AAON

New in FY2025

• Risk Factors, Risks Related to Our Business .
• Warranties Our product warranty policy is the earlier of one year from the date of install first use or 18 months from the date of shipment for parts only, including controls; 18 months for data center cooling solutions and cleanroom systems; five years for compressors; 15 years on aluminized steel gas-fired heat exchangers; 25 years on stainless steel heat exchangers; and ten years on gas-fired heat exchangers in our historical RL products.
• Our warranty policy for the RQ series covers parts for two years from the date of unit shipment.
• 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.
• Competition The Company’s comfort cooling products primarily compete with Lennox (Lennox International, Inc.), Trane (Trane Technologies plc), York Light Commercial (Bosch Home Comfort Group), Johnson Controls (Johnson Controls International PLC), Carrier (Carrier Global Corporation), and Daikin (Daikin Industries).
• Our thermal management products primarily compete with Vertiv (Vertiv Holdings Co.), STULZ (STULZ Air Technology Systems, Inc.), Munters, Silent Aire (Johnson Controls International PLC), Nortek (Nortek Air Solutions), and Modine (Modine Manufacturing Co.).
• The Company competes against larger manufacturers with greater financial and operational resources and offerings ranging into the lower featured products needed for broader market appeal.
• We compete on total value proposition rather than initial price, emphasizing product quality, performance, efficiency, serviceability, reliability, and lifecycle cost of ownership.
• Our market position differs significantly between buyer segments.
• In replacement markets and owner-controlled purchases, we have consistently gained market share by demonstrating superior total cost of ownership over equipment lifespans.
• Building owners who control purchase decisions recognize the economic value of premium performance and extended durability.
• The new construction market has historically presented greater competitive challenges due to contractor emphasis on initial equipment cost.
• However, operational efficiency improvements achieved over recent years have narrowed the price gap between our semi-custom equipment and competitors' standardized offerings.
• This enhanced cost competitiveness, combined with our quality and performance advantages, has strengthened our position across both new construction and replacement market segments.
• Resources Sources and Availability of Raw Materials The most important materials we purchase are steel, copper, and aluminum.
• We also purchase from other manufacturers certain components, including coils, compressors, electric motors, and electrical controls used in our products.
• We attempt to obtain the lowest possible cost in our purchases of raw materials and components, consistent with meeting specified quality standards.
• We are not dependent upon any one source for raw materials or the major components of our manufactured products.
• By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our manufacturing requirements for the foreseeable future.
• We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months.
• Working Capital Practices Given the complexity of our manufacturing operations, working capital is impacted by production cycle times, raw material volatility and customer delivery schedules.
• We continue to invest in planning systems, plant scheduling and supplier collaboration to improve inventory turnover and reduce cycle time.
• Our strategy includes aligning production with demand, reducing excess and obsolete inventory and improving procurement lead times.
• Additionally, a significant portion of our revenue is recognized over time for contracts as we satisfy performance obligations.
• As a result, we record contract assets when revenue recognized exceeds amounts billed to customers.
• Contract assets represent our conditional right to consideration and are primarily driven by the timing of billing milestones relative to project progress.
• The level of contract assets may fluctuate based on the timing of project execution, milestone billing schedules and customer acceptance provisions.
• Although contract assets are expected to be billed and collected within the normal operation cycle, changes in project estimates, customer disputes or delays in achieving contractual milestones could impact the timing of cash collections.
• We actively monitor contract asset aging, billing milestones and customer credit quality to manage liquidity and mitigate collection risk.
• We negotiate prepayment terms to help manage credit risk and working capital needs which results in contract liabilities.
• Our working capital requirements are generally met by cash flow from operations and a bank revolving credit facility, which currently permits borrowings up to $600.0 million and had a $398.3 million outstanding balance at December 31, 2025.
• Borrowings available under the revolving credit facility at December 31, 2025, were $201.0 million.
• We believe that we will have sufficient funds available to meet our working capital needs for the foreseeable future.
• Research and Development Our products are engineered for performance, flexibility, and serviceability.
• This has become a critical factor in competing in the HVAC equipment industry.
• We must continually develop new and improved products in order to compete effectively and meet evolving regulatory standards in all of our major product lines.
• R&D activities have involved the RQ, RN, and RZ (rooftop units), H3, SA, V3, and M2 (air handling units), CF (condensing units), and the SA and SB (self-contained units), as well as component evaluation and refinement, development of control systems and new product development.
• Our NAIC research and development laboratory facility includes many unique capabilities, which, to our knowledge, exist nowhere else in the world.
• A few features of the NAIC include supply, return, and outside sound testing at actual load conditions, testing of up to a 300 ton air conditioning system, up to a 540 ton chiller system, and 80 million BTU/hr of gas heating test capacity.

and 106 more.

Gone since FY2024

• Our business is affected by a number of economic factors, including the level of economic activity in the markets in which we operate.
• 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.
• Certain competitors with greater financial resources than us could target our third-party representatives for exclusive sales channels.
• 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.
• We always face the possibility of new governmental regulations and policies, from the Federal or state levels, which could have a substantial or even extreme negative effect on our operations and profitability.
• For example, a former U.S. administration previously called for substantial changes to U.S. foreign trade policy with respect to China and other countries, including the possibility of imposing greater restrictions on international trade and significant increases in tariffs on goods imported into the U.S.
• Other administrations could take a different approach to U.S. foreign trade policy, so there remains uncertainty as to whether trade between the U.S and other countries, including countries in which we operate, may be impacted by these policy shifts.
• Changes in policy or continued uncertainty could depress economic activity and restrict our access to suppliers or customers.
• Tariffs implemented on our products (or on materials, parts or components we use to manufacture our products) have in the past increased the cost of our products manufactured in the U.S. and imported into the U.S.
• If additional tariffs or trade restrictions are implemented on our products (or on materials, parts or components we use to manufacture our products) by the U.S. or other countries, the cost of products manufactured in countries such as China and Mexico and imported into the U.S. or other countries in which we operate could increase further.
• We expect to continue to pass along some of these costs to our customers, but the increased cost could adversely affect the demand for products.
• These cost increases could adversely affect the demand for our products and/or our profitability, which could have a material adverse effect on our business and our earnings.