What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-25 compared with 2022-07-26 · 104 added, 94 removed, 161 unchanged (55% of the section changed)

7 unchanged sentences

During 2020, we noted delays in construction driven by temporary closures of non-essential businesses, with the most significant impacts in certain major metropolitan areas impacted by COVID-19.

Beginning in 2021, market conditions began to improve and continued to do so in the first half of 2022, although the improvement has been tempered by delays in construction starts and extended project timelines, in addition to the impact of higher inflation.

Beginning in 2021, market conditions began to improve as the impact of the pandemic lessened.

Throughout the first nine months of 2022, our results of operations have continued to be impacted by delays in construction starts and extended project timelines, in addition to higher inflation, all of which were related, in part, to the pandemic and subsequent recovery.

We continue to monitor and manage the impact of COVID-19 and its potential impacts to our business.

As of June 30, 2022, all of our manufacturing facilities were operational, excluding our St.

As of September 30, 2022, all of our manufacturing facilities were operational, excluding our St.

Helens, Oregon facility which was idled in the second quarter of 2018.

In an effort to operate safely and responsibly, we continue to follow guidelines from governmental health authorities across all our facilities.

We did not record any asset impairments, inventory charges or material bad debt reserves related to COVID-19 during the first six months of 2022 or the full year of 2021, although future events may require such charges.

We did not record any asset impairments, inventory charges or material bad debt reserves related to COVID-19 during the first nine months of 2022 or the full year of 2021, although future events may require such charges.

We will continue to evaluate the nature and extent of the COVID-19 pandemic’s impact on our financial condition, results of operations and cash flows.

Manufacturing Plants

As of June 30, 2022, we operated 16 manufacturing plants in two countries, with 14 plants located within the U.S.

As of September 30, 2022, we operated 16 manufacturing plants in two countries, with 14 plants located within the U.S.

and two plants in Canada.

We closed our St.

Helens, Oregon mineral fiber manufacturing plant in the second quarter of 2018, and the facility was classified as an asset held for sale as of June 30, 2022.

During the second quarter of 2022, we entered into a sale agreement for our idled Mineral Fiber plant with closing expected in the next twelve months.

This includes our closed St.

Helens, Oregon mineral fiber manufacturing plant, which was closed in the second quarter of 2018.

The facility was classified as an asset held for sale as of September 30, 2022.

WAVE operates six additional plants in the U.S.

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Products are available in numerous materials, such as metal, felt and wood, in addition to various colors, shapes and designs.

Products offer various

Products offer various performance attributes such as acoustical control, rated fire protection and aesthetic appeal.

We sell standard, premium and

Management’s Discussion and Analysis of Financial Condition and Results of Operations

performance attributes such as acoustical control, rated fire protection and aesthetic appeal.

We sell standard, premium and customized products, a portion of which are derived from sourced products.

customized products, a portion of which are derived from sourced products.

Architectural Specialties products are sold primarily to resale distributors and direct customers, primarily ceiling systems contractors.

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We compete in the building product construction markets of the Americas.

We closely monitor publicly available macroeconomic trends that provide insight into commercial construction market activity, including GDP, office vacancy rates, the Architecture Billings Index, new commercial construction starts, state and local government spending, corporate profits and retail sales.

The company continues to monitor the impacts of global events, including the conflict in Ukraine, which due to our Americas-only geography, had minimal direct impact on our results of operations during the first half of 2022.

We noted several factors and trends within our markets that directly affected our business performance during the second quarter of 2022 compared to the second quarter of 2021, most importantly the continuing recovery of commercial construction activity from the COVID-19 pandemic, partially offset by on-going challenges to global supply chains and labor availability.

Our results also benefited from improved performance within our Architectural Specialties segment, primarily driven by our recent acquisitions.

Demand continues to be tempered by delays in construction starts and extended project timelines, in addition to the impact of higher inflation.

For the three months and six months ended June 30, 2022, increased sales volumes contributed $17 million and $24 million, respectively, to revenue compared to the same periods in 2021.

We closely monitor publicly available macroeconomic trends that provide insight into commercial construction market activity, including, but not limited to, GDP, office vacancy rates, the Architecture Billings Index, new commercial construction starts, state and local government spending, corporate profits and retail sales.

We noted several factors and trends within our markets that directly affected our business performance during the third quarter of 2022 compared to the third quarter of 2021, most importantly the elongated economic recovery due to the lessoning impact from the COVID-19 pandemic combined with on-going challenges to global supply chains and labor availability, in addition to the impact of higher inflation.

Our results benefited from improved performance within our Architectural Specialties segment, primarily driven by our recent acquisitions.

For the three months and nine months ended September 30, 2022, increased sales volumes contributed $17 million and $40 million, respectively, to revenue compared to the same periods in 2021.

Average Unit Value .

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Within our Mineral Fiber segment, we focus on improving sales dollars per unit sold, or average unit value (“AUV”), as a measure that accounts for the varying assortment of products and like-for-like pricing impacting our revenues.

We estimate that favorable AUV increased our total consolidated net sales for the three and six months ended June 30, 2022 by approximately $24 million and $48 million, respectively, compared to the same periods in 2021.

We estimate that favorable AUV increased our total consolidated net sales for the three and nine months ended September 30, 2022 by approximately $16 million and $64 million, respectively, compared to the same periods in 2021.

Our Architectural Specialties segment revenues are primarily earned based on individual contracts that include a mix of products, both manufactured by us and sourced from third parties, which varies by project.

As such, we do not track AUV performance for this segment, but attribute most changes in sales to volume.

During the first and second quarters of 2022, we implemented or announced future price increases on Mineral Fiber ceiling, grid products and certain Architectural Specialties products.

In July 2022, we implemented an additional price increase on Mineral Fiber ceiling tile products and certain Architectural Specialties products.

During the first three quarters of 2022, we implemented multiple price increases on Mineral Fiber ceiling, grid products and certain Architectural Specialties products.

In the third quarter of 2022, we announced increases on Mineral Fiber ceiling and certain Architectural Specialties products that will go into effect in the fourth quarter.

We may implement future pricing actions based on numerous factors, namely the rate and pace of inflation impact on our business.

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Our largest raw material expenditures are primarily for fiberglass, perlite, recycled paper and starch.

Other raw materials include

Other raw materials include aluminum, clays, felt, pigment, steel, wood and wood fiber.

We manufacture most of our mineral wool needs at one of our

Management’s Discussion and Analysis of Financial Condition and Results of Operations

aluminum, clays, felt, pigment, steel, wood and wood fiber.

We manufacture most of our mineral wool needs at one of our manufacturing facilities.

manufacturing facilities.

Natural gas and packaging materials are also significant input costs.

Fluctuations in the prices of these inputs are generally beyond our control and have a direct impact on our financial results.

Global supply chain and labor disruptions have contributed to raw material and transportation cost inflation.

For the three and six months ended June 30, 2022, higher costs for raw materials and energy negatively impacted operating income by $11 million and $18 million, respectively, compared to the same periods in 2021.

Global supply chain and labor disruptions have contributed to raw material, natural gas and transportation cost inflation.

For the three and nine months ended September 30, 2022, higher costs for raw materials and energy negatively impacted operating income by $11 million and $28 million, respectively, compared to the same periods in 2021.

2020 Acquisition-Related Expenses and (Gains) Losses

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(“Turf”) in July 2020, Moz Designs, Inc.

(“Moz”) in August 2020, and Arktura LLC (“Arktura”) in December 2020, we recorded certain acquisition-related expenses and (gains) losses to operating income in the three and six months ended June 30, 2022 and 2021, summarized as follows (dollar amounts in millions):

(“Moz”) in August 2020, and Arktura LLC (“Arktura”) in December 2020, we recorded certain acquisition-related expenses and (gains) losses to operating income in the three and nine months ended September 30, 2022 and 2021, summarized as follows (dollar amounts in millions):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Affected Line Item in the Condensed Consolidated Statement of Earnings and Comprehensive Income

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value of contingent consideration

Loss (gain) related to change in fair value of contingent consideration

Loss (gain) related to change in fair

value of contingent consideration

Deferred cash and restricted stock

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Cost of goods sold

Net negative (positive) impact to

Net negative impact to

operating income

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Depreciation of fixed assets acquired and amortization of intangible assets acquired have been excluded from the table above.

As of June 30, 2022 and December 31, 2021, we had approximately 2,950 and 2,820 full-time and part-time employees, respectively.

As of September 30, 2022 and December 31, 2021, we had approximately 2,960 and 2,820 full-time and part-time employees, respectively.

RESULTS OF CONTINUING OPERATIONS

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(dollar amounts in millions)

Change is Favorable/(Unfavorable)

Three Months Ended June 30,

Change is Favorable

Three Months Ended September 30,

Total consolidated net sales

Operating income

Six Months Ended June 30,

Nine Months Ended September 30,

Total consolidated net sales

Operating income

Consolidated net sales for the second quarter of 2022 increased 14.6% from prior-year results with favorable AUV contributing $24 million and higher volumes contributing $17 million.

Consolidated net sales for the third quarter of 2022 increased 11.2% from prior-year results with higher volumes contributing $17 million and favorable AUV contributing $16 million.

Mineral Fiber net sales increased $19 million and Architectural Specialties net

Management’s Discussion and Analysis of Financial Condition and Results of Operations

sales increased $15 million from second-quarter 2021 results.

The increase in Mineral Fiber net sales was driven by improved AUV due primarily to favorable price, and higher volumes.

Architectural Specialties net sales growth resulted from improved performance from our recent acquisitions compared to the same period in 2021 and positive impacts from price increases.

Consolidated net sales for the first six months of 2022 increased 13.5% as favorable AUV contributed $48 million and higher volumes contributed $24 million.

sales increased $14 million from third-quarter 2021 results.

The increase in Mineral Fiber net sales was driven by improved AUV, due to favorable price partially offset by negative customer channel mix, and higher volumes.

Architectural Specialties net sales growth resulted from improved performance from our recent acquisitions compared to the same period in 2021 and positive impacts from increases in custom project sales.

Consolidated net sales for the first nine months of 2022 increased 12.7 % from the prior-year as favorable AUV contributed $64 million and higher volumes contributed $40 million.

Mineral Fiber net sales increased $60 million year-over-year and Architectural Specialties net sales increased $44 million.

The increase in Mineral Fiber net sales was driven by improved AUV, due primarily to favorable price, partially offset by lower volumes resulting primarily from a reduction of inventory levels at certain distributor customers in early 2022.

Architectural Specialties net sales improved due to an increase in custom project sales, improved performance from our recent acquisitions compared to the same period in 2021 and positive impacts from price increases.

Cost of goods sold in the second quarter of 2022 was 63.3% of net sales, compared to 62.5% for the same period in 2021, driven by higher inflation, partially offset by favorable AUV performance and improved manufacturing productivity.

Cost of goods sold in the first six months of 2022 was 63.5% of net sales, compared to 63.8% for the same period in 2021.

This decrease was driven by favorable AUV performance and improved manufacturing productivity, partially offset by higher inflation.

SG&A expenses in the second quarter of 2022 were $61.5 million, or 19.2% of net sales, compared to $60.0 million, or 21.4% of net sales, for the same period in 2021.

The second-quarter 2022 increase in SG&A expenses was driven primarily by a $5 million increase in selling expenses and a $2 million increase in incentive compensation expense, which was partially offset by a $6 million decrease in intangible asset amortization and acquisition-related expenses related to the Architectural Specialties segment.

SG&A expenses in the first six months of 2022 were $118.6 million, or 19.6% of net sales, compared to $114.2 million, or 21.5% of net sales, for the 2021 period.

The increase in SG&A expenses for the first six months of 2022 compared to the same period in 2021 was driven by a $13 million increase in selling expenses in support of increased sales and growth initiatives, and a $2 million increase in incentive compensation expense, which was partially offset by an $11 million decrease in intangible asset amortization and acquisition-related expenses related to the Architectural Specialties segment.

During the second quarter and first six months of 2022, we recorded $6.1 million and $6.2 million, respectively, of remeasurement losses for changes in the fair value of contingent consideration related to the acquisition of Turf.

The increase in Mineral Fiber net sales was driven by improved AUV and partially offset by lower volumes.

The favorable AUV was driven by favorable price, partially offset by negative customer channel mix.

The lower volumes resulted primarily from a reduction of inventory levels at certain distributor customers earlier in 2022 in addition to a deceleration of market conditions throughout the third quarter.

Architectural Specialties net sales increased due to improved performance from our recent acquisitions compared to the same period in 2021 and positive impacts from increases in custom project sales.

Cost of goods sold in the third quarter of 2022 was 63.8% of net sales, compared to 62.1% for the same period in 2021.

Cost of goods sold in the first nine months of 2022 was 63.6% of net sales, compared to 63.2% for the same period in 2021.

The increase in cost of goods sold in both periods was driven by higher input cost inflation, partially offset by favorable AUV performance and improved manufacturing productivity.

SG&A expenses in the third quarter of 2022 were $59.3 million, or 18.2% of net sales, compared to $62.3 million, or 21.3% of net sales, for the same period in 2021.

The third-quarter 2022 decrease in SG&A expenses was driven primarily by a $4 million decrease in intangible asset amortization and acquisition-related expenses related to the Architectural Specialties segment, and a $3 million decrease in incentive compensation expense partially offset by a $2 million benefit recorded in the prior-year period related to a 2020 Coronavirus Aid, Relief, and Economic Act Employee Retention Credit (“ERC Benefit”) and a $1 million increase in selling expenses.

SG&A expenses in the first nine months of 2022 were $177.9 million, or 19.2% of net sales, compared to $176.5 million, or 21.4% of net sales, for the 2021 period.

The increase in SG&A expenses for the first nine months of 2022 compared to the same period in 2021 was driven by a $14 million increase in selling expenses in support of increased sales and growth initiatives and a $2 million ERC Benefit recorded in the prior-year period partially offset by a $15 million decrease in intangible asset amortization and acquisition-related expenses related to the Architectural Specialties segment.

During the third quarter and first nine months of 2022, we recorded $7.1 million and $13.3 million, respectively, of remeasurement losses for changes in the fair value of contingent consideration related to the acquisition of Turf.

During the same periods in 2021, we recorded $0.3 million and $9.8 million, respectively, of remeasurement gains related to the acquisitions of Turf and Moz.

See Note 14 to the Condensed Consolidated Financial Statements for further information.

Equity earnings from our WAVE joint venture were $21.3 million in the second quarter of 2022, compared to $23.7 million in the prior-year period, and were $39.5 million in the first six months of 2022 compared to $44.7 million in the first six months of 2021.

The decrease in WAVE earnings during the second quarter of 2022 compared to the same period in 2021 resulted primarily from higher steel cost inflation, partially offset by favorable AUV that was driven by price.

The decrease in WAVE earnings during the first six months of 2022 compared to the same period in 2021 resulted primarily from higher steel cost inflation and lower volumes, primarily due to a reduction of inventory levels at certain distributor customers in early 2022, and increased SG&A expenses, partially offset by favorable AUV that was driven by price.

Equity earnings from our WAVE joint venture were $22.2 million in the third quarter of 2022, compared to $23.4 million in the prior-year period, and were $61.7 million in the first nine months of 2022 compared to $68.1 million in the first nine months of 2021.

The decrease in WAVE earnings during the third quarter and first nine months of 2022 compared to the same periods in 2021 resulted primarily from lower volumes and higher steel cost partially offset by favorable AUV.

Volumes for WAVE during the first nine months of 2022 were negatively impacted by a reduction of inventory levels at certain distributor customers in addition to a deceleration of market conditions throughout the third quarter.

See Note 8 to the Condensed Consolidated Financial Statements for further information.

Interest expense was $5.8 million in the second quarter of 2022 compared to $5.6 million in the second quarter of 2021.

Interest expense was $10.9 million in the first six months of 2022 compared to $11.3 million in the first six months of 2021.

The decrease in interest expense for the first six months of 2022 was primarily due to lower average borrowings outstanding, partially offset by rising interest rates on floating rate debt.

Other non-operating income, net, was $1.4 million in the second quarter of 2022 compared to $1.6 million in the second quarter of 2021.

Other non-operating income, net, was $2.7 million in the first six months of 2022, compared to $2.9 million in the first six months of 2021.

Interest expense was $7.0 million in the third quarter of 2022 compared to $6.1 million in the third quarter of 2021.

Interest expense was $17.9 million in the first nine months of 2022 compared to $17.4 million in the first nine months of 2021.

The increase in interest expense was primarily due to higher interest rates on floating rate debt.

Other non-operating income, net, was $1.4 million in the third quarter of 2022 and 2021.

Other non-operating income, net, was $4.1 million in the first nine months of 2022, compared to $4.3 million in the first nine months of 2021.

Other non-operating income, net, is primarily comprised of the non-service cost components of pension and postretirement net period benefit costs.

Income tax expense was $15.0 million in the second quarter of 2022 compared to $19.2 million in the second quarter of 2021.

The effective tax rate for the second quarter of 2022 was 22.3% compared to 25.8% for the same period of 2021.

Income tax expense was $30.0 million in the first six months of 2022 compared to $31.4 million in the first six months of 2021.

The effective tax rate was 23.7% in the first six months of 2022 compared to 25.3% in the same period of 2021.

The effective tax rate for the second quarter and first six months of 2022 was lower compared to the same periods in 2021 primarily due to a reduction in our valuation allowance for capital loss carryforwards recorded in the second quarter of 2022.

Income tax expense was $13.2 million in the third quarter of 2022 compared to $16.6 million in the third quarter of 2021.

The effective tax rate for the third quarter of 2022 was 19.5% compared to 24.6% for the same period of 2021.

The effective tax rate for the third quarter of 2022 was lower compared to the same period in 2021 primarily due to the benefits recognized from federal and state statute closures in the current year.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Total Other Comprehensive Income (“OCI”) was $2.2 million in the second quarter of 2022 compared to $1.8 million in the second quarter of 2021.

OCI was $14.1 million in the first six months of 2022 compared to $6.4 million in the first six months of 2021.

The increase in OCI in the second quarter and first six months of 2022 compared to the same periods in 2021 was primarily driven by derivative gains.

Income tax expense was $43.2 million in the first nine months of 2022 compared to $48.0 million in the first nine months of 2021.

The effective tax rate was 22.2% in the first nine months of 2022 compared to 25.1% in the same period of 2021.

The effective tax for the first nine months of 2022 was lower compared to the same period in 2021 primarily due to the benefits recognized from statute closures, in addition to a reduction in our valuation allowance for capital loss carryforwards.

Total Other Comprehensive Income (“OCI”) was $3.0 million in the third quarter of 2022 compared to $0.1 million in the third quarter of 2021.

OCI was $17.1 million in the first nine months of 2022 compared to $6.5 million in the first nine months of 2021.

The increase in OCI in the third quarter and first nine months of 2022 compared to the same periods in 2021 was primarily driven by derivative gains.

Derivative gain represents the mark-to-market value adjustments of our derivative assets and liabilities and the recognition of gains and losses previously deferred in OCI.

2 unchanged sentences

dollar value of assets and liabilities denominated in foreign currencies.

Amounts in the second quarter and first six months of 2022 and 2021 were driven primarily by changes in the Canadian dollar.

Amounts in the third quarter and first nine months of 2022 and 2021 were driven primarily by changes in the Canadian dollar.

Pension and postretirement adjustments represent the amortization of actuarial gains and losses related to our defined benefit pension and postretirement plans.

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Change is Favorable/(Unfavorable)

Three Months Ended June 30,

Three Months Ended September 30,

Total segment net sales

Operating income

Six Months Ended June 30,

Nine Months Ended September 30,

Total segment net sales

Operating income

Second-quarter 2022 net sales increased $26 million due to favorable AUV of $24 million and higher sales volumes of $2 million.

For the first six months of 2022, net sales improved $41 million from the prior-year period due to favorable AUV of $48 million, partially offset by a negative impact of $7 million from lower sales volumes.

The improvement in AUV in both the second quarter and first six months of 2022 was driven primarily by favorable price.

Volumes for the second quarter and first six months of 2022 were negatively impacted by a reduction of inventory levels at certain distributor customers in early 2022.

Second-quarter 2022 operating income compared to the same period in 2021 benefited from a $21 million favorable AUV margin impact, offset by a $14 million increase in manufacturing costs, driven by elevated raw material and energy costs, a $4 million increase in selling expenses, a $2 million decrease in equity earnings driven by higher steel cost inflation and a $2 million increase in incentive compensation expense.

Operating income for the first six months of 2022 compared to the same period in 2021 benefited from a $40 million favorable AUV margin impact, offset by a $21 million increase in manufacturing costs, driven by increased raw material and energy costs, a $9 million increase in selling expenses in support of increased sales and growth initiatives, a $5 million decrease resulting from lower sales volumes, a $5 million decrease in equity earnings and a $2 million increase in incentive compensation expense.

Third-quarter 2022 net sales increased $19 million compared to the prior-year period due to favorable AUV of $16 million and higher sales volumes of $3 million.

For the first nine months of 2022, net sales improved $60 million from the prior-year period due to favorable AUV of $64 million, partially offset by a negative impact of $4 million from lower sales volumes.

The improvement in AUV in both the third quarter and first nine months of 2022 was driven by favorable price, partially offset by negative customer channel mix.

The volume increase for the third quarter of 2022 was driven by growth in the home center customer channel and growth in Latin America, partially offset by headwinds from a deceleration of market conditions throughout the third quarter.

Volumes for the first nine months of 2022 were negatively impacted by a reduction of inventory levels at certain distributor customers earlier in 2022 in addition to deceleration of market conditions throughout the third quarter.

Third-quarter 2022 operating income increased from the prior-year period primarily due to a $16 million favorable AUV margin impact, a $3 million decrease in incentive compensation expense, and a $2 million increase resulting from higher sales volumes.

These increases were partially offset by a $16 million increase in manufacturing costs, primarily driven by elevated raw material and energy inflation and a $2 million ERC benefit recorded in the prior-year period.

Operating income for the first nine months of 2022 compared to the same period in 2021 benefited from a $55 million favorable AUV margin impact, offset by a $37 million increase in manufacturing costs, primarily driven by increased raw material and energy costs, a $7 million increase in selling expenses, primarily due to investments in growth initiatives, a $6 million decrease in equity earnings, a $4 million decrease resulting from lower sales volumes and a $2 million ERC benefit recorded in the prior-year period.

Architectural Specialties

1 unchanged sentence

Change is Favorable/(Unfavorable)

Three Months Ended June 30,

Three Months Ended September 30,

Total segment net sales

Operating income

Six Months Ended June 30,

Nine Months Ended September 30,

Total segment net sales

Operating income

Net sales increased $15 million and $31 million in the second quarter and first six months of 2022, respectively.

These increases were primarily due to improved performance from our recent acquisitions compared to the same periods in 2021, benefits from price increases and an increase in custom project sales.

Operating income for the second quarter of 2022 compared to the same period in 2021 was positively impacted by a $5 million increase in sales volumes and a $5 million reduction in intangible asset amortization.

These increases to operating income were offset

Management’s Discussion and Analysis of Financial Condition and Results of Operations

by a $14 million increase in acquisition-related expenses and losses, primarily due to the change in the fair value of contingent consideration related to the acquisitions of Turf and Moz, and higher selling expenses of $1 million.

Operating income for the first six months of 2022 compared to the same period in 2021 was positively impacted by a $14 million increase in sales volumes and a $9 million reduction in intangible asset amortization.

These increases to operating income were offset by a $13 million increase in acquisition-related expenses and losses, primarily due to the change in the fair value of contingent consideration related to the acquisitions of Turf and Moz, and higher selling expenses of $5 million, primarily related to additional investments in selling capabilities and incentive compensation.

Net sales increased $14 million and $44 million in the third quarter and first nine months of 2022, respectively, compared to the prior-year periods.

These increases were primarily due to improved performance from our recent acquisitions compared to the same periods in 2021 and positive impacts from custom project sales.

Operating income for the third quarter of 2022 compared to the same period in 2021 was positively impacted by a $7 million margin benefit from increased sales and a $2 million reduction in intangible asset amortization, partially offset by higher selling expenses of $2 million and a $2 million increase in manufacturing costs.

The year-over-year decrease in operating income was also impacted by a $6 million increase in acquisition-related expenses and losses, primarily due to the change in the fair value of contingent consideration.

Operating income for the first nine months of 2022 compared to the same period in 2021 was positively impacted by a $23 million margin benefit from increased sales and an $11 million reduction in intangible asset amortization, partially offset by higher selling expenses of $7 million, primarily related to additional investments in selling capabilities and incentive compensation, and a $5 million increase in manufacturing costs.

Also impacting the change in operating income was a $19 million increase in acquisition-related expenses and losses, primarily due to the change in the fair value of contingent consideration.

Unallocated Corporate

Unallocated Corporate operating loss was $1 million in the second quarter of 2022 and 2021.

Unallocated Corporate operating loss was $2 million in the first six months of 2022, compared to $3 million in the first six months of 2021.

Unallocated Corporate operating loss was $1 million in the third quarter of 2022 and 2021.

Unallocated Corporate operating loss was $3 million in the first nine months of 2022, compared to $4 million in the first nine months of 2021.

FINANCIAL CONDITION AND LIQUIDITY

Operating activities for the first six months of 2022 provided $63.1 million of cash, compared to $81.9 million in the first six months of 2021.

The decrease was primarily due to negative working capital changes in receivables and inventory, primarily due to timing, partially offset by higher cash earnings.

Net cash used by investing activities was $1.6 million in the first six months of 2022, compared to $6.8 million in the first six months of 2021.

The favorable change in cash compared to the same period in 2021 was primarily due to the absence of the purchase price adjustments paid to Knauf and lower purchases of property, plant and equipment, partially offset by a decrease in dividends from WAVE.

Net cash used for financing activities was $80.2 million in the first six months of 2022, compared to $93.4 million in the first six months of 2021.

The favorable change in cash was primarily due to lower debt repayments, partially offset by an increase in repurchases of outstanding common stock and payments of acquisition-related contingent consideration in 2022.

Operating activities for the first nine months of 2022 provided $119.2 million of cash, compared to $137.9 million in the first nine months of 2021.

The decrease was primarily due to negative working capital changes in accounts payable and accrued expenses and inventory, primarily due to timing and an increase in income tax payments.

These decreases were partially offset by higher cash earnings.

Net cash provided by investing activities was $8.1 million in the first nine months of 2022, compared to $5.4 million used in the first nine months of 2021.

The favorable change in cash compared to the same period in 2021 was primarily due to the absence of the purchase price adjustments paid to Knauf.

Net cash used for financing activities was $137.6 million in the first nine months of 2022, compared to $175.1 million in the first nine months of 2021.

The favorable change in cash was primarily due to an increase in net borrowings under our revolving credit facility, partially offset by an increase in repurchases of outstanding common stock and payments of acquisition-related contingent consideration in 2022.

Our liquidity needs for operations vary throughout the year.

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Any principal amounts paid on the Term Loan A may not be re-borrowed.

As of June 30, 2022, total borrowings outstanding under our senior credit facility were $456.2 million under Term Loan A and $215.0 million under the revolving credit facility.

As of September 30, 2022, total borrowings outstanding under our senior credit facility were $450.0 million under Term Loan A and $235.0 million under the revolving credit facility.

The senior credit facility includes two financial covenants that require the ratio of consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) to consolidated cash interest expense minus cash consolidated interest income to be greater than or equal to 3.0 to 1.0 and requires the ratio of consolidated funded indebtedness, minus AWI and domestic subsidiary unrestricted cash and cash equivalents up to $100 million, to EBITDA to be less than or equal to 3.75 to 1.0.

As of June 30, 2022, we were in compliance with all covenants of the senior credit facility.

As of September 30, 2022, we were in compliance with all covenants of the senior credit facility.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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March 2021 to March 2024

September 19, 2022

September 2022 to December 2023

Under the terms of our interest rate swaps above, we pay a fixed rate monthly and receive 1-month LIBOR, inclusive of a 0% floor.

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The following table presents details related to our letters of credit facilities (dollar amounts in millions):

June 30, 2022

September 30, 2022

Financing Arrangements

1 unchanged sentence

Revolving credit facility

As of June 30, 2022, we had $79.3 million of cash and cash equivalents, $65.3 million in the U.S.

As of September 30, 2022, we had $86.8 million of cash and cash equivalents, $73.0 million in the U.S.

and $13.8 million in various foreign jurisdictions, primarily Canada.

As of June 30, 2022, we also had $285.0 million available under our revolving credit facility.

As of September 30, 2022, we also had $265.0 million available under our revolving credit facility.

We believe cash on hand and cash generated from operations, together with borrowing capacity under our credit facility, will be adequate to address our near-term liquidity needs based on current expectations of our business operations, capital expenditures and scheduled payments of debt obligations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis