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EX-32.2 - EX-32.2 - ADVANCED DRAINAGE SYSTEMS, INC.wms-ex322_7.htm
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EX-10.2 - EX-10.2 - ADVANCED DRAINAGE SYSTEMS, INC.wms-ex102_475.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 September 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 October 31, 2017, the registrant had 55,931,405 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 October 31, 2017, 303,936 shares of unvested restricted common stock were outstanding and 23,712,251 shares of ESOP, preferred stock, convertible into 18,241,771 shares of common stock, were outstanding. As of October 31, 2017, 74,477,112 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 September 30, 2017 and March 31, 2017

 

1

 

 

 

 

 

 

 

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

 

2

 

 

 

 

 

 

 

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

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2017 and 2016

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the six months ended September 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

 

24

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

37

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

40

 

 

 

 

 

Item 1A.

 

Risk Factors

 

40

 

 

 

 

 

Item 2.

 

Unregistered Sale of Equity Securities

 

40

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

41

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

41

 

 

 

 

 

Item 5.

 

Other Information

 

41

 

 

 

 

 

Item 6.

 

Exhibits

 

42

 

 

 

Signatures

 

43

 

 

 

 

 

 

 

 

 

i


Table of Contents

 

PART I. FINANCIAL INFORMATION

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except par value)

 

 

 

September 30,

2017

 

 

March 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

11,183

 

 

$

6,450

 

Receivables (less allowance for doubtful accounts of $10,747 and

   $10,431, respectively)

 

 

279,711

 

 

 

168,943

 

Inventories

 

 

214,283

 

 

 

258,430

 

Other current assets

 

 

7,161

 

 

 

6,743

 

Total current assets

 

 

512,338

 

 

 

440,566

 

Property, plant and equipment, net

 

 

410,271

 

 

 

406,858

 

Other assets:

 

 

 

 

 

 

 

 

Goodwill

 

 

103,380

 

 

 

100,566

 

Intangible assets, net

 

 

48,429

 

 

 

51,758

 

Other assets

 

 

35,691

 

 

 

46,537

 

Total assets

 

$

1,110,109

 

 

$

1,046,285

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of debt obligations

 

$

26,818

 

 

$

37,789

 

Current maturities of capital lease obligations

 

 

21,949

 

 

 

21,450

 

Accounts payable

 

 

93,944

 

 

 

121,922

 

Current portion of liability-classified stock-based awards

 

 

 

 

 

11,926

 

Other accrued liabilities

 

 

71,611

 

 

 

54,460

 

Accrued income taxes

 

 

12,209

 

 

 

8,207

 

Total current liabilities

 

 

226,531

 

 

 

255,754

 

Long-term debt obligations (less unamortized debt issuance costs of $3,412 and $1,723,

   respectively)

 

 

358,047

 

 

 

310,849

 

Long-term capital lease obligations

 

 

60,934

 

 

 

58,710

 

Deferred tax liabilities

 

 

42,971

 

 

 

44,007

 

Other liabilities

 

 

22,868

 

 

 

26,530

 

Total liabilities

 

 

711,351

 

 

 

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; 23,713 and 24,225 shares outstanding, respectively

 

 

296,410

 

 

 

302,814

 

Deferred compensation – unearned ESOP shares

 

 

(194,192

)

 

 

(198,216

)

Redeemable noncontrolling interest in subsidiaries

 

 

8,682

 

 

 

8,227

 

Total mezzanine equity

 

 

110,900

 

 

 

112,825

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   55,413 and 55,338 shares outstanding, respectively

 

 

12,393

 

 

 

12,393

 

Paid-in capital

 

 

778,548

 

 

 

755,787

 

Common stock in treasury, at cost

 

 

(442,787

)

 

 

(436,984

)

Accumulated other comprehensive loss

 

 

(19,442

)

 

 

(24,815

)

Retained deficit

 

 

(56,746

)

 

 

(83,678

)

Total ADS stockholders’ equity

 

 

271,966

 

 

 

222,703

 

Noncontrolling interest in subsidiaries

 

 

15,892

 

 

 

14,907

 

Total stockholders’ equity

 

 

287,858

 

 

 

237,610

 

Total liabilities, mezzanine equity and stockholders’ equity

 

$

1,110,109

 

 

$

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

September 30,

 

 

Six Months Ended

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net sales

 

$

401,049

 

 

$

360,785

 

 

$

759,408

 

 

$

718,361

 

Cost of goods sold

 

 

311,248

 

 

 

270,273

 

 

 

582,868

 

 

 

531,243

 

Gross profit

 

 

89,801

 

 

 

90,512

 

 

 

176,540

 

 

 

187,118

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

 

24,346

 

 

 

23,210

 

 

 

47,445

 

 

 

47,440

 

General and administrative

 

 

23,887

 

 

 

21,181

 

 

 

50,563

 

 

 

55,710

 

Loss on disposal of assets and costs from exit and

   disposal activities

 

 

5,121

 

 

 

737

 

 

 

8,544

 

 

 

939

 

Intangible amortization

 

 

2,015

 

 

 

2,128

 

 

 

4,059

 

 

 

4,315

 

Income from operations

 

 

34,432

 

 

 

43,256

 

 

 

65,929

 

 

 

78,714

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

5,055

 

 

 

4,546

 

 

 

9,534

 

 

 

9,330

 

Derivative gains and other income, net

 

 

(2,539

)

 

 

(1,734

)

 

 

(3,493

)

 

 

(4,771

)

Income before income taxes

 

 

31,916

 

 

 

40,444

 

 

 

59,888

 

 

 

74,155

 

Income tax expense

 

 

13,437

 

 

 

15,348

 

 

 

23,183

 

 

 

29,542

 

Equity in net loss of unconsolidated affiliates

 

 

520

 

 

 

815

 

 

 

272

 

 

 

911

 

Net income

 

 

17,959

 

 

 

24,281

 

 

 

36,433

 

 

 

43,702

 

Less: net income attributable to noncontrolling interest

 

 

96

 

 

 

547

 

 

 

828

 

 

 

1,695

 

Net income attributable to ADS

 

 

17,863

 

 

 

23,734

 

 

 

35,605

 

 

 

42,007

 

Accretion of redeemable noncontrolling interest

 

 

 

 

 

(380

)

 

 

 

 

 

(742

)

Dividends to redeemable convertible preferred stockholders

 

 

(470

)

 

 

(415

)

 

 

(959

)

 

 

(840

)

Dividends paid to unvested restricted stockholders

 

 

(16

)

 

 

(24

)

 

 

(35

)

 

 

(54

)

Net income available to common stockholders and

   participating securities

 

 

17,377

 

 

 

22,915

 

 

 

34,611

 

 

 

40,371

 

Undistributed income allocated to participating securities

 

 

(1,397

)

 

 

(2,040

)

 

 

(2,830

)

 

 

(3,563

)

Net income available to common stockholders

 

$

15,980

 

 

$

20,875

 

 

$

31,781

 

 

$

36,808

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

55,269

 

 

 

54,429

 

 

 

55,286

 

 

 

54,250

 

Diluted

 

 

55,893

 

 

 

55,276

 

 

 

55,953

 

 

 

55,115

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.29

 

 

$

0.38

 

 

$

0.57

 

 

$

0.68

 

Diluted

 

$

0.29

 

 

$

0.38

 

 

$

0.57

 

 

$

0.67

 

Cash dividends declared per share

 

$

0.07

 

 

$

0.06

 

 

$

0.14

 

 

$

0.12

 

 

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

September 30,

 

 

Six Months Ended

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

17,959

 

 

$

24,281

 

 

$

36,433

 

 

$

43,702

 

Currency translation

 

 

2,558

 

 

 

(2,047

)

 

 

5,985

 

 

 

(5,168

)

Comprehensive income

 

 

20,517

 

 

 

22,234

 

 

 

42,418

 

 

 

38,534

 

Less: other comprehensive income (loss) attributable to

   noncontrolling interest, net of tax

 

 

(239

)

 

 

(566

)

 

 

612

 

 

 

(2,067

)

Less: net income attributable to noncontrolling interest

 

 

96

 

 

 

547

 

 

 

828

 

 

 

1,695

 

Total comprehensive income attributable to ADS

 

$

20,660

 

 

$

22,253

 

 

$

40,978

 

 

$

38,906

 

 

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)

 

 

 

Six Months Ended

September 30,

 

 

 

2017

 

 

2016

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

36,433

 

 

$

43,702

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

37,941

 

 

 

36,036

 

Deferred income taxes

 

 

(801

)

 

 

1,829

 

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

 

 

8,544

 

 

 

939

 

ESOP and stock-based compensation

 

 

8,709

 

 

 

11,217

 

Amortization of deferred financing charges

 

 

550

 

 

 

702

 

Fair market value adjustments to derivatives

 

 

(590

)

 

 

(9,060

)

Equity in net loss of unconsolidated affiliates

 

 

272

 

 

 

911

 

Other operating activities

 

 

12,078

 

 

 

657

 

Changes in working capital:

 

 

 

 

 

 

 

 

Receivables

 

 

(111,463

)

 

 

(31,113

)

Inventories

 

 

46,205

 

 

 

5,781

 

Prepaid expenses and other current assets

 

 

256

 

 

 

(3,570

)

Accounts payable, accrued expenses, and other liabilities

 

 

(9,745

)

 

 

(12,455

)

Net cash provided by operating activities

 

 

28,389

 

 

 

45,576

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(27,035

)

 

 

(23,796

)

Cash paid for acquisitions, net of cash acquired

 

 

(1,990

)

 

 

 

Other investing activities

 

 

(411

)

 

 

(622

)

Net cash used in investing activities

 

 

(29,436

)

 

 

(24,418

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from Revolving Credit Facility

 

 

335,950

 

 

 

235,600

 

Payments on Revolving Credit Facility

 

 

(273,650

)

 

 

(207,900

)

Payments on Term Loan

 

 

(72,500

)

 

 

(5,000

)

Proceeds from Senior Notes

 

 

75,000

 

 

 

 

Payments on Senior Notes

 

 

(25,000

)

 

 

(25,000

)

Debt issuance costs

 

 

(2,268

)

 

 

 

Payments of notes, mortgages and other debt

 

 

(1,450

)

 

 

(430

)

Payments on capital lease obligations

 

 

(12,217

)

 

 

(10,810

)

Cash dividends paid

 

 

(8,673

)

 

 

(7,338

)

Proceeds from exercise of stock options

 

 

100

 

 

 

2,687

 

Repurchase of common stock

 

 

(7,947

)

 

 

 

Other financing activities

 

 

(1,171

)

 

 

(620

)

Net cash provided by (used in) financing activities

 

 

6,174

 

 

 

(18,811

)

Effect of exchange rate changes on cash

 

 

(394

)

 

 

(98

)

Net change in cash

 

 

4,733

 

 

 

2,249

 

Cash at beginning of period

 

 

6,450

 

 

 

6,555

 

Cash at end of period

 

$

11,183

 

 

$

8,804

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

22,169

 

 

$

3,125

 

Cash paid for interest

 

 

9,424

 

 

 

9,409

 

Non-cash operating, investing and financing activities:

 

 

 

 

 

 

 

 

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

   lease obligations

 

 

15,196

 

 

 

14,915

 

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

 

 

1,375

 

 

 

1,165

 

Payable recorded for business acquisition

 

 

300

 

 

 

 

Acquisition of property, plant and equipment under financing facility

 

 

 

 

 

3,153

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

42,007

 

 

42,007

 

 

1,193

 

 

43,200

 

 

 

 

 

 

 

 

 

 

 

502

 

 

502

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(3,101

)

 

 

 

(3,101

)

 

(2,067

)

 

(5,168

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible

   preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

(763

)

 

(763

)

 

 

 

(763

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock dividends

   ($0.12 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,575

)

 

(6,575

)

 

 

 

(6,575

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of ESOP shares to

   participants for compensation

 

 

 

 

 

1,447

 

 

 

 

 

 

 

 

 

 

1,447

 

 

 

 

1,447

 

 

 

 

 

 

 

(293

)

 

3,656

 

 

 

 

3,656

 

Exercise of common stock

   options

 

 

 

 

 

4,550

 

 

(236

)

 

1,048

 

 

 

 

 

 

5,598

 

 

 

 

5,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 

 

 

 

(4

)

 

(47

)

 

207

 

 

 

 

 

 

203

 

 

 

 

203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ESOP distribution in

   common stock

 

 

 

 

 

3,543

 

 

(300

)

 

1,336

 

 

 

 

 

 

4,879

 

 

 

 

4,879

 

 

 

(390

)

 

(4,879

)

 

 

 

 

 

 

 

(4,879

)

Accretion of redeemable

    noncontrolling interest

 

 

 

 

 

(456

)

 

 

 

 

 

 

 

 

 

(456

)

 

 

 

(456

)

 

 

 

 

 

 

 

 

 

 

742

 

 

742

 

Balance at September 30, 2016

 

153,560

 

$

12,393

 

$

748,177

 

 

98,540

 

$

(438,404

)

$

(24,362

)

$

(67,109

)

$

230,695

 

$

14,159

 

$

244,854

 

 

 

24,429

 

$

305,361

 

 

16,155

 

$

(202,008

)

$

8,415

 

$

111,768

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

35,605

 

 

35,605

 

 

373

 

 

35,978

 

 

 

 

 

 

 

 

 

 

 

455

 

 

455

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

5,373

 

 

 

 

5,373

 

 

612

 

 

5,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible

   preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

(888

)

 

(888

)

 

 

 

(888

)