16.
|
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
|
Revisions Reported in the
Fiscal Year 2016 Form
10-K
Prior to the filing of the our Annual Report on Form
10-K
for the year ended March 31, 2016 (Fiscal 2016 Form
10-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 prior period errors related primarily to the Companys 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, result in a material misstatement of the Companys
previously 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 Form
10-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 Form
10-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 Companys Board of
Directors (the Audit Committee) determined that the Companys previously issued financial statements should no longer be relied upon. As a result, the Company has restated its condensed consolidated financial statements as of
September 30, 2015 and
22
March 31, 2015 and for the three and six months ended September 30, 2015 and 2014. The restatement also affects periods prior to fiscal year 2015, with the cumulative 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
Form
10-Q.
The following sections provide additional information relating to the accounting
adjustments that were made to the Companys 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 six months ended September 30, 2015 and 2014. For the three and six months ended September 30, 2015 and 2014, the impact of the adjustments on the condensed
consolidated statements of comprehensive income 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 awards grant date fair value. Based upon an internal review of our stock-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 Companys 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 Companys initial public offering in fiscal 2015.
The errors in stock-based compensation award classification have been corrected in the restated condensed consolidated financial statements,
whereby the fair value of the liability-classified awards has been remeasured at each relevant reporting date with the corresponding impact of the remeasurement resulting in an increase or a decrease in the amount of stock-based compensation expense
included in General and administrative expenses, Selling expenses and Cost of good sold in the Condensed Consolidated Statements of Operations. In addition, the carrying value of all liability-classified awards has been reclassified from
Paid-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 Companys common stock held by the executive at the current fair market value upon the executives 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 executives 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). In the case where shares were not repurchased due to the fair value of the shares exceeding the life insurance proceeds, the executive or the executives heir or estate had a put right up to a set dollar
amount allowing the common stock to be put to the Company at the current fair market value (referred to as an executives 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 executives 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, the errors in measurement and classification of these amounts have been corrected in the restated 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 executives 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
23
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 to
Paid-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 necessary to account for the
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 executives 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 executives 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 Companys previously reported Condensed Consolidated Statements of
Operations for the three months ended September 30, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
|
(Amounts in thousands, except per share data)
|
|
As Previously
Reported
|
|
|
Effect of
Revision
|
|
|
Stock-Based
Compensation
Restatement
|
|
|
As
Restated
|
|
Net sales
|
|
$
|
383,329
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
383,329
|
|
Cost of goods sold
|
|
|
299,594
|
|
|
|
(2,794
|
)
|
|
|
|
|
|
|
296,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
83,735
|
|
|
|
2,794
|
|
|
|
|
|
|
|
86,529
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
22,594
|
|
|
|
|
|
|
|
|
|
|
|
22,594
|
|
General and administrative
|
|
|
25,145
|
|
|
|
|
|
|
|
528
|
(a)
|
|
|
25,673
|
|
Loss on disposal of assets or businesses
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
295
|
|
Intangible amortization
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
33,360
|
|
|
|
2,794
|
|
|
|
(528
|
)
|
|
|
35,626
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,947
|
|
|
|
|
|
|
|
|
|
|
|
4,947
|
|
Derivative losses and other expense, net
|
|
|
9,192
|
|
|
|
|
|
|
|
|
|
|
|
9,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
19,221
|
|
|
|
2,794
|
|
|
|
(528
|
)
|
|
|
21,487
|
|
Income tax expense
|
|
|
4,368
|
|
|
|
1,104
|
|
|
|
(285
|
)
|
|
|
5,187
|
|
Equity in net loss of unconsolidated affiliates
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
14,481
|
|
|
|
1,690
|
|
|
|
(243
|
)
|
|
|
15,928
|
|
Less net income attributable to noncontrolling interest
|
|
|
3,582
|
|
|
|
|
|
|
|
|
|
|
|
3,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ADS
|
|
|
10,899
|
|
|
|
1,690
|
|
|
|
(243
|
)
|
|
|
12,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Redeemable noncontrolling interest
|
|
|
(257
|
)
|
|
|
|
|
|
|
|
|
|
|
(257
|
)
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
|
(Amounts in thousands, except per share data)
|
|
As Previously
Reported
|
|
|
Effect of
Revision
|
|
|
Stock-Based
Compensation
Restatement
|
|
|
As
Restated
|
|
Dividends to Redeemable convertible preferred stockholders
|
|
|
(362
|
)
|
|
|
|
|
|
|
|
|
|
|
(362
|
)
|
Dividends paid to unvested restricted stockholders
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders and participating securities
|
|
|
10,274
|
|
|
|
1,690
|
|
|
|
(243
|
)
|
|
|
11,721
|
|
Undistributed income allocated to participating securities
|
|
|
(822
|
)
|
|
|
(183
|
)
|
|
|
25
|
|
|
|
(980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
9,452
|
|
|
$
|
1,507
|
|
|
$
|
(218
|
)
|
|
$
|
10,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
53,882
|
|
|
|
|
|
|
|
|
|
|
|
53,882
|
|
Diluted
|
|
|
54,282
|
|
|
|
716
|
|
|
|
196
|
|
|
|
55,194
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.18
|
|
|
|
0.02
|
|
|
|
|
|
|
$
|
0.20
|
|
Diluted
|
|
$
|
0.17
|
|
|
|
0.03
|
|
|
|
(0.01
|
)
|
|
$
|
0.19
|
|
Cash dividends declared per share
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
$
|
0.05
|
|
(a)
|
This amount consists of $446 and $82 related to the adjustments for stock-based compensation and the executive termination payments, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2014
|
|
(Amounts in thousands, except per share data)
|
|
As Previously
Reported
|
|
|
Effect of
Revision
|
|
|
Stock-Based
Compensation
Restatement
|
|
|
As
Restated
|
|
Net sales
|
|
$
|
366,714
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
366,714
|
|
Cost of goods sold
|
|
|
296,951
|
|
|
|
(674
|
)
|
|
|
300
|
(a)
|
|
|
296,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
69,763
|
|
|
|
674
|
|
|
|
(300
|
)
|
|
|
70,137
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
20,240
|
|
|
|
|
|
|
|
500
|
(a)
|
|
|
20,740
|
|
General and administrative
|
|
|
13,843
|
|
|
|
|
|
|
|
2,357
|
(b)
|
|
|
16,200
|
|
Loss on disposal of assets or businesses
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
281
|
|
Intangible amortization
|
|
|
2,610
|
|
|
|
|
|
|
|
|
|
|
|
2,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
32,789
|
|
|
|
674
|
|
|
|
(3,157
|
)
|
|
|
30,306
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
5,044
|
|
|
|
|
|
|
|
|
|
|
|
5,044
|
|
Derivative gains and other income, net
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
27,985
|
|
|
|
674
|
|
|
|
(3,157
|
)
|
|
|
25,502
|
|
Income tax expense
|
|
|
8,926
|
|
|
|
269
|
|
|
|
(1,836
|
)
|
|
|
7,359
|
|
Equity in net loss of unconsolidated affiliates
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
18,997
|
|
|
|
405
|
|
|
|
(1,321
|
)
|
|
|
18,081
|
|
Less net income attributable to noncontrolling interest
|
|
|
2,153
|
|
|
|
|
|
|
|
|
|
|
|
2,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ADS
|
|
|
16,844
|
|
|
|
405
|
|
|
|
(1,321
|
)
|
|
|
15,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of Redeemable convertible preferred stock
|
|
|
7,319
|
|
|
|
|
|
|
|
|
|
|
|
7,319
|
|
Dividends to Redeemable convertible preferred stockholders
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders and participating securities
|
|
|
24,126
|
|
|
|
405
|
|
|
|
(1,321
|
)
|
|
|
23,210
|
|
Undistributed income allocated to participating securities
|
|
|
(2,768
|
)
|
|
|
(46
|
)
|
|
|
157
|
|
|
|
(2,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
21,358
|
|
|
$
|
359
|
|
|
$
|
(1,164
|
)
|
|
$
|
20,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
51,518
|
|
|
|
|
|
|
|
|
|
|
|
51,518
|
|
Diluted
|
|
|
56,463
|
|
|
|
|
|
|
|
14
|
|
|
|
56,477
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2014
|
|
(Amounts in thousands, except per share data)
|
|
As Previously
Reported
|
|
|
Effect of
Revision
|
|
|
Stock-Based
Compensation
Restatement
|
|
|
As
Restated
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.41
|
|
|
|
0.01
|
|
|
|
(0.02
|
)
|
|
$
|
0.40
|
|
Diluted
|
|
$
|
0.41
|
|
|
|
0.01
|
|
|
|
(0.02
|
)
|
|
$
|
0.40
|
|
Cash dividends declared per share
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
(a)
|
This entire amount relates to the adjustments for stock-based compensation.
|
(b)
|
This amount consists of $3,033, ($758) and $82 related to the adjustments for stock-based compensation, the executive stock repurchase agreements, and the executive termination payments, respectively.
|
The effect of the revision and the restatement described above on the Companys previously reported Condensed Consolidated Statements of
Operations for the six months ended September 30, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30, 2015
|
|
(Amounts in thousands, except per share data)
|
|
As Previously
Reported
|
|
|
Effect of
Revision
|
|
|
Stock-Based
Compensation
Restatement
|
|
|
As
Restated
|
|
Net sales
|
|
$
|
732,453
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
732,453
|
|
Cost of goods sold
|
|
|
576,132
|
|
|
|
(4,685
|
)
|
|
|
|
|
|
|
571,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
156,321
|
|
|
|
4,685
|
|
|
|
|
|
|
|
161,006
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
43,821
|
|
|
|
|
|
|
|
|
|
|
|
43,821
|
|
General and administrative
|
|
|
43,431
|
|
|
|
|
|
|
|
927
|
(a)
|
|
|
44,358
|
|
Loss on disposal of assets or businesses
|
|
|
1,161
|
|
|
|
|
|
|
|
|
|
|
|
1,161
|
|
Intangible amortization
|
|
|
4,867
|
|
|
|
|
|
|
|
|
|
|
|
4,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
63,041
|
|
|
|
4,685
|
|
|
|
(927
|
)
|
|
|
66,799
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
9,233
|
|
|
|
|
|
|
|
|
|
|
|
9,233
|
|
Derivative losses and other expense, net
|
|
|
15,772
|
|
|
|
|
|
|
|
|
|
|
|
15,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
38,036
|
|
|
|
4,685
|
|
|
|
(927
|
)
|
|
|
41,794
|
|
Income tax expense
|
|
|
11,739
|
|
|
|
1,881
|
|
|
|
(554
|
)
|
|
|
13,066
|
|
Equity in net loss of unconsolidated affiliates
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
26,279
|
|
|
|
2,804
|
|
|
|
(373
|
)
|
|
|
28,710
|
|
Less net income attributable to noncontrolling interest
|
|
|
4,670
|
|
|
|
|
|
|
|
|
|
|
|
4,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ADS
|
|
|
21,609
|
|
|
|
2,804
|
|
|
|
(373
|
)
|
|
|
24,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Redeemable noncontrolling interest
|
|
|
(257
|
)
|
|
|
|
|
|
|
|
|
|
|
(257
|
)
|
Dividends to Redeemable convertible preferred stockholders
|
|
|
(733
|
)
|
|
|
|
|
|
|
|
|
|
|
(733
|
)
|
Dividends paid to unvested restricted stockholders
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders and participating securities
|
|
|
20,607
|
|
|
|
2,804
|
|
|
|
(373
|
)
|
|
|
23,038
|
|
Undistributed income allocated to participating securities
|
|
|
(1,680
|
)
|
|
|
(308
|
)
|
|
|
39
|
|
|
|
(1,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
18,927
|
|
|
$
|
2,496
|
|
|
$
|
(334
|
)
|
|
$
|
21,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
53,753
|
|
|
|
|
|
|
|
|
|
|
|
53,753
|
|
Diluted
|
|
|
60,694
|
|
|
|
(5,901
|
)
|
|
|
300
|
|
|
|
55,093
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.35
|
|
|
|
0.05
|
|
|
|
(0.01
|
)
|
|
$
|
0.39
|
|
Diluted
|
|
$
|
0.34
|
|
|
|
0.05
|
|
|
|
(0.01
|
)
|
|
$
|
0.38
|
|
Cash dividends declared per share
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
$
|
0.10
|
|
(a)
|
This amount consists of $763 and $164 related to the adjustments for stock-based compensation and the executive termination payments, respectively.
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30, 2014
|
|
(Amounts in thousands, except per share data)
|
|
As Previously
Reported
|
|
|
Effect of
Revision
|
|
|
Stock-Based
Compensation
Restatement
|
|
|
As
Restated
|
|
Net sales
|
|
$
|
693,148
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
693,148
|
|
Cost of goods sold
|
|
|
562,527
|
|
|
|
(1,521
|
)
|
|
|
700
|
(a)
|
|
|
561,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
130,621
|
|
|
|
1,521
|
|
|
|
(700
|
)
|
|
|
131,442
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
39,792
|
|
|
|
|
|
|
|
700
|
(a)
|
|
|
40,492
|
|
General and administrative
|
|
|
29,641
|
|
|
|
|
|
|
|
5,527
|
(b)
|
|
|
35,168
|
|
Loss on disposal of assets or businesses
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
345
|
|
Intangible amortization
|
|
|
5,223
|
|
|
|
|
|
|
|
|
|
|
|
5,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
55,620
|
|
|
|
1,521
|
|
|
|
(6,927
|
)
|
|
|
50,214
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
10,095
|
|
|
|
|
|
|
|
|
|
|
|
10,095
|
|
Derivative gains and other income, net
|
|
|
(456
|
)
|
|
|
|
|
|
|
|
|
|
|
(456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
45,981
|
|
|
|
1,521
|
|
|
|
(6,927
|
)
|
|
|
40,575
|
|
Income tax expense
|
|
|
16,819
|
|
|
|
640
|
|
|
|
(2,090
|
)
|
|
|
15,369
|
|
Equity in net loss of unconsolidated affiliates
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
28,438
|
|
|
|
881
|
|
|
|
(4,837
|
)
|
|
|
24,482
|
|
Less net income attributable to noncontrolling interest
|
|
|
3,028
|
|
|
|
|
|
|
|
|
|
|
|
3,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ADS
|
|
|
25,410
|
|
|
|
881
|
|
|
|
(4,837
|
)
|
|
|
21,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of Redeemable convertible preferred stock
|
|
|
(11,054
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,054
|
)
|
Dividends to Redeemable convertible preferred stockholders
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders and participating securities
|
|
|
14,281
|
|
|
|
881
|
|
|
|
(4,837
|
)
|
|
|
10,325
|
|
Undistributed income allocated to participating securities
|
|
|
(1,702
|
)
|
|
|
(105
|
)
|
|
|
578
|
|
|
|
(1,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
12,579
|
|
|
$
|
776
|
|
|
$
|
(4,259
|
)
|
|
$
|
9,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
49,538
|
|
|
|
|
|
|
|
|
|
|
|
49,538
|
|
Diluted
|
|
|
52,198
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
52,141
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
|
0.02
|
|
|
|
(0.09
|
)
|
|
$
|
0.18
|
|
Diluted
|
|
$
|
0.25
|
|
|
|
0.02
|
|
|
|
(0.09
|
)
|
|
$
|
0.18
|
|
Cash dividends declared per share
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
(a)
|
This entire amount relates to the adjustments for stock-based compensation.
|
(b)
|
This amount consists of $4,352, $1,011, and $164 related to the adjustments for stock-based compensation, the executive stock repurchase agreements, and the executive termination payments, respectively.
|
27
Impact on Condensed Consolidated Balance Sheets
The effect of the revision and restatement described above on the Companys previously reported Condensed Consolidated Balance Sheets as
of September 30, 2015 and March 31, 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015
|
|
(Amounts in thousands)
|
|
As Previously
Reported
|
|
|
Effect of
Revision
|
|
|
Stock-Based
Compensation
Restatement
|
|
|
As Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,481
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,481
|
|
Receivables, net
|
|
|
254,583
|
|
|
|
|
|
|
|
|
|
|
|
254,583
|
|
Inventories
|
|
|
220,257
|
|
|
|
(5,861
|
)
|
|
|
|
|
|
|
214,396
|
|
Deferred income taxes and other current assets
|
|
|
22,538
|
|
|
|
3,532
|
|
|
|
3,439
|
|
|
|
29,509
|
|
Property, plant and equipment, net
|
|
|
389,826
|
|
|
|
|
|
|
|
|
|
|
|
389,826
|
|
Goodwill
|
|
|
100,483
|
|
|
|
|
|
|
|
|
|
|
|
100,483
|
|
Intangible assets, net
|
|
|
63,811
|
|
|
|
|
|
|
|
|
|
|
|
63,811
|
|
Other assets
|
|
|
51,656
|
|
|
|
|
|
|
|
|
|
|
|
51,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,106,635
|
|
|
$
|
(2,329
|
)
|
|
$
|
3,439
|
|
|
$
|
1,107,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of debt obligations
|
|
$
|
35,850
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
35,850
|
|
Current maturities of capital lease obligations
|
|
|
19,292
|
|
|
|
|
|
|
|
|
|
|
|
19,292
|
|
Accounts payable
|
|
|
87,020
|
|
|
|
|
|
|
|
|
|
|
|
87,020
|
|
Current portion of liability-classified stock-based awards
|
|
|
|
|
|
|
|
|
|
|
19,143
|
|
|
|
19,143
|
|
Other accrued liabilities
|
|
|
80,690
|
|
|
|
|
|
|
|
|
|
|
|
80,690
|
|
Accrued income taxes
|
|
|
5,607
|
|
|
|
1,892
|
|
|
|
1,408
|
|
|
|
8,907
|
|
Long-term debt obligation
|
|
|
389,685
|
|
|
|
|
|
|
|
|
|
|
|
389,685
|
|
Long-term capital lease obligation
|
|
|
57,586
|
|
|
|
|
|
|
|
|
|
|
|
57,586
|
|
Deferred tax liabilities
|
|
|
61,842
|
|
|
|
(492
|
)
|
|
|
(3,479
|
)
|
|
|
57,871
|
|
Other liabilities
|
|
|
31,877
|
|
|
|
(44
|
)
|
|
|
9,050
|
|
|
|
40,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
769,449
|
|
|
|
1,356
|
|
|
|
26,122
|
|
|
|
796,927
|
|
Mezzanine equity
|
|
|
111,074
|
|
|
|
|
|
|
|
|
|
|
|
111,074
|
|
Common stock
|
|
|
12,393
|
|
|
|
|
|
|
|
|
|
|
|
12,393
|
|
Paid-in
capital
|
|
|
710,341
|
|
|
|
|
|
|
|
23,170
|
|
|
|
733,511
|
|
Common stock in treasury, at cost
|
|
|
(442,418
|
)
|
|
|
|
|
|
|
|
|
|
|
(442,418
|
)
|
Accumulated other comprehensive loss
|
|
|
(23,683
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,683
|
)
|
Retained deficit
|
|
|
(47,055
|
)
|
|
|
(3,685
|
)
|
|
|
(45,853
|
)
|
|
|
(96,593
|
)
|
Noncontrolling interest in subsidiaries
|
|
|
16,534
|
|
|
|
|
|
|
|
|
|
|
|
16,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, mezzanine equity and stockholders equity
|
|
$
|
1,106,635
|
|
|
$
|
(2,329
|
)
|
|
$
|
3,439
|
|
|
$
|
1,107,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
(Amounts in thousands)
|
|
As Previously
Reported
|
|
|
Effect of
Revision
|
|
|
Stock-Based
Compensation
Restatement
|
|
|
As Restated
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Effect of Prior Period Adjustments
The following table presents the impact of the revision and the restatement described above to the Companys 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit), April 1, 2014 (As Restated)
|
|
$
|
11,957
|
|
|
$
|
8,369
|
|
|
$
|
(448,439
|
)
|
|
$
|
(6,830
|
)
|
|
$
|
(36,680
|
)
|
|
$
|
(471,623
|
)
|
|
$
|
18,584
|
|
|
$
|
(453,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Additional Subsequent Events
Subsequent Events Related to the Bank Term Loans and Senior Notes
In July 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 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 Companys 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 November 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 Companys
payment of a quarterly dividend of $0.06 per share on common shares in December 2016, as well as the annual dividend of $0.0195 per share to be paid on shares of preferred stock 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.
17.
|
STOCK-BASED COMPENSATION
|
ADS 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 each award. Liability-classified stock option and restricted stock
awards are
re-measured
at fair value at each relevant reporting date, and the
pro-rata
vested portion of the award is recognized as a liability. Prior to the IPO,
liability-classified stock options were re-measured at fair value each period until the earlier of six months after the stock options were exercised or the IPO date, and liability-classified restricted stock was re-measured at fair value each 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 each period until they are exercised.
The Company accounts for all stock options granted to employees as liability-classified awards. Prior to the Companys IPO in 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 Company
accounts for all restricted stock granted 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 Operations for the three and six months ended September 30, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Six Months Ended
September 30,
|
|
(Amounts in thousands)
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
Component of income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
$
|
|
|
|
$
|
300
|
|
|
$
|
|
|
|
$
|
700
|
|
Selling expenses
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
700
|
|
General and administrative expenses
|
|
|
1,170
|
|
|
|
5,164
|
|
|
|
2,212
|
|
|
|
8,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
1,170
|
|
|
$
|
5,964
|
|
|
$
|
2,212
|
|
|
$
|
10,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Stock Options
Our 2000 stock option plan (2000 Plan) provides for the issuance of statutory and
non-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.
Our 2013 stock
option plan (2013 Plan) provides for the issuance of
non-statutory
common stock options to management subject to the Boards 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.
The Company determines the fair value of the options based on the
Black-Scholes option pricing model. This methodology requires significant inputs including the price of our common stock, risk-free interest rate, dividend yield and expiration date. During the three months ended September 30, 2015 and 2014, we
recognized total stock-based compensation expense (benefit) under both stock option plans of $931, and $5,452, respectively, and during the six months ended September 30, 2015 and 2014, we recognized total stock-based compensation expense
(benefit) under both plans of $1,708, and $8,967, respectively.
We estimate the fair value of stock options using a Black-Scholes
option-pricing model, with assumptions as 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.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Six Months Ended
September 30,
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Common stock price
|
|
$26.35 - $32.37
|
|
$14.88 - $21.76
|
|
$26.35 - $33.03
|
|
$14.33 - $21.76
|
Expected stock price volatility
|
|
28.9% - 45.1%
|
|
21.5% - 50.8%
|
|
28.9% - 45.1%
|
|
21.5% - 50.8%
|
Risk-free interest rate
|
|
0.1% - 1.8%
|
|
< 0.1% - 2.4%
|
|
0.1% - 1.8%
|
|
< 0.1% - 2.4%
|
Weighted-average expected option life (years)
|
|
0.3 - 6.7
|
|
0.3 - 7.7
|
|
0.3 - 6.7
|
|
0.3 - 7.7
|
Dividend yield
|
|
0.7%
|
|
0.6%
|
|
0.7%
|
|
0.6%
|
31
Item 2. Managements 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, 2016 refers to fiscal 2016, which is the period from April 1, 2015 to March 31, 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 Fiscal 2016 Form
10-K/A
(filed
concurrently with this Amendment No.1 to our Form
10-Q)
which includes our restated consolidated financial statements for the years ended March 31, 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 and our
Tigre-ADS
USA joint venture.
Overview
We are the leading manufacturer
of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management products and superior drainage solutions for use in the construction and infrastructure marketplace. Our innovative products are used across a
broad range of end markets and applications, including
non-residential,
residential, agriculture and infrastructure applications. We have established a leading position in many of these end markets by
leveraging our national sales and distribution platform, our overall product breadth and scale and our manufacturing excellence. In North America, our national footprint combined with our strong local presence and broad product offering makes us the
leader in an otherwise highly fragmented sector comprised of many smaller competitors. We believe the markets we serve in the United States represent approximately $10.5 billion of annual revenue opportunity. In addition, we believe the
increasing acceptance of thermoplastic pipe products in international markets represents an attractive growth opportunity.
Our products
are generally lighter, more durable, more cost effective and easier to install than comparable alternatives made with traditional materials. Following our entrance into the
non-residential
construction market
with the introduction of
N-12
corrugated polyethylene pipe in the late 1980s, our pipe has been displacing traditional materials, such as reinforced concrete, corrugated steel and PVC, across an ever expanding
range of end markets. This has allowed us to consistently gain share and achieve above market growth throughout economic cycles. We expect to continue to drive conversion to our products from traditional products as contractors, civil design
engineers and municipal agencies increasingly acknowledge the superior physical attributes and compelling value proposition of our thermoplastic products. In addition, we believe that overall demand for our products will benefit as the regulatory
environment continues to evolve.
Our broad product line includes corrugated high density polyethylene (or HDPE) pipe, polypropylene (or
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 Managements 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 six months ended September 30, 2015 and 2014 and the Condensed Consolidated Balance Sheets as of September 30, 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 Form
10-Q/A.
32
Recent Developments
2014 Initial Public Offering (IPO)
On July 11, 2014, in anticipation of the IPO, we executed a
4.707-for-one
split of our common and our preferred stock. The effect of the stock split on outstanding shares and earnings per share has been retroactively applied to
all periods presented.
On July 25, 2014, we completed the IPO of our common stock, which resulted in the sale by the Company of
5,289,474 shares of 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 NYSE 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 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 (Secondary Public Offering)
On December 9, 2014, we completed a Secondary Public Offering of our common stock, which resulted in the sale of 10,000,000 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.
On December 15, 2014, an additional 1,500,000 shares of common stock were sold by a certain selling stockholder of the Company as a
result of the full exercise by the underwriters of the over-allotment option granted by the selling stockholder to the underwriters in connection with the Secondary Public Offering. The shares were sold at the public offering price of $21.25 per
share. The Company did not receive any proceeds from the sale of such additional shares.
Acquisition of Ideal Pipe
On January 30, 2015, Hancor of Canada, Inc., a wholly-owned subsidiary of the Company, acquired all issued and outstanding shares of Ideal
Drain Tile Limited and Wave Plastics Inc., the sole partners of Ideal Pipe (together Ideal Pipe) for a contractual purchase price of $55.7 million Canadian dollars, financed through our existing line of credit facility. Ideal Pipe
designs, manufactures and markets high performance thermoplastic corrugated pipe and related water management products used across a broad range of Canadian end markets and applications, including nonresidential, residential, agriculture, and
infrastructure applications. The acquisition further strengthens our positions in Canada by increasing our size and scale in the market, as well as enhancing our manufacturing, marketing and distribution capabilities. The results of operations of
Ideal Pipe are included in our Condensed Consolidated Statements of Operations after January 30, 2015.
Acquisition of BaySaver
On July 17, 2015, ADS Ventures, Inc. (ADS/V), a wholly-owned subsidiary of the Company, acquired an additional 10% of the
issued and outstanding membership interests in BaySaver, for a purchase price of $3.2 million, subject to certain post-closing purchase price payments, which was financed through our existing line of credit facility. The BaySaver joint venture was
established in July 2013 to design, engineer, manufacture, market and sell water quality filters and separators used in the removal of sediment and pollution from storm water anywhere in the world except New Zealand, Australia and South Africa. The
Company originally contributed $3.5 million in cash, $1.3 million in inventory, and intangible assets with no carrying value, in exchange for a 55% equity interest and a 50% voting interest in BaySaver. Concurrent with the additional investment in
July 2015, we also entered into an amendment to the BaySaver joint venture agreement to modify the voting rights for the joint venture from an equal vote for each member to a vote based upon the ownership interest. As a result, the Company increased
its ownership interest in BaySaver to 65% and obtained the majority of the voting rights.
33
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
BaySavers 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 (gains) and other expense (income), net in our Condensed Consolidated Statements of Operations.
Results of Operations
Three Months Ended
September 30, 2015 Compared With Three Months Ended September 30, 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, 2015 and 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, except per share data)
|
|
Three Months
Ended
September 30,
2015
|
|
|
% of
Net Sales
|
|
|
Three Months
Ended
September 30,
2014
|
|
|
% of
Net Sales
|
|
|
%
Variance
|
|
|
|
(As Restated)
(a)
|
|
|
|
|
|
(As Restated)
(a)
|
|
|
|
|
|
|
|
Consolidated Statements of Operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
383,329
|
|
|
|
100.0
|
%
|
|
$
|
366,714
|
|
|
|
100.0
|
%
|
|
|
4.5
|
%
|
Cost of goods sold
|
|
|
296,800
|
|
|
|
77.4
|
%
|
|
|
296,577
|
|
|
|
80.9
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
86,529
|
|
|
|
22.6
|
%
|
|
|
70,137
|
|
|
|
19.1
|
%
|
|
|
23.4
|
%
|
Selling expenses
|
|
|
22,594
|
|
|
|
5.9
|
%
|
|
|
20,740
|
|
|
|
5.7
|
%
|
|
|
8.9
|
%
|
General and administrative expenses
|
|
|
25,673
|
|
|
|
6.7
|
%
|
|
|
16,200
|
|
|
|
4.4
|
%
|
|
|
58.5
|
%
|
Loss on disposal of assets or businesses
|
|
|
295
|
|
|
|
0.1
|
%
|
|
|
281
|
|
|
|
0.1
|
%
|
|
|
5.0
|
%
|
Intangible amortization
|
|
|
2,341
|
|
|
|
0.6
|
%
|
|
|
2,610
|
|
|
|
0.7
|
%
|
|
|
(10.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
35,626
|
|
|
|
9.3
|
%
|
|
|
30,306
|
|
|
|
8.3
|
%
|
|
|
17.6
|
%
|
Interest expense
|
|
|
4,947
|
|
|
|
1.3
|
%
|
|
|
5,044
|
|
|
|
1.4
|
%
|
|
|
(1.9
|
%)
|
Derivative losses (gains) and other expense (income), net
|
|
|
9,192
|
|
|
|
2.4
|
%
|
|
|
(240
|
)
|
|
|
(0.1
|
%)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
21,487
|
|
|
|
5.6
|
%
|
|
|
25,502
|
|
|
|
7.0
|
%
|
|
|
(15.7
|
%)
|
Income tax expense
|
|
|
5,187
|
|
|
|
1.4
|
%
|
|
|
7,359
|
|
|
|
2.0
|
%
|
|
|
(29.5
|
%)
|
Equity in net loss of unconsolidated affiliates
|
|
|
372
|
|
|
|
0.1
|
%
|
|
|
62
|
|
|
|
|
%
|
|
|
500.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
15,928
|
|
|
|
4.2
|
%
|
|
|
18,081
|
|
|
|
4.9
|
%
|
|
|
(11.9
|
%)
|
Less net income attributable to noncontrolling interest
|
|
|
3,582
|
|
|
|
0.9
|
%
|
|
|
2,153
|
|
|
|
0.6
|
%
|
|
|
66.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ADS
|
|
$
|
12,346
|
|
|
|
3.2
|
%
|
|
$
|
15,928
|
|
|
|
4.3
|
%
|
|
|
(22.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(b)
|
|
$
|
63,737
|
|
|
|
16.6
|
%
|
|
$
|
55,874
|
|
|
|
15.2
|
%
|
|
|
14.1
|
%
|
System-Wide Net Sales
(b)
|
|
$
|
401,337
|
|
|
|
104.7
|
%
|
|
$
|
390,610
|
|
|
|
106.5
|
%
|
|
|
2.7
|
%
|
Adjusted Earnings Per Fully Converted Share
(b)
|
|
$
|
0.21
|
|
|
|
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
(19.2
|
%)
|
(a)
|
See Note 16. Restatement of Previously Issued Financial Statements to the Condensed Consolidated Financial Statements.
|
(b)
|
See section entitled
Non-GAAP
Financial Measures for further information.
|
34
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
(Amounts in thousands)
|
|
2015
|
|
|
2014
|
|
|
% Variance
|
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipe
|
|
$
|
238,291
|
|
|
$
|
241,713
|
|
|
|
(1.4
|
%)
|
Allied Products
|
|
|
89,009
|
|
|
|
78,063
|
|
|
|
14.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total domestic
|
|
|
327,300
|
|
|
|
319,776
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipe
|
|
|
44,542
|
|
|
|
38,218
|
|
|
|
16.5
|
%
|
Allied Products
|
|
|
11,487
|
|
|
|
8,720
|
|
|
|
31.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international
|
|
|
56,029
|
|
|
|
46,938
|
|
|
|
19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
383,329
|
|
|
$
|
366,714
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note 16. Restatement of Previously Issued Financial Statements to the Condensed Consolidated Financial Statements.
|
Net sales for the second quarter ended September 30, 2015 totaled $383.3 million, increasing $16.6 million, or 4.5%, over the
comparable prior year period.
Domestic net sales increased $7.5 million, or 2.4%, for the second quarter ended September 30,
2015, as compared to the prior year period. The sales growth was primarily attributed to a 14.0% increase in Allied Products sales, which increased $10.9 million for the three months ended September 30, 2015 and included the addition of
$3.5 million of Allied Products sales from the BaySaver acquisition in addition to growth in the StormTech, Nyloplast, and Fittings product lines. Pipe sales decreased $3.4 million, or 1.4%, due to lower agricultural single wall sales
which offset growth in the domestic construction markets. Pipe selling prices increased 1.0% compared to the prior year, but were offset by a 2.4% decline in the volume of pipe sold compared to the prior year.
International net sales for the second quarter ended September 30, 2015 increased $9.1 million, or 19.4%, over the comparable fiscal
year 2015 period. The growth was primarily due to increased sales in Canada of $12.0 million offset by decreased sales in Mexico of $0.9 million. The acquisition of Ideal Pipe in Canada contributed $13.1 million to the increase in
Canadian sales. In addition, the Canadian dollar was approximately 17% weaker against the U.S. dollar in the three month period ended September 30, 2015, compared to the three month period ended September 30, 2014, which had a negative
impact on net sales for Canada of $7.0 million during the three month period ended September 30, 2015.
System-Wide Net Sales
for the second quarter ended September 30, 2015 were $401.3 million, an increase of $10.7 million, or 2.7%, over System-Wide Net Sales of $390.6 million for the second quarter ended September 30, 2014. 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 and declined $3.3 million or 19.6%
compared to the prior year period. Net sales growth at our domestic joint ventures,
Tigre-ADS
USA and BaySaver (prior to the July 17, 2015 step acquisition of BaySaver) provided a combined decrease of
$2.6 million in net sales for the unconsolidated joint ventures for the three months ended September 30 2015, as compared to the prior year period. During the three months ended September 30, 2015, the Company acquired a controlling
interest in BaySaver on July 17, 2015 and revenues from that point forward have been included in the domestic net sales total.
Cost of goods sold
and Gross profit
Cost of goods sold increased $0.2 million or 0.1% to $296.8 million for the three months ended
September 30, 2015 compared to $296.6 million over the comparable fiscal year 2015 period.
Gross profit for the three months
ended September 30, 2015 increased $16.4 million, or 23.4%, over the comparable fiscal year 2015 period. Gross profit as a percentage of net sales totaled 22.6% and 19.1% for the three months ended September 30, 2015 and 2014,
respectively.
35
Domestic gross profit increased $10.3 million, or 15.7%, to $76.1 million for the three
months ended September 30, 2015 as compared to $65.8 million during the prior fiscal year 2015 period. In addition to the impact of the 2.4% increase in domestic net sales over the comparable fiscal year 2015 period, the increase in
domestic gross profit was also due to sales growth in higher margin Allied Products which provided an improved profitability mix for the quarter compared to the comparable prior year period, as well as lower raw material costs for pipe. Raw material
prices decreased 8.5% due to moderating virgin and
non-virgin
resin prices for the second quarter of fiscal year 2016 as compared to the prior year comparable period. In addition, freight costs stayed
relatively flat as a percentage of domestic net sales, increasing from 8.9% for the fiscal year 2015 period to 9.3% for the three months ended September 30, 2015. This was the result of increased depreciation expense associated with new
delivery fleet units being partially offset by the impact of a decrease in diesel fuel prices of approximately 33%.
International gross
profit increased $6.1 million, or 141.9%, for the three months ended September 30, 2015 over the comparable fiscal year 2015 period. Besides the impact of the 19.4% increase in international net sales over the comparable 2015 period, the
increase in international gross profit was also helped by the addition of Ideal Pipe activity in Canada, which comprised the majority of the gross profit increase during the quarter. Conversely, international gross profit was negatively impacted by
the continued devaluation of the Canadian dollar versus the U.S. dollar, but benefited from lower raw material prices (which are primarily purchased in U.S. dollars) compared to the prior fiscal year 2015 period.
Selling expenses
Selling expenses
consist of field selling and customer service for personnel engaged in sales and sales support functions. Field selling and customer service expenditures primarily consist 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, 2015 increased $1.9 million, or 8.9%, over the comparable fiscal year 2015 period, higher than the 4.5% increase in net sales over the same 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 increased to 5.9% for the second quarter of fiscal year 2016 as compared to 5.7%
for the prior fiscal year 2015 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, 2015 increased
$9.5 million, or 58.5%, over the comparable fiscal year 2015 period.
The significant increase in general and administrative expenses
was primarily the result of audit, tax, legal and other professional fees of $8.7 million incurred during the three months ended September 30, 2015 related to the restatement of our previously filed financial statements as part of the
preparation of our Fiscal 2015 Form
10-K.
There were no such amounts in the comparable fiscal 2015 period. Also, there was a $0.8 million benefit recorded associated with the executive stock repurchase
agreements in the fiscal 2015 period, whereas there was no such amount in the fiscal 2016 period. In addition, international general and administrative expenses increased approximately $0.4 million primarily due to the addition of
$0.3 million of costs associated with Ideal Pipe, and there was an additional increase related to higher corporate overhead expenses which were generally associated with the increased cost of being a public company. These amounts were partially
offset by a decrease in stock-based compensation of $4.0 million.
Loss on disposal of assets or businesses
Loss on disposal of assets or businesses remained flat at $0.3 million for the three months ended September 30, 2015 and 2014.
Intangible amortization
Intangible
amortization for the three months ended September 30, 2015 decreased $0.3 million compared to the three months ended September 30, 2014 as a result of intangible assets of $7.8 million becoming fully amortized during fiscal 2015
offset by the amortization of 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 year 2016.
36
Interest expense
Interest expense for the three months ended September 30, 2015 was essentially flat compared to the three months ended September 30,
2014.
Derivative losses (gains) and other expense (income), net
Derivative losses (gains) and other expense (income), net reflects a loss of $9.2 million for the three months ended September 30,
2015 compared to $0.2 million of income for the comparable fiscal year 2015 period. The increase in the net expense was primarily due to unfavorable
mark-to-market
adjustments of $5.8 million for changes in fair value of derivative contracts (diesel fuel hedges and raw material derivatives), cash settlement losses of $3.8 million on these same hedging arrangements, and a loss of $0.5 million
recognized for the fair value remeasurement of the Companys original investment in BaySaver at the time the Company acquired a controlling interest in July 2015, offset by miscellaneous other income.
Income tax expense
The Companys
effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and related tax rates in jurisdictions where it operates and other
one-time
charges, as well as discrete events. For the three months ended September 30, 2015 and 2014, the Company recorded an income tax provision of $5.2 million and $7.4 million, respectively.
Income tax expense for the three months ended September 30, 2015 was 24.1% of Income before income taxes compared to 28.9% for the three months ended September 30, 2014. The decrease in the effective tax rate was due primarily to the
benefit recorded upon the reversal of reserves for uncertain tax positions as the statute of limitations lapsed.
Equity in net loss of unconsolidated
affiliates
Equity in net loss of unconsolidated affiliates increased $0.3 million to $0.4 million for the three months ended
September 30, 2014 compared to $0.1 million for the three months ended September 30, 2014.
Net income attributable to noncontrolling
interest
Net income attributable to noncontrolling interest increased $1.4 million from $2.2 million during the three months
ended September 30, 2014 to $3.6 million during the three months ended September 30, 2015. The increase resulted from improved operating results for ADS Mexicana and the inclusion of BaySaver noncontrolling interest subsequent to
July 17, 2015.
Net income attributable to ADS and Net income per share
Second quarter net income attributable to ADS for fiscal year 2016 of $12.3 million decreased $3.6 million, or 22.5%, from the
preceding fiscal years net income attributable to ADS for the quarter of $15.9 million, as influenced by the factors noted above. Net income per share for the second quarter fiscal year 2016 totaled $0.20 per basic and $0.19 per diluted
share, as compared to $0.40 per basic and diluted share recorded in the comparable prior year period.
Adjusted EBITDA
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
(Amounts in thousands)
|
|
2015
|
|
|
2014
|
|
|
% Variance
|
|
|
|
(As Restated)
(b)
|
|
|
(As Restated)
(b)
|
|
|
|
|
Domestic
|
|
$
|
55,443
|
|
|
$
|
54,469
|
|
|
|
1.8
|
%
|
International
|
|
|
8,294
|
|
|
|
1,405
|
|
|
|
490.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted EBITDA
|
|
$
|
63,737
|
|
|
$
|
55,874
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net sales
|
|
|
16.6
|
%
|
|
|
15.2
|
%
|
|
|
|
|
(a)
|
See section entitled
Non-GAAP
Financial Measures for further information.
|
(b)
|
See Note 16. Restatement of Previously Issued Financial Statements to the Condensed Consolidated Financial Statements.
|
37
Six Months Ended September 30, 2015 Compared With Six Months Ended September 30, 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 six months ended September 30, 2015 and 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, except per share data)
|
|
Six Months Ended
September 30, 2015
|
|
|
% of
Net
Sales
|
|
|
Six Months Ended
September 30, 2014
|
|
|
% of
Net
Sales
|
|
|
%
Variance
|
|
|
|
(As Restated)
(a)
|
|
|
|
|
|
(As Restated)
(a)
|
|
|
|
|
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
732,453
|
|
|
|
100.0
|
%
|
|
$
|
693,148
|
|
|
|
100.0
|
%
|
|
|
5.7
|
%
|
Cost of goods sold
|
|
|
571,447
|
|
|
|
78.0
|
%
|
|
|
561,706
|
|
|
|
81.0
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
161,006
|
|
|
|
22.0
|
%
|
|
|
131,442
|
|
|
|
19.0
|
%
|
|
|
22.5
|
%
|
Selling expenses
|
|
|
43,821
|
|
|
|
6.0
|
%
|
|
|
40,492
|
|
|
|
5.8
|
%
|
|
|
8.2
|
%
|
General and administrative expenses
|
|
|
44,358
|
|
|
|
6.1
|
%
|
|
|
35,168
|
|
|
|
5.1
|
%
|
|
|
26.1
|
%
|
Loss on disposal of assets or businesses
|
|
|
1,161
|
|
|
|
0.2
|
%
|
|
|
345
|
|
|
|
|
%
|
|
|
236.5
|
%
|
Intangible amortization
|
|
|
4,867
|
|
|
|
0.7
|
%
|
|
|
5,223
|
|
|
|
0.8
|
%
|
|
|
(6.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
66,799
|
|
|
|
9.1
|
%
|
|
|
50,214
|
|
|
|
7.2
|
%
|
|
|
33.0
|
%
|
Interest expense
|
|
|
9,233
|
|
|
|
1.3
|
%
|
|
|
10,095
|
|
|
|
1.5
|
%
|
|
|
(8.5
|
%)
|
Derivative losses (gains) and other expense (income), net
|
|
|
15,772
|
|
|
|
2.2
|
%
|
|
|
(456
|
)
|
|
|
(0.1
|
%)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
41,794
|
|
|
|
5.7
|
%
|
|
|
40,575
|
|
|
|
5.9
|
%
|
|
|
3.0
|
%
|
Income tax expense
|
|
|
13,066
|
|
|
|
1.8
|
%
|
|
|
15,369
|
|
|
|
2.2
|
%
|
|
|
(15.0
|
%)
|
Equity in net loss of unconsolidated affiliates
|
|
|
18
|
|
|
|
|
%
|
|
|
724
|
|
|
|
0.1
|
%
|
|
|
(97.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
28,710
|
|
|
|
3.9
|
%
|
|
|
24,482
|
|
|
|
3.5
|
%
|
|
|
17.3
|
%
|
Less net income attributable to noncontrolling interest
|
|
|
4,670
|
|
|
|
0.6
|
%
|
|
|
3,028
|
|
|
|
0.4
|
%
|
|
|
54.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ADS
|
|
$
|
24,040
|
|
|
|
3.3
|
%
|
|
$
|
21,454
|
|
|
|
3.1
|
%
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(b)
|
|
$
|
116,185
|
|
|
|
15.9
|
%
|
|
$
|
101,849
|
|
|
|
14.7
|
%
|
|
|
14.1
|
%
|
System-Wide Net Sales
(b)
|
|
$
|
772,470
|
|
|
|
105.5
|
%
|
|
$
|
736,834
|
|
|
|
106.3
|
%
|
|
|
4.8
|
%
|
Adjusted Earnings per Fully Converted Share
(b)
|
|
$
|
0.41
|
|
|
|
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
7.9
|
%
|
(a)
|
See Note 16. Restatement of Previously Issued Financial Statements to the Condensed Consolidated Financial Statements.
|
(b)
|
See section entitled
Non-GAAP
Financial Measures for further information.
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30,
|
|
(Amounts in thousands)
|
|
2015
|
|
|
2014
|
|
|
% Variance
|
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipe
|
|
$
|
458,826
|
|
|
$
|
457,749
|
|
|
|
0.2
|
%
|
Allied Products
|
|
|
166,640
|
|
|
|
151,652
|
|
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total domestic
|
|
|
625,466
|
|
|
|
609,401
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipe
|
|
|
86,917
|
|
|
|
68,149
|
|
|
|
27.5
|
%
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30,
|
|
(Amounts in thousands)
|
|
2015
|
|
|
2014
|
|
|
% Variance
|
|
Allied Products
|
|
|
20,070
|
|
|
|
15,598
|
|
|
|
28.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international
|
|
|
106,987
|
|
|
|
83,747
|
|
|
|
27.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
732,453
|
|
|
$
|
693,148
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note 16. Restatement of Previously Issued Financial Statements to the Condensed Consolidated Financial Statements.
|
Net sales totaled $732.5 million for the six months ended September 30, 2015, increasing $39.4 million, or 5.7%, over the
comparable fiscal year 2015 period.
Domestic net sales increased $16.1 million, or 2.6%, for the six months ended September 30,
2015, as compared to the prior fiscal year period. The increase in domestic net sales was due to continued sales growth in the
non-residential,
infrastructure, and residential markets, offsetting a decline in
agricultural sales. The sales growth is broken down between our Pipe and Allied Products, which increased $1.1 million and $14.9 million, respectively, for the six months ended September 30, 2015 compared to the comparable period in
fiscal 2015. The Pipe increase reflects growth in our domestic construction markets, offsetting lower agricultural sales. The increase in Allied Product sales was led by volume gains primarily in the
non-residential
and residential markets. In addition, approximately $3.5 million of the Allied Products sales increase related to the BaySaver acquisition which closed in July 2015. Pipe selling prices
increased 5.1% compared to the prior year.
International net sales increased $23.3 million, or 27.8%, for the six months ended
September 30, 2015 over the comparable fiscal year 2015 period. The growth was primarily due to increased sales in Canada of $23.1 million helped significantly by the acquisition of Ideal Pipe, which contributed $25.3 million in
incremental sales. Pipe sales increased $18.8 million or 27.5% while international Allied Products grew $4.5 million or 28.7%. In addition, the Canadian dollar was approximately 14% weaker against the U.S. dollar in the six month period
ended September 30, 2015, compared to the six month period ended September 30, 2014, which had a negative impact on Net sales for Canada of $10.6 million during the six month period ended September 30, 2015.
System-Wide Net Sales were $772.5 million for the first six months of fiscal year 2016, an increase of $35.7 million, or 4.8%, over
System-Wide Net Sales of $736.8 million for the first six months of fiscal year 2015. Net sales at our South American Joint Venture operation declined $2.9 million or 9.4% for the six months ending September 30, 2015 compared to the
prior period and were negatively impacted by continued softness in Brazil as well as the mining markets and an overall construction slowdown due to a declining economic environment and reduced public spending. Net sales at our domestic joint
ventures,
Tigre-ADS
USA and BaySaver (prior to the step acquisition in July 2015) are relatively flat compared to the prior year, although the fiscal year 2015 period included BaySaver sales for the entire six
month period and the fiscal year 2016 period only includes BaySaver sales from April 1, 2015 through July 17, 2015. Including the post-consolidation sales, the net sales at our domestic joint ventures increased $2.7 million for the
six months ended September 30, 2015 compared to the prior year period.
Cost of goods sold and Gross profit
Cost of goods sold increased $9.7 million or 1.7% to $571.4 million for the six months ended September 30, 2015 compared to
$561.7 million for the comparable prior fiscal year period.
Gross profit for the six months ended September 30, 2015 increased
$29.6 million, or 22.5%, over the comparable prior year period. Gross profit as a percentage of net sales totaled 22.0% for the six months ended September 30, 2015 as compared to 19.0% for the prior year.
Domestic gross profit increased $17.5 million, or 14.5%, to $137.8 million for the six months ended September 30, 2015 as
compared to $120.3 million for the comparable fiscal year 2015 period. The 2.6% increase in domestic net sales included sales growth in higher margin
N-12
HDPE pipe and High Performance PP pipe products
as well as Allied Products which realized increases in most of the product lines. Raw material prices started to moderate at the end of the first quarter and have decreased approximately 4.6% during the first six months of fiscal year 2016 as
compared to the prior period. In addition, freight costs stayed relatively flat as a percentage of domestic net sales, increasing from 9.3% for the six months ended September 30, 2014 to 9.5% for the comparable fiscal 2016 period. This was the
result of increased depreciation expense associated with new delivery fleet units being partially offset by the impact of a decrease in diesel fuel prices of approximately 31% for the six month period ended September 30, 2015 compared to the
prior year comparable period.
39
International gross profit increased $12.0 million, or 107.1%, for the first six months of
fiscal year 2016 over the comparable fiscal year 2015 period. The increase is due to the impact of the 27.8% increase in international net sales which included incremental contribution from Ideal Pipe in Canada and improved performance in Mexico.
These increases offset the unfavorable impact of the continued devaluation of the Canadian dollar versus the U.S. dollar. Raw material prices moderated and moved lower for the international segment as well, improving pipe gross profit for the six
months ended September 30, 2015.
Selling expenses
Selling expenses consist of field selling and customer service 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 six months ended September 30, 2015 increased $3.3 million, or 8.2%, over the comparable fiscal year
2015 period. The increase was primarily the result of increases in variable selling expenses due to higher sales volume and investments in additional sales coverage and growth initiatives. Nearly all of the increase in selling expense was incurred
in the domestic area. As a percentage of net sales, selling expenses increased to 6.0% for the first six months of fiscal year 2016 as compared to 5.8% in the prior year.
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 six months ended September 30, 2015 increased
$9.2 million, or 26.1%, over the comparable fiscal year 2015 period. The increase was primarily the result of significant increases in professional fees for accounting; audit, legal and other professional fees incurred in connection with the
restatement of our previously filed financial statements as part of the preparation of our Fiscal 2015 Form
10-K.
These fees amounted to approximately $8.7 million for the six months ended
September 30, 2015. There are no such amounts in the comparable fiscal 2015 period. An additional $0.8 million of general and administrative expenses were added by the Ideal Pipe and BaySaver acquisitions. There was also an increase in
salary and compensation expenses of $0.8 million, and there was an additional increase related to higher corporate overhead expenses which were generally associated with the increased cost of being a public company. These amounts were partially
offset by a decrease in stock-based compensation of $6.5 million.
Loss on disposal of assets or businesses
Loss on the disposal of assets or businesses for the six months ended September 30, 2015 and 2014 was $1.2 million and
$0.3 million, respectively.
Intangible amortization
Intangible amortization for the six months ended September 30, 2015 decreased by $0.3 million when compared with the same period in the
prior year to $4.9 million from $5.2 million and resulted from the impact of intangible assets of $7.8 million becoming fully amortized during fiscal year 2015 being offset by the amortization of intangible assets acquired in the
Ideal Pipe acquisition in the fourth quarter of fiscal 2015 and the amortization of intangible assets acquired in the BaySaver acquisition in July 2015.
Interest expense
Interest expense for
the six months ended September 30, 2015 decreased $0.9 million, or 8.5%, over the comparable prior year period. The decrease was due to lower average interest rates primarily on our Revolving Credit Facility while the average outstanding
for the six months ended September 30, 2015 remained relatively flat.
Derivative losses (gains) and other expense (income), net
Derivative losses (gains) and other expense (income), net amounted to a net expense of $15.8 million during the six months ended
September 30, 2015 compared to income of $0.5 million for the comparable prior fiscal year period. Unfavorable
mark-to-market
adjustments for changes in
fair value of derivative contracts amounted to $9.5 million and cash settlement losses on diesel fuel
40
and propylene hedge arrangements amounted to $6.5 million and are significantly higher than the $0.1 million of similar losses incurred during the prior year period. Additionally, we
incurred a $0.5 million loss upon completing the step acquisition of BaySaver in July 2015 as a result of remeasuring our original investment. See Note 2. Acquisitions.
Income tax expense
For the six months
ended September 30, 2015 and 2014, the Company recorded income tax provisions of $13.1 million and $15.4 million, respectively, which represents an effective tax rate of 31.3% and 37.9%, respectively. The current year rate is lower
than the federal statutory rate of 35% due principally to foreign income taxed at lower rates and uncertain tax position relief as a result of the lapse of statute of limitations, partially offset by state and local income taxes.
Equity in net loss of unconsolidated affiliates
Equity in net loss of unconsolidated affiliates represent our proportionate share of net loss attributed to the unconsolidated joint ventures
in which we have significant influence, but not control, over operations. Equity in net loss of unconsolidated affiliates for the six months ended September 30, 2015 decreased $0.7 million over the comparable prior year period. Operating
performance improved and resulted in smaller net losses compared to the prior year offset by a decrease in our share of BaySaver net earnings as it is included in this category only through July 17, 2015 when the Company gained control of the
entity and began to consolidate the operations.
Net income attributable to noncontrolling interest
Net income attributable to noncontrolling interest for the six months ended September 30, 2015 increased $1.7 million or 54.2% over
the comparable prior year period. Improved sales and operating margins for ADS Mexicana are responsible for approximately $1.6 million of the increase. Effective July 17, 2015 the Company acquired a controlling interest in BaySaver. The
noncontrolling interests portion of the BaySaver joint ventures activity has been included in net income attributable to noncontrolling interest since the effective date of the acquisition. See Note 2. Acquisitions.
Net income attributable to ADS and Net income (loss) per share
Net income attributable to ADS of approximately $24.0 million increased from the preceding fiscal years net income attributable to
ADS of $21.5 million, as influenced by the factors noted above. Net income per share for the first six months of fiscal year 2016 totaled $0.39 per basic and $0.38 per diluted share as compared to $0.18 per basic and diluted share recorded in
the comparable prior year period. The income per share for the six months ended September 30, 2014 was impacted by changes in fair value appreciation on Redeemable convertible preferred stock classified in mezzanine equity which reduced income
available to common stockholders by $11.1 million, or $0.22 and $0.21 per basic and diluted share, respectively, for common stockholders.
Adjusted EBITDA
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30,
|
|
(Amounts in thousands)
|
|
2015
|
|
|
2014
|
|
|
% Variance
|
|
|
|
(As Restated)
(b)
|
|
|
(As Restated)
(b)
|
|
|
|
|
Domestic
|
|
$
|
96,412
|
|
|
$
|
96,210
|
|
|
|
0.2
|
%
|
International
|
|
|
19,773
|
|
|
|
5,639
|
|
|
|
250.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted EBITDA
|
|
$
|
116,185
|
|
|
$
|
101,849
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net sales
|
|
|
15.9
|
%
|
|
|
14.7
|
%
|
|
|
|
|
(a)
|
See section entitled
Non-GAAP
Financial Measures for further information.
|
(b)
|
See Note 16. Restatement of Previously Issued Financial Statements to the Condensed Consolidated Financial Statements.
|
Non-GAAP
Financial Measures
In addition to financial results reported in accordance with GAAP, we have provided the following
non-GAAP
financial measures: Adjusted EBITDA, System-Wide Net Sales and Adjusted Earnings per Fully Converted Share. These
non-GAAP
financial measures are used in
addition to and in conjunction with results presented in accordance with GAAP. However, these measures are not intended to be a substitute for those reported in accordance with GAAP. These measures may be different from
non-GAAP
financial measures used by other companies, even when similar terms are used to identify such measures.
41
Adjusted EBITDA.
Adjusted EBITDA is a
non-GAAP
financial measure that comprises 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.
The following table presents a reconciliation of Adjusted EBITDA to Net Income, the most comparable GAAP measure, for
each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Six Months Ended September 30,
|
|
(Amounts in thousands)
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
Net income
|
|
$
|
15,928
|
|
|
$
|
18,081
|
|
|
$
|
28,710
|
|
|
$
|
24,482
|
|
Depreciation and amortization
|
|
|
17,367
|
|
|
|
16,374
|
|
|
|
34,751
|
|
|
|
32,400
|
|
Interest expense
|
|
|
4,947
|
|
|
|
5,044
|
|
|
|
9,233
|
|
|
|
10,095
|
|
Income tax expense
|
|
|
5,187
|
|
|
|
7,359
|
|
|
|
13,066
|
|
|
|
15,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
43,429
|
|
|
|
46,858
|
|
|
|
85,760
|
|
|
|
82,346
|
|
Derivative fair value adjustments
|
|
|
5,773
|
|
|
|
67
|
|
|
|
9,534
|
|
|
|
163
|
|
Foreign currency transaction (gains) losses
|
|
|
(151
|
)
|
|
|
(205
|
)
|
|
|
166
|
|
|
|
(75
|
)
|
Loss on disposal of assets or businesses
|
|
|
295
|
|
|
|
281
|
|
|
|
1,161
|
|
|
|
345
|
|
Unconsolidated affiliates interest, tax, depreciation and amortization
(b)
|
|
|
769
|
|
|
|
878
|
|
|
|
1,638
|
|
|
|
1,675
|
|
Contingent consideration remeasurement
|
|
|
45
|
|
|
|
20
|
|
|
|
100
|
|
|
|
2
|
|
Stock-based compensation expense
|
|
|
1,170
|
|
|
|
5,964
|
|
|
|
2,212
|
|
|
|
10,129
|
|
ESOP deferred stock-based compensation
|
|
|
3,125
|
|
|
|
2,687
|
|
|
|
6,250
|
|
|
|
5,374
|
|
Expense related to executive termination payments
|
|
|
82
|
|
|
|
82
|
|
|
|
164
|
|
|
|
164
|
|
(Benefit) expense related to executive stock repurchase agreements
|
|
|
|
|
|
|
(758
|
)
|
|
|
|
|
|
|
1,011
|
|
Loss on BaySaver step acquisition
|
|
|
490
|
|
|
|
|
|
|
|
490
|
|
|
|
|
|
Restatement costs
(c)
|
|
|
8,710
|
|
|
|
|
|
|
|
8,710
|
|
|
|
|
|
Transaction costs
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
63,737
|
|
|
$
|
55,874
|
|
|
$
|
116,185
|
|
|
$
|
101,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 our
Tigre-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 legal, accounting and other professional fees incurred in connection with the restatement of our prior period financial statements in fiscal year 2016.
|
(d)
|
Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with the IPO in fiscal year 2015.
|
42
Reconciliation of Segment Adjusted EBITDA to Net Income
The following table presents a reconciliation of Segment Adjusted EBITDA to Net Income for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2015
|
|
|
2014
|
|
(Amounts in thousands)
|
|
Domestic
|
|
|
International
|
|
|
Domestic
|
|
|
International
|
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
Net income
|
|
$
|
8,641
|
|
|
$
|
7,287
|
|
|
$
|
16,578
|
|
|
$
|
1,503
|
|
Depreciation and amortization
|
|
|
15,243
|
|
|
|
2,124
|
|
|
|
14,937
|
|
|
|
1,437
|
|
Interest expense
|
|
|
4,901
|
|
|
|
46
|
|
|
|
5,020
|
|
|
|
24
|
|
Income tax expense (benefit)
|
|
|
6,703
|
|
|
|
(1,516
|
)
|
|
|
9,330
|
|
|
|
(1,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
|
35,488
|
|
|
|
7,941
|
|
|
|
45,865
|
|
|
|
993
|
|
Derivative fair value adjustments
|
|
|
5,784
|
|
|
|
(11
|
)
|
|
|
67
|
|
|
|
|
|
Foreign currency transaction gains
|
|
|
|
|
|
|
(151
|
)
|
|
|
|
|
|
|
(205
|
)
|
Loss on disposal of assets or businesses
|
|
|
289
|
|
|
|
6
|
|
|
|
251
|
|
|
|
30
|
|
Unconsolidated affiliates interest, tax, depreciation and amortization
(b)
|
|
|
260
|
|
|
|
509
|
|
|
|
291
|
|
|
|
587
|
|
Contingent consideration remeasurement
|
|
|
45
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
1,170
|
|
|
|
|
|
|
|
5,964
|
|
|
|
|
|
ESOP deferred stock-based compensation
|
|
|
3,125
|
|
|
|
|
|
|
|
2,687
|
|
|
|
|
|
Expense related to executive termination payments
|
|
|
82
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
Benefit related to executive stock repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
(758
|
)
|
|
|
|
|
Loss on BaySaver step acquisition
|
|
|
490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement costs
(c)
|
|
|
8,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
$
|
55,443
|
|
|
$
|
8,294
|
|
|
$
|
54,469
|
|
|
$
|
1,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 our
Tigre-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 legal, accounting and other professional fees incurred in connection with the restatement of our prior period financial statements in fiscal year 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30,
|
|
|
|
2015
|
|
|
2014
|
|
(Amounts in thousands)
|
|
Domestic
|
|
|
International
|
|
|
Domestic
|
|
|
International
|
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
Net income
|
|
$
|
14,221
|
|
|
$
|
14,489
|
|
|
$
|
21,283
|
|
|
$
|
3,199
|
|
Depreciation and amortization
|
|
|
30,405
|
|
|
|
4,346
|
|
|
|
29,595
|
|
|
|
2,805
|
|
Interest expense
|
|
|
8,938
|
|
|
|
295
|
|
|
|
10,062
|
|
|
|
33
|
|
Income tax expense (benefit)
|
|
|
13,529
|
|
|
|
(463
|
)
|
|
|
16,861
|
|
|
|
(1,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
|
67,093
|
|
|
|
18,667
|
|
|
|
77,801
|
|
|
|
4,545
|
|
Derivative fair value adjustments
|
|
|
9,506
|
|
|
|
28
|
|
|
|
163
|
|
|
|
|
|
Foreign currency transaction gains
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
(75
|
)
|
Loss (gain) on disposal of assets or businesses
|
|
|
1,341
|
|
|
|
(180
|
)
|
|
|
311
|
|
|
|
34
|
|
Unconsolidated affiliates interest, tax, depreciation and amortization
(b)
|
|
|
546
|
|
|
|
1,092
|
|
|
|
540
|
|
|
|
1,135
|
|
Contingent consideration remeasurement
|
|
|
100
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
2,212
|
|
|
|
|
|
|
|
10,129
|
|
|
|
|
|
ESOP deferred stock-based compensation
|
|
|
6,250
|
|
|
|
|
|
|
|
5,374
|
|
|
|
|
|
Expense related to executive termination payments
|
|
|
164
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
Expense related to executive stock repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
1,011
|
|
|
|
|
|
Loss on BaySaver step acquisition
|
|
|
490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement costs
(c)
|
|
|
8,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs
(d)
|
|
|
|
|
|
|
|
|
|
|
715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
$
|
96,412
|
|
|
$
|
19,773
|
|
|
$
|
96,210
|
|
|
$
|
5,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
(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 our
Tigre-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 legal, accounting and other professional fees incurred in connection with the restatement of our prior period financial statements in fiscal year 2016.
|
(d)
|
Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with the IPO in fiscal year 2015.
|
System-Wide Net Sales
. System-Wide Net Sales is a
non-GAAP
measure which equals the sum of the
net sales of our domestic and international segments plus all net sales from our unconsolidated joint ventures. We participated in three unconsolidated joint ventures during the six months ended September 30, 2015 and 2014, respectively, 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 prior to
July 17, 2015. We use this metric to measure the overall performance of our business across all of our geographies and markets we serve.
Our South American Joint Venture is managed as an integral part of our international segment, and our BaySaver and
Tigre-ADS
USA joint ventures and are managed as an integral part of our domestic segment. However, they are not consolidated under GAAP, with the exception of BaySaver 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
Tigre-ADS
USA joint venture, and BaySaver were accounted for as consolidated
subsidiaries for all periods.
The reconciliation of our System-Wide Net Sales to Net sales is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Six Months Ended
September 30,
|
|
(Amounts in thousands)
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
Net sales
|
|
$
|
383,329
|
|
|
$
|
366,714
|
|
|
$
|
732,453
|
|
|
$
|
693,148
|
|
Net sales associated with our unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South American Joint Venture
(b)
|
|
|
13,492
|
|
|
|
16,776
|
|
|
|
27,769
|
|
|
|
30,696
|
|
BaySaver joint venture
(c)
|
|
|
485
|
|
|
|
3,423
|
|
|
|
3,611
|
|
|
|
5,760
|
|
Tigre-ADS
USA joint venture
(d)
|
|
|
4,031
|
|
|
|
3,697
|
|
|
|
8,637
|
|
|
|
7,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
System-Wide Net Sales
|
|
$
|
401,337
|
|
|
$
|
390,610
|
|
|
$
|
772,470
|
|
|
$
|
736,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note 16. Restatement of Previously Issued Financial Statements to the Condensed Consolidated Financial Statements.
|
(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 joint venture. As of July 17, 2015, we increased our ownership to 65%, and have consolidated BaySaver since that date. As such, Net Sales
from our BaySaver joint venture prior to July 17, 2015 are included in this line item.
|
(d)
|
On April 7, 2014, we entered into an arrangement to form our
Tigre-ADS
USA joint venture.
|
Adjusted Earnings per Fully Converted Share
. Adjusted Earnings
per Fully Converted Share, which is a
non-GAAP
measure, 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)
by adjusting our Net income per share Basic, Net income available to common stockholders Basic, and Weighted average common shares outstanding 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 in subsidiaries, (2) removed the adjustment for the change in fair value of Redeemable convertible preferred stock classified as mezzanine equity, (3) added back the dividends to Redeemable
convertible preferred stockholders and dividends paid to unvested restricted stockholders, (4) made corresponding adjustments to the amount allocated to participating securities under the
two-class
earnings per share computation method, and (5) added back ESOP deferred compensation attributable to the shares of Redeemable convertible preferred stock allocated to employee ESOP accounts during the applicable period, which is a
non-cash
charge to our earnings and not deductible for income tax purposes.
44
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.
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
(Non-GAAP)
to Net income available to common stockholders Basic, Weighted average common shares outstanding Basic, and Net income per share Basic, the most comparable GAAP measures,
respectively, for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Six Months Ended
September 30,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
Net income available to common stockholders - Basic
|
|
$
|
10,741
|
|
|
$
|
20,553
|
|
|
$
|
21,089
|
|
|
$
|
9,096
|
|
Adjustments to net income available to common stockholders - Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of redeemable noncontrolling interest
|
|
|
257
|
|
|
|
|
|
|
|
257
|
|
|
|
|
|
Change in fair value of Redeemable convertible preferred stock
|
|
|
|
|
|
|
(7,319
|
)
|
|
|
|
|
|
|
11,054
|
|
Dividends to Redeemable convertible preferred stockholders
|
|
|
362
|
|
|
|
37
|
|
|
|
733
|
|
|
|
75
|
|
Dividends paid to unvested restricted stockholders
|
|
|
6
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
Undistributed income allocated to participating securities
|
|
|
980
|
|
|
|
2,657
|
|
|
|
1,949
|
|
|
|
1,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments to Net income available to common stockholders - Basic
|
|
|
1,605
|
|
|
|
(4,625
|
)
|
|
|
2,951
|
|
|
|
12,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ADS
|
|
|
12,346
|
|
|
|
15,928
|
|
|
|
24,040
|
|
|
|
21,454
|
|
Fair Value of ESOP compensation related to Redeemable convertible preferred stock
|
|
|
3,125
|
|
|
|
2,687
|
|
|
|
6,250
|
|
|
|
5,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
(Non-GAAP)
|
|
$
|
15,471
|
|
|
$
|
18,615
|
|
|
$
|
30,290
|
|
|
$
|
26,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding Basic
|
|
|
53,882
|
|
|
|
51,518
|
|
|
|
53,753
|
|
|
|
49,538
|
|
Unvested restricted shares
|
|
|
117
|
|
|
|
196
|
|
|
|
132
|
|
|
|
229
|
|
Redeemable convertible preferred shares
|
|
|
19,504
|
|
|
|
20,099
|
|
|
|
19,598
|
|
|
|
20,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding - Fully Converted
(Non-GAAP)
|
|
|
73,503
|
|
|
|
71,813
|
|
|
|
73,483
|
|
|
|
69,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share - Basic
|
|
$
|
0.20
|
|
|
$
|
0.40
|
|
|
$
|
0.39
|
|
|
$
|
0.18
|
|
Adjusted Earnings Per Fully Converted Share
(Non-GAAP)
|
|
$
|
0.21
|
|
|
$
|
0.26
|
|
|
$
|
0.41
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note 16. Restatement of Previously Issued Financial Statements to the Condensed Consolidated Financial Statements.
|
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 and debt financings. 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, 2015, we had $3.2 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.
45
Working Capital and Cash Flows
During the six months ended September 30, 2015, our net decrease in cash was $0.1 million compared to a net increase of
$2.7 million for the six months ended September 30, 2014. During the six months ended September 30, 2015, our source of funds was primarily driven by higher operating earnings, decreased inventories ($46.2 million),
non-cash
charges (depreciation, amortization, compensation expense and shared based compensation expense) and net borrowings of $26.0 million of Long Term Debt. For the same period ending September 30,
2015, our use of cash was primarily driven by increased accounts receivable balances (up $100.3 million), and spending for capital expenditures ($20.2 million). During the six months ended September 30, 2014, our source of funds was primarily
driven by higher operating earnings, proceeds of $79.1 million from shares sold during our IPO, decreased inventories ($26.1 million) and
non-cash
charges (depreciation, amortization, compensation expense
and shared based compensation expense). For the six months ended September 30, 2014, our use of cash was primarily driven by increased accounts receivable balances (up $97.7 million), spending for capital expenditures ($15.6 million), repayment
of $95.3 million of Long Term Debt in second quarter fiscal 2015 and investments in joint ventures ($7.6 million).
As of
September 30, 2015, we had $86.3 million in liquidity, including $3.5 million of cash and $82.8 million in borrowings available under our Revolving Credit Facility, described below. We believe that our cash on hand, together with
the availability of borrowings under our Revolving Credit Facility and other financing arrangements and cash generated from operations, will be sufficient to meet our working capital requirements, anticipated capital expenditures, scheduled interest
payments on our indebtedness and dividend payment requirement for our convertible preferred stock for at least the next twelve months.
As
of September 30, 2015, we had total consolidated indebtedness of approximately $425.5 million, up $25.6 million compared to March 31, 2015. We had net borrowings on our revolving line of credit of $29.8 million, offset by
$3.8 million of repayments on the term loan during the six months ended September 30, 2015.
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)
|
|
2015
|
|
|
2014
|
|
|
|
(As Restated)
(a)
|
|
|
(As Restated)
(a)
|
|
Statement of Cash Flows data:
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
$
|
16,924
|
|
|
$
|
14,906
|
|
Net cash used in investing activities
|
|
|
(25,100
|
)
|
|
|
(23,972
|
)
|
Net cash from financing activities
|
|
|
7,674
|
|
|
|
11,946
|
|
(a)
|
See Note 16. Restatement of Previously Issued Financial Statements to the Condensed Consolidated Financial Statements.
|
Operating Cash Flows
During the six
months ended September 30, 2015, cash provided by operating activities was $16.9 million as compared with $14.9 million for the six months ended September 30, 2014. Cash flow from operating activities during the six months ended
September 30, 2015 was impacted by an increase in depreciation and amortization ($2.4 million), an increase in mark to market adjustments on derivatives ($9.8 million), and a reduction in deferred income taxes ($3.8 million), offset by a larger
reduction of changes in working capital ($13.4 million) and a decrease in stock-based compensation ($8.0 million).
Investing Cash Flows
During the six months ended September 30, 2015, cash used for investing activities was $25.1 million, primarily due to
$20.2 million for capital expenditures in support of operations, $3.2 million for the purchase of an additional 10% of the membership interests in BaySaver, and $1.3 million for the purchase of capitalized software to support the
business. During the six months ended September 30, 2014, cash used for investing activities was $24.0 million, primarily due to $15.6 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, and a $4.0 million investment in our international joint venture operation to support growth initiatives.
Financing Cash Flows
During the six
months ended September 30, 2015, cash provided by financing activities was a net $7.7 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 inflow of $29.8 million, offset by net repayments on the Term Loan of $3.8 million. During the six months ended September 30, 2014, cash provided by financing activities was
$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.
46
Capital Expenditures
Capital expenditures totaled $20.2 million and $15.6 million for the six months ended September 30, 2015 and September 30,
2014, respectively. Our capital expenditures for the six months ended September 30, 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 $45 million in fiscal year 2016. Such capital
expenditures are expected to be financed using funds generated by operations. As of September 30, 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, (ii) the Term Loan Facility providing for the Term Loans in an aggregate original principal amount of $100 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 Form
10-K
and
10-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 Consolidated Financial Statements included in Item 8.
Financial Statements and Supplementary Data of our Fiscal 2016 Form
10-K/A
(filed concurrently with this Form
10-Q/A)
and Note 15. Subsequent Events to
this Form
10-Q/A.
As of September 30, 2015, the outstanding principal drawn on the Revolving Credit Facility was $234.9 million, with $82.8 million available to be drawn. As of
September 30, 2015, the outstanding principal balance of the Term Loan was $87.5 million.
For the prior year fiscal quarter
ending September 30, 2015, we used the net proceeds from the initial public offering ($79.1 million), 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 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 Form
10-K
and
10-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 Facility, see Note 12. Debt to the Consolidated
Financial Statements included in Item 8. Financial Statements and Supplementary Data of our Fiscal 2016 Form
10-K/A
(filed concurrently with this Form
10-Q/A)
and Note 15. Subsequent Events to this Form
10-Q/A.
As of September 30, 2015, there was no outstanding principal drawn on the ADS Mexicana
Revolving Credit Facility with the entire $12.0 million available to be drawn.
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
47
of senior secured promissory notes to Prudential or its affiliates from time to time in the aggregate principal amount up to $100 million. Pursuant to the private shelf agreement, on
September 27, 2010, we issued $75 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 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, 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 Form
10-K
and
10-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 Consolidated Financial Statements
included in Item 8. Financial Statements and Supplementary Data of our Fiscal 2016 Form
10-K/A
(filed concurrently with this Form
10-Q/A)
and Note 15.
Subsequent Events to this Form
10-Q/A.
We have no further amount available for issuance of senior notes under the private shelf agreement. At September 30, 2015 the outstanding principal balance on
these notes was $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, The Leverage Ratio is calculated by dividing
Total Consolidated Indebtedness (funded debt plus guarantees) by Consolidated EBITDA. The current upper limit is 4.0 times. The Fixed Charge Ratio is calculated by dividing the sum of Consolidated EBITDA minus Capital Expenditures minus cash Income
Taxes paid, by the sum of Fixed Charges. Fixed Charges include cash Interest expense, scheduled principal payments on Indebtedness, and ESOP Capital Distributions in excess of $10 million in a given fiscal year. The current minimum ratio is
1.25 times. For further information, see Note 12. Debt to the financial statements included in Item 8. Financial and Supplementary Data of our Fiscal 2015 Form
10-K.
We were in
compliance with our debt covenants as of September 30, 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.
Off-Balance
Sheet Arrangements
We do not have any
off-balance
sheet arrangements, with the exception of the guarantee of 50% of
certain debt of our unconsolidated South American Joint Venture, as further discussed in Note 6. Related Party Transactions of our Notes to Condensed Consolidated Financial Statements. As of September 30, 2015, our South American
Joint Venture had approximately $13.5 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 Managements Discussion and Analysis of Financial
Condition and Results of Operations in our Fiscal 2016 Form
10-K/A
(filed concurrently with this Form
10-Q/A)
which includes our restated consolidated financial
statements for the fiscal years ended March 31, 2016 and prior.
Forward-Looking Statements
This Quarterly Report on Form
10-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 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 Managements Discussion and Analysis of Financial Condition and Results of Operations. Factors that could
cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include:
|
|
|
fluctuations in the price and availability of resins and other raw materials and our ability to pass any increased costs of raw materials on to our customers in a timely manner;
|
48
|
|
|
volatility in general business and economic conditions in the markets in which we operate, including without limitation, factors relating to availability of credit, interest rates, fluctuations in capital and business
and consumer confidence;
|
|
|
|
cyclicality and seasonality of the
non-residential
and residential construction markets and infrastructure spending;
|
|
|
|
the risks of increasing competition in our existing and future markets, including competition from both manufacturers of high performance thermoplastic corrugated pipe and manufacturers of products using alternative
materials;
|
|
|
|
our ability to continue to convert current demand for concrete, steel and PVC pipe products into demand for our high performance thermoplastic corrugated pipe and Allied Products;
|
|
|
|
the effect of weather or seasonality;
|
|
|
|
the loss of any of our significant customers;
|
|
|
|
the risks of doing business internationally;
|
|
|
|
the risks of conducting a portion of our operations through joint ventures;
|
|
|
|
our ability to expand into new geographic or product markets;
|
|
|
|
our ability to achieve the acquisition component of our growth strategy;
|
|
|
|
the risk associated with manufacturing processes;
|
|
|
|
our ability to manage our assets;
|
|
|
|
the risks associated with our product warranties;
|
|
|
|
our ability to manage our supply purchasing and customer credit policies;
|
|
|
|
the risks associated with our self-insured programs;
|
|
|
|
our ability to control labor costs and to attract, train and retain highly-qualified employees and key personnel;
|
|
|
|
our ability to protect our intellectual property rights;
|
|
|
|
changes in laws and regulations, including environmental laws and regulations;
|
|
|
|
our ability to project product mix;
|
|
|
|
the risks associated with our current levels of indebtedness;
|
|
|
|
our ability to meet future capital requirements and fund our liquidity needs;
|
|
|
|
the risk that additional information may arise that would require the Company to make additional adjustments or revisions or to restate further the financial statements and other financial data for certain prior periods
and any future periods;
|
|
|
|
any further delay in the filing of any filings with the SEC;
|
|
|
|
the review of potential weaknesses or deficiencies in the Companys disclosure controls and procedures, and discovering further weaknesses of which we are not currently aware or which have not been detected; and
|
|
|
|
additional uncertainties related to accounting issues generally.
|
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.