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EX-32.2 - EX-32.2 - ADVANCED DRAINAGE SYSTEMS, INC.wms-ex322_10.htm
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EX-31.1 - EX-31.1 - ADVANCED DRAINAGE SYSTEMS, INC.wms-ex311_6.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 December 31, 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 January 31, 2018, the registrant had 56,261,608 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 January 31, 2018, 256,757 shares of unvested restricted common stock were outstanding and 23,461,305 shares of ESOP, preferred stock, convertible into 18,046,435 shares of common stock, were outstanding. As of January 31, 2018, 74,564,800 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 December 31, 2017 and March 31, 2017

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2017 and 2016

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2017 and 2016

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2017 and 2016

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the nine months ended December 31, 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

 

26

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

39

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

42

 

 

 

 

 

Item 1A.

 

Risk Factors

 

42

 

 

 

 

 

Item 2.

 

Unregistered Sale of Equity Securities

 

42

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

43

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

43

 

 

 

 

 

Item 5.

 

Other Information

 

43

 

 

 

 

 

Item 6.

 

Exhibits

 

44

 

 

 

Signatures

 

45

 

 

 

 

 

 

 

 

 

i


Table of Contents

 

PART I. FINANCIAL INFORMATION

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except par value)

 

 

 

December 31,

2017

 

 

March 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

18,407

 

 

$

6,450

 

Receivables (less allowance for doubtful accounts of $6,811 and

   $10,431, respectively)

 

 

176,942

 

 

 

168,943

 

Inventories

 

 

215,045

 

 

 

258,430

 

Other current assets

 

 

4,962

 

 

 

6,743

 

Total current assets

 

 

415,356

 

 

 

440,566

 

Property, plant and equipment, net

 

 

410,534

 

 

 

406,858

 

Other assets:

 

 

 

 

 

 

 

 

Goodwill

 

 

103,282

 

 

 

100,566

 

Intangible assets, net

 

 

46,439

 

 

 

51,758

 

Other assets

 

 

37,623

 

 

 

46,537

 

Total assets

 

$

1,013,234

 

 

$

1,046,285

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of debt obligations

 

$

26,833

 

 

$

37,789

 

Current maturities of capital lease obligations

 

 

22,654

 

 

 

21,450

 

Accounts payable

 

 

71,591

 

 

 

121,922

 

Current portion of liability-classified stock-based awards

 

 

 

 

 

11,926

 

Other accrued liabilities

 

 

66,665

 

 

 

54,460

 

Accrued income taxes

 

 

9,825

 

 

 

8,207

 

Total current liabilities

 

 

197,568

 

 

 

255,754

 

Long-term debt obligations (less unamortized debt issuance costs of $3,216 and $1,723,

   respectively)

 

 

260,981

 

 

 

310,849

 

Long-term capital lease obligations

 

 

64,959

 

 

 

58,710

 

Deferred tax liabilities

 

 

31,021

 

 

 

44,007

 

Other liabilities

 

 

22,681

 

 

 

26,530

 

Total liabilities

 

 

577,210

 

 

 

695,850

 

Commitments and contingencies (see Note 9)

 

 

 

 

 

 

 

 

Mezzanine equity:

 

 

 

 

 

 

 

 

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

   44,170 shares issued; 23,463 and 24,225 shares outstanding, respectively

 

 

293,284

 

 

 

302,814

 

Deferred compensation – unearned ESOP shares

 

 

(192,180

)

 

 

(198,216

)

Redeemable noncontrolling interest in subsidiaries

 

 

9,000

 

 

 

8,227

 

Total mezzanine equity

 

 

110,104

 

 

 

112,825

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock; $0.01 par value: 1,000,000 shares authorized; 56,607 shares issued;

   56,204 and 55,338 shares outstanding, respectively

 

 

11,424

 

 

 

12,393

 

Paid-in capital

 

 

357,684

 

 

 

755,787

 

Common stock in treasury, at cost

 

 

(7,958

)

 

 

(436,984

)

Accumulated other comprehensive loss

 

 

(20,933

)

 

 

(24,815

)

Retained deficit

 

 

(29,007

)

 

 

(83,678

)

Total ADS stockholders’ equity

 

 

311,210

 

 

 

222,703

 

Noncontrolling interest in subsidiaries

 

 

14,710

 

 

 

14,907

 

Total stockholders’ equity

 

 

325,920

 

 

 

237,610

 

Total liabilities, mezzanine equity and stockholders’ equity

 

$

1,013,234

 

 

$

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

December 31,

 

 

Nine Months Ended

December 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net sales

 

$

320,832

 

 

$

294,716

 

 

$

1,080,240

 

 

$

1,013,077

 

Cost of goods sold

 

 

243,006

 

 

 

225,275

 

 

 

825,874

 

 

 

756,518

 

Gross profit

 

 

77,826

 

 

 

69,441

 

 

 

254,366

 

 

 

256,559

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

 

22,903

 

 

 

21,292

 

 

 

70,348

 

 

 

68,732

 

General and administrative

 

 

23,788

 

 

 

22,719

 

 

 

74,351

 

 

 

78,429

 

Loss on disposal of assets and costs from exit and

   disposal activities

 

 

1,924

 

 

 

2,138

 

 

 

10,468

 

 

 

3,077

 

Intangible amortization

 

 

2,012

 

 

 

2,116

 

 

 

6,071

 

 

 

6,431

 

Income from operations

 

 

27,199

 

 

 

21,176

 

 

 

93,128

 

 

 

99,890

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

3,086

 

 

 

4,221

 

 

 

12,620

 

 

 

13,551

 

Derivative gains and other income, net

 

 

(963

)

 

 

(772

)

 

 

(4,456

)

 

 

(5,543

)

Income before income taxes

 

 

25,076

 

 

 

17,727

 

 

 

84,964

 

 

 

91,882

 

Income tax (benefit) expense

 

 

(7,371

)

 

 

5,986

 

 

 

15,812

 

 

 

35,528

 

Equity in net (income) loss of unconsolidated affiliates

 

 

(768

)

 

 

1,483

 

 

 

(496

)

 

 

2,394

 

Net income

 

 

33,215

 

 

 

10,258

 

 

 

69,648

 

 

 

53,960

 

Less: net income attributable to noncontrolling interest

 

 

1,110

 

 

 

1,205

 

 

 

1,938

 

 

 

2,900

 

Net income attributable to ADS

 

 

32,105

 

 

 

9,053

 

 

 

67,710

 

 

 

51,060

 

Accretion of redeemable noncontrolling interest

 

 

 

 

 

(399

)

 

 

 

 

 

(1,141

)

Dividends to redeemable convertible preferred stockholders

 

 

(456

)

 

 

(407

)

 

 

(1,415

)

 

 

(1,247

)

Dividends paid to unvested restricted stockholders

 

 

(12

)

 

 

(32

)

 

 

(47

)

 

 

(86

)

Net income available to common stockholders and

   participating securities

 

 

31,637

 

 

 

8,215

 

 

 

66,248

 

 

 

48,586

 

Undistributed income allocated to participating securities

 

 

(2,766

)

 

 

(503

)

 

 

(5,588

)

 

 

(4,066

)

Net income available to common stockholders

 

$

28,871

 

 

$

7,712

 

 

$

60,660

 

 

$

44,520

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

55,917

 

 

 

54,557

 

 

 

55,497

 

 

 

54,354

 

Diluted

 

 

56,459

 

 

 

55,167

 

 

 

56,124

 

 

 

55,156

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.52

 

 

$

0.14

 

 

$

1.09

 

 

$

0.82

 

Diluted

 

$

0.51

 

 

$

0.14

 

 

$

1.08

 

 

$

0.81

 

Cash dividends declared per share

 

$

0.07

 

 

$

0.06

 

 

$

0.21

 

 

$

0.18

 

 

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

December 31,

 

 

Nine Months Ended

December 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

33,215

 

 

$

10,258

 

 

$

69,648

 

 

$

53,960

 

Currency translation

 

 

(2,975

)

 

 

(3,571

)

 

 

3,010

 

 

 

(8,739

)

Comprehensive income

 

 

30,240

 

 

 

6,687

 

 

 

72,658

 

 

 

45,221

 

Less: other comprehensive loss attributable to

   noncontrolling interest, net of tax

 

 

(1,484

)

 

 

(894

)

 

 

(872

)

 

 

(2,961

)

Less: net income attributable to noncontrolling interest

 

 

1,110

 

 

 

1,205

 

 

 

1,938

 

 

 

2,900

 

Total comprehensive income attributable to ADS

 

$

30,614

 

 

$

6,376

 

 

$

71,592

 

 

$

45,282

 

 

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)

 

 

 

Nine Months Ended

December 31,

 

 

 

2017

 

 

2016

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

69,648

 

 

$

53,960

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

55,793

 

 

 

54,065

 

Deferred income taxes

 

 

(12,738

)

 

 

1,280

 

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

 

 

10,468

 

 

 

3,077

 

ESOP and stock-based compensation

 

 

13,086

 

 

 

10,126

 

Amortization of deferred financing charges

 

 

746

 

 

 

1,055

 

Fair market value adjustments to derivatives

 

 

(1,988

)

 

 

(11,297

)

Equity in net (income) loss of unconsolidated affiliates

 

 

(496

)

 

 

2,394

 

Other operating activities

 

 

12,046

 

 

 

(3,249

)

Changes in working capital:

 

 

 

 

 

 

 

 

Receivables

 

 

(14,817

)

 

 

29,113

 

Inventories

 

 

44,560

 

 

 

5,298

 

Prepaid expenses and other current assets

 

 

2,105

 

 

 

(1,353

)

Accounts payable, accrued expenses, and other liabilities

 

 

(39,504

)

 

 

(27,838

)

Net cash provided by operating activities

 

 

138,909

 

 

 

116,631

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(35,124

)

 

 

(36,504

)

Cash paid for acquisitions, net of cash acquired

 

 

(1,990

)

 

 

 

Purchases of property, plant and equipment through financing

 

 

 

 

 

(4,116

)

Proceeds from sale of corporate-owned life insurance

 

 

5,959

 

 

 

 

Other investing activities

 

 

(570

)

 

 

(801

)

Net cash used in investing activities

 

 

(31,725

)

 

 

(41,421

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from Revolving Credit Facility

 

 

397,450

 

 

 

315,400

 

Payments on Revolving Credit Facility

 

 

(431,950

)

 

 

(329,400

)

Payments on Term Loan

 

 

(72,500

)

 

 

(7,500

)

Proceeds from Senior Notes

 

 

75,000

 

 

 

 

Payments on Senior Notes

 

 

(25,000

)

 

 

(25,000

)

Equipment financing

 

 

 

 

 

4,116

 

Debt issuance costs

 

 

(2,268

)

 

 

 

Payments of notes, mortgages and other debt

 

 

(1,675

)

 

 

(650

)

Payments on capital lease obligations

 

 

(18,176

)

 

 

(16,373

)

Cash dividends paid

 

 

(13,511

)

 

 

(11,011

)

Proceeds from exercise of stock options

 

 

7,606

 

 

 

2,687

 

Repurchase of common stock

 

 

(7,947

)

 

 

 

Other financing activities

 

 

(1,558

)

 

 

(1,339

)

Net cash used in financing activities

 

 

(94,529

)

 

 

(69,070

)

Effect of exchange rate changes on cash

 

 

(698

)

 

 

(598

)

Net change in cash

 

 

11,957

 

 

 

5,542

 

Cash at beginning of period

 

 

6,450

 

 

 

6,555

 

Cash at end of period

 

$

18,407

 

 

$

12,097

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

25,408

 

 

$

4,155

 

Cash paid for interest

 

 

13,904

 

 

 

13,277

 

Non-cash operating, investing and financing activities:

 

 

 

 

 

 

 

 

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

   lease obligations

 

 

25,993

 

 

 

16,716

 

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

 

 

998

 

 

 

 

Contribution of net accounts receivable to the South American Joint Venture

 

 

2,785

 

 

 

 

Payable recorded for business acquisition

 

 

300

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

51,060

 

 

51,060

 

 

2,244

 

 

53,304

 

 

 

 

 

 

 

 

 

 

 

656

 

 

656

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(5,778

)

 

 

 

(5,778

)

 

(2,961

)

 

(8,739

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible

   preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,131

)

 

(1,131

)

 

 

 

(1,131

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock dividends

   ($0.18 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,880

)

 

(9,880

)

 

 

 

(9,880

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of ESOP shares to

   participants for compensation

 

 

 

 

 

1,944

 

 

 

 

 

 

 

 

 

 

1,944

 

 

 

 

1,944

 

 

 

 

 

 

 

(439

)

 

5,484

 

 

 

 

5,484

 

Exercise of common stock

   options

 

 

 

 

 

4,554

 

 

(236

)

 

1,048

 

 

 

 

 

 

5,602

 

 

 

 

5,602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 

 

 

 

161

 

 

(47

)

 

207

 

 

 

 

 

 

368

 

 

 

 

368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ESOP distribution in

   common stock

 

 

 

 

 

4,641

 

 

(394

)

 

1,750

 

 

 

 

 

 

6,391

 

 

 

 

6,391

 

 

 

(511

)

 

(6,391

)

 

 

 

 

 

 

 

(6,391

)

Accretion of redeemable

    noncontrolling interest

 

 

 

 

 

(713

)

 

 

 

 

 

 

 

 

 

(713

)

 

 

 

(713

)

 

 

 

 

 

 

 

 

 

 

1,141

 

 

1,141

 

Balance at December 31, 2016

 

153,560

 

$

12,393

 

$

749,684

 

 

98,446

 

$

(437,990

)

$

(27,039

)

$

(61,729

)

$

235,319

 

$

14,316

 

$

249,635

 

 

 

24,308

 

$

303,849

 

 

16,009

 

$

(200,180

)

$

8,968

 

$

112,637

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

67,710

 

 

67,710

 

 

1,165

 

 

68,875

 

 

 

 

 

 

 

 

 

 

 

773

 

 

773

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

3,882

 

 

 

 

3,882

 

 

(872

)

 

3,010