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EX-32.2 - EX-32.2 - ADVANCED DRAINAGE SYSTEMS, INC.wms-ex322_71.htm
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EX-31.2 - EX-31.2 - ADVANCED DRAINAGE SYSTEMS, INC.wms-ex312_72.htm
EX-31.1 - EX-31.1 - ADVANCED DRAINAGE SYSTEMS, INC.wms-ex311_73.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-36557

 

ADVANCED DRAINAGE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

51-0105665

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

4640 Trueman Boulevard, Hilliard, Ohio 43026

(Address of Principal Executive Offices, Including Zip Code)

(614) 658-0050

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” and “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging Growth Company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 31, 2017, the registrant had 55,246,148 shares of common stock outstanding. The shares of common stock trade on the New York Stock Exchange under the ticker symbol “WMS”. In addition, as of July 31, 2017, 242,020 shares of unvested restricted common stock were outstanding and 23,868,555 shares of ESOP, preferred stock, convertible into 18,359,692 shares of common stock, were outstanding. As of July 31, 2017, 73,847,860 shares of common stock were outstanding, inclusive of outstanding shares of unvested restricted common stock and on an as-converted basis with respect to the outstanding shares of ESOP preferred stock.

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

Page

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2017 and March 31, 2017

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended June 30, 2017 and 2016

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2017 and 2016

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2017 and 2016

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the three months ended June 30, 2017 and 2016

 

5

 

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

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

 

21

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

32

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

33

 

 

 

 

 

Item 1A.

 

Risk Factors

 

33

 

 

 

 

 

Item 2.

 

Unregistered Sale of Equity Securities

 

33

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

34

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

34

 

 

 

 

 

Item 5.

 

Other Information

 

34

 

 

 

 

 

Item 6.

 

Exhibits

 

34

 

 

 

Signatures

 

35

 

 

 

Exhibit Index

 

36

 

 

 

i


Table of Contents

 

PART I. FINANCIAL INFORMATION

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except par value)

 

 

 

June 30, 2017

 

 

March 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

8,717

 

 

$

6,450

 

Receivables (less allowance for doubtful accounts of $10,377 and $10,431, respectively)

 

 

215,432

 

 

 

168,943

 

Inventories

 

 

262,188

 

 

 

258,430

 

Other current assets

 

 

9,512

 

 

 

6,743

 

Total current assets

 

 

495,849

 

 

 

440,566

 

Property, plant and equipment, net

 

 

417,635

 

 

 

406,858

 

Other assets:

 

 

 

 

 

 

 

 

Goodwill

 

 

100,860

 

 

 

100,566

 

Intangible assets, net

 

 

50,125

 

 

 

51,758

 

Other assets

 

 

48,860

 

 

 

46,537

 

Total assets

 

$

1,113,329

 

 

$

1,046,285

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of debt obligations

 

$

27,301

 

 

$

37,789

 

Current maturities of capital lease obligations

 

 

21,946

 

 

 

21,450

 

Accounts payable

 

 

107,131

 

 

 

121,922

 

Current portion of liability-classified stock-based awards

 

 

 

 

 

11,926

 

Other accrued liabilities

 

 

59,523

 

 

 

54,460

 

Accrued income taxes

 

 

12,910

 

 

 

8,207

 

Total current liabilities

 

 

228,811

 

 

 

255,754

 

Long-term debt obligations (less unamortized debt issuance costs of $3,609 and $1,723,

   respectively)

 

 

377,712

 

 

 

310,849

 

Long-term capital lease obligations

 

 

61,521

 

 

 

58,710

 

Deferred tax liabilities

 

 

43,753

 

 

 

44,007

 

Other liabilities

 

 

23,484

 

 

 

26,530

 

Total liabilities

 

 

735,281

 

 

 

695,850

 

Commitments and contingencies (see Note 8)

 

 

 

 

 

 

 

 

Mezzanine equity:

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock: $0.01 par value; 47,070 shares authorized;

   44,170 shares issued; 23,868 and 24,225 shares outstanding, respectively

 

 

298,357

 

 

 

302,814

 

Deferred compensation – unearned ESOP shares

 

 

(196,204

)

 

 

(198,216

)

Redeemable noncontrolling interest in subsidiaries

 

 

8,431

 

 

 

8,227

 

Total mezzanine equity

 

 

110,584

 

 

 

112,825

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock; $0.01 par value: 1,000,000 shares authorized; 153,560 shares issued;

   55,246 and 55,338 shares outstanding, respectively

 

 

12,393

 

 

 

12,393

 

Paid-in capital

 

 

774,874

 

 

 

755,787

 

Common stock in treasury, at cost

 

 

(443,561

)

 

 

(436,984

)

Accumulated other comprehensive loss

 

 

(22,239

)

 

 

(24,815

)

Retained deficit

 

 

(70,289

)

 

 

(83,678

)

Total ADS stockholders’ equity

 

 

251,178

 

 

 

222,703

 

Noncontrolling interest in subsidiaries

 

 

16,286

 

 

 

14,907

 

Total stockholders’ equity

 

 

267,464

 

 

 

237,610

 

Total liabilities, mezzanine equity and stockholders’ equity

 

$

1,113,329

 

 

$

1,046,285

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

- 1 -


Table of Contents

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except per share data)

 

 

 

Three Months Ended

June 30,

 

 

 

2017

 

 

2016

 

Net sales

 

$

358,359

 

 

$

357,576

 

Cost of goods sold

 

 

271,620

 

 

 

260,970

 

Gross profit

 

 

86,739

 

 

 

96,606

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling

 

 

23,099

 

 

 

24,230

 

General and administrative

 

 

26,676

 

 

 

34,529

 

Loss on disposal of assets and costs from exit and disposal activities

 

 

3,423

 

 

 

202

 

Intangible amortization

 

 

2,044

 

 

 

2,187

 

Income from operations

 

 

31,497

 

 

 

35,458

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

4,479

 

 

 

4,784

 

Derivative gains and other income, net

 

 

(954

)

 

 

(3,037

)

Income before income taxes

 

 

27,972

 

 

 

33,711

 

Income tax expense

 

 

9,746

 

 

 

14,194

 

Equity in net (income) loss of unconsolidated affiliates

 

 

(248

)

 

 

96

 

Net income

 

 

18,474

 

 

 

19,421

 

Less: net income attributable to noncontrolling interest

 

 

732

 

 

 

1,148

 

Net income attributable to ADS

 

 

17,742

 

 

 

18,273

 

Accretion of redeemable noncontrolling interest

 

 

 

 

 

(362

)

Dividends to redeemable convertible preferred stockholders

 

 

(489

)

 

 

(425

)

Dividends paid to unvested restricted stockholders

 

 

(19

)

 

 

(30

)

Net income available to common stockholders and participating securities

 

 

17,234

 

 

 

17,456

 

Undistributed income allocated to participating securities

 

 

(1,429

)

 

 

(1,524

)

Net income available to common stockholders

 

$

15,805

 

 

$

15,932

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

55,303

 

 

 

54,071

 

Diluted

 

 

56,010

 

 

 

54,928

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.29

 

 

$

0.29

 

Diluted

 

$

0.28

 

 

$

0.29

 

Cash dividends declared per share

 

$

0.07

 

 

$

0.06

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

- 2 -


Table of Contents

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)

 

 

 

Three Months Ended

June 30,

 

 

 

2017

 

 

2016

 

Net income

 

$

18,474

 

 

$

19,421

 

Currency translation

 

 

3,427

 

 

 

(3,121

)

Comprehensive income

 

 

21,901

 

 

 

16,300

 

Less: other comprehensive income (loss) attributable to noncontrolling

   interest, net of tax

 

 

851

 

 

 

(1,501

)

Less: net income attributable to noncontrolling interest

 

 

732

 

 

 

1,148

 

Total comprehensive income attributable to ADS

 

$

20,318

 

 

$

16,653

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

- 3 -


Table of Contents

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

 

 

 

Three Months Ended

June 30,

 

 

 

2017

 

 

2016

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

18,474

 

 

$

19,421

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

18,221

 

 

 

18,026

 

Deferred income taxes

 

 

(281

)

 

 

(745

)

Loss on disposal of assets and costs from exit and disposal activities

 

 

3,423

 

 

 

237

 

ESOP and stock-based compensation

 

 

4,304

 

 

 

11,757

 

Amortization of deferred financing charges

 

 

353

 

 

 

341

 

Fair market value adjustments to derivatives

 

 

191

 

 

 

(4,907

)

Equity in net (income) loss of unconsolidated affiliates

 

 

(248

)

 

 

96

 

Other operating activities

 

 

(1,656

)

 

 

293

 

Changes in working capital:

 

 

 

 

 

 

 

 

Receivables

 

 

(47,469

)

 

 

(24,858

)

Inventories

 

 

(2,445

)

 

 

(9,276

)

Prepaid expenses and other current assets

 

 

(2,547

)

 

 

(4,317

)

Accounts payable, accrued expenses, and other liabilities

 

 

(6,857

)

 

 

(6,200

)

Net cash used in operating activities

 

 

(16,537

)

 

 

(132

)

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(17,949

)

 

 

(12,595

)

Other investing activities

 

 

(254

)

 

 

(200

)

Net cash used in investing activities

 

 

(18,203

)

 

 

(12,795

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from Revolving Credit Facility

 

 

212,950

 

 

 

114,000

 

Payments on Revolving Credit Facility

 

 

(155,750

)

 

 

(88,700

)

Payments on Term Loan

 

 

(72,500

)

 

 

(2,500

)

Proceeds from Senior Notes

 

 

75,000

 

 

 

 

Debt issuance costs

 

 

(2,268

)

 

 

 

Payments of notes, mortgages and other debt

 

 

(1,225

)

 

 

(215

)

Payments on capital lease obligations

 

 

(6,066

)

 

 

(5,358

)

Cash dividends paid

 

 

(4,353

)

 

 

(3,665

)

Proceeds from exercise of stock options

 

 

6

 

 

 

2,648

 

Repurchase of common stock

 

 

(7,947

)

 

 

 

Other financing activities

 

 

(652

)

 

 

(8

)

Net cash provided by financing activities

 

 

37,195

 

 

 

16,202

 

Effect of exchange rate changes on cash

 

 

(188

)

 

 

(662

)

Net change in cash

 

 

2,267

 

 

 

2,613

 

Cash at beginning of period

 

 

6,450

 

 

 

6,555

 

Cash at end of period

 

$

8,717

 

 

$

9,168

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

5,899

 

 

$

2,229

 

Cash paid for interest

 

 

4,498

 

 

 

4,996

 

Non-cash operating, investing and financing activities:

 

 

 

 

 

 

 

 

Acquisition of property, plant and equipment under capital lease and incurred

   lease obligations

 

 

9,588

 

 

 

13,450

 

Balance in accounts payable for the acquisition of property, plant and equipment

 

 

2,593

 

 

 

2,255

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

- 4 -


Table of Contents

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY

(Unaudited) (In thousands)

 

 

Common

Stock

 

Paid

-In

 

Common

Stock in

Treasury

 

Accumu-

lated

Other

Compre-

hensive

 

Retained

 

Total

ADS

Stock-

holders’

 

Non-

controlling

Interest in

 

Total

Stock-

holders’

 

 

Redeemable

Convertible

Preferred Stock

 

Deferred

Compensation -

Unearned

ESOP Shares

 

Redeemable

Non-

controlling

Interest in

 

Total

Mezzanine

 

 

Shares

 

Amount

 

Capital

 

Shares

 

Amount

 

Loss

 

Deficit

 

Equity

 

Subsidiaries

 

Equity

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Subsidiaries

 

Equity

 

Balance at April 1, 2016

 

153,560

 

$

12,393

 

$

739,097

 

 

99,123

 

$

(440,995

)

$

(21,261

)

$

(101,778

)

$

187,456

 

$

15,033

 

$

202,489

 

 

 

24,819

 

$

310,240

 

 

16,448

 

$

(205,664

)

$

7,171

 

$

111,747

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

18,273

 

 

18,273

 

 

887

 

 

19,160

 

 

 

 

 

 

 

 

 

 

 

261

 

 

261

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(1,620

)

 

 

 

(1,620

)

 

(1,501

)

 

(3,121

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible

   preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

(386

)

 

(386

)

 

 

 

(386

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock dividends

   ($0.06 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,279

)

 

(3,279

)

 

 

 

(3,279

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of ESOP shares to

   participants for compensation

 

 

 

 

 

909

 

 

 

 

 

 

 

 

 

 

909

 

 

 

 

909

 

 

 

 

 

 

 

(146

)

 

1,828

 

 

 

 

1,828

 

Exercise of common stock

   options

 

 

 

 

 

4,274

 

 

(232

)

 

1,032

 

 

 

 

 

 

5,306

 

 

 

 

5,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 

 

 

 

17

 

 

(47

)

 

207

 

 

 

 

 

 

224

 

 

 

 

224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ESOP distribution in

   common stock

 

 

 

 

 

1,980

 

 

(168

)

 

747

 

 

 

 

 

 

2,727

 

 

 

 

2,727

 

 

 

(218

)

 

(2,727

)

 

 

 

 

 

 

 

(2,727

)

Accretion of redeemable

    noncontrolling interest

 

 

 

 

 

(223

)

 

 

 

 

 

 

 

 

 

(223

)

 

 

 

(223

)

 

 

 

 

 

 

 

 

 

 

362

 

 

362

 

Balance at June 30, 2016

 

153,560

 

$

12,393

 

$

746,054

 

 

98,676

 

$

(439,009

)

$

(22,881

)

$

(87,170

)

$

209,387

 

$

14,419

 

$

223,806

 

 

 

24,601

 

$

307,513

 

 

16,302

 

$

(203,836

)

$

7,794

 

$

111,471

 

Balance at April 1, 2017

 

153,560

 

$

12,393

 

$

755,787

 

 

98,222

 

$

(436,984

)

$

(24,815

)

$

(83,678

)

$

222,703

 

$

14,907

 

$

237,610

 

 

 

24,225

 

$

302,814

 

 

15,863

 

$

(198,216

)

$

8,227

 

$

112,825

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

17,742

 

 

17,742

 

 

528

 

 

18,270

 

 

 

 

 

 

 

 

 

 

 

204

 

 

204

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

2,576

 

 

 

 

2,576

 

 

851

 

 

3,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible

   preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

(458

)

 

(458

)

 

 

 

(458

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock dividends

   ($0.07 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,895

)

 

(3,895

)

 

 

 

(3,895

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of ESOP shares

   to participants for

   compensation

 

 

 

 

 

602

 

 

 

 

 

 

 

 

 

 

602

 

 

 

 

602

 

 

 

 

 

 

 

(161

)

 

2,012

 

 

 

 

2,012

 

Exercise of common stock

   options

 

 

 

 

 

3

 

 

(1

)

 

3

 

 

 

 

 

 

6

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 

 

 

 

447

 

 

(33

)

 

147

 

 

 

 

 

 

594

 

 

 

 

594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of liability-classified awards

 

 

 

 

 

13,714

 

 

 

 

 

 

 

 

 

 

13,714

 

 

 

 

13,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense before related

   tax effects

 

 

 

 

 

1,084

 

 

 

 

 

 

 

 

 

 

1,084

 

 

 

 

1,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ESOP distribution in

   common stock

 

 

 

 

 

3,237

 

 

(274

)

 

1,220

 

 

 

 

 

 

4,457

 

 

 

 

4,457

 

 

 

(357

)

 

(4,457