What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-28 compared with 2025-07-29 · 142 added, 115 removed, 149 unchanged (63% of the section changed)

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This discussion should be read in conjunction with the financial statements, the accompanying notes, the cautionary note regarding forward-looking statements and risk factors included in this report and our Annual Report on Form 10-K for the year ended December 31, 2024.

AWI is an Americas leader in the design, innovation and manufacture of interior and exterior architectural applications including ceilings, specialty walls and exterior metal solutions.

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

AWI is an Americas leader in the design and manufacture of innovative interior and exterior architectural applications including ceilings, specialty walls and exterior metal solutions.

We manufacture and source products made of numerous materials, including mineral fiber, fiberglass, metal, felt, wood, architectural resin and glass, wood fiber 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 December 2024, we acquired all the issued and outstanding stock of A.

In September 2025, we acquired all of the issued and outstanding stock of Geometrik Manufacturing, Inc.

(“Geometrik”), based in Kelowna, British Columbia, Canada.

Geometrik is a leading Canadian designer and manufacturer of wood acoustical ceiling and wall systems.

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

In December 2024, we acquired all of the issued and outstanding stock of A.

Zahner Company (“Zahner”), based in Kansas City, Missouri.

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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.

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 (currently 19.2%), 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.

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Manufacturing Plants

As of June 30, 2025, we operated 20 manufacturing plants, including 18 plants located within the U.S.

and two plants in Canada.

As of September 30, 2025, we operated 21 manufacturing plants, including 18 plants located within the U.S.

and three plants in Canada.

WAVE operates seven additional plants in the U.S.

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Architectural Specialties – designs, produces and sources specialty ceilings, walls, and other interior and exterior architectural applications including ceilings, specialty walls and exterior metal solutions primarily for use in commercial settings.

Products are available in numerous materials, such as metal, felt, wood, resin and glass, wood fiber and glass-reinforced-gypsum in various colors, shapes and designs.

Products are available in numerous materials, such as metal, felt, wood, architectural resin and glass, wood fiber and glass-reinforced-gypsum in

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

various colors, shapes and designs.

These products offer a range of design options and performance attributes such as acoustical control, rated fire protection, light, aesthetic appeal, energy conservation and building performance.

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

This segment’s revenues are primarily project driven, which

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

can lead to more variability in sales patterns.

This segment’s revenues are primarily 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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For information on our segments’ 2025 and 2024 net sales disaggregated by major customer groups, see Note 3 to the Condensed Consolidated Financial Statements.

We compete in the building product markets of the Americas.

We compete in the building products markets of the Americas.

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 recently implemented and announced tariffs and geopolitical events, including but not limited to, conflicts in Ukraine and the Middle East, neither of which had a material direct impact on our financial condition, liquidity or results of operations in the first six months of 2025 or 2024.

Several factors and trends within our markets affected our business performance during the three and six months ended June 30, 2025 compared to the same periods in 2024, most notably an increase in net sales due to our December 2024 acquisition of Zahner and April 2024 acquisition of 3form.

For the three months ended June 30, 2025, sales volumes increased $46 million compared to the same period in 2024, with the Zahner and 3form acquisitions contributing $28 million to net sales.

In September 2025, GMS, Inc., one of our largest distributor customers, was acquired by The Home Depot, Inc.

In August 2025, Lowe’s Companies, Inc., announced that it had entered into a definitive agreement to acquire Foundation Building Materials, Inc., another one of our largest distributor customers.

This acquisition activity continues a trend of customer consolidation within the building products markets of the Americas referenced in the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2024 and had no impact on our financial condition, liquidity or results of operations in the first nine months of 2025.

Several factors and trends within our markets affected our business performance during the three and nine months ended September 30, 2025 compared to the same periods in 2024, most notably an increase in net sales due to our December 2024 acquisition of Zahner and April 2024 acquisition of 3form.

The increase in net sales attributable to the Geometrik acquisition was not material.

For the three months ended September 30, 2025, sales volumes increased $24 million compared to the same period in 2024, with the Zahner and 3form acquisitions contributing $16 million to net sales.

Also contributing to the increase in net sales was a $7 million increase in organic Architectural Specialties net sales and a $2 million increase in net sales due to higher sales volumes in our Mineral Fiber segment.

For the six months ended June 30, 2025, sales volumes increased $87 million compared to the same period in 2024 driven primarily by a $69 million increase in net sales from the Zahner and 3form acquisitions.

Also contributing to the increase in net sales for the six months ended June 30, 2025 was a $24 million increase in organic Architectural Specialties sales, partially offset by a $7 million decrease in net sales due to lower sales volumes in our Mineral Fiber segment.

For the nine months ended September 30, 2025, sales volumes increased $111 million compared to the same period in 2024 driven primarily by an $86 million increase in net sales from the Zahner and 3form acquisitions.

Also contributing to the increase in net sales for the nine months ended September 30, 2025 was a $30 million increase in organic Architectural Specialties net sales, partially offset by a $5 million decrease in net sales due to lower sales volumes in our Mineral Fiber segment.

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 increased our total consolidated net sales for the three and six months ended June 30, 2025 by approximately $14 million and $29 million, respectively, compared to the same periods in 2024.

Favorable AUV increased our total consolidated net sales for the three and nine months ended September 30, 2025 by approximately $14 million and $43 million, respectively, compared to the same periods in 2024.

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, which varies by project.

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

During the first quarter of 2025, we implemented price increases on Mineral Fiber ceiling products and WAVE implemented price increases on grid products.

In the second quarter of 2025, we announced price increases on Mineral Fiber products that will become effective in the third quarter of 2025.

Future pricing actions for Mineral Fiber, Architectural Specialties and WAVE products may be implemented based on numerous factors, including the impact of recently implemented or announced tariffs and the rate and pace of inflation and its impact on our business.

During the first quarter and third quarter of 2025, we implemented price increases on Mineral Fiber ceiling products.

During the first and second quarters of 2025, WAVE implemented price increases on grid products.

Future pricing actions for Mineral Fiber, Architectural Specialties and WAVE products may be implemented based on numerous factors, including the impact of tariffs, the rate and pace of inflation and its impact on our business and the competitive environment.

Seasonality .

Historically, our sales tend to be stronger in the second and third quarters of our fiscal year due to more favorable weather conditions, customer business cycles and the timing of renovation and new construction projects.

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

Factors Affecting Operating Costs

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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, tariffs 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.

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

In the second quarter and first half of 2025, higher energy and raw material costs negatively impacted operating income by $1 million and $2 million, respectively, compared to the same periods in 2024.

During the three and nine months ended September 30, 2025, higher energy and raw material costs negatively impacted operating income by $1 million and $3 million, respectively, compared to the same periods in 2024.

Acquisition-Related Expenses and Losses

In connection with our acquisitions of 3form in April 2024, Insolcorp, LLC (“Insolcorp”) in October 2023 and BOK Modern, LLC (“BOK”) in July 2023, we recorded certain acquisition-related expenses and losses to operating income during the three and six months ended June 30, 2025 and 2024, summarized as follows (dollar amounts in millions):

In connection with our acquisitions of Geometrik in September 2025, 3form in April 2024, Insolcorp, LLC (“Insolcorp”) in October 2023 and BOK Modern, LLC (“BOK”) in July 2023, we recorded certain acquisition-related expenses and losses to operating income during the three and nine months ended September 30, 2025 and 2024, summarized as follows (dollar amounts in millions):

Three Months Ended

Six Months Ended

Nine Months Ended

Affected Line Item in the Condensed

September 30,

Consolidated Statements of Earnings and

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Loss related to change in fair value of contingent consideration

SG&A expenses

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.

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.

Loss related to change in fair value of contingent consideration

Negative impact to operating income

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

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

The change in fair value of contingent consideration was related to our Geometrik, Insolcorp and BOK 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 June 30, 2025 and December 31, 2024, we had approximately 3,700 and 3,600 full-time and part-time employees, respectively.

As of September 30, 2025 and December 31, 2024, we had approximately 3,800 and 3,600 full-time and part-time employees, respectively.

RESULTS OF OPERATIONS

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Change is Favorable

Three Months Ended June 30,

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 2025 increased 16.3% from the prior-year period due to higher volumes of $46 million and favorable AUV of $14 million.

Architectural Specialties net sales increased $43 million and Mineral Fiber net sales increased $17 million from the prior-year period.

Architectural Specialties segment net sales improved primarily due to a $28 million contribution from the acquisitions of Zahner and 3form and increased organic net sales driven by strengthening broad-based penetration throughout our specialty product categories.

The increase in Mineral Fiber net sales was primarily driven by favorable AUV and modestly improved sales volumes.

Consolidated net sales for the third quarter of 2025 increased 10.0% from the prior-year period due to higher volumes of $24 million and favorable AUV of $14 million.

Architectural Specialties net sales increased $23 million and Mineral Fiber net sales increased $16

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

Consolidated net sales for the first six months of 2025 increased 16.8% over the prior-year period due to higher volumes of $87 million and favorable AUV of $29 million.

million from the prior-year period.

Architectural Specialties segment net sales improved due to a $16 million contribution from the acquisitions of Zahner and 3form and a $7 million increase in organic net sales.

The increase in Mineral Fiber net sales was primarily driven by favorable AUV and modestly improved sales volumes.

Consolidated net sales for the first nine months of 2025 increased 14.3% over the prior-year period due to higher volumes of $111 million and favorable AUV of $43 million.

Architectural Specialties net sales increased $116 million and Mineral Fiber net sales increased $38 million over the prior-year period.

Architectural Specialties segment net sales improved primarily due to a $69 million contribution from the acquisitions of Zahner and 3form and increased organic net sales driven by strengthening broad-based penetration throughout our specialty product categories.

Architectural Specialties segment net sales improved primarily due to an $86 million contribution from the acquisitions of Zahner and 3form and a $30 million increase in organic net sales.

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

Cost of goods sold in the second quarter of 2025 was 58.6% of net sales, compared to 59.1% for the same period in 2024.

Cost of goods sold in the first six months of 2025 was 59.7% of net sales, compared to 60.4% for the same period in 2024.

The year-over-year decreases in cost of goods sold as a percent of net sales for the second quarter and first six months of 2025 were primarily driven by favorable AUV benefits and improved manufacturing productivity.

Also contributing to the decrease in cost of goods sold as a percent of net sales for the first six months of 2025 compared to the same period in 2024 were favorable inventory valuation impacts.

SG&A expenses in the second quarter of 2025 were $84.5 million, or 19.9% of net sales, compared to $80.6 million, or 22.1% of net sales, for the same period in 2024.

The increase in SG&A expenses was primarily driven by a $7 million increase related to the acquisitions of Zahner and 3form, partially offset by a $2 million decrease in acquisition-related expenses and a prior-period increase in reserves for environmental remediation matters of $1 million that did not recur in the current period.

SG&A expenses in the first six months of 2025 were $162.5 million, or 20.1% of net sales, compared to $146.0 million, or 21.1% of net sales, for the same period in 2024.

The year-over-year increase in SG&A expenses was primarily driven by a $21 million increase related to the acquisitions of Zahner and 3form and a $2 million increase in selling expenses.

These increases were partially offset by a $3 million increase in company-owned officer life insurance gains related to deferred compensation plans, a $1 million decrease in acquisition-related expenses and a prior-period increase in reserves for environmental remediation matters of $1 million that did not recur in the current period.

Equity earnings from unconsolidated subsidiaries were $31.9 million in the second quarter of 2025, compared to $26.3 million in the second quarter of 2024, and were $58.5 million in the first six months of 2025, compared to $53.5 million in the same period in 2024.

WAVE equity earnings were $32.1 million in the second quarter of 2025, compared to $26.5 million in the second quarter of 2024, and $58.9 million in the first six months of 2025, compared to $53.9 million in the same period of 2024.

The year-over-year increase in WAVE equity earnings for the second quarter of 2025 was primarily driven by the benefit from favorable AUV, higher sales volumes and lower steel costs.

The increase in WAVE equity earnings for the first six months of 2025 compared to the same period in 2024 was driven by the benefit from favorable AUV, partially offset by the negative impact of lower sales volumes.

Cost of goods sold in the third quarter of 2025 was 58.0% of net sales, compared to 57.6% for the same period in 2024.

Cost of goods sold in the first nine months of 2025 was 59.1% of net sales, compared to 59.4% for the same period in 2024.

The year-over-year increase in cost of goods sold as a percent of net sales for the third quarter of 2025 was primarily driven by increased manufacturing costs, partially offset by favorable AUV benefits and improved manufacturing productivity.

The year-over-year decrease in cost of goods sold as a percent of net sales for the first nine months of 2025 was primarily driven by favorable AUV benefits and improved manufacturing productivity, partially offset by increased manufacturing costs.

To a lesser extent, favorable inventory valuation impacts also contributed to the year-over-year decrease in cost of goods sold as a percent of net sales for the first nine months of 2025 compared to the same period in 2024.

SG&A expenses in the third quarter of 2025 were $90.1 million, or 21.2% of net sales, compared to $77.6 million, or 20.1% of net sales, for the same period in 2024.

The increase in SG&A expenses was primarily driven by a $4 million increase related to the acquisitions of Zahner and 3form, a $3 million increase in incentive compensation, a $2 million increase in Architectural Specialties selling expenses driven primarily by higher net sales as well as additional investments in selling capabilities, a $1 million increase in depreciation and amortization expense and a $1 million decrease in company-owned officer life insurance gains related to deferred compensation plans.

SG&A expenses in the first nine months of 2025 were $252.1 million, or 20.5% of net sales, compared to $223.1 million, or 20.7% of net sales, for the same period in 2024.

The year-over-year increase in SG&A expenses was primarily driven by a $24 million increase related to the acquisitions of Zahner and 3form, a $4 million increase in Architectural Specialties selling expenses driven primarily by higher net sales as well as additional investments in selling capabilities and a $3 million increase in incentive compensation.

These increases were partially offset by a $2 million increase in company-owned officer life insurance gains related to deferred compensation plans and a prior-period increase in reserves for environmental remediation matters of $2 million that did not recur in the current period.

Losses related to changes in the fair value of contingent consideration were $0.1 million in the third quarter of 2025, compared to $0.2 million for the third quarter of 2024, and $0.5 million in the first nine months of 2025, compared to $0.6 million for the same period in 2024.

Losses were related to our Insolcorp and BOK acquisitions.

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

Interest expense was $8.6 million in the second quarter of 2025 compared to $11.1 million in the second quarter of 2024.

Interest expense was $17.1 million in the first six months of 2025 compared to $20.1 million in the first six months of 2024.

The decrease in interest expense was primarily due to lower average debt balances.

Other non-operating income, net, was $0.7 million in the second quarter of 2025 compared to $3.2 million in the second quarter of 2024, and $1.4 million in the first six months of 2025 compared to $6.3 million in the first six months of 2024.

The decreases in other non-operating income, net, for the three and six months ended June 30, 2025 in comparison to the same periods in 2024 were primarily driven by the non-service cost components of pension and postretirement net periodic benefit costs.

Income tax expense was $27.5 million in the second quarter of 2025 compared to $21.2 million in the second quarter of 2024.

The effective tax rate for the second quarter of 2025 was 23.9% compared to 24.3% for the same period of 2024.

Income tax expense was $49.1 million in the first six months of 2025 compared to $41.5 million in the first six months of 2024.

The effective tax rate for the first six months of 2025 was 23.8% compared to 24.8% for the same period of 2024.

The decrease in the effective tax rate for the second quarter and first six months of 2025, in comparison to the same periods in 2024, was primarily due to the benefit of federal investment tax credits.

Total Other Comprehensive Income (“OCI”) was $1.9 million in the second quarter of 2025 compared to Total Other Comprehensive Loss (“OCL”) of $0.9 million in the second quarter of 2024.

OCI was $1.3 million in the first six months of 2025 compared to OCL of $1.8 million in the first six months of 2024.

The changes from OCL to OCI in the second quarter and first six months of 2025 compared to the same periods in 2024 were due to increases in income from foreign currency translation adjustments and favorable pension and postretirement adjustments, partially offset by interest rate swap derivative losses in 2025.

During the three and nine months ended September 30, 2025, we recorded $0.9 million and $0.8 million, respectively, of net gains on sales of fixed assets.

During the same periods in 2024, we recorded $0.2 million and $0.3 million, respectively, of net losses on sales and impairment of fixed assets.

During the third quarter of 2025, we recorded a $0.9 million gain on the sale of a parcel of land at a Mineral Fiber plant.

During the third quarter of 2024, we recorded a $4.9 million impairment charge for undeveloped land adjacent to our Corporate headquarters.

Also in the third quarter of 2024, we recorded a $4.6 million gain on the sale of our idled Mineral Fiber plant in St.

Helens, Oregon.

Equity earnings from unconsolidated subsidiaries were $28.0 million in the third quarter of 2025, compared to $25.2 million in the third quarter of 2024, and were $86.5 million in the first nine months of 2025, compared to $78.7 million in the same period in 2024.

WAVE equity earnings were $28.2 million in the third quarter of 2025, compared to $25.5 million in the third quarter of 2024, and $87.1 million in the first nine months of 2025, compared to $79.4 million in the same period of 2024.

The year-over-year increases in WAVE equity earnings for the third quarter and first nine months of 2025 were primarily driven by the benefit from favorable AUV, partially offset by the negative impact of lower sales volumes.

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

Interest expense was $8.2 million in the third quarter of 2025, compared to $10.5 million in the third quarter of 2024, and $25.3 million in the first nine months of 2025, compared to $30.6 million in the first nine months of 2024.

The decreases in interest expense for the third quarter and first nine months of 2025, in comparison to the same periods in 2024, were primarily due to lower average debt balances.

Other non-operating income, net, was $0.5 million in the third quarter of 2025 compared to $3.0 million in the third quarter of 2024, and $1.9 million in the first nine months of 2025 compared to $9.3 million in the first nine months of 2024.

The decreases in other non-operating income, net, for the third quarter and first nine months of 2025, in comparison to the same periods in 2024, were primarily driven by the non-service cost components of pension and postretirement net periodic benefit costs.

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

Income tax expense was $23.2 million in the third quarter of 2025 compared to $26.9 million in the third quarter of 2024.

The effective tax rate for the third quarter of 2025 was 21.2% compared to 25.9% for the same period of 2024.

Income tax expense was $72.3 million in the first nine months of 2025 compared to $68.4 million in the first nine months of 2024.

The effective tax rate for the first nine months of 2025 was 22.9% compared to 25.2% for the same period of 2024.

The decreases in the effective tax rates for the third quarter and first nine months of 2025, in comparison to the same periods in 2024, were primarily due to the benefits recognized from statute closures and federal investment tax credits.

Total Other Comprehensive Loss (“OCL”) was $0.3 million in the third quarter of 2025 compared to total OCL of $6.4 million in the third quarter of 2024.

Total Other Comprehensive Income (“OCI”) was $1.0 million in the first nine months of 2025 compared to OCL of $8.2 million in the first nine months of 2024.

The decrease in OCL for the third quarter of 2025 compared to the same period in 2024 was due to a decrease in interest rate swap derivative losses and favorable pension and postretirement adjustments, partially offset by unfavorable foreign currency translation adjustments.

The change from OCL to OCI for the first nine months of 2025 compared to the same period for 2024 was due to favorable pension and postretirement adjustments, a decrease in interest rate swap derivative losses, and an increase in income from foreign currency translation adjustments.

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

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Derivative losses represent the mark-to-market value fair adjustments for our derivative assets and liabilities, and the recognition of gains and losses previously deferred in Accumulated Other Comprehensive (Loss).

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

REPORTABLE SEGMENT RESULTS

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Change is Favorable

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

Mineral Fiber net sales increased $17 million in the second quarter of 2025 compared to the prior-year quarter due to $14 million of favorable AUV and $3 million of higher sales volumes, both of which were primarily driven by strong commercial execution and benefits from growth initiatives.

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

For the first six months of 2025, net sales increased $22 million from the prior-year period, primarily due to $29 million of favorable AUV, partially offset by lower sales volumes of $7 million.

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

The decrease in volumes for the first six months of 2025 was primarily driven by declines from our home center customers, partially offset by strong commercial execution and benefits from growth initiatives.

Costs of goods sold during the three months ended June 30, 2025 was $157 million, or 58.7% of net sales, compared to $148 million, or 59.0% of net sales, in the prior-year period.

Gross profit increased $8 million, or 7.4%, compared to the prior-year period due primarily to an $8 million benefit from favorable AUV.

Costs of goods sold during the six months ended June 30, 2025 was $305 million, or 59.5% of net sales, compared to $293 million, or 59.9% of net sales, in the prior-year period.

Gross profit increased $11 million, or 5.5%, compared to the prior-year period due to a $16 million benefit from favorable AUV, partially offset by a $5 million negative impact from lower sales volumes.

SG&A expenses during the three months ended June 30, 2025 were $44 million, or 16.5% of net sales, compared to $48 million, or 19.0% of net sales, in the prior-year period.

The year-over-year decrease in SG&A expenses was primarily driven by a $2 million decrease in acquisition-related expenses and a prior-period increase in reserves for environmental remediation matters of $1 million that did not recur in the current period.

SG&A expenses during the six months ended June 30, 2025 were $83 million, or 16.3% of net sales, compared to $90 million, or 18.3% of net sales, in the prior-year period.

The year-over-year decrease in SG&A expenses was primarily driven by a $3 million increase in company-owned officer life insurance gains related to deferred compensation plans, a $1 million decrease in acquisition-related expenses and a prior-period increase in reserves for environmental remediation matters of $1 million that did not recur in the current period.

Equity earnings from our WAVE joint venture were $32.1 million in the three months ended June 30, 2025, compared to $26.5 million in the prior-year period.

The year-over-year increase in WAVE earnings was primarily driven by the benefit from favorable AUV, higher sales volumes and lower steel costs.

Equity earnings from our WAVE joint venture were $58.9 million in the first six months of 2025, compared to $53.9 million in the prior-year period.

The year-over-year increase in WAVE earnings was primarily driven by the benefit from favorable AUV, partially offset by the negative impact of lower sales volumes.

Mineral Fiber net sales increased $16 million in the third quarter of 2025 compared to the prior-year quarter due to $14 million of favorable AUV and $2 million of higher sales volumes.

The improvement in AUV was due to favorable like-for-like price, with a modest contribution from mix.

The increased volumes and favorable mix were driven by our strong execution, along with benefits from our growth initiatives.

For the first nine months of 2025, net sales increased $38 million from the prior-year period, primarily due to $43 million of favorable AUV, partially offset by lower sales volumes of $5 million.

The improvement in AUV was due to favorable like-for-like price and, to a lesser extent, favorable mix.

Our strong execution and benefits from growth initiatives contributed to positive volume and mix growth, partially offset by a decrease in volumes driven by home centers and Latin America.

Cost of goods sold during the three months ended September 30, 2025 was $155 million, or 56.7% of net sales, compared to $147 million, or 56.8% of net sales, in the prior-year period.

Gross profit increased $7 million, or 6.5%, compared to the prior-year period due to a $9 million benefit from favorable AUV and a $1 million benefit from higher sales volumes, partially offset by a $3 million increase in manufacturing costs.

Cost of goods sold during the nine months ended September 30, 2025 was $460 million, or 58.5% of net sales, compared to $440 million, or 58.8% of net sales, in the prior-year period.

Gross profit increased $18 million, or 5.8%, compared to the prior-year period due to a $25 million benefit from favorable AUV, partially offset by a $3 million negative impact from lower sales volumes and a $4 million increase in manufacturing costs.

SG&A expenses during the three months ended September 30, 2025 were $49 million, or 17.9% of net sales, compared to $44 million, or 16.9% of net sales, in the prior-year period.

The year-over-year increase in SG&A expenses was primarily driven by a $2 million increase in incentive compensation, a $1 million increase in depreciation and amortization expense and a $1 million decrease in company-owned officer life insurance gains related to deferred compensation plans.

SG&A expenses during the nine months ended September 30, 2025 were $132 million, or 16.8% of net sales, compared to $133 million, or 17.8% of net sales, in the prior-year period.

The year-over-year decrease in SG&A expenses was primarily driven by a $2

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

million increase in company-owned officer life insurance gains related to deferred compensation plans and a prior period increase in reserves for environmental remediation matters of $2 million that did not recur in the current period.

These decreases were partially offset by a $3 million increase in incentive compensation.

Equity earnings from our WAVE joint venture were $28.2 million in the three months ended September 30, 2025, compared to $25.5 million in the prior-year period.

Equity earnings from our WAVE joint venture were $87.1 million in the first nine months of 2025, compared to $79.4 million in the prior-year period.

The year-over-year increases in WAVE earnings for the third quarter and first nine months of 2025 were primarily driven by the benefit from favorable AUV, partially offset by the negative impact of lower sales volumes.

Architectural Specialties

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Change is Favorable

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

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

Net sales increased $43 million in the second quarter of 2025 compared to the same period in 2024, driven primarily by a $28 million increase from the acquisitions of Zahner and 3form, in addition to increased organic net sales driven by strengthening broad-based penetration throughout our specialty product categories.

For the first six months of 2025, net sales improved by $94 million from the prior-year period, primarily due to a $69 million increase from the acquisitions of Zahner and 3form, in addition to increased organic net sales driven by strengthening broad-based penetration throughout our specialty product categories.

Costs of goods sold during the three months ended June 30, 2025 was $92 million, or 58.2% of net sales, compared to $68 million, or 59.2% of net sales, in the prior-year period.

Gross profit increased $19 million, or 40.3%, compared to the prior-year period due to a $23 million benefit from higher net sales, partially offset by a $4 million increase in manufacturing costs.

The acquisitions of Zahner and 3form contributed a $12 million benefit to gross profit, with the remaining increase driven by improved operating leverage and custom project margins.

Costs of goods sold during the six months ended June 30, 2025 was $176 million, or 59.7% of net sales, compared to $124 million, or 61.5% of net sales, in the prior-year period.

Gross profit increased $41 million, or 53.2%, compared to the prior-year period due to a $50 million benefit from higher net sales, partially offset by a $9 million increase in manufacturing costs.

The acquisitions of Zahner and 3form contributed a $29 million benefit to gross profit, with the remaining increase driven by improved operating leverage and custom project margins.

SG&A expenses in the three months ended June 30, 2025 were $40 million, or 25.5% of net sales, compared to $33 million, or 28.5% of net sales, in the prior-year period.

The increase in SG&A expenses was primarily driven by a $7 million increase related to the acquisitions of Zahner and 3form.

SG&A expenses in the first six months of 2025 were $79 million, or 26.6% of net sales, compared to $56 million, or 27.7% of net sales, in the prior-year period.

The increase in SG&A expenses was primarily driven by a $21 million increase related to the acquisitions of Zahner and 3form.

Net sales increased $23 million in the third quarter of 2025 compared to the same period in 2024, driven primarily by a $16 million increase from the acquisitions of Zahner and 3form, in addition to a $7 million increase in organic net sales driven by strong growth across most of our specialty product categories.

For the first nine months of 2025, net sales improved by $116 million from the prior-year period, primarily due to an $86 million increase from the acquisitions of Zahner and 3form, in addition to a $30 million increase in organic net sales driven by strong growth across most of our specialty product categories.

Cost of goods sold during the three months ended September 30, 2025 was $91 million, or 60.3% of net sales, compared to $76 million, or 58.7% of net sales, in the prior-year period.

The increase in costs of goods sold as a percentage of net sales was driven primarily by an increase in manufacturing costs within our organic business, partially offset by improved custom project margins.

Gross profit increased $7 million, or 13.2%, compared to the prior-year period due primarily to a $6 million benefit from the acquisitions of Zahner and 3form.

Cost of goods sold during the nine months ended September 30, 2025 was $267 million, or 59.9% of net sales, compared to $199 million, or 60.4% of net sales, in the prior-year period.

Gross profit increased $48 million, or 36.9%, compared to the prior-year period.

The acquisitions of Zahner and 3form contributed a $34 million benefit to gross profit, with the remaining increase driven by improved custom project margins and operating leverage.

SG&A expenses in the three months ended September 30, 2025 were $41 million, or 26.9% of net sales, compared to $34 million, or 26.4% of net sales, in the prior-year period.

The increase in SG&A expenses was primarily driven by a $4 million increase related to the acquisitions of Zahner and 3form and a $2 million increase in selling expenses driven primarily by higher net sales as well as additional investments in selling capabilities.

SG&A expenses in the first nine months of 2025 were $119 million, or 26.7% of net sales, compared to $90 million, or 27.1% of net sales, in the prior-year period.

The increase in SG&A expenses was primarily driven by a $24 million increase related to the acquisitions of Zahner and 3form and a $4 million increase in selling expenses driven primarily by higher net sales as well as additional investments in selling capabilities.

Unallocated Corporate

Unallocated Corporate operating loss was $1 million in the second quarter of 2025 and 2024.

Unallocated Corporate operating loss was $2 million in the first six months of 2025 and 2024.

Unallocated Corporate operating loss was $1 million in the third quarter of 2025 and 2024.

Unallocated Corporate operating loss was $2 million in the first nine months of 2025 and $3 million in the first nine months of 2024.

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

FINANCIAL CONDITION AND LIQUIDITY

Operating activities for the first six months of 2025 provided $122.6 million, compared to $83.7 million for the first six months of 2024.

The favorable change in cash from operating activities was primarily due to higher cash earnings compared to the prior-year period and an increase in income taxes payable, partially offset by unfavorable timing related changes in accounts payable and accrued expenses.

Net cash provided by investing activities was $13.2 million in the first six months of 2025, compared to $81.4 million used for investing activities in the first six months of 2024.

The favorable change in cash from investing activities in the first six months of 2025 compared to the same period in 2024 was primarily due to $94 million of cash paid for the 3form acquisition in 2024.

Net cash used for financing activities was $134.7 million in the first six months of 2025, compared to $1.1 million cash provided in the first six months of 2024.

The unfavorable change in cash used for financing activities was primarily due to decreased net borrowings under our credit facility, primarily due to the prior year 3form acquisition, and an increase in repurchases of our outstanding common stock.

Operating activities for the first nine months of 2025 provided $245.5 million, compared to $180.2 million for the first nine months of 2024.

The favorable change in cash from operating activities was primarily due to higher cash earnings compared to the prior-year period, including a benefit from a decrease in income taxes paid due to the impact of 2025 Federal tax reform.

Net cash provided by investing activities was $16.8 million in the first nine months of 2025, compared to $61.2 million used for investing activities in the first nine months of 2024.

The favorable change in cash from investing activities in the first nine months of 2025 compared to the same period in 2024 was primarily due to $94 million of cash paid for the 3form acquisition in 2024 and an increase in dividends from WAVE, partially offset by a decrease in proceeds from the sale of fixed assets and an increase in purchases of property, plant and equipment.

Net cash used for financing activities was $252.0 million in the first nine months of 2025, compared to $115.7 million cash used in the first nine months of 2024.

The unfavorable change in cash used for financing activities was primarily due to increased debt repayments, net of borrowings, under our credit facility.

Borrowings were significantly higher in the prior year primarily due to the 3form acquisition.

Also contributing to the increase in cash used for financing activities was an increase in repurchases of our outstanding common stock.

Our liquidity needs for operations vary throughout the year.

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We have a $950.0 million variable rate senior credit facility, which is comprised of a $500.0 million revolving credit facility (with a $150.0 million sublimit for letters of credit) and a $450.0 million Term Loan A.

As of June 30, 2025, the revolving credit facility and Term Loan A were priced at 1.375% over the Secured Overnight Financing Rate (“SOFR”), plus a 10-basis point adjustment.

As of September 30, 2025, the revolving credit facility and Term Loan A were priced at 1.375% over the Secured Overnight Financing Rate (“SOFR”), plus a 10-basis point adjustment.

The revolving credit facility and Term Loan A mature in December 2027.

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

As of June 30, 2025, the total principal balances outstanding under our senior credit facility were $416.2 million under Term Loan A and $70.0 million under the revolving credit facility.

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

As of September 30, 2025, the total principal balance outstanding under our senior credit facility was $410.6 million under Term Loan A.

We had no balance outstanding under the revolving credit facility as of September 30, 2025.

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 June 30, 2025, we were in compliance with all covenants of the senior credit facility.

As of September 30, 2025, 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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Letters of credit are currently arranged through our revolving credit facility and our bi-lateral facility.

Letters of credit may be issued to third party suppliers, insurance companies and financial institutions and typically can only be drawn upon in the event of AWI’s failure to pay its obligations to the beneficiary.

Letters of credit may be issued to third party suppliers, insurance companies and financial institutions and typically can only be drawn upon in the

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

event of AWI’s failure to pay its obligations to the beneficiary.

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

June 30, 2025

September 30, 2025

Financing Arrangements

1 unchanged sentence

Revolving credit facility

As of June 30, 2025, we had $81.1 million of cash and cash equivalents, $66.9 million in the U.S.

As of September 30, 2025, we had $90.1 million of cash and cash equivalents, $71.2 million in the U.S.

and $18.9 million in foreign jurisdictions, primarily Canada.

As of June 30, 2025, we also had $430 million available under our revolving credit facility.

As of September 30, 2025, we also had $500 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.

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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