What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-07-30 compared with 2024-04-30 · 127 added, 83 removed, 129 unchanged (62% of the section changed)

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AWI is a leader in the design, innovation and manufacture of ceiling and wall solutions in the Americas.

We manufacture and source products made of numerous materials, including mineral fiber, fiberglass wool, metal, wood, felt, wood fiber, and glass-reinforced-gypsum.

We manufacture and source products made of numerous materials, including mineral fiber, fiberglass wool, metal, wood, felt, wood fiber, architectural resin and glass, and glass-reinforced-gypsum.

We also manufacture ceiling suspension system (grid) products through a joint venture with Worthington Enterprises, Inc.

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Acquisitions and Investments in Unconsolidated Affiliates

In January 2024, we entered into a strategic partnership and equity investment in Overcast Innovations LLC (“Overcast”) with McKinstry Essention, LLC whereby we contributed $5.5 million in exchange for a 19.5% ownership interest in Overcast, with future rights to increase our ownership interest.

In April 2024, we acquired all of the issued and outstanding membership interests in 3form, LLC (“3form”), a subsidiary of Hunter Douglas, Inc.

based in Salt Lake City, Utah.

3form is a designer and manufacturer of architectural resin and glass products used for specialty walls, partitions and ceilings.

The operations, assets and liabilities of 3form are included in our Architectural Specialties segment.

In January 2024, we entered into a strategic partnership and equity investment in Overcast Innovations LLC (“Overcast”) with McKinstry Essention, LLC whereby we acquired a 19.5% ownership interest in Overcast, with future rights to increase our ownership interest.

Overcast is a solutions company offering prefabricated ceiling cloud systems, modular grid platforms and engineering design services to reduce waste and inefficiencies in the built environment.

Our investment and equity earnings in Overcast are included in our Unallocated Corporate segment.

In October 2023, we acquired a portion of the business and certain assets of Insolcorp, LLC (“Insolcorp”), based in Albemarle, NC, used to develop, test and manufacture energy saving products deployed in building and roofing installations.

In October 2023, we acquired a portion of the business and certain assets of Insolcorp, LLC (“Insolcorp”), based in Albemarle, North Carolina, used to develop, test and manufacture energy saving products deployed in building and roofing installations.

The acquired operations, assets and liabilities of Insolcorp are included in our Mineral Fiber segment.

In July 2023, we acquired all of the issued and outstanding stock of BOK Modern, LLC (“BOK”), based in San Rafael, CA.

In July 2023, we acquired all of the issued and outstanding stock of BOK Modern, LLC (“BOK”), based in San Rafael, California.

BOK is a designer of metal facade architectural solutions.

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Manufacturing Plants

As of March 31, 2024, we operated 16 manufacturing plants, including 14 plants located within the U.S.

As of June 30, 2024, we operated 19 manufacturing plants, including 17 plants located within the U.S.

and two plants in Canada.

This excludes our St.

Helens, Oregon mineral fiber manufacturing plant, which was closed in the second quarter of 2018 and was classified as an asset held for sale as of March 31, 2024.

Helens, Oregon mineral fiber manufacturing plant, which was closed in the second quarter of 2018 and was classified as an asset held for sale as of June 30, 2024.

WAVE operates seven additional plants in the U.S.

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Operating results for the Mineral Fiber segment include a significant majority of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations.

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

Architectural Specialties – produces, designs and sources ceilings, walls and facades primarily for use in commercial settings.

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

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

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

We sell standard, premium and customized products, a portion of which are sourced from third-party producers.

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

The majority of this segment’s

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

revenues are project driven, which can lead to more variability in sales patterns.

The majority of this segment’s revenues are project driven, which can lead to more variability in sales patterns.

Operating results for the Architectural Specialties segment include a portion of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations.

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We closely monitor publicly available macroeconomic data and trends that provide insight into commercial construction market activity, including, but not limited to, gross domestic product, 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 geopolitical events, none of which had a material direct impact on our financial condition, liquidity or results of operations the first three months of 2024 or 2023.

Several factors and trends within our markets affected our business performance during the first quarter of 2024 compared to the first quarter of 2023.

For the three months ended March 31, 2024, sales volumes decreased $4 million compared to the prior-year period, due primarily to prior-year period inventory level increases at our home center customers that did not occur in the current-year period, partially offset by a $3 million contribution from the July 2023 acquisition of BOK.

The Company also continues to monitor the impacts of geopolitical events, none of which had a material direct impact on our financial condition, liquidity or results of operations in the first six months of 2024 or 2023.

Several factors and trends within our markets affected our business performance during the three and six months ended June 30, 2024 compared to the same periods in 2023, most notably an increase in net sales due to our April 2024 acquisition of 3form and our October 2023 acquisition of BOK.

For the three months ended June 30, 2024, sales volumes increased $27 million compared to the same period in 2023, with the 3form and BOK acquisitions contributing $20 million to net sales and the remaining increase driven by stabilizing Mineral Fiber demand and favorable custom project timing in Architectural Specialties.

For the six months ended June 30, 2024, sales volumes increased $23 million compared to the same period in 2023, driven by a $23 million contribution from the 3form and BOK acquisitions.

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.

Favorable AUV contributed approximately $20 million to our total consolidated net sales for the three months ended March 31, 2024 compared to the same period in 2023.

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.

Favorable AUV increased our total consolidated net sales for the three and six months ended June 30, 2024 by approximately $13 million and $33 million, respectively, compared to the same periods in 2023.

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

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

During the first quarter of 2024, we implemented price increases on Mineral Fiber ceiling products and WAVE implemented price increases on grid products.

In the second quarter of 2024, WAVE announced and implemented price increases on certain grid products, while we announced price increases on Mineral Fiber products that will become effective in the third quarter of 2024.

Future pricing actions may be implemented based on numerous factors, including the rate and pace of inflation and its impact on our business.

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Our operating expenses are comprised of direct production costs (principally raw materials, labor, and energy), manufacturing overhead costs, freight, costs to purchase sourced products and selling, general and administrative (“SG&A”) expenses.

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

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

Other raw materials include clay, felt, pigment, wood, and wood fiber.

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

We manufacture substantially all of our mineral wool at one of our manufacturing facilities.

We use aluminum and steel in the production of metal ceilings by us and by WAVE.

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Fluctuations in the prices of these inputs impact our financial results.

In the first quarter of 2024, lower energy and freight costs positively impacted operating income by $2 million compared to the same period in 2023.

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

In the second quarter and first half of 2024, lower energy and freight costs positively impacted operating income by $1 million and $4 million, respectively, compared to the same periods in 2023.

Acquisition-Related Expenses and Losses

In connection with our acquisitions of Insolcorp in October 2023, BOK in July 2023 and Arktura LLC (“Arktura”) in December 2020, we recorded certain acquisition-related expenses, gains and losses to operating income in the three months ended March 31, 2024 and 2023, summarized as follows (dollar amounts in millions):

In connection with our acquisitions of 3form in April 2024, Insolcorp in October 2023, BOK in July 2023 and Arktura LLC (“Arktura”) in December 2020, we recorded certain acquisition-related expenses and losses to operating income during the three and six months ended June 30, 2024 and 2023, summarized as follows (dollar amounts in millions):

Three Months Ended

Six Months Ended

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

(Gain) related to change in fair value of

contingent consideration

(Gain) related to change in fair value of

contingent consideration

Cost of goods sold

Deferred cash and restricted stock expenses

SG&A expenses

Net (positive) negative impact to operating income

The change in fair value of contingent consideration was related to our BOK and Insolcorp acquisitions, and was remeasured quarterly during each acquisition's earn-out periods.

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

Expenses related to the deferred cash and restricted stock awards for Arktura’s former owners and employees were recorded over their respective service periods, as such payments were subject to the awardees’ continued employment with AWI.

Acquisition costs

SG&A expenses

Loss related to change in fair value of

contingent consideration

Loss related to change in fair value

of contingent consideration

Net negative impact to operating income

The inventory amounts above reflect the post-acquisition expenses associated with recording inventory at fair value as part of purchase accounting for the 3form acquisition.

Expenses related to the deferred cash and restricted stock awards were related to our Arktura acquisition and represented expenses for Arktura’s former owners and employees that were recorded over their respective service periods, as such payments were subject to the awardees’ continued employment with AWI.

The Company and the former owners of Arktura mutually agreed upon the separation of their service effective in the fourth quarter of 2023.

Acquisition costs above reflect certain contingent third-party professional fees incurred due to the 3form acquisition.

The change in fair value of contingent consideration was related to our BOK and Insolcorp acquisitions and is remeasured quarterly during each acquisition's earn-out periods.

See Note 15 to the Condensed Consolidated Financial Statements for further information.

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

As of March 31, 2024 and December 31, 2023, we had approximately 3,100 full-time and part-time employees.

As of June 30, 2024 we had approximately 3,500 full-time and part-time employees, compared to 3,100 full-time and part-time employees as of December 31, 2023.

The increase in employees since December 31, 2023 was primarily driven by our April 2024 acquisition of 3form.

RESULTS OF OPERATIONS

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Change is Favorable

Three Months Ended March 31,

Three Months Ended June 30,

Total consolidated net sales

Operating income

Consolidated net sales for the first quarter of 2024 increased 5.2% over the prior-year period primarily due to favorable AUV of $20 million, partially offset by lower volumes of $4 million.

Mineral Fiber net sales increased $11 million and Architectural Specialties net sales increased $5 million over the prior-year period.

Six Months Ended June 30,

Total consolidated net sales

Operating income

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

Consolidated net sales for the second quarter of 2024 increased 12.2% over the prior-year period primarily due to higher volumes of $27 million and favorable AUV of $13 million.

Architectural Specialties net sales increased $24 million and Mineral Fiber net sales increased $16 million over the prior-year period.

Architectural Specialties segment net sales improved primarily from a $20 million contribution from the acquisitions of 3form and BOK.

The increase in Mineral Fiber net sales was primarily driven by favorable AUV and, to a lesser extent, higher sales volumes.

Consolidated net sales for the first six months of 2024 increased 8.8% compared to the prior-year period primarily due to favorable AUV of $33 million and higher volumes of $23 million.

Architectural Specialties net sales increased $28 million and Mineral Fiber net sales increased $27 million over the prior-year period.

Architectural Specialties segment net sales improved primarily due to contributions from the acquisitions of 3form and BOK.

The increase in Mineral Fiber net sales was primarily driven by favorable AUV, partially offset by lower sales volumes.

Architectural Specialties segment net sales improved primarily due to contributions from the acquisition of BOK and increased custom metal project net sales.

Cost of goods sold in the first quarter of 2024 was 61.9% of net sales, compared to 63.9% for the same period in 2023.

The year-over-year decrease in cost of goods sold as a percent of net sales was driven primarily by favorable AUV performance, improved manufacturing productivity and lower input costs.

SG&A expenses in the first quarter of 2024 were $65.7 million, or 20.1% of net sales, compared to $62.7 million, or 20.2% of net sales, for the same period in 2023.

The year-over-year increase in SG&A expenses was driven primarily by a $2 million increase in selling expenses related to the acquisition of BOK and investments in our Architectural Specialties segment, in addition to an increase in deferred compensation related charges.

The prior-year period also included severance costs of $3 million that did not repeat in the current-year period.

Equity earnings from unconsolidated subsidiaries were $27.2 million in the first quarter of 2024, compared to $20.8 million in the first quarter of 2023.

WAVE equity earnings were $27.4 million in the first quarter of 2024, while Overcast equity losses were $0.2 million.

The $6.6 million increase in WAVE equity earnings was primarily driven by the benefit from higher sales volumes and favorable AUV.

Cost of goods sold in the second quarter of 2024 was 59.1% of net sales, compared to 61.9% for the same period in 2023.

Cost of goods sold in the first six months of 2024 was 60.4% of sales, compared to 62.9% for the same period in 2023.

The decreases in cost of goods sold as a percent of net sales for the second quarter and first six months of 2024 compared to the same periods in 2023 were driven primarily by favorable AUV performance, improved manufacturing productivity and lower input costs.

SG&A expenses in the second quarter of 2024 were $79.9 million, or 21.9% of net sales, compared to $61.9 million, or 19.0% of net sales, for the same period in 2023.

The year-over-year increase in SG&A expenses was primarily driven by an $8 million increase related to the acquisitions of 3form and BOK, a $3 million increase in incentive compensation, a $2 million increase in depreciation and amortization expense, a $2 million increase in business development expenses and a $1 million increase in reserves for environmental remediation matters.

SG&A expenses in the first six months of 2024 were $145.6 million, or 21.1% of net sales, compared to $124.6 million, or 19.6% of net sales, for the same period in 2023.

The year-over-year increase in SG&A expenses was primarily driven by a $10 million increase related to the acquisitions of 3form and BOK, a $4 million increase in incentive compensation, a $2 million increase in selling expenses and a $2 million increase in business development expenses, as well as an increase in deferred compensation related charges.

Equity earnings from unconsolidated subsidiaries were $26.3 million in the second quarter of 2024, compared to $24.9 million in the second quarter of 2023, and were $53.5 million in the first six months of 2024 compared to $45.7 million in the same period in 2023.

WAVE equity earnings were $26.5 million in the second quarter of 2024, while Overcast equity losses were $0.2 million.

WAVE equity earnings were $53.9 million in the first six months of 2024, while Overcast equity losses were $0.4 million.

The increases in WAVE equity earnings for both the second quarter and first six months of 2024 compared to the same periods in 2023 were primarily driven by the benefit from favorable AUV and higher sales volumes, partially offset by increased employee compensation and benefits.

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

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

Interest expense was $9.0 million in the first quarter of 2024 compared to $8.7 million in the first quarter of 2023.

The increase in interest expense was primarily due to higher interest rates on floating rate debt and increases in finance lease liabilities, partially offset by lower average debt balances.

Other non-operating income, net, was $3.1 million in the first quarter of 2024 compared to $2.4 million in the first quarter of 2023.

The increase in other non-operating income, net, was primarily driven by the non-service cost components of postretirement net periodic benefit costs.

Income tax expense was $20.3 million in the first quarter of 2024 compared to $16.6 million in the first quarter of 2023.

The effective tax rate for the first quarter of 2024 was 25.3% compared to 26.0% for the same period of 2023.

The decrease in the effective tax rate was primarily due to an increase in our valuation allowance for capital loss carryforwards recorded in the first quarter of 2023.

Total Other Comprehensive Loss (“OCL”) was $0.9 million in the first quarter of 2024 compared to $2.1 million in the first quarter of 2023.

The change in OCL in the first quarter of 2024 compared to the same period in 2023 was primarily driven by derivative gains/losses.

Derivative gain/loss represents the mark-to-market value adjustments of our derivative assets and liabilities, and the recognition of gains and losses previously deferred in Accumulated Other Comprehensive Income.

Partially offsetting the reduction in OCL due to the change in derivative gains/losses was an increase in OCL from pension and postretirement adjustments and foreign currency translation adjustments.

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

Interest expense was $11.1 million in the second quarter of 2024 compared to $9.2 million in the second quarter of 2023.

Interest expense was $20.1 million in the first six months of 2024 compared to $17.9 million in the first six months of 2023.

The increases for the second quarter and first six months of 2024 in comparison to the same periods in 2023 were primarily due to higher average effective interest rates, partially offset by lower average debt balances.

Other non-operating income, net, was $3.2 million in the second quarter of 2024 compared to $2.2 million in the second quarter of 2023.

Other non-operating income, net, was $6.3 million in the first six months of 2024 compared to $4.6 million in the first six months of 2023.

The increases in other non-operating income, net, for the second quarter and first six months of 2024 in comparison to the same periods in 2023 were primarily driven by the non-service cost components of pension and postretirement net periodic benefit costs.

Income tax expense was $21.2 million in the second quarter of 2024 compared to $19.8 million in the second quarter of 2023.

The effective tax rate for the second quarter of 2024 was 24.3% compared to 24.8% for the same period of 2023.

Income tax expense was $41.5 million in the first six months of 2024 compared to $36.4 million in the first six months of 2023.

The effective tax rate was 24.8% in the first six months of 2024 compared to 25.3% in the same period of 2023.

The effective tax rates for the second quarter and first six months of 2024 were lower compared to the same periods in 2023 primarily due to increased excess tax benefits from stock-based compensation deductions.

Total Other Comprehensive Loss (“OCL”) was $0.9 million in the second quarter of 2024 compared to Other Comprehensive Income ("OCI") of $0.4 million in the second quarter of 2023.

OCL was $1.8 million in the first six months of 2024 compared to $1.7 million in the first six months of 2023.

The change in OCL in the second quarter and first six months of 2024 compared to the same periods in 2023 were primarily driven by foreign currency translation adjustments and pension and postretirement adjustments.

Foreign currency translation adjustments represent the change in the U.S.

dollar value of assets and liabilities denominated in foreign currencies.

Amounts in the first quarter of 2024 and 2023 were driven primarily by changes in the Canadian dollar.

Foreign currency translation adjustments in 2024 and 2023 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.

Partially offsetting OCL in the second quarter and first six months of 2024 compared to the same periods in 2023

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

was OCI from derivative gains/losses.

REPORTABLE SEGMENT RESULTS

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Change is Favorable

Three Months Ended March 31,

Three Months Ended June 30,

Total segment net sales

Operating income

Net sales increased $11 million in the first quarter of 2024 due to $19 million of favorable AUV, partially offset by $8 million of lower sales volumes.

The improvement in AUV was driven by favorable like-for-like price and favorable mix.

The decrease in volumes was primarily driven by prior-year period inventory level increases at our home center customers that did not occur in the current-year period.

Operating income increased in the first quarter of 2024 primarily due to a $13 million benefit from favorable AUV, a $7 million increase in WAVE equity earnings and a $3 million decrease in manufacturing and input costs, partially offset by a $5 million decrease from lower sales volumes.

Operating income was also negatively impacted by a $2 million increase in SG&A expenses, which included increases in deferred compensation related charges and higher depreciation, partially offset by the benefit from severance expense recorded in the prior-year period.

Six Months Ended June 30,

Total segment net sales

Operating income

Net sales increased $16 million in the second quarter of 2024 as compared to the prior-year quarter due to $13 million of favorable AUV and $3 million of higher sales volumes.

The improvement in AUV was driven primarily by favorable like-for-like price, with a modest contribution from favorable mix.

The second quarter increase in volumes was primarily driven by stabilizing demand and the impact from our growth initiatives compared to the prior-year period.

For the first six months of 2024, net sales improved by $27 million from the prior-year period, primarily due to $32 million of favorable AUV, partially offset by lower sales volumes of $5 million.

The favorable AUV was driven primarily by positive like-for-like pricing, and to a lesser extent, favorable mix.

The decrease in volumes for the first six months of 2024 was driven primarily by prior-year first quarter inventory level increases at our home center customers that did not repeat in the first half of 2024, partially offset by stabilizing demand and the impact from our growth initiatives compared to the prior-year period.

Second-quarter 2024 operating income increased primarily due to a $9 million benefit from favorable AUV, a $3 million decrease in manufacturing and input costs, a $2 million increase from higher sales volumes and a $2 million increase in WAVE equity earnings.

These benefits were partially offset by a $9 million increase in SG&A expenses, driven by $3 million of higher incentive compensation, an increase in employee costs due to inflationary pressures, accruals for environmental remediation matters and higher depreciation and amortization.

Operating income for the first six months of 2024 increased primarily due to a $22 million benefit from favorable AUV, an $8 million increase in WAVE equity earnings and a $6 million decrease in manufacturing and input costs, partially offset by a $3 million decrease from lower sales volumes.

Operating income was also negatively impacted by an $11 million increase in SG&A expenses, that resulted from increases in deferred compensation related charges, an increase in incentive compensation, an increase in employee costs due to inflationary pressures, higher depreciation and amortization expense and an increase in accruals for environmental remediation matters.

Architectural Specialties

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Change is Favorable

Three Months Ended March 31,

Three Months Ended June 30,

Total segment net sales

Operating income

Net sales increased $5 million primarily driven by the contribution of BOK and increased custom metal project net sales.

Operating income increased in first quarter of 2024 primarily due to a $4 million margin benefit from increased sales, driven primarily by improved custom project margins, and a $1 million reduction in acquisition-related expenses.

These increases were partially offset by higher manufacturing costs and selling expenses due in part to the acquisition of BOK and additional investments in selling capabilities.

Unallocated Corporate

Unallocated Corporate operating loss was $1 million in the first quarter of 2024 and 2023.

Six Months Ended June 30,

Total segment net sales

Operating income

Net sales increased $24 million in the second quarter of 2024 compared to the same period in 2023 primarily due to a $20 million contribution from the acquisitions of 3form and BOK, and to a lesser extent, increased custom project net sales.

For the first six months of 2024 net sales improved by $28 million from the prior-year period primarily due to a $23 million contribution from the acquisitions of 3form and BOK.

Increased custom metal project net sales also contributed to these results.

Operating income increased in the second quarter of 2024 primarily due to a $14 million margin benefit from increased sales, driven primarily by the acquisitions of 3form and BOK, and partially due to improved project margins.

This increase was partially offset by a $9 million increase in SG&A expenses primarily due to the acquisitions of 3form and BOK, as well as a $3 million increase in manufacturing costs.

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

Operating income for the first six months of 2024 compared to the same period in 2023 was positively impacted by an $18 million margin benefit from increased sales, driven by the acquisitions of 3form and BOK and improved project margins.

This increase was partially offset by a $10 million increase in SG&A expenses due to the acquisitions of 3form and BOK and a $5 million increase in manufacturing costs.

Unallocated Corporate

Unallocated Corporate operating loss was $1 million in the second quarter of 2024 and 2023.

Unallocated Corporate operating loss was $2 million in the first six months of 2024 and 2023.

FINANCIAL CONDITION AND LIQUIDITY

Operating activities for the first three months of 2024 provided $26.4 million, compared to $26.2 million for the first three months of 2023.

The favorable change in the first quarter of 2024 compared to the same period in 2023 was due to higher cash earnings and the absence of contingent consideration payments in excess of acquisition-date fair value, offset by unfavorable working capital changes in accounts receivable, accounts payable and accrued expenses.

The unfavorable changes in working capital were timing related, and for accrued expenses, also driven by the impact of changes in incentive compensation accruals.

Net cash provided by investing activities was $5.9 million in the first three months of 2024, compared to $1.5 million of cash used in the first three months of 2023.

The favorable change in the first quarter of 2024 compared to the same period in 2023 was due to decreased purchases of property, plant and equipment, proceeds received from company owned life-insurance policies, and an increase in WAVE dividends.

These increases were partially offset by cash paid for our first quarter of 2024 equity investment in Overcast.

Net cash used for financing activities was $33.1 million in the first three months of 2024, compared to $34.7 million in the first three months of 2023.

The favorable change in the first quarter of 2024 compared to the same period in 2023 was primarily due to a decrease in repurchases of outstanding common stock and lower payments of acquisition-related contingent consideration, partially offset by increased repayments on borrowings under our credit facility.

Operating activities for the first six months of 2024 provided $83.7 million, compared to $93.9 million for the first six months of 2023.

Higher cash earnings for the first six months of 2024 in comparison to the prior-year period were offset by unfavorable timing-related working capital changes, most notably in accounts receivables, and an increase in cash paid for income taxes.

Net cash used in investing activities was $81.4 million in the first six months of 2024, compared to $6.0 million in the first six months of 2023.

The unfavorable change in cash was primarily due to $94 million of cash paid for the 3form acquisition, partially offset by decreased purchases of property, plant and equipment in comparison to the prior year period.

Net cash provided by financing activities was $1.1 million in the first six months of 2024, compared to $92.6 million cash used in the first six months of 2023.

The favorable change in cash was primarily due to increased net borrowings under our credit facility due primarily to the 3form acquisition, a decrease in repurchases of outstanding common stock, and lower payments of acquisition-related contingent consideration.

Our liquidity needs for operations vary throughout the year.

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We also have a $25.0 million bi-lateral letter of credit facility.

As of March 31, 2024, the total principal balances outstanding under our senior credit facility were $444.4 million under Term Loan A and $140.0 million under the revolving credit facility.

As of June 30, 2024, the total principal balances outstanding under our senior credit facility were $438.7 million under Term Loan A and $208.0 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 (subject to certain exceptions for certain acquisitions).

As of March 31, 2024, we were in compliance with all covenants of the senior credit facility.

As of June 30, 2024, we were in compliance with all covenants of the senior credit facility.

The Term Loan A is currently priced on a variable interest rate basis.

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Risk Coverage

November 2023 to June 2024

September 18, 2023

March 2021 to March 2025

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September 29, 2023

Under the terms of our interest rate swaps above, on a monthly basis, we pay a fixed rate and receive a floating rate based on SOFR.

As of March 31, 2024, these swaps are designated as cash flow hedges against changes in SOFR for a portion of our variable rate debt.

June 2024 to June 2028

June 26, 2024

Under the terms of the interest rate swap with a November 28, 2018 trade date above, we pay a fixed rate monthly and receive a floating rate based on the Secured Overnight Financing Rate (“SOFR”), inclusive of a 0% floor.

Under the terms of all remaining interest rate swaps above, we pay a fixed rate monthly and receive a floating rate based on SOFR.

As of June 30, 2024, these swaps are designated as cash flow hedges against changes in SOFR for a portion of our variable rate debt.

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

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

March 31, 2024

June 30, 2024

Financing Arrangements

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Revolving credit facility

As of March 31, 2024, we had $69.6 million of cash and cash equivalents, $52.2 million in the U.S.

As of June 30, 2024, we had $73.6 million of cash and cash equivalents, $60.3 million in the U.S.

and $13.3 million in foreign jurisdictions, primarily Canada.

As of March 31, 2024, we also had $360.0 million available under our revolving credit facility.

As of June 30, 2024, we also had $292.0 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, acquisitions and scheduled payments of debt obligations.

4 unchanged sentences

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