HILLIARD, Ohio--(BUSINESS WIRE)--
Advanced Drainage Systems, Inc. (NYSE: WMS) (“ADS” or the “Company”), a
leading global manufacturer of water management products and solutions
for commercial, residential, infrastructure and agricultural
applications, today announced that its previously issued financial
statements and other financial data, including its May 12, 2015 earnings
release, should no longer be relied upon, and that it will restate prior
period financial statements and related financial information as filed
with the Securities and Exchange Commission (“SEC”). The restated
financial information will include the annual periods ended March 31,
2010, 2011, 2012, 2013 and 2014 as set forth in the Company’s
Registration Statements on Form S-1, as well as the quarterly periods
ended June 30, September 30, and December 31, 2013 and 2014, as set
forth in the Company’s Quarterly Reports on Form 10-Q. The Company
intends to file the restated financial information as soon as
practicable.
The Company believes the majority of accounting adjustments generally
fall within three areas: lease adjustments, inventory adjustments, and
other adjustments.
The Company previously disclosed in its Current Report on Form 8-K filed
on July 15, 2015 that it was evaluating the accounting treatment for its
transportation and equipment leasing program (the “Fleet Leases”). The
Company has historically classified its Fleet Leases as operating
leases. However, based upon a re-examination of the Company’s historic
assumptions, estimates and judgments with respect to lease accounting,
the Company has determined that a substantial portion of the leases
comprising the Fleet Leases should instead be classified as capital
leases. The change in lease accounting treatment does not impact the
economic terms or substance of the Fleet Leases, but will require that
for substantially all of the Company’s leased assets, at lease
inception, the present value of the minimum lease payments will be
recognized on the Company’s balance sheet as property, plant and
equipment, and lease financing obligations. The assets will be
depreciated over the term of the Fleet Leases, and the rental payments
will be allocated to principal and interest payments on the lease
financing obligations.
The Company anticipates that this change in accounting treatment will
have a positive impact on Adjusted EBITDA in fiscal year 2016.
As previously disclosed, the Company has also been in the process of
reviewing its methodologies for inventory costing and the related impact
on the Company’s financial statements. This review was due to the need
to assess the impact of highly volatile raw material costs during the
fiscal 2015 fourth quarter on the Company’s lower of cost or market
assessment. This review has resulted in certain adjustments being
required to inventory accounting. Other areas of inventory accounting
were also identified as requiring prior period adjustments, which
primarily relate to the capitalization of certain general and
administrative overhead costs. Based upon this review, which is ongoing,
the net effect of the inventory adjustments identified to date will
result in a reduction of year-end inventory balances as of March 31,
2013, 2014 and 2015 and a related increase in cost of goods sold for the
same periods.
The Company anticipates that these adjustments will have a positive
impact on cost of goods sold in fiscal year 2016.
The Company has also identified certain other accounting errors in
connection with the completion of the fiscal year 2015 audit. These
errors and any other prior period errors that were previously considered
immaterial will be reflected in the restated financial statements and
other financial data for the Non-reliance Periods.
The Company’s review of its prior period accounting is ongoing and the
adjustments identified below are preliminary amounts and are subject to
change as management finalizes its accounting review in connection with
the fiscal year 2015 audit and the related restatements.
| (in thousands, adjustments shown are preliminary and subject to
change )
|
| Fiscal Year Ended, |
|
|
| March 31,
2013 |
| March 31,
2014 |
| March 31, 2015 |
|
|
| (unaudited) |
| As originally reported |
|
|
|
|
|
|
|
Net sales
|
| $1,017,041 |
| $1,069,009 |
| $1,177,821 |
|
Income before income taxes
|
| $46,685 |
| $37,041 |
| $46,497 |
|
Adjusted EBITDA
|
| $129,759 |
| $147,009 |
| $153,610 |
|
|
|
|
|
|
|
|
| Adjustments identified to date – increase (decrease) |
|
|
|
|
|
|
|
Net sales
|
| $(856) |
| $ 130 |
| $ 1,105 |
|
Income before income taxes
|
| $(5,239) |
| $ (4,683) |
| $ (17,285) |
|
Adjusted EBITDA
|
| $5,686 |
| $ 6,845 |
| $ (4,980) |
|
| |
| |
| |
The information set forth above includes Adjusted EBITDA, a non-GAAP
financial measure. The Company’s management uses non-GAAP financial
measures in its analysis of the Company’s performance. See
“Reconciliation of Non-GAAP Financial Measures” below.
Reconciliation of Non-GAAP Financial Measures
This press release includes references to Adjusted EBITDA, a non-GAAP
financial measure. This non-GAAP financial measure is used in addition
to and in conjunction with results presented in accordance with GAAP.
This measure is not intended to be a substitute for those reported in
accordance with GAAP. Adjusted EBITDA may be different from non-GAAP
financial measures used by other companies, even when similar terms are
used to identify such measure.
Adjusted EBITDA is a non-GAAP financial measure that comprises net
income attributable to the Company before interest, income taxes,
depreciation and amortization, stock-based compensation, non-cash
charges and certain other expenses. The Company’s 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 the Company’s board of directors
to assess financial performance and evaluate the effectiveness of the
Company’s business strategies. Accordingly, management believes that
Adjusted EBITDA provides useful information to investors and others in
understanding and evaluating our operating results in the same manner as
the Company’s management and board of directors. In order to provide
investors with a meaningful reconciliation, the Company has provided
below a reconciliation of net income attributable to the Company with
Adjusted EBITDA as originally reported, and the impact of the
restatement adjustments identified to date on Adjusted EBITDA.
Historically the Company has reconciled net income attributable to the
Company with Adjusted EBITDA, as net income attributable to the Company
is typically the GAAP measure most directly comparable to Adjusted
EBITDA. However, because the Company is still finalizing the impact that
the accounting errors and adjustments described in Item 4.02 above will
have on the Company’s income tax expense, specific quantifications of
the amounts that would be required to fully reconcile net income
attributable to the Company to Adjusted EBITDA are not currently
available. Once the accounting review has been completed, a full
reconciliation of its fiscal years 2013, 2014 and 2015 Adjusted EBITDA
to net income attributable to the Company will be provided in the
Company’s Form 10-K for the fiscal year ended March 31, 2015.
The following table presents a reconciliation of Adjusted EBITDA to Net
Income attributable to the Company, the most comparable GAAP measure, as
previously reported, for each of the periods indicated:
| As previously reported |
|
| Fiscal Year Ended, |
| March 31, |
|
(in thousands)
| | 2013 |
| 2014 |
| 2015 |
|
Net income attributable to the Company
| |
$
|
28,159
| | |
$
|
11,124
| | |
$
|
26,300
|
|
Depreciation and amortization (a)
| | |
56,926
| | | |
57,454
| | | |
58,338
|
|
Interest expense, net
| | |
16,095
| | | |
16,141
| | | |
16,619
|
|
Income tax expense
| |
|
16,894
|
| |
|
22,575
|
| |
|
16,279
|
|
EBITDA
| | |
118,074
| | | |
107,294
| | | |
117,536
|
|
Derivative fair value adjustments (b)
| | |
(4
|
)
| | |
(53
|
)
| | |
7,746
|
|
Foreign currency transaction losses (c)
| | |
1,085
| | | |
845
| | | |
5,404
|
|
Unconsolidated affiliates interest and tax (d)
| | |
729
| | | |
204
| | | |
1,138
|
|
Management fee to minority interest holder JV
| | |
-
| | | |
1,098
| | | |
1,230
|
|
Special dividend compensation
| | |
-
| | | |
22,624
| | | |
-
|
|
Contingent consideration remeasurement
| | |
-
| | | |
259
| | | |
184
|
|
Share-based compensation (e)
| | |
2,592
| | | |
5,287
| | | |
6,780
|
|
ESOP deferred compensation (f)
| | |
7,283
| | | |
7,891
| | | |
12,144
|
|
Transaction costs (g)
| |
|
-
|
| |
|
1,560
|
| |
|
1,448
|
| Adjusted EBITDA as previously reported | | $ | 129,759 |
| | $ | 147,009 |
| | $ | 153,610 |
| | | | | | | |
|
| Adjustments identified to date to Adjusted EBITDA |
|
| |
| | Fiscal Year Ended, |
| March 31, |
| (in thousands, adjustments shown are preliminary and subject to
change ) | | 2013 |
| 2014 |
| 2015 |
|
Adjustments that impact Net Income attributable to the Company
| |
$
|
(5,239
|
)
| |
$
|
(4,753
|
)
| |
$
|
(17,315
|
)
|
|
Adjustments to Depreciation and amortization
| | |
9,696
| | | |
10,451
| | | |
11,828
| |
|
Adjustments to Interest expense, net
| | |
1,349
| | | |
1,410
| | | |
1,366
| |
|
Other adjustments
| | |
(120
|
)
| | |
(263
|
)
| | |
(859
|
)
|
|
Adjustments to Income tax expense (to be determined) (h)
| |
|
-
|
| |
|
-
|
| |
|
-
|
|
| Total adjustments identified to date to Adjusted EBITDA | | $ | 5,686 |
| | $ | 6,845 |
| | $ | (4,980 | ) |
| | | | | |
|
|
(a) Includes our proportionate share of depreciation and
amortization expense of $1,321, $1,556 and $2,471 for the twelve
months ended March 31, 2013, 2014 and 2015, respectively, related to
our South American joint venture, BaySaver joint venture and
Tigre-ADS USA joint venture, which is included in Equity in net loss
of unconsolidated affiliates in our Consolidated Statements of
Income.
|
|
|
|
(b) Represents the non-cash gains and losses arising from changes in
mark-to-market values for derivative contracts related to diesel
fuel, interest rate and propylene swaps. The impact of resin
physical and financial derivatives is included in cost of goods sold.
|
|
|
|
(c) Represents the gains and losses incurred on purchases, sales and
intercompany loans and dividends denominated in non-functional
currencies.
|
|
|
|
(d) Represents our proportional share of income taxes and interest
related to our South American Joint Venture, our BaySaver Joint
Venture and our Tigre-ADS USA Joint Venture, which are accounted for
under the equity method of accounting.
|
|
|
|
(e) Represents the non-cash stock based compensation cost related to
our stock options and restricted stock awards.
|
|
|
|
(f) Represents the non-cash stock based compensation expense
attributable to the shares of convertible preferred stock allocated
to employee ESOP accounts during the applicable period.
|
|
|
|
(g) Represents expenses recorded related to legal, accounting and
other professional fees incurred in connection with our debt
refinancing and completion of the Company’s initial public offering
and follow-on public offering.
|
|
|
|
(h) The Company has not yet determined the impact of the adjustments
identified to date to income tax expense. However, since income tax
expense is a component of Net Income attributable to the Company and
is added back to calculate Adjusted EBITDA, any adjustment to income
tax expense will ultimately have no impact on Adjusted EBITDA.
|
|
|
About Advanced Drainage Systems, Inc.
Advanced Drainage Systems (ADS) is 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. Its innovative
products are used across a broad range of end markets and applications,
including non-residential, residential, agriculture and infrastructure
applications. The Company has established a leading position in many of
these end markets by leveraging its national sales and distribution
platform, its overall product breadth and scale and its manufacturing
excellence. Founded in 1966, the Company operates a global network of 61
manufacturing plants and 29 distribution centers.
Forward Looking Statements
Certain statements in this press release may be deemed to be
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended.
Such statements include, but are not limited to, statements regarding
the anticipated restatements and expected impact of the Company’s
accounting adjustments on its financial statements and other financial
data, including Adjusted EBITDA, a non-GAAP measure, for the
Non-reliance Periods and for future periods, and the anticipated timing
of filing of the Restated Filings. These statements are not historical
facts but rather are based on the Company’s current expectations,
estimates and projections regarding the Company’s business, operations
and other factors relating thereto. Words such as “may,” “will,”
“could,” “would,” “should,” “anticipate,” “predict,” “potential,”
“continue,” “expects,” “intends,” “plans,” “projects,” “believes,”
“estimates” and similar expressions are used to identify these
forward-looking statements. Factors that could cause actual results to
differ from those reflected in forward-looking statements include, but
are not limited to, the risk that additional information may arise
during the course of the Company’s ongoing accounting review that would
require the Company to make additional adjustments or revisions or to
restate further the financial statements and other financial data for
the Non-reliance Periods and any future periods, any further delay in
the filing of the Company’s Form 10-K for the fiscal year ended March
31, 2015 or other Restated Filings with the SEC, a conclusion that the
Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act) were ineffective, the
review of potential weaknesses or deficiencies in the Company’s
disclosure controls, and discovering further weaknesses of which we are
not currently aware or which have not been detected, additional
uncertainties related to accounting issues generally and other risks and
uncertainties described in the Company’s filings with the SEC. New risks
and uncertainties emerge from time to time and it is not possible for
the Company to predict all risks and uncertainties that could have an
impact on the forward-looking statements contained in this press
release. In light of the significant risks and uncertainties inherent in
the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or
any other person that the Company’s expectations, objectives or plans
will be achieved in the timeframe anticipated or at all. Investors are
cautioned not to place undue reliance on the Company’s forward-looking
statements and the Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.
View source version on businesswire.com: http://www.businesswire.com/news/home/20150817006255/en/
Advanced Drainage Systems, Inc.
Michael Higgins, 614-658-0050
mike.higgins@ads-pipe.com
Source: Advanced Drainage Systems, Inc.