Revenue Recognition

6 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

On January 1, 2018, we adopted the new accounting standard FASB ASC 606, Revenue from Contracts with Customers, and all the related amendments to all contracts using the retrospective method. The impact at adoption was not material to the consolidated financial statements. The new accounting policy provides results substantially consistent with prior revenue recognition policies.

Disaggregated net sales by major source:



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Rooftop Units	$	88,757	$	83,665	$	177,100	$	158,480
Condensing Units	5,156		4,855		9,206		9,136
Air Handlers	6,033		6,553		11,627		11,793
Outdoor Mechanical Rooms	825		894		1,307		1,867
Water Source Heat Pumps	6,822		2,741		12,666		7,128
Part Sales	8,799		6,702		15,289		12,662
Other	3,045		4,178		6,064		7,604
Net Sales	$	119,437	$	109,588	$	233,259	$	208,670

Disaggregated units sold by major source:



	Three months ended June 30,		Six months ended June 30,
	2019	2018	2019	2018
Rooftop Units	3,797	4,175	7,559	7,643
Condensing Units	479	625	873	1,036
Air Handlers	537	818	1,117	1,354
Outdoor Mechanical Rooms	10	13	21	27
Water Source Heat Pumps	2,377	1,004	4,666	2,618
Total Units	7,200	6,635	14,236	12,678

The Company recognizes revenue when it satisfies the performance obligation in its contracts. Most of the Company’s products are highly customized, cannot be resold to other customers and the cost of rework to be resold is not economical. The Company has a formal cancellation policy and generally does not accept returns on these units. As a result, many of the Company’s products do not have an alternative use and therefore, for these products we recognize revenue over the time it takes to produce the unit. For all other products that are part sales or standardized units, we satisfy the performance obligation when the title and risk of ownership pass to the customer, generally at time of shipment. Final sales prices are fixed based on purchase orders. Sales allowances and customer incentives are treated as reductions to sales and are provided for based on historical experiences and current estimates. Sales of our products are moderately seasonal with the peak period being July - November of each year.

In addition, the Company presents revenues net of sales tax and net of certain payments to our independent manufacturer representatives (“Representatives”). Representatives are national companies that are in the business of providing HVAC units and other related products and services to customers. The end user customer orders a bundled group of products and services from the Representative and expects the Representative to fulfill the order. Only after the specifications are agreed to by the Representative and the customer, and the decision is made to use an AAON HVAC unit, will we receive notice of the order. We establish the amount we must receive for our HVAC unit (“minimum sales price”), but do not control the total order price that is negotiated by the Representative with the end user customer.

We are responsible for billings and collections resulting from all sales transactions, including those initiated by our Representatives. The Representatives submit the total order price to us for invoicing and collection. The total order price includes our minimum sales price and an additional amount which may include both the Representatives’ fee and amounts due for additional products and services required by the customer. These additional products and services may include controls purchased from another manufacturer to operate the unit, start-up services, and curbs for supporting the unit (“Third Party Products”). All are associated with the purchase of a HVAC unit but may be provided by the Representative or another third party. The Company is under no obligation related to Third Party Products.

The Representatives’ fee and Third Party Products amounts (“Due to Representatives”) are paid only after all amounts associated with the order are collected from the customer. The amount of payments to our Representatives were $10.2 million and $13.3 million for the three months ended June 30, 2019 and 2018, respectively and $21.7 million and $24.9 million for the six months ended June 30, 2019 and 2018, respectively.

The Company also sells extended warranties on parts for various lengths of time ranging from six months to 10 years. Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period.