UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, ~~2014~~2015

¨	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 x 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 x No ¨

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

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

As of ~~January 31, 2015, 53,259,576~~April 29, 2016, the registrant had 54,446,402 shares of common stock ~~were~~ outstanding. The shares of common stock trade on the New York Stock Exchange under the ticker symbol “WMS”. In addition, as of ~~January 31, 2015, 232,977~~April 29, 2016, 102,223 shares of unvested restricted common stock were outstanding and ~~25,797,512~~24,819,105 shares of ESOP, preferred stock, convertible into ~~19,843,446~~19,090,856 shares of common stock, were outstanding. As of ~~January 31, 2015, 73,335,999~~April 29, 2016, 73,639,481 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


		Page

PART I. FINANCIAL INFORMATION					2

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of December 31, 2015 and March 31, ~~2014~~2015		1

	Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2015 and 2014		2

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended December 31, ~~2013~~2015 and 2014		3

	~~Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2013 and 2014~~		4

	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, ~~2013~~2015 and 2014		54

	Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the nine months ended December 31, ~~2013~~2015 and 2014		5

	Notes to the Condensed Consolidated Financial Statements		6

	~~Notes to Condensed Consolidated Financial Statements~~		7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3020

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		4937

ITEM 4.	Controls and Procedures		5138

	PART II. OTHER INFORMATION			52

ITEM 1.	Legal Proceedings		5240

ITEM 1A.	Risk Factors		5240

ITEM 2.	Unregistered Sale of Equity Securities		5240

ITEM 3.	Defaults Upon Senior Securities		5240

ITEM 4.	Mine Safety Disclosures		5340

ITEM 5.	Other Information		5340

ITEM 6.	Exhibits		5341

	SIGNATURES			42

EXHIBIT INDEX			43

PART I.

FINANCIAL INFORMATION

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

~~(unaudited)~~(Unaudited)


	As of						As of
(Amounts in thousands, except par value)	March 31, 2014			December 31, 2014			December 31, 2015			March 31, 2015
ASSETS
Current assets:
Cash	$	3,931		$	10,753		$	6,412		$	3,623
Receivables (less allowance for doubtful accounts of $3,977 and $4,116, respectively)		150,713			162,478
Receivables (less allowance for doubtful accounts of $4,516 and $5,423, respectively)								171,768			154,294
Inventories		260,300			230,949			204,131			269,842
Deferred income taxes and other current assets		13,555			13,984			19,965			18,972

Total current assets		428,499			418,164			402,276			446,731
Property, plant and equipment, net		292,082			283,104			387,654			377,067
Other assets:
Goodwill		86,297			86,231			100,205			98,679
Intangible assets, net		66,184			57,580			61,492			58,055
Other assets		64,533			66,556			49,220			61,167

Total assets	$	937,595		$	911,635		$	1,000,847		$	1,041,699


LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt obligations	$	11,153		$	11,700		$	35,860		$	9,580
Current maturities of capital lease obligations								18,374			15,731
Accounts payable		108,111			70,197			74,000			111,893
Other accrued liabilities		37,956			42,260			75,070			54,349
Accrued income taxes		7,372			16,083			8,171			6,041

Total current liabilities		164,592			140,240			211,475			197,594
Long-term debt obligation		442,895			326,725			301,565			390,315
Long-term capital lease obligations								56,265			45,503
Deferred tax liabilities		69,169			63,663			60,567			65,088
Other liabilities		15,324			20,448			29,299			28,602

Total liabilities		691,980			551,076			659,171			727,102

Commitments and contingencies (see Note 11)

Commitments and contingencies (see Note 9)
Mezzanine equity:
Redeemable Common Stock; $0.01 par value: 38,320 and 0 issued and outstanding, respectively		549,119			—
Redeemable Convertible Preferred Stock; $0.01 par value: 47,070 authorized: 44,170 issued: 26,129 and 25,797 outstanding, respectively		291,720			322,469
Redeemable convertible preferred stock: $0.01 par value; 47,070 shares authorized; 44,170 shares issued; 24,899 and 25,639 shares outstanding, respectively								311,240			320,490
Deferred compensation – unearned ESOP shares		(197,888	)		(217,137	)		(207,154	)		(212,469	)
Redeemable noncontrolling interest in subsidiaries								7,166			—

Total mezzanine equity		642,951			105,332			111,252			108,021

Stockholders’ equity:
Common stock; $0.01 par value: 148,271 and 1,000,000 authorized: 109,951 and 153,560 issued: 9,141 and 53,204 outstanding, respectively		11,957			12,393
Common stock; $0.01 par value: 1,000,000 shares authorized; 153,560 shares issued; 54,237 and 53,522 shares outstanding, respectively								12,393			12,393
Paid-in capital		22,547			679,393			713,695			700,977
Common stock in treasury, at cost		(448,439	)		(446,479	)		(441,822	)		(445,065	)
Accumulated other comprehensive loss		(5,977	)		(10,568	)		(26,122	)		(15,521	)
Retained earnings		—			—
Retained deficit								(42,101	)		(62,621	)

Total ADS stockholders’ equity		(419,912	)		234,739			216,043			190,163
Noncontrolling interest in subsidiaries		22,576			20,488			14,381			16,413

Total stockholders’ equity		(397,336	)		255,227			230,424			206,576

Total liabilities, mezzanine equity and stockholders’ equity	$	937,595		$	911,635		$	1,000,847		$	1,041,699

See accompanying notes to condensed consolidated financial statements.

- 1 -

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended December 31,						Nine Months Ended December 31,
(Amounts in thousands, except per share data)	2015			2014			2015			2014
Net sales	$	312,827		$	279,871		$	1,045,280		$	973,019
Cost of goods sold		239,504			230,693			815,636			793,220

Gross profit		73,323			49,178			229,644			179,799
Operating expenses:
Selling		21,880			19,913			65,701			59,705
General and administrative		25,776			14,115			69,207			43,756
(Gain) loss on disposal of assets or businesses		(603	)		193			558			538
Intangible amortization		2,182			2,328			7,049			7,551

Income from operations		24,088			12,629			87,129			68,249
Other expense:
Interest expense		4,723			4,631			13,956			14,726
Derivative losses and other expense, net		2,561			5,556			18,333			5,100

Income before income taxes		16,804			2,442			54,840			48,423
Income tax expense		8,100			3,407			19,839			20,226
Equity in net loss of unconsolidated affiliates		917			988			935			1,712

Net income (loss)		7,787			(1,953	)		34,066			26,485
Less net (loss) income attributable to noncontrolling interest		(189	)		1,372			4,481			4,400

Net income (loss) attributable to ADS		7,976			(3,325	)		29,585			22,085

Accretion of Redeemable noncontrolling interest		(329	)		—			(586	)		—
Change in fair value of redeemable convertible preferred stock		—			—			—			(11,054	)
Dividends to redeemable convertible preferred stockholders		(349	)		(298	)		(1,082	)		(377	)
Dividends paid to unvested restricted stockholders		(6	)		(9	)		(18	)		(9	)

Net income (loss) available to common stockholders and participating securities		7,292			(3,632	)		27,899			10,645
Undistributed income allocated to participating securities		(479	)		—			(2,159	)		(995	)

Net income (loss) available to common stockholders	$	6,813		$	(3,632	)	$	25,740		$	9,650

Weighted average common shares outstanding:
Basic		54,133			52,986			53,880			50,691
Diluted		54,527			52,986			60,694			51,206
Net income (loss) per share:
Basic	$	0.13		$	(0.07	)	$	0.48		$	0.19
Diluted	$	0.12		$	(0.07	)	$	0.46		$	0.19
Cash dividends declared per share	$	0.05		$	0.04		$	0.15		$	0.04

See accompanying notes to condensed consolidated financial statements.

- 2 -

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

~~(unaudited)~~(Unaudited)

   Three Months Ended
December 31, Nine Months Ended
December 31,
(Amounts in thousands, except per share data)    2013 2014 2013 2014
Net sales
   $ 261,435    $ 278,176    $ 887,777    $ 971,197
Cost of goods sold
   211,671    228,059    698,791    766,605


Gross profit
49,764    50,117    188,986    204,592
Operating expenses:
Selling
16,590    19,275    52,433    58,283
General and administrative
18,778    19,519    54,354    58,930
Gain on sale of business
—      —      (4,848 ) —
Intangible amortization
2,854    2,356    8,576    7,635


Income from operations
11,542    8,967    78,471    79,744
Other (income) expense:
Interest expense
3,893    4,056    11,860    13,009
Other miscellaneous (income) expense, net
(418 ) 5,212    398    5,219


Income (loss) before income taxes
8,067    (301 ) 66,213    61,516
Income tax expense (benefit)
17,537    (1,248 ) 40,845    22,509
Equity in net loss of unconsolidated affiliates
369    448    714    1,071


Net (loss) income
(9,839 ) 499    24,654    37,936
Less net income attributable to noncontrolling interest
485    866    1,360    1,672


Net (loss) income attributable to ADS
(10,324 ) (367 ) 23,294    36,264


Change in fair value of Redeemable Convertible Preferred Stock
(4,697 ) —      (8,492 ) (11,054 )
Dividends to Redeemable Convertible Preferred Stockholders
(209 ) (298 ) (640 ) (377 )
Dividends paid to unvested restricted stockholders
(8 ) (9 ) (47 ) (9 )


Net (loss) income available to common stockholders and participating securities
(15,238 ) (674 ) 14,115    24,824
Undistributed income allocated to participating securities
—      —      (1,184 ) (2,650 )


Net (loss) income available to common stockholders
$ (15,238 ) $ (674 ) $ 12,931    $ 22,174


Weighted average common shares outstanding:
Basic
47,251    52,986    46,976    50,691
Diluted
47,251    52,986    47,480    51,206
Net (loss) income per share:
Basic
$ (0.32 ) $ (0.01 ) $ 0.28    $ 0.44
Diluted
$ (0.32 ) $ (0.01 ) $ 0.27    $ 0.43
Cash dividends declared per share
$ 0.03    $ 0.04    $ 0.08    $ 0.04


	Three Months Ended December 31,						Nine Months Ended December 31,
(Amounts in thousands)	2015			2014			2015			2014
Net income (loss)	$	7,787		$	(1,953	)	$	34,066		$	26,485
Other comprehensive loss:
Currency translation		(2,788	)		(3,966	)		(13,258	)		(7,398	)

Total other comprehensive loss		(2,788	)		(3,966	)		(13,258	)		(7,398	)

Comprehensive income (loss)		4,999			(5,919	)		20,808			19,087
Less other comprehensive income (loss) attributable to noncontrolling interest, net of tax		(349	)		(1,761	)		(2,657	)		(2,668	)
Less net (loss) income attributable to noncontrolling interest		(189	)		1,372			4,481			4,400

Total comprehensive income (loss) attributable to ADS	$	5,537		$	(5,530	)	$	18,984		$	17,355

See accompanying notes to condensed consolidated financial statements.

- 3 -

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CASH FLOWS

~~(unaudited)~~(Unaudited)

   Three Months Ended
December 31, Nine Months Ended
December 31,
(Amounts in thousands)    2013 2014 2013 2014
Net (loss) income
   $ (9,839 ) $ 499    $ 24,654    $ 37,936
Other comprehensive loss:

Currency translation, before tax
   (4,228 ) (5,074 ) (8,202 ) (9,342 )
Other, before tax
   1    —      6    —


Total other comprehensive loss, before tax
(4,227 ) (5,074 ) (8,196 ) (9,342 )


Tax attributes of items in other comprehensive (loss) income:
Currency translation
687    1,215    1,605    2,065
Other
—      —      (2 ) —


Total tax expense
687    1,215    1,603    2,065


Comprehensive (loss) income
(13,379 ) (3,360 ) 18,061    30,659
Less other comprehensive loss attributable to noncontrolling interest, net of tax
(57 ) (1,774 ) (1,327 ) (2,686 )
Less net income attributable to noncontrolling interest
485    866    1,360    1,672


Total comprehensive (loss) income attributable to ADS
$ (13,807 ) $ (2,452 ) $ 18,028    $ 31,673


	Nine Months Ended December 31,
(Amounts in thousands)	2015			2014
Cash Flows from Operating Activities	$	129,441		$	90,252

Cash Flows from Investing Activities
Capital expenditures		(29,970	)		(21,281	)
Proceeds from sale of assets or businesses		—			294
Cash paid for acquisitions, net of cash acquired		(3,188	)		—
Investment in unconsolidated affiliate		—			(7,566	)
Additions of capitalized software		(1,504	)		(601	)
Proceeds from note receivable to related party		3,854			—
Issuance of note receivable to related party		(3,854	)		—
Other investing activities		(741	)		(212	)

Net cash used in investing activities		(35,403	)		(29,366	)

Cash Flows from Financing Activities
Proceeds from Revolving Credit Facility		322,700			250,200
Payments on Revolving Credit Facility		(378,300	)		(359,500	)
Payments on term loan		(6,250	)		(4,375	)
Proceeds from notes, mortgages, and other debt		6,563			—
Payments of notes, mortgages, and other debt		(7,183	)		(1,948	)
Payments on capital lease obligation		(14,906	)		(6,619	)
Payments for deferred initial public offering costs		—			(6,479	)
Proceeds from initial public offering of common stock, net of underwriter discounts and commissions		—			79,131
Cash dividends paid		(12,671	)		(4,254	)
Other financing activities		231			205

Net cash used in financing activities		(89,816	)		(53,639	)

Effect of exchange rate changes on cash and cash equivalents		(1,433	)		(425	)

Net change in cash		2,789			6,822
Cash at beginning of period		3,623			3,931

Cash at end of period	$	6,412		$	10,753

See accompanying notes to condensed consolidated financial statements.

- 4 -

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(unaudited)~~

   Nine Months Ended
December 31,
(Amounts in thousands)    2013 2014
Cash Flows from Operating Activities
   $ 88,104    $ 85,404


Cash Flows from Investing Activities
Capital expenditures
(27,097 ) (21,477 )
Proceeds from sale of business
5,877    —
Investment in unconsolidated affiliate
(6,285 ) (7,566 )
Other investing activities
(2,611 ) (2,829 )


Net cash used in investing activities
(30,116 ) (31,872 )


Cash Flows from Financing Activities
Cash dividends paid
(4,615 ) (2,383 )
Redemption of Redeemable Convertible Preferred Stock
(3,889 ) —
Proceeds from Senior Notes
25,000    —
Proceeds from term loan
100,000    —
Payments on term loan
(78,750 ) (4,375 )
Payments of notes, mortgages, and other debt
(1,275 ) (1,948 )
Proceeds from Revolving Credit Facility
301,300    250,200
Payments on Revolving Credit Facility
(390,000 ) (359,500 )
Proceeds from initial public offering of common stock, net of underwriter discounts and commissions
—      79,131
Payments for deferred initial public offering costs
—      (6,499 )
Other financing activities
(1,785 ) (869 )


Net cash used in financing activities
(54,014 ) (46,243 )


Effect of exchange rate changes on cash and cash equivalents
—      (467 )


Net change in cash and equivalents
3,974    6,822
Cash and equivalents at beginning of period
1,361    3,931


Cash and equivalents at end of period
$ 5,335    $ 10,753

~~See accompanying notes to condensed consolidated financial statements.~~

~~- 5 -~~

~~ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES~~

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY

~~(unaudited)~~

Common Stock Paid-In
Capital Common Stock
in Treasury Accu-
mulated
Other
Compre-
hensive
Loss Retained
Earnings Total
Stock-
holders’
Equity Non-
con-
trolling
Interest
in Sub-
sidiaries Total
Equity Redeemable
Common Stock Redeemable
Convertible
Preferred
Stock Deferred
Compensation –
Unearned
ESOP Shares Total
Mezzanine
Equity
(Amounts in
thousands) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
Balance at April 1, 2013
109,979    11,957    41,152    101,191    (448,571 ) (856 ) 87,331    (308,987 ) 23,265    (285,722 ) 38,292    522,276    26,547    282,547    18,461    (196,477 ) 608,346

Net income
—      —      —      —      —      —      23,294    23,294    1,360    24,654    —      —      —      —      —      —      —
Other comprehensive loss
—      —      —      —      —      (5,266 ) —      (5,266 ) (1,327 ) (6,593 ) —      —      —      —      —      —      —
Redeemable Convertible Preferred Stock dividends
—      —      —      —      —      —      (526 ) (526 ) —      (526 ) —      —      —      —      —      —      —
Common stock dividend ($0.058 per share)
—      —      —      —      —      —      (4,089 ) (4,089 ) —      (4,089 ) —      —      —      —      —      —      —
Dividend paid to noncontrolling interest holder
—      —      —      —      —      —      —      —      (1,179 ) (1,179 ) —      —      —      —      —      —      —
Allocation of ESOP shares to participants for compensation
—      —      (2,139 ) —      —      —      —      (2,139 ) —      (2,139 ) —      —      —      —      (805 ) 9,482    9,482
Exercise of common stock options
—      —      (203 ) (141 ) 629    —      —      426    —      426    —      —      —      —      —      —      —
Redemption of common shares to exercise stock options
—      —      299    23    (299 ) —      —      —      —      —      —      —      —      —      —      —      —
Stock based compensation
—      —      1,254    —      —      —      —      1,254    —      1,254    —      —      —      —      —      —      —
Restricted stock awards
—      —      1,013    (28 ) 125    —      —      1,138    —      1,138    —      —      —      —      —      —      —
Redemption of Redeemable Convertible Preferred Stock
—      —      —      —      —      —      —      —      —      —      —      —      (367 ) (3,889 ) —      —      (3,889 )
Purchase of common stock
—      —      80    (847 ) —      (847 ) —      (847 ) —      —      —      —      —      —      —
Reclassification of common stock to Redeemable Common Stock
(28 ) —      (385 ) —      —      —      —      (385 ) —      (385 ) 28    385    —      —      —      —      385
Adjustments to Redeemable Convertible Preferred Stock fair value measurement
—      —      —      —      —      —      (8,492 ) (8,492 ) —      (8,492 ) —      —      —      28,923    —      (20,431 ) 8,492
Adjustments to Redeemable Common Stock fair value measurement
—      —      —      —      —      —      (55,359 ) (55,359 ) —      (55,359 ) —      55,359    —      —      —      —      55,359

Balance at December 31, 2013
109,951    11,957    40,991    101,125    (448,963 ) (6,122 ) 42,159    (359,978 ) 22,119    (337,859 ) 38,320    578,020    26,180    307,581    17,656    (207,426 ) 678,175

Balance at April 1, 2014
109,951    11,957    22,547    100,810    (448,439 ) (5,977 ) —      (419,912 ) 22,576    (397,336 ) 38,320    549,119    26,129    291,720    17,727    (197,888 ) 642,951

Net income
—      —      —      —      —      —      36,264    36,264    1,672    37,936    —      —      —      —      —      —      —
Other comprehensive loss
—      —      —      —      —      (4,591 ) —      (4,591 ) (2,686 ) (7,277 ) —      —      —      —      —      —      —
Redeemable Convertible Preferred Stock dividends
—      —      —      —      —      —      (256 ) (256 ) —      (256 )
Common stock dividend ($0.042 per share)
—      —      —      —      —      —      (2,127 ) (2,127 ) —      (2,127 )
Dividend paid to noncontrolling interest holder
—      —      —      —      —      —      —      —      (1,074 ) (1,074 ) —      —      —      —      —      —      —
Allocation of ESOP shares to participants for compensation
—      —      3,464    —      —      —      —      3,464    —      3,464    —      —      —      —      (805 ) 4,600    4,600
Exercise of common stock options
—      —      218    (87 ) 388    —      —      606    —      606    —      —      —      —      —      —      —
Redemption of common shares to exercise stock options
—      —      93    7    (93 ) —      —      —      —      —      —      —      —      —      —      —      —
Stock based compensation
—      —      2,995    —      —      —      —      2,995    —      2,995    —      —      —      —      —      —      —
Restricted stock awards
—      —      1,831    (119 ) 531    —      —      2,362    —      2,362    —      —      —      —      —      —      —
Initial Public Offering (IPO)
5,289    53    72,143    —      —      —      —      72,196    —      72,196    —      —      —      —      —      —      —
Reclassification of liability classified stock options upon IPO
—      —      1,522    —      —      —      —      1,522    —      1,522    —      —      —      —      —      —      —
Purchase of common stock
—      —      (3 ) —      —      (3 ) —      (3 ) —      —      —      —      —      —      —
ESOP distributions in common stock
—      —      3,017    (255 ) 1,137    —      —      4,154    —      4,154    —      —      (332 ) (4,154 ) —      —      (4,154 )
Adjustments to Redeemable Convertible Preferred Stock fair value measurement
—      —      —      —      —      —      (11,054 ) (11,054 ) —      (11,054 ) —      —      —      34,903    —      (23,849 ) 11,054
Adjustments to Redeemable Common Stock fair value measurement
—      —      (43,094 ) —      —      —      (22,827 ) (65,921 ) —      (65,921 ) —      65,921    —      —      —      —      65,921
Termination of redemption feature upon IPO
38,320    383    614,657    —      —      —      —      615,040    —      615,040    (38,320 ) (615,040 ) —      —      —      —      (615,040 )

Balance at December 31, 2014
153,560    12,393    679,393    100,356    (446,479 ) (10,568 ) —      234,739    20,488    255,227    —      —      25,797    322,469    16,922    (217,137 ) 105,332

~~See accompanying notes to condensed consolidated financial statements.~~


	Common Stock				Paid-In Capital			Common Stock in Treasury						Accumulated Other Comprehensive Loss			Retained Earnings (Deficit)			Total ADS Stockholders' Equity			Non- controlling Interest in Subsidiaries			Total Stockholders' Equity			Redeemable Common Stock						Redeemable Convertible Preferred Stock						Deferred Compensation - Unearned ESOP Shares						Redeemable non- controlling interest in subsidiaries		Total Mezzanine Equity
(Amounts in thousands)	Shares		Amount		Paid-In Capital			Shares			Amount			Accumulated Other Comprehensive Loss			Retained Earnings (Deficit)			Total ADS Stockholders' Equity			Non- controlling Interest in Subsidiaries			Total Stockholders' Equity			Shares			Amount			Shares			Amount			Shares			Amount			Amount		Total Mezzanine Equity
Balance at April 1, 2014		109,951	$	11,957	$	12,438			100,810		$	(448,439	)	$	(6,830	)	$	(2,412	)	$	(433,286	)	$	18,584		$	(414,702	)		38,320		$	549,119			26,129		$	291,720			17,727		$	(197,888	)	$	—	$	642,951

Net income		—		—		—			—			—			—			22,085			22,085			4,400			26,485			—			—			—			—			—			—			—		—
Other comprehensive loss		—		—		—			—			—			(4,730	)		—			(4,730	)		(2,668	)		(7,398	)		—			—			—			—			—			—			—		—
Redeemable convertible preferred stock dividends		—		—		—			—			—			—			(256	)		(256	)		—			(256	)		—			—			—			—			—			—			—		—
Common stock dividend ($0.042 per share)		—		—		—			—			—			—			(2,127	)		(2,127	)		—			(2,127	)		—			—			—			—			—			—			—		—
Dividend paid to noncontrolling interest holder		—		—		—			—			—			—			—			—			(1,871	)		(1,871	)		—			—			—			—			—			—			—		—
Allocation of ESOP shares to participants for compensation		—		—		(1,999	)		—			—			—			—			(1,999	)		—			(1,999	)		—			—			—			—			(805	)		10,063			—		10,063
Exercise of common stock options		—		—		218			(87	)		388			—			—			606			—			606			—			—			—			—			—			—			—		—
Redemption of common shares to exercise stock options		—		—		93			7			(93	)		—			—			—			—			—			—			—			—			—			—			—			—		—
Stock-based compensation		—		—		2,956			—			—			—			—			2,956			—			2,956			—			—			—			—			—			—			—		—
Restricted stock awards		—		—		1,831			(119	)		531			—			—			2,362			—			2,362			—			—			—			—			—			—			—		—
Initial Public Offering (IPO)		5,289		53		72,143			—			—			—			—			72,196			—			72,196			—			—			—			—			—			—			—		—
Reclassification of liability classified stock options upon IPO		—		—		1,522			—			—			—			—			1,522			—			1,522			—			—			—			—			—			—			—		—
Purchase of common stock		—		—		—			—			(3	)		—			—			(3	)		—			(3	)		—			—			—			—			—			—			—		—
ESOP distributions in common stock		—		—		3,017			(255	)		1,137			—			—			4,154			—			4,154			—			—			(332	)		(4,154	)		—			—			—		(4,154	)
Adjustments to Redeemable convertible preferred stock fair value measurement		—		—		(13,077	)		—			—			—			2,023			(11,054	)		—			(11,054	)		—			—			—			34,903			—			(23,849	)		—		11,054
Adjustments to Redeemable common stock fair value measurement		—		—		—			—			—			—			(65,921	)		(65,921	)		—			(65,921	)		—			65,921			—			—			—			—			—		65,921
Termination of redemption feature upon IPO		38,320		383		614,657			—			—			—			—			615,040			—			615,040			(38,320	)		(615,040	)		—			—			—			—			—		(615,040	)

Balance at December 31, 2014		153,560	$	12,393	$	693,799			100,356		$	(446,479	)	$	(11,560	)	$	(46,608	)	$	201,545		$	18,445		$	219,990			—		$	—			25,797		$	322,469			16,922		$	(211,674	)	$	—	$	110,795

Balance at April 1, 2015		153,560	$	12,393	$	700,977			100,038		$	(445,065	)	$	(15,521	)	$	(62,621	)	$	190,163		$	16,413		$	206,576			—		$	—			25,639		$	320,490			16,990		$	(212,469	)	$	—	$	108,021

Net income		—		—		—			—			—			—			29,585			29,585			4,231			33,816			—			—			—			—			—			—			250		250
Other comprehensive loss		—		—		—			—			—			(10,601	)		—			(10,601	)		(2,657	)		(13,258	)		—			—			—			—			—			—			—		—
Redeemable convertible preferred stock dividends		—		—		—			—			—			—			(967	)		(967	)		—			(967	)		—			—			—			—			—			—			—		—
Common stock dividend ($0.15 per share)		—		—		—			—			—			—			(8,098	)		(8,098	)		—			(8,098	)		—			—			—			—			—			—			—		—
Dividend paid to noncontrolling interest holder		—		—		—			—			—			—			—			—			(3,606	)		(3,606	)		—			—			—			—			—			—			—		—
Allocation of ESOP shares to participants for compensation		—		—		4,060			—			—			—			—			4,060			—			4,060			—			—			—			—			(425	)		5,315			—		5,315
Exercise of common stock options		—		—		444			(77	)		404			—			—			848			—			848			—			—			—			—			—			—			—		—
Stock-based compensation		—		—		1,330			—			—			—			—			1,330			—			1,330			—			—			—			—			—			—			—		—
Restricted stock awards		—		—		524			(69	)		309			—			—			833			—			833			—			—			—			—			—			—			—		—
ESOP distributions in common stock		—		—		6,720			(569	)		2,530			—			—			9,250			—			9,250			—			—			(740	)		(9,250	)		—			—			—		(9,250	)
Acquisition of Redeemable noncontrolling interest		—		—		—			—			—			—			—			—			—			—			—			—			—			—			—			—			6,330		6,330
Accretion of Redeemable noncontrolling interest		—		—		(360	)		—			—			—			—			(360	)		—			(360	)		—			—			—			—			—			—			586		586

Balance at December 31, 2015		153,560	$	12,393	$	713,695			99,323		$	(441,822	)	$	(26,122	)	$	(42,101	)	$	216,043		$	14,381		$	230,424			—		$	—			24,899		$	311,240			16,565		$	(207,154	)	$	7,166	$	111,252

- 65 -

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Amounts in thousands, except per share data)

1.	BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Organization~~Description of Business

Advanced Drainage Systems, Inc. (collectively with its subsidiaries referred to as “ADS”, the “Company”, “we”, “us” and “our”), incorporated in Delaware, designs, manufactures and markets high performance thermoplastic corrugated pipe and related water management products, primarily in North and South America and Europe. Our broad product line includes corrugated high density polyethylene (or “HDPE”) pipe, polypropylene (or “PP”) pipe and related water management products.

The Company is managed based primarily on the geographies in which it operates and reports results of operations in two reportable segments. The reportable segments are Domestic and International.

Historically, sales of the Company’s products have been higher in the first and second quarters of each fiscal year due to favorable weather and longer daylight conditions accelerating construction activity during these periods. Seasonal variations in operating results may also be impacted by inclement weather conditions, such as cold or wet weather, which can delay projects.

2014 Initial Public Offering (“IPO”)

On July 11, 2014, in anticipation of the IPO, we executed a 4.707-for-one split of our common and our preferred stock. The effect of the stock split on outstanding shares and earnings per share has been retroactively applied to all periods presented.

On July ~~30,~~25, 2014, we completed the IPO of our common stock, which resulted in the sale by the Company of 5,289 shares ~~bringing the total number~~ of ~~shares issued and outstanding as of July 30, 2014 to 52,881.~~common stock. We received total proceeds from the IPO of ~~$79.1 million~~$79,131 after excluding underwriter discounts and commissions of ~~$5.5 million,~~$5,501, based upon the price to the public of $16.00 per share. After deducting other offering expenses, ~~of approximately $7.0 million,~~ we used the net proceeds ~~of $72.1 million~~ to reduce the outstanding indebtedness under the revolving portion of our credit facility. The common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “WMS.”

On August 22, 2014, an additional 600 shares of common stock were sold by certain selling stockholders of the Company as a result of the partial exercise by the underwriters of the over-allotment option granted by the selling stockholders to the underwriters in connection with the IPO. The shares were sold at the public offering price of $16.00 per share. The Company did not receive any proceeds from the sale of such additional shares.

2014 Secondary Public Offering

On December 9, 2014, we completed a ~~Secondary Public Offering~~secondary public offering of our common stock, which resulted in the sale of 10,000 shares of common stock by a certain selling stockholder of the Company at a public offering price of $21.25. We did not receive any proceeds from the sale of shares by the selling stockholder. ~~A registration statement related to these securities was declared effective by the SEC on December 3, 2014.~~

On December 15, 2014, an additional 1,500 shares of common stock were sold by a certain selling stockholder of the Company as a result of the full exercise by the underwriters of the over-allotment option granted by the selling stockholder to the underwriters in connection with the ~~Secondary Public Offering.~~secondary public offering. The shares were sold at the public offering price of $21.25 per share. The Company did not receive any proceeds from the sale of such additional shares.

Basis of Presentation

The Company prepares its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“~~U.S.~~ GAAP”). The Condensed Consolidated Balance Sheet as of March 31, ~~2014~~2015 was derived from audited financial statements. In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly its financial position as of December 31, ~~2014~~2015 and the results of operations for the ~~third quarter~~three and nine months ended December 31, ~~2013~~2015 and 2014 and cash flows for the nine months ended December 31, ~~2013~~2015 and

~~- 7 -~~

2014. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, filed in our ~~Registration Statement~~Annual Report on Form ~~S-1 (File No. 333-200312), as amended, declared effective by~~10-K for the ~~SEC on December 3, 2014.~~year ended March 31, 2015 (“Fiscal 2015 Form 10-K”).

- 6 -

Principles of Consolidation

Our condensed consolidated financial statements include the Company, our wholly-owned subsidiaries, our majority-owned subsidiaries, including ADS Mexicana, S.A. de C.V. (together with its affiliate ADS Corporativo, S.A. de C.V., “ADS Mexicana”) and BaySaver Technologies, LLC (“BaySaver”), and variable interest entities (“VIEs”) of which we are the primary beneficiary. We use the equity method of accounting for equity investments where we exercise significant influence but do not hold a controlling financial interest. Such investments are recorded in Other assets in our Condensed Consolidated Balance Sheets and the related equity earnings from these investments is included in Equity in net loss of unconsolidated affiliates in our Condensed Consolidated Statements of ~~Income.~~Operations. All intercompany balances and transactions have been eliminated in consolidation.

~~Estimates~~

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to, our allowance for doubtful accounts, useful lives of our property, plant and equipment and amortizing intangible assets, valuation allowance on deferred tax assets, reserves for uncertain tax positions, evaluation of goodwill, intangible assets and other long-lived assets for impairment, accounting for stock based compensation and our ESOP, reserves for general liability, workers’ compensation, and medical insurance, cash discounts and customer rebates and valuation of our Redeemable Common Stock and Redeemable Convertible Preferred Stock. Management’s estimates and assumptions are evaluated on an ongoing basis and are based on historical experience, current conditions and available information. Management believes the accounting estimates are appropriate and reasonably determined; however, due to the inherent uncertainties in making these estimates, actual results could differ from those estimates.

~~Acquisitions~~

~~In accordance with ASC Topic 805,~~~~“Business Combinations”~~ (“ASC 805”), the Company accounts for acquisitions by applying the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition. The fair values assigned to the assets acquired and liabilities assumed are based on valuations using management’s best estimates and assumptions and are preliminary pending the completion of the valuation analysis of selected assets and liabilities. During the measurement period (which is not to exceed one year from the acquisition date), the Company is required to retrospectively adjust the provisional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The results of operations of the acquired companies since the respective acquisition dates are included in the Company’s unaudited Condensed Consolidated Statements of Operations.

Recent Accounting Pronouncements ~~Not Yet Adopted~~

Stock-Based Compensation — In April 2014, the Financial Accounting Standards Board issued authoritative guidance amending existing requirements for reporting discontinued operations. Under the new guidance, discontinued operations reporting will be limited to disposal transactions that represent strategic shifts having a major effect on operations and financial results. The amended guidance also enhances disclosures and requires assets and liabilities of a discontinued operation to be classified as such for all periods presented in the financial statements. Public entities will apply the amended guidance prospectively to all disposals occurring within annual periods beginning on or after December 15, 2014, and interim periods within those years. We will adopt this standard effective April 1, 2015. We are currently evaluating the impact of this amendment on our consolidated financial statements.

~~In May 2014,~~March 2016, the Financial Accounting Standards Board issued an accounting standards update which ~~amends~~is intended to simplify certain aspects of the ~~guidance~~accounting for ~~revenue recognition.~~stock-based compensation. This amendment contains ~~principles that~~changes to the accounting for excess tax benefits, whereby excess tax benefits will ~~require an entity to recognize revenue to depict~~be recognized in the ~~transfer of goods and services to customers at an amount that an entity expects to be entitled to~~income statement rather than in ~~exchange for goods or services.~~additional paid-in capital on the balance sheet. The amendment ~~sets forth a new revenue recognition model that requires identifying~~also contains potential changes to the ~~contract, identifying~~accounting for forfeitures, whereby entities can elect to either continue to apply the ~~performance obligations and recognizing~~current GAAP requirement to estimate forfeitures when determining compensation expense, or to alternatively reverse the ~~revenue upon satisfaction~~compensation expense of ~~performance obligations.~~forfeited awards when they occur. This ~~amendment~~update is effective for ~~annual periods~~fiscal years beginning ~~on or~~ after December 15, 2016, ~~and~~including interim periods within those years, ~~with earlier~~and early adoption ~~not~~is permitted. We ~~will~~expect to adopt this standard effective April 1, 2017. We are currently evaluating the impact of this ~~amendment~~standard on our consolidated financial statements.

~~In August 2014,~~With the Financial Accounting Standards Board issued an accounting standards update which provides guidance for management’s assessment of an entity’s ability to continue as a going concern. The new guidance is intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The guidance provides a definitionexception of the ~~term substantial doubt and requires an assessment for a period~~pronouncement described above, there have been no new accounting pronouncements issued since the filing of ~~one year after the date~~our Fiscal 2015 Form 10-K that ~~the financial statements are issued (or available~~have significance, or potential significance, to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of the consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The new standard will be effective for annual periods

~~- 8 -~~

beginning on or after December 15, 2016, and interim periods within those years, with earlier adoption permitted. We will adopt this standard effective April 1, 2017. We are currently evaluating the impact of this new standard on our consolidated financial statements.

2.	~~SALE OF BUSINESS~~ACQUISITIONS

On ~~June 28, 2013, we entered into an Asset Purchase Agreement (the “NDS Agreement”~~July 17, 2015, ADS Ventures, Inc. (“ADS/V”) ~~to sell substantially all~~, a wholly-owned subsidiary of the ~~assets used~~Company, acquired an additional 10% of the issued and outstanding membership interests in ~~connection~~BaySaver, increasing the Company’s total ownership interest in BaySaver to 65%, for a purchase price of $3,200, plus contingent consideration with an initial estimated fair value of $750. Concurrent with our ~~DrainTech product line~~purchase of the additional membership investment, the BaySaver joint venture agreement was amended to ~~National Diversified Sales, Inc. (“NDS”)~~modify the voting rights from an equal vote for each member to a vote based upon the ownership interest. As a result, we have accounted for this transaction as a business combination with BaySaver being consolidated into our financial statements after July 17, 2015.

As we had accounted for our investment in ~~exchange for cash. The NDS Agreement defined~~BaySaver prior to the purchase of the 10% additional membership interest under the equity method of accounting, we accounted for this business combination as a step acquisition and recognized a loss of $490 on remeasurement to fair value of our previously held investment. The loss is included in Derivative losses and other expense, net in our Condensed Consolidated Statements of Operations. The fair value of our BaySaver investment immediately before the July 17, 2015 acquisition was measured based on a combination of the discounted cash flow and guideline public company valuation methods and involves significant unobservable inputs (Level 3). These inputs include projected sales, margin, required rate of return and tax rate for the discounted cash flow method, as well as implied pricing multiples, and guideline public company group for the guideline public company method.

The purchase price was determined as follows:


(Amounts in thousands)
Acquisition-date fair value of our prior equity interest	$	4,220
Acquisition-date fair value of noncontrolling interest		6,330
Cash paid at acquisition date		3,200
Fair value of contingent consideration		750

Total purchase price	$	14,500

The preliminary purchase price has been allocated to ~~consist~~the estimated fair values of acquired tangible and intangible assets, assumed liabilities and goodwill. The preliminary fair value of identifiable intangible assets has been determined primarily using the income approach, which involves significant unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, required rate of return and tax rate, as well as an estimated royalty rate in the cases of the developed technology and trade name and trademark intangibles. The developed technology and trade name and trademark intangibles are valued using a ~~cash payment~~relief-from-royalty method.

- 7 -

Redeemable noncontrolling interest in subsidiaries is classified as mezzanine equity in our Condensed Consolidated Balance Sheets due to a put option held by the joint venture partner which may be exercised on or after April 1, 2017. The redeemable noncontrolling interest balance will be accreted to the redemption value using the effective interest method until April 1, 2017.

The excess of ~~$5,877.~~ the preliminary purchase price over the fair value of the net assets acquired of $2,495 was allocated to goodwill, assigned to the Domestic segment, and consists primarily of the acquired workforce and sales and cost synergies the two companies anticipate realizing as a combined company. None of the goodwill is deductible for tax purposes.

Certain estimated values for the acquisition, including intangible assets, goodwill and deferred taxes are not yet finalized. The preliminary purchase price allocation is as follows:


(Amounts in thousands)
Cash	$	12
Other current assets		2,262
Property, plant and equipment		164
Goodwill		2,495
Intangible assets		10,800
Other assets		152
Current liabilities		(1,385	)

Total purchase price	$	14,500

The acquired identifiable intangible assets represent customer relationships of $5,400, developed technology of $4,000 and trade name and trademark of $1,400, each of which have an estimated 10-year useful life. Transaction costs were immaterial.

The net ~~book value for~~sales and income before income taxes of BaySaver since the ~~related assets, consisting~~acquisition date included in our Condensed Consolidated Statements of ~~inventory~~Operations were $6,780, and property and equipment, was $1,029, bringing the net gain recognized to $4,848. The sale transaction closed on June 28, 2013. The Company determined that this sale did not qualify for discontinued operations reporting.$715, respectively.

3.	~~PROPERTY, PLANT AND EQUIPMENT – NET~~

~~Property, plant and equipment - net as of March 31, 2014 and December 31, 2014 consisted of the following:~~

(Amounts in thousands)    March 31,
2014    December 31,
2014
Land, buildings and improvements
   $ 151,088       $ 155,071
Machinery and equipment
   532,468       543,207




Total cost
683,556    698,278
Less accumulated depreciation
(391,474 ) (415,174 )




Property, plant and equipment – net
$ 292,082    $ 283,104

The following table ~~sets forth depreciation~~contains unaudited pro forma Consolidated Statements of Operations information assuming the acquisition occurred on April 1, 2014 and includes adjustments for amortization of intangibles, interest expense and our prior equity method accounting for BaySaver. This pro forma information is presented for illustrative purposes only and is not indicative of what actual results would have been if the acquisitions had taken place on April 1, 2014 or of future results. The unaudited pro forma consolidated results are not projections of future results of operations of the combined company nor do they reflect the expected realization of any cost savings or synergies associated with the acquisition.


	Nine months ended December 31,
(Amounts in thousands)	2015		2014
Net sales	$	1,048,879	$	981,736
Net income attributable to ADS	$	29,623	$	22,131

Unaudited pro forma net income attributable to ADS has been calculated after adjusting the combined results of the Company to reflect additional intangible asset amortization expense, net of related income taxes and amounts related to the noncontrolling interest, of $94 and $230, additional interest expense, net of related income taxes and amounts related to the noncontrolling interest, of $10 and $27, and the impact of our prior equity method accounting of $109 and $302, net of related income taxes, for the ~~three and~~ nine months ended December 31, ~~2013~~2015 and 2014, ~~respectively:~~respectively.

   Three Months Ended
December 31,    Nine Months Ended
December 31,
(Amounts in thousands)    2013    2014    2013    2014
Depreciation expense
   $ 9,383       $ 9,247       $ 27,989       $ 27,646

4.3.	INVENTORIES

Inventories as of December 31, 2015 and March 31, ~~2014 and December 31, 2014~~2015 consisted of the following:


(Amounts in thousands)	March 31, 2014		December 31, 2014		December 31, 2015		March 31, 2015
Raw materials	$	52,267	$	60,182	$	44,403	$	50,198
Finished goods		208,033		170,767		159,728		219,644

Total inventory	$	260,300	$	230,949
Total inventories					$	204,131	$	269,842

- 8 -

We had no work-in-process inventories as of December 31, 2015 and March 31, ~~2014 and December 31, 2014.~~

2015.

~~- 9 -~~

5.4.	GOODWILL AND INTANGIBLE ASSETS

Goodwill

The change in carrying amount of goodwill by reportable segment is as follows:


(Amounts in thousands)	Domestic		International			Total			Domestic		International			Total
Balance at March 31, 2014	$	85,702	$	595		$	86,297
Balance at March 31, 2015									$	87,507	$	11,172		$	98,679
Acquisition										2,495		—			2,495
Currency translation		—		(66	)		(66	)		—		(969	)		(969	)

Balance at December 31, 2014	$	85,702	$	529		$	86,231
Balance at December 31, 2015									$	90,002	$	10,203		$	100,205

Intangible Assets

Intangible assets as of December 31, 2015 and March 31, ~~2014 and December 31, 2014~~2015 consisted of the following:

(Amounts in thousands)    March 31, 2014    December 31, 2014
   Gross
Intangible    Accumulated
Amortization Net
Intangible    Gross
Intangible    Accumulated
Amortization Net
Intangible
Definite-lived intangible assets

Developed technology
   40,579       (22,588 ) 17,991       40,579       (25,451 ) 15,128
Customer lists
   39,252       (22,079 ) 17,173       39,252       (25,477 ) 13,775
Patents
   6,175       (2,921 ) 3,254       6,429       (3,392 ) 3,037
Contract agreements
   11,493       (4,280 ) 7,213       11,493       (5,740 ) 5,753
Trademarks
   12,857       (4,294 ) 8,563       12,857       (4,938 ) 7,919








Total definite-lived intangible assets
   110,356       (56,162 ) 54,194       110,610       (64,998 ) 45,612
Indefinite-lived intangible assets

Trademarks
   11,990       —      11,990       11,968       —      11,968








Total intangible assets
   122,346       (56,162 ) 66,184       122,578       (64,998 ) 57,580

~~The following table sets forth amortization expense for the three and nine months ended December 31, 2013 and 2014, respectively:~~


	Three Months Ended December 31,				Nine Months Ended December 31,				December 31, 2015							March 31, 2015
(Amounts in thousands)	2013		2014		2013		2014		Gross Intangible		Accumulated Amortization			Net Intangible		Gross Intangible		Accumulated Amortization			Net Intangible
Amortization expense	$	4,674	$	4,257	$	14,056	$	13,344
Definite-lived intangible assets
Developed technology									$	44,579	$	(28,740	)	$	15,839	$	40,579	$	(26,405	)	$	14,174
Customer relationships										40,470		(21,614	)		18,856		43,167		(26,113	)		17,054
Patents										6,938		(4,012	)		2,926		6,547		(3,550	)		2,997
Non-compete and other contractual agreements										1,231		(777	)		454		1,365		(691	)		674
Trademarks and tradenames										15,390		(3,903	)		11,487		14,248		(3,051	)		11,197

Total definite-lived intangible assets										108,608		(59,046	)		49,562		105,906		(59,810	)		46,096
Indefinite-lived intangible assets
Trademarks										11,930		—			11,930		11,959		—			11,959

Total intangible assets									$	120,538	$	(59,046	)	$	61,492	$	117,865	$	(59,810	)	$	58,055

6.5.	FAIR VALUE MEASUREMENT

The fair value measurements and disclosure principles of ASC ~~820 -~~ 820—Fair Value Measurements and Disclosures define fair value, establish a framework for measuring fair value and provide disclosure requirements about fair value measurements. These principles define a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity has the ability to access as of the measurement date.

Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

~~- 10 -~~

When applying fair value principles in the valuation of assets and liabilities, we are required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company has not changed its valuation techniques used in measuring the fair value of any financial assets or liabilities during the periods presented. Our fair value estimates take into consideration the credit risk of both the Company and our counterparties.

When active market quotes are not available for financial assets and liabilities, we use industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including credit risk, interest rate curves, foreign currency rates and forward and spot prices for currencies. In circumstances where market-based observable inputs are not available, management judgment is used to develop assumptions to estimate fair value. Generally, the fair value of our Level 3 instruments is estimated as the net present value of expected future cash flows based on internal and external inputs.

- 9 -

Recurring Fair Value Measurements

The assets and liabilities carried at fair value as of December 31, 2015 and March 31, ~~2014 and December 31, 2014~~2015 were as follows:

   March 31, 2014
(Amounts in thousands)    Total    Level 1    Level 2    Level 3
Assets:

Derivative assets – diesel fuel contracts
   $ 27       $ —         $ 27       $ —








Total assets at fair value on a recurring basis
$ 27    $ —      $ 27    $ —








Liabilities & Mezzanine Equity:
Derivative liability – interest rate swaps
$ 1,001    $ —      $ 1,001    $ —
Contingent consideration for acquisitions
2,276    —      —      2,276
Redeemable Common Stock
549,119    —      —      549,119
Redeemable Convertible Preferred Stock
291,720    —      —      291,720
Deferred compensation – unearned ESOP shares
(197,888 ) —      —      (197,888 )








Total liabilities & mezzanine equity at fair value on a recurring basis
$ 646,228    $ —      $ 1,001    $ 645,227

   December 31, 2014
(Amounts in thousands)    Total    Level 1    Level 2    Level 3
Assets:

Derivative assets – currency forward contracts
   $ 256       $ —         $ 256       $ —








Total assets at fair value on a recurring basis
$ 256    $ —      $ 256    $ —








Liabilities:
Derivative liability – interest rate swaps
$ 651    $ —      $ 651    $ —
Derivative liability – diesel fuel contracts
3,076    —      3,076    —
Derivative liability – propylene swaps
2,060    —      2,060    —
Derivative liability – currency forward contracts
1,660    —      1,660    —
Contingent consideration for acquisitions
1,750    —      —      1,750








Total liabilities at fair value on a recurring basis
$     9,197    $ —      $ 7,447    $     1,750

~~- 11 -~~


	December 31, 2015
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Derivative assets - currency forward contracts	$	47	$	—	$	47	$	—

Total assets at fair value on a recurring basis	$	47	$	—	$	47	$

Liabilities:
Derivative liability - interest rate swaps	$	326	$	—	$	326	$	—
Derivative liability - diesel fuel contracts		3,639		—		3,639		—
Derivative liability - propylene swaps		12,552		—		12,552		—
Contingent consideration for acquisitions		2,726		—		—		2,726

Total liabilities at fair value on a recurring basis	$	19,243	$	—	$	16,517	$	2,726


	March 31, 2015
(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Derivative assets - currency forward contracts	$	28	$	—	$	28	$	—

Total assets at fair value on a recurring basis	$	28	$	—	$	28	$	—

Liabilities :
Derivative liability - interest rate swaps	$	765	$	—	$	765	$	—
Derivative liability - diesel fuel contracts		2,841		—		2,841		—
Derivative liability - propylene swaps		5,142		—		5,142		—
Contingent consideration for acquisitions		2,444		—		—		2,444

Total liabilities at fair value on a recurring basis	$	11,192	$	—	$	8,748	$	2,444

Changes in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3) for the three and nine months ended December 31, ~~2013~~2015 and 2014 were as follows:

Three months ended December 31, 2015 and 2014

   Three Months Ended
December 31,    Nine Months Ended
December 31,
(Amounts in thousands)    2013    2014    2013    2014
Balance at beginning of period
   $ 649,120       $ 1,904       $ 610,881       $ 645,227
Allocation of ESOP shares to participants
   3,433       —         9,482       4,391
Change in fair value related to items recorded in mezzanine equity
   28,559       —         63,851       76,975
Reclassification of common stock to Redeemable Common Stock
   —         —         385       —
Redemption of Redeemable Convertible Preferred Stock
   (743 )    —         (3,889 )    —
Change in estimate of contingent consideration
   (104 )    (154 )    (445 )    (526 )
Termination of redemption feature on redeemable common stock upon IPO
   —         —         —         (615,040 )
(1) Change in redemption feature of Redeemable Convertible Preferred Stock
   —         —         —         (326,623 )
(2) Change in redemption feature of Deferred Compensation – unearned ESOP Shares
   —         —         —         217,346








Balance at end of period
$ 680,265    $ 1,750    $ 680,265    $ 1,750


(Amounts in thousands)	Contingent consideration
Balance at September 30, 2015	$	2,869
Change in fair value		14
Payments of contingent consideration liability		(157	)

Balance at December 31, 2015	$	2,726


(Amounts in thousands)	Contingent consideration
Balance at September 30, 2014	$	2,526
Change in fair value		(7	)
Payments of contingent consideration liability		(154	)

Balance at December 31, 2014	$	2,365

Nine months ended December 31, 2015 and 2014


(amounts in thousands)	Contingent consideration
Balance at March 31, 2015	$	2,444
Acquisition		750
Change in fair value		114
Payments of contingent consideration liability		(582	)

Balance at December 31, 2015	$	2,726

- 10 -


	Nine Months Ended December 31, 2014
							Redeemable			Deferred
							convertible			compensation
(amounts in thousands)	Contingent consideration			Redeemable common stock			preferred stock			- unearned ESOP shares			Total
Balance at March 31, 2014	$	2,898		$	549,119		$	291,720		$	(197,888	)	$	645,849
Allocation of ESOP shares to participants		—			—			—			4,391			4,391
Change in fair value		(5	)		65,921			34,903			(23,849	)		76,970
Payments of contingent consideration liability		(528	)		—			—			—			(528	)
Transfer from Level 3		—			(615,040	)		(326,623	)		217,346			(724,317	)

Balance at December 31, 2014	$	2,365		$	—		$	—		$	—		$	2,365

For the nine months ended December 31, 2014 our Redeemable ~~Common Stock~~common stock transferred out of Level 3, as these securities started actively trading on the NYSE during the second quarter of fiscal 2015. In addition, our Redeemable ~~Convertible Preferred Stock~~convertible preferred stock and Deferred ~~Compensation~~compensation – unearned ESOP shares were reclassified from a recurring Level 3 fair value measurement to a non-recurring Level 3 fair value measurement as a result of the IPO. See Note 11. Background and Summary of Significant Accounting Policies for further information on the IPO. There were no further transfers in or out of Levels 1, 2 and 3 for the ~~fiscal year ended March 31, 2014 and the~~ nine months ended December 31, ~~2014.~~2015 and 2014, respectively.

Valuation of our Contingent Consideration for Acquisitions

The fair values of the contingent consideration payables for prior period acquisitions were calculated with reference to the estimated future value of the Inserta Tee and ~~Flexstorm~~FleXstorm businesses, which are based on a discounted cash flow model. The undiscounted value is discounted atto the present value using a market discount rate. The fair value of the contingent consideration liability related to the BaySaver acquisition was calculated based on a discounted cash flow model, whereby the probability-weighted estimated future payment value is discounted to the present value using a market discount rate. The categorization of the framework used to price ~~this liability~~these liabilities is considered a Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.

Valuation of our Redeemable Common Stock

~~The~~Prior to July 2014, the Company ~~has~~had certain shares of common stock outstanding allowing the holder to put its shares to us for cash. This Redeemable ~~Common Stock~~common stock was historically recorded at its fair value in the mezzanine equity section of our Condensed Consolidated Balance Sheets and changes in fair value were recorded in Retained earnings. Historically, the fair value of a share of common stock was determined by management by applying industry-appropriate multiples to EBITDA and performing a discounted cash flow analysis. Under the industry-appropriate multiples approach, to arrive at concluded multiples, we considered differences between the risk and return characteristics of ADS and the guideline companies. Under the discounted cash flow analysis, the cash flows expected to be generated by the Company ~~are~~were discounted to their present value equivalent using a rate of return that reflects the relative risk of an investment in ADS, as well as the time value of money. This return iswas an overall rate based upon the individual rates of return for invested capital (equity and interest-bearing debt). The return, known as the weighted average cost of capital (“WACC”), iswas calculated by weighting the required returns on interest-bearing debt and common stock in proportion to their estimated percentages in an expected capital structure. The WACC used was 11% as of March 31, 2014. An increase in the WACC would decrease the fair value of the Redeemable ~~Common Stock.~~common stock. The categorization of the framework used to price this temporary equity iswas considered a Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.

~~- 12 -~~

The redemption feature of our Redeemable ~~Common Stock~~common stock allowing the holder to put its shares to us for cash, as discussed in the previous paragraph, was not in effect upon effectiveness of the IPO on July 25, 2014. As a result, the Redeemable ~~Common Stock~~common stock was recorded as mezzanine equity at fair value through the effective date of the IPO and was subsequently reclassified at that fair value to ~~permanent~~stockholders’ equity. See Note 11. Background and Summary of Significant Accounting Policies, for more information on the IPO.

- 11 -

Nonrecurring Fair Value Measurements

Valuation of our Redeemable Convertible Preferred Stock

The Trustee of the Company’s ESOP has the ability to put the shares of our Redeemable ~~Convertible Preferred Stock~~convertible preferred stock to the Company. ~~Our~~Prior to July 2014, our Redeemable ~~Convertible Preferred Stock is~~convertible preferred stock was recorded at its fair value in the mezzanine equity section of our Condensed Consolidated Balance Sheets and changes in fair value ~~are~~were recorded in Retained earnings. Accordingly, we estimated the fair value of the Redeemable Convertible Preferred Stock through estimating the fair value of the Company’s common stock and applying certain adjustments including for the fair value of the total dividends to be received and assuming conversion of the Redeemable ~~Convertible Preferred Stock~~convertible preferred stock to common stock at the stated conversion ratio per our Certificate of Incorporation. The categorization of the framework used to price this temporary equity iswas considered a Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.

Upon the effective date of the IPO, the redemption feature of our Redeemable ~~Convertible Preferred Stock~~convertible preferred stock allowing the Trustee of the Company’s ESOP to put shares to us for cash was no longer applicable. However, if our common stock, which our Redeemable ~~Convertible Preferred Stock~~convertible preferred stock may convert to, is no longer a “registration-type class of security” (e.g., in the event of a delisting), the option held by the Trustee, which granted it the ability to put the shares of our Redeemable ~~Convertible Preferred Stock~~convertible preferred stock to us, would then become applicable. Preferred securities that become redeemable upon a contingent event that is not solely within the control of the Company should be classified outside of permanent equity. As of December 31, ~~2014,~~2015, the Company has determined that it is not probable that the redemption feature will become applicable. Since the Redeemable ~~Convertible Preferred Stock~~convertible preferred stock is not currently redeemable and it is not probable that the instrument will become redeemable, subsequent adjustment to fair value is not required. As such, the Redeemable ~~Convertible Preferred Stock~~convertible preferred stock was recorded to fair value at the effective date of the IPO on July 25, 2014 and will remain in mezzanine equity without further adjustment to carrying value unless it becomes probable that the redemption feature will become applicable. See Note 11. Background and Summary of Significant Accounting Policies, for more information on the ~~2014 Initial Public Offering and Note 13 for further information on the Redeemable Convertible Preferred Stock.~~IPO.

Valuation of our Goodwill and Indefinite Lived Intangible Assets

Goodwill and indefinite lived intangible assets are tested for impairment annually as of March 31 or whenever events or changes in circumstances indicate the carrying value may be greater than fair value.

7.6.	~~VARIABLE INTEREST ENTITIES~~RELATED PARTY TRANSACTIONS

The accounting model for VIEs described in ASC 810-10 considers if a company has a controlling financial interest in a VIE. A controlling financial interest will have both (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of a VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could be potentially significant to the VIE. Entities are required to consolidate a VIE when it is determined that they have a controlling financial interest in a VIE and therefore are the primary beneficiary of that VIE. In determining whether we are the primary beneficiary of a VIE, we consider factors such as voting rights, including kick-out rights, whether we have the power to direct the VIE’s significant activities, variable interests held by related parties and other factors. We believe that significant assumptions and judgments were applied consistently.

We participate in joint ventures from time to time for the purpose of expanding upon our growth of manufacturing and selling HDPE corrugated pipe in emerging markets. Our investments in these joint ventures may create a variable interest in a VIE, depending upon the contractual terms of the arrangement. One of our joint ventures, ADS Mexicana ~~was determined to be a VIE. In April 2013,~~

ADS Worldwide acquired an additional 1% equity interest in its consolidated subsidiary ADS Mexicana stock for $520, increasing the Company’s ownership percentage to 51% from 50%. We invest in this VIE for the purpose of expanding upon our growth of manufacturing and selling ADS licensed HDPE corrugated pipe and related products in the Mexican and Central American markets via the joint venture partner’s local presence and expertise throughout the region. We have executed a Technology, Patents and

~~- 13 -~~

~~Trademarks Sub-License Agreement and a Distribution Agreement with ADS Mexicana that provides ADS Mexicana with the rights to manufacture and sell ADS licensed products~~conducts business in Mexico and Central ~~America.~~ America through its joint venture ADS Mexicana. ADS owns 51% of the outstanding stock of ADS Mexicana and consolidates ADS Mexicana for financial reporting purposes. During the three and nine months ended December 31, 2015 and 2014, ADS Mexicana compensated certain owners and former owners of Grupo Altima, the joint venture partner of ADS Mexicana, for consulting services related to the operations of the business. These cash payments totaled $104 and $203 for the three and nine months ended December 31, 2015, respectively, and $102 and $271 for the three and nine months ended December 31, 2014, respectively.

Occasionally, ADS and ADS Mexicana jointly enter into agreements for pipe sales with their related parties. There were no such transactions during the three and nine months ended December 31, 2015 and $1,125 and $3,464 for the three and nine months ended December 31, 2014, respectively. Outstanding receivables related to these sales were $361 and $1,005 as of December 31, 2015 and March 31, 2015, respectively.

In April 2015, ADS Mexicana borrowed $3,000 under a revolving credit facility arrangement with Scotia Bank and loaned that amount to ADS, and such loan was repaid in May 2015. In June 2015, ADS Mexicana borrowed $3,854 under the Scotia Bank credit facility and loaned it to an entity owned by a Grupo Altima owner, and such loan was repaid in July 2015. ADS does not guarantee the borrowings from this facility and therefore, does not anticipate any required contributions related to the balance of this credit facility.

We are the guarantor of 100% of ADS Mexicana’s credit facility and our maximum potential payment under this guarantee totals $12,000. ~~We have concluded that we hold a variable interest in and are the primary beneficiary of~~

South American Joint Venture

The Tuberias Tigre – ADS Mexicana based on our power to direct the most significant activities of ADS Mexicana and our obligation to absorb losses and our right to receive benefits that could be significant to ADS Mexicana. As the primary beneficiary, we are required to consolidate the assets and liabilities of ADS Mexicana. The equity owned by ourLimitada joint venture ~~partner is shown as Noncontrolling interest in subsidiaries in our Condensed Consolidated Balance Sheets~~(“South American Joint Venture”) manufactures and ~~our joint venture partner’s portion of net income is shown as Net income attributable to noncontrolling interest in our Condensed Consolidated Statements of Income.~~

The table below includes the assets and liabilities of ADS Mexicana that are consolidated as of March 31, 2014 and December 31, 2014. The balances exclude intercompany transactions that are eliminated upon consolidation.

(Amounts in thousands)
Assets    March 31,
2014    December 31,
2014
Current assets
   $ 35,272       $ 35,372
Property, plant and equipment, net
   21,633       18,991
Other noncurrent assets
   2,698       2,032




Total assets
   $ 59,603       $ 56,395

Liabilities    March 31,
2014    December 31,
2014
Current liabilities
   $ 9,090       $ 9,941
Noncurrent liabilities
   1,240       1,159




Total liabilities
   $ 10,330       $ 11,100

8.	~~INVESTMENT IN UNCONSOLIDATED AFFILIATES~~

We participate in three unconsolidated joint ventures, Tuberias Tigre — ADS Limitada (“Tigre ADS”), which is 50%-owned by our wholly-owned subsidiary ADS Chile, BaySaver Technologies, LLC (“BaySaver”), which is 55% owned by our wholly-owned subsidiary ADS Ventures, Inc, and Tigre-ADS USA, Inc. (“Tigre-ADS USA”), which is 49% owned by our wholly-owned subsidiary ADS Ventures, Inc.

~~Tigre ADS~~

~~Our investment in this unconsolidated joint venture was formed for the purpose of expanding upon our growth of manufacturing and selling~~sells HDPE corrugated pipe in the South American ~~market via the joint venture partner’s local presence and expertise throughout the region.~~market. We are the guarantor offor 50% of ~~Tigre ADS’~~the South American Joint Venture’s credit facility, and the debt guarantee is shared equally with the joint venture partner. Our maximum potential ~~payment~~obligation under this guarantee totals ~~$7,000. We~~$6,844 as of December 31, 2015. The maximum borrowings permitted under the South American Joint Venture’s credit facility are ~~not required to consolidate Tigre ADS under ASC 810-10 as we are not~~$19,000. This credit facility allows borrowings in either Chilean pesos or US dollars at a fixed interest rate determined at inception of each draw on the ~~primary beneficiary, although we do hold a significant variable interest in Tigre ADS through our equity investment and~~facility. The guarantee of South American Joint Venture’s debt ~~guarantee. The results of Tigre ADS are accounted~~is for in the ~~condensed consolidated financial statements using the equity method of accounting. Our share~~life of the ~~loss~~credit facility which matures on February 5, 2017. ADS does not anticipate any required contributions related to the balance of this ~~joint venture is reported in~~credit facility. As of December 31, 2015 and March 31, 2015, the ~~Condensed Consolidated Statements~~outstanding principal balance of ~~Income under Equity in net loss~~the credit facility including letters of ~~unconsolidated affiliates. Our investment in this joint venture is included in Other assets in the Condensed Consolidated Balance Sheets.~~credit was $13,700 and $13,600, respectively. The weighted average interest rate as of December 31, 2015 was 3.39% on U.S. dollar denominated loans and 7.30% on Chilean peso denominated loans.

- 1412 -

~~Summarized financial data as~~ADS and the South American Joint Venture have entered into shared services arrangements in order to execute the joint venture services. Included within these arrangements are the lease of an office and plant location used to conduct business and operating expenses related to these leased facilities. Occasionally, ADS and South American Joint Venture jointly enter into agreements for pipe sales with their related parties which were $236 and $1,117 for the ~~fiscal year~~three and nine months ended ~~March 31, 2014 and~~ December 31, ~~2014~~2015, respectively and $185 and $648 for the ~~Tigre~~three and nine months ended December 31, 2014. As of December 31, 2015, ADS ~~joint venture is as follows:~~has a receivable from the South American Joint Venture of $254.

(Amounts in thousands)    March 31, 2014    December 31, 2014
   As reported
on Balance
Sheet    Maximum
Exposure    As reported
on Balance
Sheet    Maximum
Exposure
Investment in Tigre ADS
   $ 22,029       $ 22,029       $ 21,127       $ 21,127
Receivable from Tigre ADS
   8,899       8,899       5,373       5,373
ADS’ Guarantee of Tigre ADS Debt
   —         7,000       —         7,000

BaySaver

~~On July 15, 2013, ADS Ventures, Inc.,~~BaySaver is a ~~wholly-owned subsidiary of the Company, BaySaver Technologies, Inc. (“BTI”) and Mid Atlantic Storm Water Research Center, Inc. entered into an LLC agreement to form a new~~ joint venture ~~BaySaver. The joint venture~~that was established to ~~design, engineer, manufacture, market~~produce and ~~sell~~distribute water quality filters and separators used in the removal of sediment and pollution from storm ~~water anywhere in~~water. ADS owns 65% of the ~~world except New Zealand, Australia~~outstanding membership interests of BaySaver and ~~South Africa. The Company contributed $3,500 in cash, $1,285 in inventory, and other intangible assets with no carrying value, in exchange for a 55% equity interest and a 50% voting~~consolidates its interest in BaySaver. ~~We are not required~~

ADS and BaySaver have entered into shared services arrangements in order to consolidate BaySaver under ASC 810-10 as we are not the primary beneficiary, although we do hold a significant variable interest in BaySaver through our equity investment. The Company accounts for its investment in BaySaver under the equity method of accounting. In connection with this investment, the Company acquired a call option to purchase the remaining 45% interest in BaySaver. Also, in connection with the investment, the Company granted a put option enabling the other equity holders to sell their remaining shares in BaySaver to the Company upon the passage of time or the occurrence of certain events. Our share of the income of this joint venture is reported in the Condensed Consolidated Statements of Income under Equity in net loss of unconsolidated affiliates. Our investment in this joint venture is included in Other assets in the Condensed Consolidated Balance Sheets.

~~Summarized financial data as of fiscal year ended March 31, 2104 and December 31, 2014 for the BaySaver joint venture is as follows:~~

(Amounts in thousands)    March 31, 2014    December 31, 2014
   As reported
on Balance
Sheet    Maximum
Exposure    As reported
on Balance
Sheet    Maximum
Exposure
Investment in Baysaver
   $ 5,202       $ 5,202       $ 5,384       $ 5,384
Receivable from Baysaver
   6       6       43       43

~~Our share of the income of this joint venture is decreased by amortization expense relating to the basis difference between our cost basis in the investment and the basis reflected at~~execute the joint venture ~~level. This basis difference is being recorded over~~services. Included within these arrangements are the ~~lives~~lease of ~~the underlying assets which gave rise~~a plant and adjacent yard used to conduct business and operating expenses related to the ~~basis difference, which is 10 years. The unrecorded basis difference as~~leased facility. Occasionally, ADS and BaySaver jointly enter into agreements for sales of ~~December 31, 2014 is $1,689.~~

~~Tigre-ADS USA~~

~~On April 7, 2014, ADS Ventures, Inc., a wholly-owned subsidiary of the Company,~~pipe and Tigre S.A. – Tubos e Conexoes entered into a stock purchase agreement to form a new joint venture, Tigre-ADS USA Inc. The new joint venture was established to manufacture and sell PVC fittings for waterworks, plumbing, and HVAC applications primarilyAllied Products with their related parties in the United States and Canadian markets. The Company acquired 49% of the outstanding shares of capital stock of Tigre USA, Inc. for $3,566. The new joint venture represents a continuation of the existing activities of Tigre USA through its Janesville, Wisconsin manufacturing facility. We are not required to consolidate Tigre-ADS USA under ASC 810-10 as we are not the primary beneficiary, although we do hold a significant variable interest in Tigre-ADS USA through our equity investment. The Company accounts for its investment in Tigre-ADS USA under the equity method of accounting. Our share of the loss of this joint venture is reported in the Condensed Consolidated Statements of Income under Equity in net loss of unconsolidated affiliates. Our investment in this joint venture is included in Other assets in the Condensed Consolidated Balance Sheets.immaterial amounts.

~~- 15 -~~

~~Summarized financial data as of December 31, 2014 for the Tigre-ADS USA joint venture is as follows:~~

(Amounts in thousands)    As reported on
Balance Sheet    Maximum
Exposure
Investment in Tigre-ADS USA
   $ 3,147       $ 3,147
Receivable from Tigre-ADS USA
   52       52

9.7.

DEBT

Long-term debt as of December 31, 2015 and March 31, ~~2014 and December 31, 2014~~2015 consisted of the following:

   March 31,    December 31,
   2014    2014
a. Bank term loans:

Revolving Credit Facility – ADS
   $ 248,100       $ 138,800
Revolving Credit Facility – ADS Mexicana
   —         —
Term note
   97,500       93,125
b. Senior Notes payable
   100,000       100,000
c. Mortgage notes payable
   3,733       2,750
d. Industrial revenue bonds
   4,715       3,750




Total
454,048    338,425
Current maturities
(11,153 ) (11,700 )




Long-term debt obligation
$ 442,895    $ 326,725


(amounts in thousands)	December 31, 2015			March 31, 2015
Bank Term Loans:
Revolving Credit Facility - ADS	$	149,500		$	205,100
Term Note		85,000			91,250
Senior Notes payable		100,000			100,000
Industrial revenue bonds		2,925			3,545

Total		337,425			399,895
Current maturities		(35,860	)		(9,580	)

Long-term debt obligations	$	301,565		$	390,315

~~Revolving Credit Facility:~~

~~The current~~ ADS Mexicana Scotia Bank Revolving Credit ~~Agreement (the “Revolving Credit Facility”) has been in place with several banks and was refinanced on June 12, 2013. The current bank credit facility expires in June 2018. Additionally, on~~Facility

On December 20, 2013, we amended the agreement primarily to make certain amendments in order to permit the payment of a special dividend of $1.59 per share which was financed in full through the Revolving Credit Facility.

~~The Revolving Credit Facility agreement increased the upper limit of the Revolving Credit Facility to $325,000 for~~11, 2014, our joint venture, ADS ~~and $12,000 for ADS Mexicana. The Company also~~Mexicana, entered into a ~~five-year $100,000~~credit agreement with Scotia Bank. The credit agreement provides for revolving loans up to a maximum aggregate principal amount of $5,000. The proceeds of the revolving credit facility have primarily been used for short term ~~note. Both the Revolving Credit Facility~~investments and ~~the term note share the same interest rate structure.~~

~~The Revolving Credit Facility interest rate is variable and depends upon the Company’s “pricing ratio” as defined in the agreement.~~are available for working capital needs. The interest ~~rate is derived from~~rates of the ~~London InterBank Offered Rate (LIBOR)~~revolving credit facilities are determined by LIBOR rates, Tasa de Interes Interbancaria de Equilibrio (TIIE) or ~~alternate base rate (Prime Rate) based upon~~ the ~~Company’s option.~~Costos de Captacion rates, plus an applicable margin. The ~~average rate at~~Scotia Bank revolving credit facility matures on December 11, 2017. The obligations under the revolving credit facility are not guaranteed by ADS. As of December 31, ~~2014~~2015, there was ~~3.01%. Any letters of credit~~no outstanding ~~reduce the availability~~principal drawn on the ~~revolver. The Company had outstanding letters of credit at December 31, 2014 in the amount of $8,005. The amount available for borrowing for ADS was $178,195, plus $12,000 available under a separate~~Scotia Bank revolving credit facility with ~~our subsidiary, ADS Mexicana, at December 31, 2014.~~

~~Per terms of the Revolving Credit Facility, ADS is not required~~$5,000 available to hedge its interest exposure using interest rate swaps; however, it is currently the objective of ADS to manage its exposure to variable rate debt. On July 18, 2013, ADS executed two Forward Interest Rate Swaps on the 30-Day LIBOR interest rate. One swap was for $50,000 on the Revolving Credit Facility starting on September 3, 2013 at a fixed rate of 0.86% for a period of three years, expiring on September 1, 2016. The second swap executed on July 18, 2013 was for $50,000 on the Revolving Credit Facility starting on September 2, 2014 at a fixed rate of 1.08% for a period of two years, expiring on September 1, 2016.

~~- 16 -~~

~~Senior Notes payable:~~

In December 2009, ADS signed an agreement with Prudential Investment Management, Inc., for the issuance of senior promissory notes (“Senior Notes”), for an aggregate amount of up to $100,000. We may make requests for purchases of the Senior Notes during the “Issuance Period,” defined as a three-year period beginning with the date of the agreement. The minimum purchase amount of Senior Notes is $10,000. Each Senior Note issued has a maximum term of no more than 10 years from the date of issuance. Interest is payable quarterly and is fixed at 5.6%. The rate is subject to an additional 200 basis point excess leverage fee if calculated leverage exceeds 3 to 1. A principal payment of $25,000 is due in September in each of fiscal years 2017, 2018, and 2019.

In July 2013, ADS issued an additional $25,000 of senior promissory notes (“Senior Notes”) with Prudential Investment Management, Inc. Interest is payable quarterly and is fixed at 4.05%. The rate is subject to an additional 200 basis point excess leverage fee if calculated leverage exceeds 3 to 1. A principal payment of $25,000 is due in September of the fiscal year 2020.

The carrying and fair values of the Company’s Senior Notes were $100,000 and $103,303, respectively, as of December 31, 2014. The fair value of the Senior Notes was determined based on the interest rate and terms of such borrowings to the rates and terms of similar debt available for the period.be drawn.

~~Mortgage notes payable:~~

One mortgage note payable with a fixed rate of 5.1% (Hilliard, Ohio) requires monthly installments through fiscal year 2015. Land and building with a net book value of approximately $4,914 at December 31, 2014 collateralize the mortgage note.

~~Industrial revenue bonds:~~

ADS issued industrial revenue bonds for the construction of four production facilities. The original bond values of $27,300 require periodic principal and interest payments through fiscal year 2019. During fiscal year 2011, two of the four bonds were retired, and during July of fiscal year 2015, one more of the bonds was retired. This leaves a remaining principal of $3,750 at December 31, 2014. The interest rate on the remaining bond is variable and computed on a weekly basis. This bond is not considered auction rate securities. The rate on this bond at December 31, 2014, was 3.84%, including a letter of credit fee of 3.75%. Land and buildings with a net book value of approximately $10,047 at December 31, 2014 collateralize the remaining bond.

The Revolving Credit Facility and the Senior Notes require, among other provisions, that we (1) maintain a minimum fixed charge ratio; (2) maintain a minimum leverage ratio; and (3) establish certain limits on permitted transactions, principally for indebtedness, capital distributions, loans and investments, and acquisitions and dispositions of assets. Capital distributions are limited to $50.0 million in any fiscal year if the pro-forma leverage ratio exceeds 3.0 to 1.

~~10.~~8.

DERIVATIVE TRANSACTIONS

The Company uses interest rate swaps, commodity options in the form of collars and swaps, and foreign currency forward contracts to manage its various exposures to interest rate, commodity price, and exchange rate fluctuations. For interest rate swaps, the difference between the spot rate and applicable base rate is recorded in ~~interest~~Interest expense. ~~For~~Contract settlement gains and losses on collars, commodity swaps and foreign exchange forward contracts ~~contract settlement~~as well as gains and losses ~~are recorded in the Condensed Consolidated Statements of Income in Cost of goods sold. Gains and (losses)~~ related to the mark-to-market adjustments for changes in fair value of the derivative contracts are recorded in the Condensed Consolidated Statements of ~~Income~~Operations as ~~Other miscellaneous (income)~~Derivative losses and other expense, net. The Company recognized ~~gains~~(losses) and ~~(losses)~~gains on mark-to-market adjustments for changes in fair value on derivative contracts of ~~$184~~$1,784 and $(6,054) for the three months ended December 31, ~~2013~~2015 and 2014, respectively, and ~~$(54)~~$(7,750) and $(6,217) for the nine months ended December 31, ~~2013~~2015 and 2014, respectively.

The fair value of the derivatives is included in the Condensed Consolidated Balance sheet at December 31, 2015 and March 31, 2015 as follows:

~~- 17 -~~

~~A summary of the fair values for the various derivatives at March 31, 2014 and December 31, 2014 is presented below:~~


											December 31, 2015
											Assets				Liabilities
(Amounts in thousands)	March 31, 2014					December 31, 2014					Receivables		Other assets		Other accrued liabilities			Other liabilities
Interest rate swaps											$	—	$	—	$	(326	)	$	—
Foreign exchange forward contracts												47		—		—			—
Diesel fuel option collars and swaps												—		—		(3,364	)		(275	)
Propylene swaps												—		—		(11,704	)		(848	)
	Asset		(Liability)			Asset		(Liability)
											March 31, 2015
											Assets				Liabilities
(Amounts in thousands)											Receivables		Other assets		Other accrued liabilities			Other liabilities
Interest rate swaps	$	—	$	(1,001	)	$	—	$	(651	)	$	—	$	—	$	(150	)	$	(615	)
Diesel fuel option collars		—		—			—		(3,076	)
Foreign exchange forward contracts												28		—		—			—
Diesel fuel option collars and swaps												—		—		(1,883	)		(958	)
Propylene swaps		27					—		(2,060	)		—		—		(4,412	)		(730	)
Foreign currency forward contracts		—		—			256		(1,660	)

~~11.~~9.

COMMITMENTS AND CONTINGENCIES

~~Leases~~

~~We lease real estate, transportation, and office equipment under various noncancelable operating lease agreements that expire at various dates through fiscal year 2037.~~

Total rent expense was $5,667 and $3,577 for the three months ended December 31, 2013 and 2014, respectively, and $17,274 and $13,919 for the nine months ended December 31, 2013 and 2014, respectively.

Purchase Commitments

~~At December 31, 2014, commitments for the purchase of major property, plant, and equipment totaled approximately $8,560.~~

We will, from time to time, secure supplies of resin raw material by agreeing to purchase quantities during a future given period at a fixed price. These purchase contracts are short term in nature and occur in the ordinary course of business. Under such purchase contracts, we have agreed to purchase ~~28,000 pounds of~~ resin over the period January ~~2015~~2016 through December ~~2015~~2016 at a committed purchase cost of ~~$19,020.~~$24,240.

- 13 -

Litigation

On July 29, 2015, a putative stockholder class action, Christopher Wyche, individually and on behalf of all others similarly situated v. Advanced Drainage Systems, Inc., et al. (Case No. 1:15-cv-05955-KPF), was commenced in the U.S. District Court for the Southern District of New York, naming the Company, along with Joseph A. Chlapaty, the Company’s Chief Executive Officer, and Mark B. Sturgeon, the Company’s former Chief Financial Officer, as defendants and alleging violations of the federal securities laws. An amended complaint was filed on April 28, 2016. The amended complaint alleges that the Company made material misrepresentations and/or omissions of material fact in its public disclosures during the period from July 25, 2014 through March 29, 2016, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Plaintiffs seek an unspecified amount of monetary damages on behalf of the putative class and an award of costs and expenses, including counsel fees and expert fees. The Company believes that it has valid and meritorious defenses and will vigorously defend against these allegations, but litigation is subject to many uncertainties and the outcome of this matter is not predictable with assurance. While it is reasonably possible that this matter ultimately could be decided unfavorably to the Company, the Company is currently unable to estimate the range of the possible losses, but they could be material.

On August 12, 2015, the SEC Division of Enforcement (“Enforcement Division”) informed the Company that it was conducting an informal inquiry with respect to the Company. As part of this inquiry, the Enforcement Division requested the voluntary production of certain documents generally related to the Company’s accounting practices. Subsequent to the initial voluntary production request, the Company received document subpoenas from the Enforcement Division pursuant to a formal order of investigation. The Company has from the outset cooperated with the Enforcement Division’s investigation and intends to continue to do so. While it is reasonably possible that this investigation ultimately could be resolved unfavorably to the Company, the Company is currently unable to estimate the range of possible losses, but they could be material.

We ~~have been named as a defendant~~are involved from time to time in various legal proceedings that arise in the ordinary course of our business, including but not limited to commercial disputes, environmental matters, employee related claims, intellectual property disputes and litigation ~~matters. Management intends to defend these outstanding claims.~~in connection with transactions including acquisitions and divestitures. We believe ~~we have adequate accrued loss contingencies~~that such litigation, claims, and ~~that current or threatened litigation matters~~administrative proceedings will not have a material adverse impact on our ~~condensed consolidated~~financial position or our results of operations. We record a liability when a loss is considered probable, and the amount can be reasonably estimated. In management’s opinion, none of these proceedings are material in relation to our consolidated operations, cash flows, or ~~condensed consolidated~~ financial ~~condition. Management estimates the maximum~~position, and we have adequate accrued liabilities to cover our estimated probable loss ~~contingency is $420 and $442 at March 31, 2014 and December 31, 2014, respectively.~~

exposure.

~~- 18 -~~

~~12.~~10.

ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents the changes in ~~balances of each component~~the balance of Accumulated other comprehensive loss (“AOCL”) for the ~~periods~~nine months ending December ~~31:~~31, which consists entirely of foreign currency translation gains (losses):

(Amounts in thousands)    Currency
Translation    Other    Accumulated Other
Comprehensive
Loss
Balance at April 1, 2013
   $ (860 )    $ 4       $ (856 )






Other comprehensive loss before reclassifications
(6,875 ) 6    (6,869 )
Amounts reclassified from AOCL
—      —      —
Income tax expense (benefit)
1,605    (2 ) 1,603






Balance at December 31, 2013
$ (6,130 ) $ 8    $ (6,122 )













Balance at April 1, 2014
$ (5,985 ) 8    $ (5,977 )






Other comprehensive loss before reclassifications
(6,656 ) —      (6,656 )
Amounts reclassified from AOCL
—      —��    —
Income tax expense
2,065    —      2,065






Balance at December 31, 2014
$ (10,576 ) $ 8    $ (10,568 )


(Amounts in thousands)	Accumulated Other Comprehensive Loss
Balance at April 1, 2014	$	(6,830	)

Other comprehensive loss		(4,730	)

Balance at December 31, 2014	$	(11,560	)

Balance at April 1, 2015		(15,521	)

Other comprehensive loss		(10,601	)

Balance at December 31, 2015	$	(26,122	)

~~13.~~

~~REDEEMABLE CONVERTIBLE PREFERRED STOCK~~

The Trustee of the Company’s ESOP has the ability to put shares of our Redeemable Convertible Preferred Stock to the Company. The redeemable convertible preferred stock has a required cumulative 2.5% dividend and is convertible to common stock at a rate of one share for every 0.7692 share of common stock. We guarantee the value of the redeemable convertible preferred stock at $0.78 per share. The put option requirements of the Internal Revenue Code apply in the event that the Company’s common stock is not a registration type class of security or its trading has been restricted. Therefore, the holders of convertible preferred stock have a put right to require us to repurchase such shares in the event that our common stock is not listed for trading or otherwise quoted on the NYSE, AMEX, NASDAQ, or any other market more senior than the OTC Bulletin Board.

Given that the event may trigger redemption of the convertible preferred stock (the listing or quotation on a market more senior than the OTCBB) is not solely within our control, this results in the classification of our convertible preferred stock recorded in the mezzanine section of our Condensed Consolidated Balance Sheets as of December 31, 2014.

In accordance with ASC 480-10-S99, as of December 31, 2014, we did not adjust the carrying value of the convertible preferred stock to its redemption value or recognize any changes in fair value as we did not consider it probable that the convertible preferred stock would become redeemable.

~~14.~~

~~STOCK COMPENSATION~~

~~Deferred Compensation — Unearned ESOP Shares~~

The fair value of Redeemable Convertible Preferred Stock held by the ESOP trust, but not yet earned by the ESOP participants or used for dividends, is reported as Deferred compensation — unearned ESOP shares within the mezzanine equity section of our Condensed Consolidated Balance Sheets.

Compensation expense and related dividends paid with ESOP shares are recognized based upon the average annual fair value of the shares allocated. The shares allocated are for services rendered throughout the period and, therefore, a simple average is used to calculate average annual fair value. Deferred compensation – unearned ESOP shares are relieved at the fair value, with any difference between the average fair value and the fair value shares when allocated

~~- 19 -~~

being added to Additional paid in capital. The fair value of the shares allocated was $11.75 and $12.50 per share of Redeemable Convertible Preferred Stock at December 31, 2013 and 2014, respectively, resulting in an average fair value per share of $11.20 and $12.34 for the nine months ended December 31, 2013 and 2014, respectively. We recognized compensation expense of $2,317 and $2,690 for the three months ended December 31, 2013 and 2014, respectively, and $7,343 and $8,064 for the nine months ended December 31, 2013 and 2014, respectively, related to allocation of ESOP shares to participants for compensation.

~~Stock Options~~

Our 2000 stock option plan (“2000 Plan”) provides for the issuance of incentive common stock options and nonstatutory common stock options to management based upon the discretion of the Board of Directors. The plan generally provides for grants with the exercise price equal to fair value on the date of grant, which vest in three equal annual amounts beginning in year five and expire after 10 years from issuance.

In August 2013, a new stock option plan (“2013 Plan”) was approved by the Board of Directors and, as amended, provides for the issuance of up to 500 nonstatutory common stock options to management subject to the Board’s discretion. The plan generally provides for grants with the exercise price equal to fair value on the date of grant. The grants vest in five equal annual amounts beginning in year one and expire after 10 years from issuance. Options issued to the Chief Executive Officer vest equally over four years and expire after 10 years from issuance. In May 2014, the Board of Directors approved the increase of shares available for granting under the 2013 plan to 1,412 shares.

For both stock option plans, management determines the fair value of the options based on the Black-Scholes option pricing model. This methodology requires significant inputs including the fair value of our common stock, which is determined with the assistance of an independent appraisal performed by a reputable valuation firm. We recognized total stock-based compensation expense under both plans of $1,256 and $1,178 for the three months ended December 31, 2013 and 2014, respectively, and $1,502 and $3,596 for the nine months ended December 31, 2013 and 2014, respectively, which was included with General and administrative expenses in our Condensed Consolidated Statements of Income. As of December 31, 2013 and 2014, there was a total of $8,103 and $4,133, respectively, of unrecognized compensation expense related to unvested stock option awards that will be recognized as an expense as the awards vest over the remaining service period. We had approximately 1,097 and 1,412 shares available for granting under the 2000 and 2013 plans, respectively, as of December 31, 2014.

~~We estimate the fair value of stock options granted after April 1, 2006, using aBlack-Scholes~~ ~~option-pricing model, with assumptions as follows:~~

   December 31,
   2013 2014
Expected stock price volatility
   44 % 40 %
Risk-free interest rate
   2.3    2.1
Weighted-average expected option life (years)
   8    8
Dividend yield
   .84    .86

~~- 20 -~~

~~2000 Plan~~

~~The stock option transactions as of the nine months ended December 31 are summarized as follows:~~

   2013    2014
   Number
of Shares    Weighted
Average
Exercise
Price    Weighted
Average
Remaining
Contractual
Term    Number
of Shares    Weighted
Average
Exercise
Price    Weighted
Average
Remaining
Contractual
Term
Outstanding at beginning of period
   1,323       8.10       4.0       913       9.48       4.1
Issued
   14       13.64       —         78       15.74       —
Exercised
   141       6.82       —         87       7.56       —
Forfeited
   5       10.77       —         3       15.74       —





Outstanding at end of period
1,191    8.30    3.5    901    10.18    4.0





Exercisable and vested at end of period
791    6.84    1.9    826    9.68    3.5





Unvested at end of period
400    11.16    6.7    75    15.74    9.6





Vested and expected to vest at end of period
1,078    8.08    4.5    779    10.16    7.8

As a result of the 2014 Initial Public Offering (See Note 1), all unvested stock options from prior issuances immediately vested. A new grant of 78 shares was issued in August 2014 at a fair market value of $15.74 per share. Vesting on this issuance will be recognized as expense as the awards vest over the remaining service period.

~~The following table summarizes information about the nonvested stock option grants as of the nine months ended December 31, 2014:~~

   Number
of Shares    Weighted
Average Grant
Date Fair Value
Unvested at beginning of period
   428       $ 5.82
Granted
   78       6.76
Vested
   428       5.82
Forfeited
   3       6.76



Unvested at end of period
75    $ 6.76

~~- 21 -~~

~~2013 Plan~~

~~The stock option transactions as of the nine months ended December 31, 2014 for the 2013 Stock Option Plan are summarized as follows:~~

   2013    2014
   Number
of Shares    Weighted
Average
Exercise
Price    Weighted
Average
Remaining
Contractual
Term    Number
of Shares    Weighted
Average
Exercise
Price    Weighted
Average
Remaining
Contractual
Term
Outstanding at beginning of period
   —         —         —         1,911       13.64       9.4
Issued – equity classified
   1,440       13.64       —         —         —         —
Issued – liability classified
   518       13.64       —         —         —         —
Exercised
   —         13.64       —         —         —         —
Forfeited – equity classified
   47       13.64       —         —         —         —





Outstanding at end of period
   1,911       13.64       9.7       1,911       13.64       8.7





Exercisable and vested at end of period
   —         —         —         408       13.64       8.7





Unvested at end of period
   1,911       13.64       9.7       1,503       13.64       8.7





Vested and expected to vest at end of period
   1,704       13.64       9.7       1,881       13.64       8.7





Fair value of options granted during the period
   6.22       —         —         —         —         —

~~The following table summarizes information about the nonvested stock option grants as of December 31, 2014:~~

   Number
of Shares    Weighted
Average Grant
Date Fair Value
Unvested at beginning of period
   1,911       $ 6.22
Granted
   —         —
Vested
   408       13.64
Forfeited
   —         —



Unvested at end of period
   1,503       $ 6.22

~~Restricted Stock~~

On September 16, 2008, the Board of Directors adopted the restricted stock plan for which restricted stock awards may be granted to certain key employees. The restricted stock will vest ratably over a five-year period from the original restricted stock grant date with the risk of forfeiture being stipulated only by the employees’ continuous employment by ADS. A portion of the grants vested immediately. Under the restricted stock plan, the vested shares granted are considered issued and outstanding. Employees with restricted stock have the right to dividends on the shares awarded (vested and unvested) in addition to voting rights on nonforfeited shares. The Company recognized compensation expense of $(40) and $78 for the three months ended December 31, 2013 and 2014, respectively, and $1,138 and $1,626 for the nine months ended December 31, 2013 and 2014, respectively, relating to the issuance of these shares; of this amount, $385 and $0 relates to the restricted shares that vested immediately during the nine months ended December 31, 2013 and 2014, respectively. We had approximately 333 shares available for granting under this plan as of December 31, 2014.

~~- 22 -~~

~~The following table summarizes information about the unvested restricted stock grants as of December 31, 2014:~~

   Number
of Shares    Weighted
Average Grant
Date Fair Value
Unvested at beginning of period
   311       $ 12.40
Granted
   —         —
Vested
   123       10.99
Forfeited
   3       10.66



Unvested at end of period
185    $ 11.45

~~We expect most, if not all, restricted stock grants to vest.~~

~~As of December 31, 2014, there was approximately $1,723 of unrecognized compensation expense related to the restricted stock that will be recognized over the remaining service period.~~

~~Non-Employee Director Compensation Plan~~

On June 18, 2014, the Company amended its then-existing Stockholders’ Agreement to authorize shares of stock to be granted to non-employee members of its Board of Directors. The number of shares authorized amounted to 282. The shares typically vest one year from the date of issuance. Under this stock plan, the vested shares granted are considered issued and outstanding. Non-employee directors with this stock have the right to dividends on the shares awarded (vested and unvested) in addition to voting rights. On September 6, 2014, a total of 48 shares were granted to seven directors at a fair market value of $18.88 per share. These shares will vest on February 27, 2015. The Company recognized compensation expense of $0 and $286 for the three months ended December 31, 2013 and 2014, respectively, and $0 and $736 for the nine months ended December 31, 2013 and 2014, respectively, relating to the issuance of these shares. We had approximately 234 shares available for granting under this plan as of December 31, 2014.

~~The following table summarizes information about the unvested Non-Employee Director Compensation stock grants as of December 31, 2014:~~

   Number
of Shares    Weighted
Average Grant
Date Fair Value
Unvested at beginning of period
   —         $ —
Granted
   48       18.88
Vested
   —         —
Forfeited
   —         —



Unvested at end of period
48    $ 18.88

~~We expect all the stock grants to vest.~~

~~As of December 31, 2014, there was approximately $164 of unrecognized compensation expense related to the restricted stock that will be recognized over the remaining service period.~~

~~15.~~11.

INCOME TAXES

The Company’s effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and related tax rates in jurisdictions where it operates and other ~~one-time~~onetime charges, as well as discrete events, such as provision to return adjustments. For the nine months ended December 31, ~~2013~~2015 and 2014, the Company utilized an effective tax rate of ~~61.7%~~36.2% and ~~36.6%~~41.8%, respectively, to calculate its

~~- 23 -~~

provision for income taxes. These rates are higher than the federal statutory rate of 35% due ~~principally~~ to state and local taxes, partially offset by foreign income taxed at lower ~~rates. The effective tax rate for~~rates, and in the ~~first~~case of the nine months ended December 31, 2015, the reversal of ~~fiscal 2014 was primarily driven by~~uncertain tax position accruals as a result of the ~~expected special dividend payment to participants in~~lapse of the ESOP Plan, which increased the effective tax rate by 19%. In accordance with ASC 740-270, “Income Taxes – Interim Reporting,” the Company’s expected annual effective tax rate for fiscal year 2015 based on all known variables is 36.6%.statute of limitations.

- 14 -

~~16.~~12.

NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is calculated by dividing the Net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net income (loss) per share is computed by dividing the Net income attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period.

Holders of unvested restricted stock have nonforfeitable rights to dividends when declared on common stock, and holders of Redeemable ~~Convertible Preferred Stock~~convertible preferred stock participate in dividends on an as-converted basis when declared on common stock. As a result, unvested restricted stock and Redeemable ~~Convertible Preferred Stock~~convertible preferred stock meet the definition of participating securities, which requires us to apply the two-class method to compute both basic and diluted net income (loss) per share. The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that would otherwise have been available to common stockholders.

The dilutive effect of stock options and unvested restricted stock is based on the more dilutive of the treasury stock method or the diluted two-class method. In computing diluted net income (loss) per share, income available to common shareholders used in the basic net income (loss) per share calculation (numerator) is adjusted, subject to sequencing rules, for certain adjustments that would result from the assumed issuance of potential common shares. Diluted net income (loss) per share assumes the Redeemable ~~Convertible Preferred Stock~~convertible preferred stock would be cash settled through the effective date of the IPO on July 25, 2014, as we have the choice of settling in cash or shares and we have demonstrated past practice and intent of cash settlement. Therefore these shares are excluded from the calculation through the effective date of the IPO. After the effective date of the IPO, Management’s intent is to share settle; therefore, these shares are included in the calculation from July 26, 2014 through December 31, ~~2014,~~2015, if dilutive. For purposes of the calculation of diluted net income (loss) per share, stock options and unvested restricted stock are considered to be potential common stock and are only included in the calculations when their effect is dilutive.

~~The~~Prior to the effective date of the IPO, the Company’s Redeemable ~~Common Stock is~~common stock was included in the weighted-average number of common shares outstanding for calculating basic and diluted net income (loss) per share.

~~- 24 -~~

The following table presents information necessary to calculate net income (loss) per share for the three and nine months ended December 31, ~~2013~~2015 and 2014, as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding because their inclusion would have been anti-dilutive:

   Three Months Ended
December 31, Nine Months Ended
December 31,
(Amounts in thousands, except per share data)    2013 2014 2013 2014
NET (LOSS) INCOME PER SHARE - BASIC:

Net (loss) income attributable to ADS
   $ (10,324 ) $ (367 ) $ 23,294    $ 36,264
Adjustment for:

Change in fair value of Redeemable Convertible Preferred Stock
   (4,697 ) —      (8,492 ) (11,054 )
Dividends to Redeemable Convertible Preferred Stockholders
   (209 ) (298 ) (640 ) (377 )
Dividends paid to unvested restricted stockholders
   (8 ) (9 ) (47 ) (9 )


Net (loss) income available to common stockholders and participating securities
   (15,238 ) (674 ) 14,115    24,824
Undistributed income allocated to participating securities
   —      —      (1,184 ) (2,650 )


Net (loss) income available to common stockholders – Basic
   (15,238 ) (674 ) 12,931    22,174
Weighted average number of common shares outstanding – Basic
   47,251    52,986    46,976    50,691


Net (loss) income per common share – Basic
   $ (0.32 ) $ (0.01 ) $ 0.28    $ 0.44


NET (LOSS) INCOME PER SHARE - DILUTED:

Net (loss) income available to common stockholders – Basic
   $ (15,238 ) $ (674 ) $ 12,931    $ 22,174
Undistributed income allocated to participating securities
   —      —      —      —


Net (loss) income available to common stockholders – Diluted
   (15,238 ) (674 ) 12,931    22,174
Weighted average number of common shares outstanding – Basic
   47,251    52,986    46,976    50,691
Assumed conversion of preferred stock
   —      —      —      —
Assumed exercise of stock options
   —      —      504    515


��

Weighted average number of common shares outstanding – Diluted
   47,251    52,986    47,480    51,206


Net (loss) income per common share – Diluted
   $ (0.32 ) $ (0.01 ) $ 0.27    $ 0.43


Potentially dilutive securities excluded as anti-dilutive
   99    6,560    94    3,808


	Three Months Ended December 31,						Nine Months Ended December 31,
(Amounts in thousands, except per share data)	2015			2014			2015			2014
Net income (loss) per share - Basic
Net income (loss) attributable to ADS	$	7,976		$	(3,325	)	$	29,585		$	22,085
Adjustment for:
Accretion of redeemable noncontrolling interest		(329	)		—			(586	)		—
Change in fair value of redeemable convertible preferred stock		—			—			—			(11,054	)
Dividends to redeemable convertible preferred stock		(349	)		(298	)		(1,082	)		(377	)
Dividends paid to unvested restricted stockholders		(6	)		(9	)		(18	)		(9	)

Net income (loss) available to common stockholders and participating securities		7,292			(3,632	)		27,899			10,645
Undistributed income allocated to participating securities		(479	)		—			(2,159	)		(995	)

Net income (loss) available to common stockholders - Basic		6,813			(3,632	)		25,740			9,650
Weighted average number of common shares outstanding - Basic		54,133			52,986			53,880			50,691

Net income (loss) per common share - Basic	$	0.13		$	(0.07	)	$	0.48		$	0.19

Net income (loss) per share - Diluted
Net income (loss) available to common stockholders - Basic	$	6,813		$	(3,632	)	$	25,740		$	9,650
Amount allocated to participating preferred stockholders		—			—			2,116			—
Preferred stock dividends, net of tax		—			—			703			—
Tax benefit on an as if converted common dividend		—			—			107			—
Additional compensation for leverage ESOP		—			—			(506	)		—

Net income (loss) available to common stockholders - Diluted		6,813			(3,632	)		28,160			9,650
Weighted average number of common shares outstanding - Basic		54,133			52,986			53,880			50,691
Assumed conversion of preferred stock		—			—			6,417			—
Assumed exercise of stock options		394			—			397			515

Weighted average number of common shares outstanding - Diluted		54,527			52,986			60,694			51,206

Net income (loss) per common share - Diluted	$	0.12		$	(0.07	)	$	0.46		$	0.19

Potentially dilutive securities excluded as anti-dilutive		6,218			6,560			—			3,808

- 15 -

~~17.~~13.

BUSINESS SEGMENTS INFORMATION

We operate our business in two distinct operating and reportable segments based on the markets we serve: “Domestic” and “International”. The Chief Operating Decision Maker (“CODM”) evaluates segment reporting based on net sales and Segment ~~EBITDA and Segment~~ Adjusted EBITDA (a non-GAAP measure). We calculate Segment Adjusted EBITDA as net income or loss before interest, income taxes, depreciation and ~~amortization. We calculate Segment Adjusted EBITDA as Segment EBITDA before non-cash~~amortization, stock-based compensation expense, non-cash charges and certain other expenses.

Domestic -

Our Domestic segment manufactures and markets products throughout the United States. We maintain and serve these markets through strong product distribution relationships with many of the largest national and independent waterworks distributors, major national retailers as well as an extensive network of hundreds of small to medium-sized distributors across the U.S. We also sell through a broad variety of buying groups and co-ops

~~- 25 -~~

in the United States. Products include Singlewall pipe, N-12 HDPE pipe sold into the Storm sewer and Infrastructure markets, ~~N-12 High Performance~~high performance PP pipe sold into the Storm sewer and sanitary sewer markets, and our broad line of Allied Products including ~~Stormtech,~~StormTech, Nyloplast, Arc Septic Chambers, Inserta Tee, ~~Baysaver~~BaySaver filters and water quality structures, Fittings, and FleXstorm. Our Domestic segment sales are diversified across all regions of the country.

International -

Our International segment manufactures and markets products in regions outside of the United States, with a growth strategy focused on our owned facilities in Canada and through our joint-ventures, with ~~best-in-class~~ local partners in Mexico, Central America and South America. Our joint venture strategy provides us with local and regional access to new markets such as Brazil, Chile, Argentina, Peru and Colombia. ~~We have been serving the Canadian market through Hancor of Canada since 2003.~~ Our Mexican joint venture through ADS Mexicana primarily serves the Mexican markets, while our ~~joint venture through Tigre ADS~~South American Joint Venture is our primary channel to serve the South American markets. Our product line includes Singlewall pipe, N-12 HDPE pipe, and ~~N-12 High Performance~~high performance PP pipe. The Canadian market also sells our broad line of Allied Products, while sales in Latin America are currently concentrated in fittings and Nyloplast.

The following table sets forth reportable segment information with respect to the amount of net sales contributed by each class of similar products of our consolidated gross profit for the three and nine months ended December 31, ~~2013~~2015 and 2014, respectively:


	Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended December 31,				Nine Months Ended December 31,
(Amounts in thousands)	2013		2014		2013		2014		2015		2014		2015		2014
Domestic
Pipe		171,361		179,275		584,567		638,454	$	196,162	$	179,979	$	654,987	$	637,728
Allied Products		55,308		59,236		193,763		211,181		70,588		59,236		237,228		210,888

Total Domestic	$	226,669	$	238,511	$	778,330	$	849,635
Total domestic										266,750		239,215		892,215		848,616

International
Pipe		28,477		33,212		88,126		99,571		34,451		34,171		121,368		102,320
Allied Products		6,289		6,453		21,321		21,991		11,626		6,485		31,697		22,083

Total International	$	34,766	$	39,665		109,447		121,562
Total international										46,077		40,656		153,065		124,403

Total net sales	$	261,435	$	278,176	$	887,777	$	971,197	$	312,827	$	279,871	$	1,045,280	$	973,019

- 2616 -

The following sets forth certain additional financial information attributable to our reportable segments for the three and nine months ended December 31, ~~2013,~~2015 and 2014, respectively:


	Three Months Ended December 31,						Nine Months Ended December 31,						Three Months Ended December 31,						Nine Months Ended December 31,
(Amounts in thousands)	2013			2014			2013			2014			2015			2014			2015			2014
Net sales
Net Sales
Domestic		226,669			238,511			778,330			849,635		$	266,750		$	239,215		$	892,215		$	848,616
International		34,766			39,665			109,447			121,562			46,077			40,656			153,065			124,403

Total	$	261,435		$	278,176		$	887,777		$	971,197		$	312,827		$	279,871		$	1,045,280		$	973,019

Gross profit
Gross Profit
Domestic		42,588			43,549			165,418			182,911			64,948			41,764			198,082			161,405
International		7,176			6,568			23,568			21,681			8,375			7,414			31,562			18,394

Total	$	49,764		$	50,117		$	188,986		$	204,592		$	73,323		$	49,178		$	229,644		$	179,799

Segment Adjusted EBITDA
Domestic		26,362			25,405			118,242			127,298			43,996			30,298			141,946			125,195
International		3,096			2,279			12,325			10,049			4,201			3,500			19,005			8,932

Total	$	29,458		$	27,684		$	130,567		$	137,347		$	48,197		$	33,798		$	160,951		$	134,127

Interest expense, net
Domestic		3,882			4,047			11,815			12,985			4,606			4,613			13,544			14,675
International		11			9			45			24			117			18			412			51

Total	$	3,893		$	4,056		$	11,860		$	13,009		$	4,723		$	4,631		$	13,956		$	14,726

Capital expenditures
Domestic		4,841			4,822			24,087			19,657
International		556			1,012			3,010			1,820

Total	$	5,397		$	5,834		$	27,097		$	21,477

Depreciation and amortization
Domestic		12,870			12,262			38,439			37,214			15,221			14,742			46,880			44,338
International		1,187			1,242			3,606			3,776			2,081			1,376			6,427			4,181

Total	$	14,057		$	13,504		$	42,045		$	40,990		$	17,302		$	16,118		$	53,307		$	48,519

Equity in net income (loss) of unconsolidated affiliates
Domestic		112			(92	)		226			312			(99	)		(92	)		224			312
International		(481	)		(356	)		(940	)		(1,383	)		(818	)		(896	)		(1,159	)		(2,024	)

Total	$	(369	)	$	(448	)	$	(714	)	$	(1,071	)	$	(917	)	$	(988	)	$	(935	)	$	(1,712	)

Capital expenditures
Domestic														7,446			4,673			23,921			19,461
International														2,327			1,012			6,049			1,820

Total													$	9,773		$	5,685		$	29,970		$	21,281

The following sets forth certain additional financial information attributable to our reporting segments as of December 31, 2015 and March 31, ~~2014 and December 31, 2014, respectively~~2015, respectively.


	March 31, 2014			December 31, 2014			December 31, 2015			March 31, 2015
Investment in unconsolidated affiliates
Domestic	$	5,202		$	8,531		$	2,976		$	7,957
International		20,029			21,127			13,739			17,081

Total	$	25,231		$	29,658		$	16,715		$	25,038

Total identifiable assets
Domestic	$	835,736		$	807,188		$	906,408		$	942,267
International		115,167			117,646			144,571			168,624
Eliminations		(13,308	)		(13,199	)		(50,132	)		(69,193	)

Total	$	937,595		$	911,635		$	1,000,847		$	1,041,699

- 2717 -

Reconciliation of ~~Segment EBITDA and~~ Segment Adjusted EBITDA to Net (Loss) Income

   Three Months Ended December 31,
(Amounts in thousands)    2013    2014
   Domestic    International    Domestic    International
Reconciliation of Segment EBITDA and Segment Adjusted EBITDA to Net (Loss) Income:

Net (loss) income attributable to ADS
   $ (10,840 )    $ 516       $ (935 )    $ 568
Depreciation and amortization ^(a)
   12,868       1,543       12,465       1,633
Interest expense, net
   3,882       11       4,047       9
Income tax expense (benefit)
   17,103       434       (1,495 )    247








Segment EBITDA
23,013    2,504    14,082    2,457
Derivative fair value adjustments
(184 ) —      6,310    (256 )
Foreign currency transaction losses (gains)
—      338    —      (561 )
Unconsolidated affiliates interest and tax
—      119    445    315
Management fee to minority interest holder JV
—      135    —      324
Share-based compensation
1,216    —      1,542    —
ESOP deferred compensation
2,317    —      2,690    —
Transaction costs^(b)
—      —      336    —








Segment Adjusted EBITDA
$ 26,362    $ 3,096    $ 25,405    $ 2,279


	Three Months Ended December 31,
	2015						2014
(Amounts in thousands)	Domestic			International			Domestic			International
Net income (loss)	$	9,548		$	(1,761	)	$	(3,911	)	$	1,958
Depreciation and amortization		15,221			2,081			14,742			1,376
Interest expense		4,606			117			4,613			18
Income tax expense		5,206			2,894			3,160			247

Segment EBITDA		34,581			3,331			18,604			3,599
Derivative fair value adjustment		(1,733	)		(51	)		6,310			(256	)
Foreign currency transaction losses (gains)		—			569			—			(561	)
(Gain) loss on disposal of assets or businesses		(546	)		(57	)		175			18
Unconsolidated affiliates interest, tax depreciation and amortization^(a)		223			409			648			700
Contingent consideration remeasurement		14			—			(7	)		—
Stock-based compensation		714			—			1,542			—
ESOP deferred stock-based compensation		3,125			—			2,690			—
Restatement costs^(b)		7,618			—			—			—
Transaction costs^(c)		—			—			336			—

Segment Adjusted EBITDA	$	43,996		$	4,201		$	30,298		$	3,500

~~(a)~~a)

Includes our ~~proportionate~~proportional share of interest, income taxes, depreciation and amortization ~~expense of $354 and $594~~ related to our South American ~~joint venture, BaySaver joint venture~~Joint Venture and our Tigre-ADS USA ~~joint venture,~~Joint Venture, which ~~is included in Equity in net loss~~are accounted for under the equity method of ~~unconsolidated affiliates in~~accounting. In addition, these amounts include our ~~Condensed Consolidated Statements~~proportional share of ~~Income~~interest, income taxes, depreciation and amortization related to our BaySaver Joint Venture prior to our acquisition of BaySaver on July 17, 2015, which was previously accounted for under the ~~three months ended December 31, 2013 and 2014, respectively.~~equity method of accounting.

~~(b)~~b)

Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with the restatement of our prior period financial statements as reflected in the Fiscal 2015 Form 10-K.

c)	Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our ~~debt refinancing and completion of the IPO and Secondary Public Offering.~~secondary public offering in fiscal year 2015.

~~Reconciliation of Segment EBITDA and Segment Adjusted EBITDA to Net Income~~

   Nine Months Ended December 31,
(Amounts in thousands)    2013    2014
   Domestic    International    Domestic    International
Reconciliation of Segment EBITDA and Segment Adjusted EBITDA to Net Income:

Net income attributable to ADS
   $ 18,835       $ 4,459       $ 33,119       $ 3,145
Depreciation and amortization ^(a)
   38,439       4,637       37,863       4,993
Interest expense, net
   11,815       45       12,985       24
Income tax expense
   38,998       1,847       21,246       1,263








Segment EBITDA
108,087    10,988    105,213    9,425
Derivative fair value adjustments
54    —      6,473    (256 )
Foreign currency transaction losses (gains)
—      251    —      (636 )
Unconsolidated affiliates interest and tax
—      347    539    634
Management fee to minority interest holder JV
—      739    —      882
Share-based compensation
2,640    —      5,958    —
ESOP deferred compensation
7,343    —      8,064    —
Transaction costs^(b)
118    —      1,051    —








Segment Adjusted EBITDA
$ 118,242    $ 12,325    $ 127,298    $ 10,049


	Nine Months Ended December 31,
	2015					2014
(Amounts in thousands)	Domestic		International			Domestic			International
Net income	$	26,312	$	7,754		$	21,535		$	4,950
Depreciation and amortization		46,880		6,427			44,338			4,181
Interest expense		13,544		412			14,675			51
Income tax expense		17,408		2,431			21,471			(1,245	)

Segment EBITDA		104,144		17,024			102,019			7,937
Derivative fair value adjustment		7,768		(18	)		6,473			(256	)
Foreign currency transaction losses (gains)		—		735			—			(636	)
Loss (gain) on disposal of assets or businesses		795		(237	)		486			52
Unconsolidated affiliates interest, tax depreciation and amortization^(a)		769		1,501			1,188			1,835
Contingent consideration remeasurement		114		—			(5	)		—
Stock-based compensation		2,163		—			5,919			—
ESOP deferred stock-based compensation		9,375		—			8,064			—
Loss related to BaySaver step acquisition		490		—			—			—
Restatement costs^(b)		16,328		—			—			—
Transaction costs^(c)		—		—			1,051			—

Segment Adjusted EBITDA	$	141,946	$	19,005		$	125,195		$	8,932

~~(a)~~a)

Includes our ~~proportionate~~proportional share of interest, income taxes, depreciation and amortization ~~expense of $1,031 and $1,866~~ related to our South American ~~joint venture, BaySaver joint venture~~Joint Venture and our Tigre-ADS USA ~~joint venture,~~Joint Venture, which ~~is included~~are accounted for under the equity method of accounting. In addition, these amounts include our proportional share of interest, income taxes, depreciation and amortization related to our BaySaver Joint Venture prior to our acquisition of BaySaver on July 17, 2015, which was previously accounted for under the equity method of accounting.

- 18 -

Represents expenses recorded related to legal, accounting and other professional fees incurred in ~~Equity~~connection with the restatement of our prior period financial statements as reflected in ~~net loss of unconsolidated affiliates in our Condensed Consolidated Statements of Income for~~ the ~~nine months ended December 31, 2013 and 2014, respectively.~~Fiscal 2015 Form 10-K.

~~(b)~~c)

Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our ~~debt refinancing and completion of the~~ IPO and ~~Secondary Public Offering.~~secondary public offering in fiscal year 2015.

14.	SUPPLEMENTAL CASH FLOW INFORMATION

During the nine months ended December 31, 2015 and 2014, the Company acquired Property, plant and equipment under capital lease and incurred lease obligations of $28,109 and $22,531, respectively.

~~- 28 -~~

~~18.~~15.

SUBSEQUENT EVENTS

~~ASC 855, “Subsequent Events” (“ASC 855”~~Subsequent Events Related to the Bank Term Loans and Senior Notes

Our long-term debt primarily consists of amounts outstanding under a Revolving Credit Facility with borrowing capacity of $325,000 for ADS, Inc., a Revolving Credit Facility for ADS-Mexicana with borrowing capacity of $12,000, and a $100,000 term note (collectively, the “Bank Term Loans”), ~~establishes general standards~~and the $100,000 of ~~accounting~~outstanding senior promissory notes (“Senior Notes”). The amendments and ~~disclosure~~consents described below that occurred between July 2015 and February 2016 related to the delay in the filing of ~~events that occur after~~ the ~~balance sheet date but before~~fiscal year 2015 Form 10-K, and the restatement of the Company’s previously issued financial statements ~~are issued or available to be issued. ASC 855 requires~~(the “Restatement”) as reflected in the Fiscal 2015 Form 10-K, which was filed in March 2016.

From July 2015 through December 2015, the Company ~~to evaluate events that occur after~~obtained various consents from the ~~balance sheet date through~~lenders and amended the ~~date~~Bank Term Loans and Senior Notes. These consents and the ~~Company’s~~additional amendments had the effect of: (i) extending the time for delivery of our fiscal 2015 audited financial statements ~~are issued,~~ and ~~to determine whether adjustments to or additional disclosures in~~ the first and second quarter fiscal 2016 quarterly financial statements ~~are necessary. The Company has evaluated subsequent events through the date these~~to January 31, 2016, whereby an event of default was waived as long as those financial statements were ~~issued.~~

~~On January 30, 2015, Hancor~~delivered within the thirty day grace period after that date, (ii) modified certain definitions applicable to the Company’s affirmative and negative financial covenants, including the negative covenant on indebtedness, to accommodate the Company’s treatment of ~~Canada, a wholly-owned subsidiary~~its transportation and equipment leases as capital leases rather than operating leases and to accommodate the treatment of the costs related to the Company’s restatement, and (iii) permitted the Company’s payment of quarterly dividends on common shares in June, August and December 2015.

In February 2016, the Company ~~acquired all issued~~entered into additional amended agreements related to the Bank Term Loans and ~~outstanding shares~~Senior Notes that further extend the time for delivery of ~~Ideal Drain Tile Limited~~its fiscal 2015 audited financial statements and ~~Wave Plastics Inc.,~~ the ~~sole partners of Ideal Pipe of Canada. Ideal Pipe designs, manufactures~~first and markets high performance thermoplastic corrugated pipe and related water management products used across a broad range of Canadian end markets and applications, including non-residential, residential, agriculture, and infrastructure applications. The acquisition further strengthens our positions in Canada by increasing our size and scale in the market,second quarter fiscal 2016 quarterly financial statements, as well as ~~enhancing our manufacturing, marketing~~to extend the time for delivery of its third quarter fiscal 2016 quarterly financial statements. The February 2016 amended agreements extended the time for delivery of the fiscal 2015 audited financial statements and ~~distribution capabilities. The purchase price~~the first, second and third quarter fiscal 2016 quarterly financial statements to April 1, 2016, whereby an event of ~~Ideal Pipe~~default was waived as long as those financial statements were delivered by that date without regard to any grace period. As part of ~~Canada was $56,800 Canadian dollars, financed through our existing line~~the February 2016 amended agreements, the lenders also consented to the Company’s payment of ~~credit facility. We acquired certain assets~~the previously declared annual dividend of $0.0195 per share to be paid on shares of preferred stock in March 2016.

Subsequent Event Related to ADS Mexicana Scotia Bank Revolving Credit Facility

On May 27, 2016, ADS Mexicana obtained a waiver on a covenant from Scotia Bank relating to ADS Mexicana failing to notify Scotia Bank of changes in legal organizational structure and liabilities including accounts receivable, inventory, property plant and equipment, intangible and other assets and accrued liabilities. The Company will account for this acquisition in accordance with ASC 805. Pro forma results and other expanded disclosures prescribed by ASC 805 have not been presented as the Company has not begun the processpayment of ~~completing the preliminary purchase accounting.~~dividends.

- 2919 -

Item 2.

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

Our fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, references to “year” pertain to our fiscal year. For example, ~~2015~~2016 refers to fiscal ~~2015,~~2016, which is the period from April 1, ~~2014~~2015 to March 31, ~~2015.~~2016.

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our condensed consolidated financial statements and related footnotes included elsewhere in this report and with our audited consolidated financial statements included in our ~~prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission (the “SEC”) on July 28, 2014.~~Fiscal 2015 Form 10-K. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in the forward-looking statements. For more information, see the section below entitled “Forward Looking Statements.”

We consolidate all of our joint ventures for purposes of GAAP, except for our South American ~~Joint Venture, our BaySaver~~ Joint Venture and our Tigre-ADS USA Joint Venture.

Overview

We are the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management products and superior drainage solutions for use in the construction and infrastructure marketplace. Our innovative products are used across a broad range of end markets and applications, including non-residential, residential, agriculture and infrastructure applications. We have established a leading position in many of these end markets by leveraging our national sales and distribution platform, our overall product breadth and scale and our manufacturing excellence. In North America, our national footprint combined with our strong local presence and broad product offering makes us the leader in an otherwise highly fragmented sector comprised of many smaller competitors. We believe the markets we serve in the United States represent approximately ~~$12.0~~$10.5 billion of annual revenue opportunity. In addition, we believe the increasing acceptance of thermoplastic pipe products in international markets represents an attractive growth opportunity.

Our products are generally lighter, more durable, more cost effective and easier to install than comparable alternatives made with traditional materials. Following our entrance into the non-residential construction market with the introduction of N-12 corrugated polyethylene pipe in the late 1980s, our pipe has been displacing traditional materials, such as reinforced concrete, corrugated steel and PVC, across an ever expanding range of end markets. This has allowed us to consistently gain share and achieve above market growth throughout economic cycles. We expect to continue to drive conversion to our products from traditional products as contractors, civil design engineers and municipal agencies increasingly acknowledge the superior physical attributes and compelling value proposition of our thermoplastic products. In addition, we believe that overall demand for our products will benefit as the regulatory environment continues to evolve.

Our broad product line includes corrugated high density polyethylene (or ~~HDPE)~~“HDPE”) pipe, polypropylene (or ~~PP)~~“PP”) pipe and related water management products. Building on our core drainage businesses, we have aggressively pursued attractive ancillary product categories such as storm and septic chambers, PVC drainage structures, fittings and filters, and water quality filters and separators. We refer to these ancillary product categories as Allied Products. Given the scope of our overall sales and distribution platform, we have been able to drive growth within our Allied Products and believe there are significant growth opportunities going forward.

Recent Developments

2014 Initial Public Offering (“IPO”)

~~- 30 -~~

On July ~~30,~~25, 2014, we completed the IPO of our common stock, which resulted in the sale by the Company of ~~5,289~~5,289,474 shares ~~bringing the total number~~ of ~~shares issued and outstanding as of July 30, 2014 to 52,881.~~common stock. We received total proceeds from the IPO of $79.1 million after excluding underwriter discounts and commissions of $5.5 million, based upon the price to the public of $16.00 per share. After deducting other offering expenses of ~~approximately $7.0~~$6.9 million, we used the net proceeds of ~~$72.1~~$72.2 million to reduce the outstanding indebtedness under the revolving portion of our credit facility. The common stock is listed on the ~~New York Stock Exchange~~NYSE under the symbol “WMS.”

On August 22, 2014, an additional ~~600~~600,000 shares of common stock were sold by certain selling stockholders of the Company as a result of the partial exercise by the underwriters of the over-allotment option granted by the selling stockholders to the underwriters in connection with the IPO. The shares were sold at the public offering price of $16.00 per share. The Company did not receive any proceeds from the sale of such additional shares.

- 20 -

2014 Secondary Public Offering (“Secondary Public Offering”)

On December 9, 2014, we completed a Secondary Public Offering of our common stock, which resulted in the sale of ~~10,000~~10,000,000 shares of common stock by a certain selling stockholder of the Company at a public offering price of ~~$21.25.~~$21.25 per share. We did not receive any proceeds from the sale of shares by the selling stockholder. ~~A registration statement related to these securities was declared effective by the SEC on December 3, 2014.~~

On December 15, 2014, an additional ~~1,500~~1,500,000 shares of common stock were sold by a certain selling stockholder of the Company as a result of the full exercise by the underwriters of the over-allotment option granted by the selling stockholder to the underwriters in connection with the Secondary Public Offering. The shares were sold at the public offering price of $21.25 per share. The Company did not receive any proceeds from the sale of such additional shares.

Acquisition of Ideal Pipe

On January 30, 2015, Hancor of Canada, Inc., a wholly-owned subsidiary of the Company, acquired all issued and outstanding shares of Ideal Drain Tile Limited and Wave Plastics Inc., the sole partners of Ideal Pipe (together “Ideal Pipe”) for a contractual purchase price of $55.7 million Canadian dollars, financed through our existing line of credit facility. Ideal Pipe designs, manufactures and markets high performance thermoplastic corrugated pipe and related water management products used across a broad range of Canadian end markets and applications, including nonresidential, residential, agriculture, and infrastructure applications. The acquisition further strengthens our positions in Canada by increasing our size and scale in the market, as well as enhancing our manufacturing, marketing and distribution capabilities. The results of operations of Ideal Pipe are included in our Condensed Consolidated Statements of Operations after January 30, 2015.

~~- 31 -~~Acquisition of BaySaver

On July 17, 2015, ADS Ventures, Inc. (“ADS/V”), a wholly-owned subsidiary of the Company, acquired an additional 10% of the issued and outstanding membership interests in BaySaver, for a purchase price of $3.2 million, subject to certain post-closing purchase price payments, which was financed through our existing line of credit facility. The BaySaver joint venture was established in July 2013 to design, engineer, manufacture, market and sell water quality filters and separators used in the removal of sediment and pollution from storm water anywhere in the world except New Zealand, Australia and South Africa. The Company originally contributed $3.5 million in cash, $1.3 million in inventory, and intangible assets with no carrying value, in exchange for a 55% equity interest and a 50% voting interest in BaySaver. Concurrent with the additional investment in July 2015, we also entered into an amendment to the BaySaver joint venture agreement to modify the voting rights for the joint venture from an equal vote for each member to a vote based upon the ownership interest. As a result, the Company increased its ownership interest in BaySaver to 65% and obtained the majority of the voting rights.

While we had previously accounted for our investment in BaySaver under the equity method of accounting, we have concluded that the additional investment results in a step acquisition of BaySaver that will be treated as a business combination. As a result, our condensed consolidated financial statements include the consolidation of BaySaver’s financial statements beginning on July 17, 2015. The accounting for the step acquisition resulted in the Company recognizing a loss of $0.5 million in the period of acquisition due to the remeasurement to fair value of our prior equity interest, which is included in Derivative losses and other expense, net in our Condensed Consolidated Statements of Operations.

Results of Operations

Three Months Ended December 31, ~~2014~~2015 Compared With Three Months Ended December 31, ~~2013~~2014

The following tables summarize certain financial information relating to our operating results that have been derived from our condensed consolidated financial statements for the three months ended December 31, ~~2014~~2015 and ~~2013.~~2014. Also included is certain information relating to the operating results as a percentage of net sales. ~~We believe this presentation is useful to investors in comparing historical results.~~

(Amounts in thousands)    Three Months Ended
December 31, 2013 % of
Net
Sales Three Months Ended
December 31, 2014 % of
Net
Sales %
Variance
Net Sales
   $ 261,435    100.0 % $ 278,176    100.0 % 6.4 %
Cost of goods sold
   211,671    81.0    228,059    82.0    7.7


Gross Profit
   49,764    19.0    50,117    18.0    0.7
Selling expenses
   16,590    6.3    19,275    6.9    16.2
General and administrative expenses
   18,778    7.2    19,519    7.0    3.9
Intangible amortization
   2,854    1.1    2,356    0.8    (17.4 )


Income from operations
   11,542    4.4    8,967    3.3    (22.3 )
Interest expense
   3,893    1.5    4,056    1.5    4.2
Other miscellaneous (income) expense, net
   (418 ) (0.2 ) 5,212    1.9    (1,346.9 )


Income (loss) before income taxes
   8,067    3.1    (301 ) (0.1 ) (103.7 )
Income tax expense (benefit)
   17,537    6.7    (1,248 ) (0.4 ) (107.1 )
Equity in net loss of unconsolidated affiliates
   369    0.1    448    0.2    21.4


Net (loss) income
   (9,839 ) (3.8 ) 499    (0.3 ) (105.1 )
Less net income attributable to the non-controlling interests
   485    0.2    866    0.3    78.6


Net loss attributable to ADS
   $ (10,324 ) (3.9 )% $ (367 ) 0.0 % (96.4 )


Other financial data:

Adjusted EBITDA^(a)
   29,458    11.3 % 27,684    10.0 % (6.0 )%
System-Wide Net Sales^(a)
   278,040    106.4 % 299,740    107.8 % 7.8 %
Adjusted Earnings Per Fully Converted Share – Basic ^(a)
   $ (0.12 ) —      $ 0.03    —      125.0 %


(Amounts in thousands, except per share data)	Three Months Ended December 31, 2015			% of Net Sales			Three Months Ended December 31, 2014		% of Net Sales			% Variance
Consolidated Statements of Operations data:
Net sales	$	312,827			100.0	%	$	279,871		100.0	%		11.8	%
Cost of goods sold		239,504			76.6	%		230,693		82.4	%		3.8	%

Gross profit		73,323			23.4	%		49,178		17.6	%		49.1	%
Selling expenses		21,880			7.0	%		19,913		7.1	%		9.9	%
General and administrative expenses		25,776			8.2	%		14,115		5.0	%		82.6	%
(Gain) loss on disposal of assets or businesses		(603	)		(0.2	%)		193		0.1	%		(412.4	%)
Intangible amortization		2,182			0.7	%		2,328		0.8	%		(6.3	%)

- 21 -


(Amounts in thousands)	Three Months Ended December 31, 2015			% of Net Sales			Three Months Ended December 31, 2014			% of Net Sales			% Variance
Income from operations		24,088			7.7	%		12,629			4.5	%		90.7	%
Interest expense		4,723			1.5	%		4,631			1.7	%		2.0	%
Derivative losses and other expense, net		2,561			0.8	%		5,556			2.0	%		(53.9	%)

Income before income taxes		16,804			5.4	%		2,442			0.9	%		588.1	%
Income tax expense		8,100			2.6	%		3,407			1.2	%		137.7	%
Equity in net loss of unconsolidated affiliates		917			0.3	%		988			0.4	%		(7.2	%)

Net income (loss)		7,787			2.5	%		(1,953	)		(0.7	%)		(498.7	%)
Less net (loss) income attributable to noncontrolling interest		(189	)		(0.1	%)		1,372			0.5	%		(113.8	%)

Net income (loss) attributable to ADS	$	7,976			2.6	%	$	(3,325	)		(1.2	%)		(339.9	%)

Other financial data:
Adjusted EBITDA^(a)	$	48,197			15.4	%	$	33,798			12.1	%		42.6	%
System-Wide Net Sales^(a)	$	330,866			105.8	%	$	301,435			107.7	%		9.8	%
Adjusted Earnings Per Fully Converted Share^(a)	$	0.15			—		$	(0.01	)		—			*

(a)	See section entitled “Non-GAAP Financial Measures” for further information.

*	not meaningful

Net sales


	Three Months Ended December 31,				Three Months Ended December 31,
(Amounts in thousands)	2013		2014		2015		2014		% Variance
Domestic
Pipe	$	171,361	$	179,275	$	196,162	$	179,979		9.0	%
Allied Products		55,308		59,236		70,588		59,236		19.2	%

Total Domestic		226,669		238,511
Total domestic						266,750		239,215		11.5	%

International
Pipe		28,477		33,212		34,451		34,171		0.8	%
Allied Products		6,289		6,453		11,626		6,485		79.3	%

Total International		34,766		39,665
Total international						46,077		40,656		13.3	%

Total Consolidated Net Sales	$	261,435	$	278,176
Total net sales					$	312,827	$	279,871		11.8	%

Net sales for the ~~third~~ quarter ended December 31, ~~2014~~2015 totaled ~~$278.2~~$312.8 million, increasing ~~$16.7~~$32.9 million, or ~~6.4%~~11.8%, over the comparable prior year period.

~~- 32 -~~

Domestic net sales increased ~~$11.8~~$27.6 million, or ~~5.2%~~11.5%, for the third quarter ended December 31, ~~2014,~~2015, as compared to the comparable prior year period. The increase in domestic sales was due to continued ~~strong sales~~ growth in the non-residential, ~~(up 10.4%)~~residential and ~~residential (up 8.8%) markets; offsetting~~infrastructure markets and a ~~1.2% and 4.9% decline~~modest increase in ~~infrastructure and~~ agricultural ~~sales, respectively. The~~sales. All domestic end markets also benefitted from mild winter weather at the end of the quarter. Of the $27.6 million in sales growth, ~~was broken down~~the breakdown between our ~~pipe~~Pipe and Allied Products ~~which increased $7.9~~reflected increases of $16.2 million and ~~$3.9~~$11.4 million, ~~respectively, for~~respectively. Pipe sales were helped by a volume increase of 12.2% compared to the ~~three months ended December 31, 2014. Domestic pipe sales increased $7.9 million, or 4.6%, due to continued growth~~comparable period in ~~our N-12 and N-12 HP product lines offsetting lower agricultural singlewall sales.~~the prior year, offset by a decrease in Pipe selling prices ~~increased 4.4% as~~of 2.9% compared to the comparable prior ~~year.~~year period. Allied Product sales increased ~~$3.9~~19.2% which included the addition of $3.3 million ~~or 7.1%, led by~~in sales from the acquisition of BaySaver as well as strong gains in our ~~Nyloplast,~~ StormTech, ~~Inserta Tee~~Fittings, and ~~FleXstorm~~Nyloplast product lines. Excluding $1.8 million of Allied Product lines sold in third quarter fiscal 2014, Allied Product sales increased $5.7 million, or 10.7%, for the three months ended December 31, 2014 as compared to prior year sales of continuing products.

International net sales for the third quarter ended December 31, ~~2014~~2015 increased ~~$4.9~~$5.4 million, or ~~14.1%~~13.3%, over the comparable fiscal year ~~2014~~2015 period. The growth was primarily due to increased sales in Canada ~~and Mexico. Strong~~of $11.5 million as a result of the Ideal Pipe acquisition, offsetting soft sales performance in Mexico which declined by $5.5 million during the ~~Canadian agricultural markets~~three months ended December 31, 2015 as ~~well as continued acceptance and sales growth of Allied Products across all end markets led~~compared to the ~~increase in third quarter net sales, offsetting the negative currency impact of the weakening Canadian dollar. Improved~~comparable prior year period. Slower public spending ~~and continued positive sales momentum in the electrical conduit market were~~was the main ~~factors~~factor for the decline in ~~increased~~ third quarter net sales in Mexico versus the comparable prior year period. In addition, the Canadian dollar was approximately 15% weaker against the U.S. dollar in the three month period ended December 31, 2015, compared to the three month period ended December 31, 2014, which had a negative impact on Net sales for Canada of $5.0 million during the three month period ended December 31, 2015.

- 22 -

System-Wide Net Sales for the third quarter ended December 31, ~~2014~~2015 were ~~$299.7~~$330.9 million, ana net increase of ~~$21.7~~$29.5 million, or ~~7.8%~~9.8%, over System-Wide Net Sales of ~~$278.0~~$301.4 million for the third quarter of fiscal ~~2014.~~2015. Net sales at our South American Joint Venture operation were ~~up slightly compared to~~down $1.4 million or 9.3% over the comparable prior year period. ~~Net~~This decrease was offset by an increase in net sales ~~growth from~~at our domestic joint ventures (Tigre-ADS USA and Baysaver) provided a combined increase of $4.5 million in net sales for the unconsolidated joint ventures for the three months ended December 31 2014, as compared to the prior year period. Ourventure, Tigre-ADS USA, ~~Joint Venture was formed in the first quarter~~ of ~~fiscal year 2015 and our Baysaver Joint Venture was formed in the second quarter of fiscal year 2014.~~

~~Gross profit~~

~~Gross profit for the third quarter ended December 31, 2014 increased $0.4 million, or 0.7%, over the comparable period for fiscal year 2014.~~

~~Domestic gross profit increased $1.0 million, or 2.3%, to $43.6~~$0.9 million for the three months ended December 31 ~~2014~~2015, as compared to ~~$42.6 million~~the prior fiscal year period. The company acquired a controlling interest in BaySaver during the ~~prior year. The increase was primarily due to~~second fiscal quarter of fiscal year 2016 and those sales ~~growth~~are now included in ~~our higher margin Allied Product lines, which increased gross margin by~~the Company’s consolidated net sales. During the comparable fiscal year 2015 period BaySaver contributed $2.9 million ~~partially offset by a decrease~~ in ~~the pipe product gross margin~~sales.

Cost of ~~$1.9~~goods sold and Gross profit

Cost of Goods Sold increased $8.8 million or 3.8% to $239.5 million for the three months ended December 31, ~~2014~~2015 compared to $230.7 million over the comparable fiscal year 2015 period.

Gross profit for the three months ended December 31, 2015 increased $24.1 million or 49.1% over the comparable fiscal year 2015 period. Gross profit as a percentage of net sales totaled 23.4% for the three months ended December 31, 2015 as compared to 17.6% for the ~~prior year. Raw material prices~~comparable fiscal year 2015 period.

Domestic gross profit increased ~~13.6%~~$23.1 million, or 55.5%, to $64.9 million for the three months ended December 31, 2015 as compared to $41.8 million during the comparable prior year period. In addition to the impact of the 11.5% increase in domestic net sales over the comparable fiscal year 2015 period, ~~due to~~the increase was driven by a reduction of 14.0% in the cost of pipe resin used in products sold during the quarter versus the comparable prior year period. Both virgin and non-virgin resin prices ~~spiking higher in~~continued to decline during the third quarter of fiscal ~~2015.~~2016. Freight costs totaled ~~9.1%~~9.7% of domestic net sales for the three months ended December 31, ~~2014,~~2015, compared to ~~10.3%~~9.5% for the prior year ~~period helped by~~period. The higher costs relate to increased depreciation charges associated with new tractors and trailers added to the delivery fleet which offset the benefit of diesel fuel prices moving lower ~~late in~~throughout the quarter. Diesel prices declined approximately 30.0% compared to the prior year period.

International gross profit ~~decreased $0.6~~increased $1.0 million, or ~~8.5%~~13.0%, for the third quarter of fiscal year ~~2015~~2016 over the comparable fiscal year ~~2014 period despite~~2015 period. This was the ~~strong sales growth~~result of the impact of the 13.3% increase in ~~the quarter due to margin pressures.~~international net sales. Gross profit margins were negatively impacted by the continued devaluation of the Canadian dollar versus the U.S. dollar ~~and its impact on overall~~as revenue from our Canadian ~~market selling prices~~subsidiaries is transacted in the ~~third quarter. Raw~~Canadian dollar whereas the cost of raw material ~~prices (which are primarily purchased~~is substantially transacted in U.S. ~~dollars for all International operations) also moved sharply higher, further contributing to the declining gross profit for the three months ended December 31, 2014.~~

~~Gross margin as a percentage of net sales totaled 18.0% for the third quarter ended December 31, 2014 as compared to 19.0% for the comparable third quarter fiscal 2014.~~dollars.

Selling expenses

Selling expenses consist of field selling and customer service ~~and commission~~ expenditures for personnel engaged in sales and sales support functions. Field selling and customer service expenditures primarily consists of personnel costs (salaries, benefits, and variable sales commissions), travel and entertainment expenses, marketing, promotion, and advertising expenses, as well as bad debt provisions.

~~- 33 -~~

Selling expenses for the three months ended December 31, ~~2014~~2015 increased ~~$2.7~~$2.0 million, or ~~16.2%~~9.9%, over the comparable fiscal year ~~2014~~2015 period. The increase was primarily the result of increases in variable selling expenses due to higher sales volume and investments in additional sales coverage and growth initiatives. As a percentage of ~~Net~~net sales, selling expenses ~~increased~~decreased slightly to ~~6.9%~~7.0% for the third quarter of fiscal 2015 as compared to ~~6.3% in~~7.1% for the comparable prior ~~year.~~year period.

General and administrative expenses

General and administrative expenses consists of personnel costs (salaries, benefits, and other personnel-related expenses, including ~~stock based~~stock-based compensation), recruitment and relocation expenses, accounting and legal fees, business travel expenses, rent and utilities for the administrative offices, director fees, investor relations, membership fees, office supplies, insurance and other miscellaneous expenses.

General and administrative expenses for the three months ended December 31, ~~2014~~2015 increased ~~$0.7~~$11.7 million, or ~~3.9%~~82.6%, over the comparable fiscal year ~~2014~~2015 period. The large increase was ~~primarily~~related in part to incremental expenses for audit, tax, legal and other professional fees which amounted to $7.6 million related to the ~~result~~restatement of ~~increases~~our previously filed financial statements as part of the preparation of our Fiscal 2015 Form 10-K. There were no comparable amounts in ~~non-cash~~the fiscal year 2015 period. In addition, salaries and compensation expense increased by $1.8 million during the third quarter of ~~$0.3~~fiscal year 2016 and there was an additional $0.6 million in general and ~~higher professional fees~~administrative expense from the acquisition of the Ideal and BaySaver businesses, partially offset by a decrease in stock-based compensation expense of $0.8 million ~~offset by lower~~during the period. The remaining increase related to higher corporate overhead ~~expenses of $0.4 million.~~

~~The $0.8 million increase in professional fees was due to services of $0.3 million in connection with the Secondary Public Offering~~including higher depreciation expense as well as increased legal and ~~additional audit, professional and consulting fees of $0.5 million~~administrative costs associated with being a public company. Overall, general and administrative expenses amounted to 8.2% of net sales for the three months ended December 31, 2015 compared to 5.0% for the comparable prior year period.

- 23 -

Gain (loss) on disposal of assets or businesses

Gain (loss) on disposal of assets for the three months ended December 31, 2014 changed from a loss of $0.2 million to a gain of $0.6 million for the three months ended December 31, 2015. We did not dispose of any businesses during the three months ended December 31, 2015 or 2014.

~~Intangibles~~Intangible amortization

~~Intangibles~~Intangible amortization for the three months ended December 31, ~~2014~~2015 decreased ~~$0.5~~$0.1 million, or ~~17.4%~~6.3%, over the comparable fiscal year ~~2014 period. The $0.5~~2015 period as a result of intangible assets of $7.8 million ~~decrease was due to lower~~becoming fully amortized during fiscal 2015 offset by the additional amortization for the Ideal Pipe intangible assets acquired in the fourth quarter of ~~intangibles from prior period acquisitions.~~fiscal year 2015 and the BaySaver intangible assets acquired in the second quarter of fiscal year 2016.

Interest expense

Interest expense for the three months ended December 31, ~~2014 increased $0.2~~2015 decreased slightly, $0.1 million, or ~~4.2%~~2.0%, over the comparable fiscal year ~~2014~~2015 period. The ~~increase~~modest decrease in the current year third quarter was due to ~~a higher~~lower average interest ~~rate~~rates on our outstanding ~~indebtedness~~indebtedness. Average debt outstanding was up only slightly compared to the prior year period, which modestly offset the impact of slightly lower rates.

Derivative losses and ~~a higher average long term debt balance. Our Long Term Debt was reduced by over $59.2 million in the third quarter of fiscal 2015~~

~~Other miscellaneous expenses,~~other expense, net

~~Miscellaneous~~Derivative losses and other expense, ~~increased $5.6~~net decreased $3.0 million over the comparable prior year ~~period. The increase in the net expense was primarily due to unfavorable mark-to-market adjustments~~period as a result of ~~$6.2 million for~~ changes in ~~fair value~~both realized and unrealized gains and losses on hedging activities. The net derivative ~~contracts (diesel fuel hedges~~expense activity for the three months ended December 31, 2015 was $2.4 million (realized loss of $4.1 million less unrealized gain of $1.8 million). This compares to a net derivative expense of $6.5 million incurred during the comparable prior year period (realized loss of $0.4 million and ~~raw material derivatives)~~an unrealized loss of $6.1 million). The balance of the change relates primarily to foreign currency transaction gains and ~~$0.3 million of~~ other ~~miscellaneous expense, partially offset by $0.9 million of income related to unrealized currency~~insignificant gains ~~in our International operations.~~or losses.

Income tax expense

For the three months ended December 31, ~~2013~~2015 and 2014, the Company recorded an income tax provision of ~~$17.5~~$8.1 million and ~~an income tax benefit of $1.2~~$3.4 million, respectively. These provisions represent an effective tax rate of 48.2% and 139.5%, respectively. Income before income taxes increased significantly compared to the prior year resulting in a much higher provision for income taxes. The effective tax rate for the ~~third quarter of fiscal 2014 was~~three months ended December 31, 2015 is lower than the prior year period primarily ~~driven by~~due to the ~~expected special dividend payment to participants~~shift in the ~~Company’s ESOP, which increased~~projections of the ~~effective tax rate by 19%. The effective tax rate for the third quarter~~proportion of ~~fiscal 2015 was primarily driven by lower~~income earned and higher income before income taxes reducing the impact of non-deductible items in our ~~Domestic operation~~tax calculations.

Equity in net loss of unconsolidated affiliates

Equity in net loss of unconsolidated affiliates decreased $0.1 million from $1.0 million for the three months ended December 31, 2014 to $0.9 million for the three months ended December 31, 2015.

Net (loss) income attributable to noncontrolling interest

Net (loss) income attributable to noncontrolling interest represents the share of ADS Mexicana and ~~$1.9~~BaySaver net income attributable to the minority interest holders. Net (loss) income attributable to noncontrolling interest changed from income of $1.4 million for the three months ended December 31, 2014 to a loss of ~~discrete items related~~$0.2 million for the three months ended December 31, 2015. The change is largely due to ~~favorable provision~~losses incurred by ADS Mexicana of $0.3 million for the three months ended December 31, 2015 compared to ~~return adjustments realized in~~income of $1.4 million for the ~~filing~~prior fiscal year 2015 period. The balance of ~~federal and state tax returns.~~the change relates to activity for BaySaver.

- 24 -

Net loss ~~attributed~~attributable to ADS and Net loss per share

Third quarter net ~~loss~~income attributable to ADS for fiscal year 2016 was $8.0 million, improving from fiscal year 2015 ~~of approximately $0.4 million improved from the preceding fiscal year’s~~third quarter’s net loss attributable to ADS ~~for the quarter~~ of ~~$10.3~~$3.3 million, as influenced by the factors noted above. Net ~~loss~~income per share for the third quarter fiscal year ~~2015~~2016 totaled ~~$0.01~~$0.13 per basic and $0.12 per diluted share, as compared to a ~~net~~ loss of ~~$0.32~~$0.07 per basic and diluted share recorded in the comparable prior year period.

~~- 34 -~~

Adjusted EBITDA^(a)

   Three Months Ended December 31,
(Amounts in thousands)    2013 2014 % Change
Domestic
   $ 26,362    $ 25,405    (3.6 )%
International
   3,096    2,279    (26.4 )%


Total adjusted EBITDA
$ 29,458    27,684    (6.0 )%


As a percentage of net sales
11.3 % 10.0 %
~~Adjusted EBITDA for the third quarter of fiscal year 2015 decreased by $1.8 million, or 6.0%, over the comparable fiscal year 2014 period.~~
Domestic adjusted EBITDA totaled $25.4 million for the three months ended December 31, 2014, compared to $26.4 million for the prior year third quarter. International adjusted EBITDA totaled $2.3 million for the third quarter of fiscal 2015, compared to $3.1 million for the prior year period.
~~Adjusted EBITDA as a percentage of net sales totaled 10.0% for the three months ended December 31, 2014, compared to 11.3% for the prior year third quarter.~~
(Amounts in thousands)    Three Months Ended December 31,
   2015 2014 % Variance
Domestic
   $ 43,996    $ 30,298    45.2 %
International
   4,201    3,500    20.0 %


Total adjusted EBITDA
   $ 48,197    $ 33,798    42.6 %


As a percentage of net sales
   15.4 % 12.1 %

~~- 35 -~~
(a) See section entitled “Non-GAAP Financial Measures” for further information.
Nine Months Ended December 31, ~~2014~~2015 Compared With Nine Months Ended December 31, ~~2013~~2014
The following tables summarize certain financial information relating to our operating results that have been derived from our condensed consolidated financial statements for the nine months ended December 31, ~~2014~~2015 and ~~2013.~~2014. Also included is certain information relating to the operating results as a percentage of net sales. ~~We believe this presentation is useful to investors in comparing historical results.~~

(Amounts in thousands)    Nine Months Ended
December 31, 2013 % of
Net
Sales Nine Months Ended
December 31, 2014    % of
Net
Sales %
Variance
Net Sales
   $ 887,777    100.0 % $ 971,197       100.0 % 9.4 %
(Amounts in thousands, except per share data)    Nine Months
Ended
December 31,
2015    % of
Net Sales Nine Months
Ended
December 31,
2014    % of
Net Sales %
Variance
Consolidated Statements of Operations data:

Net sales
   $ 1,045,280       100.0 % $ 973,019       100.0 % 7.4 %
Cost of goods sold
   698,791    78.7    766,605       78.9    9.7       815,636       78.0 % 793,220       81.5 % 2.8 %










Gross Profit
188,986    21.3    204,592    21.1    8.3
Gross profit
   229,644       22.0 % 179,799       18.5 % 27.7 %
Selling expenses
52,433    5.9    58,283    6.0    11.2       65,701       6.3 % 59,705       6.1 % 10.0 %
General and administrative expenses
54,354    6.1    58,930    6.1    8.4       69,207       6.6 % 43,756       4.5 % 58.2 %
Gain on sale of business
(4,848 ) (0.5 ) —      —      (100.0 )
Loss on disposal of assets or businesses
   558       0.1 % 538       0.1 % 3.7 %
Intangible amortization
8,576    1.0    7,635    0.8    (11.0 )    7,049       0.7 % 7,551       0.8 % (6.6 %)










Income from operations
78,471    8.8    79,744    8.2    1.6       87,129       8.3 % 68,249       7.0 % 27.7 %
Interest expense
11,860    1.3    13,009    1.3    9.7       13,956       1.3 % 14,726       1.5 % (5.2 %)
Other miscellaneous expenses, net
398    0.0    5,219    0.5    1,211.3
Derivative losses and other expense, net
   18,333       1.8 % 5,100       0.5 % 259.5 %










Income before income taxes
66,213    7.5    61,516    6.4    (7.1 )    54,840       5.2 % 48,423       5.0 % 13.3 %
Income tax expense
40,845    4.6    22,509    2.3    (44.9 )    19,839       1.9 % 20,226       2.1 % (1.9 %)
Equity in net loss of unconsolidated affiliates
714    0.1    1,071    0.1    50.0       935       0.1 % 1,712       0.2 % (45.4 %)










Net income
24,654    2.8    37,936    4.0    53.9       34,066       3.3 % 26,485       2.7 % 28.6 %
Less net income attributable to the non-controlling interests
1,360    0.2    1,672    0.2    22.9
Less net income attributable to noncontrolling interest
   4,481       0.4 % 4,400       0.5 % 1.8 %










Net income attributable to ADS
$ 23,294    2.6 % 36,264    3.8 % 55.7       $ 29,585       2.8 % $ 22,085       2.3 % 34.0 %










Other financial data:

Adjusted EBITDA^(a)
130,567    14.7 % 137,347    14.1 % 5.2 %    $ 160,952       15.4 % $ 134,127       13.8 % 20.0 %
System-Wide Net Sales^(a)
939,683    105.8 % 1,036,447    106.7 % 10.3 %    $ 1,103,336       105.6 % $ 1,038,269       106.7 % 6.3 %
Adjusted Earnings Per Fully Converted Share^(a)
$ 0.45    —      $ 0.62    —      37.8 %    $ 0.53       —   $ 0.42       —   24.9 %




(a) See section entitled “Non-GAAP Financial Measures” for further information.
- 25 -
Net sales

   Nine Months Ended December 31,
(Amounts in thousands)    2013    2014
Domestic

Pipe
   $ 584,567       $ 638,454
Allied Products
   193,763       211,181




Total Domestic
$ 778,330    $ 849,635




International
Pipe
$ 88,126    $ 99,571
Allied Products
21,321    21,991




Total International
109,447    121,562




Total Consolidated Net Sales
$ 887,777    $ 971,197




~~- 36 -~~
   Nine Months Ended December 31,
(Amounts in thousands)    2015    2014    % Variance
Domestic

Pipe
   $ 654,987       $ 637,728       2.7 %
Allied Products
   237,228       210,888       12.5 %





Total domestic
   892,215       848,616       5.1 %





International

Pipe
   121,368       102,320       18.6 %
Allied Products
   31,697       22,083       43.5 %





Total international
   153,065       124,403       23.0 %





Total net sales
   $ 1,045,280       $ 973,019       7.4 %





Net sales totaled ~~$971.2~~$1,045.3 million for the nine months ended December 31, ~~2014,~~2015, increasing ~~$83.4~~$72.3 million, or ~~9.4%~~7.4%, over the comparable period for fiscal year ~~2014.~~2015. The total sales growth when broken down between our Pipe and Allied Products, reflected increases of $36.4 million or 4.9% and $35.9 million or 15.4%, respectively, for the nine months ended December 31, 2015 as compared to the prior year period.
Domestic net sales increased ~~$71.3~~$43.6 million, or ~~9.2%~~5.1%, for the nine months ended December 31, ~~2014,~~2015, as compared to the prior year period. The increase in domestic sales was due to continued strong sales growth in the non-residential (up 14.4%), infrastructure (up 15.5%), and residential (up 8.6%) markets; offsetting a 5.4% decline in Agricultural sales due to less drainage work in fiscal 2015. The sales growth was broken down between our pipe and Allied Products, which increased $53.9 million and $17.4 million, respectively, for the nine months ended December 31, 2014. Domestic pipe sales increased ~~$53.9~~$17.3 million, or ~~9.2%~~2.7%, due to continued growth in our N-12 HDPE and ~~N-12 HP~~High Performance PP product lines offsetting lower ~~Agricultural singlewall~~agricultural sales. Allied Product sales increased ~~$17.4~~$26.3 million, or ~~9.0%~~12.5%, due to strong sales volume sold primarily into the non-residential, residential and infrastructure markets. ~~Excluding $6.9~~In addition, approximately $6.8 million ~~in sales~~ of ~~Allied Product lines sold in fiscal 2014,~~the total Allied Product sales increase relates to the acquisition of BaySaver during the second fiscal quarter of fiscal 2016.
International net sales increased ~~$24.3~~$28.7 million, or ~~13.0%~~23.0%, for the nine months ended December 31, 2014 as compared to prior year sales of continuing products. Pipe selling prices increased 5.3% as compared to the prior year. After the nine months ended December 31, 2014, domestic sales were broken down as follows: Non-Residential - 51.8%, Residential – 19.1%, Agriculture – 18.5%, and Infrastructure – 10.6%.
~~International net sales increased $12.1 million, or 11.1%, for the nine months ended December 31, 2014~~2015 over the comparable fiscal year ~~2014~~2015 period. The growth was primarily due to increased sales in Canada, ~~and Mexico. Strong~~including in particular the contribution from the acquisition of Ideal Pipe, which increased sales ~~in the Canadian agricultural markets as well as continued acceptance and sales growth of Allied Products across all end markets led~~by approximately $36.8 million, helping to ~~the increase in third quarter net sales. Improved public spending and continued positive sales momentum in the electrical conduit market were the main factors in the increased nine month net~~offset decreased sales in Mexico ~~versus~~of $3.5 million. In addition, the ~~comparable prior year period.~~Canadian dollar was approximately 14% weaker against the U.S. dollar in the nine month period ended December 31, 2015, compared to the nine month period ended December 31, 2014, which had a negative impact on Net sales for Canada of $15.6 million during the nine month period ended December 31, 2015.
System-Wide Net Sales were ~~$1,036.4~~$1,103.3 million for the first nine months of fiscal year ~~2015,~~2016, an increase of ~~$96.8~~$65.0 million, or ~~10.3%~~6.3%, over System-Wide Net Sales of ~~$939.7~~$1,038.3 million for the first nine months of fiscal year ~~2014.~~2015. Net sales at our South American Joint Venture operation were negatively impacted by continued softness in the mining markets and an overall construction slowdown due to reduced public ~~spending.~~spending resulting in a sales decline of $4.4 million or 9.6% to $41.3 million. Net sales ~~from~~at our domestic joint ventures, ~~(Tigre-ADS~~Tigre-ADS USA and ~~Baysaver)~~BaySaver, provided a combined ~~increase of $15.9 million in~~ net sales for unconsolidated joint ventures ~~for the nine months ended December 31, 2014 as compared to the prior year. Our Tigre-ADS USA Joint Venture was formed in the first quarter~~ of ~~fiscal year 2015 and our Baysaver Joint Venture was formed in the second quarter of fiscal year 2014.~~
~~Gross profit~~
~~Gross profit for the nine months ended December 31, 2014 increased $15.6 million, or 8.3%, over the comparable prior year period.~~
~~Domestic gross profit increased $17.5 million, or 10.6%, to $182.9~~$16.7 million for the nine months ended December 31, ~~2014 as~~2015, down $2.8 million when compared to ~~$165.4 million during~~ the prior ~~year. The increase was primarily due~~fiscal year period. However, when taking into consideration the $6.8 million in net sales recognized for BaySaver subsequent to the July 2015 acquisition of the controlling interest, comparable sales ~~growth in our N-12~~are up $4.0 million or 20.5%.
Cost of goods sold and ~~N-12 HP pipe product lines and higher margin Allied Product lines, which~~Gross profit
Cost of Goods Sold increased ~~gross margin by $4.9~~$22.4 million ~~and $12.6 million, respectively,~~or 2.8% for the nine months ended December 31, ~~2014~~2015 compared with the same period during fiscal year 2015.
Gross profit increased $49.8 million or 27.7% from $179.8 million to $229.6 million for the nine months ended December 31, 2015 compared with the same period in the prior year. Gross profit as a percentage of net sales totaled 22.0% for the nine months ended December 31, 2015 as compared to 18.5% for the prior year.
- 26 -
Domestic gross profit increased $36.7 million, or 22.7%, to $198.1 million for the nine months ended December 31, 2015 as compared to $161.4 million during the prior year period. In addition to the impact of the 5.1% increase in domestic net sales over the comparable fiscal year 2015 period, the increase was also driven by a reduction in raw material costs of approximately 8.4%, particularly pipe resin costs. Raw material prices ~~increased 10.8% due to higher virgin and non-virgin resin prices for~~were flat in the first ~~nine months~~quarter and then declined in the second and third quarters of fiscal ~~2015~~2016 as compared to the prior year ~~period.~~periods. Freight costs totaled ~~9.2%~~9.6% of domestic net sales for the nine months ended December 31, ~~2014,~~2015, compared to ~~9.7%~~9.3% for the prior year period. Diesel prices began to moderate after the third quarter of fiscal year 2015 and continued to decline throughout fiscal 2016. The higher costs relate to increased depreciation charges associated with new tractors and trailers added to the delivery fleet, which offset the benefit of diesel fuel prices moving lower throughout the quarter. Diesel prices were approximately 31.0% below the prior fiscal year for the nine-month period.
International gross profit ~~decreased $1.9~~increased $13.2 million, or ~~8.0%~~71.6%, for the first nine months of fiscal year ~~2015~~2016 over the comparable fiscal year ~~2014~~2015 period. ~~International pipe gross profit decreased $1.4 million, or 8.2%, primarily due to~~This was the result of the impact of ~~continued devaluation of the Canadian dollar versus the U.S. dollar and its impact on overall Canadian market selling prices, especially~~a 23.0% increase in ~~the second and third quarters. Raw material prices (which are primarily purchased~~international net sales. Gross profit was also helped by improved gross profit performance in ~~U.S. dollars for all International operations) moved higher, and higher freight costs compared to the prior year period also contributed to the declining pipe gross profit~~Mexico for the nine months ended December 31, ~~2014.~~
~~Gross margin~~2015, as ~~a percentage of net sales totaled 21.1% for the nine months ended December 31, 2014 as compared to 21.3% for the prior year.~~Mexico benefitted from lower resin costs.
Selling expenses
Selling expenses consist of field selling and customer service ~~and commission expenditures~~ for personnel engaged in sales and sales support functions. Field selling and customer service expenditures primarily consists of personnel costs (salaries, benefits, and variable sales commissions), travel and entertainment expenses, marketing, promotion, and advertising expenses, as well as bad debt provisions.
~~- 37 -~~
Selling expenses for the nine months ended December 31, ~~2014~~2015 increased ~~$5.9~~$6.0 million, or ~~11.2%~~10.0%, over the comparable fiscal year ~~2014 period.~~2015 period, growing at a higher rate than the change in net sales. The increase was primarily the result of increases in selling expenses related to Ideal Pipe and BaySaver, variable selling expenses due to higher sales volume and investments in additional sales coverage and growth initiatives. As a percentage of ~~Net~~net sales, selling expenses increased slightly to ~~6.0%~~6.3% for the first nine months of fiscal ~~2015~~2016 as compared to ~~5.9% in~~6.1% for the comparable prior ~~year.~~year period.
General and administrative expenses
General and administrative expenses consists of personnel costs (salaries, benefits, and other personnel-related expenses, including ~~stock based~~stock-based compensation), recruitment and relocation expenses, accounting and legal fees, business travel expenses, rent and utilities for the administrative offices, director fees, investor relations, membership fees, office supplies, insurance and other miscellaneous expenses.
General and administrative expenses for the nine months ended December 31, ~~2014~~2015 increased ~~$4.6~~$25.4 million, or ~~8.4%~~58.2%, over the comparable 2015 fiscal year ~~2014~~ period. The increase was primarily the result of significant increases ~~in non-cash stock based compensation of $3.3 million and higher professional fees of $1.7 million, partially offset by reduced corporate overhead expenses of $0.4 million.~~
The $3.3 million increase in non-cash stock based compensation was due to a $2.2 million increase in non-cash compensation related to our stock option plans, primarily the 2013 stock option plan that was implemented late in the second quarter of fiscal 2014, $0.4 million of accelerated non-cash compensation related to immediate vesting of certain restricted stock shares as a result of the initial public offering, and $0.7 million of non-cash compensation expense related to the non-employee director compensation stock plan created in the second quarter of fiscal 2015.
~~The $1.7 million increase~~ in professional fees ~~was due to~~for accounting, audit, ~~services of $0.8 million~~tax, legal and other professional fees incurred in connection with the ~~IPO, $0.3~~restatement of our previously filed financial statements as part of the preparation of our Fiscal 2015Form 10-K. There were no such amounts in the comparable fiscal 2015 period. These fees amounted to approximately $16.3 million ~~in professional fees due to the Secondary Public Offering, and additional professional and consulting fees of $0.6 million associated with being a public company.~~
~~Gain on sale of business~~
~~Gain on sale of business~~ for the nine months ended December 31, 2015. There was also an increase in salary and compensation expenses of $2.2 million, as well as incremental general and administrative expenses related to the Ideal Pipe and BaySaver acquisitions of $1.4 million. The remaining increase related to higher corporate overhead including higher depreciation expense as well as increased legal and administrative costs associated with being a public company. Overall, general and administrative expenses amounted to 6.6% of net sales compared to 4.5% in the prior year.
Loss on disposal of assets or businesses
Loss on the disposal of assets or businesses for the nine months ended December 31, 2015 and December 31, 2014 was ~~zero compared~~not significant for either period, amounting to ~~$4.8~~losses of $0.6 million ~~over the comparable prior year period. The Company sold its Draintech product line during the first quarter of fiscal year 2014.~~and $0.5 million, respectively.
- 27 -
~~Intangibles~~Intangible amortization
~~Intangibles~~Intangible amortization for the nine months ended December 31, ~~2014~~2015 decreased ~~$0.9~~$0.6 million, or ~~11.0%~~6.6%, over the comparable prior year ~~period. The $0.9~~period as a result of intangible assets of $7.8 million ~~decrease was due to less~~becoming fully amortized during fiscal 2015, offset by the additional amortization for the Ideal Pipe intangible assets acquired in the fourth quarter of ~~intangibles from prior period acquisitions.~~fiscal year 2015 and the BaySaver intangible assets acquired in the second quarter of fiscal year 2016.
Interest expense
Interest expense for the nine months ended December 31, ~~2014 increased $1.1~~2015 decreased $0.7 million, or ~~9.7%~~5.2%, over the comparable prior year period. The ~~increase~~decrease was due to ~~a higher~~both slightly lower average interest ~~rate~~rates on our outstanding ~~indebtedness and~~Revolving Credit Facility, most of which is based on LIBOR, in addition to a modestly lower average outstanding debt balance over the nine-month period. For the prior period ended December 31, 2014, the Company carried a higher ~~average outstanding~~Revolving Credit Facility balance ~~in addition~~through July 2014 until the IPO proceeds were used to reduce the Revolving Credit Facility balance. Additionally, during the nine-month period ending December 31, 2014, a 2% surcharge on our ~~shelf notes paid~~Senior Notes was incurred during the first quarter of fiscal 2015 due to our leverage ratio of Adjusted EBITDA to Funded Debt exceeding 3three times at June 30, 2014. The surcharge increased interest expense by $0.5 ~~million. We repaid a portion of our outstanding indebtedness with the $72.1~~ million ~~of net proceeds from our IPO, which closed on July 30, 2014. This repayment reduced our leverage ratio below 3 times at September 30, 2014 and eliminated the surcharge on the shelf notes~~ for the ~~second and third~~first quarter of fiscal ~~2015. The leverage ratio dropped to 2.28 times at~~year 2015, and there was no such amount incurred in fiscal year 2016.
Derivative losses and other expense, net
Derivative losses and other expense, net for the nine months ended December 31, ~~2014, primarily due to $59.2 million of Long Term Debt reduction in the third quarter of fiscal 2015.~~
~~Other miscellaneous expenses, net~~
~~Miscellaneous expense~~2015 increased ~~$4.8~~$13.2 million over the comparable prior year period. The increase in expense is predominantly a result of both realized and unrealized losses on hedging activities. The hedging losses for the ~~net expense was primarily due to unfavorable~~nine months ended December 31, 2015 were $18.4 million comprised of realized losses on cash settlements of $10.6 million and unrealized losses on mark-to-market adjustments of $7.8 million. This compares to a net hedging loss of $6.6 million incurred during the prior nine month period, consisting of realized losses on cash settlements of $0.4 million and unrealized losses of $6.2 million ~~for changes in fair value~~ on ~~derivative contracts (diesel fuel hedges and raw material derivatives), partially offset by $0.9 million~~the unfavorable mark-to-market adjustments. In addition to the hedging losses, the Company realized a loss of ~~income related to unrealized currency gains in our International operations and~~ $0.5 million upon completing the acquisition of BaySaver as a result of remeasuring our investment as of the July 17, 2015 step acquisition. See “Note 2. Acquisitions.” The balance of the change relates primarily to foreign currency transaction activity and other ~~miscellaneous income.~~insignificant gains or losses.
~~- 38 -~~
Income tax expense
For the nine months ended December 31, ~~2013~~2015 and 2014, the Company recorded income tax provisions of ~~$40.8~~$19.8 million and ~~$22.5~~$20.2 million, respectively, which ~~represents~~represent an effective tax rate of ~~61.7%~~36.2% and ~~36.6%~~41.8%, respectively. The effective tax rate for the first nine months of fiscal 2014 was primarily driven by the expected special dividend payment to participants in the Company’s ESOP, which increased the effective tax rate by 19%. The effective tax rate for the first nine months of the fiscal ~~2015~~2016 is lower than the prior year period primarily due to the shift in the projections of the proportion of income earned and higher income before income taxes reducing the impact of ~~Schedule M~~non-deductible items in our tax calculations.
Equity in net loss of unconsolidated affiliates
Equity in net loss of unconsolidated affiliates represent our proportionate share of net loss attributed to the ~~three~~two unconsolidated joint ventures in which we have significant influence, but not control, over ~~operations.~~operations as well as our proportional share of BaySaver earnings up until the July 17, 2015 step acquisition. Equity in net loss of unconsolidated affiliates for the nine months ended December 31, ~~2014 increased $0.4~~2015 decreased $0.8 million over the comparable prior fiscal year period to a net loss of ~~$1.1~~$0.9 million ~~over the comparable prior year period.~~compared to a net loss of $1.7 million. The ~~increase~~decrease was primarily due to lower net losses generated by the ~~$1.4 million equity loss from our~~ South American Joint Venture ~~operations~~ which ~~increased $0.4~~reduced our share of the losses during the nine-months ended December 31, 2015 to $1.2 million compared to the prior year period. Continued softness in the mining markets and an overall construction slowdown due to reduced public spending contributed to the increased loss. Offsetting this increase was equity income from our domestic joint ventures of $0.3$2.0 million ~~which increased slightly over~~for the comparable prior year period.
~~Income attributed~~Net income attributable to ~~non-controlling interests~~noncontrolling interest
~~Non controlling interests represent~~Net income ~~attributed~~attributable to noncontrolling interest represents income attributable to the noncontrolling interest holders in joint venture operations that are consolidated in our condensed consolidated financial statements. ~~Income attributed~~Net income attributable to ~~non-controlling interests~~noncontrolling interest increased ~~$0.3~~$0.1 million for the nine months ended December 31, ~~2014~~2015 to ~~income of $1.7~~$4.5 million compared to ~~$1.4~~$4.4 million for the comparable prior year period. As noted above, the 35.0% noncontrolling interest for BaySaver is now included in the fiscal 2016 results beginning after July 17, 2015.
- 28 -
Net income ~~attributed~~attributable to ADS and Net income per share
~~Year- to-date net~~Net income attributable to ADS of ~~approximately $36.3~~$29.6 million increased from the preceding fiscal year’s net income attributable to ADS of ~~$23.3~~$22.1 million, as influenced by the factors noted above. Net income per share for the first nine months of fiscal year ~~2015~~2016 totaled ~~$0.44~~$0.48 and $0.46 per basic and ~~$0.43~~ diluted per share, respectively, as compared to ~~$0.28 and $0.27~~net income per share of $0.19 per basic and diluted share ~~respectively,~~ recorded in the comparable prior year period. The net income per share for the nine months ended December 31, 2014 iswas impacted by changes in fair value appreciation onof Redeemable convertible preferred stock classified in mezzanine equity which reduced income available to common ~~shareholders~~stockholders by $11.1 million, or $0.22 per share for common ~~shareholders.~~stockholders.
Adjusted EBITDA^(a)

   Nine Months Ended December 31,
(Amounts in thousands)    2013 2014 % Change
Domestic
   $ 118,242    $ 127,298    7.7 %
International
   12,325    10,049    (18.5 )%


Total adjusted EBITDA
$ 130,567    $ 137,347    5.2 %


As a percentage of net sales
14.7 % 14.1 %
Adjusted EBITDA for the first nine months of fiscal year 2015 increased by $6.8 million, or 5.2%, over the comparable fiscal year 2014 period. Excluding the impact of the one-time $4.8 million gain from the sale of the Draintech business during the first quarter of fiscal 2014, adjusted EBITDA increased $11.6 million, or 9.2%, for the nine months ended December 31, 2014 as compared to the prior year ($137.3 million compared to an adjusted $125.7 million for the prior year).
   Nine Months Ended December 31,
(Amounts in thousands)    2015 2014 % Variance
Domestic adjusted EBITDA
   $ 141,946    $ 125,195    13.4 %
International adjusted EBITDA
   19,005    8,932    112.8 %


Total adjusted EBITDA
   $ 160,951    $ 134,127    20.0 %


As a percentage of net sales
   15.4 % 13.8 %

~~- 39 -~~
Domestic adjusted EBITDA totaled $127.3 million for the nine months ended December 31, 2014, compared to $118.2 million in the prior year (which included the impact of the one-time $4.8 million gain on the sale of the Draintech business). International adjusted EBITDA totaled $10.0 million for the first nine months of fiscal 2015 compared to $12.3 million in the prior period.
Adjusted EBITDA as a percentage of net sales totaled 14.1% for the nine months ended December 31, 2014, compared to 14.7% for the prior year. Excluding the impact of the one-time gain on adjusted EBITDA in the first quarter of fiscal 2014, adjusted EBITDA as a percentage of net sales would have been 14.2%.
(a) See section entitled “Non-GAAP Financial Measures” for further information.
Non-GAAP Financial Measures
In addition to financial results reported in accordance with GAAP, we have provided the following non-GAAP financial measures: Adjusted EBITDA, System-Wide Net Sales and Adjusted Earnings Per Fully Converted ~~Share, Adjusted Net Income and Weighted Average Fully Converted Common Shares Outstanding.~~Share. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. However, these measures are not intended to be a substitute for those reported in accordance with GAAP. These measures may be different from non-GAAP financial measures used by other companies, even when similar terms are used to identify such measures.
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure that ~~comprises~~is comprised of net income ~~attributable to ADS~~ before interest, income taxes, depreciation and amortization, stock-based compensation, non-cash charges and certain other expenses. Our definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key metric used by management and our board of directors to assess our financial performance and evaluate the effectiveness of our business strategies. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.
The following table presents a reconciliation of Adjusted EBITDA to Net ~~(Loss)~~ Income ~~attributable to ADS,~~(Loss), the most comparable GAAP measure, for each of the periods indicated:

   Three Months Ended
December 31,    Nine Months Ended
December 31,
(Amounts in thousands)    2013    2014    2013    2014
Net (loss) income attributable to ADS
   $ (10,324 )    $ (367 )    $ 23,294       $ 36,264
Depreciation and amortization^(a)
   14,411       14,098       43,076       42,856
Interest expense, net
   3,893       4,056       11,860       13,009
Income tax expense (benefit)
   17,537       (1,248 )    40,845       22,509








EBITDA
25,517    16,539    119,075    114,638
Derivative fair value adjustments
(184 ) 6,054    54    6,217
Foreign currency transaction losses (gains)
338    (561 ) 251    (636 )
Unconsolidated affiliates interest and tax
119    760    347    1,173
Management fee to minority interest holder JV
135    324    739    882
Share-based compensation
1,216    1,542    2,640    5,958
ESOP deferred compensation
2,317    2,690    7,343    8,064
Transaction costs^(b)
—      336    118    1,051








Adjusted EBITDA
$ 29,458    $ 27,684    $ 130,567    $ 137,347








   Three Months Ended December 31,    Nine Months Ended December 31,
(Amounts in thousands)    2015    2014    2015    2014
Net income (loss)
   $ 7,787       $ (1,953 )    $ 34,066       $ 26,485
Depreciation and amortization
   17,302       16,118       53,307       48,519
Interest expense
   4,723       4,631       13,956       14,726
Income tax expense
   8,100       3,407       19,839       20,226








EBITDA
   37,912       22,203       121,168       109,956
Derivative fair value adjustments
   (1,784 )    6,054       7,750       6,217
Foreign currency transaction losses (gains)
   569       (561 )    735       (636 )
(Gain) loss on disposal of assets or businesses
   (603 )    193       558       538
- 29 -
   Three Months Ended December 31,    Nine Months Ended December 31,
(Amounts in thousands)    2015    2014    2015    2014
Unconsolidated affiliates interest, tax, depreciation and amortization^(a)
   632       1,348       2,270       3,023
Contingent consideration remeasurement
   14       (7 )    114       (5 )
Stock-based compensation
   714       1,542       2,163       5,919
ESOP deferred stock-based compensation
   3,125       2,690       9,375       8,064
Loss related to BaySaver step acquisition
   —      —      490       —
Restatement costs^(b)
   7,618       —    16,328       —
Transaction costs^(c)
   —      336       —      1,051








Adjusted EBITDA
   $ 48,197       $ 33,798       $ 160,951       $ 134,127








(a) Includes our ~~proportionate~~proportional share of interest, income taxes, depreciation and amortization ~~expense of $354 and $594 for the three months ended December 31, 2013 and 2014, respectively, and $1,031 and $1,866 for the nine months ended December 31, 2013 and 2014, respectively,~~ related to our South American ~~joint venture, BaySaver joint venture~~Joint Venture and our Tigre-ADS USA joint venture, which ~~is included in Equity in net loss~~are accounted for under the equity method of ~~unconsolidated affiliates in~~accounting. In addition, these amounts include our ~~Condensed Consolidated Statements~~proportional share of ~~Income.~~interest, income taxes, depreciation and amortization related to our BaySaver joint venture prior to our acquisition of BaySaver on July 17, 2015, which was previously accounted for under the equity method of accounting.
(b) Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with the restatement of our ~~debt refinancing and completion of~~prior period financial statements as reflected in the ~~IPO and Secondary Public Offering.~~Fiscal 2015 Form 10-K.
(c) Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our secondary public offering in fiscal year 2015.
Reconciliation of Segment Adjusted EBITDA to Net Income
~~- 40 -~~
The following table presents a reconciliation of Segment Adjusted EBITDA to Net ~~(Loss)~~ Income ~~attributable to ADS,~~(Loss), the most comparable GAAP measure, for each of the periods indicated:
~~Reconciliation of Segment EBITDA and Adjusted Segment EBITDA to Net (Loss) Income~~

   Three Months Ended December 31,    Three Months Ended December 31,
(Amounts in thousands)    2013    2014
   Domestic International    Domestic International
Reconciliation of Segment EBITDA and Segment Adjusted EBITDA to Net (Loss) Income

Net (loss) income attributable to ADS
   $ (10,840 ) $ 516       $ (935 ) $ 568
Depreciation and amortization ^(a)
   12,868    1,543       12,465    1,633
Interest expense, net
   3,882    11       4,047    9
Income tax expense (benefit)
   17,103    434       (1,495 ) 247




Segment EBITDA
   23,013    2,504       14,082    2,457
Derivative fair value adjustments
   (184 ) —         6,310    (256 )
Foreign currency transaction losses (gains)
   —      338       —      (561 )
Unconsolidated affiliates interest and tax
   —      119       445    315
Management fee to minority interest holder JV
   —      135       —      324
Share-based compensation
   1,216    —         1,542    —
ESOP deferred compensation
   2,317    —         2,690    —
Transaction costs^(b)
   —      —         336    —




Segment Adjusted EBITDA
   $ 26,362    $ 3,096       $ 25,405    $ 2,279




   Three Months Ended December 31,
   2015    2014
(Amounts in thousands)    Domestic    International    Domestic    International
Net income (loss)
   $ 9,548       $ (1,761 )    $ (3,911 )    $ 1,958
Depreciation and amortization
   15,221       2,081       14,742       1,376
Interest expense
   4,606       117       4,613       18
Income tax expense
   5,206       2,894       3,160       247








Segment EBITDA
   34,581       3,331       18,604       3,599
Derivative fair value adjustments
   (1,733 )    (51 )    6,310       (256 )
Foreign currency transaction losses (gains)
   —         569       —         (561 )
(Gain) loss on disposal of assets or businesses
   (546 )    (57 )    175       18
Unconsolidated affiliates interest, tax, depreciation and amortization^(a)
   223       409       648       700
Contingent consideration remeasurement
   14       —         (7 )    —
Stock-based compensation
   714       —         1,542       —
ESOP deferred stock-based compensation
   3,125       —         2,690       —
Restatement costs^(b)
   7,618       —         —         —
Transaction costs^(c)
   —         —         336       —








Segment Adjusted EBITDA
   $ 43,996       $ 4,201       $ 30,298       $ 3,500








(a) Includes our ~~proportionate~~proportional share of interest, income taxes, depreciation and amortization ~~expense of $354 and $594~~ related to our South American ~~joint venture, BaySaver joint venture~~Joint Venture and our Tigre-ADS USA joint venture, which ~~is included in Equity in net loss~~are accounted for under the equity method of ~~unconsolidated affiliates in~~accounting. In addition, these amounts include our ~~Condensed Consolidated Statements~~proportional share of ~~Income~~interest, income taxes, depreciation and amortization related to our BaySaver joint venture prior to our acquisition of BaySaver on July 17, 2015, which was previously accounted for under the ~~three months ended December 31, 2013 and 2014, respectively.~~equity method of accounting.
(b) Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with the restatement of our ~~debt refinancing~~prior period financial statements as reflected in the Fiscal 2015 Form 10-K.
(c) Represents expenses recorded related to legal, accounting and ~~completion of the~~other professional fees incurred in connection with our IPO and ~~Secondary Public Offering.~~secondary public offering in fiscal year 2015.

- 4130 -
~~Reconciliation of Segment EBITDA and Adjusted Segment EBITDA to Net Income~~

   Nine Months Ended December 31,    Nine Months Ended December 31,
(Amounts in thousands)    2013    2014
   Domestic    International    Domestic    International
Reconciliation of Segment EBITDA and Segment Adjusted EBITDA to Net Income

Net income attributable to ADS
   $ 18,835       $ 4,459       $ 33,119       $ 3,145
Depreciation and amortization^(a)
   38,439       4,637       37,863       4,993
Interest expense, net
   11,815       45       12,985       24
Income tax expense
   38,998       1,847       21,246       1,263








Segment EBITDA
   108,087       10,988       105,213       9,425
Derivative fair value adjustments
   54       —         6,473       (256 )
Foreign currency transaction losses (gains)
   —         251       —         (636 )
Unconsolidated affiliates interest and tax
   —         347       539       634
Management fee to minority interest holder JV
   —         739       —         882
Share-based compensation
   2,640       —         5,958       —
ESOP deferred compensation
   7,343       —         8,064       —
Transaction costs^(b)
   118       —         1,051       —








Segment Adjusted EBITDA
   $ 118,242       $ 12,325       $ 127,298       $ 10,049








   Nine Months Ended December 31,
   2015    2014
(Amounts in thousands)    Domestic    International    Domestic    International
Net income
   $ 26,312       $ 7,754       $ 21,535       $ 4,950
Depreciation and amortization
   46,880       6,427       44,338       4,181
Interest expense
   13,544       412       14,675       51
Income tax expense (benefit)
   17,408       2,431       21,471       (1,245 )








Segment EBITDA
   104,144       17,024       102,019       7,937
Derivative fair value adjustments
   7,768       (18 )    6,473       (256 )
Foreign currency transaction losses (gains)
   —         735       —         (636 )
Loss on disposal of assets or businesses
   795       (237 )    486       52
Unconsolidated affiliates interest, tax, depreciation and amortization^(a)
   769       1,501       1,188       1,835
Contingent consideration remeasurement
   114       —         (5 )    —
Stock-based compensation
   2,163       —         5,919       —
ESOP deferred stock-based compensation
   9,375       —         8,064       —
Loss related to BaySaver step acquisition
   490       —         —         —
Restatement costs^(b)
   16,328       —         —         —
Transaction costs^(c)
   —         —         1,051       —








Segment Adjusted EBITDA
   $ 141,946       $ 19,005       $ 125,195       $ 8,932








(a) Includes our ~~proportionate~~proportional share of interest, income taxes, depreciation and amortization ~~expense of $1,031 and $1,866~~ related to our South American ~~joint venture, BaySaver joint venture~~Joint Venture and our Tigre-ADS USA joint venture, which ~~is included in Equity in net loss~~are accounted for under the equity method of ~~unconsolidated affiliates in~~accounting. In addition, these amounts include our ~~Condensed Consolidated Statements~~proportional share of ~~Income~~interest, income taxes, depreciation and amortization related to our BaySaver joint venture prior to our acquisition of BaySaver on July 17, 2015, which was previously accounted for under the ~~nine months ended December 31, 2013 and 2014, respectively.~~equity method of accounting.
(b) Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with the restatement of our ~~debt refinancing~~prior period financial statements as reflected in the Fiscal 2015 Form 10-K.
(c) Represents expenses recorded related to legal, accounting and ~~completion of the~~other professional fees incurred in connection with our IPO and ~~Secondary Public Offering.~~secondary public offering in fiscal year 2015.
System-Wide Net Sales. System-Wide Net Sales is a non-GAAP measure which equals the sum of the net sales of our ~~Domestic~~domestic and ~~International~~international segments plus all net sales from our unconsolidated joint ventures. We participated in three unconsolidated joint ventures ~~(our~~during the nine months ended December 31, 2015 and 2014; the South American Joint Venture, ~~our BaySaver Joint Venture and our~~ Tigre-ADS USA, ~~Joint Venture).~~Inc. (“Tigre-ADS USA”, which is 49% owned by our wholly-owned subsidiary ADS/V), and BaySaver prior to July 17, 2015. We use this metric to measure the overall performance of our business across all of our geographies and markets we serve.
Our South American Joint Venture is managed as an integral part of our ~~International~~international segment, and our ~~BaySaver and~~ Tigre-ADS USA ~~Joint Ventures~~and BaySaver joint ventures are managed as an integral part of our ~~Domestic~~domestic segment. However, they are not consolidated under ~~GAAP.~~GAAP, with the exception of our BaySaver joint venture which we have consolidated since we acquired a controlling interest on July 17, 2015. System-Wide Net Sales is prepared as if our South American Joint Venture, our ~~BaySaver Joint Venture,~~Tigre-ADS USA joint venture, and our ~~Tigre-ADS USA Joint Venture~~BaySaver joint venture were accounted for as consolidated subsidiaries for ~~management and segment reporting purposes.~~all periods.
~~- 42 -~~
The reconciliation of our System-Wide Net Sales to ~~net~~Net sales is as follows:

   Three Months Ended December 31,    Nine Months Ended December 31,
   2013    2014    2013    2014
Reconciliation of System-Wide Net Sales to Net Sales

Net sales
   $ 261,435       $ 278,176       $ 887,777       $ 971,197
Net sales associated with our unconsolidated affiliates:

South American Joint Venture^(a)
   14,628       15,046       48,314       45,742
BaySaver Joint Venture^(b)
   1,977       2,913       3,592       8,673
Tigre-ADS USA Joint Venture^(c)
   —         3,605       —         10,835








System-Wide Net Sales
   $ 278,040       $ 299,740       $ 939,683       $ 1,036,447








   Three Months Ended December 31,    Nine Months Ended December 31,
(Amounts in thousands)    2015    2014    2015    2014
Reconciliation of System-Wide Net sales to Net Sales:

Net sales
   $ 312,827       $ 279,871       $ 1,045,280       $ 973,019
Net sales associated with our unconsolidated affiliates

South American Joint Venture^(a)
   13,551       15,046       41,320       45,742
BaySaver joint venture^(b)
   —         2,913       3,611       8,673
Tigre-ADS USA joint venture^(c)
   4,488       3,605       13,125       10,835








System-Wide Net Sales
   $ 330,866       $ 301,435       $ 1,103,336       $ 1,038,269








(a) On July 31, 2009, we entered into an arrangement to form our South American Joint Venture.
- 31 -
(b) On July 15, 2013, we entered into an arrangement to form our BaySaver ~~Joint Venture.~~joint venture. As of July 17, 2015, we increased our ownership to 65%, and have consolidated BaySaver since that date. As such, Net Sales from our BaySaver joint venture prior to July 17, 2015 are included in this line item.
(c) On April 7, 2014, we entered into an arrangement to form our Tigre-ADS USA ~~Joint Venture.~~joint venture.
Adjusted Earnings per Fully Converted Share ~~Adjusted Net Income, and Weighted Average Fully Converted Common Shares Outstanding~~. Adjusted Earnings per Fully Converted Share ~~Adjusted Net Income~~is a non-GAAP measure and ~~Weighted Average Fully Converted Common Shares Outstanding, which are non-GAAP measures, are~~is a supplemental ~~measures~~measure of financial performance that ~~are~~is not required by, or presented in accordance with GAAP. We calculate Adjusted earnings per fully converted share (Non-GAAP)~~, Adjusted Net Income (Non-GAAP), and Weighted average fully converted common shares outstanding (Non-GAAP),~~ by adjusting our Net income per ~~share -~~ share—Basic and Weighted average common shares outstanding – Basic, the most comparable GAAP measures.
To effect this adjustment, we have (1) removed the accretion of redeemable noncontrolling interest, (2) removed the adjustment for the change in fair value of Redeemable ~~Convertible Preferred Stock~~convertible preferred stock classified as mezzanine equity from the numerator of the Net income per ~~share -~~ share—Basic computation, ~~(2)~~(3) added back the dividends to Redeemable ~~Convertible Preferred Stockholders~~convertible preferred stockholders and dividends paid to unvested restricted stockholders, ~~(3)~~(4) made corresponding adjustments to the amount allocated to participating securities under the two-class earnings per share computation method, and ~~(4)~~(5) added back ESOP deferred compensation attributable to the shares of redeemable convertible preferred stock allocated to employee ESOP accounts during the applicable period, which is a non-cash charge to our earnings and not deductible for income tax purposes.
We have also made adjustments to the Weighted average common shares ~~outstanding –~~ outstanding—Basic to assume, (1) share conversion of the Redeemable ~~Convertible Preferred Stock~~convertible preferred stock to outstanding shares of common stock and (2) add shares of outstanding unvested restricted stock.
Adjusted Earnings Per Fully Converted Share (Non-GAAP) is included in this report because it is a key metric used by management and our board of directors to assess our financial performance. Adjusted Earnings Per Fully Converted Share (Non-GAAP) is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.
~~- 43 -~~
The following table presents a reconciliation of Adjusted Earnings Per Fully Converted Share ~~(Non-GAAP), Adjusted Net Income (Non-GAAP), and the Weighted Average Fully Converted Common Shares Outstanding~~ (Non-GAAP) to our Net Income attributable to ADS, Net income per share and corresponding Weighted average common shares outstanding amounts, the most comparable GAAP measures, for each of the periods indicated.

   Three Months Ended
December 31,    Nine Months Ended
December 31,
(Amounts in thousands, except per share data)    2013    2014    2013    2014
Net (loss) income available to common shareholders
   $ (15,238 )    $ (674 )    $ 12,931       $ 22,174
Weighted Average Common Shares Outstanding – Basic
   47,251       52,986       46,976       50,691
Net (loss) income per share - Basic
   $ (0.32 )    $ (0.01 )    $ 0.28       $ 0.44
Adjustments to net (loss) income available to common shareholders:

Change in fair value of Redeemable Convertible Preferred Stock
   4,697       —         8,492       11,054
Dividends to Redeemable Convertible Preferred Stockholders
   209       298       640       377
Dividends paid to unvested restricted stockholders
   8       9       47       9
Undistributed income allocated to participating securities
   —         —         1,184       2,650








Total adjustments to net income available to common shareholders
4,914    307    10,363    14,090








Net (loss) income attributable to ADS
$ (10,324 ) $ (367 ) $ 23,294    $ 36,264








Adjustments to net (loss) income attributable to ADS:
Fair value of ESOP Compensation related to Redeemable Convertible Preferred Stock
2,317    2,690    7,343    8,064








Adjusted net (loss) income – (Non-GAAP)
$ (8,007 ) $ 2,323    $ 30,637    $ 44,328








Adjustments to Weighted Average Common Shares Outstanding – Basic:
Unvested restricted shares
321    227    343    234








Redeemable Convertible Preferred shares
20,191    20,055    20,316    20,084








Total Weighted Average Fully Converted Common Shares Outstanding (Non-GAAP)
67,763    73,268    67,635    71,009








Adjusted (Loss) Earnings Per Fully Converted Share (Non-GAAP)
$ (0.12 ) $ 0.03    $ 0.45    $ 0.62
   Three Months Ended December 31,    Nine Months Ended December 31,
(Amounts in thousands, except per share data)    2015    2014    2015    2014
Net income (loss) available to common stockholders
   $ 6,813       $ (3,632 )    $ 25,740       $ 9,650
Adjustments to net income available to common stockholders:

Accretion of redeemable noncontrolling interest
   329       —      586       —
Change in fair value of Redeemable convertible preferred stock
   —      —      —      11,054
Dividends to Redeemable convertible preferred stockholders
   349       298       1,082       377
Dividends paid to unvested restricted stockholders
   6       9       18       9
Undistributed income allocated to participating securities
   479       —      2,159       995








Total adjustments to net income available to common stockholders
   1,163       307       3,845       12,435








Net income (loss) attributable to ADS
   7,976       (3,325 )    29,585       22,085
Adjustments to net income (loss) attributable to ADS:

Fair Value of ESOP compensation related to Redeemable convertible preferred stock
   3,125       2,690       9,375       8,064








Adjusted net income (loss)—(Non-GAAP)
   $ 11,101       $ (635 )    $ 38,960       $ 30,149








Weighted Average Common Shares Outstanding—Basic
   54,133       52,986       53,880       50,691
Adjustments to Weighted Average Common Shares Outstanding—Basic:

Unvested restricted shares
   114       227       126       234
Redeemable convertible preferred shares
   19,257       20,096       19,484       20,084








Total Weighted Average Common Shares Outstanding—Fully Converted (Non-GAAP)
   73,504       73,309       73,490       71,009








Adjusted Earnings Per Fully Converted Share (Non-GAAP)
   $ 0.15       $ (0.01 )    $ 0.53       $ 0.42








- 32 -
Liquidity and Capital Resources
Our primary liquidity requirements are working capital, capital expenditures, debt service, and dividend payments for our convertible preferred stock and common stock. We have historically funded, and expect to continue to fund, our operation primarily through internally generated cash flow, debt financings and equity issuances. From time to time we may explore additional financing methods and other means to raise capital. There can be no assurance that any additional financing will be available to us on acceptable terms or at all.
As of December 31, ~~2014,~~2015, we had ~~$10.6~~$5.2 million in cash that was held by our foreign subsidiaries. Our intent is to reinvest our earnings in foreign subsidiaries. In the event that foreign earnings are repatriated, these amounts will be subject to income tax liabilities in the appropriate tax jurisdiction. No restrictions exist on our liquidity that is impacted by the significance of cash held by foreign subsidiaries.
Working Capital and Cash Flows
During the nine months ended December 31, ~~2014,~~2015, our net increase in cash ~~funds~~ amounted to ~~$6.8~~$2.8 million, compared to a net increase of ~~$4.0~~$6.8 million for the nine months ended December 31, ~~2013.~~ 2014. During the nine months ended December 31, 2015, our source of funds was primarily driven by higher operating earnings and a decrease in inventory of $65.7 million. For the same period ending December 31, 2015, our use of cash was primarily driven by increased accounts receivable balances (up $17.5 million), decrease in accounts payable and accrued liabilities including accrued income taxes ($14.9 million), capital expenditures ($30.0 million), payments on capital lease obligations ($14.9 million), the acquisition of an additional 10% interest in BaySaver and repayment of $62.5 million of Long Term Debt.
During the nine months ended December 31, 2014, our source of funds was primarily driven by higher operating earnings, ~~net~~ proceeds of ~~$72.1~~$79.1 million from our IPO of common stock and increased non-cash charges ~~(depreciation, amortization, ESOP~~(ESOP and ~~stock~~
~~- 44 -~~
~~based~~stock-based compensation expense and mark-to-market adjustments for changes in fair value of derivative contracts). and a decrease in inventory of $40.1 million. For the same period ending December 31, 2014, our increased use of cash was primarily driven by increased accounts receivable balances (up ~~$16.2~~$12.8 million), decrease in accounts payable and accrued liabilities including accrued income taxes ($17.8 million), spending for capital expenditures ($~~21.5~~21.3 million), payments on capital lease obligations ($6.6 million), investments in joint ventures ($7.6 million) and repayment of $115.6 million of Long Term Debt. During the nine months ended December 31, 2013, our primary source of cash was also provided by operating earnings, borrowings on the Revolving Credit Facility and a new Private Shelf Note. For the nine months ended December 31, 2013, our use of cash was primarily due to increases in accounts receivable and for capital expenditures ($27.1 million) and repayment of $43.7 million of Long Term Debt.
As of December 31, ~~2014,~~2015, we had ~~$201.0~~$182.9 million in liquidity, including ~~$10.8~~$6.4 million of cash and ~~cash equivalents and $190.2~~$176.5 million in borrowings available under our Revolving Credit Facility, described below. We believe that our cash on hand, together with the availability of borrowings under our Revolving Credit Facility and other financing arrangements and cash generated from operations, will be sufficient to meet our working capital requirements, anticipated capital expenditures, scheduled interest payments on our indebtedness and dividend payment requirement for our convertible preferred stock for at least the next twelve months.
As of December 31, ~~2014,~~2015, we had ~~total~~ consolidated indebtedness (excluding lease obligations) of approximately ~~$338.4~~$337.4 million, down ~~$115.6~~$62.5 million compared to March 31, ~~2014.~~2015. We repaid a portion of our outstanding indebtedness with ~~the $72.1 million of net proceeds from our initial public offering, which closed on July 30, 2014.~~operating cash flow.
The following table sets forth the major sources and uses of cash for each of the periods presented:

   Nine Months Ended
December 31,    Nine Months Ended December 31,
(Amounts in thousands)    2013    2014    2015    2014
Statement of Cash Flows data:
         ��
Net cash from operating activities
   $ 88,104       $ 85,404       $ 129,441       $ 90,252
Net cash from investing activities
   (30,116 )    (31,872 )
Net cash from financing activities
   (54,014 )    (46,243 )
Net cash used in investing activities
   (35,403 )    (29,366 )
Net cash used in financing activities
   (89,816 )    (53,639 )
Working Capital
Net working capital ~~increased~~decreased from $249.2 million as of March 31, 2015, to ~~$277.9~~$190.8 million as of December 31, ~~2014, from $263.9 million as of March 31, 2014,~~2015, primarily due to the ~~growth~~decline in inventory of $65.7 million resulting primarily from a seasonal decrease in the cost of raw material resins on hand at December 31, 2015, and an increase in the current maturities of debt and capital lease obligations of $28.9 million, offset by an increase in accounts receivable of ~~$16.2~~$17.5 million ~~resulting from~~due to sales increases and a ~~$21.8~~$14.9 million decrease in accounts payable, accrued ~~expenses~~liabilities, and ~~other current liabilities. This change was partially offset by a decrease of $27.4 million in inventory.~~accrued income taxes.
- 33 -
Operating Cash Flows
During the nine months ended December 31, ~~2014,~~2015, cash provided from operating activities was ~~$85.4~~$129.4 million as compared with ~~cash provided by operating activities of $88.1~~$90.3 million for the nine months ended December 31, ~~2013.~~2014. Cash flow from operating activities during the nine months ended December 31, 2015 was impacted by higher net income, increased depreciation and amortization, and decreased inventory balances, offsetting the use of cash related to changes in receivables accounts payable and accrued liabilities. Cash flow from operating activities for the nine months ended December 31, 2014 was impacted by moderately higher net income, ~~and~~ share-based compensation, inventory and accounts payable compared to the prior period, offsetting an increase in the use of cash related to changes in accounts receivable and ~~accounts payable.~~other accrued liabilities, including accrued income taxes.
Investing Cash ~~flow from operating activities for~~Flows
During the nine months ended December 31, ~~2013~~2015, cash used for investing activities was ~~driven by higher revenues~~$35.4 million, primarily due to $30.0 million for capital expenditures, $1.5 million for software in support of operations, and ~~favorable changes~~a $3.2 million investment in ~~working capital as well as a reduction~~an additional 10% of ~~$4.8 million realized from~~ the ~~sale of assets for the Draintech product line.~~
~~Investing Cash Flows~~membership interests in BaySaver.
During the nine months ended December 31, 2014, cash used for investing activities was ~~$31.9~~$29.4 million, primarily due to ~~$21.5~~$21.3 million for capital expenditures in support of operations, a $3.6 million investment in a domestic joint venture operation created in the first quarter fiscal 2015, and a $4.0 million investment in our international joint venture operation to support growth initiatives. During the nine months ended December 31, 2013, cash used for investing activities was $30.1 million, primarily due to capital expenditures in support of operations, net of $5.9 million in proceeds received from the sale of the Draintech product line.
~~- 45 -~~
Financing Cash Flows
During the nine months ended December 31, 2015, cash used for financing activities was $89.8 million, primarily due to utilizing our operating cash flow to pay down debt of $62.5 million as well as payments of $14.9 million for lease obligations and $12.7 million for dividends.
During the nine months ended December 31, 2014, cash used ~~from~~for financing activities was ~~$46.2~~$53.6 million, primarily due to utilizing our operating cash flow and $79.1 million of proceeds from the IPO to pay down debt of $115.6 million as well as payments for ~~$2.3~~$6.6 million for lease obligations, $4.3 million in dividends, and $6.5 million for fees related to the IPO. During the nine months ended December 31, 2013, cash used in financing activities was $54.0 million, primarily due to utilizing our operating cash flow to pay down debt of $43.7 million as well as payments for $4.6 million in dividends and $3.9 million for redemption of redeemable convertible preferred stock.
Capital Expenditures
Capital expenditures totaled ~~$21.5~~$30.0 million and ~~$27.1~~$21.3 million for the nine months ended December 31, ~~2014~~2015 and ~~2013,~~2014, respectively. Our capital expenditures for the nine months ended December 31, ~~2014~~2015 were used primarily to support facility expansions, equipment replacements, and our recycled resin initiatives.
We currently anticipate that we will make capital expenditures of approximately ~~$35.0~~$45 million in fiscal year ~~2015.~~2016. Such capital expenditures are expected to be financed using funds generated by operations. As of December 31, ~~2014,~~2015, there were no material contractual obligations or commitments related to these planned capital expenditures.
Financing Transactions
~~Senior Loan Facilities~~Bank Term Loans
On September 24, 2010, we entered into a credit agreement with PNC Bank, National Association, or PNC, as administrative agent, and lender parties thereto. The credit agreement, as amended and restated on June 12, 2013 and subsequently further amended, provides for our ~~Senior Loan Facilities~~Bank Term Loans consisting of (i) the Revolving Credit Facility providing for revolving loans and letters of credit of up to a maximum aggregate principal amount of $325.0 million, ~~and~~ (ii) the Term Loan Facility providing for the Term Loans in an aggregate original principal amount of $100.0 ~~million.~~million, and (iii) the ADS Mexicana Revolving Credit Facility, described below. The ~~Senior Loan Facilities~~Bank Term Loans also permit us to add additional commitments to the Revolving Credit Facility or the Term Loan Facility not to exceed $50 million in the aggregate. The proceeds of the Revolving Credit Facility are primarily used to provide for our ongoing working capital and capital expenditure needs, to finance acquisitions and distributions, and for our other general corporate purposes. The proceeds of the Term Loan Facility were primarily used for our general corporate purposes. The interest rates on the ~~Senior Loan Facilities~~Bank Term Loans are determined by certain base rates or LIBOR rates, plus an applicable margin. The obligations under the ~~Senior Loan Facilities~~Bank Term Loans are guaranteed by certain of our subsidiaries and secured by substantially all of our personal property assets. On December 20, 2013, we amended the Revolving Credit Facility to, among other ~~things,~~terms, make certain amendments in order to permit the payment of a cash dividend. For further information about the ~~Senior Loan Facilities,~~Bank Term Loans, see ~~“Description~~“Note 12. Debt” to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of ~~Certain Indebtedness – Senior Loan Facilities” disclosed in~~ our ~~Registration Statement on~~Fiscal 2015 Form ~~S-1 (File No. 333-200312), as amended, declared effective by the SEC on December 3, 2014.~~10-K. As of December 31, ~~2014,~~2015, the outstanding principal drawn on the Revolving Credit Facility was ~~$138.8~~$149.5 million, with ~~$178.2~~$164.5 million available to be drawn. As of December 31, ~~2014,~~2015, the outstanding principal balance of the Term Loan was ~~$93.1~~$85.0 million. As a result of the Restatement and
- 34 -
delay in the filing of the Fiscal 2015 Form 10-K, the Revolving Credit Facility was amended to extend the reporting deadlines for financial statements and debt covenant calculations until April 1, 2016. The Company satisfied the amended reporting requirements prior to April 1, 2016.
We used the net proceeds ~~of $72.1 million~~ from the initial public offering, which closed on July ~~30,~~25, 2014, to repay a portion of our outstanding indebtedness under the Revolving Credit Facility.
ADS Mexicana Revolving Credit Facility
On September 24, 2010, our joint venture ADS Mexicana entered into a credit agreement with PNC, as administrative agent, and lender parties thereto. The credit agreement, as amended and restated on June 12, 2013 and subsequently further amended, provides for revolving loans and letters of credit of up to a maximum aggregate principal amount of ~~$12~~$12.0 million. The proceeds of the revolving credit facility are primarily used to cover working capital needs. The interest rates of the revolving credit facilities are determined by certain base rates or LIBOR rates, plus an applicable margin. The obligations under the revolving credit facility are guaranteed by us and certain of our subsidiaries and secured by substantially all of our assets. For further information about the ~~Senior Loan Facilities,~~Bank Term Loans, see ~~“Description~~“Note 12. Debt” to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of ~~Certain Indebtedness – Senior Loan Facilities” disclosed in~~ our ~~Registration Statement on~~Fiscal 2015 Form ~~S-1 (File No. 333-200312), as amended, declared effective by the SEC on December 3, 2014.~~10-K. As of December 31, ~~2014,~~2015, there was no outstanding principal drawn on the revolving credit facility and the entire $12.0 million was available to be drawn. As a result of the Restatement and delay in the filing of the Fiscal 2015 Form 10-K, the ADS Mexicana Credit Facility was amended to extend the reporting deadlines for financial statements and debt covenant calculations until April 1, 2016. The Company has satisfied the amended reporting requirements.
~~- 46 -~~
Senior Notes
On December 11, 2009, we entered into a private shelf agreement with Prudential Investment Management Inc., or Prudential, which agreement, as amended and restated on September 24, 2010 and subsequently further amended, provides for the issuance by us of senior secured promissory notes to Prudential or its affiliates from time to time in the aggregate principal amount up to $100.0 million. Pursuant to the private shelf agreement, on September 27, 2010, we issued $75.0 million in aggregate principal amount of the 5.60% Senior Series A Notes due September 24, 2018 to repurchase outstanding shares of common stock from certain of our stockholders and to repurchase outstanding shares of convertible preferred stock from the ESOP. On July 24, 2013, we issued $25.0 million in aggregate principal amount of the 4.05% Senior Series B Notes due September 24, 2019 for our general corporate purposes. The Senior Notes are guaranteed by certain of our subsidiaries and secured by substantially all of our assets. On December 20, 2013, we amended the private shelf agreement to, among other things, make certain amendments in order to permit the payment of a cash dividend. For further information about the Senior Notes, see ~~“Description~~“Note 12. Debt” to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of ~~Certain Indebtedness – Senior Notes” disclosed in~~ our ~~Registration Statement on~~Fiscal 2015 Form ~~S-1 (File No. 333-200312), as amended, declared effective by the SEC on December 3, 2014.~~10-K. We have no further amount available for issuance of senior notes under the private shelf agreement. At December 31, ~~2014~~2015 the outstanding principal balance on these notes was $100.0 million. As a result of the Restatement and delay in the filing of the Fiscal 2015 Form 10-K, the private shelf agreement was amended to extend the reporting deadlines for financial statements and debt covenant calculations until April 1, 2016. The Company has satisfied the amended reporting requirements.
Covenant Compliance
Our outstanding debt agreements and instruments contain various restrictive covenants including, but not limited to, limitations on additional indebtedness and capital distributions, including dividend payments. The two primary debt covenants include a Leverage Ratio and a Fixed Charge Ratio. For any relevant period of determination, the Leverage Ratio is calculated by dividing Total Consolidated Indebtedness (funded debt plus guarantees) by Consolidated EBITDA. The current upper limit is 4.0 times. The Fixed Charge Ratio is calculated by dividing the sum of Consolidated EBITDA minus Capital Expenditures minus cash Income Taxes paid, by the sum of Fixed Charges. Fixed Charges include cash Interest expense, scheduled principal payments on Indebtedness, and ESOP Capital Distributions in excess of $10.0 million in a given fiscal year. The current minimum ratio is 1.25 times. For further information, see ~~“Description~~“Note 12. Debt” to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of ~~Certain Indebtedness” disclosed in~~ our ~~Registration Statement on~~Fiscal 2015 Form ~~S-1 (File No. 333-200312), as amended, declared effective by the SEC on December 3, 2014.~~10-K. We were in compliance with our debt covenants as of December 31, ~~2014.~~2015.
~~Contractual Obligation as of December 31, 2014~~

   Payments Due by Period
(Amounts in thousands)    Total    Less than 1 Year    1-3 Years    3-5 Years    More than
5 Years
Contractual obligations:

Long-term debt⁽¹⁾
   $ 338,425       $ 11,700       $ 71,755       $ 254,970       $ —
Interest payments⁽²⁾
   40,547       12,974       21,967       5,606       —
Operating leases
   79,866       19,541       31,667       24,041       4,617
Contractual purchase obligations⁽³⁾
   19,020       19,020       —         —         —










Total
$ 477,858    $ 63,235    $ 125,389    $ 284,617    $ 4,617










~~(1)~~ ~~The current Revolving Credit Facility and Term Loan mature in June, 2018.~~
~~(2)~~ ~~Based on applicable rates and pricing margins as of December 31, 2014, including interest rate swaps.~~
~~(3)~~ ~~Purchase obligations include various commitments with vendors to purchase goods and services, primarily inventory, machinery, supplies and other equipment.~~
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, with the exception of the guarantee of 50% of certain debt of our unconsolidated South American Joint Venture, as further discussed in ~~Note 8~~“Note 6. Related Party Transactions” of our Notes to Condensed Consolidated Financial Statements. As of December 31, ~~2014,~~2015, our South American Joint Venture had approximately ~~$12.2~~$13.7 million of outstanding debt. We do not believe that this guarantee will have a current or future effect on our financial condition, results of operations, liquidity, or capital resources.

- 4735 -
Critical Accounting Policies and Estimates
There have been no changes in critical accounting policies from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~Registration Statement on~~Fiscal 2015 Form ~~S-1 (File No. 333-200312), as amended, declared effective by the SEC on December 3, 2014.~~10-K.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements. Some of the forward-looking statements can be identified by the use of terms such as “believes,” “expects,” “may,” “will,” “would,” “should,” “could,” “seeks,” “predict,” “potential,” “continue,” “intends,” “plans,” “projects,” “estimates,” “anticipates” or other comparable terms. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, financial condition, liquidity, prospects and growth strategies and the industries in which we operate and including, without limitation, statements relating to our future performance.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated results of operations, financial condition and liquidity, and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our consolidated results of operations, financial condition and liquidity, and industry development are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including the risks and uncertainties discussed in this report under the headings “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include:

fluctuations in the price and availability of resins and other raw materials and our ability to pass any increased costs of raw materials on to our customers in a timely manner;

volatility in general business and economic conditions in the markets in which we operate, including without limitation, factors relating to availability of credit, interest rates, fluctuations in capital and business and consumer confidence;

cyclicality and seasonality of the non-residential and residential construction markets and infrastructure spending;

the risks of increasing competition in our existing and future markets, including competition from both manufacturers of high performance thermoplastic corrugated pipe and manufacturers of products using alternative materials;

our ability to continue to convert current demand for concrete, steel and PVC pipe products into demand for our high performance thermoplastic corrugated pipe and Allied Products;

the effect of weather or seasonality;

the loss of any of our significant customers;

the risks of doing business internationally;

the risks of conducting a portion of our operations through joint ventures;

~~- 48 -~~
our ability to expand into new geographic or product markets;

our ability to achieve the acquisition component of our growth strategy;

the risk associated with manufacturing processes;

our ability to manage our assets;

the risks associated with our product warranties;

our ability to manage our supply purchasing and customer credit policies;

the risks associated with our self-insured programs;

our ability to control labor costs and to attract, train and retain highly-qualified employees and key personnel;

our ability to protect our intellectual property rights;

changes in laws and regulations, including environmental laws and regulations;

our ability to project product mix;

the risks associated with our current levels of indebtedness;

our ability to meet future capital requirements and fund our liquidity needs;
the risk that additional information may arise that would require the Company to make additional adjustments or revisions or to restate further the financial statements and other financial data for certain prior periods and any future periods;
any further delay in the filing of any filings with the SEC;
the review of potential weaknesses or deficiencies in the Company’s disclosure controls and procedures, and discovering further weaknesses of which we are not currently aware or which have not been detected; and

~~other risks and~~additional uncertainties ~~including those listed under “Risk Factors.”~~related to accounting issues generally.
- 36 -
All forward-looking statements are made only as of the date of this report and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to various market risks, primarily related to changes in interest rates, credit risk, raw material supply prices, and, to a lesser extent, foreign currency exchange rates. Our financial position, results of operations or cash flows may be negatively impacted in the event of adverse movements in the respective market rates or prices in each of these risk categories. Our exposure in each category is limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions.
Interest Rate Risk
We are subject to interest rate risk associated with our bank debt. Changes in interest rates impact the fair value of our fixed-rate debt, but there is no impact to earnings and cash flow. Alternatively, changes in interest rates do not affect the fair value of our variable-rate debt, but they do affect future earnings and cash flow. The Revolving Credit Facility, the Term Loan Facility, and our industrial development revenue bond, or IDRB, notes bear variable interest rates. The Revolving Credit Facility and Term Loan Facility bear interest either at LIBOR or the Prime Rate, at our option, plus applicable pricing margins. The IDRB notes bear interest at weekly commercial paper rates, plus applicable pricing margins. A 1%1.0% increase in interest rates on our variable-rate debt would increase our annual forecasted interest expense by approximately ~~$1.4~~$1.6 million based on our borrowings as of December 31, ~~2014.~~2015. Assuming the Revolving Credit Facility is fully drawn, each 1%1.0% increase or decrease in the applicable interest rate would change our interest expense by approximately ~~$3.0~~$3.4 million per year. To mitigate the impact of interest rate volatility, we had two interest rate swaps in effect as of December 31, ~~2014.~~2015. The first swap is a $50.0 million notional value, non-amortizing swap at a LIBOR rate of 0.86% which expires in September 1, 2016. A second $50.0 million notional value swap took effect on September 1,2, 2014 and expires on September 1, 2016. The rate is at a fixed LIBOR of 1.08%.
~~- 49 -~~
Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk consist principally of accounts receivable. We provide our products to customers based on an evaluation of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. We monitor the exposure for credit losses and maintain allowances for anticipated losses. Concentrations of credit risk with respect to our accounts receivable are limited due to the large number of customers comprising our customer base and their dispersion among many different geographies.
Raw Material and Commodity Price Risk
Our primary raw materials used in the production of our products are polyethylene resin for HDPE pipe and polypropylene ~~resins.~~resin for PP pipe. As these resins are hydrocarbon-based materials, changes in the price of feedstocks, such as crude oil and natural gas, as well as changes in the market supply and demand may cause the cost of these resins to fluctuate significantly. Raw materials account for the majority of our cost of goods sold. Given the significance of these costs and the inherent volatility in supplier pricing, our ability to reflect these changes in the cost of resins in our product selling prices in an efficient manner, passing the increase on to our customers, contributes to the management of our overall supply price risk and the potential impact on our results of operations.
We manage supply risk with financial and physical hedge contracts for the HDPE and PP resins used in the manufacture of our Pipe and Allied Products, as well as for the diesel fuel used by our in-house fleet of delivery trucks. Our physical hedge contracts for HDPE resins are typically at a fixed price and volume over time. We use, to a limited extent, financial derivatives for PP resin in the form of fixed price swaps based on propylene monomer. For diesel fuel, we have utilized option contracts in the form of collars with put and call options.
We have supply contracts that typically include supply periods of greater than one year. Except for physical-hedged resin contracts, we generally do not enter into long-term purchase orders for the delivery of raw materials. Our orders with suppliers are flexible and do not normally contain minimum purchase volumes or fixed prices. Accordingly, our suppliers may change their selling prices or other relevant terms on a monthly basis, exposing us to pricing risk. Our use of pricing and forecasting tools, centralized procurement, additional sources of supply and incorporation of vertical integration for recycled material have increased our focus on efficiency and resulted in lower overall supply costs. ~~If the price of HDPE and PP virgin resin increased or decreased by 5%, it would result in a material change to our cost of goods sold.~~
- 37 -
Inflation Risk
Our cost of goods sold is subject to inflationary pressures and price fluctuations of the raw materials we use, primarily high density polyethylene and polypropylene resins. Historically, we have generally been able over time to recover the effects of inflation and price fluctuations through sales price increases and production efficiencies related to technological enhancements and improvements. However, we cannot reasonably estimate our ability to successfully recover any price increases.
~~Financial Instruments~~Foreign Currency Exchange Rate Risk
We have operations in countries outside of the United States, all of which use the respective local foreign currency as their functional currency. Each of these operations may enter into contractual arrangements with customers or vendors that are denominated in currencies other than its respective functional currency. Consequently, our results of operations may be affected by exposure to changes in foreign currency exchange rates and economic conditions in the regions in which we sell or distribute our products. Exposure to variability in foreign currency exchange rates from these transactions is managed, to the extent possible, by natural hedges which result from purchases and sales occurring in the same foreign currency within a similar period of time, thereby offsetting each other to varying degrees.
~~- 50 -~~
In addition to the foreign currency transaction-related gains and losses that are reflected within the results of operations, we are subject to foreign currency translation risk, as the financial statements for our foreign subsidiaries are measured and recorded in the respective subsidiary’s functional currency and translated into U.S. dollars for consolidated financial reporting purposes. The resulting translation adjustments are recorded net of tax impact in the Condensed Consolidated Statement of Comprehensive Income.

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
~~Our management, under the direction and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our~~The Company maintains disclosure controls and procedures ~~as of December 31, 2014. The term “disclosure controls and procedures,” as defined~~that are designed to ensure that information required to be disclosed in ~~Rules 13a-15(e) and 15d-15(e)~~the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), ~~means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act~~ is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and ~~forms. Disclosure controls~~forms, and ~~procedures include, without limitation, controls and procedures designed to ensure~~ that such information ~~required to be disclosed by a company in the reports that it files or submits under the Exchange Act~~ is accumulated and communicated to ~~the company’s~~ management, including ~~its principal executive~~the Company’s Chief Executive Officer (“CEO”) and ~~principal financial officers,~~Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As previously disclosed in our Fiscal 2015 Form 10-K, we concluded that our internal control over financial reporting was not effective based upon certain material weaknesses identified as of March 31, 2015. See “Item 9A — Controls and Procedures” in our Fiscal 2015 Form 10-K. Although we are not required to comply with the internal control reporting requirements mandated by Section 404 of the Sarbanes-Oxley Act of 2002 for the fiscal quarter ended December 31, 2015 (the “Evaluation Date”) due to the transition period established by rules of the SEC for newly-public companies, our internal control over financial reporting is an integral part of our disclosure controls and procedures. Our CEO and CFO have concluded that those material weaknesses previously identified in the Fiscal 2015 Form 10-K were still present as of the Evaluation Date. Based on those material weaknesses, and the evaluation of our disclosure controls and procedures, our ~~Chief Executive Officer~~CEO and ~~Chief Financial Officer~~CFO concluded that ~~our~~the Company’s disclosure controls and procedures were not effective as of ~~December 31, 2014.~~the Evaluation Date.
- 38 -
Changes in Internal Control over Financial Reporting
~~No change~~Our remediation efforts were ongoing during the three months ended December 31, 2015, and, other than those remediation efforts described in “Remediation Process” in Item 9A of our Fiscal 2015 Form 10-K, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the three months ended December 31, ~~2014~~2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

- 5139 -
PART II. OTHER INFORMATION

Item 1. Legal Proceedings
~~From~~On July 29, 2015, a putative stockholder class action, Christopher Wyche, individually and on behalf of all others similarly situated v. Advanced Drainage Systems, Inc., et al. (Case No. 1:15-cv-05955-KPF), was commenced in the U.S. District Court for the Southern District of New York, naming the Company, along with Joseph A. Chlapaty, the Company’s Chief Executive Officer, and Mark B. Sturgeon, the Company’s former Chief Financial Officer, as defendants and alleging violations of the federal securities laws. An amended complaint was filed on April 28, 2016. The amended complaint alleges that the Company made material misrepresentations and/or omissions of material fact in its public disclosures during the period from July 25, 2014 through March 29, 2016, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Plaintiffs seek an unspecified amount of monetary damages on behalf of the putative class and an award of costs and expenses, including counsel fees and expert fees. The Company believes that it has valid and meritorious defenses and will vigorously defend against these allegations, but litigation is subject to many uncertainties and the outcome of this matter is not predictable with assurance. While it is reasonably possible that this matter ultimately could be decided unfavorably to the Company, the Company is currently unable to estimate the range of the possible losses, but they could be material.
On August 12, 2015, the SEC Division of Enforcement (“Enforcement Division”) informed the Company that it was conducting an informal inquiry with respect to the Company. As part of this inquiry, the Enforcement Division requested the voluntary production of certain documents generally related to the Company’s accounting practices. Subsequent to the initial voluntary production request, the Company received document subpoenas from the Enforcement Division pursuant to a formal order of investigation. The Company has from the outset cooperated with the Enforcement Division’s investigation and intends to continue to do so. While it is reasonably possible that this investigation ultimately could be resolved unfavorably to the Company, the Company is currently unable to estimate the range of possible losses, but they could be material.
We are involved from time to time ~~we are involved~~ in various legal proceedings ~~incidental to our business, as well as other litigation of a non-material nature~~that arise in the ordinary course of ~~business. In~~our business, including but not limited to commercial disputes, environmental matters, employee related claims, intellectual property disputes and litigation in connection with ASC 450, Contingencies, we have not accrued for material loss contingencies relating to any legal proceedings because we believe that, although unfavorable outcomes in proceedings may be possible, they are not considered by our management to be probabletransactions including acquisitions and ~~reasonably estimable.~~divestitures. We believe that ~~the outcome of any~~ such ~~pending matters, either individually or in the aggregate,~~litigation, claims, and administrative proceedings will not have a material adverse impact on our ~~business~~financial position or our results of operations. We record a liability when a loss is considered probable, and the amount can be reasonably estimated. In management’s opinion, none of these proceedings are material in relation to our consolidated operations, cash flows, or financial ~~condition.~~position, and we have adequate accrued liabilities to cover our estimated probable loss exposure.

Item 1A. Risk Factors
WeImportant risk factors that could affect our operations and financial performance, or that could cause results or events to differ from current expectations, are described in “Part I, Item 1A — Risk Factors” of our Fiscal 2015 Form 10-K. These factors are further supplemented by those discussed in ~~the Company’s Registration Statement~~“Part II, Item 7A — Quantitative and Qualitative Disclosures about Market Risk” of our Fiscal 2015 Form 10-K and in “Part I, Item 3 — Quantitative and Qualitative Disclosures about Market Risk” and “Part II, Item 1 — Legal Proceedings” of this Quarterly Report on Form S-1 (File No. 333-200312), as amended (the “Registration Statement”), and our other filings with the SEC various risks that may materially affect our business. There have been no material changes to the risk factors disclosed in our Registration Statement. The materialization of any risks and uncertainties identified in “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements” contained in this report, together with those previously disclosed in the Registration Statement and our other filings with the SEC or those that are presently unforeseen, could result in significant adverse effects on our financial condition, results of operations and cash flows. See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-looking Statements” contained in this report.10-Q.

Item 2. Unregistered Sale of Equity Securities
Not applicable.

Item 3. Defaults Upon Senior Securities
None.

~~- 52 -~~
Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
None.

- 40 -
Item 6. Exhibits
The exhibits listed in the Exhibit Index are incorporated herein by reference.

- 5341 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: ~~February 9, 2015~~May 31, 2016

ADVANCED DRAINAGE SYSTEMS, INC.
By:
/s/ Joseph A. Chlapaty
Joseph A. Chlapaty
President and Chief Executive Officer
(Principal Executive Officer)
By:
/s/ ~~Mark B. Sturgeon~~Scott A. Cottrill
~~Mark B. Sturgeon~~Scott A. Cottrill
Executive Vice President, Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer)
By:
/s/ Tim A. Makowski
Tim A. Makowski
Vice President, Controller and Chief Accounting Officer
- 42 -
EXHIBIT INDEX

Exhibit
Number

Exhibit Description
10.1 Sale and Assignment of Ownership Interests dated as of July 17, 2015 by and among ADS Ventures, Inc., BaySaver Technologies, Inc. and Mid-Atlantic Storm Water Research Center, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on July 20, 2015).
10.2 Amendment No. 1 to BaySaver Technologies, LLC Limited Liability Company Agreement dated as of July 17, 2015 by and among ADS Ventures, Inc., BaySaver Technologies, Inc. and Mid-Atlantic Storm Water Research Center, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on July 20, 2015).
10.3 Second Amendment to Amended and Restated Credit Agreement, dated as of August 21, 2015, by and among Advanced Drainage Systems, Inc., the Guarantors (as defined therein), the Lenders (as defined therein) party thereto, and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on August 26, 2015).
10.4 Second Amendment to Second Amended and Restated Credit Agreement, dated as of August 21, 2015, by and among ADS Mexicana, S.A. de C.V., the Guarantors (as defined therein), the Lenders (as defined therein) party thereto, and PNC Bank, National Association (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on August 26, 2015).
10.5 Amendment No. 8 and Limited Waiver to Amended and Restated Private Shelf Agreement, dated as of August 21, 2015, by and among Advanced Drainage Systems, Inc., Prudential Investment Management, Inc. and each other Prudential Affiliate (as therein defined) and the Guarantors (as defined therein) (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on August 26, 2015).
31.1    Certification of President and Chief Executive Officer of Advanced Drainage Systems, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Executive Vice President and Chief Financial Officer of Advanced Drainage Systems, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Principal Executive Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Principal Financial Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101    Interactive data files pursuant to Rule 405 of Regulation S-T.
- 43 -


	Common Stock					Paid-In Capital			Common Stock in Treasury						Accu- mulated Other Compre- hensive Loss			Retained Earnings			Total Stock- holders’ Equity			Non- con- trolling Interest in Sub- sidiaries			Total Equity			Redeemable Common Stock						Redeemable Convertible Preferred Stock						Deferred Compensation – Unearned ESOP Shares						Total Mezzanine Equity
(Amounts in thousands)	Shares			Amount		Paid-In Capital			Shares			Amount			Accu- mulated Other Compre- hensive Loss			Retained Earnings			Total Stock- holders’ Equity			Non- con- trolling Interest in Sub- sidiaries			Total Equity			Shares			Amount			Shares			Amount			Shares			Amount			Total Mezzanine Equity
Balance at April 1, 2013		109,979			11,957		41,152			101,191			(448,571	)		(856	)		87,331			(308,987	)		23,265			(285,722	)		38,292			522,276			26,547			282,547			18,461			(196,477	)		608,346

Net income		—			—		—			—			—			—			23,294			23,294			1,360			24,654			—			—			—			—			—			—			—
Other comprehensive loss		—			—		—			—			—			(5,266	)		—			(5,266	)		(1,327	)		(6,593	)		—			—			—			—			—			—			—
Redeemable Convertible Preferred Stock dividends		—			—		—			—			—			—			(526	)		(526	)		—			(526	)		—			—			—			—			—			—			—
Common stock dividend ($0.058 per share)		—			—		—			—			—			—			(4,089	)		(4,089	)		—			(4,089	)		—			—			—			—			—			—			—
Dividend paid to noncontrolling interest holder		—			—		—			—			—			—			—			—			(1,179	)		(1,179	)		—			—			—			—			—			—			—
Allocation of ESOP shares to participants for compensation		—			—		(2,139	)		—			—			—			—			(2,139	)		—			(2,139	)		—			—			—			—			(805	)		9,482			9,482
Exercise of common stock options		—			—		(203	)		(141	)		629			—			—			426			—			426			—			—			—			—			—			—			—
Redemption of common shares to exercise stock options		—			—		299			23			(299	)		—			—			—			—			—			—			—			—			—			—			—			—
Stock based compensation		—			—		1,254			—			—			—			—			1,254			—			1,254			—			—			—			—			—			—			—
Restricted stock awards		—			—		1,013			(28	)		125			—			—			1,138			—			1,138			—			—			—			—			—			—			—
Redemption of Redeemable Convertible Preferred Stock		—			—		—			—			—			—			—			—			—			—			—			—			(367	)		(3,889	)		—			—			(3,889	)
Purchase of common stock					—		—			80			(847	)					—			(847	)		—			(847	)		—			—			—			—			—			—			—
Reclassification of common stock to Redeemable Common Stock		(28	)		—		(385	)		—			—			—			—			(385	)		—			(385	)		28			385			—			—			—			—			385
Adjustments to Redeemable Convertible Preferred Stock fair value measurement		—			—		—			—			—			—			(8,492	)		(8,492	)		—			(8,492	)		—			—			—			28,923			—			(20,431	)		8,492
Adjustments to Redeemable Common Stock fair value measurement		—			—		—			—			—			—			(55,359	)		(55,359	)		—			(55,359	)		—			55,359			—			—			—			—			55,359

Balance at December 31, 2013		109,951			11,957		40,991			101,125			(448,963	)		(6,122	)		42,159			(359,978	)		22,119			(337,859	)		38,320			578,020			26,180			307,581			17,656			(207,426	)		678,175



Balance at April 1, 2014		109,951			11,957		22,547			100,810			(448,439	)		(5,977	)		—			(419,912	)		22,576			(397,336	)		38,320			549,119			26,129			291,720			17,727			(197,888	)		642,951

Net income		—			—		—			—			—			—			36,264			36,264			1,672			37,936			—			—			—			—			—			—			—
Other comprehensive loss		—			—		—			—			—			(4,591	)		—			(4,591	)		(2,686	)		(7,277	)		—			—			—			—			—			—			—
Redeemable Convertible Preferred Stock dividends		—			—		—			—			—			—			(256	)		(256	)		—			(256	)
Common stock dividend ($0.042 per share)		—			—		—			—			—			—			(2,127	)		(2,127	)		—			(2,127	)
Dividend paid to noncontrolling interest holder		—			—		—			—			—			—			—			—			(1,074	)		(1,074	)		—			—			—			—			—			—			—
Allocation of ESOP shares to participants for compensation		—			—		3,464			—			—			—			—			3,464			—			3,464			—			—			—			—			(805	)		4,600			4,600
Exercise of common stock options		—			—		218			(87	)		388			—			—			606			—			606			—			—			—			—			—			—			—
Redemption of common shares to exercise stock options		—			—		93			7			(93	)		—			—			—			—			—			—			—			—			—			—			—			—
Stock based compensation		—			—		2,995			—			—			—			—			2,995			—			2,995			—			—			—			—			—			—			—
Restricted stock awards		—			—		1,831			(119	)		531			—			—			2,362			—			2,362			—			—			—			—			—			—			—
Initial Public Offering (IPO)		5,289			53		72,143			—			—			—			—			72,196			—			72,196			—			—			—			—			—			—			—
Reclassification of liability classified stock options upon IPO		—			—		1,522			—			—			—			—			1,522			—			1,522			—			—			—			—			—			—			—
Purchase of common stock		—			—								(3	)		—			—			(3	)		—			(3	)		—			—			—			—			—			—			—
ESOP distributions in common stock		—			—		3,017			(255	)		1,137			—			—			4,154			—			4,154			—			—			(332	)		(4,154	)		—			—			(4,154	)
Adjustments to Redeemable Convertible Preferred Stock fair value measurement		—			—		—			—			—			—			(11,054	)		(11,054	)		—			(11,054	)		—			—			—			34,903			—			(23,849	)		11,054
Adjustments to Redeemable Common Stock fair value measurement		—			—		(43,094	)		—			—			—			(22,827	)		(65,921	)		—			(65,921	)		—			65,921			—			—			—			—			65,921
Termination of redemption feature upon IPO		38,320			383		614,657			—			—			—			—			615,040			—			615,040			(38,320	)		(615,040	)		—			—			—			—			(615,040	)

Balance at December 31, 2014		153,560			12,393		679,393			100,356			(446,479	)		(10,568	)		—			234,739			20,488			255,227			—			—			25,797			322,469			16,922			(217,137	)		105,332


(Amounts in thousands)
Assets	March 31, 2014		December 31, 2014
Current assets	$	35,272	$	35,372
Property, plant and equipment, net		21,633		18,991
Other noncurrent assets		2,698		2,032

Total assets	$	59,603	$	56,395


(Amounts in thousands)	As reported on Balance Sheet		Maximum Exposure
Investment in Tigre-ADS USA	$	3,147	$	3,147
Receivable from Tigre-ADS USA		52		52


	March 31,			December 31,
	2014			2014
a. Bank term loans:
Revolving Credit Facility – ADS	$	248,100		$	138,800
Revolving Credit Facility – ADS Mexicana		—			—
Term note		97,500			93,125
b. Senior Notes payable		100,000			100,000
c. Mortgage notes payable		3,733			2,750
d. Industrial revenue bonds		4,715			3,750

Total		454,048			338,425
Current maturities		(11,153	)		(11,700	)

Long-term debt obligation	$	442,895		$	326,725


(Amounts in thousands)	Currency Translation			Other			Accumulated Other Comprehensive Loss
Balance at April 1, 2013	$	(860	)	$	4		$	(856	)

Other comprehensive loss before reclassifications		(6,875	)		6			(6,869	)
Amounts reclassified from AOCL		—			—			—
Income tax expense (benefit)		1,605			(2	)		1,603

Balance at December 31, 2013	$	(6,130	)	$	8		$	(6,122	)



Balance at April 1, 2014	$	(5,985	)		8		$	(5,977	)

Other comprehensive loss before reclassifications		(6,656	)		—			(6,656	)
Amounts reclassified from AOCL		—			—��			—
Income tax expense		2,065			—			2,065

Balance at December 31, 2014	$	(10,576	)	$	8		$	(10,568	)


	2013						2014
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at beginning of period		1,323		8.10		4.0		913		9.48		4.1
Issued		14		13.64		—		78		15.74		—
Exercised		141		6.82		—		87		7.56		—
Forfeited		5		10.77		—		3		15.74		—

Outstanding at end of period		1,191		8.30		3.5		901		10.18		4.0

Exercisable and vested at end of period		791		6.84		1.9		826		9.68		3.5

Unvested at end of period		400		11.16		6.7		75		15.74		9.6

Vested and expected to vest at end of period		1,078		8.08		4.5		779		10.16		7.8


	Number of Shares		Weighted Average Grant Date Fair Value
Unvested at beginning of period		428	$	5.82
Granted		78		6.76
Vested		428		5.82
Forfeited		3		6.76

Unvested at end of period		75	$	6.76


(Amounts in thousands)	Three Months Ended December 31, 2013			% of Net Sales			Three Months Ended December 31, 2014			% of Net Sales			% Variance
Net Sales	$	261,435			100.0	%	$	278,176			100.0	%		6.4	%
Cost of goods sold		211,671			81.0			228,059			82.0			7.7

Gross Profit		49,764			19.0			50,117			18.0			0.7
Selling expenses		16,590			6.3			19,275			6.9			16.2
General and administrative expenses		18,778			7.2			19,519			7.0			3.9
Intangible amortization		2,854			1.1			2,356			0.8			(17.4	)


Income from operations		11,542			4.4			8,967			3.3			(22.3	)
Interest expense		3,893			1.5			4,056			1.5			4.2
Other miscellaneous (income) expense, net		(418	)		(0.2	)		5,212			1.9			(1,346.9	)

Income (loss) before income taxes		8,067			3.1			(301	)		(0.1	)		(103.7	)
Income tax expense (benefit)		17,537			6.7			(1,248	)		(0.4	)		(107.1	)
Equity in net loss of unconsolidated affiliates		369			0.1			448			0.2			21.4

Net (loss) income		(9,839	)		(3.8	)		499			(0.3	)		(105.1	)
Less net income attributable to the non-controlling interests		485			0.2			866			0.3			78.6

Net loss attributable to ADS	$	(10,324	)		(3.9	)%	$	(367	)		0.0	%		(96.4	)

Other financial data:
Adjusted EBITDA^(a)		29,458			11.3	%		27,684			10.0	%		(6.0	)%
System-Wide Net Sales^(a)		278,040			106.4	%		299,740			107.8	%		7.8	%
Adjusted Earnings Per Fully Converted Share – Basic ^(a)	$	(0.12	)		—		$	0.03			—			125.0	%


(Amounts in thousands)	Nine Months Ended December 31, 2013			% of Net Sales			Nine Months Ended December 31, 2014		% of Net Sales			% Variance
Net Sales	$	887,777			100.0	%	$	971,197		100.0	%		9.4	%
(Amounts in thousands, except per share data)															Nine Months Ended December 31, 2015		% of Net Sales			Nine Months Ended December 31, 2014		% of Net Sales			% Variance
Consolidated Statements of Operations data:
Net sales															$	1,045,280		100.0	%	$	973,019		100.0	%		7.4	%
Cost of goods sold		698,791			78.7			766,605		78.9			9.7			815,636		78.0	%		793,220		81.5	%		2.8	%

Gross Profit		188,986			21.3			204,592		21.1			8.3
Gross profit																229,644		22.0	%		179,799		18.5	%		27.7	%
Selling expenses		52,433			5.9			58,283		6.0			11.2			65,701		6.3	%		59,705		6.1	%		10.0	%
General and administrative expenses		54,354			6.1			58,930		6.1			8.4			69,207		6.6	%		43,756		4.5	%		58.2	%
Gain on sale of business		(4,848	)		(0.5	)		—		—			(100.0	)
Loss on disposal of assets or businesses																558		0.1	%		538		0.1	%		3.7	%
Intangible amortization		8,576			1.0			7,635		0.8			(11.0	)		7,049		0.7	%		7,551		0.8	%		(6.6	%)


Income from operations		78,471			8.8			79,744		8.2			1.6			87,129		8.3	%		68,249		7.0	%		27.7	%
Interest expense		11,860			1.3			13,009		1.3			9.7			13,956		1.3	%		14,726		1.5	%		(5.2	%)
Other miscellaneous expenses, net		398			0.0			5,219		0.5			1,211.3
Derivative losses and other expense, net																18,333		1.8	%		5,100		0.5	%		259.5	%

Income before income taxes		66,213			7.5			61,516		6.4			(7.1	)		54,840		5.2	%		48,423		5.0	%		13.3	%
Income tax expense		40,845			4.6			22,509		2.3			(44.9	)		19,839		1.9	%		20,226		2.1	%		(1.9	%)
Equity in net loss of unconsolidated affiliates		714			0.1			1,071		0.1			50.0			935		0.1	%		1,712		0.2	%		(45.4	%)

Net income		24,654			2.8			37,936		4.0			53.9			34,066		3.3	%		26,485		2.7	%		28.6	%
Less net income attributable to the non-controlling interests		1,360			0.2			1,672		0.2			22.9
Less net income attributable to noncontrolling interest																4,481		0.4	%		4,400		0.5	%		1.8	%

Net income attributable to ADS	$	23,294			2.6	%		36,264		3.8	%		55.7		$	29,585		2.8	%	$	22,085		2.3	%		34.0	%

Other financial data:
Adjusted EBITDA^(a)		130,567			14.7	%		137,347		14.1	%		5.2	%	$	160,952		15.4	%	$	134,127		13.8	%		20.0	%
System-Wide Net Sales^(a)		939,683			105.8	%		1,036,447		106.7	%		10.3	%	$	1,103,336		105.6	%	$	1,038,269		106.7	%		6.3	%
Adjusted Earnings Per Fully Converted Share^(a)	$	0.45			—		$	0.62		—			37.8	%	$	0.53		—		$	0.42		—			24.9	%


	Payments Due by Period
(Amounts in thousands)	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Contractual obligations:
Long-term debt⁽¹⁾	$	338,425	$	11,700	$	71,755	$	254,970	$	—
Interest payments⁽²⁾		40,547		12,974		21,967		5,606		—
Operating leases		79,866		19,541		31,667		24,041		4,617
Contractual purchase obligations⁽³⁾		19,020		19,020		—		—		—

Total	$	477,858	$	63,235	$	125,389	$	284,617	$	4,617


ADVANCED DRAINAGE SYSTEMS, INC.

By:		/s/ Joseph A. Chlapaty
		Joseph A. Chlapaty
		President and Chief Executive Officer
		(Principal Executive Officer)

By:		/s/ ~~Mark B. Sturgeon~~Scott A. Cottrill
		~~Mark B. Sturgeon~~Scott A. Cottrill
		Executive Vice President, Chief Financial Officer, Secretary and Treasurer
		(Principal Financial Officer)

By:		/s/ Tim A. Makowski
		Tim A. Makowski
		Vice President, Controller and Chief Accounting Officer


Exhibit Number		Exhibit Description

10.1		Sale and Assignment of Ownership Interests dated as of July 17, 2015 by and among ADS Ventures, Inc., BaySaver Technologies, Inc. and Mid-Atlantic Storm Water Research Center, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on July 20, 2015).

10.2		Amendment No. 1 to BaySaver Technologies, LLC Limited Liability Company Agreement dated as of July 17, 2015 by and among ADS Ventures, Inc., BaySaver Technologies, Inc. and Mid-Atlantic Storm Water Research Center, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on July 20, 2015).

10.3		Second Amendment to Amended and Restated Credit Agreement, dated as of August 21, 2015, by and among Advanced Drainage Systems, Inc., the Guarantors (as defined therein), the Lenders (as defined therein) party thereto, and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on August 26, 2015).

10.4		Second Amendment to Second Amended and Restated Credit Agreement, dated as of August 21, 2015, by and among ADS Mexicana, S.A. de C.V., the Guarantors (as defined therein), the Lenders (as defined therein) party thereto, and PNC Bank, National Association (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on August 26, 2015).

10.5		Amendment No. 8 and Limited Waiver to Amended and Restated Private Shelf Agreement, dated as of August 21, 2015, by and among Advanced Drainage Systems, Inc., Prudential Investment Management, Inc. and each other Prudential Affiliate (as therein defined) and the Guarantors (as defined therein) (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on August 26, 2015).

31.1		Certification of President and Chief Executive Officer of Advanced Drainage Systems, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Executive Vice President and Chief Financial Officer of Advanced Drainage Systems, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive data files pursuant to Rule 405 of Regulation S-T.

Large accelerated filer

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Non-accelerated filer

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