AAON, INC. (AAON)

CIK: 0000824142. SIC: 3585 Air-Cond & Warm Air Heatg Equip & Comm & Indl Refrig Equip. Latest 10-K as of: 2026-03-02.

SIC breadcrumb: Manufacturing > Industrial And Commercial Machinery And Computer Equipment > SIC 3585 Air-Cond & Warm Air Heatg Equip & Comm & Indl Refrig Equip

SEC company page: https://www.sec.gov/edgar/browse/?CIK=824142. Latest filing source: 0000824142-26-000005.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-02. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000824142.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-07. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000824142.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0000824142-26-000036.

Extracted between Part I Item 2 and the next Item 3/4 or Part II heading after HTML sanitization. Confidence: high. Filing date: 2026-05-07. Report date: 2026-03-31.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto, which are included in this report, and our audited consolidated financial statements and the notes thereto, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

This discussion contains or incorporates by reference “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on expectations, estimates, assumptions and projections about our industry, business and future financial results, based on information available at the time this report is filed with the SEC or, with respect to any document incorporated by reference, available at the time that such document was prepared. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those identified in the section entitled “Forward-Looking Statements” in this Item 2 of this Quarterly Report on Form 10-Q and in the section entitled “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. We do not assume any obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise, except as required by law.

Description of the Company

AAON is a leader in HVAC solutions for commercial and industrial indoor environments. The Company’s industry-leading approach to designing and manufacturing highly configurable equipment to meet exact needs creates a premier ownership experience with greater efficiency, performance, and long-term value. AAON is headquartered in Tulsa, Oklahoma, where its world-class innovation center and testing capabilities enable continuous advancement toward a cleaner and more sustainable future.

We engineer, manufacture, and sell premium heating, ventilation, and air conditioning equipment consisting of semi-custom and custom rooftop units, data center cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls. These products are marketed and sold to a variety of vertical markets including retail, manufacturing, educational, lodging, supermarket, data centers, medical and pharmaceutical, industrial, and other commercial markets. We sell our products to all 50 states in the United States and certain provinces in Canada. 

Foreign sales were approximately $11.2 million for the three months ended March 31, 2026, as compared to $11.3 million for the three months ended March 31, 2025.

Our AAON brand can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate. After the commercial and industrial new construction markets came to a standstill in 2020–2021, our core nonresidential end‑markets entered a period of robust growth, increasing by approximately 50.0% between 2022 and 2024. By late 2024, however, these markets began to contract, and the softening continued through 2025, though at a moderate rate. While leading indicators signal a stabilization in activity, we have not observed clear indications of a significant reacceleration. Furthermore, signals from general economic indicators are mixed regarding the health of the general economy. If the domestic economy were to slow or enter a recession, this could further impact our new construction markets and also weigh on the replacement market, potentially resulting in reduced sales volumes and profitability. Sales in the commercial and industrial new construction markets generally lag behind the housing market, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, the state of the economy and other macroeconomic factors over which we have no control. Sales in the replacement markets are driven by various factors, including general economic growth, the Company's new product introductions, fluctuations in the average age of existing equipment in the market, government regulations and stimulus, change in market demand between more customized, higher performing HVAC equipment and lower priced standard equipment, as well as many other factors. When new construction is down, we emphasize the replacement market.

Our BASX brand is heavily dependent on the data center market. The growing maturity and adoption of Artificial Intelligence and high-performance compute is driving profound innovation across the data center market, resulting in increased demand for our products and solutions. Between 2022 and 2025, total put‑in‑place construction spending for data centers expanded by approximately 240.0%, and present indicators suggest continued strength with no meaningful signs of slowing in the foreseeable future. In response, we have made substantial capital investments to expand our capacity and ensure we are fully equipped to support this accelerating growth trajectory.

31

We sell our products to property owners and contractors mainly through a network of independent manufacturers’ Representatives. This go-to-market strategy is unique compared to most of our larger competitors in that most control their sales channel. We value the independent sales channel as we think it is a more effective way of increasing market share. Although we concede full control of the sales process with this strategy, the entrepreneurial aspect of the independent sales channel attracts the most talent and provides greater financial incentives for its salespeople. Further, the independent sales channel sells different types of equipment from various manufacturers, allowing it to operate with more of a solutions-based mindset, as opposed to an internal sales department of a manufacturing company that is incentivized to only sell its equipment regardless if it is the best solution for the end customer. We also have a small internal sales force that supports the relationships between the Company and our sales channel partners. BASX sells highly customized products for unique applications for a more concentrated customer base and an internal sales force is more effective for such products.

The principal components of cost of sales are labor, raw materials, component costs, factory overhead, freight out, and engineering expense. The principal high volume raw materials used in our manufacturing processes are steel, copper, and aluminum, and are obtained from domestic suppliers. We also purchase from domestic manufacturers certain components, including coils, compressors, motors, and electrical controls.

The price levels of our raw materials fluctuate due to various economic factors within the U.S. and global economy. At March 31, 2026, the price for copper and aluminum increased by approximately 7.1% and 18.8%, respectively, while stainless steel and galvanized steel decreased approximately 11.6% and 3.5%, respectively.

We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations.

We occasionally increase the price of our products to help offset any inflationary headwinds. In recent years, price increases have been more frequent due to the amount of inflation the business has endured. On January 1, 2025, we implemented a 3.0% price increase for AAON-branded products. On April 1, 2025, we implemented a 6.0% surcharge on all AAON-branded products as a result of the uncertainty of international tariffs. BASX-branded products are priced by job and in most cases, provide the ability to increase the price if the order is outside normal lead times.

Macroeconomic Conditions

Beginning in January 2025, the current United States (“U.S.”) Administration began enacting a series of tariffs affecting nearly all goods imported into the U.S. In retaliation, numerous foreign countries imposed reciprocal tariffs and restricted certain exports to the U.S. The continuous changes and uncertainty in tariff policy could impact our cost of materials, parts, or components imported into the U.S. and could impact the availability of supply from our vendors. We source raw materials domestically, but historically have seen those suppliers increase prices when tariffs are increased. Additionally, while we source most components domestically, our vendors may be impacted by tariffs if they use foreign parts and materials and often pass any additional costs as a result of tariffs through to us. We expect to continue to pass along some of these costs to our customers, but the increased price of our products could adversely affect the demand, which could have an adverse effect on our business and our earnings. The third quarter of 2025 is the first period for us to see any significant financial impact from tariffs. On April 1, 2025 we instituted a 6.0% tariff surcharge on AAON-branded orders which we began to see realization of in the third quarter of 2025. Early in 2025, the amount of surcharge realized had not covered the additional costs from the tariffs, but had changed by the end of the year as we fully realized our surcharge.

We make strategic purchases of materials when we see opportunities or potential disruptions in our supply chain. We have experienced supply chain challenges related to specific manufacturing parts, which could be exacerbated by the trade conflict. We manage our supply chain challenges through strong vendor relationships as well as expanding our list of available vendors.

32

Backlog

Segment

Brands Produced

Brand Products

AAON Oklahoma

AAON

Rooftop units and aftermarket parts

AAON Coil Products

AAON / BASX

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

BASX

BASX

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

The following table shows our historical backlog levels:

March 31,

2026

December 31,

2025

March 31,

2025

(in thousands)

AAON-branded Products

$

509,806 

$

526,350 

$

403,863 

BASX-branded Products

1,619,649 

1,302,145 

623,006 

Total Backlog

$

2,129,455 

$

1,828,495 

$

1,026,869 

At March 31, 2026, our consolidated backlog is $2,129.5 million, an increase of 107.4%, or $1,102.6 million, as compared to March 31, 2025. Backlog was up from a year ago for both AAON-branded products and BASX-branded products with BASX-branded products increasing 160.0%, or $996.6 million, when compared to March 31, 2025. Most of these orders were associated with the BASX-branded data center liquid cooling solutions.

Consolidated Results of Operations

Three Months Ended March 31,

2026

2025

(in thousands, except per share data)

Net sales

$

496,936 

$

322,054 

Cost of sales

371,971 

235,690 

Gross profit

124,965 

86,364 

Selling, general and administrative expenses

67,906 

51,293 

Gain on disposal of assets

— 

(40)

Income from operations

57,059 

35,111 

Interest expense

(5,055)

(2,802)

Other income, net

77 

174 

Income before taxes

52,081 

32,483 

Income tax provision

12,266 

3,191 

Net income

$

39,815 

$

29,292 

The following are highlights of our results of operations, cash flows, and financial condition:

•Net sales for the three months ended March 31, 2026 grew 54.3% to $496.9 million driven by the strong demand and growth of our

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-03-02. Report date: 2025-12-31.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, and liquidity of the Company for the year ended December 31, 2025. This discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, Financial Statements and Supplementary Data. A detailed discussion of the year-to-year changes for the years ended December 31, 2024, and 2023 is not included herein and can be found in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Description of the Company

AAON is a leader in HVAC solutions for commercial and industrial indoor environments. The Company’s industry-leading approach to designing and manufacturing highly configurable equipment to meet exact needs creates a premier ownership experience with greater efficiency, performance, and long-term value. AAON is headquartered in Tulsa, Oklahoma, where its world-class innovation center and testing capabilities enable continuous advancement toward a cleaner and more sustainable future.

We engineer, manufacture, and sell premium heating, ventilation, and air conditioning equipment consisting of semi-custom and custom rooftop units, data center cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls. These products are marketed and sold to a variety of vertical markets including retail, manufacturing, educational, lodging, supermarket, data centers, medical and pharmaceutical, industrial, and other commercial markets. We sell our products to all 50 states in the United States and certain provinces in Canada. 

Our AAON brand can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate. After the commercial and industrial new construction markets came to a standstill in 2020–2021, our core nonresidential end‑markets entered a period of robust growth, increasing by approximately 50.0% between 2022 and 2024. By late 2024, however, these markets began to contract, and the softening continued through 2025, though at a moderate rate. While leading indicators signal a stabilization in activity, we have not observed clear indications of a significant reacceleration. Furthermore, signals from general economic indicators are mixed regarding the health of the general economy. If the domestic economy were to slow or enter a recession, this could further impact our new construction markets and also weigh on the replacement market, potentially resulting in reduced sales volumes and profitability. Sales in the commercial and industrial new construction markets generally lag behind the housing market, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, the state of the economy and other macroeconomic factors over which we have no control. Sales in the replacement markets are driven by various factors, including general economic growth, the Company's new product introductions, fluctuations in the average age of existing equipment in the market, government regulations and stimulus, change in market demand between more customized, higher performing HVAC equipment and lower priced standard equipment, as well as many other factors. When new construction is down, we emphasize the replacement market.

Our BASX brand is heavily dependent on the data center market. The growing maturity and adoption of Artificial Intelligence and high-performance compute is driving profound innovation across the data center market, resulting in increased demand for our products and solutions. Between 2022 and 2025, total put‑in‑place construction spending for data centers expanded by approximately 240.0%, and present indicators suggest continued strength with no meaningful signs of slowing in the foreseeable future. In response, we have made substantial capital investments to expand our capacity and ensure we are fully equipped to support this accelerating growth trajectory.

29

We sell our products to property owners and contractors mainly through a network of independent manufacturers’ Representatives. This go-to-market strategy is unique compared to most of our larger competitors in that most control their sales channel. We value the independent sales channel as we think it is a more effective way of increasing market share. Although we concede full control of the sales process with this strategy, the entrepreneurial aspect of the independent sales channel attracts the most talent and provides greater financial incentives for its salespeople. Further, the independent sales channel sells different types of equipment from various manufacturers, allowing it to operate with more of a solutions-based mindset, as opposed to an internal sales department of a manufacturing company that is incentivized to only sell its equipment regardless if it is the best solution for the end customer. We also have a small internal sales force that supports the relationships between the Company and our sales channel partners. BASX sells highly customized products for unique applications for a more concentrated customer base and an internal sales force is more effective for such products.

The principal components of cost of sales are labor, raw materials, component costs, factory overhead, freight out, and engineering expense. The principal high volume raw materials used in our manufacturing processes are steel, copper, and aluminum, and are obtained from domestic suppliers. We also purchase from domestic manufacturers certain components, including coils, compressors, motors, and electrical controls.

The price levels of our raw materials fluctuate due to various economic factors within the U.S. and global economy. At December 31, 2025, the price for copper increased by approximately 11.1%, while stainless steel and galvanized steel decreased approximately 13.0% and 3.4%, respectively. The price for aluminum remained relatively flat, as compared to the price at December 31, 2024.

We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations.

We occasionally increase the price of our products to help offset any inflationary headwinds. In recent years, price increases have been more frequent due to the amount of inflation the business has endured. We implemented a recurring 1.0% monthly price increase on October 1, 2023, and carried that through February 1, 2024, for AAON-branded products. On January 1, 2025, we implemented a one-time 3.0% price increase for AAON-branded products. On April 1, 2025, we implemented a 6.0% surcharge on all AAON-branded products as a result of the uncertainty of international tariffs. BASX-branded products are priced by job and in most cases, provide the ability to increase the price if the order is outside normal lead times.

Macroeconomic Conditions

Beginning in January 2025, the current United States (“U.S.”) Administration began enacting a series of tariffs affecting nearly all goods imported into the U.S. In retaliation, numerous foreign countries imposed reciprocal tariffs and restricted certain exports to the U.S. The continuous changes and uncertainty in tariff policy could impact our cost of materials, parts, or components imported into the U.S. and could impact the availability of supply from our vendors. We source raw materials domestically, but historically have seen those suppliers increase prices when tariffs are increased. Additionally, while we source most components domestically, our vendors may be impacted by tariffs if they use foreign parts and materials and often pass any additional costs as a result of tariffs through to us. We expect to continue to pass along some of these costs to our customers, but the increased price of our products could adversely affect the demand, which could have an adverse effect on our business and our earnings. The third quarter of 2025 is the first period for us to see any significant financial impact from tariffs. On April 1, 2025 we instituted a 6.0% tariff surcharge on AAON-branded orders which we began to see realization of in the third quarter of 2025. Early in 2025, the amount of surcharge realized had not covered the additional costs from the tariffs, but had changed by the end of the year as we fully realized our surcharge.

We make strategic purchases of materials when we see opportunities or potential disruptions in our supply chain. We have experienced supply chain challenges related to specific manufacturing parts, which could be exacerbated by the trade conflict. We manage our supply chain challenges through strong vendor relationships as well as expanding our list of available vendors.

Additionally, we continue to experience challenges in a tight labor market, especially the hiring of production labor. We continue to implement human resource initiatives to retain and attract labor to further increase production capacity. We have implemented the following wage increases to remain competitive and to attract and retain employees:

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

30

•In March 2025, we awarded annual merit raises for an overall 4.0% increase to wages.

Despite efforts to mitigate the potential business impacts of trade conflict, supply chain challenges, and a tight labor market, future increases in the cost of materials, parts, components, or labor, in addition to supply chain disruptions, while temporary, could negatively impact our consolidated financial position, results of operations, and cash flows.

Backlog

Segment

Brands Produced

Brand Products

AAON Oklahoma

AAON

Rooftop units and aftermarket parts

AAON Coil Products

AAON / BASX

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

BASX

BASX

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

The following table shows our historical backlog levels:

December 31,

2025

December 31,

2024

(in thousands)

AAON-branded Products

$

526,350 

$

327,343 

BASX-branded Products

1,302,145 

539,747 

Total Backlog

$

1,828,495 

$

867,090 

At December 31, 2025, our consolidated backlog is $1,828.5 million, an increase of 110.9%, or $961.4 million, as compared to December 31, 2024. Backlog was up from a year ago for both AAON-branded products and BASX-branded products with BASX-branded products increasing 141.3%, or $762.4 million, when compared to December 31, 2024. Most of these orders were associated with the BASX-branded data center liquid cooling solutions.

Consolidated Results of Operations

Years Ended December 31,

2025

2024

(in thousands, except per share data)

Net sales

$

1,442,076 

$

1,200,635 

Cost of sales

1,056,352 

803,526 

Gross profit

385,724 

397,109 

Selling, general and administrative expenses

239,480 

188,014 

Gain on disposal of assets

(4)

(23)

Income from operations

146,248 

209,118 

Interest expense

(17,726)

(2,905)

Other income, net

230 

378 

Income before taxes

128,752 

206,591 

Income tax provision

21,159 

38,032 

Net income

$

107,593 

$

168,559 

The following are highlights of our results of operations, cash flows, and financial condition:

•Net sales for 2025 grew 20.1% to $1,442.1 million driven by the strong demand and growth of our BASX-branded products. BASX-branded products increased 143.5%, or $322.8 million when compared to 2024.

•Net sales of AAON-branded products decreased 8.3%, or $81.4 million when compared to 2024. The AAON brand experienced a softer market in 2025 due to macroeconomic factors like higher interest rates

31

and slowing construction starts. Supply chain issues were also a constraint in 2025 due to the refrigerant change that went into effect January 1, 2025 and more recently due to coils.

•The Company went live with its new Enterprise Resource Planning (“ERP”) system on April 1, 2025 at its Longview, Texas facility. The adoption of this new system caused some disruptions due to changes in processes for the AAON Coil Products segment. To a lesser extent, the impact to the coil production at AAON Coil Products also impacted AAON Oklahoma’s ability to ramp up production, which contributed to lower net sales and gross profit margins for that segment. The Company also went live with its ERP at its Memphis, Tennessee facility on November 1, 2025 with minimal disruption.

•We have a strong balance sheet with a leverage ratio of 1.77 and available borrowings under our Revolver of $201.0 million.

•We continue to invest in the future growth of the Company as evidenced by our $204.9 million in capital expenditures, including the acquisition of intangible assets in 2025.

•We completed the repurchase of $39.7 million of shares for the year ended December 31, 2025.

We report our financial results based on three reportable segments: AAON Oklahoma, AAON Coil Products, and BASX, which are further described in “Segments” (Note 23) within our notes to the consolidated financial statements. The Company’s chief operating decision maker (“CODM”), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and gross profit. The CODM does not evaluate operating segments using asset or liability information.

Segment Operating Results for the Years Ended December 31, 2025 and 2024

Years Ended

December 31, 2025

Percent of Sales1

December 31, 2024

Percent of Sales1

$ Change

% Change

(in thousands)

Net Sales2

AAON Oklahoma

$

801,209 

55.6 

%

$

858,711 

71.5 

%

$

(57,502)

(6.7)

%

AAON Coil Products

325,353 

22.6 

%

143,871 

12.0 

%

181,482 

126.1 

%

BASX

315,514 

21.9 

%

198,053 

16.5 

%

117,461 

59.3 

%

Net sales

$

1,442,076 

$

1,200,635 

$

241,441 

20.1 

%

Cost of Sales2

AAON Oklahoma

$

569,121 

71.0 

%

538,124 

62.7 

%

$

30,997 

5.8 

%

AAON Coil Products

255,681 

78.6 

%

116,287 

80.8 

%

139,394 

119.9 

%

BASX

231,550 

73.4 

%

149,115 

75.3 

%

82,435 

55.3 

%

Cost of sales

$

1,056,352 

73.3 

%

$

803,526 

66.9 

%

$

252,826 

31.5 

%

Gross Profit2

AAON Oklahoma

$

232,088 

29.0 

%

$

320,587 

37.3 

%

$

(88,499)

(27.6)

%

AAON Coil Products

69,672 

21.4 

%

27,584 

19.2 

%

42,088 

152.6 

%

BASX

83,964 

26.6 

%

48,938 

24.7 

%

35,026 

71.6 

%

Gross profit

$

385,724 

26.7 

%

$

397,109 

33.1 

%

$

(11,385)

(2.9)

%

1 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment’s net sales. Total cost of sales and total gross profit are calculated as a percentage of total net sales.

2 Presented after intercompany eliminations.

32

Total net sales increased $241.4 million, or 20.1%. AAON Oklahoma had net sales of $801.2 million, a decrease of 6.7% compared to the same period in the prior year. This decrease was driven by supply chain issues from the refrigerant transition at the beginning of the year and coil supply shortages in the second quarter due to our ERP implementation at our Longview, Texas facility which slowed production of coils made for our Tulsa plant. Sales were up 126.1% for AAON Coil Products primarily driven by growth in BASX-branded products of $202.3 million for liquid cooling data centers. AAON-branded products at AAON Coil Products declined $20.9 million due to disruptions caused by our ERP implementation. BASX net sales were up 59.3% to $315.5 million due to the continued demand for data center solutions and increasing production out of our Memphis facility.

Gross profit decreased $11.4 million or 2.9% and from 33.1% of sales to 26.7% of sales. AAON Oklahoma’s decrease in gross profit is primarily driven by the lower volumes discussed above from the first half of the year that resulted in sub optimal overhead absorption. Additionally, our new plant in Memphis is part of AAON Oklahoma, building intercompany sales for the BASX segment at cost. As such, the sales and gross profit from orders completed in Memphis are reflected in the BASX segment, but the additional overhead cost of running the plant is reflected in the AAON Oklahoma segment. Memphis contributed $16.1 million in cost to the AAON Oklahoma segment. AAON Coil Products gross profit margin increased slightly from 19.2% in 2024 to 21.4% in 2025. AAON Coil Products had disruptions caused by our ERP system implementation at the beginning of the second quarter. Progress was made during the remainder of the year and the higher volume data center work help to offset the negative impacts of these disruptions. The increase in BASX gross profit is due to better overhead absorption from the increased sales volumes coming from our Memphis facility.

Raw Material Costs

Twelve-month average raw material cost per pound as of December 31:

2025

2024

% Change

Copper

$

6.13 

$

5.52 

11.1 

%

Galvanized steel

$

0.57 

$

0.59 

(3.4)

%

Stainless steel

$

2.00 

$

2.30 

(13.0)

%

Aluminum

$

2.49 

$

2.50 

(0.4)

%

33

Selling, General and Administrative Expenses

Years Ended December 31,

Percent of Sales

2025

2024

2025

2024

(in thousands)

Warranty

$

23,829 

$

16,727 

1.7 

%

1.4 

%

Profit sharing

12,851 

19,948 

0.9 

%

1.7 

%

Salaries & benefits

73,686 

58,154 

5.1 

%

4.8 

%

Stock compensation

12,299 

10,390 

0.9 

%

0.9 

%

Advertising

3,844 

3,281 

0.3 

%

0.3 

%

Depreciation & amortization

27,714 

20,542 

1.9 

%

1.7 

%

Insurance

8,533 

8,303 

0.6 

%

0.7 

%

Professional fees

7,615 

8,809 

0.5 

%

0.7 

%

Memphis incentive fee

6,105 

— 

0.4 

%

— 

%

Donations

1,495 

1,682 

0.1 

%

0.1 

%

Other

61,509 

40,178 

4.3 

%

3.3 

%

Total SG&A

$

239,480 

$

188,014 

16.6 

%

15.7 

%

Selling, general and administrative expenses increased $51.5 million for the year ended December 31, 2025, from the prior year period. Profit sharing is down as a result of our lower earnings in the period. Salaries and benefits have increased as we add additional headcount to help build out our organizational capacity for future growth. Depreciation and amortization increased $7.2 million during the period due to increased investments from our ERP implementation. We incurred approximately $6.1 million in incentive fees due to our real estate broker associated with the acquisition of our Memphis, Tennessee plant for a percentage of the incentives awarded to us by various entities. Other includes an increase in expense of $17.4 million for technology related consulting fees along with increased expenses related to travel and other consulting expenses.

Income Taxes

Years Ended December 31,

Effective Tax Rate

2025

2024

2025

2024

(in thousands)

Income tax provision

$

21,159 

$

38,032 

16.4 

%

18.4 

%

The Company’s estimated annual 2025 effective tax rate, excluding discrete events, is expected to be approximately 22.5%. Discrete events such as excess tax benefits related to stock compensation and various tax credits consistently provide a benefit, keeping our actual effective rate lower than the stated 22.5%.

Liquidity and Capital Resources

Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the use of the revolving bank line of credit based on our current liquidity at the time.

Working Capital - Our unrestricted cash and cash equivalents remained stable from December 31, 2024, to December 31, 2025. Our restricted cash decreased $5.3 million due to funding requirements related to our Longview, Texas expansion.

Outstanding Debt - On December 16, 2024, we entered into the Third Amendment and Restated Loan Agreement dated November 24, 2021, to include an $80.0 million term loan payable in equal monthly installments, plus interest, over 60 months, expiring December 16, 2029 (“Term Loan”). The agreement provided for a $200.0 million revolving credit facility and an option to increase the maximum borrowings to $300.0 million. In April 2025, we increased our available Revolver to $230.0 million, an increase of $30.0 million, to fund our additional working capital needs.

34

On May 29, 2025, we entered into the Fifth Amendment to the Amended and Restated Loan Agreement dated November 24, 2021 (as amended, “Amended Loan Agreement”) whereby the remaining balance of the Term Loan, approximately $72.0 million, was rolled into the amended Revolving Loan (“Amended Revolver”), the capacity of which was increased from $230.0 million to $500.0 million. The Amended Revolver is prepayable without penalty.

On December 29, 2025, we entered into the Sixth Amendment to the Amended and Restated Loan Agreement. The terms of the Amendment increased the amount of the borrowing capacity on the Revolver from $500.0 million to $600.0 million by exercising the $100.0 million accordion feature. The Amended Revolver is prepayable without penalty. The Revolver expires on May 27, 2030.

As of December 31, 2025, and December 31, 2024, we had an outstanding balance under the Revolver of $398.3 million and $76.5 million, respectively. We had one standby letter of credit totaling $0.7 million and $0.3 million as of December 31, 2025, and December 31, 2024, respectively. Borrowings available under the Revolver at December 31, 2025, were $201.0 million.

The Term Loan had no outstanding balance as of December 31, 2025 and a balance of $78.4 million as of December 31, 2024 respectively.

Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate (“SOFR”) plus the applicable margin. The Term Loan bears interest at the SOFR plus a credit spread adjustment of 0.10% per annum plus the Applicable Margin.

Applicable margin, ranging from 1.25% - 1.75%, is determined quarterly based on the Company’s leverage ratio. The Company is also subject to letter of credit fees, ranging from 1.25% - 1.75%, and a commitment fee, ranging from 0.10% - 0.20%. The applicable fee percentage is determined quarterly based on the Company’s leverage ratio.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income for the years ended December 31, 2025, 2024, 2023.

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

Years Ended December 31,

2025

2024

2023

Revolver

5.7%

6.3%

6.3%

Term loan

*1

0.1%

*1

1 Funds were borrowed on December 16, 2024. No borrowings outstanding during the year ended December 31, 2025.

If SOFR cannot be determined pursuant to the definition, as defined by the Amended Loan Agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate (“ABR”) loans. ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50%, or (c) daily simple SOFR for a one-month tenor in effect on such day plus 1.00%. As of December 16, 2024, as defined by the Amended Loan Agreement, if the SOFR cannot be determined any outstanding balance will bear interest at the Prime Rate in effect on such day.

At December 31, 2025, we were in compliance with our financial covenants, as defined by the Revolver. These covenants require that we meet certain parameters related to our leverage ratio. At December 31, 2025, our leverage ratio was 1.77 to 1.0, which meets the requirement of not being above 3 to 1.

2019 New Markets Tax Credit - On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2019 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2019 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2019 Project”). In connection with the 2019 NMTC transaction, the Company received a $23.0 million NMTC allocation for the Project and secured low-interest financing and the potential for future debt forgiveness related to the 2019 Project.

Upon closing of the 2019 NMTC transaction, the Company provided an aggregate of approximately $15.9 million to the 2019 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0%. This $15.9 million in proceeds plus capital contributed from the 2019 Investor was used to make an aggregate $22.5 million loan to a subsidiary of the Company. This financing arrangement is secured by equipment at the Company’s Longview, Texas facilities and a guarantee from the Company, including an unconditional guarantee of the NMTCs. The Company’s seven-year compliance period ends in 2026, at which time the Company expects the put/call feature of the transaction to be exercised, forgiving a portion of the debt.

35

2023 New Markets Tax Credit - On April 25, 2023, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2023 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2023 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2023 Project”). In connection with the 2023 NMTC transaction, the Company received a $23.0 million NMTC allocation for the 2023 Project and secured low-interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities.

Upon closing of the 2023 NMTC transaction, the Company provided an aggregate of approximately $16.7 million to the 2023 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0%. This $16.7 million in proceeds plus capital contributed from the 2023 Investor was used to make an aggregate $23.8 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of the NMTCs. The net proceeds from the closing of the 2023 NMTC are included in restricted cash on our consolidated balance sheets required to be used for the 2023 Project.

2024 New Markets Tax Credit - On February 27, 2024, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2024 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2024 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in real estate to facilitate the current expansion of our Longview, Texas manufacturing operations (the “2024 Project”). In connection with the 2024 NMTC transaction, the Company received a $15.5 million NMTC allocation for the 2024 Project and secured low-interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities.

Upon closing the 2024 NMTC transaction, the Company provided an aggregate of approximately $11.0 million to the 2024 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0%. This $11.0 million in proceeds plus capital contributed from the 2024 Investor was used to make an aggregate $16.0 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of NMTCs. The net proceeds from the closing of the 2024 NMTC are included in restricted cash on our consolidated balance sheets required to be used for the 2024 Project.

Stock Repurchase - The Board has authorized stock repurchase programs for the Company. The Company may purchase shares on the open market from time to time. The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market.

Our open market repurchase programs are as follows:

Agreement Execution Date

Authorized Repurchase $

Expiration Date

November 3, 2022

$50 million1

February 27, 2024

February 27, 2024

$50 million1

June 4, 2024

June 4, 2024

$50 million2

June 14, 2024

February 25, 2025

$100 million

**3

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

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

3 Expiration Date is at Board's discretion. The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board. As of December 31, 2025, approximately $30 million of shares have been repurchased, and approximately $70.0 million remains under the current board authorization.

The Company also repurchases shares of AAON, Inc. stock related to our LTIP plans (Note 15) at current market prices.

36

Our repurchase activity is as follows:

2025

2024

2023

(in thousands, except share and per share data)

Program

Shares

Total $

$ per share

Shares

Total $

$ per share

Shares

Total $

$ per share

Open market

371,139 

$

29,992 

$

80.81 

1,353,564 

$

100,034 

$

73.90 

402,873 

$

25,009 

$

62.08 

LTIP Shares

98,134 

9,730 

99.15 

92,444 

8,037 

86.94 

21,904 

1,302 

59.44 

Total

469,273 

$

39,722 

$

84.65 

1,446,008 

$

108,071 

$

74.74 

424,777 

$

26,311 

$

61.94 

Dividends - At the discretion of the Board of Directors, we pay cash dividends. Board approval is required to determine the date of declaration and amount for each cash dividend payment.

Our recent dividends are as follows:

Dividend

Annualized Dividend

Declaration Date

Record Date

Payment Date

 per Share

per Share

March 1, 2023

March 13, 2023

March 31, 2023

$0.08

$0.32

May 18, 2023

June 9, 2023

June 30, 2023

$0.08

$0.32

August 18, 2023

September 8, 2023

September 29, 2023

$0.08

$0.32

November 10, 2023

November 29, 2023

December 18, 2023

$0.08

$0.32

March 5, 2024

March 18, 2024

March 29, 2024

$0.08

$0.32

May 24, 2024

June 7, 2024

June 28, 2024

$0.08

$0.32

August 15, 2024

September 6, 2024

September 27, 2024

$0.08

$0.32

November 13, 2024

November 29, 2024

December 19, 2024

$0.08

$0.32

March 5, 2025

March 18, 2025

March 28, 2025

$0.10

$0.40

May 13, 2025

June 6, 2025

June 27, 2025

$0.10

$0.40

August 14, 2025

September 5, 2025

September 26, 2025

$0.10

$0.40

November 10, 2025

November 26, 2025

December 18, 2025

$0.10

$0.40

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 2026 and the foreseeable future.

Off-Balance Sheet Arrangements - We are not party to any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources.

37

Statement of Cash Flows

The following table reflects the major categories of cash flows for the year ended December 31, 2025 and 2024. For additional details, see the consolidated financial statements.

Years Ended December 31,

2025

2024

(in thousands)

Operating Activities

Net income

$

107,593 

$

168,559 

Income statement adjustments, net

129,301 

73,343 

Changes in assets and liabilities:

Accounts receivable

(167,023)

(10,041)

Income taxes

(23,330)

(5,285)

Inventories

(73,883)

27,080 

Contract assets

(111,816)

(90,626)

Prepaid expenses and other long-term assets

(11,673)

(3,707)

Accounts payable

52,904 

16,959 

Contract liabilities

65,757 

1,156 

Extended warranties

831 

1,835 

Accrued liabilities & other long-term liabilities

31,873 

13,259 

Net cash provided by operating activities

534 

192,532 

Investing Activities

Capital expenditures

(190,563)

(195,660)

Acquisition of intangible assets

(14,329)

(17,491)

Proceeds from government incentive grant

12,000 

— 

Other

475 

76 

Net cash used in investing activities

(192,417)

(213,075)

Financing Activities

Proceeds from financing obligations, net of issuance costs

— 

4,186 

Payment related to financing costs

(1,395)

(664)

Borrowings of debt

915,391 

717,897 

Payments of debt

(672,204)

(601,091)

Stock options exercised

17,144 

31,861 

Repurchase of stock

(29,995)

(100,034)

Employee taxes paid by withholding shares

(9,730)

(8,037)

Cash dividends paid to stockholders

(32,603)

(26,084)

Net cash provided by financing activities

$

186,608 

$

18,034 

Cash Flows from Operating Activities

The Company currently manages cash needs through working capital as well as drawing on its line of credit. Collections and payments cycles are on a normal pattern and fluctuate due to timing of receipts and payments. Historically, the Company increases the purchase of inventory to take advantage of favorable pricing opportunities and also to mitigate the impact of future supply chain disruptions on our operations. Additionally, we continue to make significant purchases of inventory related to data center orders. These purchases are allocated to customer jobs and show as increases to our contract assets.

Current payment terms for some BASX-branded jobs primarily require the Company to fund the upfront working capital resulting in cash outflows related to our contract assets. Similarly, some BASX-branded jobs require down payments, resulting in cash inflows related to our contract liabilities. 2025 saw significant increases in accounts receivable in the back half of the year with customers that have longer terms than the typical 30 day AAON-branded terms. The Company experienced carrying working capital for extended periods of time during this period of growth and expansion at our Longview and Memphis plants.

38

Cash Flows from Investing Activities

Capital expenditures during the year ended December 31, 2025, relate to additional infrastructure and machinery for both replacement and production growth, finalizing our new production space in our Redmond, Oregon and Longview, Texas locations, additional equipment and production capacity in Parkville, Missouri, and new equipment for our Memphis, Tennessee facility. We have also made investments to purchase or develop software for internal use in anticipation of future Company growth.

Our capital expenditure program for 2026 is estimated to be approximately $190.0 million. Many of these projects are subject to review and cancellation at the discretion of our CEO and Board of Directors without incurring substantial charges.

Cash Flows from Financing Activities

The change in cash from financing activities in 2025 is primarily related to borrowings under our revolving credit facility to manage our working capital needs, especially strategic purchases of inventory to avoid supply chain delays and the funding of certain capital expenditures, offset by repayments we were able to make due to our operating results and financial condition.

During the year ended December 31, 2025, we repurchased $30.0 million under our open market share repurchase programs. Furthermore, cash flows from financing activities is historically affected by the timing of stock options exercised by our employees.

Commitments and Contractual Agreements

We are occasionally party to short-term and long-term, cancellable and occasionally non-cancellable, contracts with suppliers for the purchase of raw material and component parts. We expect to receive delivery of raw material and component parts for use in our manufacturing operations. These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption. We had no material contractual purchase obligations as of December 31, 2025, except as described below.

In 2023, the Company executed a five-year purchase commitment for refrigerants. In 2025 and 2024, the Company made payments of $5.6 million and $11.7 million on this contract, respectively. Estimated minimum future payments are $10.5 million, and $11.2 million for 2026 and 2027, respectively.

In 2025, the Company executed three one-year purchase commitments for raw materials. Estimated minimum future payments are $27.4 million for 2025. We had no other material contractual purchase obligations as of December 31, 2025.

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. See Note 20 of the Consolidated Financial Statements for additional information with respect to specific legal proceedings.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require management to make estimates and assumptions about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, and expenses in our consolidated financial statements and related notes. 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. We discuss these estimates with the Audit Committee of the Board of Directors periodically.

39

Revenue - Due to the highly customized nature of many of the Company’s products and each product not having an alternative use to the Company without incurring significant costs to the Company and the agreements containing an enforceable right to payment including a reasonable profit margin, the Company recognizes revenue over time as progress is made toward satisfying the performance obligations of each contract. The measurement and recognition of revenue requires us to make judgments and estimates, including the determination of whether we should recognize revenue as we perform or upon the completion of our performance obligation, as these determinations impact the timing and amount of our reported revenue. Costs used in estimating revenue can include direct materials, direct labor, installation, freight and delivery, commissions and royalties depending on the individual performance obligation. Other costs not related to the performance obligation, such as indirect labor and materials, small tools and supplies, operating expenses, field rework and back charges are charged to expense as incurred.

Inventory - Raw material or component inventory typically transfers from one stage of manufacturing to another where it accumulates additional costs directly incurred with the production of finished goods, including estimated standard labor and overhead costs. Labor and overhead costs associated with the manufacturing of our products are capitalized into inventory on an estimated standard basis. These include certain direct and indirect costs such as compensation, manufacturing, and facility costs associated with manufacturing support functions. We continually monitor our labor and overhead standard costs to ensure that standard costs reasonably reflect our actual costs and make manual adjusts the value of inventory accordingly. Our manual adjustments from standard to actual labor and overhead costs contain uncertainties that require management to make assumptions and apply judgment regarding a number of factors, including inventory turns, supply usage, manufacturing efficiencies, and historical production costs.

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 and replacement parts, and for estimated shrinkage. Assumptions used to estimate inventory reserves include future manufacturing requirements and industry trends. Evolving technology and changes in product mix or customer demand can significantly affect the outcome of this analysis.

Warranty Accrual – 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 the date of shipment for parts only; 18 months for data center cooling solutions and cleanroom systems; an additional four years for compressors; 15 years on aluminized steel gas-fired heat exchangers; 25 years on stainless steel heat exchangers; and ten years on gas-fired heat exchangers in our historical RL products. Our warranty policy for the RQ series covers parts for two years from the date of unit shipment. Our warranty policy for the WH and WV Series geothermal/water-source heat pumps covers parts for five years from the date of installation. 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.

Share-Based Compensation – We measure and recognize compensation expense for all share-based payment awards made to our employees and directors, including stock options, restricted stock awards, performance stock units (“PSUs”), and key employee awards (“Key Employee Awards”) based on their fair values at the time of grant. Compensation expense is recognized on a straight-line basis over the service period of stock options, restricted stock awards, and PSUs. Compensation expense is recognized for the Key Employee Awards on a straight-line basis over the service period when the performance condition is determined to be probable. 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 fair value of the PSUs is estimated on the date of grant using the Monte Carlo Model. The use of the Black-Scholes-Merton option valuation model and the Monte Carlo Model requires the input of subjective assumptions such as: the expected volatility, the expected term of the grant, forward-looking market conditions, risk-free rate, and expected dividend yield for stock options. The fair value of restricted stock awards and Key Employee Awards is based on the fair market value of AAON common stock on the respective grant dates. The fair value of restricted stock awards is reduced for the present value of dividends.

40

Goodwill and Indefinite-Lived Intangible Assets – Goodwill represents the excess of the consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities assumed. Indefinite-lived intangible assets consist of trademarks and trade names.

Goodwill and indefinite-lived intangible assets are not amortized, but instead are evaluated for impairment at least annually. We perform our annual assessment of impairment during the fourth quarter of our fiscal year, and more frequently if circumstances warrant.

To perform this assessment, we first consider qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit and indefinite-lived intangible assets exceeds their carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit and indefinite-lived assets does not exceed their carrying amount, we calculate the fair value for the reporting unit and indefinite-lived assets and compare the amount to their carrying amount. If the fair value of a reporting unit and indefinite-lived asset exceeds their carrying amount, the reporting unit and indefinite-lived assets are not considered impaired. If the carrying amount of the reporting unit and indefinite-lived assets exceeds their fair value, the reporting unit and indefinite-lived assets are considered to be impaired and the balance is reduced by the difference between the fair value and carrying amount of the reporting unit and indefinite-lived assets.

We performed a qualitative assessment as of December 31, 2025, to determine whether it was more likely than not that the fair value of the reporting unit and indefinite-lived assets was greater than the carrying value of the reporting unit and indefinite-lived assets. Based on these qualitative assessments, we determined that the fair value of the reporting unit and indefinite-lived assets was more likely than not greater than the carrying value of the reporting unit and indefinite-lived assets.

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 impairment assessment included macro-industry trends, market participant considerations, historical profitability, including free cash flows, and forecasted multi-year operating results. Changes in operating results and other assumptions could materially affect these estimates. A considerable amount of management judgment and assumptions are required in performing the impairment tests.

Recent 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.

Newly Adopted Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). The new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures. We adopted this standard in the fourth quarter of 2025. Upon adoption, this ASU did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). The new guidance requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures.

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In July 2025, the FASB issued ASU 2025‑05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The new guidance provides a practical expedient that allows entities, when estimating expected credit losses on current accounts receivable and current contract assets, to assume that economic conditions as of the balance sheet date will not change over the remaining life of those assets. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2025, including interim periods within those annual periods, with early adoption permitted, and are required to be applied prospectively. Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures.

In September 2025, the FASB issued ASU 2025‑06, Intangibles – Goodwill and Other – Internal‑Use Software (Subtopic 350‑40): Targeted Improvements to the Accounting for Internal‑Use Software. The new guidance modernizes and simplifies the accounting for internal‑use software, including eliminating the existing three‑stage (preliminary project, application development, and post‑implementation/operation) model, and introduces revised criteria for capitalization that better reflect current agile and iterative software development practices, including considerations for software with significant development uncertainty. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods, with various transition alternatives and early adoption permitted. We are currently evaluating the impact of this ASU on the Company’s financial statements and related disclosures and do not expect it to have a material impact.

In December 2025, the FASB issued ASU 2025‑10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. The new guidance provides authoritative recognition, measurement, presentation, and disclosure requirements for government grants to business entities in the form of monetary assets or tangible nonmonetary assets, largely leveraging the recognition and measurement framework in IAS 20, and reduces diversity in practice that had arisen from analogies to other GAAP. For public business entities, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2028, including interim periods within those annual periods; for all other entities, the guidance is effective for annual periods beginning after December 15, 2029, including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the impact of this ASU on the Company’s financial statements and related disclosures and do not expect it to have a material impact.