Notes to the Consolidated Financial Statements
(Unaudited)
1. General
Basis of Presentation
The accompanying unaudited consolidated financial statements of AAON, Inc., a Nevada corporation, and our operating subsidiaries, all of which are wholly-owned, (collectively, the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). These financial statements have not been audited by the Company's independent registered public accounting firm, except that the consolidated balance sheet at
December 31, 2016
is derived from audited consolidated financial statements. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The financial statements reflect all adjustments (all of which are of a normal recurring nature) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results that may be expected for a full year. Certain disclosures have been condensed in or omitted from these consolidated financial statements. The accompanying unaudited financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016
. All intercompany balances and transactions have been eliminated in consolidation.
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.
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, warranty accrual, worker's compensation accrual, medical insurance accrual, income taxes and share-based compensation. Actual results could differ materially from those estimates.
Accounting Policies
A comprehensive discussion of our critical accounting policies and management estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
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.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, with the issuance of ASU 2015-14, the FASB amended the effective date for public companies to January 1, 2018.
The following ASUs were issued in 2016 along with ASU 2014-09 with the same effective dates and transition requirements:
|
|
•
|
ASU 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
, which provides implementation guidance for Topic 606 on principal versus agent considerations.
|
|
|
•
|
ASU 2016-10,
Identifying Performance Obligations and Licensing
, which provides clarification for two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance.
|
|
|
•
|
ASU 2016-12,
Revenue from Contracts with Customers
, which further amends Topic 606.
|
|
|
•
|
ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
, which further amends Topic 606.
|
The Company plans to adopt using the retrospective transition method. The Company believes the impact will not be material to the consolidated financial statements. The Company has reviewed all types of customer contracts and gone through the five step process outlined in ASU 2014-09 for all contracts. The new five step process required by ASU 2014-09 provides results substantially consistent with our current revenue recognition policies. The Company is still in the process of determining categories to use to disaggregate revenue. The primary change upon adoption will be additional disclosures to show disaggregated revenue and further details around our revenue recognition process. Once we adopt ASU 2014-09, we do not anticipate that our internal control framework will materially change, but rather that existing internal controls will be modified and augmented, as necessary, to consider our new revenue recognition policy effective January 1, 2018.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
, which will address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The ASU becomes effective in the annual reporting period beginning after December 31, 2017, including interim reporting periods. We do not expect ASU 2016-01 will have a material effect on our consolidated financial statements and notes thereto.
In May 2017, the FASB issued ASU 2017-09,
Scope of Modification Accounting
, which addresses changes to the terms or conditions of a share-based payment award. The ASU becomes effective in the annual reporting period beginning after December 15, 2017, including interim reporting periods. We do not expect ASU 2017-09 will have a material effect on our consolidated financial statements and notes thereto.
2. Revenue Recognition
We recognize revenues from sales of products when the title and risk of ownership pass to the customer. 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 were
$12.6 million
and
$15.8 million
for the
three months ended September 30, 2017 and 2016
, respectively. The amounts of payments to our Representatives were
$37.2 million
and
$43.5 million
for the
nine months ended September 30, 2017 and 2016
, respectively.
The Company also sells extended warranties on parts for various lengths of time ranging from
6
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.
3. Investments
Certificates of Deposit
– We held approximately
$5.0 million
in certificates of deposit at
September 30, 2017
and December 31,
2016
, respectively. At
September 30, 2017
, the certificates of deposit bear interest ranging from
0.85%
to
1.10%
per annum and have various maturities ranging from
less than one month to approximately 12 months
.
Investments Held to Maturity
– Our investments held to maturity are comprised of
$11.3 million
of corporate notes and bonds with original maturities ranging from
less than two months to approximately 10 months
. The investments have moderate risk with S&P ratings ranging from AAA to BBB-.
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.
The following summarizes the amortized cost and estimated fair value of our investments held to maturity as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gain
|
|
Gross
Unrealized
(Loss)
|
|
Fair
Value
|
September 30, 2017:
|
(in thousands)
|
Current assets:
|
|
|
|
|
|
|
|
Investments held to maturity
|
$
|
11,342
|
|
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
$
|
11,330
|
|
Non current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investments held to maturity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
11,342
|
|
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
$
|
11,330
|
|
|
|
|
|
|
|
|
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investments held to maturity
|
$
|
14,083
|
|
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
$
|
14,071
|
|
Non current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investments held to maturity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
14,083
|
|
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
$
|
14,071
|
|
4. Accounts Receivable
Accounts receivable and the related allowance for doubtful accounts are as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31, 2016
|
|
(in thousands)
|
Accounts receivable
|
$
|
57,462
|
|
|
$
|
43,091
|
|
Less: Allowance for doubtful accounts
|
(120
|
)
|
|
(90
|
)
|
Total, net
|
$
|
57,342
|
|
|
$
|
43,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
Allowance for doubtful accounts:
|
(in thousands)
|
Balance, beginning of period
|
$
|
81
|
|
|
$
|
73
|
|
|
$
|
90
|
|
|
$
|
115
|
|
Provisions for losses on accounts receivables, net of recoveries
|
39
|
|
|
72
|
|
|
180
|
|
|
30
|
|
Accounts receivable written off
|
—
|
|
|
—
|
|
|
(150
|
)
|
|
—
|
|
Balance, end of period
|
$
|
120
|
|
|
$
|
145
|
|
|
$
|
120
|
|
|
$
|
145
|
|
5. Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method. 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.
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31, 2016
|
|
(in thousands)
|
Raw materials
|
$
|
57,652
|
|
|
$
|
43,438
|
|
Work in process
|
3,588
|
|
|
2,279
|
|
Finished goods
|
6,070
|
|
|
3,017
|
|
|
67,310
|
|
|
48,734
|
|
Less: Allowance for excess and obsolete inventories
|
(1,193
|
)
|
|
(1,382
|
)
|
Total, net
|
$
|
66,117
|
|
|
$
|
47,352
|
|
The related changes in the allowance for excess and obsolete inventories account are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
Allowance for excess and obsolete inventories:
|
(in thousands)
|
Balance, beginning of period
|
$
|
1,642
|
|
|
$
|
1,065
|
|
|
$
|
1,382
|
|
|
$
|
757
|
|
Provisions for excess and obsolete inventories
|
(206
|
)
|
|
112
|
|
|
54
|
|
|
420
|
|
Inventories written off
|
(243
|
)
|
|
—
|
|
|
(243
|
)
|
|
—
|
|
Balance, end of period
|
$
|
1,193
|
|
|
$
|
1,177
|
|
|
$
|
1,193
|
|
|
$
|
1,177
|
|
6. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
Supplemental disclosures:
|
(in thousands)
|
Interest paid
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Income taxes paid
|
$
|
2,650
|
|
|
$
|
8,551
|
|
|
$
|
7,138
|
|
|
$
|
19,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash capital expenditures
|
$
|
7,835
|
|
|
$
|
(1,211
|
)
|
|
$
|
8,059
|
|
|
$
|
101
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
6,849
|
|
|
5,834
|
|
7. Warranties
The Company has warranties with various terms ranging from
18
months for parts to
25
years for certain heat exchangers. The Company has an obligation to replace parts or service its products 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.
The Company has been working on modifications and refinements to its warranty policy. These modifications more clearly define what qualifies as a warranty claim and place a deadline for when claims may be submitted. This has increased our warranty reserve and increased our warranty expense for the three and nine months ended September 30, 2017, as detailed below.
Changes in the warranty accrual are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
Warranty accrual:
|
(in thousands)
|
Balance, beginning of period
|
$
|
8,602
|
|
|
$
|
8,454
|
|
|
$
|
7,936
|
|
|
$
|
8,469
|
|
Payments made
|
(2,281
|
)
|
|
(1,331
|
)
|
|
(5,935
|
)
|
|
(2,988
|
)
|
Provisions
|
3,277
|
|
|
1,012
|
|
|
7,597
|
|
|
2,654
|
|
Balance, end of period
|
$
|
9,598
|
|
|
$
|
8,135
|
|
|
$
|
9,598
|
|
|
$
|
8,135
|
|
|
|
|
|
|
|
|
|
Warranty expense:
|
$
|
3,277
|
|
|
$
|
1,012
|
|
|
$
|
7,597
|
|
|
$
|
2,654
|
|
8. Accrued Liabilities
Accrued liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31, 2016
|
|
(in thousands)
|
Warranty
|
$
|
9,598
|
|
|
$
|
7,936
|
|
Due to representatives
|
13,249
|
|
|
9,907
|
|
Payroll
|
2,712
|
|
|
4,129
|
|
Profit sharing
|
2,556
|
|
|
1,967
|
|
Worker's compensation
|
791
|
|
|
580
|
|
Medical self-insurance
|
530
|
|
|
872
|
|
Customer prepayments
|
2,637
|
|
|
2,256
|
|
Donations
|
585
|
|
|
600
|
|
Income tax payable
|
3,789
|
|
|
—
|
|
Employee benefits and other
|
5,235
|
|
|
3,693
|
|
Total
|
$
|
41,682
|
|
|
$
|
31,940
|
|
9. Revolving Credit Facility
Our revolving credit facility, which is provided by BOKF, NA dba Bank of Oklahoma, formerly known as Bank of Oklahoma, N.A. ("Bank of Oklahoma"), provides for maximum borrowings of
$30.0 million
. Under the line of credit, there is one standby letter of credit totaling
$0.8 million
. Borrowings available under the revolving credit facility at
September 30, 2017
were
$29.2 million
. Interest on borrowings is payable
monthly
at
LIBOR
plus
2.5%
. No fees are associated with the unused portion of the committed amount. We had no outstanding balance under the revolving credit facility at
September 30, 2017
and
December 31, 2016
. The termination date of the revolving credit facility is July 27, 2018.
As of
September 30, 2017
, 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
September 30, 2017
, our tangible net worth was
$230.3 million
and met the requirement of being at or above
$125.0 million
. Our total liabilities to tangible net worth ratio was
0.32
to 1, and met the requirement of not being above
2
to 1.
10. Income Taxes
The provision (benefit) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
|
(in thousands)
|
Current
|
$
|
7,250
|
|
|
$
|
6,748
|
|
|
$
|
17,167
|
|
|
$
|
21,617
|
|
Deferred
|
783
|
|
|
332
|
|
|
1,147
|
|
|
(1,519
|
)
|
|
$
|
8,033
|
|
|
$
|
7,080
|
|
|
$
|
18,314
|
|
|
$
|
20,098
|
|
The reconciliation of the Federal statutory income tax rate to the effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
Federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes, net of Federal benefit
|
5.3
|
|
|
4.9
|
|
|
4.5
|
|
|
5.0
|
|
Domestic manufacturing deduction
|
(3.1
|
)
|
|
(3.0
|
)
|
|
(3.0
|
)
|
|
(3.4
|
)
|
Excess tax benefits
|
(0.9
|
)
|
|
(2.8
|
)
|
|
(3.8
|
)
|
|
(2.9
|
)
|
Other
|
(1.0
|
)
|
|
(3.0
|
)
|
|
(0.6
|
)
|
|
(1.3
|
)
|
Effective tax rate
|
35.3
|
%
|
|
31.1
|
%
|
|
32.1
|
%
|
|
32.4
|
%
|
The Company's estimated annual 2017 effective tax rate, excluding discrete events, is approximately
36%
. 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 2013 to present, and to non-U.S. income tax examinations for the tax years of 2012 to present. In addition, we are subject to state and local income tax examinations for the tax years 2012 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.
11. 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. Since inception of the LTIP, non-qualified stock options and restricted stock awards were granted with the same vesting schedule as the previous plan. Under the LTIP, the exercise price of shares granted could 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
3.8 million
shares, comprised of
3.4 million
new shares provided for under the 2016 Plan and approximately
0.4 million
shares that were available for issuance under the previous LTIP, that are now authorized for issuance under the 2016 Plan, that 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 will be 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 shall be 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 will determine the persons to whom awards are to be made, determine the type, size and terms of awards, interpret the 2016 Plan, establish and revise rules and regulations relating to the 2016 Plan and make any other determinations that it believes necessary for the administration of the 2016 Plan.
The compensation cost related to unvested stock options not yet recognized as of
September 30, 2017
is
$9.3 million
and is expected to be recognized over a weighted-average period of
2.40
years.
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 the
nine
months ended
September 30,
2017
and
2016
using a Black Scholes Model:
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
September 30, 2017
|
|
September 30, 2016
|
Director and Officers:
|
|
|
|
Expected dividend rate
|
$
|
0.26
|
|
|
$
|
0.22
|
|
Expected volatility
|
30.81
|
%
|
|
42.38
|
%
|
Risk-free interest rate
|
1.90
|
%
|
|
2.02
|
%
|
Expected life (in years)
|
5.0
|
|
|
8.0
|
|
|
|
|
|
Employees:
|
|
|
|
|
|
Expected dividend rate
|
$
|
0.26
|
|
|
$
|
0.22
|
|
Expected volatility
|
30.70
|
%
|
|
40.41
|
%
|
Risk-free interest rate
|
1.88
|
%
|
|
1.60
|
%
|
Expected life (in years)
|
5.0
|
|
|
7.3
|
|
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
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of
Exercise
Prices
|
|
Number
of
Shares
|
|
Weighted
Average
Remaining
Contractual Life
(in years)
|
|
Weighted
Average
Exercise
Price
|
|
Intrinsic
Value
(in thousands)
|
$4.54-$22.76
|
|
374,792
|
|
|
4.61
|
|
|
$
|
10.96
|
|
|
$
|
4,209
|
|
$23.57-$32.80
|
|
41,490
|
|
|
7.86
|
|
|
25.61
|
|
|
18
|
|
$32.85-$37.30
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
416,282
|
|
|
4.93
|
|
|
$
|
12.42
|
|
|
$
|
4,227
|
|
The following is a summary of stock options vested and exercisable as of
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of
Exercise
Prices
|
|
Number
of
Shares
|
|
Weighted
Average
Remaining
Contractual Life
(in years)
|
|
Weighted
Average
Exercise
Price
|
|
Intrinsic
Value
(in thousands)
|
$4.54-$8.65
|
|
329,433
|
|
|
4.79
|
|
$
|
7.62
|
|
|
$
|
6,984
|
|
$8.70-$22.76
|
|
38,598
|
|
|
7.01
|
|
15.09
|
|
|
530
|
|
$23.57-$28.27
|
|
7,764
|
|
|
8.31
|
|
23.61
|
|
|
40
|
|
Total
|
|
375,795
|
|
|
5.09
|
|
$
|
8.72
|
|
|
$
|
7,554
|
|
A summary of option activity under the plans is as follows:
|
|
|
|
|
|
|
|
Options
|
Shares
|
|
Weighted
Average
Exercise
Price
|
Outstanding at December 31, 2016
|
1,450,704
|
|
|
$
|
21.33
|
|
Granted
|
403,260
|
|
|
34.43
|
|
Exercised
|
(165,876
|
)
|
|
10.34
|
|
Forfeited or Expired
|
(85,326
|
)
|
|
30.63
|
|
Outstanding at September 30, 2017
|
1,602,762
|
|
|
$
|
25.27
|
|
Exercisable at September 30, 2017
|
416,282
|
|
|
$
|
12.42
|
|
The total intrinsic value of options exercised during the
nine
months ended
September 30,
2017
and
2016
was
$4.2 million
and
$4.3 million
, respectively. The cash received from options exercised during the
nine
months ended
September 30,
2017
and
2016
was
$1.7 million
in each period. The impact of these cash receipts is included in financing activities in the accompanying Consolidated Statements of Cash Flows.
Since 2007, as part of the LTIP and since May 2016 as part of the 2016 Plan, the Compensation Committee of the Board of Directors has authorized and issued restricted stock awards to directors and key employees. Restricted stock awards granted to directors vest one-third each year. All other restricted stock awards vest at a rate of
20%
per year. The fair value of restricted stock awards is based on the fair market value of AAON, Inc. common stock on the respective grant dates, reduced for the present value of dividends.
These awards are recorded at their fair value on the date of grant and compensation cost is recorded using straight-line vesting over the service period. At
September 30,
2017
, unrecognized compensation cost related to unvested restricted stock awards was approximately
$7.4 million
, which is expected to be recognized over a weighted average period of
1.9
years.
A summary of the unvested restricted stock awards is as follows:
|
|
|
|
|
|
|
|
Restricted stock
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Unvested at December 31, 2016
|
408,162
|
|
|
$
|
20.47
|
|
Granted
|
123,151
|
|
|
33.96
|
|
Vested
|
(133,729
|
)
|
|
20.23
|
|
Forfeited
|
(20,054
|
)
|
|
22.09
|
|
Unvested at September 30, 2017
|
377,530
|
|
|
$
|
24.87
|
|
A summary of share-based compensation is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
Grant date fair value of awards during the period:
|
(in thousands)
|
Options
|
$
|
121
|
|
|
$
|
360
|
|
|
$
|
3,628
|
|
|
$
|
2,419
|
|
Restricted stock
|
—
|
|
|
67
|
|
|
4,182
|
|
|
3,009
|
|
Total
|
$
|
121
|
|
|
$
|
427
|
|
|
$
|
7,810
|
|
|
$
|
5,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense:
|
|
|
|
|
|
|
|
Options
|
$
|
620
|
|
|
$
|
457
|
|
|
$
|
2,050
|
|
|
$
|
1,198
|
|
Restricted stock
|
811
|
|
|
672
|
|
|
2,910
|
|
|
1,974
|
|
Total
|
$
|
1,431
|
|
|
$
|
1,129
|
|
|
$
|
4,960
|
|
|
$
|
3,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit/(deficiency) related to share-based compensation:
|
|
|
|
|
|
|
|
Options
|
$
|
126
|
|
|
$
|
311
|
|
|
$
|
1,411
|
|
|
$
|
1,441
|
|
Restricted stock
|
131
|
|
|
326
|
|
|
836
|
|
|
325
|
|
Total
|
$
|
257
|
|
|
$
|
637
|
|
|
$
|
2,247
|
|
|
$
|
1,766
|
|
12. 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.
ASU 2016-09 impacts the calculation of diluted weighted average shares under the treasury stock method as the Company no longer increases or decreases the assumed proceeds from an employee vesting in, or exercising, a share-based payment award by the amount of excess tax benefits or deficiencies taken to additional paid-in capital.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
|
(in thousands, except share and per share data)
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
14,717
|
|
|
$
|
15,682
|
|
|
$
|
38,728
|
|
|
$
|
41,956
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
52,566,619
|
|
|
52,891,879
|
|
|
52,586,429
|
|
|
52,942,571
|
|
Effect of dilutive stock options and restricted stock
|
447,650
|
|
|
502,452
|
|
|
516,979
|
|
|
524,452
|
|
Diluted weighted average shares
|
53,014,269
|
|
|
53,394,331
|
|
|
53,103,408
|
|
|
53,467,023
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.28
|
|
|
$
|
0.30
|
|
|
$
|
0.74
|
|
|
$
|
0.79
|
|
Diluted
|
$
|
0.28
|
|
|
$
|
0.29
|
|
|
$
|
0.73
|
|
|
$
|
0.78
|
|
Anti-dilutive shares:
|
|
|
|
|
|
|
|
|
|
Shares
|
842,631
|
|
|
551,940
|
|
|
795,678
|
|
|
512,823
|
|
13. 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. Effective May 24, 2016, the Board authorized up to
$25.0 million
in open market repurchases and on June 2, 2016, the Company executed a repurchase agreement in accordance with the rules and regulations of the SEC allowing the Company to repurchase an aggregate amount of
$25.0 million
or a total of approximately
2.0 million
shares from the open market. The agreement expired on April 15, 2017. 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. Al1 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
Inception to date
|
|
2017
|
2016
|
Program
|
Shares
|
Total $
|
$ per share
|
Shares
|
Total $
|
$ per share
|
Shares
|
Total $
|
$ per share
|
Open market
|
8,676
|
|
$
|
283,654
|
|
$
|
32.69
|
|
151,266
|
|
$
|
4,041,685
|
|
$
|
26.72
|
|
3,843,495
|
|
$
|
61,232,115
|
|
$
|
15.93
|
|
401(k)
|
364,839
|
|
12,706,655
|
|
34.83
|
|
402,623
|
|
10,531,020
|
|
26.16
|
|
6,447,282
|
|
78,439,375
|
|
12.17
|
|
Directors and employees
|
33,845
|
|
1,193,337
|
|
35.26
|
|
21,367
|
|
558,532
|
|
26.14
|
|
1,907,477
|
|
16,855,945
|
|
8.84
|
|
Total
|
407,360
|
|
$
|
14,183,646
|
|
$
|
34.82
|
|
575,256
|
|
$
|
15,131,237
|
|
$
|
26.30
|
|
12,198,254
|
|
$
|
156,527,435
|
|
$
|
12.83
|
|
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 24, 2016
|
June 10, 2016
|
July 1, 2016
|
$
|
0.11
|
|
November 9, 2016
|
December 2, 2016
|
December 23, 2016
|
$
|
0.13
|
|
May 16, 2017
|
June 9, 2017
|
July 7, 2017
|
$
|
0.13
|
|
14. 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.