The amounts classified from AOCL, and the affected line item of the Condensed Consolidated Statements of Earnings and Comprehensive Income, are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Reclassified from Accumulated Other Comprehensive (Loss) |
|
|
Affected Line Item on the
Condensed Consolidated |
|
|
Three Months Ended March 31, |
|
|
Statements of Earnings |
|
|
2026 |
|
|
2025 |
|
|
and Comprehensive Income |
Derivative Adjustments: |
|
|
|
|
|
|
|
|
Interest rate swap contracts, before tax |
|
$ |
0.4 |
|
|
$ |
(0.4 |
) |
|
Interest expense |
Tax impact |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
Income tax expense |
Total loss (income), net of tax |
|
|
0.3 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Pension and Postretirement Adjustments: |
|
|
|
|
|
|
|
|
Amortization of net actuarial loss |
|
|
0.8 |
|
|
|
0.9 |
|
|
Other non-operating (income), net |
Total loss, before tax |
|
|
0.8 |
|
|
|
0.9 |
|
|
|
Tax impact |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
Income tax expense |
Total loss, net of tax |
|
|
0.6 |
|
|
|
0.6 |
|
|
|
Total reclassifications for the period |
|
$ |
0.9 |
|
|
$ |
0.3 |
|
|
|
NOTE 18. LITIGATION AND RELATED MATTERS
ENVIRONMENTAL MATTERS
Environmental Compliance
Our manufacturing and research facilities are affected by various federal, state and local requirements relating to the discharge of materials and the protection of the environment. We make expenditures necessary for compliance with applicable environmental requirements at each of our operating facilities. While these expenditures are not typically material, the applicable regulatory requirements continually change and, as a result, we cannot predict with certainty the amount, nature or timing of future expenditures associated with environmental compliance.
Environmental Sites
Summary
We are actively involved in the investigation and remediation of existing or potential environmental contamination under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and state Superfund and similar environmental laws at two domestically owned locations allegedly resulting from past industrial activity.
In each location, we are one of multiple potentially responsible parties and have agreed to jointly fund the required investigation and remediation, while preserving our defenses to the liability. We may also have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies. We have pursued coverage and recoveries under those applicable insurance policies with respect to certain of the sites, including the Macon, Georgia site and the Elizabeth City, North Carolina site, each of which is summarized below. Other than disclosed below, we are unable to predict the outcome of these matters or the timing of any future recoveries, whether through settlement or otherwise. We are also unable to predict the extent to which any recoveries might cover our final share of investigation and remediation costs for these sites. Our final share of investigation and remediation costs may exceed any such recoveries, and such amounts net of insurance recoveries may be material.
Between 2017 and 2021, we entered into settlement agreements totaling $53.0 million with certain legacy insurance carriers to resolve ongoing litigation and recover fees and costs previously incurred by us in connection with certain environmental sites. These settlements were recorded as reductions to cost of goods sold and SG&A expenses, reflecting the same income statement categories where environmental expenditures were historically recorded. From 2020 through the third quarter of 2024, cumulative insurance recoveries exceeded cumulative expenses to date related to the respective environmental sites and the excess was recorded within long-term liabilities on our Condensed Consolidated Balance Sheets. These excess recoveries were released to offset additional reserves for potential liabilities incurred on the respective environmental sites. We may enter into additional settlement agreements in the future, which may or may not be material, with other legacy insurers to obtain reimbursement or contribution for environmental site expenses.
Estimates of our future liability at the environmental sites are based on evaluations of currently available facts regarding each individual site. We consider factors such as our activities associated with the site, existing technology, presently enacted laws and regulations and prior company experience in remediating contaminated sites. Although current law imposes joint and several liability on all parties at Superfund sites, our contribution to the remediation of these sites is expected to be limited by the number of other companies potentially liable for site remediation. As a result, our estimated liability reflects only our expected share. In determining the probability of contribution, we consider the solvency of other parties, the site activities of other parties, whether liability is being disputed, the terms of any existing agreements and experience with similar matters, and the effect of our October 2006 Chapter 11 reorganization and separation with Armstrong Flooring, Inc. upon the validity of the claim, if any.
Specific Material Events
Macon, Georgia
The U.S. Environmental Protection Agency (the “EPA”) has listed two landfills located on a portion of our facility in Macon, Georgia, along with the former Macon Naval Ordnance Plant landfill adjacent to our property, portions of Rocky Creek, and certain tributaries leading to Rocky Creek (collectively, the “Macon Site”) as a Superfund site on the National Priorities List due to the presence of contaminants, most notably polychlorinated biphenyls (“PCBs”).
In September 2010, we entered into an Administrative Order on Consent for a Removal Action (the “Removal Action”) with the EPA to investigate PCB contamination in one of the landfills on our property, the Wastewater Treatment Plant Landfill (“Operable Unit 1”). After completing an investigation of Operable Unit 1 and submitting our final Engineering Evaluation/Cost Analysis, the EPA issued an Action Memorandum in July 2013 selecting our recommended remedy for the Removal Action. The Operable Unit 1 final report was submitted to the EPA in October 2016, the EPA approved the final report in November 2016, and a Post-Removal Control Plan was submitted to the EPA in March 2017. AWI has been conducting operation and maintenance activities of the completed remedy since 2017 consistent with the approved Post-Removal Control Plan.
In September 2015, AWI and other Potential Responsible Parties (“PRPs”) received a Special Notice Letter from the EPA under CERCLA inviting AWI and the PRPs to enter into the negotiation of a Remedial Investigation and Feasibility Study (“RI/FS”) with respect to the remainder of the Superfund site, which included the other landfill on our property, as well as areas on and adjacent to our property and Rocky Creek (“Operable Unit 2”). In the second half of 2022, the EPA and the PRPs agreed to separate all non-groundwater aspects of the site from the ongoing groundwater investigation.
Based on findings in a Remedial Investigation Report (“RIR”) which included relevant risk assessments previously conducted and that was approved by the EPA in July 2023, the PRPs developed and submitted to the EPA a draft Feasibility Study (“FS”) to identify and evaluate potential remedial alternatives for all non-groundwater elements of Operable Unit 2. Following review and comment by the EPA and the State of Georgia and revisions to the FS to address those comments, the EPA conditionally approved the FS in April 2024 and issued a Proposed Remedial Action Plan (“Proposed Plan”) for the non-groundwater elements at the site in May 2024, which included a total cost estimate for the non-groundwater elements at the site of approximately $8 million. In August 2024, the EPA signed the Record of Decision, selecting the remedy outlined in the Proposed Plan. The portion of these remediation costs that AWI will bear for all non-groundwater elements of Operable Unit 2 will not be known until the PRPs resolve the final allocation of costs, with that process to begin in May 2026.
In March 2025, AWI and the other PRPs proposed that the investigation of the groundwater elements of the areas constituting Operable Unit 2 (now designated as “Operable Unit 3”), be completed in conjunction with the groundwater investigation at the adjacent former Macon Naval Ordnance Plant landfill, however, the EPA rejected this request and required two separate remedial investigation reports.
It is probable that we will incur field investigation, engineering and oversight costs associated with designing and implementing the remedy for all non-groundwater elements of Operable Unit 2 and for completing an RI/FS of Operable Unit 3. We may also ultimately incur costs in remediating contamination discovered during the RI/FS for Operable Unit 3, and we are unable to reasonably estimate our final share of the total costs associated with the investigation work or any resulting remediation therefrom, although such amounts may be material to any one quarter’s or year’s results of operations in the future. We do not expect the total future costs to have a material adverse effect on our liquidity or financial condition as the cash payments may be made over many years.
Elizabeth City, North Carolina
This site is a former cabinet manufacturing facility that from 1977 until 1996 was operated by Triangle Pacific Corporation, which became Armstrong Wood Products, Inc. (“AWP”), and is now known as AHF Products, LLC. The site was formerly owned by the U.S. Navy (“Navy”) and Westinghouse, which was purchased by Paramount, a Skydance Corporation (“Paramount”) (then known as CBS Corporation). We assumed ownership of the site when we acquired the stock of AWP in 1998. In connection with the separation of Armstrong Flooring, Inc. in 2016, we agreed to retain any legacy environmental liabilities associated with the AWP site.
Prior to our acquisition of the site, the North Carolina Department of Environment and Natural Resources listed the site as a hazardous waste site. In 1997, AWP entered into a cost sharing agreement with Westinghouse whereby the parties agreed to share equally the costs associated with site investigation. In 2007, we and Paramount entered into an agreement with the Navy whereby the Navy agreed to pay one third of defined past and future investigative costs up to a certain amount, which has now been exhausted. The EPA approved an RI/FS work plan for the site in August 2011. In July 2018, the EPA published an Interim Record Of Decision (“IROD”) selecting an interim cleanup approach. In June 2021, we entered into a negotiated Partial Consent Decree and Site Participation Agreement with the EPA, Paramount and the U.S. on behalf of the Navy for the remedial design and remedial action for the interim remedy. Because the U.S. does not conduct work as a PRP at Superfund sites, similar to the 2007 agreement, the U.S. agreed to pay its share of the estimated costs of performing the work and, as part of the Consent Decree Financial Assurance, the Company and Paramount also funded their estimated shares of the Interim Remedy. The Partial Consent Decree was entered by the U.S. District Court for the Eastern District of North Carolina in January 2022. A Remedial Design Work Plan was approved by the EPA in February 2023 and in December 2024, the EPA approved the Pre-Design Investigation Work Plan and related Quality Assurance Project Plan, allowing the pre-design investigation work to start in March 2025.
The current estimate of future liability at this site includes only our estimated share of the costs of implementing the interim remedial action under the IROD. We are unable to reasonably estimate our final share of the total costs associated with the interim or final remediation at the site, although such amounts may be material to any one quarter's or one year’s results of operations in the future. We do not expect the total future costs to have a material adverse effect on our liquidity or financial condition as the cash payments may be made over many years.
Summary of Financial Position
Total liabilities of $4.1 million as of March 31, 2026 and December 31, 2025 were recorded for environmental matters that we consider probable and for which a reasonable estimate of the probable liability could be made. As of March 31, 2026 and December 31, 2025, $4.1 million of environmental liabilities were reflected within other long-term liabilities on the Condensed Consolidated Balance Sheets. During the three months ended March 31, 2026, we recorded additional reserves for potential environmental liabilities of $0.1 million as a component of SG&A expenses on our Condensed Consolidated Statements of Earnings and Comprehensive Income. During the three months ended March 31, 2025, we did not record any additional reserves for potential environmental liabilities.
Where existing data is sufficient to estimate the liability, that estimate has been used; where only a range of probable liabilities is available and no amount within that range is more likely than any other, the lower end of the range has been used. As assessments and remediation activities progress at each site, these liabilities are reviewed to reflect new information as it becomes available and adjusted to reflect amounts actually incurred and paid. These liabilities are undiscounted.
The estimated environmental liabilities above do not take into account any claims for additional recoveries from insurance or third parties. It is our policy to record insurance recoveries as assets on the Condensed Consolidated Balance Sheets when realizable. We incur costs to pursue environmental insurance recoveries, which are expensed as incurred.
Actual costs to be incurred at identified sites may vary from our estimates. Based on our knowledge of the identified sites, it is not possible to reasonably estimate future costs in excess of amounts already recognized.
OTHER CLAIMS
From time to time, we are involved in other various lawsuits, claims, proceedings, disputes, inquiries, investigations and other legal matters that arise in the ordinary course of business, including matters involving our products, intellectual property, contracts, employees, relationships with suppliers, relationships with distributors, other customers or end users, relationships with competitors, compliance with laws, statutes and regulations and other matters. In connection with those matters, and in addition to our defenses to them, we may have rights of indemnity, contribution or reimbursement from other parties or coverage under applicable insurance policies. When applicable and appropriate, we will seek indemnity, contribution or reimbursement from other parties and pursue coverage and recoveries under those policies, but we are unable to predict the success of our defenses to those matters or the outcome of those demands. While complete assurance cannot be given to the outcome of any proceedings relating to these matters, we do not believe that any current claims, individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations.
NOTE 19. NET EARNINGS PER SHARE
The following table is a reconciliation of basic shares outstanding to diluted shares outstanding for the three months ended March 31, 2026 and 2025 (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2026 |
|
|
2025 |
|
Basic shares outstanding |
|
|
42.8 |
|
|
|
43.5 |
|
Dilutive effect of common stock equivalents |
|
|
0.4 |
|
|
|
0.3 |
|
Diluted shares outstanding |
|
|
43.2 |
|
|
|
43.8 |
|
Anti-dilutive stock awards excluded from the computation of dilutive EPS for the three months ended March 31, 2026 and 2025 were 1,708 and 30,196, respectively.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2025.
OVERVIEW
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, architectural resin and glass, wood, wood fiber and glass-reinforced-gypsum. We also manufacture ceiling suspension system (grid) products through a joint venture with Worthington Enterprises, Inc. called Worthington Armstrong Venture (“WAVE”).
Acquisitions
In February 2026, we acquired all of the issued and outstanding shares of Event Scape Inc. and Eventscape U.S. Holdings Inc. (collectively, “Eventscape”), headquartered in Toronto, Ontario, Canada. Eventscape is a designer, manufacturer and installer of ceilings, walls and facades made of a broad range of materials. The operations, assets and liabilities of Eventscape are included in our Architectural Specialties segment.
In December 2025, we acquired all of the issued and outstanding stock of FGM-Parallel LLC (“Parallel”), based in Englewood, Colorado. Parallel is a designer and manufacturer of extruded aluminum products primarily used in exterior architectural applications. The operations, assets and liabilities of Parallel are included in our Architectural Specialties segment.
In September 2025, we acquired all of the issued and outstanding shares of Geometrik Manufacturing, Inc. (“Geometrik”), based in Kelowna, British Columbia, Canada. Geometrik is a designer and manufacturer of wood acoustical ceiling and wall systems. The operations, assets and liabilities of Geometrik are included in our Architectural Specialties segment.
Manufacturing Plants
As of March 31, 2026, we operated 24 manufacturing plants, including 20 plants located within the U.S. and four plants in Canada.
WAVE operates seven additional plants in the U.S. to produce suspension system (grid) products, which we use and sell in our ceiling systems.
Reportable Segments
Our operating segments are as follows: Mineral Fiber, Architectural Specialties and Unallocated Corporate.
Mineral Fiber – produces suspended mineral fiber and fiberglass ceiling systems. Our mineral fiber products offer various performance attributes such as acoustical control, rated fire protection, and energy efficiency, along with other health and sustainability features and aesthetic appeal. Ceiling products are primarily sold to resale distributors, ceiling systems contractors and wholesalers, and retailers (including large home centers). The Mineral Fiber segment also includes the results of WAVE, which manufactures and sells suspension system (grid) products and ceiling component products that are invoiced by both AWI and WAVE. Segment results relating to WAVE consist primarily of equity earnings and reflect our 50% equity interest in the joint venture. Ceiling component products consist of ceiling perimeters and trim, in addition to grid products that support drywall ceiling systems, structural and walkable grid systems. For some customers, WAVE sells its suspension system products to AWI for resale to customers. Mineral Fiber segment results reflect those sales transactions. The Mineral Fiber segment also includes all assets and liabilities not specifically allocated to our Architectural Specialties or Unallocated Corporate segment, including all property and related depreciation associated with our Lancaster, Pennsylvania headquarters. 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.
Architectural Specialties – designs, produces and sources specialty ceilings, walls, and other interior and exterior architectural applications primarily for use in commercial settings. Products are available in numerous materials, such as metal, felt, architectural resin and glass, wood, wood fiber and glass-reinforced-gypsum in 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. We sell standard, premium and customized products, a portion of which are sourced from third-party producers. Architectural Specialties products are sold primarily to direct customers, primarily ceiling systems contractors, and resale
Management’s Discussion and Analysis of Financial Condition and Results of Operations
distributors. 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.
Unallocated Corporate – includes certain assets, liabilities, income and expenses that have not been allocated to our other business segments and consists of: cash and cash equivalents, our Overcast Innovations LLC (“Overcast”) investment and related equity earnings and losses, the net funded status of our U.S. Retirement Income Plan (“RIP”), the estimated fair value of interest rate swap contracts, outstanding borrowings under our senior secured credit facility and income tax balances.
Factors Affecting Revenues
For information on our 2026 and 2025 net sales and disaggregated expenses by segment, see Note 2 to the Condensed Consolidated Financial Statements. For information on our 2026 and 2025 net sales disaggregated by major customer groups, see Note 3 to the Condensed Consolidated Financial Statements. Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we define organic as consolidated and/or Architectural Specialties results excluding the impacts of the Eventscape, Parallel and Geometrik acquisitions. We define the impacts of Eventscape, Parallel and Geometrik as inorganic consolidated and/or Architectural Specialties results.
Markets. We compete in the building product 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 (“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 governmental trade policies and geopolitical events, including the conflict in Iran, none of which had a material direct impact on our financial condition, liquidity or results of operations in the first three months of 2026 or 2025.
Several factors and trends within our markets affected our business performance during the first quarter of 2026 compared to the first quarter of 2025. For the three months ended March 31, 2026, sales volumes increased $17 million compared to the prior-year period, due primarily to a $10 million increase in organic Architectural Specialties net sales and a $5 million inorganic increase due to our February 2026 acquisition of Eventscape, our December 2025 acquisition of Parallel and our September 2025 acquisition of Geometrik. Also contributing to the increase in net sales was a $2 million increase from higher sales volumes in our Mineral Fiber segment.
Average Unit Value. We periodically modify sales prices of our products due to changes in costs for raw materials and energy, market conditions and the competitive environment. Typically, realized price increases are less than announced price increases because of project pricing, competitive adjustments and changing market conditions. We also offer a wide assortment of products that are differentiated by style, design and performance attributes. Pricing and margins for products within the assortment vary. In addition, changes in the relative quantity of products purchased at different price points can impact year-to-year comparisons of net sales and operating income. 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 by $10 million for the three months ended March 31, 2026 compared to the same period in 2025. Our Architectural Specialties segment revenues are primarily generated from individual contracts that include project-specific mixes of manufactured and sourced products. As such, we do not manage or evaluate performance using AUV for this segment but rather attribute all changes in net sales to volume, including gross to net sales adjustments.
During the first quarter of 2026, we implemented price increases on Mineral Fiber ceiling products and 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.
Factors Affecting Operating Costs
Operating Expenses. 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. Other raw materials include clays, felt, pigment, architectural resin and glass, wood and wood fiber. We manufacture substantially all of our mineral wool at one of our manufacturing facilities. We use aluminum and steel in the production of metal building products by us and by WAVE. Finally, we also purchase significant amounts of packaging materials and consume substantial amounts of energy, such as electricity and natural gas, and water. Fluctuations in the prices of these inputs impact our financial results. In the first quarter of 2026, higher raw material and energy costs negatively impacted operating income by $2 million compared to the same period in 2025.
Acquisition-Related Expenses and Losses
In connection with our acquisitions of Eventscape in February 2026 and BOK Modern, LLC (“BOK”) in July 2023, we recorded certain acquisition-related expenses and losses to operating income in the three months ended March 31, 2026 and 2025, summarized as follows (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Affected Line Item in the Condensed |
|
|
March 31, |
|
|
Consolidated Statements of Earnings and |
|
|
2026 |
|
|
2025 |
|
|
Comprehensive Income |
Acquisition costs |
|
$ |
2.6 |
|
|
$ |
- |
|
|
SG&A expenses |
Loss related to change in fair value of contingent consideration |
|
|
- |
|
|
|
0.3 |
|
|
SG&A expenses |
Negative impact to operating income |
|
$ |
2.6 |
|
|
$ |
0.3 |
|
|
|
Acquisition costs above reflect certain third-party professional fees incurred due to the Eventscape acquisition. The change in fair value of contingent consideration was related to our BOK acquisition and is remeasured quarterly during the 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.
Employees
As of March 31, 2026 and December 31, 2025, we had approximately 4,000 and 3,800 full-time and part-time employees, respectively.
RESULTS OF OPERATIONS
See Note 2 to the Condensed Consolidated Financial Statements for a reconciliation of operating income to consolidated net earnings before income taxes.
CONSOLIDATED RESULTS
(dollar amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2026 |
|
|
2025 |
|
|
Change is Favorable (Unfavorable) |
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
Consolidated net sales |
|
$ |
409.9 |
|
|
$ |
382.7 |
|
|
|
7.1 |
% |
Consolidated operating income |
|
$ |
94.2 |
|
|
$ |
98.5 |
|
|
|
(4.4 |
)% |
Consolidated net sales for the first quarter of 2026 increased 7.1% from the prior-year quarter due to higher volumes of $17 million and favorable AUV of $10 million. Architectural Specialties net sales increased $15 million and Mineral Fiber net sales increased $12 million from the prior-year quarter. Architectural Specialties segment net sales improved due to a $10 million increase in organic net sales and a $5 million inorganic contribution from Eventscape, Parallel and Geometrik. The increase in Mineral Fiber net sales was primarily driven by favorable AUV and modestly improved sales volumes.
Cost of goods sold in the first quarter of 2026 was $254.6 million, or 62.1% of net sales, compared to $232.8 million, or 60.8% of net sales, in the prior-year quarter. The increase in cost of goods sold as a percent of net sales was primarily driven by higher organic manufacturing costs, including raw material and energy inflation and unfavorable inventory valuation impacts, as well as an increase in inorganic costs related to our 2026 and 2025 acquisitions. Also contributing to the increase in cost of goods sold was a $2 million tariff adjustment that was recorded in the first quarter of 2026. These increases were partially offset by favorable AUV benefits and improved manufacturing productivity.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
SG&A expenses in the first quarter of 2026 were $88.4 million, or 21.6% of net sales, compared to $78.0 million, or 20.4% of net sales, in the prior-year quarter. The increase in SG&A expenses was primarily driven by a $3 million increase in severance expenses, a $2 million inorganic increase related to our 2026 and 2025 acquisitions, due to an increase in acquisition costs, and a $2 million increase in Architectural Specialties organic selling expenses, driven primarily by higher net sales and increased investments in selling resources to support growth across the segment.
Equity earnings from unconsolidated subsidiaries were $27.3 million in the first quarter of 2026, compared to $26.6 million in the first quarter of 2025. WAVE equity earnings were $27.4 million in the first quarter of 2026, compared to $26.8 million in the first quarter of 2025. The increase in WAVE equity earnings was primarily driven by the benefit from favorable AUV, partially offset by the negative impact of lower sales volumes and higher steel costs. See Note 8 to the Condensed Consolidated Financial Statements for further information.
Interest expense was $7.3 million in the first quarter of 2026, compared to $8.5 million in the first quarter of 2025. The decrease in interest expense was primarily due to lower average debt balances.
Other non-operating income, net, was $1.5 million in the first quarter of 2026 compared to $0.7 million in the first quarter of 2025. The increase in other non-operating income, net, for the first quarter of 2026 in comparison to the prior-year quarter was primarily driven by the non-service cost components of pension and postretirement net periodic benefit costs.
Income tax expense was $21.6 million in the first quarter of both 2026 and 2025. The effective tax rate for the first quarter of 2026 was 24.4% compared to 23.8% in the prior-year quarter. The increase in the effective tax rate for the first quarter of 2026 in comparison to the same period in 2025 was primarily due to federal investment tax credit benefits recognized in the prior-year quarter that did not recur in the current-year quarter.
Total Other Comprehensive Income (“OCI”) was $1.0 million in the first quarter of 2026 compared to total Other Comprehensive Loss (“OCL”) of $0.6 million in the first quarter of 2025. The change from OCL to OCI for the first quarter of 2026 compared to the prior-year quarter was primarily due to interest rate swap derivative gains, partially offset by unfavorable foreign currency translation adjustments, driven primarily by the Canadian dollar. Derivative gains and 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). Foreign currency translation adjustments represent the change in the U.S. dollar value of assets and liabilities denominated in foreign currencies.
REPORTABLE SEGMENT RESULTS
Mineral Fiber
(dollar amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2026 |
|
|
2025 |
|
|
Change is Favorable |
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
Total segment net sales |
|
$ |
257.2 |
|
|
$ |
245.1 |
|
|
|
4.9 |
% |
Total segment operating income |
|
$ |
85.5 |
|
|
$ |
84.5 |
|
|
|
1.2 |
% |
Mineral Fiber net sales increased $12 million in the first quarter of 2026 compared to the prior-year quarter due to $10 million of favorable AUV, which was driven primarily by favorable like-for-like price, and $2 million of higher sales volumes driven primarily by solid commercial execution in an uneven market.
Cost of goods sold during the first quarter of 2026 was $155.3 million, or 60.4% of net sales, compared to $148.0 million, or 60.4% of net sales, in the prior-year quarter. Gross profit increased $5 million, or 4.9%, compared to the prior-year quarter due to a $9 million benefit from favorable AUV and a $1 million benefit from higher sales volumes. These benefits were partially offset by a $5 million increase in manufacturing costs, including raw material and energy inflation and unfavorable inventory valuation impacts, partially offset by improved manufacturing productivity.
SG&A expenses during the first quarter of 2026 were $43.8 million, or 17.0% of net sales, compared to $39.4 million, or 16.1% of net sales, in the prior-year quarter. The increase in SG&A expenses was primarily driven by a $2 million increase in severance expenses and a $1 million decrease in company-owned officer life insurance gains related to deferred compensation plans.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Equity earnings from our WAVE joint venture were $27.4 million in the first quarter of 2026, compared to $26.8 million in the prior-year quarter. The slight increase in WAVE earnings was primarily driven by the benefit from favorable AUV, partially offset by the negative impact of lower sales volumes and higher steel costs.
Architectural Specialties
(dollar amounts in millions)
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2026 |
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2025 |
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Change is Favorable (Unfavorable) |
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Three Months Ended March 31, |
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Total segment net sales |
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$ |
152.7 |
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$ |
137.6 |
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11.0 |
% |
Total segment operating income |
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$ |
9.3 |
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$ |
14.8 |
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(37.2 |
)% |
Architectural Specialties net sales increased $15 million in the first quarter of 2026 compared to the prior-year quarter due to a $10 million increase in organic net sales driven by growth within our metal and wood categories and a $5 million inorganic contribution from our 2026 and 2025 acquisitions.
Cost of goods sold during the first quarter of 2026 was $99.0 million, or 64.8% of net sales, compared to $84.4 million, or 61.3% of net sales, in the prior-year quarter. The increase in cost of goods sold as a percentage of net sales was primarily driven by a $5 million increase in costs related to our 2026 and 2025 acquisitions and a $3 million increase in manufacturing costs within our organic business, which was primarily driven by higher employee costs and the impact of growth investments. Also contributing to the increase in cost of goods sold was a $2 million tariff adjustment that was recorded in the first quarter of 2026.
Gross profit increased $1 million, or 0.9%, compared to the prior-year quarter due to a $6 million benefit from higher organic net sales, partially offset by the cost of goods sold impacts discussed above.
SG&A expenses in the first quarter of 2026 were $44.4 million, or 29.1% of net sales, compared to $38.4 million, or 27.9% of net sales, in the prior-year quarter. The increase in SG&A expenses was primarily driven by a $2 million inorganic increase related to the 2026 and 2025 acquisitions, due to an increase in acquisition costs, a $2 million increase in organic selling expenses driven primarily by higher net sales and increased investments in selling resources to support growth and a $1 million increase in severance expenses.
Unallocated Corporate
Unallocated Corporate operating loss was $1 million in the first quarter of 2026 and 2025.
FINANCIAL CONDITION AND LIQUIDITY
Cash Flow
Net cash provided by operating activities for the first three months of 2026 was $32.1 million, compared to $41.0 million for the first three months of 2025. The unfavorable change in operating activities is primarily due to an unfavorable timing related change in receivables, partially offset by a favorable timing related change in accounts payable and accrued expenses. Also contributing to the decrease in operating activities was an unfavorable change in net income tax payables.
Net cash used for investing activities was $51.4 million in the first three months of 2026, compared to $6.0 million of cash provided by investing activities in the first three months of 2025. The unfavorable change in cash used for investing activities was primarily due to the acquisition of Eventscape, partially offset by an increase in dividends from WAVE.
Net cash used for financing activities was $13.2 million in the first three months of 2026, compared to $43.6 million for the first three months of 2025. The favorable change in cash used for financing activities was primarily due to increased net borrowings due to the Eventscape acquisition, partially offset by an increase in repurchases of our outstanding common stock.
Liquidity
Our liquidity needs for operations vary throughout the year. We retain lines of credit to facilitate our seasonal cash flow needs, since cash flow is historically lower during the first and fourth quarters of our fiscal year.
We have a $910.6 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 $410.6 million Term Loan A. As of March 31, 2026, the revolving credit facility and Term Loan A were priced at 1.25% over the Secured Overnight Financing Rate (“SOFR”). The revolving credit facility and Term
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Loan A mature in December 2030. We also have a $25.0 million bi-lateral letter of credit facility and a $0.7 million letter of credit facility.
As of March 31, 2026, the total principal balances outstanding under our senior credit facility included $408.0 million under Term Loan A and $75.0 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 $100 million, to EBITDA to be less than or equal to 3.75 to 1.0 (subject to certain exceptions for certain acquisitions). As of March 31, 2026, we were in compliance with all covenants of the senior credit facility.
The Term Loan A is currently priced on a variable interest rate basis. We use interest rate swaps to minimize the fluctuations in earnings caused by interest rate volatility associated with our senior credit facility.
The following table summarizes our interest rate swaps, including forward interest rate swaps (dollar amounts in millions):
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Coverage Period |
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Notional
Amount |
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Risk Coverage |
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Trade Date |
March 2024 to June 2026 |
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$ |
50.0 |
|
USD-SOFR |
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March 25, 2024 |
March 2025 to September 2026 |
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$ |
25.0 |
|
USD-SOFR |
|
March 27, 2025 |
November 2023 to December 2026 |
|
$ |
50.0 |
|
USD-SOFR |
|
October 10, 2023 |
March 2024 to June 2027 |
|
$ |
50.0 |
|
USD-SOFR |
|
March 27, 2024 |
November 2023 to November 2027 |
|
$ |
50.0 |
|
USD-SOFR |
|
September 29, 2023 |
June 2024 to June 2028 |
|
$ |
50.0 |
|
USD-SOFR |
|
June 26, 2024 |
March 2026 to December 2028 |
|
$ |
50.0 |
|
USD-SOFR |
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March 19, 2026 |
Under the terms of all interest rate swaps, we pay a fixed rate monthly and receive a floating rate based on SOFR. These swaps are designated as cash flow hedges against changes in SOFR for a portion of our variable rate debt.
We use lines of credit and other commercial commitments to ensure that adequate funds are available to meet operating requirements. Letters of credit are currently arranged through our revolving credit facility, our bi-lateral facility, and letter of credit 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.
The following table presents details related to our letters of credit facilities (dollar amounts in millions):
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March 31, 2026 |
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Financing Arrangements |
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Limit |
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Used |
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Available |
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Bi-lateral facility |
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$ |
25.0 |
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$ |
7.7 |
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$ |
17.3 |
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Letter of credit facility |
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0.7 |
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0.5 |
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0.2 |
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Revolving credit facility |
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|
150.0 |
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- |
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150.0 |
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Total |
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$ |
175.7 |
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|
$ |
8.2 |
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|
$ |
167.5 |
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As of March 31, 2026, we had $79.8 million of cash and cash equivalents, $55.7 million in the U.S. and $24.1 million in foreign jurisdictions, primarily Canada. As of March 31, 2026, we also had $425 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.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to our critical accounting estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding our exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2025.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on the evaluation of the effectiveness of our disclosure controls and procedures by our management, with the participation of our principal executive officer and our principal financial officer, as of March 31, 2026, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) Changes in Internal Control Over Financial Reporting. There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.