Advanced Drainage Systems
Annual Report 2015

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KADVANCED DRAINAGE SYSTEMS, INC. - WMSFiled: March 29, 2016 (period: March 31, 2015)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31, 2015OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to COMMISSION FILE NO.: 001-36557 ADVANCED DRAINAGE SYSTEMS, INC.(Exact name of registrant as specified in its charter) Delaware 51-0105665(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)4640 Trueman Boulevard, Hilliard, Ohio 43026(Address of principal executive offices and zip code)(614) 658-0050(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value per share Title of Each Class Name of Each Exchange On Which RegisteredCommon Stock, $0.01 par value per share New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No xIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one) Large Accelerated Filer ¨ Accelerated Filer ¨Non-Accelerated Filer x Smaller Reporting Company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of the shares of common stock held by non-affiliates of the registrant (treating all executive officers and directors of the registrant, for this purpose, asaffiliates of the registrant) was $388.2 million as of September 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, based on thereported closing price of the shares of common stock as reported on the New York Stock Exchange on September 30, 2014.As of February 29, 2016, the registrant had 54,236,999 shares of common stock outstanding. The shares of common stock trade on the New York Stock Exchange under the tickersymbol “WMS”. In addition, as of February 29, 2016, 112,766 shares of unvested restricted common stock were outstanding and 24,900,252 shares of ESOP, preferred stock,convertible into 19,153,275 shares of common stock, were outstanding. As of February 29, 2016, 73,503,792 shares of common stock were outstanding, inclusive of outstandingshares of unvested restricted common stock and on an as-converted basis with respect to the outstanding shares of ESOP preferred stock.DOCUMENTS INCORPORATED BY REFERENCENone. Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsTABLE OF CONTENTS Page Explanatory Note 1 Cautionary Statement About Forward-Looking Statements 1 PART I Item 1. Business 3 Item 1A. Risk Factors 18 Item 1B. Unresolved Staff Comments 41 Item 2. Properties 42 Item 3. Legal Proceedings 43 Item 4. Mine Safety Disclosures 43 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 44 Item 6. Selected Financial and Operating Data 46 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 54 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 81 Item 8. Financial Statements and Supplementary Data 84 Item 9. Changes in and Disagreements with Accountant on Accounting and Financial Disclosure 84 Item 9A. Controls and Procedures 84 Item 9B. Other Information 94 PART III Item 10. Directors, Executive Officers and Corporate Governance 95 Item 11. Executive Compensation 100 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 125 Item 13. Certain Relationships and Related Transactions, and Director Independence 127 Item 14. Principal Accountant Fees and Services 128 PART IV Item 15. Exhibits and Financial Statement Schedules 130 iSource: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsEXPLANATORY NOTEThis Annual Report on Form 10-K of Advanced Drainage Systems, Inc. for the year ended March 31, 2015 incorporates certain revisions to historicalfinancial data and related descriptions. The historical financial statements included have been restated to correct errors in our accounting for leases,inventory, long-lived assets, ADS Mexicana, S.A. de C.V. (“ADS Mexicana”), income taxes, and other items. See “Item 7. Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and “Note 2. Restatement of Previously Issued Financial Statements” to our audited consolidatedfinancial statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. Additionally, see “Item 6. Selected Financial andOperating Data” for a summary of the effects of the restatement adjustments on fiscal years 2012 and 2011, and “Note 25. Quarterly Financial Information(Unaudited)” to the consolidated financial statements included in this Annual Report presents historical unaudited consolidated quarterly financialinformation for each of the quarters during the years ended March 31, 2015 and March 31, 2014. This Form 10-K is being filed concurrently with Forms 10-Q/A for the periods ended June 30, 2014, September 30, 2014 and December 31, 2014.CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.Some of the forward-looking statements can be identified by the use of terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,”“intends,” “plans,” “estimates,” “anticipates” or other comparable terms. These forward-looking statements include all matters that are not related to presentfacts or current conditions or that are not historical facts. They appear in a number of places throughout this Annual Report on Form 10-K and includestatements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, financialcondition, liquidity, prospects, growth strategies, and the industries in which we operate and include, without limitation, statements relating to our futureperformance.Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you thatforward-looking statements are not guarantees of future performance and that our actual consolidated results of operations, financial condition, liquidity, andindustry development may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report on Form 10-K. In addition, even if our actual consolidated results of operations, financial condition, liquidity, and industry development are consistent with the forward-looking statements contained in this Annual Report on Form 10-K, those results or developments may not be indicative of results or developments insubsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-lookingstatements, including those reflected in forward-looking statements relating to our operations and business, the risks and uncertainties discussed in thisAnnual Report on Form 10-K (including under the heading “Item 1A. Risk Factors”) and those described from time to time in our other filings with the SEC.Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include: • our ability to remediate the material weaknesses in our internal controls over financial reporting described in “Item 9A. Controls and Procedures”of this Annual Report; • the effect of any claims, litigation, investigations or proceedings resulting from the restatement or the matters related to the restatement,including those described below under “Item 3. Legal Proceedings” of this Annual Report; • our ability to regain compliance with the New York Stock Exchange’s (“NYSE”) continued listing requirements under the timely filing criteriaoutlined in Section 802.01E of the NYSE Listed Company Manual; 1Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents • 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 ourcustomers in a timely manner; • volatility in general business and economic conditions in the markets in which we operate, including without limitation factors relating toavailability 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 performancethermoplastic corrugated pipe and manufacturers of products using alternative materials; • our ability to continue to convert current demand for concrete, steel and polyvinyl chloride (“PVC”) pipe products into demand for our highperformance 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; and • other risks and uncertainties, including those listed under “Item 1A. Risk Factors.”You should read this Annual Report on Form 10-K completely and with the understanding that actual future results may be materially different fromexpectations. All forward-looking statements made in this Annual Report on Form 10-K are qualified by these cautionary statements. All forward-lookingstatements are made only as of the date of this Annual Report on Form 10-K, 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 notintended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. 2Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IITEM 1. BUSINESSRestatement of Previously Issued Financial StatementsOn August 14, 2015, the Audit Committee of the Company’s Board of Directors, after consultation with management, determined that the Company’sconsolidated historical financial statements should no longer be relied upon. Consequently, we have restated our financial results for fiscal years endedMarch 31, 2014 and 2013. See “Note 2. Restatement of Previously Issued Financial Statements” to the Consolidated Financial Statements in “Item 8.Financial Statements and Supplementary Data” of this Form 10-K for further discussion. The restatement also affects periods prior to fiscal year 2013, with thecumulative effect of the errors reflected as an adjustment to the fiscal year 2013 opening balance of retained earnings and other equity accounts. We havealso included a summary of the restated unaudited financial information for the years ended December 31, 2012 and 2011 in “Item 6. Selected Financial andOperating Data.”COMPANY OVERVIEWUnless the context otherwise indicates or requires, as used in this Annual Report on Form 10-K, the terms “we,” “our,” “us,” “ADS” and the “Company”refer to Advanced Drainage Systems, Inc. and its directly- and indirectly-owned subsidiaries as a combined entity, except where it is clear that the terms meanonly Advanced Drainage Systems, Inc. exclusive of its subsidiaries.We are the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management productsand superior drainage solutions for use in the underground construction and infrastructure marketplace. Our innovative products are used across a broadrange of end markets and applications, including non-residential, residential, agriculture and infrastructure applications. We have established a leadingposition in many of these end markets by leveraging our national sales and distribution platform, our overall product breadth and scale and ourmanufacturing excellence. In the United States, our national footprint combined with our strong local presence and broad product offering make us the leaderin an otherwise highly fragmented sector comprised of many smaller competitors. We believe the markets we serve in the United States representapproximately $10.5 billion of annual revenue opportunity. In addition, we believe the increasing acceptance of thermoplastic pipe products in internationalmarkets represents an attractive growth opportunity. For fiscal year 2015, we generated net sales of $1,180.1 million, net income of $12.8 million andadjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) of $143.8 million and, as of March 31, 2015, we had $399.9 million of total outstanding debt. For a reconciliation of Adjusted EBITDA to the most directly comparable measure calculated in accordance withgenerally accepted accounting principles (“GAAP”), see “Item 6. Selected Financial and Operating Data.”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 pipehas been displacing traditional materials, such as reinforced concrete, corrugated steel and PVC, across an ever expanding range of end markets. This hasallowed us to consistently gain share and achieve above market growth throughout economic cycles. We expect to continue to drive conversion to ourproducts from traditional materials as contractors, civil design engineers and municipal agencies increasingly acknowledge the superior physical attributesand compelling value proposition of our thermoplastic products. In addition, we believe that overall demand for our products will increase as the regulatoryenvironment continues to evolve.Our broad product line includes corrugated high density polyethylene (or “HDPE”) pipe, polypropylene (or “PP”) pipe and related water managementproducts. 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 water quality filters and separators. We refer to these ancillary product categories as 3Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAllied Products. Given the scope of our overall sales and distribution platform, we have been able to drive growth within our Allied Products and believethere are significant growth opportunities going forward.We have an extensive network of 61 manufacturing plants and 31 distribution centers, including the facilities owned or leased by our joint ventures,located across the United States, Puerto Rico, Canada, Mexico, South America and Europe. In the U.S., our network of 47 manufacturing plants and 20distribution centers allows us to effectively serve all major markets in the United States, which we define as the largest 100 metropolitan statistical areasbased on population. The effective shipping radius for our pipe products is approximately 200 miles, thus competition in our industry tends to be on aregional and local basis with minimal competition from distant markets and imports. We are the only supplier of high performance thermoplastic corrugatedpipe in our industry with a national footprint in the United States, thereby allowing us to efficiently service those customers that value having one source ofsupply throughout their entire distribution network. We believe our extensive national footprint in the United States creates a cost and service advantageversus our HDPE pipe producing competitors, the largest of which has only 11 domestic HDPE pipe manufacturing plants and, according to the December 28,2015 ranking by Plastics News of Pipe, Profile & Tubing Extruders, recently had estimated sales of $145 million, or approximately eight times less than ournet sales in fiscal year 2015. Our International segment consists of 14 manufacturing plants in Canada, Mexico, South America and Puerto Rico and 11distribution centers located in Canada, South America, and Europe.The majority of our sales are made through long-standing distribution relationships with many of the largest national and independent waterworksdistributors, including Ferguson, HD Supply and WinWholesale, who sell primarily to the storm sewer and sanitary sewer markets. We also utilize a networkof hundreds of small to medium-sized independent distributors across the United States. We have strong relationships with major national retailers that carrydrainage products, including The Home Depot, Lowe’s, Ace Hardware, Carter Lumber and Do it Best, and also sell to buying groups and co-ops in the UnitedStates that serve the plumbing, hardware, irrigation and landscaping markets. The combination of our large sales force, long-standing retail and contractorcustomer relationships and extensive network of manufacturing and distribution facilities complements and strengthens our broad customer and marketcoverage.We believe the ADS brand has long been associated with quality products and market-leading performance. Our trademarked green stripe, which isprominently displayed on many of our products, serves as clear identification of our commitment to the customers and markets we serve. 4Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAs illustrated in the charts below, we provide a broad range of high performance thermoplastic corrugated pipe and related water management productsto a highly diversified set of end markets and geographies. RECENT DEVELOPMENTSIn July 2014, we completed an initial public offering of our common stock. In December 2014, a certain selling stockholder sold 10 million shares ofour common stock in a secondary public offering. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments.” Our common stock is listed on the NYSE under the symbol “WMS.”On January 30, 2015, Hancor of Canada, Inc., a wholly-owned subsidiary of the Company, acquired all issued and outstanding shares of Ideal DrainTile Limited and Wave Plastics Inc., the sole partners of Ideal Pipe, which we collectively refer to as Ideal Pipe. Ideal Pipe designs, manufactures and marketshigh 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 increasingour size and scale in the market, as well as enhancing our manufacturing, marketing and distribution capabilities. The purchase price of Ideal Pipe was $43.8million, financed through our existing line of credit facility.On July 17, 2015, we acquired an additional 10% of the issued and outstanding membership interests in BaySaver Technologies, LLC (“BaySaver”) fora combined purchase price of $3.2 million, subject to certain additional post-closing purchase price payments specified in the Purchase Agreement.Concurrent with the acquisition, we also entered into an amendment to the BaySaver joint venture agreement to change the voting rights for the joint venturefrom an equal vote for each member to a vote based upon the respective ownership interest. As a result of the acquisition and the amendment, the Companyincreased its ownership interest to 65% of the issued and outstanding membership interests in BaySaver and obtained the majority of the voting rights. See“Note 4. Acquisitions” to our consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. 5Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFrom July 2015 through February 2016, the Company obtained various consents from the lenders and amended the Bank Term Loans and SeniorNotes. These consents and the additional amendments had the effect of: i) extending the time for delivery of our fiscal 2015 audited financial statements andthe first, second, and third quarter fiscal 2016 quarterly financial statements to April 1, 2016, whereby an event of default was waived as long as thosefinancial statements were delivered by that date, ii) modified certain definitions applicable to the Company’s affirmative and negative financial covenants,including the negative covenant on indebtedness, to accommodate the Company’s treatment of its transportation and equipment leases as capital leasesrather than operating leases and to accommodate the treatment of the costs related to the Company’s restatement, and iii) permitted the Company’s paymentof quarterly dividends on common shares in June, August and December 2015, as well as an annual dividend for preferred shares in March 2016. See “Note13. Debt” to our consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.SEGMENT INFORMATIONFor a discussion of segment and geographic information, see “Note 23. Business Segment Information” to our audited consolidated financialstatements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.OUR MANUFACTURING AND DISTRIBUTION PLATFORMWe have a leading domestic and international manufacturing and distribution infrastructure, serving customers in all 50 U.S. states as well asapproximately 80 other countries through 61 manufacturing plants and 31 distribution centers including the facilities owned or leased by our joint ventures.We also operate an in-house fleet of approximately 650 tractor-trailers. Our effective shipping radius is approximately 200 miles from one of ourmanufacturing plants or distribution centers. Our scale and extensive network of facilities provide a critical cost advantage versus our competitors, as we areable to more efficiently transport products to our customers and end users and to promote faster product shipments due to our proximity to the deliverylocation.The combination of a dedicated fleet and team of company drivers allows greater flexibility and responsiveness in meeting dynamic customer jobsitedelivery expectations. We strive to achieve less than three-day lead-time on deliveries, and have the added benefit of redeploying fleet and driver assets torespond to short-term regional spikes in sales activity. For deliveries that are outside an economic delivery radius of our truck fleet, common carrier deliveriesare tendered using a customized software platform to ensure that lowest delivered freight costs are achieved. In addition, in the United States and Canada,more than 12% of our pipe volume is sold on a pick-up or walk-in basis at our plant and yard locations, further leveraging our footprint and lowering freightcost per pound and per revenue dollar.Our North American truck fleet incorporates approximately 1,150 trailers that are specially designed to haul our lightweight pipe and fittings products.These designs maximize payload versus conventional over the road trailers and facilitate unassisted unloading of our products at the jobsites by our drivers.The scope of fleet operations also includes backhaul of purchased raw materials providing a lower delivered cost to our plant locations.We have expanded internationally primarily through joint ventures with best-in-class local partners. This joint venture strategy has provided us withlocal and regional access to markets such as Brazil, Chile, Argentina, Mexico, Peru and Colombia. These international facilities produce pipe and relatedproducts to be sold in their respective regional markets. Combining a local partner’s customer relationships, brand recognition and local management talent,with our world-class manufacturing and process expertise, broad product portfolio and innovation, creates a powerful platform and exciting opportunities forcontinued international expansion. 6Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOUR MANUFACTURING PROCESSWe manufacture our corrugated pipe products in 17 different diameters ranging from 2” to 60” using a continuous extrusion process, where moltenpolyethylene or polypropylene is pushed through a die into a moving series of corrugated U-shaped molds. Blown air and vacuum are used to form thecorrugations of the pipe which is pulled through a corrugator and then cut to length. We utilize customized and proprietary production equipment, which webelieve is faster and more cost efficient than other pipe making equipment generally available in the market.Domestically, we operate approximately 121 pipe production lines that collectively are capable of producing more than one billion pounds of pipeannually on a standard five-day per week schedule. Additional capacity is in place to support seasonal production needs and growth in our N-12 pipe salesvolume requiring minimal additional capital for molds. Our normal production capacity utilization as a percentage of total capacity was 68%, 64% and 65%for fiscal years 2015, 2014 and 2013, respectively. To produce our broad range of pipe sizes, we own and utilize approximately 330 mold and die setups,which had an original capital cost of approximately $131 million and most of which are moved between manufacturing plants. Our production equipment isbuilt to accept transportable molds and die tooling over a certain range of sizes so each plant is not required to house the full range of tooling at any giventime. This transportability provides us with the flexibility to optimize our capacity through centrally-coordinated production planning, which helps to adaptto shifting sales demand patterns while reducing the capital needed for tooling. With our large manufacturing footprint in place, we can support rapidseasonal growth in demand, focusing on customer service while minimizing transportation costs.The standard fittings products (tees, wyes, elbows, etc.) that we produce and sell to connect our pipe on jobsites are blow molded or injection molded atfour domestic plants. In addition, customized fabricated fittings (e.g., more complex dual wall pipe reducers, bends or structures) are produced in 20 of ourNorth American plants. In addition to the extrusion of pipe, and blow molding and injection molding of fittings, we also use a variety of other processes inour manufacturing facilities. These processes include thermoforming, compression molding, and custom plastic welding and fabrication. The wide variety ofproduction processes and expertise allow us to provide cost-effective finished goods at competitive prices delivered in a timely fashion to our customers.Our manufacturing plants have no process related by-products released into the atmosphere, waterways, or solid waste discharge. During pipeproduction start-ups and size change-overs, non-compliant scrap and any damaged finished goods pipe are recycled through a grinder for internal re-use.We have two internal quality control laboratory facilities equipped and staffed to evaluate and confirm incoming raw material and finished goodsquality in addition to the quality testing that is done at our manufacturing facilities. We conduct annual safety, product and process quality audits at each ofour facilities, using centralized internal resources in combination with external third-party services. In the quality area, various national agencies such asNational Transportation Product Evaluation Program (“NTPEP”), International Association of Plumbing and Mechanical Officials (“IAPMO”), Bureau denormalisation du Québec (“BNQ”), Intertek for Canadian Standards Association (“CSA”) , Entidad Mexicana de Acreditacion A.C. (“EMA”) and NSFInternational and numerous state Departments of Transportation (“DOT”) (e.g., Illinois, Michigan) and municipal authorities (e.g., City of Columbus) conductboth scheduled and unscheduled inspections of our plants to verify product quality and compliance to applicable standards.Core to our commitment and enablement of a safe and productive manufacturing environment are our operational and management trainingprograms. Through our ADS Academy, we deliver targeted role-specific training to our operations team members through a blended curriculum of on-line andhands-on training experiences covering safety, quality, product knowledge and manufacturing process. Our learning management system, which hosts over400 custom modules, serves as the foundation of our operational training programs and provides us with appropriate scale, efficiency, and governance tosupport our growth. We have a strong commitment to the training of our manufacturing supervisors and managers in technical, management, and leadershipsubjects through intense role-based assimilation plans, e-learning and classroom-based development experiences. 7Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOUR PRODUCTSWe design, manufacture and market a complete line of high performance thermoplastic corrugated pipe and related water management products for usein a wide range of end markets. Our product line includes: single, double and triple wall corrugated polypropylene and polyethylene pipe, or Pipe, and avariety of Allied Products including: storm retention/detention and septic chambers, or Chambers; PVC drainage structures, or Structures; fittings, or Fittings;and water quality filters and separators, or Water Quality. We also sell various complementary products distributed through resale agreements, includinggeotextile products and drainage grates and other, or Other Resale.An overview of our product offerings is provided below: Product Offering Description Brands/Offerings ImagesPipe (76% of Total Net Sales in Fiscal Year 2015) High density polyethylene andpolypropylene pipe Dual Wall Corrugated Pipe, HP StormPipe, SaniTite HP Pipe, Single WallCorrugated Pipe, Triple WallCorrugated Pipe, Smoothwall HDPEPipe Allied Products (24% of Total Net Sales in Fiscal Year 2015) Chambers Underground chambers made frompolypropylene or HDPE that can functionas stormwater detention, retention, and/or“first flush” storage systems StormTech, ARC (Septic Chambers),BioDiffuser (Septic Chambers) Structures Drainage structures consisting of inlinedrains, drain basins, curb inlet structures,and drop-in grates in diameters rangingfrom 8” to 30” Nyloplast, Inserta Tee Fittings Standard and fabricated joining systems Fittings Water Quality Water quality structures and filters BaySeparator, BayFilter, WaterQuality Units, FleXstorm Other Resale Complementary products providingservices adjacent to core expertise Geotextiles 8Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPipeDual Wall Corrugated PipeOur N-12 pipe is a dual wall HDPE pipe with a corrugated exterior for strength and a smooth interior wall for hydraulics and flow capacity. Our N-12pipe competes in the storm sewer and drainage markets that are also served by concrete pipe.Our N-12 pipe is available in 17 different diameters ranging from 2” to 60” and in sections ranging from 10’ to 30’ in length. N-12 provides jointintegrity, with integral bell and spigot joints for fast push-together installation, and is sold either with watertight or soil-tight coupling and fitting systems.Our corrugated polyethylene pipe offers many benefits including ease of installation, job-site handling and resistance to corrosion and abrasion.Corrugated pipe can easily be cut or coupled together, providing precise laying lengths while minimizing installation waste and difficulty.HP Storm Pipe and SaniTite HP PipeOur HP Storm pipe utilizes polypropylene resin, which provides (i) increased pipe stiffness relative to HDPE; (ii) higher Environmental Stress CrackResistance (“ESCR”); and (iii) improved thermal properties, which improves joint performance. These improved physical characteristics result in a reducedneed for select backfill, which creates installation savings for customers and expands the range of possible product applications.Our SaniTite HP pipe utilizes the same polypropylene resins as our HP Storm pipe but includes a smooth third exterior wall in 30” to 60” pipe. Thehighly engineered polypropylene resin along with the triple wall design enables SaniTite HP to surpass the 46 pounds per square inch (“psi”), stiffnessrequirement for sanitary sewer applications. SaniTite HP offers cost and performance advantages relative to reinforced concrete pipe (such as improvedhydraulics and better joint integrity) and PVC pipe (such as impact resistance).Single Wall Corrugated PipeOur single wall corrugated HDPE pipe is ideal for drainage projects where flexibility, light weight and low cost are important. Single wall HDPE pipeproducts have been used for decades in agricultural drainage, highway edge drains, septic systems and other construction applications. In the agriculturalmarket, improved technology has highlighted the favorable impact of drainage on crop yields. For homeowners, it is an economical and easily-installedsolution for downspout run-off, foundation drains, driveway culverts and general lawn drainage. Single wall pipe is also used for golf courses, parks andathletic fields to keep surfaces dry by channeling away excess underground moisture.Standard single wall products are available in 2” to 24” diameters and sold in varying lengths. Pipe with 2” to 6” diameters is typically sold in coilsranging from 25’ to over 3,000’ in length, while larger diameter pipe is typically sold in 20’ lengths. Pipe can be either perforated or non-perforateddepending on the particular drainage application.Triple Wall Corrugated Pipe and Smoothwall HDPE PipeOur ADS-3000 Triple Wall pipe, small diameter triple wall corrugated pipe, consists of a corrugated polyethylene core molded between a smooth whiteouter wall and a smooth black inner wall. This combination of the three wall design adds strength and stiffness, while reducing weight as compared to PVC2729. Triple Wall is produced in two sizes, 3” and 4”, and sold through our distribution network.We also manufacture smoothwall HDPE pipe in 3”, 4”, and 6” diameters that are sold into the residential drainage and on-site septic systems markets. 9Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAllied ProductsWe produce a range of additional water management products that are complementary to our pipe products (“Allied Products”). Our Allied Productsoffer adjacent technologies to our core pipe offering, presenting a complete drainage solution for our clients and customers. This combination of pipe andAllied Products is a key strategy in our sales growth, profitability and market share penetration. The practice of selling a drainage system is attractive to bothdistributors and end users, by providing a broad package of products that can be sold on individual projects, and strengthens our competitive advantage inthe marketplace. We aggressively seek and evaluate new products, technologies and regulatory changes that impact our customers’ needs for Allied Products.Using the strength of our overall sales and distribution platform, our Allied Product strategy allows us to more deeply penetrate our end markets andanticipate the evolving needs of our customers. The underground construction industry has historically been project (not product) driven, creating theimpetus for owners, engineers and contractors to seek manufacturers that deliver solution-based product portfolios. Many of the components of undergroundconstruction are related and require linear compatibility of function, regulatory approval and technology.Storm and Septic ChambersOur StormTech chambers are used for stormwater retention, detention and “first flush” underground water storage on non-residential site developmentand public projects. These highly engineered chambers are injection molded from high density polyethylene and polypropylene resins into a proprietarydesign which provides strength, durability, and resistance to corrosion. The chambers allow for the efficient storage of stormwater volume, reducing theunderground construction footprint and costs to the contractors, developers, and property owners. Our StormTech chambers offer great flexibility in designand layout of underground water storage systems. They are an attractive alternative to open ponds by reducing ongoing maintenance and liability andproviding more useable land for development. Stormwater runoff is collected and stored in rows of chambers and gradually reenters the water system base,reducing erosion and protecting waterways. The chambers are open bottom, which allows for high density stacking in both storage and shipment. Thisfreight-efficient feature drives favorable cost-competitiveness in serving long-distance export markets. These chamber systems typically incorporate our otherproduct lines such as corrugated pipe, fabricated fittings, water quality units and geotextiles.Our ARC and BioDiffuser products are chambers that are used in on-site septic systems for residential and small volume non-residential wastewatertreatment and disposal. Rural homes and communities that do not have access to central sewer lines require an on-site septic solution. Our ARC andBioDiffuser chamber products are installed and perform their septic treatment function without gravel, reducing costs to the contractor and homeowner overtraditional pipe and stone systems. States and municipalities have different sizing criteria for on-site septic treatment systems based on soil and siteconditions. The innovative design of our ARC chamber is generally approved for a footprint reduction, further reducing the cost of the septic system.Injection-molded from high density polyethylene, these products are strong, durable, and chemical-resistant. These interconnecting chambers are favored byseptic contractors because they are lightweight, easy to install and offer articulating features which increase site-specific design flexibility.StructuresOur Nyloplast PVC drainage structures are used in non-residential, residential and municipal site development, road and highway construction, as wellas landscaping, recreational, industrial and mechanical applications. The product family includes inline drains, drain basins, curb inlets and water controlstructures which move surface-collected stormwater vertically down to pipe conveyance systems. These custom structures are fabricated from sections of PVCpipe using a thermo-forming process to achieve exact site-specific hydraulic 10Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsdesign requirements. Our Nyloplast products are a preferred alternative to heavier and larger concrete structures, by offering greater design flexibility andimproved ease of installation which reduces overall project costs and timelines. The structures incorporate rubber gaskets to ensure watertight connections,preventing soil infiltration which plagues competitive products.Our Inserta Tee product line consists of a PVC hub, rubber sleeve and stainless steel band. Inserta Tee is compression fit into the cored wall of amainline pipe and can be used with all pipe material types and profiles. This product offers an easy tap-in to existing sanitary and storm sewers by limitingthe excavation needed for installation compared to competitive materials.FittingsWe produce fittings and couplings utilizing blow molding, injection molding and custom fabrication on our pipe products. Our innovative couplingand fitting products are highly complementary to our broader product suite, and include both soil-tight and water-tight capabilities across the full pipediameter spectrum. Our fittings are sold in all end markets where we sell our current pipe products.Water QualityOur BaySaver product line targets the removal of sediment, debris, oils and suspended solids throughout a stormwater rain event by separating and/orfiltering unwanted pollutants. Our BaySeparators can be fabricated into multiple sizing combinations to fit a variety of applications and customerrequirements. These products assist owners, developers and design engineers in remaining compliant with discharge requirements set forth by theEnvironmental Protection Agency (“EPA”) as well as state and local regulatory agencies. Our BaySaver product line coupled with our pipe, StormTechchambers, fabricated fittings, Nyloplast structures, FleXstorm inlet protection systems and geotextiles make up a comprehensive stormwater managementsolution.Construction Fabrics & GeotextilesWe purchase and distribute construction fabrics and other geosynthetic products for soil stabilization, reinforcement, filtration, separation, erosioncontrol, and sub-surface drainage. Constructed of woven and non-woven polypropylene, geotextile products provide permanent, cost-efficient site-development solutions. Construction fabrics and geotextiles have applications in all of our end markets.RAW MATERIALSVirgin high density polyethylene (“HDPE”) and polypropylene (“PP”) resins are derivatives of ethylene and propylene, respectively. Ethylene andpropylene are derived from natural gas liquids or crude oil derivatives in the U.S. We currently purchase in excess of 700 million pounds of virgin andrecycled resin annually from over 450 suppliers in North America. As a high-volume buyer of resin, we are able to achieve economies of scale to negotiatefavorable terms and pricing. Our purchasing strategies differ based on the material (virgin resin v. recycled material) ordered for delivery to our productionlocations. The price movements of the different materials also vary, resulting in the need to use a number of strategies to reduce volatility and successfullypass on cost increases to our customer through timely selling price increases when needed.In 2008 we began to further augment our raw material blending and processing technologies to produce an HDPE pipe that incorporates recycled resin.This product, which meets an ASTM International (“ASTM”) standard, replaces a majority of the virgin resin that is used in the American Association of StateHighway and Transportation Officials (“AASHTO”) product with recycled materials. To further develop our recycled material strategies, we established GreenLine Polymers, Inc. (“GLP”), as our wholly-owned recycling subsidiary in 2012. GLP procures and processes recycled raw materials that can be used inproducts we produce and sell. Our first production facilities were established in Ohio and Georgia and are focused on processing post-industrial HDPE 11Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsrecycled materials. Based on the success of this strategy, we expanded our efforts toward post-consumer material processing by acquiring the business of avendor who was supplying clean, post-consumer recycled HDPE to our upper Midwest plants and established a second post-consumer processing plant, inPennsylvania, to support our plants in Ohio, Michigan and the eastern and southern United States. In fiscal year 2015, 66% of our non-virgin HDPE rawmaterial needs were internally processed (enhanced) through our GLP operations.We believe that we are well positioned for future growth as we add additional recycled material processing facilities, add capacity to existing facilities,and expand our supplier base for virgin resin. With the significant activity in U.S. shale gas and oil extraction expected to continue, we anticipate continuedgrowth in the availability of ethylene and propylene which are used to manufacture high density polyethylene and polypropylene, respectively.We have managed a formal resin price risk management program since early in 2010 that entails both physical fixed price and volume contracts alongwith financial hedges which are designed to apply to a significant portion of our annual virgin resin purchases. In conjunction with our resin price riskmanagement program, we also maintain supply agreements with our major resin suppliers that provide multi-year terms and volumes that are in excess of ourprojected consumption. For our polypropylene virgin resin price exposure, we utilize financial hedges of propylene as a proxy for polypropylene.Historically, there has been high correlation in month to month change in market based pricing between propylene and polypropylene.We also began a diesel hedging program in 2008 which is executed through several financial swaps covering future months demand for diesel fuel andare designed to decrease our exposure to changing fuel costs. These hedges cover a significant portion of the diesel fuel consumed by the truck fleet that weoperate to deliver products to our customers. Our objective is to hedge roughly 50% of our overall monthly fuel costs over the next 12 months.SUPPLIERSWe have developed relationships with all of the North American producers of virgin high density polyethylene and impact copolymer polypropyleneproducers that produce the grades we need to produce our products. , including Braskem Americas, Inc., Chevron Phillips Chemical Co. LP, The DowChemical Company, Equistar Chemicals, LP, ExxonMobil Chemical Company, Formosa Plastics Corporation, U.S.A., Ineos Olefins & Polyolefins, USA andPhillips 66 Company.We also maintain relationships with several of the largest environmental companies such as Waste Management, Inc., Republic Services, Inc., Rumpke,Inc. and QRS, Inc., which provide us with post-consumer HDPE recycled materials. We also maintain relationships with several key post-industrial HDPEsuppliers, including E.I. du Pont de Nemours and Company, Silgan Plastics, Consolidated Container Company and Alpla, Inc. which provide us withmaterials that cannot otherwise be utilized in their respective production processes.The North American capacity for ethylene derivatives is being expanded primarily as a result of the new supplies of natural gas liquids being producedthrough shale gas exploration and production. This low-cost stream of feedstocks (ethane and propane) has positioned several companies such as LyondellBasell, ExxonMobil Chemical Company, Chevron Phillips Chemical Co. LP and The Dow Chemical Company to begin the permitting and engineeringphases for significant amounts of additional ethylene or propylene capacity. We anticipate that the previously announced projects for ethylene derivativecapacity associated with HDPE will begin coming on stream during 2016, extending through 2018. The polypropylene capacity expansion projects to utilizethe increased supply of propylene are projected to begin coming on-stream in 2018. 12Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCUSTOMERSWe have a large, active customer base of over 18,000 customers, with one customer representing more than 10% of fiscal year 2015 net sales. FergusonEnterprises accounted for 10.7% of fiscal year 2015 net sales. Our customer base is diversified across the range of end markets that we serve.A majority of our sales are made through distributors, including many of the largest national and independent waterworks distributors, with whom wehave long-standing distribution relationships. These include Ferguson, HD Supply and WinWholesale, who sell primarily to the storm sewer and sanitarysewer markets. We also utilize a network of hundreds of small to medium-sized independent distributors across the United States. We have strongrelationships with major national retailers that carry drainage products, including The Home Depot, Lowe’s, Ace Hardware, Carter Lumber and Do it Best. Weoffer the most complete line of HDPE products in the industry and are the only national manufacturer that can service the “Big-Box” retailers from coast-to-coast. We also sell to buying groups and co-ops in the United States that serve the plumbing, hardware, irrigation and landscaping markets. Selling to buyinggroups and co-ops provides us a further presence on a national, regional and local basis for the distribution of our products. Our preferred vendor status withthese groups allows us to reach thousands of locations in an effective manner. Members of these groups and co-ops generally are independent businesses withstrong relationships and brand recognition with smaller contractors and homeowners in their local markets. The combination of our large sales force, long-standing retail and contractor customer relationships and extensive network of manufacturing and distribution facilities complements and strengthens ourbroad customer and market coverage.An important element of our growth strategy has been our focus on industry education efforts to drive regulatory approvals for our core HDPE productsat national, state and local levels. We employ a team of approximately 50 field-based engineers who work closely with government agencies to obtainregulatory approvals for our products, and also with civil engineering firms to specify our products on non-residential construction and road-buildingprojects. We consistently maintain an active dialogue with customers, civil engineers and municipal authorities, continuously educating them on newproduct innovations and their advantages relative to traditional products. With the introduction of our HP storm and sanitary pipe, we have refocused ourefforts calling on state departments of transportation to enhance their approval of our pipe products. Additional state and local regulatory approvals willcontinue to present new growth opportunities in new and existing geographic markets for us.Our customer service organization of more than 100 employees is supplemented by the employees of our 61 manufacturing plants, 31 distributioncenters and drivers of our approximately 650 tractor-trailers. In conjunction with our field sales and engineering team, this highly-trained and competent staffallows us to maintain more customer touch points and interaction than any of our competitors.We staff and operate four regional customer service call centers located in three time zones where orders are processed. With some of our largercustomers, we process orders electronically via electronic data interchange (EDI). Additionally, we send advance shipment notifications and invoiceselectronically to these customers. These capabilities strengthen the supply chain integration with large customers such as The Home Depot, Lowes, Fergusonand HD Supply. New orders are entered into our Oracle system, assigned to our closest manufacturing plant or distribution center in that geography, and thenconsolidated to optimize freight efficiency, payload and lead-time performance to meet customer requirements.SALES AND MARKETINGWe believe we have the largest and most experienced sales force in the industry, with approximately 250 dedicated direct sales professionals that callon engineers, contractors, distributors and developers. Offering the broadest product line in the industry enables our sales force to source the greatest numberof new opportunities and more effectively cross-sell products than any of our competitors. We consistently maintain 13Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsthousands of touch-points with customers, civil engineers and municipal authorities, continuously educating them on new product innovations and theiradvantages relative to traditional products. We believe we are the industry leader in these efforts and we view this work as an important part of our marketingstrategy, particularly in promoting N-12 and SaniTite HP for storm and sanitary sewer systems, as regulatory approvals are essential to the specification andacceptance of these product lines.Our sales and marketing strategy is divided into four components — comprehensive market coverage, diverse product offerings, readily-available localinventory and specification efforts. Our goal is to provide the distributor/owner with the most complete, readily-available product line in our industry. Westrive to use our manufacturing footprint, product portfolio and market expertise to efficiently service our customers.Our sales and engineering objective is to influence, track and quote all selling opportunities as early in the project life cycle as possible. Conceptualproject visibility allows sales and engineering professionals the ability to influence design specifications and increase the probability of inclusion of ourproducts in bid documents. We strive to be meaningfully involved in all phases of the project cycle, including design, bidding, award and installation. Inaddition to direct channel customers, we also maintain and develop relationships with federal agencies, municipal agencies, national standard regulators,private consulting engineers and architects. Our consistent interaction with these market participants enables us to continue our market penetration. Thisongoing dialogue has positioned us as an industry resource for design guidance and product development and as a respected expert in water managementsolutions.SEASONALITYHistorically, sales of our products have been higher in the first and second quarters of each fiscal year due to favorable weather and longer daylightconditions accelerating construction activity during these periods. Seasonal variations in operating results may also be impacted by inclement weatherconditions, such as cold or wet weather, which can delay projects.In the non-residential, residential and infrastructure markets in the northern United States and Canada, construction activity typically begins toincrease in late March and is slower in December, January and February. In the southern and western United States, Mexico, Central America and SouthAmerica, the construction markets are less seasonal. The agricultural drainage market is concentrated in the early spring just prior to planting and in the falljust after crops are harvested prior to freezing of the ground in winter.PRACTICES RELATED TO WORKING CAPITAL ITEMSInformation about the Company’s working capital practices is incorporated herein by reference to “Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — Results of Operations — Working Capital and Cash Flows” of this Form 10-K.COMPETITIONWe operate in a highly fragmented industry and hold leading positions in multiple market sectors. Competition, including our competitors and specificcompetitive factors, varies for each market sector.We believe the principal competitive factors for our market sectors include local selling coverage, product availability, breadth and cost of products,technical knowledge and expertise, customer and supplier relationships, reliability and accuracy of service, effective use of technology, delivery capabilitiesand timeliness, pricing of products, and the provision of credit. We believe that our competitive strengths and strategy allow us to compete effectively in ourmarket sectors.The stormwater drainage industry, in particular, is highly fragmented with many smaller specialty and regional competitors providing a variety ofproduct technologies and solutions. We compete against concrete 14Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentspipe, corrugated steel pipe and PVC pipe producers on a national, regional and local basis. In addition, there are several HDPE pipe producers in the UnitedStates.In the United States, our primary competitors are concrete pipe producers, including Cemex, Hanson and Oldcastle CRH Precast, as well as smaller,regional competitors. In the corrugated steel pipe sector, our primary national competitor is Contech Engineered Solutions, and we compete with LaneEnterprises, Pacific Corrugated and Southeast Culvert on a regional level, as well as other smaller competitors. In the PVC pipe sector, we compete primarilywith JM Eagle, Diamond Plastics and North American Pipe. We believe we are the only corrugated HDPE pipe producer with a national footprint, and ourcompetitors operate primarily on a regional and local level. In the corrugated HDPE pipe sector in the United States, our primary competitors on a regionalbasis are JM Eagle, Lane Enterprises and Prinsco.The superior attributes of HDPE and PP and ongoing product innovation have allowed thermoplastic pipe manufacturers generally, and us inparticular, to capture market share across all end market categories. This substitution trend is expected to continue as more states and municipalitiesrecognize the benefits of our HDPE N-12 pipe and our polypropylene HP pipe by approving it for use in a broader range of applications.INTELLECTUAL PROPERTYIntellectual property is an important aspect of our business. We rely upon a combination of patents, trademarks, trade names, licensing arrangements,trade secrets, know-how and proprietary technology in order to secure and protect our intellectual property rights, both in the United States and in foreigncountries.We seek to protect our new technologies with patents and trademarks and defend against patent infringement allegations. We hold a significantamount of intellectual property rights pertaining to product patents, process patents and trademarks. We continually seek to expand and improve our existingproduct offerings through product development and acquisitions. Although our intellectual property is important to our business operations and in theaggregate constitutes a valuable asset, we do not believe that any single patent, trademark or trade secret is critical to the success of our business as a whole.We cannot be certain that our patent applications will be issued or that any issued patents will provide us with any competitive advantages or will not bechallenged by third parties.In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information through the use ofinternal and external controls, including contractual protections with employees, distributors and others. Despite these protections, we may be unable toprevent third parties from using our intellectual property without our authorization, breaching any nondisclosure agreements with us, or independentlydeveloping products that are similar to ours, particularly in those countries where the laws do not protect our proprietary rights as fully as in the UnitedStates.See “Item 1A. Risk Factors — Risks Relating to Our Business — If we are unable to protect our intellectual property rights, or we infringe on theintellectual property rights of others, our ability to compete could be negatively impacted.”EMPLOYEESAs of March 31, 2015, in our domestic and international operations the Company and its consolidated and unconsolidated joint ventures hadapproximately 3,950 employees, consisting of approximately 2,800 hourly personnel and approximately 1,150 salaried employees. As of March 31, 2015,approximately 300 hourly personnel in our Mexican and South American operations were covered by collective bargaining agreements. 15Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsREGULATIONOur operations are affected by various statutes, regulations and laws in the markets in which we operate, which historically have not had a materialeffect on our business. We are subject to various laws applicable to businesses generally, including laws affecting land usage, zoning, the environment,health and safety, transportation, labor and employment practices, competition, immigration and other matters. Additionally, building codes may affect theproducts our customers are allowed to use, and, consequently, changes in building codes may affect the salability of our products. The transportation anddisposal of many of our products are also subject to federal regulations. The U.S. DOT regulates our operations in domestic interstate commerce. We aresubject to safety requirements governing interstate operations prescribed by the U.S. DOT. Vehicle dimensions and driver hours of service also remain subjectto both federal and state regulation.We have been able to consistently capitalize on changes in both local and federal regulatory statutes relating to storm and sanitary sewer construction,repair and replacement. Most noteworthy is the Federal Clean Water Act of 1972 and the subsequent EPA Phase I, II and sustainable infrastructure regulationsrelating to storm sewer construction, storm water quantity, storm water quality, and combined sewer separation. Our diversity of products offering a solution-based selling approach coupled with detailed market knowledge makes us an integral industry resource in both regulatory changes and compliance.ENVIRONMENTAL, HEALTH AND SAFETY MATTERSWe are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those pertaining toair emissions, water discharges, the handling, disposal and transport of solid and hazardous materials and wastes, the investigation and remediation ofcontamination and otherwise relating to health and safety and the protection of the environment and natural resources. As our operations, and those of manyof the companies we have acquired, to a limited extent involve and have involved the handling, transport and distribution of materials that are, or could beclassified as, toxic or hazardous, there is some risk of contamination and environmental damage inherent in our operations and the products we handle,transport and distribute. Our environmental, health and safety liabilities and obligations may result in significant capital expenditures and other costs, whichcould negatively impact our business, financial condition and results of operations. We may be fined or penalized by regulators for failing to comply withenvironmental, health and safety laws and regulations, or we may be held responsible for such failures by companies we have acquired. In addition,contamination resulting from our current or past operations, and those of many of the companies we have acquired, may trigger investigation or remediationobligations, which may have a material adverse effect on our business, financial condition and results of operations.CORPORATE AND AVAILABLE INFORMATIONWe were founded in 1966 and are a Delaware corporation. Our principal executive offices are located at 4640 Trueman Boulevard, Hilliard, Ohio43026, and our telephone number at that address is (614) 658-0050. Our corporate website is www.ads-pipe.com.Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, (“Exchange Act”) are filed with the U.S. Securities and Exchange Commission (“SEC”).We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements, and other information with the SEC. Suchreports and other information filed by the Company with the SEC are available free of charge on our website at www.ads-pipe.com when such reports areavailable on the SEC’s website. We use our www.ads-pipe.com website as a means of disclosing material non-public information and for complying with ourdisclosure obligations under Regulation FD. Accordingly, investors should monitor such portions of www.ads-pipe.com in addition to following pressreleases, SEC filings and public conference calls and webcasts. 16Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580,Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SECmaintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SECat www.sec.gov.The contents of the websites referred to above are not incorporated into this filing. Further, our references to the URLs for these websites are intended tobe inactive textual references only. 17Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 1A. RISK FACTORSYou should carefully consider the risks described below, together with all other information included or incorporated by reference in this AnnualReport on Form 10-K. If any of the following risks actually occur, our business, financial condition, results of operations and cash flows could be materiallyadversely affected. In these circumstances, the market price of our common stock could decline significantly.Risks Relating to the Restatement and Our Financial Reporting ProcessThe restatement of our previously issued financial statements has been time-consuming and expensive and could expose us to additional risks that wouldadversely affect our financial position, results of operations and cash flows.As described in the section entitled “Explanatory Note” and in “Note 2. Restatement of Previously Issued Financial Statements,” to our auditedconsolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K, we have restated our previouslyissued consolidated financial statements for the fiscal years ended March 31, 2014 and 2013, as well as each of the first three quarters in fiscal year 2015 and2014. We have also restated our financial results for the fiscal years ended March 31, 2012 and 2011, as summarized in “Item 6. Selected Financial andOperating Data.” The restatement has been time-consuming and expensive and could expose us to a number of additional risks that would adversely affectour financial position, results of operations and cash flows.In particular, we have incurred significant expense, including audit, legal, consulting and other professional fees as well as fees related to theamendment of our credit agreements and private shelf agreements, in connection with the restatement of our previously issued consolidated financialstatements and the ongoing remediation of weaknesses in our internal control over financial reporting. We have taken a number of steps, including bothadding internal personnel and hiring outside consultants, and intend to continue to take appropriate and reasonable steps to strengthen our accountingfunction and reduce the risk of additional misstatements in our financial statements. For more details about our remediation plan, see “Item 9A. Controls andProcedures” of this Form 10-K. To the extent these steps are not successful, we may have to incur additional time and expense. Our management’s attentionhas also been, and may further be, diverted from the operation of our business in connection with the restatement and ongoing remediation of materialweaknesses in our internal controls.We are also subject to claims, investigations and proceedings arising out of the errors in our previously issued financial statements, including securitiesclass action litigation against us. See “The restatement of our previously issued financial results has resulted in private litigation, investigation by the SECand could result in additional government investigations and enforcement actions.”We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, adversely affect our ability toreport our financial condition and results of operations in a timely and accurate manner, investor confidence in our company and, as a result, the value ofour common stock.We are required to evaluate the effectiveness of our disclosure controls on a periodic basis and publicly disclose the results of these evaluations andrelated matters in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. While we are not yet required to comply with theinternal control reporting requirements mandated by Section 404 due to the transition period established for newly public companies, we have identifiedcertain material weaknesses in internal control over financial reporting in the areas of (i) the Company’s control environment, (ii) accounting for leases,(iii) accounting for inventory, (iv) journal entry and account reconciliation, (v) ADS Mexicana control environment, and (vi) ADS Mexicana revenuerecognition cut-off practices as described in “Item 9A. Controls and Procedures” of this Form 10-K. As a result of such material weaknesses, our managementconcluded that our disclosure controls and procedures were not effective as of March 31, 2015. 18Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsA “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. We areactively engaged in developing and implementing a remediation plan designed to address these material weaknesses, but our remediation efforts are notcomplete and are ongoing. Although we are working to remedy the ineffectiveness of the Company’s internal control over financial reporting, there can be noassurance as to when the remediation plan will be fully developed, when it will be fully implemented or the aggregate cost of implementation. Until ourremediation plan is fully implemented, our management will continue to devote significant time and attention to these efforts. If we do not complete ourremediation in a timely fashion, or at all, or if our remediation plan is inadequate, there will continue to be an increased risk that we will be unable to timelyfile future periodic reports with the SEC and that our future consolidated financial statements could contain errors that will be undetected. If we are unable toreport our results in a timely and accurate manner, we may not be able to comply with the applicable covenants in our financing arrangements, and may berequired to seek additional amendments or waivers under these financing arrangements, which could adversely impact our liquidity and financial condition.Further and continued determinations that there are material weaknesses in the effectiveness of the Company’s internal control over financial reporting couldreduce our ability to obtain financing or could increase the cost of any financing we obtain and require additional expenditures of both money and ourmanagement’s time to comply with applicable requirements.Any failure to implement or maintain required new or improved controls, or any difficulties we encounter in their implementation, could result inadditional material weaknesses or material misstatement in our consolidated financial statements. Any new misstatement could result in a further restatementof our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability to obtain financing or cause investors to loseconfidence in our reported financial information, leading to a decline in our stock price. We cannot assure you that we will not discover additionalweaknesses in our internal control over financial reporting.Further, we may be the subject of negative publicity focusing on the restatement of our previously issued financial results and related matters, and maybe adversely impacted by negative reactions from our stockholders, creditors or others with which we do business. This negative publicity may impact ourability to attract and retain customers, employees and vendors. The occurrence of any of the foregoing could harm our business and reputation and cause theprice of our securities to decline.In addition, beginning with our Annual Report on Form 10-K for the fiscal year ending March 31, 2016, we will be required to furnish a report bymanagement, and our independent registered public accounting firm will be required to provide an attestation report, on the effectiveness of our internalcontrol over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. At such time, if we are unable to comply with the requirements ofSection 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firmis unable to provide us with an unqualified report regarding the effectiveness of our internal control over financial reporting, investors could lose confidencein the reliability of our financial statements. This could result in a decrease in the value of our common stock. Failure to comply with the Sarbanes-Oxley Actof 2002 could potentially subject us to sanctions or investigations by the SEC, NYSE, or other regulatory authorities.Furthermore, as we grow our business, our disclosure controls and internal controls will become more complex, and we may require significantly moreresources to ensure the effectiveness of these controls. If we are unable to continue upgrading our financial and management controls, reporting systems,information technology and procedures in a timely and effective fashion, additional management and other resources may need to be devoted to assist incompliance with the disclosure and financial reporting requirements and other rules that apply to reporting companies, which could adversely affect ourbusiness, financial position and results of operations. 19Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe restatement of our previously issued financial results has resulted in private litigation as well as investigation by the SEC, and could result inadditional litigation, government investigations and enforcement actions.We are subject to a securities class action litigation suit currently pending in the United States District Court for the Southern District of New York as aresult of the restatement of our previously issued financial statements. In addition, the Company has received document subpoenas from the SEC’s Divisionof Enforcement pursuant to a formal investigation. Both the securities class action litigation suit and SEC investigation are further described below under“Item 3 Legal Proceedings.” We could also become subject to additional litigation or government investigations and enforcement actions arising out of ourrestated financial statements and delinquent Exchange Act filings.To date our management has devoted significant time and attention related to these matters, and we may be required to devote even more time andattention to such matters in the future, and these and any additional matters that arise could have a material adverse impact on our results of operations,financial condition, liquidity and cash flows. While we cannot estimate our potential exposure in these matters at this time, we have already expendedsignificant amounts investigating the claims underlying the class action litigation and SEC document production and expect to continue to need to expendsignificant amounts to defend such litigation and respond to the SEC investigation. Although we maintain insurance that may provide coverage for some orall of these expenses, and we have given notice to our insurers of the claims, there is risk that the insurers will rescind the policies, that some or all of theclaims will not be covered by such policies, or that, even if covered, our ultimate liability will exceed the available insurance. For additional discussion ofthese matters, see “Note 15. Commitments and Contingencies — Litigation” to our audited consolidated financial statements included in “Item 8. FinancialStatements and Supplementary Data” of this Form 10-K.The New York Stock Exchange could commence procedures to delist our common stock.As a result of our failure to timely file this Annual Report on Form 10-K with the SEC, as previously disclosed, on July 15, 2015, we received a noticefrom the NYSE informing us that we were not in compliance with the NYSE’s continued listing requirements under the timely filing criteria outlined inSection 802.01E of the NYSE Listed Company Manual and that we were subject to the procedures set forth in the NYSE’s listing standards related to latefilings. Under the NYSE rules the Company had six months from July 14, 2015 to file its delinquent Exchange Act reports with the SEC, including thisAnnual Report on Form 10-K, subject to up to an additional six-month extension in the discretion of the NYSE. On January 14, 2016, the NYSE granted us anextension until April 15, 2016 to file our delinquent reports, including this Annual Report on Form 10-K.The listing standards of the NYSE provide the NYSE with broad discretion regarding delisting matters. One of the factors described in the NYSE’slisting standards that could lead to a company’s delisting is the failure of the company to make timely, adequate and accurate disclosures of information to itsstockholders and the investing public. While we have filed this Annual Report on Form 10-K including the restatement of our previously issued consolidatedfinancial statements for the fiscal years ended March 31, 2014 and 2013, as well as including restated information regarding first three quarters of fiscal year2015 and each quarter in fiscal year 2014, we are also required to file our currently delinquent Quarterly Reports on Form 10-Qs for the quarters endedJune 30, 2015, September 30, 2015 and December 31, 2015, (collectively, the “Fiscal 2016 Quarterly Reports”), and therefore we will continue to be subjectto the procedures set forth in the NYSE’s listing standards related to late filings and subject to the risk of delisting. We cannot assure you that the NYSE willgrant us a further extension, if necessary, or otherwise not commence delisting procedures with respect to our common stock as a result of those and otherfactors related to delinquent reports.If our common stock were delisted, there could be no assurance whether or when it would again be listed for trading on NYSE or any other exchange.Further, the market price of our shares might decline and become more volatile, and our shareholders may find that their ability to trade in our stock would beadversely affected. 20Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFurthermore, institutions whose charters do not allow them to hold securities in unlisted companies might sell our shares, which could have a further adverseeffect on the price of our stock.Our failure to prepare and timely file our periodic reports with the SEC limits our access to the public markets to raise debt or equity capital, and couldhave negative consequences related to our financing agreements.We did not file this Annual Report on Form 10-K within the timeframe required by the SEC. We also have not yet filed our Fiscal 2016 QuarterlyReports and therefore those filings are delinquent. As a result of our late filings, we may be limited in our ability to access the public markets to raise debt orequity capital, which could prevent us from pursuing transactions or implementing business strategies that we believe would be beneficial to our business.We are ineligible to use shorter and less costly filings, such as Form S-3, to register our securities for sale for a period of 12 months following the month inwhich we regain compliance with our SEC reporting obligations. We may be able to use Form S-1 to register a sale of our stock to raise capital or completeacquisitions, but doing so would likely increase transaction costs and adversely impact our ability to raise capital or complete acquisitions of othercompanies in a timely manner.In addition, from July 2015 through February 2016, the Company obtained various consents from the lenders and further amended the Bank TermLoans and Senior Notes. These consents and the additional amendments had the effect of: i) extending the time for delivery of our fiscal year 2015 auditedfinancial statements and the fiscal year end 2016 quarterly financial statements to April 1, 2016, whereby an event of default was waived as long as thosefinancial statements were delivered by that date, ii) further modified certain definitions applicable to the Company’s affirmative and negative financialcovenants, including with respect to the treatment of the costs related to the Company’s restatement for purposes of the calculation of the minimum fixedcharge coverage ratio and the maximum leverage ratio, and iii) permitted the Company’s payment of quarterly dividends in June, August and December 2015as well as a dividend for preferred shares held in the ESOP.Risks Relating to Our BusinessFluctuations in the price and availability of resins, our principal raw materials, and our inability to obtain adequate supplies of resins from suppliers andpass on resin price increases to customers could adversely affect our business, financial condition, results of operations and cash flows.The principal raw materials that we use in our high performance thermoplastic corrugated pipe and Allied Products are virgin and recycled resins. Ourability to operate profitably depends, to a large extent, on the markets for these resins. In particular, as resins are derived either directly or indirectly fromcrude oil derivatives and natural gas liquids, resin prices fluctuate substantially as a result of changes in crude oil and natural gas prices, changes in existingprocessing capabilities and the capacity of resin suppliers. The petrochemical industry historically has been cyclical and volatile. The cycles are generallycharacterized by periods of tight supply, followed by periods of oversupply, primarily resulting from significant capacity additions. For example, resin priceshave increased since 2010 due to increased demand in the broader economy. Unanticipated changes in and disruptions to existing petrochemical capacitiescould also significantly increase resin prices, often within a short period of time, even if crude oil and natural gas prices remain low.Our ability to offer our core products depends on our ability to obtain adequate resins, which we purchase directly from major petrochemical andchemical suppliers. We have managed a formal resin price risk management program since early in 2010 that entails both physical fixed price and volumecontracts along with financial hedges which are designed to apply to a significant portion of our annual virgin resin purchases. In conjunction with our resinprice risk management program, we maintain supply agreements with our major resin suppliers that provide multi-year terms and volumes that are in excess ofour projected consumption. For our polypropylene virgin resin price exposure, we utilize financial hedges of propylene as a proxy for polypropylene.Historically, the month to month change in market based pricing has been very similar between propylene and 21Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentspolypropylene. The loss of, or substantial decrease in the availability of, raw materials from our suppliers, or the failure by our suppliers to continue toprovide us with raw materials on commercially reasonable terms, or at all, could adversely affect our business, financial condition, results of operations andcash flows. In addition, supply interruptions could arise from labor disputes or weather conditions affecting supplies or shipments, transportation disruptionsor other factors beyond our control. An extended disruption in the timely availability of raw materials from our key suppliers would result in a decrease in ourrevenues and profitability.Our ability to maintain profitability heavily depends on our ability to pass through to our customers the full amount of any increase in raw materialcosts, which are a large portion of our overall product costs. We may be unable to do so in a timely manner, or at all, due to competition in the markets inwhich we operate. In addition, certain of our largest customers historically have exerted significant pressure on their outside suppliers to keep prices lowbecause of their market share. If increases in the cost of raw materials cannot be passed on to our customers, or the duration of time associated with a passthrough becomes extended, our business, financial condition, results of operations and cash flows will be adversely affected.Any disruption or volatility in general business and economic conditions in the markets in which we operate could have a material adverse effect on thedemand for our products and services.The markets in which we operate are sensitive to general business and economic conditions in the United States and worldwide, including availabilityof credit, interest rates, fluctuation in capital and business and consumer confidence. The capital and credit markets have in recent years been experiencingsignificant volatility and disruption. These conditions, combined with price fluctuations in crude oil derivatives and natural gas liquids, declining businessand consumer confidence and increased unemployment, precipitated an economic slowdown and severe recession in recent years. The difficult conditions inthese markets and the overall economy affect our business in a number of ways. For example: • The slowdown and volatility of the United States economy in general is having an adverse effect on our sales that are dependent on the non-residential construction market. According to the U.S. Census Bureau, actual non-residential construction put-in-place in the United Statesduring 2014 remained 14.7% lower than 2008 levels. Continued uncertainty about current economic conditions will continue to pose a risk toour business units that serve the non-residential construction market, as participants in this industry may postpone spending in response totighter credit, negative financial news and/or declines in income or asset values, which could have a continued material adverse effect on thedemand for our products and services. • The homebuilding industry has undergone a significant decline from its peak in 2005. While new housing starts demonstrated an annual growthrate of 13.8% from 2010 to 2014, current levels remain substantially below the long-term average of 1.5 million starts since the U.S. CensusBureau began reporting the data in 1959. The mortgage markets continue to experience disruption and reduced availability of mortgages forpotential homebuyers due to more restrictive standards to qualify for mortgages, including with respect to new home construction loans. Themulti-year downturn in the homebuilding industry resulted in a substantial reduction in demand for our products and services in this market,which in turn had a significant adverse effect on our financial condition and results of operations during the period from 2008 to 2014, ascompared to peak levels. • Our business depends to a great extent upon general activity levels in the agriculture market. Changes in corn production, soybean production,farm income, farmland value and the level of farm output in the geographic locations in which we operate are all material factors that couldadversely affect the agriculture market and result in a decrease in the amount of products that our customers purchase. The nature of theagriculture market is such that a downturn in demand can occur suddenly, resulting in excess inventories, un-utilized production capacity andreduced prices for pipe products. These downturns may be prolonged and our revenue and profitability would be harmed. • Demand for our products and services depend to a significant degree on spending on infrastructure, which is inherently cyclical. Infrastructurespending is affected by a variety of factors beyond our 22Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents control, including interest rates, availability and commitment of public funds for municipal spending and highway spending and generaleconomic conditions. Our products sales may be adversely impacted by budget cuts by governments, including as a result of lower thananticipated tax revenues.All of our markets are sensitive to changes in the broader economy. Downturns or lack of substantial improvement in the economy in any region inwhich we operate have adversely affected and could continue to adversely affect our business, financial condition and results of operations. While we operatein many markets, our business is particularly impacted by changes in the economies of the United States, Canada and Mexico, which representedapproximately 87.1%, 5.4% and 6.2%, respectively, of our net sales for fiscal year 2015 and collectively represented approximately 98.7% of our net sales forfiscal year 2015.We cannot predict the duration of current economic conditions, or the timing or strength of any future recovery of activities in our markets. Continuedweakness in the market in which we operate could have a material adverse effect on our business, financial condition, results of operations and cash flows. Wemay have to close under-performing facilities from time to time as warranted by general economic conditions and/or weakness in the markets in which weoperate. In addition to a reduction in demand for our products, these factors may also reduce the price we are able to charge for our products and restrict ourability to pass raw material cost increases to our customers. This, combined with an increase in excess capacity, will negatively impact our profitability, cashflows and our financial condition, generally.Demand for our products and services could decrease if we are unable to compete effectively, and our success depends largely on our ability to convertcurrent demand for competitive products into demand for our products.We compete with both manufacturers of high performance thermoplastic corrugated pipe and manufacturers of alternative products, such as concrete,steel and PVC pipe products, on the basis of a number of considerations, including product characteristics such as durability, design, ease of installation,price on a price-to-value basis and service. In particular, we compete on a global, national and local basis with pipe products made of traditional materialswhich our high performance thermoplastic corrugated pipe products are designed to replace. For example, our N-12 and SaniTite HP products facecompetition from concrete, steel and PVC pipe products in the small- and large-diameter size segments of the market.Our ability to successfully compete and grow depends largely on our ability to continue to convert the current demand for concrete, steel and PVC pipeproducts into demand for our high performance thermoplastic corrugated pipe and Allied Products. Our thermoplastic pipe typically has an installed costadvantage of approximately 20% over concrete pipe. However, depending upon certain factors such as the size of the pipe, the geography of a particularlocation and then-existing raw material costs, the initial cost of our thermoplastic pipe may be higher than the initial cost of alternative products such asconcrete, steel and PVC pipe products. To increase our market share, we will need to increase material conversion by educating our customers about the valueof our products in comparison to existing alternatives, particularly on an installed cost basis, working with government agencies to expand approvals for ourproducts and working with civil engineering firms which may influence the specification of our products on construction projects. No assurance can be giventhat our efforts to increase or maintain the current rate of material conversion will be successful, and our failure to do so would have a material adverse effecton our business, financial condition, results of operations and cash flows.We also expect that new competitors may develop over time. No assurance can be given that we will be able to respond effectively to such competitivepressures. Increased competition by existing and future competitors could result in reductions in sales, prices, volumes and gross margins that wouldmaterially adversely affect our business, financial condition, results of operations and cash flows. Furthermore, our success will depend, in part, on our abilityto maintain our market share and gain market share from competitors.Certain of our competitors have financial and other resources that are greater than ours and may be better able to withstand price competition,especially with respect to traditional products. In addition, consolidation by 23Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsindustry participants could result in competitors with increased market share, larger customer bases, greater diversified product offerings and greatertechnological and marketing expertise, which would allow them to compete more effectively against us. Moreover, our competitors may develop productsthat are superior to our products or may adapt more quickly to new technologies or evolving customer requirements. Technological advances by ourcompetitors may lead to new manufacturing techniques and make it more difficult for us to compete. In many markets in which we operate there are nosignificant entry barriers that would prevent new competitors from entering the market, especially on the local level, or existing competitors from expandingin the market. In addition, because we do not have long-term arrangements with many of our customers, these competitive factors could cause our customersto cease purchasing our products.In addition, our contracts with municipalities are often awarded and renewed through periodic competitive bidding. We may not be successful inobtaining or renewing these contracts on financially attractive terms or at all, which could adversely affect our business, financial condition, results ofoperations and cash flows.Our results of operations could be adversely affected by the effects of weather.Although weather patterns affect our operating results throughout the year, adverse weather historically has reduced construction activity in our thirdand fourth fiscal quarters. In contrast, our highest volume of net sales historically has occurred in our first and second fiscal quarters.Most of our business units experience seasonal variation as a result of the dependence of our customers on suitable weather to engage in constructionprojects. Generally, during the winter months, construction activity declines due to inclement weather, frozen ground and shorter daylight hours. Forexample, during the spring of 2013 and 2014, the extremely cold weather significantly reduced the level of construction activities in the United States,thereby impacting our revenues. In addition, to the extent that hurricanes, severe storms, floods, other natural disasters or similar events occur in thegeographic regions in which we operate, our results of operations may be adversely affected. For example, Hurricane Andrew in Florida in 1992 and theextensive flooding of the Mississippi River in 2011 resulted in temporary interruption in business activity in these areas. We anticipate that fluctuations ofour operations results from period to period due to seasonality will continue in the future.The loss of any of our significant customers could adversely affect our business, financial condition, results of operations and cash flows.Our 10 largest customers in the United States generated approximately 36.8% of our domestic net sales in fiscal year 2015. We cannot guarantee thatwe will maintain or improve our relationships with these customers or that we will continue to supply these customers at historical levels. Because we do nothave long-term arrangements with many of our customers, such customers may cease purchasing our products without notice or upon short notice to us.During the economic downturn, some of our customers reduced their operations. For example, some homebuilder customers exited or severely curtailedbuilding activity in certain of our markets. There is no assurance that our customers will increase their activity level or return it to historic levels. A sloweconomic recovery could continue to have material adverse effect on our business, financial condition, results of operations and cash flows.In addition, consolidation among customers could also result in a loss of some of our present customers to our competitors. The loss of one or more ofour significant customers, a significant customer’s decision to purchase our products in significantly lower quantities than they have in the past, ordeterioration in our relationship with any of them could have a material adverse effect on our business, financial condition, results of operations and cashflows. 24Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe majority of our net sales are credit sales which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strengthof the industry and geographic areas in which they operate, and the failure to collect monies owed from customers could adversely affect our financialcondition.The majority of our net sales volume is facilitated through the extension of credit to our customers whose ability to pay is dependent, in part, upon theeconomic strength of the industry in the areas where they operate. Our business units offer credit to customers, either through unsecured credit that is basedsolely upon the creditworthiness of the customer, or secured credit for materials sold for a specific job where the security lies in lien rights associated with thematerial going into the job. The type of credit offered depends both on the financial strength of the customer and the nature of the business in which thecustomer is involved. End users, resellers and other non-contractor customers generally purchase more on unsecured credit than secured credit. The inabilityof our customers to pay off their credit lines in a timely manner, or at all, would adversely affect our business, financial condition, results of operations andcash flows. Furthermore, our collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations goingforward.Because we depend on the creditworthiness of certain of our customers, if the financial condition of our customers declines, our credit risk couldincrease. Significant contraction in our markets, coupled with tightened credit availability and financial institution underwriting standards, could adverselyaffect certain of our customers. Should one or more of our larger customers declare bankruptcy, it could adversely affect the collectability of our accountsreceivable, bad debt reserves and net income.Our international operations expose us to political, economic and regulatory risks not normally faced by businesses that operate only in the United States.International operations are exposed to different political, economic and regulatory risks that are not faced by businesses that operate solely in theUnited States. Some of our operations are outside the United States, with manufacturing and distribution facilities in Canada and several Latin Americancountries. Our international operations are subject to risks similar to those affecting our operations in the United States in addition to a number of other risks,including: • difficulties in enforcing contractual and intellectual property rights; • impositions or increases of withholding and other taxes on remittances and other payments by subsidiaries and affiliates; • exposure to different legal standards; • fluctuations in currency exchange rates; • impositions or increases of investment and other restrictions by foreign governments; • the requirements of a wide variety of foreign laws; • political and economic instability; • war; and • difficulties in staffing and managing operations, particularly in remote locations.As a result of our international operations we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws.The U.S. Foreign Corrupt Practices Act (“FCPA”) and similar foreign anti-corruption laws generally prohibit companies and their intermediaries frommaking improper payments or providing anything of value to influence foreign government officials for the purpose of obtaining or retaining business orobtaining an unfair advantage, and generally require companies to maintain accurate books and records and internal controls, including at foreign controlledsubsidiaries. Recent years have seen a substantial increase in the global 25Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsenforcement of anti-corruption laws, with more frequent voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings byboth the U.S. Department of Justice and the SEC resulting in record fines and penalties, increased enforcement activity by non-U.S. regulators, and increasesin criminal and civil proceedings brought against companies and individuals.We have operations in Canada as well as existing joint ventures in Mexico, Central America and South America. Our internal policies provide forcompliance with all applicable anti-corruption laws for both us and for our joint venture operations. Our continued operation and expansion outside theUnited States, including in developing countries, could increase the risk of such violations in the future. Despite our training and compliance programs, wecannot assure you that our internal control policies and procedures will always protect us from unauthorized reckless or criminal acts committed by ouremployees, agents or joint venture partners.Furthermore, as described below under “Item 9A. Controls and Procedures,” management has identified certain weaknesses in the Company’s internalcontrol over financial reporting, which weaknesses included certain control deficiencies related to the ADS Mexicana control environment, as well as theADS Mexicana revenue recognition cut-off practices. Certain of the matters related to the ADS Mexicana control environment were already the subject ofinvestigation by third party advisors to the Audit Committee, as described in Item 9A below. Although such matters have resulted in a determination ofmaterial weakness, neither the Audit Committee’s advisors in the course of their investigation nor management have concluded whether the weaknesses inthe ADS Mexicana control environment, the ADS Mexicana revenue recognition cut-off practices, or any other material weaknesses of the Company asdescribed in Item 9A, would result in an ultimate determination by the SEC or any other applicable regulatory agency that the Company has not compliedwith the books and records and internal control provisions of the FCPA as set forth in sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. In the eventthat we believe or have reason to believe that our employees, agents or joint venture partners have or may have violated applicable anti-corruption laws,including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive andrequire significant time and attention from senior management. A finding that the Company or its affiliates have violated any of these laws may result insevere criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, financial condition, results ofoperations and cash flows.Conducting a portion of our operations through joint ventures exposes us to risks and uncertainties, many of which are outside of our control.With respect to our existing joint ventures in Mexico, Central America, North America and South America, any differences in views among the jointventure participants may result in delayed decisions or in failures to agree on major issues. We also cannot control the actions of our joint venture partners,including any nonperformance, default or bankruptcy of our joint venture partners. As a result, we may be unable to control the quality of products producedby the joint ventures or achieve consistency of product quality as compared with our other operations. In addition to net sales and market share, this mayhave a material negative impact on our brand and how it is perceived thereafter. Moreover, if our partners also fail to invest in the joint venture in the mannerthat is anticipated or otherwise fail to meet their contractual obligations, the joint ventures may be unable to adequately perform and conduct their respectiveoperations, requiring us to make additional investments or perform additional services to ensure the adequate performance and delivery of products and/orservices to the joint ventures’ customers, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.We may not be able to successfully expand into new product markets.We may expand into new product markets based on our existing manufacturing, design and engineering capabilities and services. Our businessdepends in part on our ability to identify future products and product lines that complement existing products and product lines and that respond to ourcustomers’ needs. We may not be 26Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsable to compete effectively unless our product selection keeps up with trends in the markets in which we compete or trends in new products. In addition, ourability to integrate new products and product lines into our distribution network could impact our ability to compete. Furthermore, the success of newproducts and new product lines will depend on market demand and there is a risk that new products and new product lines will not deliver expected results,which could negatively impact our future sales and results of operations.We may not be able to successfully expand into new geographic markets.Our expansion into new geographic markets may present competitive, distribution and regulatory challenges that differ from current ones. We may beless familiar with the target customers and may face different or additional risks, as well as increased or unexpected costs, compared to existing operations.Expansion into new geographic markets may also bring us into direct competition with companies with whom we have little or no past experience ascompetitors. To the extent we rely upon expansion into new geographic markets for growth and do not meet the new challenges posed by such expansion,our future sales growth could be negatively impacted, our operating costs could increase, and our business operations and financial results could be adverselyaffected.We may not achieve the acquisition component of our growth strategy.Acquisitions may continue to be an important component of our growth strategy; however, there can be no assurance that we will be able to continueto grow our business through acquisitions as we have done historically or that any businesses acquired will perform in accordance with expectations or thatbusiness judgments concerning the value, strengths and weaknesses of businesses acquired will prove to be correct. Future acquisitions may result in theincurrence of debt and contingent liabilities, an increase in interest expense and amortization expense and significant charges relative to integration costs.Our strategy could be impeded if we do not identify suitable acquisition candidates and our financial condition and results of operations will be adverselyaffected if we are unable to properly evaluate acquisition targets.Acquisitions involve a number of special risks, including: • problems implementing disclosure controls and procedures for the newly acquired business; • unforeseen difficulties extending internal control over financial reporting and performing the required assessment at the newly acquiredbusiness; • potential adverse short-term effects on operating results through increased costs or otherwise; • diversion of management’s attention and failure to recruit new, and retain existing, key personnel of the acquired business; • failure to successfully implement infrastructure, logistics and systems integration; • our business growth could outpace the capability of our systems; and • the risks inherent in the systems of the acquired business and risks associated with unanticipated events or liabilities, any of which could have amaterial adverse effect on our business, financial condition and results of operations.In addition, we may not be able to obtain financing necessary to complete acquisitions on attractive terms or at all.Increased fuel and energy prices, and our inability to obtain sufficient quantities of fuel to operate our in-house delivery fleet, could adversely affect ourbusiness, financial condition, results of operations and cash flows.Energy and petroleum prices have fluctuated significantly in recent years. Prices and availability of petroleum products are subject to political,economic and market factors that are outside our control. Political events in petroleum-producing regions as well as hurricanes and other weather-relatedevents may cause the price of fuel to increase. 27Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe consume a large amount of energy and petroleum products in our operations, including the manufacturing process and delivering a significantvolume of products to our customers by our in-house fleet. While we have implemented a diesel hedging program covering approximately 60% of theprojected diesel fuel consumption associated with our in-house fleet to mitigate against higher fuel prices, our operating profit will be adversely affected ifwe are unable to obtain the energy and fuel we require or to fully offset the anticipated impact of higher energy and fuel prices through increased prices orsurcharges to our customers or through other hedging strategies. If shortages occur in the supply of energy or necessary petroleum products and we are notable to pass along the full impact of increased energy or petroleum prices to our customers, our business, financial condition, results of operations and cashflows would be adversely affected.We have substantial fixed costs and, as a result, our income from operations is sensitive to changes in our net sales.A significant portion of our expenses are fixed costs (including personnel). For fiscal years 2015, 2014 and 2013, domestic fixed costs were 25.5%,25.8% and 27.0%, respectively, as a percentage of domestic net sales. Fixed costs do not fluctuate with net sales. Consequently, a percentage decline in ournet sales could have a greater percentage effect on our income from operations if we do not act to reduce personnel or take other cost reduction actions. Anydecline in our net sales would cause our profitability to be adversely affected. Moreover, a key element of our strategy is managing our assets, including oursubstantial fixed assets, more effectively, including through sales or other disposals of excess assets. Our failure to rationalize our fixed assets in the time, andwithin the costs, we expect could have a material adverse effect on our business, financial condition, results of operations and cash flows.Our business is subject to risks associated with manufacturing processes.We internally manufacture our own products at our facilities. While we maintain insurance covering our manufacturing and production facilities andhave significant flexibility to manufacture and ship our own products from various facilities, a catastrophic loss of the use of certain of our facilities due toaccident, fire, explosion, labor issues, weather conditions, other natural disaster or otherwise, whether short or long-term, could have a material adverse effecton our business, financial condition, results of operations and cash flows.Unexpected failures of our equipment and machinery may result in production delays, revenue loss and significant repair costs, injuries to ouremployees, and customer claims. Any interruption in production capability may limit our ability to supply enough products to customers and may require usto make large capital expenditures to remedy the situation, which could have a negative impact on our profitability and cash flows. Our business interruptioninsurance may not be sufficient to offset the lost revenues or increased costs that we may experience during a disruption of our operations.We provide product warranties that could expose us to claims, which could in turn damage our reputation and adversely affect our business, financialcondition, results of operations and cash flows.We generally provide limited product warranties on our products against defects in materials and workmanship in normal use and service. Most of ourpipe products have a warranty that is not limited in duration. The warranty period for other products such as our StormTech chambers, our Inserta Tee productline, our BaySaver product line and our FleXstorm inlet protection systems is generally one year. Estimating the required warranty reserves requires a highlevel of judgment. Management estimates warranty reserves, based in part upon historical warranty costs, as a proportion of sales by product line.Management also considers various relevant factors, including its stated warranty policies and procedures, as part of its evaluation of its liability. Becausewarranty issues may surface later in the product life cycle, management continues to review these estimates on a regular basis and considers adjustments tothese estimates based on actual experience compared to historical estimates. Although management believes that our warranty reserves as of March 31, 2015are adequate, actual results may vary from these estimates. 28Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe nature of our business exposes us to construction defect and product liability claims as well as other legal proceedings.We are exposed to construction defect and product liability claims relating to our various products if our products do not meet customer expectations.Such liabilities may arise out of the quality of raw materials we purchase from third-party suppliers, over which we do not have direct control. We also operatea large fleet of trucks and other vehicles and therefore face the risk of traffic accidents.While we currently maintain insurance coverage to address a portion of these types of liabilities, we cannot make assurances that we will be able toobtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. Further,while we intend to seek indemnification against potential liability for products liability claims from relevant parties, we cannot guarantee that we will be ableto recover under any such indemnification agreements. Product liability claims can be expensive to defend and can divert the attention of management andother personnel for significant time periods, regardless of the ultimate outcome. An unsuccessful product liability defense could be highly costly andaccordingly result in a decline in revenues and profitability. In addition, even if we are successful in defending any claim relating to the products wedistribute, claims of this nature could negatively impact customer confidence in us and our products.From time to time, we are also involved in government inquiries and investigations, as well as consumer, employment, tort proceedings and otherlitigation. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, including potential environmental remediationand other proceedings commenced by government authorities. The outcome of some of these legal proceedings and other contingencies could require us totake actions which would adversely affect our operations or could require us to pay substantial amounts of money. Additionally, defending against theselawsuits and proceedings may involve significant expense and diversion of management’s attention and resources from other matters.Because our business is working capital intensive, we rely on our ability to manage our supply purchasing and customer credit policies.Our operations are working capital intensive, and our inventories, accounts receivable and accounts payable are significant components of our netasset base. We manage our inventories and accounts payable through our purchasing policies and our accounts receivable through our customer creditpolicies. If we fail to adequately manage our supply purchasing or customer credit policies, our working capital and financial condition may be adverselyaffected.Our operations are affected by various laws and regulations in the markets in which we operate, and our failure to obtain or maintain approvals bymunicipalities, state departments of transportation, engineers and developers may affect our results of operations.Our operations are principally affected by various statutes, regulations and laws in the United States, Canada and Latin America. While we are notengaged in a regulated industry, we are subject to various laws applicable to businesses generally, including laws affecting land usage, zoning, theenvironment, health and safety, transportation, labor and employment practices (including pensions), competition, immigration and other matters.Additionally, approvals by municipalities, state departments of transportation, engineers and developers may affect the products our customers are allowed touse, and, consequently, failure to obtain or maintain such approvals may affect the saleability of our products. Building codes may also affect the productsour customers are allowed to use, and, consequently, changes in building codes may also affect the saleability of our products. Changes in applicableregulations governing the sale of some of our products could increase our costs of doing business. In addition, changes to applicable tax laws and regulationscould increase our costs of doing business. We cannot provide assurance that we will not incur material costs or liabilities in connection with regulatoryrequirements. 29Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe deliver products to many of our customers through our own fleet of vehicles. The U.S. DOT regulates our operations in domestic interstatecommerce. We are subject to safety requirements governing interstate operations prescribed by the U.S. DOT. Vehicle dimensions and driver hours of servicealso remain subject to both federal and state regulation. More restrictive limitations on vehicle weight and size, trailer length and configuration, or driverhours of service could increase our costs, which, if we are unable to pass these cost increases on to our customers, would reduce our gross margins and netincome (loss) and increase our selling, general and administrative expenses.We cannot predict whether future developments in law and regulations concerning our business units will affect our business, financial condition andresults of operations in a negative manner. Similarly, we cannot assess whether our business units will be successful in meeting future demands of regulatoryagencies in a manner which will not materially adversely affect our business, financial condition, results of operations and cash flows.Interruptions in the proper functioning of information technology systems could disrupt operations and cause unanticipated increases in costs, decreasesin revenues, or both.Because we use our information technology (“IT”) systems to, among other things, manage inventories and accounts receivable, make purchasingdecisions and monitor our results of operations, the proper functioning of our IT systems is important to the successful operation of our business. Althoughour IT systems are protected through physical and software safeguards and remote processing capabilities exist, IT systems are still vulnerable to naturaldisasters, power losses, unauthorized access, telecommunication failures and other problems. If critical IT systems fail, or are otherwise unavailable, ourability to process orders, track credit risk, identify business opportunities, maintain proper levels of inventories, collect accounts receivable and pay expensesand otherwise manage our business units would be adversely affected.Management uses IT systems to support decision making and to monitor business performance. We may fail to generate accurate financial andoperational reports essential for making decisions at various levels of management. Failure to adopt systematic procedures to maintain quality IT generalcontrols could disrupt our business. In addition, if we do not maintain adequate controls such as reconciliations, segregation of duties and verification toprevent errors or incomplete information, our ability to operate our business could be limited.Third-party service providers are responsible for managing a significant portion of our IT systems. Our business and results of operations may beadversely affected if the third-party service provider does not perform satisfactorily. Additionally, there is no guarantee that we will continue to have accessto these third-party IT systems after our current license agreements expire, and, if we do not obtain licenses to use effective replacement IT systems, ourfinancial condition and operating results could be adversely affected.The implementation of our technology initiatives could disrupt our operations in the near term, and our technology initiatives might not provide theanticipated benefits or might fail.We have made, and will continue to make, significant technology investments in each of our business units and in our administrative functions. Ourtechnology initiatives are designed to streamline our operations to allow our associates to continue to provide high quality service to our customers and toprovide our customers a better experience, while improving the quality of our internal control environment. The cost and potential problems andinterruptions associated with the implementation of our technology initiatives could disrupt or reduce the efficiency of our operations in the near term. Inaddition, our new or upgraded technology might not provide the anticipated benefits, it might take longer than expected to realize the anticipated benefits orthe technology might fail altogether. 30Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe may experience a failure in or breach of our operational or information security systems, or those of our third-party service providers, as a result ofcyber-attacks or information security breaches.Information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophisticationand activities of perpetrators of cyber-attacks. A failure in or breach of our operational or information security systems, or those of our third-party serviceproviders, as a result of cyber-attacks or information security breaches could disrupt our business, result in the disclosure or misuse of confidential orproprietary information, damage our reputation, increase our costs and/or cause losses. As a result, cyber security and the continued development andenhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorizedaccess remain a priority for us. As cyber threats continue to evolve, we may be required to expend additional significant resources to continue to enhance ourinformation security measures and/or to investigate and remediate any information security vulnerabilities.If we become subject to material liabilities under our self-insured programs, our financial results may be adversely affected.We provide workers’ compensation, automobile and product/general liability coverage through a high deductible insurance program. In addition, weprovide medical coverage to some of our employees through a self-insured preferred provider organization. Though we believe that we have adequateinsurance coverage in excess of self-insured retention levels, our business, financial condition, results of operations and cash flows may be adversely affectedif the number and severity of insurance claims increases.We may see increased costs arising from health care reform.In March 2010, the United States government enacted comprehensive health care reform legislation which, among other things, includes guaranteedcoverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can berescinded and imposes new and significant taxes on health insurers and health care benefits. The legislation imposes implementation effective dates whichbegan in 2010 and extend through 2020, and many of the changes require additional guidance from government agencies or federal regulations. Therefore,due to the phased-in nature of the implementation and the lack of interpretive guidance, it is difficult to determine at this time what impact the health carereform legislation will have on our financial results. Possible adverse effects of the health care reform legislation include increased costs, exposure toexpanded liability and requirements for us to revise ways in which we provide healthcare and other benefits to our employees. As a result, our business,financial condition, results of operations and cash flows could be materially adversely affected.Our success depends upon our ability to control labor costs and to attract, train and retain highly-qualified employees and key personnel.To be successful, we must attract, train and retain a large number of highly qualified employees while controlling related labor costs. Our ability tocontrol labor costs is subject to numerous external factors, including prevailing wage rates and health and other insurance costs. We compete with otherbusinesses for these employees and invest significant resources in training and motivating them. There is no assurance that we will be able to attract or retainhighly-qualified employees in the future, including, in particular, those employed by companies we acquire. None of our domestic employees are currentlycovered by collective bargaining or other similar labor agreements. However, if a number of our employees were to unionize, including in the wake of anyfuture legislation that makes it easier for employees to unionize, the effect on us may be negative. Any inability by us to negotiate acceptable new contractsunder any collective bargaining arrangements could cause strikes or other work stoppages, and new contracts could result in increased operating costs. If anysuch strikes or other work stoppages occur, or if employees become represented by a union, we could experience a disruption of our operations and higherlabor costs. Labor relations matters affecting our suppliers of products and services could also adversely affect our business from time to time. 31Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIn addition, our business results of operations depend largely upon our chief executive officer and senior management team as well as our plantmanagers and sales personnel, including those of companies recently acquired, and their experience, knowledge of local market dynamics and specificationsand long-standing customer relationships. We customarily sign executive responsibility agreements with certain key personnel who are granted restrictedstock or stock options under our employee incentive compensation programs, which contain confidentiality and non-competition provisions. However, incertain jurisdictions, non-competition provisions may not be enforceable or may not be enforceable to their full extent. Our inability to retain or hirequalified plant managers or sales personnel at economically reasonable compensation levels would restrict our ability to grow our business, limit our abilityto continue to successfully operate our business and result in lower operating results and profitability.If we are unable to protect our intellectual property rights, or we infringe on the intellectual property rights of others, our ability to compete could benegatively impacted.Our ability to compete effectively depends, in part, upon our ability to protect and preserve proprietary aspects of our intellectual property, which weattempt to do, both in the United States and in foreign countries, through a combination of patent, trademark, copyright and trade secret laws, as well aslicensing agreements and third-party nondisclosure and assignment agreements. Because of the differences in foreign trademark, patent and other lawsconcerning proprietary rights, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the UnitedStates. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on ourbusiness, results of operations and financial condition.We have applied for patent protection relating to certain existing and proposed products, processes and services. While we generally apply for patentsin those countries where we primarily intend to make, have made, use, or sell patented products, we may not accurately predict all of the countries wherepatent protection will ultimately be desirable. If we fail to timely file a patent application in any such country, we may be precluded from doing so at a laterdate. Furthermore, we cannot assure you that any of our patent applications will be approved. We also cannot assure you that the patents issuing as a result ofour foreign patent applications will have the same scope of coverage as our United States patents. The patents we own could be challenged, invalidated orcircumvented by others and may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Further, wecannot assure you that competitors will not infringe our patents, or that we will have adequate resources to enforce our patents.We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwiseobtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we generally require applicable employees,consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningfulprotection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such tradesecrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, we could be materially adverselyaffected.We rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered orapplied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose ourtrademark applications or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced torebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands.Further, we cannot assure you that competitors will not infringe our trademarks or that we will have adequate resources to enforce our trademarks. We alsolicense third parties to use certain of our trademarks. In an effort to preserve our trademark rights, we enter into license agreements with these third partieswhich govern the use of our trademarks and which require our licensees to abide by quality control standards with respect to the goods and services that theyprovide under our trademarks. 32Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAlthough we make efforts to police the use of our trademarks by our licensees, we cannot assure you that these efforts will be sufficient to ensure that ourlicensees abide by the terms of their licenses. In the event that our licensees fail to do so, our trademark rights could be diluted.Although we rely on copyright laws to protect the works of authorship (including software) created by us, we generally do not register the copyrights inany of our copyrightable works. Copyrights of United States origin must be registered before the copyright owner may bring an infringement suit in theUnited States. Furthermore, if a copyright of United States origin is not registered within three months of publication of the underlying work, the copyrightowner is precluded from seeking statutory damages or attorneys’ fees in any United States enforcement action, and is limited to seeking actual damages andlost profits. Accordingly, if one of our unregistered copyrights of United States origin is infringed by a third party, we will need to register the copyrightbefore we can file an infringement suit in the United States, and our remedies in any such infringement suit may be limited.The misuse of our intellectual property rights by others could adversely impact our ability to compete, cause our net sales to decrease or otherwiseharm our business. If it became necessary for us to resort to litigation to protect our intellectual property rights, any proceedings could be burdensome andcostly, and we may not prevail.Also, we cannot be certain that the products that we sell do not and will not infringe issued patents or other intellectual property rights of others.Further, we are subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the patents,trademarks and other intellectual property rights of third parties by us or our customers, whom we generally indemnify in connection with their use of theproducts that we manufacture. These claims could divert management’s attention and resources and may require us to initiate or defend protracted and costlylitigation on behalf of ourselves or our customers, regardless of the merits of the claims. Should we be found liable for infringement, we may be required toenter into licensing agreements (if available on acceptable terms or at all) or pay damages and cease making or selling certain products. Moreover, we mayneed to redesign or sell different products to avoid future infringement liability. Any of the foregoing could cause us to incur significant costs, prevent usfrom selling our products or negatively impact our ability to compete.Income tax payments may ultimately differ from amounts currently recorded by us. Future tax law changes may materially increase our prospectiveincome tax expense.We are subject to income taxation in many jurisdictions in the United States as well as foreign jurisdictions. Judgment is required in determining ourworldwide income tax provision and, accordingly, there are many transactions and computations for which our final income tax determination is uncertain.We are routinely audited by income tax authorities in many tax jurisdictions. Although we believe the recorded tax estimates are reasonable, the ultimateoutcome from any audit (or related litigation) could be materially different from amounts reflected in our income tax provisions and accruals. Futuresettlements of income tax audits may have a material effect on earnings between the period of initial recognition of tax estimates in the financial statementsand the point of ultimate tax audit settlement. Additionally, it is possible that future income tax legislation in any jurisdiction to which we are subject maybe enacted that could have a material impact on our worldwide income tax provision beginning with the period that such legislation becomes effective.We could incur significant costs in complying with environmental, health and safety laws or permits or as a result of satisfying any liability or obligationimposed under such laws or permits.Our operations are subject to various federal, state, local and foreign environmental, health and safety laws and regulations. Among other things, theselaws regulate the emission or discharge of materials into the environment, govern the use, storage, treatment, disposal and management of hazardoussubstances and wastes, protect the health and safety of our employees and the end users of our products, regulate the materials used in and the recycling ofproducts and impose liability for the costs of investigating and remediating, and damages resulting from, present and past releases of hazardous substances.Violations of these laws and regulations, 33Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsfailure to obtain or maintain required environmental permits or non-compliance with any conditions contained in any environmental permit can result insubstantial fines or penalties, injunctive relief, requirements to install pollution or other controls or equipment, civil and criminal sanctions, permitrevocations and/or facility shutdowns. We could be held liable for the costs to address contamination of any real property we have ever owned, leased,operated or used, including as a disposal site. We could also incur fines, penalties, sanctions or be subject to third-party claims for property damage, personalinjury or nuisance or otherwise as a result of violations of or liabilities under environmental laws in connection with releases of hazardous or other materials.In addition, changes in, or new interpretations of, existing laws, regulations or enforcement policies, the discovery of previously unknowncontamination, or the imposition of other environmental liabilities or obligations in the future, including additional investigation or other obligations withrespect to any potential health hazards of our products or business activities or the imposition of new permit requirements, may lead to additional complianceor other costs that could have material adverse effect on our business, financial condition, results of operations and cash flows.A change in our product mix could adversely affect our results of operations.Our results may be affected by a change in our product mix on which our gross margin depends. Our Allied Products typically provide higher grossmargin than our pipe products. Changes in our product mix may result from marketing activities to existing customers and needs communicated to us fromexisting and prospective customers. Our outlook, budgeting and strategic planning assume a certain product mix of sales. If actual results vary from thisprojected product mix of sales, our financial results could be negatively impacted.We may be affected by global climate change or by legal, regulatory or market responses to such potential change.Concern over climate change, including the impact of global warming, has led to significant federal, state, and international legislative and regulatoryefforts to limit greenhouse gas (“GHG”), emissions. For example, in the past several years, the U.S. Congress has considered various bills that would regulateGHG emissions. While these bills have not yet received sufficient Congressional support for enactment, some form of federal climate change legislation ispossible in the future. Even in the absence of such legislation, the EPA, spurred by judicial interpretation of the Clean Air Act, has begun regulating GHGemissions following its issuance of the “Tailoring Rule” that determines which stationary sources require permits for greenhouse emissions. The EPA hasissued rules that require monitoring and reporting of annual GHG emissions, as well as performance standards for carbon dioxide (“CO2”) emissions from newfossil-fuel electric utility generating units. Thus far, the EPA has addressed vehicle and mobile source emissions by implementing Renewable Fuel Standardregulations and by working with manufacturers to improve fuel efficiency in new vehicles. However, the EPA has been directed by President Obama todevelop and issue new fuel efficiency standards for medium- and heavy-duty vehicles by March 2016, especially diesel engine emissions, and this couldimpose substantial costs on us. These costs include an increase in the cost of the fuel and other energy we purchase and capital costs associated with updatingor replacing our internal fleet of trucks and other vehicles in order to comply with application regulations. In addition, new laws or future regulation coulddirectly and indirectly affect our customers and suppliers (through an increase in the cost of production or their ability to produce satisfactory products) andour business (through the impact on our inventory availability, cost of sales, operations or demands for the products we sell). Until the timing, scope andextent of any future regulation becomes known, we cannot predict its effect on our cost structure or our operating results. Notwithstanding our dedication tobeing a responsible corporate citizen, it is possible that such legislation or regulation could impose material costs on us.Anti-terrorism measures and other disruptions to the raw material supply network could impact our operations.Our ability to provide efficient distribution of products to our customers is an integral component of our overall business strategy. In the aftermath ofterrorist attacks in the United States, federal, state and local 34Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsauthorities have implemented and continue to implement various security measures that affect the raw material supply network in the United States andabroad. If security measures disrupt or impede the receipt of sufficient raw materials, we may fail to meet the needs of our customers or may incur increasedexpenses to do so.Risks Relating to Our IndebtednessWe have substantial debt and may incur substantial additional debt, which could adversely affect our financial health, reduce our profitability, limit ourability to obtain financing in the future and pursue certain business opportunities and reduce the value of your investment.As of March 31, 2015, we had an aggregate principal amount of $399.9 million of outstanding debt. In fiscal year 2015, we incurred $17.1 million ofinterest expense related to this debt.The amount of our debt or such other obligations could have important consequences for holders of our common stock, including, but not limited to: • a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, therebyreducing the funds available to us for other purposes; • our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporatepurposes and other purposes may be impaired in the future; • we are exposed to the risk of increased interest rates because a portion of our borrowings is at variable rates of interest; • we may be at a competitive disadvantage compared to our competitors with less debt or with comparable debt at more favorable interest rates andthat, as a result, may be better positioned to withstand economic downturns; • our ability to refinance indebtedness may be limited or the associated costs may increase; • our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing may be impaired in the future; • it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on and acceleration of such indebtedness; • we may be more vulnerable to general adverse economic and industry conditions; and • our flexibility to adjust to changing market conditions and our ability to withstand competitive pressures could be limited, or we may beprevented from making capital investments that are necessary or important to our operations in general, growth strategy and efforts to improveoperating margins of our business units.If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures,sell assets, seek to obtain additional equity capital or refinance our debt. We cannot make assurances that we will be able to refinance our debt on termsacceptable to us, or at all. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our debt, andsuch alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.We cannot make assurances that we will be able to refinance any of our indebtedness, or obtain additional financing, particularly because of our highlevels of debt and the debt incurrence restrictions imposed by the agreements governing our debt, as well as prevailing market conditions. We could facesubstantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Subject tocertain exceptions, our Bank Term Loans and our Senior Notes, which we have defined in “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations — Financing Transactions,” restrict our ability to dispose of assets and how we use the proceeds from any suchdispositions. 35Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe cannot make assurances that we will be able to consummate those dispositions, or if we do, what the timing of the dispositions will be or whether theproceeds that we realize will be adequate to meet our debt service obligations, when due.Despite our current level of indebtedness, we may still be able to incur substantially more debt. This could further exacerbate the risks to our financialcondition described above.We may be able to incur significant additional indebtedness in the future. Although the agreements governing our indebtedness contain restrictions onthe incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtednessincurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do notconstitute indebtedness, including obligations under lease arrangements that are currently recorded as operating leases. In addition, our Revolving CreditFacility provides an aggregate commitment of up to $325.0 million. As of March 31, 2015, we had an additional $111.9 million of availability under theRevolving Credit Facility plus $12.0 million in availability outstanding under a separate revolving credit facility with our subsidiary, ADS Mexicana. If newdebt is added to our current debt levels, the related risks that we now face could intensify. See “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations — Financing Transactions.”The agreements and instruments governing our debt contain restrictions and limitations that could significantly impact our ability to operate our businessand adversely affect the holders of our common stock.The covenants contained in our Bank Term Loans and our Senior Notes, which we refer to collectively as our Credit Facilities, are consistent. Thesecovenants, among other things, restrict or limit our ability to: • dispose of assets; • incur additional indebtedness (including guarantees of additional indebtedness); • prepay or amend our various debt instruments; • pay dividends and make certain payments; • redeem stock or make other distributions; • create liens on assets; • make certain investments; • engage in certain asset sales, mergers, acquisitions, consolidations or sales of all, or substantially all, of our assets; and • engage in certain transactions with affiliates.Our ability to comply with the covenants and restrictions contained in the Credit Facilities may be affected by economic, financial and industryconditions beyond our control. The breach of any of these covenants or restrictions could result in a default under the Credit Facilities that would permit theapplicable lenders or noteholders, as the case may be, to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaidinterest. If we are unable to repay indebtedness, secured parties having secured obligations, such as the lenders under the Credit Facilities, could proceedagainst the collateral securing the secured obligations. This could have serious consequences to our financial condition and results of operations and couldcause us to become bankrupt or insolvent.We may have future capital needs and may not be able to obtain additional financing on acceptable terms.Although we believe that our current cash position and the additional committed funding available under our Credit Facilities is sufficient for ourcurrent operations, any reductions in our available borrowing capacity, or our inability to renew or replace our debt facilities, when required or when businessconditions warrant, could 36Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentshave a material adverse effect on our business, financial condition and results of operations. The economic conditions, credit market conditions, andeconomic climate affecting our industry, as well as other factors, may constrain our financing abilities. Our ability to secure additional financing, if available,and to satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, the availabilityof credit generally, economic conditions and financial, business and other factors, many of which are beyond our control. The market conditions and themacroeconomic conditions that affect our industry could have a material adverse effect on our ability to secure financing on favorable terms, if at all.If financing is not available when needed, or is available on unfavorable terms, we may be unable to take advantage of business opportunities orrespond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. If we raiseadditional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders couldsuffer significant dilution in their percentage ownership, and any new securities we issue could have rights, preferences and privileges senior to those ofholders of our common stock.Increases in interest rates would increase the cost of servicing our debt and could reduce our profitability.A significant portion of our outstanding debt, including the debt under our Bank Term Loans, bears interest at variable rates. As a result, increases ininterest rates would increase the cost of servicing our debt and could materially reduce our profitability and cash flows. Each 1.0% increase in interest rateson our variable-rate debt would increase our annual forecasted interest expense by approximately $1.9 million based on balances as of March 31, 2015.Assuming all revolving loans were fully drawn, each 1.0% increase in interest rates would result in a $3.1 million increase in annual cash interest expense onour Credit Facilities.With respect to the indebtedness outstanding under our Credit Facilities that bear interest at variable rates, such variable rates are determined basedupon specified pricing terms. As a result, if our leverage ratios increase, then such variable rates could also increase. See “Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations — Financing Transactions.”We may not be able to satisfy our outstanding obligations upon a change of control.Under the Bank Term Loans, a change of control (as defined therein) constitutes an event of default that permits the lenders to accelerate the maturityof borrowings under the agreement and terminate their commitments to lend. Additionally, under the Senior Notes, a change of control (as defined therein)constitutes an event of default that permits the noteholders to declare all of their notes to be immediately due and payable. In order to avoid events of defaultunder each of our Credit Facilities, we may therefore have to avoid certain change of control transactions that would otherwise be beneficial to us.Risks Relating to Our Common StockOur ability to make future dividend payments, if any, may be restricted.We have a history of paying dividends to our stockholders when sufficient cash is available, and we currently intend to pay dividends in the future.Any determination to pay dividends on our capital stock in the future will be at the discretion of our board of directors, subject to applicable laws and theprovisions of our amended and restated certificate of incorporation (including those relating to the payment of dividends on our convertible preferred stock),and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board ofdirectors considers relevant. In addition, the terms of our Credit Facilities contain restrictions on our ability to pay dividends. Also, Delaware law may imposerequirements that may restrict our ability to pay dividends to holders of our common stock.The market price of our common stock may be volatile and could decline in the future.We cannot assure you that an active public market for our common stock will be sustained. In the absence of a public trading market, you may not beable to liquidate your investment in our common stock. In addition, 37Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsthe market price of our common stock may fluctuate significantly. Among the factors that could affect our stock price are: • industry or general market conditions; • domestic and international economic factors unrelated to our performance; • changes in our customers’ preferences; • new regulatory pronouncements and changes in regulatory guidelines; • actual or anticipated fluctuations in our quarterly operating results; • changes in securities analysts’ estimates of our financial performance or lack of research and reports by industry analysts; • action by institutional stockholders or other large stockholders, including future sales; • speculation in the press or investment community; • investor perception of us and our industry; • changes in market valuations or earnings of similar companies; • announcements by us or our competitors of significant products, contracts, acquisitions or strategic partnerships; • developments or disputes concerning patents or proprietary rights, including increases or decreases in litigation expenses associated withintellectual property lawsuits we may initiate, or in which we may be named as defendants; • failure to complete significant sales; • any future sales of our common stock or other securities; and • additions or departures of key personnel.The stock markets have experienced extreme volatility in recent years that has been unrelated to the operating performance of particular companies.These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price ofa company’s securities, class action litigation has often been instituted against such company. Any litigation of this type brought against us could result insubstantial costs and a diversion of our management’s attention and resources, which would harm our business, operating results and financial condition.Future sales of shares by existing stockholders, including our Employee Stock Ownership Plan, could cause our stock price to decline.Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price ofour common stock to decline. Based on shares outstanding as of March 31, 2015, we have 53.7 million outstanding shares of common stock, including0.2 million outstanding shares of our restricted stock, a significant portion of which are freely tradeable without restriction under the Securities Act of 1933,as amended, (“Securities Act”) unless held by “affiliates,” as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stockoutstanding are restricted securities within the meaning of Rule 144 under the Securities Act. Restricted securities may be sold in the public market only iftheir offer and sale is registered under the Securities Act or if the offer and sale of those securities qualify for an exemption from registration, includingexemptions provided by Rules 144 and 701 under the Securities Act. In connection with our initial public offering, we filed one or more registrationstatements on Form S-8 under the Securities Act to register the shares of common stock to be issued under our equity compensation plans and, as a result, allshares of common stock acquired upon exercise of stock options granted under our plans are 38Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsalso freely tradable under the Securities Act, unless purchased by our affiliates. As of March 31, 2015, there were stock options outstanding to purchase atotal of approximately 2.7 million shares of our common stock. In addition, approximately 1.4 million shares of common stock are reserved for futureissuance under our 2013 Stock Option Plan.Certain of our significant stockholders may distribute shares that they hold to their investors who themselves may then sell into the public market.Such sales may not be subject to the volume, manner of sale, holding period and other limitations of Rule 144 of the Securities Act (“Rule 144”). As resalerestrictions end, the market price of our common stock could decline if the holders of those shares sell them or are perceived by the market as intending to sellthem.All of the shares of our convertible preferred stock held by our Employee Stock Ownership Plan (“ESOP”) may be converted into our common stock atany time by action of the ESOP trustee, and will be automatically converted into our common stock upon distributions of such shares allocated to the ESOPaccounts of ESOP participants upon a distribution event such as retirement or other termination of employment. Such distributed common stock will not besubject to any lock-up agreement and will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations ofRule 144. As of March 31, 2015, there were approximately 25.6 million shares of convertible preferred stock held by our ESOP, which in aggregate could beconverted into approximately 19.7 million shares of our common stock. All of these shares will be eligible for future sale, either by the ESOP trustee or byESOP participants, subject to the limitations of Rule 144.In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with afinancing, acquisition, litigation settlement or employee arrangement or otherwise. Any of these issuances could result in substantial dilution to our existingstockholders and could cause the trading price of our common stock to decline.If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and tradingvolume could decline.The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or ourbusiness. If one or more of these analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price wouldlikely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, whichcould cause our stock price or trading volume to decline.Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our otherstockholders.As of February 29, 2016, our directors, officers and principal stockholders and their affiliates collectively own approximately 64.3% of our outstandingshares of common stock. Additionally, our ESOP holds convertible preferred stock that converts into a substantial number of shares of our common stock and,prior to conversion, is entitled to vote on a one-for-one basis on any matter requiring the vote or consent of our stockholders, voting together with ourcommon stock as a single class unless otherwise required by law. Thus, the collective voting power of our directors, officers and principal stockholders andtheir affiliates as of February 29, 2016 is approximately 75.5%, inclusive of the outstanding shares of convertible preferred stock held by the ESOP. As aresult, these stockholders, if they act together, may be able to control our management and affairs and most matters requiring stockholder approval, includingthe election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing achange of control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of ourother stockholders. 39Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe trustee of our ESOP has certain limited powers to vote a large block of shares on matters presented to stockholders for approval.In general, the trustee of the ESOP votes the shares of convertible preferred stock held by the ESOP as directed by the ESOP’s participants.Consequently, the trustee of the ESOP has the ability to vote a significant block of shares on certain matters presented to stockholders for approval. Eachparticipant in the ESOP may direct the trustee of the ESOP on how to vote the shares of convertible preferred stock allocated to the participant’s ESOPaccounts; and the trustee must vote any unallocated stock and allocated stock for which no participant instructions were received in the same proportion asthe allocated stock for which participants’ voting instructions have been received is voted.Fulfilling the obligations incident to being a public company is expensive and time-consuming, and any delays or difficulties in satisfying theseobligations could have a material adverse effect on our future results of operations and our stock price.We completed our initial public offering in fiscal year 2015. As such, we are now subject to the reporting and corporate governance requirements, thelisting standards of the NYSE, and the Sarbanes-Oxley Act of 2002 that apply to issuers of listed equity, which impose certain compliance costs andobligations upon us. The changes necessitated by publicly listing our equity require a significant commitment of additional resources and managementoversight, which increases our operating costs. These requirements also place significant demands on our finance and accounting staff and on our financialaccounting and information systems. Other expenses associated with being a public company include increases in auditing, accounting and legal fees andexpenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listingfees, as well as other expenses. As a public company, we are required, among other things, to: • define and expand the roles and the duties of our board of directors and its committees; and • institute more comprehensive compliance, investor relations and internal audit functions.In addition, complying with public disclosure rules makes our business more visible, which we believe may result in threatened or actual litigation,including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims donot result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of ourmanagement and harm our business and operating results.Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of us and may affect thetrading price of our common stock.Our amended and restated certificate of incorporation and amended and restated bylaws include a number of provisions that may discourage, delay orprevent a change in our management or control over us that stockholders may consider favorable. For example, our amended and restated certificate ofincorporation and amended and restated bylaws: • authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt; • maintain a classified board of directors, as a result of which our board will continue to be divided into three classes, with each class serving forstaggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting; • limit the ability of stockholders to remove directors; • provide that vacancies on our board of directors, including newly-created directorships, may be filled only by a majority vote of directors then inoffice; 40Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents • prohibit stockholders from calling special meetings of stockholders; • prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders; • do not give the holders of our common stock cumulative voting rights with respect to the election of directors, which means that the holders of amajority of our outstanding shares of common stock can elect all directors standing for election; • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon bystockholders at stockholder meetings; • require a super-majority stockholders vote of 75% to approve any reorganization, recapitalization, share exchange, share reclassification,consolidation, merger, conversion or sale of all or substantially all assets to which we are a party that is not approved by the affirmative vote of atleast 75% of the members of our board of directors; and • require the approval of holders of at least 75% of the outstanding shares of our voting common stock to amend the bylaws and certain provisionsof the certificate of incorporation.Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware General Corporation Law that hasthe effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our commonstock, and could also affect the price that some investors are willing to pay for our common stock.Our amended and restated certificate of incorporation and amended and restated bylaws may also make it difficult for stockholders to replace or removeour management. These provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our control,which may not be in the best interests of our stockholders.Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantiallyall disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or ourdirectors, officers, employees or agents.Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for anyderivative action or proceeding brought on our behalf; any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by ourdirectors, officers, employees or agents; any action asserting a claim against us arising under the Delaware General Corporation Law, our amended andrestated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairsdoctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our common stock shall be deemed to have notice of and to haveconsented to the provisions of our amended and restated certificate of incorporation described above. The choice of forum provision may limit astockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which maydiscourage such lawsuits against us or our directors, officers, employees or agents. If a court were to find the choice of forum provision contained in ouramended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolvingsuch action in other jurisdictions, which could adversely affect our business and financial condition.ITEM 1B. UNRESOLVED STAFF COMMENTSNone. 41Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 2. PROPERTIESReal PropertyWe have a network of 61 manufacturing plant locations and 31 distribution centers, including the facilities owned or leased by our joint ventures. Weoperate across all 50 U.S. states and 10 Canadian provinces through 77 locations in the United States and Canada, consisting of 52 manufacturing plants and25 distribution centers. We have 9 manufacturing plants and 5 distribution centers operated through joint ventures in Mexico and South America, as well asone distribution center in Europe.We currently own approximately 36,000 square feet of office space in Hilliard, Ohio for our corporate headquarters.Our network of 61 manufacturing plants consisted of 49 that were owned and 12 that were leased. We generally prefer to own our manufacturing plantlocations, with a typical pipe manufacturing facility consisting of approximately 40,000 square feet and 15-20 acres of land for storage of pipe and relatedproducts. Our network of 31 distribution centers consisted of 2 that were owned and 29 that were leased. We believe that our properties have been adequatelymaintained and are generally in good condition. The extent to which we use our properties varies by property and from time to time but we believe thecapacity of our facilities is adequate for the level of production and distribution activities necessary in our business as presently conducted. Each distributioncenter carries single wall and dual wall pipe and fittings and Allied Products per needs of the local market.Our manufacturing plants and distribution centers, including those operated through our joint ventures, are shown in the map below.1 1 Additionally, we have a distribution center in Rotterdam, The Netherlands. 42Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIn-house FleetAs of March 31, 2015, our in-house fleet consisted of approximately 650 tractor-trailers and approximately 1,150 trailers that are specially designed tohaul our lightweight pipe and fittings products.ITEM 3. LEGAL PROCEEDINGSOn July 29, 2015, a putative stockholder class action, Christopher Wyche, individually and on behalf of all others similarly situated v. AdvancedDrainage Systems, Inc., et al. (Case No. 1:15-cv-05955-KPF), was commenced in the U.S. District Court for the Southern District of New York, naming theCompany, along with Joseph A. Chlapaty, the Company’s Chief Executive Officer, and Mark B. Sturgeon, the Company’s former Chief Financial Officer, asdefendants and alleging violations of the federal securities laws. The complaint alleges that the Company made material misrepresentations and/or omissionsof material fact in its public disclosures during the period from September 5, 2014 through July 14, 2015, in violation of Section 10(b) and 20(a) of theSecurities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Plaintiffs seek an unspecified amount of monetary damages on behalfof the putative class and an award of costs and expenses, including counsel fees and expert fees. The Company believes that it has valid and meritoriousdefenses and will vigorously defend against these allegations, but litigation is subject to many uncertainties and the outcome of this matter is not predictablewith assurance. While it is reasonably possible that this matter ultimately could be decided unfavorably to the Company, the Company is currently unable toestimate the range of the possible losses, but they could be material.On August 12, 2015, the SEC Division of Enforcement (“Enforcement Division”) informed the Company that it was conducting an informal inquirywith respect to the Company. As part of this inquiry, the Enforcement Division requested the voluntary production of certain documents generally related tothe Company’s accounting practices. Subsequent to the initial voluntary production request, the Company received document subpoenas from theEnforcement Division pursuant to a formal order of investigation. The Company has from the outset cooperated with the Enforcement Division’sinvestigation and intends to continue to do so. While it is reasonably possible that this investigation ultimately could be resolved unfavorably to theCompany, the Company is currently unable to estimate the range of possible losses, but they could be material.We are involved from time-to-time in various legal proceedings that arise in the ordinary course of our business including, but not limited tocommercial disputes, environmental matters, employee related claims, intellectual property disputes and litigation in connection with transactions includingacquisitions and divestitures. We believe that such litigation, claims, and administrative proceedings will not have a material adverse impact on our financialposition or our results of operations. We record a liability when a loss is considered probable, and the amount can be reasonably estimated. In management’sopinion, none of these proceedings are material in relation to our consolidated operations, cash flows, or financial position, and we have adequate accruedliabilities to cover our estimated probable loss exposure.ITEM 4. MINE SAFETY DISCLOSURESNot applicable. 43Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESMarket Information for Common StockOur common stock began trading on the NYSE under the symbol “WMS” on July 25, 2014. Prior to that date, there was no public trading market forour common stock. The following table sets forth the high and low sales prices per share of our common stock as reported on the NYSE and the dividendspaid for each quarter of fiscal year 2015: Stock Prices Dividends PaidPer Share High Low 2015 First Quarter $— $— $— Second Quarter $22.21 $14.74 $— Third Quarter $24.26 $19.35 $0.04 Fourth Quarter $30.00 $21.94 $0.04 Year $0.08 The Board of Directors approved quarterly per share cash dividends of $0.029 during the first three quarters of the fiscal year ended March 31, 2014.The Board of Directors also approved a per share cash dividend of $1.59 during the fourth quarter of fiscal year 2014 to all common stockholders of record(the “Special Dividend”). The Board of Directors approved a dividend of $0.04 per share to all common stockholders of record during the quarters endingDecember 31, 2014 and March 31, 2015. No dividends were declared in the quarters ended June 30, 2014 and September 30, 2014.During each of the first three quarters of 2016, the Board of Directors approved a quarterly cash dividend of $0.05 per share to all commonstockholders. Any future determination relating to dividends will be made at the discretion of our board of directors and will depend on a number of factors,including our future earnings, capital requirements, financial condition, future prospects, contractual restrictions, legal requirements and other factors ourboard of directors may deem relevant.Holders of RecordAs of June 30, 2015, we had 211 holders of record of our common stock. The number of holders of record is based upon the actual number of holdersregistered as of such date and does not include holders of shares in “street name” or persons, partnerships, associates, corporations or other entities in securityposition listings maintained by depositories. 44Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsStock Performance GraphThe following graph presents a comparison from July 25, 2014 (the date our common stock commenced trading on the NYSE) through March 31, 2015of the cumulative return of our common stock, the Standard and Poor’s Index (“S&P 500”) and the Russell 2000 Index (“Russell 2000”). The graph assumesinvestments of $100 on July 25, 2014 in our common stock and in each of the two indices and the reinvestment of dividends. Recent Sales of Unregistered SecuritiesBetween April 1, 2014 and the completion of our initial public offering (“IPO”), we sold securities without registration under the Securities Act of1933, as amended, to certain officers, directors and employees upon the exercise of stock options. Such sales included 56,464 shares of common stock inexchange for an aggregate of $432,170.These transactions did not involve any underwriters or any public offerings. These transactions were exempt from registration under the Securities Act,pursuant to Section 4(a)(2) of the Securities Act or Rule 701 promulgated thereunder, as transactions by an issuer not involving a public offering. No generalsolicitation was made either by us or any person acting on our behalf; the recipients of our common stock agreed that the securities would be subject to thestandard restrictions applicable to a private placement of securities under applicable state and federal securities laws; and appropriate legends were affixed tothe certificates issued.Since the completion of our IPO, we have not sold any securities without registration under the Securities Act of 1933, as amended.Issuer Purchases of Equity SecuritiesWe did not make any repurchases of shares of our common stock during the three months ended March 31, 2015.Equity Compensation Plan InformationFor equity compensation plan information, refer to “Part III, Item. 12 Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters,” of this Annual Report on Form 10-K. 45Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 6. SELECTED FINANCIAL AND OPERATING DATAThe following tables set forth selected historical consolidated financial data, for the periods and as of the dates indicated, that should be read inconjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financialstatements and notes thereto included in “Item 8. Financial Statements and Supplementary Data,” of this Form 10-K. We derived the consolidated statementsof operations and cash flow data for the years ended March 31, 2015, 2014 and 2013 and our consolidated balance sheet data as of March 31, 2015 and 2014from our audited financial statements included in “Item 8. Financial Statements and Supplementary Data,” of this Form 10-K. The consolidated balance sheetas of March 31, 2014 and the consolidated statements of operations and cash flows for the years ended March 31, 2014 and 2013 have been restated as notedin “Note 2. Restatement of Previously Issued Financial Statements” to our audited financial statements. The consolidated statements of operations and cashflow data for the years ended March 31, 2012 and 2011 and the balance sheet data as of March 31, 2013, 2012 and 2011 have been restated to reflect theimpact of the adjustments resulting from the restatement, but such restated data has not been audited. Our historical results are not necessarily indicative offuture results. Fiscal Year Ended March 31, (Amounts in thousands) 2015 2014 2013 2012 (10) 2011 (2)(10) (As Restated) (1) (As Restated) (1) (As Restated) (1) (As Restated) (1) Consolidated statement of income data: Net sales $1,180,073 $1,067,780 $1,017,102 $1,015,667 $863,246 Cost of goods sold 973,960 873,810 829,141 839,637 712,691 Gross profit 206,113 193,970 187,961 176,030 150,555 Selling expenses 78,981 74,042 71,805 70,542 65,387 General and administrative expenses 58,749 59,761 49,601 56,018 47,709 Loss (gain) on disposal of assets or businesses (3) 362 (2,863) (951) (44,204) 472 Intangibles amortization 9,754 10,145 10,028 8,074 7,294 Income from operations 58,267 52,885 57,478 85,600 29,693 Interest expense 19,368 18,807 18,526 22,994 27,953 Other miscellaneous expense (income), net (4) 14,370 (1,177) 103 1,487 (1,369) Income before income taxes 24,529 35,255 38,849 61,119 3,109 Income tax expense 9,443 19,949 15,935 26,184 5,963 Equity in net loss (income) of unconsolidated affiliates 2,335 3,086 (266) (631) (788) Net income (loss) 12,751 12,220 23,180 35,566 (2,066) Less net income attributable to noncontrolling interest 4,131 3,593 2,520 968 1,771 Net income (loss) attributable to ADS 8,620 8,627 20,660 34,598 (3,837) Change in fair value of redeemable convertible preferredstock (11,054) (3,979) (5,869) (10,257) (3,541) Dividends to redeemable convertible preferred stockholders (661) (10,139) (735) (668) (844) Dividends paid to unvested restricted stockholders (11) (418) (52) (34) (104) Net (loss) income available to common stockholders andparticipating securities (3,106) (5,909) 14,004 23,639 (8,326) Undistributed loss allocated to participating securities — — (1,127) (2,237) — Net (loss) income available to common stockholders $(3,106) $(5,909) $12,877 $21,402 $(8,326) 46Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Fiscal Year Ended March 31, 2015 2014 2013 (10) 2012 (10) 2011 (2)(10) (Amounts in thousands, except per share data) (As Restated) (1) (As Restated) (1) (As Restated) (1) (As Restated) (1) Weighted average common sharesoutstanding: Basic 51,344 47,277 46,698 46,293 47,668 Diluted 51,344 47,277 47,249 47,051 47,668 Fully Converted (5) 71,601 67,877 67,545 67,337 71,019 Net (loss) income per share Basic $(0.06) $(0.12) $0.28 $0.46 $(0.17) Diluted (0.06) (0.12) 0.27 0.45 (0.17) Fully Converted (5) 0.29 0.58 0.41 0.59 0.01 Cash dividends declared per share 0.08 1.68 0.10 0.09 0.09 Other financial data: Capital expenditures $31,479 $39,621 $38,756 $24,953 $29,422 Adjusted EBITDA (6) 143,777 152,755 132,299 119,601 103,974 Adjusted EBITDA margin (7) 12.2% 14.3% 13.0% 11.8% 12.0% Consolidated balance sheet data: Cash $3,623 $3,931 $1,361 $2,082 $2,151 Working capital (8) 249,137 241,004 204,034 197,718 198,019 Total assets 1,041,699 989,567 950,765 938,831 902,862 Long-term debt 390,315 442,895 338,048 358,790 362,624 Long-term capital lease obligations 45,503 34,366 28,851 23,529 10,179 Total liabilities 727,102 761,318 642,342 656,953 653,112 Total mezzanine equity (9) 108,021 642,951 608,346 557,563 493,674 Total stockholders’ equity (deficit) 206,576 (414,702) (299,923) (275,685) (243,924) Statement of cash flow data: Net cash provided by operating activities $74,379 $72,410 $75,353 $62,507 $46,037 Net cash used in investing activities (76,093) (38,712) (44,796) (33,838) (52,164) Net cash provided by (used in) financingactivities 1,791 (31,109) (31,338) (28,784) 5,281 (1)See “Note 2. Restatement of Previously Issued Financial Statements” to our consolidated financial statements.(2)The presentation of our selected historical consolidated financial data as of March 31, 2011 has been adjusted to comply with the retrospectiveapplication of our inventory accounting principle change. In April 2011, the Company changed the method of valuing raw materials from the last-in,first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. The Company believes the FIFO method of inventory valuation is preferable for theraw materials valuation because FIFO provides a better matching of inventory costs of its products with the sales due to a lag in the pass-through ofchanges in resin costs to customers and enhances the comparability of results to our peers. As a result of this change, all prior period amounts have beenretrospectively adjusted as of the beginning of the earliest period presented.(3)During fiscal 2012, we sold our Septic Chamber business and recognized a gain of $44.6 million.(4)Other miscellaneous (income) expense, net for fiscal year ended March 31, 2015 includes unfavorable mark-to-market adjustments of $7.7 million forchanges in fair value on diesel fuel and raw material derivative contracts and a loss on a currency hedge tied to our Ideal Pipe acquisition of $5.6million.(5)Adjusted Earnings per Fully Converted Share, Adjusted Net Income and Weighted Average Fully Converted Common Shares Outstanding, which arenon-GAAP measures, are supplemental measures of financial performance that are not required by, or presented in accordance with GAAP. We calculateAdjusted earnings per fully converted share (Non-GAAP), Adjusted Net Income (Non-GAAP), and Weighted average fully converted common sharesoutstanding (Non-GAAP), by adjusting our Net income per share — Basic 47Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents and Weighted average common shares outstanding – Basic, the most comparable GAAP measures. To effect this adjustment, we have (1) removed theadjustment for the change in fair value of Redeemable convertible preferred stock classified as mezzanine equity from the numerator of the Net incomeper share — Basic computation, (2) added back the dividends to Redeemable convertible preferred stockholders and dividends paid to unvestedrestricted stockholders, (3) made corresponding adjustments to the amount allocated to participating securities under the two-class earnings per sharecomputation method, (4) added back ESOP deferred compensation attributable to the shares of Redeemable convertible preferred stock allocated toemployee ESOP accounts during the applicable period, which is a non-cash charge to our earnings and not deductible for income tax purposes and(5) added back compensation expense recorded as a result of the January 2014 Special Dividend.We have also made adjustments to the Weighted average common shares outstanding — Basic to assume, (1) share conversion of the Redeemableconvertible 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 ofdirectors to assess our financial performance on a per share basis assuming all shares held by the ESOP and all shares of redeemable common stock areconverted to common stock. Adjusted Earnings Per Fully Converted Share (Non-GAAP) is not necessarily comparable to other similarly titled captionsof other companies due to different methods of calculation.The following table presents a reconciliation of Adjusted Earnings Per Fully Converted Share (Non-GAAP), Adjusted Net Income (Non-GAAP), and theWeighted Average Fully Converted Common Shares Outstanding (Non-GAAP) to our Net Income attributable to ADS, Net income per share andcorresponding Weighted average common shares outstanding amounts, the most comparable GAAP measures, for each of the periods indicated. Fiscal Year Ended March 31, (Amounts in thousands, except per share data) 2015 2014 2013 2012 2011 (As Restated) (a) (As Restated) (a) (As Restated) (a) (As Restated) (a) Net (loss) income available to common shareholders $(3,106) $(5,909) $12,877 $21,402 $(8,326) Weighted Average Common Shares Outstanding —Basic 51,344 47,277 46,698 46,293 47,668 Net (loss) income per share — Basic $(0.06) $(0.12) $0.28 $0.46 $(0.17) Adjustments to net (loss) income available tocommon shareholders: Change in fair value of redeemable convertiblepreferred stock 11,054 3,979 5,869 10,257 3,541 Dividends to redeemable convertible preferredstockholders 661 10,139 735 668 844 Dividends paid to unvested restrictedstockholders 11 418 52 34 104 Undistributed income allocated to participatingsecurities — — 1,127 2,237 — Total adjustments to net (loss) income available tocommon shareholders 11,726 14,536 7,783 13,196 4,489 Net income (loss) attributable to ADS $8,620 $8,627 $20,660 $34,598 $(3,837) 48Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Fiscal Year Ended March 31, (Amounts in thousands, except per share data) 2015 2014 2013 2012 2011 (As Restated) (a) (As Restated) (a) (As Restated) (a) (As Restated) (a) Adjustments to net income (loss) attributable toADS: Fair value of ESOP compensation related toredeemable convertible preferred stock $12,144 $7,891 $7,283 $4,957 $4,564 Special dividend compensation — 22,624 — — — Adjusted net income — (Non-GAAP) $20,764 $39,142 $27,943 $39,555 $727 Adjustments to Weighted Average CommonShares Outstanding — Basic: Unvested restricted shares 228 336 292 208 183 Redeemable convertible preferred shares 20,029 20,264 20,555 20,836 23,168 Total Weighted Average Fully ConvertedCommon Shares Outstanding (Non-GAAP) 71,601 67,877 67,545 67,337 71,019 Adjusted Earnings per Fully ConvertedShare (Non-GAAP) $0.29 $0.58 $0.41 $0.59 $0.01 (a)See “Note 2. Restatement of Previously Issued Financial Statements” to our consolidated financial statements. (6)EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, have been presented in this Annual Report on Form 10-K as supplementalmeasures of financial performance that are not required by, or presented in accordance with GAAP. We calculate EBITDA as net income before interest,income taxes, depreciation and amortization. We calculate Adjusted EBITDA as EBITDA before stock-based compensation expense, non-cash chargesand certain other expenses.EBITDA and Adjusted EBITDA are included in this Annual Report on Form 10-K because they are key metrics used by management and our board ofdirectors to assess our financial performance. EBITDA and Adjusted EBITDA are frequently used by analysts, investors and other interested parties toevaluate companies in our industry. In addition to covenant compliance and executive performance evaluations, we use Adjusted EBITDA tosupplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare ourperformance against that of other peer companies using similar measures.EBITDA and Adjusted EBITDA are not GAAP measures of our financial performance and should not be considered as alternatives to net income as ameasure of financial performance or cash flows from operations or any other performance measure derived in accordance with GAAP and they shouldnot be construed as an inference that our future results will be unaffected by unusual or non-recurring items. EBITDA and Adjusted EBITDA containcertain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replaceassets being depreciated and amortized. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses that are thesame as or similar to some of the adjustments in this presentation, such as stock-based compensation expense, derivative fair value adjustments, andforeign currency transaction losses. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected byany such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using EBITDA and AdjustedEBITDA supplementally. Our measures of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of othercompanies due to different methods of calculation. 49Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following table presents a reconciliation of EBITDA and Adjusted EBITDA to Net income, the most comparable GAAP measure, for each of theperiods indicated. Fiscal Year Ended March 31, (Amounts in thousands) 2015 2014 2013 2012 2011 (As Restated) (a) (As Restated) (a) (As Restated) (a) (As Restated) (a) Net income (loss) $12,751 $12,220 $23,180 $35,566 $(2,066) Depreciation and amortization 65,472 63,674 63,102 63,264 63,931 Interest expense 19,368 18,807 18,526 22,994 27,953 Income tax expense 9,443 19,949 15,935 26,184 5,963 EBITDA 107,034 114,650 120,743 148,008 95,781 Derivative fair value adjustments (b) 7,746 (53) (4) 2,315 (1,365) Foreign currency transaction losses (c) 5,404 845 1,085 378 332 Loss (gain) on disposal of assets or businesses (d) 362 (2,863) (951) (44,204) 472 Unconsolidated affiliates interest, taxes, depreciationand amortization (e) 3,585 2,845 2,137 1,920 1,176 Special dividend compensation (f) — 22,624 — — — Contingent consideration remeasurement 174 738 (74) 63 154 Stock-based compensation (g) 5,880 4,518 2,080 1,264 2,457 ESOP deferred stock-based compensation (h) 12,144 7,891 7,283 4,957 4,564 Asset impairment — — — 4,900 — Transaction costs (i) 1,448 1,560 — — 403 Adjusted EBITDA $143,777 $152,755 $132,299 $119,601 $103,974 (a)See “Note 2. Restatement of Previously Issued Financial Statements” to our consolidated financial statements. (b)Represents the non-cash gains and losses arising from changes in mark-to-market values for derivative contracts related to diesel fuel, interestrate 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.Fiscal year 2015 includes a $5.6 million loss on Canadian currency derivative contract related to the Ideal Pipe acquisition. (d)Represents a gain recognized on the sale of our septic chamber business in January 2012. (e)Represents our proportional share of interest, income taxes, depreciation and amortization related to our South American joint venture, ourBaySaver joint venture and our Tigre-ADS USA joint venture, which are accounted for under the equity method of accounting. Fiscal year 2014includes our proportionate share of an asset impairment of $1.0 million recorded by our South American joint venture. (f)Represents compensation recorded as a result of the January 2014 Special Dividend on shares of Redeemable convertible preferred stock held bythe ESOP. (g)Represents the non-cash stock-based compensation cost related to our stock options and restricted stock awards. (h)Represents the non-cash stock-based compensation expense attributable to the shares of convertible preferred stock allocated to employee ESOPaccounts during the applicable period. (i)Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our debt refinancing,completion of the IPO and secondary public offering and asset acquisitions and dispositions. (7)Adjusted EBITDA margin for any period represents Adjusted EBITDA as a percentage of net sales for that period. 50Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(8)Working capital is the difference between our current assets and current liabilities. Working capital is an indication of liquidity and potential need forshort-term funding.(9)Our mezzanine equity consists of the Redeemable convertible preferred stock held by our ESOP and Redeemable common stock held by certainstockholders who have certain rights associated with such shares, which rights are considered to be a redemption right, which is beyond our control.See “Note 19. Mezzanine Equity,” within our consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data,” ofthis Form 10-K for further information regarding the accounting treatment for our mezzanine equity. Upon the effective date of our IPO (July 25, 2014),the redemption feature of our Redeemable common stock was terminated. As a result, the Redeemable common stock was recorded at fair value throughthe effective date of the IPO and was subsequently reclassified at that fair value to permanent equity. In addition, upon the effective date of the IPO, theredemption feature of our Redeemable convertible preferred stock was no longer applicable. However, if our common stock is no longer a “registration-type class of security” (e.g., in the event of a delisting), the option held by the Trustee, which granted it the ability to put the shares of our Redeemableconvertible preferred stock to us, would then become applicable. As such, the Redeemable convertible preferred stock was recorded to fair value at theeffective date of the IPO on July 25, 2014 and will remain in mezzanine equity without further adjustment to carrying value unless it becomes probablethat the redemption feature will become applicable. See Note 9, “Fair Value Measurements,” within our consolidated financial statements included in“Item 8. Financial Statements and Supplementary Data,” of this Form 10-K for further information regarding the accounting treatment for ourmezzanine equity post-IPO.(10)The net effect of the restatement on the Company’s previously reported consolidated financial statements for the years ended March 31, 2012 and2011, as well as the Company’s previously reported consolidated balance sheet as of March 31, 2013, is summarized below.The net effect of the restatement on the Company’s previously reported consolidated statements of operations for the years ended March 31, 2012 and2011 is as follows: For the Year Ended March 31, 2012 AsPreviouslyReported Adjustments Leases Inventory Long-LivedAssets ADSMexicana Income Taxesand Other As Restated (Amounts in thousands, except per sharedata) Net sales $1,013,756 $— $— $— $1,321 $590 $1,015,667 Gross profit 195,358 (2,284) (16,501) (222) 371 (692) 176,030 Income from operations 95,053 (2,049) (2,613) (2,159) (574) (2,058) 85,600 Income before income taxes 70,791 (3,206) (2,613) (2,136) (574) (1,143) 61,119 Net income 44,431 (3,206) (2,613) (2,136) (574) (336) 35,566 Net income attributable to ADS 43,260 (3,206) (2,613) (2,136) (287) (420) 34,598 Net income available to common stockholders $29,060 $(2,834) $(2,310) $(1,888) $(254) $(372) $21,402 Weighted average common shares outstanding: Basic 46,293 46,293 Diluted 47,051 47,051 Net income per share: Basic $0.63 $0.46 Diluted $0.62 $0.45 Cash dividends declared per share $0.09 $0.09 51Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents For the Year Ended March 31, 2011 AsPreviouslyReported Adjustments Leases Inventory Long-LivedAssets ADSMexicana Income Taxesand Other AsRestated (Amounts in thousands, except per share data) Net sales $863,138 $— $— $— $(1,595) $1,703 $863,246 Gross profit 170,974 (85) (19,272) (949) (923) 810 150,555 Income from operations 38,929 (127) (6,042) (1,743) (1,168) (156) 29,693 Income before income taxes 12,655 (959) (6,042) (1,743) (687) (115) 3,109 Net income 9,338 (959) (6,042) (1,743) (687) (1,973) (2,066) Net income (loss) attributable to ADS 5,996 (959) (6,042) (1,743) (609) (480) (3,837) Net income (loss) available to common stockholders $1,507 $(959) $(6,042) $(1,743) $(609) $(480) $(8,326) Weighted average common shares outstanding: Basic 47,668 47,668 Diluted (a) 48,699 47,668 Net income (loss) per share: Basic $0.03 $(0.17) Diluted $0.03 $(0.17) Cash dividends declared per share $0.09 $0.09 (a)As restated amount excludes shares which became anti-dilutive as a result of the restatement.The net effect of the restatement on the Company’s previously reported consolidated balance sheet as of March 31, 2013, 2012 and 2011 is as follows: March 31, 2013 Adjustments As PreviouslyReported Leases Inventory Long-LivedAssets ADSMexicana Income Taxesand Other AsRestated (Amounts in thousands) Cash $1,361 $— $— $— $— $— $1,361 Working capital 220,276 (9,640) (3,490) (35) (1,731) (1,346) 204,034 Property, plant and equipment, net 294,901 56,498 — (3,546) — 28 347,881 Total assets 907,739 56,306 (8,257) (15,695) (1,731) 12,403 950,765 Long-term debt obligation 338,048 — — — — — 338,048 Long-term capital lease obligation — 28,851 — — — — 28,851 Total liabilities 585,115 38,424 (4,767) 84 — 23,486 642,342 Mezzanine equity 608,346 — — — — — 608,346 Stockholders’ equity (deficit) (285,722) 17,882 (3,490) (15,779) (1,731) (11,083) (299,923) March 31, 2012 Adjustments As PreviouslyReported Leases Inventory Long-LivedAssets ADSMexicana Income Taxesand Other AsRestated (Amounts in thousands) Cash $2,082 $— $— $— $— $— $2,082 Working capital 208,268 (6,701) (349) 97 (1,275) (2,322) 197,718 Property, plant and equipment, net 284,731 51,401 — (2,097) — 96 334,131 Total assets 905,028 52,196 (6,456) (14,460) (1,275) 3,798 938,831 Long-term debt obligation 358,790 — — — — — 358,790 Long-term capital lease obligation — 23,529 — — — — 23,529 Total liabilities 615,314 31,172 (6,107) 88 — 16,486 656,953 Mezzanine equity 557,563 — — — — — 557,563 Stockholders’ equity (deficit) (267,849) 21,024 (349) (14,548) (1,275) (12,688) (275,685) 52Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents March 31, 2011 Adjustments As PreviouslyReported Leases Inventory Long-LivedAssets ADSMexicana IncomeTaxes andOther AsRestated (Amounts in thousands) Cash $2,151 $— $— $— $— $— $2,151 Working capital 204,061 (6,186) 2,265 231 (719) (1,633) 198,019 Property, plant and equipment, net 297,827 40,717 — (1,869) — 63 336,738 Total assets 866,798 40,610 (1,668) (12,361) (719) 10,202 902,862 Long-term debt obligation 362,624 — — — — — 362,624 Long-term capital lease obligation — 10,179 — — — — 10,179 Total liabilities 618,351 16,381 (3,933) 50 — 22,263 653,112 Mezzanine equity 493,674 — — — — — 493,674 Stockholders’ equity (deficit) (245,227) 24,229 2,265 (12,411) (719) (12,061) (243,924) The net effect of the restatement on the Company’s previously reported consolidated statements of cash flows for the years ended March 31, 2012 and2011 is as follows: For the Year Ended March 31, 2012 (Amounts in thousands) As PreviouslyReported Adjustments As Restated Net cash provided by operating activities $56,997 $5,510 $62,507 Net cash used in investing activities (35,833) 1,995 (33,838) Net cash used in financing activities (21,233) (7,551) (28,784) For the Year Ended March 31, 2011 (Amounts in thousands) As PreviouslyReported Adjustments As Restated Net cash provided by operating activities $37,233 $8,804 $46,037 Net cash used in investing activities (53,237) 1,073 (52,164) Net cash provided by financing activities 15,134 (9,853) 5,281 53Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOur fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, references to “year” pertain to our fiscal year. For example, 2015refers to fiscal 2015, which is the period from April 1, 2014 to March 31, 2015.The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with the consolidatedfinancial statements and related footnotes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statementsthat are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actualresults could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, thoseidentified below, and those discussed in the sections titled “Item 1A. Risk Factors” and “Cautionary Statement About Forward-Looking Statements”included elsewhere in this Annual Report on Form 10-K. You should read the following discussion together with the sections titled “Item 1A. Risk Factors,”“Item 6. Selected Financial and Operating Data” and our consolidated financial statements, including the related notes, included in “Item 8. FinancialStatements and Supplementary Data” of this Form 10-K.We consolidate all of our joint ventures for purposes of GAAP, except for our South American Joint Venture, our BaySaver Joint Venture and ourTigre-ADS USA Joint Venture.OverviewWe are the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management productsand superior drainage solutions for use in the underground construction and infrastructure marketplace. Our innovative products are used across a broadrange of end markets and applications, including non-residential, residential, agriculture and infrastructure applications. We have established a leadingposition in many of these end markets by leveraging our national sales and distribution platform, our overall product breadth and scale and ourmanufacturing excellence. In the United States, our national footprint combined with our strong local presence and broad product offering make us the leaderin an otherwise highly fragmented sector comprised of many smaller competitors. We believe the markets we serve in the United States representapproximately $10.5 billion of annual revenue opportunity. In addition, we believe the increasing acceptance of thermoplastic pipe products in internationalmarkets 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 pipehas been displacing traditional materials, such as reinforced concrete, corrugated steel and PVC, across an ever expanding range of end markets. This hasallowed us to consistently gain share and achieve above market growth throughout economic cycles. We expect to continue to drive conversion to ourproducts from traditional materials as contractors, civil design engineers and municipal agencies increasingly acknowledge the superior physical attributesand compelling value proposition of our thermoplastic products. In addition, we believe that overall demand for our products will benefit as the regulatoryenvironment continues to evolve.Our broad product line includes HDPE pipe, PP pipe and related water management products. Building on our core drainage businesses, we haveaggressively pursued attractive ancillary product categories such as storm and septic chambers, PVC drainage structures, fittings and filters, and water qualityfilters and separators. We refer to these ancillary product categories as Allied Products. Given the scope of our overall sales and distribution platform, we havebeen able to drive growth within our Allied Products and believe there are significant growth opportunities going forward. 54Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsKey Factors Affecting Our Results of OperationsProduct DemandThere are numerous factors that influence demand for our products. Our businesses are cyclical in nature and sensitive to general economic conditions,primarily in the United States, Canada, Mexico and South America. The non-residential, residential, agricultural and infrastructure markets we serve areaffected by the availability of credit, lending practices, interest rates and unemployment rates. Demand for new homes, farm income, commercialdevelopment and highway infrastructure spending have a direct impact on our financial condition and results of operations. Accordingly, the followingfactors may have a direct impact on our business in the markets in which our products are sold: • the strength of the economy; • the amount and type of non-residential and residential construction; • funding for infrastructure spending; • farm income and agricultural land values; • inventory of improved housing lots; • changes in raw material prices; • the availability and cost of credit; • non-residential occupancy rates; • commodity prices; and • demographic factors such as population growth and household formation.Product PricingThe price of our products is impacted by competitive pricing dynamics in our industry as well as by raw material input costs. Our industry is highlycompetitive and the sales prices for our products may vary based on the sales policies of our competitors. Raw material costs represent a significant portion ofthe cost of goods sold for our pipe products, or Pipe. We aim to increase our product selling prices in order to cover raw material price increases, but theinability to do so could impact our profitability. Movements in raw material costs and resulting changes in the selling prices may also impact changes inperiod-to-period comparisons of net sales.Material ConversionOur HDPE and PP pipe and related water management product lines compete with other manufacturers of corrugated polyethylene pipe as well asmanufacturers of alternative products made with traditional materials, such as concrete, steel and PVC. Our net sales are driven by market trends, includingthe continued increase in adoption of thermoplastic corrugated pipe products as a replacement for traditional materials. Thermoplastic corrugated pipe isgenerally lighter, more durable, more cost effective and easier to install than comparable products made from traditional materials. High performancethermoplastic corrugated pipe represented approximately 26% of the total storm sewer market in 2014; up from what we believe was less than 10% ten yearsago and less than 1% twenty years ago. We believe this trend will continue as customers continue to acknowledge the superior attributes and compellingvalue proposition of our thermoplastic products and expanded regulatory approvals allow for their use in new markets and geographies. In addition, webelieve that the recent introduction of PP pipe products will also help accelerate conversion given the additional applications for which our PP pipe productscan be used.We believe the adoption of HDPE and PP pipe outside of the United States is still in its early stages and represents a significant opportunity for us tocontinue to increase the conversion to our products from traditional products in these markets, including Canada, Mexico and South America where weoperate. 55Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGrowth in Allied ProductsOur Allied Products include storm and septic chambers, PVC drainage structures, fittings, stormwater filters and water separators. These productscomplement our pipe product lines and allow us to offer a comprehensive water management solution to our customers and drive organic growth. Our leadingmarket position in pipe products allows us to cross-sell Allied Products effectively. Our comprehensive offering of Allied Products also helps us increase pipesales in certain markets. Our Allied Products typically carry higher gross margins as compared to our pipe product lines and are less sensitive to increases inresin prices since resin prices represent a smaller percentage of the cost for Allied Products.Our leading position in the pipe market has allowed us to increase organic growth of our Allied Products. We also expect to expand our Allied Productofferings through acquisitions. For fiscal years 2015, 2014 and 2013, we generated sales of Allied Products of $283.5 million, $260.4 million and $248.6million, respectively.Raw Material CostsOur raw material cost and product selling prices fluctuate with changes in the price of resins utilized in production. Virgin and recycled resins, whichare derived either directly or indirectly from crude oil derivatives and natural gas liquids, currently account for approximately 60% of our cost for pipeproducts. Raw materials account for a similar percentage of the cost of our Allied Products. We actively manage our resin purchases and typically passfluctuations in the cost of resin through to our customers in order to maximize our profitability. Fluctuations in the price of crude oil and natural gas pricesmay impact the cost of resin. In addition, changes in and disruptions to existing ethylene or polyethylene capacities could also significantly increase resinprices (such as the aftermath of Hurricanes Katrina and Rita), often within a short period of time, even if crude oil and natural gas prices remain low. Ourability to pass through raw material price increases to our customers may, in some cases, lag the increase in our costs of goods sold. Sharp rises in raw materialprices over a short period of time have historically occurred with a significant supply disruption (hurricanes or fires at petrochemical facilities), which mayincrease prices to levels that cannot be fully passed through to customers due to pricing of competing products made from different raw materials or theanticipated length of time the raw material pricing will stay elevated. For more information regarding risks relating to our raw material costs, see “Item 1A.Risk Factors — Risks Relating to Our Business.”We currently purchase in excess of 700 million pounds of virgin and recycled resin annually from over 450 suppliers in North America. As a high-volume buyer of resin, we are able to achieve economies of scale to negotiate favorable terms and pricing. Our purchasing strategies differ based on thematerial (virgin resin versus recycled material) ordered for delivery to our production locations. The price movements of the different materials also vary,resulting in the need to use a number of strategies to reduce volatility and successfully pass on cost increases to our customers through timely selling priceincreases when needed.In order to reduce the volatility of raw material costs in the future, our raw material strategies for managing our costs include the following: • increasing the use of less price-volatile recycled HDPE resin in our pipe products in place of virgin resin; • internally processing an increasing percentage of our recycled HDPE resin in order to closely monitor quality and minimize costs (approximately66% of our recycled HDPE resin was internally processed in fiscal year 2015); • managing a resin price risk program that entails both physical fixed price and volume contracts along with financial hedges which are designedto apply to a significant portion of our annual virgin resin purchases . For our polypropylene virgin resin price exposure, we utilize financialhedges of propylene as a proxy for the polypropylene. Historically, the month to month change in market based pricing has been very similarbetween propylene and polypropylene • maintaining supply agreements with our major resin suppliers that provide multi-year terms and volumes that are in excess of our projectedconsumption. 56Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe also consume a large amount of energy and other petroleum products in our operations, including the electricity we use in our manufacturingprocess as well as the diesel fuel consumed in delivering a significant volume of products to our customers through our in-house fleet. As a result, ouroperating profit also depends upon our ability to manage the cost of the energy and fuel we require, as well as our ability to pass through increased prices orsurcharges to our customers.SeasonalityOur operating results are impacted by seasonality. Historically, sales of our products have been higher in the first and second quarters of each fiscalyear due to favorable weather and longer daylight conditions accelerating construction project activity during these periods while fourth quarter results areimpacted by the timing of spring in the northern United States and Canada. Seasonal variations in operating results may also be significantly impacted byinclement weather conditions, such as cold or wet weather, which can delay projects, resulting in decreased net sales for one or more quarters, but we believethat these delayed projects generally result in increased net sales during subsequent quarters.In the non-residential, residential and infrastructure markets in the northern United States and Canada, the construction season typically begins to gainmomentum in late March and lasts through November, before winter sets in, significantly slowing the construction markets. In the southern and westernUnited States, Mexico, Central America and South America, the construction markets are less seasonal. The agricultural drainage market is concentrated inthe early spring just prior to planting and in the fall just after crops are harvested prior to freezing of the ground in winter.Currency Exchange RatesAlthough we sell and manufacture our products in many countries, our sales and production costs are primarily denominated in U.S. dollars. We havewholly–owned facilities in Canada, the Netherlands, and Puerto Rico and joint venture facilities in Mexico, Chile, Brazil, Argentina, Colombia and Peru. Thefunctional currencies in the areas in which we have wholly–owned facilities and joint venture facilities other than the U.S. dollar are the Canadian dollar,Euro, Mexican peso, Chilean peso, Brazilian real, Argentine peso and Colombian peso. From time to time, we use derivatives to reduce our exposure tocurrency fluctuations. In 2013, we entered into Euro-denominated forward contracts to hedge transactions related to the procurement of new equipment,which expired prior to March 31, 2014. Also in 2013, our South American Joint Venture entered into multiple non-deliverable forward contracts to reduce itsexposure to fluctuations in the U.S. dollar relative to the Chilean peso, Argentine peso, Colombian peso and Brazilian real. During fiscal 2015, we began toimplement hedging strategies to manage exposure to the Canadian dollar and, to a lesser extent, the Mexican peso.Description of our SegmentsWe operate a geographically diverse business, serving customers in approximately 80 countries. For fiscal year 2015, approximately 87% ($1,027.9million) of net sales were attributable to customers located in the United States and approximately 13% ($152.1 million) of net sales were attributable tocustomers outside of the United States.Our operations are organized into two reportable segments based on the markets we serve: Domestic and International. We generate a greaterproportion of our net sales and gross profit in our Domestic segment, which consists of all regions of the United States. We expect the percentage of total netsales and gross profit derived from our International segment to continue to increase in future periods as we continue to expand globally. See “Note 23.Business Segment Information,” to our audited consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of thisForm 10-K. 57Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDomesticIn the United States, the markets we serve were strong through 2007, but slowed significantly beginning in 2008 in tandem with the decline in generaleconomic conditions in the United States associated with the global financial crisis. Since 2011, a modest recovery in the markets in the United States hashad a favorable impact on our product sales. Our operating results have been, and will continue to be, impacted by macroeconomic trends in the UnitedStates. For fiscal years 2015, 2014, and 2013, we generated net sales attributable to our Domestic segment of $1,027.9 million, $935.3 million, and $879.0million, respectively. Unconsolidated sales for our two domestic unconsolidated joint ventures, BaySaver and Tigre-ADS USA, were $24.9 million and $5.2million in fiscal years 2015 and 2014, respectively (there were no applicable sales amounts in fiscal year 2013 as the Company’s investments in these twodomestic unconsolidated joint ventures did not occur until fiscal years 2014 and 2015, respectively).InternationalOur International segment manufactures and markets products in regions outside of the United States, with a growth strategy focused on our ownedfacilities in Canada and those markets serviced through our joint ventures in Mexico, Central America and South America. Pipe manufactured in thesecountries is primarily sold into the same region. Our joint venture strategy has provided us with local and regional access to new markets. The outlook for ourInternational segment has improved. Since 2011, a modest recovery in the international markets has had a favorable impact on our product sales, which grew14.8% in fiscal 2015 after a decline in fiscal 2014. For fiscal years 2015, 2014, and 2013, we generated net sales attributable to our International segment of$152.1 million, $132.5 million, and $138.1 million, respectively. Net sales of our South American Joint Venture are accounted for under the equity methodand not consolidated for financial reporting purposes. These unconsolidated sales were $58.5 million, $61.2 million, and $64.8 million in fiscal years 2015,2014, and 2013, respectively.Recent Developments2014 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 onoutstanding 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. Wereceived total proceeds from the IPO of $79.1 million after excluding underwriter discounts and commissions of $5.5 million, based upon the price to thepublic 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 outstandingindebtedness 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 partialexercise by the underwriters of the over-allotment option granted by the selling stockholders to the underwriters in connection with the IPO. The shares weresold 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 commonstock 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 sharesby the selling stockholder. 58Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOn 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 thefull exercise by the underwriters of the over-allotment option granted by the selling stockholder to the underwriters in connection with the Secondary PublicOffering. 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 additionalshares.Acquisition of Ideal PipeOn January 30, 2015, Hancor of Canada, Inc., a wholly-owned subsidiary of the Company, acquired all issued and outstanding shares of Ideal DrainTile 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 andrelated 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 asenhancing our manufacturing, marketing and distribution capabilities. The results of operations of Ideal Pipe are included in our Consolidated Statements ofOperations after January 30, 2015.In connection with the agreement to acquire Ideal Pipe, we entered into a Canadian dollar foreign exchange contract to hedge our exposure to changesto the Canadian dollar-denominated purchase price, which had the effect of fixing the purchase price at $49 million U.S. dollars net of the working capitaltrue up payment expected to be received by ADS. As the result of foreign currency exchange rate changes between the agreement date and the date thepurchase price was paid, the Company ultimately paid $36.4 million U.S. dollars for the acquisition (net of $7.4 million of cash acquired), and recorded apurchase price of $43.8 million U.S. dollars. The Canadian dollar weakened during the period of time covered by the derivative, which resulted in a $5.6million loss. The loss on the derivative is recorded in Other miscellaneous expense (income), net in our Consolidated Statements of Operations.Restatement of Previously Issued Financial StatementsThe accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatementadjustments made to the previously reported Consolidated Financial Statements for the years ended March 31, 2014 and March 31, 2013. For additionalinformation and a detailed discussion of the restatement, see “Note 2. Restatement of Previously Issued Financial Statements” included in “Item 8. FinancialStatements and Supplementary Data,” of this Form 10-K.Components of Results of OperationsNet SalesNet sales consist of the consideration received or receivable for the sale of products in the ordinary course of our business and is presented net of salestax and allowances for returns, rebates and discounts. We derive our net sales from selling Pipe and Allied Products. We ship products to customers primarilyby our internal fleet of trucks with a much smaller portion being shipped by third-party carriers. Net sales are recognized when persuasive evidence of anarrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collectability is reasonably assured. In fiscal year 2015, weserved approximately 18,000 customers with one customer generating more than 10% of our total net sales. Ferguson Enterprises accounted for 10.7%, 10.6%and 9.7% of fiscal year 2015, 2014 and 2013 net sales, respectively.Cost of Goods Sold and Gross MarginCost of goods sold consists of the direct cost of raw material and labor used in the manufacture of our products as well as indirect costs such as labor,depreciation, insurance, supplies, tools, repairs and shipping and handling. Our principal products are manufactured primarily from polyethylene andpolypropylene resins that 59Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsenable the end products to better resist weathering, ultraviolet degradation and chemical exposure. For Pipe, the majority of the costs to manufacture anddeliver the products are variable in nature including raw materials, processing (including direct labor) and delivery (freight). For Allied Products, cost ofgoods sold varies by product line and consists of raw material/purchase costs, processing costs and delivery costs.Selling ExpensesSelling expenses 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.General and Administrative ExpensesGeneral and administrative expenses consist of personnel costs (salaries, benefits and other personnel-related expenses, including stock-basedcompensation), recruitment and relocation expenses, accounting and legal fees, business travel expenses, rent, depreciation and utilities for theadministrative offices, director fees, investor relations, membership fees, office supplies, insurance and other miscellaneous expenses.Intangibles AmortizationIntangibles amortization consists of the amortization of intangibles purchased as part of business combinations, acquired technology, patents andtechnology licenses, which are amortized using the straight-line method over their estimated useful lives.Interest ExpenseInterest expense consists of interest payments on our Credit Facilities, including our Bank Term Loans, Senior Notes, the amortization of deferredfinancing costs related to debt borrowings and interest on our capital lease obligations. See “Note 6. Leases” and “Note 13. Debt” to our consolidatedfinancial statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.Income Tax ExpenseIncome tax expense consists of federal, state, local and foreign taxes based on income in multiple jurisdictions, including the United States, Canada,Mexico, Chile, Brazil and Puerto Rico. We expect our effective tax rate to decrease over time as our earnings grow reducing the impact of non-deductibleitems in our Domestic tax calculations.EBITDA and Adjusted EBITDAEBITDA and Adjusted EBITDA, including Segment EBITDA and Segment Adjusted EBITDA, which are non-GAAP financial measures, have beenpresented in this Annual Report on Form 10-K as supplemental measures of financial performance that are not required by, or presented in accordance withgenerally accepted accounting principles or GAAP. We calculate EBITDA as net income before interest, income taxes, depreciation and amortization. Wecalculate Adjusted EBITDA as EBITDA before stock-based compensation expense, non-cash charges and certain other expenses.EBITDA and Adjusted EBITDA are included in this Annual Report on Form 10-K because they are key metrics used by management and our board ofdirectors to assess our financial performance. EBITDA and Adjusted EBITDA are frequently used by analysts, investors and other interested parties toevaluate companies in our industry. In addition to covenant compliance and executive performance evaluations, we use Adjusted EBITDA to supplementGAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance againstthat of other peer companies using similar measures. 60Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsEBITDA and Adjusted EBITDA are not GAAP measures of our financial performance and should not be considered as an alternative to net income as ameasure of financial performance , or any other performance measure derived in accordance with GAAP and they should not be construed as an inference thatour future results will be unaffected by unusual or non-recurring items. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of freecash flow for management’s discretionary use, as they do not reflect certain cash requirements such as tax payments, debt service requirements, capitalexpenditures and certain other cash costs that may recur in the future. EBITDA and Adjusted EBITDA contain certain other limitations, including the failureto reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. In evaluatingAdjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in thispresentation, such as stock based compensation expense, derivative fair value adjustments, and foreign currency transaction losses. Our presentation ofAdjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for theselimitations by relying on our GAAP results in addition to using EBITDA and Adjusted EBITDA. Our measures of EBITDA and Adjusted EBITDA are notnecessarily comparable to other similarly titled captions of other companies due to different methods of calculation.The following table presents a reconciliation of EBITDA and Adjusted EBITDA to Net income, the most comparable GAAP measure, for each of theperiods indicated: Fiscal Year Ended March 31, (Amounts in thousands) 2015 2014 2013 (As Restated) (a) (As Restated) (a) Net income $12,751 $12,220 $23,180 Depreciation and amortization 65,472 63,674 63,102 Interest expense 19,368 18,807 18,526 Income tax expense 9,443 19,949 15,935 EBITDA 107,034 114,650 120,743 Derivative fair value adjustments (b) 7,746 (53) (4) Foreign currency transaction losses (c) 5,404 845 1,085 Loss (gain) on disposal of assets or businesses 362 (2,863) (951) Unconsolidated affiliates interest, taxes, depreciation andamortization (d) 3,585 2,845 2,137 Special dividend compensation (e) — 22,624 — Contingent consideration remeasurement 174 738 (74) Stock-based compensation (f) 5,880 4,518 2,080 ESOP deferred stock-based compensation (g) 12,144 7,891 7,283 Transaction costs (h) 1,448 1,560 — Adjusted EBITDA $143,777 $152,755 $132,299 (a)See “Note 2. Restatement of Previously Issued Financial Statements” to our consolidated financial statements.(b)Represents the non-cash gains and losses arising from changes in mark-to-market values for derivative contracts related to propylene, diesel fuel andinterest rate swaps. The impact of resin physical fixed price contracts 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. Fiscalyear 2015 includes a $5.6 million loss on the Ideal Pipe acquisition Canadian currency derivative contract.(d)Represents our proportional share of interest, income taxes, depreciation and amortization related to our South American joint venture, our BaySaverjoint venture and our Tigre-ADS USA joint venture, which are accounted for under the equity method of accounting. Fiscal year 2014 includes ourproportionate share of an asset impairment of $1.0 million recorded by our South American joint venture. 61Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(e)Represents compensation recorded as a result of the January 2014 Special Dividend on shares of Redeemable convertible preferred stock held by theESOP.(f)Represents the non-cash stock-based compensation cost related to our stock options and restricted stock awards.(g)Represents the non-cash stock-based compensation expense attributable to the shares of Redeemable convertible preferred stock allocated to employeeESOP accounts during the applicable period.(h)Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our debt refinancing, completion ofthe IPO and secondary public offering and asset acquisitions and dispositions.The following table presents a reconciliation of Segment EBITDA and Segment Adjusted EBITDA to Net income, the most comparable GAAP measure,for each of the periods indicated: 2015 2014 2013 (Amounts in thousands) Domestic International Domestic International Domestic International (As Restated) (a) (As Restated) (a) (As Restated) (a) (As Restated) (a) Net income $7,198 $5,553 $4,962 $7,258 $11,180 $12,000 Depreciation and amortization 59,397 6,075 57,834 5,840 57,728 5,374 Interest expense 19,308 60 18,659 148 18,390 136 Income tax expense 8,510 933 17,924 2,025 13,949 1,986 Segment EBITDA 94,413 12,621 99,379 15,271 101,247 19,496 Derivative fair value adjustments (b) 7,774 (28) (53) — (4) — Foreign currency transaction losses(gains) (c) 5,636 (232) — 845 — 1,085 Loss (gain) on sale of disposal orbusinesses 257 105 (2,817) (46) (880) (71) Unconsolidated affiliates interest, taxes,depreciation and amortization (d) 1,341 2,244 156 2,689 — 2,137 Special dividend compensation (e) — — 22,624 — — — Contingent considerationremeasurement 174 — 738 — (74) — Stock-based compensation (f) 5,880 — 4,518 — 2,080 — ESOP deferred stock-basedcompensation (g) 12,144 — 7,891 — 7,283 — Transaction costs (h) 1,448 — 1,560 — — — Segment Adjusted EBITDA $129,067 $14,710 $133,996 $18,759 $109,652 $22,647 (a)See “Note 2. Restatement of Previously Issued Financial Statements” to our consolidated financial statements.(b)Represents the non-cash gains and losses arising from changes in mark-to-market values for derivative contracts related to propylene, diesel fuel andinterest rate swaps.(c)Represents the gains and losses incurred on purchases, sales and intercompany loans and dividends denominated in non-functional currencies. Fiscalyear 2015 includes a $5.6 million loss on Canadian currency derivative contract related to the Ideal Pipe acquisition. 62Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(d)Represents our proportional share of interest, income taxes, depreciation and amortization related to our South American joint venture, our BaySaverjoint venture and our Tigre-ADS USA joint venture, which are accounted for under the equity method of accounting. Fiscal year 2014 includes ourproportionate share of an asset impairment of $1.0 million recorded by our South American joint venture.(e)Represents compensation recorded as a result of the January 2014 Special Dividend of Redeemable convertible preferred shares held by the ESOP.(f)Represents the non-cash stock-based compensation cost related to our stock options and restricted stock awards.(g)Represents the non-cash stock-based compensation expense attributable to the shares of Redeemable convertible preferred stock allocated to employeeESOP accounts during the applicable period.(h)Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our debt refinancing, completion ofthe IPO and secondary public offering and asset acquisitions and dispositions.System-Wide Net SalesSystem-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 fromour unconsolidated joint ventures (our South American Joint Venture, our BaySaver Joint Venture and our Tigre-ADS USA Joint Venture). We use this metricto 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 aremanaged as an integral part of our Domestic segment. However, they are not consolidated under GAAP. System-Wide Net Sales is prepared as if our SouthAmerican Joint Venture, our BaySaver Joint Venture and our Tigre-ADS USA Joint Venture were accounted for as consolidated subsidiaries for managementand segment reporting purposes.The reconciliation of our System-Wide Net Sales to net sales is as follows: Fiscal Year Ended March 31, (Amounts in thousands) 2015 2014 2013 (As Restated) (a) (As Restated) (a) Reconciliation of System-Wide Net Sales to Net Sales: Net sales $1,180,073 $1,067,780 $1,017,102 Net sales associated with our unconsolidated affiliates South American joint venture (b) 58,454 61,243 64,834 BaySaver joint venture (c) 10,623 5,195 — Tigre-ADS USA joint venture (d) 14,264 — — System-Wide Net Sales $1,263,414 $1,134,218 $1,081,936 (a)See “Note 2. Restatement of Previously Issued Financial Statements” to our 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.(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 Net Income and Weighted Average Fully Converted Common Shares OutstandingAdjusted Earnings per Fully Converted Share, Adjusted Net Income and Weighted Average Fully Converted Common Shares Outstanding, which arenon-GAAP measures, are supplemental measures of financial 63Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsperformance that are not required by, or presented in accordance with GAAP. We calculate Adjusted Earnings Per Fully Converted Share (Non-GAAP),Adjusted Net Income (Non-GAAP), and Weighted Average Fully Converted Common Shares Outstanding (Non-GAAP), by adjusting our Net income pershare — Basic and Weighted average common shares outstanding — Basic, the most comparable GAAP measures. To effect this adjustment, we have(1) removed the adjustment for the change in fair value of Redeemable convertible preferred stock classified as mezzanine equity from the numerator of theNet income per share — Basic computation, (2) added back the dividends to Redeemable convertible preferred stockholders and dividends paid to unvestedrestricted stockholders, (3) made corresponding adjustments to the amount allocated to participating securities under the two-class earnings per sharecomputation method, and (4) added back ESOP deferred compensation attributable to the shares of Redeemable convertible preferred stock allocated toemployee ESOP accounts during the applicable period, which is a non-cash charge to our earnings and not deductible for income tax purposes and (5) addedback compensation expense recorded as a result of the January 2014 Special Dividend. We have also made adjustments to the Weighted average commonshares 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 ofdirectors to assess our financial performance as if all shares held by the ESOP and all redeemable common shares were to be converted to common shares.Adjusted Earnings Per Fully Converted Share (Non-GAAP) is not necessarily comparable to other similarly titled captions of other companies due to differentmethods of calculation.The following table presents a reconciliation of Adjusted Earnings Per Fully Converted Share (Non-GAAP), Adjusted Net Income (Non-GAAP), and theWeighted Average Fully Converted Common Shares Outstanding (Non-GAAP) to our Net Income attributable to ADS, Net income per share andcorresponding Weighted average common shares outstanding amounts, the most comparable GAAP measures, for each of the periods indicated. Fiscal Year Ended March 31, (Amounts in thousands, except per share data) 2015 2014 2013 (As Restated) (a) (As Restated) (a) Net (loss) income available to common shareholders $(3,106) $(5,909) $12,877 Adjustments to net loss (income) available to common shareholders: Change in fair value of Redeemable convertible preferred stock 11,054 3,979 5,869 Dividends to Redeemable convertible preferred stockholders 661 10,139 735 Dividends paid to unvested restricted stockholders 11 418 52 Undistributed income allocated to participating securities — — 1,127 Total adjustments to net (loss) income available to common shareholders 11,726 14,536 7,783 Net income attributable to ADS $8,620 $8,627 $20,660 Adjustments to net income attributable to ADS: Fair value of ESOP compensation related to Redeemable convertible preferred stock 12,144 7,891 7,283 Special dividend compensation — 22,624 — Adjusted net income — (Non-GAAP) $20,764 $39,142 $27,943 Weighted Average Common Shares Outstanding — Basic 51,344 47,277 46,698 Adjustments to Weighted Average Common Shares Outstanding — Basic Unvested restricted shares 228 336 292 Redeemable convertible preferred shares 20,029 20,264 20,555 Total Weighted Average Fully Converted Common Shares (Non-GAAP) 71,601 67,877 67,545 Adjusted Earnings per Fully Converted Share (Non-GAAP) $0.29 $0.58 $0.41 64Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents (a)See “Note 2. Restatement of Previously Issued Financial Statements” to our consolidated financial statements.Results of Operations by SegmentThe following table presents our net sales, net sales as a percentage of total net sales, Segment Adjusted EBITDA and Segment Adjusted EBITDA as apercentage of total Adjusted EBITDA by segment for the periods presented. Fiscal Year Ended March 31, (Amounts in thousands) 2015 2014 2013 (As Restated) (a) (As Restated) (a) Net Sales by Segment Domestic: Pipe $771,214 65.3% $700,270 65.6% $655,288 64.4% Allied Products 256,719 21.8% 235,022 22.0% 223,676 22.0% Total domestic 1,027,933 87.1% 935,292 87.6% 878,964 86.4% International Pipe 125,407 10.6% 107,078 10.0% 113,236 11.1% Allied Products 26,733 2.3% 25,410 2.4% 24,902 2.5% Total international 152,140 12.9% 132,488 12.4% 138,138 13.6% Total net sales $1,180,073 100.0% $1,067,780 100.0% $1,017,102 100.0% Segment Adjusted EBITDA Domestic $129,067 89.8% $133,996 87.7% $109,652 82.9% International 14,710 10.2% 18,759 12.3% 22,647 17.1% Total adjusted EBITDA $143,777 100.0% $152,755 100.0% $132,299 100.0% (a)See “Note 2. Restatement of Previously Issued Financial Statements” to the consolidated financial statements. 65Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsResults of OperationsFiscal Year Ended March 31, 2015 Compared with Fiscal Year Ended March 31, 2014The following table summarizes certain financial information relating to our operating results that have been derived from our consolidated financialstatements for the fiscal years ended March 31, 2015 and 2014. Also included is certain information relating to the operating results as a percentage of netsales. We believe this presentation is useful to investors in comparing historical results. (Amounts in thousands, except per share data) Fiscal Year EndedMarch 31, 2015 % ofNet Sales Fiscal Year EndedMarch 31, 2014 % ofNet Sales %Variance (As Restated) (a) Consolidated Statements of Operations data: Net sales $1,180,073 100.0% $1,067,780 100.0% 10.5% Cost of goods sold 973,960 82.5 873,810 81.8 11.5 Gross profit 206,113 17.5 193,970 18.2 6.3 Selling expenses 78,981 6.7 74,042 6.9 6.7 General and administrative expenses 58,749 5.0 59,761 5.6 (1.7) Loss (gain) on sale of disposal or businesses 362 — (2,863) (0.3) (112.6) Intangible amortization 9,754 0.8 10,145 1.0 (3.9) Income from operations 58,267 4.9 52,885 5.0 10.2 Interest expense 19,368 1.6 18,807 1.8 3.0 Other miscellaneous expense, net 14,370 1.2 (1,177) (0.1) (1,320.9) Income before income taxes 24,529 2.1 35,255 3.3 (30.4) Income tax expense 9,443 0.8 19,949 1.9 (52.7) Equity in net loss of unconsolidated affiliates 2,335 0.2 3,086 0.3 (24.3) Net income 12,751 1.1 12,220 1.1 4.3 Less net income attributable to the non-controllinginterest 4,131 0.4 3,593 0.3 15.0 Net income attributable to ADS $8,620 0.7% $8,627 0.8% (0.1)% Other financial data: Adjusted EBITDA $143,777 12.2% $152,755 14.3% (5.9)% System-Wide Net Sales $1,263,414 107.1% $1,134,218 106.2% 11.4% Adjusted Earnings Per Fully Converted Share $0.29 — $0.58 — (50.0)% (a)See “Note 2. Restatement of Previously Issued Financial Statements” to the consolidated financial statements.Net salesNet sales totaled $1,180.1 million in fiscal year 2015, increasing $112.3 million, or 10.5%, as compared to fiscal year 2014. Our Domestic salesincreased $92.7 million, or 9.9%, as compared to fiscal year 2014 due to increases in Pipe and Allied Product sales of $70.9 million, or 10.1%, and $21.8million, or 9.2%, respectively. Continued strong recovery in our markets, impacted by an increase in residential construction, solid increases innonresidential construction and further gains from conversion to our products from traditional products, were the primary drivers of the increase in thevolume of Domestic Pipe and Allied Product sales. Domestic Pipe selling prices increased 5.2% as compared to the prior year. International sales increased$19.6 million, or 14.8%, to $152.1 million in fiscal year 2015, as compared to $132.5 million in the prior year. International Pipe sales strengthened in thelast 6 months of the fiscal year led by stronger markets in Mexico and solid growth in Canada despite the impact of a lower Canadian dollar. 66Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCost of goods sold and Gross profitGross profit increased $12.1 million, or 6.3%, to $206.1 million during fiscal year 2015 as compared to $194.0 million during fiscal year 2014.Compensation expense relating to a one-time special dividend paid in January 2014 (the “Special Dividend”) resulted in a one-time expense to Costs ofgoods sold of $13.9 million, reducing our gross profit in fiscal year 2014. Excluding this compensation expense charge in fiscal year 2014, gross profitdecreased $1.8 million or 0.8% as compared to fiscal year 2014.Gross profit as a percentage of net sales decreased from 18.2% in fiscal year 2014 to 17.5% in fiscal year 2015. Excluding the impact of the SpecialDividend of $13.9 million in 2014, gross profit as a percentage of net sales declined from 19.5% to 17.5% primarily due to the negative impact of Pipe rawmaterial cost increases.Pipe sales grew 11.1% in fiscal year 2015 while Allied Products sales grew 8.8% over the same period. The positive impact of higher Pipe and AlliedProduct sales was significantly offset by increased Pipe raw material prices of approximately 11.8% in fiscal year 2015 as compared to fiscal year 2014. Wewere not able to immediately pass through the impact of these higher raw material prices to customers during the period due to the sharp fall in commodityprices in the late fall of calendar 2014. Domestic freight costs declined to 9.8% of Domestic net sales in fiscal year 2015 as compared to 10.1% of Domesticnet sales in fiscal year 2014 primarily as a result of lower diesel fuel prices, particularly in the last half of fiscal year 2015.The change in Domestic gross profit was primarily driven by the negative impact of sharply higher raw material costs offsetting the positive impact ofthe growth in Domestic Pipe and Allied Product sales which resulted in an increase in Domestic gross profit of $0.6 million, or 0.3%, in fiscal year 2015compared to fiscal year 2014 excluding the compensation expense related to the Special Dividend in fiscal year 2014. Gross profit from our Internationalsegment declined by $2.3 million as the positive impact of higher volume in Mexico and Canada was adversely impacted by tighter margins and thenegative impact of the softening of the Canadian dollar during fiscal year 2015.Selling expensesSelling expenses increased $5.0 million, or 6.7%, to $79.0 million during fiscal year 2015 compared to $74.0 million in fiscal year 2014. Sellingexpenses in fiscal year 2014 were impacted by compensation expense related to the Special Dividend of $4.6 million paid in January 2014. Excluding theimpact of the Special Dividend, selling expense increased $9.6 million or 13.7%. As a percentage of net sales, selling expenses (excluding the impact of theSpecial Dividend) totaled 6.7% of net sales in fiscal year 2015 compared to 6.5% of net sales in fiscal year 2014. Higher sales volumes resulted in sellingexpenses tied to commissions to increase by $2.6 million and field selling and customer service costs to increase by $9.1 million in fiscal year 2015 ascompared to fiscal year 2014 excluding the impact of the Special Dividend.General and administrative expensesGeneral and administrative (“G&A”) expenses decreased $1.1 million, or 1.7%, to $58.7 million in fiscal year 2015 compared to $59.8 million in fiscalyear 2014. G&A expenses in fiscal year 2014 were impacted by $4.2 million of compensation expense relating to the Special Dividend paid in January 2014.Excluding the impact of the compensation expense related to the Special Dividend, G&A expenses increased $3.1 million, or 5.7%. The increase resultedfrom an increase of $1.6 million of costs related to our IPO and secondary offerings and $1.7 million of costs related to becoming a public company offset bylower bonus compensation expense of $0.2 million. Excluding the impact of the Special Dividend, as a percentage of net sales, G&A expenses totaled 5.0%of net sales in fiscal year 2015 compared to 5.2% of net sales in fiscal year 2014.Gain (loss) on disposal of assets or businessesGain on the sale of business totaled $0.8 million in fiscal year 2015 compared to of $5.3 million in fiscal year 2014, a net reduction of $4.5 million infiscal year 2015 as compared to fiscal year 2014. Businesses sold in 67Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsfiscal year 2015 related to our GEO-flow product line and in 2014 they included our Draintech product line, a precast concrete facility in Pennsylvania andan idled pipe plant in North Carolina. Dispositions of machinery and equipment resulted in a loss of $1.1 million and $2.5 million in fiscal years 2015 and2014, respectively, and related to the replacement of assets in the normal course of business.Intangibles amortizationIntangibles amortization decreased $0.4 million or 3.9% in fiscal year 2015 compared to fiscal year 2014. The decrease is mainly due to a customerrelationship intangible asset related to a 2008 acquisition becoming fully amortized during fiscal year 2015 resulting in lower amortization in fiscal year2015.Interest expenseInterest expense from our debt and capital lease obligations increased $0.6 million or 3.0% in fiscal year 2015 as compared to fiscal year 2014.Other miscellaneous expense (income), netOther miscellaneous expense (income), net, decreased $15.6 million in fiscal year 2015 to an expense of $14.4 million compared to income of $1.2million in fiscal year 2014. The expense in 2015 was primarily due to net unfavorable mark-to-market adjustments of $7.7 million for changes in fair valueon derivative contracts, a loss on a currency hedge tied to our Ideal Pipe acquisition of $5.6 million, a loss on Diesel fuel option collars and Propylene swapsof $0.7 million and $1.3 million, respectively, and other net miscellaneous expense.Income tax expenseThe provision for income taxes totaled $9.4 million in fiscal year 2015 compared to $19.9 million in fiscal year 2014, a decrease of $10.5 million or52.7%. Our effective tax rate was 38.5% in fiscal year 2015 compared to 56.6% in fiscal year 2014. The decrease in our effective tax rate was primarily drivenby the special dividend payment to participants in the ESOP in 2014, which we treated as non-deductible for income tax expense purposes and as a resultincreased our effective tax rate by 22.5%.Income attributable to non-controlling interestIncome attributable to non-controlling interest increased $0.5 million, or 15.0%, to $4.1 million in fiscal year 2015 compared to $3.6 million in fiscalyear 2014. Net sales of our domestic joint ventures for BaySaver and Tigre-ADS USA showed solid growth while our South American Joint Venture realized amodest decline in Net sales impacted by soft commodity prices and the economic slowdown in Brazil.Net income attributable to ADSNet income attributable to ADS was $8.6 million for both fiscal year 2015 and fiscal year 2014. Net loss per share for fiscal year 2015 totaled $0.06 perbasic and diluted share, as compared to $0.12 per basic and diluted share recorded in the comparable prior year period. Net loss per share for the fiscal yearsended March 31, 2015 and 2014 is impacted by changes in fair value appreciation on convertible preferred stock classified in mezzanine equity whichreduced income available to common shareholders by $11.1 million, or $0.22 per share for common shareholders and $4.0 million, or $0.08 per share forcommon shareholders, respectively.Other comprehensive lossTotal other comprehensive loss increased $4.9 million, or 70.7%, to $11.9 million during fiscal year 2015 compared to $7.0 million in fiscal year2014. Besides an insignificant amount in fiscal year 2014, the entire amounts related to currency translation losses. The increase in currency translationlosses was the result of the 68Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentscontinued strengthening of the U.S. dollar against the functional currencies of our primary international subsidiaries and equity method investments. The$11.9 million of currency translation losses in fiscal year 2015 were primarily due to our accounting for our Canadian subsidiary (loss of $2.4 million), ADSMexicana (loss of $7.6 million), and the South American Joint Venture (loss of $2.3 million), whereas the $7.0 million of currency translation losses in fiscalyear 2014 were primarily due to our accounting for our Canadian subsidiary (loss of $1.3 million), ADS Mexicana (loss of $3.3 million), and the SouthAmerican Joint Venture (loss of $2.3 million).Adjusted EBITDAAdjusted EBITDA totaled $143.8 million in fiscal year 2015, a decrease of $9.0 million, or 5.9%, compared to $152.8 million in fiscal year 2014.Domestic Adjusted EBITDA decreased $4.9 million, or 3.7%, to $129.1 million in fiscal year 2015 compared to $134.0 million in fiscal year 2014.International Adjusted EBITDA decreased $4.1 million in fiscal year 2015 to $14.7 million compared to $18.8 million in fiscal year 2014.Adjusted EBITDA as a percentage of net sales decreased to 12.2% in fiscal year 2015 compared to 14.3% in fiscal year 2014.Fiscal Year Ended March 31, 2014 Compared with Fiscal Year Ended March 31, 2013The following table summarizes certain financial information relating to our operating results that have been derived from our consolidated financialstatements for the fiscal years ended March 31, 2014 and 2013. Also included is certain information relating to the operating results as a percentage of netsales. We believe this presentation is useful to investors in comparing historical results. (Amounts in thousands) Fiscal Year EndedMarch 31, 2014 % ofNet Sales Fiscal Year EndedMarch 31, 2013 % ofNet Sales %Variance (As Restated) (a) (As Restated) (a) Consolidated Statements of Income data: Net sales $1,067,780 100.0% $1,017,102 100.0% 5.0% Cost of goods sold 873,810 81.8 829,141 81.5 5.4 Gross profit 193,970 18.2 187,961 18.5 3.2 Selling expenses 74,042 6.9 71,805 7.1 3.1 General and administrative expenses 59,761 5.6 49,601 4.9 20.5 (Gain) loss on disposal of assets or businesses (2,863) (0.3) (951) (0.1) 201.1 Intangible amortization 10,145 1.0 10,028 1.0 1.2 Income from operations 52,885 5.0 57,478 5.7 (8.0) Interest expense 18,807 1.8 18,526 1.8 1.5 Other miscellaneous expense, net (1,177) (0.1) 103 — (1,242.7) Income before income taxes 35,255 3.3 38,849 3.8 (9.3) Income tax expense 19,949 1.9 15,935 1.6 25.2 Equity in net loss of unconsolidated affiliates 3,086 0.3 (266) — (1,260.2) Net income 12,220 1.1 23,180 2.3 (47.3) Less net income attributable to the non-controllinginterest 3,593 0.3 2,520 0.2 42.6 Net income attributable to ADS $8,627 0.8% $20,660 2.0% (58.2)% Other financial data: Adjusted EBITDA $152,755 14.3% $132,299 13.0% 15.5% System-Wide Net Sales $1,134,218 106.2% $1,081,936 106.4% 4.8% Adjusted Earnings Per Fully Converted Share $0.58 — $0.41 — 41.5% (a)See “Note 2. Restatement of Previously Issued Financial Statements” to the consolidated financial statements. 69Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsNet salesNet sales totaled $1,067.8 million in fiscal year 2014, increasing $50.7 million, or 5.0%, as compared to fiscal year 2013. Our Domestic sales increased$56.3 million, or 6.4%, as compared to fiscal year 2013 due to increases in Pipe and Allied Product sales of $45.0 million, or 6.9%, and $11.3 million, or5.1%, respectively. Continued strong recovery in our markets, impacted by an increase in residential construction, modest increases in nonresidentialconstruction and further gains from conversion to our products from traditional products, were the primary drivers of the increase in the volume of DomesticPipe and Allied Product sales. Pipe selling prices increased 0.7% as compared to the prior year. The increase in Domestic Pipe and Allied Product sales waspartially offset by lower International sales, which declined $5.6 million, or 4.1%, to $132.5 million in fiscal year 2014 as compared to $138.1 million in theprior year. International Pipe sales were primarily lower in Mexico due to the impact of the loss of a national certification (which has since been regained inDecember 2013) and in Canada due to weather conditions and slower construction markets. System-Wide Net Sales were $1,134.2 million in fiscal year 2014,an increase of $52.3 million, or 4.8%, over System-Wide Net Sales of $1,081.9 million in fiscal year 2013. Net sales at our South American Joint Venture wererelatively flat in fiscal year 2014.Cost of goods sold and Gross profitGross profit increased $6.0 million, or 3.2%, to $194.0 million during fiscal year 2014 as compared to $188.0 million during fiscal year 2013.Compensation expense relating to the Special Dividend paid in January 2014 resulted in expense of $13.9 million, reducing our gross profit in fiscal year2014. Excluding the impact of the Special Dividend in fiscal year 2014, gross profit increased $19.9 million or 10.6% as compared to fiscal year 2013. Theincrease in gross profit was primarily driven by growth in Domestic Pipe and Allied Product sales which resulted in an increase in Domestic gross profit of$22.3 million, or 14.1%, in fiscal year 2014 compared to fiscal year 2013 excluding the impact of the Special Dividend in fiscal year 2014. Gross profit fromour International segment decreased $2.4 million, or 7.8%, due to lower sales volume in Canada and Mexico. Gross profit as a percentage of net salesincreased to 19.5% from 18.5% (excluding the 1.3% negative impact of the Special Dividend) due primarily to increased gross profit margins for AlliedProduct sales resulting from a higher mix in sales of more profitable new and existing Allied Products, and to a lesser degree due to a slight increase in Pipegross profit margins and lower Domestic freight costs as a percentage of net sales. Domestic freight costs declined to 10.1% of Domestic net sales in fiscalyear 2014 as compared to 10.3% of Domestic net sales in fiscal year 2013. The decrease in Domestic freight costs was partially offset by a slight increase inDomestic Pipe raw material prices.Selling expensesSelling expenses increased $2.2 million, or 3.1%, to $74.0 million during fiscal year 2014 compared to $71.8 million in fiscal year 2013. Sellingexpenses included a one-time charge of $4.6 million for compensation expense relating to the Special Dividend paid in January 2014. Excluding the impactof the Special Dividend, selling expenses decreased $2.4 million during fiscal year 2014 compared to fiscal year 2013. As a percentage of net sales, sellingexpenses, excluding the impact of the Special Dividend, declined to 6.5% of net sales in fiscal year 2014 compared to 7.1% in fiscal year 2013.General and administrative expensesGeneral and administrative expenses increased $10.2 million, or 20.5%, to $59.8 million in fiscal year 2014 compared to $49.6 million in fiscal year2013. G&A expenses included $4.2 million of compensation expense relating to the Special Dividend paid in January 2014. Excluding the impact of theSpecial Dividend, G&A expenses increased $6.0 million. Excluding the impact of the Special Dividend, G&A expenses, as a percentage of net sales, totaled5.2% of net sales in fiscal year 2014 compared to 4.9% of net sales in fiscal year 2013. This increase was due to non-cash stock-based compensation expensewhich increased by $2.4 million, $1.4 million for audit fees related to our IPO, increases in personnel costs of $1.5 million due to additional headcount and 70Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentscompensation tied to company performance, and higher legal and consulting fees of $1.1 million, partially offset by decreases in other G&A expenses.Gain on disposal of assets and businessesGain on the sale of business totaled $5.3 million in fiscal year 2014 compared to $2.2 million in fiscal year 2013. Assets sold in fiscal year 2014included our Draintech product line, a precast facility in Pennsylvania, and an idled pipe plant in North Carolina.Dispositions of machinery and equipment resulted in a loss of $2.5 million and $1.3 million in fiscal years 2014 and 2013, respectively, and related tothe replacement of assets in the normal course of business.Intangibles amortizationIntangibles amortization increased by $0.1 million, or 1.2% between fiscal year 2014 and fiscal year 2013, due to the amortization of intangibles fromrecent acquisitions.Interest expenseInterest expense increased $0.3 million, or 1.5% to $18.8 million in fiscal year 2014, compared to $18.5 million in fiscal year 2013.Other miscellaneous (income) expenses, netOther miscellaneous (income) expense, net increased $1.3 million in fiscal year 2014 to income of $1.2 million compared to an expense of $0.1 millionin fiscal year 2013.Income tax expenseThe provision for income taxes totaled $19.9 million in fiscal year 2014 compared to $15.9 million in fiscal year 2013, an increase of $4.0 million or25.2%. Our effective tax rate was 56.6% in fiscal year 2014 compared to 41.0% in fiscal year 2013. The increase in our effective tax rate was primarily drivenby the Special Dividend payment to participants in the ESOP, which we treated as non-deductible and, as a result, increased our effective tax rate by 22.5%.Income attributable to non-controlling interestIncome attributable to non-controlling interest increased $1.1 million, or 42.6%, to $3.6 million in fiscal year 2014 compared to $2.5 million in fiscalyear 2013.Net income attributable to ADSNet income attributable to ADS was $8.6 million in fiscal year 2014, a decrease of $12.0 million, or 58.2%, compared to fiscal year 2013. The impact ofthe compensation expense relating to the one-time Special Dividend paid in January 2014 had a negative impact of $22.6 million in fiscal year 2014.Other comprehensive income (loss)Total other comprehensive income (loss) decreased $9.6 million, or 370.2%, to a loss of ($7.0) million during fiscal year 2014 compared to income of$2.6 million in fiscal year 2013. Besides an insignificant amount in each year, the entire amounts related to currency translation gains (losses). The increasein currency translation losses was the result of the strengthening of the U.S. dollar against the functional currencies of our primary 71Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsinternational subsidiaries and unconsolidated affiliates. The ($7.0) million of currency translation losses in fiscal year 2014 were primarily due to ouraccounting for our Canadian subsidiary (loss of $1.3 million), ADS Mexicana (loss of $3.3 million), and the South American Joint Venture (loss of $2.3million), whereas the $2.6 million of currency translation gains in fiscal year 2013 were primarily due to our accounting for our Canadian subsidiary (loss of$0.1 million), ADS Mexicana (gain of $3.3 million), and the South American Joint Venture (loss of $0.6 million).Adjusted EBITDAAdjusted EBITDA totaled $152.8 million in fiscal year 2014, an increase of $20.5 million, or 15.5%, compared to $132.3 million in fiscal year 2013.Domestic Adjusted EBITDA increased $24.3 million, or 22.2%, to $134.0 million in fiscal year 2014 compared to $109.7 million in fiscal year 2013.International Adjusted EBITDA declined $3.8 million in fiscal year 2014 to $18.8 million compared to $22.6 million in fiscal year 2013. Adjusted EBITDAas a percentage of net sales increased to 14.3% in fiscal year 2014 compared to 13.0% in fiscal year 2013.Liquidity and Capital ResourcesOur primary liquidity requirements are working capital, capital expenditures, debt service, and dividend payments for our convertible preferred stockand common stock. We have historically funded, and expect to continue to fund, our operations primarily through equity issuance, internally generated cashflow and debt financings. From time to time we may explore additional financing methods and other means to raise capital. There can be no assurance thatany additional financing will be available to us on acceptable terms or at all.As of March 31, 2015, we had $3.0 million in cash that was held by our foreign subsidiaries and undistributed earnings of approximately $30.2million. Our intent is to indefinitely reinvest our earnings in foreign subsidiaries with the exception of cash dividends paid by our ADS Mexicana jointventure. In the event that foreign earnings are repatriated, these amounts will be subject to income tax liabilities in the appropriate tax jurisdiction.At March 31, 2015, we had $2.6 million of undistributed earnings of our unconsolidated subsidiaries included in retained earnings (deficit).Working Capital and Cash FlowsDuring the fiscal year 2015, our net decrease in cash amounted to $0.3 million compared to a net increase of $2.6 million during fiscal year 2014. Oursource of funds in fiscal 2015 was primarily driven by higher operating earnings, net proceeds of $72.2 million from shares sold during our IPO afterdeduction of deferred offering costs, and the impact of non-cash charges (depreciation, amortization, compensation expense and shared based compensationexpense). For the same period ending March 31, 2015, our use of cash was primarily driven by increased inventory balances (up $10.0 million), thesettlement of a Canadian dollar currency hedge related to the Ideal Pipe acquisition ($5.6 million), spending for acquisitions ($36.4 million), net repaymentof $54.2 million of debt and payment of $9.3 million of capital lease obligations. During fiscal year 2014, our source of funds was primarily driven by anincrease in borrowings on our Revolving Credit Facility. During fiscal year 2014, our use of cash was primarily driven by payment of dividends andcontinued investment in capital expenditures. During fiscal year 2013, our use of cash was primarily driven by increased capital expenditures.As of March 31, 2015, we had $127.5 million in liquidity, including $3.6 million of cash and $123.9 million in borrowings available under ourRevolving Credit Facilities, described below. We believe that our cash on hand, together with the availability of borrowings under our Revolving CreditFacility and other financing arrangements and cash generated from operations, will be sufficient to meet our working capital requirements, anticipated capitalexpenditures, scheduled interest payments on our indebtedness and dividend payment requirement for our convertible preferred stock for at least the nexttwelve months. 72Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAs of March 31, 2015, we had consolidated indebtedness (excluding capital lease obligations) of approximately $399.9 million, down $54.2 millioncompared to March 31, 2014. We repaid a portion of our outstanding indebtedness with the $72.2 million of net proceeds from our IPO, which closed onJuly 25, 2014.The following table sets forth the major sources and uses of cash for each of the periods presented: (Amounts in thousands) 2015 2014 2013 (As Restated) (a) (As Restated) (a) Statement of Cash Flows data: Net cash provided by operating activities $74,379 $72,410 $75,353 Net cash used in investing activities (76,093) (38,712) (44,796) Net cash provided by (used in) financing activities 1,791 (31,109) (31,338) (a)See “Note 2. Restatement of Previously Issued Financial Statements” to our Consolidated Financial Statements.Working CapitalWorking capital is an indication of liquidity and potential need for short-term funding. We define working capital as the difference between our currentassets and current liabilities.Net working capital increased to $249.1 million as of March 31, 2015, from $241.0 million as of March 31, 2014, primarily due to the growth ininventories resulting from increased quantities and material prices, which grew $10.0 million, and an increase in accounts receivable of $6.0 million. Thesewere offset by an increase of $10.2 million in accounts payable and accrued expenses including accrued income taxes. The remaining increase primarilyrelated to an increase in deferred income taxes and other current assets of $4.5 million.Working capital increased to $241.0 million as of March 31, 2014, from $204.0 million as of March 31, 2013, primarily due to higher inventories($33.5 million increase) and accounts receivable ($4.4 million increase), while accounts payable and accrued expenses including accrued income taxesincreased by $5.7 million.Operating Cash FlowsDuring the fiscal year 2015, cash provided by operating activities was $74.4 million as compared with cash provided by operating activities of $72.4million for fiscal year 2014. Cash flow from operating activities during fiscal year 2015 was impacted by a $20.5 million reduction in the use of cash relatedto changes in working capital and a $7.8 million increase in fair market value adjustments to derivatives, partially offset by a $17.0 million reduction inESOP and stock-based compensation and an $7.6 million increase in deferred income taxes.Cash provided by operating activities for fiscal year 2014 was $72.4 million as compared with cash provided by operating activities of $75.4 millionfor fiscal year 2013. The primary factors impacting operating cash flow during fiscal year 2014 was a $24.1 million increase in use of cash related to changesin working capital and a $11.0 million reduction in net income, partially offset by a $25.7 million increase in ESOP and stock-based compensation and an$8.9 million increase in cash provided by other operating activities.Investing Cash FlowsDuring fiscal year 2015, cash used for investing activities was $76.1 million, primarily due to $32.1 million for capital expenditures and additions tocapitalized software, a $36.4 million investment in Ideal Pipe, a $3.6 million investment in a domestic joint venture operation created in the first quarterfiscal 2015, and a $4.0 million investment in our international joint venture operation to support growth initiatives. 73Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDuring fiscal year 2014, cash used for investing activities was $38.7 million, primarily due to capital expenditures and additions to capitalizedsoftware of $40.9 million and investments in BaySaver and Tigre-ADS USA unconsolidated joint ventures of $6.4 million, partially offset by proceeds of$9.3 million from the sale of Draintech and other assets.During fiscal year 2013, cash used in investing activities was $44.8 million, primarily driven by capital expenditures and additions to capitalizedsoftware of $39.8 million.Financing Cash FlowsDuring fiscal 2015, cash provided by financing activities was a net $1.8 million, with net proceeds of $72.2 million from the IPO of our common stockafter deducting deferred offering costs, largely offset by net debt payments, payments on our capital lease obligation, IPO offering costs and dividendpayments.During fiscal year 2014, cash used by financing activities was $31.1 million, primarily from dividend payments, payments on capital lease obligationsand the redemption of convertible preferred stock in connection with the ESOP.During fiscal year 2013, cash used by financing activities was $31.3 million, primarily from net payments on term debt, capital lease obligations,dividends, and redemption of our convertible preferred stock in connection with the ESOP.Capital ExpendituresCapital expenditures totaled $31.5 million for fiscal 2015. Our capital expenditures were used primarily to support facility expansions, new equipmentto provide capacity additions, equipment replacements, and our recycled resin initiatives.We had capital expenditures of $39.6 million and $38.8 million in fiscal years 2014 and 2013, respectively. Our capital expenditures in fiscal year2014 were used primarily to support the growth of HP N-12 pipe production capacity, expansion of our recycled resin initiatives and other capital projects.We currently anticipate that we will make capital expenditures of approximately $45.0 million in fiscal year 2016. Such capital expenditures areexpected to be financed using funds generated by operations.Financing TransactionsBank Term LoansOn September 24, 2010, we entered into a credit agreement with PNC Bank, National Association, or PNC, as administrative agent, and the other lenderparties thereto. The credit agreement, as amended and restated on June 12, 2013 and subsequently further amended, provides for our Bank Term Loansconsisting of (i) the Revolving Credit Facility providing for revolving loans and letters of credit of up to a maximum aggregate principal amount of $325.0million and (ii) the Term Note in an aggregate original principal amount of $100.0 million and (iii) the ADS Mexicana Revolving Credit Facility, describedbelow. The Bank Term Loans also permit us to add additional commitments to the Revolving Credit Facility or the Term Note not to exceed $50 million inthe aggregate. The proceeds of the Revolving Credit Facility are primarily used to provide for our ongoing working capital and capital expenditure needs, tofinance acquisitions and distributions, and for our other general corporate purposes. The proceeds of the Term Note were primarily used for our generalcorporate purposes. The interest rates on the Bank Term Loans are determined by certain base rates or LIBOR rates, plus an applicable margin. Theobligations under the Bank Term Loans are guaranteed by certain of our subsidiaries and secured by substantially all of our personal property assets. OnDecember 20, 2013, we amended the 74Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRevolving Credit Facility to, among other terms, permit the payment of a cash dividend. As of March 31, 2015, the outstanding principal drawn on theRevolving Credit Facility was $205.1 million, with $111.9 million available to be drawn. As of March 31, 2015, the outstanding principal balance of theTerm Note was $91.3 million.We used the net proceeds of $72.2 million from our IPO, which closed on July 25, 2014, to repay a portion of our outstanding indebtedness under theRevolving Credit Facility.ADS Mexicana Revolving Credit FacilityOn September 24, 2010, our joint venture ADS Mexicana entered into a credit agreement with PNC, as administrative agent, and the other lendersparties thereto. The credit agreement, as amended and restated on June 12, 2013 and subsequently further amended, provides for revolving loans and lettersof credit of up to a maximum aggregate principal amount of $12.0 million. The proceeds of the revolving credit facility are primarily used to cover workingcapital needs. The interest rates of the revolving credit facilities are determined by certain base rates or LIBOR rates, plus an applicable margin. Theobligations under the revolving credit facility are guaranteed by us and certain of our subsidiaries and secured by substantially all of our assets. As ofMarch 31, 2015, there was no outstanding principal balance on the revolving credit facility, with $12.0 million available to be drawn.Senior NotesOn December 11, 2009, we entered into a private shelf agreement with Prudential Investment Management Inc., or Prudential, which agreement, asamended and restated on September 24, 2010 and subsequently further amended, provides for the issuance by us of senior secured promissory notes toPrudential or its affiliates from time to time in the aggregate principal amount up to $100.0 million. Pursuant to the private shelf agreement, on September 27,2010, we issued $75.0 million in aggregate principal amount of the 5.60% Senior Series A Notes due September 24, 2018 to repurchase outstanding shares ofcommon stock from certain of our stockholders and to repurchase outstanding shares of convertible preferred stock from the ESOP. On July 24, 2013, weissued $25.0 million in aggregate principal amount of the 4.05% Senior Series B Notes due September 24, 2019 for our general corporate purposes. TheSenior Notes are guaranteed by certain of our subsidiaries and secured by substantially all of our assets. We have no further amount available for issuance ofsenior notes under the private shelf agreement. On December 20, 2013, we amended the private shelf agreement to, among other terms, make certainamendments in order to permit the payment of a cash dividend. We have no further amount available for issuance of senior notes under the private shelfagreement. At March 31, 2015 the outstanding principal balance on these notes was $100.0 million.Amended Debt AgreementsOn August 21, 2015, the Company entered into amended agreements related to the Bank Term Loans and Senior Notes in connection with theCompany’s determination that a substantial portion of its transportation and equipment leases should be treated as capital leases rather than as operatingleases, as discussed in “Note 2, Restatement of Previously Issued Financial Statements”. The material terms of each amended agreement modify certaindefinitions applicable to the Company’s affirmative and negative financial covenants, including the negative covenant on indebtedness, to accommodate theCompany’s treatment of its transportation and equipment leases as capital leases rather than operating leases, along with corresponding changes to theprovisions outlining the application of generally accepted accounting principles in the definition of accounting terms used in various financial covenants.The amendments also waive any potential event of default that may exist under any of the respective agreements as a result of the Company’s change in leaseaccounting treatment, and do not require the Company to deliver financial statements or compliance certificates for any annual or quarterly period prior tothe fiscal year ended March 31, 2015. 75Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIn addition, from July 2015 through February 2016, the Company obtained various consents from the lenders and further amended the Bank TermLoans and Senior Notes. These consents and the additional amendments had the effect of: i) extending the time for delivery of our fiscal 2015 auditedfinancial statements and the first, second and third quarter fiscal 2016 quarterly financial statements to April 1, 2016, whereby an event of default was waivedas long as those financial statements were delivered by that date, ii) further modified certain definitions applicable to the Company’s affirmative and negativefinancial covenants, including with respect to the treatment of the costs related to the Company’s restatement for purposes of the calculation of the minimumfixed charge coverage ratio and the maximum leverage ratio, and iii) permitted the Company’s payment of quarterly dividends on common shares in June,August and December 2015, as well as an annual dividend for preferred shares in March 2016.Covenant ComplianceOur outstanding debt agreements and instruments contain various restrictive covenants including, but not limited to, limitations on additionalindebtedness and capital distributions, including dividend payments. The two primary debt covenants include a Leverage Ratio and a Fixed ChargeCoverage Ratio maintenance covenant. For any relevant period of determination, the Leverage Ratio is calculated by dividing Total ConsolidatedIndebtedness (funded debt plus guarantees) by Consolidated EBITDA. The current upper limit is 4.0 times. The Fixed Charge Coverage Ratio is calculatedby dividing the sum of Consolidated EBITDA minus Capital Expenditures minus cash Income Taxes paid, by the sum of Fixed Charges. Fixed Chargesinclude 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. We were in compliance with our debt covenants as of March 31, 2015.Contractual Obligation as of March 31, 2015 Payments Due by Period (Amounts in thousands) Total Less than1 Year 1-3 Years 3-5 Years More than5 Years Contractual obligations: Long-term debt (1) $399,895 $9,580 $71,775 $318,540 $— Interest payments (2) 40,022 13,649 22,499 3,874 — Operating leases 8,855 2,793 2,871 969 2,222 Capital leases 68,795 18,373 27,426 15,790 7,206 Contractual purchase obligations (3) 11,790 11,790 — — — Total $529,357 $56,185 $124,571 $339,173 $9,428 (1)The Bank Term Loans mature in June, 2018.(2)Based on applicable rates and pricing margins as of March 31, 2015, including interest rate swaps.(3)Purchase obligations include commitments with vendors to purchase raw material.Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements, with the exception of the guarantee of 50% of certain debt of our unconsolidated South AmericanJoint Venture, as further discussed in “Note 12. Related Party Transactions” of our Consolidated Financial Statements included in “Item 8 FinancialStatements and Supplementary Data,” of this Form 10-K. As of March 31, 2015, our South American Joint Venture had approximately $13.6 million ofoutstanding debt subject to our guarantee, resulting in our guarantee of 50%, or $6.8 million, of that amount. We do not believe that this guarantee will havea current or future effect on our financial condition, results of operations, liquidity, or capital resources. 76Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCritical Accounting Policies and EstimatesOur discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the consolidated financialstatements requires management to make estimates and judgments that affect the reported amounts in our consolidated financial statements andaccompanying notes.Certain of our accounting policies involve a higher degree of judgment and complexity in their application, and therefore, represent the criticalaccounting policies used in the preparation of our financial statements. If different assumptions or conditions were to prevail, the results could be materiallydifferent from our reported results. We believe the following accounting policies may involve a higher degree of judgment and complexity in theirapplication and represent the critical accounting policies used in the preparation of our financial statements. For additional discussion of our significantaccounting policies, see “Note 1. Background and Significant Accounting Policies” to our consolidated financial statements included in “Item 8. FinancialStatements and Supplementary Data” included in this Form 10-K.Consolidation and InvestmentsOur consolidated financial statements include our wholly-owned subsidiaries and VIEs of which we are the primary beneficiary. Significant judgmentmay be necessary to determine if we are the primary beneficiary of a VIE. The non-controlling interests in our subsidiaries that are consolidated but notwholly owned by us are included in the accompanying financial statements. We use the equity method of accounting for equity investments where weexercise significant influence but do not hold a controlling financial interest, including our South American Joint Venture, our BaySaver joint venture andour Tigre-ADS USA joint venture. Such investments are recorded in Other assets on the Consolidated Balance Sheets and equity earnings are included inEquity in net (income) loss of unconsolidated affiliates on the Consolidated Statements of Operations. All intercompany balances and transactions have beeneliminated in consolidation.Allowance for Doubtful AccountsWe hold receivables from customers in various countries. Credit is extended to customers based on an evaluation of their financial condition andcollateral is generally not required. The evaluation of the customer’s financial condition is performed to reduce the risk of loss. Accounts receivable areevaluated for collectability based on numerous factors, including the length of time individual receivables are past due, past transaction history withcustomers, their credit worthiness and the economic environment. An allowance for doubtful accounts is estimated as a percentage of aged receivables. Thisestimate is periodically adjusted when management becomes aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing)or as a result of changes in historical collection patterns.InventoryInventories are stated at the lower of cost or market value. Cost is determined using the FIFO method, which is based on analyses that are highlycomplex due to the significant number of materials purchased by the company. The complexity of the FIFO analysis is further increased in periods of volatileraw material pricing. Market value is based on estimated net realizable value, which is based on assumptions related to deterioration, obsolescence and otherjudgmental factors. The valuation of inventory also involves estimates and assumptions relate to which overhead costs qualify for capitalization and in whatamounts.Accounting for LeasesWe enter into leases for buildings, transportation and other equipment, and airplanes. Judgment is required in applying the criteria necessary todetermine if a lease should be classified as a capital lease. Specifically, 77Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsjudgment is required in applying the criteria to determine if a lease should be capitalized including whether to include certain lease renewal periods in thelease term, the present value of minimum lease payments, the fair value of leased assets, and the useful lives of assets.GoodwillWe account for costs of acquired assets in excess of fair value, or Goodwill, and other intangible assets not subject to amortization in accordance withFASB Accounting Standards Codification, or ASC, Topic 350, “Intangibles — Goodwill and Other.” Goodwill is reviewed annually for impairment as ofMarch 31 or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The goodwill impairment analysis iscomprised of two steps. The first step requires the comparison of the fair value of the applicable reporting unit to its respective carrying value. If the fair valueof the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we would not be required toperform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must performthe second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’sgoodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference. With respect to this testing, our reporting units aregenerally one level below our operating segments for which discrete financial information is available and reviewed by segment management. However,components of an operating segment can be aggregated as one reporting unit if the components have similar economic characteristics. Our reporting unitsinclude Domestic, Mexico, Puerto Rico, Canada, Chile and Europe. Implied fair value of goodwill is determined by considering both the income and marketapproach. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. Theseestimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates,future economic and market conditions, and determination of appropriate market comparables. The fair value estimates are based on assumptionsmanagement believes to be reasonable, but are inherently uncertain.We performed our annual impairment test for goodwill as of March 31, 2015 and we determined that the fair value exceeded the carrying value for eachof our reporting units by a substantial margin. Accordingly, we did not incur any impairment expense for goodwill in the years ended 2015, 2014 and 2013.Future events and unanticipated changes to assumptions could require a provision for impairment in a future period.Intangible AssetsDefinite-lived intangible assets are tested for recoverability whenever events or changes in circumstances indicate that carrying amounts of the assetgroup may not be recoverable. Asset groups are established primarily by determining the lowest level of cash flows available. If the estimated undiscountedfuture cash flows are less than the carrying amounts of such assets, an impairment loss is recognized to the extent the fair value of the asset less any costs ofdisposition is less than the carrying amount of the asset. Determining the fair value of these assets is judgmental in nature and involves the use of significantestimates and assumptions. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period.Indefinite-lived intangible assets are tested for impairment annually as of March 31 or whenever events or changes in circumstances indicate thecarrying value may be greater than fair value. Determining the fair value of these assets is judgmental in nature and involves the use of significant estimatesand assumptions. We base our fair value estimates on assumptions we believe to be reasonable, but that are inherently uncertain. To estimate the fair value ofthese indefinite-lived intangible assets, we use an income approach, which utilizes a market derived rate of return to discount anticipated performance. Animpairment loss is recognized when the estimated fair value of the intangible asset is less than the carrying value.We did not record any impairment in fiscal years 2015, 2014 or 2013. Future events and unanticipated changes to assumptions could require aprovision for impairment in a future period. 78Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRevenue RecognitionThe Company sells pipe products and related water management products. ADS ships products to customers predominantly by internal fleet and to alesser extent by third-party carriers. The Company does not provide any additional revenue generating services after product delivery.Sales, net of sales tax and allowances for returns, rebates and discounts are recognized from product sales when persuasive evidence of an arrangementexists, delivery has occurred, the price to the buyer is fixed or determinable and collectability is reasonably assured. ADS does not ship an order until acustomer purchase order or sales order has been received that includes the pricing and quantity of the products in the order, which establishes both persuasiveevidence of an arrangement and that the price is fixed or determinable. Title to the products and risk of loss generally passes to the customer upon delivery.ADS performs credit check procedures on all new customers, establishes credit limits accordingly, and monitors the creditworthiness of existing customers,which is the basis for concluding that collectability is reasonably assured.Employee Benefit PlansEmployee Stock Ownership Plan (ESOP)Unallocated shares of convertible preferred stock held by our ESOP in the ESOP’s loan suspense account are allocated each year to employee-participants’ ESOP stock accounts upon the ESOP making its annual ESOP loan payment. The annual allocation of convertible preferred stock to the ESOPstock accounts of ESOP participants is accounted for as stock-based compensation expense as part of our overall employee benefits expense. Such shares ofconvertible preferred stock are valued based on an annual valuation by the ESOP’s independent third-party appraisal firm. When shares of convertiblepreferred stock are allocated to the ESOP stock accounts of ESOP participants, we reduce the amount of deferred compensation reflected in Deferredcompensation — unearned ESOP shares in mezzanine equity. The amount of deferred compensation is reduced by the number of allocated shares ofconvertible preferred stock, multiplied by the value of the convertible preferred stock when originally issued to the ESOP. The difference between the currentshare value and the original value is credited to the equity account paid in capital.Stock-Based Compensation PlansWe have several programs for stock-based payments to employees and directors in accordance with FASB ASC Topic 718, “Compensation — StockCompensation” (ASC Topic 718). Equity-classified awards are measured based on the grant-date estimated fair value of each award, net of estimatedforfeitures, and liability-classified awards are re-measured at their fair value, net of estimated forfeitures, at each reporting date for accounting purposes.Compensation expense is recognized over the employee’s requisite service period, which is generally the vesting period of the grant. Compensation expenseis recorded for new awards and existing awards that are modified, repurchased or forfeited.The fair value of each stock option granted is estimated, as of the date of the grant, using the Black-Scholes option pricing model. Determining the fairvalue of stock options under the Black-Scholes option-pricing model requires judgment, including estimating the fair value per share of our common stock asa private company prior to our IPO, volatility, expected term of the awards, dividend yield and the risk-free interest rate. The assumptions used in calculatingthe fair value of stock options represent our best estimates, based on management’s judgment and subjective future expectations. These estimates involveinherent uncertainties. If any of the assumptions used in the model change significantly, stock-based compensation recorded for future awards may differmaterially from that recorded for awards granted previously.We developed our assumptions as follows: • Fair value of common stock. Prior to our IPO, when our common stock was not publicly traded, we estimate the fair value of common stock asdiscussed in “— Valuation of Redeemable Common Stock 79Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents and Redeemable Convertible Preferred Stock — Valuation of Redeemable Common Stock.” Subsequent to the IPO we use the market price ofour common stock as of the grant date. • Volatility. The expected price volatility for our common stock is estimated by taking the median historic price volatility for industry peers basedon daily prices over a period equivalent to the expected term of the stock option grants. • Expected term. The expected term represents the period of time that options granted are expected to be outstanding based on historicalexperience. • Risk-free interest rate. The risk-free interest rate is based on the yields of United States Treasury securities with maturities similar to the expectedterm of the options. • Dividend yield. The dividend yield is based on our anticipated dividend payments over the remaining expected holding period.We estimate potential forfeitures of grants and adjust stock-based compensation expense accordingly. The estimate of forfeitures is adjusted over therequisite service period to the extent that actual forfeitures differ from the prior estimates. We estimate forfeitures based upon our historical experience and, ateach period, review the estimated forfeiture rate and make changes as factors affecting the forfeiture rate calculations and assumptions change.Valuation of Redeemable Common Stock and Redeemable Convertible Preferred StockValuation of Redeemable Common StockPrior to the IPO in fiscal year 2015, the Company had certain shares of common stock outstanding that are subject to agreements that permit the holderof those shares to put its shares to us for cash. This Redeemable Common Stock is recorded at its fair value in the mezzanine section of our ConsolidatedBalance Sheets and changes in fair value are recorded in Retained earnings. The fair value of our common stock is based on the most recent contemporaneousthird-party valuation report, which historically applied industry-appropriate multiples to EBITDA and performed a discounted cash flow analysis. Under theindustry-appropriate multiples approach, to arrive at concluded multiples, we considered differences between the risk and return characteristics of us and theguideline companies. Under the discounted cash flow analysis, the cash flows expected to be generated by us are discounted to their present value equivalentusing a rate of return that reflects the relative risk of an investment in us, as well as the time value of money. This return is an overall rate based upon theindividual rates of return for invested capital (equity and interest-bearing debt). The return, known as the weighted average cost of capital, or WACC, iscalculated by weighting the required returns on interest-bearing debt and common stock in proportion to their estimated percentages in an expected capitalstructure. The categorization of the framework used to price this temporary equity is considered a Level 3, due to the subjective nature of the unobservableinputs used to determine the fair value.The redemption feature of our Redeemable common stock allowing the holder to put its shares to us for cash, as discussed in the previous paragraph,became unenforceable upon effectiveness of the IPO on July 25, 2014. As a result, the Redeemable common stock was recorded at fair value through theeffective date of the IPO and was subsequently reclassified at that fair value to permanent equity.Valuation of Redeemable Convertible Preferred StockPrior to the effective date of the IPO, the trustee of our ESOP had the ability to put the shares of our Redeemable convertible preferred stock to us. OurRedeemable convertible preferred stock is recorded at its fair value in the mezzanine section of our Consolidated Balance Sheets and changes in fair value arerecorded in retained earnings. Accordingly, we estimated the fair value of the Redeemable convertible preferred stock through estimating the fair value of ourcommon stock and applying certain adjustments including for the fair 80Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsvalue of the total dividends to be received and assuming conversion of the preferred stock to common stock at the stated conversion ratio per our certificateof incorporation. The categorization of the framework used to price this temporary equity is considered a Level 3, due to the subjective nature of theunobservable inputs used to determine the fair value.Upon the effective date of the IPO, the redemption feature of our Redeemable convertible preferred stock allowing the Trustee of the Company’s ESOPto put shares to us for cash was no longer applicable. However, if our common stock, which our Redeemable convertible preferred stock may convert to, is nolonger a “registration-type class of security” (e.g., in the event of a delisting), the option held by the Trustee, which granted it the ability to put the shares ofour Redeemable convertible preferred stock to us, would then become applicable. Preferred securities that become redeemable upon a contingent event that isnot solely within the control of the Company should be classified outside of permanent equity. As of March 31, 2015, the Company has determined that it isnot probable that the redemption feature will become applicable. Since the Redeemable convertible preferred stock is not currently redeemable and it is notprobable that the instrument will become redeemable, subsequent adjustment to fair value is not required. As such, the Redeemable convertible preferredstock was recorded to fair value at the effective date of the IPO on July 25, 2014 and will remain in mezzanine equity without further adjustment to carryingvalue unless it becomes probable that the redemption feature will become applicable.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized and represent the future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.They are measured using the enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to berecovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactmentdate. The deferred income tax provision represents the change during the reporting period in the deferred tax assets and deferred tax liabilities. Penalties andinterest recorded on income taxes payable are recorded as part of income taxes.We follow the GAAP guidance for uncertain tax positions within FASB ASC 740, “Income Taxes” which provides guidance related to the financialstatement recognition and measurement of tax positions taken or expected to be taken in a tax return. The standard prescribes the minimum recognitionthreshold that a tax position is required to meet before being recognized in the financial statements. ASC 740, “Income Taxes” also provides guidance onderecognition, classification, interest and penalties, accounting in interim periods and disclosure. Initial recognition, derecognition and measurement isbased on management’s judgment given the facts, circumstances and information available at the reporting date. If these judgments are not accurate thenfuture income tax expense or benefit could be different.Recent Accounting PronouncementsFor a discussion of recent accounting pronouncements, see “Note 1. Background and Summary of Significant Accounting Policies” to our consolidatedfinancial statements included in “Item 8. Financial Statements and Supplementary Data.”ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are subject to various market risks, primarily related to changes in interest rates, raw material supply prices, and to a lesser extent, foreign currencyexchange rates. Our financial position, results of operations or cash flows may be negatively impacted in the event of adverse movements in the respectivemarket rates or prices in each of these risk categories. Our exposure in each category is limited to those risks that arise in the normal course of business, as wedo not engage in speculative, non-operating transactions. 81Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsInterest Rate RiskWe are subject to interest rate risk associated with our debt. Changes in interest rates impact the fair value of our fixed-rate debt, but there is no impactto earnings and cash flow. Alternatively, changes in interest rates do not affect the fair value of our variable-rate debt, but they do affect future earnings andcash flow. The Revolving Credit Facility, the Term Note, and our industrial development revenue bond, or IDRB, notes bear variable interest rates. TheRevolving Credit Facility and Term Note bear interest either at LIBOR or the Prime Rate, at our option, plus applicable pricing margins. The IDRB notes bearinterest at weekly commercial paper rates, plus applicable pricing margins. A 1.0% increase in interest rates on our variable-rate debt would increase ourannual forecasted interest expense by approximately $1.9 million and $2.4 million based on our borrowings as of March 31, 2015 and 2014, respectively.Assuming the Revolving Credit Facility is fully drawn, each 1.0% increase or decrease in the applicable interest rate would change our interest expense byapproximately $3.1 million and $3.2 million, as of March 31, 2015 and 2014, respectively. To mitigate the impact of interest rate volatility, we had twointerest rate swaps in effect as of March 31, 2015. The first swap is a $50 million notional value, non-amortizing swap at a LIBOR rate of 0.86% which expiresin September, 2016. A second $50 million notional value swap took effect on September 2, 2014 and expires on September 1, 2016. The rate is at a fixedLIBOR of 1.08%.Credit RiskFinancial instruments that potentially subject us to a concentration of credit risk consist principally of accounts receivable. We provide our products tocustomers based on an evaluation of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables isprincipally dependent on each customer’s financial condition. We monitor the exposure for credit losses and maintain allowances for anticipated losses.Concentrations of credit risk with respect to our accounts receivable are limited due to the large number of customers comprising our customer base and theirdispersion among many different geographies. One customer has a balance of accounts receivable equal to 14% of our Accounts receivable, net balance as ofMarch 31, 2015.Raw Material and Commodity RiskOur primary raw materials used in the production of our products are high density polyethylene and polypropylene resins. As these resins arehydrocarbon-based materials, changes in the price of feedstocks, such as crude oil derivatives and natural gas liquids, as well as changes in the market supplyand demand may cause the cost of these resins to fluctuate significantly. Raw materials account for the majority of our cost of goods sold. Given thesignificance of these costs and the inherent volatility in supplier pricing, our ability to reflect these changes in the cost of resins in our product selling pricesin an efficient manner contributes to the management of our overall risk and the potential impact on our results of operations.We have a resin price risk management program with physical fixed price contracts and financial hedge contracts which are designed to apply to asignificant portion of our annual virgin resin purchases. We also maintain supply agreements with our major resin suppliers that provide multi-year terms andvolumes that are in excess of our projected consumption. These supply agreements generally do not contain minimum purchase volumes or fixed prices.Accordingly, our suppliers may change their selling prices or other relevant terms on a monthly basis, exposing us to pricing risk. To manage this risk for ourpolypropylene virgin resin price exposure, we utilize financial hedges of propylene as a proxy for polypropylene. Historically, the month to month change inmarket based pricing has been very similar between propylene and polypropylene.Our use of forward fixed price contracts, financial hedges and the incorporation of vertical integration for recycled material have increased our focus onefficiency and resulted in lower overall supply costs. If the price of HDPE and PP virgin resin increased or decreased by 5%, it would result in a change to ourannual cost of goods sold of approximately $25 million. 82Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe began a diesel hedging program in 2008 which is executed through several financial swaps covering future months demand for diesel fuel and aredesigned to decrease our exposure to changing fuel costs. These hedges cover a significant portion of the diesel fuel consumed by the truck fleet that weoperate to deliver products to our customers. Our objective is to hedge roughly 50% of our overall monthly fuel costs.InflationOur cost of goods sold is subject to inflationary pressures and price fluctuations of the raw materials we use, primarily high density polyethylene andpolypropylene resins. Historically, we have generally been able, over time, to recover the effects of inflation and price fluctuations through sales priceincreases and production efficiencies related to technological enhancements and improvements. However, we cannot reasonably estimate our ability tosuccessfully recover any price increases.Financial InstrumentsWe have operations in countries outside of the United States, all of which use the respective local foreign currency as their functional currency. Each ofthese operations may enter into contractual arrangements with customers or vendors that are denominated in currencies other than its respective functionalcurrency. Consequently, our results of operations may be affected by exposure to changes in foreign currency exchange rates and economic conditions in theregions in which we sell or distribute our products. Exposure to variability in foreign currency exchange rates from these transactions is managed, to theextent possible, by natural hedges which result from purchases and sales occurring in the same foreign currency within a similar period of time, therebyoffsetting each other to varying degrees.In addition, to the transaction-related gains and losses that are reflected within the results of operations, we are subject to foreign currency translationrisk, as the financial statements for our foreign subsidiaries are measured and recorded in the respective subsidiary’s functional currency and translated intoU.S. dollars for consolidated financial reporting purposes. The resulting translation adjustments are recorded net of tax impact in the Consolidated Statementsof Operations. 83Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements and supplementary financial data required for thisItem are set forth on pages F-1 through F-62 of this Annual Report on Form 10-K and are incorporated herein by reference.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESBackgroundIn connection with the preparation of the Company’s consolidated annual financial statements for the fiscal year ended March 31, 2015, certain errorsrelated to the Company’s accounting treatment for its transportation, aircraft, equipment and real estate leases and inventory were identified. The Companysubsequently completed additional accounting review procedures and identified other errors discussed further below. See the discussion in this Item 9Aunder “Evaluation of Disclosure Controls and Procedures” as well as “Note 2. Restatement of Previously Issued Financial Statements” to the Company’saudited financial statements included in “Item 8. Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K.The accounting errors referenced above resulted from certain material weaknesses in our internal control over financial reporting. These materialweaknesses were identified after the Company’s initial public offering during its fiscal year 2015 audit. Management determined these material weaknessesand other control deficiencies were primarily the result of an ineffective control environment. As a result, the Company lacked effective control activitiesnecessary to prepare accurate financial statements and ensure compliance with regulatory filing requirements applicable to public companies. These materialweaknesses are further described in this Item 9A under “Evaluation of Disclosure Controls and Procedures — Internal Control Weaknesses.”In addition to the foregoing, beginning in June 2015, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) authorizedtwo investigative reviews by its independent counsel and a third-party forensic consulting firm acting at the direction of independent counsel. The need forthese investigations arose from allegations brought to the attention of management and the Audit Committee. The investigations related to potential overrideof the Company’s journal entry and account reconciliation controls, intra company reconciliations involving the Company’s South American joint ventureaffiliate and certain accounting misstatements and control deficiencies involving the Company’s Mexican joint venture affiliate. These investigations andthe related findings are further described in this Item 9A under “Evaluation of Disclosure Controls and Procedures — Audit Committee Oversight.” The errorsand misstatements identified as part of these investigations were corrected, as appropriate, in the Company’s prior period financial statements.Restatement of Prior Period Financial StatementsDue to the accounting errors known at the time, principally arising out of the Company’s accounting for leases, inventory and property, plant andequipment, as more fully described below, and based upon the recommendation of management, the Audit Committee determined on August 14, 2015 thatthe Company’s previously reported audited financial statements for the fiscal years ended March 31, 2014, 2013, 2012, 2011 and 2010 (and related reports ofthe Company’s independent registered public accounting firm on the consolidated financial statements as of March 31, 2014 and 2013, and for each of thethree years in the period ended March 31, 2014) and quarterly unaudited interim financial statements for the first three quarters of the fiscal year endedMarch 31, 2015, as well as each of the quarterly periods for the fiscal years ended March 31, 2014 and 2013, should no longer be relied upon. 84Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAs a result, the Company has restated its consolidated financial statements for the fiscal years ended March 31, 2014 and 2013, each of the quarters infiscal year 2014 and the first three quarters of fiscal year 2015. The restatement also affects periods prior to fiscal year 2013, with the cumulative effect of therestatement being reflected as prior period corrections to the fiscal year 2013 opening balance of retained earnings. The restated consolidated financialstatements for the fiscal years ended March 31, 2014 and 2013 are included in this Annual Report on Form 10-K. The unaudited selected data for fiscal years2011 and 2012 included in “Item 6. Selected Financial and Operating Data,” in this Annual Report on Form 10-K has been restated for the effects of theseerrors and misstatements as well.Evaluation of Disclosure Controls and ProceduresUnder the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, weevaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,as amended (the “Exchange Act”), as of March 31, 2015. Disclosure controls and procedures are controls and other procedures that are designed to ensure thatinformation required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within thetime periods specified under Securities Exchange Commission (“SEC”) rules and forms. Management recognizes that any controls and procedures, no matterhow well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment inevaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2015 because of thematerial weaknesses in our internal control over financial reporting as further described below. Although we are not yet required to comply with the internalcontrol reporting requirements mandated by Section 404 of the Sarbanes-Oxley Act of 2002 due to the transition period established by rules of the SEC fornewly-public companies, our internal control over financial reporting is an integral part of our disclosure controls and procedures.Audit Committee OversightIn addition to periodic meetings with management and the Company’s independent registered public accounting firm in connection with thecompletion of the fiscal year 2015 audit and restatement of prior period financial statements, beginning in June 2015 the Audit Committee authorizedinvestigative reviews by its independent counsel and a third-party forensic consulting firm acting at the direction of independent counsel. Theseinvestigations and related findings are further described below.Review of Potential Override of Journal Entry and Account Reconciliation ControlsIn June 2015, certain members of the Company’s finance staff responded affirmatively to questions presented to them by the independent registeredpublic accounting firm in accordance with Public Company Accounting Oversight Board Interim Auditing Standard AU 316, Consideration of Fraud in aFinancial Statement Audit (commonly referred to as “SAS 99”). The SAS 99 questions asked members of the finance staff (i) whether they or anyone known tothem had ever been asked to record a journal entry or other adjustment without proper authorization or support, (ii) whether they or anyone known to themhad ever been asked or coerced to record a journal entry or other adjustment with which they were uncomfortable, or (iii) were they aware of anyinappropriate journal entry or other adjustment in the entity’s financial records.As a result of the responses provided to the SAS 99 questions, the Audit Committee engaged independent counsel and authorized such independentcounsel to conduct an investigative review. The Audit Committee’s independent counsel in turn engaged the assistance of a third-party forensic consultingfirm to assist in the investigation. The investigation involved the interview of members of the finance staff, including those who responded to the SAS 99questions, as well as members of the Company’s senior management. The forensic 85Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsconsulting firm also conducted an extensive review of Company financial and accounting records. The Audit Committee’s independent counsel and forensicconsultant completed its investigation and reported its findings to the Audit Committee. While the investigation found no evidence of fraud, it determinedthat the concerns reflected in the responses to the SAS 99 questions were well founded and resulted in restatement of prior period financial statements.The Audit Committee’s investigation also identified deficiencies in the Company’s process for reconciling certain intra-company transactions with theCompany’s unconsolidated South American joint venture, Tuberías Tigre-ADS Limitada (the “South American Joint Venture”). Specifically, requests by ourindependent registered public accounting firm for confirmation on certain trade receivables balances between the Company and the South American JointVenture lacked sufficient documentation when signed and were, in certain instances, completed and signed by the South American Joint Venture at thedirection of a former Company employee without reconciling the differences in account balances between the Company and the South American JointVenture. Following further investigation, the Audit Committee’s independent counsel found that the Company’s intra-company reconciliation processlacked sufficient support. Based on the findings of the investigation, management concluded that the discrepancies in trade confirmations as identified were,once corrected, immaterial to the Company’s consolidated results of operations and financial condition. The findings of the Audit Committee’s investigationresulted in management’s assessment of control deficiencies related to journal entries and account reconciliations, as described more fully below, thatconstitute a material weakness.Review of Certain ADS Mexicana TransactionsIn October 2015, members of the Company’s management became aware of transactions involving the Company’s consolidated Mexican joint venture,ADS Mexicana, that ADS Mexicana personnel initially brought to the attention of the Company for further review to confirm whether these transactions wereappropriately characterized. The ADS Mexicana transactions in question included an aircraft leasing arrangement, a real estate leasing arrangement andseveral services arrangements that involved ADS Mexicana related parties. Once brought to the attention of the Company, management promptly undertooka review to determine whether such transactions were properly recorded and/or characterized and to ensure that such transactions and their financial impactwere appropriately reflected in the Company’s consolidated financial statements.After receiving a preliminary report from management on the breadth and scope of the issues, the Audit Committee in November of 2015 authorizedindependent counsel and its forensic consulting firm to conduct an independent investigation. The investigation involved the interview of members of theCompany’s finance staff as well as finance and non-finance staff of ADS Mexicana, in addition to a review of the financial and accounting records of theCompany and ADS Mexicana related to the transactions in question. Upon concluding the investigation, it was determined by management, uponconsultation with the Audit Committee’s advisors, that the various lease and services arrangements described above, as well as certain additional servicesarrangements with related parties identified during the course of the investigation, lacked commercial and economic substance or proper supportingdocumentation as to the services performed, and therefore were not appropriately reflected in the Company’s consolidated financial statements and thatcertain of those transactions should be re-characterized by ADS Mexicana as dividends as opposed to expenses. As a result of re-characterizing the relatedparty transactions, the Company will cause ADS Mexicana to amend its tax returns filed in Mexico for the open tax periods affected as soon as practicable inorder to reflect the appropriate tax treatment for the transactions as re-characterized.The scope of the investigation also included consideration of other ADS Mexicana matters that were identified during the course of the investigationto determine whether such matters involved any unlawful payments in violation of the FCPA. The Audit Committee’s advisors did not find such matters tohave been mischaracterized, inappropriately recorded or otherwise contrary to applicable law, including the FCPA. It was, however, determined that suchmatters were a further indication of weaknesses in the ADS Mexicana control environment.Management also identified potential accounting errors related to ADS Mexicana’s revenue recognition cut-off practices which were reported bymanagement to the Audit Committee and also investigated by the Audit Committee’s advisors. Specifically, the Company identified instances where ADSMexicana would recognize 86Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsrevenue prior to the date of shipment or transfer of title/ownership, which is not in accordance with accounting principles generally accepted in the UnitedStates (“GAAP”). The investigation also found that the timing for when such errors occurred was irregular and in certain instances attributable to requestsfrom ADS Mexicana customers that were not properly accounted for, resulting in timing differences between invoicing date and shipment date. It wasdetermined that these errors with respect to revenue recognition occurred due to ineffective controls and not due to an intent to commit fraud.Management has concluded that the control deficiencies noted above related to the ADS Mexicana control environment, as well as the ADS Mexicanarevenue recognition cut-off practices, each constituted a material weakness. Although such matters have resulted in a determination of material weakness,neither the Audit Committee’s advisors in the course of its investigation nor management have concluded whether the weaknesses in the ADS Mexicanacontrol environment, the ADS Mexicana revenue recognition cut-off practices, or any other material weaknesses of the Company as described below, wouldresult in an ultimate determination by the SEC or any other applicable regulatory agency that the Company has not complied with the books and records andinternal control provisions of the FCPA as set forth in sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. See above under “Item 1A. Risk Factors —As a result of our international operations we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws.” The various matters described above with respect to ADS Mexicana (as well as the matters related to the Company’s other materialweaknesses) have been voluntarily disclosed by the Company’s representatives to the Enforcement Division in connection with its ongoing investigation asdescribed above in “Item 3. Legal Proceedings.”For additional discussion regarding the financial impact of the foregoing, as well as a description of ADS Mexicana matters, see below under “InternalControl Material Weaknesses — ADS Mexicana Control Environment” and “Internal Control Material Weaknesses — ADS Mexicana Revenue RecognitionCut-off Practices,” as well as “Note 10. ADS Mexicana” and “Note 12. Related Party Transactions” to the Company’s audited financial statements included in“Item 8. Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K.Internal Control Material WeaknessesA material weakness in internal controls is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there isa reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Becauseof its inherent limitations, even appropriate internal control over financial reporting may not prevent or detect misstatementsWe have identified certain material weaknesses in our internal control over financial reporting in the areas of (i) Company control environment,(ii) accounting for leases, (iii) accounting for inventory, (iv) journal entry and account reconciliation, (v) ADS Mexicana control environment and (vi) ADSMexicana revenue recognition cut-off practices, as further described below. Management determined these material weaknesses and other controldeficiencies were primarily the result of an ineffective control environment. As a result, the Company lacked effective control activities necessary to prepareaccurate financial statements and ensure compliance with regulatory filing requirements applicable to public companies. The lack of a sufficient number offinance personnel with an appropriate level of knowledge, experience and training as well as the Company’s approach to accounting assumptions, estimatesand judgments, including documentation and support therefor, were contributing factors to each of these material weaknesses and other control deficienciesdescribed below.Control EnvironmentWe did not maintain an effective control environment, which is the foundation for the discipline and structure necessary for effective internal controlover financial reporting, as evidenced by: (i) an insufficient number of personnel appropriately qualified to perform control design, execution and monitoringactivities, (ii) an insufficient number of personnel with an appropriate level of GAAP knowledge and experience and ongoing training in the application ofGAAP commensurate with our external financial reporting requirements, 87Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentswhich resulted in erroneous judgments regarding the proper application of GAAP, and (iii) in certain instances, insufficient documentation or basis to supportaccount balances and accounting estimates.A contributing factor to the material weakness in the control environment was certain aspects of the Company’s “tone at the top” set by seniormanagement, which is the atmosphere and culture created by the Company’s leadership and establishes the environment within which the Company’sfinancial reporting process occurs. The following areas related to tone at the top were identified as contributing factors to the weaknesses described in thecontrol environment that require remediation: • channels for raising and communicating concerns were not effective to provide for the escalation and resolution of questions or issues known byCompany finance staff or management in a timely or appropriate manner; • Company positions with respect to certain accounting policies, estimates and judgments were not sufficiently established and documented,resulting in enhanced risk tolerance for the application of certain accounting principles; • management expectations regarding the level of documentation necessary to support account balances, journal entries, accrual calculations andcutoff processes and management estimates were not adequate; • management’s understanding of its responsibility for the Company’s financial statements (as opposed to the Company’s independent registeredpublic accounting firm) in connection with completing the Company’s fiscal year 2015 audit was not adequate; • management’s style and temperament created a pressurized environment for finance personnel that was not conducive towards the expressionand appropriate resolution of differing viewpoints regarding the Company’s accounting practices; and • inappropriate emphasis by senior management on meeting aggressive timelines for financial reporting and establishing reasonable timelines, inlight of the resources available to the Company’s finance staff.Accounting for LeasesWe did not design and maintain effective control over the accounting for leases, resulting in a material weakness. The Company’s control over theapplication of the proper accounting treatment for leases related to fleet tractors, trailers, forklifts, automobiles, aircraft, and buildings was not effective, as thehistorical accounting analysis failed to consider all criteria necessary for purposes of the assessment of whether the leases should be classified as operatingleases or capital leases. We have also re-examined our historic assumptions, estimates and judgments with respect to the accounting for real estate, equipmentand aircraft leases that were previously classified as operating leases. We have now determined that a significant number of such leases should instead beclassified as capital leases and included in property, plant and equipment.Accounting for InventoryWe did not design and maintain effective control over the accounting for inventory, resulting in a material weakness. The errors primarily related to theCompany’s incorrect historical calculation of inventory cost based on the first-in-first-out (“FIFO”) method, the excess capitalization of certain inter-plantfreight expense and other overhead costs, as well as the misclassification of certain overhead costs between general and administrative expense and cost ofgoods sold.With respect to inventory costing adjustments related to the application of the FIFO method, the Company had historically utilized a simplifiedmethod of calculating inventory cost based on an overall average price near period end for all products, particularly with respect to the resin material costcomponent of inventory. However, this simplified method for establishing inventory cost became less precise over time as a result of the significant increasein the number of products sold by the Company. The imprecision in this simplified method became even 88Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsgreater during periods of volatile raw material pricing, which occurred during the fourth quarter of fiscal year 2015.Multiple contributing factors were identified related to the misclassification of certain overhead costs. First, the Company historically applied asimplified method of capitalizing general and administrative overhead costs to inventory by using a consistent capitalization rate across all general andadministrative functions, such as the purchasing, human resources and information technology functions, regardless of the actual percentage of eachfunction’s efforts that were related to the inventory procurement and production process. Additionally, certain capitalized overhead costs were determined tobe overstated as the result of either the inclusion of certain types of costs that were unrelated to the inventory production process or the use of estimates thatdid not accurately reflect actual costs.Journal Entry and Account ReconciliationWe did not design and maintain effective control over access within our information technology (“IT”) systems to control the ability of key accountingpersonnel to initiate, modify and record transactions in our financial systems. Specifically, it was determined that certain key accounting personnel had theability to both prepare and post manual journal entries without appropriate independent review and approval. As these key accounting personnel are alsoreviewers of certain account reconciliations, we also did not maintain appropriate segregation of duties. Also, management expectations regarding the levelof documentation necessary to support account balances, journal entries, accrual calculations and cutoff processes and management estimates were notadequate. Accordingly, we concluded that these journal entry and account reconciliation control deficiencies constitute a material weakness.In addition, as discussed above, in June 2015 certain members of the Company’s finance staff provided affirmative responses to certain SAS 99questions presented by the Company’s auditor concerning the Company’s process for recording journal entries and other adjustments without properauthorization or support. Although the Audit Committee’s independent counsel and forensic consultant found no evidence of fraud, it was determined thatthe concerns reflected in the responses to the SAS 99 questions were well founded and that the Company’s journal entry controls and account reconciliationprocess were deficient and contributed to the material weakness in the Company’s control environment discussed previously.ADS Mexicana Control EnvironmentWe did not maintain an effective control environment with respect to certain aspects of the financial reporting of our consolidated joint ventureaffiliate, ADS Mexicana, resulting in certain mischaracterized transactions. These transactions were the subject of the investigation authorized by the AuditCommittee and conducted by its independent advisors as described above.Based upon the errors identified with respect to ADS Mexicana and the findings of the investigation conducted by the Audit Committee’s independentadvisors, management concluded that such deficiencies resulted in a material weakness in ADS Mexicana’s control environment.For additional discussion regarding the financial impact of the foregoing items as well as a description of ADS Mexicana, see “Note 10. ADSMexicana” and “Note 12. Related Party Transactions” to the Company’s audited financial statements included in “Item 8. Financial Statements andSupplementary Data,” in this Annual Report on Form 10-K.ADS Mexicana Revenue Recognition Cut-Off PracticesWe did not design and maintain effective control with respect to ADS Mexicana’s revenue recognition cut-off practices. Specifically, the Companyidentified instances where ADS Mexicana would recognize revenue, prior to the date of shipment or transfer of title/ownership, which is not in accordancewith GAAP. Based upon 89Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsthe errors identified and the findings of the investigation conducted by the Audit Committee’s independent advisors, management concluded that suchrevenue recognition cut-off practices resulted in a material weakness.For additional discussion regarding the financial impact of the foregoing items as well as a description of ADS Mexicana, see “Note 10. ADSMexicana” and “Note 12. Related Parties” to the Company’s audited financial statements included in “Item 8. Financial Statements and SupplementaryData,” in this Annual Report on Form 10-K.Remediation ProcessFollowing the identification of the material weaknesses described above, and with the oversight of the Audit Committee, we have commenced aprocess to remediate the underlying causes of the material weaknesses described above, enhance the control environment and strengthen our internal controlover financial reporting. The steps that have been taken or that the Company intends to take with respect to remediation are as follows:Finance Organization Assessment. Management, with approval from the Audit Committee, engaged a nationally recognized accounting firm to performa comprehensive assessment of the finance organization structure and roles and responsibilities. The Audit Committee approved the findings thatresulted from this assessment and directed management to begin implementation of such, as further described below, with continuing Audit Committeeoversight.CEO Communications to Reinforce Compliance. The Company’s Chief Executive Officer, at the direction of the Company’s Board of Directors, hasreinforced the importance of adherence to the Company’s policies and procedures regarding ethics and compliance and the importance of identifyingmisconduct and raising and communicating concerns. This reinforcement has occurred through email and employee newsletter communications, staffmeetings, remarks given to senior management during strategic planning sessions, as well as other employee forums. The Company’s Chief ExecutiveOfficer has also expressed to the Company’s Board of Directors his commitment to an enhanced control environment.Change in CFO and Other Finance Personnel. On November 9, 2015 the Company announced the retirement of the Company’s former Chief FinancialOfficer, who immediately relinquished his title as Chief Financial Officer, Secretary and Treasurer (although remaining employed as an executive vicepresident until his ultimate retirement date of March 31, 2016) and the appointment of a new Chief Financial Officer, Secretary and Treasurer, effectiveas of that date. In addition, the Company’s assistant controller resigned in October of 2015. Since March 31, 2015 the Company has also added aDirector of SEC Reporting and Technical Accounting, a Senior Manager – Financial Accounting as well as created other staff accounting positions. Aspart of the Company’s effort to continue to hire additional accounting personnel with appropriate levels of knowledge and expertise, the Companyfurther intends to reorganize its finance organization by separating the chief accounting officer duties currently held by the Company’s Chief FinancialOfficer. The Company also intends to strengthen its oversight of the financial operations of its consolidated and unconsolidated international jointventure affiliates and in February of 2016 hired an international controller to oversee such activities as part of a broader effort to enhance theCompany’s oversight with respect to its joint venture affiliates. Additional new positions are planned and are expected to be filled over the next six totwelve months.Use of Third-Party Consultants. The Company has augmented its personnel with qualified third-party consulting resources, including in the followingareas: • organizational structure and resource assessments related to governance, along with SEC reporting and corporate compliance obligations; • internal audit out-sourcing including assistance with SOX Section 404 readiness and other internal audit activities; • financial statement and external reporting support; • out-sourced staffing for financial reporting, accounting and tax technical support; and 90Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents • global anti-corruption, ethics and compliance hotline assessment.Assessment of Journal Entry Control Software. A third-party consultant performed a user roles and responsibilities assessment for the Company’splanned Oracle R12 upgrade. The assessment was part of a broader IT evaluation, but focused on remediating user access weaknesses and improvingautomated controls.Journal Entry and Account Reconciliation Enhancement. The Company is currently reviewing the IT access key accounting personnel have within ourfinancial systems, and establishing limitations that we believe will address the risks of key accounting personnel having the ability to initiate, modifyand record transactions. These limitations will include removing the access for key accounting personnel who have the ability to prepare and postmanual journal entries. Additionally, the Company is currently reviewing and modifying the design and implementation of its internal controlsrelating to the review and approval of manual journal entries and account reconciliation controls.Implementation and Enhancement of Entity Level Controls: The Company intends to implement the following entity level controls around thequarterly/annual financial reporting process: • Sub-certification Process: Key process owners each quarter (as part of the Form 10-Q preparation) will complete a sub-certification questionnaireand checklist to support how the process owner reached the conclusion that controls are operating effectively in their respective areas and anopportunity to highlight any concerns they have related to internal control over financial reporting. In addition, this will require the process ownerto indicate any changes in processes, controls or key personnel during the period. • Establishment of Disclosure Committee: A formal disclosure committee will be established that includes key members of management (excludingthe Company’s CEO and CFO, but including any separately appointed Chief Accounting Officer) that have responsibility for disclosureinformation necessary for periodic reports filed with the SEC. This committee will meet on an as-needed basis as well as prior to the AuditCommittee meeting in which the Form 10-K, Form 10-Q or other relevant Exchange Act document will be approved and will conduct follow-upmeetings as necessary. The meeting will cover all significant events from the period being reported upon and supporting information. A charterwill be developed governing the conduct of this committee and a formal agenda will be distributed prior to each meeting and minutes will bemaintained and published for each meeting. • Disclosure Committee Certification Process: A formal certification process by the members of the disclosure committee will occur focused on fulldisclosure of information requiring disclosure to the CEO and CFO, disclosure of any and all control deficiencies or material weaknesses, anyknowledge of or instances of fraud, and any other known violations to laws, regulations or Company policies. • Financial Information Systems Steering Committee. The Company will establish a committee comprised of members of senior financemanagement, co-chaired by the Company’s Chief Information Officer and an appropriate member of the Company’s finance department (e.g.Controller or Chief Accounting Officer) to monitor activities and developments associated with the Company’s financial information systems. Thecommittee will appoint an information security officer to monitor activities related to information protection, including a comprehensive identityand access management program to enhance the quality and timeliness of reported results. Within our IT organization, we will also appoint atechnology integration officer that will be dedicated to the finance and accounting departments to ensure that all information technology projectsare appropriately prioritized. • Financial Software Systems Training. To address any lack of training related to financial systems (Oracle, etc.), the Company intends to ensureregular training for the Company’s finance staff with respect to the Company’s financial applications and other financial reporting tools, includinglive training for Oracle users and implementing enhanced knowledge management tools and protocols around the Company’s financial software. • ICFR Survey Analysis. Annually, Company employees will complete a control environment and fraud assessment survey, administered by anindependent third party. The survey will be anonymous, and 91Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents consolidated results will be reported to internal audit for review and reporting to the CFO and the Audit Committee. • SOX 404 Internal Control Implementation and Training. The Company will continue to implement an action plan during fiscal year 2016 andfirst quarter of fiscal 2017 to develop the Company’s control environment for purposes of SOX 404 compliance, which will include furtheridentifying, implementing and documenting appropriate controls, and training staff on SOX 404 compliance. A SOX Steering Committee has beenestablished among the Company’s executives to oversee the implementation of the SOX 404 compliance plan, which compliance plan efforts havebeen regularly reported on to the Company’s Audit Committee. • Enhanced Training for Finance Staff and Communication. The Company will implement a training program in the first fiscal quarter of each yearto ensure there is a thorough understanding of the Company’s accounting policies and methodologies applicable for the year as well as periodictraining on key areas related to accounting and public company reporting and SEC matters, which training programs will be formalized andreported to the Chair of the Audit Committee. The Company’s CFO further plans to institute a formal communications protocol around regularfinance staff meetings during which information related to financial reporting and other topics will be addressed.Enhanced Reporting Line Procedures. The Company intends to establish procedures for ensuring clear reporting structures, reporting lines anddecisional authority responsibilities and to ensure communication with operational departments, accounting, the Board and the Audit Committee. Thisincludes within the finance organization, which will report to the CFO, establishing documented procedures for meetings and interactions among keydepartments (finance, accounting, treasury etc.).Process Level Control Remediation. The Company intends to utilize processes and controls created and documented as part of the completion of thefiscal year 2015 audit and related restatement on an ongoing basis, specifically around areas such as inventory, leases, software capitalization,property, plant and equipment, rebates, trademark adjustments, tax adjustments, central parts, trademark impairment adjustments and journal entries.See “Note 2. Restatement of Previously Issued Financial Statements,” to the Company’s audited financial statements included in “Item 8. FinancialStatements and Supplementary Data,” in this Annual Report on Form 10-K for additional information on the areas for which process level controlremediation have been developed.Senior Executive Organizational Assessment. The Company’s Chief Executive Officer, with the assistance of appropriate third-party advisors, willundertake over the next six to twelve months an assessment of the current senior leadership organizational structure and present to the CompensationCommittee and the Board recommendations for reorganization to ensure proper lines of reporting and communication consistent with a publiccompany.Enhanced Employee Outreach and Training on Public Company Culture. The Company will engage a qualified expert to establish a formal trainingprogram for the Company’s senior executive management team and other relevant personnel on building and maintaining a strong public companystructure and culture. This training will supplement prior training efforts undertaken prior to and immediately following the initial public offering, andwill be intended to enhance the officers’ knowledge of the regulatory obligations, Company policies, ethics and compliance and other recommendedcultural enhancements necessary to achieve the expected public company culture.Additional Training on Ethics, Compliance and Anti-Corruption. The Company will develop a formal training program Company-wide for purposes ofimplementing any additional ethics, compliance and global anti-corruption policies adopted as a result of the efforts undertaken by the Company andits third-party advisors with respect to ethics and compliance.Establishment of Foreign Operations Committee. The Company intends to form a management foreign operations committee to exercise oversight withrespect to all of the Company’s international operations, including ADS Mexicana. This committee will provide oversight with respect to governance,accounting 92Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentspolicies, training, ethics and compliance, dividends, tax and cash repatriation issues, and be comprised of representatives of the Company’s legal,treasury, accounting, tax operations and human resources departments as considered appropriate.Enhancement of ADS Mexicana Control Environment. The Company intends to implement entity level controls, as well as cause ADS Mexicana toenhance its control environment, through a comprehensive remediation plan aimed specifically at the control issues identified as part of the ADSMexicana investigation described above. The remediation steps will include the following: • Disciplinary Actions. The Company has begun to undertake steps to cause ADS Mexicana to take appropriate remediation action, includingdisciplinary action, for employees within ADS Mexicana who were aware of and participated in the conduct described above. • Establishment of New Dividend/Fee Payment Structure. The Company intends to evaluate potential alternative structures for the future paymentby ADS Mexicana of dividends and/or fees to related parties to ensure all such payments are appropriately supported. • Global Ethics and Anti-Corruption Program Enhancement. As further described above, the Company will develop a formal training program forpurposes of implementing any additional ethics, compliance and global anti-corruption policies adopted as a result of the efforts undertaken bythe Company and its third-party advisors with respect to ethics and compliance, which will include ADS Mexicana and its personnel. • Enhanced Company Oversight. The Company intends to enhance its oversight and day-to-day involvement in the financial and operationalactivities of ADS Mexicana. The Company’s Senior Vice President for International Operations will work with the Company’s new internationalcontroller, as well as a newly created foreign operations committee comprised of Company personnel across business lines, who will focus on areassuch as governance, training, legal structure, dividends, cash repatriation and other functions relevant to the Company’s international jointventures, including ADS Mexicana. • Establishment of an International Controller. As referenced above under “Change in CFO and Other Finance Personnel,” the Company has hiredan international controller as part of a broader effort to enhance the Company’s oversight with respect to its joint venture affiliates, including ADSMexicana. • Board Governance and Structure Changes. The Company has evaluated the existing structure and composition of the ADS Mexicana board ofdirectors, as well as the governance provisions of the existing joint venture agreement, and intends to reorganize the ADS Mexicana board andinstitute additional governance measures to provide the Company with additional oversight for ADS Mexicana and its activities, including theparticipation of Company legal advisors in attendance at all ADS Mexicana board meetings and other experts when necessary. • Enhanced Accounting Policies and Procedures. The Company intends to enhance its accounting policies and procedures that are applicable toADS Mexicana through the implementation of the following: (1)establishment of a review control for all management fee accounting and related journal entries; (2)enhanced revenue recognition policies, in-depth cut-off procedures, and controls for sales transactions; (3)enhanced period-end policies, procedures and controls for expense cut-offs and accruals; (4)alignment of inventory costing methodology, policies and procedures to Company policies and procedures; and (5)enhanced related-party transaction policies, procedures and controls, particularly with respect to the identification and disclosure ofrelated-party transactions. • Establishment of a New Policy and Enhanced Internal Controls related to Cut-off / Revenue Recognition Practices. The Company intends toimplement written policies regarding revenue recognition related to the sale of inventory to ensure appropriate cut-off procedures for recognizingrevenue in the correct period. The 93Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Company will also enhance training for sales, accounting, and inventory personnel related to the new revenue recognition practices to ensure allappropriate personnel are informed. Additionally, management will be enhancing the existing internal controls to require a more comprehensivereview of sales near period-end.We believe the foregoing efforts will effectively remediate the material weaknesses described above. As we continue to evaluate and work to improveour internal control over financial reporting, we may take additional measures to address these control deficiencies or modify the remediation plan describedabove. We cannot assure you, however, when we will remediate such weakness, nor can we be certain of whether additional actions will be required. Seeabove under Item 1A, “Risk Factors — Our failure to maintain effective disclosure controls and internal control over financial reporting could adverselyaffect our business, financial position and results of operations.”Changes in Internal Control over Financial ReportingOther than the changes described above under “Evaluation of Disclosure Controls and Procedures,” there were no changes in our internal control overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the three months ended March 31, 2015 that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Management’s Report on Internal Control over Financial Reporting for 2015This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or anattestation report of the Company’s registered public accounting firm due to a transition period established by rules of the SEC for newly-public companies.ITEM 9B. OTHER INFORMATIONNone. 94Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEDirectors and Board StructureOur business and affairs are managed under the direction of our board of directors. We currently have nine directors. Our directors hold office until theirsuccessors have been elected and qualified or until the earlier of their resignation or removal.Our board of directors is divided into three classes of directors serving staggered terms of three years each. At each annual meeting of stockholders, aclass of directors will be elected for a three-year term to succeed the class whose term is then expiring. The terms of our current directors will expire upon theelection and qualification of successor directors at the annual meeting of stockholders to be held during fiscal year 2018 for the Class I directors, fiscal year2016 for the Class II directors and fiscal year 2017 for the Class III directors:Our Class I directors are Joseph A. Chlapaty, Tanya Fratto and David L. Horing;Our Class II directors are Robert M. Eversole, Alexander R. Fischer and M.A. (Mark) Haney; andOur Class III directors are C. Robert Kidder, Richard A. Rosenthal and Abigail S. Wexner.Any vacancies in our classified board of directors will be filled by the remaining directors and the elected person will serve the remainder of the term ofthe class to which he or she is appointed. Any additional directorships resulting from an increase in the number of directors will be distributed among thethree classes so that, as nearly as possible, each class will consist of one-third of the directors.The following paragraphs describe the business experience and education of our directors.Joseph A. Chlapaty. Mr. Chlapaty joined us in 1980 and has served as Chairman of our board of directors since 2008, a director since 1988, Presidentsince 1994 and Chief Executive Officer since 2004. From 1980 to 1994, Mr. Chlapaty served as our Vice President and Chief Financial Officer. Beforejoining us, Mr. Chlapaty served as Corporate Accounting Manager, Assistant Treasurer, and Treasurer for Lindberg Corporation and prior to that was withArthur Andersen LLP. Mr. Chlapaty serves on the advisory board to Fifth Third Bank of Columbus, and is also a member or former member of several not-for-profit boards, including Nationwide Children’s Hospital, KIPP Journey Academy, The Columbus Foundation, Ohio Foundation of Independent Colleges, theUniversity of Dubuque and Marietta College. Mr. Chlapaty holds a bachelor’s degree in Business Administration from the University of Dubuque and anMBA from DePaul University. We believe that Mr. Chlapaty’s leadership capabilities, his thorough knowledge of all facets of our business and operationsand his deep understanding of our history, culture and the markets in which we operate make him qualified to serve as a member of our board of directors.Robert M. Eversole. Mr. Eversole became a director in 2008. Mr. Eversole is a Principal of Stonehenge Partners, Inc., a private investment capital firmand has been continuously employed as such since 2007. Prior to joining Stonehenge Partners, Mr. Eversole spent 22 years with Fifth Third Bank, mostrecently as President and Chief Executive Officer of Central Ohio, and additionally served as Regional President for Fifth Third Bancorp affiliate banks inWestern Ohio, Central Florida and Ohio Valley. He also served as a member of the Fifth Third Bancorp Operating Committee. Mr. Eversole currently serveson the boards of directors for certain privately-held companies. Mr. Eversole is a graduate of The Ohio State University and has completed a number ofexecutive education programs. We believe that Mr. Eversole’s extensive background in private equity and commercial banking, his expertise on financialmatters and his extensive leadership and management experience make him qualified to serve as a member of our board of directors. 95Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAlexander R. Fischer. Mr. Fischer became a director in 2014. Mr. Fischer has been the President and CEO of the Columbus Partnership, an organizationof CEOs focused on civic, philanthropic, education and economic development opportunities in Columbus, Ohio, since 2009. Prior to his role at theColumbus Partnership, Mr. Fischer worked at Battelle Memorial Institute, a science and technology company, from 2002 to 2009, where he served as SeniorVice President for Business and Economic Development, Vice President of Commercialization, and Director of Technology Transfer and EconomicDevelopment. Mr. Fischer has also worked in the public sector, as Commissioner of Economic Development, Deputy Governor and the Chief of Staff for theState of Tennessee from 1997 to 2002. In the past, he has served on the boards of directors for a variety of for-profit and not-for-profit organizations, andcurrently serves on the boards of Nationwide Children’s Hospital, The Ohio State University, Columbus 2020, and The Ohio State Innovation Foundation.Mr. Fischer graduated from the University of Tennessee with a B.S. in Economics and Public Administration and also received a Master’s of Science in UrbanPlanning and Economic Development from the University of Tennessee. We believe that Mr. Fischer’s executive management experience, his knowledge ofeconomic development and commercialization and the knowledge he has gained from his extensive involvement in the public policy sectors make himqualified to serve as a member of our board of directors.Tanya Fratto. Ms. Fratto became a director in 2013. Prior to that, Ms. Fratto spent over 30 years with global industrial companies and private equity.She was Chief Executive Officer of Diamond Innovations, Inc., a world-leading manufacturer of industrial diamonds and cubic boron nitride used in oil andgas, infrastructure, automotive, aerospace, and electronics industries. In addition, she enjoyed a successful 20-year career with General Electric. Herexperience has ranged from profit and loss ownership, product management and operations, to Six Sigma and supply chain management, spending time in GEAerospace, GE Plastics, Corporate Sourcing, GE Appliances, and GE Consumer Service. Ms. Fratto holds a BS in Electrical Engineering from the Universityof South Alabama. She currently sits on the board of Smiths Global Plc, a global technology company. We believe that Ms. Fratto’s extensive executive andmanagement experience as well as her experience managing global operations and the insights gained from those experiences make her qualified to serve as amember of our board of directors.M.A. (Mark) Haney. Mr. Haney became a director in 2014. Mr. Haney retired in December 2011 from Chevron Phillips Chemical Company LP, achemical producer, where he served as Executive Vice President of Olefins and Polyolefins from January 2011 until his retirement. From 2008 to 2011,Mr. Haney served as Senior Vice President, Specialties, Aromatics and Styrenics. He also served as Vice President of Polyethylene and President ofPerformance Pipe. Prior to joining Chevron Phillips Chemical Company, Mr. Haney held numerous management positions with Phillips Petroleum Company.Mr. Haney currently serves on the board of directors of Phillips 66 Partners LP. Mr. Haney attended West Texas University and majored in chemistry. Webelieve that Mr. Haney’s extensive executive and management experience and his understanding of the petro-chemicals industry and the raw materials usedin our products make him qualified to serve as a member of our board of directors.David L. Horing. Mr. Horing became a director in 2010 and was appointed to our board of directors by ASP ADS Investco, LLC, an affiliate ofAmerican Securities. Mr. Horing is a Managing Director of American Securities, an investment firm, and is a Managing Member of the general partner ofcertain funds managed by American Securities. Before joining American Securities in 1995, he spent seven years at The Dyson-Kissner-Moran Corporation, amiddle-market private equity investment firm and previously worked in Solomon Brothers’ Investment Banking division and with The Boston ConsultingGroup. He currently is a director of Royal Adhesives and Sealants, Inc., Tekni-Plex, Inc., and Aspen Dental. Mr. Horing holds a bachelor’s degree inEngineering and a bachelor’s degree in Economics from the University of Pennsylvania and an M.B.A. from the Harvard Business School. We believe thatMr. Horing’s business education, extensive private equity experience, his industry and financial expertise and his years of experience providing strategicadvisory services to complex organizations, as well as his understanding of American Securities, make him qualified to serve as a member of our board ofdirectors. 96Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsC. Robert Kidder. Mr. Kidder became a director in 2014. Mr. Kidder also serves as the Lead Independent Director on our board of directors. Mr. Kidderserved as Chairman and Chief Executive Officer of 3Stone Advisors LLC, a private investment firm, from 2006 to 2011, and as non-executive Chairman ofthe Board of Chrysler Group LLC from 2009 to 2011. He was a Principal at Stonehenge Partners, Inc., a private investment firm, from 2004 to 2006.Mr. Kidder served as President of Borden Capital, Inc., a company that provided financial and strategic advice to the Borden family of companies, from 2001to 2003. He was Chairman of the Board from 1995 to 2004 and Chief Executive Officer from 1995 to 2002 of Borden Chemical, Inc. (formerly Borden, Inc.), aforest products and industrial chemicals company. Mr. Kidder was Chairman and Chief Executive Officer and President and Chief Executive Officer ofDuracell International Inc. Prior to joining Duracell International Inc., Mr. Kidder worked in planning and development at Dart Industries as well as amanagement consultant with McKinsey & Co. Mr. Kidder currently serves on the boards of directors of Merck & Co., Inc. and Microvi Biotech Inc. andpreviously served on the board of directors of Morgan Stanley from 1997 to 2015. Mr. Kidder earned a B.S. in industrial engineering from the University ofMichigan and a graduate degree in industrial economics from Iowa State University. We believe Mr. Kidder’s extensive financial and senior executiveexperience, including in business development, operations and strategic planning, as well as knowledge he has gained through his directorship service atother public companies, make him qualified to serve as a member of our board of directors.Richard A. Rosenthal. Mr. Rosenthal became a director in 1988. Mr. Rosenthal retired from the University of Notre Dame du Lac in 1995 aftersuccessfully serving as Athletic Director for eight years. Prior to his service as athletic director and following a professional basketball career, Mr. Rosenthalheld several leadership roles in banking, including as Executive Vice President of Indiana Bank & Trust as well as serving over 25 years as Chairman andCEO of St. Joseph Bancorp. He formerly served on the boards of directors of LaCrosse Footwear, St. Joseph Capital Bank, Beck Corp., and two advisoryboards of venture capital funds. Mr. Rosenthal holds a bachelor’s degree in Finance from the University of Notre Dame du Lac and is a former Chairman andcurrent member of the Business Advisory Council of the University of Notre Dame du Lac Mendoza College of Business. We believe that Mr. Rosenthal’sextensive financial and senior executive experience, as well as knowledge he has gained through his directorship service with other companies, make himqualified to serve as a member of our board of directors.Abigail S. Wexner. Mrs. Wexner became a director in 2014. Mrs. Wexner is the Chairman and CEO of Whitebarn Associates, a private investmentcompany. She is a member and former Chair of the board of directors of Nationwide Children’s Hospital. She is Founder and Chair of the boards of The Centerfor Family Safety & Healing (f/k/a Columbus Coalition Against Family Violence) and KidsOhio.org, Vice Chair of the board of KIPP Columbus, and aTrustee of The Ohio State University, The Columbus Downtown Development Corporation, The Columbus Partnership, Pelotonia, The Wexner MedicalCenter, The Wexner Foundation, The Columbus Jewish Federation, The Wexner Center Foundation and the United States Equestrian Team Foundation.Mrs. Wexner also serves as a director of L Brands (formerly Limited Brands, Inc.). Mrs. Wexner graduated from Columbia University and New YorkUniversity School of Law. We believe Mrs. Wexner’s executive and legal experience, as well as her expertise with respect to a wide range of organizational,philanthropic and public policy issues make her qualified to serve as a member of our board of directors. 97Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCertain Information Regarding our Directors and Executive OfficersThe name and age of each director, nominee and executive officer and the positions held by each of them as of the date of this Annual Report on Form10-K are as follows: Name Age DirectorClass Position(s)Joseph A. Chlapaty 70 Class I Chairman of the Board of Directors, Director, President and Chief Executive OfficerScott A. Cottrill 50 — Executive Vice President, Chief Financial Officer, Secretary and Treasurer (1)Mark B. Sturgeon 61 — Executive Vice President (1)Thomas M. Fussner 59 — Executive Vice President and Co-Chief Operating OfficerRonald R. Vitarelli 49 — Executive Vice President and Co-Chief Operating OfficerRobert M. Klein 53 — Executive Vice President, SalesEwout Leeuwenburg 49 — Senior Vice President, InternationalRobert M. Eversole 53 Class II(2) DirectorAlexander R. Fischer 48 Class II DirectorTanya Fratto 55 Class I DirectorM.A. (Mark) Haney 60 Class II DirectorDavid L. Horing 53 Class I DirectorC. Robert Kidder 71 Class III Lead Independent DirectorRichard A. Rosenthal 83 Class III DirectorAbigail S. Wexner 54 Class III Director (1)On November 3, 2015, Mark B. Sturgeon, the Chief Financial Officer, Executive Vice President, Secretary and Treasurer of the Company notified theCompany of his intention to retire from the Company effective March 31, 2016 and that effective November 9, 2015 he would step down as theCompany’s Chief Financial Officer, Secretary and Treasurer. Mr. Sturgeon will remain employed as an Executive Vice President of the Company untilhis retirement on March 31, 2016. On November 9, 2015, the board of directors appointed Scott A. Cottrill to serve as Executive Vice President, ChiefFinancial Officer, Secretary and Treasurer of the Company.(2)On February 4, 2015, the board of directors reassigned Mr. Eversole as a Class II director to fill the vacancy resulting from the previously-announcedresignation of Mark A. Lovett. After giving effect to the foregoing, the three classes of directors of the Company are as nearly equal in number aspossible, in accordance with the Company’s Amended and Restated Certificate of Incorporation.Executive Officers who are not DirectorsScott A. Cottrill joined us in November 2015 as Executive Vice President, Chief Financial Officer, Secretary and Treasurer. Mr. Cottrill comes to theCompany with extensive financial reporting, accounting and corporate finance experience. From 2012 to November 2014 Mr. Cottrill served as ExecutiveVice President and Chief Financial Officer of Jeld-Wen, Inc., a leading global manufacturer of windows, doors and treated composite trim and panels, andfrom November 2014 to February 2015 as an Executive Vice President. From 1998 to 2012, Mr. Cottrill held various finance and accounting positions withGoodrich Corporation, including from 2005 to 2012 the position of Vice President, Controller and Chief Accounting Officer and from 2002 to 2005 theposition of Vice President, Internal Audit. Prior to joining Goodrich, Mr. Cottrill worked at PricewaterhouseCoopers LLP from 1987 to 1998 Mr. Cottrillholds a Bachelor of Science degree in Accounting from The Pennsylvania State University and is also a Certified Public Accountant.Mark B. Sturgeon joined us in March 1981 and served as Executive Vice President and Chief Financial Officer from February 1994 to November 2015.His responsibilities encompassed the Company’s entire financial organization, including the treasury, tax, credit functions, risk management, investorrelations and legal and he 98Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsalso coordinated the Company’s strategic planning efforts. On November 3, 2015, Mr. Sturgeon notified the Company of his intention to retire from theCompany effective March 31, 2016 and that effective November 9, 2015 he would step down as the Company’s Chief Financial Officer, Secretary andTreasurer. Mr. Sturgeon will remain employed as an Executive Vice President of the Company until his retirement on March 31, 2016. Mr. Sturgeon has heldthe positions of Corporate Cost and Budget Manager and Market Planning Manager and was named Corporate Controller in October 1988. Prior to joining ushe spent three years as a Budget & Financial Analyst for Borden Company and a year with Touche Ross & Company. Mr. Sturgeon is a Certified PublicAccountant, a Certified Management Accountant, and graduated from Pennsylvania State University with a B.S. Degree in Business Administration and anM.S. in Accounting.Thomas M. Fussner joined us in October 1989 and has served as Executive Vice President since February 2006 and Co-Chief Operating Officer sinceNovember 2009. Mr. Fussner joined us as Director, Supplier Relations and has held advancing leadership roles in our manufacturing and operationsfunctions, including being named Vice President, Manufacturing Operations in July 1995 and Senior Vice President, Manufacturing Operations in January2009. He currently oversees our manufacturing, logistics, procurement, manufacturing engineering, operational services, human resources, and informationtechnology functions. Prior to joining us, he spent seven years at the lighting division of General Electric in plant, product, and customer servicemanagement positions. Mr. Fussner holds a bachelor’s degree in Chemistry from Colgate University and an M.B.A. with a concentration in OperationsManagement from the University of Michigan.Ronald R. Vitarelli joined us in November 1988 and has served as Executive Vice President & Co-Chief Operating Officer since November 2011.Mr. Vitarelli joined us as a Sales Representative and was promoted to Regional Sales Manager in December 1995. In July 2003, he was named GeneralManager of StormTech LLC, a manufacturer of underground storm water retention and detention systems that was a 50/50 joint venture of ours withInfiltrator Systems, Inc. Upon our acquisition of the remaining 50% interest in StormTech from Infiltrator in November 2009, Mr. Vitarelli rejoined us andcontinued to lead the StormTech business until March 2010, when he was named Vice President, Storm & Sanitary Markets. He currently oversees our sales,product development, market management, and engineering functions. Mr. Vitarelli holds a bachelor’s degree in Marketing from Providence College.Robert M. Klein joined us in June 1992 and has served as Executive Vice President, Sales since February 2006. Upon joining us, Mr. Klein held severalleadership positions in operations including Manager, Regional Manufacturing, Manager, Distribution Yards, Director, Purchasing and was named VicePresident, Manufacturing Services in January 1999. In July 2001, he was named Vice President, Sales and Marketing and began providing leadership to ourfield sales, corporate account sales, marketing, customer service, and market analysis functions. Prior to joining us, he spent seven years at The GerstenslagerCompany in manufacturing management positions. Mr. Klein holds a bachelor’s degree in Business Administration from Ashland College.Ewout Leeuwenburg joined us in April 2001 and has served as Senior Vice President, International since November 2011. He began leading ourinternational operations in December 2007 and was named Vice President, International in July 2008. Mr. Leeuwenburg joined us upon the completion ofour acquisition of the Inline Drain & Drain Basin division of Nyloplast, USA in 2001. At the time of the acquisition, Mr. Leeuwenburg had been withNyloplast, USA Inc. since July 1988 in various business development, operations, sales, and marketing manager positions, and had served as President,United States since July 1996. Upon joining us, he served as General Manager, Nyloplast and expanded his responsibilities to Director, Allied Products inSeptember 2002. Mr. Leeuwenburg holds a bachelor’s degree in Mechanical Engineering from Hogeschool Rotterdam in the Netherlands.Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of a registered class ofour equity securities, to file reports of ownership and changes in 99Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsownership with the SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies ofall Section 16(a) forms they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company, during thefiscal year ended March 31, 2015, or with respect to such fiscal year, all Section 16(a) filing requirements were met.Codes of Business Conduct and EthicsOur board of directors has established a Code of Ethics for Senior Executive and Financial Officers that applies to our senior executive and financialofficers, including our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions. We alsomaintain a Code of Business Conduct and Ethics that governs all of our directors, officers and employees. A copy of the Code of Ethics for Senior Executiveand Financial Officers and the Code of Business Conduct and Ethics are available on our website at www.ads-pipe.com. We will promptly disclose any futureamendments to these codes on our website, as well as any waivers from these codes for executive officers and directors. Copies of these codes will also beavailable in print from our Corporate Secretary, without charge, upon request.Audit CommitteeOur board of directors has established an audit committee and our audit committee is comprised of Messrs. Eversole, Fischer, Haney and Ms. Fratto,with Mr. Eversole serving as the chairperson of the audit committee. Mark L. Lovett also served on the audit committee until his resignation as a directoreffective as of December 10, 2014. With respect to Mr. Lovett’s service on the audit committee, our board of directors determined that Mr. Lovett was notindependent for the purposes of audit committee membership, due to his employment with American Securities. American Securities is a significantstockholder through its affiliate, ASP ADS Investco, LLC. Accordingly, solely for the purpose of Rule 10A-3 of the Securities Exchange Act of 1934, asamended, our board of directors has concluded that Mr. Lovett was an affiliated person by virtue of his relationship with American Securities and thus notconsidered independent for purposes of Exchange Act Rule 10A-3, although he was considered to be independent for purposes of the rules of the NYSE. Allof the members of the audit committee are financially literate and have accounting or related financial management expertise within the meaning of the rulesof the NYSE. Our board of directors has determined that Mr. Eversole qualifies as an “audit committee financial expert,” as that term is defined under the SECrules implementing Section 407 of the Sarbanes-Oxley Act of 2002. ITEM 11.EXECUTIVE COMPENSATIONCompensation Discussion and AnalysisThe following Compensation Discussion and Analysis provides information regarding the material elements of our fiscal year 2015 compensationprogram for our “named executive officers,” also referred to as the “NEOs.” Our NEOs for fiscal year 2015 were: • Joseph A. Chlapaty, our President and Chief Executive Officer; • Mark B. Sturgeon, who served as our Executive Vice President, Chief Financial Officer, Secretary and Treasurer until he stepped down as ChiefFinancial Officer, Secretary and Treasurer on November 9, 2015; • Thomas M. Fussner, our Executive Vice President and Co-Chief Operating Officer; • Ronald R. Vitarelli, our Executive Vice President and Co-Chief Operating Officer; and • Robert M. Klein, our Executive Vice President of Sales.The compensation and management development committee of our board of directors, or the Committee, pursuant to its charter, is responsible forestablishing, implementing and reviewing on an annual basis our 100Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentscompensation programs and actual compensation paid to our NEOs, except for our Chief Executive Officer, with respect to whom the Committee’s decisionsare subject to review and final approval by our board of directors.Executive SummaryWe believe our compensation practices and the overall level of executive compensation are competitive when compared to the marketplace and reflectour commitment to performance-based pay. Our compensation programs are intended to align our NEOs’ interests with those of our stockholders byrewarding performance that meets or exceeds the goals the Committee establishes, with the objective of increasing long-term stockholder value. Further, ourexecutive compensation programs are designed to align with our financial performance.In the year prior to fiscal year 2015, the Committee requested and management completed a review of our executive compensation programs comparedto market practices and in light of our business model, growth strategy, and planned transition to public ownership. Following review and discussion, theCommittee approved changes to components of our executive compensation programs to establish a sustainable and competitive framework to motivate andretain the leadership talent necessary to drive achievement of planned business results as well as successfully guide the Company through its transition tobeing publically owned. Consistent with those objectives, base salary adjustments were made for each NEO, the annual cash incentive plan design wasmodified to contain specific performance thresholds and corresponding awards, and non-qualified stock option grants were made to each NEO which wereintended to be multi-year awards. These changes resulted in a shift of the total compensation mix of the NEOs from short to long-term compensation, whichthe Committee believes further aligns the interests of our executives with those of our stockholders.As a result, in fiscal year 2015 there were no substantive changes made to the components of compensation for our NEOs. Specifically for our NEOs,there were no base salary adjustments, no material changes to the design of the annual cash incentive plan, and no grants were made from any of our equityprograms with the exception of certain reload options. Further, consistent with our commitment to align our executive compensation design with ourstockholders’ interests and coinciding with our transition to a public company, we developed a custom peer group for benchmarking our compensationpractices.For fiscal year 2015, the Committee recommended and approved, and the Board ratified and approved, incentive awards under the Cash Incentive Planfor each NEO, and the Company paid such incentive awards to the NEOs, based on the Company’s preliminary financial performance for fiscal year 2015.However, in light of the subsequent uncertainty regarding the Company’s financial performance for fiscal year 2015 until the completion of the audit,management recommended, and the Committee approved the recommendation, to rescind the fiscal year 2015 awards and request that the NEOs voluntarilyreturn all previously-paid amounts, as described in the Company’s Current Report on Form 8-K filed with the SEC on May 11, 2015. On August 17, 2015, ourNEOs voluntarily agreed to return to the Company the previously-paid cash bonuses awarded under the annual cash incentive plan for fiscal year 2015.The summary below reflects our belief in having executive pay linked to stockholder value creation and alignment between our fiscal year 2015executive compensation and our financial performance.Our Compensation Philosophy and PrinciplesOur culture is based on delivering sustainable results; a philosophy we believe is best embodied by our core values of: • focusing on long-term growth and profitability; • creating an environment that promotes loyalty among employees, customers, and suppliers; • being sales and marketing driven; • being committed to innovation in product, process, and technology; and • ensuring quality throughout our products and organization. 101Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCompensation PhilosophyThe Committee and our management believe that fostering the core values referenced above requires a strong performance culture and compensationprograms that align our executives’ interests with those of all of our stockholders by rewarding performance that meets or exceeds the goals established bythe Committee and our board of directors.Compensation PrinciplesOur executive compensation programs are designed according to the following principles: • emphasizing pay-for-performance to motivate both short and long-term performance; • structuring total compensation levels within the competitive market range for similar executive roles, which is generally viewed as the pay rangebetween +/- 15% of the median of the Compensation Peer Group; • placing greater emphasis on variable pay versus fixed pay; • linking the total compensation of our executives to the sustained value they create for our stockholders through the use of equity-basedcompensation; • structuring total compensation levels within competitive range for similar executive roles; and • attracting, retaining and motivating top executive talent.Setting Pay LevelsWhen setting pay levels the Committee exercises its discretion to position individual pay levels higher or lower in the competitive market range basedon a subjective assessment of individual facts and circumstances, including the: • strategic importance of the position to our growth objectives; • individual experience, competency, skill, performance, and potential; • overall performance and contribution of the individual to the business performance; and • elapsed time since the last compensation adjustment.Determining Executive CompensationRole of our Compensation and Management Development Committee. Pursuant to authority delegated by our board of directors, the Committee isresponsible for the design and implementation of our executive compensation policies and programs and determines the compensation for each of ourexecutive officers other than the Chief Executive Officer consistent with the terms of the employment agreement for each NEO. In fiscal year 2015, our boardof directors determined the compensation of Mr. Chlapaty, our Chief Executive Officer, based on the Committee’s recommendations and in accordance withMr. Chlapaty’s employment agreement. A summary of the employment agreements currently in effect with each of our NEOs is described below under“— Employment Agreements.”Role of Management. Our human resources department, in partnership with the Committee, supports the design and implementation of all executivecompensation programs. Our finance department supports this process by providing financial analysis as part of the review of program design. Except withrespect to his own compensation, our Chief Executive Officer has final management-level review of any compensation program before it is sent to theCommittee for consideration and approval. The Committee has responsibility for approving our material compensation programs, including our equitycompensation program. Management 102Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsfrequently consults with the Committee during the design process to obtain their direction and feedback on how the design of our executive compensationprograms supports our overall strategy.Compensation Peer Group. To enable the Company to benchmark our compensation programs, the Company uses a customized compensation peergroup, developed with support from Towers Watson. The Committee has determined that these companies reflect the compensation practices of companieswith comparable lines of business, size, and operating characteristics. Apogee Enterprises, Inc. Eagle Materials Inc. Gibraltar Industries, Inc.Griffon Corporation Lindsay Corporation Martin Marietta Materials Inc.Masonite International Corporation Mueller Water Products, Inc. NCI Building Systems Inc.Ply Gem Holdings, Inc. Quanex Building Products Corporation Simpson Manufacturing Co., Inc.Watts Water Technologies, Inc. In general, these companies come from the building products, machinery, or construction materials industry that are likely to be attracting andretaining talent with similar experience and skills to that of our Company. The median annual revenue of these companies approximates our annual revenueand reflects a range of $600 million to $2.3 billion.Role of Compensation Consultants. In establishing the compensation peer group and custom analysis, management utilized the services of TowersWatson, a third-party executive compensation consultant, to assist management in connection with this process. Towers Watson did not provide any servicesto us, or receive any payments from us, other than in their capacity described above.Components of CompensationFor fiscal year 2015, the principal components of compensation for the named executive officers were: • base salary; • annual cash incentive compensation; • long-term equity-based compensation; and • benefits and executive perquisites.The Committee has responsibility for determining all elements of compensation granted to the NEOs and reviews each element of compensation, aswell as the relative mix or weighting of elements, on an annual basis.Base SalaryBase salary is the primary fixed element of total compensation and serves as the foundation for the executive’s compensation structure, since theannual cash incentive program is directly linked to base salary levels. Our NEOs are covered by employment agreements and, accordingly, we pay annualbase salaries initially as set forth in these agreements as thereby adjusted, which are determined based on the Committee’s discretion on each NEOs positionand responsibility and on the custom peer group analysis. Base salaries for each NEO are reviewed on an annual basis and compared against the competitiverange for similar positions based on the custom peer group analysis. Each year, the Chief Executive Officer, with input from the human resources department,proposes base salary increases, if any, for all NEOs, excluding himself, based on the aforementioned criteria. His proposal is subject to review and approval(with or without modifications) by the Committee. Changes to Mr. Chlapaty’s base salary are initiated and approved by the Committee directly, subject tothe review and final approval of our board of directors. 103Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThere were no adjustments in base salary initiated or approved for the NEOs in fiscal year 2015. The table below shows the base salaries for the NEOsin fiscal year 2015. Named Executive Officer Base Salary Joseph A. Chlapaty $475,000 Mark B. Sturgeon $285,000 Thomas M. Fussner $315,000 Ronald R. Vitarelli $275,000 Robert M. Klein $270,000 Annual Cash Incentive CompensationThe fiscal year 2015 ADS Annual Cash Incentive Plan, or the Cash Incentive Plan, provides annual cash incentive compensation opportunities basedon three performance measures related to our financial performance, as well as an individual performance measure based upon the performance of the NEO ascompared to their annual performance objectives. By tying a significant portion of the executive’s total annual cash compensation to annual variable pay,the Committee believes it further reinforces our pay for performance culture and focuses our executives on critical short-term financial and operationalobjectives, which also support our long-term financial goals.As discussed below under “— Payout Awards for Fiscal Year 2015,” our NEOs voluntarily agreed to return to the Company the previously-paid cashbonuses awarded under the annual cash incentive plan for fiscal year 2015.Establishing Target PayoutsUnder the Cash Incentive Plan, target payouts for each NEO are reviewed on an annual basis and compared against the custom peer group analysis. TheChief Executive Officer, with input from the human resources department, proposes annual target payout adjustments, if any, for all NEOs, excluding himself,based on the aforementioned performance measures. His proposal is subject to review and approval (with or without modifications) by the Committee.Changes to Mr. Chlapaty’s targeted payout from the Cash Incentive Plan are initiated and approved by the Committee directly, subject to the review andfinal approval of our board of directors.Consistent with our compensation principles, the target payouts from the Cash Incentive Program are a significant portion of the target annual cashcompensation for our NEOs. The Committee believes the established targets enhance the alignment to our pay-for-performance and stakeholder alignmentprinciples. The target annual cash incentive payouts for fiscal year 2015 as a percentage of salary were as follows: Target Payout (as a percent of salary) Joseph A. Chlapaty 140% Mark B. Sturgeon 75% Thomas M. Fussner 75% Ronald R. Vitarelli 75% Robert M. Klein 65% Minimum Threshold Performance LevelConsistent with our pay-for-performance compensation principle, the Cash Incentive Plan includes a funding trigger that requires the achievement ofthe established minimum threshold performance level for Adjusted EBITDA in order for any potential payout based on the Total Net Sales, Average QuarterlyDebt 104Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsBalance or Individual Goal Achievement measures. For fiscal year 2015, the Adjusted EBITDA funding trigger was set at $147,009,000, the minimumAdjusted EBITDA threshold required to receive a threshold payout of 40% as described below.Performance MeasuresThe Committee believes that the following measures reflect key value drivers for purposes of establishing payouts under the Cash Incentive Plan: • Total Net Sales — sales after cash discounts, product returns, and freight rebills. • Adjusted EBITDA — EBITDA before stock-based compensation expense, non-cash charges and certain other expenses. • Average Quarterly Debt Balance — average quarter end long-term debt. • Individual Goal Achievement — performance of the executives versus their annual performance objectives.Minimum, target, and maximum performance thresholds are established based on the Committee’s assessment of performance targets that appropriatelydrive and reward the achievement of growth versus our prior year performance levels.For fiscal year 2015, 55% of the incentive award is based upon the achievement of certain levels of adjusted EBITDA, 15% is based upon certain levelsof Total Net Sales, 10% is based upon certain levels of quarterly average debt, while 20% is based upon attainment of certain personal performance goals.The foregoing percentages are then multiplied by the NEO’s target percentage of annual base salary as of March 31, 2015 to arrive at the target amounts.The minimum performance goals required to receive a threshold payout of 40% of target for Total Net Sales, Adjusted EBITDA, and Average QuarterlyDebt were $1,069,009,000, $147,009,000, and $425,340,000, respectively. Those performance goals represent our prior year actual performance levels forTotal Net Sales and Adjusted EBITDA, and represent an 11% or $41,384,000 increase versus the prior year for Average Quarterly Debt. The performancegoals required to receive a threshold payout of 100% of target for Total Net Sales, Adjusted EBITDA, and Average Quarterly Debt were $1,252,038,000,$171,544,000, and $404,648,000, respectively. Those performance goals reflect a 17% or $183,029,000 growth versus the prior year for Total Net Sales, a17% or $24,535,000 growth versus the prior year for Adjusted EBITDA, and a 5% or $20,692,000 increase versus the prior year for Average Quarterly DebtBalance. The maximum performance goals required to achieve a threshold payout of 250% of target for Total Net Sales, Adjusted EBITDA, and AverageQuarterly Debt were $1,435,067,000, $196,079,000, and $383,956,000, respectively. Those performance goals reflect a 34% or $366,058,000 growth versusthe prior year for Total Net Sales, a 33% or $49,070,000 growth versus the prior year for Adjusted EBITDA, and the prior year actual performance level forAverage Quarterly Debt. Payout percentages for performance between the minimum performance goal and the maximum performance goal are determined byusing linear interpolation.The Cash Incentive Plan also includes an individual goal achievement measure, weighted at 20% of the plan, to provide the Chief Executive Officer,the Committee, and our board of directors the opportunity to distinguish individual performance. The same range of payout percentages for the non-individual metrics in the plan can be awarded to each participant. For each NEO, at the beginning of the fiscal year the Committee approved individualannual performance objectives supportive of key business and operational strategies. The individual objectives were based on objective and subjectivecriteria. Payments based upon this measure in the Cash Incentive Plan are recommended by the Chief Executive Officer, excluding himself, based on hisassessment of the performance of the NEOs versus the established annual performance objectives approved for the fiscal year. The recommendations aresubject to the review and final approval of the Committee. Similarly, 105Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsthe Committee assesses the performance of the Chief Executive Officer versus his established annual performance objectives and recommends a payoutpercentage for the measure that is subject to the review and final approval of our board of directors.The annual performance objectives for Mr. Chlapaty for fiscal year 2015 included (i) leading the completion of the initial public offering, (ii) leadingthe achievement of annual revenue and earnings targets, (iii) developing an operational and financial contingency plan, (iv) leading the on-goingdevelopment of the senior management development and succession plan, (v) updating the long-term strategic plan, and (vi) driving new productdevelopment initiatives.The annual performance objectives for Mr. Sturgeon for fiscal year 2015 included (i) leading the completion of the initial public offering,(ii) developing and implementing an effective investor relations operation, (iii) leading the public company transition with the audit committee and outsideauditors, (iv) preparing the organization for Sarbanes Oxley compliance, (v) developing a strategic acquisition strategy, and (vi) building relationships withequity analysts.The annual performance objectives for Mr. Fussner for fiscal year 2015 included (i) driving achievement of planned conversion costs (ii) leading theperformance of Green Line Polymers, (iii) driving improvement in fleet utilization and freight costs, (iv) driving improvement in HP pipe productionperformance, and (v) building leadership and talent in the operations organization.The annual performance objectives for Mr. Vitarelli for fiscal year 2015 included (i) driving achievement of planned sales revenue in the U.S. andCanada, (ii) leading the re-focusing of the field engineering team, (iii) leading new product development, (iv) leading market expansion in Canada, and(v) building leadership and talent in the sales and technical services organizations.The annual performance objectives for Mr. Klein for fiscal year 2015 included (i) driving achievement of planned sales revenue in the U.S.,(ii) managing pricing strategies to deliver planned performance levels, (iii) developing and implementing strategies to maintain corporate accountrelationships, (iv) managing selling expenses, and (v) building leadership and talent in the sales organization.No specific weightings are attached to any of the foregoing factors, which serve as a general guide for the Committee in determining whether theindividual goals for each NEO have been achieved.Payout Awards for Fiscal Year 2015For fiscal year 2015, the Committee recommended and approved, and the Board ratified and approved, incentive awards under the Cash Incentive Planfor each NEO, and the Company paid such incentive awards to the NEOs, based on the Company’s preliminary financial performance for fiscal year 2015.However, in light of the subsequent uncertainty regarding the Company’s financial performance for fiscal year 2015 until the completion of the audit,management recommended, and the Committee approved the recommendation, to rescind the fiscal year 2015 awards and request that the NEOs voluntarilyreturn all previously-paid amounts, as described in the Company’s Current Report on Form 8-K filed with the SEC on May 11, 2015. On August 17, 2015, ourNEOs voluntarily agreed to return to the Company the previously-paid cash bonuses awarded under the annual cash incentive plan for fiscal year 2015. 106Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAs a result, final approved payouts under the Cash Incentive Plan were zero for each NEO in fiscal year 2015. The target incentive awards under theCash Incentive Plan, as well as the final approved payouts for fiscal year 2015 were as follows: Named Executive Officer Target IncentiveAward($) ApprovedPayout (1) Joseph A. Chlapaty $665,000 $0 Mark B. Sturgeon $213,750 $0 Thomas M. Fussner $236,250 $0 Ronald R. Vitarelli $206,250 $0 Robert M. Klein $175,500 $0 (1)As discussed above under “— Payout Awards for Fiscal Year 2015,” our NEOs voluntarily agreed to return to the Company the previously-paid cashbonuses awarded under the annual cash incentive plan for fiscal year 2015.Long-Term Equity-Based CompensationWe maintain several equity-based incentive plans as described below under “—Equity-Base Incentive Plans,” including: • the ADS Amended 2000 Incentive Stock Option Plan (or the 2000 Plan), • the ADS 2008 Restricted Stock Plan (or the 2008 Plan), and • the ADS 2013 Stock Option Plan (or the 2013 Plan).Our NEOs participate in all of the aforementioned plans (except that Mr. Chlapaty received no award grants under the 2000 Plan). We no longer makeawards under the 2000 Plan, although additional options were issued in fiscal year 2015 pursuant to the reload feature of the 2000 Plan. On August 12, 2014,our board of directors amended the 2000 Plan to terminate the reload option feature under the 2000 Plan.Long-term incentive compensation is an integral part of the total compensation for Company executives. The long-term equity-based incentives of theNEOs are reviewed on an annual basis. Each year, the Chief Executive Officer, with input from human resources, proposes long-term equity-based incentivegrants, if any, for all NEOs, excluding himself, based on the aforementioned criteria. His proposal is subject to review and approval (with or withoutmodifications) by the Committee. The long-term equity-based incentive grant, if any, for Mr. Chlapaty is initiated and approved by the Committee directly,subject to the review and final approval of our board of directors.Based on the scale of the stock option and restricted stock awards approved by the Committee and board of directors in fiscal year 2014, no long-termincentive grants were initiated or approved in fiscal year 2015.Benefits and Executive PerquisitesThe benefits provided to our NEOs are generally the same as those provided to our other salaried associates and include medical, vision and dentalinsurance, basic life insurance and accidental death and dismemberment insurance, short- and long-term disability insurance.All of the NEOs, with the exception of Mr. Chlapaty, participate in our tax-qualified ESOP that covers employees who meet certain servicerequirements. See “— Equity-Based Incentive Plans — Employee Stock Ownership Plan” below for additional information regarding the ESOP. 107Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAll of the NEOs, with the exception of Mr. Chlapaty, participated in a fully-insured executive medical reimbursement plan for a portion of fiscal year2015. This plan was terminated on December 31, 2014. In consideration of this benefit, the NEOs participating in the plan contributed $6,000 in calendaryear 2014 for dual participation in this plan as well as our medical, dental and vision plans.All of the NEOs are provided with an individually owned life insurance policy providing $200,000 of permanent whole life coverage with a term riderproviding an initial death benefit of $200,000. This benefit is in recognition of the carve-out under our group term life insurance program that reduces themaximum benefit available from $450,000 to $50,000 for executives, including NEOs. The death benefit under the term rider is gradually replaced by paid-up additional permanent life insurance provided by the dividends on the policies. The policies also accrue cash values which are owned by the executive, ortheir designee, and may be available to them while the policies are in effect. Premiums for each policy are paid for by us and the premium is consideredtaxable income to the NEO.We also provide our NEOs with certain perquisites. These perquisites include use of Company-owned or leased cars and reimbursement of car-relatedexpenses, payment of automobile insurance premiums for Company provided and personal vehicles, and reimbursement of country club or fitnessmembership dues. In determining the total compensation payable to our NEOs, the Committee considers perquisites in the context of the total compensationwhich our NEOs are eligible to receive. However, given the fact that perquisites represent a relatively small portion of the NEO’s total compensation, theavailability of these perquisites does not materially influence the decisions made by the Committee with respect to other elements of the total compensationto which our NEOs are entitled or to which they are awarded.Pursuant to the terms of his employment agreement, Mr. Chlapaty is entitled to the use of any Company-owned or leased aircraft at our expense fortravel related to the performance of his duties on behalf of us and/or charitable uses and purposes. Mr. Chlapaty and certain other NEOs are also permitted tomake personal use of Company aircraft. In fiscal year 2015, Mr. Chlapaty and Mr. Sturgeon made personal use of Company aircraft. The incremental cost ofpersonal use of Company aircraft is calculated based on the average variable operating cost per hour flown, which includes fuel costs, aircraft maintenanceand supplies, landing fees and trip related hanger and parking costs. Fixed costs that do not change based on usage such as hanger rental, aircraft leasepayments, insurance and certain administrative expenses are excluded from the incremental cost calculation. If an aircraft flies empty before picking up orafter dropping off a passenger flying for personal reasons, this “deadhead” segment is included in the incremental cost of the personal use. If an NEO istraveling on business utilizing Company aircraft and there is otherwise room available on the aircraft for the NEO’s spouse to accompany the NEO, thespouse is permitted to do so.For a description of the perquisites received by our NEOs during fiscal year 2015, see the “All Other Compensation” column of our SummaryCompensation Table below.Other Executive Compensation Policies and PracticesRisk in Relation to Compensation ProgramsManagement has assessed our compensation programs and has concluded that there are no plans that provide meaningful incentives for employees,including our NEOs and additional executive officers, to take risks that would be reasonably likely to have a material adverse effect on us. The Companybased its assessment on a review of the material compensation plans and arrangements, most notably the long-term equity based compensation programs andthe annual cash incentive compensation plan. The Company reached its conclusion in part due to the balance of fixed and variable compensation, balance ofshort and long-term incentives, design features of the plans, and the oversight and administration of the Committee. 108Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRecoupment of Incentive Compensation PolicyOn June 30, 2014 the board of directors adopted the Recoupment of Incentive Compensation policy to further protect the interests of the stockholdersand Company. Under this policy, if, in the opinion of the independent directors of the board of directors, financial results are materially mis-stated due inwhole or in part to intentional fraud or misconduct by one of more of the Company’s executive officers, the independent directors have the discretion to usetheir best efforts to remedy the fraud or misconduct and prevent its recurrence. The independent directors may, for up to five years following such mis-statement, direct that the Company recover all or a portion of any bonus or incentive compensation paid, or cancel the stock-based awards granted, to theexecutive officer(s). In addition, the independent directors may, for up to five years following such mis-statement, also seek to recoup any gains realized withrespect to equity-based awards, including stock options and restricted stock units.The independent directors are entitled to exercise remedies pursuant to this policy if each of the following conditions have been met: (1) the bonus orincentive compensation to be recouped was calculated based upon the financial results that were restated, (2) one or more executive officers engaged in theintentional misconduct, and (3) the bonus or incentive compensation calculated under the restated financial results is less than the amount actually paid orawarded.The independent directors did not exercise the remedies pursuant to this policy in connection with the voluntary return of the payout awards for fiscalyear 2015, which payouts were rescinded at the recommendation of management in light of the uncertainty regarding the Company’s financial performancefor fiscal year 2015 until the completion of the audit, which recommendations the compensation and management development committee approved.Tax and Accounting ConsiderationsWhile the accounting and tax treatment of compensation generally has not been a consideration in determining the amounts of compensation for ourexecutive officers, the Committee and management have taken into account the accounting and tax impact of various program designs to balance thepotential cost to us with the value to the executive.The expenses associated with executive compensation issued to our executive officers and other key associates are reflected in our financialstatements. We account for stock-based programs in accordance with the requirements of ASC Topic 718, which requires us to recognize in the incomestatement the grant date fair value of equity-based compensation issued to associates over the vesting period of such awards.Compensation and Management Development Committee ReportThe Compensation and Management Development Committee has reviewed and discussed with the Company’s management the CompensationDiscussion & Analysis set forth above. Based on such review and discussions, the Compensation and Management Development Committee hasrecommended to the Board of Directors that the Compensation Discussion & Analysis be included in this Annual Report on Form 10-K for the year endedMarch 31, 2015.Respectfully submitted, C. Robert Kidder (Chair) David L. Horing Richard A. Rosenthal Abigail S. Wexner 109Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSummary Compensation Table for Fiscal Year 2015The following table summarizes the total compensation earned in each of the fiscal years noted by our NEOs: Name andPrincipal Position FiscalYear Salary$(1) Bonus$ StockAwards$(2) OptionAwards$(3) Non-EquityIncentive PlanCompensation$ (4) All OtherCompensation$ (5) Total$ Joseph A. Chlapaty 2015 475,000 — — — — 189,355 664,355 President & Chief Executive Officer 2014 454,167 — 385,200 3,221,680 300,000 136,588 4,497,635 Mark B. Sturgeon 2015 285,000 — — 83,506 — 36,755 405,621 Executive Vice President and Former Chief FinancialOfficer, Secretary and Treasurer(6) 2014 270,417 — 128,400 1,075,871 115,000 44,806 1,634,494 Thomas M. Fussner 2015 315,000 — — — — 6,054 321,054 Executive Vice President and Co-Chief OperatingOfficer 2014 308,750 — 160,500 1,025,080 105,000 26,654 1,625,984 Ronald R. Vitarelli 2015 275,000 — — — — 5,682 280,682 Executive Vice President and Co-Chief OperatingOfficer 2014 264,583 — 160,500 1,025,080 100,000 23,094 1,573,257 Robert M. Klein 2015 270,000 — — 187,272 — 4,133 461,405 Executive Vice President of Sales 2014 261,667 — 96,300 878,640 85,000 18,122 1,339,729 (1)For fiscal year 2014, reflects adjustment to NEO salaries that went into effect as of September 1, 2013.(2)There were no restricted stock awards in fiscal year 2015. For fiscal 2014, the amounts reported in this column are based on the aggregate grant date fairvalue of restricted stock awarded, computed in accordance with ASC Topic 718. We calculated the estimated fair value of each share of restricted stockon the date of grant as described in “Note 20. Stock-Based Compensation” in the audited financial statements included in the Company’s AnnualReport on Form 10-K for the fiscal year ended March 31, 2015.(3)The amounts reported in this column are based on the aggregate grant date fair value of stock options awarded, computed in accordance with the ASCTopic 718. We calculated the estimated fair value of each option award on the date of grant using a Black-Scholes option pricing model as described in“Note 20. Stock-Based Compensation” in the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal yearended March 31, 2015. The amounts in this column for Mr. Sturgeon and Mr. Klein also includes the grant date fair value of reload options issued inconnection with the exercise of previously granted options under the 2000 Plan. The dollar amount of the option awards in fiscal year 2014 and 2015related to reload options for Mr. Sturgeon is $50,791 and $83,506, respectively. The dollar amount of the option awards in fiscal year 2015 related toreload options for Mr. Klein is $187,272.(4)The amounts reported in this column consist of amounts to be paid under the Cash Incentive Plan for services rendered in fiscal years 2014 and 2015,as discussed above under “— Compensation Discussion and Analysis — Components of Compensation — Annual Cash Incentive Compensation.” OurNEOs voluntarily agreed to return to the Company the previously-paid cash bonuses awarded under the annual cash incentive plan for fiscal year 2015,as discussed above under “— Compensation Discussion and Analysis — Components of Compensation — Annual Cash Incentive Compensation —Payout Awards for Fiscal Year 2015.” 110Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(5)The All Other Compensation column is made up of the following amounts for fiscal year 2015: Name MedicalReimbursementPlanPremiums LifeInsurancePremiums Dividendson UnvestedRestrictedStock (a) Perquisites(b) Total $ Joseph A. Chlapaty $— $4,204 $4,067 $181,084 $189,355 Mark B. Sturgeon $187 $3,664 $1,356 $31,568 $36,775 Thomas M. Fussner $187 $3,834 $2,033 $— $6,054 Ronald R. Vitarelli $187 $4,094 $1,401 $ — $5,682 Robert M. Klein $187 $2,854 $1,092 $— $4,133 (a)On December 10, 2014, we paid a cash dividend of $.04 per share to all stockholders of record on December 1, 2014 and on March 16, 2015, wepaid a cash dividend of $.04 per share to all stockholders of record on March 2, 2014. In connection with these dividends and based on theirrespective equity holdings, our NEOs received such dividend payments with respect to unvested shares of restricted common stock. (b)The amounts shown include the value of perquisites and other personal benefits to an NEO only if the aggregate value exceeded $10,000. Wherewe do report perquisites and other personal benefits for an NEO, we quantify each perquisite or personal benefit only if it exceeds the greater of$25,000 or 10% of the total amount of perquisites and personal benefits for that individual. The amount reported for Mr. Chlapaty andMr. Sturgeon for fiscal 2015 comprised the incremental cost to us of their personal use of Company aircraft ($164,437 for Mr. Chlapaty,$105,084 of which was for philanthropic purposes), personal use of automobile and related automobile liability insurance expense, and socialmembership dues. The incremental cost of personal use of Company aircraft is calculated based on the average variable operating cost per hourflown, which includes fuel costs, aircraft maintenance and supplies, landing fees and trip related hanger and parking costs. Fixed costs that donot change based on usage such as hanger rental, aircraft lease payments, insurance and certain administrative expenses are excluded from theincremental cost calculation. If an aircraft flies empty before picking up or after dropping off a passenger flying for personal reasons, this“deadhead” segment is included in the incremental cost of the personal use. If an NEO is traveling on business utilizing Company aircraft andthere is otherwise room available on the aircraft for the NEO’s spouse to accompany the NEO, the spouse is permitted to do so. As there is noincremental cost to us for the spouse accompanying the executive on such flight, no amount has been included in the Summary CompensationTable with respect to such usage.(6)On November 3, 2015, Mr. Sturgeon notified the Company of his intention to retire from the Company effective March 31, 2016 and that effectiveNovember 9, 2015 he would step down as the Company’s Chief Financial Officer, Secretary and Treasurer. Mr. Sturgeon will remain employed as anExecutive Vice President of the Company until his retirement on March 31, 2016. 111Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGrants of Plan-Based Awards for Fiscal Year 2015The following table provides information concerning awards granted to the NEOs in the last fiscal year under any plan: Name Grant Date Estimated Possible Payouts UnderNon-Equity Incentive Plan Awards (1) All OtherStockAwards:Number ofShares ofStock(#) All OtherOptionAwards:Number ofSecuritiesUnderlyingOptions(#) Exercise orBase Priceof OptionAwards($/Sh) GrantDateFairValueof StockandOptionAwards($) (3) Threshold $ Target $ Maximum $ Joseph A. Chlapaty N/A 266,000 665,000 1,662,500 — — — — Mark B. Sturgeon N/A 85,500 213,750 534,375 — — — — 8/12/2014 (2) — — — — 12,353 15.74 83,506 Thomas M. Fussner N/A 94,500 236,250 590,625 — — — — Ronald R. Vitarelli N/A 82,500 206,250 515,625 — — — — Robert M. Klein N/A 70,200 175,500 438,750 — — — — 8/12/2014(2) — — — — 27,703 15.74 187,272 (1)The amounts shown reflect the estimated payouts for fiscal year 2015 under the Cash Incentive Plan that the respective NEO would be eligible forassuming no use of discretion by the Committee in authorizing such payments. Our NEOs voluntarily agreed to return to the Company the previously-paid cash bonuses awarded under the annual cash incentive plan for fiscal year 2015, as discussed above under “— Compensation Discussion andAnalysis — Components of Compensation — Annual Cash Incentive Compensation — Payout Awards for Fiscal Year 2015.” Actual amounts awardedare reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table above. For additional information, seediscussion above under “— Compensation Discussion and Analysis — Components of Compensation — Annual Cash Incentive Compensation.”(2)Represents option awards granted pursuant to the reload option provisions of outstanding option agreements under the 2000 Plan. For moreinformation regarding reload options under the 2000 Plan, see “— Equity Based Incentive Plans — 2000 Incentive Stock Option Plan.” The reloadoption awards granted to Mr. Sturgeon and Mr. Klein vested in full upon issuance.(3)The amounts shown are based on the aggregate grant date fair value of restricted stock and stock options awarded, computed in accordance with FASBASC Topic 718. We calculated the estimated fair value of each option award on the date of grant using a Black-Scholes option pricing model, asdescribed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies andEstimates — Employee Benefit Plans — Stock-Based Compensation Plans.” 112Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOutstanding Equity Awards at Fiscal Year Ended March 31, 2015The following table sets forth the unexercised and unvested stock options and restricted stock held by NEOs at fiscal year-end. Each equity grant isshown separately for each NEO. Option Awards Stock Awards OptionGrant Date Number ofSecuritiesUnderlyingUnexercisedOptionsThat AreExercisable Number ofSecuritiesUnderlyingUnexercisedOptionsThat AreNotExercisable OptionExercisePrice OptionExpirationDate StockAwardGrant Date Number ofShares or Unitsof Stock ThatHave Not Vested Market Value ofShares or Units ofStock That Have NotVested (4) Shares Shares $ Shares $ Joseph A. Chlapaty Stock Options (1) 9/01/13 129,443 388,328 13.64 3/31/23 Restricted Stock (3) 4/10 5,648 169,101 Restricted Stock (3) 5/11 5,648 169,101 Restricted Stock (3) 5/12 16,945 507,333 Restricted Stock (3) 5/13 22,594 676,464 Mark B. Sturgeon Stock Options (2) 4/27/05 — — 4.54 3/31/15 Stock Options (2) 4/26/06 54,601 — 7.68 3/31/16 Stock Options (2) 4/25/07 44,436 — 10.77 3/31/17 Stock Options (2) 7/22/09 28,679 — 9.43 3/31/19 Stock Options (2) 7/21/10 14,460 — 10.75 3/31/20 Stock Options (2) 8/01/12 9,045 — 12.59 3/31/22 Stock Options (2) 9/01/13 8,162 — 13.64 3/31/23 Stock Options (1) 9/01/13 32,949 131,796 13.64 3/31/23 Stock Options (2) 8/12/14 12,353 — 15.74 3/31/24 Restricted Stock (3) 4/10 1,883 56,377 Restricted Stock (3) 10/10 2,824 84,551 Restricted Stock (3) 5/11 1,883 56,377 Restricted Stock (3) 5/12 5,648 169,101 Restricted Stock (3) 5/13 7,531 225,478 Thomas M. Fussner Stock Options (2) 7/22/09 29,341 — 9.43 3/31/19 Stock Options (2) 7/21/10 16,216 — 10.75 3/31/20 Stock Options (2) 5/03/11 13,477 — 10.70 3/31/21 Stock Options (2) 8/01/12 18,522 — 12.59 3/31/22 Stock Options (1) 9/01/13 32,949 131,796 13.64 3/31/23 Restricted Stock (3) 4/10 3,766 112,754 Restricted Stock (3) 5/11 3,766 112,754 Restricted Stock (3) 5/12 8,473 253,682 Restricted Stock (3) 5/13 9,414 281,855 Robert M. Klein Stock Options (2) 4/26/06 56,484 — 7.68 3/31/16 Stock Options (2) 4/25/07 42,363 — 10.77 3/31/17 Stock Options (2) 8/01/12 32,242 — 12.59 3/31/22 Stock Options (1) 9/01/13 28,242 112,968 13.64 3/31/23 Stock Options (2) 8/12/14 27,703 — 15.74 3/31/22 Restricted Stock (3) 4/10 1,883 56,377 Restricted Stock (3) 5/11 1,883 56,377 Restricted Stock (3) 5/12 4,236 126,826 Restricted Stock (3) 5/13 5,648 169,101 Ronald R. Vitarelli Stock Options (1) 9/01/13 32,949 131,796 13.64 3/31/23 Restricted Stock (3) 4/10 565 16,916 Restricted Stock (3) 5/11 1,883 56,377 Restricted Stock (3) 5/12 5,648 169,101 Restricted Stock (3) 5/13 9,414 281,855 (1)Stock options issued pursuant to the 2013 Plan, which vest over a five-year period in 20% installments each year, beginning with the first anniversary following the grant date(except for Mr. Chlapaty’s option award, which vest over a four-year period in 25% installments each year). The vesting terms of these options did not accelerate uponcompletion of our IPO. 113Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(2)Stock options issued pursuant to the 2000 Plan, which vest over a three-year period in one-third installments each year, beginning with the fifth anniversary following thegrant date, provided however that all remaining unvested options vested in full upon completion of our IPO.(3)Restricted stock issued pursuant to the 2008 Plan, which vest over a five-year period in 20% installments each year, beginning with the first anniversary following the grantdate.(4)The market value is the product of $29.94, the closing price of our common shares on the NYSE on March 31, 2015, and the number of unvested stock awardsOption Exercises and Stock Vested for Fiscal Year 2015The following table sets forth for each NEO the exercises of stock options and the vesting of stock awards during fiscal year 2015:Option Exercises and Stock Vested Option Awards Stock Awards Name Number of SharesAcquired onExercise Value Realized onExercise (1) Number of SharesAcquired onVesting (2) Value Realized onVesting (1) # $ # $ Joseph A. Chlapaty — — 25,418 360,029 Mark B. Sturgeon 15,631 312,464 10,826 171,616 Thomas M. Fussner 58,154 554,764 12,709 177,791 Robert M. Klein 33,607 761,871 7,531 107,166 Ronald R. Vitarelli — — 5,742 78,326 (1)Amounts shown represent (i) with respect to option awards exercised prior to the Company’s IPO, the difference between the fair market value of ourcommon stock and the option exercise price at the time of the options’ exercise, (ii) with respect to option awards exercised after the Company’s IPO,the difference between the closing price of our common shares on the NYSE on the date of the options’ exercise and the option exercise price, (iii) withrespect to stock awards prior to the Company’s IPO, the value of the restricted shares that vest based on the fair market value of our common stock asdetermined prior to the IPO, and (iv) with respect to stock awards after the IPO, the value of the restricted shares that vest based on the closing price ofour common shares on the NYSE on the date (or the closing price of our common shares on the NYSE on the next business day in the event the NYSEwas closed on the vesting date) the shares vested. The foregoing values do not necessarily equate to cash realized from the sale of shares acquired uponthe exercise of options or vesting of restricted stock as shares were not sold on exercise or upon vesting, but continue to be held by the NEO.(2)Restricted stock vests over a five year period in 20% installments each year, beginning with the first anniversary following the grant date. The numberof shares listed in this column reflects the total number of shares of restricted stock that vested during fiscal year 2015.Pension Benefits and Nonqualified Deferred Compensation for Fiscal Year 2015We do not provide any defined benefit plans or nonqualified deferred compensation plans to our NEOs.Employment AgreementsOur NEOs have each entered into an amended and restated employment agreement with us, which were negotiated between each NEO and us at arms-length. Certain elements of the compensation payable to our NEOs are set forth in these employment agreements, including initial base salary (subject toperiodic adjustment) and scope of incentive compensation and benefits. These employment agreements also require us to make certain payments upontermination or change in control, as set forth below in “— Potential Payments upon Termination or Change in Control.” 114Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsJoseph A. Chlapaty. On June 20, 2014, we entered into an amended and restated employment agreement with Mr. Chlapaty, our Chief ExecutiveOfficer. The employment agreement provides for an initial employment period ending March 31, 2015. Beginning on January 1, 2015 and each January 1thereafter, the then remaining term of the employment agreement will be extended automatically for an additional one-year period until termination pursuantto its terms, including termination by either party through notice prior to the January 1 renewal date. Mr. Chlapaty’s current annual base salary is $475,000and he is entitled to receive annual incentive compensation. The employment agreement also contains customary non-competition and non-solicitationcovenants of Mr. Chlapaty that apply during his employment and within a period of two years following the termination of his employment with us and aconfidentiality covenant of indefinite duration.Scott A. Cottrill. On November 9, 2015, we entered into an employment agreement with Mr. Cottrill, our Chief Financial Officer. The employmentagreement provides for an initial employment period ending March 31, 2018. Beginning on January 1, 2018 and each January 1 thereafter, the thenremaining term of the employment agreement will be extended automatically for an additional one-year period until termination pursuant to its terms,including termination by either party through notice prior to the January 1 renewal date. Mr. Cottrill’s current annual base salary is $455,000 and he isentitled to receive annual incentive compensation. The employment agreement also contains customary non-competition and non-solicitation covenants ofMr. Cottrill that apply during his employment and within a period of two years following the termination of his employment with us. It also includes aconfidentiality covenant of indefinite duration.Mark B. Sturgeon. On June 20, 2014, we entered into an amended and restated employment agreement with Mr. Sturgeon, our Executive VicePresident. The employment agreement provides for an initial employment period ending March 31, 2015. Beginning on January 1, 2015 and each January 1thereafter, the then remaining term of the employment agreement will be extended automatically for an additional one-year period until termination pursuantto its terms, including termination by either party through notice prior to the January 1 renewal date. Mr. Sturgeon’s current annual base salary is $285,000and he is entitled to receive annual incentive compensation. The employment agreement also contains customary non-competition and non-solicitationcovenants of Mr. Sturgeon that apply during his employment and within a period of two years following the termination of his employment with us. It alsoincludes a confidentiality covenant of indefinite duration. On November 3, 2015, Mr. Sturgeon notified the Company of his intention to retire from theCompany effective March 31, 2016 and that effective November 9, 2015 he would step down as the Company’s Chief Financial Officer, Secretary andTreasurer. Mr. Sturgeon will remain employed as an Executive Vice President of the Company until his retirement on March 31, 2016.Thomas M. Fussner. On June 20, 2014, we entered into an amended and restated employment agreement with Mr. Fussner, our Co-Chief OperatingOfficer. The employment agreement provides for an initial employment period ending March 31, 2015. Beginning on January 1, 2015 and each January 1thereafter, the then remaining term of the employment agreement will be extended automatically for an additional one-year period until termination pursuantto its terms, including termination by either party through notice prior to the January 1 renewal date. Mr. Fussner’s current annual base salary is $315,000 andhe is entitled to receive annual incentive compensation. The employment agreement also contains customary non-competition and non-solicitationcovenants of Mr. Fussner that apply during his employment and within a period of two years following the termination of his employment with us. It alsoincludes a confidentiality covenant of indefinite duration.Ronald R. Vitarelli. On June 20, 2014, we entered into an amended and restated employment agreement with Mr. Vitarelli, our Co-Chief OperatingOfficer. The employment agreement provides for an initial employment period ending March 31, 2017. Beginning on January 1, 2017 and each January 1thereafter, the then remaining term of the employment agreement will be extended automatically for an additional one-year period until termination pursuantto its terms, including termination by either party through notice prior to the January 1 renewal date. Mr. Vitarelli’s current annual base salary is $275,000and he is entitled to receive annual incentive compensation. The employment agreement also contains customary non-competition and non-solicitationcovenants of Mr. Vitarelli that apply during his employment and within a period of two years 115Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsfollowing the termination of his employment with us. It also includes a confidentiality covenant of indefinite duration.Robert M. Klein. On June 20, 2014, we entered into an amended and restated employment agreement with Mr. Klein, our Executive Vice President. Theemployment agreement provides for an initial employment period ending March 31, 2015. Beginning on January 1, 2015 and each January 1 thereafter, thethen remaining term of the employment agreement will be extended automatically for an additional one-year period until termination pursuant to its terms,including termination by either party through notice prior to the January 1 renewal date. Mr. Klein’s current annual base salary is $270,000 and he is entitledto receive annual incentive compensation. The employment agreement also contains customary non-competition and non-solicitation covenants of Mr. Kleinthat apply during his employment and within a period of two years following the termination of his employment with us. It also includes a confidentialitycovenant of indefinite duration.Potential Payments upon Termination or Change in ControlWe have outstanding employment agreements with each of our NEOs as described above under “— Employment Agreements” which require thepayment of certain benefits to each NEO under certain specified circumstances, which we refer to as Specified Circumstances. Our employment agreementswith each NEO identify the following as Specified Circumstances that would require the payment of certain benefits: • termination by us at the end of the executive’s initial employment period or renewal period by giving three-month notice, • death or disability, • termination by the executive at the end of the executive’s initial employment period or renewal period by giving three-month notice, if theexecutive will have attained the age of 65 years (or 68 years in the case of Mr. Chlapaty) on the employment termination date, • termination by the executive upon our breach of material covenant in the employment agreement and failure to cure after receiving notice ofsuch breach, • termination by the executive for good reason, which includes the following without the executive’s consent: (i) a reduction in base salary;(ii) our action which would adversely affect the executive’s participation in, or materially reduce his benefits under, any material benefit plan orequity incentive plan; (iii) our action which would adversely affect or reduce the executive’s participation in, or materially reduces the maximumpotential incentive compensation available to the executive under any of our material incentive compensation plan or program; (iv) theassignment of the executive to a position of a materially lesser status or degree of responsibility; or (v) the assignment of the executive to aprimary work location (A) outside the United States or (B) at which (I) neither we nor our affiliates maintain a significant manufacturing facilityor significant office or (II) by virtue of such location, the ability of the executive to perform his duties is materially impaired, and • termination by us for no reason or for any reason other than mutual agreement for termination or termination for cause. “Cause” includes theexecutive’s non-performance of duties, failure to adhere to our policies, misappropriation of our property, conviction of felony or equivalent, orother crimes subject to possible imprisonment or involving theft, misappropriation, embezzlement, fraud or dishonesty.In the event of termination as a result of the Specified Circumstances described above, each NEO shall be entitled to receive payments and benefits asfollows: • for the 24 months (or 18 months in the case of Mr. Vitarelli) following the termination date, we will continue to pay the executive’s base salary,subject to reduction by the proceeds actually paid to the executive under any disability insurance policies maintained by us if the termination isdue to the executive’s disability, 116Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents • after the conclusion of our fiscal year in which the termination occurs, we will make a lump sum cash payment in an amount equal to theexecutive’s accrued bonus for the prior fiscal year, • after the conclusion of our first full fiscal year immediately following the conclusion of our fiscal year in which the termination occurs, we willpay the executive (except for Mr. Vitarelli) a lump sum cash payment, which we refer to as the Termination Bonus I, as calculated under theapplicable employment agreement, and • after the conclusion of our second full fiscal year immediately following the conclusion of our fiscal year in which the termination occurs, wewill pay the executive (except for Mr. Vitarelli) a lump sum cash payment, which we refer to as the Termination Bonus II, as calculated under theapplicable employment agreement.The payment of the above 24 months base salary, Termination Bonus I and Termination Bonus II is conditioned upon the executive’s release of claimsagainst us.If the executive terminates employment with us at the end of his initial employment period or renewal period by giving three-month notice, but theexecutive will not have attained the age of 65 years (or 68 years in the case of Mr. Chlapaty) on the employment termination date, then after the conclusionof the fiscal year in which the termination occurs, we will pay to the executive a lump sum cash payment in an amount equal to the accrued bonus for thisfiscal year.The employment agreements also provide that, notwithstanding anything to the contrary in any equity incentive plan or related agreements, if theexecutive’s employment is terminated by us for any reason other than for cause, all unvested restricted shares under the 2008 Plan and all unvested optionsunder the 2000 Plan or the 2013 Plan (or only the restricted shares under the 2008 Plan or the options under the 2013 Plan in the case of Mr. Chlapaty)awarded to the executive will fully vest at the employment termination date. Such vested options will be exercisable during the 90 consecutive day periodimmediately following the employment termination date.Our stock option agreements with each NEO under the 2000 Plan and the 2013 Plan provide that (i) upon death or disability of the executive, all theoptions may be exercised during the one-year period commencing on the date of the executive’s death or disability and (ii) upon termination of employmentof the executive for any reason other than for death, disability or for cause, all the options may be exercised during the three-month period commencing onthe employment termination date.Change in Control. Under the 2000 Plan, our stock option agreements with the executives provide that all the options may be exercised by theexecutives commencing at the time of a “change in control.” A “change in control” for this purpose refers to: (i) our entry into an agreement to merge,consolidate or reorganize into or with another corporation or other legal person, and as a result less than 51% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction will be held in the aggregate by officers, directors and holders of abeneficial interest in our voting securities immediately prior to such transaction; (ii) our entry into an agreement to sell or otherwise transfer all orsubstantially all of its assets to any other corporation or other legal person, and as a result a beneficial interest in less than 51% of the combined voting powerof the then-outstanding securities of such corporation or person immediately after such sale or transfer is held in the aggregate by officers, directors andholders of a beneficial interest in our voting securities immediately prior to such sale or transfer; or (iii) during any continuous 12-month period ourstockholders’ sale of or entry into an agreement or agreements to sell to anyone other than us our securities representing 50% or more of our combined votingpower at the beginning of such 12-month period.Under the 2008 Plan, our restricted stock agreements with the executives provide that the restricted shares will vest effective at the time of a “change incontrol.” A “change in control” for this purpose refers to the occurrence of a transaction or series of transactions following which less than a majority of thevoting power of a 117Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentssuccessor entity is held by the persons who hold the same with respect to us immediately prior to such transaction or series of transactions.Under the 2013 Plan, our stock option agreements with the executives provide that all the options may be exercised by the executives commencing atthe time of a “change in control.” A “change in control” for this purpose refers to the occurrence of a transaction or series of transactions following which lessthan a majority of the voting power of a successor entity is held by the persons who hold the same with respect to us immediately prior to such transaction orseries of transactions.Potential Payment. The following table sets forth the payments and benefits that would be received by each NEO in the event a termination ofemployment or a change-in-control of the Company had occurred on March 31, 2015, over and above any payments or benefits he otherwise would alreadyhave been entitled to or vested in on such date under any employment contract or other plan of the Company. The NEO would receive other payments andbenefits as well upon termination of employment to which they were already entitled or vested in on such date. The actual amounts to be paid can only bedetermined at the time of such NEO’s separation from us and could therefore be more or less than the amounts set forth below. For the purposes of thecalculations in the table, payments that would be made over time have been presented as a lump sum value. Name SeverancePayment$ BonusPayment (4)$ Value ofAcceleratedEquity (5)$ Total$ Joseph A. Chlapaty Specified Circumstances (1) $950,000 $— $7,851,776 $8,801,776 Other Terminations (2) $950,000 $— $— $950,000 Change in Control (3) $— $— $7,851,776 $7,851,776 Mark B. Sturgeon Specified Circumstances (1) $570,000 $— $2,740,159 $3,310,159 Other Terminations (2) $570,000 $— $— $570,000 Change in Control (3) $— $— $2,740,159 $2,740,159 Thomas M. Fussner Specified Circumstances (1) $630,000 $— $2,909,320 $3,539,320 Other Terminations (2) $630,000 $— $— $630,000 Change in Control (3) $— $— $2,909,320 $2,909,320 Ronald R. Vitarelli Specified Circumstances (1) $412,500 $— $2,672,524 $3,085,024 Other Terminations (2) $412,500 $— $— $412,500 Change in Control (3) $— $— $2,672,524 $2,672,524 Robert M. Klein Specified Circumstances (1) $540,000 $— $2,250,059 $2,790,059 Other Terminations (2) $540,000 $— $— $540,000 Change in Control (3) $— $— $2,250,059 $2,250,059 (1)Specified Circumstances include termination (i) by the Company and the end of the respective employment period, (ii) the death of the respectiveNEO, (iii) the disability of the respective NEO, and (iv) by the Company for no reason or other reason.(2)Other Terminations include termination (i) by the NEO at the end of the respective employment period if such NEO has obtained the age of sixty-five(65) (and with respect to Mr. Chlapaty, 68), (ii) by the NEO following a breach by the Company of any of its material covenants or agreementscontained in the NEO’s employment agreement not otherwise cured and (iii) by the NEO for Good Reason (as such term is described above).(3)The Company does not provide special change-in-control benefits to NEOs. The Company’s only change-in-control arrangement is accelerated vestingof certain equity awards. No NEO is entitled to any payment 118Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents or accelerated benefit in connection with a change-in-control of the Company, except for accelerated vesting of stock options granted and restrictedstock units granted under the (i) 2000 Stock Option Plan, (ii) the 2008 Restricted Stock Plan or (iii) the 2013 Stock Option Plan. Change-in-Control isdefined above.(4)2015 bonus amounts were assumed, although actual bonus would depend on performance of the Company in the relevant two years followingtermination. Bonus payments for subsequent years, if any, upon termination for each NEO (except for Mr. Vitarelli) are based on a formula equal to thelesser of the bonus paid (i) for the full year immediately prior to termination and (ii) certain bonus calculations earned for the two years followingtermination. Based on such formula, the bonus payments in the presented table are capped at 2xs the bonus paid for fiscal year 2015 (the amountshown on such table) but may be less based on the productivity of the Company for subsequent years.(5)Amounts include the acceleration of stock options, calculated by multiplying the number of shares underlying each stock option whose vesting wouldbe accelerated or that would vest during the notice period, as the case may be, by the difference between $29.94, the closing price of our commonshares on the NYSE on March 31, 2015, and the exercise price of the in-the-money accelerated stock options. Acceleration of restricted stock units arealso included and were calculated by multiplying the number of shares underlying each restricted stock unit whose vesting would be accelerated by$29.94.Equity-Based Incentive Plans2000 Incentive Stock Option PlanOptions granted pursuant to the 2000 Plan constitute incentive stock options for federal income tax purposes. Any option granted pursuant to the 2000Plan must be granted within 10 years from the effective date of its adoption. As of September 2008, further grants under the 2000 Plan were discontinued,although existing stock option grants continue to vest and grant recipients continued to receive reload options under the 2000 Plan during fiscal year 2015prior to the board of director’s termination of the reload feature on August 12, 2014.Shares Under the Plan. The maximum aggregate number of shares available to be issued under the 2000 Plan is 4,707,000, subject to adjustment in theevent of changes in our capitalization. As of March 31, 2015, options to purchase 746,465 shares of our common stock were still outstanding and 1,106,376shares of our common stock were available for future grant under the 2000 Plan. The maximum aggregate fair market value (determined as of the time theoption is granted) of all stock with respect to which incentive stock options may be exercisable by an optionee for the first time in any calendar year underthe 2000 Plan and any of our other incentive stock option plans cannot exceed $100,000. Shares issued under the 2000 Plan may be authorized and unissuedshares or shares held by us in our treasury.Terms and Conditions of Options. Each option will be evidenced by a written option agreement in such form as approved by our board of directors.The option agreement may contain conditions for grant of options (such as an employee’s entry into an employment agreement with us or such employee’sagreement on continued employment with us) and adjustment of the underlying shares upon changes in our capitalization. The option agreement shall setforth the number of underlying shares, option price no less than 100% of the fair market value of the underlying share as of the date of grant, period ofexercise no longer than 10 years after the date of grant, and dates and conditions for exercise of the option. The option price may be paid in cash, shares ofour common stock, a combination of cash and shares or such other consideration as determined by our board. Prior to August 12, 2014, when our board ofdirectors terminated the reload feature of the 2000 Plan, if an optionee exercised an option and paid some or all of the option price with shares of our commonstock, such optionee was granted a reload option to purchase the number of shares equal to the number of shares used as payment of the option price, subjectto adjustment made pursuant to the limitations on the number of shares available for grant under the 2000 Plan. Pursuant to the terms of each incentive stockoption award agreement, the vesting for all option awards accelerated and became fully vested upon completion of our IPO.Reload Options. In the event that an option holder exercises an option and pays some or all of the option price with shares of common stock, suchoption holder will receive a reload option to purchase the same number 119Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsof shares as used to pay the exercise price, with the grant date for any reload option being the next date during the month of July during which our board ofdirectors holds a meeting or, if no such meeting is held, the next date thereafter on which our board of directors holds a meeting. Such reload options shallhave the same terms and conditions associated with grants under the 2000 Plan, including applicable vesting requirements. The exercise price for any newreload option shall equal to the then current fair market value for common stock. Given the discontinuation of the 2000 Plan, the only additional options thatare issued under the 2000 Plan are those associated with reload options. On August 12, 2014, our board of directors amended the 2000 Plan to terminate thereload option feature under the 2000 Plan.2008 Restricted Stock PlanThe purpose of the 2008 Plan is to afford an incentive to, and encourage stock ownership by, our key employees so that such employees may acquire orincrease their proprietary interest in our success and be encouraged to remain in our employ. Awards under the 2008 Plan must be made before September 15,2018.Administration. Our board of directors supervises the administration of the 2008 Plan. Subject to the provisions of the 2008 Plan, the board hasconclusive authority to construe the 2008 Plan and any restricted stock agreement entered thereunder, and to establish and amend the administrative policiesfor the administration of the 2008 Plan.Eligibility. Any of our or our subsidiaries’ directors or employees is eligible to participate in the 2008 Plan.Shares Available. The maximum aggregate number of shares available to be issued under the 2008 Plan is 1,012,005, subject to adjustment in theevent of changes in our capitalization. Such shares must be made available solely from our treasury shares. As of March 31, 2015, 334,527 restricted shares ofour common stock were available for future grant under the 2008 Plan.Participation. Our board of directors will select participants and determine the terms of the awards under the 2008 Plan, which will be set forth in arestricted stock agreement.Terms of Awards. The awards of restricted stock will be subject to the terms and restrictions as determined by our board of directors, which may alsomodify, or accelerate the termination of, such restrictions. During the period in which any shares are subject to restrictions, the board may grant to therecipient of the award all or any of the rights of a stockholder with respect to such shares, including the right to vote and to receive dividends. The 2008 Planauthorizes our board of directors (i) to grant awards to any participant calculated as a percentage of such participant’s base pay and (ii) to determine theamount of such award based on achievement of a target. In addition, the board may choose, at the time of the grant of an award, to include as part of suchaward an entitlement to receive dividends or dividend equivalents, subject to such terms and restrictions as the board may establish. The grant of awards iscontingent upon the participant’s execution of an executive responsibility agreement, or such other non-competition, non-solicitation and/or nondisclosureagreement as we may require.Amendment. We may, by action of our board of directors, amend or terminate the 2008 Plan at any time, or, by action of the board with the consent ofthe anticipant, to amend or terminate any outstanding award of restricted stock.2013 Stock Option PlanThe purpose of the 2013 Plan is to afford an incentive to, and encourage stock ownership by, our officers and other key employees so that suchemployees may acquire or increase their proprietary interest in our success and be encouraged to remain in our employ. Options granted pursuant to the 2013Plan will not constitute incentive stock options for federal income tax purposes unless expressly designated by our board of directors. Any option grantedpursuant to the 2013 Plan must be granted within 10 years from the effective date of its adoption. 120Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsShares Under the Plan. The maximum aggregate number of shares available to be issued under the 2013 Plan is 3,323,142, subject to adjustment in theevent of changes in our capitalization. As of March 31, 2014, options to purchase 1,911,042 shares of our common stock were still outstanding and 442,458shares of our common stock were available for future grant under the 2013 Plan. On May 7, 2014, our board of directors authorized an amendment to the2013 Plan that increased the maximum aggregate number of shares available to be issued under the 2013 Plan by 969,642 shares from 2,353,500 shares to3,323,142 shares. As a result, as of March 31, 2015, options to purchase 1,911,042 shares of our common stock were still outstanding and 1,412,100 shares ofour common stock were available for future grant under the 2013 Plan. The maximum aggregate fair market value (determined as of the time the option isgranted) of all stock with respect to which incentive stock options may be exercisable by an optionee for the first time in any calendar year under the 2013Plan and any of our other incentive stock option plans cannot exceed $100,000. Shares issued under the 2013 Plan may be authorized and unissued shares orshares held by us in our treasury.Administration. Our board of directors administers the 2013 Plan. Subject to the provisions of the 2013 Plan, the board has the discretion to determinethe employees to be granted options and the number of shares subject to each option (except that options granted to members of the board are subject to theapproval of a majority of the our disinterested directors), the time to grant options, the option price, the time and duration to exercise the options. Subject tothe terms of the 2013 Plan, the board also has the discretion to specify additional conditions to the grant and exercise of any option as well as interpret theprovisions of, and any option granted under, the 2013 Plan.Eligible Employees. Options will be granted to our officers and other key employees as our board of directors select from time to time. However, for anyincentive stock options, (i) no employee can be granted an option if such employee owns stock possessing more than 10% of the total combined votingpower of all classes of stock of ours or of any of our subsidiaries unless the option price is at least 110% of the fair market value of the underlying shares andsuch option is not exercisable after the expiration of five years from the date such option is granted, and (ii) such employees must execute a non-competitionand non-disclosure agreement in order to receive grant of the options.Terms and Conditions of Options. Each option will be evidenced by a written option agreement in such form as approved by our board of directors.The option agreement may contain conditions for grant of options (such as an employee’s entry into an employment agreement with us or such employee’sagreement on continued employment with us) and adjustment of the underlying shares upon changes in our capitalization. The option agreement shall setforth the number of underlying shares, option price no less than 100% of the fair market value of the underlying share as of the date of grant, period ofexercise no longer than 10 years after the date of grant, and dates and conditions for exercise of the option. The option price may be paid in cash, shares ofour common stock, a combination of cash and shares or such other consideration as determined by our board. Prior to August 12, 2014, when our board ofdirectors terminated the reload feature of the 2013 Plan, if an optionee exercised an option and paid some or all of the option price with shares of our commonstock, such optionee was granted a reload option to purchase the number of shares equal to the number of shares used as payment of the option price, subjectto adjustment made pursuant to the limitations on the number of shares available for grant under the 2013 Plan. Option awards under the 2013 Plan did notfully vest or further accelerate upon completion of our IPO.Amendment. Our board of directors may, with respect to any shares of our common stock not subject to options at such time, discontinue or amend the2013 Plan in any respect as it deems advisable. However, without the approval of our stockholders, the board cannot increase the aggregate number of sharessubject to the 2013 Plan, change the eligibility of employees for participation in the 2013 Plan, issue options with an option price of less than 100% of thefair market value of the shares, or make other amendments which will cause options issued to fail to qualify as incentive stock options for the federal incometax purposes.Reload Options. In the event that an option holder exercises an option and pays some or all of the option price with shares of common stock, suchoption holder will receive a reload option to purchase the same number 121Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsof shares as used to pay the exercise price, with the grant date for any reload option being the next date during the month of July during which our board ofdirectors holds a meeting or, if no such meeting is held, the next date thereafter on which our board of directors holds a meeting. Such reload options shallhave the same terms and conditions associated with grants under the 2000 Plan, including applicable vesting requirements. The exercise price for any newreload option shall equal to the then current fair market value for common stock. On August 12, 2014, our board of directors amended the 2013 Plan toterminate the reload option feature under the 2013 Plan.Employee Stock Ownership PlanWe sponsor a tax-qualified employee stock ownership plan and trust, or the ESOP, that covers our employees who meet certain service requirements,including all of our NEOs except for Mr. Chlapaty, who does not participate in the ESOP. The ESOP was established effective April 1, 1993, and wasoriginally funded with a 30-year term loan from us as well as a transfer of assets from our profit sharing retirement plan, both of which were used to purchaseshares of our convertible preferred stock. The loan is secured by a pledge of unallocated convertible preferred stock purchased by the ESOP with such loanproceeds that has not yet been released from the pledge (as a result of ESOP payments on the loan) and allocated to participants’ ESOP accounts. The ESOPoperates as a leveraged ESOP and was designed to enable eligible employees to acquire stock ownership interests in us by virtue of their accounts under theESOP.Director CompensationEffective February 27, 2014, prior to the start of fiscal year 2015, we performed a review of the compensation structure and levels for non-employeedirectors in connection with the planning process for our IPO and in connection with changes to the composition of our board of directors implemented priorto our IPO. We engaged Towers Watson to assist in the review and development of recommended changes to non-employee director compensation structureand levels.Under our policy that was in effect for all of fiscal year 2015, each non-employee director received an annual cash retainer of $75,000. Each member ofa committee of our board of directors receives an additional cash retainer as follows: $8,000 for a member of the audit committee, $6,000 for a member of thecompensation and management development committee and $4,000 for a member of the nominating and corporate governance committee. The chairman ofeach committee of our board of directors also receives an additional cash retainer as follows: $10,000 for the chairman of the audit committee, $8,000 for thechairman of the compensation and management development committee and $6,000 for the chairman of the nominating and corporate governancecommittee. None of our directors receive meeting fees in addition to these retainers.The non-employee director compensation policy further provided that upon completion of our IPO, which occurred on July 25, 2014 and continuingeach fiscal year thereafter until changed, each non-employee director who is not affiliated with American Securities would be granted restricted stock in anamount equal to $75,000 at the date of grant that will vest on the one year anniversary of the grant date (provided that the initial grant made to directorsunder the new compensation policy for fiscal year 2015 vested on February 27, 2015), subject to cancellation and forfeiture of unvested shares upontermination of service with our board of directors.Under our policy, each non-employee director who is not affiliated with American Securities was provided the option to receive their annual cashretainer of $75,000 in the form of restricted stock in an amount equal to $75,000 upon completion of our IPO subject to the same vesting parameters as theportion of the director fee paid in restricted stock under the policy. Messrs. Rosenthal, Kidder, Fischer, Eversole, and Ms. Wexner elected to receive restrictedstock in lieu of their annual cash retainer.Non-employee directors will also continue to receive reimbursement of all reasonable travel and other expenses for attending meetings of our board ofdirectors or other Company-related functions. Non-employee 122Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsdirectors who are affiliated with American Securities are awarded an annual fee of $150,000 in cash, along with fees for service on the various committees asdescribed above, which fees are paid directly to American Securities and not to the director individually.Mr. Kidder did not receive compensation for serving as lead independent director in fiscal year 2015.Fiscal Year 2015 Director CompensationThe following table summarizes the total compensation earned by each of our directors for fiscal year 2015. Name Fees Earnedor Paid inCash($) Stock Awards($) All OtherCompensation($) Total($) Joseph A. Chlapaty (1) — — — — Robert M. Eversole (2)(11) 18,000 150,000 — 168,000 David L. Horing (3) 156,000 — — 156,000 Tanya Fratto (4) 83,000 75,000 — 158,000 Scott M. Wolff (5) 51,333 — — 51,333 Richard A. Rosenthal (6)(11) 6,000 150,000 — 156,000 Mark A. Lovett (7) 118,500 — — 118,500 Alexander R. Fischer (8)(11) 12,000 150,000 — 162,000 M.A. (Mark) Haney (4) 83,000 75,000 — 158,000 C. Robert Kidder (9)(11) 18,000 150,000 — 168,000 Abigail S. Wexner (10)(11) 16,000 150,000 — 166,000 (1)Mr. Chlapaty serves as our Chief Executive Officer and therefore receives no compensation for his service as a director.(2)Represents quarterly payments of annual retainer for membership on our board of directors as well as chairperson and member of the audit Committee.(3)Represents quarterly payments of annual retainer for membership on our board of directors and compensation and management developmentcommittee. During fiscal year 2015, Mr. Horing served as a Managing Director at American Securities. Such fees are paid directly to AmericanSecurities and not to the director individually.(4)Represents quarterly payments of annual retainer for membership on our board of directors and audit committee.(5)Represents quarterly payments of annual retainer for membership on our board of directors and nominating and corporate governance committee.During fiscal year 2015, Mr. Wolff served as a Managing Director at American Securities. Such fees are paid directly to American Securities and not tothe director individually. Mr. Wolff resigned from our board of directors effective as of July 30, 2014.(6)Represents quarterly payments of annual retainer for membership on our board of directors and compensation and management developmentcommittee.(7)Represents quarterly payments of annual retainer for membership on our board of directors and audit committee. During fiscal year 2015, Mr. Lovettserved as a Vice President at American Securities. Such fees are paid directly to American Securities and not to the director individually. Mr. Lovettresigned from the board of directors effective as of December 10, 2014.(8)Represents quarterly payment of annual retainer for membership on our board of directors, audit committee, and nominating and corporate governancecommittee.(9)Represents quarterly payment of annual retainer for membership on our board of directors, chairperson and member of the compensation andmanagement development committee, and member of nominating and corporate governance committee.(10)Represents quarterly payment of annual retainer for membership on our board of directors and compensation and management development committee,and chairperson and member of the nominating and corporate governance committee. 123Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(11)Each of Messrs. Rosenthal, Kidder, Fischer, Eversole and Ms. Wexner elected to receive shares of common stock in lieu of their $75,000 annual retainerpaid in cash for membership on our board of directors. The number of shares of common stock granted in lieu of cash compensation was based on theaggregate grant date fair value of our common stock computed in accordance with ASC Topic 718. We calculated the estimated fair value of the sharesof common stock issued in lieu of cash compensation on the date of grant as described in “Note 20. Stock-Based Compensation” in the auditedfinancial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2015.Compensation Committee Interlocks and Insider ParticipationThere are no interlocking relationships between any member of our compensation and management development committee and any of our executiveofficers that require disclosure under the applicable rules promulgated under the federal securities laws. 124Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSStock Ownership by Directors and Executive OfficersThe following table shows beneficial ownership of the Company’s common stock by (i) persons believed by us to own beneficially more than 5% ofthe Company’s outstanding shares, based on our review of SEC filings, (ii) all directors and nominees, (iii) the named executive officers included in theSummary Compensation Table on page 95 of this Annual Report on Form 10-K, and (iv) all directors, nominees, and executive officers (as of February 29,2016) as a group. Name of Beneficial Owner Number of SharesBeneficially Owned Percentage of SharesBeneficially Owned Greater than 5% Stockholders 12 West Capital Management LP (1)90 Park Avenue41st FloorNew York, New York 10016 4,681,333 8.61% ASP ADS Investco, LLC (2)c/o American Securities LLC299 Park Avenue34th FloorNew York, NY 10171 7,546,908 13.89% ESOP (3)c/o Advanced Drainage Systems, Inc.4640 Trueman BoulevardHilliard, Ohio 43026 19,153,274 26.06% Stockbridge Partners LLC (4)200 Clarendon Street35th FloorBoston, Massachusetts 02116 3,483,614 6.41% Waddell & Reed Financial, Inc. (5)6300 Lamar AvenueOverland Park, KS 66202 3,010,600 5.54% Wellington Management Group LLP (6)c/o Wellington Management Company LLP280 Congress StreetBoston, MA 02210 4,714,406 8.67% Joseph A. Chlapaty (7) 10,230,241 18.73% Directors and Named Executive Officers (not listed above): Scott A. Cottrill — — Mark B. Sturgeon (8) 631,449 1.16% Thomas M. Fussner (9) 673,411 1.24% Ronald R. Vitarelli (10) 127,265 * Robert M. Klein (11) 385,629 * Robert M. Eversole 25,483 * Alexander R. Fischer 7,945 * Tanya Fratto 3,973 * M.A. (Mark) Haney 13,973 * David L. Horing (12) — — C. Robert Kidder 11,945 * Richard A. Rosenthal 19,998 * Abigail S. Wexner 82,945 * All current directors and executive officers as a group (15 persons) 12,371,320 22.41% *Less than 1% 125Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(1)We obtained the information regarding share ownership from the Schedule 13G/A filed February 16, 2016, by 12 West Capital Management LP andrelated entities, which reported sole voting power and sole dispositive power as to 4,681,333 shares of common stock as of December 31, 2015.(2)We obtained the information regarding share ownership from the Schedule 13G filed February 17, 2015, by ASP ADS Investco, LLC and relatedentities, which reported shared voting power and shared dispositive power as to 7,546,908 shares of common stock as of December 31, 2014. Asreferenced in footnote (12) below, Mr. Horing may be deemed to have shared voting and investment power over the shares held by ASP ADS Investco,LLC. Mr. Horing disclaims beneficial ownership of the shares of common stock held by ASP ADS Investco, LLC, except to the extent of his pecuniaryinterests therein.(3)Consists of shares of common stock issuable upon the exercise of the conversion option for all of the 24,900,253 shares of ESOP Preferred Stock heldby the ESOP at a ratio of 1-to-0.7692.(4)We obtained the information regarding share ownership from the Schedule 13G/A filed February 16, 2016, by Stockbridge Partners LLC and relatedentities, which reported shared voting power and shared dispositive power as to 3,483,614 shares of common stock as of December 31, 2015.(5)We obtained the information regarding share ownership from the Schedule 13G/A filed February 12, 2016, by Waddell & Reed Financial, Inc. andrelated entities, which reported sole voting power and sole dispositive power as to 3,010,600 shares of common stock as of December 31, 2015.(6)We obtained the information regarding share ownership from the Schedule 13G filed February 11, 2016, by Wellington Management Group LLP andrelated entities, which reported shared voting power as to 3,287,138 shares of common stock and shared dispositive power as to 4,714,406 shares ofcommon stock as of December 31, 2015.(7)Includes, with respect to Joseph A. Chlapaty, 151,265 shares of common stock directly owned by Mr. Chlapaty, 31,066 restricted shares of commonstock owned by Mr. Chlapaty as to which Mr. Chlapaty has sole voting power, 9,789,025 shares of common stock owned of record by the Joseph A.Chlapaty Trust, as to which Mr. Chlapaty, as trustee, has voting and investment power, and 258,885 shares of common stock issuable upon the exerciseof vested stock options (or vesting within 60 days of February 29, 2016), but excludes 94,140 shares of common stock directly owned byMr. Chlapaty’s children and 847,824 shares of common stock beneficially owned by Mr. Chlapaty’s children through irrevocable trusts of whichMr. Chlapaty is not a trustee. Mr. Chlapaty disclaims beneficial ownership of the above excluded shares except to the extent of any pecuniary interest(as defined in Rule 16a–1(a)(2) promulgated under the Exchange Act) that he may have as to such excluded shares.(8)Includes, with respect to Mark B. Sturgeon, 433,697 shares of common stock directly owned by Mr. Sturgeon, 10,355 restricted shares of commonstock owned by Mr. Sturgeon as to which Mr. Sturgeon has sole voting power, and 187,397 shares of common stock issuable upon the exercise ofvested stock options (or vesting within 60 days of February 29, 2016).(9)Includes, with respect to Thomas M. Fussner, 523,553 shares of common stock directly owned by Mr. Fussner, 14,591 restricted shares of commonstock owned by Mr. Fussner as to which Mr. Fussner has sole voting power, and 135,267 shares of common stock issuable upon the exercise of vestedstock options (or vesting within 60 days of February 29,2016).(10)Includes, with respect to Ronald R. Vitarelli, 49,600 shares of common stock directly owned by Mr. Vitarelli, 11,767 restricted shares of common stockowned by Mr. Vitarelli as to which Mr. Vitarelli has sole voting power, and 65,898 shares of common stock issuable upon the exercise of vested stockoptions (or vesting within 60 days of February 29, 2016).(11)Includes, with respect to Robert M. Klein, 246,539 shares of common stock directly owned by Mr. Klein, 8,001 restricted shares of common stockowned by Mr. Klein as to which Mr. Klein has sole voting power, and 131,089 shares of common stock issuable upon the exercise of vested stockoptions (or vesting within 60 days of February 29,2016).(12)Mr. Horing may be deemed to have shared voting and investment power of the shares held by ASP ADS Investco, LLC in his capacity as a ManagingDirector of American Securities and as a managing member of certain funds managed by American Securities as referenced in footnote (2) above.Mr. Horing disclaims beneficial ownership of the shares of common stock owned by ASP ADS Investco, LLC, except to the 126Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents extent of his pecuniary interest therein, as such shares are owned and held by the ASP Sponsors referenced in footnote (2) above.The following table sets forth information as of February 29, 2016 with respect to the beneficial ownership of our convertible preferred stock, all ofwhich is owned by the ESOP. None of our current directors or executive officers owns any of the outstanding shares of our convertible preferred stock. Title of Class Shares Beneficially Owned Percentage of ClassESOP Preferred Stock 24,900,253 100%ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCERegistration Rights AgreementWe have entered into a registration rights agreement (the “Registration Rights Agreement”) with certain of our stockholders, including ASP ADSInvestco, LLC. The Registration Rights Agreement grants to certain of our stockholders the right to cause us, generally at our own expense, to use ourreasonable best efforts to register certain of our securities held by such stockholders for public resale, subject to certain limitations. In the event we registerany of our common stock, certain of our stockholders also have the right to require us to use our reasonable best efforts to include in such registrationstatement shares of our common stock held by them, subject to certain limitations, including as determined by the underwriters. The Registration RightsAgreement also provides for us to indemnify certain of our stockholders and their affiliates in connection with the registration of our common stock.Indemnification AgreementsWe have entered into indemnification agreements with our directors and senior officers. The indemnification agreements provide the directors andsenior officers with contractual rights to the indemnification and expense advancement rights provided under our amended and restated bylaws, as well ascontractual rights to additional indemnification as provided in the indemnification agreements.Transactions with Other Related PartiesIn connection with our business, we procure services from thousands of suppliers, some of which may be affiliated with American Securities. Weestimate that we purchased services from a consulting firm deriving a meaningful percentage of its business from its work for American Securities and itsaffiliates for approximately $37,641 for fiscal 2015. Management believes such services were purchased on an arm’s-length basis at prices that an unrelatedthird party would pay.Policies and Procedures for Related Party TransactionsOur board of directors has adopted a written related person transaction policy to set forth the policies and procedures for the review and approval orratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, anytransaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, theamount involved exceeds $120,000, and a related person had or will have a direct or indirect material interest, including, without limitation, purchases ofgoods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness, andemployment by us of a related person. The nominating and corporate governance committee of our board of directors will review related party transactions. 127Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDirector IndependenceOur common stock has been listed on the NYSE under the symbol “WMS” since July 25, 2014. Under the rules of the NYSE, independent directorsmust comprise a majority of our board of directors within a specified period after the completion of our IPO. In addition, the rules of the NYSE require that,subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and governance committees be independent. Auditcommittee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Under therules of the NYSE, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have arelationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his orher capacity as a member of the audit committee, our board of directors, or any other board committee: (i) accept, directly or indirectly, any consulting,advisory, or other compensatory fee from the listed company or any of its subsidiaries or (ii) be an affiliated person of the listed company or any of itssubsidiaries.In fiscal year 2015, our board of directors undertook a review of its composition, the composition of its committees, and the independence of eachdirector. Based upon information requested from and provided by each director concerning his or her background, employment, and affiliations, includingfamily relationships, our board of directors has determined that none of our directors except for Mr. Chlapaty has a relationship that would interfere with theexercise of independent judgment in carrying out the responsibilities of a director and that each of these directors, other than Mr. Chlapaty, is “independent”as that term is defined under the rules of the NYSE.Except as otherwise described herein, our board of directors has determined that those directors who serve on our audit committee, compensation andmanagement development committee and nominating and corporate governance committee satisfy the independence standards for those committeesestablished by the rules of the NYSE and (in the case of the audit committee) the applicable SEC rules. In making this determination, our board of directorsconsidered the relationships that each non-employee director has with us and all other facts and circumstances our board of directors deemed relevant indetermining their independence, including the beneficial ownership of our capital stock by each non-employee director.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe Audit Committee has sole responsibility, in consultation with management, for approving the terms and fees for the engagement of theindependent registered public accounting firm for audits of the Company’s financial statements and internal control over financial reporting. In addition, theAudit Committee must preapprove all audit, audit-related and permitted non-audit services (including the fees and terms thereof) to be performed for theCompany by its independent auditor, subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by theAudit Committee prior to the completion of the audit. The Audit Committee may form and delegate authority to subcommittees consisting of one or moremembers when appropriate, including the authority to grant preapprovals of audit, audit-related and permitted non-audit services, provided that decisions ofsuch subcommittee to grant preapprovals shall be presented to the full Audit Committee at its next scheduled meeting.For the fiscal years ended March 31, 2015 and 2014, Deloitte & Touche LLP (“Deloitte”), the member firms of Deloitte Touche Tohmatsu Limited, andtheir respective affiliates billed or will bill the Company fees as follows: Fiscal Year Audit Fees Audit-Related Fees Tax Fees All Other Services 2015 $8,053,180 $652,000 $0 $2,150 2014 $1,991,000 $54,275 $0 $2,135 128Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFees noted in “Audit Fees” in fiscal years 2015 and 2014 represent fees for the audits of the annual consolidated financial statements as of and for theyears ending March 31, 2015 and 2014; and reviews of the interim financial statements included in quarterly reports and services normally provided by theindependent registered public accounting firm in connection with statutory filings.Fees noted in “Audit-Related Fees” in fiscal year 2015 represent fees for the annual audit of the ESOP, public offering and related comfort letteractivities, and M&A transactions. “Audit-Related Fees” in fiscal year 2014 represent services for the annual audit of the ESOP and accounting guidance oncomputing Earnings Per Share.There were no fees incurred by the Company from Deloitte related to “Tax Fees” in either fiscal year 2015 or fiscal year 2014.Fees noted in “All Other Services” represent an annual subscription for access to the on-line accounting research tool of Deloitte for both fiscal year2015 and 2014.The Audit Committee has approved all non-audit services described above and has concluded that the provision of these non-audit services iscompatible with maintaining Deloitte & Touche LLP’s independence.The Company’s independent registered public accounting firm, Deloitte & Touche LLP (“Deloitte”), recently advised the Company’s AuditCommittee that they had identified a matter that raised concerns in relation to the SEC’s auditor independence rules. A member of the Deloitte auditengagement team acquired personal financial interests in the Company in January 2016, which was not permissible under the SEC’s auditor independencerules. Deloitte identified the Transactions within two days of the acquisitions, and advised the Covered Person to dispose of the shares and to cease providingservices to the Company immediately. The financial interests were disposed of promptly. Deloitte also removed the Covered Person from the auditengagement team and replaced the Covered Person with another qualified professional who re-performed the work performed by the Covered Person for theperiod in question to ensure a lack of bias in Deloitte’s audit procedures. Accordingly, for the reasons noted above, Deloitte advised the Audit Committeethat the Covered Person’s financial interests in the Company did not impact the objectivity, integrity and impartiality of Deloitte and the individualsresponsible for the planning and execution of the Company’s audit for the year ended March 31, 2015 and the audits of the Company’s restated financialstatements for the years ended March 31, 2014 and 2013.The Audit Committee also separately reviewed and considered the impact that these matters may have had on Deloitte’s independence with respect toit under the applicable SEC and PCAOB independence rules. After considering all of the facts and circumstances, including those noted above, the AuditCommittee determined that the matter would not impair Deloitte’s ability to exercise objective and impartial judgment or Deloitte’s independence on allissues encompassed with their audit engagement for the Company’s financial statements for the year ended March 31, 2015 and for the Company’s restatedfinancial statements for the years ended March 31, 2014 and 2013. 129Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)1.Financial Statements. See “Table of Contents” on page F-1. (a)2.Financial Statement Schedules. Schedule II — Consolidated Valuation and Qualifying Accounts.Other schedules are omitted because they are not required or applicable, or the required information is included in our consolidated financialstatements or related notes. (a)3.Exhibits. See “Index to Exhibits.” 130Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.Date: March 29, 2016 ADVANCED DRAINAGE SYSTEMS, INC.By: /s/ Joseph A. ChlapatyName:Title: Joseph A. ChlapatyPresident and Chief Executive Officer (PrincipalExecutive Officer)By: /s/ Scott A. CottrillName:Title: Scott A. CottrillChief Financial Officer (Principal Financial Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in their indicatedcapacities, on March 29, 2016. Signature Title/s/ Joseph A. ChlapatyJoseph A. Chlapaty Chairman of the Board of Directors, Director, President and Chief ExecutiveOfficer (Principal Executive Officer)/s/ Scott A. CottrillScott A. Cottrill Chief Financial Officer, (Principal Financial Officer and Principal AccountingOfficer)/s/ Robert M. Eversole**Robert M. Eversole Director/s/ Alexander R. Fischer**Alexander R. Fischer Director/s/ Tanya Fratto**Tanya Fratto Director/s/ M.A. (Mark) Haney**M.A. (Mark) Haney Director/s/ David L. Horing**David L. Horing Director/s/ C. Robert Kidder**C. Robert Kidder Director/s/ Richard A. Rosenthal**Richard A. Rosenthal Director/s/ Abigail S. Wexner**Abigail S. Wexner Director **The undersigned, by signing his name hereto, does hereby sign this report on behalf of each of the above-indicated directors of the registrant pursuantto powers of attorney executed by such directors. By: /s/ Scott A. CottrillScott A. Cottrill, Attorney-in-fact 131Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPOWER OF ATTORNEYOFFICERS AND DIRECTORS OFADVANCED DRAINAGE SYSTEMS, INC.Each of the undersigned officers and/or directors of Advanced Drainage Systems, Inc., a Delaware corporation, hereby constitutes and appoints JosephA. Chlapaty and Scott A. Cottrill, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, forhim or her and in his or her name, place and stead in any and all capacities, to sign for the undersigned in any and all capacities the Company’s AnnualReport on Form 10-K for the fiscal year ended March 31, 2015 under the Securities Exchange Act of 1934, as amended, any amendments thereto, and alladditional amendments thereto, each in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documentsin connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power andauthority to do and perform each and every act and thing requisite and necessary to be done so that such Annual Report on Form 10-K shall comply with theSecurities Exchange Act of 1934, as amended, and the applicable rules and regulations adopted or issued pursuant thereto, as fully and to all intents andpurposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substituteor resubstitute, may lawfully do or cause to be done by virtue hereof.IN WITNESS WHEREOF, this instrument has been duly executed as of the 24th day of March, 2016. Signature Title/s/ Joseph A. ChlapatyJoseph A. Chlapaty Chairman of the Board of Directors, Director, President and ChiefExecutive Officer/s/ Scott A. CottrillScott A. Cottrill Executive Vice President and Chief Financial Officer/s/ Robert M. EversoleRobert M. Eversole Director/s/ Alexander R. FischerAlexander R. Fischer Director/s/ Tanya FrattoTanya Fratto Director/s/ M.A. (Mark) HaneyM.A. (Mark) Haney Director/s/ David L. HoringDavid L. Horing Director/s/ C. Robert KidderC. Robert Kidder Director/s/ Richard A. RosenthalRichard A. Rosenthal Director/s/ Abigail S. WexnerAbigail S. Wexner Director 132Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsTABLE OF CONTENTS Page Audited Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of March 31, 2015 and 2014 (Restated) F-3 Consolidated Statements of Operations for the fiscal years ended March 31, 2015, 2014 (Restated) and 2013 (Restated) F-4 Consolidated Statements of Comprehensive (Loss) Income for the fiscal years ended March 31, 2015, 2014 (Restated) and 2013 (Restated) F-5 Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2015, 2014 (Restated) and 2013 (Restated) F-6 Consolidated Statements of Stockholders’ Equity (Deficit) and Mezzanine Equity for the fiscal years ended March 31, 2015, 2014 (Restated) and2013 (Restated) F-7 Notes to Consolidated Financial Statements F-11 Schedule II, Consolidated Valuation and Qualifying Accounts for the fiscal years ended March 31, 2015, 2014 (Restated) and 2013 (Restated) F-62 F-1Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors ofAdvanced Drainage Systems, Inc. and subsidiariesHilliard, OhioWe have audited the accompanying consolidated balance sheets of Advanced Drainage Systems, Inc. and subsidiaries (the “Company”) as ofMarch 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit) and mezzanineequity, and cash flows for each of the three years in the period ended March 31, 2015. Our audits also included the financial statement schedule listed in theIndex. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no suchopinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements,assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.As discussed in Note 2 to the consolidated financial statements, the accompanying 2014 and 2013 consolidated financial statements have beenrestated to correct misstatements.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Advanced Drainage Systems, Inc.and subsidiaries as of March 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period endedMarch 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statementschedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the informationset forth therein./s/ Deloitte & Touche LLPColumbus, OhioMarch 29, 2016 F-2Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS As of March 31, (Amounts in thousands, except par value) 2015 2014 ASSETS (As Restated)(1) Current assets: Cash $3,623 $3,931 Receivables (less allowance for doubtful accounts of $5,423 and $4,490, respectively) 154,294 148,271 Inventories 269,842 259,891 Deferred income taxes and other current assets 18,972 14,465 Total current assets 446,731 426,558 Property, plant and equipment, net 377,067 350,351 Other assets: Goodwill 98,679 88,017 Intangible assets, net 58,055 59,194 Other assets 61,167 65,447 Total assets $1,041,699 $989,567 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Current maturities of debt obligations $9,580 $11,153 Current maturities of capital lease obligations 15,731 12,364 Accounts payable 111,893 110,972 Other accrued liabilities 54,349 43,085 Accrued income taxes 6,041 7,980 Total current liabilities 197,594 185,554 Long-term debt obligation 390,315 442,895 Long-term capital lease obligations 45,503 34,366 Deferred tax liabilities 65,088 66,333 Other liabilities 28,602 32,170 Total liabilities 727,102 761,318 Commitments and contingencies (see Note 15) Mezzanine equity: Redeemable common stock: $0.01 par value; 0 and 38,320 shares issued and outstanding, respectively — 549,119 Redeemable convertible preferred stock: $0.01 par value; 47,070 shares authorized; 44,170 shares issued; 25,639 and 26,129 shares outstanding, respectively 320,490 291,720 Deferred compensation — unearned ESOP shares (212,469) (197,888) Total mezzanine equity 108,021 642,951 Stockholders’ equity (deficit): Common stock: $0.01 par value; 1,000,000 and 148,271 shares authorized; 153,560 and 109,951 sharesissued; 53,522 and 9,141 shares outstanding, respectively 12,393 11,957 Paid-in capital 700,977 12,438 Common stock in treasury, at cost (445,065) (448,439) Accumulated other comprehensive loss (15,521) (6,830) Retained deficit (62,621) (2,412) Total ADS stockholders’ equity (deficit) 190,163 (433,286) Noncontrolling interest in subsidiaries 16,413 18,584 Total stockholders’ equity (deficit) 206,576 (414,702) Total liabilities, mezzanine equity and stockholders’ equity (deficit) $1,041,699 $989,567 (1)See Note 2. Restatement of Previously Issued Financial Statements.See accompanying notes to consolidated financial statements. F-3Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Year Ended March 31, (Amounts in thousands, except per share data) 2015 2014 2013 (As Restated)(1) (As Restated)(1) Net sales $1,180,073 $1,067,780 $1,017,102 Cost of goods sold 973,960 873,810 829,141 Gross profit 206,113 193,970 187,961 Operating expenses: Selling 78,981 74,042 71,805 General and administrative 58,749 59,761 49,601 Loss (gain) on disposal of assets or businesses 362 (2,863) (951) Intangible amortization 9,754 10,145 10,028 Income from operations 58,267 52,885 57,478 Other expense: Interest expense 19,368 18,807 18,526 Other miscellaneous expense (income), net 14,370 (1,177) 103 Income before income taxes 24,529 35,255 38,849 Income tax expense 9,443 19,949 15,935 Equity in net loss (income) of unconsolidated affiliates 2,335 3,086 (266) Net income 12,751 12,220 23,180 Less net income attributable to noncontrolling interest 4,131 3,593 2,520 Net income attributable to ADS 8,620 8,627 20,660 Change in fair value of Redeemable convertible preferred stock (11,054) (3,979) (5,869) Dividends to Redeemable convertible preferred stockholders (661) (10,139) (735) Dividends paid to unvested restricted stockholders (11) (418) (52) Net (loss) income available to common stockholders and participating securities (3,106) (5,909) 14,004 Undistributed income allocated to participating securities — — (1,127) Net (loss) income available to common stockholders $(3,106) $(5,909) $12,877 Weighted average common shares outstanding: Basic 51,344 47,277 46,698 Diluted 51,344 47,277 47,249 Net (loss) income per share available to common stockholders: Basic $(0.06) $(0.12) $0.28 Diluted $(0.06) $(0.12) $0.27 Cash dividends declared per share $0.08 $1.68 $0.10 (1)See Note 2. Restatement of Previously Issued Financial Statements.See accompanying notes to consolidated financial statements. F-4Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME Fiscal Year Ended March 31, (Amounts in thousands) 2015 2014 2013 (As Restated)(1) (As Restated)(1) Net income $12,751 $12,220 $23,180 Other comprehensive (loss) income: Currency translation, before tax (11,928) (6,995) 2,628 Other, before tax — 6 (41) Total other comprehensive (loss) income, before tax (11,928) (6,989) 2,587 Tax attributes of items in other comprehensive (loss) income: Other — (2) 16 Total tax (expense) benefit — (2) 16 Comprehensive income 823 5,229 25,783 Less other comprehensive (loss) income attributable to noncontrolling interest, net of tax (3,237) (1,242) 1,159 Less net income attributable to noncontrolling interest 4,131 3,593 2,520 Total comprehensive (loss) income attributable to ADS $(71) $2,878 $22,104 (1)See Note 2. Restatement of Previously Issued Financial Statements.See accompanying notes to consolidated financial statements. F-5Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year Ended March 31, (Amounts in thousands) 2015 2014 2013 (As Restated)(1) (As Restated)(1) Cash Flows from Operating Activities Net income $12,751 $12,220 $23,180 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 65,472 63,674 63,102 Deferred income taxes (15,367) (7,750) (7,152) Loss (gain) on disposal of assets or businesses 362 (2,863) (951) ESOP and stock-based compensation 18,024 35,033 9,363 Amortization of deferred financing charges 1,410 1,591 2,008 Fair market value adjustments to derivatives 7,746 (53) (4) Other operating activities 937 7,978 (876) Changes in working capital (see Note 24) (16,956) (37,420) (13,317) Net cash provided by operating activities 74,379 72,410 75,353 Cash Flows from Investing Activities Capital expenditures (31,479) (39,621) (38,756) Proceeds from disposition of assets or businesses 538 9,302 1,044 Cash paid for acquisitions, net of cash acquired (36,385) — (4,839) Investment in unconsolidated affiliate (7,566) (6,375) (200) Additions to capitalized software (601) (1,312) (1,079) Other investing activities (600) (706) (966) Net cash used in investing activities (76,093) (38,712) (44,796) Cash Flows from Financing Activities Proceeds from Revolving Credit Facility 389,200 490,703 331,200 Payments on Revolving Credit Facility (432,200) (429,660) (340,000) Proceeds from Term Loan — 100,000 — Payments on Term Loan (6,250) (80,000) (10,000) Proceeds from Senior Notes — 25,000 — Payments of notes, mortgages, and other debt (4,903) (1,942) (1,882) (Payments) loan on CSV life insurance policies (872) — 7,693 Payments on capital lease obligation (9,278) (12,240) (9,342) Payments for deferred initial public offering costs (6,479) — — Debt issuance costs — (2,311) — Proceeds from initial public offering of common stock, net of underwriter discountsand commissions 79,131 — — Cash dividends paid (7,869) (115,058) (6,155) Redemption of Redeemable convertible preferred stock — (4,428) (3,031) Purchase of treasury stock — common (3) (1,063) (249) Other financing activities 1,314 (110) 428 Net cash provided by (used in) financing activities 1,791 (31,109) (31,338) Effect of exchange rate changes on cash (385) (19) 60 Net change in cash (308) 2,570 (721) Cash at beginning of year 3,931 1,361 2,082 Cash at end of year $3,623 $3,931 $1,361 (1)See Note 2. Restatement of Previously Issued Financial Statements.See accompanying notes to consolidated financial statements. F-6Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND MEZZANINE EQUITY (Amounts inthousands) Common Stock Paid-InCapital Common Stock inTreasury AccumulatedOtherComprehensiveLoss RetainedEarnings(Deficit) Total ADSStockholders’(Deficit)Equity Non-controllingInterest inSubsidiaries TotalStockholders’(Deficit)Equity RedeemableCommon Stock RedeemableConvertiblePreferred Stock DeferredCompensation -Unearned ESOPShares TotalMezzanineEquity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance atApril 1, 2012,as previouslyreported 109,979 $11,957 $39,661 101,572 $(449,583) $(1,375) $110,863 $(288,477) $20,628 $(267,849) 38,292 $482,006 26,853 $264,429 19,181 $(188,872) $557,563 Cumulativerestatementadjustments — — (1,006) — — (1,150) (630) (2,786) (5,050) (7,836) — — — — — — — Balance atApril 1, 2012(AsRestated)(1) 109,979 $11,957 $38,655 101,572 $(449,583) $(2,525) $110,233 $(291,263) $15,578 $(275,685) 38,292 $482,006 26,853 $264,429 19,181 $(188,872) $557,563 Net income — — — — — — 20,660 20,660 2,520 23,180 — — — — — — — Othercomprehensiveincome — — — — — 1,444 — 1,444 1,159 2,603 — — — — — — — Redeemableconvertiblepreferred stockdividends — — — — — — (625) (625) — (625) — — — — — — — Common stockdividend ($0.10 per share) — — — — — — (4,817) (4,817) — (4,817) — — — — — — — Dividend paid tononcontrollinginterest holder — — — — — — — — (713) (713) — — — — — — — Allocation ofESOP shares toparticipantsfor: Compensation — — (282) — — — — (282) — (282) — — — — (711) 7,565 7,565 Dividend — — — — — — (110) (110) — (110) — — — — (9) 110 110 Exercise ofcommon stockoptions — — (403) (325) 1,436 — — 1,033 — 1,033 — — — — — — — Redemption ofcommon sharesto exercisestock options — — 805 66 (805) — — — — — — — — — — — — Stock-basedcompensation — — 419 — — — — 419 — 419 — — — — — — — Restricted stockawards — — 832 (141) 630 — — 1,462 — 1,462 — — — — — — — Redemption ofredeemableconvertiblepreferred stock — — — — — — — — — — — — (306) (3,031) — — (3,031) Purchase ofcommon stock — — — 19 (249) — — (249) — (249) — — — — — — — Adjustments toredeemableconvertiblepreferred stockfair valuemeasurement — — — — — — (5,869) (5,869) — (5,869) — — — 21,149 — (15,280) 5,869 Adjustments toredeemablecommon stockfair valuemeasurement — — — — — — (40,270) (40,270) — (40,270) — 40,270 — — — — 40,270 F-7Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(Amounts inthousands) Common Stock Paid-InCapital Common Stock inTreasury AccumulatedOtherComprehensiveLoss RetainedEarnings(Deficit) Total ADSStockholders’(Deficit)Equity Non-controllingInterest inSubsidiaries TotalStockholders’(Deficit)Equity RedeemableCommon Stock RedeemableConvertiblePreferred Stock DeferredCompensation -Unearned ESOPShares TotalMezzanineEquity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount BalanceMarch 31, 2013(As Restated)(1) 109,979 $11,957 $40,026 $101,191 $(448,571) $(1,081) $79,202 $(318,467) $18,544 $(299,923) 38,292 $522,276 26,547 $282,547 18,461 $(196,477)$ 608,346 Net income — — — — — — 8,627 8,627 3,593 12,220 — — — — — — — Othercomprehensiveloss — — — — — (5,749) — (5,749) (1,242) (6,991) — — — — — — — Redeemableconvertiblepreferred stockdividends — — — — — — (10,021) (10,021) — (10,021) — — — — — — — Common stockdividend ($ 1.68per share) — — — — — — (80,102) (80,102) — (80,102) — — — — — — — Dividend paid tononcontrollinginterest holder — — — — — — — — (2,311) (2,311) — — — — — — — Allocation ofESOP shares toparticipants for: Compensation — — (203) — — — — (203) — (203) — — — — (725) 8,093 8,093 Dividend — — — — — — (118) (118) — (118) — — — — (9) 118 118 Exercise ofcommon stockoptions — — (861) (428) 1,896 — — 1,035 — 1,035 — — — — — — — Redemption ofcommon sharesto exercise stockoptions — — 1,187 85 (1,187) — — — — — — — — — — — — Stock-basedcompensation — — 1,748 — — — — 1,748 — 1,748 — — — — — — — Restricted stockawards — — 1,363 (118) 486 — — 1,849 — 1,849 — — — — — — — Redemption ofredeemableconvertiblepreferred stock — — — — — — — — — — — — (418) (4,428) — — (4,428) Purchase ofcommon stock — — — 80 (1,063) — — (1,063) — (1,063) — — — — — — — Reclassification ofcommon stock toredeemablecommon stock (28) — (385) — — — — (385) — (385) 28 385 — — — — 385 Adjustments toredeemableconvertiblepreferred stockfair valuemeasurement — — (3,979) — — — — (3,979) — (3,979) — — — 13,601 — (9,622) 3,979 Adjustments toredeemablecommon stockfair valuemeasurement — — (26,458) — — — — (26,458) — (26,458) — 26,458 — — — — 26,458 BalanceMarch 31, 2014(As Restated)(1) 109,951 $11,957 $12,438 100,810 $(448,439) $(6,830) $(2,412) $(433,286) $18,584 $(414,702) 38,320 $549,119 26,129 $291,720 17,727 $(197,888) $642,951 (1)See Note 2. Restatement of Previously Issued Financial Statements.See accompanying notes to consolidated financial statements. F-8Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND MEZZANINE EQUITY (Amounts inthousands) Common Stock Paid-InCapital Common Stock inTreasury AccumulatedOtherComprehensiveLoss RetainedEarnings Total ADSStockholders’(Deficit)Equity Non-controllingInterest inSubsidiaries TotalStockholders’(Deficit)Equity RedeemableCommon Stock RedeemableConvertiblePreferred Stock DeferredCompensation -Unearned ESOPShares TotalMezzanineEquity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance April 1,2014 (AsRestated)(1) 109,951 $11,957 $12,438 100,810 $(448,439) $(6,830) $(2,412) $(433,286) $18,584 $(414,702) 38,320 $549,119 26,129 $291,720 17,727 $(197,888) $642,951 Net income — — — — — — 8,620 8,620 4,131 12,751 — — — — — — — Othercomprehensiveincome — — — — — (8,691) — (8,691) (3,237) (11,928) — — — — — — — Redeemableconvertiblepreferred stockdividends — — — — — — (534) (534) — (534) — — — — — — — Common stockdividend ($.08per share) — — — — — — (4,270) (4,270) — (4,270) — — — — — — — Dividend paid tononcontrollinginterest holder — — — — — — — — (3,065) (3,065) — — — — — — — Allocation ofESOP shares toparticipants for: Compensation — — 3,003 — — — — 3,003 — 3,003 — — — — (731) 9,141 9,141 Dividend — — — — — — (127) (127) — (127) — — — — (6) 127 127 Exercise ofcommon stockoptions — — 938 (235) 1,048 — — 1,986 — 1,986 — — — — — — — Redemption ofcommon sharesto exercise stockoptions — — 93 7 (93) — — — — — — — — — — — — Stock-basedcompensation — — 3,757 — — — — 3,757 — 3,757 — — — — — — — Tax benefitresulting fromexercise ofcertain stock-basedcompensationawards — — 330 — — — — 330 — 330 — — — — — — — Restricted stockawards — — 719 (167) 743 — — 1,462 — 1,462 — — — — — — — Initial PublicOffering (IPO) 5,289 53 72,143 — — — — 72,196 — 72,196 — — — — — — — Reclassification ofliabilityclassified stockoptions uponIPO — — 1,522 — — — — 1,522 — 1,522 — — — — — — — Purchase ofcommon stock — — — — (3) — — (3) — (3) — — — — — — — ESOPdistributions incommon stock — — 4,454 (377) 1,679 — — 6,133 — 6,133 — — (490) (6,133) — — (6,133) F-9Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(Amounts inthousands) Common Stock Paid-InCapital Common Stock inTreasury AccumulatedOtherComprehensiveLoss RetainedEarnings Total ADSStockholders’(Deficit)Equity Non-controllingInterest inSubsidiaries TotalStockholders’(Deficit)Equity RedeemableCommon Stock RedeemableConvertiblePreferred Stock DeferredCompensation -Unearned ESOPShares TotalMezzanineEquity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Adjustmentstoredeemableconvertiblepreferredstock fairvaluemeasurement — — (13,077) — — — 2,023 (11,054) — (11,054) — — — 34,903 — (23,849) 11,054 Adjustmentstoredeemablecommonstock fairvaluemeasurement — — — — — — (65,921) (65,921) — (65,921) — 65,921 — — — — 65,921 Termination ofredemptionfeature uponIPO 38,320 383 614,657 — — — — 615,040 — 615,040 (38,320) (615,040) — — — — (615,040) BalanceMarch 31,2015 153,560 $12,393 $700,977 100,038 $(445,065) $(15,521) $(62,621) $190,163 $16,413 $206,576 — $— 25,639 $320,490 16,990 $(212,469) $108,021 (1)See Note 2. Restatement of Previously Issued Financial Statements.See accompanying notes to consolidated financial statements. F-10Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Amounts in thousands, except per share data) 1.BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESOrganizationAdvanced Drainage Systems, Inc. and subsidiaries (collectively referred to as “ADS,” the “Company,” “we,” “us” and “our”), incorporated in Delaware,designs, manufactures and markets high performance thermoplastic corrugated pipe and related water management products, primarily in North andSouth America and Europe. Our broad product line includes corrugated high density polyethylene (or “HDPE”) pipe, polypropylene (or “PP”) pipe andrelated water management products.Our fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, references to “year” pertain to our fiscal year. For example, 2015 refersto fiscal 2015, which is the period from April 1, 2014 to March 31, 2015.The Company is managed based primarily on the geographies in which it operates and reports results of operations in two reportable segments. Thereportable segments are Domestic and International.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 onoutstanding shares and earnings per share has been retroactively applied to all periods presented.On July 25, 2014, we completed the IPO of our common stock, which resulted in the sale by the Company of 5,289 shares of common stock. Wereceived total proceeds from the IPO of $79,131 after excluding underwriter discounts and commissions of $5,501, based upon the price to the publicof $16.00 per share. After deducting other offering expenses of $6,935, we used the net proceeds of $72,196 to reduce the outstanding indebtednessunder the revolving portion of our credit facility. The common stock is listed on the New York Stock Exchange under the symbol “WMS.”On August 22, 2014, an additional 600 shares of common stock were sold by certain selling stockholders of the Company as a result of the partialexercise by the underwriters of the over-allotment option granted by the selling stockholders to the underwriters in connection with the IPO. The shareswere 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 shares of common stockby a certain selling stockholder of the Company at a public offering price of $21.25. We did not receive any proceeds from the sale of shares by theselling stockholder.On December 15, 2014, an additional 1,500 shares of common stock were sold by a certain selling stockholder of the Company as a result of the fullexercise by the underwriters of the over-allotment option granted by the selling stockholder to the underwriters in connection with the SecondaryPublic 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 suchadditional shares.Principles of ConsolidationOur consolidated financial statements include the Company, our wholly owned subsidiaries, our majority owned subsidiaries, including ADSMexicana, S.A. de C.V. (“ADS Mexicana”), and variable interest F-11Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsentities (“VIEs”) of which we are the primary beneficiary. We use the equity method of accounting for equity investments where we exercise significantinfluence but do not hold a controlling financial interest. Such investments are recorded in Other assets in our Consolidated Balance Sheets and therelated equity in earnings from these investments are included in Equity in net loss (income) of unconsolidated affiliates in our ConsolidatedStatements of Operations. All intercompany balances and transactions have been eliminated in consolidation.EstimatesThe preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure ofcontingencies and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Significantestimates include, but are not limited to, our allowance for doubtful accounts, inventory, useful lives of our property, plant and equipment andamortizing intangible assets, determination of the proper accounting for leases, accounting for investments, evaluation of goodwill, intangible assetsand other long-lived assets for impairment, accounting for stock-based compensation and our ESOP, valuation of our Redeemable common stock andRedeemable convertible preferred stock, determination of allowances for sales returns, rebates and discounts, determination of the valuation allowance,if any, on deferred tax assets, and reserves for uncertain tax positions. Management’s estimates and assumptions are evaluated on an ongoing basis andare based on historical experience, current conditions and available information. Management believes the accounting estimates are appropriate andreasonably determined; however, due to the inherent uncertainties in making these estimates, actual results could differ from those estimates.Allowance for Doubtful AccountsCredit is extended to customers based on an evaluation of their financial condition and collateral is generally not required. The evaluation of thecustomer’s financial condition is performed to reduce the risk of loss. Accounts receivable are evaluated for collectability based on numerous factors,including the length of time individual receivables are past due, past transaction history with customers, their credit worthiness and the economicenvironment. An allowance for doubtful accounts is estimated as a percentage of aged receivables. This estimate is periodically adjusted whenmanagement becomes aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes inhistorical collection patterns.InventoriesInventories are stated at the lower of cost or market value. The Company’s inventories are maintained on the first-in, first-out (“FIFO”) method. Costsinclude the cost of acquiring materials, including in-bound freight from vendors and freight incurred for the transportation of raw materials or finishedgoods between the Company’s manufacturing plants and its distribution centers, direct and indirect labor, factory overhead and certain corporateoverhead costs related to the production of inventory. The portion of fixed manufacturing overhead that relates to capacity in excess of our normalcapacity is expensed in the period in which it is incurred and is not included in inventory.Market value of inventory is established based on the lower of cost or estimated net realizable value, with consideration given to deterioration,obsolescence, and other factors. The Company periodically evaluates the carrying value of inventories and adjustments are made whenever necessaryto reduce the carrying value to net realizable value.Property, Plant and Equipment and Depreciation MethodProperty, plant and equipment are recorded at cost less accumulated depreciation, with the exception of assets acquired through acquisitions, which areinitially recorded at fair value. Equipment acquired under F-12Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentscapital lease is recorded at the lower of fair market value or the present value of the future minimum lease payments. Depreciation is computed forfinancial reporting purposes using the straight-line method over the estimated useful lives of the related assets or the lease term, if shorter, as follows: YearsBuildings 40Machinery and equipment 3 — 15Leasehold improvements Shorter of usefullife or life of leaseCosts of additions and major improvements are capitalized, whereas maintenance and repairs that do not improve or extend the life of the asset arecharged to expense as incurred. When assets are retired or disposed, the cost and related accumulated depreciation are removed from the asset accountsand any resulting gain or loss is reflected in Loss (gain) on disposal of assets or businesses in our Consolidated Statements of Operations. Constructionin progress is also recorded at cost and includes capitalized interest, capitalized payroll costs and related costs such as taxes and other fringe benefits.Interest capitalized was $518, $611, and $1,036 during the fiscal years ended March 31, 2015, 2014 and 2013, respectively.GoodwillThe Company records acquisitions resulting in the consolidation of an enterprise using the acquisition method of accounting. Under this method, werecord the assets acquired, including intangible assets that can be identified, and liabilities assumed based on their estimated fair values at the date ofacquisition. The purchase price in excess of the fair value of the identifiable assets acquired and liabilities assumed is recorded as goodwill.Goodwill is reviewed annually for impairment as of March 31 or whenever events or changes in circumstances indicate the carrying value may begreater than fair value. The goodwill impairment analysis is comprised of two steps. The first step requires the comparison of the fair value of theapplicable reporting unit to its respective carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned tothat unit, goodwill is not considered impaired and the Company is not required to perform further testing. If the carrying value of the net assetsassigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test inorder to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fairvalue, then we would record an impairment loss equal to the difference. With respect to this testing, a reporting unit is a component of the Company forwhich discrete financial information is available and regularly reviewed by management. Implied fair value of goodwill is determined by consideringboth the income and market approach. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significantestimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected futurecash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables. The fair valueestimates are based on assumptions management believes to be reasonable, but are inherently uncertain.The Company did not incur any impairment charges for Goodwill in the fiscal years ended March 31, 2015, 2014 or 2013.Intangible AssetsIntangible Assets — Definite-LivedDefinite-lived intangible assets are amortized using the straight-line method over their estimated useful lives, and are tested for recoverabilitywhenever events or changes in circumstances indicate that carrying amounts of the asset group may not be recoverable. Asset groups are establishedprimarily by determining F-13Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsthe lowest level of cash flows available. If the estimated undiscounted future cash flows are less than the carrying amounts of such assets, animpairment loss is recognized to the extent the fair value of the asset less any costs of disposition is less than the carrying amount of the asset.Determining the fair value of these assets is judgmental in nature and involves the use of significant estimates and assumptions.Intangible Assets — Indefinite-LivedIndefinite-lived intangible assets are tested for impairment annually as of March 31 or whenever events or changes in circumstances indicate thecarrying value may be greater than fair value. Determining the fair value of these assets is judgmental in nature and involves the use of significantestimates and assumptions. The Company bases its fair value estimates on assumptions it believes to be reasonable, but that are inherently uncertain.To estimate the fair value of these indefinite-lived intangible assets, the Company uses an income approach, which utilizes a market derived rate ofreturn to discount anticipated performance. An impairment loss is recognized when the estimated fair value of the intangible asset is less than thecarrying value.The Company did not incur any impairment charges for Intangible assets in the fiscal years ended March 31, 2015, 2014 or 2013.Other AssetsOther assets include investments in unconsolidated affiliates accounted for under the equity method, capitalized software development costs, deposits,deferred financing costs, cash surrender value of officer life insurance on key senior management executives, Central parts, and other. The Companycapitalizes development costs for internal use software. Capitalization of software development costs begins in the application development stage andends when the asset is placed into service. The Company amortizes such costs using the straight-line method over estimated useful lives of 2 to 10years, which is included in General and administrative expense, Selling expense or Cost of goods sold within our Consolidated Statements ofOperations depending on the nature of the asset and its intended use. Amortization expense related to deferred financing costs is included in Interestexpense within our Consolidated Statements of Operations. Central parts represent spare production equipment items which are used to replace worn orbroken production equipment parts and help reduce the risk of prolonged equipment outages. The cost of Central parts is amortized on a straight linebasis over estimated useful lives of 8 to 30 years.Other assets as of the fiscal years ended March 31 consisted of the following: (Amounts in thousands) 2015 2014 Investments in unconsolidated affiliates $25,038 $23,624 Capitalized software development costs, net 7,276 10,511 Deposits 4,947 5,192 Deferred financing costs 4,543 5,953 Cash surrender value of officer life insurance 9,953 8,893 Central parts 2,108 1,910 Other 7,302 9,364 Total other assets $61,167 $65,447 The following table sets forth amortization expense related to Other assets in each of the fiscal years ending March 31: (Amounts in thousands) 2015 2014 2013 Capitalized software development costs $3,550 $3,270 $3,539 Deferred financing costs 1,410 1,591 2,008 Central Parts 55 43 41 Other 1,977 1,986 1,970 F-14Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsLeasesLeases are reviewed for capital or operating classification at their inception. The Company uses the lower of the rate implicit in the lease or itsincremental borrowing rate in the assessment of lease classification and assumes the initial lease term includes cancellable and renewal periods that arereasonably assured. For leases classified as capital leases at lease inception, we record a capital lease asset and lease financing obligation equal to thelesser of the present value of the minimum lease payments or the fair market value of the leased asset. The capital lease asset is recorded in Property,plant and equipment, net and amortized to its expected residual value at the end of the lease term using the straight-line method, and the leasefinancing obligation is amortized using the interest method over the lease term with the rental payments being allocated to principal and interest. Forleases classified as operating leases, we record rent expense over the lease term using the straight-line method.Foreign Currency TranslationAssets and liabilities of foreign subsidiaries with a functional currency other than the U.S. dollar are translated into U.S. dollars at the current rate ofexchange on the last day of the reporting period. Revenues and expenses are translated at a monthly average exchange rate and equity transactions aretranslated using either the actual exchange rate on the day of the transaction or a monthly average historical exchange rate.Net SalesThe Company sells pipe products and related water management products. ADS ships products to customers predominantly by internal fleet and to alesser extent by third-party carriers. The Company does not provide any additional revenue generating services after product delivery.Sales, net of sales tax and allowances for returns, rebates and discounts are recognized from product sales when persuasive evidence of an arrangementexists, delivery has occurred, the price to the buyer is fixed or determinable and collectability is reasonably assured. ADS does not ship an order until acustomer purchase order or sales order has been received that includes the pricing and quantity of the products in the order, which establishes bothpersuasive evidence of an arrangement and that the price is fixed or determinable. Title to the products and risk of loss generally passes to the customerupon delivery. ADS performs credit check procedures on all new customers, establishes credit limits accordingly, and monitors the creditworthiness ofexisting customers, which is the basis for concluding that collectability is reasonably assured.Shipping CostsShipping costs are incurred to physically move our raw materials, tooling and products between manufacturing and distribution facilities and from ourproduction or distribution facilities to our customers. Shipping costs for the fiscal years ended March 31, 2015, 2014 and 2013 were $120,993,$111,862 and $110,402, respectively, and are included in Cost of goods sold. In certain instances, we bill shipping costs to our customers. Shippingcosts billed to customers were $9,282, $8,864 and $9,133 during 2015, 2014 and 2013, respectively, and are included in Net sales.Stock-Based CompensationADS has several programs for stock-based payments to employees and directors. Equity-classified awards are measured based on the grant-dateestimated fair value of each award, net of estimated forfeitures, and liability-classified awards are re-measured at fair value, net of estimated forfeitures,at each reporting date. Compensation expense is recognized over the employee’s requisite service period, which is generally the vesting period of thegrant. The fair value of each stock option granted is estimated using the Black-Scholes option pricing model. Compensation expense is recorded fornew awards and existing awards that are modified, repurchased, or forfeited. For details of our stock-based compensation award programs, see Note 20.Stock-Based Compensation. F-15Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAdvertisingWe expense advertising costs as incurred. Advertising costs are recorded in Selling expenses in the Consolidated Statements of Operations. The totaladvertising costs were $2,477, $2,335 and $2,731 for the fiscal years ended March 31, 2015, 2014 and 2013, respectively.Self-InsuranceThe Company is self-insured for short term disability and medical coverage it provides for substantially all eligible employees. The Company is self-insured for medical claims up to the individual and aggregate stop-loss coverage limits. Management accrues for claims incurred but not reportedbased on our estimate of future claims related to events that occurred prior to our fiscal year end if we have not met the aggregate stop-loss coveragelimit. Amounts contributed totaled $32,002, $29,484, and $30,775 for the fiscal years ended March 31, 2015, 2014 and 2013, respectively, of whichemployees contributed $4,067, $4,032 and $806, respectively.ADS is also self-insured for various other general insurance programs to the extent of the applicable deductible limits on the Company’s insurancecoverage. These programs include primarily automobile, general liability and employment practices coverage with deductibles ranging from $250 to$500 per occurrence or claim incurred. Amounts expensed during the period, including an estimate for claims incurred but not reported at year end,were $569, $447 and $934, for the years ended March 31, 2015, 2014 and 2013, respectively.ADS is also self-insured for workers’ compensation insurance with stop-loss coverage for claims that exceed $250 per incident up to the respective statestatutory limits. Amounts expensed, including an estimate for claims incurred but not reported, were $1,369, $1,395 and $1,184 for the fiscal yearsended March 31, 2015, 2014 and 2013, respectively.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized and represent the future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective taxbases. They are measured using the enacted tax rates expected to apply to taxable income in the years in which the related temporary differences areexpected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date. The deferred income tax provision represents the change during the reporting period in the deferred tax assets anddeferred tax liabilities. Penalties and interest recorded on income taxes payable are recorded as part of Income tax expense.The Company determines whether an uncertain tax position of the Company is more likely than not to be sustained upon examination, includingresolution of any related appeals or litigation process, based upon the technical merits of the position. For tax positions meeting the more likely thannot threshold, the tax amount recognized in the financial statements is the amount that has a greater than 50% likelihood of being realized uponultimate settlement with the relevant taxing authority.Fair ValuesThe fair value framework requires the categorization of assets and liabilities into three levels based upon assumptions (inputs) used to price the assetsor liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The threelevels are defined as follows:Level 1 — Unadjusted quoted prices in active markets for identical assets and liabilities. F-16Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsLevel 2 — Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets orquoted prices for identical assets or liabilities in inactive markets.Level 3 — Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.The carrying amounts of current financial assets and liabilities approximate fair value because of the immediate or short-term maturity of these items.The carrying and fair values of the Company’s Senior Notes (discussed in Note 13. Debt) were $100,000 and $103,590, respectively, as of March 31,2015 and $100,000 and $104,511, respectively, at March 31, 2014. The fair value of the Senior Notes was determined based on a comparison of theinterest rate and terms of such borrowings to the rates and terms of similar debt available for the period. Management believes the carrying amount onthe remaining long-term debt is not materially different from its fair value as the interest rates and terms of the borrowings are similar to currentlyavailable borrowings. The categorization of the framework used to evaluate this debt is considered Level 2. See also Note 9. Fair Value Measurement tothese financial statements.Concentrations of RiskWe have a large, active customer base of over 18,000 customers with one customer representing more than 10% of annual net sales. Such customeraccounted for 10.7%, 10.6% and 9.7% of fiscal year 2015, 2014 and 2013 net sales, respectively. Our customer base is diversified across the range ofend markets that we serve.Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of Receivables. The Company providesits products to customers based on an evaluation of the customers’ financial condition, generally without requiring collateral. Exposure to losses onReceivables is principally dependent on each customer’s financial condition. The Company performs ongoing credit evaluations of its customers. TheCompany monitors the exposure for credit losses and maintains allowances for anticipated losses. Concentrations of credit risk with respect toReceivables are limited due to the large number of customers comprising the Company’s customer base and their dispersion across many differentgeographies although one customer accounts for approximately 14% of our receivables at March 31, 2015.DerivativesWe recognize derivative instruments as either assets or liabilities and measure those instruments at fair value. We use interest rate swaps, commodityoptions in the form of collars and swaps, and foreign currency forward contracts to manage our various exposures to interest rate, commodity price, andexchange rate fluctuations. These instruments do not qualify for hedge accounting treatment and therefore, gains and losses from contract settlementsand changes in fair value of the derivative instruments are recognized in Other miscellaneous expense (income), net in the Consolidated Statements ofOperations. Our policy is to present all derivative balances on a gross basis.The Company also has forward purchase agreements in place with certain resin suppliers for virgin polyethylene resin. The agreements specify a fixedamount of virgin resin material to be purchased at a fixed price for a given period of time in quantities the Company will use in the normal course ofbusiness, and therefore, are not subject to the guidance provided in ASC 810-15. The cost of such resin is recognized in Cost of goods sold in theConsolidated Statements of Operations.Recent Accounting PronouncementsRevenue Recognition — In May 2014, the FASB issued an accounting standards update which amends the guidance for revenue recognition. Thisamendment contains principles that will require an entity to recognize revenue to depict the transfer of goods and services to customers at an amountthat an entity F-17Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsexpects to be entitled to in exchange for goods or services. The amendment sets forth a new revenue recognition model that requires identifying thecontract, identifying the performance obligations and recognizing the revenue upon satisfaction of performance obligations. In August 2015, the FASBissued an additional accounting standards update that deferred the effective date of the new revenue standard for public entities to periods beginningafter December 15, 2017, with early adoption permitted but not earlier than the original effective date of periods beginning after December 15, 2016.The updated standard permits the use of either the retrospective or cumulative effect transition method. We expect to adopt this standard effectiveApril 1, 2018. We have not yet selected a transition method and are currently evaluating the impact of this amendment on our consolidated financialstatements.Consolidation — In February 2015, the FASB issued an accounting standards update to make changes to consolidation guidance to address concernsof stakeholders that current accounting for certain legal entities might require a reporting entity to consolidate another legal entity in situations inwhich the reporting entity’s contractual rights do not give it the ability to act primarily on its own behalf, the reporting entity does not hold a majorityof the legal entity’s voting rights, or the reporting entity is not exposed to a majority of the legal entity’s economic benefits or obligations. This updateis effective for annual periods beginning on or after December 15, 2015, and interim periods within those years, with early adoption permitted. Weexpect to adopt this standard effective April 1, 2016. We are currently evaluating the impact of this new standard on our consolidated financialstatements.Debt Issuance Costs — In April 2015, the FASB issued an accounting standards update that requires debt issuance costs related to a recognized debtliability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as anasset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective applicationand represents a change in accounting principle. In August 2015, the FASB issued an additional accounting standards update that providedsupplemental guidance that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequentlyamortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstandingborrowings on the line-of-credit arrangement. These updates are effective for annual periods beginning after December 15, 2015, and interim periodswithin those years. Early adoption is permitted for financial statements that have not been previously issued. We expect to adopt this standard effectiveApril 1, 2016 and do not believe the effect of the balance sheet reclassification will have a material impact on our consolidated financial statements.Measurement of Inventory — In July 2015, the FASB issued an accounting standards update which requires entities to measure most inventory at thelower of cost and net realizable value, simplifying current guidance under which an entity must measure inventory at the lower of cost or market. Thedetermination of market value, under current guidance, is considered unnecessarily complex as there are several potential outcomes based on itsdefinition as replacement cost, net realizable value, or net realizable value less an approximate normal profit margin. Whereas net realizable value,under the update, is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal andtransportation. This update is effective for annual periods beginning on or after December 15, 2016, and interim periods within those years, with earlyadoption permitted. We expect to adopt this standard effective April 1, 2017. We will evaluate the impact of this new standard on our consolidatedfinancial statements during 2016.Business Combinations — In September 2015, the FASB issued new accounting guidance which allows entities to prospectively reflect adjustmentsmade to provisional amounts recognized for a business combination during the measurement period. Under the current guidance these adjustmentsneed to be reflected retrospectively as if the accounting had been completed at the acquisition date. The guidance will be effective for fiscal years, andinterim periods within those years, beginning after December 15, 2015 but can be adopted early if financial statements have not been issued. Weadopted this guidance effective July 1, 2015, and it did not have a material impact on our consolidated financial statements.Deferred Tax Assets and Liabilities — In November 2015, the FASB issued an accounting standards update which requires entities to classify alldeferred tax assets and liabilities, as well as any related valuation F-18Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsallowance, as non-current, rather than separately record the current and non-current portions. This update is effective for annual periods beginning onor after December 15, 2016, and interim periods within those years, with early adoption permitted. We expect to early adopt this standard effectiveApril 1, 2016.Equity Investments and Financial Liabilities — In January 2016, the FASB issued an accounting standards update that changes the measurement andrecognition guidance for certain equity investments, financial liabilities and deferred tax assets. The standard does not apply to equity methodinvestments or investments in consolidated subsidiaries. For other types of equity investments, the standard requires that the equity investments bemeasured at fair value with changes recognized in net income, although the standard does provide a practicability exception for equity investmentswithout readily determinable fair values. Under the practicability exception, entities would report these equity investments at cost adjusted for changesin observable prices minus impairment. In addition, the standard requires that for entities that elect the fair value option for financial liabilities, that thechange in fair value that is attributable to instrument-specific credit risk be recognized in other comprehensive income rather than net income. Thestandard also requires that entities assess the need for a valuation allowance on a deferred tax asset related to available-for-sale debt securities incombination with their other deferred tax assets. This update is effective for annual periods beginning after December 15, 2017, including interimperiods within those years. Public business entities are permitted to early adopt the provisions related to the recognition of changes in fair value offinancial liabilities. We expect to adopt this standard effective April 1, 2018 and are currently evaluating the impact of this new standard on ourconsolidated financial statements.Leases — In February 2016, the FASB issued an accounting standards update which amends the guidance for leases. This amendment containsprinciples that will require an entity to recognize most leases on the balance sheet by recording a right-of-use asset and a lease liability, unless the leaseis a short-term lease that has an accounting lease term of twelve months or less. The amendment also contains other changes to the current leaseguidance that may result in changes to how entities determine which contractual arrangements qualify as a lease, the accounting for executory costssuch as property taxes and insurance, as well as which lease origination costs will be capitalizable. The new standard also requires expandedquantitative and qualitative disclosures. This update is effective for fiscal years beginning after December 15, 2018, including interim periods withinthose years, and early adoption is permitted. The updated standard requires the use of the modified retrospective transition method, whereby the newguidance will be applied at the beginning of the earliest period presented in the financial statements of the period of adoption. The modifiedretrospective transition approach includes certain practical expedients that entities may elect to apply in transition. We expect to adopt this standardeffective April 1, 2019. We have not yet determined whether we will elect to apply any of the available practical expedients and are currentlyevaluating the impact of this amendment on our consolidated financial statements.With the exception of pronouncements described above, there have been no new accounting pronouncements that have significance, or potentialsignificance, to our consolidated financial statements. 2.RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTSBackgroundIn June of 2015, in connection with the preparation of the Company’s consolidated annual financial statements for the fiscal year ended March 31,2015, certain errors related to the Company’s accounting treatment for its transportation and equipment leases and inventory methodology wereidentified. As the Company completed additional accounting review procedures, it identified additional errors related to long-lived assets, ADSMexicana and certain other miscellaneous items.Due to these errors, as further described below, and based upon the recommendation of management, the Audit Committee of the Company’s Board ofDirectors (the “Audit Committee”) determined on August 14, 2015 that the Company’s previously issued audited financial statements should nolonger be relied upon. As a result of the foregoing the Company has restated its consolidated financial statements for the fiscal years F-19Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsended March 31, 2014 and 2013, as well as the quarterly periods for the first three quarters of the fiscal year ended March 31, 2015 and for all of thequarterly periods in the fiscal year ended March 31, 2014. The restatement also affects periods prior to fiscal year 2013, with the cumulative effect ofthe errors reflected as an adjustment to the fiscal year 2013 opening stockholders’ equity (deficit) balance.Accounting AdjustmentsThe following is a discussion of the significant accounting adjustments that were made to the Company’s historical consolidated financial statements.Lease Accounting AdjustmentsThe Company leases real estate and equipment under various lease agreements. Historically, assets leased under the Company’s transportation andequipment leasing program (“Fleet Leases”) have been classified as operating leases. However, based upon a reexamination of the Company’s historicassumptions, estimates and judgments with respect to lease accounting, as further described below, the Company has determined that a substantialportion of the Fleet Leases should instead be classified as capital leases.As part of the Company’s recent review of its Fleet Leases, the Company reexamined the minimum lease payment classification test (the “MLP Test”)set forth in ASC Topic 840, which is one of four criteria used to determine lease classification. The MLP Test requires a lease to be capitalized when thepresent value of the minimum lease payments is greater than or equal to 90% of the fair market value of leased property at lease inception.The Company had historically included in the minimum lease payments used for purposes of the MLP Test only those payments related to the non-cancellable period identified in the lease agreement. However, the Company has now determined that the minimum lease payments should also includepayments related to certain reasonably assured renewal periods included in the lease agreement. Under that revised analysis of significant leasearrangements, the Company has concluded that the present value of the minimum lease payments exceeded 90% of the fair market value for certainleased assets, requiring a modification of treatment from operating to capital leases.The Company has also reexamined its historic assumptions, estimates and judgments with respect to the accounting for real estate and aircraft leasesthat were previously classified as operating leases. In many cases, the Company has determined that the leases should instead be classified as capitalleases due to the inclusion of contingent penalty amounts in the minimum lease payments used for purposes of the MLP Test.The errors in lease classification have been corrected in the restated consolidated financial statements, whereby at lease inception the Company hasrecorded a capital lease asset and lease financing obligation equal to the lesser of the present value of the minimum lease payments or the fair marketvalue of the leased asset. The capital lease asset is recorded in Property, plant and equipment, net and amortized to its expected residual value at theend of the lease term using the straight-line method, and the lease financing obligation is amortized using the effective interest method over the leaseterm with the rental payments being allocated to principal and interest.Inventory Accounting AdjustmentsThe Company identified and corrected certain errors related to its accounting for inventory. The errors primarily related to the Company’s incorrecthistorical calculation of inventory costing based on the FIFO method, the inappropriate capitalization of certain inter-plant freight expense and otheroverhead costs, as well as the misclassification of certain overhead costs between general and administrative expense and cost of goods sold. TheCompany also identified and corrected certain errors related to ADS Mexicana’s accounting for inventory. F-20Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWith respect to inventory costing errors related to the application of the FIFO method, the Company had historically utilized a simplified method ofcalculating inventory cost based on an overall average price near period end for all products, particularly with respect to the resin material costcomponent of inventory. However, this simplified method for establishing inventory cost became less precise over time primarily as a result of thesignificant increase in the number of raw materials purchased by the Company. The imprecision in this simplified method became even greater duringfiscal 2015 when raw material pricing became particularly volatile. In response, the Company has developed a more precise model to value the resincomponent of ending inventory on hand under the FIFO method.There were multiple contributing factors related to the errors in the capitalization of overhead costs. First, the Company historically applied asimplified method of capitalizing general and administrative overhead costs to inventory by using a consistent capitalization rate across all generaland administrative functions, such as the purchasing, human resources and information technology functions, regardless of the actual amount of eachfunction’s efforts that were related to the inventory production process. In addition, certain amounts were capitalized from Cost of goods sold intoinventory without a corresponding reclassification entry from general and administrative expenses. In response, the Company developed anappropriate allocation of general and administrative overhead costs to inventory based on the specific amount of each function’s efforts that wererelated to the inventory production process. Finally, certain capitalized overhead costs were determined to be inappropriate as they were unrelated tothe inventory production process or the use of estimates that did not accurately reflect actual costs.The loss on the financial fuel hedge was determined to be Other miscellaneous expense (income), net rather than Cost of goods sold, and therefore wasnot capitalized as an inventoriable cost. Minor corrections were made to the related inventory turn calculation to be more consistent with other costscapitalized into ending inventory.Long-Lived Assets Accounting AdjustmentsThe Company identified and corrected certain errors related to the accounting for long-lived assets included in Property, plant and equipment,Goodwill, Intangible assets and Other assets in the Consolidated Balance Sheets. These errors primarily related to either the initial capitalization,subsequent depreciation or amortization, or the timing or amount of impairment charges. The specific nature of each item in this category ofadjustments is described as follows: • The adjustments to Property, plant and equipment primarily related to the write-off of certain components of equipment that had been replaced,fully or partially, by fixed asset additions, and the write-off of certain amounts that were determined to not qualify for initial capitalization. Inaddition, it was determined that the depreciable lives should be revised for certain equipment. • The Hancor trademark intangible asset adjustment represents an increase in the impairment charge originally recorded in the fiscal year endedMarch 31, 2012, as well as the resulting decrease in the subsequent amortization expense for the asset. • The adjustments to Other assets related to capitalized software development costs are primarily related to the write-off of certain amounts thatwere determined to not qualify for initial capitalization, corrections of in-service dates, and revised amortization lives on some assets. • The adjustments to Other assets related to Central parts are necessary to properly value the assets on hand at historic cost, and once placed intoservice, amortize the assets over their respective useful lives. • The adjustments also include the reclassification from Intangible assets to Other assets of an asset recorded at the time of the disposal of abusiness in fiscal year 2012 related to a favorable supply contract, as well as the reclassification from Intangible Assets to Goodwill of certainpurchase price recorded at the time of the Quality Culvert, Inc. acquisition in fiscal year 2012, and the resulting impact on amortization expense. F-21Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsADS Mexicana Accounting AdjustmentsIn October 2015, members of the Company’s management became aware of transactions involving ADS Mexicana that ADS Mexicana personnelinitially brought to the attention of the Company for further review to confirm whether these transactions were appropriately characterized. The ADSMexicana transactions in question included an aircraft leasing arrangement, a real estate leasing arrangement and several services arrangements thatinvolved ADS Mexicana related parties. Once brought to the attention of the Company, management promptly undertook a review to determinewhether such transactions were properly recorded and/or characterized and to ensure that such transactions and their financial impact was appropriatelyreflected in the Company’s consolidated financial statements.After receiving a preliminary report from management on the breadth and scope of the issues, the Audit Committee in November 2015 authorizedindependent counsel and its forensic consulting firm to conduct an independent investigation. The investigation involved the interview of members ofthe Company’s finance staff as well as finance and non-finance staff of ADS Mexicana, in addition to a review of the financial and accounting recordsof the Company and ADS Mexicana related to the transactions in question. Upon concluding the investigation, it was determined by management,upon consultation with the Audit Committee’s advisors, that the various lease and services arrangements described above, as well as certain additionalservices arrangements with related parties identified during the course of the investigation, lacked commercial and economic substance or propersupporting documentation as to the services performed, and therefore were not appropriately reflected in the Company’s consolidated financialstatements and that certain of those transactions should be either re-characterized by ADS Mexicana as dividends as opposed to expenses, oreliminated. These errors have been corrected in the restated consolidated financial statements, with these adjustments primarily impacting Othermiscellaneous expense (income), net, Net income attributable to noncontrolling interest and Noncontrolling interest in subsidiaries.Management also identified potential accounting errors related to ADS Mexicana’s revenue recognition cut-off practices which were reported bymanagement to the Audit Committee and also investigated by the Audit Committee’s advisors. Specifically, the Company identified instances whereADS Mexicana recognized revenue prior to the date of shipment or transfer of title/ownership, which is not in accordance with GAAP. Theinvestigation also found that the timing for when such errors occurred was irregular and in certain instances attributable to requests from ADSMexicana customers that were not properly accounted for, resulting in timing differences between invoicing date and shipment date.The Company also identified and corrected certain other errors related to the accounting for ADS Mexicana. These adjustments related to the increaseof the allowance for doubtful accounts, errors related to the inventory costing methodology that were similar to the errors in the U.S. described above,and certain other miscellaneous items. The inventory errors related to the incorrect historical calculation of inventory costing based on the FIFOmethod and overhead costs.Income Taxes and Other Accounting AdjustmentsThe Company recorded adjustments to income taxes to reflect the impact of the restatement adjustments, as well as discrete tax adjustments related totransfer pricing. See Note 21. Income Taxes for discussion of the related impact to our effective tax rate. The Company also identified and correctedcertain other errors, all of which are insignificant individually and in the aggregate. The nature of the primary items besides income taxes in thiscategory of adjustments is described as follows: • The adjustments to the accrued liability for customer rebates are the result of the Company’s prior methodology not properly capturing allrebates due at period end. • The adjustments related to the Tuberias Tigre — ADS Limitada joint venture (“South American Joint Venture”) were primarily the result of animpairment of equipment in the fiscal year ended March 31, 2014 that was not identified until the time of a subsequent-year statutory audit. As aresult, the Company has corrected its equity method accounting to properly reflect the impairment charge. F-22Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsImpact on Consolidated Statements of OperationsThe net effect of the restatement described above on the Company’s previously reported consolidated statements of operations for the years endedMarch 31, 2014 and 2013 is as follows: For the Year Ended March 31, 2014 Adjustments (Amounts in thousands, exceptper share data) As PreviouslyReported Leases Inventory Long-LivedAssets ADSMexicana Income Taxesand Other As Restated Net sales $1,069,009 $— $— $— $(1,129) $(100) $1,067,780 Cost of goods sold 856,118 (1,223) 17,949 (336) 830 472 873,810 Gross profit 212,891 1,223 (17,949) 336 (1,959) (572) 193,970 Operating expenses: Selling 75,024 (479) (344) 415 (943) 369 74,042 General and administrative 78,478 (393) (16,122) 284 (1,820) (666) 59,761 Gain on disposal of assets or businesses (5,338) 1,852 — 623 — — (2,863) Intangible amortization 11,412 — — (1,267) — — 10,145 Income from operations 53,315 243 (1,483) 281 804 (275) 52,885 Other expense: Interest expense 16,141 2,666 — — — — 18,807 Other miscellaneous expense (income), net 133 — — (25) (1,200) (85) (1,177) Income before income taxes 37,041 (2,423) (1,483) 306 2,004 (190) 35,255 Income tax expense 22,575 — — — — (2,626) 19,949 Equity in net loss of unconsolidated affiliates 1,592 — — — — 1,494 3,086 Net income 12,874 (2,423) (1,483) 306 2,004 942 12,220 Less net income attributable to noncontrolling interest 1,750 — — — 1,527 316 3,593 Net income attributable to ADS 11,124 (2,423) (1,483) 306 477 626 8,627 Change in fair value of redeemable convertible preferredstock (3,979) — — — — — (3,979) Dividends to redeemable convertible preferredstockholders (10,139) — — — — — (10,139) Dividends paid to unvested restricted stockholders (418) — — — — — (418) Net loss available to common stockholders andparticipating securities (3,412) (2,423) (1,483) 306 477 626 (5,909) Undistributed income allocated to participating securities — — — — — — — Net loss available to common stockholders $(3,412) $(2,423) $(1,483) $306 $477 $626 $(5,909) Weighted average common shares outstanding: Basic 47,277 47,277 Diluted 47,277 47,277 Net loss per share: Basic $(0.07) $(0.12) Diluted $(0.07) $(0.12) Cash dividends declared per share $1.68 $1.68 F-23Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents For the Year Ended March 31, 2013 Adjustments (Amounts in thousands,except per share data) As PreviouslyReported Leases Inventory Long-LivedAssets ADSMexicana Income Taxesand Other As Restated Net sales $1,017,041 $— $— $— $(1,455) $1,516 $1,017,102 Cost of goods sold 807,730 1,522 18,089 1,292 452 56 829,141 Gross profit 209,311 (1,522) (18,089) (1,292) (1,907) 1,460 187,961 Operating expenses: Selling 69,451 (548) (23) 99 266 2,560 71,805 General and administrative 67,712 (504) (14,925) 87 (1,728) (1,041) 49,601 Gain on disposal of assets or businesses (2,210) 240 — 1,019 — — (951) Intangible amortization 11,295 — — (1,267) — — 10,028 Income from operations 63,063 (710) (3,141) (1,230) (445) (59) 57,478 Other expense: Interest expense 16,095 2,431 — — — — 18,526 Other miscellaneous expense, net 283 — — — (124) (56) 103 Income before income taxes 46,685 (3,141) (3,141) (1,230) (321) (3) 38,849 Income tax expense 16,894 — — — — (959) 15,935 Equity in net income of unconsolidated affiliates (387) — — — — 121 (266) Net income 30,178 (3,141) (3,141) (1,230) (321) 835 23,180 Less net income attributable to noncontrolling interest 2,019 — — — (123) 624 2,520 Net income attributable to ADS 28,159 (3,141) (3,141) (1,230) (198) 211 20,660 Change in fair value of redeemable convertiblepreferred stock (5,869) — — — — — (5,869) Dividends to redeemable convertible preferredstockholders (736) — — — — 1 (735) Dividends paid to unvested restricted stockholders (52) — — — — — (52) Net income available to common stockholders andparticipating securities 21,502 (3,141) (3,141) (1,230) (198) 212 14,004 Undistributed income allocated to participatingsecurities (2,042) 383 383 150 24 (25) (1,127) Net income available to common stockholders $19,460 $(2,758) $(2,758) $(1,080) $(174) $187 $12,877 Weighted average common shares outstanding: Basic 46,698 46,698 Diluted 47,249 47,249 Net income per share: Basic $0.42 $0.28 Diluted $0.41 $0.27 Cash dividends declared per share $0.10 $0.10 F-24Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsImpact on Consolidated Statements of Comprehensive IncomeThe net effect of the restatement described above on the Company’s previously reported consolidated statements of comprehensive income for theyears ended March 31, 2014 and 2013 is as follows: For the Year Ended March 31, 2014 Adjustments (Amounts in thousands) As PreviouslyReported Leases Inventory Long-LivedAssets ADSMexicana Income Taxesand Other As Restated Net income $12,874 $(2,423) $(1,483) $306 $2,004 $942 $12,220 Comprehensive income 6,468 (2,423) (1,483) 296 1,959 412 5,229 Less other comprehensive loss attributable tononcontrolling interest, net of tax (1,285) — — — (1) 44 (1,242) Less net income attributable to noncontrollinginterest 1,750 — — — 1,527 316 3,593 Total comprehensive income attributable to ADS $6,003 $(2,423) $(1,483) $296 $433 $52 $2,878 For the Year Ended March 31, 2013 Adjustments (Amounts in thousands) As PreviouslyReported Leases Inventory Long-LivedAssets ADSMexicana Income Taxesand Other As Restated Net income $30,178 $(3,141) $(3,141) $(1,230) $(321) $835 $23,180 Comprehensive income 31,895 (3,141) (3,141) (1,232) (323) 1,725 25,783 Less other comprehensive income attributable tononcontrolling interest, net of tax 1,198 — — — (6) (33) 1,159 Less net income attributable to noncontrollinginterest 2,019 — — — (123) 624 2,520 Total comprehensive income attributable to ADS $28,678 $(3,141) $(3,141) $(1,232) $(194) $1,134 $22,104 F-25Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsImpact on Consolidated Balance SheetThe net effect of the restatement described above on the Company’s previously reported consolidated balance sheet as of March 31, 2014 is as follows: March 31, 2014 Adjustments (Amounts in thousands) As PreviouslyReported Leases Inventory Long-LivedAssets ADSMexicana IncomeTaxes andOther AsRestated ASSETS Cash $3,931 $— $— $— $— $— $3,931 Receivables, net 150,713 — — — (3,404) 962 148,271 Inventories 260,300 (86) (4,270) (130) 2,475 1,602 259,891 Deferred income taxes and other current assets 13,555 — — 343 — 567 14,465 Property, plant and equipment, net 292,082 62,903 — (4,663) — 29 350,351 Goodwill 86,297 — — 1,805 — (85) 88,017 Intangible assets, net 66,184 — — (6,991) — 1 59,194 Other assets 64,533 (15) — (5,759) — 6,688 65,447 Total assets $937,595 $62,802 $(4,270) $(15,395) $(929) $9,764 $989,567 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT Current maturities of debt obligations $11,153 $— $— $— $— $— $11,153 Current maturities of capital lease obligations — 12,364 — — — — 12,364 Accounts payable 108,111 — 704 88 — 2,069 110,972 Other accrued liabilities 37,956 530 — — — 4,599 43,085 Accrued income taxes 7,372 — — — — 608 7,980 Long-term debt obligation 442,895 — — — — — 442,895 Long-term capital lease obligation — 34,366 — — — — 34,366 Deferred tax liabilities 69,169 — — — — (2,836) 66,333 Other liabilities 15,324 82 — — — 16,764 32,170 Total liabilities 691,980 47,342 704 88 — 21,204 761,318 Mezzanine equity 642,951 — — — — — 642,951 Common stock 11,957 — — — — — 11,957 Paid-in capital 22,547 — — — — (10,109) 12,438 Common stock in treasury, at cost (448,439) — — — — — (448,439) Accumulated other comprehensive loss (5,977) — — (9) (541) (303) (6,830) Retained earnings (deficit) — 15,460 (4,974) (15,474) (108) 2,684 (2,412) Noncontrolling interest in subsidiaries 22,576 — — — (280) (3,712) 18,584 Total liabilities, mezzanine equity andstockholders’ deficit $937,595 $62,802 $(4,270) $(15,395) $(929) $9,764 $989,567 F-26Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCumulative Effect of Prior Period AdjustmentsThe following table presents the impact of the restatement to the Company’s beginning retained earnings and other stockholders’ equity (deficit)balances, cumulatively to reflect adjustments booked to all periods prior to April 1, 2012: (Amounts in thousands) CommonStock Paid inCapital Commonstock intreasury AccumulatedOtherComprehensiveIncome (Loss) RetainedEarnings Total ADSStockholders’Equity (Deficit) Non-controllinginterest insubsidiaries TotalStockholders’Equity(Deficit) Stockholders’ equity (deficit),March 31, 2012 (as previouslyreported) $11,957 $39,661 $(449,583) $(1,375) $110,863 $(288,477) $20,628 $(267,849) Adjustments from: Lease Accounting, before incometax effect — — — — 21,025 21,025 — 21,025 Inventory, before income tax effect — — — — (349) (349) — (349) Long-Lived Assets, before incometax effect — — — 3 (14,551) (14,548) — (14,548) ADS Mexicana, before income taxeffect — — — (500) (388) (888) (387) (1,275) All other non-income taxadjustments — (1,006) — (653) 1,061 (598) (4,663) (5,261) Income tax adjustments — — — — (7,428) (7,428) — (7,428) Total adjustments — (1,006) — (1,150) (630) (2,786) (5,050) (7,836) Stockholders’ equity (deficit),March 31, 2012 (As Restated) $11,957 $38,655 $(449,583) $(2,525) $110,233 $(291,263) $15,578 $(275,685) F-27Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsImpact on Consolidated Statements of Cash FlowsThe net effect of the restatement on the Company’s previously reported consolidated statements of cash flows for the years ended March 31, 2014 and2013 is as follows: For the Year Ended March 31, 2014 (Amounts in thousands) As PreviouslyReported Adjustments AsRestated Cash Flows from Operating Activities Net income $12,874 $(654) $12,220 Depreciation and amortization 55,898 7,776 63,674 Changes in working capital (36,037) (1,383) (37,420) All other adjustments to reconcile net income to net cash provided byoperating activities 29,387 4,549 33,936 Net cash provided by operating activities 62,122 10,288 72,410 Cash Flows from Investing Activities Net cash used in investing activities (41,767) 3,055 (38,712) Cash Flows from Financing Activities Payments on capital lease obligation — (12,240) (12,240) All other financing activities (17,712) (1,157) (18,869) Net cash used in financing activities (17,712) (13,397) (31,109) Effect of exchange rate changes on cash (73) 54 (19) Net change in cash 2,570 — 2,570 Cash at beginning of year 1,361 — 1,361 Cash at end of year $3,931 $— $3,931 For the Year Ended March 31, 2013 (Amounts in thousands) As PreviouslyReported Adjustments AsRestated Cash Flows from Operating Activities Net income $30,178 $(6,998) $23,180 Depreciation and amortization 55,605 7,497 63,102 Changes in working capital (23,212) 9,895 (13,317) All other adjustments to reconcile net income to net cash provided byoperating activities 5,644 (3,256) 2,388 Net cash provided by operating activities 68,215 7,138 75,353 Cash Flows from Investing Activities Net cash used in investing activities (47,199) 2,403 (44,796) Cash Flows from Financing Activities Payments on capital lease obligation — (9,342) (9,342) All other financing activities (21,737) (259) (21,996) Net used in financing activities (21,737) (9,601) (31,338) Effect of exchange rate changes on cash — 60 60 Net change in cash (721) — (721) Cash at beginning of year 2,082 — 2,082 Cash at end of year $1,361 $— $1,361 F-28Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsQuarterly Financial InformationThe net effect of the restatement on the Company’s previously reported consolidated financial statements as of and for the for the quarters endedJune 30, September 30 and December 31, 2014 and 2013 (unaudited) can be found at Note 25. Quarterly Financial Information (Unaudited) to thesefinancial statements and in the Forms 10-Q/A for the quarters ended June 30, 2014, September 30, 2014, and December 31, 2014 filed with the SECconcurrently with this Annual Report on Form 10-K. 3.DISPOSAL OF ASSETS OR BUSINESSESOn December 21, 2012, we entered into an agreement (the “Basalite Agreement”) to sell substantially all of the assets used in connection with ourplastic edging product line to Basalite Concrete Products, LLC (“Basalite”) in exchange for cash and a note receivable. The Basalite Agreementdefined the purchase price to consist of a cash payment of $600, plus other consideration in the form of an executed promissory note for $1,800. Underterms of the note, Basalite will pay ADS $600 cash on each of the first three one-year anniversaries of the closing date. The net book value for therelated assets, consisting of inventory and property and equipment, was $190, resulting in a net gain recognized of $2,210. The sale transaction closedon December 28, 2012.On June 28, 2013, we entered into an agreement (the “NDS Agreement”) to sell substantially all of the assets used in connection with our Draintechproduct line to National Diversified Sales, Inc. (“NDS”) in exchange for cash. The NDS Agreement defined the purchase price to consist of a cashpayment of $5,877. The net book value for the related assets, consisting of inventory and property and equipment, was $1,029, resulting in a net gainrecognized of $4,848. The sale transaction closed on June 28, 2013. The product line sold consisted of minor niche fittings which were manufacturedby a third party producer and resold by the Company primarily in the retail market.In the fourth quarter of fiscal year 2014, we completed the sale of two businesses that individually and in the aggregate were not significant. Theaggregate sales price of these two transactions was $3,030, plus other consideration in the form of a note receivable for $1,241. The net book value ofthese businesses was $3,781, resulting in a net gain recognized of $490.In the fourth quarter of fiscal year 2015, we completed the sale of product-related intellectual property rights that were not significant. The sales pricewas $750, consisting of a cash payment of $150 plus other consideration in the form of a note receivable for $600. The sale did not involve anytangible assets, and the related intellectual property rights had no net book value, resulting in a net gain recognized of $750.Periodically, we will dispose of equipment, including equipment that we have accounted for as capital leases. The net loss on the disposition of theequipment was $1,112, $2,475 and $1,259 during the fiscal years 2015, 2014 and 2013, respectively. 4.ACQUISITIONSIn fiscal year 2013, we completed the acquisition of two businesses that individually and in the aggregate were not significant. The aggregate purchaseprice of these acquisitions was $5,239, which included a note payable of $400 plus additional contingent consideration with an initial estimated fairvalue of $1,271.Ideal PipeThe purchase price for business combinations is allocated to the estimated fair values of acquired tangible and intangible assets, assumed liabilitiesand goodwill, where applicable. We generally recognize customer relationships, trade names and non-competition agreements as identifiableintangible assets. The fair value of these intangible assets is determined primarily using the income approach, which involves significant unobservableinputs (Level 3 inputs). These inputs include projected sales, margin, required rate of return and tax rate. Trade name intangibles are valued utilizing arelief from royalty method. F-29Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOn January 30, 2015, Hancor of Canada, Inc., a wholly-owned subsidiary of the Company, acquired all issued and outstanding shares of Ideal DrainTile Limited and Wave Plastics Inc., the sole partners of Ideal Pipe (together “Ideal Pipe”). Ideal Pipe designs, manufactures and markets highperformance thermoplastic corrugated pipe and related water management products used across a broad range of Canadian end markets andapplications, including nonresidential, residential, agriculture, and infrastructure applications. The acquisition further strengthens our position inCanada by increasing our size and scale in the market, as well as enhancing our manufacturing, marketing and distribution capabilities. The purchaseprice of Ideal Pipe was $43,828, financed through cash acquired and our existing line of credit facility. The results of operations of Ideal Pipe areincluded in our Consolidated Statements of Operations after January 30, 2015. The revenue and net income of Ideal Pipe since the acquisition dateincluded in our Consolidated Statements of Operations for the fiscal year ended March 31, 2015 were immaterial.The excess of the purchase price over the fair value of the net assets acquired of $10,660 was allocated to goodwill, assigned to the Internationalsegment, and consists primarily of the acquired workforce and synergies the two companies anticipate realizing as a combined company. None of thegoodwill is deductible for tax purposes. The purchase price allocation is as follows: (Amounts in thousands) Cash $7,443 Other current assets 9,036 Property, plant and equipment 27,258 Goodwill and intangible assets 18,890 Current liabilities (12,721) Non-current liabilities (6,078) Total purchase price $43,828 Transaction costs were immaterial. However, the Company did incur a loss on a currency hedge related to the purchase of Ideal Pipe in the amount of$5,636 which was recorded in Other miscellaneous expense (income), net in the Consolidated Statements of Operations. The Company used thiscurrency hedge to fix the purchase price which was denominated in Canadian dollars from the agreement date until the transaction ultimately closedon January 30, 2015.The acquired identifiable intangible assets represent customer relationships of $4,881 (seven-year useful life), trade name of $3,073 (10-year usefullife), and non-compete agreements of $276 (three-year useful life).The following table contains unaudited pro forma Consolidated Statements of Operations information assuming the acquisition occurred on April 1,2013 and includes adjustments for amortization of intangibles, depreciation of fixed assets and interest expense. This pro forma information ispresented for illustrative purposes only and is not indicative of what actual results would have been if the acquisitions had taken place onApril 1, 2013 or of future results. In addition, the unaudited pro forma consolidated results are not projections of future results of operations of thecombined company nor do they reflect the expected realization of any cost savings or synergies associated with the acquisition. Proforma (Amounts in thousands) 2015 2014 Net sales $1,217,431 $1,102,477 Net income attributable to ADS $10,329 $9,029 Unaudited pro forma net income attributable to ADS has been calculated after adjusting the combined results of the Company to reflect additionalintangible asset amortization expense, net of related income taxes, of $749 and $951, (reduced) additional depreciation expense, net of related incometaxes, of ($7) and $354 and additional interest expense, net of related income taxes, of $513 and $521 for the fiscal years ended March 31, 2015 and2014, respectively. F-30Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSubsequent Event Related to the Acquisition of an Additional Interest in BaySaverOn July 17, 2015, ADS Ventures, Inc. (“ADS/V”), a wholly-owned subsidiary of the Company, acquired an additional 10% of the issued andoutstanding membership interests in BaySaver Technologies, LLC (“BaySaver”), for a combined purchase price of $3,200, subject to certain additionalpost-closing purchase price payments. Concurrent with the acquisition, we also entered into an amendment to the BaySaver joint venture agreement tochange 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, theCompany increased its ownership interest to 65% of the issued and outstanding membership interests in BaySaver and obtained the majority of thevoting rights. BaySaver will be consolidated with our financial statements beginning in the second quarter of fiscal year 2016. See also Note 11.Investment in Unconsolidated Affiliates. 5.PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment, net as of the fiscal years ended March 31 consisted of the following: (Amounts in thousands) 2015 2014 Land, buildings and improvements $177,073 $158,588 Machinery and equipment 690,079 640,529 Construction in progress 5,991 11,003 Total cost 873,143 810,120 Less accumulated depreciation (496,076) (459,769) Property, plant and equipment, net $377,067 $350,351 The following table sets forth depreciation expense related to Property, plant and equipment in each of the fiscal years ending March 31: (Amounts in thousands) 2015 2014 2013 Depreciation expense $50,136 $48,230 $47,524 6.LEASESCapital LeasesThe Company leases certain buildings and transportation equipment including its fleet of trucks and trailers, under capital lease agreements.Leased assets accounted for as capital leases and included in Property, plant and equipment consisted of the following: 2015 2014 (Amounts in thousands) Buildings and improvements $7,163 $7,716 Machinery and equipment 168,437 145,980 Total cost 175,600 153,696 Less accumulated depreciation (102,263) (89,599) Leased assets in Property, plant and equipment, net $73,337 $64,097 The following sets forth the interest and depreciation expense related to capital leases recorded in each fiscal year ended March 31: 2015 2014 2013 (Amounts in thousands) Lease interest expense $2,249 $2,666 $2,431 Depreciation of leased assets 13,943 12,644 11,252 F-31Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following is a schedule by year of future minimum lease payments under capital leases and the present value of the net minimum lease payments asof March 31, 2015: (Amounts in thousands) 2016 $18,373 2017 15,333 2018 12,093 2019 9,190 2020 6,600 Thereafter 7,206 Total minimum lease payments(a) $68,795 Less: amount representing interest(b) 7,561 Present value of net minimum lease payments $61,234 Lease obligation — Current 15,731 Lease obligation — Long-term 45,503 Total lease obligation $61,234 (a)Excludes contingent rentals which may be paid. Contingent rentals amounted to $844 and $335 for the years ended March 31, 2015 and 2014,respectively.(b)Amount necessary to reduce minimum lease payments to present value calculated at the lower of the rate implicit in the lease or the Company’sincremental borrowing rate at lease inception.Certain leases contain residual value guarantees that create a contingent obligation on the part of the Company to compensate the lessor if the leasedasset cannot be sold for an amount in excess of a specified minimum value at the conclusion of the lease term. The calculation is based on the originalcost of the transportation equipment, less lease payments made, compared to a percentage of the transportation equipment’s fair market value at thetime of sale. All leased units covered by this guarantee have been classified as capital leases and a corresponding capital lease obligation was recorded.Therefore, no further contingent obligation is needed.Operating leasesWe lease certain real estate and office equipment under various cancelable and non-cancelable operating lease agreements that expire at various datesthrough fiscal year 2037.Future minimum rental commitments under operating leases as of March 31, 2015, are summarized below (amounts in thousands): 2016 2017 2018 2019 2020 Thereafter Future operating lease payments $2,793 $1,857 $1,014 $614 $355 $2,222 Total rent expense was $3,953, $3,836 and $4,968 in the fiscal years ended March 31, 2015, 2014 and 2013, respectively. 7.INVENTORIESInventories as of the fiscal years ended March 31 consisted of the following: (Amounts in thousands) 2015 2014 Raw materials $50,198 $51,785 Finished goods 219,644 208,106 Total Inventories $269,842 $259,891 F-32Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe had no work-in-process inventories as of March 31, 2015 and 2014.General and administrative costs related to the production process are capitalized in the cost of finished goods inventory. During fiscal years endedMarch 31, 2015 and 2014, we incurred production-related general and administrative costs of $17,257 and $15,617, respectively, of which $4,400 and$3,819 remained in inventory at March 31, 2015 and 2014, respectively. 8.GOODWILL AND INTANGIBLE ASSETSGoodwillThe carrying amount of goodwill by reportable segment is as follows: (Amounts in thousands) Domestic International Total Balance at April 1, 2013 $87,507 $467 $87,974 Currency translation — 43 43 Balance at March 31, 2014 $87,507 $510 $88,017 Acquisition — 10,660 10,660 Currency translation — 2 2 Balance at March 31, 2015 $87,507 $11,172 $98,679 Intangible AssetsIntangible assets as of the fiscal years ended March 31, 2015 and 2014 consisted of the following: 2015 2014 (Amounts in thousands) GrossIntangible AccumulatedAmortization NetIntangible GrossIntangible AccumulatedAmortization NetIntangible Definite-lived intangible assets Developed technology $40,579 $(26,405) $14,174 $40,579 $(22,588) $17,991 Customer relationships 43,167 (26,113) 17,054 38,252 (21,793) 16,459 Patents 6,547 (3,550) 2,997 6,175 (2,921) 3,254 Non-compete and other contractual agreements 1,365 (691) 674 1,088 (491) 597 Trademarks and tradenames 14,248 (3,051) 11,197 11,157 (2,254) 8,903 Total definite-lived intangible assets 105,906 (59,810) 46,096 97,251 (50,047) 47,204 Indefinite-lived intangible assets Trademarks 11,959 — 11,959 11,990 — 11,990 Total Intangible assets $117,865 $(59,810) $58,055 $109,241 $(50,047) $59,194 The following table presents the weighted average amortization period for definite-lived intangible assets at March 31, 2015: Weighted AverageAmortizationPeriod (in years) Developed technology 10.7 Customer relationships 8.3 Patents 8.3 Non-compete and other contractual agreements 5.1 Trademarks and tradenames 13.9 F-33Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following table presents the future intangible asset amortization expense based on existing intangible assets at March 31, 2015: Fiscal Year (Amounts in thousands) 2016 2017 2018 2019 2020 Thereafter Total Amortization expense $8,249 $7,273 $6,745 $6,585 $4,899 $12,345 $46,096 9.FAIR VALUE MEASUREMENTWhen applying fair value principles in the valuation of assets and liabilities, we are required to maximize the use of quoted market prices and minimizethe use of unobservable inputs. The Company has not changed its valuation techniques used in measuring the fair value of any financial assets orliabilities during the fiscal years presented. Our fair value estimates take into consideration the credit risk of both the Company and our counterparties.When active market quotes are not available for financial assets and liabilities, we use industry standard valuation models. Where applicable, thesemodels project future cash flows and discount the future amounts to a present value using market-based observable inputs including credit risk, interestrate curves, foreign currency rates and forward and spot prices for currencies. In circumstances where market-based observable inputs are not available,management judgment is used to develop assumptions to estimate fair value. Generally, the fair value of our Level 3 instruments is estimated as the netpresent value of expected future cash flows based on internal and external inputs.Recurring Fair Value MeasurementsThe assets, liabilities and mezzanine equity carried at fair value as of the fiscal years ended March 31 were as follows: March 31, 2015 (Amounts in thousands) Total Level 1 Level 2 Level 3 Assets: Derivative assets — currency forward contracts $28 $ — $28 $— Total assets at fair value on a recurring basis $28 $— $28 $— Liabilities: Derivative liability — interest rate swaps $765 $— $765 $— Derivative liability — diesel fuel contracts 2,841 — 2,841 — Derivative liability — propylene swaps 5,142 — 5,142 — Contingent consideration for acquisitions 2,444 — — 2,444 Total liabilities at fair value on a recurring basis $ 11,192 $— $ 8,748 $ 2,444 F-34Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents March 31, 2014 (Amounts in thousands) Total Level 1 Level 2 Level 3 Assets: Derivative assets — propylene swaps $27 $ — $27 $— Total assets at fair value on a recurring basis $27 $— $27 $— Liabilities & Mezzanine Equity: Derivative liability — interest rate swaps $1,001 $— $1,001 $— Contingent consideration for acquisitions 2,898 — — 2,898 Redeemable common stock 549,119 — — 549,119 Redeemable convertible preferred stock 291,720 — — 291,720 Deferred compensation — unearned ESOP shares (197,888) — — (197,888) Total liabilities & mezzanine equity at fair value on a recurringbasis $646,850 $— $ 1,001 $645,849 Amounts recorded in the Consolidated Statements of Operations for Level 3 items amounted to $283 and $8,963 during 2015 and 2014, respectively. Quantitative Information about Level 3 Fair Value Measurements (Amounts in thousands) Liabilities & Mezzanine Equity Fair Valueat 3/31/15 ValuationTechnique(s) Unobservable Input QuantifiableInput Contingent consideration for acquisitions $2,444 Discounted cashflow Weighted Average Costof Capital (“WACC”)(a) 10% Liabilities & Mezzanine Equity Fair Valueat 3/31/14 ValuationTechnique(s) Unobservable Input QuantifiableInput Contingent consideration for acquisitions $2,898 Discounted cashflow WACC(a) 11% Redeemable common stock $549,119 Guidelinecompany methodand Discountedcash flow Implied pricingmultiples (b) 10.5x Guideline publiccompany group (c) n/a WACC(a) 11% Redeemable convertible preferred stock $291,720 Guidelinecompany methodand Discountedcash flow Implied pricingmultiples (b) 10.5x Guideline publiccompany group (c) n/a WACC (a) 11% Deferred compensation — unearned ESOP shares $(197,888) Guidelinecompany methodand Discountedcash flow Implied pricingmultiples (b) 10.5x Guideline publiccompany group (c) n/a WACC (a) 11% (a)Represents discount rates or rates of return estimates and assumptions that we believe would be used by market participants when valuing theseliabilities and mezzanine equity. F-35Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(b)Represents financial metrics used to estimate the value of comparable companies including EBIT and EBITDA.(c)Represents a group of public companies deemed similar from a risk and return prospective and reflect economic conditions and business risk for theCompany’s industry in general.Changes in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3) for the fiscal years ended March 31,2015 and 2014 were as follows: (Amounts in thousands) Contingentconsideration Redeemablecommonstock Redeemableconvertiblepreferredstock Deferredcompensation- unearnedESOP shares Total Balance at March 31, 2013 $2,679 $522,276 $282,547 $(196,477) $611,025 Allocation of ESOP shares to participants — — — 8,211 8,211 Change in fair value 738 26,458 13,601 (9,622) 31,175 Payments of contingent consideration liability (519) — — — (519) Redemption of Redeemable convertible preferred stock — — (4,428) — (4,428) Transfer to Level 3 — 385 — — 385 Balance at March 31, 2014 $2,898 $549,119 $291,720 $(197,888) $645,849 Allocation of ESOP shares to participants — — — 4,391 4,391 Change in fair value 174 65,921 34,903 (23,849) 77,149 Payments of contingent consideration liability (628) — — — (628) Transfer out of Level 3 — (615,040) (326,623) 217,346 (724,317) Balance at March 31, 2015 $2,444 $— $— $— $2,444 During fiscal year 2015 our Redeemable common stock transferred out of Level 3, as these securities started actively trading on the NYSE during thesecond quarter of fiscal 2015. In addition, our Redeemable convertible preferred stock and Deferred compensation – unearned ESOP shares werereclassified from a recurring Level 3 fair value measurement to a non-recurring Level 3 fair value measurement as a result of the IPO. See Note 1.Background and Summary of Significant Accounting Policies for further information on the IPO. There were no further transfers in or out of Levels 1, 2and 3 for the fiscal year ended March 31, 2015 and 2014.Valuation of our Contingent Consideration for AcquisitionsThe fair values of the contingent consideration payables were calculated with reference to the estimated future value of the Inserta Tee and FleXstormbusinesses, which are based on a discounted cash flow model. The undiscounted value is discounted to the present value using a market discount rate.The method used to price this liability is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.Valuation of our Redeemable Common StockPrior to the IPO in fiscal 2015, the Company had certain shares of common stock outstanding allowing the holder to put its shares to us for cash. ThisRedeemable common stock was historically recorded at its fair value in the mezzanine equity section of our Consolidated Balance Sheets and changesin fair value were recorded in Retained earnings. Historically, the fair value of a share of common stock was determined by management by applyingindustry appropriate multiples to EBITDA and performing a discounted cash flow analysis. Under the industry-appropriate multiples approach, toarrive at concluded multiples, we considered differences between the risk and return characteristics of ADS and the guideline companies. Under thediscounted cash flow analysis, the cash flows expected to be generated by the Company are discounted to F-36Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentstheir present value equivalent using a rate of return that reflects the relative risk of an investment in ADS, as well as the time value of money. Thisreturn is an overall rate based upon the individual rates of return for invested capital (equity and interest-bearing debt). The return, known as theWACC, is calculated by weighting the required returns on interest-bearing debt and common stock in proportion to their estimated percentages in anexpected capital structure. An increase in the WACC would decrease the fair value of the Redeemable common stock. The categorization of theframework used to price this mezzanine equity is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fairvalue.The redemption feature of our Redeemable common stock allowing the holder to put its shares to us for cash, as discussed in the previous paragraph,became unenforceable upon effectiveness of the IPO on July 25, 2014. As a result, the Redeemable common stock was recorded at fair value throughthe effective date of the IPO and was subsequently reclassified at that fair value to stockholders’ equity. See Note 1 for more information on the IPO.Non-recurring Fair Value MeasurementsValuation of our Redeemable Convertible Preferred StockPrior to the effective date of the IPO, the Trustee of the Company’s ESOP had the ability to put the shares of our Redeemable convertible preferredstock to the Company. Our Redeemable convertible preferred stock is recorded at its fair value in the mezzanine equity section of our ConsolidatedBalance Sheets and changes in fair value are recorded in Retained earnings or as a reduction of Paid in capital to the extent there is not sufficientRetained earnings. Accordingly, we estimated the fair value of the Redeemable convertible preferred stock through estimating the fair value of theCompany’s common stock and applying certain adjustments including for the fair value of the total dividends to be received and assuming conversionof the Redeemable convertible preferred stock to common stock at the stated conversion ratio per our Certificate of Incorporation. The categorizationof the framework used to price this temporary equity is considered Level 3, due to the subjective nature of the unobservable inputs used to determinethe fair value.Upon the effective date of the IPO, the redemption feature of our Redeemable convertible preferred stock allowing the Trustee of the Company’s ESOPto put shares to us for cash was no longer applicable. However, if our common stock, which our Redeemable convertible preferred stock may convert to,is no longer a “registration-type class of security” (e.g., in the event of a delisting), the option held by the Trustee, which granted it the ability to putthe shares of our Redeemable convertible preferred stock to us, would then become applicable. Preferred securities that become redeemable upon acontingent event that is not solely within the control of the Company should be classified outside of permanent equity. As of March 31, 2015, theCompany has determined that it is not probable that the redemption feature will become applicable. Since the Redeemable convertible preferred stockis not currently redeemable and it is not probable that the instrument will become redeemable, subsequent adjustment to fair value is not required. Assuch, the Redeemable convertible preferred stock was recorded to fair value at the effective date of the IPO on July 25, 2014 and will remain inmezzanine equity without further adjustment to carrying value unless it becomes probable that the redemption feature will become applicable. SeeNote 1. Background and Summary of Significant Accounting Policies for more information on the IPO and Note 19. Mezzanine Equity for additionalinformation on the Redeemable common stock and Redeemable convertible preferred stock. 10.ADS MEXICANAWe participate in joint ventures from time to time for the purpose of expanding upon our growth of manufacturing and selling HDPE corrugated pipe inemerging markets. We invested in ADS Mexicana for the purpose of expanding upon our growth of manufacturing and selling ADS licensed HDPEcorrugated pipe and related products in the Mexican and Central American markets via the joint venture partner’s local F-37Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentspresence and expertise throughout the region. In April 2013, ADS Worldwide acquired an additional 1% equity interest in its consolidated subsidiaryADS Mexicana stock for $520, increasing the Company’s ownership percentage to 51% from 50%. We have executed a Technology, Patents andTrademarks Sub-License Agreement and a Distribution Agreement with ADS Mexicana that provides ADS Mexicana with the rights to manufactureand sell ADS licensed products in Mexico and Central America. We have concluded that we hold a variable interest in and are the primary beneficiaryof ADS Mexicana based on our power to direct the most significant activities of ADS Mexicana and our obligation to absorb losses and our right toreceive benefits that could be significant to ADS Mexicana. As the primary beneficiary, we are required to consolidate the assets and liabilities of ADSMexicana. The equity owned by our joint venture partner is shown as Noncontrolling interest in subsidiaries in our Consolidated Balance Sheets andour joint venture partner’s portion of net income is shown as Net income attributable to noncontrolling interest in our Consolidated Statements ofOperations.The table below includes the assets and liabilities of ADS Mexicana that are consolidated as of March 31, 2015 and 2014. The balances excludeintercompany transactions that are eliminated upon consolidation. (Amounts in thousands) 2015 2014 Assets Current assets $24,822 $32,877 Property, plant and equipment, net 18,556 21,633 Other noncurrent assets 2,523 3,378 Total assets $45,901 $57,888 Liabilities Current liabilities $11,134 $11,595 Noncurrent liabilities 5,259 7,020 Total liabilities $16,393 $18,615 11.INVESTMENT IN UNCONSOLIDATED AFFILIATESWe participate in three unconsolidated joint ventures, South American Joint Venture, which is 50% owned by our wholly-owned subsidiary ADSChile; BaySaver, which is 55% owned by our wholly-owned subsidiary ADS Ventures, Inc.; and Tigre-ADS USA, Inc. (“Tigre-ADS USA”), which is49% owned by our wholly-owned subsidiary ADS Ventures, Inc. In each case, the Company has concluded that it is appropriate to account for theseinvestments using the equity method, whereby our share of the income or loss of the joint venture is reported in the Consolidated Statements ofOperations under Equity in net loss (income) of unconsolidated affiliates and our investment in the joint venture is included in Other assets in theConsolidated Balance Sheets.South American Joint VentureOur investment in this unconsolidated joint venture was formed for the purpose of expanding upon our growth of manufacturing and selling HDPEcorrugated pipe in the South American market via the joint venture partner’s local presence and expertise throughout the region. We are not required toconsolidate the South American Joint Venture as we are not the primary beneficiary, although we do hold a significant variable interest in the SouthAmerican Joint Venture through our equity investment and debt guarantee. Summarized financial data, which includes capital contributions of $4,000and $2,875 during 2015 and 2014, respectively, as of the fiscal years ended March 31 for the South American Joint Venture is as follows: (Amounts in thousands) 2015 2014 Investment in the South American Joint Venture $17,081 $18,422 Receivable from the South American Joint Venture 5,607 8,313 F-38Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsBaySaverOn July 15, 2013, ADS Ventures, Inc., a wholly-owned subsidiary of the Company, BaySaver Technologies, Inc. (“BTI”) and Mid Atlantic Storm WaterResearch Center, Inc. (“MASWRC”) entered into an LLC agreement to form a new joint venture, BaySaver. The joint venture was established to design,engineer, manufacture, market and sell water quality filters and separators used in the removal of sediment and pollution from storm water anywhere inthe world except New Zealand, Australia and South Africa. The Company contributed $3,500 in cash, $1,285 in inventory, and other intangible assetswith no carrying value, in exchange for a 55% equity interest and a 50% voting interest in BaySaver. We are not required to consolidate BaySaverunder ASC 810-10 as we are not the primary beneficiary, although we do hold a significant variable interest in BaySaver through our equityinvestment. In connection with this investment, the Company acquired a call option to purchase the remaining 45% interest in BaySaver. Also, inconnection with the investment, the Company granted a put option enabling the other equity holder to sell his remaining shares in BaySaver to theCompany upon the passage of time or the occurrence of certain events.Summarized financial data as of the fiscal years ended March 31 for the BaySaver joint venture is as follows: (Amounts in thousands) 2015 2014 Investment in BaySaver $4,906 $5,202 Receivable from BaySaver 59 6 Our share of the income of this joint venture is decreased by amortization expense relating to the basis difference between our cost basis in theinvestment and the basis reflected at the joint venture level. This basis difference is being recorded over the lives of the underlying assets which gaverise to the basis difference, which is 10 years. The unamortized basis difference as of March 31, 2015 is $1,639.As noted in Note 4, in July 2015, we acquired an additional 10% interest in BaySaver and entered into Amendment No. 1 to BaySaver Technologies,LLC Limited Liability Company Agreement dated as of July 17, 2015 by and among ADS Ventures, Inc., BaySaver Technologies, Inc. and Mid-Atlantic Storm Water Research Center, Inc. (“BaySaver amendment”) which revised the voting rights for BaySaver. As a result, we now have more than50% of the voting rights, in addition to owning 65% of the equity in BaySaver, and will be required to consolidate the assets and liabilities ofBaySaver subsequent to the date of our additional investment and BaySaver amendment in July 2015.Tigre-ADS USAOn April 7, 2014, ADS Ventures, Inc., a wholly-owned subsidiary of the Company, and Tigre S.A. — Tubos e Conexoes entered into a stock purchaseagreement to form a joint venture, Tigre-ADS USA. The joint venture was established to manufacture and sell PVC fittings for waterworks, plumbing,and HVAC applications primarily in the United States and Canadian markets. The Company acquired 49% of the outstanding shares of capital stock ofTigre-ADS USA for $3,566. The joint venture represents a continuation of the existing activities of Tigre-ADS USA through its Janesville, Wisconsinmanufacturing facility. We are not required to consolidate Tigre-ADS USA under ASC 810-10 as we are not the primary beneficiary, although we dohold a significant variable interest in Tigre-ADS USA through our equity investment.Summarized financial data as of the fiscal year ended March 31 for the Tigre-ADS USA joint venture is as follows: (Amounts in thousands) 2015 Investment in Tigre-ADS USA $3,051 Receivable from Tigre-ADS USA 27 F-39Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents12.RELATED PARTY TRANSACTIONSADS MexicanaADS conducts business in Mexico and Central America through its joint venture ADS Mexicana. ADS owns 51% of the outstanding stock of ADSMexicana and consolidates its interest in ADS Mexicana for financial reporting purposes. During the year ended March 31, 2015 and 2014, ADSMexicana compensated certain owners and former owners of Grupo Altima, the JV partner of ADS Mexicana, for consulting services related to theoperations of the business and a noncompete arrangement, respectively. These cash payments totaled $459, $817, and $0 for the fiscal years endedMarch 31, 2015, 2014 and 2013, respectively.Occasionally, ADS and ADS Mexicana jointly enter into agreements for pipe sales with their related parties which totaled $3,783, $6,687, $3,370 inthe years ended March 31, 2015, 2014 and 2013, respectively. Outstanding receivables related to these sales were $1,005 and $2,480 at March 31,2015 and 2014, respectively. In February 2015, ADS Mexicana loaned $5,000 to an entity owned by a Grupo Altima owner and such loan was repaidthe same month. The applicable interest rate for the loan was 2.35%.We are the guarantor of 100% of ADS Mexicana’s credit facility and our maximum potential payment under this guarantee totals $12,000. See Note 13.Debt.South American Joint VentureOur South American Joint Venture manufactures and sells HDPE corrugated pipe in the South American market. We are the guarantor for 50% of theSouth American Joint Venture’s credit facility, and the debt guarantee is shared equally with the joint venture partner. Our maximum potentialobligation under this guarantee totals $11,000 as of March 31, 2015. The maximum borrowing permitted under the South American Joint Venture’scredit facility is $19,000. This credit facility allows borrowings in either Chilean pesos or US dollars at a fixed interest rate determined at inception ofeach draw on the facility. The guarantee of South American Joint Venture’s debt is for the life of the credit facility which matures on February 5, 2017.ADS does not anticipate any required contributions related to the balance of this credit facility. As of March 31, 2015 and 2014, the outstandingprincipal balance of the credit facility including letters of credit was $13.6 million and $11.1 million, respectively. The weighted average interest rateas of March 31, 2015 was 3.33% on U.S. dollar denominated loans and 7.54% on Chilean peso denominated loans.ADS and the South American Joint Venture have entered into shared services arrangements in order to execute the joint venture services. Includedwithin these arrangements are the lease of an office and plant location used to conduct business and operating expenses related to these leasedfacilities. Occasionally, ADS and the South American Joint Venture jointly enter into agreements for pipe sales with their related parties in immaterialamounts.BaySaverAt March 31, 2015, ADS holds an equity method investment in BaySaver of approximately 55%. BaySaver may at times provide short-term financingto ADS to enhance liquidity. As of March 31, 2015 and 2014, BaySaver held unsecured, interest-free, notes receivable from ADS in the amounts of$500 and $400, which were fully paid subsequent to year end.During 2015, ADS received dividends of $1,100 from BaySaver.ADS and BaySaver have entered into shared services arrangements in order to execute the joint venture services. Included within these arrangementsare the lease of a plant and adjacent yard used to conduct business and operating expenses related to the leased facility. Occasionally, ADS andBaySaver jointly enter into agreements for sales of pipe and Allied Products with their related parties in immaterial amounts. F-40Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents13.DEBTLong-term debt as of the fiscal years ended March 31 consisted of the following: (Amounts in thousands) 2015 2014 Bank Term Loans Revolving Credit Facility — ADS $205,100 $248,100 Revolving Credit Facility — ADS Mexicana — — Term Note 91,250 97,500 Senior Notes payable 100,000 100,000 Mortgage notes payable — 3,733 Industrial revenue bonds 3,545 4,715 Total 399,895 454,048 Current maturities (9,580) (11,153) Long-term debt obligation $390,315 $442,895 Bank Term LoansThe Bank Term Loans include a Revolving Credit Facility with borrowing capacity of $325,000 for ADS, Inc., a Revolving Credit Facility for ADSMexicana with borrowing capacity of $12,000 (“the Revolving Credit Facilities”) and a $100,000 term note (“Term Note”). The Revolving CreditFacilities expire and the Term Note is due in June 2018. The Revolving Credit Facilities and the Term Note have a variable interest rate that dependsupon the Company’s “pricing ratio” as defined in the agreements for the Revolving Credit Facilities. The interest rate is derived from the London Inter-Bank Offered Rate (“LIBOR”) or alternate base rate (“Prime Rate”) at the Company’s option. The average rates were 2.64%, 2.30% and 3.01% atMarch 31, 2015, 2014 and 2013, respectively. Letters of credit outstanding at March 31, 2015 amounted to $8,005 and reduce the availability of theRevolving Credit Facilities. The amount available for borrowing for ADS, Inc. and ADS Mexicana was $111,895 and $12,000, respectively atMarch 31, 2015.Per the terms of the agreements for the Revolving Credit Facilities, ADS is not required to hedge its interest exposure using interest rate swaps;however, it is currently the objective of ADS to manage its exposure to variable rate debt. On July 18, 2013, ADS executed two Forward Interest RateSwaps on the 30-Day LIBOR interest rate. One swap was for $50,000 and has a fixed rate of 0.86% for a period of three years beginning onSeptember 3, 2013 and expiring on September 1, 2016. The second swap executed on July 18, 2013 was for $50,000 and has a fixed rate of 1.08% for aperiod of two years beginning on September 2, 2014 and expiring on September 1, 2016.Senior Notes PayableIn December 2009, we signed an agreement with Prudential Investment Management, Inc. for the issuance of senior promissory notes (“Senior Notes”),for an aggregate amount of up to $100,000. During fiscal 2010, we issued $75,000 of Senior Notes with interest fixed at 5.6% and payable quarterly.The rate is subject to an additional 200 basis point excess leverage fee if our calculated leverage ratio exceeds 3 to 1 at the end of a fiscal quarter. Aprincipal payment of $25,000 is due in each of fiscal years 2017, 2018, and 2019.In July 2013, ADS issued an additional $25,000 of Senior Notes. Interest for the additional $25,000 is payable quarterly and is fixed at 4.05%. The rateis subject to an additional 200 basis point excess leverage fee if calculated leverage ratio exceeds 3 to 1 at the end of a fiscal quarter. A principalpayment of $25,000 is due in September of fiscal year 2020.At March 31, 2015, our calculated leverage ratio exceeded 3 to 1, and we have accrued the excess leverage fee of $500. F-41Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsMortgage Notes PayableTwo mortgage notes outstanding at March 31, 2014 were fully paid during 2015 through scheduled monthly installments. As of March 31, 2014, onenote had a variable interest rate of 2.903% (New Miami, Ohio), and the other note had a fixed rate of 5.1% (Hilliard, Ohio). Land and buildings with anet book value of approximately $8,637 at March 31, 2014, collateralized the two mortgage notes.Industrial Revenue BondsBetween 1996 and 2007, ADS issued industrial revenue bonds for the construction of four production facilities. Two of the bonds were retired duringfiscal 2011 and one of the bonds was retired in fiscal 2015. The remaining bond has a variable interest rate based on the Securities Industry andFinancial Markets Association (SIFMA) municipal swap index rate which is computed weekly. The rate on this bond at March 31, 2015, was 3.32%,including a letter of credit fee of 3.25%. Land and buildings with a net book value of approximately $9,997 at March 31, 2015, collateralize the bonds.These bonds are not considered auction rate securities.ADS Mexicana Short Term Credit FacilityOn December 11, 2014, ADS Mexicana entered into a short-term credit facility arrangement with Scotiabank Inverlat, S.A. (“Scotiabank”). The facilitymatures in 12 months and has a borrowing capacity of $5 million or an equivalent amount in Mexican pesos, not to exceed 72.5 million pesos. Theinterest rate for the dollar borrowings is variable and is derived from the LIBOR. The interest rate for peso borrowings is also variable and is derivedfrom the Interbank Equilibrium Interest Rate (“T.I.I.E.”). There were no outstanding borrowings on this facility at March 31, 2015.Debt Covenants and Dividend RestrictionsThe Bank Term Loans and the Senior Notes require, among other provisions, that we (1) maintain a 1.25 to 1 minimum fixed charge coverage ratio;(2) maintain a maximum leverage ratio of 4 to 1; and (3) establish certain limits on permitted transactions, principally related to indebtedness, capitaldistributions, loans and investments, and acquisitions and dispositions of assets. Capital distributions, including dividends, are prohibited if we are notin compliance with our debt covenants. In any fiscal year, if we are in compliance with all debt covenants and the pro-forma leverage ratio exceeds 3 to1, capital distributions are permitted up to a limit of $50,000.Principal MaturitiesMaturities of long-term debt (excluding interest) as of March 31, 2015 are summarized below: Fiscal Years Ending March 31, (Amounts in thousands) 2016 2017 2018 2019 2020 Thereafter Total Principal maturities $9,580 $35,870 $35,905 $293,540 $25,000 $— $399,895 Subsequent Events Related to the Bank Term Loans and Senior NotesIn July 2015, the Company obtained consents from the requisite holders of its Bank Term Loans and its Senior Notes to waive certain actual andpotential covenant violations. Specifically, the covenant violations were the result of the fact that the Company had not delivered its fiscal 2015audited financial statements within 90 days of March 31, 2015, and did not expect to be able to file its first quarter fiscal 2016 quarterly financialstatements within 45 days of June 30, 2015. The consents extended the time for delivery of the fiscal 2015 audited financial statements and the firstquarter fiscal 2016 quarterly financial statements to F-42Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSeptember 30, 2015, whereby an event of default was waived as long as those financial statements were delivered within the thirty day grace periodafter September 30, 2015.In August 2015, the Company entered into amended agreements related to the Bank Term Loans and Senior Notes in connection with the Company’sdetermination that a substantial portion of its transportation and equipment leases should be treated as capital leases rather than as operating leases, asdiscussed in Note 2. Restatement of Previously Issued Financial Statements. The material terms of each amended agreement modify certain definitionsapplicable to the Company’s affirmative and negative financial covenants, including the minimum fixed charge coverage ratio, the maximum leverageratio, and the limits on indebtedness, to accommodate the Company’s treatment of its transportation and equipment leases as capital leases rather thanoperating leases, along with corresponding changes to the provisions outlining the application of GAAP in the definition of accounting terms used invarious financial covenants. The amendments also waive any potential event of default that may exist under any of the respective agreements as aresult of changes to the Company’s financial statements related to lease accounting, and do not require the Company to deliver restated financialstatements or compliance certificates for any annual or quarterly period prior to the fiscal year ended March 31, 2015.In October 2015, the Company obtained additional consents from the requisite holders of its Bank Term Loans and its Senior Notes to further extendthe time for delivery of its fiscal 2015 audited financial statements and the first quarter fiscal 2016 quarterly financial statements, as well as to extendthe time for delivery of its second quarter fiscal 2016 quarterly financial statements. The consents extended the time for delivery of the fiscal 2015audited financial statements and the first quarter fiscal 2016 quarterly financial statements to November 30, 2015, as well as extended the time fordelivery of the second quarter fiscal 2016 quarterly financial statements to December 31, 2015, whereby an event of default was waived as long asthose financial statements were delivered within the thirty day grace period after those dates.In December 2015, the Company entered into additional amended agreements related to the Bank Term Loans and Senior Notes that further extend thetime for delivery of its fiscal 2015 audited financial statements and the first and second quarter fiscal 2016 quarterly financial statements. TheDecember 2015 amended agreements extended the time for delivery of the fiscal 2015 audited financial statements and the first and second quarterfiscal 2016 quarterly financial statements to January 31, 2016, whereby an event of default was waived as long as those financial statements weredelivered within the thirty day grace period after that date. The December 2015 amended agreements also modify certain definitions applicable to theCompany’s affirmative and negative financial covenants, including with respect to the treatment of the costs related to the Company’s restatement forpurposes of the calculation of the minimum fixed charge coverage ratio and the maximum leverage ratio. As part of the December 2015 amendedagreements, the lenders also consented to the Company’s payment of a $0.05 per share common stock dividend in December 2015.In February 2016, the Company entered into additional amended agreements related to the Bank Term Loans and Senior Notes that further extend thetime for delivery of its fiscal 2015 audited financial statements and the first and second quarter fiscal 2016 quarterly financial statements, as well as toextend the time for delivery of its third quarter fiscal 2016 quarterly financial statements. The February 2016 amended agreements extended the timefor delivery of the fiscal 2015 audited financial statements and the first, second and third quarter fiscal 2016 quarterly financial statements to April 1,2016, whereby an event of default was waived as long as those financial statements were delivered by that date without regard to any grace period. Aspart of the February 2016 amended agreements, the lenders also consented to the Company’s payment of the previously declared annual dividend of$0.0195 per share to be paid on shares of preferred stock in March 2016. 14.DERIVATIVE TRANSACTIONSThe Company uses interest rate swaps, commodity options in the form of collars and swaps, and foreign currency forward contracts to manage itsvarious exposures to interest rate, commodity price, and foreign currency exchange rate fluctuations. For interest rate swaps, gains and losses resultingfrom the difference F-43Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsbetween the spot rate and applicable base rate is recorded in interest expense. For collars, commodity swaps and foreign exchange forward contracts,contract settlement gains and losses are recorded in the Consolidated Statements of Operations in Other miscellaneous expense (income), net. Gainsand losses related to mark-to-market adjustments for changes in fair value of the derivative contracts are also recorded in the Consolidated Statementsof Operations as Other miscellaneous expense (income), net.A summary of the fair values for the various derivatives at March 31, 2015 and 2014 is presented below: 2015 2014 Asset Liability Asset Liability Interest rate swaps $ — $(765) $ — $(1,001) Foreign exchange forward contracts 28 — — — Diesel fuel option collars — (2,841) — — Propylene swaps — (5,142) 27 — The Company recorded losses and (gains) on mark-to-market adjustments for changes in the fair value of derivative contracts as well as losses and(gains) on the settlement of derivative contracts as follows: Unrealized Mark to Market Losses (Gains) (Amounts in thousands) 2015 2014 2013 Interest rate swaps $(236) $(81) $(221) Foreign exchange forward contracts (28) — — Diesel fuel option collars 2,841 55 217 Propylene swaps 5,169 (27) — $7,746 $(53) $(4) Realized Losses (Gains) (Amounts in thousands) 2015 2014 2013 Foreign exchange forward contracts $5,636 $— $— Diesel fuel option collars 736 — (57) Propylene swaps 1,333 (84) — $7,705 $(84) $(57) Total realized and unrealized losses (gains) included in Other miscellaneousexpense (income), net(1) $15,451 $(137) $(61) (1)The total balance in Other miscellaneous expense (income), net in the Consolidated Statements of Operations also includes other (income) expenseitems of ($1,081), ($1,040) and $164 at March 31, 2015, 2014 and 2013, respectively. 15.COMMITMENTS AND CONTINGENCIESPurchase CommitmentsWe secure supplies of resin raw material by agreeing to purchase quantities during a future given period at a fixed price. These purchase contracts rangefrom 1 to 12 months and occur in the ordinary course of business. Under such purchase contracts in place at March 31, 2015, we have agreed topurchase 18,000 pounds of resin over the period April 2015 through December 2015 at a committed purchase cost of $11,790.LitigationOn July 29, 2015, a putative stockholder class action, Christopher Wyche, individually and on behalf of all others similarly situated v. AdvancedDrainage Systems, Inc., et al. (Case No. 1:15-cv-05955-KPF), was F-44Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentscommenced in the U.S. District Court for the Southern District of New York. The complaint alleges that the Company made material misrepresentationsand/or omissions of material fact in its public disclosures during the period from September 5, 2014 through July 14, 2015, in violation ofSection 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Plaintiffs seek an unspecifiedamount of monetary damages on behalf of the putative class and an award of costs and expenses, including counsel fees and expert fees. The Companybelieves that it has valid and meritorious defenses and will vigorously defend against these allegations. While it is reasonably possible that this matterultimately could be decided unfavorably to the Company, the Company is currently unable to estimate the range of the possible losses, but they couldbe material.On August 12, 2015, the SEC’s Division of Enforcement informed the Company that it was conducting an informal inquiry with respect to theCompany. As part of this inquiry, the SEC requested the voluntary production of certain documents generally related to the Company’s accountingpractices. Subsequently, the Company received a subpoena from the SEC on December 3, 2015 pursuant to a formal order of investigation, whichsubpoena repeated in substantial part a previous voluntary document production request. The Company has cooperated with the SEC in connectionwith this investigation and the production of documents, which remains ongoing, and will continue to fully cooperate with the SEC with respect to itsinvestigation. While it is reasonably possible that this investigation ultimately could be resolved unfavorably to the Company, the Company iscurrently unable to estimate the range of the possible losses, but they could be material.We are involved from time-to-time in various legal proceedings that arise in the ordinary course of our business including, but not limited tocommercial disputes, environmental matters, employee related claims, intellectual property disputes and litigation in connection with transactionsincluding acquisitions and divestitures. We believe that such litigation, claims, and administrative proceedings will not have a material adverse impacton our financial position or our results of operations. We record a liability when a loss is considered probable, and the amount can be reasonablyestimated. In management’s opinion, none of these proceedings will materially affect our consolidated operations, cash flows, or financial position, andwe have recorded adequate accrued liabilities to cover our estimated probable loss exposure. 16.EMPLOYEE BENEFIT PLANSEmployee Stock Ownership Plan (ESOP)We established the Advanced Drainage Systems, Inc. ESOP (the “ESOP” or the “Plan”) effective April 1, 1993. The Plan was funded through a transferof assets from our tax-qualified profit-sharing retirement plan, as well as a 30-year term loan from ADS. The Plan operates as a tax-qualified leveragedESOP and was designed to enable eligible employees to acquire stock ownership interest in ADS. Employees of ADS who have reached the age of 18are generally eligible to participate in the Plan on March 31 after six months of service. Upon retirement, disability, death, or vested terminations, (i) aparticipant or designated beneficiary may elect to receive the amount in their account attributable to the 1993 transfer of assets from our tax-qualifiedprofit sharing retirement plan in the form of cash or ADS stock with any fractional shares paid in cash; (ii) stock credited to the participants’ ESOPstock account resulting from the ESOP’s loan repayments are distributed in the form of ADS stock, and (iii) amounts credited to the participants’ ESOPcash account are distributed in the form of cash. Upon attainment of age 50 and seven years of participation in the Plan, a participant may elect todiversify specified percentages of the number of shares of ADS stock credited to the participant’s ESOP stock account in compliance with applicablelaw.We are obligated to make contributions to the Plan, which, when aggregated with the Plan’s dividends, equal the amount necessary to enable the Planto make its regularly scheduled payments of principal and interest due on its term loan to ADS. As the Plan makes annual payments of principal andinterest, an appropriate percentage of preferred stock is allocated to ESOP participants’ accounts in accordance with plan terms that are compliant withapplicable Internal Revenue Code and regulatory provisions. F-45Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRequired dividends on allocated shares are generally passed through and paid in cash to the participants and required dividends on unallocated sharesare paid in cash to the Plan and generally used to service the Plan’s debt.On January 6, 2014, the Board of Directors declared a cash dividend of $1.59 (the “Special Dividend”) per share for a total amount of approximately$108,101, on all outstanding shares of our common stock and Redeemable convertible preferred stock. We paid the Special Dividend on January 15,2014 to all stockholders of record on January 2, 2014. The payment of the Special Dividend was financed through the Company’s Revolving CreditFacilities. For additional details on the Revolving Credit Facilities, please refer to Note 13. Debt.The Special Dividend on the ESOP’s allocated shares was paid in cash (i.e., passed through) to participants, and the Special Dividend on the ESOP’sunallocated shares was retained by the ESOP and allocated among the participants’ ESOP cash accounts. The allocation of cash among theparticipants’ ESOP cash accounts related to dividends paid on unallocated shares resulted in additional compensation expense for the fiscal year endedMarch 31, 2014 of $22,624, of which $13,896 was included in Cost of goods sold, $4,550 was included in Selling expenses, and $4,178 was includedin General and administrative expenses in the Consolidated Statements of Operations.In the fiscal years ended March 31, 2015 and 2014, the ESOP committee directed the Plan trustee to retain $824 and $23,614, respectively, individends on unallocated ADS shares rather than to service the Plan’s debt. These dividends were allocated to participants based on the total shares intheir account in relation to total shares allocated at March 31, 2015 and 2014.In the fiscal years ended March 31, 2015 and 2014, 737 and 734 shares of Redeemable convertible preferred stock, respectively, were allocated to theESOP participants, including, in addition to the cash dividends, 6 and 11 preferred shares allocated as dividends, respectively. See Note 19. MezzanineEquity for further details on the shares of Redeemable convertible preferred stock held by our ESOP.Profit-Sharing PlanWe have a tax-qualified profit-sharing retirement plan with a 401(k) feature covering substantially all eligible employees. We did not make employercontributions in the fiscal years ended March 31, 2015, 2014 and 2013 to the tax-qualified profit-sharing retirement plan. 17.ACCUMULATED OTHER COMPREHENSIVE LOSSThe following table presents the changes in the balances of each component of Accumulated other comprehensive loss (“AOCL”) for the fiscal yearsended March 31: (Amounts in thousands) CurrencyTranslation Other AccumulatedOtherComprehensiveLoss Balance at April 1, 2012 $(2,554) $29 $(2,525) Other comprehensive income (loss) 1,469 (41) 1,428 Income tax expense — 16 16 Balance at March 31, 2013 $(1,085) $4 $(1,081) Other comprehensive (loss) income (5,753) 6 (5,747) Income tax benefit — (2) (2) Balance at March 31, 2014 $(6,838) $8 $(6,830) Other comprehensive loss (8,691) — (8,691) Balance at March 31, 2015 $(15,529) $8 $(15,521) F-46Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents18.STOCKHOLDERS’ EQUITY (DEFICIT)The common stockholders have entered into an agreement that grants ADS the right of first refusal to purchase shares in the event of death, disability,or termination of certain management stockholders.In addition to the Special Dividend, the Board of Directors approved a dividend of $0.04 per share to all common stockholders of record in each of thequarters ending March 31, 2015 and December 31, 2014. No dividends were declared in the quarters ended June 30, 2014 and September 30, 2014. TheBoard of Directors approved quarterly cash dividends of $0.029 per share during each of the first three quarters of the fiscal year ended March 31, 2014.The Board of Directors approved a quarterly cash dividend of $0.026 per share to all common stockholders of record during the fiscal year endedMarch 31, 2013.Total cash dividends paid on common stock during the fiscal years ended March 31, 2015, 2014 and 2013 were $4,270, $80,102 and $4,817,respectively.During the fiscal year ended March 31, 2015, we purchased a negligible amount of fractional shares subsequent to the IPO at a price of $17.21 pershare. In fiscal year ended March 31, 2014, we purchased 80 shares from certain stockholders at a purchase price of $13.64 per share.See Note 13. Debt for a description of restrictions on the payment of dividends imposed under our Bank Term Loans and Senior Notes agreements.Subsequent Events Related to Stockholders’ Equity (Deficit)During each of the first three quarters of fiscal 2016, the Company declared a cash dividend of $0.05 per share of common stock. 19.MEZZANINE EQUITYRedeemable Common StockPrior to the July 2014 IPO , one of our minority equity owners along with other shareholders who hold ownership in ADS of at least 15% (referred to as“Major Shareholders”) entered into an agreement which provided the Major Shareholders the right to put their common stock to the Company at fairvalue if, following the fifth anniversary of the recapitalization that occurred during 2010, a Major Shareholder demands that the Company effect anIPO covering the registration of at least $50,000 of securities, and either the Company advises the Major Shareholder that ADS will not beginpreparations for an IPO within 180 days after delivery, or after such preparations have begun they are discontinued (the “Major Shareholders’ PutRight”). As the Major Shareholders’ Put Right was a redemption right which prior to the IPO was outside the control of ADS, we classified commonstock held by the Major Shareholders in the mezzanine equity section of our Consolidated Balance Sheets at its fair value, and changes in fair valuewere recorded in Retained earnings. As of March 31, 2014, there were 38,320 shares of common stock held by Major Shareholders.The redemption feature of our Redeemable common stock allowing the holder to put its shares to us for cash, as discussed in the previous paragraph,became unenforceable upon effectiveness of the IPO on July 25, 2014. As a result, the Redeemable common stock was recorded at fair value throughthe effective date of the IPO and was subsequently reclassified at that fair value to stockholders’ equity. See Note 1. Background and Summary ofSignificant Accounting Policies for more information on the IPO. As of March 31, 2015, there were 10,101 shares of common stock held by MajorShareholders, which are now classified in stockholders’ equity as a result of the IPO.Redeemable Convertible Preferred StockThe Trustee of the Company’s ESOP has the ability to put shares of our Redeemable convertible preferred stock to the Company. The Redeemableconvertible preferred stock has a required cumulative 2.5% F-47Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsdividend (based on the issue price of $0.781 per share) and is convertible at a rate of 0.7692 shares of common stock for each share of Redeemableconvertible preferred stock. We guarantee the value of the Redeemable convertible preferred stock at $0.781 per share. The put option requirements ofthe Internal Revenue Code apply in the event that the Company’s common stock is not a registration type class of security or its trading has beenrestricted. Therefore, the holders of Redeemable convertible preferred stock have a put right to require us to repurchase such shares in the event that ourcommon stock is not listed for trading or otherwise quoted on the NYSE, AMEX, NASDAQ, or any other market more senior than the OTC BulletinBoard.Given that the event that may trigger redemption of the Redeemable convertible preferred stock (the listing or quotation on a market more senior thanthe OTC Bulletin Board) is not solely within our control, our Redeemable convertible preferred stock is presented in the mezzanine equity section ofour Consolidated Balance Sheets.As of March 31, 2015, we did not adjust the carrying value of the Redeemable convertible preferred stock to its redemption value or recognize anychanges in fair value as we did not consider it probable that the Redeemable convertible preferred stock would become redeemable.The Board of Directors approved the 2.5% annual dividend to be paid March 31 of each fiscal year to the stockholders of record as of March 15, 2015,2014 and 2013. The annual dividend was paid in cash and stock on the allocated shares. During the first quarter of 2016, the Board of Directorsapproved the 2.5% annual dividend to be paid on March 31, 2016 to stockholders of record as of March 15, 2016.In addition, the Board of Directors approved a quarterly discretionary cash dividend of $0.0196 per share to all preferred stockholders of record duringthe fiscal year ended March 31, 2013 and quarterly discretionary cash dividends of $0.0221 per share during the first three quarters of the fiscal yearended March 31, 2014. As noted above, the Redeemable convertible preferred stockholders also received the Special Dividend during the fourthquarter of fiscal 2014. The Special Dividend and the discretionary dividends on unallocated shares of Redeemable convertible preferred stock wereallocated to participants rather than being used to service the Plan’s debt as described in Note 16. Employee Benefit Plans.Cash and stock dividends on allocated Redeemable convertible preferred stock for the fiscal years ended March 31, 2015 and 2014, respectively, aresummarized in the following table. For additional information on dividends paid to the unallocated Redeemable convertible preferred stock, pleaserefer to Note 16. Employee Benefit Plans. (Amounts in thousands) 2015 2014 Quarterly cash dividends $507 $526 Annual cash dividends 27 32 Special Dividend — 9,463 Total cash dividends $534 $10,021 Annual stock dividend 127 118 Annual cash dividend 27 32 Total ESOP required dividends $154 $150 Allocated shares 7,914 7,668 Required dividend per share 0.0195 0.0195 Required dividends $154 $150 F-48Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents20.STOCK-BASED COMPENSATIONDeferred Compensation — Unearned ESOP SharesThe fair value of Redeemable convertible preferred stock held by the ESOP trust, but not yet earned by the ESOP participants or used for dividends, isreported as Deferred compensation — unearned ESOP shares within the mezzanine equity section of our Consolidated Balance Sheets.Compensation expense and related dividends paid with ESOP shares are recognized based upon the average annual fair value of the shares allocated.The shares allocated are for services rendered throughout the period and, therefore, a simple average is used to calculate average annual fair value.Deferred compensation — unearned ESOP shares is relieved at fair value, with any difference between the annual average fair value and the fair valueof shares when allocated being added to Additional paid in capital. The fair value of the shares allocated was $22.05, $11.16 and $10.64 per share ofRedeemable convertible preferred stock at March 31, 2015, 2014 and 2013, respectively, resulting in an average annual fair value per share of $16.61,$10.90 and $10.25 for the fiscal years ended March 31, 2015, 2014 and 2013, respectively. During the fiscal years ended March 31, 2015, 2014 and2013, we recognized compensation expense of $12,144, $7,891 and $7,283, respectively, related to allocation of ESOP shares to participants.Stock OptionsOur 2000 stock option plan (“2000 Plan”) provides for the issuance of non-statutory stock options to management based upon the discretion of theBoard 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 equalannual amounts beginning in year five and expire after 10 years from issuance.In August 2013, a new stock option plan (“2013 Plan”) was approved by the Board of Directors and provides for the issuance of up to 3,323 non-statutory common stock options to management subject to the Board’s discretion. The plan generally provides for grants with the exercise price equalto fair value on the date of grant. The grants generally vest in five equal annual amounts beginning in year one and expire after 10 years from issuance.Options issued to the Chief Executive Officer vest equally over four years and expire after 10 years from issuance.For both stock option plans, management determines the fair value of the options based on the Black-Scholes option pricing model. This methodologyrequires significant inputs including the fair value of our common stock, risk-free interest rate, dividend yield and expiration date. During the fiscalyears ended March 31, 2015, 2014 and 2013, we recognized total stock-based compensation expense under both plans of $4,418, $2,669 and $545,respectively, which was included in General and administrative expense in our Consolidated Statements of Operations. As of March 31, 2015 and2014, there was a total of $3,269 and $6,884, respectively, of unrecognized compensation expense related to unvested stock option awards that will berecognized as an expense as the awards vest over the remaining service period. Of this amount, $0 and $2,383 relate to liability classified awards and$3,269 and $4,501 relate to equity classified awards as of March 31, 2015 and 2014, respectively.We estimate the fair value of stock options granted after April 1, 2006 using a Black-Scholes option-pricing model, with assumptions as follows: 2015 2014 2013 Expected stock price volatility 40% 44% 48%Risk-free interest rate 2.1% 2.3% 1.2%Weighted-average expected option life (years) 8 8 8 Dividend yield 0.86% 0.84% 0.81%In May 2014, the Board of Directors approved the increase of shares available for granting under the 2013 plan to 1,412 shares. We had approximately1,106 and 1,412 shares available for granting under the 2000 and 2013 plans, respectively, as of March 31, 2015. F-49Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents2000 PlanThe stock option activity for the fiscal years ended March 31 is summarized as follows: 2015 2014 2013 NumberofShares WeightedAverageExercisePrice WeightedAverageRemainingContractualTerm NumberofShares WeightedAverageExercisePrice WeightedAverageRemainingContractualTerm NumberofShares WeightedAverageExercisePrice WeightedAverageRemainingContractualTerm Outstanding at beginning of year 913 $9.48 4.1 1,333 $8.10 4.0 1,524 $7.03 3.9 Issued 78 15.74 — 25 13.64 — 134 12.59 — Exercised (235) 7.50 — (427) 5.19 — (325) 4.89 — Forfeited (10) 10.48 — (18) 10.77 — — — — Outstanding at end of year 746 10.75 4.1 913 9.48 4.1 1,333 8.10 4.0 Vested at end of year 668 10.16 3.5 485 8.01 2.2 654 5.75 2.2 Unvested at end of year 78 15.74 9.4 428 11.14 6.3 679 10.37 5.7 Vested and expected to vest at end of year (a) 640 10.73 7.6 800 9.36 5.2 1,204 7.90 4.6 Fair value of options granted during the year $6.76 $6.38 $6.01 a)Vested and expected to vest at end of year assumes the forfeiture of approximately 15% of options outstanding at the end of each period.The following table summarizes information about the unvested stock option grants as of the fiscal years ended March 31: 2015 2014 Number ofShares WeightedAverage GrantDate Fair Value Number ofShares WeightedAverage GrantDate Fair Value Unvested at beginning of year 428 $5.82 679 $5.73 Granted 78 6.76 25 6.38 Vested (428) 5.82 (276) 5.49 Unvested at end of year 78 $6.76 428 $5.82 F-50Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents2013 PlanThe stock option transactions for the fiscal years ended March 31 are summarized as follows: 2015 2014 NumberofShares WeightedAverageExercisePrice WeightedAverageRemainingContractualTerm NumberofShares WeightedAverageExercisePrice WeightedAverageRemainingContractualTerm Outstanding at beginning of period 1,911 $13.64 9.42 — $— — Issued — equity classified — — — 1,440 13.64 — Issued — liability classified — — — 518 13.64 — Forfeited — — — (47) 13.64 — Outstanding at end of year 1,911 13.64 8.42 1,911 13.64 9.42 Vested at end of year 408 13.64 8.42 — — — Unvested at end of year 1,503 13.64 8.42 1,911 13.64 9.42 Vested and expected to vest at end of year(a) 1,702 13.64 8.42 1,704 13.64 9.42 Fair value of options granted during the year $— $6.22 (a)Vested and expected to vest at end period assumes the forfeiture of approximately 15% of options granted (except those to the CEO).The following table summarizes information about the unvested stock option grants as of the fiscal years ended March 31: 2015 2014 Number ofShares WeightedAverage GrantDate Fair Value Number ofShares WeightedAverage GrantDate Fair Value Unvested at beginning of year 1,911 $6.22 — $— Granted — — 1,958 6.22 Vested (408) 6.22 — — Forfeited — — (47) 6.22 Unvested at end of year 1,503 $6.22 1,911 $6.22 Restricted StockOn September 16, 2008, the Board of Directors adopted the restricted stock plan, which provides for the issuance of restricted stock awards to certainkey employees. The restricted stock generally vest ratably over a five-year period from the original restricted stock grant date, contingent on theemployee’s continuous employment by ADS. In certain instances, however, a portion of the grants vested immediately or for accounting purposes weredeemed to have vested immediately, including the grants to the Chief Executive Officer, which do not have a substantial risk of forfeiture as a result ofdifferent vesting provisions. Under the restricted stock plan, vested shares are considered issued and outstanding. Employees with restricted stock havethe right to dividends on the shares awarded (vested and unvested) in addition to voting rights on non-forfeited shares. The Company recognizedcompensation expense of $562, $1,849 and $1,535 in the fiscal years ended March 31, 2015, 2014 and 2013, respectively, relating to the issuance ofthese shares; of this amount, $0, $385 and $533 relates to the restricted shares that vested immediately during the fiscal years ended March 31, 2015,2014 and 2013, respectively. We had approximately 335 shares available for grant under this plan as of March 31, 2015. F-51Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe information about the unvested restricted stock grants as of March 31 is as follows: 2015 2014 2013 Numberof Shares WeightedAverageGrant DateFair Value Number ofShares WeightedAverageGrant DateFair Value Number ofShares WeightedAverageGrant DateFair Value Unvested at beginning of year 311 $12.40 273 $11.63 179 $10.39 Granted — — 155 13.64 151 12.59 Vested (126) 12.01 (104) 11.78 (47) 10.29 Forfeited (2) 11.98 (13) 12.12 (10) 10.42 Unvested at end of year 183 $12.65 311 $12.40 273 $11.63 We expect most, if not all, restricted stock grants to vest.At March 31, 2015 and 2014, there was approximately $2,301 and $2,812, respectively, of unrecognized compensation expense related to therestricted stock that will be recognized over the weighted average service period remaining of 2.2 and 3.0 years, respectively.Non-Employee Director Compensation PlanOn June 18, 2014, the Company amended its then-existing Stockholders’ Agreement to authorize 282 shares of restricted stock to be granted to non-employee members of its Board of Directors. The shares typically will vest one year from the date of issuance. Under this stock plan, the vested sharesgranted are considered issued and outstanding. Non-employee directors with this stock have the right to dividends on the shares awarded (vested andunvested) in addition to voting rights. On September 6, 2014, a total of 48 shares were granted to seven directors at a fair value of $18.88 per share.These shares vested on February 27, 2015. The Company recognized compensation expense of $900 for the fiscal year ended March 31, 2015, relatingto the issuance of these shares. We had approximately 234 shares available for grant under this plan as of March 31, 2015.The following table summarizes information about the unvested Non-Employee Director Compensation stock grants as of March 31, 2015: Number ofShares WeightedAverageGrantDateFairValue Unvested at beginning of year — $— Granted 48 18.88 Vested (48) 18.88 Unvested at end of year — $— As of March 31, 2015, there was no unrecognized compensation expense related to this restricted stock. 21.INCOME TAXESThe components of Income before income taxes for the fiscal years ended March 31 are as follows: (Amounts in thousands) 2015 2014 2013 United States 17,312 25,497 25,116 Foreign 7,217 9,758 13,733 Total $24,529 $35,255 $38,849 F-52Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe components of the provision for income taxes for the fiscal years ended March 31 consisted of the following: (Amounts in thousands) 2015 2014 2013 Current: Federal $20,462 $21,774 $17,282 State and local 3,659 3,859 3,664 Foreign 830 1,126 2,391 Total current tax provision 24,951 26,759 23,337 Deferred: Federal (13,437) (4,985) (5,344) State and local (2,173) (2,724) (1,653) Foreign 102 899 (405) Total deferred tax benefit (15,508) (6,810) (7,402) Total income tax provision $9,443 $19,949 $15,935 For the fiscal years ended March 31, our effective tax rate varied from the statutory Federal income tax rate as a result of the following factors: 2015 2014 2013 Federal statutory rate 35.0% 35.0% 35.0% Redeemable convertible preferred stock dividend (0.8) (9.9) 0.6 ESOP stock appreciation 16.5 7.3 6.1 ESOP compensation for Special Dividend on unallocated shares — 22.5 — Effect of tax rate of foreign subsidiaries 2.5 3.7 (5.1) State and local taxes—net of federal income tax benefit 1.1 2.4 3.1 Noncontrolling interest (1.9) (5.5) (3.3) Uncertain tax position change (7.1) 5.9 0.5 Qualified production activity credit (7.6) (5.0) (1.7) Cumulative adjustments to deferred taxes 0.2 0.5 5.1 Other 0.6 (0.3) 0.7 Effective rate 38.5% 56.6% 41.0% The Company’s effective tax rate will vary based on factors, including but not limited to, overall profitability, the geographical mix of income beforetaxes and discrete events. The decrease in the effective tax rate for 2015 was primarily driven by the absence of the Special Dividend payment toparticipants in the ESOP which increased the effective tax rate by 22.5% in 2014. For 2015, the ESOP stock appreciation impacted the rate by 16.5%due to the increase in stock value compared to original cost. Please refer to Notes 16. Employee Benefit Plans for additional information on the SpecialDividend. F-53Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31 werecomprised of: (Amounts in thousands) 2015 2014 Deferred tax assets: State income taxes $1,885 $2,684 ESOP loan repayment 1,421 1,473 Receivable and other allowances 2,534 1,189 Fuel hedge 3,534 471 Inventory 7,564 1,173 Non-Qualified stock options 2,855 1,099 Accrued rebates 1,378 1,626 Worker’s compensation 667 754 Contingent consideration 247 252 Purchase card accrual 232 240 Other 1,041 620 Foreign NOL’s 1,504 1,119 Valuation allowance (1,504) (1,119) Total deferred tax assets 23,358 11,581 Deferred tax liabilities: Intangible assets 10,984 11,208 Property, plant and equipment 51,958 47,021 Leases 4,036 6,282 Deferred system costs 3,160 4,432 Goodwill 2,736 2,061 Other 1,487 716 Total deferred tax liabilities 74,361 71,720 Net deferred tax liability $51,003 $60,139 Net deferred tax assets are included in Deferred income taxes and other current assets and Other assets on the Consolidated Balance Sheets. The relatedbalances at March 31 were as follows: (Amounts in thousands) 2015 2014 Net current deferred tax assets $14,085 $6,194 Net non-current deferred tax liabilities $65,088 $66,333 The Company has not provided for U.S. federal income taxes or foreign withholding taxes on approximately $30,218 of undistributed earnings of itsforeign subsidiaries at March 31, 2015 because such earnings are intended to be reinvested indefinitely with the exception of cash dividends paid byour ADS Mexicana joint venture. It is not practicable to estimate the amount of U.S. tax that might be payable on the eventual remittance of suchearnings. F-54Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAccounting for uncertain tax positionsAs of March 31, 2015, the Company had unrecognized tax benefit of $10,496, which if resolved favorably, would reduce income tax expense by$10,151. A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended March 31, 2013, March 31, 2014 and2015 is as follows: (Amounts in thousands) Balance as of March 31, 2012 $1,615 Increases in tax positions for prior years 10,969 Decreases in tax positions for prior years (8) Settlements — Lapse of statute of limitations (1,875) Balance as of March 31, 2013 10,701 Tax positions taken in current year 2,954 Decreases in tax positions for prior years (47) Increases in tax positions for prior years 844 Settlements — Lapse of statute of limitations (1,545) Balance as of March 31, 2014 12,907 Decreases in tax positions for prior years (680) Increases in tax positions for prior years 336 Settlements — Lapse of statute of limitations (2,067) Balance as of March 31, 2015 $10,496 The Company recognized in its Consolidated Statements of Operations potential accrued interest and penalties related to unrecognized tax benefits of$460 at March 31, 2015.It is reasonably possible that there could be a change in the amount of unrecognized tax benefits within the next twelve months due to activities of theIRS or other taxing authorities, including proposed assessments of additional tax, possible settlement of audit issues, or the expiration of applicablestatutes of limitation.The Company is currently open to audit under the statute of limitations by the IRS for the fiscal years ended March 31, 2013 through March 31, 2015.The majority of the Company’s state income tax returns are open to audit under the statute of limitations for the years ended March 31, 2012 throughMarch 31, 2015. The foreign income tax returns are open to audit under the statute of limitations for the years ended March 31, 2010 throughMarch 31, 2015. 22.NET INCOME (LOSS) PER SHAREBasic net income (loss) per share is calculated by dividing the Net income (loss) available to common stockholders by the weighted-average number ofcommon shares outstanding during the period, without consideration for common stock equivalents. Diluted net income (loss) per share is computedby dividing the Net income (loss) available to common stockholders by the weighted-average number of common stock equivalents outstanding forthe period.Holders of unvested restricted stock have non-forfeitable rights to dividends when declared on common stock, and holders of Redeemable convertiblepreferred stock participate in dividends on an as-converted basis when declared on common stock. As a result, unvested restricted stock andRedeemable convertible preferred stock meet the definition of participating securities, which requires us to apply the two-class method to computeboth basic and diluted net income (loss) per share. The two-class method is an earnings allocation formula that treats participating securities as havingrights to earnings that would otherwise have been available to common stockholders. F-55Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe dilutive effect of stock options and unvested restricted stock is based on the more dilutive of the treasury stock method or the diluted two-classmethod. In computing diluted net income per share, income available to common stockholders used in the basic net income per share calculation(numerator) is adjusted, subject to sequencing rules, for certain adjustments that would result from the assumed issuance of potential common shares.Diluted net income per share assumes the Redeemable convertible preferred stock would be cash settled through the effective date of the IPO onJuly 25, 2014, as we have the choice of settling in cash or shares and we have demonstrated past practice and intent of cash settlement. Therefore theseshares are excluded from the calculation through the effective date of the IPO. After the effective date of the IPO, management’s intent is to share settle;therefore, these shares are included in the calculation from July 26, 2014 through March 31, 2015, if dilutive. For purposes of the calculation of dilutednet income per share, stock options and unvested restricted stock are considered to be potential common stock and are only included in thecalculations when their effect is dilutive.The Company’s Redeemable common stock is included in the weighted-average number of common shares outstanding for calculating basic anddiluted net income per share.The following table presents information necessary to calculate net (loss) income per share for the fiscal years ended March 31, 2015, 2014 and 2013,as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding because their inclusionwould have been anti-dilutive: (Amounts in thousands, except per share data) 2015 2014 2013 NET (LOSS) INCOME PER SHARE — BASIC: Net income attributable to ADS $8,620 $8,627 $20,660 Adjustment for: Change in fair value of Redeemable convertible preferred stock (11,054) (3,979) (5,869) Dividends paid to Redeemable convertible preferred stockholders (661) (10,139) (735) Dividends paid to unvested restricted stockholders (11) (418) (52) Net (loss) income available to common stockholders and participating securities (3,106) (5,909) 14,004 Undistributed income allocated to participating securities — — (1,127) Net (loss) income available to common stockholders — Basic (3,106) (5,909) 12,877 Weighted average number of common shares outstanding — Basic 51,344 47,277 46,698 Net (loss) income per common share — Basic $(0.06) $(0.12) $0.28 NET (LOSS) INCOME PER SHARE — DILUTED: Net (loss) income available to common stockholders — Basic (3,106) (5,909) $12,877 Weighted average number of common shares outstanding — Basic 51,344 47,277 46,698 Assumed exercise of stock options — — 551 Weighted average number of common shares outstanding — Diluted 51,344 47,277 47,249 Net (loss) income per common share — Diluted $(0.06) $(0.12) $0.27 Potentially dilutive securities excluded as ant-dilutive 4,454 535 78 23.BUSINESS SEGMENT INFORMATIONWe operate our business in two distinct operating and reportable segments based on the markets we serve: “Domestic” and “International.” The ChiefOperating Decision Maker (“CODM”) evaluates segment reporting based on Net sales and Segment Adjusted EBITDA (a non-GAAP measure). Wecalculate Segment Adjusted EBITDA as net income or loss before interest, income taxes, depreciation and amortization, stock-based compensationexpense, non-cash charges and certain other expenses. F-56Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDomesticOur Domestic segment manufactures and markets products throughout the United States. We maintain and serve these markets through productdistribution relationships with many of the largest national and independent waterworks distributors, major national retailers as well as an extensivenetwork of hundreds of small to medium-sized distributors across the U.S. We also sell through a broad variety of buying groups and co-ops in theUnited States. Products include single wall pipe, N-12 HDPE pipe sold into the Storm sewer and Infrastructure markets, High Performance PP pipe soldinto the Storm sewer and sanitary sewer markets, and our broad line of Allied Products including StormTech, Nyloplast, ARC Septic Chambers, InsertaTee, BaySaver filters and water quality structures, Fittings, and FleXstorm. Our Domestic segment sales are diversified across all regions of the country.InternationalOur International segment manufactures and markets products in certain regions outside of the United States, with a growth strategy focused on ourowned facilities in Canada and through our joint-ventures with local partners in Mexico, Central America and South America. Our joint venturestrategy provides us with local and regional access to new markets such as Brazil, Chile, Argentina, Peru and Colombia. Our Mexican joint venture(ADS Mexicana) primarily serves the Mexican markets, while our South American Joint Venture (Tigre-ADS) is our primary channel to serve the SouthAmerican markets. Our International product line includes single wall pipe, N-12 HDPE pipe, and High Performance PP pipe. The Canadian market alsosells our broad line of Allied Products, while sales in Latin America are currently concentrated in fittings and Nyloplast.The following table sets forth reportable segment information with respect to the amount of Net sales contributed by each class of similar products ineach of the fiscal years ended March 31: (Amounts in thousands) 2015 2014 2013 Domestic Pipe $771,214 $700,270 $655,288 Allied Products 256,719 235,022 223,676 Total domestic 1,027,933 935,292 878,964 International Pipe 125,407 107,078 113,236 Allied Products 26,733 25,410 24,902 Total international 152,140 132,488 138,138 Total Net sales $1,180,073 $1,067,780 $1,017,102 F-57Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following sets forth certain additional financial information attributable to our reportable segments for the fiscal years ended March 31: (Amounts in thousands) 2015 2014 2013 Net Sales Domestic $1,027,933 $935,292 $878,964 International 152,140 132,488 138,138 Total $1,180,073 $1,067,780 $1,017,102 Gross Profit Domestic $180,664 $166,185 $157,820 International 25,449 27,785 30,141 Total $206,113 $193,970 $187,961 Segment Adjusted EBITDA Domestic $129,067 $133,996 $109,652 International 14,710 18,759 22,647 Total $143,777 $152,755 $132,299 Interest expense Domestic $19,308 $18,659 $18,390 International 60 148 136 Total $19,368 $18,807 $18,526 Depreciation and amortization Domestic $59,397 $57,834 $57,728 International 6,075 5,840 5,374 Total $65,472 $63,674 $63,102 Equity in net (loss) income of unconsolidated affiliates Domestic $289 $417 $— International (2,624) (3,503) 266 Total $(2,335) $(3,086) $266 Capital expenditures Domestic $28,744 $35,783 $36,527 International 2,735 3,838 2,229 Total $31,479 $39,621 $38,756 The following sets forth certain additional financial information attributable to our reporting segments as of March 31: 2015 2014 2013 Investments in unconsolidated affiliates Domestic $7,957 $5,202 $— International 17,081 18,422 21,899 Total $25,038 $23,624 $21,899 Total identifiable assets Domestic $942,267 $889,263 $838,489 International 168,624 113,612 114,243 Eliminations (69,193) (13,308) (1,967) Total $1,041,699 $989,567 $950,765 F-58Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsReconciliation of Segment EBITDA and Segment Adjusted EBITDA to Net income 2015 2014 2013 (Amounts in thousands) Domestic International Domestic International Domestic International Net income $7,198 $5,553 $4,962 $7,258 $11,180 $12,000 Depreciation and amortization 59,397 6,075 57,834 5,840 57,728 5,374 Interest expense 19,308 60 18,659 148 18,390 136 Income tax expense 8,510 933 17,924 2,025 13,949 1,986 Segment EBITDA 94,413 12,621 99,379 15,271 101,247 19,496 Derivative fair value adjustments 7,774 (28) (53) — (4) — Foreign currency transaction losses (gains) 5,636 (232) — 845 — 1,085 Loss (gain) on sale of disposal or businesses 257 105 (2,817) (46) (880) (71) Unconsolidated affiliates interest, taxes, depreciation andamortization (a) 1,341 2,244 156 2,689 — 2,137 Special Dividend compensation — — 22,624 — — — Contingent consideration remeasurement 174 — 738 — (74) — Stock-based compensation 5,880 — 4,518 — 2,080 — ESOP deferred stock-based compensation 12,144 — 7,891 — 7,283 — Transaction costs (b) 1,448 — 1,560 — — — Segment Adjusted EBITDA $129,067 $14,710 $133,996 $18,759 $109,652 $22,647 (a)Includes our proportional share of interest, income taxes, depreciation and amortization related to our South American Joint Venture, our BaySaverJoint Venture and our Tigre-ADS USA Joint Venture, which are accounted for under the equity method of accounting. Fiscal year 2014 includes ourproportional share of an asset impairment of $1,022 recorded by our South American Joint Venture.(b)Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with our debt refinancing, completion ofthe IPO and secondary public offering and asset acquisitions and dispositions.Geographic Sales and Assets InformationNet sales are attributed to the geographic location based on the location of the customer. The table below represents the Net sales and long-lived assetinformation by geographic location for each of the fiscal years ended March 31: (Amounts in thousands) 2015 2014 2013 Net Sales North America $1,161,909 $1,046,595 $996,935 Other 18,164 21,185 20,167 Total $1,180,073 $1,067,780 $1,017,102 (Amounts in thousands) 2015 2014 Long-Lived Assets* North America $387,132 $357,463 Other 17,081 18,422 Total $404,213 $375,885 *For segment reporting purposes, long-lived assets include Investments in unconsolidated affiliates, Central parts and Property, plant and equipment. F-59Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents24.SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONThe increase (decrease) in cash due to the changes in working capital accounts for the fiscal years ended March 31, were as follows: (Amounts in thousands) 2015 2014 2013 Changes in working capital: Receivables $(10,351) $(5,876) $24,755 Inventories (7,563) (39,017) (32,163) Prepaid expenses and other current assets 1,953 (3,298) 367 Accounts payable, accrued expenses, and other liabilities (995) 10,771 (6,276) Total $(16,956) $(37,420) $(13,317) Supplemental disclosures of cash flow information for the fiscal years ended March 31 were as follows: (Amounts in thousands) 2015 2014 2013 Supplemental disclosures of cash flow information — cash paid during years: Interest $18,709 $17,267 $18,392 Income taxes $28,503 $23,701 $23,924 (Amounts in thousands) 2015 2014 2013 Supplemental schedule of noncash investing and financing activities: Redeemable convertible preferred stock dividend $127 $118 $110 Redemption of common stock to exercise stock options 93 1,187 805 Receivable recorded to exercise stock options — 76 142 Purchases of plant, property, and equipment included in accounts payable 124 682 3,769 Receivable recorded for sale of businesses 600 1,241 1,800 ESOP distributions in common stock 6,133 — — Inventory contributed for Investment in unconsolidated affiliate — 1,285 — Assets acquired and obligation incurred under capital lease 24,047 24,902 16,715 Lease obligation retired upon disposition of leased assets 779 3,708 109 Reclassification of liability classified stock options upon initial public offering 1,522 — — Reclassification of deferred public offering cost asset upon initial public offering $456 $— $— F-60Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents25.QUARTERLY FINANCIAL INFORMATION (UNAUDITED)The following tables set forth certain historical unaudited consolidated condensed quarterly financial information for each of the quarters during theyears ended March 31, 2015 and March 31, 2014. This unaudited information has been restated for the effects of the misstatements more fullydescribed in Note 2. Restatement of Previously Issued Financial Statements, has been prepared on a basis consistent with our annual financialstatements and includes all adjustments necessary for the fair presentation of the unaudited quarterly data. Additional information about the effects ofthe restatement on the historical unaudited consolidated condensed quarterly financial information can be found in the Forms 10-Q/A for the quartersended June 30, 2014, September 30, 2014 and December 31, 2014, which are being filed concurrently with this Form 10-K. The results of operationsfor any quarter are not necessarily indicative of results that we may achieve for any subsequent periods. Fiscal Year 2015 For the Three Months Ended March 31, 2015 December 31, 2014 September 30, 2014 June 30, 2014 (in thousands, except pershare amounts) (As Reported) (As Restated) (As Reported) (As Restated) (As Reported) (As Restated) Net sales $207,054 $278,176 $279,871 $364,724 $366,714 $328,297 $326,434 Gross profit 26,314 50,117 49,178 82,442 69,763 72,033 60,858 Net (loss) income (13,734) 499 (1,953) 22,768 18,997 14,669 9,441 Net (loss) income attributable to ADS (13,465) (367) (3,325) 22,390 16,844 14,241 8,566 Net (loss) income per share Basic $(0.26) $(0.01) $(0.07) $0.51 $0.41 $(0.09) $(0.21) Diluted $(0.26) $(0.01) $(0.07) $0.51 $0.41 $(0.09) $(0.21) Fiscal Year 2014 For the Three Months Ended March 31, 2014 December 31, 2013 September 30, 2013 June 30, 2013 (in thousands, exceptper share amounts) (AsReported) (AsRestated) (AsReported) (AsRestated) (AsReported) (AsRestated) (AsReported) (AsRestated) Net sales $181,232 $181,830 $261,435 $260,644 $333,240 $332,727 $293,102 $292,579 Gross profit 23,905 12,690 49,764 59,342 73,219 65,588 66,003 56,350 Net (loss) income (11,780) (16,168) (9,839) (2,818) 17,783 16,657 16,710 14,549 Net (loss) income attributable to ADS (12,170) (14,210) (10,324) (4,877) 17,322 14,740 16,296 12,974 Net (loss) income per share Basic $(0.32) $(0.41) $(0.32) $(0.21) $0.26 $0.21 $0.27 $0.21 Diluted $(0.32) $(0.41) $(0.32) $(0.21) $0.26 $0.21 $0.27 $0.21 * * * * * * F-61Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSCHEDULE IIADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIESConsolidated Valuation and Qualifying Accounts for the Fiscal Years Ended March 31, 2015,2014 and 2013 (in thousands):Allowance for Doubtful Accounts: Year ended March 31, Balance atbeginning ofperiod Chargedto costsand expenses Charged tootheraccounts (1) Deductions Balance atend ofperiod 2015 $4,490 $1,914 $(291) $(690) $5,423 2014 6,145 (71) (67) (1,517) 4,490(2) 2013 5,359 1,687 (2) (899) 6,145(2) (1)Amounts represent the impact of foreign currency translation.(2)The allowance for doubtful accounts as previously reported at March 31, 2014 and 2013 was $3,977 and $4,689, respectively. F-62Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsINDEX TO EXHIBITS ExhibitNumber Description 3.1 Amended and Restated Certificate of Incorporation of Advanced Drainage Systems, Inc. (incorporated by reference to Exhibit 3.1 to theRegistrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on July 30, 2014). 3.2 Second Amended and Restated Bylaws of Advanced Drainage Systems, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’sCurrent Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on July 30, 2014). 4.1 Form of Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 5 to the Registrant’s Registration Statementon Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on July 14, 2014). 4.2 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 5 to the Registrant’s Registration Statementon Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on July 14, 2014). 4.3 Registration Rights Agreement, dated as of July 30, 2014, by and among Advanced Drainage Systems, Inc. and the stockholders from time totime party thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed withthe Securities and Exchange Commission on July 30, 2014). 4.4 Form of 5.60% Senior Series A Secured Notes due September 24, 2018 (incorporated by reference to Exhibit 4.5 to Amendment No. 3 to theRegistrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on June 20,2014). 4.5 Form of 4.05% Senior Series B Secured Notes due September 24, 2019 (incorporated by reference to Exhibit 4.6 to Amendment No. 3 to theRegistrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on June 20,2014).10.1 Amended and Restated Credit Agreement, dated as of June 12, 2013, by and among Advanced Drainage Systems, Inc., as borrower, theguarantors from time to time party thereto, the lenders from time to time party thereto, PNC Bank, National Association, as administrativeagent for the lenders party thereto, and the other parties thereto (incorporated by reference to Exhibit 10.1 to Amendment No. 2 to theRegistrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on June 6, 2014).10.1A First Amendment to Amended and Restated Credit Agreement, dated as of December 20, 2013 (incorporated by reference to Exhibit 10.1A toAmendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and ExchangeCommission on June 6, 2014).10.1B Second Amendment to Amended and Restated Credit Agreement, dated as of August 21, 2015 (incorporated by reference to Exhibit 10.1 ofForm 8-K filed August 26, 2015).10.1C Third Amendment to Amended and Restated Credit Agreement, dated as of December 28, 2015 (incorporated by reference to Exhibit 10.1 ofForm 8-K filed December 31, 2015).10.1D Fourth Amendment to Amended and Restated Credit Agreement dated February 17, 2016 (incorporated by reference to Exhibit 10.1 of Form8-K filed December 31, 2015).10.2 Second Amended and Restated Credit Agreement, dated as of June 12, 2013, by and among ADS Mexicana, S.A. de C.V., as borrower, thelenders party thereto, PNC Bank, National Association, as administrative agent for the lenders party thereto, and the other parties thereto(incorporated by reference to Exhibit 10.2 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980)filed with the Securities and Exchange Commission on June 6, 2014).Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsExhibitNumber Description10.2A First Amendment to Second Amended and Restated Credit Agreement, dated as of December 20, 2013 (incorporated by reference to Exhibit10.2A to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities andExchange Commission on June 6, 2014).10.2B Second Amendment to Second Amended and Restated Credit Agreement, dated as of August 21, 2015 (incorporated by reference to Exhibit10.2 of Form 8-K filed August 26, 2015)10.2C Third Amendment to Second Amended and Restated Credit Agreement, dated as of November 30, 2015 (incorporated by reference to Exhibit10.1 of Form 8-K filed December 4, 2015.10.2D Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of December 28, 2015 (incorporated by reference to Exhibit10.2 of Form 8-K filed December 31, 2015).10.2E Fifth Amendment to Second Amended and Restated Credit Agreement, dated as of February 17, 2016 (incorporated by reference to Exhibit10.2 of Form 8-K filed February 17, 2016).10.3 Amended and Restated Private Shelf Agreement, dated as of September 24, 2010, by and among Advanced Drainage Systems, Inc., as seller,the guarantors from time to time party thereto, Prudential Investment Management, Inc., as a purchaser, and the other purchasers from time totime party thereto (incorporated by reference to Exhibit 10.3 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1(File No. 333-194980) filed with the Securities and Exchange Commission on June 6, 2014).10.3A Amendment No. 1 to Amended and Restated Private Shelf Agreement, dated as of December 12, 2011 (incorporated by reference to Exhibit10.3A to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities andExchange Commission on June 6, 2014).10.3B Amendment No. 2 to Amended and Restated Private Shelf Agreement, dated as of March 9, 2012 (incorporated by reference to Exhibit 10.3Bto Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and ExchangeCommission on June 6, 2014).10.3C Amendment No. 3 to Amended and Restated Private Shelf Agreement, dated as of March 30, 2012 (incorporated by reference to Exhibit10.3C to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities andExchange Commission on June 6, 2014).10.3D Amendment No. 4 to Amended and Restated Private Shelf Agreement, dated as of April 26, 2013 (incorporated by reference to Exhibit 10.3Dto Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and ExchangeCommission on June 6, 2014).10.3E Amendment No. 5 to Amended and Restated Private Shelf Agreement, dated as of June 16, 2013 (incorporated by reference to Exhibit 10.3Eto Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and ExchangeCommission on June 6, 2014).10.3F Supplement to Amendment No. 5 to Amended and Restated Private Shelf Agreement, dated as of June 24, 2013 (incorporated by reference toExhibit 10.3F to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securitiesand Exchange Commission on June 6, 2014).10.3G Amendment No. 6 to Amended and Restated Private Shelf Agreement, dated as of September 23, 2013 (incorporated by reference to Exhibit10.3G to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities andExchange Commission on June 6, 2014).Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsExhibitNumber Description10.3H Amendment No. 7 to Amended and Restated Private Shelf Agreement, dated as of December 31, 2013 (incorporated by reference to Exhibit10.3H to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities andExchange Commission on June 6, 2014).10.3I Amendment No. 8 to Amended and Restated Private Shelf Agreement, dated as of August 21, 2015 (incorporated by reference to Exhibit 10.3to Form 8-K filed August 26, 2015).10.3J Amendment No. 9 and Consent to Amended and Restated Private Shelf Agreement, dated as of December 28, 2015 (incorporated by referenceto Exhibit 10.3 to Form 8-K filed December 31, 2015).10.3K Amendment No. 10 and Consent to Amended and Restated Private Shelf Agreement, dated as of February 17, 2016 (incorporated by referenceto Exhibit 10.3 to Form 8-K filed February 17, 2016).10.4 Amended and Restated Security Agreement, dated as of June 12, 2013, by and among Advanced Drainage Systems, Inc., as borrower, theguarantors from time to time party thereto, and PNC Bank, National Association, as collateral agent for certain secured parties (incorporatedby reference to Exhibit 10.1A to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed withthe Securities and Exchange Commission on June 6, 2014).10.5 Amended and Restated Pledge Agreement, dated as of June 12, 2013, by Advanced Drainage Systems, Inc. and certain other parties thereto, aspledgors, in favor of PNC Bank, National Association, as collateral agent for certain secured parties (incorporated by reference to Exhibit 10.5to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and ExchangeCommission on June 6, 2014).10.6 Amended and Restated Intercompany Subordination Agreement, dated as of June 12, 2013, by and among Advanced Drainage Systems, Inc.,the guarantors from time to time party thereto, and PNC Bank, National Association, as administrative agent for certain lenders (incorporatedby reference to Exhibit 10.6 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with theSecurities and Exchange Commission on June 6, 2014).10.7 Amended and Restated Inter-creditor and Collateral Agency Agreement, dated as of June 12, 2013, by and among PNC Bank, NationalAssociation, as collateral agent for certain secured parties, PNC Bank, National Association, as administrative agent for certain lenders, andcertain noteholders (incorporated by reference to Exhibit 10.7 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1(File No. 333-194980) filed with the Securities and Exchange Commission on June 6, 2014).10.8† Advanced Drainage Systems, Inc. Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.8 to Amendment No.4 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on July2, 2014).10.9† Advanced Drainage Systems, Inc. Amended 2000 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.9 to Amendment No.3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission onJune 20, 2014).10.9A† First Amendment to Amended 2000 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Reporton Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on August 15, 2014).10.10† Advanced Drainage Systems, Inc. 2008 Restricted Stock Plan. (incorporated by reference to Exhibit 10.10 to Amendment No. 3 to theRegistrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on June 20,2014).10.11† Advanced Drainage Systems, Inc. 2013 Stock Option Plan (incorporated by reference to Exhibit 10.11 to Amendment No. 3 to theRegistrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on June 20,2014).Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsExhibitNumber Description10.11A† First Amendment to 2013 Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (FileNo. 001-36557) filed with the Securities and Exchange Commission on August 15, 2014).10.12† Amended and Restated Executive Employment Agreement, dated as of June 20, 2014, by and between Advanced Drainage Systems, Inc. andJoseph A. Chlapaty (incorporated by reference to Exhibit 10.12 to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1(File No. 333-194980) filed with the Securities and Exchange Commission on June 20, 2014).10.13† Amended and Restated Executive Employment Agreement, dated as of June 20, 2014, by and between Advanced Drainage Systems, Inc. andMark B. Sturgeon (incorporated by reference to Exhibit 10.13 to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1(File No. 333-194980) filed with the Securities and Exchange Commission on June 20, 2014).10.14† Amended and Restated Executive Employment Agreement, dated as of June 20, 2014, by and between Advanced Drainage Systems, Inc. andThomas M. Fussner (incorporated by reference to Exhibit 10.14 to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1(File No. 333-194980) filed with the Securities and Exchange Commission on June 20, 2014).10.15† Amended and Restated Executive Employment Agreement, dated as of June 20, 2014, by and between Advanced Drainage Systems, Inc. andRonald R. Vitarelli (incorporated by reference to Exhibit 10.15 to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1(File No. 333-194980) filed with the Securities and Exchange Commission on June 20, 2014).10.16† Amended and Restated Executive Employment Agreement, dated as of June 20, 2014, by and between Advanced Drainage Systems, Inc. andRobert M. Klein (incorporated by reference to Exhibit 10.16 to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1(File No. 333-194980) filed with the Securities and Exchange Commission on June 20, 2014).10.17† Form of Indemnification Agreement. (incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the Registrant’s RegistrationStatement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on June 6, 2014).10.18† Form of Incentive Stock Option Agreement pursuant to 2000 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.18 toAmendment No. 3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and ExchangeCommission on June 20, 2014).10.18A† Form of Incentive Stock Option Agreement (post-IPO) pursuant to 2000 Incentive Stock Option Plan. #10.19† Form of Non-Qualified Stock Option Agreement (other than for Joseph A. Chlapaty) pursuant to 2013 Stock Option Plan (incorporated byreference to Exhibit 10.19 to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with theSecurities and Exchange Commission on June 20, 2014).10.19A† Form of Non-Qualified Stock Option Agreement (for Joseph A. Chlapaty) pursuant to 2013 Stock Option Plan (incorporated by reference toExhibit 10.19A to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securitiesand Exchange Commission on June 20, 2014).10.20† Form of Restricted Stock Agreement (other than for Joseph A. Chlapaty) pursuant to 2008 Restricted Stock Plan (incorporated by reference toExhibit 10.20 to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securitiesand Exchange Commission on June 20, 2014).10.20A† Form of Restricted Stock Agreement (for Joseph A. Chlapaty) pursuant to 2008 Restricted Stock Plan (incorporated by reference to Exhibit10.20A to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities andExchange Commission on June 20, 2014).Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsExhibitNumber Description 10.21† Form of Director Stock Agreement (incorporated by reference to Exhibit 10.21 to Amendment No. 4 to the Registrant’s RegistrationStatement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on July 2, 2014). 10.22 Participation Agreement, dated as of July 17, 2000, by and between ADS Worldwide, Inc., Grupo Altima S.A. de C.V., and ADS Mexicana,S.A. de C.V. (formerly known as Sistemas Ecologicos de Drenaje, S.A. de C.V.), as amended on April 19, 2010, May 19, 2011, May 24, 2011,April 26, 2013 and January 31, 2014 (incorporated by reference to Exhibit 10.22 to Amendment No. 2 to the Registrant’s RegistrationStatement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on June 6, 2014). 10.23 Interestholders Agreement, dated as of June 5, 2009, by and among Tubos y Plasticos ADS Chile Limitada, Tigre Chile S.A., and Tuberias T-ALimitada, joined by Advanced Drainage Systems, Inc. and Tigre S.A. — Tubos e Conexoes, as amended on July 31, 2009, October2009, December 15, 2009, May 18, 2010, August 10, 2010, April 1, 2011 and January 25, 2012, with First Addendum to InterestholdersAgreement, dated as of June 27, 2011 (incorporated by reference to Exhibit 10.23 to Amendment No. 3 to the Registrant’s RegistrationStatement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on June 20, 2014). 10.23A Second Addendum to Interestholders Agreement, dated as of December 1, 2013 but entered into on September 30, 2014, by and among Tubosy Plasticos ADS Chile Limitada, Tigre Chile S.A., Tuberias Tigre-ADS Limitada, Advanced Drainage Systems, Inc. and Tigre S.A. — Tubos eConexoes (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36557) filed with theSecurities and Exchange Commission on November 10, 2014). 10.24 Limited Liability Company Agreement, dated July 15, 2013, by and among ADS Ventures, Inc., BaySaver Technologies, Inc. and Mid-Atlantic Storm Water Research Center, Inc. formerly known as Sistemas Ecologicos de Drenaje, S.A. de C.V.), as amended on April 19, 2010,May 19, 2011, May 24, 2011, April 26, 2013 and January 31, 2014 (incorporated by reference to Exhibit 10.24 to Amendment No. 2 to theRegistrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and Exchange Commission on June 6, 2014). 10.24A Amendment No. 1 to BaySaver Technologies, LLC Limited Liability Company Agreement dated as of July 17, 2015 by and among ADSVentures, Inc., BaySaver Technologies, Inc. and Mid-Atlantic Storm Water Research Center, Inc. (incorporated by reference to Exhibit 10.2 toForm 8-K filed July 20, 2015) 10.24B Sale and Assignment of Ownership Interest dated as of July 17, 2015 by and among ADS Ventures, Inc., BaySaver Technologies, Inc. andMid-Atlantic Storm Water Research Center, Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K filed July 20, 2015) 10.25 USA Shareholders Agreement, dated as of April 7, 2014, by and among Tigre-ADS USA Inc., ADS Ventures, Inc. and Tigre S.A. — Tubos eConexoes (incorporated by reference to Exhibit 10.25 to Amendment No. 4 to the Registrant’s Registration Statement on Form S-1 (File No.333-194980) filed with the Securities and Exchange Commission on July 2, 2014). 10.26† Executive Employment Agreement dated November 9, 2015, by and between the Company and Scott A. Cottrill (incorporated by reference toExhibit 10.1 to Form 8-K filed November 9, 2015). 21.1 List of Subsidiaries. # 23.1 Consent of Deloitte & Touche LLP. # 24.1 Power of Attorney (contained on signature pages hereto)Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsExhibitNumber Description 31.1 Certification of President and Chief Executive Officer of Advanced Drainage Systems, Inc. pursuant to Section 302 of the Sarbanes-Oxley Actof 2002. # 31.2 Certification of Executive Vice President and Chief Financial Officer of Advanced Drainage Systems, Inc. pursuant to Section 302 of theSarbanes-Oxley Act of 2002. # 32.1 Certification of Principal Executive Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002. # 32.2 Certification of Principal Financial Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002. #101.INS XBRL Instance Document. #101.SCH XBRL Taxonomy Extension Schema. #101.CAL XBRL Taxonomy Extension Calculation Linkbase. #101.DEF XBRL Taxonomy Extension Definition Linkbase. #101.LAB XBRL Taxonomy Extension Label Linkbase. #101.PRE XBRL Taxonomy Extension Presentation Linkbase. # †Management contract or compensatory plan.#Filed herewith.Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.18AADVANCED DRAINAGE SYSTEMS, INC.Incentive Stock Option AgreementThis Incentive Stock Option Agreement is entered into as of , between Advanced Drainage Systems, Inc., a Delaware corporation (the“Company”), and (the “Optionee”).§1. Grant of Option. Pursuant to the Advanced Drainage Systems, Inc. Amended 2000 Incentive Stock Option Plan (the “Plan”) and authorization bythe Board of Directors of the Company, the Company hereby grants to the Optionee an option (the “Option”) to purchase a total of ( ) shares(the “Option Shares”) of the $.01 par value Common Stock of the Company (“Stock”), at the price and on the other terms and conditions hereinafter set forth.§2. Option Price. The Option shall be exercisable at a price of Dollars ($ ) per share.§3. Exercise Period. Subject to the terms and conditions hereinafter set forth and except as provided in §§10, 11, 12(a) and 13 of this agreement, theOption shall be exercisable as follows:(a) The Optionee shall be entitled to purchase up to one-third of the Option Shares if the Optionee remains continuously in the employ of theCompany, or any subsidiary thereof, for five years from the date hereof.(b) The Optionee shall be entitled to purchase up to two-thirds of the Option Shares if the Optionee remains continuously in the employ of theCompany, or any subsidiary thereof, for six years from the date hereof.(c) The Optionee shall be entitled to purchase all of the Option Shares if the Optionee remains continuously in the employ of the Company, orany subsidiary thereof, for seven years from the date hereof.The Optionee’s right to purchase the Option Shares shall continue through, and may not be exercised after, (the “Expiration Date”).§4. Exercise of Option. The Option shall be exercised by delivery to the Company of a written statement in form and substance satisfactory to theBoard of Directors of the Company (the “Exercise Form”).§5. Execution of Executive Responsibility Agreement. The grant of the Option pursuant to §1 of this agreement shall be contingent upon theexecution by the Optionee of an Executive Responsibility Agreement with the Company in form and substance satisfactory to the President of the Company,if such an Executive Responsibility Agreement has not already been executed.§6. Execution of Stockholders’ Agreement. [Intentionally Omitted]. - 1 -Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.§7. Payment of Option Price. At the time of exercise of the Option, the Optionee shall pay the entire option price for the Option Shares being purchased(a) in cash or by check, (b) in Stock or (c) in any combination of cash, check and Stock. The Board, in its sole discretion, shall establish the value of anyStock that is used in payment of the option price. Upon receipt of the entire option price for the Stock being purchased and compliance by the Optionee withany other applicable requirements hereunder, the Company shall forthwith cause certificates for such Stock to be delivered to the Optionee.§8. Compliance with Securities Laws. In all cases, the exercise of the Option (in whole or in part) and the issuance of Stock pursuant thereto shall becontingent upon the prior registration or exemption therefrom of such Stock under the Securities Act of 1933 and such state laws as may be applicable, or adetermination by counsel for the Company that the issuance of such Stock will be a transaction exempt from such registration.§9. Non-transferability and Termination of Option Privileges. Except as otherwise provided in §10, the Option shall not be transferable or assignableand, during the Optionee’s lifetime, shall be exercisable solely by the Optionee. Further, except as otherwise provided in §§10, 11 and 12, the Option shallcease and terminate upon termination of the Optionee’s employment with the Company and its subsidiaries for any reason.§10. Death of Optionee. If the Optionee shall die while in the employ of the Company or any of its subsidiaries, the provisions of §§3(a), 3(b) and 3(c)shall have no force and effect and the Option may be exercised with respect to all of the Option Shares during the one-year period commencing on the date ofthe Optionee’s death by the Optionee’s personal representative or by any person who acquires the Option by bequest or inheritance as a result of theOptionee’s death; provided, however, that no exercise may take place after the Expiration Date.§11. Disability of Optionee. If the Optionee shall become permanently and totally disabled within the meaning of §22(e)(3) of the Internal RevenueCode of 1986, as amended, while in the employ of the Company or any of its subsidiaries, the provisions of §§3(a), 3(b) and 3(c) shall have no force andeffect and the Option may be exercised by the Optionee with respect to all of the Option Shares during the one-year period commencing on the date of suchpermanent and total disability; provided, however, that no exercise may take place after the Expiration Date.§12. Other Termination of Employment.(a) Unless expressly provided otherwise in a written agreement between the Optionee and the Company (or any subsidiary thereof), theOptionee’s employment with the Company or any subsidiary thereof is and at all times has been at will. Nothing in this agreement is intended toand no action taken pursuant to this agreement will change the at-will nature of the employment relationship.(b) If the Optionee’s employment with the Company or any subsidiary thereof is terminated by the Company for Cause, the Option shall bedeemed to have terminated as of the day before the date on which the Company notifies the Optionee of the - 2 -Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Optionee’s termination. The term “Cause” shall mean any illegal or disreputable or malfeasant conduct which in any significant respect impairs thereputation, goodwill or business position of the Company or involves the Company’s funds or other assets.(c) If the Optionee shall cease to be employed by the Company and its subsidiaries for any reason other than Cause, death or permanent and totaldisability within the meaning of §22(e)(3) of the Internal Revenue Code of 1986, as amended, the Option may be exercised by the Optionee, to theextent permitted by §§3(a), 3(b) and 3(c), during the three-month period commencing on the date on which the Optionee’s employment terminates;provided, however, that no exercise may take place after the Expiration Date.§13. Other Events. If the Optionee remains continuously in the employment of the Company, or any subsidiary thereof, the provisions of §§3(a), 3(b)and 3(c) shall have no force and effect and the Option may be exercised by the Optionee with respect to all of the Option Shares commencing at the time of a“Change in Control”; provided, however, that no exercise may take place after the Expiration Date. For purposes of this provision, a Change in Control shallhave occurred if, at any time after the Option is granted and before the Expiration Date, any of the following events shall have occurred: (i) the Companyenters into an agreement to merge, consolidate or reorganize into or with another corporation or other legal person, and as a result of such merger,consolidation or reorganization less than 51% of the combined voting power of the then-outstanding securities of such corporation or person immediatelyafter such transaction will be held in the aggregate by officers, directors and holders of a beneficial interest in voting securities of the Company immediatelyprior to such transaction; (ii) the Company enters into an agreement to sell or otherwise transfer all or substantially all of its assets to any other corporation orother legal person, and as a result of such sale or transfer a beneficial interest in less than 51% of the combined voting power of the then-outstandingsecurities of such corporation or person immediately after such sale or transfer is held in the aggregate by officers, directors and holders of a beneficial interestin voting securities of the Company immediately prior to such sale or transfer; or (iii) during any continuous 12-month period stockholders of the Companysell or enter into an agreement or agreements to sell to anyone other than the Company securities of the Company representing 50% or more of the combinedvoting power of the Company at the beginning of such 12-month period.§14. Adjustment for Stock Dividend or Stock Split. In the event that a dividend is hereafter paid on outstanding shares of Stock in shares of Stock, or inthe event that the number of outstanding shares of Stock is hereafter increased as a result of a stock split, and the Option is then unexercised (in whole or inpart), the number of Option Shares shall thereupon be increased to include the number of shares of Stock which would have been distributed with respect tothe shares of Stock subject to the unexercised portion of the Option if such shares of Stock had been outstanding at the time of the dividend or stock split,and the option price per share shall be adjusted to reflect such increased number of Option Shares.§15. Adjustment for Reorganization or Merger. In the event that outstanding shares of Stock are hereafter changed into or exchanged for a differentnumber or kind of shares of stock or securities of the Company or of another corporation or corporations, whether as a result of a reorganization,recapitalization, reclassification, merger, consolidation or otherwise, and the - 3 -Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Option is then unexercised (in whole or in part), the Option and the option price shall thereupon be adjusted to apply to the number and kind of shares ofstock or securities which would have been received for the shares of Stock subject to the unexercised portion of the Option if such shares of Stock had beenoutstanding at the time of such reorganization, recapitalization, reclassification, merger, consolidation or other event.§16. Additional Adjustments. In the event that there is any change in the corporate structure or outstanding shares of Stock or any other transaction forwhich an adjustment is not provided by §§14 or 15 of this agreement, and the Option is then unexercised (in whole or in part), the Board of Directors of theCompany may, in its sole discretion, require an adjustment in the number or kind of shares of stock or securities subject to the Option or the option price andsuch adjustment shall be binding and effective for all purposes hereof.§17. Elimination of Fractional Shares. Any addition or adjustment provided for in §§14, 15 or 16 of this agreement may be limited to the extentnecessary to prevent fractions of shares from becoming available under the Option.§18. Optionee Bound by Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all applicable provisionsthereof. If any of the terms and provisions of this agreement are inconsistent or in conflict with the terms and provisions of the Plan, the Plan shall supersedeand prevail over such inconsistent provisions hereof.§19. No Obligation. There is no obligation on the Optionee to exercise any option.§20. Withholding. To the extent (if any) that this Option, when exercised, is treated as a non-statutory stock option and not as an incentive stockoption within the meaning of §422 of the Internal Revenue Code, the Optionee agrees that the Optionee shall make such arrangements as are satisfactory tothe Company for withholding of federal, state, and local income and employment taxes associated with such exercise. The Company agrees that, at theOptionee’s request, the Company shall permit the Optionee to satisfy all or part of such withholding requirements through the Company’s withholding fromthe Optionee of that number of shares of Stock otherwise deliverable upon the exercise of this Option equal in value to the aggregate amount of withholdingthat the Optionee wishes to satisfy through the Company’s retention of Stock. The Optionee shall be permitted to satisfy all or any portion of the Optionee’stotal income and employment tax liability associated with the exercise of the non-statutory stock portion of this Option through the withholding of shares,even if such total tax liability shall exceed the minimum tax withholding required by law. The Board, in its sole discretion, shall establish the value of anyStock that is so withheld. The Optionee and the Company agree that any such withheld shares shall be treated, for all purposes, as if they were acquired by theOptionee upon exercise of this Option and then immediately sold by the Optionee to the Company at their fair market value.§21. Headings. The headings of the sections of this agreement are inserted for convenience only and shall not be deemed to be part hereof.[Signature Page Follows] - 4 -Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.IN WITNESS WHEREOF, the parties have executed multiple counterparts of this agreement, each of which shall be deemed to be an original, as of thedate first set forth above. Optionee: ADVANCED DRAINAGE SYSTEMS, INC. By: (Name) (Office) - 5 -Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 21.1LIST OF SUBSIDIARIESThe following entities were subsidiaries of the Registrant as of March 31, 2015. Pursuant to Item 601(b)(21)(ii) of Regulation S-K, certainsubsidiaries of the Registrant which, considered in the aggregate as a single subsidiary, would not have constituted a significant subsidiary (as defined inRule 1-02(w) of Regulation S-X) have been omitted. Name Jurisdiction of Incorporation orOrganizationADS Structures, Inc. DelawareADS Ventures, Inc. DelawareBaySaver Technologies, LLC(1) DelawareStormTech LLC DelawareTigre-ADS USA Inc.(2) WisconsinADS Worldwide, Inc. DelawareADS Corporativo, S.A. de C.V.(3) MexicoADS Europe B.V. NetherlandsADS International, Inc. DelawareADS Mexicana, S.A. de C.V.(3) MexicoADS Latina, LLC(4) DelawareADSM Centro América, S.A. Costa RicaGrupo Industrial Deplayusa, S.A. de C.V. MexicoAdvanced Drainage Systems of Puerto Rico, Inc. Puerto RicoTubos y Plásticos ADS Chile Limitada(5) ChileTuberias Tigre-ADS Limitada(6) ChileTigre-ADS Argentina S.R.L.(7) ArgentinaTigre-ADS Colombia Limitada(7) ColumbiaTigre-ADS Peru S.A.C.(7) PeruTubos Tigre-ADS do Brasil Limitada(7) BrazilTubos y Plásticos Tigre-ADS de Chile Limitada(7) ChileGreen Line Polymers, Inc. DelawareHancor Holding Corporation DelawareHancor, Inc. OhioHancor of Canada, Inc. CanadaIdeal Drain Tile Limited CanadaWave Plastics Inc.(8) CanadaIdeal Pipe(9) CanadaInlet Pipe and Protection, Inc. IllinoisSewer Tap, Inc. OregonSpartan Concrete, Inc. Delaware (1)Owned 55% by ADS Ventures, Inc. and 45% by our joint venture partners.(2)Owned 49% by ADS Ventures, Inc. and 51% by our joint venture partner.(3)Owned 51% by ADS Worldwide, Inc. and 49% by our joint venture partner.(4)Owned 99% by ADS Mexicana, S.A. de C.V. and 1% by ADS Worldwide, Inc.(5)Owned 99% by ADS Worldwide, Inc. and 1% by ADS International Inc.(6)Owned 50% by Tubos y Plásticos ADS Chile Limitada and the remaining 50% by our joint venture partner.(7)Nominal interests are held by Tubos y Plásticos ADS Chile Limitada and our joint venture partner.(8)Owned 50% by Hancor of Canada, Inc. and 50% by Ideal Drain Tile Limited.(9)Owned 90% by Ideal Drain Tile Limited and 10% by Wave Plastics Inc.* * * * *Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-197732 on Form S-8 of our report, relating to the consolidated financialstatements and financial statement schedule of Advanced Drainage Systems, Inc. and subsidiaries dated March 29, 2016 (which report expresses anunqualified opinion and includes an explanatory paragraph relating to the restatement discussed in Note 2), appearing in this Annual Report on Form 10-K ofAdvanced Drainage Systems, Inc. for the year ended March 31, 2015./s/ Deloitte & Touche LLPColumbus, OhioMarch 29, 2016Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERI, Joseph A. Chlapaty, certify that: 1.I have reviewed this Annual Report on Form 10-K (this “Report”) of the registrant, Advanced Drainage Systems, Inc.; 2.Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisReport; 3.Based on my knowledge, the financial statements and other financial information included in this Report fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this Report is being prepared; b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and c.Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 29, 2016 By: /s/ Joseph A. Chlapaty Joseph A. Chlapaty President and Chief Executive Officer (Principal Executive Officer)Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERI, Scott A. Cottrill, certify that: 1.I have reviewed this Annual Report on Form 10-K (this “Report”) of the registrant, Advanced Drainage Systems, Inc.; 2.Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisReport; 3.Based on my knowledge, the financial statements and other financial information included in this Report fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this Report is being prepared; b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and c.Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 29, 2016 By: /s/ Scott A. Cottrill Scott A. Cottrill Executive Vice President, Chief Financial Officer,Secretary and Treasurer (Principal Financial Officer)Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002The undersigned hereby certifies, pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and inaccordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as the principal executive officer ofAdvanced Drainage Systems, Inc. (the “Company”), that, to the best of his knowledge, the Annual Report on Form 10-K of the Company for the fiscal yearended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that theinformation contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the datesand for the periods presented in the financial statements included in such report.March 29, 2016 /s/ Joseph A. ChlapatyJoseph A. ChlapatyChief Executive Officer(Principal Executive Officer)The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate document.A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished tothe Securities and Exchange Commission or its staff upon request.Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002The undersigned hereby certifies, pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and inaccordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as the principal financial officer ofAdvanced Drainage Systems, Inc. (the “Company”), that, to the best of his knowledge, the Annual Report on Form 10-K of the Company for the fiscal yearended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that theinformation contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the datesand for the periods presented in the financial statements included in such report.March 29, 2016 /s/ Scott A. CottrillScott A. CottrillChief Financial Officer(Principal Financial Officer)The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed aspart of the Report or as a separate document. A signed original of this written statement required by Section 906 has been provided to the Company and willbe retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: ADVANCED DRAINAGE SYSTEMS, INC., 10-K, March 29, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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