,258 — 2,259 stock awards granted Share-based compensation — — 6,458 — 6,458 Stock repurchased and retired (522) (2) (8,716) (9,516) (18,234) Dividends — — — (13,653) (13,653) Balance at December 31, 2017 52,422 210 — 237,016 237,226 Correction Impacts Balance at December 31, 2016 — — — 2,512 2,512 Net income — — — (668) (668) Stock options exercised and restricted — — — — — stock awards granted Share-based compensation — — (145) — (145) Stock repurchased and retired — — 145 (145) — Dividends — — — — — Balance at December 31, 2017 — — — 1,699 1,699 As Corrected Balance at December 31, 2016 52,651 211 — 208,199 208,410 Net income — — — 53,830 53,830 Stock options exercised and restricted 293 1 2,258 — 2,259 stock awards granted Share-based compensation — — 6,313 — 6,313 Stock repurchased and retired (522) (2) (8,571) (9,661) (18,234) Dividends — — — (13,653) (13,653) Balance at December 31, 2017 52,422 $ 210 $ — $ 238,715 $ 238,925 See descriptions of net income in the consolidated statement of income for the year ended December 31, 2017 in the section above. 36
Consolidated Statements of Cash Flows Year Ended December 31, 2018 Year Ended December 31, 2017 Previously As Previously As Reported Corrections Corrected Reported Corrections Corrected Operating Activities (in thousands) Net income $ 42,572 $ (243) $ 42,329 $ 54,498 $ (668) $ 53,830 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,655 — 17,655 15,007 — 15,007 Amortization of bond premiums 13 — 13 47 — 47 Provision for losses on accounts receivable, net of adjustments 174 — 174 179 — 179 Provision for excess and obsolete inventories 152 — 152 264 — 264 Share-based compensation 7,374 488 7,862 6,458 (145) 6,313 (Gain) loss on disposition of assets (12) — (12) 45 — 45 Foreign currency transaction loss (gain) 55 — 55 (59) — (59) Interest income on note receivable (27) — (27) (25) — (25) Deferred income taxes 2,849 (208) 2,641 (1,554) 805 (749) Changes in assets and liabilities: Accounts receivable (2,832) — (2,832) (7,516) — (7,516) Income tax receivable (4,461) 13 (4,448) 4,596 (5) 4,591 Inventories (5,598) — (5,598) (23,698) — (23,698) Prepaid expenses and other (528) — (528) 98 — 98 Accounts payable (1,176) — (1,176) 3,043 — 3,043 Deferred revenue 412 — 412 258 — 258 Accrued liabilities and donations (1,766) (50) (1,816) 6,353 13 6,366 Net cash provided by operating activities 54,856 — 54,856 57,994 — 57,994 Investing Activities Capital expenditures (37,268) — (37,268) (41,713) — (41,713) Cash paid in business combination (6,377) — (6,377) — —— Proceeds from sale of property, plant and equipment 13 — 13 10 — 10 Investment in certificates of deposits (7,200) — (7,200) (5,280) — (5,280) Maturities of certificates of deposits 10,080 — 10,080 7,912 — 7,912 Purchases of investments held to maturity (9,001) — (9,001) (13,241) — (13,241) Maturities of investments held to maturity 14,570 — 14,570 19,700 — 19,700 Proceeds from called investments 495 — 495 1,500 — 1,500 Principal payments from note receivable 53 — 53 60 — 60 Net cash used in investing activities (34,635) — (34,635) (31,052) — (31,052) Financing Activities Stock options exercised 4,987 — 4,987 2,259 — 2,259 Repurchase of stock (26,846) — (26,846) (16,620) — (16,620) Employee taxes paid by withholding shares (1,097) — (1,097) (1,614) — (1,614) Cash dividends paid to stockholders (16,728) — (16,728) (13,663) — (13,663) Net cash used in financing activities (39,684) — (39,684) (29,638) — (29,638) Net decrease in cash and cash equivalents (19,463) — (19,463) (2,696) — (2,696) Cash and cash equivalents, beginning of 21,457 — 21,457 24,153 — 24,153 year Cash and cash equivalents, end of year $ 1,994 $ — $ 1,994 $ 21,457 $ — $ 21,457 37
No corrections impacted the classifications between net operating, net investing, or net financing cash flow activities. 3. Summary of Significant Accounting Policies Principles of Consolidation These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated. Our financial statements consolidate all of our affiliated entities in which we have a controlling financial interest. Because we hold certain rights that give us the power to direct the activities of two variable interest entities ("VIEs") (Note 18) that most significantly impact the VIEs economic performance, combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in those VIEs. Cash and Cash Equivalents We consider all highly liquid temporary investments with original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents consist of bank deposits and highly liquid, interest-bearing money market funds. The Company’s cash and cash equivalents are held in a few financial institutions in amounts that exceed the insurance limits of the Federal Deposit Insurance Corporation. However, management believes that the Company’s counterparty risks are minimal based on the reputation and history of the institutions selected. Restricted Cash Restricted cash held at December 31, 2019 consist of bank deposits and highly liquid, interest-bearing money market funds held for the purpose of the Company's qualified New Markets Tax Credit program (Note 19) to benefit an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations. The Company’s restricted cash is held in a financial institutions in amounts that exceed the insurance limits of the Federal Deposit Insurance Corporation. However, management believes that the Company’s counterparty risks are minimal based on the reputation and history of the institutions selected. Certificates of Deposit We held no certificates of deposit at December 31, 2019 and 2018. Investments Held to Maturity At December 31, 2019 and 2018, we held no investments. We record the amortized cost basis and accrued interest of the corporate notes and bonds in the Consolidated Balance Sheets. We record the interest and amortization of bond premium to interest income in the Consolidated Statements of Income. Accounts and Note Receivable Accounts and note receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. We generally do not require that our customers provide collateral. The Company determines its allowance for doubtful accounts by considering a number of factors, including the credit risk of specific customers, the customer’s ability to pay current obligations, historical trends, economic and market conditions and the age of the receivable. Accounts are considered past due when the balance has been outstanding for ninety days past negotiated credit terms. Past due accounts are generally written-off against the allowance for doubtful accounts only after all collection attempts have been exhausted. 38
Concentration of Credit Risk Our customers are concentrated primarily in the domestic commercial and industrial new construction and replacement markets. To date, our sales have been primarily to the domestic market, with foreign sales accounting for approximately 3%, 3% and 4% of revenues for the years ended December 31, 2019, 2018, and 2017, respectively. One customer, Texas AirSystems, accounted for approximately 10% of our sales during 2019, 2018 and 2017. No other customer accounted for more than 5% of our sales during 2019, 2018 and 2017. One customer, Texas AirSystems, accounted for approximately 10% of our accounts receivable balance at December 31, 2019. No other customer accounted for 5% or more of our accounts receivable balance at December 31, 2019 and 2018. Inventories Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. Cost in inventory includes purchased parts and materials, direct labor and applied manufacturing overhead. We establish an allowance for excess and obsolete inventories based on product line changes, the feasibility of substituting parts and the need for supply and replacement parts. Property, Plant and Equipment Property, plant and equipment, including significant improvements, are recorded at cost, net of accumulated depreciation. Repairs and maintenance and any gains or losses on disposition are included in operations. Depreciation is computed using the straight-line method over the following estimated useful lives: Buildings 3 - 40 years Machinery and equipment 3 - 15 years Furniture and fixtures 3 - 7 years Business Combinations We record the assets acquired and liabilities assumed in a business combination at their acquisition date fair values. Fair Value Financial Instruments and Measurements The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate fair value because of the short-term maturity of the items. The carrying amount of the Company’s revolving line of credit, and other payables, approximate their fair values either due to their short term nature, the variable rates associated with the debt or based on current rates offered to the Company for debt with similar characteristics. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Fair value is based upon assumptions that market participants would use when pricing an asset or liability. We use the following fair value hierarchy, which prioritizes valuation technique inputs used to measure fair value into three broad levels: • Level 1: Quoted prices in active markets for identical assets and liabilities that we have the ability to access at the measurement date. • Level 2: Inputs (other than quoted prices included within Level 1) that are either directly or indirectly observable for the asset or liability, including (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in inactive markets, (iii) inputs other than quoted prices that are observable for the asset or liability, and (iv) inputs that are derived from observable market data by correlation or other means. • Level 3: Unobservable inputs for the asset or liability including situations where there is little, if any, market activity for the asset or liability. Items categorized in Level 3 include the estimated business combination fair values of property, plant and equipment, intangible assets and goodwill. 39
The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to a fair value measurement requires judgment, considering factors specific to the asset or liability. Intangible Assets Our intangible assets include various trademarks, service marks and technical knowledge acquired in our February 2018 business combination (Note 5). We amortize our intangible assets on a straight-line basis over the estimated useful lives of the assets. We evaluate the carrying value of our amortizable intangible assets for potential impairment when events and circumstances warrant such a review. Goodwill 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. Goodwill at December 31, 2019 is deductible for income tax purposes. Goodwill is not amortized, but instead is evaluated for impairment at least annually. 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 exceeds its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit does not exceed its carrying amount, we calculate the fair value for the reporting unit and compare the amount to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered to be impaired and the goodwill balance is reduced by the difference between the fair value and carrying amount of the reporting unit. We performed a qualitative assessment as of December 31, 2019 to determine whether it was more likely than not that the fair value of the reporting unit was greater than the carrying value of the reporting unit. Based on these qualitative assessments, we determined that the fair value of the reporting unit was more likely than not greater than the carrying value of the reporting unit. Estimates and assumptions used to perform the impairment evaluation are inherently uncertain and can significantly affect the outcome of the analysis. The estimates and assumptions we use in the annual goodwill impairment assessment included market participant considerations and future forecasted operating results. Changes in operating results and other assumptions could materially affect these estimates. Impairment of Long-Lived Assets We review long-lived assets for possible impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset or asset group to its estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the undiscounted cash flows are less than the carrying amount of the asset or asset group, an impairment loss is recognized for the amount by which the carrying amount of the asset or asset group exceeds its fair value. Research and Development The costs associated with research and development for the purpose of developing and improving new products are expensed as incurred. For the years ended December 31, 2019, 2018, and 2017 research and development costs amounted to approximately $14.8 million, $13.5 million, and $13.0 million, respectively. 40
Advertising Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2019, 2018, and 2017 was approximately $0.8 million, $0.8 million, and $1.7 million, respectively. Shipping and Handling We incur shipping and handling costs in the distribution of products sold that are recorded in cost of sales. Shipping charges that are billed to the customer are recorded in revenues and as an expense in cost of sales. For the years ended December 31, 2019, 2018, and 2017 shipping and handling fees amounted to approximately $14.4 million, $12.6 million, and $11.4 million, respectively. Income Taxes Income taxes are accounted for under the asset and liability method. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Excess tax benefits and deficiencies are reported as an income tax benefit or expense on the statement of income and are treated as discrete items to the income tax provision in the reporting period in which they occur. We establish accruals for unrecognized tax positions when it is more likely than not that our tax return positions may not be fully sustained. The Company records a valuation allowance for deferred tax assets when, in the opinion of management, it is more likely than not that deferred tax assets will not be realized. Share-Based Compensation The Company recognizes expense for its share-based compensation based on the fair value of the awards that are granted. The Company’s share-based compensation plans provide for the granting of stock options and restricted stock. The fair values of stock options are estimated at the date of grant using the Black-Scholes-Merton option valuation model. The use of the Black-Scholes-Merton option valuation model requires the input of subjective assumptions. The fair value of restricted stock awards is based on the fair market value of AAON common stock on the respective grant dates, reduced for the present value of dividends. Compensation expense is recognized on a straight-line basis over the service period of the related share-based compensation award. Stock options and restricted stock awards, granted to employees, vest at a rate of 20% per year. Restricted stock awards granted to directors historically vest one-third each year or, if granted on or after May 2019, vest over the shorter of directors' remaining elected term or one-third each year. If the employee or director is retirement eligible (as defined by the Long Term Incentive Plans) or becomes retirement eligible during service period of the related share-based compensation award, the service period is the lesser of 1) the grant date, if retirement eligible on grant date, or 2) the period between grant date and retirement eligible date. Forfeitures are accounted for as they occur. Derivative Instruments In the course of normal operations, the Company occasionally enters into contracts such as forward priced physical contracts for the purchase of raw materials that qualify for and are designated as normal purchase or normal sale contracts. Such contracts are exempted from the fair value accounting requirements and are accounted for at the time product is purchased or sold under the related contract. The Company does not engage in speculative transactions, nor does the Company hold or issue financial instruments for trading purposes. Revenue Recognition On January 1, 2018, we adopted the new accounting standard FASB ASC Topic 606, Revenue from Contracts with Customers, and all the related amendments to all contracts using the retrospective method. The impact at adoption was not material to the consolidated financial statements. The new accounting policy provides results substantially consistent with prior revenue recognition policies. The Company recognizes revenue when it satisfies the performance obligation in its contracts. Most of the Company’s products are highly customized, cannot be resold to other customers and the cost of rework to be resold is not economical. The Company has a formal cancellation policy and generally does not accept returns on these units. As a result, many of the Company’s products do not have an alternative use and therefore, for these products 41
we recognize revenue over the time it takes to produce the unit. For all other products that are part sales or standardized units, we satisfy the performance obligation when the control is passed to the customer, generally at time of shipment. Final sales prices are fixed based on purchase orders. Sales allowances and customer incentives are treated as reductions to sales and are provided for based on historical experiences and current estimates. Sales of our products are moderately seasonal with the peak period being July - November of each year. In addition, the Company presents revenues net of sales tax and net of certain payments to our independent manufacturer representatives (“Representatives”). Representatives are national companies that are in the business of providing HVAC units and other related products and services to customers. The end user customer orders a bundled group of products and services from the Representative and expects the Representative to fulfill the order. Only after the specifications are agreed to by the Representative and the customer, and the decision is made to use an AAON HVAC unit, will we receive notice of the order. We establish the amount we must receive for our HVAC unit (“minimum sales price”), but do not control the total order price that is negotiated by the Representative with the end user customer. We are responsible for billings and collections resulting from all sales transactions, including those initiated by our Representatives. The Representatives submit the total order price to us for invoicing and collection. The total order price includes our minimum sales price and an additional amount which may include both the Representatives’ fee and amounts due for additional products and services required by the customer. These additional products and services may include controls purchased from another manufacturer to operate the unit, start-up services, and curbs for supporting the unit (“Third Party Products”). All are associated with the purchase of a HVAC unit but may be provided by the Representative or another third party. The Company is under no obligation related to Third Party Products. The Representatives’ fee and Third Party Products amounts (“Due to Representatives”) are paid only after all amounts associated with the order are collected from the customer. The amount of payments to our representatives was $46.1 million, $47.8 million, and $51.8 million for each of the years ended December 31, 2019, 2018, and 2017, respectively. The Company also sells extended warranties on parts for various lengths of time ranging from six months to 10 years. Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period. Insurance Reserves Under the Company’s insurance programs, coverage is obtained for significant liability limits as well as those risks required to be insured by law or contract. It is the policy of the Company to self-insure a portion of certain expected losses related primarily to workers’ compensation and medical liability. Provisions for losses expected under these programs are recorded based on the Company’s estimates of the aggregate liabilities for the claims incurred. Product Warranties A provision is made for the estimated cost of maintaining product warranties to customers at the time the product is sold based upon historical claims experience by product line. The Company records a liability and an expense for estimated future warranty claims based upon historical experience and management’s estimate of the level of future claims. Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the liability and expense in the current year. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because these estimates and assumptions require significant judgment, actual results could differ from those estimates and could have a significant impact on our results of operations, financial position and cash flows. We reevaluate our estimates and assumptions as needed, but at a minimum on a quarterly basis. The most significant estimates include, but are not limited to, the allowance for doubtful accounts, inventory reserves, 42
warranty accrual, workers compensation accrual, medical insurance accrual, share-based compensation and income taxes. Actual results could differ materially from those estimates. 4. Revenue Recognition Disaggregated net sales by major source: Years Ended December 31, 2019 2018 2017 (in thousands) Rooftop Units $ 349,427 $ 333,105 $ 317,414 Condensing Units 18,475 18,282 19,276 Air Handlers 24,265 21,905 22,570 Outdoor Mechanical Rooms 1,643 2,408 3,238 Water Source Heat Pumps 25,447 14,660 9,911 Part Sales 33,331 26,732 20,756 Other 16,745 16,855 12,067 Net Sales $ 469,333 $ 433,947 $ 405,232 Other sales include freight, extended warranties and miscellaneous revenue. Disaggregated units sold by major source: Years Ended December 31, 2019 2018 2017 Rooftop Units 14,448 15,273 16,003 Condensing Units 1,738 2,007 2,252 Air Handlers 2,372 2,500 2,577 Outdoor Mechanical Rooms 33 38 64 Water Source Heat Pumps 7,716 5,334 2,485 Total Units 26,307 25,152 23,381 5. Business Combination On February 28, 2018, we closed on the purchase of substantially all of the assets of WattMaster Controls, Inc. (“WattMaster”). The assets acquired consisted primarily of intellectual property, receivables, inventory and fixed assets. The Company also hired substantially all of the WattMaster employees. These assets and workforce will allow us to accelerate the development of our own electronic controllers for air distribution systems. We funded the business combination with available cash of $6.0 million. In May 2018, we paid the final working capital settlement of $0.4 million with available cash. We have included the results of WattMaster’s operations in our consolidated financial statements beginning March 1, 2018. 43
The following table presents the allocation of the consideration paid to the assets acquired and liabilities assumed, based on their fair values, in the acquisition of WattMaster described above: (in thousands) Accounts receivable $ 1,082 Inventories 1,380 Property, plant and equipment 340 Intellectual property 700 Goodwill 3,229 Assumed current liabilities (354) Consideration paid $ 6,377 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. Goodwill represents a premium paid to acquire the skilled workforce of the business acquired and is deductible for federal income tax purposes. 6. Leases We adopted ASU No. 2016-02, Leases (Topic 842), as amended, as of January 1, 2019, using the transition method, which becomes effective upon the date of adoption. The transition method allows entities to initially apply the new leases standard at the adoption date (January 1, 2019) and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We have also elected the short-term lease measurement and recognition exemption which does not require balance sheet presentation for short-term leases. The Company historically does not enter into numerous or material lease agreements to support its manufacturing operations. Furthermore, any lease agreements entered into are usually less than a year and for leases on non material assets such as warehouse vehicles and office equipment. Adoption of the new standard resulted in the recording of additional lease right of use assets and lease liabilities of approximately $1.8 million as of January 1, 2019, which mostly relates to the multi-year facility lease assumed in the 2018 WattMaster acquisition (Note 5). The cumulative-effect adjustment to the opening balance was immaterial to the consolidated financial statements as a whole. The standard did not materially impact our consolidated net earnings or cash flows. 7. Accounts Receivable Accounts receivable and the related allowance for doubtful accounts are as follows: December 31, 2019 2018 (in thousands) Accounts receivable $ 67,752 $ 54,342 Less: Allowance for doubtful accounts (353) (264) Total, net $ 67,399 $ 54,078 44
Years Ended December 31, 2019 2018 2017 Allowance for doubtful accounts: (in thousands) Balance, beginning of period $ 264 $ 119 $ 90 Provisions for losses on accounts receivable, net of adjustments 91 174 179 Accounts receivable written off, net of recoveries (2) (29) (150) Balance, end of period $ 353 $ 264 $ 119 8. Inventories The components of inventories and the related changes in the allowance for excess and obsolete inventories are as follows: December 31, 2019 2018 (in thousands) Raw materials $ 68,842 $ 67,995 Work in process 1,825 4,060 Finished goods 5,578 6,767 76,245 78,822 Less: Allowance for excess and obsolete inventories (2,644) (1,210) Total, net $ 73,601 $ 77,612 Years Ended December 31, 2019 2018 2017 Allowance for excess and obsolete inventories: (in thousands) Balance, beginning of period $ 1,210 $ 1,118 $ 1,382 Provisions for excess and obsolete inventories 1,454 152 102 Inventories written off (20) (60) (366) Balance, end of period $ 2,644 $ 1,210 $ 1,118 9. Intangible Assets Our intangible assets consist of the following: December 31, 2019 2018 (in thousands) Intellectual property $ 700 $ 700 Less: Accumulated amortization (428) (194) Total, net $ 272 $ 506 Amortization expense recorded in cost of sales is as follows: Years Ended December 31, 2019 2018 2017 (in thousands) Amortization expense $ 234 $ 194 $ — 45
10. Note Receivable In connection with the closure of our Canadian facility on May 18, 2009, we sold land and a building in September 2010 and assumed a note receivable from the borrower secured by the property. The C$1.1 million, 15 year note has an interest rate of 4.0% and is payable to us monthly, and has a C$0.6 million balloon payment due in October 2025. Interest payments are recognized in interest income. We evaluate the note for impairment on a quarterly basis. We determine the note receivable to be impaired if we are uncertain of its collectability based on the contractual terms. At December 31, 2019 and 2018, there was no impairment. 11. Supplemental Cash Flow Information Years Ended December 31, 2019 2018 2017 Supplemental disclosures: (in thousands) Interest paid $ — $ 6 $ — Income taxes paid, net 2,172 14,979 16,951 Non-cash investing and financing activities: Non-cash capital expenditures 863 481 832 12. Warranties The Company has warranties with various terms from 18 months for parts to 25 years for certain heat exchangers. The Company has an obligation to replace parts if conditions under the warranty are met. A provision is made for estimated warranty costs at the time the related products are sold based upon the warranty period, historical trends, new products and any known identifiable warranty issues. Changes in the warranty accrual are as follows: Years Ended December 31, 2019 2018 2017 Warranty accrual: (in thousands) Balance, beginning of period $ 11,421 $ 10,483 $ 7,936 Payments made (6,816) (7,869) (8,686) Provisions 8,047 9,669 11,233 Change in estimate — (862) — Balance, end of period $ 12,652 $ 11,421 $ 10,483 Warranty expense: $ 8,047 $ 8,807 $ 11,233 The change in estimate relates to the Company’s failure rate calculation. During 2018, in reviewing claims data, the Company noted specific claims that were the result of an isolated incident and not representative of the Company’s historical performance or representative of expected future claims. As such, these claims were accounted for as a specific accrual for warranty liability and excluded from our failure rate that the Company utilizes in estimating future claims. 46
13. Accrued Liabilities At December 31, accrued liabilities were comprised of the following: December 31, 2019 2018 (in thousands) Warranty $ 12,652 $ 11,421 Due to representatives 11,538 11,024 Payroll 5,058 4,182 Profit sharing 1,721 1,255 Workers' compensation 522 567 Medical self-insurance 707 1,207 Customer prepayments 4,627 2,367 Donations 354 150 Employee vacation time 3,804 3,173 Other 3,286 1,529 Total $ 44,269 $ 36,875 14. Revolving Credit Facility Our revolving credit facility (“BOK Revolver”), as amended, provides for maximum borrowings of $30.0 million which is provided by BOKF, NA dba Bank of Oklahoma (“Bank of Oklahoma”). Under the line of credit, there was one standby letter of credit totaling $1.7 million as of December 31, 2019. Borrowings available under the revolving credit facility at December 31, 2019, were $28.3 million. Interest on borrowings is payable monthly at LIBOR plus 2.0%. No fees are associated with the unused portion of the committed amount. As of December 31, 2019 and 2018, we had no balance outstanding under our revolving credit facility. The revolving credit facility expires on July 26, 2021. At December 31, 2019 and 2018, the weighted average interest rate of our revolving credit facility was 4.3% and 4.2%, respectively. At December 31, 2019, we were in compliance with our financial covenants. These covenants require that we meet certain parameters related to our tangible net worth and total liabilities to tangible net worth ratio. At December 31, 2019 our tangible net worth was $290.1 million, which meets the requirement of being at or above $175.0 million. Our total liabilities to tangible net worth ratio was 0.3 to 1.0, which meets the requirement of not being above 2 to 1. On October 24, 2019 we amended the BOK Revolver to allow for the occurrence of transactions associated with the New Markets Tax Credit transaction (Note 19). This amendment also removed section 8.1.4 which required our Chief Executive Officer, Norman Asbjornson, to maintain ownership of 25% of the Company. As Mr. Norman Asbjornson does not currently, and has not for several years maintained this level of ownership, a limited waiver of default was also added to the amendment. 15. Income Taxes The provision (benefit) for income taxes consists of the following: Years Ended December 31, 2019 2018 2017 (in thousands) Current $ 7,282 $ 10,530 $ 21,543 Deferred 6,038 2,641 (749) Total $ 13,320 $ 13,171 $ 20,794 47
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate before the provision for income taxes. The reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: Years Ended December 31, 2019 2018 2017 Federal statutory rate 21 % 21 % 35 % State income taxes, net of federal benefit 5 % 6 % 5 % Remeasurement of deferred taxes —% —% (5)% Domestic manufacturing deduction —% —% (3)% Excess tax benefits (3)% (2)% (3)% Return to provision (1)% —% —% Oklahoma amended tax returns (1)% —% —% Other (1)% (1)% (1)% 20 % 24 % 28 % The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. Major changes under the Act include the following: • Reducing the corporate rate to 21 percent • Doubling bonus depreciation to 100 percent for five years • Further limitations on executive compensation deductions • Eliminating the domestic manufacturing deduction As a result of these changes, the Company adjusted its deferred tax assets and liabilities in 2017 using the newly enacted rates for the periods when they are expected to be realized. The remeasurement in 2017 resulted in a benefit to income taxes of $3.7 million. The new bonus depreciation provisions resulted in the Company taking $3.2 million of bonus depreciation in 2017. The Company also has historically taken the domestic manufacturing deduction. The Company will no longer receive the benefit of this deduction which typically has lowered our effective tax rate by 3.0%. The Company sometimes has executive compensation that exceeds the $1.0 million limitation. Typically the limit is exceeded due to the volume of stock activity performed by the executives during the year. The limit could also be exceeded by the Chief Executive Officer receiving the maximum amount under our executive annual cash incentive bonus plan. Any compensation that exceeded this limitation in 2018 and in the future will be a permanent difference and cause an increase to our income tax provision. Upon completion of the Company's 2018 tax return in 2019, the Company recorded additional benefit due to higher than expected research and development credit of $0.6 million. Additionally in 2019, the Company determined it could take advantage of an additional 1% tax credit in Oklahoma for years in which the Company's location was deemed to be within an enterprise zone. The additional OK Credit for being in an enterprise zone, or otherwise allowable under Oklahoma law, resulted in a benefit of $1.2 million. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. 48
The significant components of the Company’s deferred tax assets and liabilities are as follows: December 31, 2019 2018 (in thousands) Deferred income tax assets (liabilities): Accounts receivable and inventory reserves $ 835 $ 401 Warranty accrual 3,523 3,105 Other accruals 1,919 2,445 Share-based compensation 3,906 3,264 Donations 194 80 Other, net 2,140 851 Total deferred income tax assets 12,517 10,146 Property & equipment (27,814) (19,405) Total deferred income tax liabilities $ (27,814) $ (19,405) Net deferred income tax liabilities $ (15,297) $ (9,259) We file income tax returns in the U.S., state and foreign income tax returns jurisdictions. We are subject to U.S. examinations for tax years 2016 to present, and to non-U.S. income tax examinations for the tax years 2015 to present. In addition, we are subject to state and local income tax examinations for tax years 2015 to present. The Company continues to evaluate its need to file returns in various state jurisdictions. Any interest or penalties would be recognized as a component of income tax expense. 16. Share-Based Compensation On May 22, 2007, our stockholders adopted a Long-Term Incentive Plan (“LTIP”) which provided an additional 3.3 million shares that could be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance units and performance awards, in addition to the shares from the previous plan, the 1992 Plan. Since inception of the LTIP, non-qualified stock options and restricted stock awards have been granted with a five year vesting schedule. Under the LTIP, the exercise price of shares granted may not be less than 100% of the fair market value at the date of the grant. On May 24, 2016, our stockholders adopted the 2016 Long-Term Incentive Plan (“2016 Plan”) which provides for approximately 6.4 million shares, comprised of 3.4 million new shares provided for under the 2016 Plan, approximately 0.4 million shares that were available for issuance under the previous LTIP that are now authorized for issuance under the 2016 Plan, and an additional 2.6 million shares that were approved by the stockholders on May 15, 2018. Under the 2016 Plan, shares can be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance awards, dividend equivalent rights, and other awards. Under the 2016 Plan, the exercise price of shares granted may not be less than 100% of the fair market value at the date of the grant. The 2016 Plan is administered by the Compensation Committee of the Board of Directors or such other committee of the Board of Directors as is designated by the Board of Directors (the “Committee”). Membership on the Committee is limited to independent directors. The Committee may delegate certain duties to one or more officers of the Company as provided in the 2016 Plan. The Committee determines the persons to whom awards are to be made, determines the type, size and terms of awards, interprets the 2016 Plan, establishes and revises rules and regulations relating to the 2016 Plan and makes any other determinations that it believes necessary for the administration of the 2016 Plan. 49
The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during December 31, 2019, 2018, and 2017 using a Black Scholes-Merton Model: 2019 2018 2017 Director and Officers: Expected dividend yield $ 0.32 $ 0.26 $ 0.26 Expected volatility 29.54 % 29.73 % 30.81 % Risk-free interest rate 2.40 % 2.20 % 1.90 % Expected life (in years) 5.00 5.00 5.00 Employees: Expected dividend yield $ 0.32 $ 0.26 $ 0.26 Expected volatility 29.54 % 29.82 % 30.67 % Risk-free interest rate 2.38 % 2.51 % 1.89 % Expected life (in years) 5.00 5.00 5.00 The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date. The following is a summary of stock options vested and exercisable as of December 31, 2019: Weighted Average Weighted Range of Number Remaining Average Exercise of Contractual Exercise Intrinsic Prices Shares Life Price Value (in thousands) $7.18 - 34.10 451,077 5.44 $ 23.47 $ 11,702 $34.15 - 40.87 86,122 7.82 36.33 1,126 $41.37 - 50.68 1,750 1.81 41.59 14 Total 538,949 5.81 $ 25.58 $ 12,842 The following is a summary of stock options vested and exercisable as of December 31, 2018: Weighted Average Weighted Range of Number Remaining Average Exercise of Contractual Exercise Intrinsic Prices Shares Life Price Value (in thousands) $5.67 - 32.80 456,223 5.72 $ 20.25 $ 6,757 $32.85 - 34.10 42,552 7.47 33.95 47 $34.15 - 42.94 17,202 8.30 35.19 7 Total 515,977 5.95 $ 21.88 $ 6,811 50
The following is a summary of stock options vested and exercisable as of December 31, 2017: Weighted Average Weighted Range of Number Remaining Average Exercise of Contractual Exercise Intrinsic Prices Shares Life Price Value (in thousands) $4.54 - 22.76 424,130 4.36 $ 12.41 $ 10,303 $23.57 - 32.85 107,456 8.31 30.10 709 $32.90 - 37.30 25,725 9.19 34.07 68 Total 557,311 5.35 $ 16.82 $ 11,080 A summary of option activity under the plans is as follows: Weighted Average Exercise Options Shares Price Outstanding at December 31, 2018 2,445,849 $ 30.77 Granted 1,975,820 41.50 Exercised (444,389) 28.40 Forfeited or Expired (350,233) 36.78 Outstanding at December 31, 2019 3,627,047 $ 36.32 Exercisable at December 31, 2019 538,949 $ 25.58 The total pre-tax compensation cost related to unvested stock options not yet recognized as of December 31, 2019 is $19.4 million and is expected to be recognized over a weighted-average period of 3.58 years. The total intrinsic value of options exercised during the years ended December 31, 2019, 2018, and 2017 was $8.1 million, $5.4 million, and $4.5 million, respectively. The cash received from options exercised during the year ended December 31, 2019, 2018, and 2017 was $12.6 million, $5.0 million, and $2.3 million, respectively. The impact of these cash receipts is included in financing activities in the accompanying Consolidated Statements of Cash Flows. A summary of the unvested restricted stock awards is as follows: Weighted Average Grant date Restricted stock Shares Fair Value Unvested at December 31, 2018 292,450 $ 28.54 Granted 113,018 40.98 Vested (122,278) 26.38 Forfeited (15,706) 34.71 Unvested at December 31, 2019 267,484 $ 34.42 At December 31, 2019, unrecognized compensation cost related to unvested restricted stock awards was approximately $4.6 million which is expected to be recognized over a weighted average period of 2.64 years. 51
A summary of share-based compensation is as follows for the years ended December 31, 2019, 2018, and 2017: 2019 2018 2017 Grant date fair value of awards during the period: (in thousands) Options $ 20,442 $ 12,932 $ 3,699 Restricted stock 4,631 3,609 4,217 Total $ 25,073 $ 16,541 $ 7,916 2019 2018 2017 Share-based compensation expense: (in thousands) Options $ 9,145 $ 5,344 $ 3,095 Restricted stock 2,654 2,518 3,218 Total $ 11,799 $ 7,862 $ 6,313 2019 2018 2017 Income tax benefit related to share-based compensation: (in thousands) Options $ 1,197 $ 980 $ 1,413 Restricted stock 575 353 1,051 Total $ 1,772 $ 1,333 $ 2,464 17. Employee Benefits Defined Contribution Plan - 401(k) We sponsor a defined contribution plan (the “Plan”). Eligible employees may make contributions in accordance with the Plan and IRS guidelines. In addition to the traditional 401(k), eligible employees are given the option of making an after-tax contribution to a Roth 401(k) or a combination of both. The Plan provides for automatic enrollment and for an automatic increase to the deferral percentage at January 1st of each year and each year thereafter. Eligible employees are automatically enrolled in the Plan at a 6% deferral rate and currently contributing employees deferral rates will be increased to 6% unless their current rate is above 6% or the employee elects to decline the automatic enrollment or increase. Administrative expenses are paid for by Plan participants. The Company paid no administrative expenses for the years ended 2019, 2018 and 2017. The Company matches 175% up to 6% of employee contributions of eligible compensation. Additionally, Plan participant forfeitures are used to reduce the cost of the Company contributions. Years Ended December 31, 2019 2018 2017 (in thousands) Contributions made to the defined contribution plan $ 7.0 $ 8.1 $ 6.1 52
Profit Sharing Bonus Plan We maintain a discretionary profit sharing bonus plan under which approximately 10% of pre-tax profit is paid to eligible employees on a quarterly basis in order to reward employee productivity. Eligible employees are regular full-time employees who are actively employed and working on the first and last days of the calendar quarter and who were employed full-time for at least three full months prior to the beginning of the calendar quarter, excluding the Company's senior leadership team. Years Ended December 31, 2019 2018 2017 (in thousands) Profit sharing bonus plan expense $ 7.4 $ 6.2 $ 8.4 Employee Medical Plan We self-insure for our employee's health insurance. Eligible employees are regular full-time employees who are actively employed and working. Participants are expected to pay a portion of the premium costs for coverage of the benefits provided under the Plan. We estimate our self-insurance liabilities using an analysis provided by our claims administrator and our historical claims experience. In addition, the Company matches 175% of a participating employee's allowed contributions to a qualified health saving account to assist employees with our heath insurance plan deductibles. Years Ended December 31, 2019 2018 2017 (in thousands) Medical claim payments $ 5.9 $ 5.9 $ 4.8 Heath saving account payments 3.3 2.9 2.5 18. Stockholders’ Equity Stock Repurchase The Board has authorized three stock repurchase programs for the Company. The Company may purchase shares on the open market from time to time, up to a total of 5.7 million shares. The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market. Our open market repurchase programs are as follows: Agreement Execution Date Authorized Repurchase $ Expiration Date June 2, 2016 $25 million April 15, 2017 May 16, 2018 $15 million March 1, 2019 March 5, 2019 $20 million March 4, 2020 The Company also has a stock repurchase arrangement by which employee-participants in our 401(k) savings and investment plan are entitled to have shares in AAON, Inc. stock in their accounts sold to the Company. The maximum number of shares to be repurchased is contingent upon the number of shares sold by employee- participants. Lastly, the Company repurchases shares of AAON, Inc. stock from certain of its directors and employees for payment of statutory tax withholdings on stock transactions. All other repurchases from directors or employees are contingent upon Board approval. All repurchases are done at current market prices. 53
Our repurchase activity is as follows: 2019 2018 2017 (in thousands, except share and per share data) Program Shares Total $ $ per share Shares Total $ $ per share Shares Total $ $ per share Open market 5,799 $ 200 $ 34.46 252,272 $ 8,374 $ 33.19 8,676 $ 284 $ 32.69 401(k) 419,963 19,386 46.16 497,753 18,472 37.11 467,580 16,336 34.94 Directors & employees 28,668 1,207 42.11 33,751 1,097 32.49 45,878 1,614 35.19 Total 454,430 $ 20,793 $ 45.76 783,776 $ 27,943 $ 35.65 522,134 $ 18,234 $ 34.92 Inception to Date (in thousands, except share and per share data) Program Shares Total $ $ per share Open market 4,101,566 $ 69,806 $ 17.02 401(k) 7,467,739 119,927 16.06 Directors & employees 1,981,929 19,582 9.88 Total 13,551,234 $ 209,315 $ 15.45 Dividends At the discretion of the Board of Directors, we pay semi-annual cash dividends. Board approval is required to determine the date of declaration and amount for each semi-annual dividend payment. Our recent dividends are as follows: Declaration Date Record Date Payment Date Dividend per Share May 16, 2017 June 9, 2017 July 7, 2017 $0.13 November 7, 2017 November 30, 2017 December 21, 2017 $0.13 May 18, 2018 June 8, 2018 July 6, 2018 $0.16 November 8, 2018 November 29, 2018 December 20, 2018 $0.16 May 20, 2019 June 3, 2019 July 1, 2019 $0.16 November 6, 2019 November 27, 2019 December 18, 2019 $0.16 We paid cash dividends of $16.6 million, $16.7 million, and $13.7 million in 2019, 2018, and 2017, respectively. 19. 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 “Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “Project”). In connection with the NMTC transaction, the Company received a $23.0 million NMTC allocation for the Project and secured low interest financing and the potential for future debt forgiveness related to the Project. Upon closing of the NMTC transaction, the Company provided an aggregate of approximately $15.9 million to the Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%. This $15.9 million in proceeds plus capital contributed from the Investor was used to make an aggregate $22.5 million loan to a subsidiary of the Company. This financing arrangement is secured by equipment at the Company's Longview, Texas facilities and a guarantee from the Company, including an unconditional guarantee of NMTCs. This transaction also includes a put/call feature that either of which can be exercised at the end of the seven-year compliance period. The Investor may exercise its put option or the Company can exercise the call, both of which could serve to trigger forgiveness of a portion of the debt. The value attributable to the put/call is nominal. The 54
Investor's interest of $6.3 million is recorded in New market tax credit obligation on the consolidated balance sheet. The Company incurred approximately $0.3 million of debt issuance costs related to the above transactions, which are being amortized over the life of the transaction. The Investor is subject to 100 percent recapture of the NMTC it receives for a period of seven years, as provided in the Internal Revenue Code and applicable U.S. Treasury regulations in the event that the financing facility of the Borrower under the transaction (AAON Coil Products, Inc.) becomes ineligible for NMTC treatment per the Internal Revenue Code requirements. The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Noncompliance with applicable requirements could result in the Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the Investor for any loss or recapture of the NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement. The Investor and its majority owned community development entity are considered VIEs and the Company is the primary beneficiary of the VIEs. This conclusion was reached based on the following: • the ongoing activities of the VIEs--collecting and remitting interest and fees and NMTC compliance--were all considered in the initial design and are not expected to significantly affect performance throughout the life of the VIE; • contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity; • the Investor lacks a material interest in the underling economics of the project; and • the Company is obligated to absorb losses of the VIEs. Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements. There are no other assets, liabilities or transaction in these VIEs outside of the financing transactions executed as part of the NMTC arrangement. 20. Commitments and Contingencies We are subject to various claims and legal actions that arise in the ordinary course of business. We closely monitor these claims and legal actions and frequently consult with our legal counsel to determine whether they may, when resolved, have a material adverse effect on our financial position, results of operations or cash flows and we accrue and/or disclose loss contingencies as appropriate. We have concluded that the likelihood is remote that the ultimate resolution of any pending litigation or claims will be material or have a material adverse effect on the Company’s business, financial position, results of operations or cash flows. We are occasionally party to short-term, cancellable and occasionally non-cancellable, fixed price contracts with major suppliers for the purchase of raw material and component parts. We expect to receive delivery of raw materials for use in our manufacturing operations. These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption. At December 31, 2019, we had one material contractual purchase obligation for approximately $2.5 million that expires in December 2020. 21. New Accounting Pronouncements Changes to U.S. GAAP are established by the FASB in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification. We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements and notes thereto. In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes. The ASU includes simplification of accounting for income taxes for franchise taxes, step up in tax basis for goodwill as part of a business combination and interim reporting of enacted changes in tax laws. The ASU is effective for the 55
Company beginning after December 15, 2020. We do not expect ASU 2019-12 will have a material effect on our consolidated financial statements and notes thereto. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurements: Changes to the Disclosure Requirement for Fair Value Measurements. The ASU includes additional disclosure requirements for unrealized gains and losses for Level 3 fair value measurement and significant observable inputs used to develop Level 3 fair value measurements. The ASU is effective for the Company beginning after December 15, 2019. We do not expect ASU 2018-13 will have a material effect on our consolidated financial statements and notes thereto. 22. Earnings Per Share Basic net income per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share assumes the conversion of all potentially dilutive securities and is calculated by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus all potentially dilutive securities. Dilutive common shares consist primarily of stock options and restricted stock awards. The following table sets forth the computation of basic and diluted earnings per share: 2019 2018 2017 Numerator: (in thousands, except share and per share data) Net income $ 53,711 $ 42,329 $ 53,830 Denominator: Basic weighted average shares 52,079,865 52,284,616 52,572,496 Effect of dilutive stock options and restricted stock 555,550 383,323 506,238 Diluted weighted average shares 52,635,415 52,667,939 53,078,734 Earnings per share: Basic $ 1.03 $ 0.81 $ 1.02 Dilutive $ 1.02 $ 0.80 $ 1.01 Anti-dilutive shares: Shares 1,868,087 1,920,313 785,825 23. Related Parties The Company purchases some supplies from an entity controlled by the Company’s CEO. The Company sometimes makes sales to the CEO for parts. Additionally, the Company sells units to an entity owned by a member of the President's immediate family. This entity is also one of the Company’s Representatives and as such, the Company makes payments to the entity for third party products. Following is a summary of transactions and balances with affiliates: Years Ended December 31, 2019 2018 2017 (in thousands) Sales to affiliates $ 886 $ 1,442 $ 1,579 Payments to affiliates 332 342 432 December 31, 2019 2018 (in thousands) Due from affiliates $ 22 $ 79 Due to affiliates 2 — 56
24. Subsequent Events Subsequent to December 31, 2019 and through February 24, 2020, the Company repurchased 11,144 shares for $0.6 million from employees for payment of statutory tax withholdings on stock transactions and 73,780 shares for $3.9 million from our 401(k) savings and investment plan. 25. Quarterly Results (Unaudited) (As Corrected) The following is a summary of the quarterly results of operations for the years ended December 31, 2019 and 2018: Quarter First Second Third Fourth (in thousands, except per share data) 2019 Net sales $ 113,822 $ 119,437 $ 113,500 $ 122,574 Gross profit 25,430 30,204 27,410 36,381 Net income 8,757 13,391 14,290 17,273 Earnings per share: Basic $ 0.17 $ 0.26 $ 0.27 $ 0.33 Diluted $ 0.17 $ 0.26 $ 0.26 $ 0.33 2018 Net sales $ 99,082 $ 109,588 $ 112,937 $ 112,340 Gross profit 15,196 27,661 32,830 27,846 Net income 3,154 11,697 14,514 12,964 Earnings per share: Basic $ 0.06 $ 0.22 $ 0.28 $ 0.25 Diluted $ 0.06 $ 0.22 $ 0.27 $ 0.25 57
The following tables reconcile our previously reported quarterly financial information with the corrected quarterly financial information as of and for the three months ended March 31, 2019 and 2018. Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 Previously Previously Reported Corrections As Corrected Reported Corrections As Corrected (in thousands, except share and per share data) Net sales $ 113,822 $ — $ 113,822 $ 99,082 $ — $ 99,082 Cost of sales 88,029 363 (a) 88,392 83,692 194 (a) 83,886 Gross profit 25,793 (363) 25,430 15,390 (194) 15,196 Selling, general and administrative expenses 11,001 2,676 (b) 13,677 10,219 1,432 (b) 11,651 Loss (gain) on disposal of assets 284 — 284 (7) — (7) Income from operations 14,508 (3,039) 11,469 5,178 (1,626) 3,552 Interest income, net 9 — 9 68 — 68 Other (expense) income, net (26) — (26) (6) — (6) Income before taxes 14,491 (3,039) 11,452 5,240 (1,626) 3,614 Income tax provision 3,589 (894) (c) 2,695 980 (520) (c) 460 Net income $ 10,902 $ (2,145) $ 8,757 $ 4,260 $ (1,106) $ 3,154 Earnings per share: Basic $ 0.21 $ (0.04) $ 0.17 $ 0.08 $ (0.02) $ 0.06 Diluted $ 0.21 $ (0.04) $ 0.17 $ 0.08 $ (0.02) $ 0.06 Weighted average shares outstanding: Basic 51,992,150 — 51,992,150 52,433,902 — 52,433,902 Diluted 52,369,660 — 52,369,660 52,910,223 — 52,910,223 Balance Sheet Data (at end of period): Current assets $ 146,798 $ (287) (c) $ 146,511 $ 154,687 $ (237) (c) $ 154,450 Total assets 319,525 (287) (c) 319,238 306,945 (237) (c) 306,708 Current liabilities 44,000 (918) (d) 43,082 57,292 (711) (d) 56,581 Deferred income taxes 12,713 (2,545) (c) 10,168 8,397 (1,926) (c) 6,471 Other long-term liabilities 3,442 — 3,442 1,645 — 1,645 Total stockholders' equity $ 259,370 $ 3,176 (e) $ 262,546 $ 239,611 $ 2,400 (e) $ 242,011 (a) The share-based compensation correction to cost of sales for the quarters ended March 31, 2019 and 2018 was approximately $0.4 million and $0.2 million, respectively. (b) The share-based compensation correction to selling, general and administrative expenses for the quarters ended March 31, 2019 and 2018 was approximately $3.0 million and $1.6 million, respectively. Included in the correction to selling, general and administrative expenses is a correction to our employee profit sharing bonus plan (Note 17) of approximately $0.4 million and $0.2 million for the quarters ended March 31, 2019 and 2018, respectively. (c) The corrections to income tax receivable and deferred tax liability are the tax effect of the share-based compensation correction. (d) This is the cumulative reduction of our employee profit sharing bonus plan (Note 17) liability as a result of the share- based compensation correction. The prior period costs will be recovered through our estimated 2019 fourth quarter payment which will be paid in early 2020. (e) This is the cumulative effect on stockholders' equity as result of the share-based compensation correction. See Note 2, Error Correction, for a descriptions of the changes in stockholders' equity in the consolidated statements of stockholders' equity for the years ended December 31, 2019 and 2018. 58
The following tables reconcile our previously reported quarterly financial information with the corrected quarterly financial information as of and for the three months ended June 30, 2019 and 2018. Three Months Ended June 30, 2019 Three Months Ended June 30, 2018 Previously Previously Reported Corrections As Corrected Reported Corrections As Corrected (in thousands, except share and per share data) Net sales $ 119,437 $ — $ 119,437 $ 109,588 $ — $ 109,588 Cost of sales 89,262 (29) (a) 89,233 82,003 (76) (a) 81,927 Gross profit 30,175 29 30,204 27,585 76 27,661 Selling, general and administrative expenses 13,481 (569) (b) 12,912 13,086 67 (b) 13,153 Loss (gain) on disposal of assets 6 — 6 (4) — (4) Income from operations 16,688 598 17,286 14,503 9 14,512 Interest income, net 31 — 31 67 — 67 Other (expense) income, net 17 — 17 12 — 12 Income before taxes 16,736 598 17,334 14,582 9 14,591 Income tax provision 3,775 168 (c) 3,943 2,891 3 (c) 2,894 Net income $ 12,961 $ 430 $ 13,391 $ 11,691 $ 6 $ 11,697 Earnings per share: Basic $ 0.25 $ 0.01 $ 0.26 $ 0.22 $ — $ 0.22 Diluted $ 0.25 $ 0.01 $ 0.26 $ 0.22 $ — $ 0.22 Cash dividends declared per common share: $ 0.16 $ — $ 0.16 $ 0.16 $ — $ 0.16 Weighted average shares outstanding: Basic 52,120,272 — 52,120,272 52,383,842 — 52,383,842 Diluted 52,474,199 — 52,474,199 52,717,787 — 52,717,787 Balance Sheet Data (at end of period): Current assets $ 168,630 $ (270) (c) $ 168,360 $ 154,665 $ (237) (c) $ 154,428 Total assets 342,251 (270) (c) 341,981 320,271 (237) (c) 320,034 Current liabilities 58,953 (851) (d) 58,102 71,673 (711) (d) 70,962 Deferred income taxes 14,938 (2,361) (c) 12,577 8,415 (1,922) (c) 6,493 Other long-term liabilities 3,791 — 3,791 1,746 — 1,746 Total stockholders' equity $ 264,569 $ 2,942 (e) $ 267,511 $ 238,437 $ 2,396 (e) $ 240,833 (a) The share-based compensation correction to cost of sales for the quarters ended June 30, 2019 and 2018 was approximately $0.1 million and $0.1 million, respectively. (b) The share-based compensation correction to selling, general and administrative expenses for the quarters ended June 30, 2019 and 2018 was approximately $0.6 million and $0.1 million, respectively. Included in the correction to selling, general and administrative expenses is a correction to our employee profit sharing bonus plan (Note 17) of approximately $0.1 million and $0.1 million for the quarters ended June 30, 2019 and 2018, respectively. (c) The corrections to income tax receivable and deferred tax liability are the tax effect of the share-based compensation correction. (d) This is the cumulative reduction of our employee profit sharing bonus plan (Note 17) liability as a result of the share- based compensation correction. The prior period costs will be recovered through our estimated 2019 fourth quarter payment which will be paid in early 2020. (e) This is the cumulative effect on stockholders' equity as result of the share-based compensation correction. See Note 2, Error Correction, for a descriptions of the changes in stockholders' equity in the consolidated statements of stockholders' equity for the years ended December 31, 2019 and 2018. 59
The following tables reconcile our previously reported quarterly financial information with the corrected quarterly financial information as of and for the three months ended September 30, 2019 and 2018. Three Months Ended September 30, 2019 Three Months Ended September 30, 2018 Previously Previously Reported Corrections As Corrected Reported Corrections As Corrected (in thousands, except share and per share data) Net sales $ 113,500 $ — $ 113,500 $ 112,937 $ — $ 112,937 Cost of sales 86,115 (25) (a) 86,090 80,174 (67) (a) 80,107 Gross profit 27,385 25 27,410 32,763 67 32,830 Selling, general and administrative expenses 12,994 (620) (b) 12,374 13,190 (523) (b) 12,667 Loss (gain) on disposal of assets 6 — 6 2 — 2 Income from operations 14,385 645 15,030 19,571 590 20,161 Interest income, net 9 — 9 36 — 36 Other (expense) income, net (7) — (7) 5 — 5 Income before taxes 14,387 645 15,032 19,612 590 20,202 Income tax provision 560 182 (c) 742 5,527 161 (c) 5,688 Net income $ 13,827 $ 463 $ 14,290 $ 14,085 $ 429 $ 14,514 Earnings per share: Basic $ 0.27 $ — $ 0.27 $ 0.27 $ 0.01 $ 0.28 Diluted $ 0.26 $ — $ 0.26 $ 0.27 $ — $ 0.27 Weighted average shares outstanding: Basic 52,111,444 — 52,111,444 52,238,796 — 52,238,796 Diluted 52,722,127 — 52,722,127 52,627,541 — 52,627,541 Balance Sheet Data (at end of period): Current assets $ 170,536 $ (252) (c) $ 170,284 $ 144,696 $ (220) (c) $ 144,476 Total Assets 352,152 (252) (c) 351,900 314,024 (220) (c) 313,804 Current liabilities 53,882 (779) (d) 53,103 53,716 (645) (d) 53,071 Deferred income taxes 15,034 (2,161) (c) 12,873 8,841 (1,744) (c) 7,097 Other long-term liabilities 3,669 — 3,669 1,838 — 1,838 Total stockholders' equity $ 279,567 $ 2,688 (e) $ 282,255 $ 249,629 $ 2,169 (e) $ 251,798 (a) The share-based compensation correction to cost of sales for the quarters ended September 30, 2019 and 2018 was approximately $0.1 million and $0.1 million, respectively. (b) The share-based compensation correction to selling, general and administrative expenses for the quarters ended September 30, 2019 and 2018 was approximately $0.7 million and $0.6 million, respectively. Included in the correction to selling, general and administrative expenses is a correction to our employee profit sharing bonus plan (Note 17) of approximately $0.1 million and $0.1 million for the quarters ended September 30, 2019 and 2018, respectively. (c) The corrections to income tax receivable and deferred tax liability are the tax effect of the share-based compensation corrections. (d) This is the cumulative reduction of our employee profit sharing bonus plan (Note 17) liability as a result of the share- based compensation correction. The prior period costs will be recovered through our estimated 2019 fourth quarter payment which will be paid in early 2020. (e) This is the cumulative effect on stockholders' equity as result of the share-based compensation correction. See Note 2, Error Correction, for a descriptions of the changes in stockholders' equity in the consolidated statements of stockholders' equity for the years ended December 31, 2019 and 2018. 60
The following table reconciles our previously reported quarterly financial information with the corrected quarterly financial information as of and for the three months ended December 31, 2018. Three Months Ended December 31, 2018 Previously Reported Corrections As Corrected (in thousands, except share and per share data) Net sales $ 112,340 $ — $ 112,340 Cost of sales 84,545 (51) (a) 84,494 Gross profit 27,795 51 27,846 Selling, general and administrative expenses 11,260 (537) (b) 10,723 Loss (gain) on disposal of assets (3) — (3) Income from operations 16,538 588 17,126 Interest income, net 25 — 25 Other (expense) income, net (58) — (58) Income before taxes 16,505 588 17,093 Income tax provision 3,969 160 (c) 4,129 Net income $ 12,536 $ 428 $ 12,964 Earnings per share: Basic $ 0.24 $ 0.01 $ 0.25 Diluted $ 0.24 $ 0.01 $ 0.25 Cash dividends declared per common share: $ 0.16 $ — $ 0.16 Weighted average shares outstanding: Basic 52,086,247 — 52,086,247 Diluted 52,420,529 — 52,420,529 Balance Sheet Data (at end of period): Current assets $ 140,861 $ (203) (c) $ 140,658 Total Assets 308,197 (203) (c) 307,994 Current liabilities 48,071 (580) (d) 47,491 Deferred income taxes 10,826 (1,567) (c) 9,259 Other long-term liabilities 1,801 — 1,801 Total stockholders' equity $ 247,499 $ 1,944 (e) $ 249,443 (a) The share-based compensation correction for cost of sales for the quarter ended December 31, 2018 was approximately $0.1 million. (b) The share-based compensation correction to selling, general and administrative expenses for the quarter ended December 31, 2018 was approximately $0.6 million. Included in the correction to selling, general and administrative expenses is a correction to our employee profit sharing bonus plan (Note 17) of approximately $0.1 million for the quarter ended December 31, 2018. (c) The corrections to income tax receivable and deferred tax liability are the tax effect of the share-based compensation corrections. (d) This is the cumulative reduction of our employee profit sharing bonus plan (Note 17) liability as a result of the share- based compensation correction. The prior period costs will be recovered through our estimated 2019 fourth quarter payment which will be paid in early 2020. (e) This is the cumulative effect on stockholders' equity as result of the share-based compensation correction. See Note 2, Error Correction, for a descriptions of the changes in stockholders' equity in the consolidated statements of stockholders' equity for the years ended December 31, 2018. 61
26. Segments The following table summarizes certain financial data related to our segments. Transactions between segments are recorded based on prices negotiated between the segments. Sales of units represents the selling price of our units plus freight and other miscellaneous charges less any returns and allowances. Parts includes sales of purchased and fabricated parts including our coils along with the related freight and less any returns and allowances. The “Other” category in the table below includes certain sales cost and expenses that are not allocated to the reportable segments. Asset information by segment is not easily identifiable or reviewed by the chief operating decision maker. As such, this information is not included below. Years Ended December 31, 2019 2018 2017 (in thousands) Sales Units $ 434,283 $ 406,331 $ 384,853 Parts - External 35,424 28,456 22,050 Parts - Inter-segment 28,053 29,385 29,293 Other (374) (840) (1,671) Eliminations (28,053) (29,385) (29,293) Net sales $ 469,333 $ 433,947 $ 405,232 Gross Profit Units $ 121,878 $ 108,214 $ 128,647 Parts - External 17,301 13,215 9,555 Parts - Inter-segment 985 865 426 Other (19,754) (17,896) (14,551) Eliminations (985) (865) (426) Gross profit $ 119,425 $ 103,533 $ 123,651 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not Applicable. Item 9A. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2019. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2019, due to the existence of the material weakness in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. 62
(b) Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In making our assessment of internal control over financial reporting, management has used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control— Integrated Framework. Based on our assessment, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2019 due to the material weakness in establishing the accounting policy for share-based compensation for retirement eligible employees. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by Grant Thornton LLP, our independent registered public accounting firm, as stated in their report which is included in this Item 9A of this report on Form 10-K. (c) Remediation of Material Weakness Our management is in the process of executing a plan to remediate the material weakness described above. This plan includes the implementing of a process and control to ensure a more complete and comprehensive review is performed for researching and establishing the Company's accounting policies. We have begun and expect to continue implementing the changes in our internal control over financial reporting to remediate the material weakness described above. The material weakness will not be considered remediated until the applicable remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. (d) Changes in Internal Control over Financial Reporting Except as discussed in item (c) above, there have been no changes in internal control over financial reporting that occurred during the fourth quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders AAON, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of AAON, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, because of the effect of the material weakness described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. The Company identified a material weakness related to the accounting for share-based compensation for retirement eligible employees. The Company’s controls related to technical accounting research and specific provisions of the plan agreements and the identification of and monitoring of retirement eligible employees were not designed effectively to ensure that the Company correctly interpreted and applied technical accounting requirements for share-based compensation for retirement eligible employees. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2019. The material weakness identified above was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and this report does not affect our report dated February 26, 2020 which expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable 64
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Tulsa, Oklahoma February 26, 2020 65
Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated by reference to the information contained in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our annual meeting of shareholders scheduled to be held on May 14, 2020. Code of Ethics We adopted a code of ethics that applies to our principal executive officer, principal financial officer and principal accounting officer or persons performing similar functions, as well as other employees and directors. Our code of ethics can be found on our website at www.aaon.com. We will also provide any person without charge, upon request, a copy of such code of ethics. Requests may be directed to AAON, Inc., 2425 South Yukon Avenue, Tulsa, Oklahoma 74107, attention Scott M. Asbjornson, or by calling (918) 382-6242. Item 11. Executive Compensation. The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K is incorporated by reference to the information contained in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our annual meeting of shareholders scheduled to be held on May 12, 2020. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by Item 403 and Item 201(d) of Regulation S-K is incorporated by reference to the information contained in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our annual meeting of stockholders scheduled to be held May 12, 2020. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required to be reported pursuant to Item 404 of Regulation S-K and paragraph (a) of Item 407 of Regulation S-K is incorporated by reference in our definitive proxy statement relating to our annual meeting of shareholders scheduled to be held May 12, 2020. Our Code of Conduct guides the Board of Directors in its actions and deliberations with respect to related party transactions. Under the Code, conflicts of interest, including any involving the directors or any Named Officers, are prohibited except under any guidelines approved by the Board of Directors. Only the Board of Directors may waive a provision of the Code of Conduct for a director or a Named Officer, and only then in compliance with all applicable laws, rules and regulations. We have not entered into any new material related party transactions and have no preexisting material related party transactions in 2019, 2018, or 2017. Item 14. Principal Accountant Fees and Services. This information is incorporated by reference in our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our annual meeting of stockholders scheduled to be held May 12, 2020. 66
PART IV Item 15. Exhibits and Financial Statement Schedules. (a) Financial statements. The consolidated financial statements and the report of independent registered public accounting (1) firm are included in Item 8 of this Form 10-K. The consolidated financial statements other than those listed at item (a)(1) above have been (2) omitted because they are not required under the related instructions or are not applicable. The exhibits listed at item (b) below are filed as part of, or incorporated by reference into, this (3) Form 10-K. (b) Exhibits: (3) (A) Amended and Restated Articles of Incorporation (ii) (B) Bylaws (i) (B-1) Amendments of Bylaws (iii) (4) (A) Third Restated Revolving Credit and Term Loan Agreement and related documents (iv) Amendment Thirteen (October 24, 2019) to Third Restated Revolving Credit Loan (A-1) Agreement (v) (4.16) Description of Securities (10.1) AAON, Inc. 1992 Stock Option Plan, as amended (vii) (10.2) AAON, Inc. 2007 Long-Term Incentive Plan, as amended (viii) (10.3) AAON, Inc. 2016 Long-Term Incentive Plan (vi) (21) List of Subsidiaries (ix) (23) Consent of Grant Thornton LLP (31.1) Certification of CEO (31.2) Certification of CFO (32.1) Section 1350 Certification – CEO (32.2) Section 1350 Certification – CFO (101) (INS) Inline XBRL Instance Document (101) (SCH) Inline XBRL Taxonomy Extension Schema (101) (CAL) Inline XBRL Taxonomy Extension Calculation Linkbase (101) (DEF) Inline XBRL Taxonomy Extension Definition Linkbase (101) (LAB) Inline XBRL Taxonomy Extension Label Linkbase (101) (PRE) Inline XBRL Taxonomy Extension Presentation Linkbase (104) Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101) (i) Incorporated herein by reference to the exhibits to our Form S-18 Registration Statement No. 33-18336-LA. (ii) Incorporated herein by reference to exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. 67
(iii) Incorporated herein by reference to our Forms 8-K dated March 10, 1997, May 27, 1998 and February 25, 1999, or exhibits thereto. (iv) Incorporated herein by reference to exhibit to our Form 8-K dated July 30, 2004. (v) Incorporated herein by reference to exhibit to our Form 8-K dated July 27, 2016. (vi) Incorporated herein by reference to our Form S-8 Registration Statement No. 333-212863 dated August 2, 2016 and our Form S-8 Registration Statement No. 333-226512 dated August 2, 2018. (vii) Incorporated by reference to exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 1991, and to our Form S-8 Registration Statement No. 333-52824. (viii) Incorporated herein by reference to our Form S-8 Registration Statement No. 333-151915, Form S-8 Registration Statement No. 333-207737, and to our Form 8-K dated May 21, 2014. (ix) Incorporated herein by reference to exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. 68
SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. AAON, INC. Dated: February 26, 2020 By: /s/ Norman H. Asbjornson Norman H. Asbjornson, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: February 26, 2020 /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer and Director (principal executive officer) Dated: February 26, 2020 /s/ Scott M. Asbjornson Scott M. Asbjornson Chief Financial Officer (principal financial officer) Dated: February 26, 2020 /s/ Rebecca A. Thompson Rebecca A. Thompson Chief Accounting Officer (principal accounting officer) Dated: February 26, 2020 /s/ Gary D. Fields Gary D. Fields President and Director Dated: February 26, 2020 /s/ Angela E. Kouplen Angela E. Kouplen Director Dated: February 26, 2020 /s/ Paul K. Lackey, Jr. Paul K. Lackey, Jr. Director Dated: February 26, 2020 /s/ Caron A. Lawhorn Caron A. Lawhorn Director Dated: February 26, 2020 /s/ Stephen O. LeClair Stephen O. LeClair Director Dated: February 26, 2020 /s/ A.H. McElroy II A.H. McElroy II Director Dated: February 26, 2020 /s/ Jack E. Short Jack E. Short Director Dated: February 26, 2020 /s/ Luke A. Bomer Luke A. Bomer Secretary 69
Exhibit 4.16 DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 As of February 24, 2020, AAON, Inc., a Nevada corporation, (“AAON”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our Common Stock. Description of Common Stock The following description of our Common Stock is a summary based on and qualified by our Amended and Restated Articles of Incorporation of AAON, Inc. (as further amended to date, the “Articles of Incorporation”) and our Bylaws (as amended to date, the “Bylaws”). Authorized Capital Shares Our authorized capital shares consist of 100,000,000 shares of common stock, $0.004 par value per share (“Common Stock”), and 5,000,000 shares of series preferred stock, $0.001 par value per share (“Preferred Stock”). The outstanding shares of our Common Stock are fully paid and nonassessable. Voting Rights Holders of Common Stock are entitled to one vote per share on all matters voted on by the stockholders, including the election of directors. Our Common Stock does not have cumulative voting rights. Dividend Rights Subject to the rights of holders of outstanding shares of Preferred Stock, if any, the holders of Common Stock are entitled to receive dividends, if any, as may be declared from time to time by the Board of Directors in its discretion out of funds legally available for the payment of dividends. Liquidation Rights Subject to any preferential rights of outstanding shares of Preferred Stock, if any, holders of Common Stock will share ratably in all assets legally available for distribution to our stockholders in the event of dissolution. Other Rights and Preferences Our Common Stock has no sinking fund or redemption provisions or preemptive, conversion or exchange rights. Listing The Common Stock is traded on The Nasdaq Stock Market LLC under the trading symbol “AAON.” 70
Exhibit 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have issued our reports dated February 26, 2020, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of AAON, Inc. on Form 10-K for the year ended December 31, 2019. We consent to the incorporation by reference of said reports in the Registration Statements of AAON, Inc. on Forms S-8 (File No. 333-151915, File No. 333-207737, File No. 333-212863 and File No. 333-226512). /s/ GRANT THORNTON LLP Tulsa, Oklahoma February 26, 2020 71
Exhibit 31.1 CERTIFICATION I, Norman H. Asbjornson, certify that: 1. I have reviewed this Annual Report on Form 10-K of AAON, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; d) disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Dated: February 26, 2020 /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer 72
Exhibit 31.2 CERTIFICATION I, Scott M. Asbjornson, certify that: 1. I have reviewed this Annual Report on Form 10-K of AAON, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; d) disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Dated: February 26, 2020 /s/ Scott M. Asbjornson Scott M. Asbjornson Chief Financial Officer 73
Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of AAON, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Norman H. Asbjornson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and our results of operations. Dated: February 26, 2020 /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer 74
Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of AAON, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott M. Asbjornson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and our results of operations. Dated: February 26, 2020 /s/ Scott M. Asbjornson Scott M. Asbjornson Chief Financial Officer 75
Company Officers Norman H. Asbjornson Gary D. Fields Mr. Asbjornson has served as CEO and Mr. Fields has served as President of the Company Chair of the Board of the Company since since 2016 and a director of the Company since 1988. Mr. Asbjornson also serves as the 2015. Mr. Fields been involved in the HVAC Chair of the Board of AAON Coil Products, Inc. industry for over 35 years. From 1983 to 2012, Mr. Asbjornson served as the President of he was an HVAC equipment sales representative AAON, Inc., from 1988 to 2016. Mr. Asbjornson at and, from 2002 to 2012, a member of the has been in senior management positions in ownership group of Texas AirSystems, the largest the HVAC industry for over 40 years. independent HVAC equipment and solutions provider in the state of Texas. Scott M. Asbjornson Mr. Asbjornson son has served as Vice President, Rebecca A. Thompson Finance, and CFO of the Company since 2012. Ms. Thompson has served as Chief Accounting Mr. Asbjornson joined the Company in 1990 and Officer and Treasurer of the Company since 2017, is the son of the Company’s CEO, Norman H. and Chief Accounting Officer of the Company Asbjornson. Mr. Asbjornson has an MBA and since 2012. Ms. Thompson previously served as has held various leadership positions with the a Senior Manager at Grant Thornton, LLP where Company, including Vice President (2007-2010) she had 11 years of experience in the assurance division. Ms. Thompson is a licensed certified Back Row (from left to right): Stephen 0. LeClair, A.H. McElroy, II, Angela E. Kouplen, Paul K. Lackey, Jr., Caron A. Lawhorn and President (2010-2012) of AAON Coil Products, Front Row (from left to right): Norman H. Asbjornson, Gary D. Fields, Jack E. Short Inc. He also serves as Vice President, Finance, public accountant. and CFO of AAON, Inc. Mikel D. Crews Stephen E. Wakefield Mr. Wakefield has served as Vice President Mr. Crews has served as Vice President, Operations of Engineering since 2018. Mr. Wakefield since 2017. Mr. Crews has served as Director of previously served as Director of Engineering, Material and Operations since 2015, Manager of Director of Design and Engineering Operations, Operations from 1991 to 2015, and in various Senior Manager of Research and Development, operational, production and inventory management and Design Engineering Manager. Mr. Wakefield roles since the Company’s inception. Mr. Crews has been with the Company since 1999, and has has been in leadership positions in the HVAC a bachelor’s degree in Mechanical Engineering industry for over 40 years. Technology. Transfer Agent and Investor Relations Rony D. Gadiwalla Registrar Jerry Levine Mr. Gadiwalla has served as Vice President of Issuer Direct 105 Creek Side Road, Information Technology and Chief Information Mt. Kisco, New York 10549 1981 East Murray-Holladay Officer since 2018. Mr. Gadiwalla has served Road, Suite 200, Ph: 914-244-0292, Salt Lake City, Utah 84117 Fax: 914-244-0295, as Director of Information technology since 2014, jrladvisor@yahoo.com Manager of Project Management Office from Auditors 2012 to 2014, and Engineering Automation Grant Thornton LLP Executive Offices Manger from 2009 to 2012. Mr. Gadiwalla has 2431 East 61st Street, 2425 South Yukon Avenue been with the Company since 2004, and has Suite 500 Tulsa, Oklahoma 74107 a bachelor’s degree in Software Engineering. Tulsa, Oklahoma 74136 Common Stock General Counsel NASDAQ-AAON Johnson & Jones, P.C. Two Warren Place 6120 South Yale Avenue, Suite 500 Tulsa, Oklahoma 74136
Board of Directors Board of DirectorsListed in Alphabetic Order Back Row (from left to right): Stephen 0. LeClair, A.H. McElroy, II, Angela E. Kouplen, Paul K. Lackey, Jr., Caron A. Lawhorn Front Row (from left to right): Norman H. Asbjornson, Gary D. Fields, Jack E. Short Norman H. Asbjornson CEO/Chair of the Board Paul K. Lackey, Jr. Gary D. Fields President/Director Mr. Lackey has served as a director of the Company since 2007 and is Chair of the Governance Committee. Between April 2002 and October Angela E. Kouplen 2005 Mr. Lackey served as CEO and President of The NORDAM Group, a Ms. Kouplen was elected as a director of the Company in 2016. Ms. Kouplen has privately held aerospace company. Between October 2005 and December 2008 over 20 years of experience at multiple energy companies, with an emphasis Mr. Lackey served as the Chairman and CEO of The NORDAM Group. Between on information technology, contract management, sourcing/vendor relations, January 2009 and December 2011 Mr. Lackey served as the Executive Chairman human resource management, strategy and governance. From 2012 through of the Board of The NORDAM Group. Since January 2012, Mr. Lackey has served as 2014, Ms. Kouplen served as Director - Talent Acquisition and Leadership of the Chairman of the Board of The NORDAM Group. WPX Energy, and from 2015 to 2016, Ms. Kouplen served as Vice President - Stephen 0. LeClair Information Technology of WPX Energy. From 2016 to November 2018 Ms. Mr. LeClair was elected as a director of the Company in 2017. Mr. LeClair has 25 Kouplen served as Vice President of Administration and Chief Information Officer years of experience in various executive, manufacturing, finance, sales and of WPX Energy and from November 2018 to present currently serves as Senior operational positions. Mr. LeClair currently serves as CEO of Core & Main Vice President of Administration and Chief Information Officer. (formerly HD Supply Waterworks) a position he has held since 2017, and in such Caron A. Lawhorn role is responsible for leading the nation’s largest distributor of water, sewer, Ms. Lawhorn was elected as a director of the Company in 2019 and storm and fire protection products. Prior to his current role, he served as currently serves as the Audit Committee Chair. Ms. Lawhorn is a certified President of HD Supply Waterworks from 2011 to 2017, Chief Operating Officer of public accountant, and currently serves as Senior Vice President and Chief HD Supply Waterworks from 2008 to 2011, and President of HD Supply Lumber Financial Officer, of ONE Gas, Inc., a standalone one hundred percent regulated and Building Materials from April 2007 until its divestiture to ProBuild Holdings publicly traded natural gas utility. Prior to her current role, she served as Senior in 2008. Mr. LeClair joined HD Supply in 2005 as Senior Director of Operations. Vice President, Commercial, a position she held from ONE Gas's separation from ONEOK in 2014. She served in the same position at ONEOK, since 2013. Jack E. Short Mr. Short has served as a director the Company since July 2004 and lead A.H. McElroy, II independent director since January 2019. Mr. Short was employed by Price Mr. McElroy has served as a director of the Company since 2007 and is Chair of Waterhouse Coopers for 29 years and retired as the managing partner of the the Compensation Committee. From 1997 to present, Mr. McElroy has served Oklahoma practice in 2001. as President and CEO of McElroy Manufacturing, Inc., a manufacturer of fusion equipment and fintube machines.
ADRIAN BUTLER GREGORY CHAVEZ JAMES BUTLER REBECCA CHEEK ROSA BUTLER KEVIN CHESTNUT Company Employees JANIBAL CABUDOY EDDIE CHOATES ALEJANDRO CADENA TERRANCE CHOICE JR FERMIN CADENA AWI CIANG THE ONGOING SUCCESS OF OUR COMPANY CAN BE MARBELLA CADENA MAU CIIN DIRECTLY ATTRIBUTED TO OUR EMPLOYEES JOSE CADENAS KHAM CIN CLEVELAND CAGE, JR. LANG CIN SUSAN AARON CODY AUSBROOK DAVID BLEVINS ELIZABETH CAGLE LUAN CIN ANGEL ACEDO ROBERT AUSMUS DEVON BLOOD YOSMAR CALDERA HERNANDEZ PAUL CIN MIRIAN ACOSTA STEVEN AUTEN NICHOLAS BOBBITT MARGARITO CALDERON TUAN CIN MA ACOSTA DE AGUAYO JOSEPH AVILA LAM BOI SANDRA CALDWELL VUNG CIN ANDRES ACOSTA-LUJAN JOSE AVILA LHING BOI TYLER CALICO VUNGH CIN RAQUEL ACUNA SEGURA SENG AWNG JASMINE BOLDEN JORGE CALIXTO AIH CING ENRIQUETA ADAME ELIZABETH AYALA ADELTRUDES BOND EDWARD CALLOWAY CIANG CING DAKOTA ADAMS ORLANDO AYALA JOSHUA BONEY DESMOND CALLOWAY II CIIN CING PAUL ADAMS MARRIUM AYESHA MICHAEL BONEY MARIA CAMACHO CIN CING REBECCA ADAMS KRISTIN AYLETT KYLE BOOKOUT TEVIN CAMERON CING CING RYAN ADAMS NORA BACKUS ROGER BORJA BARREIRO REGINALD CAMPBELL DIM CING DERRICK ADAMS PHILIPPE BAFOU PEUWO CINDY BOSTICK RUSTI CAMPBELL LIAN CING JAMILAH ADAMS JACOB BAIER LARRY BOWERS DAVID CAMPBELL LUN LAM CING RUSTY ADAMS CORDERO BAKER EUGENE BOWMAN ODESS CAMREN LUN CING JUAN AGUAYO DWIGHT BAKER CHARMAINE BOYCE IESHIA CANADA MAN LUN CING MARIA AGUAYO JUAN BALANDRAN JOHN BOYD KEVIN CANADA MAN CING LEONARD AGUILAR, JR JOHN BALDWIN JUSTIN BOYD GILDA CANNADY NANG CING ARLEEN AIZAWA KHALEEL BALL WYNETTA BOYD JACOB CANTREL NEM CING DANIEL ALAGDON THOMAS BALL JOHNNY BOZMAN CAROMI CAPELLE NGAI CING ROEL ALANIZ, JR AMISS BANDA MARC BRADBURY JAMES CAPELLE NGOIH CING JAMES ALEXANDER CLAUDIA BANDA JESSE BRADEN BILLY CARDER NIANG CING MARQUIS ALEXANDER MYLES BARBER BRIAN BRADFORD DREW CARDOZA NIIANG CING SHARON ALEXANDER GREGORY BARKER, JR. JAIME BRAME EMILY CAREY NING CING TAWANTA ALEXANDER JUSTIN BARLETT SETH BRESSLER TODD CARNER NUAM SUAN CING THOMAS ALEXANDER LEROY BARNABAS KEIARA BRICE CLARENCE CARR NUAM CING SHANNON ALFORD JAMES BARNES, III QUINTON BROADNAX SHAMAYA CARR SAN CING CHARLES ALLEN DAVID BARNETT ALAN BROCK LISA CARRIERO SIAN H CING JOHN-PAUL ALLEN ANA BARRAGAN DE ALTENEH DUSTIN BROD MICHAEL CARRILLO THANG ZA CING SONIA ALTER ESPINA NEREYDA BARRIOS ARLUNDA BROOKS JOHN CARSON VUNG SIAN LUNG CING ISRAEL ALTER GRANADO TERESA BARRON DON BROOKS VINCENT CARSON ZEN NEM CING YACKSENDEL ALVARADO FRANCISCO BARTOLO GAONA WINSTON BROSEKE ALEXANDER CARTER ZEN CING MALDONADO JAMIE BASSETT ARIELLE BROWN KEVIN CARTER THERESA CING KOK BILLY ALVERSON, III SHERRY BATES BRITTANY BROWN TERENCE CARTER DAVID CIRIACO SARAH ANDERSEN JAMES BAUGH DOMINIQUE BROWN LARRY CARTER, JR. JUSTIN CLAIBORNE JOE ANDOE STUART BAUGH EDWIN BROWN ISMAEL CARVAJAL LOURDES CLANCE KS ANDON SHANNON BECK JAMES BROWN CRISTOBAL CARVAJAL COLORADO GEORGE CLARK JOSEPH ANDRUS LIONEL BECKMAN JANICE BROWN YVONNE CASE CHRISTI CLARK THOMAS ANGEI PHILLIP BEECHAM MITCHELL BROWN BEATRIZ CASIANO JASON CLARK ANJA ANKIEN EFTON BELL STEVEN BROWN JORGE CASTELLANOS SAMUEL CLARK, JR. WESLEY ANSELME BRANCE BELL VENUS BROWN DAVID CASTILLO JUAN CLEMENTE VALLADARES LAURA ARAUJO GONZALEZ JASON BELL WILLIAM BROWN ISABEL CASTILLO LOPEZ CLIFTON CLINE CLYDE ARCHER MEKALA BELL LARODERICK BROWN MARIO CASTRO JR. RONNIE CLOWERS JESUS ARELLANES RAMIREZ RUBEN BELLIDO FERRER RUSTY BROWN ALEJANDRO CASTRO REYES DEVONTA COATS FIDEL ARGUMEDO RANGEL RAMON BENN JOHNNY BROWN, JR. JEFFREY CAVALLO BRYTON COBB JOSHUA ARMAS FRANCIS BENNETT, JR. CHRISTOPHER BRYANT BRIAN CAVNER MARK COBB DAVID ARMSTRONG JOSEPH BENOIT SEQUOYAH BUCHANAN EDDIE CAVNER KENNETH COCHRAN JERI ARMSTRONG BONNIE BENSON MINH BUI HECTOR CAZARES TROY COCKRUM KIMBERLY ARNONE JARED BENTON VAN BUI KARI CECIL BRANDON COLBERT MARIA ARREDONDO IDA BERMUDEZ ROBBIN BULLARD CORNELIO CEJA GRIMALDO ROBERT COLE GERARDO ARREGUIN LIDIA BERNAL BECERRA CORRELL BULLOCK FRANCISCO CERVANTES MICHAEL COLE GERARDO ARROYO DAVID BERRY JASON BUNNELL BRYAN CHADWELL CLAYTON COLLINS ROSA ARROYO SANCHEZ SERGIO BESERRA JOSHUA BURGESS FABIAN CHAIREZ HERNANDEZ JEREMY COLLINS ROGELIO ARTEAGA SHAQUAN BETHEA SCOTT BURGESS GUADALUPE CHAIREZ-GALAN TIM COLLINSWORTH BROOKLYNN ARTIS CARL BEYER LATISHA BURKHALTER LARRY CHALK AARON COLUMBUS NORMAN ASBJORNSON DANIEL BIGBY BEN BURLESON ZO CHAMA BOBBY CONDITT SCOTT ASBJORNSON KENNETH BIGHAM JR ROBYN BURNETTE RICKY CHAMBLISS DALE CONKWRIGHT MARIA ASENCIO JEFFREY BILLY CLIFTON BURRUS ROBERT CHANEY RAQUEL CONN JOHN ASHLEY, JR PHILLIP BINFORD WAYNE BUSH NIN CHANGMAR DAMON CONN DAVID R ASHLOCK AMIE BISHOP COREY BUSH PATRICK CHAPMAN PATRICK CONN DAVID L ASHLOCK VICKIE BLACK DKAYLON BUSH CONNIE CHASTEEN JUDE CONNOLLY FATANIA ATTAN ETHAN BLACKMAN JEROME BUSH ALEEX CHATKEHOODLE MARK COOK NAN SUSAN AUNG HTOO DONNA BLANKENSHIP VERENICE BUSTOS EDGAR CHAVEZ ALFRED COOKS
ALAINA COOKS JUANA DELOBO TRACEE ELLISON SHILAH FRIDAY MICHAEL COOLIDGE RAQUEL DELUNA AUSTIN EMBRY BARRY FRIEND SCOTT COON MATTHEW DEMAREE THANG EN DERECK FROST DONNA COONFIELD RUSSELL DEMOSS KHAM EN THANG DONALD FRY JAMES COOPER BARRY DENNIS TINISHA ENGLISH TOMAS FUENTES ALCALA GREGORY COOPER HELEN DENNIS BENJAMIN ERNST WADE FULLER MICHELLE COPELAND MICHAEL DENNIS STEVEN ERVIN MEEKAYLA FULLER MARIANA CORDOVA JOSEPH DENTON CARLOS ESCOBAR KANAN ANDRE FURMAN LORIN CORNWELL DONALD DERAMUS, JR BRYANT ESCOE RONY GADIWALLA GENOVEVA CORONA DE RIVERA CRYSTAL DERRICK DWIGHT ESKEW AARTHUR GAINES JOSE CORREA MATTHEW DESHAZER NORBERTO ESPARZA-TORRES LAKEIA GAINES ROSA CORTEZ AUDENCIA DEVILLA JOAN ESPINA MATHEUS SARA GAITHER MICHAEL CORTEZ ROY DEVILLE DELIA ESTRADA ERNESTO GALLARDO FRED COTTON JESSICA DEWITT TYLER EVANS ALEYDA GAONA DE MARTINEZ VERNON COUSINO JONATHAN DIAZ MARCUS EVANS, JR MARIA GARAY ENOCH COX RODRIGO DIAZ-FLORES CHAD EVERS FRANCISCO GARAY CORONA MAGGIE COX CIANG DIM KYLE EVITT ANGEL GARCIA ADRIAN CRABTREE DON DIM KURTIS EWING ANGELICA GARCIA JACOB CRABTREE HAU DIM JESSE EWTON JAIME GARCIA KATHLEEN CRABTREE KAI DIM ARACELY FAGLIE JOE GARCIA STEPHAN CRABTREE MAN LUN DIM SHAWN FAIRLEY ISIDRO GARCIA ARRIAGA WALTER CRAWLEY MAN ZA DIM MASON FALLING TERESITA GARCIA DIAZ COURTNEY CRAYNE NIANG DIM JESSICA FARIA PORTILLO LESLIE GARCIA TAPIA JACOB CRAYNE THANG DIM AMY FEHNEL ROGER GARCIA TAPIA BRADLEY CREWS VUNG DIM CATALINA FERNANDEZ EBARDO GARI GARCIA MIKEL CREWS CING DIM TUANG CARLOS FERREBUS RIVAS NORMA GARIBAY VILLENA ZOEY CRITES CATHERINE DIMICK ROBERTO FERREBUZ RIVAS MICHAEL GARLAND, JR. APRIL CROW FRANK DIMOND DAVID FERRELL, II JAMES GARNER DARRELL CROW JOHAN DINA ALFRED FETTERHOFF, JR CASON GAROUTTE FAWN CROWDER LIAN DING GARY FIELDS JA'MYIA GARRETT SARAH CROWLEY CONG DINH THOMAS FIERROS ALEXIS GARZA CHRIS CUMMINGS QUANG DINH CHRISTIAN FIGUEROA MAURAS LLOYD GATES ROBERT CUMMINGS TIEN DINH V CHOK FILIPUS GREGORY GENTRY KEVIN CYRUS DANE DIXSON ANDREW FINCH ANTHONY GEORGE ZIRAM DAHKUM ALMA DOMINGUEZ JESSICA FINKBINER JAMES GEORGE ZAWNG DAI PABLO DOMINGUEZ STEPHEN FINNEY STEPHANIE GEORGE CING DAL SOL DOMINGUEZ BRUCE FISHER TIFFANEY GEORGE GIN DAL NIANG DON RICKEY FISHER KURSTON GERTY JOHN DAL CIN DONG ISAAC FLAHERTY PETR GETMANENKO NENG DAL MKSING DOPMUL CHASTINEY FLETCHER GABRIEL GIACHINO LIAN DAL NANG DOPMUL TYRONICA FLETCHER CHARLES GIBSON HENLEY DANG NIANGNUAM DOPMUL PHILIP FLOOD WILLIAM GILL JUSTIN DANIELS THANGMINLIAN DOPMUL EFIGENIA FLORES KAREN GILLISPIE CHARLES DANIELS DEVIN DORNAN CAROLINA FLORES KYRANNA GILSTRAP JOHN DANIELS CHRISTOPHER DOTREY ELISA FLORES JOHN GLACKEN IV RICHARD DANIELSON JOHN DOVITSKI III LAURA FLORES TREMELL GLAZE RONDARIUS DARDEN TIMOTHY DOWNS GABRIEL FLORES-BERNAL GARRETT GODDARD JUNIE DARE ROGER DRAINE MARTIN FLORES-LOYA JOSE GOMEZ GERYL DAULONG SENECA DRENNAN JON FLOYD REIQUEL GOMEZ JENIFUR DAVIDSON TYLER DRESSLER MARK FLY ANDREA GOMEZ CAMERON DAVIS MICHELLE DREW CARLOS FORD MARIA G GOMEZ DARRYL DAVIS CATHRYN DUBBS REBECCA FORD MARIA C GOMEZ MEDINA GREGORY DAVIS DERRICK DUDLEY SHEILA FORREST JAFET GOMEZ ORTIZ JASMINE DAVIS SAMUEL DUELL HARRIS ALEX FOSTER MARISELA GONZALEZ JERRY DAVIS THERESA DUGAN CHRISTOPHER FOSTER IMELDA GONZALEZ MATTHEW DAVIS DEREK DUKE FREDERICK FOSTER ABRUM GONZALEZ ALTER RICHARD DAVIS GUY DUNN WYEATHA FOSTER NUVIA GONZALEZ CANIZALEZ RYAN DAVIS JUSTIN DUNN LORETTA FOWLKES MARIA GONZALEZ DE CAVELLO TERRANCE DAVIS LANIKA DUNN KENNETH FOYIL LIDIA GONZALEZ RIVERA VERONICA DAVIS WHITNEY DUNN MICHAEL FRANCIS DELFIN GONZALEZ VILLAMIZAR BILLY DAVIS, JR. FERNANDO DURAN MIGUEL EYLIDD FRANCO DAMON GOODAY MYRA DAWSON RALPH DURBIN RUBEN FRANCO GOMEZ BARRY GOODSON DANIEL DE CASAS KYLE DURNING PHILLIP FRANK JASON GRAHAM YOANA DE LA TORRE KATELYN DWIGGINS WARREN FRANKLIN MARLEITTA GRAMMER DAVID DEASON RANDY DWIGGINS DANTE FRANKS BUENAVENTURA ZACHARY DECKER CHRISTOPHER EASON ELVIS FRASCINI GRANADOS-RUBIOS SETH DeCOUX KRYSTLE EDENS BRENDA FREEMAN ERIC GRANT CIIN DEIH MARDIN EJERCITO JOSE FREGOSO MEKION GRANT ISMAEL DELAPAZ REIPIN ELIMO ANGEL FRIAS APRIL GRAUGNARD MATIAS DELAPENA JR MELISSA ELLIS TIMOTHY FRIAS PEARLIE GRAVES DOREEN DELEO JEANNE ELLIS-RAPSON BRANDON FRICK BRIANA GRAY
DREW GRAY NGAI HAU WANDA HORTON MISTEE JOHNSON SHAMEKA GRAYSON THANG HAU NU HOU CONNIE JONES ANTHONY GREEN NENG HAU LIAN MANGTHOUNG HOU KIP DANNY JONES DAVID GREEN PAUL HAVENS SANDRA HOUSE DAVID JONES DONJA GRIFFIN DEVARDUUS HAWKINS JERRY HOUSEMAN DERRIC JONES STARLA GRIFFIN BILLY HAWLEY, JR. RICHARD HOUSTON KEVIN JONES RONALD GRIMES STEVEN HEAD WAYNE HOUSTON MATTHEW JONES JOHN GRUNDMANN ANDREA HEIDT AARON HOWARD RAYMON JONES RACHEL GRUNDMANN TERRENCE HEINBERG ANTHONY HOWARD REMIA JONES JUAN GUERRA MEDINA LUKE HEMPHILL MICHAEL HOWARD CLARISSA JONES GERARDO GUERRERO DANIEL HENDERSON DAVID HOWARD DEKESHA JONES CASTELLANOS ERIC HENDERSON DARIN HOWELL EVA JONES MARIA GUEVARA CHAKIRIS HENDERSON JAMES HOWELL, II KINESHA JONES RODOLFO GUEVARA SHEILA HENDERSON SAW HTOO RANDOLPH JORDAN CAROLINA GUILLEN STEPHEN HENDRIX YEAUNG HTWE RONALD JORDAN RONALD GUINN MELISSA HENLEY CING SIAN HUAI SEAN JORDAN VERNICE GUINN KENNETH HENRY CING NGAIH HUAI DEMETRIUS JOSEPH BRANDON GUNTER JUSTIN HENSHAW CING ZA HUAI TJ JOSEPH DOMINGO GUTARRA ARMANDO HERNANDEZ MUAN HUAI YOLANDA JUAREZ GILBERTO GUTIERREZ CORCINA HERNANDEZ NUAM HUAI EDUARDO JUAREZ PIRONA SILVIA GUTIERREZ MENDOZA JOSE HERNANDEZ VERONICA HUAI DERMIDIO JUEZ PEREZ EUGENE GUY LUIS HERNANDEZ VUNG HUAI LEANDRO JUMELLES NUNEZ GEORGINA GUZMAN MARIANO HERNANDEZ THANG HUAT LASHETIA JUSTICE LUIS GUZMAN CESAR HERNANDEZ DOMINGUEZ SCOTT HUBER HA KA HA HUGH HA AXEL HERRERA BAEZ LYDIA HUDSON NATALY KADDOURA SCOTTY HAGLER PAOLA HERRERA REAL JIMMI HUGHES LEXING ZAM KAI MICHAEL HAINES RAMEE HESTER JERAD HUMPHREY KANOR KAIOS NGAM HAK MARK HESTON LARRY HUMPHREY JAMES KAIRU TIMOTHY HALBERT MICHAEL HICKMAN MICHAEL HUMPHREY GARRETT KAISER REBECCA HALE ALECIA HICKS MICHAEL HUMPHREY, JR JASON KALE MARCIA HALEY CLINTON HICKS LATARCHA HUMPHRIES LIAN KAM JOSHUA HALFPAP BRENDA HIGGINS KHAN HUNG MANG KAM DENNIS HALL LARRY HIGHFIELD CRYSTAL HUNTER NGIN KAM JEROME HALL DONALD HILL RONALD HUTCHCRAFT DAL KAP KELLY HALL SANTANYA HILL GARY HUTCHINS GO KAP STEPHEN HALL JAMARIOUS HILL SAMUEL HUTCHINSON LIAN KAP PIERRE HALL JUDITH HILL DUNG HUYNH THANG KAP STEPHANIE HALL DAVY HILL, JR. BRIANA HYSELL SIAN KAP LIAN ZACHARY HALSEY D'ANNA HILTON OTILIA IOWANES BRIAN KASTL DANIEL HALTERMAN LAMONT HINES REGINALD ISAAC, SR TUANG KAWI G. SCOTT HAMILTON JUAN HINOJOSA MELISSA IVY NENGLIAN KAWNGTE JEFFREY HAMMONS TYSON HINTHER TU JA BRANDON KELLEY KIPPEY HAMPTON TU HKAWNG KHAI JA KHUP JOHN KELLY CIN HAN MIN HLA AUTUMN JACKSON KENNETH KELLY, JR MUNG HANG THANG HMUNG DALTON JACKSON GREGG KENNEDY PAUN HANG TUANG HNIN JEFF JACKSON KEITH KENNEDY THANG HANG JACOB HOBBS JOSEPH JACKSON JAY KEPHART LAL HANGSAWK RICKY HOBBS MARY JACKSON ABRAHAM KHAI LAM HANGSAWK BRANDIE HOBDEN BELINDA JACKSON DAL KHAI CHIN HAOKIP ANDREW HODGES QUINCY JACKSON DAL KHAI LET MIN HAOKIP TAQUISA HODNETT-SMITH TIMOTHY JACKSON DAVID KHAI LHUN HAOKIP AARON HOFSTROM CAMERON JAEGER DIM KHAI PAO HAOKIP DAVID HOGAN JOSE JAMAICA EN KHAI DEREK HARBIN, SR. LENA HOGAN ESTHER JASUAN HAU KHAI MICHAEL HARJO PAUL HOGAN WADE JENKINS JOHN KHAI SCOTT HARJO KEITH HOLCOMB TERRIELLE JENNINGS KAM KHAI BRUCE HARMAN, II JAMAHCO HOLDMAN MICHAEL JENSEN KHAM LIAN KHAI JAMEESE HARRIS CLEMA HOLLAND FREDERICK JIMMERSON KHAM KHAN KHAI STACEY HARRIS SEDRIC HOLLAND CHAITANYA JOHAR KHAM CIN KHAI DONALD HARRIS ANTHONY HOLLISTER BRIAN JOHNSON KHUAL KHAI JERRY HARRIS WILLIAM HOLMAN CHRISTOPHER JOHNSON KIM KHAI MICHELLE HARRIS DESIREA HOLT EBONI JOHNSON LAANG KHAI DAVON HARRISON LAWRENCE HONEL JEREMIAH JOHNSON LANG KHAI RONALD HARRISON ANASTASIA HONN KAYLA JOHNSON NANG KHAI ROBI HARTMANN JACK HONN TODD JOHNSON NGIN TUAN KHAI HEATHER HASKINS STEPHEN HOOVER TRISTAN JOHNSON NGIN CIN KHAI ARCHIE HASS III SHELBY HORNBERGER ZACHARY JOHNSON PAU KIM KHAI CING HAU WILBURN HORNER DYWANE JOHNSON PAU SIAN KHAI CING NGAIH HAU ABERIAL HORTON KEITH JOHNSON PAU KHAI KAM HAU STANLEY HORTON LECEDRA JOHNSON PAU ZA KHAI KHUP HAU TITAN HORTON LESTER JOHNSON PAUL KHAI
PETER KHAI LORI KING LAURIN LEMLEY MARK LOTAKOON THAN KHAI RUSSELL KING FRANCISCO LEMUS JUSTIN LOUCAS THANG S KHAI JAZMYNE KING SANDRA LEON DE ESTEBANE JASON LOVETT THANG H KHAI KORBY KINKADE ALMA LETAL EDGAR LOZANO THANG KHAN KHAI ROGER KINKADE, JR. ADUNTE LEWIS DANIJELA LUCIC THANG SIAN KHAI MANGNEO KIPGEN CYNTHIA LEYVA JOHNNY LUCIUS THANG LIAN KHAI ALAN KIZER BRANDON LEYVA-ORONA SCOTT LUDGATE THAWNG KHAI ZAKARY KIZER VAH LHING JARROD LUDLOW ZAAM KHAI SEAN KIZZEE AWI NGAIH LIAN QUANNAH LUDLOW ZAM KHAI ZOMI JOSEPH KLEBER AWI D LIAN EVELYN LUGO-ORTIZ THURA KHAING ROBERT KNEBEL BAWI LIAN DAWN LUKE DONGH KHAM RONALD KOMANTA CIN SUAN LIAN JEROLYNN LUKE GO KHAM BUDDY KONS CIN ZA LIAN HAWNG LUM LIAN KHAM MARK KOSCHMEDER CING KHAWM LIAN CING N LUN MUNG KHAM MORPHY KOSMES CING THEIH LIAN CING SAN LUN PAU KHEN KHAM JAMES KOSS DIM LIAN CING HAU LUN PAU DO KHAM ROBERT KRAFJACK DONG LIAN DIM LUN PAU KHAN KHAM NEBOJSA KRESOVIC GIN KHAN LIAN HAU LUN THANG KHAT FRED KRUGER GIN TUANG LIAN HKIN LUN CING KHAWL MIKHAIL KRUPENYA GO LIAN KHUP LUN PAU KHEH MANG KUAK HUAI LIAN KIM LUN CING KHEK ADAM KUBICKI JOSEPH LIAN LIAN LUN KAM KHEN CASSY KUYKENDALL KAM LIAN NIANG NGAIH LUN NIANG KHOI NICHOLAS KUYKENDALL KHAM LIAN NIANG SAN LUN NGAM KHOLEL JOHNY LACAYO FORNOS KHEN LIAN NIANG NGAIH LUN NO KHONG LANG JOSCELIN LACAYO MESTRE MAN DEIH LIAN THANG LUONG DAI KHUAL YAWSEP LAHPAI MAN NGAIH LIAN THI LUU HAU KHUAL GIANG LAI NANG THAN LIAN JACOB LUZIER KAM KHUAL KAP LAL NIANG DEIH LIAN KELLY LYBARGER PAU KHUAL LUN LAL NO LIAN GERRY LYDIA THANG LIAN KHUAL ZVJEZDANA LALIC PAU NEIH LIAN SAMUEL LYNCH JR. THANG S KHUAL GIN LAM PAU DAL LIAN AHCHANG MABU THANG SIAN KHUAL MUNG LAM PAU SUAN LIAN HAMSAR MABU CIN KHUP LAMI LAM TUNG PAU DEIH LIAN CARMEN MACIAS TERRAZAS DAI KHUP ANGELA LAMBERT PAU MUAN LIAN JORDAN MACK KAP KHUP MYOSHIA LANDRUM PAU SIAN LIAN KEITH MACKEY KHAM KHUP ROADY LANDTISER SIAN KHAM LIAN RUSTIN MACKEY LIAN KHUP DEBORAH LANE THANG KHEN LIAN LARRY MADALONE, II MANG KHUP GIN LANG THANG THAH LIAN JORGE MADRIGAL NANG LIAN KHUP PUM LANG THANG NGAIH LIAN CORY MAHONEY NANG SUAN KHUP DO LANGH THANG SAWM LIAN TAM MAI PAU CIN KHUP HAU LANGH VI LIAN CHRISTOPHER MAIDHER PAU LIAN KHUP KAP LANGH VUM LIAN CARLOS MALONE PETER KHUP THANG LANGH LAL LIANA KI MALONE THANG SUAN KHUP THAWNG LANGH SAWM LIANA TIFFANY MALONE THANG GO KHUP DANIEL LAPRES MICHAEL LILLARD JOSHUA MALOY THANG LIAN KHUP HUGH LASATER JEREMY LILLY JEFFREY MALY AMANDA KIDD SHANNON LASATER PING LIN CING LUN MAN BIAK KIL SENG LASI THOMAS LINCOLN CING SAN MAN ANDREW KILGORE TAMESHIA LAURY WILLIAM LINDSAY LIAN MAN CIANG KIM JENNIFER LAW FRANK LINDSEY NIANG MAN CIIN KIM MAN LAWH KEITH LINKER ZEN MAN CING KIM JOYCE LAWRENCE BRIAN LITTLE TAM MANA DIM KIM STEVE LAWRENCE, JR SERGEI LITVINOV MARIA MANCILLA EDWARD KIM JEFFREY LAWSON ANGELICA LIZARRAGA OLIVAS CHIN MANG MAN KIM STEPHEN LAWSON ASPEN LLOYD CIIN KHO MANG NANG ZA KIM RUBY LAWSON MATTHEW LOEWEN CIN KHAN MANG NENG KIM LAI LE OLIVER LOGAN CING MANG NING KIM JACOB LEACH BENJAMIN LOGSDON DAI MANG PA KIM CANDICE LEAGUE ALANA LOMAE EN CIN MANG THANG ZON KIM PETE LEDBETTER LABIL LOMAE EN MANG THANG KIM ALBERT LEDBETTER III JAMES LONDONO CORO GIN MANG THANG DEIH KIM ALLEN LEE RICKY LONG HAU MANG THAWNG KIM DARREN LEE ELIZABETH LOONEY HAU DO MANG ZAM KIM PO LEE ANGEL LOPEZ KAM KIM MANG KEVIN KIMBALL JACQUELINE LEE MARGARITO LOPEZ KHAI KHAN MANG JOE KINCADE MATTHEW LEEPER NICELT LOPEZ KHAM MANG MARTIN KINDLE ARIEL LEFF THOMAS LOPEZ KHAM TUNG MANG KENOSHA KINDLE GREGORY LEFFLER BENJAMIN LOPEZ KHAM LAM MANG CODY KING MARK LEHMAN EDUARDO LOPEZ OLIVARES KHAN MANG JOSEPH KING SAMANTHA LEHO JOSE LOPEZ OLIVARES KHUP MANG
KIM MANG WESLEY McCOWAN, JR. AUQUAN MOSES JOSHUA NETTEN LAGH MANG RASHAAD MCCRAY PHILLIP MOSS, JR. SETH NETTEN LIAN MANG MICHAEL McCUIN CLAYTON MOTE ROBERT NEZ LIAN SIN MANG KATHY McCULLOCH CING MUANG DIM NGAIH LIAN LIAN NGAIH MANG LOYD McDANIEL MUA MUANG MANG NGENZO LIAN NGAIH MANG JAMES McELROY NIANG MUANG NUAM NGIN LINUS MANG NICHOLAS McELROY TUANG MUANG ZAM NGIN NIAN MANG MICAH MCELWEE ZAM MUANG EN NGO NING MANG CLAYTON McFALL DELCIMAR MUJICA MENDEZ PAU NGO THANG MANG JEFFERY McGEE ERIC MULLINIKS A VAN NGUYEN VUNG MANG RONNIE JOE McGEE ALONZO MUMPHREY DUONG NGUYEN ZAM MANG RONNIE JOE McGEE THANG LUM MUN HUNG NGUYEN ZEN MANG DAVID MCGILL, JR THANG SIAN MUN HUU NGUYEN MARQ MANNING PETER MCINTIRE CIN DEIH MUNG MANH NGUYEN BARBARA MANNS JOHN McINTYRE CIN KHAN MUNG NOI NGUYEN ZAU MARAN DANIEL McKEE CIN SIAN MUNG PHUOC NGUYEN APRIL MARGWARTH CHRISTOPHER MCKEE DAII MUNG THANH NGUYEN PAUL MARGWARTH DONNA McKINNEY GINDAL MUNG HKAWN NHKUM WILLIAM MARKWARDT GEORGIE MCNAC HAU MUNG CIN MAN NIANG MARIA MARQUEZ DE-GILBREATH SEAN McNARY HERO MUNG CIN NGAIH NIANG MARIANA MARQUEZ MARQUEZ GINA MEANS JAMES MUNG CING KHAWM NIANG ANA MARROQUIN JON MEDEIROS KAI MUNG CING SIAN NIANG VICKEY MARS LUIS MEDINA MARCANO KHUAL MUNG CING TAWI NIANG ERROL MARSHALL ELIZABETH MEDINA-MACEDO KHUP GEEL MUNG CING KHAN NIANG ANTONIO MARTIN MICHAEL MELLOTT KHUP KHAN MUNG DIM L NIANG DANIEL MARTIN BRIANNA MELTON LANG KHAN MUNG DIM HAU NIANG GAVIN MARTIN SILVESTRE MENDEZ GONZALES LANG LAM MUNG DIM MAN NIANG JERRY MARTIN ANTONIO MENDOZA LIAN MUNG EN NIANG MICHAEL MARTIN BILLY MERRELL NANG SIAN MUNG ESTHER NIANG WILLIAM MARTIN JOHNNY MERRELL, JR NGO MUNG ESTHER HAU NIANG FLORENTINO MARTIN-ROMO STEVEN METCALF PAU SIAN MUNG GIN NIANG AMANDA MARTINEZ JERRY MEYER PAU KHAN MUNG GO NIANG DIANA MARTINEZ NICOLE MICHAEL PAU LIAN MUNG HAU NIANG JULISA MARTINEZ CARMEN MILAM PAU LIAN MUNG KAP NIANG OBDULIA MARTINEZ MICHAEL MILES PETER MUNG KHAN NIANG RAUL MARTINEZ CEDRIC MILES SANG MUNG KHEM NIANG HECTOR MARTINEZ MOLINA SHELLY MILLER SUAN MUNG LAM NIANG YESENIA MARTINEZ VAZQUEZ JENNIFER MILLS THANG KHAN MUNG MAN NIANG THOMAS MASENGALE, JR. TYRELL MIMS THANG LAM MUNG MANG NIANG JAMES MASON DALLAS MITCHELL THANG DEIH MUNG NGO NIANG BEVERLEY MASON JASON MITCHELL VUM MUNG PUM NIANG DAVID MASON PHILLIP MITCHELL TRAVIS MUNGER TUAL NIANG SHERIDAN MASON ROBERT MITCHELL GABRIEL MUNIZ GONZALEZ VUNG NIANG CRISTIE MASSEY VOLTA MITCHELL JESUS MUNOZ VUNG NIANG MARCELINO MATA PORSHA MITCHELL AUDIE MURRAY ZEL NIANG SANDRA MATA ERASMO MOCTEZUMA MA MUSHRUSH JACOB NICHOLS ELVIN MATHIS JAY MODISETTE JOHN MUTANDA SIMON NIEKERK LENON MATOS FELIZ BIASNEY MOJICA CASTANEDA ROSY MUZIKA JOHN NIMAL II RON MAUCH JOSUE MOJICA TORRES JACOB MYERS THANG NING CIIN MAWI RAFAEL MONARRES CHOI NAING ZAM NING RAM MAWI ALEXIS MONASTERIO AGUILERA SAW NAING ERICA NIXON PATRICIA MAXIMO BLANCA MONDRAGON DIEGO NAJERA MEAGAN NIXON DYLAN MAXWELL DINORA MONROY DE DIAZ LAWRENCE NANG CING NO LEONARD MAXWELL IRIS MONTANEZ SING NANG CING NO SHANE MAYHUGH FIORELA MONTANO THOMAS NANG JACOB NOE COURTNEY McAFEE NATALIE MONTANO DARIN NARBOE NUAM NOO TINA McBEATH JOHNNY MONTOYA NOORY NARTIN WILLIE NORFLEET ROBERT McBOWMAN CORDELL MOORE CARDRICO NASH ERIC NORRIS MYRA MCBRIDE HERBERT MOORE THANG NAULAK JODY NORTHRUP MICHAEL MCCALISTER MARIO MOORE ZAM NAULAK JERRY NOWEL MYKEA McCALISTER PHILLIP MOORE MARIA NAVA JACOB NOWLIN ELIZABETH MCCALL TONY MOORE BAWK NAW TUMAI NPAWT FRANCIS MCCLAIN ALFONSO MORAN CLAYTON NEAL NGIN NTEM ROBERT McCLEARY TONY MOREHEAD DARYL NEALY, JR KIM NU DIRK McCLELLAN LUKE MOREY NIANG NEL LIAN NU WALTER McCLUSKY ELROY MORGAN JEFFREY NELSON MANG NU CHERYL MCCLUSTER MATTHEW MORGAN HENRY NELSON JR CIIN NUAM AARON MCCONNELL JESSAMYN MORRIS CING NEM CING ZA NUAM MICHAEL McCONNELL PATSY MORRIS DIM NEM CING KHAN NUAM JAKE MCCORMICK JAMES MORROW SAN NEM CING DO NUAM DEBRA MCCOWAN WALTER MOSER DEI NENG DIM NUAM
LAWH NUAM ZAM KHEN PAU NICOLE POWELL JAVON RICE MAN NUAM ZOO PAU ORAN POWELL DANNY RICHARDSON NIANG NUAM MANI PAZHANATHADALAM RUDY POWELL BRYAN RICHARDSON NING NUAM JOSHUA PEARCE NYELAN POWELL BRIAN RICKETT JR THANG NUAM CARLDELL PEARSON MICHAEL POYNTER TERRY RICKNER THERESA NUAM ANTHONY PEDONE NATHAN PRADMORE ROBERT RIDDELL CING NUAMBOIH HERLIP PELL JOSE PRADO RANDALL RIDENOUR WILMER NUNEZ CHIRIVELLA RONALD PENNY, JR LAJUAN PREAR, JR ANGELA RIDEOUT NGIN NUNG VLADIMIR PENYAZ KENNETH PRENTICE, JR. COREY RIDER LAYAUK NYOI SHAQUILYA PEOPLES DANIEL PRESSLER, JR BRETT RIEGEL MICHAEL O'BRIEN OSCAR PEREZ KHAI PU DANIEL RITCHIE BRUNO OCHOA SERGIO PEREZ KHAM PU HILLARY RITE MICHAEL ODOM JOE PEREZ MANG PU BRAYAN RIVAS SANCHEZ ALEXANDER OFOSU LETICIA PEREZ MUANG PU SIGFREDO RIVERA RICKEY OGANS HECTOR PEREZ ARIAS SING PU RAMON RIVERA UDUIHAYE OGEDENGBE PERLA PEREZ ARIAS TUANG PU MONTIA ROBBINS WYATT OGLE CHRISTIAN PEREZ GUTIERREZ ALMA PUGA CARL ROBERTS ANTHONY OLIVERAS PEDRO PEREZ PAEZ KHAI PUI BRANDON ROBERTSON SONYA OLSON FRANCISCO PEREZ SANCHEZ THANG PUI CHRISTOPHER ROBERTSON ERIC OLSON ROBERT PERKINS KAM PUM DAVID ROBINSON KEITH OLSON MILES PERRY THANG PUNO DAVID ROBINSON, JR. JAMES ONEILL, JR KIMBERLY PERSONS MICHAEL PUTNAM JEREMIAH ROBISON CHRISTINE ONEY MATTHEW PESCHONG JOHN QUANG DEE ROCHA PAUL ONYENEHO MONTELL PETE FLARA RACHU BRAD RODRIGUES WAI OO JAMARCUS PETERS VINA RACHU HECTOR RODRIGUEZ VICTOR ORONA ROBERT PETERSON VINCENT RACHU MARIA G RODRIGUEZ LETICIA ORONA DANIEL PEURIFOY ERIC RACINE MARIA LOUISA RODRIGUEZ MARGARITA ORONA KINH PHAM ASNOR RAIMOND NELSON RODRIGUEZ MARIA ORONA LINH PHAM RETSIAN RAIN REBECCA RODRIGUEZ ERLINDA ORTEGA PHUOC PHAN BRIAN RAMBO RICARDO RODRIGUEZ DAVID OSBORNE LIANKHAN PHAWNG SUSAN RAMBO DERRICK ROGERS OFELIA OSUNA ADRIANA PHILLIPS EVA RAMIREZ DON ROGERS JENNIFER OVERMEYER KRISTOFER PHILLIPS MARTINELLY RAMIREZ GEEOVANTA ROGERS JOHNNY OWENS SHANNON PHILLIPS YOSSELIN RAMIREZ AGUILAR TONY ROGERS MIGUEL PABON TYMARQUIS PHILLIPS ROSA RAMIREZ AGUINAGA NELSON ROJAS KENNYS PACHECO SALAZAR NATHANIEL PHILLIPS PATRICIA RAMIREZ NAVARR LIDIA ROJAS MARK PAGE ALEXANDER PHOMPRIDA GERMAN RAMOS ALONSO JAMIE ROLLINSON JORDY PAREDES HAU PI HEIDI RAMZEL TONY RONGEY HEIDI PARK HELEN PI KARLY RANCK ROBERT ROSENCUTTER BILLY PARKER KHUAL PI AARON RANDALL RALPH ROSENOGLE MICHAEL PARKER NIANG PI JEFFREY RANDALL WENDELL ROSS RITA PARKER NUAM PI ROBERT RATLIFF CASEY ROSS ROBERT PARKER PETER PI TOMMY RATLIFF MARY ROWE DEIDRA PARKER THANG PI KYLE RATZLAFF RICHARD ROWE, JR. ELIZABETH PARKER THOMAS PI DAKOTA RATZLOFF JOSHUA ROWELL KEYANNA PARKER TUANG PI TAYLOR RAY JACOB RUCKER JUSTIN PARTNEY GOH PIANG LYDIA RAY TERRANCE RUDD CODY PASEMAN KHUP PIANG CURTIS RAYON CARLOS RUIZ JASON PATE MAN PIANG KEIANYA RAYSON MA RUIZ ORTEGA CALEB PATERIK SUAN PIANG THOMAS READ TERENCE RUSHING JOHN PATTERSON THANG LAMP PIANG DIEGO REBOLLAR-MARIN HAROLD RUSSELL PAUL PATTERSON THANG DEIH PIANG PEGGY REDDEN KARINA SAENZ ACOSTA LAUREN PATTERSON VAN PIANG JAMES REED CESAR SAENZ RODRIGUEZ CIANG PAU CHRISTOPHER PICKENS MICHAEL REED ABELINO SALAZAR CIN LIAN PAU MARK PIGMAN GUADALUPE REESE MARIANGEL SALAZAR GONZALEZ CIN N PAU DALTON PIPES LAQUAN REESE JORGE SALAZAR MARTINEZ DAI KHEN PAU NELSON PIRELA GONZALEZ WYKELAN REESE YSABEL SALAZAR SOARES DAL ZA PAU MIGLANIA PIRONA GONZALEZ AMANDA REEVES MARIA SALDIVAR DAL KHAN PAU HAROLD PITTS, II MARGARET REEVES MIGUEL SALDIVAR DO PAU CANDY PITTSER FEDORA REGUS VICTOR SALDIVAR EN PAU MARIELYS PLAZA CARPIO STEPAN REGUS JOSE SALDIVAR OREPEZA GIN SIAN PAU KEVIN POBUDA JOHN RENTKO, JR. DAVID SALEGO GIN SUAN PAU SUSANNE POINDEXTER JAKOB RESSLER NAEL SALEM KAM PAU SHELBEY POINDEXTER PABLO REYES DIANA SALINAS MUNG PAU BASANT POKHREL CLARA REYES JEFFREY SALISBURY NANG PAU RENU POKHREL AGUSTIN REYES, JR. PUNUNGAU SALLE NENG PAU VELMA POLLEY DAICHI REYNA AHJUNG SALUPTA PUM PAU MARK POOL THOMAS REYNOLDS BRENT SALYER THANG PAU BRANDIE PORTLEY WILLIAM REYNOLDS ROMERO SAMPSON ZAM LAM PAU DAMON POTTS DANIEL RHOADES NAW SAN ZAM KHAN PAU ASHLEY POWELL JEFFREY RHODES BEATRIZ SANCHEZ
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CIN SIAN TUANG SALOME VERA ANGELINA WEBER GIN TUANG JAMES VERHAMME JOE WELCH KAM K TUANG STEPHANIE VICKERS-CAMERON RONALD WELCH KAM TUANG TERESA VICTORY TRACEY WELDON KAM CIN TUANG EFRAIN SANCHEZ VILLA GREGORY WENGER KAM TUANG EFRAIN SOTELO VILLA DEXTER WENGU LANGH TUANG WILSON VILLALOBOS MOLERO ALLEN WESSEL JR., SIAN LIAN TUANG ISABEL VILLALPANDO-MARTINEZ SHARON WEST SIAN ZIAN TUANG RAULITO VILLANUEVA JEFFERY WHEELER SUAN TUANG SELINA VIRAMONTES WILLIAM WHEELER SUANLAM TUANG CUONG VO KENT WHINNERY THANG ZA TUANG TONG VO DAVID WHIPKEY II THANG L TUANG CHRISTOPHER VOIGHT RONALD WHISENHUNT THANG LIAN TUANG CHUAN VU DMARCUS WHITAKER THANG SUAN TUANG THU VU NGUYEN ALLYN WHITE TUN TUANG CIIN VUM ANGELA WHITE VUNGH TUANG CIIN DEIH VUNG EMILY WHITE ZAM TUANG CING KHAWM VUNG KYLE WHITE FELICIA TUETKEN CING LAM VUNG LEAYN WHITE JESSICA TULLAR CING HUAI VUNG TIMOTHY WHITE NGIN TUN CING ZA VUNG KENDREVIAN WHITE THANG TUN DON VUNG CASEY WHITELEY ZAM TUN HAW VUNG CHRISTIAN WHITESIDE GO TUNG KAP VUNG ROBERT WHITNEY KAMZA TUNG MANG VUNG STEVEN WHORTON LANGH TUNG MARY VUNG GORDON WICHMAN MUNG TUNG NIAN VUNG JACKIE WILES SUANG TUNG NIANG SIAM VUNG JERRY WILES THANG TUNG NIANG LIAN VUNG MICHAEL WILES VUNG TUNG NING VUNG CORNELL WILES, JR MICHAEL TUNNELL ZEL VUNG GAYLON WILEY PAUL TURBE ZEN VUNG SHELLEY WILLADSON BRYAN TURNER SYNRAM WADAMHKONG ALLEN WILLIAMS CHARLES TURNER MATTHEW WAGNER CHANTE WILLIAMS AHMAD TURNER MARK WAKEFIELD CLYDE WILLIAMS DANTAVIUS TURNER STEPHEN WAKEFIELD JACQUELYN WILLIAMS JESTON TURNER WHITNEY WAKEFIELD KELLY WILLIAMS KEVIN TURNER CODY WALDEN KOREY WILLIAMS LARRY TURNER DIANA WALKER NICOLE WILLIAMS RANDAL TYER JOSHUA WALKER RODNEY WILLIAMS JESSICA TYLER RODERICK WALKER ROSALIND WILLIAMS JACOB TZANG RONALD WALKER, JR BENNY WILLIAMS JESUS TZUL ENEIDA WALKUP CORNELL WILLIAMS CING UAP BARRY WALL KATHERYN WILLIAMS HUAI UAP AMILCAR WALLACE NINA WILLIAMS PAU UAP BRITTNEY WALLACE VANDOIL WILLIAMS PAT UNDERWOOD SAMANTHA WALLACE ROGER WILLIAMS, JR PERNELL UNDERWOOD JERRY WALLER JAMES WILLIAMSON SUDEEP UNNIKRISHNAN TODD WALLER DRAKE WILLIANDER MARIA URQUIZA TODD WALLINGFORD NORCY WILLIANDER YADIRA URQUIZA JUSTIN WALLIS CALVIN E WILLIS BOENAWAN UTOMO DOMINIQUE WALSTON DIEGO WILLY GIOVANA VALENCIA WELDON WALSTON CYNTHIA WILSON SUSANA VALENCIA STEPHANIE WALTER ISAAC WILSON MIRYIANDRIS VALERA BARRIOS NOLAN WALTERS JUSTIN WILSON JULIO VALLE SHORICORE WALTERS SUSAN WILSON BRENNEN VANCE NEWMAN WALTON WESTON WILSON TIMOTHY VANCE GUOYI WANG NAW WIN ZACHARY VANCE GAYLE WARD CYAN WINN SEVERO VARGAS MARQUIS WARD VINCENT WINTON RAFAEL VARONA MICHAEL WARREN JESSE WISE CARLO VASSALLE NUGENE WARREN RASHAUNA WISE SHAWN VAWTER DENZEL WASHINGTON LI WO JUAN VAZQUEZ DAQUIESHA WASHINGTON JACOB WOLFF ARLENE VEGA CASTRO THURMOND WASHINGTON RONALD WOOD ANTONIO VELASCO BOONE WATSON EMILY WOOD JAMES VELDE CLAUDE WATSON, JR MYRON WOODFORK NOEMI VELIZ KENDRA WATTS JAMAIL WOODS JUAN VENCES PERSEPHONE WATTS KASEY WORTHINGTON ANGEL VENEGAS ALAN WEBB BENJAMIN WRIGHT KASEY VENETOFF AUSTIN WEBBER CHRISTINA WRIGHT
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