UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q/A
(Amendment No.1 to Form10-Q)
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014December 31, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:001-36557
Advanced Drainage Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 51-0105665 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
4640 Trueman Boulevard, Hilliard, Ohio 43026
(Address of Principal Executive Offices, Including Zip Code)
(614) 658-0050
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ¨☒ NO x☐
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 RegulationS-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 anon-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” and “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | |||||
Non-accelerated filer | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). YES ¨☐ NO x☒
As of October 31, 2014, 52,938,098April 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 October 31, 2014, 234,271 sharesApril 29, 2016, 102,223shares of unvested restricted common stock were outstanding and 26,129,86924,819,105 shares of ESOP, preferred stock, convertible into 20,099,09619,090,856 shares of common stock, were outstanding. As of October 31, 2014, 73,271,465April 29, 2016, 73,639,481 shares of common stock were outstanding, inclusive of outstanding shares of unvested restricted common stock and on anas-converted basis with respect to the outstanding shares of ESOP preferred stock.
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ITEM 1. | Condensed Consolidated Financial Statements (Unaudited) | |||||
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Notes to the Condensed Consolidated Financial Statements | 7 | |||||
ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
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i
DuringSubsequent to the preparationissuance of its Annual Report on Form 10-Kthe Company’s consolidated financial statements for the fiscal year ended March 31, 2015,2016, Advanced Drainage Systems, Inc. identified errors in its historical consolidated financial statements related primarily to the accounting for leases, inventory, long-lived assets, ADS Mexicana, income taxes, and other items.stock-based compensation, as well as the compensation expense associated with certain executive employment agreements. As a result, Advanced Drainage Systems, Inc. is filing this Amendment No. 1 on Form10-Q/A to amend and restate in their entirety the following items of ourits Quarterly Report on Form10-Q for the three and sixnine months ended September 30, 2014December 31, 2015 as originally filed with the Securities and Exchange Commission on November 10, 2014May 31, 2016 (the “Original Form10-Q”): (i) Item 1 of Part I, “Financial“Condensed Consolidated Financial Statements,” (ii) Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” (iii) Item 3 of Part I, “Quantitative and Qualitative Disclosures About Market Risk”, (iv) Item 4 of Part I, “Controls and Procedures”, (v)Procedures,” and (iv) Item 1A of Part II, “Risk Factors”, and (vi) Item 6 of Part II, “Exhibits”. We haveThe Company has also updated the signature page, the certifications of ourthe Chief Executive Officer and Chief Financial Officer in Exhibits 31.01, 31.02, 32.0131.1, 31.2, 32.1 and 32.02,32.2, respectively, and ourthe consolidated financial statements formatted in Extensible Business Reporting Language (XBRL) in ExhibitsExhibit 101. NoWhile no other sections were affected, or have been changed; however, for the convenience of the reader, this report on Form 10-Q/A restatesall sections included in its entirety, as amended, ourthe Original Form 10-Q.10-Q are presented herein. This report on Form10-Q/A is presented as of the filing date of the OriginalForm 10-Q and does not reflect events occurring after that date, or modify or update disclosures, other than as required to reflect the restatement.restatement and to provide updated information regarding debt covenant waivers.
For further information about the restatement (the “Stock-Based Compensation Restatement”), see “Note 16. Restatement of Previously Issued Financial Statements” to our unaudited condensed consolidated financial statements included in “Part I. Financial Information” of this Form10-Q/A.This Form10-Q/A is being filed concurrently with the Company’s Form 10-K10-K/A for the year ended March 31, 20152016 and Forms10-Q/A for the periods ended June 30, 20142015 and December 31, 2014.September 30, 2015.
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PART I. FINANCIAL INFORMATION
PART I. | FINANCIAL INFORMATION |
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, as restated)(1)
As of | As of | |||||||||||||||
(Amounts in thousands, except par value) | September 30, 2014 | March 31, 2014 | December 31, 2015 | March 31, 2015 | ||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 6,581 | $ | 3,931 | $ | 6,412 | $ | 3,623 | ||||||||
Receivables (less allowance for doubtful accounts of $4,381 and $4,490, respectively) | 246,046 | 148,271 | ||||||||||||||
Receivables (less allowance for doubtful accounts of $4,516 and $5,423, respectively) | 171,768 | 154,294 | ||||||||||||||
Inventories | 232,262 | 259,891 | 199,589 | 260,550 | ||||||||||||
Deferred income taxes and other current assets | 13,737 | 14,465 | 26,936 | 25,943 | ||||||||||||
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Total current assets | 498,626 | 426,558 | 404,705 | 444,410 | ||||||||||||
Property, plant and equipment, net | 359,742 | 350,351 | 387,654 | 375,813 | ||||||||||||
Other assets: | ||||||||||||||||
Goodwill | 88,000 | 88,017 | 100,205 | 98,679 | ||||||||||||
Intangible assets, net | 54,132 | 59,194 | 61,492 | 58,055 | ||||||||||||
Other assets | 67,660 | 65,447 | 49,220 | 61,167 | ||||||||||||
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Total assets | $ | 1,068,160 | $ | 989,567 | $ | 1,003,276 | $ | 1,038,124 | ||||||||
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LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current maturities of debt obligations | $ | 11,148 | $ | 11,153 | $ | 35,860 | $ | 9,580 | ||||||||
Current maturities of capital lease obligations | 12,225 | 12,364 | 18,374 | 15,731 | ||||||||||||
Accounts payable | 115,716 | 110,972 | 74,000 | 111,893 | ||||||||||||
Current portion of liability-classified stock-based awards | 14,647 | 17,611 | ||||||||||||||
Other accrued liabilities | 50,240 | 43,085 | 75,070 | 54,349 | ||||||||||||
Accrued income taxes | 19,698 | 7,980 | 14,318 | 6,299 | ||||||||||||
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Total current liabilities | 209,027 | 185,554 | 232,269 | 215,463 | ||||||||||||
Long-term debt obligation | 386,435 | 442,895 | 301,565 | 390,315 | ||||||||||||
Long-term capital lease obligations | 49,237 | 34,366 | 56,265 | 45,503 | ||||||||||||
Deferred tax liabilities | 60,401 | 66,333 | 55,739 | 62,832 | ||||||||||||
Other liabilities | 27,319 | 32,170 | 37,464 | 38,865 | ||||||||||||
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Total liabilities | 732,419 | 761,318 | 683,302 | 752,978 | ||||||||||||
Commitments and contingencies (see Note 14) | ||||||||||||||||
Commitments and contingencies (see Note 9) | ||||||||||||||||
Mezzanine equity: | ||||||||||||||||
Redeemable common stock: $0.01 par value; 0 and 38,320 shares issued and outstanding, respectively | — | 549,119 | ||||||||||||||
Redeemable convertible preferred stock: $0.01 par value; 47,070 shares authorized; 44,170 shares issued; 26,129 shares outstanding | 326,623 | 291,720 | ||||||||||||||
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 | (215,024 | ) | (197,888 | ) | (207,154 | ) | (212,469 | ) | ||||||||
Redeemable noncontrolling interest in subsidiaries | 7,166 | — | ||||||||||||||
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Total mezzanine equity | 111,599 | 642,951 | 111,252 | 108,021 | ||||||||||||
Stockholders’ equity (deficit): | ||||||||||||||||
Common stock: $0.01 par value; 1,000,000 and 148,271 shares authorized; 153,560 and 109,951 shares issued; 52,935 and 9,141 shares outstanding, respectively | 12,393 | 11,957 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
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 | 689,980 | 12,438 | 736,376 | 723,495 | ||||||||||||
Common stock in treasury, at cost | (447,674 | ) | (448,439 | ) | (441,822 | ) | (445,065 | ) | ||||||||
Accumulated other comprehensive loss | (9,355 | ) | (6,830 | ) | (26,122 | ) | (15,521 | ) | ||||||||
Retained deficit | (40,900 | ) | (2,412 | ) | (86,484 | ) | (114,590 | ) | ||||||||
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Total ADS stockholders’ equity (deficit) | 204,444 | (433,286 | ) | |||||||||||||
Total ADS stockholders’ equity | 194,341 | 160,712 | ||||||||||||||
Noncontrolling interest in subsidiaries | 19,698 | 18,584 | 14,381 | 16,413 | ||||||||||||
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Total stockholders’ equity (deficit) | 224,142 | (414,702 | ) | |||||||||||||
Total stockholders’ equity | 208,722 | 177,125 | ||||||||||||||
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Total liabilities, mezzanine equity and stockholders’ equity (deficit) | $ | 1,068,160 | $ | 989,567 | ||||||||||||
Total liabilities, mezzanine equity and stockholders’ equity | $ | 1,003,276 | $ | 1,038,124 | ||||||||||||
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(1) | See Note |
See accompanying notes to condensed consolidated financial statements.
- 2 -
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, as restated)(1)
Three Months Ended September 30, | Six Months Ended September 30, | Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||||||||||||||||
(Amounts in thousands, except per share data) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||||||
Net sales | $ | 366,714 | $ | 332,727 | $ | 693,148 | $ | 625,306 | $ | 312,827 | $ | 279,871 | $ | 1,045,280 | $ | 973,019 | ||||||||||||||||
Cost of goods sold | 296,951 | 267,139 | 562,527 | 503,368 | 237,985 | 230,584 | 809,432 | 792,290 | ||||||||||||||||||||||||
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Gross profit | 69,763 | 65,588 | 130,621 | 121,938 | 74,842 | 49,287 | 235,848 | 180,729 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Selling | 20,240 | 18,635 | 39,792 | 35,155 | 21,580 | 20,113 | 65,401 | 60,605 | ||||||||||||||||||||||||
General and administrative | 13,843 | 13,655 | 29,641 | 26,742 | 20,450 | 16,249 | 64,808 | 51,417 | ||||||||||||||||||||||||
Loss (gain) on disposal of assets or businesses | 281 | 204 | 345 | (4,532 | ) | |||||||||||||||||||||||||||
(Gain) loss on disposal of assets or businesses | (603 | ) | 193 | 558 | 538 | |||||||||||||||||||||||||||
Intangible amortization | 2,610 | 2,620 | 5,223 | 5,240 | 2,182 | 2,328 | 7,049 | 7,551 | ||||||||||||||||||||||||
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Income from operations | 32,789 | 30,474 | 55,620 | 59,333 | 31,233 | 10,404 | 98,032 | 60,618 | ||||||||||||||||||||||||
Other expense: | ||||||||||||||||||||||||||||||||
Interest expense | 5,044 | 4,721 | 10,095 | 9,450 | 4,723 | 4,631 | 13,956 | 14,726 | ||||||||||||||||||||||||
Other miscellaneous (income) expense, net | (240 | ) | (24 | ) | (456 | ) | 20 | |||||||||||||||||||||||||
Derivative losses and other expense, net | 2,561 | 5,556 | 18,333 | 5,100 | ||||||||||||||||||||||||||||
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Income before income taxes | 27,985 | 25,777 | 45,981 | 49,863 | 23,949 | 217 | 65,743 | 40,792 | ||||||||||||||||||||||||
Income tax expense | 8,926 | 8,928 | 16,819 | 18,139 | 10,090 | 2,498 | 23,156 | 17,867 | ||||||||||||||||||||||||
Equity in net loss of unconsolidated affiliates | 62 | 192 | 724 | 518 | 917 | 988 | 935 | 1,712 | ||||||||||||||||||||||||
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Net income | 18,997 | 16,657 | 28,438 | 31,206 | ||||||||||||||||||||||||||||
Less net income attributable to noncontrolling interest | 2,153 | 1,917 | 3,028 | 3,492 | ||||||||||||||||||||||||||||
Net income (loss) | 12,942 | (3,269 | ) | 41,652 | 21,213 | |||||||||||||||||||||||||||
Less net (loss) income attributable to noncontrolling interest | (189 | ) | 1,372 | 4,481 | 4,400 | |||||||||||||||||||||||||||
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Net income attributable to ADS | 16,844 | 14,740 | 25,410 | 27,714 | ||||||||||||||||||||||||||||
Net income (loss) attributable to ADS | 13,131 | (4,641 | ) | 37,171 | 16,813 | |||||||||||||||||||||||||||
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Change in fair value of Redeemable convertible preferred stock | 7,319 | (3,186 | ) | (11,054 | ) | (4,764 | ) | |||||||||||||||||||||||||
Dividends to Redeemable convertible preferred stockholders | (37 | ) | (214 | ) | (75 | ) | (430 | ) | ||||||||||||||||||||||||
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 | — | (8 | ) | — | (16 | ) | (6 | ) | (9 | ) | (18 | ) | (9 | ) | ||||||||||||||||||
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Net income available to common stockholders and participating securities | 24,126 | 11,332 | 14,281 | 22,504 | ||||||||||||||||||||||||||||
Net income (loss) available to common stockholders and participating securities | 12,447 | (4,948 | ) | 35,485 | 5,373 | |||||||||||||||||||||||||||
Undistributed income allocated to participating securities | (2,768 | ) | (1,203 | ) | (1,702 | ) | (2,406 | ) | (1,016 | ) | — | (2,965 | ) | (378 | ) | |||||||||||||||||
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Net income available to common stockholders | $ | 21,358 | $ | 10,129 | $ | 12,579 | $ | 20,098 | ||||||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 11,431 | $ | (4,948 | ) | $ | 32,520 | $ | 4,995 | |||||||||||||||||||||||
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Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||
Basic | 51,518 | 47,250 | 49,538 | 47,220 | 54,133 | 52,986 | 53,880 | 50,691 | ||||||||||||||||||||||||
Diluted | 56,463 | 47,579 | 52,198 | 47,634 | 55,402 | 52,986 | 55,191 | 51,616 | ||||||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||||||||
Net income (loss) per share: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.41 | $ | 0.21 | $ | 0.25 | $ | 0.43 | $ | 0.21 | $ | (0.09 | ) | $ | 0.60 | $ | 0.10 | |||||||||||||||
Diluted | $ | 0.41 | $ | 0.21 | $ | 0.25 | $ | 0.42 | $ | 0.21 | $ | (0.09 | ) | $ | 0.59 | $ | 0.10 | |||||||||||||||
Cash dividends declared per share | $ | — | $ | 0.03 | $ | — | $ | 0.06 | $ | 0.05 | $ | 0.04 | $ | 0.15 | $ | 0.04 |
(1) | See Note |
See accompanying notes to condensed consolidated financial statements.
- 3 -
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, as restated)(1)
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 18,997 | $ | 16,657 | $ | 28,438 | $ | 31,206 | ||||||||
Other comprehensive (loss) income: | ||||||||||||||||
Currency translation, before tax | (3,591 | ) | 1,405 | (3,432 | ) | (3,076 | ) | |||||||||
Other, before tax | — | — | — | 5 | ||||||||||||
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Total other comprehensive (loss) income, before tax | (3,591 | ) | 1,405 | (3,432 | ) | (3,071 | ) | |||||||||
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Tax attributes of items in other comprehensive (loss) income: | ||||||||||||||||
Other | — | — | — | (2 | ) | |||||||||||
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Total tax benefit | — | — | — | (2 | ) | |||||||||||
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Comprehensive income | 15,406 | 18,062 | 25,006 | 28,133 | ||||||||||||
Less other comprehensive loss attributable to noncontrolling interest, net of tax | (761 | ) | (293 | ) | (907 | ) | (1,266 | ) | ||||||||
Less net income attributable to noncontrolling interest | 2,153 | 1,917 | 3,028 | 3,492 | ||||||||||||
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Total comprehensive income attributable to ADS | $ | 14,014 | $ | 16,438 | $ | 22,885 | $ | 25,907 | ||||||||
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Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
(Amounts in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net income (loss) | $ | 12,942 | $ | (3,269 | ) | $ | 41,652 | $ | 21,213 | |||||||
Other comprehensive loss: | ||||||||||||||||
Currency translation | (2,788 | ) | (3,966 | ) | (13,258 | ) | (7,398 | ) | ||||||||
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Total other comprehensive loss | (2,788 | ) | (3,966 | ) | (13,258 | ) | (7,398 | ) | ||||||||
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Comprehensive income (loss) | 10,154 | (7,235 | ) | 28,394 | 13,815 | |||||||||||
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 | |||||||||||
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Total comprehensive income (loss) attributable to ADS | $ | 10,692 | $ | (6,846 | ) | $ | 26,570 | $ | 12,083 | |||||||
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(1) | See Note |
See accompanying notes to condensed consolidated financial statements.
- 4 -
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, as restated)(1)
Six Months Ended September 30, | Nine Months Ended December 31, | |||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2015 | 2014 | ||||||||||||
Cash Flows from Operating Activities | $ | 14,906 | $ | 8,385 | $ | 129,441 | $ | 90,252 | ||||||||
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Cash Flows from Investing Activities | ||||||||||||||||
Capital expenditures | (15,596 | ) | (21,561 | ) | (29,970 | ) | (21,281 | ) | ||||||||
Proceeds from sale of assets or businesses | 156 | 6,056 | ||||||||||||||
Investment in unconsolidated affiliate | (7,566 | ) | (5,300 | ) | ||||||||||||
Proceeds from disposition of assets or businesses | — | 294 | ||||||||||||||
Cash paid for acquisitions, net of cash acquired | (3,188 | ) | — | |||||||||||||
Investment in unconsolidated affiliates | — | (7,566 | ) | |||||||||||||
Additions of capitalized software | (441 | ) | (186 | ) | (1,504 | ) | (601 | ) | ||||||||
Proceeds from note receivable to related party | 3,854 | — | ||||||||||||||
Issuance of note receivable to related party | (3,854 | ) | — | |||||||||||||
Other investing activities | (525 | ) | (533 | ) | (741 | ) | (212 | ) | ||||||||
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Net cash used in investing activities | (23,972 | ) | (21,524 | ) | (35,403 | ) | (29,366 | ) | ||||||||
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Cash Flows from Financing Activities | ||||||||||||||||
Proceeds from Revolving Credit Facility | 174,760 | 225,400 | 322,700 | 250,200 | ||||||||||||
Payments on Revolving Credit Facility | (227,000 | ) | (242,300 | ) | (378,300 | ) | (359,500 | ) | ||||||||
Proceeds from term loan | — | 100,000 | ||||||||||||||
Payments on term loan | (2,500 | ) | (77,500 | ) | (6,250 | ) | (4,375 | ) | ||||||||
Proceeds from Senior Notes | — | 25,000 | ||||||||||||||
Proceeds from notes, mortgages, and other debt | 6,563 | — | ||||||||||||||
Payments of notes, mortgages, and other debt | (1,665 | ) | (963 | ) | (7,183 | ) | (1,948 | ) | ||||||||
Payments on capital lease obligation | (5,467 | ) | (5,899 | ) | ||||||||||||
Payments on capital lease obligations | (14,906 | ) | (6,619 | ) | ||||||||||||
Payments for deferred initial public offering costs | (4,458 | ) | — | — | (6,479 | ) | ||||||||||
Debt issuance costs | — | (2,311 | ) | |||||||||||||
Proceeds from initial public offering of common stock, net of underwriter discounts and commissions | 79,131 | — | — | 79,131 | ||||||||||||
Cash dividends paid | (1,007 | ) | (4,293 | ) | (12,671 | ) | (4,254 | ) | ||||||||
Redemption of Redeemable convertible preferred stock | — | (3,146 | ) | |||||||||||||
Other financing activities | 152 | (183 | ) | 231 | 205 | |||||||||||
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Net cash provided by financing activities | 11,946 | 13,805 | ||||||||||||||
Net cash used in financing activities | (89,816 | ) | (53,639 | ) | ||||||||||||
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Effect of exchange rate changes on cash and cash equivalents | (230 | ) | 9 | |||||||||||||
Effect of exchange rate changes on cash | (1,433 | ) | (425 | ) | ||||||||||||
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Net change in cash | 2,650 | 675 | 2,789 | 6,822 | ||||||||||||
Cash at beginning of period | 3,931 | 1,361 | 3,623 | 3,931 | ||||||||||||
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Cash at end of period | $ | 6,581 | $ | 2,036 | $ | 6,412 | $ | 10,753 | ||||||||
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(1) | See Note |
See accompanying notes to condensed consolidated financial statements.
- 5 -
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND MEZZANINE EQUITY
(Unaudited)(Unaudited, as restated)(1)
Common Stock | Paid-In Capital | Common Stock in Treasury | Accumulated Other Comprehensive Loss | Retained Earnings (Deficit) | Total ADS Stockholders’ Equity (Deficit) | Non- controlling Interest in Subsidiaries | Total Stock- holders’ Equity (Deficit) | Redeemable Common Stock | Redeemable Convertible Preferred Stock | Deferred Compensation - Unearned ESOP Shares | Total Mezzanine Equity | Common Stock | Paid-In Capital | Common Stock in Treasury | Accumulated Other Comprehensive Loss | Retained Deficit | Total ADS Stockholders’ (Deficit) Equity | Non-controlling Interest in Subsidiaries | Total Stockholders’ (Deficit) 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 | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2014, as previously reported | 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Cumulative restatement adjustment | — | — | (1,126 | ) | — | — | (225 | ) | (8,129 | ) | (9,480 | ) | (4,721 | ) | (14,201 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative revision and restatement adjustments | (17 | ) | — | (4,069 | ) | — | — | — | (34,268 | ) | (38,337 | ) | — | (38,337 | ) | 17 | 240 | — | — | — | — | — | 240 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at April 1, 2013 (As Restated)(1) | 109,979 | $ | 11,957 | $ | 40,026 | 101,191 | $ | (448,571 | ) | $ | (1,081 | ) | $ | 79,202 | $ | (318,467 | ) | $ | 18,544 | $ | (299,923 | ) | 38,292 | $ | 522,276 | 26,547 | $ | 282,547 | 18,461 | $ | (196,477 | ) | $ | 608,346 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance April 1, 2014 (Unaudited, As Restated)(1) | 109,934 | 11,957 | 8,369 | 100,810 | (448,439 | ) | (6,830 | ) | (36,680 | ) | (471,623 | ) | 18,584 | (453,039 | ) | 38,337 | 549,359 | 26,129 | 291,720 | 17,727 | (197,888 | ) | — | 643,191 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net income | — | — | — | — | — | — | 27,714 | 27,714 | 3,492 | 31,206 | — | — | — | — | — | — | — | — | — | — | — | — | — | 16,813 | 16,813 | 4,400 | 21,213 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (1,807 | ) | — | (1,807 | ) | (1,266 | ) | (3,073 | ) | — | — | — | — | — | — | — | — | — | — | — | — | (4,730 | ) | — | (4,730 | ) | (2,668 | ) | (7,398 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable convertible preferred stock dividends | — | — | — | — | — | — | (355 | ) | (355 | ) | — | (355 | ) | — | — | — | — | — | — | — | — | — | — | — | — | — | (256 | ) | (256 | ) | — | (256 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend ($0.058 per share) | — | — | — | — | — | — | (2,724 | ) | (2,724 | ) | — | (2,724 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend ($0.042 per share) | — | — | — | — | — | — | (2,127 | ) | (2,127 | ) | — | (2,127 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividend paid to noncontrolling interest holder | — | — | — | — | — | — | — | — | (1,214 | ) | (1,214 | ) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (1,871 | ) | (1,871 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allocation of ESOP shares to participants for compensation | — | — | (1,023 | ) | — | — | — | — | (1,023 | ) | — | (1,023 | ) | — | — | — | — | (537 | ) | 6,049 | 6,049 | — | — | (1,999 | ) | — | — | — | — | (1,999 | ) | — | (1,999 | ) | — | — | — | — | (805 | ) | 10,063 | — | 10,063 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | — | — | 109 | (94 | ) | 417 | — | — | 526 | — | 526 | — | — | — | — | — | — | — | — | — | 5,352 | (87 | ) | 388 | — | — | 5,740 | — | 5,740 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of common shares to exercise stock options | — | — | 204 | 14 | (204 | ) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 93 | 7 | (93 | ) | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation | — | — | 462 | — | — | — | — | 462 | — | 462 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards | — | — | 850 | (104 | ) | 328 | — | — | 1,178 | — | 1,178 | — | — | — | — | — | — | — | — | — | 5,082 | (119 | ) | 531 | — | — | 5,613 | — | 5,613 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of redeemable convertible preferred stock | — | — | — | — | — | — | — | — | — | — | — | — | (297 | ) | (3,146 | ) | — | — | (3,146 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Initial Public Offering (IPO) | 5,289 | 53 | 72,143 | — | — | — | — | 72,196 | — | 72,196 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of common stock | — | — | — | 14 | (171 | ) | — | — | (171 | ) | — | (171 | ) | — | — | — | — | — | — | — | — | — | — | — | (3 | ) | — | — | (3 | ) | — | (3 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of common stock to redeemable common stock | (28 | ) | — | (385 | ) | — | — | — | — | (385 | ) | — | (385 | ) | 28 | 385 | — | — | — | — | 385 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | — | — | — | — | — | — | (4,764 | ) | (4,764 | ) | — | (4,764 | ) | — | — | — | 16,173 | — | (11,409 | ) | 4,764 | — | — | (13,077 | ) | — | — | — | 2,023 | (11,054 | ) | — | (11,054 | ) | — | — | — | 34,903 | — | (23,849 | ) | — | 11,054 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to redeemable common stock fair value measurement | — | — | — | — | — | — | (30,528 | ) | (30,528 | ) | — | (30,528 | ) | — | 30,528 | — | — | — | — | 30,528 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to redeemable common stock agreements | 17 | — | 19,510 | — | — | — | (1,254 | ) | 18,256 | 18,256 | (17 | ) | (240 | ) | — | — | — | — | — | (240 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at September 30, 2013 (Unaudited, As Restated)(1) | 109,951 | $ | 11,957 | $ | 40,243 | 101,021 | $ | (448,201 | ) | $ | (2,888 | ) | $ | 68,545 | $ | (330,344 | ) | $ | 19,556 | $ | (310,788 | ) | 38,320 | $ | 553,189 | 26,250 | $ | 295,574 | 17,924 | $ | (201,837 | ) | $ | 646,926 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2014 (Unaudited, As Restated)(1) | 153,560 | $ | 12,393 | $ | 713,147 | 100,356 | $ | (446,479 | ) | $ | (11,560 | ) | $ | (87,402 | ) | $ | 180,099 | $ | 18,445 | $ | 198,544 | — | $ | — | 25,797 | $ | 322,469 | 16,922 | $ | (211,674 | ) | $ | — | $ | 110,795 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2015, as previously reported | 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Cumulative restatement adjustment | — | — | (10,109 | ) | — | — | (853 | ) | (2,412 | ) | (13,374 | ) | (3,992 | ) | (17,366 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative revision and restatement adjustments | — | — | 22,518 | — | — | — | (51,969 | ) | (29,451 | ) | — | (29,451 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at April 1, 2014 (As Restated)(1) | 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance April 1, 2015 (Unaudited, As Restated)(1) | 153,560 | $ | 12,393 | $ | 723,495 | 100,038 | $ | (445,065 | ) | $ | (15,521 | ) | $ | (114,590 | ) | $ | 160,712 | $ | 16,413 | $ | 177,125 | — | $ | — | 25,639 | $ | 320,490 | 16,990 | $ | (212,469 | ) | $ | — | $ | 108,021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net income | — | — | — | — | — | — | 25,410 | 25,410 | 3,028 | 28,438 | — | — | — | — | — | — | — | — | — | — | — | — | — | 37,171 | 37,171 | 4,231 | 41,402 | — | — | — | — | — | — | 250 | 250 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (2,525 | ) | — | (2,525 | ) | (907 | ) | (3,432 | ) | — | — | — | — | — | — | — | — | — | — | — | — | (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 | — | — | — | — | — | — | — | — | (1,007 | ) | (1,007 | ) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (3,606 | ) | (3,606 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allocation of ESOP shares to participants for compensation | — | — | (1,339 | ) | — | — | — | — | (1,339 | ) | — | (1,339 | ) | — | — | — | — | (537 | ) | 6,713 | 6,713 | — | — | 4,060 | — | — | — | — | 4,060 | — | 4,060 | — | — | — | — | (425 | ) | 5,315 | — | 5,315 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | — | — | 174 | (78 | ) | 349 | — | — | 523 | — | 523 | — | — | — | — | — | — | — | — | — | 2,045 | (77 | ) | 404 | — | — | 2,449 | — | 2,449 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of common shares to exercise stock options | — | — | 93 | 7 | (93 | ) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 1,778 | — | — | — | — | 1,778 | — | 1,778 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards | — | — | 1,489 | (114 | ) | 509 | — | — | 1,998 | — | 1,998 | — | — | — | — | — | — | — | — | — | 416 | (69 | ) | 309 | — | — | 725 | — | 725 | — | — | —�� | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Initial Public Offering (IPO) | 5,289 | 53 | 72,245 | — | — | — | — | 72,298 | — | 72,298 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of liability classified stock options upon IPO | — | — | 1,522 | — | — | — | — | 1,522 | — | 1,522 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ESOP distribution 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at September 30, 2014 (Unaudited, As Restated)(1) | 153,560 | $ | 12,393 | $ | 689,980 | 100,625 | $ | (447,674 | ) | $ | (9,355 | ) | $ | (40,900 | ) | $ | 204,444 | $ | 19,698 | $ | 224,142 | — | $ | — | 26,129 | $ | 326,623 | 17,190 | $ | (215,024 | ) | $ | 111,599 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2015 (Unaudited, As Restated)(1) | 153,560 | $ | 12,393 | $ | 736,376 | 99,323 | $ | (441,822 | ) | $ | (26,122 | ) | $ | (86,484 | ) | $ | 194,341 | $ | 14,381 | $ | 208,722 | — | $ | — | 24,899 | $ | 311,240 | 16,565 | $ | (207,154 | ) | $ | 7,166 | $ | 111,252 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | See Note |
See accompanying notes to condensed consolidated financial statements.
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ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(UNAUDITED, AS RESTATED)
(Amounts in thousands, except per share data)
1. | BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
OrganizationDescription 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 a4.707-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 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 25, 2014 to 52,881.common stock. We received total proceeds from the IPO of $79,131 after excluding underwriter discounts and commissions of $5,501, based upon the price to the public of $16.00 per share. After deducting other offering expenses, we used the net proceeds 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 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.
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. 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, 20142015 was derived from audited financial statements. In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, in addition to the restatement adjustments described in Note 2.16. Restatement of Previously Issued Financial Statements, necessary to present fairly its financial position as of September 30, 2014December 31, 2015 and the results of operations for the three and sixnine months ended September 30,December 31, 2015 and 2014 and 2013 and cash flows for the sixnine months ended September 30, 2014December 31, 2015 and 2013.2014. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, filed in our Annual Report on Form 10-K10-K/A for the year ended March 31, 2015,2016 (“Fiscal 2016 Form10-K/A”), filed concurrently with this Form form10-Q/A.
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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 areis included in Equity in net loss of unconsolidated affiliates in our Condensed Consolidated Statements of Operations. All intercompany balances and transactions have been eliminated in consolidation.
Estimates
The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies and
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liabilities at the balance sheet date 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, inventory, useful lives of our property, plant and equipment and amortizing intangible assets, determination of the proper accounting for leases, accounting for investments, evaluation of goodwill, intangible assets and other long-lived assets for impairment, accounting for stock-based compensation and our ESOP, valuation of our Redeemable common stock and Redeemable convertible preferred stock, determination of allowances for sales returns, rebates and discounts, determination of the valuation allowance, if any, on deferred tax assets, and reserves for uncertain tax positions. 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.
Property, Plant and Equipment and Depreciation Method
Property, plant and equipment are recorded at cost less accumulated depreciation, with the exception of assets acquired through acquisitions, which are initially recorded at fair value. Equipment acquired under capital lease is recorded at the lower of fair market value or the present value of the future minimum lease payments. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets or the lease term, if shorter, as follows:
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Costs of additions and major improvements are capitalized, whereas maintenance and repairs that do not improve or extend the life of the asset are charged to expense as incurred. When assets are retired or disposed, the cost and related accumulated depreciation are removed from the asset accounts and any resulting gain or loss is reflected in Loss (gain) on disposal of assets or businesses in our Condensed Consolidated Statements of Operations. Construction in progress is also recorded at cost and includes capitalized interest, capitalized payroll costs and related costs such as taxes and other fringe benefits. Interest capitalized was $177 and $316 during the three and six months ended September 30, 2014, respectively, and $246, and $410 during the three and six months ended September 30, 2013, respectively.
Leases
Leases are reviewed for capital or operating classification at their inception. The Company uses the lower of the rate implicit in the lease or its incremental borrowing rate in the assessment of lease classification and assumes the initial lease term includes cancellable and renewal periods that are reasonably assured. For leases classified as capital leases at lease inception, we record a capital lease asset and lease financing obligation equal to the lesser of the present value of the minimum lease payments or the fair market value of the leased asset. The capital lease asset is recorded in Property, plant and equipment, net and amortized to its expected residual value at the end of the lease term using the straight-line method, and the lease financing obligation is amortized using the effective interest method over the lease term with the rental payments being allocated to principal and interest. For leases classified as operating leases, we record rent expense over the lease term using the straight-line method.
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 amendsis intended to simplify certain aspects of the guidanceaccounting for revenue recognition.stock-based compensation. This amendment contains principles thatchanges to the accounting for excess tax benefits, whereby excess tax benefits will require an entity to recognize revenue to depictbe recognized in the transfer of goods and services to customers at an amount that an entity expects to be entitled toincome statement rather than in exchange for goods or services.additionalpaid-in capital on the balance sheet. The amendment sets forthalso contains potential changes to the accounting for forfeitures, whereby entities can elect to either continue to apply the current GAAP requirement to estimate forfeitures when determining compensation expense, or to alternatively reverse the compensation expense of forfeited awards when they occur. In addition, the amendment also modifies thenet-share settlement liability classification exception for statutory income tax withholdings, whereby the new guidance allows an employer with a new revenue recognition model that requires identifyingstatutory income tax withholding obligation to withhold shares with a fair value up to the contract, identifyingmaximum statutory tax rate in the performance
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obligations and recognizing the revenue upon satisfaction of performance obligations.employee’s applicable jurisdiction. This amendmentupdate is effective for annual periodsfiscal years beginning on or after December 15, 2016, andincluding interim periods within those years, with earlierand early adoption notis permitted. We willexpect to adopt this standard effective April 1, 2017. We are currently evaluating the impact of this amendmentstandard 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 assessmentpronouncement described above, there have been no new accounting pronouncements issued since the filing of our Annual Report on Form10-K for a period of onethe year after the dateended March 31, 2015 (“Fiscal 2015 Form10-K”) that the financial statements are issued (or availablehave 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 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. |
BackgroundOn 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, 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 purchase of the additional membership investment, the BaySaver joint venture agreement was amended to 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.
In JuneAs we had accounted for our investment in 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 | |||
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Total purchase price | $ | 14,500 | ||
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The preliminary purchase price has been allocated to 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
- 8 -
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 connectionthe cases of the developed technology and trade name and trademark intangibles. The developed technology and trade name and trademark intangibles are valued using a relief-from-royalty method.
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 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 | ) | ||
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Total purchase price | $ | 14,500 | ||
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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 estimated10-year useful life. Transaction costs were immaterial.
The net sales and income before income taxes of BaySaver since the acquisition date included in our Condensed Consolidated Statements of Operations were $6,780, and $715, respectively.
The following table 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 preparationacquisition.
Nine months ended December 31, | ||||||||
(Amounts in thousands) | 2015 | 2014 | ||||||
Net sales | $ | 1,048,879 | $ | 981,736 | ||||
Net income attributable to ADS | $ | 37,209 | $ | 16,859 |
Unaudited pro forma net income attributable to ADS has been calculated after adjusting the combined results of the Company’s consolidated annual financial statements for the fiscal year ended March 31, 2015, certain errorsCompany to reflect additional intangible asset amortization expense, net of related income taxes and amounts related to the Company’s accounting treatment for its transportationnoncontrolling interest, of $94 and equipment leases$230, additional interest expense, net of related income taxes and inventory methodology were identified. As the Company completed additional accounting review procedures, it identified additional errors related to long-lived assets, ADS Mexicana, and certain other miscellaneous items.
Due to these errors, as further described below, and based upon the recommendation of management, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) determined on August 14, 2015 that the Company’s previously issued financial statements should no longer be relied upon. As a result of the foregoing, the Company has restated its condensed consolidated financial statements as of September 30, 2014 and March 31, 2014 and for the three and six months ended September 30, 2014 and 2013. The restatement also affects periods prior to fiscal year 2014, with the cumulative effect of the errors reflected as an adjustment to the fiscal year 2014 opening stockholders’ equity (deficit) balance.
Accounting Adjustments
The following is a discussion of the significant accounting adjustments that were made to the Company’s historical condensed consolidated financial statements.
Lease Accounting Adjustments
The Company leases real estate and equipment under various lease agreements. Historically, assets leased under the Company’s transportation and equipment leasing program (“Fleet Leases”) have been classified as operating leases. However, based upon a reexamination of the Company’s historic assumptions, estimates and judgments with respect to lease accounting, the Company has determined that a substantial portion of the Fleet Leases should instead be classified as capital leases.
The Company has also reexamined its historic assumptions, estimates and judgments with respect to the accounting for real estate and aircraft leases that were previously classified as operating leases. In many cases, the Company has determined that the leases should instead be classified as capital leases due to the inclusion of contingent penalty amounts in the minimum lease payments used for purposes of the lease classification assessment.
Inventory Accounting Adjustments
The Company identified and corrected certain errors related to its accounting for inventory. The errors primarily related to the Company’s incorrect historical calculationnoncontrolling interest, of inventory costing based on the first-in first-out (“FIFO”) method, the inappropriate capitalization of certain inter-plant freight expense$10 and other overhead costs, the misclassification of certain overhead costs between general and administrative expense and cost of goods sold$27, and the misclassificationimpact of our financial fuel hedge losses between Costprior equity method accounting of goods sold$109 and Other miscellaneous (income) expense, net.$302, net of related income taxes, for the nine months ended December 31, 2015 and 2014, respectively.
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Long-Lived Assets Accounting Adjustments
The Company identified and corrected certain errors related to the accounting for long-lived assets included in Property, plant and equipment, Goodwill, Intangible assets and Other assets in the condensed consolidated balance sheets. These errors primarily related to either the initial capitalization, subsequent depreciation or amortization, or the timing or amount of impairment charges.
ADS Mexicana Accounting Adjustments
In October 2015, the Company became aware of questions related to the proper characterization of certain ADS Mexicana transactions including an aircraft leasing arrangement, a real estate leasing arrangement and several service arrangements that involved ADS Mexicana related parties. Based on the results of a management review and an independent investigation authorized by the Audit Committee, it was determined that the various lease and services arrangements described above, as well as certain additional services arrangements with former related parties identified during the course of the investigation, lacked commercial and economic substance or proper supporting documentation as to the service performed, and therefore were not appropriately reflected in the Company’s consolidated financial statements. These errors have been corrected in the restated condensed consolidated financial statements, with these adjustments primarily impacting Other miscellaneous (income) expense, net, Net income attributable to noncontrolling interest and Noncontrolling interest in subsidiaries.
Management also identified potential accounting errors related to ADS Mexicana’s revenue recognition cut-off practices, which were included in the scope of the independent investigation authorized by the Audit Committee. As a result, the Company identified instances where ADS Mexicana recognized revenue prior to the date of shipment or transfer of title/ownership, which is not in accordance with U.S. GAAP.
The Company also identified and corrected certain other errors related to the accounting for ADS Mexicana. These adjustments related to the increase of the allowance for doubtful accounts, errors related to the inventory costing methodology, and certain other miscellaneous items.
Income Taxes and Other Accounting Adjustments
The Company recorded adjustments to income taxes to reflect the impact of the restatement adjustments, as well as discrete tax adjustments related to transfer pricing. See Note 18. Income Taxes for discussion of the related impact to our effective tax rate. The Company also identified and corrected certain other errors, all of which are insignificant individually and in the aggregate. The nature of the primary items besides income taxes in this category of adjustments is described as follows:
Impact on Condensed Consolidated Statements of Operations
The net effect of the restatement described above on the Company’s previously reported condensed consolidated statements of operations for the three months ended September 30, 2014 and 2013 is as follows:
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Three Months Ended September 30, 2014 | ||||||||||||||||||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(Amounts in thousands, except per share data) | Leases | Inventory | Long-Lived Assets | ADS Mexciana | Income Taxes and Other | |||||||||||||||||||||||
Net sales | $ | 364,724 | $ | — | $ | — | $ | — | $ | 1,856 | $ | 134 | $ | 366,714 | ||||||||||||||
Cost of goods sold | 282,282 | 531 | 11,665 | 16 | 1,815 | 642 | 296,951 | |||||||||||||||||||||
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Gross profit | 82,442 | (531 | ) | (11,665 | ) | (16 | ) | 41 | (508 | ) | 69,763 | |||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||
Selling | 19,762 | 281 | (24 | ) | 143 | 162 | (84 | ) | 20,240 | |||||||||||||||||||
General and administrative | 18,879 | (18 | ) | (4,574 | ) | 75 | (477 | ) | (42 | ) | 13,843 | |||||||||||||||||
Loss on disposal of assets or businesses | — | 23 | — | 258 | — | — | 281 | |||||||||||||||||||||
Intangible amortization | 2,638 | — | — | (28 | ) | — | — | 2,610 | ||||||||||||||||||||
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|
|
|
|
|
| |||||||||||||||
Income from operations | 41,163 | (817 | ) | (7,067 | ) | (464 | ) | 356 | (382 | ) | 32,789 | |||||||||||||||||
Other expense: | ||||||||||||||||||||||||||||
Interest expense | 4,338 | 706 | — | — | — | — | 5,044 | |||||||||||||||||||||
Other miscellaneous income, net | (7 | ) | — | — | (16 | ) | (217 | ) | — | (240 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income before income taxes | 36,832 | (1,523 | ) | (7,067 | ) | (448 | ) | 573 | (382 | ) | 27,985 | |||||||||||||||||
Income tax expense | 14,062 | — | — | — | — | (5,136 | ) | 8,926 | ||||||||||||||||||||
Equity in net loss of unconsolidated affiliates | 2 | — | — | — | — | 60 | 62 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income | 22,768 | (1,523 | ) | (7,067 | ) | (448 | ) | 573 | 4,694 | 18,997 | ||||||||||||||||||
Less net income attributable to noncontrolling interest | 378 | — | — | — | 437 | 1,338 | 2,153 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income attributable to ADS | 22,390 | (1,523 | ) | (7,067 | ) | (448 | ) | 136 | 3,356 | 16,844 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Change in fair value of Redeemable convertible preferred stock | 7,319 | — | — | — | — | — | 7,319 | |||||||||||||||||||||
Dividends to Redeemable convertible preferred stockholders | (37 | ) | — | — | — | — | — | (37 | ) | |||||||||||||||||||
Dividends paid to unvested restricted stockholders | — | — | — | — | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income available to common stockholders and participating securities | 29,672 | (1,523 | ) | (7,067 | ) | (448 | ) | 136 | 3,356 | 24,126 | ||||||||||||||||||
Undistributed income allocated to participating securities | (3,404 | ) | 175 | 811 | 51 | (16 | ) | (385 | ) | (2,768 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income available to common stockholders | $ | 26,268 | $ | (1,348 | ) | $ | (6,256 | ) | $ | (397 | ) | $ | 120 | $ | 2,971 | $ | 21,358 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||
Basic | 51,518 | 51,518 | ||||||||||||||||||||||||||
Diluted | 56,463 | 56,463 | ||||||||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||||
Basic | $ | 0.51 | $ | 0.41 | ||||||||||||||||||||||||
Diluted | $ | 0.51 | $ | 0.41 | ||||||||||||||||||||||||
Three Months Ended September 30, 2013 | ||||||||||||||||||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(Amounts in thousands, except per share data) | Leases | Inventory | Long-Lived Assets | ADS Mexicana | Income Taxes and Other | |||||||||||||||||||||||
Net sales | $ | 333,240 | $ | — | $ | — | $ | — | $ | 452 | $ | (965 | ) | $ | 332,727 | |||||||||||||
Cost of goods sold | 260,021 | (623 | ) | 6,690 | (40 | ) | 377 | 714 | 267,139 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Gross profit | 73,219 | 623 | (6,690 | ) | 40 | 75 | (1,679 | ) | 65,588 | |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||
Selling | 18,166 | (127 | ) | (87 | ) | 179 | — | 504 | 18,635 | |||||||||||||||||||
General and administrative | 17,917 | (104 | ) | (3,948 | ) | 101 | (455 | ) | 144 | 13,655 | ||||||||||||||||||
Loss on disposal of assets or businesses | — | 4 | — | 200 | — | — | 204 | |||||||||||||||||||||
Intangible amortization | 2,861 | — | — | (241 | ) | — | — | 2,620 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income from operations | 34,275 | 850 | (2,655 | ) | (199 | ) | 530 | (2,327 | ) | 30,474 | ||||||||||||||||||
Other expense: | ||||||||||||||||||||||||||||
Interest expense | 3,866 | 855 | — | — | — | — | 4,721 | |||||||||||||||||||||
Other miscellaneous expense (income), net | 287 | — | — | (27 | ) | (284 | ) | — | (24 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income before income taxes | 30,122 | (5 | ) | (2,655 | ) | (172 | ) | 814 | (2,327 | ) | 25,777 | |||||||||||||||||
Income tax expense | 12,242 | — | — | — | — | (3,314 | ) | 8,928 | ||||||||||||||||||||
Equity in net loss of unconsolidated affiliates | 97 | — | — | — | — | 95 | 192 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income | 17,783 | (5 | ) | (2,655 | ) | (172 | ) | 814 | 892 | 16,657 | ||||||||||||||||||
Less net income attributable to noncontrolling interest | 461 | — | — | — | 513 | 943 | 1,917 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income attributable to ADS | 17,322 | (5 | ) | (2,655 | ) | (172 | ) | 301 | (51 | ) | 14,740 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Change in fair value of Redeemable convertible preferred stock | (3,186 | ) | — | — | — | — | — | (3,186 | ) | |||||||||||||||||||
Dividends to Redeemable convertible preferred stockholders | (214 | ) | — | — | — | — | — | (214 | ) | |||||||||||||||||||
Dividends paid to unvested restricted stockholders | (8 | ) | — | — | — | — | — | (8 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income available to common stockholders and participating securities | 13,914 | (5 | ) | (2,655 | ) | (172 | ) | 301 | (51 | ) | 11,332 | |||||||||||||||||
Undistributed income allocated to participating securities | (1,536 | ) | 1 | 320 | 21 | (36 | ) | 27 | (1,203 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income available to common stockholders | $ | 12,378 | $ | (4 | ) | $ | (2,335 | ) | $ | (151 | ) | $ | 265 | $ | (24 | ) | $ | 10,129 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||
Basic | 47,250 | 47,250 | ||||||||||||||||||||||||||
Diluted | 47,579 | 47,579 | ||||||||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||||
Basic | $ | 0.26 | $ | 0.21 | ||||||||||||||||||||||||
Diluted | $ | 0.26 | $ | 0.21 | ||||||||||||||||||||||||
Cash dividends declared per share | $ | 0.03 | $ | 0.03 |
The net effect of the restatement described above on the Company’s previously reported condensed consolidated statements of operations for the six months ended September 30, 2014 and 2013 is as follows:
- 11 -
Six Months Ended September 30, 2014 | ||||||||||||||||||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(Amounts in thousands, except per share data) | Leases | Inventory | Long-Lived Assets | ADS Mexicana | Income Taxes and Other | |||||||||||||||||||||||
Net sales | $ | 693,021 | $ | — | $ | — | $ | — | $ | 1,850 | $ | (1,723 | ) | $ | 693,148 | |||||||||||||
Cost of goods sold | 538,546 | 171 | 21,120 | 67 | 2,349 | 274 | 562,527 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Gross profit | 154,475 | (171 | ) | (21,120 | ) | (67 | ) | (499 | ) | (1,997 | ) | 130,621 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||
Selling | 39,008 | 171 | 129 | 370 | 49 | 65 | 39,792 | |||||||||||||||||||||
General and administrative | 39,411 | (98 | ) | (8,488 | ) | 198 | (1,015 | ) | (367 | ) | 29,641 | |||||||||||||||||
Loss on disposal of assets or businesses | — | 74 | — | 271 | — | — | 345 | |||||||||||||||||||||
Intangible amortization | 5,279 | — | — | (56 | ) | — | — | 5,223 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income from operations | 70,777 | (318 | ) | (12,761 | ) | (850 | ) | 467 | (1,695 | ) | 55,620 | |||||||||||||||||
Other expense: | ||||||||||||||||||||||||||||
Interest expense | 8,953 | 1,142 | — | — | — | — | 10,095 | |||||||||||||||||||||
Other miscellaneous expense (income), net | 7 | — | — | (33 | ) | (432 | ) | 2 | (456 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income before income taxes | 61,817 | (1,460 | ) | (12,761 | ) | (817 | ) | 899 | (1,697 | ) | 45,981 | |||||||||||||||||
Income tax expense | 23,757 | — | — | — | — | (6,938 | ) | 16,819 | ||||||||||||||||||||
Equity in net loss of unconsolidated affiliates | 623 | — | — | — | — | 101 | 724 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income | 37,437 | (1,460 | ) | (12,761 | ) | (817 | ) | 899 | 5,140 | 28,438 | ||||||||||||||||||
Less net income attributable to noncontrolling interest | 806 | — | — | �� | — | 664 | 1,558 | 3,028 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income attributable to ADS | 36,631 | (1,460 | ) | (12,761 | ) | (817 | ) | 235 | 3,582 | 25,410 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Change in fair value of Redeemable convertible preferred stock | (11,054 | ) | — | — | — | — | (11,054 | ) | ||||||||||||||||||||
Dividends to Redeemable convertible preferred stockholders | (75 | ) | — | — | — | — | (75 | ) | ||||||||||||||||||||
Dividends paid to unvested restricted stockholders | — | — | — | — | — | — | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income available to common stockholders and participating securities | 25,502 | (1,460 | ) | (12,761 | ) | (817 | ) | 235 | 3,582 | 14,281 | ||||||||||||||||||
Undistributed income allocated to participating securities | (3,040 | ) | 174 | 1,521 | 97 | (28 | ) | (426 | ) | (1,702 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income available to common stockholders | $ | 22,462 | $ | (1,286 | ) | $ | (11,240 | ) | $ | (720 | ) | $ | 207 | $ | 3,156 | $ | 12,579 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||
Basic | 49,538 | 49,538 | ||||||||||||||||||||||||||
Diluted | 52,198 | 52,198 | ||||||||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||||
Basic | $ | 0.45 | $ | 0.25 | ||||||||||||||||||||||||
Diluted | $ | 0.45 | $ | 0.25 | ||||||||||||||||||||||||
Six Months Ended September 30, 2013 | ||||||||||||||||||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(Amounts in thousands, except per share data) | Leases | Inventory | Long-Lived Assets | ADS Mexicana | Income Taxes and Other | |||||||||||||||||||||||
Net sales | $ | 626,342 | $ | — | $ | — | $ | — | $ | 991 | $ | (2,027 | ) | $ | 625,306 | |||||||||||||
Cost of goods sold | 487,120 | (784 | ) | 15,038 | (497 | ) | 1,508 | 983 | 503,368 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Gross profit | 139,222 | 784 | (15,038 | ) | 497 | (517 | ) | (3,010 | ) | 121,938 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||
Selling | 35,843 | (272 | ) | 151 | 193 | (1,456 | ) | 696 | 35,155 | |||||||||||||||||||
General and administrative | 35,576 | (186 | ) | (7,933 | ) | 106 | (910 | ) | 89 | 26,742 | ||||||||||||||||||
Gain on disposal of assets or businesses | (4,848 | ) | 140 | — | 176 | — | — | (4,532 | ) | |||||||||||||||||||
Intangible amortization | 5,722 | — | — | (482 | ) | — | — | 5,240 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income from operations | 66,929 | 1,102 | (7,256 | ) | 504 | 1,849 | (3,795 | ) | 59,333 | |||||||||||||||||||
Other expense: | ||||||||||||||||||||||||||||
Interest expense | 7,967 | 1,483 | — | — | — | — | 9,450 | |||||||||||||||||||||
Other miscellaneous expense, net | 816 | — | — | (50 | ) | (746 | ) | — | 20 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income before income taxes | 58,146 | (381 | ) | (7,256 | ) | 554 | 2,595 | (3,795 | ) | 49,863 | ||||||||||||||||||
Income tax expense | 23,308 | — | — | — | — | (5,169 | ) | 18,139 | ||||||||||||||||||||
Equity in net loss of unconsolidated affiliates | 345 | — | — | — | — | 173 | 518 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income | 34,493 | (381 | ) | (7,256 | ) | 554 | 2,595 | 1,201 | 31,206 | |||||||||||||||||||
Less net income attributable to noncontrolling interest | 875 | — | — | — | 1,482 | 1,135 | 3,492 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income attributable to ADS | 33,618 | (381 | ) | (7,256 | ) | 554 | 1,113 | 66 | 27,714 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Change in fair value of Redeemable convertible preferred stock | (4,764 | ) | — | — | — | — | (4,764 | ) | ||||||||||||||||||||
Dividends to Redeemable convertible preferred stockholders | (430 | ) | — | — | — | — | (430 | ) | ||||||||||||||||||||
Dividends paid to unvested restricted stockholders | (16 | ) | — | — | — | — | (16 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income available to common stockholders and participating securities | 28,408 | (381 | ) | (7,256 | ) | 554 | 1,113 | 66 | 22,504 | |||||||||||||||||||
Undistributed income allocated to participating securities | (3,124 | ) | 46 | 882 | (67 | ) | (135 | ) | (8 | ) | (2,406 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income available to common stockholders | $ | 25,284 | $ | (335 | ) | $ | (6,374 | ) | $ | 487 | $ | 978 | $ | 58 | $ | 20,098 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||
Basic | 47,220 | 47,220 | ||||||||||||||||||||||||||
Diluted | 47,634 | 47,634 | ||||||||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||||
Basic | $ | 0.54 | $ | 0.43 | ||||||||||||||||||||||||
Diluted | $ | 0.53 | $ | 0.42 | ||||||||||||||||||||||||
Cash dividends declared per share | $ | 0.06 | $ | 0.06 |
Impact on Condensed Consolidated Statements of Comprehensive Income
The net effect of the restatement described above on the Company’s previously reported condensed consolidated statements of comprehensive income for the three months ended September 30, 2014 and 2013 is as follows:
- 12 -
Three Months Ended September 30, 2014 | ||||||||||||||||||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(Amounts in thousands) | Leases | Inventory | Long-Lived Assets | ADS Mexicana | Income Taxes and Other | |||||||||||||||||||||||
Net income | $ | 22,768 | $ | (1,523 | ) | $ | (7,067 | ) | $ | (448 | ) | $ | 573 | $ | 4,694 | $ | 18,997 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Comprehensive income | 19,198 | (1,523 | ) | (7,067 | ) | (456 | ) | 560 | 4,694 | 15,406 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less other comprehensive loss attributable to noncontrolling interest, net of tax | (759 | ) | — | — | — | (2 | ) | — | (761 | ) | ||||||||||||||||||
Less net income attributable to noncontrolling interest | 378 | — | — | — | 437 | 1,338 | 2,153 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total comprehensive income attributable to ADS | $ | 19,579 | $ | (1,523 | ) | $ | (7,067 | ) | $ | (456 | ) | $ | 125 | $ | 3,356 | $ | 14,014 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Three Months Ended September 30, 2013 | ||||||||||||||||||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(Amounts in thousands) | Leases | Inventory | Long-Lived Assets | ADS Mexicana | Income Taxes and Other | |||||||||||||||||||||||
Net income | $ | 17,783 | $ | (5 | ) | $ | (2,655 | ) | $ | (172 | ) | $ | 814 | $ | 892 | $ | 16,657 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Comprehensive income | 19,193 | (5 | ) | (2,655 | ) | (174 | ) | 810 | 893 | 18,062 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less other comprehensive loss attributable to noncontrolling interest, net of tax | (297 | ) | — | — | — | 3 | 1 | (293 | ) | |||||||||||||||||||
Less net income attributable to noncontrolling interest | 461 | — | — | — | 513 | 943 | 1,917 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total comprehensive income attributable to ADS | $ | 19,029 | $ | (5 | ) | $ | (2,655 | ) | $ | (174 | ) | $ | 294 | $ | (51 | ) | $ | 16,438 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net effect of the restatement described above on the Company’s previously reported condensed consolidated statements of comprehensive income for the six months ended September 30, 2014 and 2013 is as follows:
Six Months Ended September 30, 2014 | ||||||||||||||||||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(Amounts in thousands) | Leases | Inventory | Long-Lived Assets | ADS Mexicana | Income Taxes and Other | |||||||||||||||||||||||
Net income | $ | 37,437 | $ | (1,460 | ) | $ | (12,761 | ) | $ | (817 | ) | $ | 899 | $ | 5,140 | $ | 28,438 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Comprehensive income | 34,019 | (1,460 | ) | (12,761 | ) | (832 | ) | 900 | 5,140 | 25,006 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less other comprehensive loss attributable to noncontrolling interest, net of tax | (912 | ) | — | — | — | 5 | — | (907 | ) | |||||||||||||||||||
Less net income attributable to noncontrolling interest | 806 | — | — | — | 664 | 1,558 | 3,028 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total comprehensive income attributable to ADS | $ | 34,125 | $ | (1,460 | ) | $ | (12,761 | ) | $ | (832 | ) | $ | 231 | $ | 3,582 | $ | 22,885 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Six Months Ended September 30, 2013 | ||||||||||||||||||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(Amounts in thousands) | Leases | Inventory | Long-Lived Assets | ADS Mexicana | Income Taxes and Other | |||||||||||||||||||||||
Net income | $ | 34,493 | $ | (381 | ) | $ | (7,256 | ) | $ | 554 | $ | 2,595 | $ | 1,201 | $ | 31,206 | ||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Comprehensive income | 31,440 | (381 | ) | (7,256 | ) | 550 | 2,577 | 1,203 | 28,133 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Less other comprehensive loss attributable to noncontrolling interest, net of tax | (1,270 | ) | — | — | — | 2 | 2 | (1,266 | ) | |||||||||||||||||||
Less net income attributable to noncontrolling interest | 875 | — | — | — | 1,482 | 1,135 | 3,492 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total comprehensive income attributable to ADS | $ | 31,835 | $ | (381 | ) | $ | (7,256 | ) | $ | 550 | $ | 1,093 | $ | 66 | $ | 25,907 | ||||||||||||
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|
|
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|
|
|
|
Impact on Condensed Consolidated Balance Sheets
The net effect of the restatement described above on the Company’s previously reported condensed consolidated balance sheets as of September 30, 2014 and March 31, 2014 is as follows:
- 13 -
September 30, 2014 | ||||||||||||||||||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(Amounts in thousands) | Leases | Inventory | Long-Lived Assets | ADS Mexicana | Income Taxes and Other | |||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Cash | $ | 6,581 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 6,581 | ||||||||||||||
Receivables, net | 248,120 | — | — | — | (1,545 | ) | (529 | ) | 246,046 | |||||||||||||||||||
Inventories | 247,368 | (275 | ) | (17,158 | ) | (65 | ) | 1,093 | 1,299 | 232,262 | ||||||||||||||||||
Deferred income taxes and other current assets | 12,848 | — | — | 325 | — | 564 | 13,737 | |||||||||||||||||||||
Property, plant and equipment, net | 288,170 | 76,327 | — | (4,833 | ) | — | 78 | 359,742 | ||||||||||||||||||||
Goodwill | 86,280 | — | — | 1,805 | — | (85 | ) | 88,000 | ||||||||||||||||||||
Intangible assets, net | 60,266 | — | — | (6,134 | ) | — | — | 54,132 | ||||||||||||||||||||
Other assets | 68,591 | (9 | ) | — | (7,413 | ) | — | 6,491 | 67,660 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total assets | $ | 1,018,224 | $ | 76,043 | $ | (17,158 | ) | $ | (16,315 | ) | $ | (452 | ) | $ | 7,818 | $ | 1,068,160 | |||||||||||
|
|
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|
|
|
|
|
|
|
| |||||||||||||||
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||||||||||
Current maturities of debt obligations | $ | 11,148 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 11,148 | ||||||||||||||
Current maturities of capital lease obligations | — | 12,225 | — | — | — | — | 12,225 | |||||||||||||||||||||
Accounts payable | 113,530 | — | 577 | — | — | 1,609 | 115,716 | |||||||||||||||||||||
Other accrued liabilities | 43,508 | 516 | — | — | — | 6,216 | 50,240 | |||||||||||||||||||||
Accrued income taxes | 22,360 | — | — | — | — | (2,662 | ) | 19,698 | ||||||||||||||||||||
Long-term debt obligation | 386,435 | — | — | — | — | — | 386,435 | |||||||||||||||||||||
Long-term capital lease obligation | — | 49,237 | — | — | — | — | 49,237 | |||||||||||||||||||||
Deferred tax liabilities | 64,398 | — | — | — | — | (3,997 | ) | 60,401 | ||||||||||||||||||||
Other liabilities | 14,263 | 65 | — | — | — | 12,991 | 27,319 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total liabilities | 655,642 | 62,043 | 577 | — | — | 14,157 | 732,419 | |||||||||||||||||||||
Mezzanine equity | 109,277 | — | — | — | — | 2,322 | 111,599 | |||||||||||||||||||||
Common stock | 12,393 | — | — | — | — | — | 12,393 | |||||||||||||||||||||
Paid-in capital | 675,183 | — | — | — | — | 14,797 | 689,980 | |||||||||||||||||||||
Common stock in treasury, at cost | (447,674 | ) | — | — | — | — | — | (447,674 | ) | |||||||||||||||||||
Accumulated other comprehensive loss | (8,483 | ) | — | — | (25 | ) | (545 | ) | (302 | ) | (9,355 | ) | ||||||||||||||||
Retained earnings (deficit) | — | 14,000 | (17,735 | ) | (16,290 | ) | 126 | (21,001 | ) | (40,900 | ) | |||||||||||||||||
Noncontrolling interest in subsidiaries | 21,886 | — | — | — | (33 | ) | (2,155 | ) | 19,698 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total liabilities, mezzanine equity and stockholders’ equity (deficit) | $ | 1,018,224 | $ | 76,043 | $ | (17,158 | ) | $ | (16,315 | ) | $ | (452 | ) | $ | 7,818 | $ | 1,068,160 | |||||||||||
|
|
|
|
|
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|
|
|
|
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|
|
| |||||||||||||||
March 31, 2014 | ||||||||||||||||||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(Amounts in thousands) | Leases | Inventory | Long-Lived Assets | ADS Mexicana | Income Taxes and Other | |||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Cash | $ | 3,931 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 3,931 | ||||||||||||||
Receivables, net | 150,713 | — | — | — | (3,404 | ) | 962 | 148,271 | ||||||||||||||||||||
Inventories | 260,300 | (86 | ) | (4,270 | ) | (130 | ) | 2,475 | 1,602 | 259,891 | ||||||||||||||||||
Deferred income taxes and other current assets | 13,555 | — | — | 343 | — | 567 | 14,465 | |||||||||||||||||||||
Property, plant and equipment, net | 292,082 | 62,903 | — | (4,663 | ) | — | 29 | 350,351 | ||||||||||||||||||||
Goodwill | 86,297 | — | — | 1,805 | — | (85 | ) | 88,017 | ||||||||||||||||||||
Intangible assets, net | 66,184 | — | — | (6,991 | ) | — | 1 | 59,194 | ||||||||||||||||||||
Other assets | 64,533 | (15 | ) | — | (5,759 | ) | — | 6,688 | 65,447 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total assets | $ | 937,595 | $ | 62,802 | $ | (4,270 | ) | $ | (15,395 | ) | $ | (929 | ) | $ | 9,764 | $ | 989,567 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||||||||||||||
Current maturities of debt obligations | $ | 11,153 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 11,153 | ||||||||||||||
Current maturities of capital lease obligations | — | 12,364 | — | — | — | — | 12,364 | |||||||||||||||||||||
Accounts payable | 108,111 | — | 704 | 88 | — | 2,069 | 110,972 | |||||||||||||||||||||
Other accrued liabilities | 37,956 | 530 | — | — | — | 4,599 | 43,085 | |||||||||||||||||||||
Accrued income taxes | 7,372 | — | — | — | — | 608 | 7,980 | |||||||||||||||||||||
Long-term debt obligation | 442,895 | — | — | — | — | — | 442,895 | |||||||||||||||||||||
Long-term capital lease obligation | — | 34,366 | — | — | — | — | 34,366 | |||||||||||||||||||||
Deferred tax liabilities | 69,169 | — | — | — | — | (2,836 | ) | 66,333 | ||||||||||||||||||||
Other liabilities | 15,324 | 82 | — | — | — | 16,764 | 32,170 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total liabilities | 691,980 | 47,342 | 704 | 88 | — | 21,204 | 761,318 | |||||||||||||||||||||
Mezzanine equity | 642,951 | — | — | — | — | — | 642,951 | |||||||||||||||||||||
Common stock | 11,957 | — | — | — | — | — | 11,957 | |||||||||||||||||||||
Paid-in capital | 22,547 | — | — | — | — | (10,109 | ) | 12,438 | ||||||||||||||||||||
Common stock in treasury, at cost | (448,439 | ) | — | — | — | — | — | (448,439 | ) | |||||||||||||||||||
Accumulated other comprehensive loss | (5,977 | ) | — | — | (9 | ) | (541 | ) | (303 | ) | (6,830 | ) | ||||||||||||||||
Retained earnings (deficit) | — | 15,460 | (4,974 | ) | (15,474 | ) | (108 | ) | 2,684 | (2,412 | ) | |||||||||||||||||
Noncontrolling interest in subsidiaries | 22,576 | — | — | — | (280 | ) | (3,712 | ) | 18,584 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total liabilities, mezzanine equity and stockholders’ deficit | $ | 937,595 | $ | 62,802 | $ | (4,270 | ) | $ | (15,395 | ) | $ | (929 | ) | $ | 9,764 | $ | 989,567 | |||||||||||
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|
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|
|
- 14 -
Cumulative Effect of Prior Period Adjustments
The following table presents the impact of the restatement described above to the Company’s beginning stockholders’ equity (deficit) balances, cumulatively to reflect adjustments booked to all periods prior to April 1, 2013:
(Amounts in thousands) | Common Stock | Paid in Capital | Common stock in treasury | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total ADS Stockholders’ Equity (Deficit) | Non-controlling interest in subsidiaries | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||
Stockholders’ equity (deficit), April 1, 2013 (as previously reported) | $ | 11,957 | $ | 41,152 | $ | (448,571 | ) | $ | (856 | ) | $ | 87,331 | $ | (308,987 | ) | $ | 23,265 | $ | (285,722 | ) | ||||||||||||
Adjustments from: | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Lease Accounting, before income tax effect | — | — | — | — | 17,883 | 17,883 | — | 17,883 | ||||||||||||||||||||||||
Inventory, before income tax effect | — | — | — | — | (3,490 | ) | (3,490 | ) | — | (3,490 | ) | |||||||||||||||||||||
Long-Lived Assets, before income tax effect | — | — | — | 1 | (15,780 | ) | (15,779 | ) | — | (15,779 | ) | |||||||||||||||||||||
ADS Mexicana, before income tax effect | — | — | — | (496 | ) | (586 | ) | (1,082 | ) | (649 | ) | (1,731 | ) | |||||||||||||||||||
All other non-income tax adjustments | — | (1,126 | ) | — | 270 | (14 | ) | (870 | ) | (4,072 | ) | (4,942 | ) | |||||||||||||||||||
Income tax adjustments | — | — | — | — | (6,142 | ) | (6,142 | ) | — | (6,142 | ) | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total adjustments | — | (1,126 | ) | — | (225 | ) | (8,129 | ) | (9,480 | ) | (4,721 | ) | (14,201 | ) | ||||||||||||||||||
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|
|
|
|
| |||||||||||||||||
Stockholders’ equity (deficit), April 1, 2013 (As Restated) | $ | 11,957 | $ | 40,026 | $ | (448,571 | ) | $ | (1,081 | ) | $ | 79,202 | $ | (318,467 | ) | $ | 18,544 | $ | (299,923 | ) | ||||||||||||
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|
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|
|
Impact on Condensed Consolidated Statements of Cash Flows
The net effect of the restatement on the Company’s previously reported condensed consolidated statements of cash flows for the six months ended September 30, 2014 and 2013 is as follows:
For the Six Months Ended September 30, 2014 | ||||||||||||
(Amounts in thousands) | As Previously Reported | Adjustments | As Restated | |||||||||
Net cash provided by operating activities | $ | 10,807 | $ | 4,099 | $ | 14,906 | ||||||
Net cash used in investing activities | (25,742 | ) | 1,770 | (23,972 | ) | |||||||
Net cash provided by financing activities | 17,836 | (5,890 | ) | 11,946 | ||||||||
For the Six Months Ended September 30, 2013 | ||||||||||||
(Amounts in thousands) | As Previously Reported | Adjustments | As Restated | |||||||||
Net cash provided by operating activities | $ | 3,283 | $ | 5,102 | $ | 8,385 | ||||||
Net cash used in investing activities | (23,036 | ) | 1,512 | (21,524 | ) | |||||||
Net cash provided by financing activities | 20,428 | (6,623 | ) | 13,805 |
3. |
On June 28, 2013, we entered into an Asset Purchase Agreement (the “NDS Agreement”) to sell substantially all of the assets used in connection with our Draintech product line to National Diversified Sales, Inc. (“NDS”) in exchange for cash. The NDS Agreement defined the purchase price to consist of a cash payment of $5,877. The net book value for the related assets, consisting of inventory 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.
Property, plant and equipment, net as of September 30, 2014 and March 31, 2014 consisted of the following:
(Amounts in thousands) | September 30, 2014 | March 31, 2014 | ||||||
Land, buildings and improvements | $ | 161,415 | $ | 158,588 | ||||
Machinery and equipment | 664,574 | 640,529 | ||||||
Construction in Progress | 15,597 | 11,003 | ||||||
|
|
|
| |||||
Total cost | 841,586 | 810,120 | ||||||
Less accumulated depreciation | (481,844 | ) | (459,769 | ) | ||||
|
|
|
| |||||
Property, plant and equipment - net | $ | 359,742 | $ | 350,351 | ||||
|
|
|
|
- 15 -
The following table sets forth depreciation expense for the three and six months ended September 30, 2014 and 2013, respectively:
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Depreciation expense | $ | 12,533 | $ | 12,107 | $ | 24,790 | $ | 24,188 |
INVENTORIES |
Inventories as of September 30, 2014December 31, 2015 and March 31, 20142015 consisted of the following:
(Amounts in thousands) | September 30, 2014 | March 31, 2014 | December 31, 2015 | March 31, 2015 | ||||||||||||
Raw materials | $ | 56,859 | $ | 51,785 | $ | 44,403 | $ | 50,198 | ||||||||
Finished goods | 175,403 | 208,106 | 155,186 | 210,352 | ||||||||||||
|
|
|
| |||||||||||||
Total inventory | $ | 232,262 | $ | 259,891 | ||||||||||||
Total inventories | $ | 199,589 | $ | 260,550 | ||||||||||||
|
|
|
|
We had nowork-in-process inventories as of September 30, 2014December 31, 2015 and March 31, 2014.2015.
Capital Leases
The Company leases certain buildings and transportation equipment including its fleet of trucks and trailers, under capital lease agreements.
Leased assets accounted for as capital leases and included in Property, plant and equipment, net consisted of the following:
(Amounts in thousands) | September 30, 2014 | March 31, 2014 | ||||||
Buildings and improvements | $ | 7,163 | $ | 7,716 | ||||
Machinery and equipment | 165,899 | 145,980 | ||||||
|
|
|
| |||||
Total cost | 173,062 | 153,696 | ||||||
Less accumulated amortization | (95,858 | ) | (89,599 | ) | ||||
|
|
|
| |||||
Leased assets in Property, plant and equipment, net | $ | 77,204 | $ | 64,097 | ||||
|
|
|
|
The following is a schedule by year of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of September 30, 2014:
(Amounts in thousands) | ||||
September 30, 2015 | $ | 15,157 | ||
September 30, 2016 | 15,115 | |||
September 30, 2017 | 13,181 | |||
September 30, 2018 | 9,913 | |||
September 30, 2019 | 7,517 | |||
Thereafter | 9,407 | |||
|
| |||
Total minimum lease payments(a) | 70,290 | |||
Less: amount representing interest(b) | 8,828 | |||
|
| |||
Present value of net minimum lease payments | $ | 61,462 | ||
|
| |||
Lease obligation – Current | $ | 12,225 | ||
Lease obligation – Long-term | 49,237 | |||
|
| |||
Total lease obligation | $ | 61,462 | ||
|
|
- 16 -
During the three months ended September 30, 2014 and 2013, the Company acquired equipment under capital lease and incurred lease obligations of $5,496 and $5,053, respectively, and during the six months ended September 30, 2014 and 2013, the Company acquired equipment under capital lease and incurred lease obligations of $20,158 and $16,373, respectively.
Certain leases contain residual value guarantees that create a contingent obligation on the part of the Company to compensate the lessor if the leased asset cannot be sold for an amount in excess of a specified minimum value at the conclusion of the lease term. The calculation is based on the original cost of the transportation equipment, less lease payments made, compared to a percentage of the transportation equipment’s fair market value at the time of sale. All leased units covered by this guarantee have been classified as capital leases and a corresponding capital lease obligation was recorded. Therefore, no further contingent obligation is needed.
Operating leases
We lease certain real estate and office equipment under various cancelable and non-cancelable operating lease agreements that expire at various dates through fiscal year 2037.
Total rent expense was $645 and $928 for the three months ended September 30, 2014 and 2013, respectively, and $1,625 and $2,231 for the six months ended September 30, 2014 and 2013, respectively.
Future minimum rental commitments under operating leases as of September 30, 2014, are summarized below (amounts in thousands):
Twelve Months Ended September 30, | Thereafter | |||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||||||
Future operating lease payments | $ | 2,842 | $ | 2,245 | $ | 1,224 | $ | 638 | $ | 416 | $ | 2,245 |
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 | $ | 87,507 | $ | 510 | $ | 88,017 | ||||||||||||||||||
Balance at March 31, 2015 | $ | 87,507 | $ | 11,172 | $ | 98,679 | ||||||||||||||||||
Acquisition | 2,495 | — | 2,495 | |||||||||||||||||||||
Currency translation | — | (17 | ) | (17 | ) | — | (969 | ) | (969 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Balance at September 30, 2014 | $ | 87,507 | $ | 493 | $ | 88,000 | ||||||||||||||||||
Balance at December 31, 2015 | $ | 90,002 | $ | 10,203 | $ | 100,205 | ||||||||||||||||||
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|
|
|
|
|
Intangible Assets
Intangible assets as of September 30, 2014December 31, 2015 and March 31, 20142015 consisted of the following:
(Amounts in thousands) | September 30, 2014 | March 31, 2014 | ||||||||||||||||||||||
Gross Intangible | Accumulated Amortization | Net Intangible | Gross Intangible | Accumulated Amortization | Net Intangible | |||||||||||||||||||
Definite-lived intangible assets | ||||||||||||||||||||||||
Developed technology | $ | 40,579 | $ | (24,497 | ) | $ | 16,082 | $ | 40,579 | $ | (22,588 | ) | $ | 17,991 | ||||||||||
Customer relationships | 38,252 | (24,244 | ) | 14,008 | 38,252 | (21,793 | ) | 16,459 | ||||||||||||||||
Patents | 6,338 | (3,235 | ) | 3,103 | 6,175 | (2,921 | ) | 3,254 | ||||||||||||||||
Non-compete and other contractual agreements | 1,088 | (667 | ) | 421 | 1,088 | (491 | ) | 597 | ||||||||||||||||
Trademarks and tradenames | 11,157 | (2,627 | ) | 8,530 | 11,157 | (2,254 | ) | 8,903 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total definite-lived intangible assets | 97,414 | (55,270 | ) | 42,144 | 97,251 | (50,047 | ) | 47,204 | ||||||||||||||||
Indefinite-lived intangible assets | ||||||||||||||||||||||||
Trademarks | 11,988 | — | 11,988 | 11,990 | — | 11,990 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total intangible assets | $ | 109,402 | $ | (55,270 | ) | $ | 54,132 | $ | 109,241 | $ | (50,047 | ) | $ | 59,194 | ||||||||||
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|
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|
|
|
|
|
|
|
|
December 31, 2015 | March 31, 2015 | |||||||||||||||||||||||
(Amounts in thousands) | Gross Intangible | Accumulated Amortization | Net Intangible | Gross Intangible | Accumulated Amortization | Net Intangible | ||||||||||||||||||
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 | ||||||||||||||||
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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 | ||||||||||||||||||
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Total intangible assets | $ | 120,538 | $ | (59,046 | ) | $ | 61,492 | $ | 117,865 | $ | (59,810 | ) | $ | 58,055 | ||||||||||
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- 17 -
FAIR VALUE MEASUREMENT |
The fair value measurements and disclosure principles of ASC 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.
Recurring Fair Value Measurements
The assets and liabilities carried at fair value as of September 30, 2014December 31, 2015 and March 31, 20142015 were as follows:
September 30, 2014 | ||||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities: | ||||||||||||||||
Derivative liability - interest rate swaps | $ | 639 | $ | — | $ | 639 | $ | — | ||||||||
Derivative liability - diesel fuel contracts | 8 | — | 8 | — | ||||||||||||
Derivative liability - propylene swaps | 491 | — | 491 | — | ||||||||||||
Contingent consideration for acquisitions | 2,526 | — | — | 2,526 | ||||||||||||
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Total liabilities at fair value on a recurring basis | $ | 3,664 | $ | — | $ | 1,138 | $ | 2,526 | ||||||||
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March 31, 2014 | ||||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | ||||||||||||||||
Derivative assets - propylene swaps | $ | 27 | $ | — | $ | 27 | $ | — | ||||||||
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Total assets at fair value on a recurring basis | $ | 27 | $ | — | $ | 27 | $ | — | ||||||||
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Liabilities & Mezzanine Equity: | ||||||||||||||||
Derivative liability - interest rate swaps | $ | 1,001 | $ | — | $ | 1,001 | $ | — | ||||||||
Contingent consideration for acquisitions | 2,898 | — | — | 2,898 | ||||||||||||
Redeemable common stock | 549,119 | — | — | 549,119 | ||||||||||||
Redeemable convertible preferred stock | 291,720 | — | — | 291,720 | ||||||||||||
Deferred compensation - unearned ESOP shares | (197,888 | ) | — | — | (197,888 | ) | ||||||||||
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Total liabilities & mezzanine equity at fair value on a recurring basis | $ | 646,850 | $ | — | $ | 1,001 | $ | 645,849 | ||||||||
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- 18 -
December 31, 2015 | ||||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | ||||||||||||||||
Derivative assets - currency forward contracts | $ | 47 | $ | — | $ | 47 | $ | — | ||||||||
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Total assets at fair value on a recurring basis | $ | 47 | $ | — | $ | 47 | $ | — | ||||||||
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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 | ||||||||||||
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Total liabilities at fair value on a recurring basis | $ | 19,243 | $ | — | $ | 16,517 | $ | 2,726 | ||||||||
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March 31, 2015 | ||||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | ||||||||||||||||
Derivative assets - currency forward contracts | $ | 28 | $ | — | $ | 28 | $ | — | ||||||||
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Total assets at fair value on a recurring basis | $ | 28 | $ | — | $ | 28 | $ | — | ||||||||
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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 | ||||||||||||
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Total liabilities at fair value on a recurring basis | $ | 11,192 | $ | — | $ | 8,748 | $ | 2,444 | ||||||||
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Changes in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3) for the three and sixnine months ended September 30,December 31, 2015 and 2014 and 2013 were as follows:
Three months ended December 31, 2015 and 2014
Three Months Ended September 30, 2014 | ||||||||||||||||||||
(amounts in thousands) | Contingent consideration | Redeemable common stock | Redeemable convertible preferred stock | Deferred compensation - unearned ESOP shares | Total | |||||||||||||||
Balance at June 30, 2014 | $ | 2,697 | $ | 659,431 | $ | 348,898 | $ | (233,106 | ) | $ | 777,920 | |||||||||
Allocation of ESOP shares to participants | — | — | — | $ | 804 | $ | 804 | |||||||||||||
Change in fair value | 20 | (44,391 | ) | (22,275 | ) | 14,956 | (51,690 | ) | ||||||||||||
Payments of contingent consideration liability | (191 | ) | — | — | — | (191 | ) | |||||||||||||
Transfer from Level 3 | — | (615,040 | ) | (326,623 | ) | 217,346 | (724,317 | ) | ||||||||||||
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Balance at September 30, 2014 | $ | 2,526 | $ | — | $ | — | $ | — | $ | 2,526 | ||||||||||
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Three Months Ended September 30, 2013 | ||||||||||||||||||||
(amounts in thousands) | Contingent consideration | Redeemable common stock | Redeemable convertible preferred stock | Deferred compensation - unearned ESOP shares | Total | |||||||||||||||
Balance at June 30, 2013 | $ | 2,571 | $ | 532,836 | $ | 286,828 | $ | (197,310 | ) | $ | 624,925 | |||||||||
Allocation of ESOP shares to participants | — | — | — | 3,122 | 3,122 | |||||||||||||||
Change in fair value | 40 | 20,353 | 10,835 | (7,649 | ) | 23,579 | ||||||||||||||
Payments of contingent consideration liability | (144 | ) | — | — | — | (144 | ) | |||||||||||||
Redemption of Redeemable convertible preferred stock | — | — | (2,089 | ) | — | (2,089 | ) | |||||||||||||
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Balance at September 30, 2013 | $ | 2,467 | $ | 553,189 | $ | 295,574 | $ | (201,837 | ) | $ | 649,393 | |||||||||
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Six Months Ended September 30, 2014 | ||||||||||||||||||||
(amounts in thousands) | Contingent consideration | Redeemable common stock | Redeemable convertible preferred stock | Deferred compensation - 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 | 2 | 65,921 | 34,903 | (23,849 | ) | 76,977 | ||||||||||||||
Payments of contingent consideration liability | (374 | ) | — | — | — | (374 | ) | |||||||||||||
Transfer from Level 3 | — | (615,040 | ) | (326,623 | ) | 217,346 | (724,317 | ) | ||||||||||||
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Balance at September 30, 2014 | $ | 2,526 | $ | — | $ | — | $ | — | $ | 2,526 | ||||||||||
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Six Months Ended September 30, 2013 | ||||||||||||||||||||
(amounts in thousands) | Contingent consideration | Redeemable common stock | Redeemable convertible preferred stock | Deferred compensation - unearned ESOP shares | Total | |||||||||||||||
Balance at March 31, 2013 | $ | 2,679 | $ | 522,276 | $ | 282,547 | $ | (196,477 | ) | $ | 611,025 | |||||||||
Allocation of ESOP shares to participants | — | — | — | 6,049 | 6,049 | |||||||||||||||
Change in fair value | 129 | 30,528 | 16,173 | (11,409 | ) | 35,421 | ||||||||||||||
Payments of contingent consideration liability | (341 | ) | — | — | — | (341 | ) | |||||||||||||
Redemption of Redeemable convertible preferred stock | — | — | (3,146 | ) | — | (3,146 | ) | |||||||||||||
Transfer to Level 3 | — | 385 | — | — | 385 | |||||||||||||||
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Balance at September 30, 2013 | $ | 2,467 | $ | 553,189 | $ | 295,574 | $ | (201,837 | ) | $ | 649,393 | |||||||||
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(Amounts in thousands) | Contingent consideration | |||
Balance at September 30, 2015 | $ | 2,869 | ||
Change in fair value | 14 | |||
Payments of contingent consideration liability | (157 | ) | ||
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Balance at December 31, 2015 | $ | 2,726 | ||
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(Amounts in thousands) | Contingent consideration | |||
Balance at September 30, 2014 | $ | 2,526 | ||
Change in fair value | (7 | ) | ||
Payments of contingent consideration liability | (154 | ) | ||
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Balance at December 31, 2014 | $ | 2,365 | ||
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- 1911 -
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 | ) | ||
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Balance at December 31, 2015 | $ | 2,726 | ||
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Nine Months Ended December 31, 2014 | ||||||||||||||||||||||||
(amounts in thousands) | Contingent Consideration | Executive stock repurchase agreements | Redeemable common stock | Redeemable convertible preferred stock | Deferred compensation - unearned ESOP shares | Total | ||||||||||||||||||
Balance at March 31, 2014 | $ | 2,898 | $ | 16,934 | $ | 549,359 | $ | 291,720 | $ | (197,888 | ) | $ | 663,023 | |||||||||||
Allocation of ESOP shares to participants | — | — | — | — | 4,391 | 4,391 | ||||||||||||||||||
Change in fair value | (5 | ) | 1,302 | 65,921 | 34,903 | (23,849 | ) | 78,272 | ||||||||||||||||
Payments of contingent consideration liability | (528 | ) | — | — | — | — | (528 | ) | ||||||||||||||||
Transfer from Level 3 | — | (18,236 | ) | (615,280 | ) | (326,623 | ) | 217,346 | (742,793 | ) | ||||||||||||||
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Balance at December 31, 2014 | $ | 2,365 | $ | — | $ | — | $ | — | $ | — | $ | 2,365 | ||||||||||||
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For the sixnine months ended September 30,December 31, 2014, our Redeemable common stock transferred out of Level 3, as these securities started actively trading on the NYSE during the second quarter of fiscal 2015. The liability associated with the executive stock repurchase agreements also transferred out of Level 3, as the underlying securities started actively trading on the NYSE during the second quarter of fiscal 2015. In addition, our Redeemable convertible preferred stock and Deferred compensation – unearned ESOP shares were reclassified from a recurring Level 3 fair value measurement to anon-recurring Level 3 fair value measurement as a result of the IPO. See Note 1. 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 sixnine months ended September 30, 2014.December 31, 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 FlexstormFleXstorm 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 disclounted 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 liabilitythese 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 and Executive Stock Repurchase Agreements Obligations
ThePrior to July 2014, the Company hashad certain shares of common stock outstanding allowing the holder to put its shares to us for cash. This Redeemable 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 arewere 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
- 12 -
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. 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.
The redemption feature of our Redeemable 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 was recorded as mezzanine equity at fair value through the effective date of the IPO and was subsequently reclassified at that fair value to stockholders’ equity. See Note 1. Background and Summary of Significant Accounting Policies, for more information on the IPO.
Nonrecurring Fair Value MeasurementsThe liability associated with the executive stock repurchase agreements was valued on the same basis as the Redeemable common stock, and as such is also considered a Level 3 measurement. The executive stock repurchase agreements were terminated upon the IPO. As a result, this liability was recorded at fair value through the effective date of the IPO and was subsequently reclassified at that fair value to stockholders’ equity.
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 to the Company. OurPrior to July 2014, our Redeemable convertible preferred stock iswas recorded at its fair value in the mezzanine equity section of our Condensed Consolidated Balance Sheets and changes in fair value arewere recorded in Retained earnings. Accordingly, we estimated the fair value of the Redeemable convertible preferred stockConvertible 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 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 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 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 to us, would then become applicable. Preferred securities that become redeemable upon a contingent event that is not
- 20 -
solely within the control of the Company should be classified outside of permanent equity. As of September 30, 2014,December 31, 2015, the Company has determined that it is not probable that the redemption feature will become applicable. Since the Redeemable 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 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 1. Background and Summary of Significant Accounting Policies, for more information on the 2014 Initial Public Offering and Note 16. Redeemable Convertible Preferred Stock for further information on the Redeemable convertible preferred stock.IPO.
Nonrecurring Fair Value Measurements
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.
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. We invested in ADS Mexicana 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. 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 have executed a Technology, Patents and 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 in Mexico and Central America. We have concluded that we hold a variable interest in and are the primary beneficiary of 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 our joint venture partner is shown as Noncontrolling interest in subsidiaries in our Condensed Consolidated Balance Sheets 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 Operations.
The table below includes the assets and liabilities of ADS Mexicana that are consolidated as of September 30, 2014 and March 31, 2014. The balances exclude intercompany transactions that are eliminated upon consolidation.
(Amounts in thousands) | September 30, 2014 | March 31, 2014 | ||||||
Assets | ||||||||
Current assets | $ | 34,534 | $ | 32,877 | ||||
Property, plant and equipment, net | 20,542 | 21,633 | ||||||
Other noncurrent assets | 3,013 | 3,378 | ||||||
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Total assets | $ | 58,089 | $ | 57,888 | ||||
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Liabilities | ||||||||
Current liabilities | $ | 11,019 | $ | 11,595 | ||||
Noncurrent liabilities | 6,539 | 7,020 | ||||||
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Total liabilities | $ | 17,558 | $ | 18,615 | ||||
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We participate in three unconsolidated joint ventures, South American Joint Venture, 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. In each case, the Company has concluded that it is appropriate to account for these investments using the equity method, whereby our share of the income or loss of the joint venture is reported in the Condensed Consolidated Statements of Operations under Equity in net (income) loss of unconsolidated affiliates and our investment in the joint venture is included in Other assets in the Condensed Consolidated Balance Sheets.
- 21 -
South American Joint Venture
Our investment in this unconsolidated joint venture was formed for the purpose of expanding upon our growth of manufacturing and selling HDPE corrugated pipe in the South American market via the joint venture partner’s local presence and expertise throughout the region. We are not required to consolidate South American Joint Venture under ASC 810-10 as we are not the primary beneficiary, although we do hold a significant variable interest through our equity investment and debt guarantee. The results of South American Joint Venture are accounted for in the condensed consolidated financial statements using the equity method of accounting. Our share of the loss of this joint venture is reported in the Condensed Consolidated Statements of Operations 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 which includes additional capital contributions of $4,000 and $2,875 made during the six months ended September 30, 2014 and the fiscal year ended March 31, 2014, respectively. Summarized financial data as of September 30 and March 31, 2014 for the South American Joint Venture is as follows:
(Amounts in thousands) | September 30, 2014 | March 31, 2014 | ||||||
Investment in South American Joint Venture | $ | 19,782 | $ | 18,422 | ||||
Receivable from South American Joint Venture | 4,660 | 8,313 |
BaySaver
On July 15, 2013, ADS Ventures, Inc., 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 was established 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 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 interest in BaySaver. We are not required 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 Operations 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 September 30 and March 31, 2014 for the BaySaver joint venture is as follows:
(Amounts in thousands) | September 30, 2014 | March 31, 2014 | ||||||
Investment in BaySaver | $ | 5,217 | $ | 5,202 | ||||
Receivable from BaySaver | 216 | 6 |
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 the joint venture level. This basis difference is being recorded over the lives of the underlying assets which gave rise to the basis difference, which is 10 years. The unamortized basis difference as of September 30, 2014 is $1,739.
Tigre-ADS USA
On April 7, 2014, ADS Ventures, Inc., a wholly-owned subsidiary of the Company, 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 primarily 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 Operations 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.
- 22 -
Summarized financial data as of September 30, 2014 for the Tigre-ADS USA joint venture is as follows:
(Amounts in thousands) | As reported on Balance Sheet | |||
Investment in Tigre-ADS USA | $ | 3,406 | ||
Receivable from Tigre-ADS USA | 22 |
RELATED PARTY TRANSACTIONS |
ADS Mexicana
ADS conducts business in Mexico and Central America through its joint venture ADS Mexicana. ADS owns 51% of the outstanding stock of ADS Mexicana and consolidates its interest in ADS Mexicana for financial reporting purposes. During the three and sixnine months ended September 30,December 31, 2015 and 2014, and 2013, ADS Mexicana compensated certain owners and former owners of GrupaGrupo Altima, the JVjoint venture partner of ADS Mexicana, for consulting services related to the operations of the business and a noncompete arrangement, respectively.. These cash payments totaled $94$104 and $169$203 for the three and sixnine months ended September 30, 2014,December 31, 2015, respectively, and $68$102 and $99$271 for the three and sixnine months ended September 30, 2013,December 31, 2014, respectively.
Occasionally, ADS and ADS Mexicana jointly enter into agreements for pipe sales with their related parties which totaled $1,027parties. There were no such transactions during the three and $2,339nine months ended December 31, 2015 and $1,125 and $3,464 for the three and sixnine months ended September 30,December 31, 2014, respectively, and $1,908 and $3,776 for the three and six months ended September 30, 2013, respectively. Outstanding receivables related to these sales were $2,052$361 and $2,480$1,005 as of September 30, 2014December 31, 2015 and March 31, 2014,2015, respectively.
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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.
South American Joint Venture
Our The Tuberias Tigre – ADS Limitada joint venture (“South American Joint VentureVenture”) manufactures and sells HDPE corrugated pipe in the South American market. We are the guarantor for 50% of the South American Joint Venture’s credit facility, and the debt guarantee is shared equally with the joint venture partner. Our maximum potential obligation under this guarantee totals $7,000$6,844 as of September 30, 2014.December 31, 2015. The maximum borrowings permitted under the South American Joint Venture’s credit facility isare $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 facility. The guarantee of South American Joint Venture’s debt is for the life of the credit facility which matures on February 5, 2017. ADS does not anticipate any required contributions related to the balance of this credit facility. As of September 30, 2014December 31, 2015 and March 31, 2014,2015, the outstanding principal balance of the credit facility including letters of credit was $12.3 million$13,700 and $11.1 million,$13,600, respectively. The weighted average interest rate as of September 30, 2014December 31, 2015 was 3.53%3.39% on U.S. dollar denominated loans and 6.76%7.30% on Chilean peso denominated loans.
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 in immaterial amounts.which were $236 and $1,117 for the three and nine months ended December 31, 2015, respectively and $185 and $648 for the three and nine months ended December 31, 2014. As of December 31, 2015, ADS had a receivable from the South American Joint Venture of $254.
BaySaver
Additionally, ADS holds an equity method investment in BaySaver of approximately 55% which is a joint venture that was established to produce and distribute water quality filters and separators used in the removal of sediment and pollution from storm water. ADS owns 65% of the outstanding membership interests of BaySaver may at times provide short-term financing to ADS to enhance liquidity. As of September 30, 2014, BaySaver held an unsecured, interest-free, note receivable from ADSand consolidates its interest in the amount of $1,000 which was fully paid subsequent to quarter end.BaySaver.
ADS and BaySaver have entered into shared services arrangements in order to execute the joint venture services. Included within these arrangements are the lease of a plant and adjacent yard used to conduct business and operating expenses related to the leased facility. Occasionally, ADS and BaySaver jointly enter into agreements for sales of pipe and Allied Products with their related parties in immaterial amounts.
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DEBT |
Long-term debt as of September 30December 31, 2015 and March 31, 20142015 consisted of the following:
(Amounts in thousands) | September 30, 2014 | March 31, 2014 | December 31, 2015 | March 31, 2015 | ||||||||||||
Bank Term Loans | ||||||||||||||||
Revolving Credit Facility — ADS | $ | 193,800 | $ | 248,100 | $ | 149,500 | $ | 205,100 | ||||||||
Revolving Credit Facility — ADS Mexicana | 2,000 | — | ||||||||||||||
Term note | 95,000 | 97,500 | ||||||||||||||
Term Note | 85,000 | 91,250 | ||||||||||||||
Senior Notes payable | 100,000 | 100,000 | 100,000 | 100,000 | ||||||||||||
Mortgage notes payable | 2,833 | 3,733 | ||||||||||||||
Industrial revenue bonds | 3,950 | 4,715 | 2,925 | 3,545 | ||||||||||||
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Total | 397,583 | 454,048 | 337,425 | 399,895 | ||||||||||||
Current maturities | (11,148 | ) | (11,153 | ) | (35,860 | ) | (9,580 | ) | ||||||||
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Long-term debt obligation | $ | 386,435 | $ | 442,895 | $ | 301,565 | $ | 390,315 | ||||||||
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ADS Mexicana Scotia Bank Term Loans
The Bank Term Loans include a Revolving Credit Facility
On December 11, 2014, our joint venture, ADS Mexicana, entered into a credit agreement with borrowing capacityScotia Bank. The credit agreement provides for revolving loans up to a maximum aggregate principal amount of $325,000$5,000. The proceeds of the revolving credit facility have primarily been used for ADS, Inc., a Revolving Credit Facilityshort-term investment and are available for ADS-Mexicana with borrowing capacity of $12,000 (“the Revolving Credit Facilities”) and a $100,000 term note (“Term note”). The Revolving Credit Facilities expire and the Term note is due in June 2018. The Revolving Credit Facilities and the Term note have a variable interest rate that depends upon the Company’s “pricing ratio” as defined in the agreements for the Revolving Credit Facilities.working capital needs. The interest rate is derived fromrates 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”) at the Company’s option.Costos de Captacion rates, plus an applicable margin. The average rate at September 30, 2014Scotia 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, 2015, there was 2.603%. Any letters of creditno outstanding reduce the availabilityprincipal drawn on the revolver. The Company had outstanding letters of credit at September 30, 2014 in the amount of $8,005. The amount available for borrowing for ADS was $123,195, plus $10,000 available under a separateScotia Bank revolving credit facility with our subsidiary, ADS Mexicana, at September 30, 2014.
Per the terms of the agreements for the Revolving Credit Facilities, 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 October 7, 2010, ADS executed two Spot Interest Rate Swaps on the 90-Day LIBOR interest rate. One swap is related to the $100,000 Term note which was part of the previous credit agreement. This swap is at a fixed rate of 1.105% for a period of four years, and expired on September 1, 2014. The second swap on the Revolving Credit Facility had a value of $50,000 at a fixed rate of 0.890% for a period of three years, and expired on September 1, 2013.
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.
Senior Notes Payable
In December 2009, we 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. During fiscal 2010, we issued $75,000 of Senior Notes with interest fixed at 5.6% and payable quarterly. The rate is subject to an additional 200 basis point excess leverage fee if our calculated leverage ratio exceeds 3 to 1 at the end of a fiscal quarter. A principal payment of $25,000 is due in each of fiscal years 2017, 2018, and 2019.
In July 2013, ADS issued an additional $25,000 of Senior Notes. Interest for the additional $25,000 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 ratio exceeds 3 to 1 at the end of a fiscal quarter. 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 September 30, 2014 and $100,000 and $104,511, respectively, at March 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. The categorization of the framework used to evaluate this debt is considered Level 2. See Note 8. Fair Value Measurement to these financial statements.
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Mortgage Notes Payable
One mortgage note payable with a fixed rate of 5.1% (Hilliard, Ohio) requires monthly installments through fiscal year 2015. In September 2014, a second mortgage with a variable interest rate was paid off (New Miami, Ohio). Land and building with a net book value of approximately $4,971 at September 30, 2014 collateralize the mortgage note.
Industrial Revenue Bonds
Between 1996 and 2007, ADS issued industrial revenue bonds for the construction of four production facilities. Two of the bonds were retired during fiscal 2011 year and one of the bonds was retired in July of fiscal year 2015. The remaining bond has a variable interest rate based on Securities Industry and Financial Markets Association (SIFMA) municipal swap index rate which is computed weekly. The rate on this bond at September 30, 2014 was 3.84%, including a letter of credit fee of 3.75%. Land and buildings with a net book value of approximately $10,116 at September 30, 2014 collateralize the bond. This bond is not considered an auction rate security.
Debt Covenants and Dividend Restrictions
The Bank Term Loans and the Senior Notes require, among other provisions, that we (1) maintain a 1.25 to 1 minimum fixed charge coverage ratio; (2) maintain a maximum leverage ratio of 4 to 1; and (3) establish certain limits on permitted transactions, principally related to indebtedness, capital distributions, loans and investments, and acquisitions and dispositions of assets. Capital distributions, including dividends, are prohibited if we are not in compliance with our debt covenants. In any fiscal year, if we are in compliance with all debt covenants and the pro-forma leverage ratio exceeds 3 to 1, capital distributions are permitted up to a limit of $50,000.be drawn.
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 interestInterest expense. ForContract settlement gains and losses on collars, commodity swaps and foreign exchange forward contracts contract settlementas well as gains and losses are recorded in the Condensed Consolidated Statements of Operations in Cost of goods sold. Gains and (losses) related to themark-to-market adjustments for changes in fair value of the derivative contracts are recorded in the Condensed Consolidated Statements of Operations as Other miscellaneousDerivative losses and other expense, (income), net. The Company recognized (losses) and gains onmark-to-market adjustments for changes in fair value on derivative contracts of $(67)$1,784 and $(319)$(6,054) for the three months ended September 30,December 31, 2015 and 2014, and 2013, respectively, and $(163)$(7,750) and $(238)$(6,217) for the sixnine months ended September 30,December 31, 2015 and 2014, and 2013, respectively.
A summaryThe fair value of the fair values forderivatives is included in the various derivativesCondensed Consolidated Balance sheet at September 30, 2014December 31, 2015 and March 31, 2014 is presented below:2015 as follows:
December 31, 2015 | ||||||||||||||||||||||||||||||||
September 30, 2014 | March 31, 2014 | Assets | Liabilities | |||||||||||||||||||||||||||||
(Amounts in thousands) | Asset | Liability | Asset | Liability | Receivables | Other assets | Other accrued liabilities | Other liabilities | ||||||||||||||||||||||||
Interest rate swaps | $ | — | $ | (639 | ) | $ | — | $ | (1,001 | ) | $ | — | $ | — | $ | (326 | ) | $ | — | |||||||||||||
Diesel fuel option collars | — | (8 | ) | — | — | |||||||||||||||||||||||||||
Foreign exchange forward contracts | 47 | — | — | — | ||||||||||||||||||||||||||||
Diesel fuel option collars and swaps | — | — | (3,364 | ) | (275 | ) | ||||||||||||||||||||||||||
Propylene swaps | — | (491 | ) | 27 | — | — | — | (11,704 | ) | (848 | ) | |||||||||||||||||||||
March 31, 2015 | ||||||||||||||||||||||||||||||||
Assets | Liabilities | |||||||||||||||||||||||||||||||
(Amounts in thousands) | Receivables | Other assets | Other accrued liabilities | Other liabilities | ||||||||||||||||||||||||||||
Interest rate swaps | $ | — | $ | — | $ | (150 | ) | $ | (615 | ) | ||||||||||||||||||||||
Foreign exchange forward contracts | 28 | — | — | — | ||||||||||||||||||||||||||||
Diesel fuel option collars and swaps | — | — | (1,883 | ) | (958 | ) | ||||||||||||||||||||||||||
Propylene swaps | — | — | (4,412 | ) | (730 | ) |
COMMITMENTS AND CONTINGENCIES |
Purchase Commitments
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 30,000 pounds of resin over the period October 2014January 2016 through December 20142016 at a committed purchase cost of $20,153.$24,240.
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. (CaseNo. 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, andRule 10b-5
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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 defendantare 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 contingenciesthat such litigation, claims, and that current or threatened litigation mattersadministrative proceedings will not have a material adverse impact on our condensed consolidatedfinancial position or our results of operations or condensed consolidated financial condition.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 will materially affectare material in relation to our consolidated operations, cash flows, or financial position, and we have recorded adequate accrued liabilities to cover our estimated probable loss exposure.
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ACCUMULATED OTHER COMPREHENSIVE LOSS |
The following table presents the changes in balances of each componentthe balance of Accumulated other comprehensive loss (“AOCL”) for the periodnine months ending September 30:December 31, which consists entirely of foreign currency translation gains (losses):
(Amounts in thousands) | Currency Translation | Other | Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss | ||||||||||||
Balance at April 1, 2013 | $ | (1,085 | ) | $ | 4 | $ | (1,081 | ) | ||||||||
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Other comprehensive loss | (1,810 | ) | 5 | (1,805 | ) | |||||||||||
Income tax expense (benefit) | — | (2 | ) | (2 | ) | |||||||||||
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Balance at September 30, 2013 | $ | (2,895 | ) | $ | 7 | $ | (2,888 | ) | ||||||||
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Balance at April 1, 2014 | (6,838 | ) | 8 | (6,830 | ) | $ | (6,830 | ) | ||||||||
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Other comprehensive loss | (2,525 | ) | — | (2,525 | ) | (4,730 | ) | |||||||||
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Balance at September 30, 2014 | $ | (9,363 | ) | $ | 8 | $ | (9,355 | ) | ||||||||
Balance at December 31, 2014 | $ | (11,560 | ) | |||||||||||||
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Balance at April 1, 2015 | (15,521 | ) | ||||||||||||||
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Other comprehensive loss | (10,601 | ) | ||||||||||||||
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Balance at December 31, 2015 | $ | (26,122 | ) | |||||||||||||
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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 onetime charges, as well as discrete events, such as provision to return adjustments. For the nine months ended December 31, 2015 and 2014, the Company utilized an effective tax rate of 35.2% and 43.8%, respectively, to calculate its provision for income taxes. The effective tax rate for the first nine months of the fiscal 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 ofnon-deductible items in our tax calculations.
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 participate in dividends on anas-converted basis when declared on common stock. As a result, unvested restricted stock and Redeemable convertible preferred stock meet the definition of participating securities, which requires us to apply thetwo-class method to compute both basic and diluted net income (loss) per share. Thetwo-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.
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The dilutive effect of stock options and unvested restricted stock is based on the more dilutive of the treasury stock method or the dilutedtwo-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 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, 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.
Prior to the effective date of the IPO, the Company’s Redeemable common stock was included in the weighted-average number of common shares outstanding for calculating basic and diluted net income (loss) per share.
The following table presents information necessary to calculate net income (loss) per share for the three and nine months ended December 31, 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) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net income (loss) per share - Basic | ||||||||||||||||
Net income (loss) attributable to ADS | $ | 13,131 | $ | (4,641 | ) | $ | 37,171 | $ | 16,813 | |||||||
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 | ) | ||||||||
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Net income (loss) available to common stockholders and participating securities | 12,447 | (4,948 | ) | 35,485 | 5,373 | |||||||||||
Undistributed income allocated to participating securities | (1,016 | ) | — | (2,965 | ) | (378 | ) | |||||||||
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Net income (loss) available to common stockholders - Basic | 11,431 | (4,948 | ) | 32,520 | 4,995 | |||||||||||
Weighted average number of common shares outstanding - Basic | 54,133 | 52,986 | 53,880 | 50,691 | ||||||||||||
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Net income (loss) per common share - Basic | $ | 0.21 | $ | (0.09 | ) | $ | 0.60 | $ | 0.10 | |||||||
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Net income (loss) per share - Diluted | ||||||||||||||||
Net income (loss) available to common stockholders - Basic | $ | 11,431 | $ | (4,948 | ) | $ | 32,520 | $ | 4,995 | |||||||
Amount allocated to participating preferred stockholders | — | — | — | — | ||||||||||||
Preferred stock dividends, net of tax | — | — | — | — | ||||||||||||
Tax benefit on an as if converted common dividend | — | — | — | — | ||||||||||||
Additional compensation for leverage ESOP | — | — | — | — | ||||||||||||
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Net income (loss) available to common stockholders - Diluted | 11,431 | (4,948 | ) | 32,520 | 4,995 | |||||||||||
Weighted average number of common shares outstanding - Basic | 54,133 | 52,986 | 53,880 | 50,691 | ||||||||||||
Assumed conversion of preferred stock | — | — | — | — | ||||||||||||
Assumed exercise of stock options | 1,269 | — | 1,311 | 925 | ||||||||||||
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Weighted average number of common shares outstanding - Diluted | 55,402 | 52,986 | 55,191 | 51,616 | ||||||||||||
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Net income (loss) per common share - Diluted | $ | 0.21 | $ | (0.09 | ) | $ | 0.59 | $ | 0.10 | |||||||
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Potentially dilutive securities excluded as anti-dilutive | 6,229 | 7,431 | 6,467 | 3,815 |
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 Adjusted EBITDA (anon-GAAP measure). We calculate Segment Adjusted EBITDA as net income or loss before interest, income taxes, depreciation and amortization, stock-based compensation expense,non-cash charges and certain other expenses.
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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 tomedium-sized distributors across the U.S. We also sell through a broad variety of buying groups andco-ops in the United States. Products include Singlewall pipe,N-12 HDPE pipe sold into the Storm sewer and Infrastructure markets, high performance PP pipe sold into the Storm sewer and sanitary sewer markets, and our broad line of Allied Products including StormTech, Nyloplast, Arc Septic Chambers, Inserta Tee, 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 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. Our Mexican joint venture through ADS Mexicana primarily serves the Mexican markets, while our 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 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, 2015 and 2014, respectively:
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
(Amounts in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Domestic | ||||||||||||||||
Pipe | $ | 196,162 | $ | 179,979 | $ | 654,987 | $ | 637,728 | ||||||||
Allied Products | 70,588 | 59,236 | 237,228 | 210,888 | ||||||||||||
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Total domestic | 266,750 | 239,215 | 892,215 | 848,616 | ||||||||||||
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International | ||||||||||||||||
Pipe | 34,451 | 34,171 | 121,368 | 102,320 | ||||||||||||
Allied Products | 11,626 | 6,485 | 31,697 | 22,083 | ||||||||||||
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Total international | 46,077 | 40,656 | 153,065 | 124,403 | ||||||||||||
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Total net sales | $ | 312,827 | $ | 279,871 | $ | 1,045,280 | $ | 973,019 | ||||||||
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The following sets forth certain additional financial information attributable to our reportable segments for the three and nine months ended December 31, 2015 and 2014, respectively:
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
(Amounts in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net Sales | ||||||||||||||||
Domestic | $ | 266,750 | $ | 239,215 | $ | 892,215 | $ | 848,616 | ||||||||
International | 46,077 | 40,656 | 153,065 | 124,403 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 312,827 | $ | 279,871 | $ | 1,045,280 | $ | 973,019 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Gross Profit | ||||||||||||||||
Domestic | 66,503 | 41,901 | 204,323 | 162,156 | ||||||||||||
International | 8,339 | 7,386 | 31,525 | 18,573 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 74,842 | $ | 49,287 | $ | 235,848 | $ | 180,729 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Segment Adjusted EBITDA | ||||||||||||||||
Domestic | 44,458 | 30,535 | 140,865 | 126,746 | ||||||||||||
International | 5,058 | 3,472 | 24,836 | 9,111 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 49,516 | $ | 34,007 | $ | 165,701 | $ | 135,857 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Interest expense, net | ||||||||||||||||
Domestic | 4,606 | 4,613 | 13,544 | 14,675 | ||||||||||||
International | 117 | 18 | 412 | 51 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 4,723 | $ | 4,631 | $ | 13,956 | $ | 14,726 | ||||||||
|
|
|
|
|
|
|
|
- 18 -
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
(Amounts in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Depreciation and amortization | ||||||||||||||||
Domestic | 15,221 | 14,742 | 45,626 | 44,338 | ||||||||||||
International | 2,081 | 1,376 | 6,427 | 4,181 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 17,302 | $ | 16,118 | $ | 52,053 | $ | 48,519 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Equity in net loss of unconsolidated affiliates | ||||||||||||||||
Domestic | (99 | ) | (92 | ) | 224 | 312 | ||||||||||
International | (818 | ) | (896 | ) | (1,159 | ) | (2,024 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | (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, 2015, respectively.
December 31, 2015 | March 31, 2015 | |||||||
Investment in unconsolidated affiliates | ||||||||
Domestic | $ | 2,976 | $ | 7,957 | ||||
International | 13,739 | 17,081 | ||||||
|
|
|
| |||||
Total | $ | 16,715 | $ | 25,038 | ||||
|
|
|
| |||||
Total identifiable assets | ||||||||
Domestic | $ | 909,178 | $ | 938,996 | ||||
International | 144,230 | 168,320 | ||||||
Eliminations | (50,132 | ) | (69,192 | ) | ||||
|
|
|
| |||||
Total | $ | 1,003,276 | $ | 1,038,124 | ||||
|
|
|
|
Reconciliation of Segment Adjusted EBITDA to Net (Loss) Income
Three Months Ended December 31, | ||||||||||||||||
2015 | 2014 | |||||||||||||||
(Amounts in thousands) | Domestic | International | Domestic | International | ||||||||||||
Net income (loss) | $ | 13,846 | $ | (904 | ) | $ | (5,199 | ) | $ | 1,930 | ||||||
Depreciation and amortization | 15,221 | 2,081 | 14,742 | 1,376 | ||||||||||||
Interest expense | 4,606 | 117 | 4,613 | 18 | ||||||||||||
Income tax expense | 7,196 | 2,894 | 2,251 | 247 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment EBITDA | 40,869 | 4,188 | 16,407 | 3,571 | ||||||||||||
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 (benefit) expense | (5,206 | ) | — | 3,894 | — | |||||||||||
ESOP deferred stock-based compensation | 3,125 | — | 2,690 | — | ||||||||||||
Expense related to executive termination payments | 94 | — | 82 | — | ||||||||||||
Restatement costs(b) | 7,618 | — | — | — | ||||||||||||
Transaction costs(c) | — | — | 336 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment Adjusted EBITDA | $ | 44,458 | $ | 5,058 | $ | 30,535 | $ | 3,472 | ||||||||
|
|
|
|
|
|
|
|
- 19 -
(a) | Includes our proportional share of interest, income taxes, depreciation and amortization related to our South American Joint Venture and ourTigre-ADS USA Joint Venture, which 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. |
(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 Form10-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. |
Nine Months Ended December 31, | ||||||||||||||||
2015 | 2014 | |||||||||||||||
(Amounts in thousands) | Domestic | International | Domestic | International | ||||||||||||
Net income | $ | 28,067 | $ | 13,585 | $ | 16,084 | $ | 5,129 | ||||||||
Depreciation and amortization | 45,626 | 6,427 | 44,338 | 4,181 | ||||||||||||
Interest expense | 13,544 | 412 | 14,675 | 51 | ||||||||||||
Income tax expense (benefit) | 20,725 | 2,431 | 19,112 | (1,245 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment EBITDA | 107,962 | 22,855 | 94,209 | 8,116 | ||||||||||||
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 (benefit) expense | (2,994 | ) | — | 14,023 | — | |||||||||||
ESOP deferred stock-based compensation | 9,375 | — | 8,064 | — | ||||||||||||
Expense related to executive termination payments | 258 | — | 246 | — | ||||||||||||
Expense related to executive stock repurchase agreements | — | — | 1,011 | — | ||||||||||||
Loss related to BaySaver step acquisition | 490 | — | — | — | ||||||||||||
Restatement costs(b) | 16,328 | — | — | — | ||||||||||||
Transaction costs(c) | — | — | 1,051 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment Adjusted EBITDA | $ | 140,865 | $ | 24,836 | $ | 126,746 | $ | 9,111 | ||||||||
|
|
|
|
|
|
|
|
(a) | Includes our proportional share of interest, income taxes, depreciation and amortization related to our South American Joint Venture and ourTigre-ADS USA Joint Venture, which 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. |
(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 Form10-K. |
(c) | Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our IPO and 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. During the nine months ended December 31, 2014, the Company reclassified $19,729 related to the executive stock repurchase agreements from liability and mezzanine equity toPaid-in capital after the termination of the agreements upon the IPO in July 2014.
- 20 -
15. | SUBSEQUENT EVENTS |
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 forADS-Mexicana with borrowing capacity of $12,000, and a $100,000 term note (collectively, the “Bank Term Loans”), and the $100,000 of outstanding senior promissory notes (“Senior Notes”). The amendments and consents described below that occurred between July 2015 and February 2016 related to the delay in the filing of the Fiscal 2015 Form10-K, and the restatement of the Company’s previously issued financial statements (the “Restatement”) as reflected in the fiscal year 2015 Form10-K, which was filed in March 2016.
From July 2015 through December 2015, the Company obtained various consents from the lenders and amended the Bank Term Loans and Senior Notes. These consents and the additional amendments had the effect of: (i) extending the time for delivery of our fiscal 2015 audited financial statements and the first and second quarter fiscal 2016 quarterly financial statements to January 31, 2016, whereby an event of default was waived as long as those financial statements were 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 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 entered into additional amended agreements related to the Bank Term Loans and Senior Notes that further extend the time for delivery of its fiscal 2015 audited financial statements and the first and second quarter fiscal 2016 quarterly financial statements, as well as 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 the first, second and third quarter fiscal 2016 quarterly financial statements to April 1, 2016, whereby an event of default was waived as long as those financial statements were delivered by that date without regard to any grace period. As part of the February 2016 amended agreements, the lenders also consented to the Company’s payment of 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 the 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 payment of dividends.
16. |
Revisions Reported in the Fiscal Year 2016 Form10-K
Prior to the filing of the our Annual Report on Form10-K for the year ended March 31, 2016 (“Fiscal 2016 Form10-K”), the Company identified certain out of period adjustments related to immaterial errors in its previously issued condensed consolidated financial statements for the fiscal years ended March 31, 2015 and prior, as well as in the previously issued unaudited condensed consolidated financial statements for the quarters ended June 30, September 30, and December 31, 2015 and 2014. The Trusteeprior period errors related primarily to the Company’s accounting for inventory, specifically relating to the capitalization of production variances into inventory, as well as miscellaneous immaterial errors related to property, plant and equipment and the associated impact on income taxes. While these prior period errors did not, individually or in the aggregate,
- 21 -
result in a material misstatement of the Company’s ESOPpreviously issued consolidated financial statements, correcting these prior period errors in fiscal year 2016 would have been material to the fiscal year 2016 consolidated financial statements. Accordingly, management revised its previously reported consolidated financial statements in the Fiscal 2016 Form10-K.
The column in the tables below labeled “Effect of Revision” reflects the impact of these adjustments.
Stock-Based Compensation Restatement
Subsequent to the issuance of the Fiscal 2016 Form10-K, the Company identified errors in its historical consolidated financial statements related to the accounting for stock-based compensation for awards made to employees along with its accounting for certain executive stock repurchase agreements and executive termination payments, as described below.
Due to these errors, and based upon the recommendation of management, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) determined that the Company’s previously issued financial statements should no longer be relied upon. As a result, the Company has restated its condensed consolidated financial statements as of December 31, 2015 and March 31, 2015 and for the abilitythree and nine months ended December 31, 2015 and 2014. The restatement also affects periods prior to putfiscal year 2015, with the sharescumulative effect of the errors reflected as an adjustment to the fiscal year 2015 opening stockholders’ equity (deficit) balance.
The column in the tables below labeled “Stock-Based Compensation Restatement” reflects the impact of these adjustments. The column in the tables below labeled “As Previously Reported” reflects the financial information reported as part of the Original Form10-Q.
The following sections provide additional information relating to the accounting adjustments that were made to the Company’s historical condensed consolidated financial statements. These adjustments had no net impact on cash flows from operating activities, cash flows from investing activities or cash flows from financing activities in our condensed consolidated statements of cash flows for the nine months ended December 31, 2015 and 2014. For the three and nine months ended December 31, 2015 and 2014, the impact of the adjustments on the condensed consolidated statements of comprehensive income (loss) was limited to the change in net income.
Accounting Adjustments – Stock-Based Compensation
The Company has several programs for stock-based payments to employees, including stock options and restricted stock awards. Historically, the Company has classified stock-based awards as equity awards, and recorded the associated compensation expense based on the award’s grant date fair value. Based upon an internal review of our Redeemable convertible preferredstock-based award agreements and related administrative procedures, the Company concluded that these awards should have been accounted for as liability-classified instead of equity-classified. Specifically, the Company determined that certain tax withholding provisions were added to stock option agreements beginning in fiscal 2009 that permit the employee to satisfy the tax liability associated with the exercise of the stock options through the withholding of shares that exceeds the minimum tax withholding required by law. In addition, prior to the Company. Company’s initial public offering in fiscal 2015, the Company had periodically repurchased shares within six months of the exercise date with respect to stock option exercises and within six months of the vesting date with respect to restricted stock. As such, the Company has concluded that for all periods presented that it should account for its stock options as liability-classified awards for purposes of calculating stock-based compensation expense, and restricted stock granted to employees should be accounted for as liability-classified awards prior to the Company’s initial public offering in fiscal 2015.
The redeemable convertible preferred stock has a required cumulative 2.5% dividend and is convertible at a rate of 0.7692 shares of common stock for each share of Redeemable convertible preferred stock. We guaranteeerrors in stock-based compensation award classification have been corrected in the restated condensed consolidated financial statements, whereby the fair value of the redeemable convertible preferred stockliability-classified awards has been remeasured at $0.78 per share. The put option requirementseach relevant reporting date with the corresponding impact of the Internal Revenue Code applyremeasurement resulting in an increase or a decrease in the event thatamount of stock-based compensation expense included in General and administrative expenses, Selling expenses and Cost of goods sold in the Condensed Consolidated Statements of Operations. In addition, the carrying value of all liability-classified awards has been reclassified fromPaid-in capital to Current portion of liability-classified stock-based awards and Other liabilities in the Condensed Consolidated Balance Sheets, and dividends paid on liability-classified awards have been reclassified from Retained earnings (deficit) to stock-based compensation expense.
Accounting Adjustments – Executive Stock Repurchase Agreements
In fiscal 2007, the Company entered into stock repurchase agreements with certain executives, whereby the Company was required to repurchase shares of the Company’s common stock isheld by the executive at the current fair market value upon the executive’s death or certain events of termination, as defined. The amount of shares required to be repurchased by the Company from the executive and which the executive or the executive’s heir or estate was obligated to sell to the Company, was limited to the anticipated proceeds from life insurance policies held by the Company (referred to as a mandatorily redeemable obligation).
- 22 -
In the case where shares were not a registration type classrepurchased due to the fair value of security. Therefore, the holders of convertible preferred stock haveshares exceeding the life insurance proceeds, the executive or the executive’s heir or estate had a put right up to require usa set dollar amount allowing the common stock to be put to the Company at the current fair market value (referred to as an executive’s put right). The stock repurchase agreements included termination clauses such that they would automatically terminate if a change in control event or an IPO occurred prior to the executive’s death. While the Company did not historically take into account the impact of these stock repurchase agreements on the accounting for the shares subject to the stock repurchase agreements, the Company has now determined that it is necessary to account for the contingent obligation to repurchase those shares.
As such, sharesthe errors in measurement and classification of these amounts have been corrected in the event that ourrestated condensed consolidated financial statements. Specifically, prior to the termination of the stock repurchase agreements upon the IPO in July 2014, the Company has reclassified all shares subject to the mandatorily redeemable obligation as liabilities and all shares subject to an executive’s put rights as Redeemable common stock in mezzanine equity. For those shares classified as liabilities, changes in the fair value of the shares have been recognized as compensation expense included in General and administrative expenses in the Condensed Consolidated Statements of Operations, and dividends paid on those awards have been reclassified from Retained earnings (deficit) to stock-based compensation expense. For the shares classified as Redeemable common stock, changes in the fair value of the shares were recorded as adjustments to Retained earnings (deficit) and Paid-in capital. After the termination of the stock repurchase agreements upon the IPO in July 2014, the Company has reclassified the carrying amount of the shares toPaid-in capital in the Condensed Consolidated Balance Sheets. There were no redemptions under the stock repurchase agreements.
Accounting Adjustments – Executive Termination Payments
ADS has employment agreements with certain executives that include potential payments to be made to those executives upon termination. The terms of the termination payments vary by executive, but are generally based on current base salary and bonus levels at the time of termination. The contractual termination payments vest upon either (1) certain contingent occurrences terminating employment such as death, disability, layoff, the executive voluntarily quitting due to a breach of covenants by the Company or for other “good reason” or (2) the executive reaching a certain age while still working for the Company, as defined in the individual employee agreement. While the Company did not historically accrue a liability in advance for these executive termination payments, the Company has now determined that it is not listednecessary to account for trading or otherwise quotedthe contingent obligation to make these payments.
As such, the associated errors have been corrected in the restated condensed consolidated financial statements. Specifically, the Company has accrued a liability from the effective date of the executive’s employment agreement to the date the executive reaches the required retirement age while working for the Company, which is considered the service period for this obligation. The liability is estimated based on each executive’s current base salary and bonus levels. The associated expense has been recognized as compensation expense included in General and administrative expenses in the Condensed Consolidated Statements of Operations.
Accounting Adjustments – Income Taxes
The Company recorded adjustments to income taxes to reflect the impact of the restatement adjustments.
Impact on Condensed Consolidated Statements of Operations
The effect of the revision and the restatement described above on the NYSE, AMEX, NASDAQ, or any other market more senior thanCompany’s previously reported Condensed Consolidated Statements of Operations for the OTC Bulletin Board.three months ended December 31, 2015 and 2014 is as follows:
Given that the event may trigger redemption
Three Months Ended December 31, 2015 | ||||||||||||||||
(Amounts in thousands, except per share data) | As Previously Reported | Effect of Revision | Stock-Based Compensation Restatement | As Restated | ||||||||||||
Net sales | $ | 312,827 | $ | — | $ | — | $ | 312,827 | ||||||||
Cost of goods sold | 239,504 | (1,319 | ) | (200 | )(a) | 237,985 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 73,323 | 1,319 | 200 | 74,842 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling | 21,880 | — | (300 | )(a) | 21,580 | |||||||||||
General and administrative | 25,776 | — | (5,326 | )(b) | 20,450 | |||||||||||
Loss on disposal of assets or businesses | (603 | ) | — | — | (603 | ) | ||||||||||
Intangible amortization | 2,182 | — | — | 2,182 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from operations | 24,088 | 1,319 | 5,826 | 31,233 |
- 23 -
Three Months Ended December 31, 2015 | ||||||||||||||||
(Amounts in thousands, except per share data) | As Previously Reported | Effect of Revision | Stock-Based Compensation Restatement | As Restated | ||||||||||||
Other expense: | ||||||||||||||||
Interest expense | 4,723 | — | — | 4,723 | ||||||||||||
Other miscellaneous expense, net | 2,561 | — | — | 2,561 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income before income taxes | 16,804 | 1,319 | 5,826 | 23,949 | ||||||||||||
Income tax expense | 8,100 | 663 | 1,327 | 10,090 | ||||||||||||
Equity in net loss of unconsolidated affiliates | 917 | — | — | 917 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | 7,787 | 656 | 4,499 | 12,942 | ||||||||||||
Less net income attributable to noncontrolling interest | (189 | ) | — | — | (189 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income attributable to ADS | 7,976 | 656 | 4,499 | 13,131 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Accretion of Redeemable noncontrolling interest | (329 | ) | — | — | (329 | ) | ||||||||||
Dividends to Redeemable convertible preferred stockholders | (349 | ) | — | — | (349 | ) | ||||||||||
Dividends paid to unvested restricted stockholders | (6 | ) | — | — | (6 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income available to common stockholders and participating securities | 7,292 | 656 | 4,499 | 12,447 | ||||||||||||
Undistributed income allocated to participating securities | (479 | ) | (68 | ) | (469 | ) | (1,016 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income available to common stockholders | $ | 6,813 | $ | 588 | $ | 4,030 | $ | 11,431 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 54,133 | — | — | 54,133 | ||||||||||||
Diluted | 54,527 | 710 | 165 | 55,402 | ||||||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.13 | 0.01 | 0.07 | $ | 0.21 | ||||||||||
Diluted | $ | 0.12 | 0.01 | 0.08 | $ | 0.21 | ||||||||||
Cash dividends declared per share | $ | 0.05 | — | — | $ | 0.05 |
(a) | This entire amount relates to the adjustments for stock-based compensation. |
(b) | This amount consists of ($5,420) and $94 related to the adjustments for stock-based compensation and the executive termination payments, respectively. |
Three Months Ended December 31, 2014 | ||||||||||||||||
(Amounts in thousands, except per share data) | As Previously Reported | Effect of Revision | Stock-Based Compensation Restatement | As Restated | ||||||||||||
Net sales | $ | 279,871 | $ | — | $ | — | $ | 279,871 | ||||||||
Cost of goods sold | 230,693 | (209 | ) | 100 | (a) | 230,584 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 49,178 | 209 | (100 | ) | 49,287 | |||||||||||
Operating expenses: | ||||||||||||||||
Selling | 19,913 | — | 200 | (a) | 20,113 | |||||||||||
General and administrative | 14,115 | — | 2,134 | (b) | 16,249 | |||||||||||
Loss on disposal of assets or businesses | 193 | — | — | 193 | ||||||||||||
Intangible amortization | 2,328 | — | — | 2,328 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from operations | 12,629 | 209 | (2,434 | ) | 10,404 | |||||||||||
Other expense: | ||||||||||||||||
Interest expense | 4,631 | — | — | 4,631 | ||||||||||||
Other miscellaneous expense, net | 5,556 | — | — | 5,556 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income before income taxes | 2,442 | 209 | (2,434 | ) | 217 | |||||||||||
Income tax expense | 3,407 | 179 | (1,088 | ) | 2,498 | |||||||||||
Equity in net loss of unconsolidated affiliates | 988 | — | — | 988 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net loss | (1,953 | ) | 30 | (1,346 | ) | (3,269 | ) |
- 24 -
Three Months Ended December 31, 2014 | ||||||||||||||||
(Amounts in thousands, except per share data) | As Previously Reported | Effect of Revision | Stock-Based Compensation Restatement | As Restated | ||||||||||||
Less net income attributable to noncontrolling interest | 1,372 | — | — | 1,372 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net loss attributable to ADS | (3,325 | ) | 30 | (1,346 | ) | (4,641 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Dividends to Redeemable convertible preferred stockholders | (298 | ) | — | — | (298 | ) | ||||||||||
Dividends paid to unvested restricted stockholders | (9 | ) | — | — | (9 | ) | ||||||||||
|
|
|
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| |||||||||
Net loss available to common stockholders and participating securities | (3,632 | ) | 30 | (1,346 | ) | (4,948 | ) | |||||||||
Undistributed income allocated to participating securities | — | — | — | — | ||||||||||||
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|
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|
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|
| |||||||||
Net loss available to common stockholders | $ | (3,632 | ) | $ | 30 | $ | (1,346 | ) | $ | (4,948 | ) | |||||
|
|
|
|
|
|
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| |||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 52,986 | — | — | 52,986 | ||||||||||||
Diluted | 52,986 | — | — | 52,986 | ||||||||||||
Net loss per share: | ||||||||||||||||
Basic | $ | (0.07 | ) | — | (0.02 | ) | $ | (0.09 | ) | |||||||
Diluted | $ | (0.07 | ) | — | (0.02 | ) | $ | (0.09 | ) | |||||||
Cash dividends declared per share | $ | 0.04 | — | — | $ | 0.04 |
(a) | This entire amount relates to the adjustments for stock-based compensation |
(b) | This amount consists of $2,052 and $82 related to the adjustments for stock-based compensation and the executive termination payments, respectively. |
The effect of the convertible preferred stock (the listing or quotationrevision and the restatement described above on a market more senior than the OTCBB),Company’s previously reported Condensed Consolidated Statements of Operations for the nine months ended December 31, 2015 and 2014 is not solely within our control, this results inas follows:
Nine Months Ended December 31, 2015 | ||||||||||||||||
(Amounts in thousands, except per share data) | As Previously Reported | Effect of Revision | Stock-Based Compensation Restatement | As Restated | ||||||||||||
Net sales | $ | 1,045,280 | $ | — | $ | — | $ | 1,045,280 | ||||||||
Cost of goods sold | 815,636 | (6,004 | ) | (200 | )(a) | 809,432 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 229,644 | 6,004 | 200 | 235,848 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling | 65,701 | — | (300 | )(a) | 65,401 | |||||||||||
General and administrative | 69,207 | — | (4,399 | )(b) | 64,808 | |||||||||||
Loss on disposal of assets or businesses | 558 | — | — | 558 | ||||||||||||
Intangible amortization | 7,049 | — | — | 7,049 | ||||||||||||
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|
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|
|
| |||||||||
Income from operations | 87,129 | 6,004 | 4,899 | 98,032 | ||||||||||||
Other expense: | ||||||||||||||||
Interest expense | 13,956 | — | — | 13,956 | ||||||||||||
Other miscellaneous expense, net | 18,333 | — | — | 18,333 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income before income taxes | 54,840 | 6,004 | 4,899 | 65,743 | ||||||||||||
Income tax expense | 19,839 | 2,544 | 773 | 23,156 | ||||||||||||
Equity in net loss of unconsolidated affiliates | 935 | — | — | 935 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | 34,066 | 3,460 | 4,126 | 41,652 | ||||||||||||
Less net income attributable to noncontrolling interest | 4,481 | — | — | 4,481 | ||||||||||||
|
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|
|
|
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|
| |||||||||
Net income attributable to ADS | 29,585 | 3,460 | 4,126 | 37,171 | ||||||||||||
|
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|
|
|
|
| |||||||||
Accretion of Redeemable noncontrolling interest | (586 | ) | — | — | (586 | ) | ||||||||||
Dividends to Redeemable convertible preferred stockholders | (1,082 | ) | — | — | (1,082 | ) | ||||||||||
Dividends paid to unvested restricted stockholders | (18 | ) | — | — | (18 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income available to common stockholders and participating securities | 27,899 | 3,460 | 4,126 | 35,485 |
- 25 -
Nine Months Ended December 31, 2015 | ||||||||||||||||
(Amounts in thousands, except per share data) | As Previously Reported | Effect of Revision | Stock-Based Compensation Restatement | As Restated | ||||||||||||
Undistributed income allocated to participating securities | (2,159 | ) | (375 | ) | (431 | ) | (2,965 | ) | ||||||||
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|
|
|
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| |||||||||
Net income available to common stockholders | $ | 25,740 | $ | 3,085 | $ | 3,695 | $ | 32,520 | ||||||||
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|
|
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| |||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 53,880 | — | — | 53,880 | ||||||||||||
Diluted | 60,694 | (5,874 | ) | 371 | 55,191 | |||||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.48 | 0.05 | 0.07 | $ | 0.60 | ||||||||||
Diluted | $ | 0.46 | 0.07 | 0.06 | $ | 0.59 | ||||||||||
Cash dividends declared per share | $ | 0.15 | — | — | $ | 0.15 |
(a) | This entire amount relates to the adjustments for stock-based compensation. |
(b) | This amount consists of ($4,657) and $258 related to the adjustments for stock-based compensation and the executive termination payments, respectively. |
Nine Months Ended December 31, 2014 | ||||||||||||||||
(Amounts in thousands, except per share data) | As Previously Reported | Effect of Revision | Stock-Based Compensation Restatement | As Restated | ||||||||||||
Net sales | $ | 973,019 | $ | — | $ | — | $ | 973,019 | ||||||||
Cost of goods sold | 793,220 | (1,730 | ) | 800 | (a) | 792,290 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 179,799 | 1,730 | (800 | ) | 180,729 | |||||||||||
Operating expenses: | ||||||||||||||||
Selling | 59,705 | — | 900 | (a) | 60,605 | |||||||||||
General and administrative | 43,756 | — | 7,661 | (b) | 51,417 | |||||||||||
Loss on disposal of assets or businesses | 538 | — | — | 538 | ||||||||||||
Intangible amortization | 7,551 | — | — | 7,551 | ||||||||||||
|
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|
|
|
|
|
| |||||||||
Income from operations | 68,249 | 1,730 | (9,361 | ) | 60,618 | |||||||||||
Other expense: | ||||||||||||||||
Interest expense | 14,726 | — | — | 14,726 | ||||||||||||
Other miscellaneous expense, net | 5,100 | — | — | 5,100 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income before income taxes | 48,423 | 1,730 | (9,361 | ) | 40,792 | |||||||||||
Income tax expense | 20,226 | 819 | (3,178 | ) | 17,867 | |||||||||||
Equity in net loss of unconsolidated affiliates | 1,712 | — | — | 1,712 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | 26,485 | 911 | (6,183 | ) | 21,213 | |||||||||||
Less net income attributable to noncontrolling interest | 4,400 | — | — | 4,400 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income attributable to ADS | 22,085 | 911 | (6,183 | ) | 16,813 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Change in fair value of Redeemable convertible preferred stock | (11,054 | ) | — | — | (11,054 | ) | ||||||||||
Dividends to Redeemable convertible preferred stockholders | (377 | ) | — | — | (377 | ) | ||||||||||
Dividends paid to unvested restricted stockholders | (9 | ) | — | — | (9 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) available to common stockholders and participating securities | 10,645 | 911 | (6,183 | ) | 5,373 | |||||||||||
Undistributed income allocated to participating securities | (995 | ) | (106 | ) | 723 | (378 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) available to common stockholders | $ | 9,650 | $ | 805 | $ | (5,460 | ) | $ | 4,995 | |||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 50,691 | — | — | 50,691 | ||||||||||||
Diluted | 51,206 | — | 410 | 51,616 | ||||||||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.19 | 0.02 | (0.11 | ) | $ | 0.10 | |||||||||
Diluted | $ | 0.19 | 0.02 | (0.11 | ) | $ | 0.10 | |||||||||
Cash dividends declared per share | $ | 0.04 | — | — | $ | 0.04 |
(a) | This entire amount relates to the adjustments for stock-based compensation. |
(b) | This amount consists of $6,404, $1,011, and $246 related to the adjustments for stock-based compensation, the executive stock repurchase agreements and the executive termination payments, respectively. |
- 26 -
Impact on Condensed Consolidated Balance Sheets
The effect of the classification of our convertible preferred stock recorded inrevision and restatement described above on the mezzanine section of ourCompany’s previously reported Condensed Consolidated Balance Sheets as of September 30, 2014.December 31, 2015 and March 31, 2015 is as follows:
December 31, 2015 | ||||||||||||||||
(Amounts in thousands) | As Previously Reported | Effect of Revision | Stock-Based Compensation Restatement | As Restated | ||||||||||||
ASSETS | ||||||||||||||||
Cash | $ | 6,412 | $ | — | $ | — | $ | 6,412 | ||||||||
Receivables, net | 171,768 | — | — | 171,768 | ||||||||||||
Inventories | 204,131 | (4,542 | ) | — | 199,589 | |||||||||||
Deferred income taxes and other current assets | 19,965 | 3,532 | 3,439 | 26,936 | ||||||||||||
Property, plant and equipment, net | 387,654 | — | — | 387,654 | ||||||||||||
Goodwill | 100,205 | — | — | 100,205 | ||||||||||||
Intangible assets, net | 61,492 | — | — | 61,492 | ||||||||||||
Other assets | 49,220 | — | — | 49,220 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 1,000,847 | $ | (1,010 | ) | $ | 3,439 | $ | 1,003,276 | |||||||
|
|
|
|
|
|
|
| |||||||||
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current maturities of debt obligations | $ | 35,860 | $ | — | $ | — | $ | 35,860 | ||||||||
Current maturities of capital lease obligations | 18,374 | — | — | 18,374 | ||||||||||||
Accounts payable | 74,000 | — | — | 74,000 | ||||||||||||
Current portion of liability-classified stock-based awards | — | — | 14,647 | 14,647 | ||||||||||||
Other accrued liabilities | 75,070 | — | — | 75,070 | ||||||||||||
Accrued income taxes | 8,171 | 2,555 | 3,592 | 14,318 | ||||||||||||
Long-term debt obligation | 301,565 | — | — | 301,565 | ||||||||||||
Long-term capital lease obligation | 56,265 | — | — | 56,265 | ||||||||||||
Deferred tax liabilities | 60,567 | (492 | ) | (4,336 | ) | 55,739 | ||||||||||
Other liabilities | 29,299 | (44 | ) | 8,209 | 37,464 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | 659,171 | 2,019 | 22,112 | 683,302 | ||||||||||||
Mezzanine equity | 111,252 | — | — | 111,252 | ||||||||||||
Common stock | 12,393 | — | — | 12,393 | ||||||||||||
Paid-in capital | 713,695 | — | 22,681 | 736,376 | ||||||||||||
Common stock in treasury, at cost | (441,822 | ) | — | — | (441,822 | ) | ||||||||||
Accumulated other comprehensive loss | (26,122 | ) | — | — | (26,122 | ) | ||||||||||
Retained deficit | (42,101 | ) | (3,029 | ) | (41,354 | ) | (86,484 | ) | ||||||||
Noncontrolling interest in subsidiaries | 14,381 | — | — | 14,381 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities, mezzanine equity and stockholders’ equity | $ | 1,000,847 | $ | (1,010 | ) | $ | 3,439 | $ | 1,003,276 | |||||||
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|
|
|
|
|
- 27 -
March 31, 2015 | ||||||||||||||||
(Amounts in thousands) | As Previously Reported | Effect of Revision | Stock-Based Compensation Restatement | As Restated | ||||||||||||
ASSETS | ||||||||||||||||
Cash | $ | 3,623 | $ | — | $ | — | $ | 3,623 | ||||||||
Receivables, net | 154,294 | — | — | 154,294 | ||||||||||||
Inventories | 269,842 | (9,292 | ) | — | 260,550 | |||||||||||
Deferred income taxes and other current assets | 18,972 | 3,532 | 3,439 | 25,943 | ||||||||||||
Property, plant and equipment, net | 377,067 | (1,254 | ) | — | 375,813 | |||||||||||
Goodwill | 98,679 | — | — | 98,679 | ||||||||||||
Intangible assets, net | 58,055 | — | — | 58,055 | ||||||||||||
Other assets | 61,167 | — | — | 61,167 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 1,041,699 | $ | (7,014 | ) | $ | 3,439 | $ | 1,038,124 | |||||||
|
|
|
|
|
|
|
| |||||||||
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current maturities of debt obligations | $ | 9,580 | $ | — | $ | — | $ | 9,580 | ||||||||
Current maturities of capital lease obligations | 15,731 | — | — | 15,731 | ||||||||||||
Accounts payable | 111,893 | — | — | 111,893 | ||||||||||||
Current portion of liability–classified stock-based awards | — | — | 17,611 | 17,611 | ||||||||||||
Other accrued liabilities | 54,349 | — | — | 54,349 | ||||||||||||
Accrued income taxes | 6,041 | 11 | 247 | 6,299 | ||||||||||||
Long-term debt obligation | 390,315 | — | — | 390,315 | ||||||||||||
Long-term capital lease obligation | 45,503 | — | — | 45,503 | ||||||||||||
Deferred tax liabilities | 65,088 | (492 | ) | (1,764 | ) | 62,832 | ||||||||||
Other liabilities | 28,602 | (44 | ) | 10,307 | 38,865 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | 727,102 | (525 | ) | 26,401 | 752,978 | |||||||||||
Mezzanine equity | 108,021 | — | — | 108,021 | ||||||||||||
Common stock | 12,393 | — | — | 12,393 | ||||||||||||
Paid-in capital | 700,977 | — | 22,518 | 723,495 | ||||||||||||
Common stock in treasury, at cost | (445,065 | ) | — | — | (445,065 | ) | ||||||||||
Accumulated other comprehensive loss | (15,521 | ) | — | — | (15,521 | ) | ||||||||||
Retained deficit | (62,621 | ) | (6,489 | ) | (45,480 | ) | (114,590 | ) | ||||||||
Noncontrolling interest in subsidiaries | 16,413 | — | — | 16,413 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities, mezzanine equity and stockholders’ equity | $ | 1,041,699 | $ | (7,014 | ) | $ | 3,439 | $ | 1,038,124 | |||||||
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|
|
|
|
|
Cumulative Effect of Prior Period Adjustments
The following table presents the impact of the revision and the restatement described above to the Company’s beginning stockholders’ equity (deficit) balances, cumulatively to reflect adjustments booked to all periods prior to April 1, 2014:
(Amounts in thousands) | Common Stock | Paid-In Capital | Common Stock in Treasury | Accumulated Other Comprehensive Loss | Retained Deficit | Total ADS Stockholders’ Deficit | Non-controlling Interest in Subsidiaries | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||
Stockholders’ equity (deficit), April 1, 2014 (As Previously Reported) | $ | 11,957 | $ | 12,438 | $ | (448,439 | ) | $ | (6,830 | ) | $ | (2,412 | ) | $ | (433,286 | ) | $ | 18,584 | $ | (414,702 | ) | |||||||||||
Effect of Revision | — | — | — | — | (6,549 | ) | (6,549 | ) | — | (6,549 | ) | |||||||||||||||||||||
Stock-Based Compensation Restatement | — | (4,069 | ) | — | — | (27,719 | ) | (31,788 | ) | — | (31,788 | ) | ||||||||||||||||||||
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| |||||||||||||||||
Stockholders’ equity (deficit), April 1, 2014 (As Restated) | $ | 11,957 | $ | 8,369 | $ | (448,439 | ) | $ | (6,830 | ) | $ | (36,680 | ) | $ | (471,623 | ) | $ | 18,584 | $ | (453,039 | ) | |||||||||||
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Additional Subsequent Events
Subsequent Events Related to the Bank Term Loans and Senior Notes
In accordance with ASC 480-10-S99, as of September 30, 2014, we did not adjustJuly 2016, the carrying valueCompany obtained additional consents from the lenders of the convertibleBank Term Loans and Senior Notes. These consents had the effect of extending the time for delivery of our fiscal 2016 audited financial statements to August 31, 2016, and first quarter fiscal 2017 quarterly financial information to October 15, 2016, whereby an event of default was waived as long as those items are delivered within a 15 day grace period after those dates. In addition, the consents also permitted the Company’s payment of quarterly dividends of $0.06 per share on common shares in each of June and September 2016, as well as the annual dividend of $0.0195 per share to be paid on shares of preferred stock in March 2017.
In October 2016, the Company obtained additional consents from the lenders of the Bank Term Loans and Senior Notes. These consents had the effect of extending the time for delivery of our first quarter fiscal 2017 quarterly financial information to its redemption value or recognize any changesNovember 30, 2016 and our second quarter fiscal 2017 quarterly financial information to December 31, 2016, whereby an event of default was waived as long as those items are delivered within a 30 day grace period after those dates. In addition, the consents also permitted the Company’s payment of a quarterly dividend of $0.06 per share on common shares in fair valueDecember 2016, as we did not consider it probable thatwell as the convertibleannual dividend of $0.0195 per share to be paid on shares of preferred stock would become redeemable.in March 2017.
In December 2016, the Company obtained additional consents from the lenders of the Bank Term Loans and Senior Notes. These consents had the effect of extending the time for delivery of our first quarter fiscal 2017 quarterly financial information to January 31, 2017.
Subsequent Event Related to the ADS Mexicana Revolving Credit Facility
During the period from November 3, 2014 to November 11, 2015, our joint venture, ADS Mexicana, made intercompany revolving loans to ADS, Inc. The maximum aggregate amount of the intercompany loans outstanding at any time was $6,900. Since November 11, 2015, there have been no other intercompany loans made, and no balance remains outstanding.
According to the terms of the ADS Mexicana Revolving Credit Facility, ADS Mexicana was not permitted to make such loans, triggering an Event of Default. ADS Mexicana had an obligation to report such Event of Default and the Company had not previously disclosed the related restriction on its ability to enter into such loans. These events together were characterized as a Specified Default. On December 13, 2016, ADS Mexicana obtained a covenant waiver on the ADS Mexicana Revolving Credit Facility for the Specified Default from the lenders.
- 28 -
17. | STOCK-BASED COMPENSATION |
Deferred Compensation — Unearned ESOP Shares
TheADS has several programs for stock-based payments to employees and directors, including stock options and restricted stock. Equity-classified stock option and restricted stock awards are measured based on the grant-date estimated fair value of Redeemable convertible preferredeach award. Liability-classified 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 expenseoption and related dividends paid with ESOP sharesrestricted stock awards are recognized based upon the average annualre-measured at fair value at each relevant reporting date, and thepro-rata vested portion of the shares allocated. The shares allocated are for services rendered throughoutaward is recognized as a liability. Prior to the period and, therefore, a simple average is used to calculate average annual fair value. Deferred compensation – unearned ESOP shares are relievedIPO, liability-classified stock options were re-measured at the fair value with any difference betweeneach period until the averageearlier of six months after the stock options were exercised or the IPO date, and liability-classified restricted stock was re-measured at fair value andeach period until six months after the restricted stock fully vested or the IPO date. Subsequent to the IPO, liability-classified stock options are re-measured at fair value shares when allocated being addedeach period until they are exercised.
The Company accounts for all stock options granted to Additional paidemployees as liability-classified awards. Prior to the Company’s IPO in capital.July 2014, the Company also accounted for all restricted stock granted to employees as liability-classified awards. However, since the IPO, the Company also accounted for all restricted stock granted to employees as equity-classified awards. The fair value of the shares allocated was $12.50 and $11.26 per share of Redeemable convertible preferredCompany accounts for all restricted stock at September 30, 2014 and 2013, respectively, resulting in an average fair value per share of $12.34 and $10.92 for the six months ended September 30, 2014 and 2013, respectively. Wegranted to directors as equity-classified awards.
The Company recognized stock-based compensation expense (benefit) in the following line items on the condensed consolidated statements of $2,687 and $2,506operations for the three and nine months ended September 30, 2014December 31, 2015 and 2013, respectively, and $5,374 and $5,026 for the six months ended September 30, 2014 and 2013, respectively, related to allocation of ESOP shares to participants for compensation.2014:
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
(Amounts in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Component of income before income taxes: | ||||||||||||||||
Cost of goods sold | $ | (200 | ) | $ | 100 | $ | (200 | ) | $ | 800 | ||||||
Selling expenses | (300 | ) | 200 | (300 | ) | 900 | ||||||||||
General and administrative expenses | (4,706 | ) | 3,594 | (2,494 | ) | 12,323 | ||||||||||
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| |||||||||
Total stock-based compensation expense | $ | (5,206 | ) | $ | 3,894 | (2,994 | ) | $ | 14,023 | |||||||
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|
Stock Options
Our 2000 stock option plan (“2000 Plan”) provides for the issuance of incentive common stock optionsstatutory and nonstatutory commonnon-statutory 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 approximately 10 years from issuance.
- 26 -
In AugustOur 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 3,323 nonstatutorynon-statutory 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 generally vest in five equal annual amounts beginning in year one and expire after approximately 10 years from issuance. Options issued to the Chief Executive Officer vest equally over four years and expire after approximately 10 years from issuance.
For both stock option plans, managementThe Company determines the fair value of the options based on the Black-Scholes option pricing model. This methodology requires significant inputs including the fair valueprice of our common stock, which is determined withrisk-free interest rate, dividend yield and expiration date. During the assistance of an independent appraisal performed by a reputable valuation firm. Wethree months ended December 31, 2015 and 2014, we recognized total stock-based compensation expense (benefit) under both stock option plans of $(5,432), and $3,218, respectively, and during the nine months ended December 31, 2015 and 2014, we recognized total stock-based compensation expense (benefit) under both plans of $1,042$(3,724), and $387 for the three months ended September 30, 2014 and 2013, respectively, and $2,379 and $462 for the six months ended September 30, 2014 and 2013, respectively, which was included with General and administrative expenses in our Condensed Consolidated Statements of Operations. As of September 30, 2014 and 2013, there was a total of $5,307 and $9,319, 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 September 30, 2014.$12,186, respectively.
We estimate the fair value of stock options granted after April 1, 2006, using a Black-Scholes option-pricing model, with assumptions as follows:summarized in the following table. For the periods prior to our IPO in fiscal 2015, the price of our common stock, as a private company, was based on an estimate of its fair value.
September 30, | ||||||||
2014 | 2013 | |||||||
Expected stock price volatility | 40 | % | 44 | % | ||||
Risk-free interest rate | 2.1 | % | 2.3 | % | ||||
Weighted-average expected option life (years) | 8 | 8 | ||||||
Dividend yield | 0.86 | % | 0.84 | % |
In May 2014, the Board of Directors approved the increase of shares available for granting under the 2013 plan to 1,412 shares.
2000 Plan
The stock option transactions as of the six months ended September 30 are summarized as follows:
2014 | 2013 | |||||||||||||||||||||||
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 | 913 | $ | 9.48 | 4.1 | 1,333 | $ | 8.10 | 4.0 | ||||||||||||||||
Issued | 78 | 15.74 | 15 | 13.64 | ||||||||||||||||||||
Exercised | 78 | 7.36 | 94 | 7.77 | ||||||||||||||||||||
Forfeited | — | — | 17 | 10.77 | ||||||||||||||||||||
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|
|
| |||||||||||||||||||||
Outstanding at end of period | 913 | 10.20 | 4.3 | 1,237 | 8.19 | 3.7 | ||||||||||||||||||
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|
| |||||||||||||||||||||
Exercisable and vested at end of period | 835 | 9.67 | 3.8 | 846 | 6.80 | 2.1 | ||||||||||||||||||
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|
| |||||||||||||||||||||
Unvested at end of period | 78 | 15.74 | 9.9 | 391 | 11.16 | 7.1 | ||||||||||||||||||
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|
|
| |||||||||||||||||||||
Vested and expected to vest at end of period | 901 | $ | 10.12 | 7.7 | 1,167 | $ | 8.03 | 3.5 | ||||||||||||||||
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|
|
As a result of the 2014 Initial Public Offering (See Note 1. Background and Summary of Significant Accounting Policies), all unvested stock options from prior issuances immediately vest. 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 six months ended September 30, 2014:
- 27 -
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 | — | — | ||||||
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| |||||||
Unvested at end of period | 78 | $ | 6.76 | |||||
|
|
2013 Plan
The stock option transactions as of the six months ended September 30, 2014 for the 2013 Stock Option Plan are summarized as follows:
September 30, 2014 | September 30, 2013 | |||||||||||||||||||||||
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 | — | |||||||||||||||||||
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|
| |||||||||||||||||||||
Outstanding at end of period | 1,911 | 13.64 | 8.9 | 1,911 | 13.64 | 9.9 | ||||||||||||||||||
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|
| |||||||||||||||||||||
Exercisable and vested at end of period | 408 | 13.64 | 8.9 | — | — | — | ||||||||||||||||||
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| |||||||||||||||||||||
Unvested at end of period | 1,503 | 13.64 | 8.9 | 1,911 | 13.64 | 9.9 | ||||||||||||||||||
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|
| |||||||||||||||||||||
Vested and expected to vest at end of period | 1,881 | 13.64 | 8.9 | 1,704 | 13.64 | 9.9 | ||||||||||||||||||
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|
| |||||||||||||||||||||
Fair value of options granted during the period | — | $ | — | $ | 6.22 | — | ||||||||||||||||||
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|
|
The following table summarizes information about the nonvested stock option grants as of September 30, 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 | $ | 3.64 | |||||
|
|
Restricted Stock
On September 16, 2008, the Board of Directors adopted the restricted stock plan, which provides for the issuance of restricted stock awards to certain key employees. The restricted stock generally vest ratably over a five-year period from the original restricted stock grant date, contingent on the employee’s continuous employment by ADS. In certain instances, however, a portion of the grants vested immediately or for accounting purposes were deemed to have vested immediately, including the grants to the Chief Executive Officer, which do not have a substantial risk of forfeiture as a result of different vesting provisions. Under the restricted stock plan, vested shares 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 non-forfeited shares. The Company recognized compensation expense of $639 and $593 for the three months ended September 30, 2014 and 2013, respectively, and $1,548 and $1,178 for the six months ended September 30, 2014 and 2013, respectively, relating to the issuance of these shares; of this amount, $0 and $385 relates to the restricted shares that vested immediately during the six months ended September 30, 2014 and 2013, respectively. We had approximately 333 shares available for granting under this plan as of September 30, 2014.
The following table summarizes information about the unvested restricted stock grants as of September 30, 2014:
- 28 -
Number of Shares | Weighted Average Grant Date Fair Value | |||||||
Unvested at beginning of period | 311 | $ | 12.40 | |||||
Granted | — | — | ||||||
Vested | 118 | 12.06 | ||||||
Forfeited | 3 | 10.66 | ||||||
|
| |||||||
Unvested at end of period | 190 | $ | 12.60 | |||||
|
|
We expect most, if not all, restricted stock grants to vest.
As of September 30, 2014, there was approximately $2,306 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 Stockholder’s 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 $450 and $0 for the three months ended September 30, 2014 and 2013, respectively, and $450 and $0 for the six months ended September 30, 2014 and 2013, respectively, relating to the issuance of these shares. We had approximately 234 shares available for granting under this plan as of September 30, 2014.
The following table summarizes information about the unvested Non-Employee Director compensation stock grants as of September 30, 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 | $ | — | |||||
|
|
We expect all the stock grants to vest.
As of September 30, 2014, there was approximately $450 of unrecognized compensation expense related to the restricted stock that will be recognized over the remaining service period.
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, as well as discrete events. For the six months ended September 30, 2014 and 2013, the Company utilized an effective tax rate of 36.6% and 36.4%, respectively, to calculate its 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.
Basic net income 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 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.
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||
2015 | 2014 | 2015 | 2014 | |||||
Common stock price | $22.39 - $32.31 | $19.79 - $23.72 | $22.39 - $32.37 | $14.33 - $23.72 | ||||
Expected stock price volatility | 29.6% - 38.8% | 27.3% - 51.5% | 29.6% - 38.8% | 27.3% - 51.5% | ||||
Risk-free interest rate | <0.1% - 2.2% | <0.1% - 2.1% | <0.1% - 2.2% | <0.1% - 2.1% | ||||
Weighted-average expected option life (years) | 0.1 – 6.4 | 0.1 – 7.4 | 0.1 – 6.4 | 0.1 – 7.4 | ||||
Dividend yield | 0.8% | 0.7% | 0.8% | 0.7% |
- 29 -
Holders of unvested restricted stock have nonforfeitable rights to dividends when declared on common stock, and holders of Redeemable 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 meet the definition of participating securities, which requires us to apply the two-class method to compute both basic and diluted net income 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 per share, income available to common shareholders used in the basic net income 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 per share assumes the Redeemable 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 September 30, 2014, if dilutive. For purposes of the calculation of diluted net income 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 Company’s Redeemable common stock is included in the weighted-average number of common shares outstanding for calculating basic and diluted net income per share.
The following table presents information necessary to calculate net income per share for the three and six months ended September 30, 2013 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 September 30, | Six Months Ended September 30, | |||||||||||||||
(Amounts in thousands, except per share data) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income per share - Basic | ||||||||||||||||
Net income attributable to ADS | $ | 16,844 | $ | 14,740 | $ | 25,410 | $ | 27,714 | ||||||||
Adjustment for: | ||||||||||||||||
Change in fair value of redeemable convertible preferred stock | 7,319 | (3,186 | ) | (11,054 | ) | (4,764 | ) | |||||||||
Dividends to redeemable convertible preferred stock | (37 | ) | (214 | ) | (75 | ) | (430 | ) | ||||||||
Dividends paid to unvested restricted stockholders | — | (8 | ) | — | (16 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income available to common stockholders and participating securities | 24,126 | 11,332 | 14,281 | 22,504 | ||||||||||||
Undistributed income allocated to participating securities | (2,768 | ) | (1,203 | ) | (1,702 | ) | (2,406 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income available to common stockholders - Basic | 21,358 | 10,129 | 12,579 | 20,098 | ||||||||||||
Weighted average number of common shares outstanding - Basic | 51,518 | 47,250 | 49,538 | 47,220 | ||||||||||||
|
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|
|
|
|
|
| |||||||||
Net income per common share - Basic | $ | 0.41 | $ | 0.21 | $ | 0.25 | $ | 0.43 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income per share - Diluted | ||||||||||||||||
Net income available to common stockholders - Basic | $ | 21,358 | $ | 10,129 | $ | 12,579 | $ | 20,098 | ||||||||
Undistributed income allocated to participating securities | 1,952 | — | 601 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income available to common stockholders - Diluted | 23,310 | 10,129 | 13,180 | 20,098 | ||||||||||||
Weighted average number of common shares outstanding - Basic | 51,518 | 47,250 | 49,538 | 47,220 | ||||||||||||
Assumed exercise of preferred stock | 4,714 | — | 2,382 | — | ||||||||||||
Assumed exercise of stock options | 231 | 329 | 278 | 414 | ||||||||||||
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|
|
|
|
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| |||||||||
Weighted average number of common shares outstanding - Diluted | 56,463 | 47,579 | 52,198 | 47,634 | ||||||||||||
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|
|
|
|
|
| |||||||||
Net income per common share - Diluted | $ | 0.41 | $ | 0.21 | $ | 0.25 | $ | 0.42 | ||||||||
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|
|
|
|
|
| |||||||||
Potentially dilutive securities excluded as anti-dilutive | 22 | 38 | 57 | 63 |
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 Adjusted EBITDA (a non-GAAP measure). We calculate Segment Adjusted EBITDA as net income or loss before interest, income taxes, depreciation and 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
- 30 -
distributors across the U.S. We also sell through a broad variety of buying groups and co-ops in the United States. Products include single wall pipe, N-12 HDPE pipe sold into the Storm sewer and Infrastructure markets, High Performance PP pipe sold into the Storm sewer and sanitary sewer markets, and our broad line of Allied Products including StormTech, Nyloplast, Arc Septic Chambers, Inserta Tee, 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 is our primary channel to serve the South American markets. Our product line includes single wall pipe, N-12 HDPE pipe, and 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 six months ended September 30, 2014 and 2013, respectively:
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Domestic | ||||||||||||||||
Pipe | $ | 241,713 | $ | 223,099 | $ | 457,749 | $ | 411,179 | ||||||||
Allied Products | 78,063 | 72,008 | 151,652 | 138,455 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total domestic | 319,776 | 295,107 | 609,401 | 549,634 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
International | ||||||||||||||||
Pipe | 38,218 | 30,496 | 68,149 | 60,600 | ||||||||||||
Allied Products | 8,720 | 7,124 | 15,598 | 15,072 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total international | 46,938 | 37,620 | 83,747 | 75,672 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total net sales | $ | 366,714 | $ | 332,727 | $ | 693,148 | $ | 625,306 | ||||||||
|
|
|
|
|
|
|
|
The following sets forth certain additional financial information attributable to our reportable segments for the three and six months ended September 30, 2014, and 2013, respectively:
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net sales | ||||||||||||||||
Domestic | $ | 319,776 | $ | 295,107 | $ | 609,401 | $ | 549,634 | ||||||||
International | 46,938 | 37,620 | 83,747 | 75,672 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 366,714 | $ | 332,727 | $ | 693,148 | $ | 625,306 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | ||||||||||||||||
Domestic | $ | 65,574 | 58,073 | 119,641 | 107,804 | |||||||||||
International | 4,189 | 7,515 | 10,980 | 14,134 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 69,763 | $ | 65,588 | $ | 130,621 | $ | 121,938 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Segment Adjusted EBITDA | ||||||||||||||||
Domestic | $ | 53,904 | 45,290 | 94,896 | 83,426 | |||||||||||
International | 1,296 | 5,228 | 5,432 | 10,568 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 55,200 | $ | 50,518 | $ | 100,328 | $ | 93,994 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Interest expense, net | ||||||||||||||||
Domestic | $ | 5,020 | 4,667 | 10,062 | 9,360 | |||||||||||
International | 24 | 54 | 33 | 90 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 5,044 | $ | 4,721 | $ | 10,095 | $ | 9,450 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Depreciation and amortization | ||||||||||||||||
Domestic | $ | 14,937 | 14,550 | 29,595 | 28,993 | |||||||||||
International | 1,437 | 1,335 | 2,805 | 2,717 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 16,374 | $ | 15,885 | $ | 32,400 | $ | 31,710 | ||||||||
|
|
|
|
|
|
|
|
- 31 -
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Equity in net income (loss) of unconsolidated affiliates | ||||||||||||||||
Domestic | $ | 251 | 114 | 404 | 114 | |||||||||||
International | (313 | ) | (306 | ) | (1,128 | ) | (632 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | (62 | ) | $ | (192 | ) | $ | (724 | ) | $ | (518 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Capital expenditures | ||||||||||||||||
Domestic | $ | 7,869 | 6,926 | 14,788 | 17,864 | |||||||||||
International | 295 | 1,493 | 808 | 3,697 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 8,164 | $ | 8,419 | $ | 15,596 | $ | 21,561 | ||||||||
|
|
|
|
|
|
|
|
The following sets forth certain additional financial information attributable to our reporting segments as of September 30, 2014, and March 31, 2014, respectively:
September 30, 2014 | March 31, 2014 | |||||||
Investment in unconsolidated affiliates | ||||||||
Domestic | $ | 8,623 | $ | 5,202 | ||||
International | 19,782 | 18,422 | ||||||
|
|
|
| |||||
Total | $ | 28,405 | $ | 23,624 | ||||
|
|
|
| |||||
Total identifiable assets | ||||||||
Domestic | $ | 962,465 | $ | 889,263 | ||||
International | 121,153 | 113,612 | ||||||
Eliminations | (15,458 | ) | (13,308 | ) | ||||
|
|
|
| |||||
Total | $ | 1,068,160 | $ | 989,567 | ||||
|
|
|
|
Reconciliation of Segment EBITDA and Segment Adjusted EBITDA to Net Income
Three Months Ended September 30, | ||||||||||||||||
2014 | 2013 | |||||||||||||||
(Amounts in thousands) | Domestic | International | Domestic | International | ||||||||||||
Net income | $ | 17,603 | $ | 1,394 | $ | 12,263 | $ | 4,394 | ||||||||
Depreciation and amortization | 14,937 | 1,437 | 14,550 | 1,335 | ||||||||||||
Interest expense | 5,020 | 24 | 4,667 | 54 | ||||||||||||
Income tax expense | 10,897 | (1,971 | ) | 9,778 | (850 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment EBITDA | 48,457 | 884 | 41,258 | 4,933 | ||||||||||||
Derivative fair value adjustment | 67 | — | 319 | — | ||||||||||||
Foreign currency transaction losses | — | (205 | ) | — | (181 | ) | ||||||||||
Loss on disposal of assets or businesses | 251 | 30 | 186 | 18 | ||||||||||||
Unconsolidated affiliates interest, tax, depreciation and amortization (a) | 291 | 587 | 1 | 458 | ||||||||||||
Contingent consideration remeasurement | 20 | — | 40 | — | ||||||||||||
Stock-based compensation | 2,131 | — | 980 | — | ||||||||||||
ESOP deferred compensation | 2,687 | — | 2,506 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment Adjusted EBITDA | $ | 53,904 | $ | 1,296 | $ | 45,290 | $ | 5,228 | ||||||||
|
|
|
|
|
|
|
|
- 32 -
Reconciliation of Segment EBITDA and Segment Adjusted EBITDA to Net Income
Six Months Ended September 30, | ||||||||||||||||
2014 | 2013 | |||||||||||||||
(Amounts in thousands) | Domestic | International | Domestic | International | ||||||||||||
Net income | $ | 25,446 | $ | 2,992 | $ | 24,097 | $ | 7,109 | ||||||||
Depreciation and amortization | 29,595 | 2,805 | 28,993 | 2,717 | ||||||||||||
Interest expense | 10,062 | 33 | 9,360 | 90 | ||||||||||||
Income tax expense | 18,311 | (1,492 | ) | 18,369 | (230 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment EBITDA | 83,414 | 4,338 | 80,819 | 9,686 | ||||||||||||
Derivative fair value adjustment | 163 | — | 238 | — | ||||||||||||
Foreign currency transaction losses | — | (75 | ) | — | (87 | ) | ||||||||||
Loss (gain) on disposal of assets or businesses | 311 | 34 | (4,546 | ) | 14 | |||||||||||
Unconsolidated affiliates interest, tax, depreciation and amortization(a) | 540 | 1,135 | 2 | 955 | ||||||||||||
Contingent consideration remeasurement | 2 | — | 129 | — | ||||||||||||
Stock-based compensation | 4,377 | — | 1,640 | — | ||||||||||||
ESOP deferred compensation | 5,374 | — | 5,026 | — | ||||||||||||
Transaction costs(b) | 715 | — | 118 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Segment Adjusted EBITDA | $ | 94,896 | $ | 5,432 | $ | 83,426 | $ | 10,568 | ||||||||
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|
|
We evaluated subsequent events through November 10, 2014, the date these condensed consolidated financial statements were originally available to be issued.
- 33 -
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, 20152016 refers to fiscal 2015,2016, which is the period from April 1, 20142015 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 Annual Report onFiscal 2016 Form 10-K for the year ended March 31, 201510-K/A (filed concurrently with this Amendment No. 1 to our Form10-Q) which includes our restated consolidated financial statements for the yearyears ended March 31, 2014.2016 and 2015. 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 ourTigre-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, includingnon-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 $10.1$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 thenon-residential construction market with the introduction ofN-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.
Restatement of Previously Issued Financial Statements
The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the revision and restatement adjustments made to the previously reported Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2015 and 2014 and the Condensed Consolidated Balance Sheets as of December 31, 2015 and March 31, 2015. For additional information and a detailed discussion of the revision and the restatement, see “Note 16. Restatement of Previously Issued Financial Statements” included in “Part I. Financial Information,” of this Form10-Q/A.
Recent Developments
2014 Initial Public Offering (“IPO”)
On July 11, 2014, in anticipation of the IPO, we executed a4.707-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.
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On July 25, 2014, we completed the IPO of our common stock, which resulted in the sale by the Company of 5,289,0005,289,474 shares bringing the total number of shares issued and outstanding as of July 25, 2014 to 52,881,000.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 $6.9 million, we used the net proceeds of $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 ExchangeNYSE under the symbol “WMS.”
On August 22, 2014, an additional 600,000 shares of common stock were sold by certain selling stockholders of the Company to the underwriters as parta result of the Company’s IPO. The sale of additional shares resulted from a 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.
Restatement2014 Secondary Public Offering (“Secondary Public Offering”)
On December 9, 2014, we completed a Secondary Public Offering of Previously Issued Financial Statementsour common stock, which resulted in the sale of 10,000,000 shares of common stock by a certain selling stockholder of the Company at a public offering price of $21.25 per share. We did not receive any proceeds from the sale of shares by the selling stockholder.
The accompanying Management’s Discussion and AnalysisOn December 15, 2014, an additional 1,500,000 shares of Financial Condition and Resultscommon stock were sold by a certain selling stockholder of Operations gives effectthe Company as a result of the full exercise by the underwriters of the over-allotment option granted by the selling stockholder to the restatement adjustments made tounderwriters in connection with the previously reportedSecondary 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.
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 threejoint 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 six months ended September 30, 2014obtained 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 theother expense, net in our Condensed Consolidated Balance Sheets asStatements of September 30, 2014 and MarchOperations.
- 31 2014. For additional information and a detailed discussion of the restatement, see “Note 2. Restatement of Previously Issued Financial Statements” included in “Part I. Financial Information,” of this Form 10-Q/A.-
Results of Operations
Three Months Ended September 30, 2014December 31, 2015 Compared With Three Months Ended September 30, 2013December 31, 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 September 30, 2014December 31, 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 September 30, 2014 | % of Net Sales | Three Months Ended September 30, 2013 | % of Net Sales | % Variance | |||||||||||||||
(As Restated)(a) | (As Restated)(a) | |||||||||||||||||||
Consolidated Statements of Operations data: | ||||||||||||||||||||
Net sales | $ | 366,714 | 100.0 | % | $ | 332,727 | 100.0 | % | 10.2 | % | ||||||||||
Cost of goods sold | 296,951 | 81.0 | % | 267,139 | 80.3 | % | 11.2 | % | ||||||||||||
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Gross profit | 69,763 | 19.0 | % | 65,588 | 19.7 | % | 6.4 | % | ||||||||||||
Selling expenses | 20,240 | 5.5 | % | 18,635 | 5.6 | % | 8.6 | % | ||||||||||||
General and administrative expenses | 13,843 | 3.8 | % | 13,655 | 4.1 | % | 1.4 | % | ||||||||||||
Loss on sale of assets or businesses | 281 | 0.1 | % | 204 | 0.1 | % | 37.7 | % | ||||||||||||
Intangible amortization | 2,610 | 0.7 | % | 2,620 | 0.8 | % | (0.4 | %) | ||||||||||||
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Income from operations | 32,789 | 8.9 | % | 30,474 | 9.2 | % | 7.6 | % | ||||||||||||
Interest expense | 5,044 | 1.4 | % | 4,721 | 1.4 | % | 6.8 | % | ||||||||||||
Other miscellaneous income, net | (240 | ) | (0.1 | %) | (24 | ) | — | % | 900.0 | % | ||||||||||
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Income before income taxes | 27,985 | 7.6 | % | 25,777 | 7.7 | % | 8.6 | % | ||||||||||||
Income tax expense | 8,926 | 2.4 | % | 8,928 | 2.7 | % | — | % | ||||||||||||
Equity in net loss of unconsolidated affiliates | 62 | — | % | 192 | 0.1 | % | (67.7 | %) | ||||||||||||
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Net income | 18,997 | 5.2 | % | 16,657 | 5.0 | % | 14.0 | % | ||||||||||||
Less net income attributable to the non-controlling interest | 2,153 | 0.6 | % | 1,917 | 0.6 | % | 12.3 | % | ||||||||||||
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Net income attributable to ADS | $ | 16,844 | 4.6 | % | $ | 14,740 | 4.4 | % | 14.3 | % | ||||||||||
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Other financial data: | ||||||||||||||||||||
Adjusted EBITDA(b) | $ | 55,200 | 15.1 | % | $ | 50,518 | 15.2 | % | 9.3 | % | ||||||||||
System-Wide Net Sales(b) | $ | 390,610 | 106.5 | % | $ | 351,886 | 105.8 | % | 11.0 | % | ||||||||||
Adjusted Earnings Per Fully Converted Share(b) | $ | 0.27 | — | $ | 0.25 | — | 7.1 | % | ||||||||||||
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(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 | |||||||||||||||
(As Restated)(a) | (As Restated)(a) | |||||||||||||||||||
Consolidated Statements of Operations data: | ||||||||||||||||||||
Net sales | $ | 312,827 | 100.0 | % | $ | 279,871 | 100.0 | % | 11.8 | % | ||||||||||
Cost of goods sold | 237,985 | 76.1 | % | 230,584 | 82.4 | % | 3.2 | % | ||||||||||||
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Gross profit | 74,842 | 23.9 | % | 49,287 | 17.6 | % | 51.8 | % | ||||||||||||
Selling expenses | 21,580 | 6.9 | % | 20,113 | 7.2 | % | 7.3 | % | ||||||||||||
General and administrative expenses | 20,450 | 6.5 | % | 16,249 | 5.8 | % | 25.9 | % | ||||||||||||
(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 | %) | ||||||||||||
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Income from operations | 31,233 | 10.0 | % | 10,404 | 3.7 | % | 200.2 | % | ||||||||||||
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 | %) | ||||||||||||
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Income before income taxes | 23,949 | 7.7 | % | 217 | — | % | * | |||||||||||||
Income tax expense | 10,090 | 3.2 | % | 2,498 | 0.9 | % | 303.9 | % | ||||||||||||
Equity in net loss of unconsolidated affiliates | 917 | 0.3 | % | 988 | 0.4 | % | (7.2 | %) | ||||||||||||
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Net income (loss) | 12,942 | 4.2 | % | (3,269 | ) | (1.2 | %) | (495.9 | %) | |||||||||||
Less net (loss) income attributable to noncontrolling interest | (189 | ) | (0.1 | %) | 1,372 | 0.5 | % | (113.8 | %) | |||||||||||
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Net income (loss) attributable to ADS | $ | 13,131 | 4.3 | % | $ | (4,641 | ) | (1.7 | %) | (382.9 | %) | |||||||||
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Other financial data: | ||||||||||||||||||||
Adjusted EBITDA(b) | $ | 49,516 | 15.8 | % | $ | 34,007 | 12.2 | % | 45.6 | % | ||||||||||
System-Wide Net Sales(b) | $ | 330,866 | 105.8 | % | $ | 301,435 | 107.7 | % | 9.8 | % | ||||||||||
Adjusted Earnings Per Fully Converted Share(b) | $ | 0.22 | — | $ | (0.03 | ) | — | * |
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(a) |
(b) | See section entitled |
* | not meaningful |
Net sales
Three Months Ended September 30, | Three Months Ended December 31, | |||||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2015 | 2014 | % Variance | |||||||||||||||
(As Restated)(a) | (As Restated)(a) | (As Restated)(a) | (As Restated)(a) | |||||||||||||||||
Domestic | ||||||||||||||||||||
Pipe | $ | 241,713 | $ | 223,099 | $ | 196,162 | $ | 179,979 | 9.0 | % | ||||||||||
Allied Products | 78,063 | 72,008 | 70,588 | 59,236 | 19.2 | % | ||||||||||||||
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Total domestic | 319,776 | 295,107 | 266,750 | 239,215 | 11.5 | % | ||||||||||||||
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Pipe | 38,218 | 30,496 | 34,451 | 34,171 | 0.8 | % | ||||||||||||||
Allied Products | 8,720 | 7,124 | 11,626 | 6,485 | 79.3 | % | ||||||||||||||
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Total international | 46,938 | 37,620 | 46,077 | 40,656 | 13.3 | % | ||||||||||||||
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Total net sales | $ | 366,714 | $ | 332,727 | $ | 312,827 | $ | 279,871 | 11.8 | % | ||||||||||
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(a) | See “Note |
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Net sales for the second quarter ended September 30, 2014December 31, 2015 totaled $366.7$312.8 million, increasing $34.0$32.9 million, or 10.2%11.8%, over the comparable prior year period.
Domestic net sales increased $24.7$27.6 million, or 8.4%11.5%, for the secondthird quarter ended September 30, 2014,December 31, 2015, as compared to the comparable prior year period. The increase in domestic sales growth was broken down between our domestic pipe and Allied Products, which increased $18.6 million and $6.1 million, respectively, for the three months ended September 30, 2014. Domestic pipe sales increased $18.6 million, or 8.3%, due to continued growth in thenon-residential, residential and infrastructure markets and a modest increase in agricultural 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, the breakdown between our N-12 HDPEPipe and High Performance PP product lines offsetting lower Agricultural single wall sales.Allied Products reflected increases of $16.2 million and $11.4 million, respectively. Pipe sales were helped by a volume increase of 12.2% compared to the comparable period in the prior year, offset by a decrease in Pipe selling prices increased 5.7% asof 2.9% compared to the comparable prior year. Domesticyear period. Allied Product sales increased $6.119.2% which included the addition of $3.3 million or 8.4%, led byin sales from the acquisition of BaySaver as well as strong gains in our StormTech, Nyloplast, Inserta TeeFittings, and FleXstormNyloplast product lines. Excluding $2.2 million of domestic Allied Product lines sold in fiscal 2014 (a Precast structures business), Domestic Allied Product sales increased $8.3 million, or 11.8%, for the three months ended September 30, 2014 as compared to prior year sales of continuing products.
International net sales for the secondthird quarter ended September 30, 2014December 31, 2015 increased $9.3$5.4 million, or 24.8%13.3%, over the comparable fiscal year 20142015 period. The growth was primarily due to increased sales in Canada and Mexico. Favorable weather conditionsof $11.5 million as a result of the Ideal Pipe acquisition, offsetting soft sales performance in CanadaMexico which declined by $5.5 million during the three months ended December 31, 2015 as compared to the comparable prior year period. Slower public spending was the main factor for the second quarter resulteddecline in strong sales in the agricultural markets as well as continued acceptance and sales growth of Allied Products across all end markets. Improved public spending and continued positive sales momentum in the electrical conduit market were the main factors in increased secondthird 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.
System-Wide Net Sales for the secondthird quarter ended September 30, 2014December 31, 2015 were $390.6$330.9 million, ana net increase of $38.7$29.5 million, or 11.0%9.8%, over System-Wide Net Sales of $351.9$301.4 million for the secondthird quarter of fiscal 2014.2015. Net sales at our South American Joint Venture operation were negatively impacteddown $1.4 million or 9.3% over the comparable prior year period. This decrease was offset by continued softnessan increase in the mining markets and an overall construction slowdown due to a declining economic environment and reduced public spending. Netnet sales growth fromat our domestic joint ventures (Tigre-ADSventure,Tigre-ADS USA, and BaySaver) provided a combined increase of $5.5$0.9 million in net sales for the unconsolidated joint ventures for the three months ended September 30 2014,December 31 2015, as compared to the prior fiscal year period. Tigre-ADS USA was formedThe company acquired a controlling interest in BaySaver during the firstsecond fiscal quarter of fiscal year 20152016 and our BaySaver was formedthose sales are now included in the second quarter ofCompany’s consolidated net sales. During the comparable fiscal year 2014.2015 period BaySaver contributed $2.9 million in sales.
Cost of goods sold and Gross profit
Gross profit for the second quarter ended September 30, 2014Cost of Goods Sold increased $4.2$7.4 million or 6.4%, over the comparable period for fiscal year 2014.
Domestic gross profit increased $7.5 million, or 12.9%,3.2% to $65.6$238.0 million for the three months ended September 30, 2014 asDecember 31, 2015 compared to $58.1$230.6 million duringover the prior year. The increase was primarily due to sales growth in our N-12 HDPE pipe and High Performance PP pipe product lines and Allied Product lines. Raw material prices increased 11.5% due to higher virgin and non-virgin resin pricescomparable fiscal year 2015 period.
Gross profit for the second quarterthree months ended December 31, 2015 increased $25.5 million or 51.8% over the comparable fiscal year 2015 period. Gross profit as a percentage of fiscalnet sales totaled 23.9% for the three months ended December 31, 2015 as compared to 17.6% for the comparable fiscal year 2015 period.
Domestic gross profit increased $24.6 million, or 58.7%, to $66.5 million for the three months ended December 31, 2015 as compared to $41.9 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, 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 andnon-virgin resin prices continued to decline during the third quarter of fiscal 2016. Freight costs totaled 8.9%9.7% of Domesticdomestic net sales for the three months ended September 30, 2014,December 31, 2015, compared to 9.3%9.5% for the prior year period. Strong sales growth inThe higher margin Allied Products provided an improved profitability mix forcosts relate to increased depreciation charges associated with new tractors and trailers added to the quarterdelivery fleet which offset the benefit of diesel fuel prices moving lower throughout the quarter. Diesel prices declined approximately 30.0% compared to the prior year.year period.
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International gross profit decreased $3.3increased $0.9 million, or 44.3%12.9%, for the secondthird quarter of fiscal year 20152016 over the comparable fiscal year 2014 period despite2015 period. This was the strong sales growth in the quarter. International gross profit decreased primarily due toresult of the impact of the 13.3% increase in 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 overallas revenue from our Canadian market selling pricessubsidiaries is transacted in the second quarter. RawCanadian dollar whereas the cost of raw material prices moved sharply higher (which are primarily purchasedis substantially transacted in U.S. dollars) and higher freight costs compared to the prior year period also contributed to the declining gross profit for the three months ended September 30, 2014.dollars.
Gross profit as a percentage of net sales totaled 19.0% for the second quarter ended September 30, 2014 as compared to 19.7% for the comparable second quarter fiscal 2014.
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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.
Selling expenses for the three months ended September 30, 2014December 31, 2015 increased $1.6$1.5 million, or 8.6%7.3%, over the comparable fiscal year 20142015 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 sales, selling expenses remained relatively flat at 5.5%decreased to 6.9% for the secondthird quarter of fiscal 2015 as compared to 5.6%7.2% for the comparable prior fiscal year 2014 period.
General and administrative expenses
General and administrative expenses consists of personnel costs (salaries, benefits, and other personnel-related expenses, including 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 September 30, 2014December 31, 2015 increased $0.2$4.3 million, or 1.4%25.9%, over the comparable fiscal year 20142015 period.
The modest This increase in overall expenses was the result of offsetting activity. The $1.2 million increase in non-cash stock-based compensation was due to an increase of $0.7 million of non-cash compensationprimarily related to stock option plansincremental expenses for audit, tax, legal and $0.5other professional fees which amounted to $7.6 million of non-cash compensation expense related to the non-employee directorrestatement of our previously filed financial statements as part of the preparation of our Fiscal 2015 Form10-K. There were no comparable amounts in the fiscal year 2015 period. In addition, salaries and compensation stock plan createdexpense increased by $1.8 million during the third quarter of fiscal year 2016. There was also an additional $0.6 million in general and administrative expense from the acquisition of the Ideal and BaySaver businesses, as well as higher corporate overhead including higher depreciation expense as well as increased legal and administrative costs associated with being a public company. These amounts were partially offset by a decrease in stock-based compensation of $8.3 million. Overall, general and administrative expenses amounted to 6.5% of net sales for the three months ended December 31, 2015 compared to 5.8% for the comparable prior year period.
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.
Intangible amortization
Intangible amortization for the three months ended December 31, 2015 decreased $0.1 million, or 6.3%, over the comparable fiscal year 2015 period as a result of intangible assets of $7.8 million becoming fully amortized during fiscal 2015 offset by the additional amortization for the Ideal Pipe intangible assets acquired in the fourth quarter of fiscal year 2015 and the BaySaver intangible assets acquired in the second quarter of fiscal 2015. This higher expense was partially offset by lower corporate overhead and departmental expenses that amount to a reduction of approximately $1.0 million.
Intangibles amortization
Intangibles amortization for the three months ended September 30, 2014 was essentially flat compared to the three months ended September 30, 2013.year 2016.
Interest expense
Interest expense for the three months ended September 30, 2014December 31, 2015 increased $0.3slightly, $0.1 million, or 6.8%2.0%, over the comparable fiscal year 20142015 period. The modest increase in the current year secondthird quarter was due to a higher average debt outstanding, which was largely offset by lower average interest raterates on our outstanding indebtednessindebtedness.
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Derivative losses and other expense, net
Derivative losses and other expense, net decreased $3.0 million over the comparable prior year period as a higher average long term debt balance.result of changes in both realized and unrealized gains and losses on hedging activities. The net derivative expense activity for the three months ended December 31, 2015 was $2.3 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 an unrealized loss of $6.1 million). The balance of the change relates primarily to foreign currency transaction gains and other insignificant gains or losses.
Income tax expense
IncomeFor the three months ended December 31, 2015 and 2014, the Company recorded an income tax provision of $10.1 million and $2.5 million, respectively. These provisions represent an effective tax rate of 42.1% and 1,151.2%, respectively. The fiscal year 2015 effective tax rate significantly exceeded the federal statutory rate due in part to the significant permanent differences associated withnon-deductible ESOP stock appreciation and stock-based compensation expense, the effect of which was increased by the near break-even amount ofpre-tax income, whereas the fiscal year 2016 effective tax rate more closely approximates a normal effective tax rate for the Company.
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 September 30,December 31, 2014 was essentially flat compared to $0.9 million for the three months ended September 30, 2013.December 31, 2015.
Net (loss) income attributable to noncontrolling interest
Net (loss) income attributable to noncontrolling interest represents the share of ADS Mexicana and 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 $0.2 million for the three months ended December 31, 2015. The change is largely due to losses incurred by ADS Mexicana of $0.3 million for the three months ended December 31, 2015 compared to income of $1.4 million for the prior fiscal year 2015 period. The balance of the change relates to activity for BaySaver.
Net income (loss) attributable to ADS and Net income (loss) per share
SecondThird quarter net income attributable to ADS for fiscal year 2016 was $13.1 million, improving from fiscal year 2015 of approximately $16.8 million increased 14.3% from the preceding fiscal year’sthird quarter’s net incomeloss attributable to ADS for the quarter of $14.7$4.6 million, as influenced by the factors noted above. Net income per share for the secondthird quarter fiscal year 20152016 totaled $0.41$0.21 per basic and diluted share, as compared to $0.21a loss of $0.09 per basic and diluted share recorded in the comparable prior year period. The income per share for the three months ended September 30, 2014 is
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primarily related to higher revenues as well as a favorable adjustment related to the fair value appreciation on convertible preferred stock classified in mezzanine equity which increased income available to common shareholders by $7.3 million, or $0.14 and $0.13 per basic and diluted share, respectively, for common shareholders.
Adjusted EBITDA(a)
Three Months Ended September 30, | ||||||||||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | % Change | Three Months Ended December 31, | ||||||||||||||||||||
2015 | 2014 | % Variance | ||||||||||||||||||||||
(As Restated) (a) | (As Restated) (a) | (As Restated)(a) | (As Restated)(a) | |||||||||||||||||||||
Domestic | $ | 53,904 | $ | 45,290 | 19.0 | % | $ | 44,458 | $ | 30,535 | 45.6 | % | ||||||||||||
International | 1,296 | 5,228 | (75.2 | %) | 5,058 | 3,472 | 45.7 | % | ||||||||||||||||
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Total adjusted EBITDA | $ | 55,200 | $ | 50,518 | 9.3 | % | $ | 49,516 | $ | 34,007 | 45.6 | % | ||||||||||||
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As a percentage of net sales | 15.1 | % | 15.2 | % | 15.8 | % | 12.2 | % |
(a) | See “Note |
Adjusted EBITDA for the second quarter of fiscal year 2015 increased by $4.7 million or 9.3% over the comparable fiscal year 2014 period.
(b) | See section entitled“Non-GAAP Financial Measures” for further information. |
Domestic adjusted EBITDA totaled $53.9 million for the three months ended September 30, 2014 compared to $45.3 million for the prior year second quarter. International adjusted EBITDA totaled $1.3 million for the second quarter of fiscal 2015 compared to earnings of $5.2 million for the prior period.
Adjusted EBITDA as a percentage of net sales totaled 15.1% and 15.2% for the three months ended September 30, 2014 and 2013, respectively.- 35 -
SixNine Months Ended September 30, 2014December 31, 2015 Compared With SixNine Months Ended September 30, 2013December 31, 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 sixnine months ended September 30, 2014December 31, 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) | Six Months Ended September 30, 2014 | % of Net Sales | Six Months Ended September 30, 2013 | % of Net Sales | % Variance | |||||||||||||||||||||||||||||||||||
(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 | |||||||||||||||||||||||||||||||||||
(As Restated) (a) | (As Restated) (a) | (As Restated)(a) | (As Restated)(a) | |||||||||||||||||||||||||||||||||||||
Net Sales | $ | 693,148 | 100.0 | % | $ | 625,306 | 100.0 | % | 10.8 | % | ||||||||||||||||||||||||||||||
Consolidated Statements of Operations data: | ||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 1,045,280 | 100.0 | % | $ | 973,019 | 100.0 | % | 7.4 | % | ||||||||||||||||||||||||||||||
Cost of goods sold | 562,527 | 81.2 | % | 503,368 | 80.5 | % | 11.8 | % | 809,432 | 77.4 | % | 792,290 | 81.4 | % | 2.2 | % | ||||||||||||||||||||||||
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Gross Profit | 130,621 | 18.8 | % | 121,938 | 19.5 | % | 7.1 | % | ||||||||||||||||||||||||||||||||
Gross profit | 235,848 | 22.6 | % | 180,729 | 18.6 | % | 30.5 | % | ||||||||||||||||||||||||||||||||
Selling expenses | 39,792 | 5.7 | % | 35,155 | 5.6 | % | 13.2 | % | 65,401 | 6.3 | % | 60,605 | 6.2 | % | 7.9 | % | ||||||||||||||||||||||||
General and administrative expenses | 29,641 | 4.3 | % | 26,742 | 4.3 | % | 10.8 | % | 64,808 | 6.2 | % | 51,417 | 5.3 | % | 26.0 | % | ||||||||||||||||||||||||
Loss (gain) on sale of business | 345 | — | % | (4,532 | ) | (0.7 | %) | (107.6 | %) | |||||||||||||||||||||||||||||||
Loss on disposal of assets or businesses | 558 | 0.1 | % | 538 | 0.1 | % | 3.7 | % | ||||||||||||||||||||||||||||||||
Intangible amortization | 5,223 | 0.8 | % | 5,240 | 0.8 | % | (0.3 | %) | 7,049 | 0.7 | % | 7,551 | 0.8 | % | (6.6 | %) | ||||||||||||||||||||||||
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Income from operations | 55,620 | 8.0 | % | 59,333 | 9.5 | % | (6.3 | %) | 98,032 | 9.4 | % | 60,618 | 6.2 | % | 61.7 | % | ||||||||||||||||||||||||
Interest expense | 10,095 | 1.5 | % | 9,450 | 1.5 | % | 6.8 | % | 13,956 | 1.3 | % | 14,726 | 1.5 | % | (5.2 | %) | ||||||||||||||||||||||||
Other miscellaneous (expense) income, net | (456 | ) | (0.1 | %) | 20 | 0.0 | % | (2,380.0 | %) | |||||||||||||||||||||||||||||||
Derivative losses and other expense, net | 18,333 | 1.8 | % | 5,100 | 0.5 | % | 259.5 | % | ||||||||||||||||||||||||||||||||
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Income before income taxes | 45,981 | 6.6 | % | 49,863 | 8.0 | % | (7.8 | %) | 65,743 | 6.3 | % | 40,792 | 4.2 | % | 61.2 | % | ||||||||||||||||||||||||
Income tax expense | 16,819 | 2.4 | % | 18,139 | 2.9 | % | (7.3 | %) | 23,156 | 2.2 | % | 17,867 | 1.8 | % | 29.6 | % | ||||||||||||||||||||||||
Equity in net loss of unconsolidated affiliates | 724 | 0.1 | % | 518 | 0.1 | % | 39.8 | % | 935 | 0.1 | % | 1,712 | 0.2 | % | (45.4 | %) | ||||||||||||||||||||||||
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Net income | 28,438 | 4.1 | % | 31,206 | 5.0 | % | (8.9 | %) | 41,652 | 4.0 | % | 21,213 | 2.2 | % | 96.4 | % | ||||||||||||||||||||||||
Less net income attributable to the non-controlling interests | 3,028 | 0.4 | % | 3,492 | 0.6 | % | (13.3 | %) | ||||||||||||||||||||||||||||||||
Less net income attributable to noncontrolling interest | 4,481 | 0.4 | % | 4,400 | 0.5 | % | 1.8 | % | ||||||||||||||||||||||||||||||||
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Net income attributable to ADS | $ | 25,410 | 3.7 | % | $ | 27,714 | 4.4 | % | (8.3 | %) | $ | 37,171 | 3.6 | % | $ | 16,813 | 1.7 | % | 121.1 | % | ||||||||||||||||||||
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Other financial data: | ||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA(b) | $ | 100,328 | 14.5 | % | $ | 93,994 | 15.0 | % | 6.7 | % | $ | 165,701 | 15.9 | % | $ | 135,857 | 14.0 | % | 22.0 | % | ||||||||||||||||||||
System-Wide Net Sales(b) | 736,834 | 106.3 | % | 660,607 | 105.6 | % | 11.5 | % | $ | 1,103,336 | 105.6 | % | $ | 1,038,269 | 106.7 | % | 6.3 | % | ||||||||||||||||||||||
Adjusted Earnings per Fully Converted Share(b) | $ | 0.44 | — | $ | 0.48 | — | (8.6 | %) | ||||||||||||||||||||||||||||||||
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Adjusted Earnings Per Fully Converted Share(b) | $ | 0.63 | — | $ | 0.35 | — | 80.0 | % |
(a) | See “Note |
(b) | See section entitled |
- 38 -
Net sales
Six Months Ended September 30, | Nine Months Ended December 31, | |||||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2015 | 2014 | % Variance | |||||||||||||||
(As Restated)(a) | (As Restated)(a) | (As Restated)(a) | (As Restated)(a) | |||||||||||||||||
Domestic | ||||||||||||||||||||
Pipe | $ | 457,749 | $ | 411,179 | $ | 654,987 | $ | 637,728 | 2.7 | % | ||||||||||
Allied Products | 151,652 | 138,455 | 237,228 | 210,888 | 12.5 | % | ||||||||||||||
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Total domestic | 609,401 | 549,634 | 892,215 | 848,616 | 5.1 | % | ||||||||||||||
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International | ||||||||||||||||||||
Pipe | 68,149 | 60,600 | 121,368 | 102,320 | 18.6 | % | ||||||||||||||
Allied Products | 15,598 | 15,072 | 31,697 | 22,083 | 43.5 | % | ||||||||||||||
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Total international | 83,747 | 75,672 | 153,065 | 124,403 | 23.0 | % | ||||||||||||||
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Total net sales | $ | 693,148 | $ | 625,306 | $ | 1,045,280 | $ | 973,019 | 7.4 | % | ||||||||||
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(a) | See “Note |
Net sales totaled $693.1$1,045.3 million for the sixnine months ended September 30, 2014,December 31, 2015, increasing $67.8$72.3 million, or 10.8%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.
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Domestic net sales increased $59.8$43.6 million, or 10.9%5.1%, for the sixnine months ended September 30, 2014,December 31, 2015, as compared to the prior year period. The increase in domestic sales was due to continued strong sales growth in the non-residential, infrastructure, and residential markets, offsetting a decline in Agricultural sales due to less summer drainage work. The sales growth was broken down between our domestic pipe and Allied Products, which increased $46.6 million and $13.2 million, respectively, for the six months ended September 30, 2014. Domestic pipe sales increased $46.6$17.3 million, or 11.3%2.7%, due to continued growth in ourN-12 HDPE pipe and High Performance PP pipe product lines offsetting lower Agricultural single wallagricultural sales. Domestic Allied Product sales increased $13.2$26.3 million, or 9.5%12.5%, due to strong sales volume sold primarily into thenon-residential, residential and infrastructure markets. Excluding $5.1In addition, approximately $6.8 million in sales of Allied Product lines sold in fiscal 2014,the total Allied Product sales increased $18.3 million, or 13.7%, for the six months ended September 30, 2014 as compared to prior year sales of continuing products. Pipe selling prices increased 5.1% as comparedincrease relates to the prior year.acquisition of BaySaver during the second fiscal quarter of fiscal 2016.
International net sales increased $8.1$28.7 million, or 10.7%23.0%, for the sixnine months ended September 30, 2014December 31, 2015 over the comparable fiscal year 20142015 period. The growth was primarily due to increased sales in Canada, and Mexico. Favorable weather conditionsincluding in Canada forparticular the second quarter resulted in strongcontribution from the acquisition of Ideal Pipe, which increased sales in the agricultural markets as well as fiscal yearby approximately $36.8 million, helping to date sales growth of Allied Products across all end markets. Improved public spending and continued positive sales momentum in the electrical conduit market were the main factors in the increased six month netoffset decreased sales in Mexico versusof $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 $736.8$1,103.3 million for the first sixnine months of fiscal year 2015,2016, an increase of $76.2$65.0 million, or 11.5%6.3%, over System-Wide Net Sales of $660.6$1,038.3 million for the first sixnine 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 a declining economic environment and reduced public spending.spending resulting in a sales decline of $4.4 million or 9.6% to $41.3 million. Net sales fromat our domestic joint ventures, (Tigre-ADSTigre-ADS USA and Baysaver)BaySaver, provided a combined increase of $11.4 million in net sales for unconsolidated joint ventures of $16.7 million for the sixnine months ended September 30, 2014 asDecember 31, 2015, down $2.8 million when compared to the prior year. Our Tigre-ADS USA Joint Venture was formed in the first quarter of fiscal year period. However, when taking into consideration the $6.8 million in net sales recognized for BaySaver subsequent to the July 2015 and our Baysaver Joint Venture was formed inacquisition of the second quarter of fiscal year 2014.controlling interest, comparable sales are up $4.0 million or 20.5%.
Cost of goods sold and Gross profit
Cost of Goods Sold increased $17.1 million or 2.2% for the nine months ended December 31, 2015 compared with the same period during fiscal year 2015.
Gross profit for the six months ended September 30, 2014 increased $8.7$55.1 million or 7.1%, over the comparable prior year period.
Domestic gross profit increased $11.830.5% from $180.7 million or 11.0%, to $119.6$235.8 million for the sixnine months ended September 30, 2014 asDecember 31, 2015 compared to $107.8 million duringwith the same period in the prior year. The increase was primarily due to sales growth in our N-12 HDPE pipe and High Performance PP pipe product lines and Allied Product lines. Raw material prices increased 10% due to higher virgin and non-virgin resin prices for the first six months of fiscal 2015 as compared to the prior period. Freight costs totaled 9.3% of net sales for the six months ended September 30, 2014, compared to 9.5% for the prior year period.
International gross profit decreased $3.2 million, or 22.3%, for the first six months of fiscal year 2015 over the comparable fiscal year 2014 period primarily due to the impact of continued devaluation of the Canadian dollar versus the U.S. dollar and its
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impact on overall Canadian market selling prices, especially in the second quarter. Raw material prices moved higher (which are primarily purchased in U.S. dollars) and higher freight costs compared to the prior year period also contributed to the declining pipe gross profit for the six months ended September 30, 2014.
Gross profit as a percentage of net sales totaled 18.8%22.6% for the sixnine months ended September 30, 2014December 31, 2015 as compared to 19.5%18.6% for the prior year.
Domestic gross profit increased $42.1 million, or 26.0%, to $204.3 million for the nine months ended December 31, 2015 as compared to $162.2 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 were flat in the first quarter and then declined in the second and third quarters of fiscal 2016 as compared to the prior year periods. Freight costs totaled 9.6% of domestic net sales for the nine months ended December 31, 2015, compared to 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 increased $12.9 million, or 69.7%, for the first nine months of fiscal year 2016 over the comparable fiscal year 2015 period. This was the result of the impact of a 23.0% increase in international net sales. Gross profit was also helped by improved gross profit performance in Mexico for the nine months ended December 31, 2015, as 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.
Selling expenses for the sixnine months ended September 30, 2014December 31, 2015 increased $4.6$4.8 million, or 13.2%7.9%, 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 selling expenses related to Ideal Pipe and BaySaver, increases in variable selling expenses due to higher sales volume, and investments in additional sales coverage and growth initiatives. As a percentage of net sales, selling expenses increased slightly to 5.7%6.3% for the first sixnine months of fiscal 20152016 as compared to 5.6% in6.2% for the comparable prior year.year period.
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General and administrative expenses
General and administrative expenses consists of personnel costs (salaries, benefits, and other personnel-related expenses, including 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 sixnine months ended September 30, 2014December 31, 2015 increased $2.9$13.4 million, or 10.8%26.0%, over the comparable 2015 fiscal year 2014 period. The increase was primarily the result of significant increases in non-cash stock-based compensation of $2.7 million, higher professional fees of $1.2 million, and reduced corporate overhead expenses of $1.0 million.
The $2.7 million increase in non-cash stock-based compensation was due to a $1.9 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, $0.3 million of accelerated non-cash compensation related to immediate vesting resctricted stock shares as the result of the IPO, and $0.5 million of non-cash compensation expense related to the non-employee director compensation stock plan created in the second quarter of fiscal 2015.
The $1.2 million increase in professional fees was due tofor accounting, audit, services of $0.8 milliontax, legal and other professional fees incurred in connection with the IPOrestatement of our previously filed financial statements as part of the preparation of our Fiscal 2015 Form10-K. There were no such amounts in the comparable fiscal 2015 period. These fees amounted to approximately $16.3 million for the nine months ended December 31, 2015. There was also an increase in salary and additional professionalcompensation expenses of $2.2 million, as well as incremental general and consulting feesadministrative expenses related to the Ideal Pipe and BaySaver acquisitions of $0.4 million$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. These amounts were partially offset by a decrease in stock-based compensation of $14.8 million. Overall, general and administrative expenses amounted to 6.2% of net sales compared to 5.3% in the prior year.
(Gain) lossLoss on disposal of assets or businesses
(Gain) lossLoss on the saledisposal of assets or businessbusinesses for the sixnine months ended September 30,December 31, 2015 and December 31, 2014 was a lossnot significant for either period, amounting to losses of $0.3$0.6 million compared to a gain of $4.5and $0.5 million, respectively.
Intangible amortization
Intangible amortization for the nine months ended December 31, 2015 decreased $0.6 million, or 6.6%, over the comparable prior year period. The Company sold its Draintech product lineperiod as a result of intangible assets of $7.8 million becoming fully amortized during fiscal 2015, offset by the firstadditional amortization for the Ideal Pipe intangible assets acquired in the fourth quarter of fiscal year 2014.
Intangibles amortization
Intangibles amortization for2015 and the six months ended September 30, 2014 was essentially flat when compared with the same periodBaySaver intangible assets acquired in the prior year.second quarter of fiscal year 2016.
Interest expense
Interest expense for the sixnine months ended September 30, 2014 increased $0.6December 31, 2015 decreased $0.7 million, or 6.8%5.2%, over the comparable prior year period. The increasedecrease was due to a higherboth slightly lower average interest raterates on our outstanding indebtedness andRevolving 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 outstandingRevolving Credit Facility balance in additionthrough 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 Term notes paidSenior 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 SeptemberJune 30, 2014. The surcharge increased interest expense by $0.5 million. We repaid a portion of our outstanding indebtedness with the net proceeds from our initial public offering which closed on July 25, 2014. This repayment reduced our leverage ratio below 3 times at September 30, 2014 and eliminated the surcharge on the Term notesmillion for the secondfirst quarter of fiscal 2015.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, 2015 increased $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 nine months ended December 31, 2015 were $18.5 million comprised of realized losses on cash settlements of $10.7 million and unrealized losses onmark-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 on the unfavorablemark-to-market adjustments. In addition to the hedging losses, the Company realized a loss of $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 insignificant gains or losses.
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Other miscellaneous (income) expenses, net
Other miscellaneous (income) expense amounted to $0.5 million income during the nine months ended September 30, 2014. Favorable mark-to-market adjustments for changes in fair value on derivative contracts contributed to the income during the current period.
Income tax expense
For the sixnine months ended September 30,December 31, 2015 and 2014, and 2013, the Company recorded income tax provisions of $16.8$23.2 million and $18.1$17.9 million, respectively, which representsrepresent an effective tax rate of 36.6%35.2% and 36.4%43.8%, respectively. These rates are higher than the federal statutory rate of 35% due principally to state and local income taxes, partially offset by foreign income taxed at lower rates. The effective tax rate for the first sixnine months of the fiscal year 20152016 is higherlower than the prior year period primarily due to the shift in the projections of the proportion of income earned and lowerhigher income before income taxes increasingreducing the impact ofnon-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 threetwo 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 sixnine months ended September 30, 2014 increased $0.2December 31, 2015 decreased $0.8 million over the comparable prior fiscal year period to a net loss of $0.9 million compared to a net loss of $1.7 million. The decrease was primarily due to lower net losses generated by the South American Joint Venture which reduced our share of the losses during the nine-months ended December 31, 2015 to $1.2 million compared to $2.0 million for the comparable prior year period.
IncomeNet income attributable to non-controlling interestsnoncontrolling interest
IncomeNet income attributable to non-controlling interests decreased $0.5noncontrolling interest represents income attributable to the noncontrolling interest holders in joint venture operations that are consolidated in our condensed consolidated financial statements. Net income attributable to noncontrolling interest increased $0.1 million for the sixnine months ended September 30, 2014December 31, 2015 to $4.5 million compared to $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.
Net income attributable to ADS and Net income (loss) per share
Year to date netNet income attributable to ADS of approximately $25.4$37.2 million decreasedincreased from the preceding fiscal year’s net income attributable to ADS of $27.7$16.8 million, as influenced by the factors noted above. Net income per share for the first sixnine months of fiscal year 20152016 totaled $0.25$0.60 and $0.59 per basic and diluted per share, respectively, as compared to $0.43 and $0.42$0.10 per basic and diluted share respectively, recorded in the comparable prior year period. The net income per share for the sixnine months ended September 30,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 shareholdersstockholders by $11.1 million, or $0.22 and $.021 per basic and diluted share respectively, for common shareholders.stockholders.
Adjusted EBITDA(a)
Six Months Ended September 30, | Nine Months Ended December 31, | |||||||||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | % Change | 2015 | 2014 | % Variance | ||||||||||||||||||
(As Restated) (a) | (As Restated) (a) | (As Restated)(a) | (As Restated)(a) | |||||||||||||||||||||
Domestic | $ | 94,896 | $ | 83,426 | 13.7 | % | ||||||||||||||||||
International | 5,432 | 10,568 | (48.6 | %) | ||||||||||||||||||||
Domestic adjusted EBITDA | $ | 140,865 | $ | 126,746 | 11.1 | % | ||||||||||||||||||
International adjusted EBITDA | 24,836 | 9,111 | 172.6 | % | ||||||||||||||||||||
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Total adjusted EBITDA | $ | 100,328 | $ | 93,994 | 6.7 | % | $ | 165,701 | $ | 135,857 | 22.0 | % | ||||||||||||
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As a percentage of net sales | 14.5 | % | 15.0 | % | 15.9 | % | 14.0 | % |
(a) | See “Note |
(b) | See section entitled“Non-GAAP Financial Measures” for further information. |
Adjusted EBITDA for the first six months of fiscal year 2015 increased by $6.3 million or 6.7% 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 $11.1 million or 12.5% for the six months ended September 30, 2014 as compared to the prior year ($100.3 million compared to an adjusted $89.2 million for the prior year).
Domestic adjusted EBITDA totaled $94.9 million for the six months ended September 30, 2014 compared to $83.4 million in the prior year (which included the impact of the one-time $4.8 million gain on the sale). International adjusted EBITDA totaled $5.4 million for the first six months of fiscal 2015 compared to $10.6 million in the prior period.
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Adjusted EBITDA as a percentage of net sales totaled 14.5% for the six months ended September 30, 2014 compared to 15.0% 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 14.3%.
Non-GAAP Financial Measures
In addition to financial results reported in accordance with GAAP, we have provided the followingnon-GAAP financial measures: Adjusted EBITDA, System-Wide Net Sales and Adjusted Earnings perPer Fully Converted Share. Thesenon-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 fromnon-GAAP financial measures used by other companies, even when similar terms are used to identify such measures.
Adjusted EBITDA. Adjusted EBITDA is anon-GAAP financial measure that comprisesis comprised of net income 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.
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The following table presents a reconciliation of Adjusted EBITDA to Net Income the most comparable GAAP measure,(Loss) for each of the periods indicated:
Three Months Ended September 30, | Six Months Ended September 30, | Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||||||
(As Restated) (a) | (As Restated) (a) | (As Restated) (a) | (As Restated) (a) | (As Restated)(a) | (As Restated)(a) | (As Restated)(a) | (As Restated)(a) | |||||||||||||||||||||||||
Net income | $ | 18,997 | $ | 16,657 | $ | 28,438 | $ | 31,206 | ||||||||||||||||||||||||
Net income (loss) | $ | 12,942 | $ | (3,269 | ) | $ | 41,652 | $ | 21,213 | |||||||||||||||||||||||
Depreciation and amortization | 16,374 | 15,885 | 32,400 | 31,710 | 17,302 | 16,118 | 52,053 | 48,519 | ||||||||||||||||||||||||
Interest expense | 5,044 | 4,721 | 10,095 | 9,450 | 4,723 | 4,631 | 13,956 | 14,726 | ||||||||||||||||||||||||
Income tax expense | 8,926 | 8,928 | 16,819 | 18,139 | 10,090 | 2,498 | 23,156 | 17,867 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
EBITDA | 49,341 | 46,191 | 87,752 | 90,505 | 45,057 | 19,978 | 130,817 | 102,325 | ||||||||||||||||||||||||
Derivative fair value adjustments | 67 | 319 | 163 | 238 | (1,784 | ) | 6,054 | 7,750 | 6,217 | |||||||||||||||||||||||
Foreign currency transaction gains | (205 | ) | (181 | ) | (75 | ) | (87 | ) | ||||||||||||||||||||||||
Loss (gain) on sale of assets or businesses | 281 | 204 | 345 | (4,532 | ) | |||||||||||||||||||||||||||
Foreign currency transaction losses (gains) | 569 | (561 | ) | 735 | (636 | ) | ||||||||||||||||||||||||||
(Gain) loss on disposal of assets or businesses | (603 | ) | 193 | 558 | 538 | |||||||||||||||||||||||||||
Unconsolidated affiliates interest, tax, depreciation and amortization(b) | 878 | 459 | 1,675 | 957 | 632 | 1,348 | 2,270 | 3,023 | ||||||||||||||||||||||||
Contingent consideration remeasurement | 20 | 40 | 2 | 129 | 14 | (7 | ) | 114 | (5 | ) | ||||||||||||||||||||||
Stock-based compensation | 2,131 | 980 | 4,377 | 1,640 | ||||||||||||||||||||||||||||
Stock-based compensation (benefit) expense | (5,206 | ) | 3,894 | (2,994 | ) | 14,023 | ||||||||||||||||||||||||||
ESOP deferred stock-based compensation | 2,687 | 2,506 | 5,374 | 5,026 | 3,125 | 2,690 | 9,375 | 8,064 | ||||||||||||||||||||||||
Transaction costs(c) | — | — | 715 | 118 | ||||||||||||||||||||||||||||
Expense related to executive termination payments | 94 | 82 | 258 | 246 | ||||||||||||||||||||||||||||
Expense related to executive stock repurchase agreements | — | — | — | 1,011 | ||||||||||||||||||||||||||||
Loss related to BaySaver step acquisition | — | — | 490 | — | ||||||||||||||||||||||||||||
Restatement costs(c) | 7,618 | — | 16,328 | — | ||||||||||||||||||||||||||||
Transaction costs(d) | — | 336 | — | 1,051 | ||||||||||||||||||||||||||||
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Adjusted EBITDA | $ | 55,200 | $ | 50,518 | $ | 100,328 | $ | 93,994 | $ | 49,516 | $ | 34,007 | $ | 165,701 | $ | 135,857 | ||||||||||||||||
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(a) | See “Note |
(b) | Includes our proportional share of interest, income taxes, depreciation and amortization related to our South American Joint Venture and ourTigre-ADS USA joint venture, which 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 |
(c) | Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with the restatement of our |
(d) | Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our secondary public offering in fiscal year 2015. |
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Reconciliation of Segment Adjusted EBITDA to Net Income
The following table presents a reconciliation of Segment Adjusted EBITDA to Net Income the most comparable GAAP measure,(Loss), for each of the periods indicated:
- 42 -
Reconciliation of Segment EBITDA and Adjusted Segment EBITDA to Net Income
Three Months Ended September 30, | Three Months Ended December 31, | |||||||||||||||||||||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||||||||||||||||||
(Amounts in thousands) | Domestic | International | Domestic | International | Domestic | International | Domestic | International | ||||||||||||||||||||||||
(As Restated) (a) | (As Restated) (a) | (As Restated) (a) | (As Restated) (a) | (As Restated)(a) | (As Restated)(a) | (As Restated)(a) | (As Restated)(a) | |||||||||||||||||||||||||
Net income | $ | 17,603 | $ | 1,394 | $ | 12,263 | $ | 4,394 | ||||||||||||||||||||||||
Net income (loss) | $ | 13,846 | $ | (904 | ) | $ | (5,199 | ) | $ | 1,930 | ||||||||||||||||||||||
Depreciation and amortization | 14,937 | 1,437 | 14,550 | 1,335 | 15,221 | 2,081 | 14,742 | 1,376 | ||||||||||||||||||||||||
Interest expense | 5,020 | 24 | 4,667 | 54 | 4,606 | 117 | 4,613 | 18 | ||||||||||||||||||||||||
Income tax expense | 10,897 | (1,971 | ) | 9,778 | (850 | ) | 7,196 | 2,894 | 2,251 | 247 | ||||||||||||||||||||||
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Segment EBITDA | 48,457 | 884 | 41,258 | 4,933 | 40,869 | 4,188 | 16,407 | 3,571 | ||||||||||||||||||||||||
Derivative fair value adjustments | 67 | — | 319 | — | (1,733 | ) | (51 | ) | 6,310 | (256 | ) | |||||||||||||||||||||
Foreign currency transaction gains | — | (205 | ) | — | (181 | ) | ||||||||||||||||||||||||||
Loss on sale of assets or businesses | 251 | 30 | 186 | 18 | ||||||||||||||||||||||||||||
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(b) | 291 | 587 | 1 | 458 | 223 | 409 | 648 | 700 | ||||||||||||||||||||||||
Contingent consideration remeasurement | 20 | — | 40 | — | 14 | — | (7 | ) | — | |||||||||||||||||||||||
Stock-based compensation | 2,131 | — | 980 | — | ||||||||||||||||||||||||||||
Stock-based compensation (benefit) expense | (5,206 | ) | — | 3,894 | — | |||||||||||||||||||||||||||
ESOP deferred stock-based compensation | 2,687 | — | 2,506 | — | 3,125 | — | 2,690 | — | ||||||||||||||||||||||||
Expense related to executive termination payments | 94 | — | 82 | — | ||||||||||||||||||||||||||||
Restatement costs(c) | 7,618 | — | — | — | ||||||||||||||||||||||||||||
Transaction costs(d) | — | — | 336 | — | ||||||||||||||||||||||||||||
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Segment Adjusted EBITDA | $ | 53,904 | $ | 1,296 | $ | 45,290 | $ | 5,228 | $ | 44,458 | $ | 5,058 | $ | 30,535 | $ | 3,472 | ||||||||||||||||
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(a) | See “Note |
(b) | Includes our proportional share of interest, income taxes, depreciation and amortization related to our South American Joint Venture |
Reconciliation of Segment EBITDA and Adjusted Segment EBITDA to Net Income
Six Months Ended September 30, | ||||||||||||||||
2014 | 2013 | |||||||||||||||
(Amounts in thousands) | Domestic | International | Domestic | International | ||||||||||||
(As Restated) (a) | (As Restated) (a) | (As Restated) (a) | (As Restated) (a) | |||||||||||||
Net income | $ | 25,446 | $ | 2,992 | $ | 24,097 | $ | 7,109 | ||||||||
Depreciation and amortization | 29,595 | 2,805 | 28,993 | 2,717 | ||||||||||||
Interest expense | 10,062 | 33 | 9,360 | 90 | ||||||||||||
Income tax expense | 18,311 | (1,492 | ) | 18,369 | (230 | ) | ||||||||||
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| |||||||||
Segment EBITDA | 83,414 | 4,338 | 80,819 | 9,686 | ||||||||||||
Derivative fair value adjustments | 163 | — | 238 | — | ||||||||||||
Foreign currency transaction gains | — | (75 | ) | — | (87 | ) | ||||||||||
Loss (gain) on sale of assets or businesses | 311 | 34 | (4,546 | ) | 14 | |||||||||||
Unconsolidated affiliates interest, tax, depreciation and amortization(b) | 540 | 1,135 | 2 | 955 | ||||||||||||
Contingent consideration remeasurement | 2 | — | 129 | — | ||||||||||||
Stock-based compensation | 4,377 | — | 1,640 | — | ||||||||||||
ESOP deferred stock-based compensation | 5,374 | — | 5,026 | — | ||||||||||||
Transaction costs(c) | 715 | — | 118 | — | ||||||||||||
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Segment Adjusted EBITDA | $ | 94,896 | $ | 5,432 | $ | 83,426 | $ | 10,568 | ||||||||
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(c) | Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with the restatement of our |
(d) | Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our IPO and secondary public offering in fiscal year 2015. |
Nine Months Ended December 31, | ||||||||||||||||
2015 | 2014 | |||||||||||||||
(Amounts in thousands) | Domestic | International | Domestic | International | ||||||||||||
(As Restated)(a) | (As Restated)(a) | (As Restated)(a) | (As Restated)(a) | |||||||||||||
Net income | $ | 28,067 | $ | 13,585 | $ | 16,084 | $ | 5,129 | ||||||||
Depreciation and amortization | 45,626 | 6,427 | 44,338 | 4,181 | ||||||||||||
Interest expense | 13,544 | 412 | 14,675 | 51 | ||||||||||||
Income tax expense (benefit) | 20,725 | 2,431 | 19,112 | (1,245 | ) | |||||||||||
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| |||||||||
Segment EBITDA | 107,962 | 22,855 | 94,209 | 8,116 | ||||||||||||
Derivative fair value adjustments | 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(b) | 769 | 1,501 | 1,188 | 1,835 | ||||||||||||
Contingent consideration remeasurement | 114 | — | (5 | ) | — | |||||||||||
Stock-based compensation (benefit) expense | (2,994 | ) | — | 14,023 | — | |||||||||||
ESOP deferred stock-based compensation | 9,375 | — | 8,064 | — | ||||||||||||
Expense related to executive termination payments | 258 | — | 246 | — | ||||||||||||
Expense related to executive stock repurchase agreements | — | — | 1,011 | — | ||||||||||||
Loss related to BaySaver step acquisition | 490 | — | — | — | ||||||||||||
Restatement costs(c) | 16,328 | — | — | — | ||||||||||||
Transaction costs(d) | — | — | 1,051 | — | ||||||||||||
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Segment Adjusted EBITDA | $ | 140,865 | $ | 24,836 | $ | 126,746 | $ | 9,111 | ||||||||
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(a) | See “Note 16. Restatement of Previously Issued Financial Statements” to the Condensed Consolidated Financial Statements. |
(b) | Includes our proportional share of interest, income taxes, depreciation and amortization related to our South American Joint Venture and ourTigre-ADS USA joint venture, which 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. |
(c) | 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 Form10-K. |
(d) | Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our IPO and secondary public offering in fiscal year 2015. |
- 41 -
System-Wide Net Sales. System-Wide Net Sales is anon-GAAP measure which equals the sum of the net sales of our Domesticdomestic and Internationalinternational segments plus all net sales from our unconsolidated joint ventures. We participated in three unconsolidated joint ventures (ourduring the nine months ended December 31, 2015 and 2014; the South American Joint Venture,Tigre-ADS USA, Inc.(“Tigre-ADS USA”, which is 49% owned by our wholly-owned subsidiary ADS/V), and BaySaver Joint Venture and our Tigre-ADS USA Joint Venture).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 Internationalinternational segment, and ourTigre-ADS USA and BaySaver and Tigre-ADS USA Joint Venturesjoint ventures are managed as an integral part of our Domesticdomestic 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 VentureBaySaver joint venture were accounted for as consolidated subsidiaries for management and segment reporting purposes.all periods.
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The reconciliation of our System-Wide Net Sales to netNet sales is as follows:
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
(Amounts in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
(As Restated) (a) | (As Restated) (a) | (As Restated) (a) | (As Restated) (a) | |||||||||||||
Net sales | $ | 366,714 | $ | 332,727 | $ | 693,148 | $ | 625,306 | ||||||||
Net sales associated with our unconsolidated affiliates | ||||||||||||||||
South American Joint Venture(b) | 16,776 | 17,544 | 30,696 | 33,686 | ||||||||||||
BaySaver Joint Venture(c) | 3,423 | 1,615 | 5,760 | 1,615 | ||||||||||||
Tigre-ADS USA Joint Venture(d) | 3,697 | — | 7,230 | — | ||||||||||||
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System-Wide Net Sales | $ | 390,610 | $ | 351,886 | $ | 736,834 | $ | 660,607 | ||||||||
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Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
(Amounts in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
(As Restated)(a) | (As Restated)(a) | (As Restated)(a) | (As Restated)(a) | |||||||||||||
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(b) | 13,551 | 15,046 | 41,320 | 45,742 | ||||||||||||
BaySaver joint venture(c) | — | 2,913 | 3,611 | 8,673 | ||||||||||||
Tigre-ADS USA joint venture(d) | 4,488 | 3,605 | 13,125 | 10,835 | ||||||||||||
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System-Wide Net Sales | $ | 330,866 | $ | 301,435 | $ | 1,103,336 | $ | 1,038,269 | ||||||||
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(a) | See “Note |
(b) | On July 31, 2009, we entered into an arrangement to form our South American Joint Venture. |
(c) | On July 15, 2013, we entered into an arrangement to form our BaySaver |
(d) | On April 7, 2014, we entered into an arrangement to form ourTigre-ADS USA |
Adjusted Earnings per Fully Converted Share. Adjusted EarningsperEarnings per Fully Converted Share which is anon-GAAP measure and is a supplemental measure of financial performance that is not required by, or presented in accordance with GAAP. We calculate Adjusted earnings per fully converted share(Non-GAAP), and Weighted average fully converted common shares outstanding (Non-GAAP), by adjusting our Net income per share -available to common stockholders – Basic, and Weighted average common shares outstanding – Basic, and Net income per share – Basic, the most comparable GAAP measures.
To effect this adjustment with respect to Net income available to common stockholders - Basic, 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 classified as mezzanine equity, from the numerator of the Net income per share - Basic computation, (2)(3) added back the dividends to Redeemable convertible preferred stockholders and dividends paid to unvested restricted stockholders, (3)(4) made corresponding adjustments to the amount allocated to participating securities under thetwo-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 anon-cash charge to our earnings and not deductible for income tax purposes.
We have also made adjustments to the Weighted average common shares outstanding –- Basic to assume, (1) share conversion of the Redeemable 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.
- 42 -
The following table presents a reconciliation of Adjusted Net Income(Non-GAAP), Weighted Average Common Shares Outstanding – Fully Converted(Non-GAAP) and Adjusted Earnings Per Fully Converted Share Shares(Non-GAAP), and the corresponding Weighted Average Fully Converted Common Shares Outstanding (Non-GAAP) to our Net income per share and corresponding(loss) available to common stockholders – Basic, Weighted average common shares outstanding amounts,– Basic, and Net income (loss) per share – Basic, the most comparable GAAP measure,measures, respectively, for each of the periods indicated.
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(As Restated) (a) | (As Restated) (a) | (As Restated) (a) | (As Restated) (a) | |||||||||||||
Net income available to common shareholders | $ | 21,358 | $ | 10,129 | $ | 12,579 | $ | 20,098 | ||||||||
Adjustments to net income available to common shareholders: | ||||||||||||||||
Change in fair value of Redeemable convertible preferred stock | 7,319 | (3,186 | ) | (11,054 | ) | (4,764 | ) | |||||||||
Dividends to Redeemable convertible preferred stockholders | (37 | ) | (214 | ) | (75 | ) | (430 | ) | ||||||||
Dividends paid to unvested restricted stockholders | — | (8 | ) | — | (16 | ) | ||||||||||
Undistributed income allocated to participating securities | (2,768 | ) | (1,203 | ) | (1,702 | ) | (2,406 | ) | ||||||||
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Total adjustments to net income (loss) available to common shareholders | 4,514 | (4,611 | ) | (12,831 | ) | (7,616 | ) | |||||||||
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Net income attributable to ADS | 16,844 | 14,740 | 25,410 | 27,714 | ||||||||||||
Fair Value of ESOP Compensation related to Convertible preferred stock | 2,687 | 2,506 | 5,374 | 5,026 | ||||||||||||
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Adjusted net income - (Non-GAAP) | $ | 19,531 | $ | 17,246 | $ | 30,784 | $ | 32,740 | ||||||||
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Weighted Average Common Shares Outstanding – Basic | 51,518 | 47,250 | 49,538 | 47,220 | ||||||||||||
Unvested restricted shares | 237 | 335 | 235 | 328 | ||||||||||||
Redeemable convertible preferred shares | 20,099 | 20,341 | 20,099 | 20,379 | ||||||||||||
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Total Weighted Average Common Shares Outstanding - Fully Converted (Non-GAAP) | 71,854 | 67,926 | 69,872 | 67,927 | ||||||||||||
Adjusted Earnings Per Fully Converted Share (Non-GAAP) | $ | 0.27 | $ | 0.25 | $ | 0.44 | $ | 0.48 | ||||||||
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Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
(Amounts in thousands, except per share data) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
(As Restated)(a) | (As Restated)(a) | (As Restated)(a) | (As Restated)(a) | |||||||||||||
Net income (loss) available to common stockholders - Basic | $ | 11,431 | $ | (4,948 | ) | $ | 32,520 | $ | 4,995 | |||||||
Adjustments to Net income (loss) available to common stockholders - Basic: | ||||||||||||||||
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 | 1,016 | — | 2,965 | 378 | ||||||||||||
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Total adjustments to Net income (loss) available to common stockholders - Basic | 1,700 | 307 | 4,651 | 11,818 | ||||||||||||
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Net income (loss) attributable to ADS | 13,131 | (4,641 | ) | 37,171 | 16,813 | |||||||||||
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 | ||||||||||||
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Adjusted net income (loss)(Non-GAAP) | $ | 16,256 | $ | (1,951 | ) | $ | 46,546 | $ | 24,877 | |||||||
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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 | 186 | 126 | 215 | ||||||||||||
Redeemable convertible preferred shares | 19,257 | 20,096 | 19,484 | 20,084 | ||||||||||||
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Weighted Average Common Shares Outstanding - Fully Converted(Non-GAAP) | 73,504 | 73,268 | 73,490 | 70,990 | ||||||||||||
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Net income (loss) per share - Basic | $ | 0.21 | $ | (0.09 | ) | $ | 0.60 | $ | 0.10 | |||||||
Adjusted Earnings (Loss) Per Fully Converted Share(Non-GAAP) | $ | 0.22 | $ | (0.03 | ) | $ | 0.63 | $ | 0.35 | |||||||
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(a) | See “Note |
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 equity issuance, internally generated cash flow, debt financings and debt financings.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 September 30, 2014,December 31, 2015, we had $6.5$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 sixnine months ended September 30, 2014,December 31, 2015, our net increase in cash was $2.7amounted to $2.8 million, compared to a net increase of $0.7$6.8 million for the sixnine months ended September 30, 2013.December 31, 2014. During the sixnine months ended September 30,December 31, 2015, our source of funds was primarily driven by higher operating earnings and a decrease in inventory of $61.0 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 ($9.1 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.
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During the nine months ended December 31, 2014, our source of funds was primarily driven by higher operating earnings, proceeds of $79.1 million from primary shares sold during our IPO decreased inventories ($27.6 million)of common stock and increasednon-cash charges (depreciation, amortization,(ESOP and stock-based compensation expense and shared based compensation expense).mark-to-market adjustments for changes in fair value of derivative contracts) and a decrease in inventory of $38.4 million. For the same period ending September 30,December 31, 2014, our increased use of cash was primarily driven by increased accounts receivable balances (up $97.8$12.8 million), decrease in accounts payable and accrued liabilities including accrued income taxes ($19.8 million), spending for capital expenditures (15.6($21.3 million), repayment of $95.3 million of Long Term Debt in second quarter fiscal 2015 andpayments on capital lease obligations ($6.6 million), investments in joint ventures ($7.6 million). During the six months ended September 30, 2013, our primary source and repayment of cash was also provided by operating earnings, decreased inventories ($37.1 million) borrowings on the Revolving Credit Facility and a new$115.6 million of Long Term Note. For the six months ended September 30, 2013, our use of cash was primarily due to increases in accounts receivable ($92.3 million) and for capital expenditures ($21.6 million).Debt.
As of September 30, 2014,December 31, 2015, we had $139.8$170.9 million in liquidity, including $6.6$6.4 million of cash and cash equivalents and $133.2$164.5 million in borrowings available under our Revolving Credit Facilities,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 September 30, 2014,December 31, 2015, we had total consolidated indebtedness (excluding lease obligations) of approximately $397.6$337.4 million, down $56.5$62.5 million compared to March 31, 2014.2015. We repaid a portion of our outstanding indebtedness with the net proceeds from our initial public offering which closed on July 25, 2014.operating cash flow.
The following table sets forth the major sources and uses of cash for each of the periods presented:
Six Months Ended September 30, | ||||||||
(Amounts in thousands) | 2014 | 2013 | ||||||
(As Restated)(a) | (As Restated)(a) | |||||||
Statement of Cash Flows data: | ||||||||
Net cash from operating activities | $ | 14,906 | $ | 8,385 | ||||
Net cash from investing activities | (23,972 | ) | (21,524 | ) | ||||
Net cash from financing activities | 11,946 | 13,805 |
Nine Months Ended December 31, | ||||||||
(Amounts in thousands) | 2015 | 2014 | ||||||
(As Restated)(a) | (As Restated)(a) | |||||||
Statement of Cash Flows data: | ||||||||
Net cash from operating activities | $ | 129,441 | $ | 90,252 | ||||
Net cash used in investing activities | (35,403 | ) | (29,366 | ) | ||||
Net cash used in financing activities | (89,816 | ) | (53,639 | ) |
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(a) | See “Note |
Working Capital
Net working capital decreased from $228.9 million as of March 31, 2015, to $172.4 million as of December 31, 2015, primarily due to the decline in inventory of $61.0 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 $29.0 million, offset by an increase in accounts receivable of $17.5 million due to sales increases and a $9.1 million decrease in accounts payable, accrued liabilities, and accrued income taxes.
Operating Cash Flows
During the sixnine months ended September 30, 2014,December 31, 2015, cash provided byfrom operating activities was $14.9$129.4 million as compared with cash provided by operating activities of $8.4$90.3 million for the sixnine months ended September 30, 2013.December 31, 2014. Cash flow from operating activities during the sixnine months ended September 30,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 lower net income and by moderately higher net income, stock-based compensation, inventory and accounts payable compared to the prior period, and lower inventory, offsetting an increase in the use of cash related to changes in accounts receivable and accounts payable. Cash flow from operating activities for the six months ended September 30, 2013 also included a reduction of $4.8 million gain realized from the sale of assets for the Draintech product line.other accrued liabilities, including accrued income taxes.
Investing Cash Flows
During the sixnine months ended September 30,December 31, 2015, cash used for investing activities was $35.4 million, primarily due to $30.0 million for capital expenditures, $1.5 million for software in support of operations, and a $3.2 million investment in an additional 10% of the membership interests in BaySaver.
During the nine months ended December 31, 2014, cash used for investing activities was $24.0$29.4 million, primarily due to $15.6$21.3 million for capital expenditures in support of operations, a $3.6 million investment for a 49% interest in a newly created 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 six months ended September 30, 2013, cash used for investing activities was $21.5 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.
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Financing Cash Flows
During the sixnine months ended September 30, 2014,December 31, 2015, cash provided byused for financing activities was a net $11.9 million, utilizing primarily borrowings on our Revolving Credit facility to support our typical seasonal demand increase following the winter months and early spring. Revolving Credit borrowings amounted to a net outflow of $52.2 million, offset by net proceeds from the IPO. During the six months ended September 30, 2013, cash provided by financing activities was $13.8$89.8 million, primarily due to borrowingsutilizing 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 for financing activities was $53.6 million, primarily due to utilizing our operating cash flow and $79.1 million of proceeds from Term and Revolvingthe IPO to pay down debt ($30.6 million), offset by modestof $115.6 million as well as payments for $6.6 million for lease obligations, $4.3 million in dividends, and redemption of convertible preferred stock in connection with$6.5 million for fees related to the ESOP.IPO.
Capital Expenditures
Capital expenditures totaled $15.6$30.0 million and $21.6$21.3 million for the sixnine months ended September 30,December 31, 2015 and 2014, and September 30, 2013, respectively. Our capital expenditures for the sixnine months ended September 30, 2014December 31, 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$45 million in fiscal year 2015.2016. Such capital expenditures are expected to be financed using funds generated by operations. As of September 30, 2014,December 31, 2015, there were no material contractual obligations or commitments related to these planned capital expenditures.
Financing Transactions
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 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 million.$100.0 million, and (iii) the ADS Mexicana Revolving Credit Facility, described below. The 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 Bank Term Loans are determined by certain base rates or LIBOR rates, plus an applicable margin. The obligations under the 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 terms, make certain amendments in order to permit the payment of a cash dividend. As a result of the restatements and delays in the filing of the various fiscal 2016 and 2015 Form10-K and10-Q filings, the Revolving Credit Facility was amended several times to extend the reporting deadlines for financial statements and debt covenant calculations. For further information about the Bank Term Loans, see “Note 12. Debt” to the financial statementsConsolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of our Fiscal 2016 Form 10-K for the year ended March 31, 2015 filed10-K/A (filed concurrently with this Form10-Q/A as of September 30, 2014.A) and “Note 15. Subsequent Events” to this Form10-Q/A. As of September 30, 2014,December 31, 2015, the outstanding principal drawn on the Revolving Credit Facility was $193.8$149.5 million, with $123.2$164.5 million available to be drawn. As of September 30, 2014,December 31, 2015, the outstanding principal balance of the Term Loan was $95.0$85.0 million.
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We used the net proceeds from the initial public offering, which closed on July 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. According to the terms of the ADS Mexicana Revolving Credit Facility, ADS Mexicana is not permitted to make loans to ADS, Inc. As a result of the restatements and delays in the filing of the various fiscal 2016 and 2015 Form10-K and10-Q filings, the ADS Mexicana Revolving Credit Facility was amended several times to extend the reporting deadlines for financial statements and debt covenant calculations. For further information about the ADS Mexicana Revolving Credit Facilities,Facility, see “Note 12. Debt” to the financial statementsConsolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of our Fiscal 2016 Form10-K/A (filed concurrently with thisForm 10-K for the year ended March10-Q/A) and “Note 15. Subsequent Events” to this Form10-Q/A. As of December 31, 2015, filed concurrently with this Form 10-Q/A as of September 30, 2014. As of September 30, 2014, thethere was no outstanding principal drawn on the revolving credit facilityADS Mexicana Revolving Credit Facility and the entire $12.0 million was $2.0 million, with $10.0 million available to be drawn.
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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$100.0 million. Pursuant to the private shelf agreement, on September 27, 2010, we issued $75$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$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 terms,things, make certain amendments in order to permit the payment of a cash dividend. As a result of the restatements and delays in the filing of the various fiscal 2016 and 2015 Form10-K and10-Q filings, the private shelf agreement was amended several times to extend the reporting deadlines for financial statements and debt covenant calculations. For further information about the Senior Notes, see “Note 12. Debt” to the financial statementsConsolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of our Fiscal 2016 Form 10-K for the year ended March 31, 2015 filed10-K/A (filed concurrently with this Amendment No. 1 on Form 10-Q as of September 30, 2014 .10-Q/A) and “Note 15. Subsequent Events” to this Form10-Q/A. We have no further amount available for issuance of senior notes under the private shelf agreement. At September 30, 2014December 31, 2015 the outstanding principal balance on these notes was $100$100.0 million.
Covenant Compliance
Our outstanding debt agreements and instruments contain various restrictive financial 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, Thethe 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$10.0 million in a given fiscal year. The current minimum ratio is 1.25 times. For further information, see “Note 12. Debt” to the financial statementsConsolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of our Fiscal 2016 Form 10-K for the year ended March 31, 2015 filed10-K/A (filed concurrently with this Form10-Q/A as of, and for the three and six months ended September 30, 2014.A). We were in compliance with our debt covenants as of September 30, 2014.December 31, 2015, with the exception of the determination in December 2016 that certain intercompany loans between ADS Mexicana and ADS, Inc. had occurred between November 2014 and November 2015 that triggered an event of default according to the terms of the ADS Mexicana Revolving Credit Facility. On December 13, 2016, ADS Mexicana obtained a covenant waiver from the lenders.
Contractual Obligation as of September 30, 2014
Payments Due by Period | ||||||||||||||||||||
(Amounts in thousands) | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | (Restated) | ||||||||||||||||
Contractual obligations: | ||||||||||||||||||||
Long-term debt(1) | $ | 397,583 | $ | 11,148 | $ | 71,740 | $ | 314,695 | $ | — | ||||||||||
Interest payments(2) | 48,012 | 14,205 | 25,246 | 8,561 | — | |||||||||||||||
Operating leases | 9,610 | 2,842 | 3,469 | 1,054 | 2,245 | |||||||||||||||
Capital leases | 70,290 | 15,157 | 28,296 | 17,430 | 9,407 | |||||||||||||||
Contractual purchase obligations(3) | 20,153 | 20,153 | — | — | — | |||||||||||||||
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Total | $ | 545,648 | $ | 63,505 | $ | 128,751 | $ | 341,740 | $ | 11,652 | ||||||||||
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Off-Balance Sheet Arrangements
We do not have anyoff-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 11.6. Related Party Transactions” of our Notes to Condensed Consolidated Financial Statements. As of September 30, 2014,December 31, 2015, our South American Joint Venture had approximately $12.3$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.
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 Annual Report onFiscal 2016 Form 10-K for the year ended March 31, 201510-K/A (filed concurrently with this FormForm 10-Q/A) which includes our restated consolidated financial statements for the yearfiscal years ended March 31, 2014.2016 and prior.
Forward-Looking Statements
This Quarterly Report on Form10-Q/A 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
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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:
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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
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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 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 1.0% increase in interest rates on our variable-rate debt would increase our annual forecasted interest expense by approximately $1.9$1.6 million based on our borrowings as of September 30, 2014.December 31, 2015. Assuming the Revolving Credit Facility is fully drawn, each 1.0% increase or decrease in the applicable interest rate would change our interest expense by approximately $3.2$3.4 million per year. To mitigate the impact of interest rate volatility, we had two interest rate swaps in effect as of September 30, 2014.December 31, 2015. The first swap is at $70a $50.0 million notional value, amortizing $2.5 million per quarter at a fixed LIBOR rate of 1.105%, and expired in September 2014. The other swap is a $50 million notional value, non-amortizing swap at a LIBOR rate of 0.86%, which expires in September 1, 2016. A third $50second $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%.
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.
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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 ourin-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 change to our annual cost of goods sold of approximately $25 million.
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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 InstrumentsForeign 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.
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 Operations.Comprehensive Income.
Item 4. Controls and Procedures
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. A control system,Management recognizes that any controls and procedures, no matter how well conceiveddesigned and operated, can provide only reasonable not absolute, assurance thatof achieving their objectives, and management necessarily applies its judgment in evaluating the objectivescost-benefit relationship of the control system are met.
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In connection with the Company’s Quarterly Report onAs previously disclosed in our Fiscal 2015 Form 10-Q for the quarter ended September 30, 2014 (the “Original Form 10-Q”), the Company’s CEO and CFO10-K, we concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at a reasonable assurance level as of September 30, 2014 (the “Evaluation Date”). Subsequent to the filing of the Original Form 10-Q and in connection with the restatement discussed elsewhere in this Quarterly Report on Form 10-Q/A, the Company’s management identified material weaknesses in the Company’sour internal control over financial reporting applicablewas not effective based upon certain material weaknesses identified as of March 31, 2015. 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 coveredestablished by this periodic report. As a result of its identificationrules of the material weaknesses, management, under the supervisionSEC for newly-public companies, our internal control over financial reporting is an integral part of our disclosure controls and with the participation of ourprocedures. Our CEO and CFO reevaluatedhave concluded that those material weaknesses previously identified in the effectiveness of the Company’s disclosure controls and proceduresFiscal 2015 Form10-K were still present as of the Evaluation Date. In addition, after the filing of the Fiscal 2016 Form10-K, an additional material weakness was identified as part of the Stock-Based Compensation Restatement. See “Item 9A — Controls and Procedures” in our Fiscal 2016 Form10-K/A for further discussion of the material weaknesses. Based on that reevaluation,those material weaknesses, and the evaluation of our disclosure controls and procedures, our CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of the Evaluation Date.
A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified certain material weaknesses in our internal control over financial reporting in the areas of (i) Company control environment, (ii) accounting for leases, (iii) accounting for inventory, (iv) journal entry and account reconciliation, (v) ADS Mexicana control environment, and (vi) ADS Mexicana revenue recognition cut-off practices. The material weaknesses in our internal control over financial reporting are more fully described in Item 9A in our Annual Report on Form 10-K for the year ended March 31, 2015, which is being filed concurrently with this Form 10-Q/A.
Changes in Internal Control over Financial Reporting
While there have been significant changesOur remediation efforts were ongoing during the three months ended December 31, 2015, and, other than those remediation efforts described in our internal control over financial reporting subsequent to September 30, 2014, as described“Remediation Process” in Item 9A of our Annual Report onFiscal 2016 Form 10-K for the year ended March 31, 2015,10-K/A, there were no changechanges in our internal control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) of the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Qthree months ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Item 1. | Legal Proceedings |
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. (CaseNo. 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 Rule10b-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.
FromOn 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 naturethat arise in the ordinary course of business. Inour 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 businessfinancial 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 |
Important 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 Annual Report onFiscal 2016 Form 10-K for the year ended March 31, 2015,10-K/A, which is being filed concurrently with this Form10-Q/A. These factors are further supplemented by those discussed in “Part II, Item 7A — Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report onFiscal 2016 Form 10-K for the year ended March 31, 201510-K/A and in “Part I, Item 3 — Quantitative and Qualitative Disclosures about Market Risk” and “Part II, Item 1 — Legal Proceedings” of this Amended Quarterly Report on Form10-Q/A.
Item 2. | Unregistered Sale of Equity Securities |
Not applicable.
On July 24, 2014, the Company’s Registration Statement (File No. 333-194980) was declared effective by the SEC for the initial public offering of its common stock, par value $0.01 per share. We registered the offering and sale of 16,675,000 shares of common stock, including 2,175,000 shares of common stock to be sold to the underwriters pursuant to their over-allotment option, at a price of $16.00 per share, with an aggregate price of the registered offering amount $266.8 million. On July 25, 2014, the Company closed its initial public offering of 14,500,000 shares of the Company’s common stock which were sold by the Company and certain of our stockholders. On August 22, 2014, an additional 600,000 shares of common stock were sold by certain of our stockholders pursuant to the underwriters’ partial exercise of their over-allotment option. The shares sold in the initial offering (including shares sold pursuant to the over-allotment option) were sold at a public offering price of $16.00 per share, for an aggregate offering price of $241.6 million. Barclays Capital Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and RBC Capital Markets, LLC acted as joint book-running managers for the offering. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Fifth Third Securities, Inc. and PNC Capital Markets LLC acted as co-managers for the offering.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
None.
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As a result of our initial public offering, we received proceeds of $79.1 million, after deducting underwriting discounts and commissions of approximately $5.5 million, from the sale by us of 5,289,474 shares of common stock. We did not receive any proceeds from the sale of shares by the selling stockholders. None of the expenses associated with the initial public offering were paid to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, except that the Company paid such portion of the fees and expenses of counsel to the selling stockholders that exceed $100,000 and any transfer taxes payable in connection with the initial public offering.
There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on July 28, 2014. We used the net proceeds that we received from our initial public offering to repay a portion of our outstanding indebtedness under the revolving portion of the Company’s credit facility.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
Item 6. | Exhibits |
The exhibits listed in the Exhibit Index are incorporated herein by reference.
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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: March 29, 2016January 10, 2017
ADVANCED DRAINAGE SYSTEMS, INC. | ||||||
By: | /s/ Joseph A. Chlapaty | |||||
Joseph A. Chlapaty | ||||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
By: | /s/ Scott A. Cottrill | |||||
Scott A. Cottrill | ||||||
Executive Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer) | ||||||
By: | /s/ Tim A. Makowski | |||||
Tim A. Makowski | ||||||
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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. andMid-Atlantic Storm Water Research Center, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form8-K (FileNo. 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. andMid-Atlantic Storm Water Research Center, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report onForm 8-K (FileNo. 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 onForm 8-K (FileNo. 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 onForm 8-K (FileNo. 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 Form8-K (FileNo. 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 RegulationS-T. |
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