Fiscal Year 2021
Annual
Report
Advanced Drainage Systems, Inc.
www.adspipe.com
A Letter from our CEO
Dear Fellow Shareholders,
Advanced Drainage Systems achieved another year of record financial
performance in Fiscal 2021. When confronted with a challenging operating
environment, our employees adapted well to the new health and safety
measures we implemented and remained focused on executing the plan.
This enabled us to not only exceed guidance for the year, but also to
surpass the financial targets set at our November 2018 Investor Day.
The accomplishments during the past year, combined with the proven
growth strategies at both ADS and Infiltrator, give me confidence that
the best years are yet to come.
Emerging Stronger than Before
We leveraged the period of COVID-19 as an oppor-
tunity to rethink certain processes and ways to do
business. We developed better strategies to continue
delivering to and serving our customers in a safe
manner, organizing work differently to be productive
yet socially distant. In the face of market uncertainty,
we maintained a strong footing. Importantly, the les-
sons we learned this past year made us stronger and
will continue to serve us well going forward.
Fiscal 2021 Results
We ended Fiscal 2021 with $1.98 billion in revenue
and $567 million of Adjusted EBITDA, up 18.5% and
56.7% year-over-year, respectively. Our growth was
primarily driven by the continued success of our
material conversion and water management solu-
tions strategies in a favorable demand environment.
From a profitability perspective, our Adjusted EBITDA
margin expanded by 700 basis points to 28.6%, driven
by strong sales growth, favorable pricing and materi-
al costs, as well as contributions from our operational
productivity initiatives and full year synergy program
impact from the Infiltrator acquisition.
Our focus on expanding in key states where con-
struction growth remained active proved successful.
Approximately 75% of the ADS Legacy business’
domestic top-line growth originated from key states,
including those along the lower crescent of the United
States. We took advantage of attractive growth in
the horizontal non-residential and residential con-
struction markets, to which ADS is favorably exposed.
Infiltrator Water Technologies continued to grow due
to their strong presence in the residential onsite-sep-
tic market. Infiltrator remains highly relevant in the
residential market due to their product offerings,
distribution relationships and geographic footprint.
The ADS agriculture business also outperformed the
market through customer service orientation, plan-
ning initiatives, new products and execution.
Realizing our Mission, Vision
and Values
Over the last year, we modernized the ADS brand to
better reflect our position as the premier water man-
agement solutions provider. The resulting update to
the vision and mission will serve as ADS’ guide going
forward. This brand modernization effort is focused
on values that provide a foundational formula for
success: People + Process = Performance.
We added new leadership positions to drive the busi-
ness forward, hiring talented senior leaders in two
critical areas – product management and engineer-
ing, as well as manufacturing technology and capital
2
| ADS Annual Report 2021
ADS Annual Report 2021 | 3deployment. These new leaders will drive innovation, new product development, continuous improvement and capital investment to further drive our manufac-turing excellence. We also continued to elevate the visibility of our Di-versity, Equity & Inclusion and Sustainability efforts, both of which are germane to our story, In Fiscal 2021, we welcomed senior leaders in these areas and continued to advance our sustainability goals. In this report, we highlight the significant progress we made on some of our sustainability initiatives, including a 6% reduction in our greenhouse gas emissions intensity, decreases in both scrap rate and machine downtime rate, and hiring more diverse candidates throughout our organization. We look forward to sharing more information on this front when we re-lease our 2021 Sustainability Report later this year. Building Shareholder ValueGrowth, coupled with margin expansion initiatives and the Infiltrator acquisition, resulted in over 300% total shareholder return over the three years ending March 31, 2021 – significantly exceeding the total market return over the same period. Above market growth, prudent financial discipline and the strategic deployment of capital are significant contributors to our value creation story, and we will continue to focus on these aspects to build shareholder value going forward. Our balanced approach to capital deployment starts with organically investing in the growth at both ADS and Infiltrator, where investments are needed to support future capacity needs. This also includes improvements in safety, four-wall manufacturing and our logistics and fleet. Beyond organic investments in the business, we will continue to work our disciplined acquisition strategy, paying our increased quarterly dividend and evaluating share repurchases under our recently increased authorization. Looking Ahead As we look ahead to Fiscal 2022, we anticipate un-derlying customer demand to remain favorable, with ADS and Infiltrator well positioned to capitalize on future growth opportunities. We will build success in Fiscal 2022 through close execution of production, labor and material resources, as well as execution on capital deployment priorities. Building upon the success of the three-year targets we set at our 2018 Investor Day, we will provide updated targets later this year at the next Investor Day in November.On behalf of the entire ADS leadership team, I would like to thank our employees for their hard work and unwavering commitment to operational excellence in the face of the unique circumstances of the past year, and we look forward to another strong year for ADS in Fiscal 2022. Sincerely,D. Scott Barbour President and CEO A Letter from our Chairman
Dear Fellow Shareholders,
On behalf of the board, I would like to thank ADS’ employees for their
efforts and commitment to customer service in the face of the COVID-19
pandemic. The management team quickly established enhanced health
and safety protocols to keep our employees and our customers safe
while ADS continued to operate as an essential business, resulting in
the strong results reported for Fiscal 2021.
The strong financial performance provides the
flexibility to invest in the growth of both the ADS
and Infiltrator businesses. COVID-19 posed a stress
test for our business continuity abilities, and we are
stronger for it. The Board continues to work alongside
the management team to strategically deploy capital,
evaluate and execute strategic acquisitions, and
ultimately drive shareholder returns. Importantly,
we increased our dividend by 8¢ to $0.44 per share
annually, and the Board approved a $250 million
increase in the existing stock repurchase program.
Management is now authorized to repurchase up to
$292 million in shares of ADS’ common stock, inclusive
of the $42 million previously available for repurchase
under the program.
The Board continues to focus on adding experienced,
diverse and independent directors as evidenced
by the addition of Anesa Chaibi at the last annual
shareholder meeting. Anesa brings more than
30 years of leadership experience across several
business functions as our 11th member of the board,
and our abilities are enhanced by her presence. The
board is also proposing that shareholders approve
a new director, Anil Seetharam, at the July 2021
annual shareholder meeting. Anil has broad financial
expertise with public companies in capital markets,
investor relations and acquisitions as well as driving
sustainability programs as a Managing Director at
Stockbridge Investments. The capabilities of the board
are strengthened with these two leaders.
A year ago, the Board announced material changes
to strengthen ADS’ governance and corporate
responsibility efforts. Proposals to declassify the Board
and eliminate the supermajority vote requirement
for charter and bylaw changes were approved at the
July 2020 annual shareholder meeting. Further, the
Environmental, Social and Governance (ESG) sub-
committee of the Board, led by Michael Coleman, was
established. The sub-committee provides strategic
counsel and oversight as ADS builds and refines its
ESG program. Over the course of the year, the sub-
committee engaged with ADS’ management to build
a company more focused and execution oriented
on sustainability performance metrics. We are
confident that we will continue making progress on
our ESG initiatives going forward, as evidenced by the
important resources added around Sustainability and
Diversity, Equity and Inclusion in Fiscal 2021.
During the year, the Company also moved forward with
inaugural funding for The ADS Foundation, established
to continue ADS’ support for local community efforts
and programs that enhance the companies’ water
management and recycling efforts. We look forward
to sharing more information about our ESG initiatives
in the upcoming sustainability report for Fiscal 2021,
released later this year.
We will continue working with ADS’ management
team to drive the business forward, developing our
corporate responsibility programs, and generating
value for our shareholders.
C. Robert Kidder
Chairman of the Board of Directors
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| ADS Annual Report 2021
ADS Annual Report 2021 | 5Company Highlights510 million poundsof plastic recycled in FY215,000Total number of Employees$2 billionFY21 Revenue$4 millionspent on Environmental, Health and Safety Projects Our VisionAdvancing quality of life through sustainable solutions to water management challenges. Our MissionProvide clean water management solutions to communities and deliver unparalleled service to our customers.ADS Annual Report 2021 | 5 Key Financial Highlights
FY 2021 Revenue
(Figures in millions)
CAGR: 12.1%
FY 2021 Adjusted EBITDA1
(Figures in millions)
CAGR: 30.9%
$1,257
$1,330
$1,385
$1,674
$1,983
$193
$210
$232
$362
$567
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
FY 2021 Sales by Geography
FY 2021 Sales by Product Category
91%
Domestic
6%
3%
Canada
Other
International
59%
22%
19%
Pipe
Allied
On-Site
Septic
FY 2021 Domestic Revenue by End Market
Agriculture
9%
Infrastructure
Construction
7%
%
of Domestic Sales
Non-Residential
Construction
45%
Residential
Construction2
39%
ADS Sales Growth
+5%
+44%
+5%
Non-Residential
Construction
Residential
Construction2
Infrastructure
Construction
+26%
Agriculture
1 EBITDA adjustments exclude one-time transaction costs and certain non-cash items; Adjusted EBITDA is a Non-GAAP measure.. Please see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” section of the accompanying Form 10-K for the definitions of non-GAAP measures and reconciliation of non-GAAP
measures to GAAP measures.
2 Includes Infiltrator Water Technologies results.
6
| ADS Annual Report 2021
Fiscal 2021 Financial Results
vs. 2018 Investor Day Targets
Key Metric
Target
FY18
ADS Legacy
Consolidated
Fiscal 2021 Results
Organic Sales
Growth
Adj. EBITDA
Margin
+4% to 6% CAGR
$1,330
$1,660
7.7% CAGR
$1,983
14.2% CAGR
18% to 19%
15.8%
24.3%
28.6%
Free Cash Flow
Conversion
>50% of Adjusted
EBITDA
45%
N/A
66%
ADS Total Shareholder Return Since
Investor Day vs. S&P 500 and Russell 2000
ADS
S&P 500
Russell 2000
+359.4%
500
450
400
350
300
250
200
150
100
50
0
01/14/19
03/14/19
06/14/19
09/14/19
12/14/19
03/14/20
06/14/20
09/14/20
12/14/20
03/14/21
06/14/21
Source: FactSet data; 11/14/2018 – 5/24/2021
Total shareholder return is calculated as the overall appreciation in the stock’s price per share, plus any dividends paid by the company, during the indicated interval.
ADS Annual Report 2021 | 7
| ADS Annual Report 2021 8Industry Leading Recycling SolutionsSustainability is at the core of who we are and what we do. We are proud of the important work we are doing to have a positive environmental, operational and social impact. We are the 2nd largest plastic recycling company in North America. In Fiscal 2021, we purchased over half a billion pounds of recycled plastic, keeping it out of landfills and further preventing over 670 million pounds of Greenhouse Gas emissions (GHG) from being released into the atmosphere. Our industry-leading resin blending programs convert this recycled plastic into pipe, chambers and other products that can support America’s stormwater management and on-site septic needs. Consumed 28% of the recycled HDPE bottles in the US in 20202nd largestplastic recycling company in North America670 million poundsof GHG emissions avoidedGHG emissions avoided amounts to taking 64,000 cars off the road ADS Annual Report 2021 | 9EnvironmentalSocial & Governance510 million pounds of plastic recycled6% decrease in GHG emissions intensity$450,000 contributed to charitable organizations5% increase in payload efficiency33% decrease in total recordable incident rate (TRIR) at focus plants9% decrease in downtime rate21% decrease in scrap rate 66% of pipe revenue derived from re-manufactured products$2 million contributed to The ADS FoundationSustainability By-the-NumbersOperationalEstablished partnership with The Recycling Partnership50% of senior level hires were diverse4% decrease in energy intensityTRIRFiscal 2021 Highlights Board of Directors
Executive Officers
Robert Kidder
Chairman
Scott Barbour
Director, President and
Chief Executive Officer
Anesa Chaibi
Former CEO
Optimas OE Solutions, LLC
Michael Coleman
Partner
Ice Miller LLP
Robert M. Eversole
Managing Partner
Stonehenge Partners, Inc.
Alexander R. Fischer
President and Chief Executive Officer
Columbus Partnership
Tanya Fratto
Retired President and Chief Executive Officer
General Electric Superabrasives
M.A. (Mark) Haney
Retired Executive Vice President of Olefins
and Polyolefins
Chevron Phillips Chemical Company LP
Ross M. Jones
Managing Director
Berkshire Partners
Carl A. Nelson, Jr.
Retired Managing Partner
Arthur Andersen
Manuel J. Perez de la Mesa
Retired President and Chief Executive Officer
Pool Corporation
Scott Barbour
Director, President and
Chief Executive Officer
Scott A. Cottrill
Executive Vice President,
Chief Financial Officer, Secretary
Darin Harvey
Executive Vice President, Supply Chain
Brian King
Executive Vice President
Product Management and Marketing
Robert M. Klein
Executive Vice President,
Market Management
Roy E. Moore, Jr.
Executive Vice President, Infiltrator
Kevin C. Talley
Executive Vice President and
Chief Administrative Officer
Ron Vitarelli
Executive Vice President, Engineering
Michael Huebert
Senior Vice President, Sales
Thomas Waun
Senior Vice President, International
Chairman Emeritus
Joe Chlapaty
Chlapaty Investments LLC
Retired Chairman, President and
Chief Executive Officer
Advanced Drainage Systems
10
| ADS Annual Report 2021
F Of
)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
For the transition period from to
COMMISSION FILE NO.: 001-36557
ADVANCED DRAINAGE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
51-0105665
(I.R.S. Employer
Identification 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
Trading
Symbol(s)
Title of Each Class
Name of Each Exchange On Which Registered
Common Stock, $0.01 par value per share
WMS
Securities registered pursuant to Section 12(g) of the Act: None
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate 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 ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check one)
☒
Large Accelerated Filer
☐
Non-Accelerated Filer
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Accelerated Filer
Smaller Reporting Company
☐
☐
(cid:3)
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. Yes ☒ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The 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, as affiliates of the registrant) was $3,115 million as of September 30, 2020, the last business day of the registrant’s
most recently completed second fiscal quarter, based on the reported closing price of the shares of common stock as reported on the New York
Stock Exchange on September 30, 2020.
As of May 18, 2021, the registrant had 71,591,660 shares of common stock outstanding. The shares of common stock trade on the New York
Stock Exchange under the ticker symbol “WMS.” In addition, as of May 18, 2021, 382,895 shares of unvested restricted common stock were
outstanding and 19,273,951 shares of ESOP preferred stock, convertible into 14,825,523 shares of common stock, were outstanding. As of May
18, 2021, 86,800,078 shares of common stock were outstanding, inclusive of outstanding shares of unvested restricted common stock and on an
as-converted basis with respect to the outstanding shares of ESOP preferred stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates by reference specific portions of the Registrant’s Notice of Annual Meeting and Proxy Statement relating to the
Annual Meeting of Stockholders to be held on July 22, 2021.
TABLE OF CONTENTS
PART I
Item 1.
Business ...............................................................................................................................................
Item 1A. Risk Factors ........................................................................................................................................
Item 1B. Unresolved Staff Comments ..............................................................................................................
Item 2.
Properties ............................................................................................................................................
Item 3.
Legal Proceedings ..............................................................................................................................
Item 4. Mine Safety Disclosures .....................................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities .......................................................................................................................
Item 6.
Selected Financial and Operating Data ............................................................................................
Cautionary Statement About Forward-Looking Statements .........................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .......
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ......................................................
Item 8.
Financial Statements and Supplementary Data ..............................................................................
Item 9. Changes in and Disagreements with Accountant on Accounting and Financial Disclosure ........
Item 9A. Controls and Procedures ...................................................................................................................
Item 9B. Other Information..............................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance .............................................................
Item 11. Executive Compensation ...................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ...........................................................................................................................................
Item 13. Certain Relationships and Related Transactions, and Director Independence ............................
Page
3
14
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25
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26
27
28
29
31
49
51
51
51
52
53
53
53
53
Item 14. Principal Accountant Fees and Services ..........................................................................................
53
Item 15. Exhibits and Financial Statement Schedules ..................................................................................
Item 16. Form 10-K Summary .........................................................................................................................
54
58
PART IV
ii
Advanced Drainage Systems, Inc.
Item 1.
Business
COMPANY OVERVIEW
PART I
Unless 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 mean only Advanced Drainage
Systems, Inc. exclusive of its subsidiaries. The term “Infiltrator” refers to Infiltrator Water Technologies Ultimate
Holdings, Inc., our wholly owned subsidiary. The term “Legacy ADS” refers to the combined entity excluding
Infiltrator.
ADS is the leading manufacturer of innovative water management solutions in the stormwater and on-site septic
wastewater industries, providing superior drainage solutions for use in the construction and agriculture
marketplaces. Our innovative products, for which we hold many patents, are used across a broad range of end
markets and applications, including non-residential, infrastructure and agriculture applications. We have established
a leading position in many of these end markets by leveraging our national sales and distribution platform, industry-
acclaimed engineering support, overall product breadth and scale plus manufacturing excellence.
We believe the ADS brand has long been associated with quality products and market-leading performance. Our
trademarked green stripe, which is prominently displayed on many of our products, serves as clear identification of
our commitment to the customers and markets we serve, and fortifies our brand recognition and presence.
On July 31, 2019, we completed the acquisition (the “Acquisition”) of Infiltrator, a leading national provider of
plastic leachfield chambers and systems, septic tanks and accessories, primarily for use in residential applications.
Infiltrator products are used in on-site water treatment systems in the United States and Canada. Infiltrator has been
a longstanding supplier and customer of the Company for over 15 years of StormTech and ARC Septic Chambers.
“Our Reason is Water” and our vision is to advance the quality of life through sustainable solutions to water
management challenges. We are dedicated to providing clean water management solutions to communities and
delivering unparalleled service to our customers. We are process oriented and disciplined, holding ourselves to the
highest expectations and are accountable for our decisions.
Our approach to water management is based on four basic areas - Capture, Conveyance, Storage, and Treatment - to
manage the lifecycle of a raindrop from the moment water hits the ground until it is released back into the
ecosystem. Our product portfolio is built around each step of this lifecycle. Neglecting stormwater management can
result in flooding, pollution, destruction, erosion, and many other environmental and health issues. Construction of
buildings, housing, roads and highways disrupts the natural ability of stormwater infiltration but is a key component
of a growing society. Our solutions safely and efficiently manage stormwater with environmentally friendly
products. Only Advanced Drainage Systems manages stormwater from when the rain first hits the ground until the
moment it is returned to lakes and streams.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Capture: As the first step in preserving the planet's most precious resource, water, our products collect
and direct stormwater runoff on project sites and roads to an underground conveyance system.
Conveyance: To prevent flooding at job sites, which could lead to significant structural and
environmental problems, our pipe, fittings and other products safely move stormwater away from
developed sites to be reintroduced back into the water cycle.
Storage: To mitigate erosion and flooding, our retention and detention systems manage infiltration and
recharge stormwater prior to the treatment process.
Treatment: Our water quality products remove trash, debris and pollutants from the stormwater runoff
collected in previous steps, ensuring only clean water is discharged back into our communities.
We estimate that the storm water industry, annually, is an approximately $6.0 billion industry. We estimate that the
on-site septic market is a roughly $1.2 billion industry and that approximately 30% of new North American single-
3
Advanced Drainage Systems, Inc.
family homes utilize septic systems. On a combined basis, we estimate that we had an addressable market
opportunity of approximately $7 billion.
As illustrated in the charts below, we provide a broad range of high performance thermoplastic corrugated pipe and
related water management products to a highly diversified set of end markets and geographies.
Fiscal 2021 Revenue
SEGMENT INFORMATION
For a discussion of segment and geographic information, see “Note 21. Business Segment Information” to our
audited consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this
Form 10-K.
OUR PRODUCTS
We design, manufacture and market a complete line of high performance thermoplastic corrugated pipe and related
water management products for use in a wide range of end markets. Our product line includes: single, double and
triple wall corrugated polypropylene and polyethylene pipe (or “Pipe”), plastic leachfield chambers and systems,
septic tanks and accessories (or “Infiltrator”), and a variety of additional water management products (“Allied
Products & Other”) including: storm retention/detention and septic chambers (or “Chambers”); polyvinyl chloride
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, including geotextile
products, drainage grates and other products (or “Other Resale”). The table below summarizes the percentage of Net
Sales for Pipe, Infiltrator and Allied Products & Other.
Pipe
Infiltrator
International
Allied Products & Other
2021
2020
2019
53.1%
16.6%
8.0%
22.3%
56.9%
10.1%
8.9%
24.1%
62.7%
—
11.6%
25.7%
Our products and engineering project designs have been continuously and frequently recognized by the industry.
This includes being honored many times during the past decade as the Plastics Pipe Institute’s Project of the Year.
We have won numerous awards from organizations such as the Wisconsin Department of Natural Resources for our
4
Advanced Drainage Systems, Inc.
local recycling program, the American Society of Testing & Materials (“ASTM”), the American Society of Civil
Engineers, and many others.
Pipe
Dual Wall Corrugated Pipe - Our N-12 pipe is a dual wall high-destiny polyethylene (“HDPE”) pipe with a
corrugated exterior for strength and a smooth interior wall for hydraulics and flow capacity. Our N-12 pipe
competes in the storm sewer and drainage markets that are also served by concrete pipe.
Our N-12 pipe is available in a wide range of diameters and sections of length. N-12 provides joint integrity, with
integral bell and spigot joints for fast push-together installations 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 Pipe - Our HP Storm pipe utilizes polypropylene (“PP”) resin, which provides
(i) increased pipe stiffness relative to HDPE; (ii) higher Environmental Stress Crack Resistance (“ESCR”); and
(iii) improved thermal properties, which improves joint performance. These improved physical characteristics result
in a reduced need 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. The highly engineered polypropylene resin along with the triple wall design enables
SaniTite HP to surpass the stiffness requirement for sanitary sewer applications. SaniTite HP offers cost and
performance advantages relative to reinforced concrete pipe (such as improved hydraulics and better joint integrity)
and polyvinyl chloride (“PVC”) pipe (such as impact resistance).
Single Wall Corrugated Pipe - Our single wall corrugated HDPE pipe is ideal for drainage projects where flexibility,
light weight and low cost are important. Single wall HDPE pipe products have been used for decades in agricultural
drainage, highway edge drains, septic systems and other construction applications. In the agricultural market,
improved technology has highlighted the favorable impact of drainage on crop yields. For homeowners, it is an
economical and easily installed solution for downspout run-off, foundation drains, driveway culverts and general
lawn drainage. Single wall pipe is also used for golf courses, parks and athletic fields to keep surfaces dry by
channeling away excess underground moisture.
Standard single wall products are available in a wide range of diameters and sold in varying lengths. Pipe can be
either perforated or non-perforated depending on the particular drainage application.
Triple Wall Corrugated Pipe and Smoothwall HDPE Pipe - Our ADS-3000 Triple Wall pipe, small diameter triple
wall corrugated pipe, consists of a corrugated polyethylene core molded between a smooth white outer wall and a
smooth black inner wall. This combination of the three wall design adds strength and stiffness, while reducing
weight as compared to PVC 2729. Triple Wall is produced and sold through our distribution network. We also
manufacture smoothwall HDPE pipe that are sold into the residential drainage and on-site septic systems markets.
5
Advanced Drainage Systems, Inc.
Infiltrator
Infiltrator is the leading designer and manufacturer of highly engineered plastic chambers, synthetic aggregate
leachfields, combined treatment and dispersal systems, plastic tanks, advanced treatment systems, and related
accessories that are used in septic systems. The on-site wastewater (septic) market is heavily reliant on rural homes
and communities that do not have access to centralized sewer and will require an on-site wastewater or septic
solution. On-site wastewater technologies are scalable and can easily meet the needs of churches, schools, light
commercial and small community construction projects.
Leachfield Products – Our Quick4 and ARC line of septic leachfield chambers are injection molded using recycled
polyolefin materials. There are Quick4 chamber models available to meet a wide variety of regulatory and market
needs. There are ARC chamber models available to meet a majority of regulatory and market needs. The Quick4 and
ARC chambers are engineered for strength and performance, easy to install, and offer the user greater design
flexibility, including a smaller footprint, as compared with traditional stone and pipe products. The product
advantages are cost savings on labor, materials and time savings on the job.
EZflow - EZflow synthetic aggregate bundles replace stone and pipe leachfields for effluent and drainage
applications. The EZflow proprietary products are a modular design that incorporates recycled polystyrene
aggregate bundles and corrugated polyethylene pipe that act as a replacement to the traditional materials stone and
pipe.
Tank Products – Our IM-Series line of septic tanks are injection-molded polypropylene plastic tanks manufactured
from recycled materials. IM-Series septic tanks are available in various capacities for wastewater storage. Our IM-
Tank is the only two-piece construction, injection molded tank design in North America. In comparison to
traditional concrete tanks, our IM-Series septic tanks are easier to transport to the jobsite and require less time and
energy to install.
Our IM-Series line of potable tanks are injection-molded polypropylene plastic tanks manufactured from virgin
materials suitable for water reuse and drinking water storage. IM-Series potable tanks are available in various
capacities for water storage. IM-Series potable tanks are commonly used in water cistern applications, such as
rainwater harvesting systems.
Advanced Treatment Systems – Our Delta Treatment Systems’ (“Delta”) advanced wastewater treatment systems
provide mechanical aerated wastewater treatment solutions for residential and commercial systems with daily flows
up to 100,000 gallons per day.
Combined Treatment Dispersal Systems - Our Presby Environmental Enviro-Septic and Advanced Enviro-Septic
systems are proprietary combined treatment and dispersal systems made with a twelve-inch diameter corrugated
extrusion product that is encapsulated in fibrous materials and geotextiles. These systems when installed in a bed of
sand provide combined treatment and dispersal in the same small footprint and at a reduced cost with minimal long-
term maintenance. Advanced Enviro-Septic and Enviro-Septic are patented and patent-pending.
Our Advanced Treatment Leachfield (“ATL”) product is an alternative combined treatment and dispersal system
that provides passive advanced wastewater treatment. The ATL is a profile of polystyrene aggregates and geotextiles
installed in a bed of sand.
Allied Products & Other
We produce a range of Allied Products that are complementary to our Pipe products. Our Allied Products offer
adjacent technologies to our core Pipe offering, presenting a complete drainage solution for our clients and
customers. This combination of Pipe and Allied Products is a key strategy in our sales growth, profitability and
market share penetration. The practice of selling a drainage system is attractive to both distributors and end users, by
providing a broad package of products that can be sold on individual projects and strengthens our competitive
advantage in the marketplace. We aggressively seek and evaluate new products, technologies and regulatory
changes that impact our customers’ needs for Allied Products.
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Advanced Drainage Systems, Inc.
The underground construction industry has historically been project (not product) driven, creating the impetus for
owners, engineers and contractors to seek manufacturers that deliver solution-based product portfolios. Many of the
components of underground construction are related and require linear compatibility of function, regulatory
approval and technology.
Storm Chambers - Our StormTech chambers are used for stormwater retention, detention and “first flush”
underground water storage on non-residential site development and public projects. These highly engineered
chambers are injection molded from HDPE and PP resins into a proprietary design which provides strength,
durability, and resistance to corrosion. The chambers allow for the efficient storage of stormwater volume, reducing
the underground construction footprint and costs to the contractors, developers, and property owners. The chambers
are open bottom, which allows for high density stacking in both storage and shipment. This freight-efficient feature
drives favorable cost-competitiveness in serving long-distance export markets. These chamber systems typically
incorporate our other product lines such as corrugated pipe, fabricated fittings, water quality units and geotextiles.
Structures - Our Nyloplast PVC drainage structures are used in non-residential, residential and municipal site
development, road and highway construction, as well as landscaping, recreational, industrial and mechanical
applications. The product family includes inline drains, drain basins, curb inlets and water control structures which
move surface-collected stormwater vertically down to pipe conveyance systems. These custom structures are
fabricated from sections of PVC pipe using a thermo-forming process to achieve exact site-specific hydraulic design
requirements. Our Nyloplast products are a preferred alternative to heavier and larger concrete structures, by
offering greater design flexibility and improved 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.
Fittings - We produce fittings and couplings utilizing blow molding, injection molding and custom fabrication on
our pipe products. Our innovative coupling and fitting products are highly complementary to our broader product
suite, and include both soil-tight and water-tight capabilities across the full pipe diameter spectrum. Our fittings are
sold in all end markets where we sell our current pipe products.
Other Products - Our ARC and BioDiffuser products are chambers that are used in septic systems for residential and
small volume non-residential wastewater treatment and disposal. 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
HDPE, these products are strong, durable, and chemical-resistant. These interconnecting chambers are favored by
septic contractors because they are lightweight, easy to install and offer articulating features which increase site-
specific design flexibility. The ARC chamber products are manufactured by Infiltrator.
Our Water Quality (formerly BaySaver) product line targets the removal of sediment, debris, oils and suspended
solids throughout a stormwater rain event by separating and/or filtering unwanted pollutants.
We purchase and distribute construction fabrics and other geosynthetic products for soil stabilization, reinforcement,
filtration, separation, erosion control, and sub-surface drainage. Constructed of woven and non-woven PP, geotextile
products provide permanent, cost-efficient site-development solutions. Construction fabrics and geotextiles have
applications in all of our end markets.
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 a mainline 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 limiting the excavation needed for installation
compared to competitive products.
RAW MATERIALS AND SUPPLIERS
Virgin HDPE and PP resins are derivatives of ethylene and propylene, respectively. Ethylene and propylene are
derived from natural gas liquids or crude oil derivatives primarily in the U.S. We currently purchase in excess of
1,100 million pounds of virgin and recycled resin annually from approximately 450 suppliers. As a high-volume
buyer of resin, we achieve economies of scale to negotiate favorable terms and pricing. Our purchasing strategies
differ based on the material (virgin resin versus recycled material) ordered for delivery to our production locations.
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Advanced Drainage Systems, Inc.
The price movements of the different materials also vary, resulting in the need to use strategies to reduce volatility
and successfully pass on cost increases to our customer through timely selling price increases when needed.
We have relationships with most of the North American producers of virgin high-density polyethylene and impact
copolymer polypropylene producers that manufacture the grades we need to produce our products, including
Braskem Americas, Inc., Chevron Phillips Chemical Co. LP, The Dow Chemical Company, Equistar Chemicals, LP,
ExxonMobil Chemical Company, Formosa Plastics Corporation, U.S.A., Ineos Olefins & Polyolefins, USA, and
Nova Chemical. The North American capacity for ethylene derivatives has been expanded primarily as a result of
supplies of natural gas liquids being produced through sustained oil and gas exploration and production.
We are focused on a program of continuous sustainability improvement, which at this time sees us using nearly 550
million pounds annually of post-consumer recycled high-density polyethylene (“HDPE”) to make our products. This
industry-leading program keeps millions of used bottles out of the landfill and puts them to work again for more
than a hundred years as part of our infrastructure.
We leverage our raw material blending and processing technologies to produce an HDPE pipe that incorporates
recycled resin. These products, which meet an ASTM International standard and an American Association of State
Highway and Transportation Officials standard, replaces a majority of the virgin resin that is used with optimized
recycled materials. ADS Recycling (formerly Green Line Polymers, Inc.) procures and processes recycled raw
materials that can be used in products we produce and sell.
We maintain relationships with several of the largest environmental companies such as Waste Management, Inc.,
Republic Services, Inc., and Rumpke, Inc., which provide us with post-consumer HDPE recycled materials. We also
maintain relationships with several key post-industrial HDPE suppliers, including Performance Materials NA, Inc.,
Silgan Plastics, Altium Packaging and Alpla, Inc., which provide us with materials that cannot otherwise be utilized
in their respective production processes.
We are one of the largest domestic recyclers of HDPE. 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. We anticipate continued growth in the availability of ethylene and propylene which are used to
manufacture HDPE and PP, respectively.
OUR MANUFACTURING AND DISTRIBUTION PLATFORM
We have a leading domestic and international manufacturing and distribution infrastructure, serving customers in the
entire United States, Canada, Mexico and other countries worldwide through 65 manufacturing plants and 38
distribution centers, including eight manufacturing plants and nine distribution centers owned or leased by our joint
ventures. We manufacture our corrugated pipe products using a continuous extrusion process, where molten
polyethylene or polypropylene is pushed through a die into a moving series of corrugated U-shaped molds. We
utilize customized and proprietary production equipment, which we believe is faster and more cost efficient than
other pipe making equipment generally available in the market.
Domestically, we can produce more than one billion pounds of pipe annually. Additional capacity is in place to
support seasonal production needs and expected growth. Our production equipment is built 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 given time. This transportability provides us with the flexibility to optimize our capacity through centrally
coordinated production planning, which helps to adapt to shifting sales demand patterns while reducing the capital
needed for tooling. With our large manufacturing footprint in place, we can support rapid seasonal growth in
demand, focusing on customer service while minimizing transportation costs.
Our manufacturing plants have no material process-related by-products released into the atmosphere, waterways, or
solid waste discharge. During pipe production start-ups and size changeovers, non-compliant scrap and any
damaged finished goods pipe are recycled through a grinder for internal re-use.
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 at three domestic plants. In addition, customized fabricated fittings (e.g., more
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Advanced Drainage Systems, Inc.
complex dual wall pipe reducers, bends or structures) are produced in 20 of our North American plants. A wide
variety of production processes and expertise allow us to provide cost-effective finished goods at competitive prices
delivered in a timely fashion to our customers.
We produce storm and septic chambers, tanks and accessories using injection molding machines ranging in size. Our
molds and machines have been designed to maximize interchangeability to optimize flexibility, maximize efficiency
and minimize downtime.
International Presence – We own manufacturing facilities in Canada to produce our products for sale in the
Canadian markets. We serve international markets primarily in Mexico, Central America and South America
through joint venture operations with local partners. Our joint venture strategy has provided us with local and
regional access to key markets such as Mexico, Brazil, Chile, Argentina, and Peru. Our international joint ventures
produce pipe and related products to be sold in their respective regional markets. We also have wholly-owned
subsidiaries that distribute our pipe and related products in Europe and the Middle East. Combining local partners’
customer relationships, brand recognition and local management talent, with our world-class manufacturing and
process expertise, broad product portfolio and innovation creates a powerful solution driven platform and
opportunities for continued profitable international expansion.
Quality Assurance Control - We have two internal quality assurance control laboratory facilities equipped and
staffed to evaluate and confirm incoming raw material and finished goods quality in addition to the quality testing
that is done at our manufacturing facilities. We conduct annual safety, product and process quality audits at each of
our facilities, using centralized internal resources in combination with external third-party services. In the quality
area, various national and international agencies such as National Transportation Product Evaluation Program
(“NTPEP”), International Association of Plumbing and Mechanical Officials (“IAPMO”), Bureau de normalisation
du Québec (“BNQ”), Intertek for Canadian Standards Association (“CSA”), Entidad Mexicana de Acreditacion A.C.
(“EMA”) and NSF International and several state Departments of Transportation (“DOT”) and municipal agencies
conduct both scheduled and unscheduled audits/inspections of our plants to verify product quality and compliance to
applicable standards.
Fleet – For our ADS legacy business, we also operate an in-house fleet of approximately 700 tractors. Our effective
shipping radius is approximately 300 miles from one of our manufacturing plants or distribution centers. The
combination of a dedicated fleet and team of company drivers allows greater flexibility and responsiveness in
meeting dynamic customer jobsite delivery expectations. We strive to achieve less than three-day lead-time on
deliveries and have the added benefit of redeploying fleet and driver assets to respond to short-term regional spikes
in sales activity. For deliveries that are outside an economic delivery radius of our truck fleet, common carrier
deliveries are tendered to ensure that lowest delivered freight costs are achieved.
Our North American truck fleet incorporates approximately 1,300 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. In addition, as
of March 2020, we have committed to work towards a more cost-effective and environmentally efficient fleet by
becoming an official U.S. EPA SmartWay partner.
Facility Network - Our scale and extensive network of Pipe and Allied Products facilities provide a critical cost
advantage versus our competitors, as we are able to more efficiently transport products to our customers and end
users and to promote faster product shipments due to our proximity to the delivery location. The optimized design of
our Infiltrator chambers and tanks provide the ability to nest products, enabling us to manufacture products from one
location and efficiently ship throughout North America.
SALES AND MARKETING
We have one of the largest and most experienced sales and engineering forces in the industry. Offering the broadest
product line in the industry enables our sales force to source the greatest number of new opportunities and more
effectively cross-sell products than any of our competitors. We consistently maintain thousands of touch points with
customers, civil engineers and municipal authorities, continuously educating them on new product innovations and
their advantages relative to traditional products. We believe we are the industry leader in these efforts, and we view
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Advanced Drainage Systems, Inc.
this work as an important part of our marketing strategy, particularly in promoting N-12 and SaniTite HP for storm
and sanitary sewer systems, as regulatory approvals are essential to the specification and acceptance of these product
lines.
Our sales and marketing strategy is divided into four components — comprehensive market coverage, diverse
product offerings, readily-available local inventory and specification efforts. Our goal is to provide the
distributor/owner with the most complete, readily available product line in our industry. We strive 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. We strive to be meaningfully involved in all phases of the project cycle, including design,
bidding, award and installation. Conceptual project visibility allows sales and engineering professionals the ability
to influence design specifications and increase the probability of inclusion of our products in bid documents. The
inclusion of our products in bid documents improves the probability of completing the sale. On-demand installation
support allows us to maintain customer relationships and ensure positive installation experience. In addition 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. This ongoing dialogue has positioned us as an industry
resource for design guidance and product development and as a respected expert in water management solutions.
CUSTOMERS
We have a large, active customer base of approximately 20,000 customers, with two customers representing 10% or
more of fiscal 2021 net sales. Ferguson Enterprises (“Ferguson”) accounted for 12.6% and Core and Main accounted
for 10.3% of fiscal 2021 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 we have long-standing distribution relationships. These include Ferguson and
Core and Main who sell primarily to the storm sewer and sanitary sewer markets. We also utilize a network of
hundreds of small to medium-sized independent distributors across the United States. We have strong relationships
with major national retailers that carry drainage products, including The Home Depot, Lowe’s, Ace Hardware and
Do it Best. We offer 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 buying groups
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 with these groups allows us to reach thousands of locations in an effective manner.
Members of these groups and co-ops generally are independent businesses with strong 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 our broad customer and market coverage.
Our customer service organization is supplemented by the employees of our manufacturing plants, distribution
centers and drivers of our tractor-trailers. In conjunction with our field sales and engineering team, this highly
trained and competent staff allows us to maintain more customer touch points and interaction than any of our
competitors.
SEASONALITY
Historically, sales of our products have been higher in the first and second quarters of each fiscal year due to
favorable weather and longer daylight conditions accelerating construction activity during these periods. Seasonal
variations in operating results may also be impacted by inclement weather conditions, such as cold or wet weather,
which can delay projects.
In the non-residential, residential and infrastructure markets in the northern United States and Canada, construction
activity typically begins to increase in late March and is slower in December, January and February. In the southern
and western United States, Mexico, Central America and South America, the construction markets are less seasonal.
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Advanced Drainage Systems, Inc.
The agricultural drainage market is concentrated in the early spring just prior to planting and in the fall just after
crops are harvested prior to freezing of the ground in winter.
PRACTICES RELATED TO WORKING CAPITAL ITEMS
Information about the Company’s working capital practices is incorporated herein by reference to “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations
— Working Capital and Cash Flows” of this Form 10-K.
COMPETITION
We operate in a highly fragmented industry and hold leading positions in multiple market sectors. Competition,
including our competitors and specific competitive factors, varies for each market sector.
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 HDPE pipe in the late 1980s, our pipe has been displacing traditional
materials, such as reinforced concrete, corrugated steel and PVC, across an ever-expanding range of end markets,
including non-residential, residential, agriculture and infrastructure applications. In the United States, our
nationwide footprint combined with our strong local presence and broad product offering make us the leader in an
otherwise highly fragmented sector comprised of many smaller competitors.
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 capabilities and timeliness, pricing of
products, and the provision of credit. We believe that our competitive strengths and strategy allow us to compete
effectively in our market sectors.
The stormwater drainage industry, in particular, is highly fragmented with many smaller specialty and regional
competitors providing a variety of product technologies and solutions. We compete against concrete pipe,
corrugated steel pipe and PVC pipe producers on a national, regional and local basis. In addition, there are many
HDPE pipe producers in the United States.
In the United States, our primary competitors are concrete pipe producers, including Quikrete, Forterra 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 Lane Enterprises, Pacific Corrugated
and Southeast Culvert on a regional level, as well as other smaller competitors. In the PVC pipe sector, we compete
primarily with JM Eagle, Diamond Plastics and North American Pipe. In the septic tank and drainfield sector, we
compete with Tank Holding, Orenco Systems, Eljen as well as smaller local producers. We believe we are the only
corrugated HDPE pipe producer with a national footprint, and our competitors operate primarily on a regional and
local level. In the corrugated HDPE pipe sector in the United States, our primary competitors on a regional basis are
JM Eagle, Lane Enterprises, Prinsco, Southeast Culvert and Pacific Corrugated.
INTELLECTUAL PROPERTY
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 foreign countries.
We seek to protect our new technologies with patents and trademarks and defend against patent infringement
allegations. We hold a significant amount of intellectual property rights pertaining to product patents, process
patents and trademarks. We continually seek to expand and improve our existing product offerings through product
development and acquisitions. Although our intellectual property is important to our business operations and in the
aggregate 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 be challenged by third parties.
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Advanced Drainage Systems, Inc.
In addition to the foregoing protections, we generally control access to and use of our proprietary and other
confidential information through the use of internal and external controls, including contractual protections with
employees, distributors and others. See “Item 1A. Risk Factors — Risks Relating to Our Business — 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 be negatively impacted.”
HUMAN CAPITAL RESOURCES
At the core of the company’s 55-year history are the people, many of whom have been with the company for several
decades. It is not uncommon to see this dedication span several family generations in our team that today numbers
nearly 5,000 worldwide.
We are dedicated to fostering an inclusive culture, empowering employees and communities by embracing the
dynamics of different backgrounds, experiences and perspectives. We are committed to creating an environment
where employees feel valued, respected, and fully engaged to contribute to our future success.
The ability to recruit, retain, develop and protect our global workforce are key to our success as a company. In
addition to providing competitive compensation and benefits, this includes the following categories: Health and
Safety; Values; Diversity, Equity & Inclusion; and Training.
Employees - As of March 31, 2021, in our domestic and international operations, the Company and its consolidated
subsidiaries had both hourly personnel and salaried employees. As of March 31, 2021, approximately 200 hourly
personnel in our Mexican joint venture were covered by collective bargaining agreements.
Employees by Region
United States
Canada
Other
Total
Employees by Type
Hourly
Salary
Total
March 31, 2021
March 31, 2020
4,340
340
320
5,000
3,420
1,580
5,000
4,290
310
350
4,950
3,410
1,540
4,950
Health and Safety – Employee safety is our highest priority and a key component of our company culture. Our
operations follow a comprehensive, proactive safety and health management system that includes a collaborative
process to find and fix workplace hazards prior to injury occurrence. Our U.S. facilities follow all Occupational
Safety and Health Act (“OSHA”) safety and health standards, as required by law; and our Canadian facilities follow
the Canadian Federation of Construction Safety Association (“CFCSA”) Certificate of Recognition (“COR”)
program, as required by law
Our first priority in response to the COVID-19 pandemic was the health and safety of our employees. Primarily
deemed an essential business, we implemented social distancing and appropriate health protocols across all our
facilities so we could remain open to deliver critical water management solutions to our customers and the
communities they serve. To further minimize risk, we transitioned employees to working from home where possible
to limit physical interaction and used a thorough case management process to work through and mitigate any
potential cases.
Values – Our success as a company is built on the Honesty, Professionalism, and Core Values of our employees,
directors, and agents. These three tenets serve as the guiding principles of our Code of Business Conduct and Ethics
(the “Ethics Code”).
(cid:120)
Honesty: We believe in always being honest in dealing with our customers, suppliers, and others and
complying with all laws and regulations applicable to our business at all levels.
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Advanced Drainage Systems, Inc.
(cid:120)
(cid:120)
Professionalism: We believe in providing our products and services in a prompt and professional
manner, gaining the loyalty and trust of our customers and suppliers.
Core Values: We believe in certain “core values” centered upon ensuring quality throughout our product
and organization for long-term growth and profitability.
The Ethics Code provides a framework by which we maintain the highest ethical standards in the conduct of our
business and is an integral part of implementing our vision of ethically and sustainably maximizing value. All
members of our organization are expected to adhere to each of the policies of the Ethics Code, while also employing
good ethical judgment. The Ethics Code provides guidelines in relation to conflicts of interest, fair dealing,
confidential information and intellectual property, fair employment practices, environmental health and safety, and
improper payments to third parties, among many other areas of ethical business conduct.
Diversity, Equity and Inclusion – As a global company, we are dedicated to fostering an inclusive culture,
empowering employees and communities by embracing the dynamics of different backgrounds, experiences and
perspectives. We are committed to creating an environment where employees feel valued, respected, and fully
engaged to contribute to our future success.
We base hiring and promotional decisions on job qualifications, such as work records, performance history and
length of service, to ensure equal opportunity to all. We also ensure equal opportunity across all relevant aspects of
employment such as recruiting, job assignment, compensation, benefits, transfers, promotional opportunities,
company sponsored training, and recreation programs, among others.
Training – Our operational and management training programs are core to our commitment and enablement of a safe
and productive manufacturing environment. Through our ADS Academy, we deliver targeted role-specific training
to our operations team members through a blended curriculum of online and hands-on training experiences covering
safety, quality, product knowledge and manufacturing process. Our learning management system, which hosts
approximately 450 custom modules, serves as the foundation of our operational training programs and provides us
with appropriate scale, efficiency, and governance to support our growth. We have a strong commitment to the
training of our manufacturing supervisors and managers in technical, management, and leadership subjects through
intense role-based assimilation plans, e-learning and classroom-based development experiences.
REGULATION
Our operations are affected by various statutes, regulations and laws in the markets in which we operate, which
historically have not had a material effect 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 the
products our customers are allowed to use, and, consequently, changes in building codes may affect the salability of
our products. The transportation and disposal of many of our products are also subject to federal regulations. We are
subject to safety requirements governing interstate operations prescribed by the U.S. Department of Transportation
(“U.S. DOT”). Vehicle dimensions and driver hours of service also remain subject to 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 regulations relating 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.
An important element of our growth strategy has been our focus on industry education efforts to drive regulatory
approvals for our core HDPE products at national, state and local levels. We employ field-based engineers who
work closely with government agencies to obtain regulatory approvals for our products, and also with civil
engineering firms to specify our products on non-residential construction and road-building projects. Additional
state and local regulatory approvals will continue to present new growth opportunities in new and existing
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Advanced Drainage Systems, Inc.
geographic markets for us. The trend of substituting traditional materials for HDPE and PP is expected to continue
as more states and municipalities recognize the benefits of our HDPE N-12 pipe and our polypropylene HP pipe by
approving it for use in a broader range of applications.
Our Infiltrator products are used primarily in on-site septic and decentralized wastewater treatment systems. The
products used in these systems cannot be sold without a regulatory approval. We have a dedicated regulatory team
with a track record of gaining favorable regulatory approvals and advancing policy and legislation. Over the past 10
years the team has successfully embarked in over 100 regulatory initiatives increasing the addressability and size of
markets across the U.S. and Canada.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
We are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and
regulations, including those pertaining to air emissions, water discharges, the handling, disposal and transport of
solid and hazardous materials and wastes, the investigation and remediation of contamination and otherwise relating
to health and safety and the protection of the environment and natural resources. To a limited extent, our current and
past operations, and those of many of the companies we have acquired, involve materials that are, or could be
classified as, toxic or hazardous. There is inherent risk of contamination and environmental damage in our
operations and the products we handle, transport and distribute. See “Item 1A. Risk Factors — Risks Relating to Our
Business — We could incur significant costs in complying with environmental, health and safety laws or permits or
as a result of satisfying any liability or obligation imposed under such laws or permits.”
CORPORATE AND AVAILABLE INFORMATION
We were founded in 1966 and are a Delaware corporation. Our principal executive offices are located at 4640
Trueman Boulevard, Hilliard, Ohio 43026, and our telephone number at that address is (614) 658-0050. Our
corporate website is www.adspipe.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 Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended, (“Exchange Act”) are filed with the 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. Such reports and
other information filed by the Company with the SEC are available free of charge on our website at
www.adspipe.com when such reports are available on the SEC’s website. We use our www.adspipe.com website as a
means of disclosing material non-public information and for complying with our disclosure obligations under
Regulation FD. Accordingly, investors should monitor such portions of www.adspipe.com in addition to following
press releases, SEC filings and public conference calls and webcasts.
The contents of the websites referred to above are not incorporated into this filing. Further, our references to these
websites are intended to be inactive textual references only.
Item 1A.
Risk Factors
Please carefully consider the risks described below, together with all other information included or incorporated by
reference in this Annual Report on Form 10-K. If any of the following risks actually occur, our business, financial
condition, results of operations and cash flows could be materially adversely affected. In these circumstances, the
market price of our common stock could decline significantly.
Risks Relating to Our Business
Fluctuations in the price and availability of resins, our principal raw materials, and our inability to obtain
adequate supplies of resins from suppliers and pass 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 products are virgin and recycled resins. Our ability to operate
profitably depends, to a large extent, on the markets for these resins. In particular, as resins are derived either
directly or indirectly from crude oil derivatives and natural gas liquids, resin prices fluctuate substantially as a result
of changes in crude oil and natural gas prices, changes in existing processing capabilities and the capacity of resin
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Advanced Drainage Systems, Inc.
suppliers. Polypropylene resin suppliers are limited, and high-density polyethylene suppliers are geographically
concentrated. Unanticipated changes in and disruptions to existing petrochemical capacities could also significantly
increase resin prices, often within a short period of time, even if crude oil and natural gas prices remain low. In
addition, supply interruptions could arise from labor disputes or weather conditions affecting supplies or shipments,
transportation disruptions or other factors beyond our control, including disruptions resulting from the impact of the
evolving COVID-19 pandemic or extreme weather events. An extended disruption in the timely availability of raw
materials from our key suppliers would result in a decrease in our revenues and profitability.
Our ability to maintain profitability heavily depends on our ability to pass through to our customers any increase in
raw material costs, 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 in which we operate. In addition, certain of our largest customers
historically have exerted significant pressure on their outside suppliers to keep prices low because 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 pass through becomes extended, our business, financial condition, results of operations and cash
flows will be adversely affected.
The COVID-19 pandemic, efforts to mitigate the pandemic, and the related weakening economic conditions,
could have a significant negative impact on our operations, liquidity, financial condition and financial results.
The COVID-19 pandemic has negatively impacted the global economy, in addition to disrupting global supply
chains and workforce participation. Quarantines and "stay in place" orders, the timing and length of containment and
eradication solutions, travel restrictions, absenteeism by infected workers, labor shortages or other disruptions to our
supply chain or our customers could adversely impact our sales and operating results and has resulted in some
project delays.
In addition, the pandemic has resulted in an economic downturn that could affect the ability of our customers to
obtain financing for projects and therefore impact demand for our products and services. Order lead times could be
extended or delayed and our pricing or pricing of suppliers for needed materials could increase. Some critical
materials, products or services may become unavailable if the regional or global spread were significant enough to
prevent alternative sourcing.
While manufacturing and manufacturing-related industries are considered an "essential service" in most jurisdictions
in which we operate, site closures or project delays have occurred and increased social distancing and health-related
precautions are required on many work sites, which may cause additional project delays and additional costs to be
incurred. To the extent that our customers and suppliers are adversely impacted by the coronavirus outbreak, this
could reduce the availability, or result in delays, of materials or supplies, or delays in customer payments, which in
turn could materially interrupt our business operations and/or impact our liquidity.
Any disruption or volatility in general business and economic conditions in the markets in which we operate
could have a material adverse effect on the demand 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 availability of credit, interest rates, fluctuation in capital and business and consumer
confidence. Furthermore, the U.S. and global economy as well as the markets in which we operate face the adverse
impact of the COVID-19 global pandemic, as referenced above. The difficult conditions in these markets and the
overall economy affect our business in a number of ways. For example:
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The volatility of the United States economy in general (including as a result of COVID-19) can have an
adverse effect on our sales that are dependent on the non-residential construction market. Continued
uncertainty about current economic conditions may pose a risk to our business units that serve the non-
residential construction market, as participants in this industry may postpone spending.
Our business depends to a great extent upon general activity levels in the agriculture market. The nature
of the agriculture market is such that a downturn in demand can occur suddenly, resulting in excess
inventories, un-utilized production capacity and reduced prices for pipe products. These downturns may
be prolonged, and our revenue and profitability would be harmed.
Our business depends on the residential construction market. While new housing starts demonstrated a
compounded annual growth rate of 4.4% from 2015 to 2020, current levels remain below the long-term
average of 1.4 million starts since the U.S. Census Bureau began reporting the data demand for our
products and services in this market, and may be further adversely impacted by the COVID-19
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Advanced Drainage Systems, Inc.
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pandemic, which in turn would result in a significant adverse effect on our financial condition and
results of operations.
Demand for our products and services depend to a significant degree on spending on infrastructure,
which is inherently cyclical. Infrastructure spending is affected by a variety of factors beyond our
control, including interest rates, availability and commitment of public funds for municipal spending
and highway spending and general economic conditions. Our products sales may be adversely impacted
by budget cuts by governments, including as a result of lower than anticipated tax revenues.
We cannot predict the duration of current economic conditions, or the timing or strength of any future recovery of
activities in our markets. Continued weakness in the markets in which we operate could have a material adverse
effect on our business, financial condition, results of operations and cash flows. We may have to close under-
performing facilities from time to time as warranted by general economic conditions and/or weakness in the markets
in which we operate. 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 our ability to pass raw material cost increases to our customers.
This, combined with an increase in excess capacity, will negatively impact our profitability, cash flows 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 convert current 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.
We expect that new competitors may develop over time. No assurance can be given that we will be able to respond
effectively to such competitive pressures. Increased competition by existing and future competitors could result in
reductions in sales, prices, volumes and gross margins that would materially adversely affect our business, financial
condition, results of operations and cash flows. Furthermore, our success will depend, in part, on our ability to
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 industry
participants could result in competitors with increased market share, larger customer bases, greater diversified
product offerings and greater technological and marketing expertise, which would allow them to compete more
effectively against us. Moreover, our competitors may develop products that are superior to our products or may
adapt more quickly to new technologies or evolving customer requirements. In many markets in which we operate
there are no significant entry barriers that would prevent new competitors from entering the market, especially on
the local level, or existing competitors from expanding in the market.
Our results of operations could be adversely affected by the effects of weather.
Most of our business units experience seasonal variation as a result of the dependence of our customers on suitable
weather to engage in construction projects. Generally, during the winter months, construction activity declines due
to inclement weather, frozen ground and shorter daylight hours. In addition, to the extent that hurricanes, severe
storms, floods, other natural disasters or similar events occur in the geographic regions in which we operate, our
results of operations may be adversely affected. We anticipate that fluctuations of our 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.
Our ten largest customers generated approximately 38% of our net sales in fiscal 2021. We cannot guarantee that we
will maintain or improve our relationships with these customers or that we will continue to supply these customers
at historical levels. Because we do not have long-term arrangements with many of our customers, such customers
may cease purchasing our products without notice or upon short notice to us. 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 of
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Advanced Drainage Systems, Inc.
our significant customers, a significant customer’s decision to purchase our products in significantly lower quantities
than they have in the past, or deterioration in our relationship with any of them could have a material adverse effect
on our business, financial condition, results of operations and cash flows.
Because our business is working capital intensive, we rely on our ability to manage our supply purchasing and
customer credit policies.
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 the economic strength of the industry in the areas where they operate. Our business
units offer credit to customers, either through unsecured credit that is based solely 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
the material 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 the customer is involved. End users, resellers and other non-contractor customers
generally purchase more on unsecured credit than secured credit. The inability of 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 and cash flows. Furthermore, our collections efforts with respect to non-paying or slow-paying customers
could negatively impact our customer relations going forward.
Our operations are working capital intensive, and our inventories, accounts receivable and accounts payable are
significant components of our net asset base. We manage our inventories and accounts payable through our
purchasing policies and our accounts receivable through our customer credit policies. If we fail to adequately
manage our supply purchasing or customer credit policies, our working capital and financial condition may be
adversely affected.
We may be unable to successfully integrate our and Infiltrator’s businesses in order to realize the anticipated
benefits of the acquisition or do so within the intended timeframe.
The success of the acquisition, including anticipated synergies, benefits and cost savings, will depend, in part, on our
ability to successfully combine and integrate our current operations with Infiltrator’ business. If we experience
difficulties with the integration process or other unforeseen costs, the anticipated benefits and cost savings of the
acquisition may not be realized fully or may take longer to realize than expected. The integration planning and
implementation process will result in significant costs and divert management attention and resources. These
integration matters could have an adverse effect on our combined company for an undetermined period after
completion of the acquisition. In addition, the actual cost savings of the acquisition could be less than anticipated, or
otherwise offset by other factors.
Additional difficulties we may encounter as part of the integration process include the following:
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The volatility of the United States economy in general (including as a result of COVID-19) can have an
adverse effect on our sales that are dependent on the non-residential construction market. Continued
uncertainty about current economic conditions may pose a risk to our business units that serve the non-
residential construction market, as participants in this industry may postpone spending;
the costs of integration and compliance and the possibility that the full benefits anticipated to result
from our acquisition of Infiltrator will not be realized;
any delay in the integration of management teams, strategies, operations, products and services;
diversion of the attention of each company’s management as a result of our acquisition of Infiltrator;
differences in business backgrounds, corporate cultures and management philosophies that may delay
successful integration;
the ability to retain key employees;
the ability to create and enforce uniform standards, controls, procedures, policies and information
systems;
the challenge of integrating complex systems, technology, networks and other assets of Infiltrator into
those of ours in a seamless manner that minimizes any adverse impact on customers, suppliers,
employees and other constituencies;
potential unknown liabilities and unforeseen increased expenses or delays associated with the
acquisition, including costs to integrate Infiltrator beyond current estimates; and
the disruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in
standards, controls, procedures and policies.
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Advanced Drainage Systems, Inc.
Any of these factors could adversely affect each company’s ability to maintain relationships with customers,
suppliers, employees and other constituencies or our ability to achieve the anticipated benefits of the acquisition or
could reduce each company’s earnings or otherwise adversely affect our business and financial results after the
acquisition. These risks are not limited to our acquisition of Infiltrator and could also apply to our future
acquisitions.
Our international operations expose us to political, economic and regulatory risks not normally faced by
businesses that operate only in the United States. 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.
Some of our operations are outside the United States, with manufacturing and distribution facilities in Canada and
several Latin American countries. 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 or changing legal standards, including potential
changes in government mandated regulatory product standards in those countries in which we or our joint ventures
operate; 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.
The U.S. Foreign Corrupt Practices Act (“FCPA”) and similar foreign anti-corruption laws generally prohibit
companies and their intermediaries from making improper payments or providing anything of value to wrongfully
influence foreign government officials for the purpose of obtaining or retaining business or obtaining an unfair
advantage, and generally require companies to maintain accurate books and records and internal controls, including
at foreign controlled subsidiaries.
We have operations in Canada as well as existing joint ventures in Mexico and South America. Our internal policies
provide for compliance with all applicable anti-corruption laws for both us and for our joint venture operations. Our
continued operation and expansion outside the United States, including in developing countries, could increase the
risk of such violations in the future. Despite our training and compliance programs, our internal control policies and
procedures may not always protect us from unauthorized, reckless or criminal acts committed by our employees,
agents or joint venture partners.
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, any differences in views among the joint venture 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 produced by the joint ventures or achieve consistency of product quality as
compared with our other operations. In addition to net sales and market share, this may have 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 manner that is anticipated or otherwise fail to meet their contractual obligations, the joint ventures
may be unable to adequately perform and conduct their respective operations, requiring us to make additional
investments or perform additional services to ensure the adequate performance and delivery of products and/or
services 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 or geographic markets.
We may expand into new product markets based on our existing manufacturing, design and engineering capabilities
and services. Our business depends in part on our ability to identify future products and product lines that
complement existing products and product lines and that respond to our customers’ needs. We may not be able 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, our ability to integrate new products and product lines into our distribution network
could impact our ability to compete. Furthermore, the success of new products 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.
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Advanced Drainage Systems, Inc.
Our expansion into new geographic markets may present competitive, distribution and regulatory challenges that
differ from current ones. We may be less 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 as
competitors. 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 adversely affected.
We continue to invest in strategic and operational initiatives. If we fail to implement these initiatives as expected,
our business, financial condition, and results of operations could be adversely affected.
Our financial performance and future growth depend on our management’s ability to successfully implement our
strategic and operational initiatives. Our initiatives are focused on improving productivity to facilitate growth and
align production to customer demand. Any failure to successfully implement these initiatives and related strategies
could adversely affect our business, financial condition, and results of operations, including increases in our
severance and impairment charges.
Increased fuel and energy prices, and our inability to obtain sufficient quantities of fuel to operate our in-house
delivery fleet.
Prices and availability of petroleum products are subject to political, economic and market factors that are outside
our control. We consume a large amount of energy and petroleum products in our operations, including the
manufacturing process and delivering a significant volume of products to our customers by our in-house fleet. While
we utilize a diesel hedging program associated with our in-house fleet to mitigate against higher fuel prices, our
operating profit will be adversely affected if we 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 or surcharges to our customers or
through other hedging strategies. If shortages occur in the supply of energy or necessary petroleum products and we
are not able to pass along the full impact of increased energy or petroleum prices to our customers, our business,
financial condition, results of operations and cash flows would be adversely affected.
Internally manufacturing our products at our own facilities subjects our business to risks associated with
manufacturing processes.
We internally manufacture our own products at our facilities with substantial fixed costs. While we maintain
insurance covering our manufacturing and production facilities and have significant flexibility to manufacture and
ship our own products from various facilities, a catastrophic loss of the use of certain of our facilities due to
accident, fire, explosion, labor issues, weather conditions, pandemics (including the current COVID-19 pandemic),
other natural disaster or otherwise, whether short or long-term, could have a material adverse effect on 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 our employees, and customer claims. Any interruption in production capability may limit our
ability to supply enough products to customers and may require us to make large capital expenditures to remedy the
situation, which could have a negative impact on our profitability and cash flows. Our business interruption
insurance may not be sufficient to offset the lost revenues or increased costs that we may experience during a
disruption of our operations.
The 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 operate a 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 to obtain 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 able
to recover under any such indemnification agreements. Product liability claims can be expensive to defend and can
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Advanced Drainage Systems, Inc.
divert the attention of management and other personnel for significant time periods, regardless of the ultimate
outcome. An unsuccessful product liability defense could be highly costly and accordingly result in a decline in
revenues and profitability. In addition, even if we are successful in defending any claim relating to the products we
distribute, 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 other litigation. We cannot predict with certainty the outcomes of these legal
proceedings and other contingencies, including potential environmental remediation and other proceedings
commenced by government authorities. The outcome of some of these legal proceedings and other contingencies
could require us to take actions which would adversely affect our operations or could require us to pay substantial
amounts of money. Additionally, defending against these lawsuits and proceedings may involve significant expense
and diversion of management’s attention and resources from other matters.
Our operations are affected by various laws and regulations in the markets in which we operate, including
government mandated regulatory product standards, and our failure to obtain or maintain approvals by
municipalities, state departments of transportation, engineers and developers may affect our results of operations.
While we are not engaged in a regulated industry, 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 (including pensions), competition, immigration and other matters. Additionally, approvals by
municipalities, the U.S. and state departments of transportation, engineers and developers may affect the products
our customers are allowed to use, and, consequently, failure to obtain or maintain such approvals may affect the
saleability of our products. Building codes may also affect the products our customers use, and, consequently,
changes in building codes may also affect the saleability of our products. Changes in applicable regulations
governing the sale of some of our products, including changes in government mandated regulatory product standards
in countries in which we or our joint ventures operate, could increase our costs. In addition, changes to applicable
tax laws and regulations could increase our costs of doing business. We cannot provide assurance that we will not
incur material costs or liabilities in connection with regulatory requirements.
We deliver products to many of our customers through our own fleet of vehicles. The U.S. DOT regulates our
operations in domestic interstate commerce. We are subject to safety requirements governing interstate operations
prescribed by the U.S. DOT. Vehicle dimensions and driver hours of service also remain subject to both federal and
state regulation. More restrictive limitations on vehicle weight and size, trailer length and configuration, or driver
hours of service could increase our costs, which, if we are unable to pass these cost increases on to our customers,
would reduce our gross profit and net income (loss) and increase our selling, general and administrative expenses.
We cannot predict whether future developments or changes in law, regulations or government mandated product
standards concerning our business units or products will affect our business, financial condition and results of
operations in a negative manner. Similarly, we cannot assess whether our business units will be successful in
meeting future demands of regulatory agencies 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, decreases in revenues, or both. The implementation of our technology initiatives
could disrupt our operations in the near term, and our technology initiatives might not provide the anticipated
benefits or might fail.
Because we use our information technology (“IT”) systems to, among other things, manage inventories and accounts
receivable, make purchasing decisions and monitor our results of operations, the proper functioning of our IT
systems is important to the successful operation of our business. Although our IT systems are protected through
physical and software safeguards and remote processing capabilities exist, IT systems are still vulnerable to natural
disasters, power losses, unauthorized access, telecommunication failures and other problems. If critical IT systems
fail, or are otherwise unavailable, our ability to process orders, track credit risk, identify business opportunities,
maintain proper levels of inventories, collect accounts receivable and pay expenses and 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 and operational reports essential for making decisions at various levels of management.
Failure to adopt systematic procedures to maintain quality IT general controls could disrupt our business. In
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Advanced Drainage Systems, Inc.
addition, if we do not maintain adequate controls such as reconciliations, segregation of duties and verification to
prevent errors or incomplete information, our ability to operate our business could be limited.
We have made, and will continue to make, significant technology investments in each of our business units and in
our administrative functions. Our technology initiatives are designed to streamline our operations to allow our
associates to continue to provide high quality service to our customers and to provide our customers a better
experience, while improving the quality of our internal control environment. The cost and potential problems and
interruptions associated with the implementation of our technology initiatives could disrupt or reduce the efficiency
of our operations in the near term. In addition, our new or upgraded technology might not provide the anticipated
benefits, it might take longer than expected to realize the anticipated benefits or the technology might fail altogether.
The occurrence of such interruptions could have a material adverse effect on our business financial condition and
results of operations.
Cybersecurity attacks may threaten our confidential information, disrupt operations and result in harm to our
reputation and adversely impact our business and financial performance.
Cybersecurity attacks across industries, including ours, are increasing in sophistication and frequency and may range
from uncoordinated individual attempts to measures targeted specifically at us. These attacks include but are not
limited to, malicious software or viruses, including “ransomware” attempts to gain unauthorized access to, or
otherwise disrupt, our information systems, attempts to gain unauthorized access to business, proprietary or other
confidential information, and other electronic security breaches that could lead to disruptions in critical systems,
unauthorized release of confidential or otherwise protected information and corruption of data. Cybersecurity
failures may be caused by employee error, malfeasance, other corporate or governmental actors, system errors or
vulnerabilities, including vulnerabilities of our vendors, suppliers, and their products. While we have been subject to
cybersecurity attacks in the past, that (based on information known to date) did not have a material impact on our
financial condition or results of operations, we may experience such attacks in the future, potentially with more
frequency or sophistication which may have a material impact on our financial condition or results of operations.
Failures of our IT systems as a result of cybersecurity attacks or other disruptions could result in a breach of critical
operational or financial controls and lead to a disruption of our operations, commercial activities or financial
processes. Cybersecurity attacks or other disruptions impacting significant customers and/or suppliers could also
lead to a disruption of our operations or commercial activities. Despite our attempts to safeguard our systems and
mitigate potential risks, there is no assurance that such actions will be sufficient to prevent cyberattacks or security
breaches that manipulate or improperly use our systems or networks, compromise confidential or otherwise
protected information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of such events
could have a material adverse effect on our business financial condition and results of operations.
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 to control labor costs is subject to numerous external factors, including prevailing
wage rates and health and other insurance costs. There is no assurance that we will be able to attract or retain highly
qualified employees in the future, including, those employed by companies we acquire. None of our domestic
employees are currently covered by collective bargaining or other similar labor agreements. However, if a number
of our employees were to unionize, the effect on us may be negative.
In addition, our business results of operations depend largely upon our chief executive officer and senior
management team as well as our plant managers and sales personnel, including those of companies acquired, and
their experience, knowledge of local market dynamics and specifications and long-standing customer relationships.
Our inability to retain or hire qualified plant managers or sales personnel at economically reasonable compensation
levels would restrict our ability to grow our business, limit our ability to 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 be negatively impacted.
Our ability to compete effectively depends, in part, upon our ability to protect and preserve proprietary aspects of
our intellectual property, which we attempt to do, both in the United States and in foreign countries, through a
combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and third-party
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Advanced Drainage Systems, Inc.
nondisclosure and assignment agreements. Because of the differences in foreign trademark, patent and other laws
concerning proprietary rights, our intellectual property rights may not receive the same degree of protection in
foreign countries as they would in the United States. Our failure to obtain or maintain adequate protection of our
intellectual property rights for any reason could have a material adverse effect on our business, results of operations
and financial condition.
We could incur significant costs in complying with environmental, health and safety laws or permits or as a
result of satisfying any liability or obligation imposed 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, these laws regulate the emission or discharge of materials into the environment,
govern the use, storage, treatment, disposal and management of hazardous substances 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 of
products 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, failure to obtain or maintain required
environmental permits or non-compliance with any conditions contained in any environmental permit can result in
substantial fines or penalties, injunctive relief, requirements to install pollution or other controls or equipment, civil
and criminal sanctions, permit revocations 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, personal injury 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 unknown contamination, or the imposition of other environmental liabilities or obligations in the future,
including additional investigation or other obligations with respect to any potential health hazards of our products or
business activities or the imposition of new permit requirements, may lead to additional compliance or other costs
that could have material adverse effect on our business, financial condition, results of operations and cash flows.
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 regulatory efforts to limit greenhouse gas (“GHG”) emissions. Even in the absence of
such legislation, the Environmental Protection Agency, spurred by judicial interpretation of the Clean Air Act, may
regulate GHG emissions, especially diesel engine emissions, and this could impose 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
updating or replacing our internal fleet of trucks and other vehicles prematurely. In addition, new laws or future
regulation could directly and indirectly affect our customers and suppliers (through an increase in the cost of
production or their ability to produce satisfactory products) and our business (through the impact on our inventory
availability, cost of sales, operations or demands for the products we sell). Until the timing, scope and extent of any
future regulation becomes known, we cannot predict its effect on our cost structure or our operating results.
Notwithstanding our dedication to being a responsible corporate citizen, it is reasonably possible that such
legislation or regulation could impose material costs on us.
Risks Relating to Our Indebtedness
Our level of indebtedness could adversely affect our business, financial conditions or results of operations and
prevent us from fulfilling our obligations under the agreements governing the terms of our indebtedness.
Our indebtedness could have risks. For example, it could:
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make it more difficult for us to satisfy our obligations with respect to the Company's existing 5.0%
senior notes due 2027 (the "Senior Notes") and our Senior Secured Credit Facility;
increase our vulnerability to and compromise our flexibility to plan for, or react to, general adverse
economic, industry or competitive conditions, including interest rate fluctuations, because a portion of
our borrowings will be at variable rates of interest;
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Advanced Drainage Systems, Inc.
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cause us to be unable to meet the financial covenants contained in our debt agreements, or to generate
cash sufficient to make required debt payments, which circumstances would have the potential of
accelerating the maturity of some or all of our outstanding indebtedness;
require us to dedicate a substantial portion of our cash flow from operations to payments on our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital
expenditures, acquisitions, joint ventures and investments and other general corporate purposes, that
could improve our competitive position, results of operations or share price;
require us to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable
terms, to meet payment obligations;
expose us to the risk of increased interest rates, as certain of our borrowings are at variable rates of
interest;
increase our vulnerability to downturns or adverse changes in general economic, industry or competitive
conditions and adverse changes in government regulations;
place us at a competitive disadvantage compared to our competitors that do not have the same level of
indebtedness as we do and competitors that may be in a more favorable position to access additional
capital resources;
limit our ability to execute business development and acquisition activities to support our strategies;
limit our ability to obtain additional indebtedness or equity financing for working capital, capital
expenditures, service line development, debt service requirements, acquisitions and general corporate or
other purposes due to applicable financial and restrictive covenants in our debt agreements; and
limit our ability to refinance our substantial indebtedness on more favorable terms.
We expect to pay expenses and to pay principal and interest on current and future debt from cash provided by
operating activities. Therefore, our ability to meet these payment obligations will depend on future financial
performance and cash availability, which is subject in part to numerous economic, business and financial factors
beyond our control. If our cash flow and capital resources are insufficient to fund our debt obligations, we may be
forced to reduce or delay expansion plans and capital expenditures, limit payment of dividends, sell material assets
or operations, obtain additional capital or restructure our debt.
Risks Relating to Our Common Stock
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 of our common stock to decline. Based on shares outstanding as of March 31,
2021, we have 72.0 million outstanding shares of common stock, including 0.4 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. As of March 31, 2021, there were stock options outstanding to purchase a total of approximately
1.3 million shares of our common stock. In addition, approximately 1.3 million shares of common stock are
available for grant under our 2017 Omnibus 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 resale restrictions 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
sell them.
As of March 31, 2021, there were approximately 19.3 million shares of convertible preferred stock held by our
ESOP, which in aggregate could be converted into approximately 14.8 million shares of our common stock. All of
the shares of our convertible preferred stock held by our Employee Stock Ownership Plan (“ESOP”) may be
converted into our common stock at any time by action of the ESOP trustee, and will be automatically converted
into our common stock upon distributions of such shares allocated to the ESOP accounts of ESOP participants upon
a distribution event such as retirement or other termination of employment. All of these shares will be eligible for
future sale, either by the ESOP trustee or by ESOP participants, subject to the limitations of Rule 144.
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Advanced Drainage Systems, Inc.
In the future, we may issue additional shares of common stock or other equity or debt securities convertible into
common stock in connection with a financing, acquisition, litigation settlement or employee arrangement or
otherwise. Any of these issuances could result in substantial dilution to our existing stockholders and could cause
the trading price of our common stock 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 other stockholders. The trustee of our ESOP has certain limited powers to vote a
large block of shares on matters presented to stockholders for approval.
As of May 18, 2021, our directors, officers and principal stockholders and their affiliates collectively own
approximately 35% of our outstanding shares 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 our
common stock as a single class unless otherwise required by law. Thus, the collective voting power of our directors,
officers and principal stockholders and their affiliates as of May 18, 2021 is approximately 49%, inclusive of the
outstanding shares of convertible preferred stock held by the ESOP. As a result, these stockholders, if they act
together, may be able to control our management and affairs and most matters requiring stockholder approval,
including the election of directors and approval of significant corporate transactions. This concentration of
ownership may have the effect of delaying or preventing a change 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 our other
stockholders.
In general, the ESOP trustee votes the shares of convertible preferred stock held by the ESOP as directed by the
ESOP’s participants. Consequently, the ESOP trustee has the ability to vote a significant block of shares on certain
matters presented to stockholders for approval. Each participant in the ESOP may direct the ESOP trustee on how to
vote the shares of convertible preferred stock allocated to the participant’s ESOP accounts; and the ESOP trustee
must vote any unallocated stock and allocated stock for which no participant instructions were received in the same
proportion as the allocated stock for which participants’ voting instructions have been received is voted.
Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a
change in control of us and may affect the trading 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 or prevent a change in our management or control over us that stockholders
may consider favorable. For example, our amended and restated certificate of incorporation and amended and
restated bylaws, each as further amen: 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, for the next three
years, until such time that our de-classified board structure is fully implemented at the 2023 annual meeting of
stockholders; provide that vacancies on our board of directors, including newly-created directorships, may be filled
only by a majority vote of directors then in office; 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 a majority 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 by stockholders 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 at least 75% of the members of our board of directors; and require the
approval of holders of a majority of the outstanding shares of our voting common stock to amend the bylaws and at
least 75% of the outstanding shares of our voting common stock to amend certain provisions of the certificate of
incorporation.
Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware
General Corporation Law that has the 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 common stock, 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 remove our management. These provisions may facilitate management entrenchment
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Advanced Drainage Systems, Inc.
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 any derivative 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 our directors, officers, employees or agents; any action
asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated
certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is
governed by the internal affairs doctrine. 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 have consented to the provisions of our
amended and restated certificate of incorporation described above. The choice of forum provision may limit a
stockholder’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 may discourage such lawsuits against us or our directors, officers, employees
or agents. If a court were to find the choice of forum provision contained in our amended and restated certificate of
incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with
resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
General Risk Factors
As a publicly-traded manufacturing company, we are subject to a variety of risks in addition to the risks described
above, each of which could adversely affect our financial position, results of operations or cash flows.
These risks include but are not limited to:
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taxation by multiple jurisdictions and the impact of such taxation on the effective tax rate and the
amount of taxes paid;
material liabilities under our self-insured programs for workers’ compensation, automobile and
product/general liability coverage as well as health coverage to our employees;
fluctuations in our effective tax rate, including from the Tax Cuts and Jobs Act of 2017, the Coronavirus
Aid, Relief, and Economic Security (“CARES”) Act and any future tax legislation;
new or modified legislation related to health care;
the review of potential weaknesses or deficiencies in the Company’s disclosure controls and procedures,
and discovering further weaknesses of which we are not currently aware or which have not been
detected;
we cannot assure our stockholders that an active market for shares of our common stock can be
sustained and the market price of our common stock may be volatile and could decline in the future; and
failure to meet the expectations of investors, including as a result of factors beyond our control.
Item 1B.
Unresolved Staff Comments
None.
Item 2. Properties
Property
We have a network of 65 manufacturing plant locations and 38 distribution centers, summarized in the following
table:
United States
Canada
Mexico (1)
South America (1)(2)
Other (3)
Total
Manufacturing
Plants
53
4
4
4
—
65
Distribution
Centers
23
5
4
5
1
38
Total
76
9
8
9
1
103
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Advanced Drainage Systems, Inc.
(1) Manufacturing plants and distribution centers in Mexico and South America are owned or leased by our
joint ventures.
(2) Manufacturing plants and distribution centers owned or leased by our South America joint venture are not
consolidated.
(3) The other facility is located in the Netherlands.
We currently own approximately 36,000 square feet and lease approximately 27,000 square feet of office space in
Hilliard, Ohio for our corporate headquarters and lease an office space in Old Saybrook, Connecticut for our
Infiltrator headquarters.
Our network of 65 manufacturing plants consist of 45 that are owned and 20 that are leased. We generally prefer to
own our manufacturing plant locations, with a typical pipe manufacturing facility consisting of approximately
40,000 square feet and 15-20 acres of land for storage of pipe and related products. Our network of 38 distribution
centers consisted of 2 owned and 36 leased locations. We believe that our properties have been adequately
maintained 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 the capacity of our facilities is adequate for the level of production and distribution
activities necessary in our business as presently conducted. Each distribution center carries single wall and dual wall
pipe and fittings and Allied Products per needs of the local market.
In-House Fleet
As of March 31, 2021, our in-house fleet consists of approximately 700 tractors and approximately 1,300 trailers
that are specially designed to haul our lightweight pipe and fittings products.
Item 3.
Legal Proceedings
The Company is involved from time to time in various legal proceedings that arise in the ordinary course of our
business, including but not limited to commercial disputes, environmental matters, employee related claims,
intellectual property disputes and litigation in connection with transactions including acquisitions and divestitures.
The Company does not believe that such litigation, claims, and administrative proceedings will have a material
adverse impact on our financial position or our results of operations. The Company records a liability when a loss is
considered probable, and the amount can be reasonably estimated.
Item 4.
Mine Safety Disclosures
Not applicable.
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Advanced Drainage Systems, Inc.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information for Common Stock
Our common stock is listed and traded on the NYSE under the symbol “WMS”.
During each quarter of fiscal 2021, the Board of Directors approved a quarterly cash dividend of $0.09 per share to
all common stockholders. During the first quarter of fiscal 2020, the Board of Directors approved a special dividend
of $1.00 per share payable on June 14, 2019 to stockholder of record at the close of business on June 3, 2019. In
addition, during each quarter of fiscal 2020 and fiscal 2019, the Board of Directors approved a quarterly cash
dividend of $0.09 per share and $0.08 per share, respectively, to all common stockholders.
During the first quarter of fiscal 2022, the Company declared a quarterly cash dividend of $0.11 per share of
common stock. The dividend is payable on June 15, 2021 to stockholders of record at the close of business on June
1, 2021.
Holders of Record
As of May 18, 2021, we had 643 holders of record of our common stock. The number of holders of record is based
upon the actual number of holders registered as of such date and does not include holders of shares in “street name”
or persons, partnerships, associates, corporations or other entities in security position listings maintained by
depositories.
Stock Performance Graph
The following graph presents a comparison from March 31, 2016 through March 31, 2021 of 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 assumes investment of $100 on March 31, 2016 in our common stock and in each of the two indices and the
reinvestment of dividends.
Recent Sales of Unregistered Securities
Since the completion of our IPO, we have not sold any securities without registration under the Securities Act of
1933, as amended.
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Advanced Drainage Systems, Inc.
Issuer Purchases of Equity Securities
In February 2017, our Board of Directors authorized the repurchase of up to $50 million of our common stock.
Repurchases of common stock will be made in accordance with applicable securities laws. The stock repurchase
program does not obligate us to acquire any particular amount of common stock and may be suspended or
terminated at any time at our discretion. During the first quarter of fiscal 2022, the Company announced that its
Board of Directors has authorized a stock repurchase program for the repurchase of up to $250 million in shares of
the Company’s common stock, in addition to the $42 million outstanding under a previous authorization.
Equity Compensation Plan Information
For equity compensation plan information, refer to “Part III, Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters,” of this Annual Report on Form 10-K.
Item 6. Selected Financial and Operating Data
Not applicable.
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Advanced Drainage Systems, Inc.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements. 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 present facts 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 include statements regarding our intentions,
beliefs or current expectations concerning, among other things, our consolidated results of operations, financial
condition, liquidity, prospects, growth strategies, and the industries in which we operate and include, without
limitation, statements relating to our future performance.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond
our control. We caution that forward-looking statements are not guarantees of future performance and that our actual
consolidated results of operations, financial condition, liquidity, and industry 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 in subsequent periods. A number of
important factors could cause actual results to differ materially from those contained in or implied by the forward-
looking statements, including those reflected in forward-looking statements relating to our operations and business,
the risks and uncertainties discussed in this Annual 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, among other things:
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fluctuations in the price and availability of resins and other raw materials and our ability to pass any
increased costs of raw materials on to our customers in a timely manner;
volatility in general business and economic conditions in the markets in which we operate, including the
adverse impact on the U.S. and global economy of the COVID-19 global pandemic, and the impact of
COVID-19 in the near, medium and long-term on our business, results of operations, financial position,
liquidity or cash flows, and other limitation factors relating to availability of credit, interest rates,
fluctuations in capital and business and consumer confidence;
cyclicality and seasonality of the non-residential and residential construction markets and infrastructure
spending;
the risks of increasing competition in our existing and future markets, including competition from both
manufacturers of high performance thermoplastic corrugated pipe and manufacturers of products using
alternative materials, and our ability to continue to convert current demand for concrete, steel and
polyvinyl chloride (“PVC”) pipe products into demand for our high performance thermoplastic
corrugated pipe and Allied Products;
uncertainties surrounding the integration and realization of anticipated benefits of acquisitions and
similar transactions, including Infiltrator;
the effect of any claims, litigation, investigations or proceedings, including those described under “Item
3. Legal Proceedings” of this Annual Report;
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, including risks associated with new
markets and products associated with our recent acquisition of Infiltrator; our ability to achieve the
acquisition component of our growth strategy;
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Advanced Drainage Systems, Inc.
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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;
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;
the risks associated with our current levels of indebtedness, including borrowings under our existing
credit agreement and outstanding indebtedness under our existing senior notes;
fluctuations in our effective tax rate, including from the Tax Cuts and Jobs Act;
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.”
Please read this Annual Report on Form 10-K completely and with the understanding that actual future results may
be materially different from expectations. All forward-looking statements made in this Annual Report on Form 10-K
are qualified by these cautionary statements. All forward-looking statements 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 not intended to express any future trends, or indications of future performance,
unless expressed as such, and should only be viewed as historical data.
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Advanced Drainage Systems, Inc.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, references to “year” pertain to
our fiscal year. For example, 2021 refers to fiscal 2021, which is the period from April 1, 2020 to March 31, 2021.
The following discussion and analysis of our financial condition and results of our operations should be read in
conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report
on Form 10-K. This discussion contains forward-looking statements that are based on the beliefs of our
management, as well as assumptions made by, and information currently available to, our management. Our actual
results could differ materially from those discussed below. Factors that could cause or contribute to such differences
include, but are not limited to, those identified 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. Please read the following discussion together with the sections titled “Item 1A. Risk Factors”
and our consolidated financial statements, including the related notes, included in “Item 8. Financial Statements
and Supplementary Data” of this Form 10-K.
Overview
We are the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive
suite of water management products and superior drainage solutions for use in the underground construction and
infrastructure marketplace. Our innovative products are used across a broad range of end markets and applications,
including non-residential, residential, agriculture and infrastructure applications. We have established a leading
position in many of these end markets by leveraging our national sales and distribution platform, our overall product
breadth and scale and our manufacturing excellence. In the United States, our national footprint combined with our
strong local presence and broad product offering make us the leader in an otherwise highly fragmented sector
comprised of many smaller competitors. With the acquisition of Infiltrator in the second quarter of fiscal 2020, we
are now a leading provider of plastic leachfield chambers, septic tanks and accessories for use primarily in
residential applications.
Impact of COVID-19
In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic, and
it continues to spread throughout the United States and globally. The COVID-19 pandemic has resulted, and is likely
to continue to result, in significant economic disruptions and may have an adverse effect on our business. Significant
uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic.
In efforts to maintain a safe work environment and help contain the spread of COVID-19, we have transitioned to a
work-from-home policy for those that are able and suspended all nonessential employee travel and events. We have
also proactively implemented further safety and risk mitigation practices, including:
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Educating associates on COVID-19 related symptoms and encouraging vaccination;
Regularly assessing deliveries and orders in virus “hot zones” and higher-risk geographic regions;
Employing strict social distancing practices across all departments and divisions; and
Instituting additional health screenings such as temperature checks at facilities, which currently all
remain open.
Importantly, we are following all guidelines and directives from governmental and regulatory agencies across
manufacturing facilities, distribution centers, and delivery fleets in order to continue operating safely and
responsibly, while meeting the needs of customers.
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Advanced Drainage Systems, Inc.
Factors deriving from the COVID-19 response that may negatively impact sales and operating profit in the future
include, but are not limited to: limitations on our ability to procure raw materials, declines in product demand,
limitations on our ability to meet delivery requirements and commitments, limitations on the ability of our
employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring
employees to remain at home and limitations on the ability of our customers to pay us on a timely basis.
While we may experience unfavorable impacts to our business, given the dynamic nature of these circumstances, the
full extent of the COVID-19 pandemic on our ongoing business, results of operations and overall financial
performance is difficult to forecast at this time. Also, we have deferred payment of the Company’s share of Social
Security payroll taxes as permitted under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”), which allows for the deferral of these payments through the end of 2020 and requires repayment of the
deferred amounts in 2021 and 2022.
Key Factors Affecting Our Results of Operations
Product Demand - There 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 are affected by the
availability of credit, lending practices, interest rates and unemployment rates. Demand for new homes, farm
income, commercial development and highway infrastructure spending have a direct impact on our financial
condition and results of operations. Accordingly, the following factors may have a direct impact on our business in
the markets in which our products are sold:
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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 Pricing - The price of our products is impacted by competitive pricing dynamics in our industry as well as
by raw material input costs. Our industry is highly competitive and the sales prices for our products may vary based
on the sales policies of our competitors. Raw material costs represent a significant portion of the cost of goods sold
for our products. We aim to increase our product selling prices in order to cover raw material price increases, but the
inability to do so could impact our profitability. Movements in raw material, logistics or other overhead costs and
resulting changes in the selling prices may also impact changes in period-to-period comparisons of net sales.
Material Conversion - Our HDPE and PP pipe, plastic leachfield chambers, septic tanks and related water
management product lines compete with other manufacturers of corrugated polyethylene pipe as well as
manufacturers of alternative products made with traditional materials, such as concrete, steel and PVC. Our net sales
are driven by market trends, including the continued increase in adoption of thermoplastic corrugated pipe products
as a replacement for traditional materials. Thermoplastic corrugated pipe is generally lighter, more durable, more
cost effective and easier to install than comparable products made from traditional materials. We believe customers
will continue to acknowledge the superior attributes and compelling value proposition of our thermoplastic products
and expanded regulatory approvals allow for their use in new markets and geographies. In addition, we believe that
PP pipe products will also help accelerate conversion given the additional applications for which our PP pipe
products can be used.
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Advanced Drainage Systems, Inc.
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 to continue to increase the conversion to our products from traditional products in
these markets, including Canada, Mexico and South America where we operate.
Growth in Allied Products & Other - Our Allied Products & Other include storm and septic chambers, PVC
drainage structures, fittings, stormwater filters and water separators. These products complement our pipe product
lines and allow us to offer a comprehensive water management solution to our customers and drive organic growth.
Our leading market position in pipe products allows us to cross-sell Allied Products & Other effectively. Our
comprehensive offering of Allied Products & Other also helps us increase pipe sales in certain markets. Our Allied
Products & Other are less sensitive to increases in resin prices since resin prices represent a smaller percentage of
the cost for Allied Products & Other.
Our leading position in the pipe market has allowed us to increase organic growth of our Allied Products & Other.
We also expect to expand our Allied Product offerings through acquisitions.
Raw Material Costs - Our raw material cost and product selling prices fluctuate with changes in the price of resins
utilized in production. We actively manage our resin purchases and pass fluctuations in the cost of resin through to
our customers, where possible, in order to maintain our profitability. Fluctuations in the price of crude oil and
natural gas prices may impact the cost of resin. In addition, changes in and disruptions to existing ethylene or
polyethylene capacities could 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 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 material prices over a
short period of time have historically occurred with a significant supply disruption (hurricanes or fires at
petrochemical facilities), which may increase prices to levels that cannot be fully passed through to customers due to
pricing of competing products made from different raw materials or the anticipated 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 1,100 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 the material (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.
In order to reduce the volatility of raw material costs in the future, our raw material strategies for managing our costs
include the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
increasing the use of less price-volatile recycled HDPE resin in our pipe products in place of virgin resin
while meeting or exceeding industry standards;
internally processing an increasing percentage of our recycled HDPE resin in order to closely monitor
quality and minimize costs (approximately 70% of our recycled HDPE resin was internally processed
(enhanced) in fiscal 2021);
managing a resin price risk program that may entail both physical fixed price and volume contracts; and
maintaining supply agreements with our major resin suppliers that provide multi-year terms and
volumes that are in excess of our projected consumption.
We also consume a large amount of energy and other petroleum products in our operations, including the electricity
we use in our manufacturing process 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, our operating 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 or
surcharges to our customers.
Seasonality - Our operating results are impacted by seasonality. Historically, sales of our products have been higher
in the first and second quarters of each fiscal year due to favorable weather and longer daylight conditions
33
Advanced Drainage Systems, Inc.
accelerating construction project activity during these periods while fourth quarter results are impacted by the timing
of spring in the northern United States and Canada. Seasonal variations in operating results may also be significantly
impacted by inclement weather conditions, such as cold or wet weather, which can delay projects, resulting in
decreased net sales for one or more quarters, but we believe that 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 gain momentum in late March and lasts through November, before winter
sets in, significantly slowing the construction markets. In the southern and western United States, Mexico, Central
America and South America, the construction markets are less seasonal. The agricultural drainage market is
concentrated in the 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 Rates - Although we sell and manufacture our products in many countries, our sales and
production costs are primarily denominated in U.S. dollars. We have wholly-owned facilities in Canada, the
Netherlands and joint venture facilities in Mexico, Chile, Brazil, Argentina, Colombia and Peru. The functional
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 and Colombian peso. In fiscal 2019,
we converted the functional currency of joint venture facilities using the Argentine peso to the Chilean peso. From
time to time, we use derivatives to reduce our exposure to currency fluctuations.
Executive Summary of Our Fiscal Year 2021 Results
Fiscal Year 2021 Results
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Net sales increased 18.5% to $2.0 billion
Net income increased to $226.1 million, compared to a net loss of $191.8 million in the prior year
Adjusted EBITDA increased 56.7% to $567.0 million
Cash provided by operating activities increased 47.7% to $452.2 million
Free cash flow increased 56.6% to $373.5 million
Net sales increased $309.0 million, or 18.5%, to $2.0 billion, as compared to $1.7 billion in the prior year. Domestic
pipe sales increased $104.6 million, or 11.0%, to $1.1 billion. Domestic allied products & other sales increased
$39.2 million, or 9.7%, to $442.4 million. These increases were driven by growth in both the U.S. construction and
agriculture end markets. Infiltrator sales increased $186.8 million, or 88.5%, to $397.8 million, as compared to
$211.0 million in the prior year.
Gross profit increased $373.6 million to $690.1 million as compared to $316.5 million in the prior year. The prior
year gross profit includes $168.6 million of ESOP special dividend compensation expense. In addition, the gross
profit includes an incremental benefit from a full year of results from the Infiltrator Water Technologies business, as
compared to eight months of results in the prior year due to the timing of the acquisition. The remaining increase in
gross profit was due to favorable pricing and material cost; increases in both pipe and allied product sales; and
operational improvements offsetting inflationary costs.
Description of our Segments
We operate our business in three distinct reportable segments: “Pipe”, “International” and “Infiltrator.” “Allied
Products & Other” represents our Allied Products and all other business segments.
We generate a greater proportion of our net sales and gross profit in our Pipe segment, which consists of Pipe
product sales in all regions of the United States. We expect the percentage of total net sales and gross profit derived
from our other segments to continue to increase in future periods as we continue to expand non-Pipe product and our
34
Advanced Drainage Systems, Inc.
international presence. See “Note 21. Business Segment Information,” to our audited consolidated financial
statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
Pipe – Our Pipe segment manufactures and markets high performance thermoplastic corrugated pipe throughout the
United States. We maintain and serve these markets through product distribution relationships with many of the
largest national and independent waterworks distributors, buying groups and co-ops, major national retailers as well
as an extensive network of hundreds of small to medium-sized distributors across the United States.
Infiltrator – Infiltrator is a leading national provider of plastic leachfield chambers and systems, septic tanks and
accessories, primarily for use in residential applications. Infiltrator products are used in on-site septic wastewater
treatment systems in the United States and Canada.
International – Our International segment manufactures and markets products in regions outside of the United
States, with a strategy focused on our owned facilities in Canada and those markets serviced through our joint
ventures in Mexico and South America. Pipe manufactured in these countries is primarily sold into the same region.
Our joint venture strategy has provided us with local and regional access to new markets. The unconsolidated sales
of the South American Joint Venture were $45.6 million, $52.5 million, and $47.6 million, in fiscal 2021, 2020, and
2019, respectively.
Allied Products & Other – Our other operating segments manufacture a range of Allied Products & Other that are
complementary to our Pipe products. Our Allied Products & Other offer adjacent technologies to our core Pipe
offering, presenting a complete drainage solution for our clients and customers.
Results of Operations
Fiscal Year Ended March 31, 2021 Compared with Fiscal Year Ended March 31, 2020
The following table summarizes our operating results as a percentage of net sales that have been derived from our
Consolidated Financial Statements for the fiscal years ended March 31, 2021 and 2020. We believe this presentation
is useful to investors in comparing historical results.
2021
2020
Consolidated Statements of Operations data:
Net sales
Cost of goods sold
Cost of goods sold - ESOP special dividend compensation
Gross profit
Selling, general and administrative expenses
Selling, general and administrative - ESOP special
dividend compensation
Loss on disposal of assets and costs from exit
and disposal activities
Intangible amortization
Income (loss) from operations
Interest expense
Derivative (gains) losses and other (income) expense, net
Income (loss) before income taxes
Income tax expense
Equity in net (income) of unconsolidated affiliates
Net income (loss)
Less: net income attributable to the non-
controlling interest
Net income (loss) attributable to ADS
$ 1,982,780
1,292,698
—
690,082
267,574
100.0% $ 1,673,805
1,188,716
168,610
316,479
271,338
65.2
—
34.8
13.5
100.0%
71.0
10.1
18.9
16.2
—
4,275
73,708
344,525
35,658
(3,404)
312,271
86,382
(201)
226,090
—
0.2
3.7
17.4
1.8
(0.2)
15.7
4.4
—
11.4
78,142
4.7
5,338
57,010
(95,349)
82,711
1,554
(179,614)
14,092
(1,909)
(191,797)
0.3
3.4
(5.7)
4.9
0.1
(10.7)
0.8
(0.1)
(11.5)
1,860
$ 224,230
0.1
1,377
11.3% $ (193,174)
0.1
(11.5)%
35
Advanced Drainage Systems, Inc.
Net sales – The following table presents net sales to external customers by reportable segment for the fiscal years
ended March 31, 2021 and 2020.
(Amounts in thousands)
Pipe
Infiltrator
International
Allied Products & Other
Total Consolidated
2021
$ Variance
2020
$ 1,052,920 $ 952,603 $ 100,317
159,796
9,688
39,174
$ 1,982,780 $ 1,673,805 $ 308,975
329,144
158,269
442,447
169,348
148,581
403,273
% Variance
10.5%
94.4
6.5
9.7
18.5%
Our fiscal 2021 consolidated net sales increased by $309.0 million, or 18.5%, compared to fiscal 2020. The increase
in net sales was primarily a result of growth in our domestic Pipe segment along with the impact of including a full
year of Infiltrator sales as we acquired Infiltrator on July 31, 2019 and did not report sales prior to August 2019.
Our Pipe segment experienced above-market growth in the residential, agriculture and construction markets which
was mainly through higher volumes and to a lesser extent improved pricing/mix of products sold. As our product
offerings included in our Allied Products & Other segment are ancillary to the Pipe segment sales as part of the
complete water management solution, we experienced similar growth to Pipe segment, driven mainly by higher
volumes and improved price/mix of products offerings.
Cost of goods sold and Gross profit – The following table presents gross profit by reportable segment for the fiscal
years ended March 31, 2021 and 2020.
(Amounts in thousands)
Pipe
Infiltrator
International
Allied Products & Other
Cost of goods sold - ESOP special dividend
compensation
Intersegment eliminations
Total gross profit
2021
$ 247,266
178,296
44,463
220,560
690,585
2020
$ 179,722
82,922
30,666
193,674
486,984
$
$ Variance
67,544
95,374
13,797
26,886
203,601
—
(503)
$ 690,082
(168,610)
(1,895)
$ 316,479
168,610
1,392
$ 373,603
% Variance
37.6%
115.0
45.0
13.9
41.8
(100.0)
(73.5)
118.0%
Our fiscal 2021 consolidated Cost of goods sold decreased by $64.6 million, or 4.7%, and our consolidated Gross
profit increased by $373.6 million, or 118.0%, compared to fiscal 2020. The ESOP special dividend compensation
expense that occurred in fiscal 2020 of $168.6 million significantly impacted our gross margin for that year. Other
factors impacting our gross margin included the increase in net sales from higher volumes and improved pricing,
lower material costs, improved manufacturing costs driven from higher volume and leveraging our overhead costs,
and the impact of including a full year of Infiltrator gross profit as we acquired Infiltrator on July 31, 2019 and did
not report earnings prior to August 2019.
Selling, general and administrative expenses – The following table presents selling, general and administrative
expenses as a percentage of sales for the fiscal years ended March 31, 2021 and 2020.
(Amounts in thousands)
Selling, general and administrative
% of Sales
Selling, general and administrative - ESOP special
dividend compensation
% of Sales
2021
$ 267,574
2020
$ 271,338
$ Variance % Variance
$
(3,764)
13.5%
16.2%
(1.4)%
(2.7)
—
—%
78,142
(78,142)
4.7%
(100.0)
(4.7)
Selling, general and administrative expenses for fiscal 2021 decreased $3.8 million from the prior year and as a
percentage of sales, decreased by 2.7%. This decrease was a result of $21.5 million in transaction costs that occurred
in fiscal 2020 relating to the Infiltrator acquisition which did not recur in fiscal 2021. In addition, ADS experienced
36
Advanced Drainage Systems, Inc.
reductions in various administrative categories as a result of COVID-19 restrictions on travel and entertainment, and
as well as lower medical insurance costs. These decreases in selling, general and administrative expenses were
partially offset by higher ESOP and stock-based compensation expenses.
Selling, general and administrative – ESOP special dividend compensation – In fiscal 2020, ESOP special dividend
compensation expense of $78.1 million was allocated to selling, general and administrative expenses which did not
recur in fiscal 2021.
Loss on disposal of assets and costs from exit and disposal activities – In the fiscal year ended March 31, 2021, we
recorded $4.3 million of expense related to loss on disposal of assets and costs from exit and disposal activities
compared to $5.3 million in the year ended March 31, 2020. The decrease in Loss on disposal of assets and costs
from exit and disposal activities is due to asset disposals in fiscal 2020. See “Note 2. Loss on Disposal of Assets and
Costs from Exit and Disposal Activities” for additional discussion.
Intangible amortization – Intangible amortization increased as a percentage of net sales primarily due to the
inclusion of a full year of Infiltrator intangible asset amortization as we acquired Infiltrator on July 31, 2019.
Interest expense – Interest expense decreased $47.1 million in fiscal 2021 as compared to fiscal 2020. The decrease
was primarily due to $33.2 million of the write-off of deferred financing costs and $4.2 million prepayment penalty
related to the extinguishment of debt instruments in the fiscal 2020. The remainder of the decrease is due to
decreased debt levels. See “Note 13. Debt” for additional discussion.
Derivative (gains) losses and other (income) expense, net – In the fiscal year ended March 31, 2021, we recorded a
$3.4 million gain on Derivative (gains) losses and other (income) expenses, net, compared to a $1.6 million loss for
the same period in fiscal 2020. The change is primarily due to changes in realized and unrealized diesel hedges.
Income tax expense – The following table presents the effective tax rates for the fiscal years ended March 31, 2021
and 2020.
Effective tax rate
2021
2020
27.7%
(7.9)%
The increase in the effective tax rate was primarily due to stock appreciation from the additional ESOP shares and
the Acquisition during fiscal year 2020. See “Note 18. Income Taxes” for additional information.
Equity in net (income) loss of unconsolidated affiliates – Equity in net (income) loss of unconsolidated affiliates
represents our proportionate share of income or loss attributed to our unconsolidated joint venture in which we have
significant influence, but not control, over operations. The equity in net (income) loss of unconsolidated affiliates
decreased $1.7 million for fiscal 2021 compared for fiscal 2020. The decrease is primarily due to a decrease in the
current period income at our South American Joint Venture.
Net income attributable to noncontrolling interest – Income attributable to noncontrolling interest increased by $0.5
million from net income of $1.4 million in fiscal 2020 to $1.9 million in fiscal 2021. The change is primarily
attributable to fluctuations in the profitability of ADS Mexicana.
The discussion of our results of operations for the fiscal year ended March 31, 2020 compared with the fiscal year
ended March 31, 2019 can be found in our fiscal 2020 Form 10-K. See Item 7. Management’s Discussion and
Analysis of Financial Discussion and Results of Operations in our fiscal 2020 Form 10-K for further information on
our prior period results of operations.
Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin - EBITDA, Adjusted EBITDA and Adjusted
EBITDA Margin, non-GAAP financial measures, have been presented in this Annual Report on Form 10-K as
supplemental measures of financial performance that are not required by, or presented in accordance with GAAP.
We calculate EBITDA as net income before interest, income taxes and depreciation and amortization. We calculate
37
Advanced Drainage Systems, Inc.
adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, stock-based
compensation expense, non-cash charges and certain other gains and expenses. We calculate Adjusted EBITDA
Margin as Adjusted EBITDA divided by net sales.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are included in this Annual Report on Form 10-K
because they are key metrics used by management and our Board of Directors to assess our financial performance.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are frequently used by analysts, investors and other
interested parties to evaluate companies in our industry. In addition to covenant compliance and executive
performance evaluations, we use EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP
measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to
compare our performance against that of other peer companies using similar measures.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not GAAP measures of our financial performance
and should not be considered as alternatives to net income as measures of financial performance or cash flows from
operations or any other performance measure derived in accordance with GAAP, and it should not be construed as
an inference that our future results will be unaffected by unusual or non-recurring items. EBITDA, Adjusted
EBITDA and Adjusted EBITDA Margin contain certain other limitations, including the failure to reflect our cash
expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and
amortized. In evaluating EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin, 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 this presentation, such
as stock-based compensation expense, derivative fair value adjustments, and foreign currency transaction losses.
Management compensates for these limitations by relying on our GAAP results in addition to using EBITDA,
Adjusted EBITDA and Adjusted EBITDA Margin on a supplemental basis. Our measure of EBITDA, Adjusted
EBITDA and Adjusted EBITDA Margin are not necessarily comparable to other similarly titled captions of other
companies due to different methods of calculation.
(Amounts in thousands)
Net income (loss)
Depreciation and amortization
Interest expense
Income tax expense
EBITDA
Loss on disposal of assets and
costs from exit and disposal activities
ESOP and stock-based compensation expense
ESOP special dividend compensation (a)
Transaction costs (b)
Inventory step up related to the Acquisition
Strategic growth and operational improvement initiatives (c)
COVID-19 related expenses (d)
Restatement-related costs (e)
Other adjustments (f)
Adjusted EBITDA
Adjusted EBITDA Margin
$
$
2021
226,090
145,586
35,658
86,382
493,716
4,275
65,434
—
1,415
—
3,304
806
—
(1,995)
566,955
$
$
2020
(191,797) $
124,940
82,711
14,092
29,946
2019
81,466
71,900
18,618
30,049
202,033
5,338
32,395
246,752
22,896
7,880
6,659
5,081
8
4,913
361,868
$
3,647
21,828
—
699
—
3,450
—
(1,924)
2,227
231,960
28.6%
21.6%
16.8%
(a)
In the first quarter of fiscal 2020, the Company paid a special dividend of $1.00 per share. The dividend was
used to pay back a portion of the ESOP loan resulting in $246.8 million in additional stock-based
compensation. See “Note 19. Net Income Per Share and Stockholders’ Equity” for additional information.
(b) Represents expenses recorded related to legal, accounting and other professional fees incurred in connection
(c)
with business or asset acquisitions and dispositions.
Represents professional fees incurred in connection with our strategic growth and operational improvement
initiatives, which include various market feasibility assessments and acquisition strategies, along with our
operational improvement initiatives, which include evaluation of our manufacturing network and
improvement initiatives.
38
Advanced Drainage Systems, Inc.
(d)
(e)
(f)
Includes expenses in connection with our response to the COVID-19 pandemic including pandemic pay, see
“Note 16. Employee Benefit Plans” for additional information, and crisis management.
Represents expenses recorded related to legal, accounting and other professional fees incurred in connection
with the restatement of our prior period financial statements. The benefit recognized in fiscal 2019 is the result
of insurance proceeds received in fiscal 2019.
Includes derivative fair value adjustments, foreign currency transaction (gains) losses, the proportionate share
of interest, income taxes, depreciation and amortization related to the South American Joint Venture, which is
accounted for under the equity method of accounting, contingent consideration remeasurement, executive
retirement expense (benefit) and legal settlements. The other adjustments in fiscal 2020 also includes expenses
related to the ADS Mexicana’s investigation as described in “Note 15. Commitments and Contingencies”.
The following table presents our Adjusted EBITDA for the Company prior to the Acquisition (“Legacy ADS”),
which consists of the combination of the Segment Adjusted Gross Profit for Pipe, Allied Products & Other, and
International plus the portion of selling, general and administrative expenses which impacts Adjusted EBITDA and
Infiltrator prior to the Acquisition (“Legacy Infiltrator”), which consists of the combination of the Segment Adjusted
Gross Profit for Infiltrator plus the portion of selling, general and administrative expenses which impacts Adjusted
EBITDA.
(Amounts in thousands)
Legacy ADS Adjusted EBITDA
Pipe Adjusted Gross Profit
International Adjusted Gross Profit
Allied Products & Other Adjusted Gross Profit
Unallocated selling, general and administrative expenses
$
Legacy ADS Adjusted EBITDA
$
2021
2020
2019
322,846 $
49,921
225,052
(194,775)
403,044 $
239,531 $
36,999
201,206
(190,353)
287,383 $
191,002
37,191
168,729
(164,962)
231,960
Legacy Infiltrator Adjusted EBITDA
Infiltrator Adjusted Gross Profit
Unallocated selling, general and administrative expenses
$
Legacy Infiltrator Adjusted EBITDA
Intersegment eliminations
Consolidated Adjusted EBITDA
$
191,163
(27,135)
164,028 $
(117)
566,955 $
98,245
(21,865)
76,380 $
—
—
—
(1,895)
361,868 $
—
231,960
Liquidity and Capital Resources
Historically we have funded our operations through internally generated cash flow supplemented by debt financings,
equity issuance and finance and operating leases. These sources have been sufficient historically to fund our primary
liquidity requirements, including working capital, capital expenditures, debt service and dividend payments for our
convertible preferred stock and common stock. From time to time, we may explore additional financing methods
and other means to raise capital. There can be no assurance that any additional financing will be available to us on
acceptable terms or at all.
The following table presents key liquidity metrics utilized by management. The table includes the Non-GAAP
measure, Free cash flow, which is further discussed and defined below.
(Amounts in thousands)
Net cash provided by operating activities
Capital expenditures
Free cash flow
Total debt (debt and finance lease obligations)
Cash
Net debt (total debt less cash)
Leverage ratio
$
2020
306,189
(67,677)
238,512
$
2021
452,216
(78,757)
373,459
841,502
195,009
646,493
1.1
39
Advanced Drainage Systems, Inc.
The following table summarizes our available liquidity under our Revolving Credit Facility as of March 31, 2021:
(Amounts in thousands)
Revolver capacity
Less: outstanding borrowings
Less: letters of credit
Revolver available liquidity
March 31, 2021
$
$
350,000
—
11,005
338,995
In addition to the available liquidity above, we have the ability to borrow up to $1.3 billion under our Term Loan
Facility, subject to leverage ratio restrictions.
As of March 31, 2021, we had $12.7 million in cash that was held by our foreign subsidiaries, including $4.8 million
held by our Canadian subsidiaries. We continue to evaluate our strategy regarding foreign cash, but our earnings in
foreign subsidiaries still remain indefinitely reinvested, except for Canada. See “Note 18. Income Taxes” for
additional discussion of our plans to repatriate earnings from Canada.
Free Cash Flow - Free cash flow is a non-GAAP financial measure that comprises cash flow from operations less
capital expenditures. Free cash flow is a measure used by management and our Board of Directors to assess our
ability to generate cash. Accordingly, free cash flow has been presented in this Annual Report on Form 10-K as a
supplemental measure of liquidity that is not required by, or presented in accordance with GAAP, because
management believes that free cash flow provides useful information to investors and others in understanding and
evaluating our ability to generate cash flow from operations after capital expenditures.
Free cash flow is not a GAAP measure of our liquidity and should not be considered as an alternative to cash flow
from operating activities as a measure of liquidity or any other liquidity measure derived in accordance with GAAP.
Our measure of free cash flow is not necessarily comparable to other similarly titled captions of other companies
due to different methods of calculation.
(Amounts in thousands)
Cash flow from operating activities
Capital expenditures
Free cash flow
Working Capital and Cash Flows
2021
452,216 $
(78,757)
373,459 $
2020
306,189 $
(67,677)
238,512 $
2019
151,678
(43,412)
108,266
$
$
Our source of funds in fiscal 2021 was primarily driven by an increase in cash provided by operating activities due
to increased income from continuing operations. Our use of cash in fiscal 2021 was primarily due to payments on
our Term Loan Facility and Revolving Credit Facility, payments on our finance leases and dividend payments.
During fiscal 2020, our net increase in cash amounted to $165.3 million compared to a net decrease of $8.7 million
during fiscal 2019. Our sources of funds in fiscal 2020 were primarily driven by borrowings under the Term Loan
Facility, Senior Notes and Revolving Credit Facility, proceeds from our Common Stock Offering and an increase in
cash provided by operating activities. Our use of cash during fiscal 2020 was primarily related to the Acquisition
and repayment of our previous debt arrangements.
As of March 31, 2021, we had $534.0 million in liquidity, including $195.0 million of cash, $339.0 million in
borrowings available under our Revolving Credit Facility, excluding $11.0 million of outstanding letters of credit.
We believe that our cash on hand, together with the availability of borrowings under our Revolving Credit Facility
and cash generated from operations, will be sufficient to meet our working capital requirements, anticipated capital
expenditures, scheduled interest payments on our indebtedness and required dividend payment for our convertible
preferred stock for at least the next twelve months.
As of March 31, 2021, we had consolidated indebtedness (excluding finance lease obligations) of approximately
$791.3 million, a decrease of $308.5 million compared to March 31, 2020.
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Advanced Drainage Systems, Inc.
Working Capital - Working capital is an indication of liquidity and potential need for short-term funding. We define
working capital as current assets less current liabilities.
Working capital decreased to $424.7 million as of March 31, 2021, from $428.0 million as of March 31, 2020,
primarily due to an increase in accounts payable, due to improved payment terms, offset by increased accounts
receivable and inventory due to increased sales.
Working capital increased to $428.0 million as of March 31, 2020, from $260.2 million as of March 31, 2019,
primarily due to an increase in cash of $165.3 million.
Operating Cash Flows - During fiscal 2021, cash provided by operating activities was $452.2 million as compared
with cash provided by operating activities of $306.2 million for fiscal 2020. Cash flow from operating activities
during fiscal 2021 was primarily impacted by increased income from continuing operations and improvements in
payment terms on accounts payable.
During fiscal 2020, cash provided by operating activities was $306.2 million as compared with cash provided by
operating activities of $151.7 million for fiscal 2019. Cash flow from operating activities during fiscal 2020 was
primarily impacted by changes in working capital, including improved collections from accounts receivable, faster
inventory turns and extension of terms of our accounts payable.
Investing Cash Flows - During fiscal 2021, cash used for investing activities was $77.9 million. The decrease in cash
used for investing activities was primarily due to the Acquisition of Infiltrator Water in fiscal 2020. Capital
expenditures was $78.8 million compared to $67.7 million in fiscal 2020. Our capital expenditures in fiscal 2021
were used primarily to support facility expansions, equipment replacements, our recycled resin and technology
improvement initiatives.
During fiscal 2020, cash used for investing activities was $1,150.5 million. The decrease in cash used for investing
activities was primarily due to the Acquisition of Infiltrator, net of cash acquired, in fiscal 2020. Capital
expenditures was $67.7 million compared to $43.4 million in fiscal 2019. Our capital expenditures in fiscal 2020
were used primarily to support facility improvements, equipment replacements, our recycled resin and operating
efficiency initiatives and technology.
During fiscal 2019, cash used for investing activities was $42.5 million, primarily due to $43.4 million for capital
expenditures and additions to capitalized software. Our most significant capital expenditures were $10.8 million for
increased capacity related to manufacturing facility expansion and additional production lines, as well as $4.8
million for additional processing and utilization of recycled resin.
We currently anticipate that we will make capital expenditures of approximately $130 to $150 million in fiscal 2022.
Such capital expenditures are expected to be financed using funds generated by operations.
Financing Cash Flows – During fiscal 2021, cash used in financing activities was $354.5 million, due to payments
on the Term Loan Facility of $207.0 million and the Revolving Credit Facility of $100.0 million. In addition, we
made dividend payments of $32.1 million and $21.5 million on our finance lease obligations.
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Advanced Drainage Systems, Inc.
During fiscal 2020, cash provided by financing activities was $1,011.6 million, due to the new Term Loan Facility,
Senior Notes and Common Stock Offering. These cash inflows were offset by the repayment of the PNC Credit
Agreement and Prudential Senior Notes, the special and quarterly dividend payments of $92.1 million and payments
on our finance lease obligations of $27.1 million. The table below summarizes the cash flows from the Acquisition,
and the related debt and equity transactions.
(Amounts in thousands)
Bridge Loan Facility
Bridge Revolving Credit Facility
PNC Credit Agreement draw
Prudential Senior Notes payoff
PNC Credit Agreement payoff
Acquisition of Infiltrator, fair value of consideration transferred
Common stock offering, net of offering costs
Bridge Loan Facility - payment
Proceeds from Senior Notes Issuance
Bridge Loan Facility - payment
Term Loan Facility
Bridge Loan Facility - payment
Debt issuance costs
Cash to Balance Sheet
Total
Sources
1,300,000
145,000
104,429
—
—
—
293,648
—
350,000
—
700,000
—
—
—
2,893,077
$
$
Uses
—
—
—
(104,429)
(239,240)
(1,146,526)
—
(300,000)
—
(300,000)
—
(700,000)
(34,606)
(68,276)
(2,893,077)
$
$
During fiscal 2019, cash used in financing activities was $117.7 million, primarily for net debt payments of
$62.1 million related to the repayments of the Secured Bank Loans and Senior Notes Payable, payments on our
finance lease obligations of $24.3 million, dividend payments of $26.1 million and the acquisition of all the
noncontrolling interest in BaySaver for $8.8 million.
Employee Stock Ownership Plan (“ESOP”)
The Company established the Advanced Drainage Systems, Inc. ESOP (the “ESOP” or the “Plan”) effective April 1,
1993 to enable eligible employees to acquire stock ownership in ADS in the form of redeemable convertible
preferred shares. The Plan was funded by an existing tax-qualified profit-sharing retirement plan, as well as a 30-
year term loan from ADS. Within 30 days following the repayment of the ESOP loan, which will occur no later than
March 2023, the ESOP committee can direct the shares of redeemable convertible preferred stock owned by the
ESOP to be converted into shares of the Company’s common stock.
The Company is obligated to make contributions to the Plan, which, when aggregated with the Plan’s dividends,
equal the amount necessary to enable the Plan to make its regularly scheduled payments of principal and interest due
on its term loan to ADS. Compensation expense is recognized based upon the average annual fair value of the shares
during the period which ADS receives payments on the term loan, and the number of ESOP shares allocated to
participant accounts.
As disclosed in “Note 16. Employee Benefit Plans”, redeemable convertible preferred stock can convert to common
stock upon retirement, disability, death, or vested terminations over the life of the Plan. As stated above, within 30
days following the repayment of the ESOP loan, all redeemable convertible preferred stock will be converted to
common stock, which will be no later than March 2023.
Following the repayment of the ESOP loan discussed above, the ESOP’s conversion of redeemable convertible
preferred stock into common stock will impact the Company’s net income, net income per share and common shares
outstanding as follows (with the outstanding shares of common stock being approximately 24% greater after
conversion):
42
Advanced Drainage Systems, Inc.
Impact on Net Income – Provided that the converted common stock do not qualify as participating securities, the
Company will no longer be required to apply the two-class method to determine Net income per share once all of the
redeemable convertible preferred stock is converted into common stock. After the preferred shares are fully
allocated upon the repayment of the ESOP loan and all of the redeemable convertible preferred stock is converted
into common stock, the Company will no longer incur the fair value of ESOP deferred compensation attributable to
the shares of redeemable convertible preferred shares.
The impact of the ESOP on net income includes the fair value of ESOP deferred compensation attributable to the
shares of redeemable convertible preferred stock allocated to employee ESOP accounts during the applicable period,
which is a non-cash charge to our earnings and not deductible for income tax purposes.
(Amounts in thousands)
Net (loss) income attributable to ADS
ESOP special dividend compensation
ESOP deferred stock-based compensation
2021
224,230 $ (193,174) $
2020
$
—
44,981
246,752
20,126
2019
77,772
—
15,296
Impact on Common Stock Outstanding – The impact on the number of common shares outstanding will be as shares
are converted, the number of common shares outstanding will increase.
(Shares in millions)
Weighted average common shares outstanding
Conversion of redeemable convertible shares
2021
2020
2019
70.2
16.0
63.8
17.1
57.0
17.6
The repayment of a significant portion of the ESOP loan had an impact on the Company’s net income per share in
fiscal 2020.
Debt and Capitalized Lease Obligations
See “Note 6. Leases” and “Note 13. Debt” to our consolidated financial statements included in “Item 8. Financial
Statements and Supplementary Data” for a discussion of the Company’s financing transactions, including the
Secured Bank Loans, the Senior Notes and the Company’s finance lease obligations.
Financing Transactions
Bridge Credit Facility – On July 31, 2019, we entered into the Base Credit Agreement with Barclays Bank PLC, as
administrative agent and the several lenders from time to time party thereto. The Base Credit Agreement provides
for up to $1.3 billion as a Term Loan Facility, up to $350 million as a Revolving Facility, up to $50 million as an
L/C Facility and up to $50 million, as a sublimit of the Revolving Facility.
On July 31, 2019, the Company borrowed under the Base Credit Agreement which was used to (i) finance the
Merger Consideration paid in connection with the closing of the acquisition of Infiltrator by us which occurred on
July 31, 2019 (the “Merger”), (ii) repay the total outstanding amount as of the Closing Date under its credit
agreements, (iii) repay outstanding amounts of existing indebtedness incurred by Infiltrator under its outstanding
credit facility in effect prior to the Acquisition, and (iv) pay certain transaction fees and expenses associated with the
Acquisition and the Base Credit Agreement.
New Senior Secured Credit Facility - On September 24, 2019, the joint lead arrangers informed the Company that
the parties had successfully completed a syndication of the remaining balance of the Bridge Credit Facility. The
Senior Secured Credit Facility provided for a Term Loan Facility with an initial aggregate amount of $700 million,
up to $350 million as a Revolving Facility, and up to $50 million as a letter of credit facility, as a sublimit of the
Revolving Facility.
The Term Loan Facility has an amortization feature equal to 1% of the original $700 million balance paid in equal
quarterly installments commencing on January 1, 2020 and continuing on the first day of each consecutive April,
July, October and January thereafter. To the extent not previously paid, all then-outstanding amounts under the Term
43
Advanced Drainage Systems, Inc.
Loan Facility are due and payable on the maturity date of the Term Loan Facility, which is September 26, 2026.
Borrowings under the Revolving Facility are available beginning on the Closing Date and, to the extent not
previously paid, all then-outstanding amounts under the Revolving Facility are due and payable on the maturity date
of the Revolving Facility, which is September 29, 2024.
The Senior Secured Credit Facility includes customary representations, warranties, covenants and events of default.
At the option of the Company, borrowings under the Term Loan Facility and under the Revolving Facility (subject
to certain limitations) bear interest at either a base rate (as determined pursuant to the Senior Secured Credit
Facility) or at a Eurocurrency Rate, based on LIBOR (as defined in the Senior Secured Credit Facility), plus the
applicable margin as set forth therein from time to time. In the case of the Revolving Facility, the applicable margin
is based on the Company’s consolidated senior secured net leverage ratio (as defined in the Senior Secured Credit
Facility). All borrowings under the Term Loan Facility used to finance the Merger Consideration as described above
initially bear interest at a Eurocurrency Rate (as defined in the Senior Secured Credit Facility).
The Company’s obligations under the Credit Agreement have been secured by granting a first priority lien on
substantially all of the Company’s assets (subject to certain exceptions and limitations), and each of StormTech,
LLC, Advanced Drainage of Ohio, Inc. and Infiltrator Water Technologies, LLC (collectively the “Guarantors”) has
agreed to guarantee the obligations of the Company under the Senior Secured Credit Facility and to secure the
obligations thereunder by granting a first priority lien in substantially all of such Guarantor’s assets (subject to
certain exceptions and limitations).
Issuance of Senior Notes due 2027 - On September 23, 2019, the Company issued $350.0 million aggregate
principal amount of its Senior Notes, pursuant to the Indenture among the Company, the Guarantors and the Trustee.
The Senior Notes are guaranteed by each of the Company’s present and future direct and indirect wholly owned
domestic subsidiaries that is a guarantor under the Company's Senior Secured Credit Facility. The Senior Notes
were offered and sold either to persons reasonably believed to be “qualified institutional buyers” pursuant to Rule
144A under the Securities Act or to persons outside the United States under Regulation S of the Securities Act.
Interest on the Senior Notes will be payable semi-annually in cash in arrears on March 31 and September 30 of each
year, commencing on March 31, 2020, at a rate of 5.000% per annum. The Senior Notes will mature on September
30, 2027. The Company used the majority of the net proceeds from the offering of the Senior Notes for the
repayment of $300.0 million of its outstanding borrowings under the Company’s Bridge Credit Facility.
The Company may redeem the Senior Notes, in whole or in part, at any time on or after September 30, 2022 at
established redemption prices. At any time prior to September 30, 2022, the Company may also redeem up to 40%
of the Senior Notes with net cash proceeds of certain equity offerings at a redemption price equal to 105.000% of the
principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the
redemption date. In addition, at any time prior to September 30, 2022, the Company may redeem the Senior Notes,
in whole or in part, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed,
plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus an applicable “make-whole”
premium.
The Indenture contains customary events of default, including, among other things, payment default, failure to
comply with covenants or agreements contained in the Indenture or the Senior Notes and certain provisions related
to bankruptcy events. The Indenture also contains customary negative covenants.
Covenant Compliance
The Senior Secured Credit Facility requires, if the aggregate amount of outstanding exposure under the Revolving
Facility exceeds $122.5 million at the end of any fiscal quarter, the Company to maintain a consolidated senior
secured net leverage ratio (commencing with the fiscal quarter ending March 31, 2020) not to exceed 4.25 to 1.00
for any four consecutive fiscal quarter periods.
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Advanced Drainage Systems, Inc.
The Senior Secured Credit Facility also includes other covenants, including negative covenants that, subject to
certain exceptions, limit the Company’s and its restricted subsidiaries’ (as defined in the Credit Agreement) ability
to, among other things: (i) incur additional debt, including guarantees; (ii) create liens upon any of their property;
(iii) enter into any merger, consolidation or amalgamation, liquidate, wind up or dissolve, or dispose of all or
substantially all of their property or business; (iv) dispose of assets; (v) pay subordinated debt; (vi) make certain
investments; (vii) enter into swap agreements; (viii) engage in transactions with affiliates; (ix) engage in new lines
of business; (x) modify certain material contractual obligations, organizational documents, accounting policies or
fiscal year; or (xi) create or permit restrictions on the ability of any subsidiary of any Loan Party (as defined in the
Senior Secured Credit Facility) to pay dividends or make distributions to the Company or any of its subsidiaries.
The Senior Secured Credit Facility also contains customary provisions requiring the following mandatory
prepayments (subject to certain exceptions and limitations): (i) annual prepayments (beginning with the fiscal year
ending March 31, 2021) with a percentage of excess cash flow (as defined in the Senior Secured Credit Facility); (ii)
100% of the net cash proceeds from any non-ordinary course sale of assets and certain casualty or condemnation
events; and (iii) 100% of the net cash proceeds of indebtedness not permitted to be incurred under the Senior
Secured Credit Facility.
For further information, see “Note 13. Debt” to the Consolidated Financial Statements. We were in compliance with
our debt covenants as of March 31, 2021.
Contractual Obligations as of March 31, 2021
(Amounts in thousands)
Contractual obligations:
Long-term debt (1)
Interest payments (2)
Operating leases
Finance leases
Total
Payments Due by Period
Total
Less than
1 Year
1-3 Years 3-5 Years
More than
5 Years
$ 791,250 $
7,000 $ 14,000 $ 14,000 $ 756,250
171,903 28,713 56,949 56,447 29,794
6,965
2,103
$ 1,060,335 $ 67,862 $ 109,556 $ 87,805 $ 795,112
40,317 10,947 13,946
56,865 21,202 24,661
8,459
8,899
(1) The Secured Bank Loans mature in June 2027.
(2) Based on applicable rates and pricing margins as of March 31, 2021.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, with the exception of the guarantee of 50% of certain debt of
our unconsolidated South American Joint Venture, as further discussed in “Note 12. Related Party Transactions” of
our Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data,” of this
Form 10-K. Our maximum potential obligation under this guarantee totals $11 million as of March 31, 2021. The
maximum borrowing permitted under the South American Joint Venture’s credit agreement is $22 million. As of
March 31, 2021, our South American Joint Venture had approximately $10.0 million of outstanding debt subject to
our guarantee, resulting in our guarantee of 50%, or $5.0 million, of that amount. We do not believe that this
guarantee will have a current or future effect on our financial condition, results of operations, liquidity, or capital
resources.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations are based on our consolidated financial
statements, which have been prepared in accordance with GAAP. The preparation of the consolidated financial
statements requires management to make estimates and judgments that affect the reported amounts in our
consolidated financial statements and accompanying notes.
Certain of our accounting policies involve a higher degree of judgment and complexity in their application, and
therefore, represent the critical accounting policies used in the preparation of our financial statements. If different
45
Advanced Drainage Systems, Inc.
assumptions or conditions were to prevail, the results could be materially different from our reported results. We
believe the following accounting policies may involve a higher degree of judgment and complexity in their
application and represent the critical accounting policies used in the preparation of our financial statements. For
additional discussion of our significant accounting policies, see “Note 1. Background and Summary of Significant
Accounting Policies” to our consolidated financial statements included in “Item 8. Financial Statements and
Supplementary Data” included in this Form 10-K.
46
Advanced Drainage Systems, Inc.
Policy
Goodwill- Goodwill is reviewed
annually for impairment as of
March 31 or whenever events or
changes in circumstances indicate
the carrying value may not be
recoverable. The fair value of
goodwill is determined by
considering both the income and
market approach.
Judgments and Estimates
Determining the fair value of a
reporting unit is judgmental in
nature and involves the use of
significant estimates and
assumptions.
(cid:120)
(cid:120)
Estimates and assumptions
including revenue growth
rates and EBITDA 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 assumptions
management believes to be
reasonable but are
inherently uncertain.
Effect if Actual Results Differ
from Assumptions
We performed our annual
impairment test for goodwill as of
March 31, 2021. We performed the
test for all reporting units with
goodwill, which include our
Domestic pipe reporting unit, the
International reporting units, the
Infiltrator reporting unit, and the
various Allied Product reporting
units.
We determined for our Domestic
Pipe Reporting Unit and all Allied
Products and Other reporting units
that it was not more likely than not
that the fair value of the reporting
unit was less than its carrying value.
Based on our quantitative analysis
for the Canada reporting unit and
Infiltrator reporting unit, the
estimated fair value of each
reporting unit exceeded its carrying
value.
For our Infiltrator and Canada
reporting units the estimated fair
value exceeded the carrying value by
more than 25%. For our Infiltrator
and Canada reporting units, we
utilized a discount rate of 13% and
15%, respectively, in determining
the discounted cash flows in our fair
value analysis and a long-term
growth rate of 3.0% and 2.0%,
respectively.
In addition, these discounted cash
flow analyses are dependent upon
achieving forecasted levels of net
sales and profitability. If
performance were to fall below
forecasted levels, or if market
conditions were to decline in a
material or sustained manner,
impairment would be indicated at
these reporting units, and potentially
at our other reporting units.
47
Advanced Drainage Systems, Inc.
Policy
Judgments and Estimates
Determining the fair value of the
definite-lived and indefinite-lived
intangible assets is judgmental in
nature and involves the use of
significant estimates and
assumptions. Future events and
unanticipated changes to
assumptions could require a
provision for impairment in a future
period.
Definite-lived intangible assets-
Definite-lived intangible assets are
tested for recoverability whenever
events or changes in circumstances
indicate that carrying amounts of the
asset group may not be recoverable.
Asset groups are established
primarily by determining the lowest
level of cash flows available. If the
estimated undiscounted future 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 of disposition is less than
the carrying amount of the asset.
Indefinite-lived intangible assets-
Indefinite-lived intangible assets are
tested for impairment annually as of
March 31 or whenever events or
changes in circumstances indicate
the carrying value may be greater
than fair value. Determining the fair
value of these assets is judgmental in
nature and involves the use of
significant estimates and
assumptions. We base our fair value
estimates on assumptions we believe
to be reasonable, but that are
inherently uncertain. To estimate the
fair value of these indefinite-lived
intangible assets, we use an income
approach, which utilizes a market
derived rate of return to discount
anticipated performance. An
impairment loss is recognized when
the estimated fair value of the
intangible asset is less than the
carrying value.
Effect if Actual Results Differ
from Assumptions
We did not record any impairment
charges for definite-lived intangible
assets in fiscal 2021, 2020, or 2019.
Due to the retirement of the
“Hancor” trademark in fiscal 2020,
we accelerated the amortization of
our “Hancor” trademark recording
additional amortization expense.
We performed our annual
impairment test for indefinite-lived
intangible assets as of March 31,
2021. We determined for our
indefinite-lived intangible assets that
it was not more likely than not that
the fair value of the assets exceeded
carrying value for fiscal years ended
March 31, 2021 and 2019. Based on
our quantitative analysis for the
fiscal year ended March 31, 2020,
we determined for our indefinite-
lived intangible assets that the fair
value of the assets exceeded its
carrying value. Accordingly, we did
not incur any impairment charges for
indefinite-lived intangible assets in
fiscal 2021, 2020 or 2019. Future
events and unanticipated changes to
assumptions could require a
provision for impairment in a future
period.
48
Judgments and Estimates
We estimate and allocate variable
consideration, such as right of
return, credits or incentives, based
on numerous factors, including the
customer agreements and past
transaction history.
Effect if Actual Results Differ
from Assumptions
If our historical experience differs
from future experience, our
estimates of variable consideration
could differ.
Advanced Drainage Systems, Inc.
Policy
Revenue Recognition- We generate
revenue by selling pipe and related
water management products
primarily to distributors, retailers,
buying groups and co-operative
buying groups. Products are shipped
predominately by our internal fleet,
and we do not provide any
additional revenue generating
services after product delivery.
Payment terms and conditions vary
by contract.
Revenue is recognized at the point
in-time obligations under the terms
of a contract with a customer are
satisfied, which generally occurs
upon the transfer of control of the
promised goods. In substantially all
of our contracts with customers,
control is transferred to the customer
upon delivery. We recognize
revenue in an amount that reflects
the consideration we expect to be
entitled to in exchange for those
goods or services.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see “Note 1. Background and Summary of Significant
Accounting Policies” to our consolidated financial statements included in “Item 8. Financial Statements and
Supplementary Data.”
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are subject to various market risks, primarily related to changes in interest rates, credit risk, raw material supply
prices, and, to a lesser extent, foreign currency exchange rates. Our financial position, results of operations or cash
flows may be negatively impacted in the event of adverse movements in the respective market rates or prices in each
of these risk categories. Our exposure in each category is limited to those risks that arise in the normal course of
business, as we do not engage in speculative, non-operating transactions.
49
Advanced Drainage Systems, Inc.
Interest Rate Risk - We are subject to interest rate risk associated with our bank debt. Changes in interest rates
impact the fair value of our fixed-rate debt, but there is no impact to earnings and cash flow. Alternatively, changes
in interest rates do not affect the fair value of our variable-rate debt, but they do affect future earnings and cash flow.
The Revolving Credit Facility and the Term Note, notes bear variable interest rates. The Revolving Credit Facility
and Term Note bear interest either at LIBOR or the Prime Rate, at our option, plus applicable pricing margins. A
1.0% increase in interest rates on our variable-rate debt would increase our annual forecasted interest expense by
approximately $4.4 million based on our borrowings as of March 31, 2021. Assuming the Revolving Credit Facility
is fully drawn, each 1.0% increase or decrease in the applicable interest rate would change our interest expense by
approximately $7.9 million, for the year ended March 31, 2021.
Credit Risk - Financial instruments that potentially subject us to a concentration of credit risk consist principally of
accounts receivable. We provide our products to customers based on an evaluation of the customers’ financial
condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each
customer’s financial condition. We monitor the exposure for credit losses and maintain allowances for anticipated
losses. Concentrations of credit risk with respect to our accounts receivable are limited due to the large number of
customers comprising our customer base and their dispersion among many different geographies and end markets.
One customer has an accounts receivable balance equal to approximately 20% of our Receivables balance as of
March 31, 2021.
Raw Material and Commodity Price Risk - Our primary raw materials used in the production of our products are
HDPE and PP resins. As these resins are hydrocarbon-based materials, changes in the price of feedstocks, such as
crude oil derivatives and natural gas liquids, as well as changes in the market supply and demand may cause the cost
of these resins to fluctuate significantly. Raw materials account for the majority of our cost of goods sold. Given the
significance of these costs and the inherent volatility in supplier pricing, our ability to reflect these changes in the
cost of resins in our product selling prices in an efficient manner contributes to the management of our overall risk
and the potential impact on our results of operations. A 1% increase in the price of resin would increase our cost of
goods sold by approximately $4.5 million.
We have a resin price risk management program with physical fixed price contracts which are designed to apply to a
significant portion of our annual virgin resin purchases. We also maintain supply agreements with our major resin
suppliers that provide multi-year terms and volumes 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.
Inflation Risk - Our cost of goods sold is subject to inflationary pressures and price fluctuations of the raw materials
we use, primarily HDPE and PP resins. Historically, we have generally been able, over time, to recover the effects
of inflation and price fluctuations through sales price increases and production efficiencies related to technological
enhancements and improvements. However, we cannot reasonably estimate our ability to successfully recover any
price increases.
Foreign Currency Exchange Rate Risk - We have operations in countries outside of the United States, which
primarily use the respective local foreign currency as their functional currency. Each of these operations may enter
into contractual arrangements with customers or vendors that are denominated in currencies other than its respective
functional currency. Consequently, our results of operations may be affected by exposure to changes in foreign
currency exchange rates and economic conditions in the regions in which we sell or distribute our products.
Exposure to variability in foreign currency exchange rates from these transactions is managed, to the extent possible,
by natural hedges which result from purchases and sales occurring in the same foreign currency within a similar
period of time, thereby offsetting each other to varying degrees.
In addition to the foreign currency transaction-related gains and losses that are reflected within the results of
operations, we are subject to foreign currency translation risk, as the financial statements for our foreign subsidiaries
are measured and recorded in the respective subsidiary’s functional currency and translated into U.S. dollars for
consolidated financial reporting purposes. The resulting translation adjustments are recorded net of tax impact in the
Consolidated Statements of Comprehensive Income (Loss).
50
Advanced Drainage Systems, Inc.
Item 8.
Financial Statements and Supplementary Data
The Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements and
supplementary financial data required for this Item are set forth on pages F-1 through F-51 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 Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our
Chief Financial Officer, we evaluated 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, 2021. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the
time periods specified under Securities Exchange Commission (“SEC”) rules and forms. Management recognizes
that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of March 31, 2021.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or
procedures may deteriorate.
Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of
our internal control over financial reporting as of March 31, 2021. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
Control — Integrated Framework (2013). A material weakness in internal controls is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Because of its inherent limitations, even appropriate internal control over financial reporting may not prevent or
detect misstatements.
Based on this assessment, management has concluded that the Company’s internal control over financial reporting
was effective as of March 31, 2021.
Deloitte & Touche LLP, our independent registered public accounting firm, has issued an audit report on the
effectiveness of our internal control over financial reporting as of March 31, 2021 and this report is included herein.
51
Advanced Drainage Systems, Inc.
Remediation of Previously Identified Material Weakness
As of March 31, 2021, we have remediated the material weakness previously identified in our Fiscal 2019 Form 10-
K.
In fiscal 2020, ADS Mexicana hired a new general manager and controller, as well as a manager of financial
reporting and compliance. The manager of financial reporting and compliance reports to ADS finance personnel.
Responsibilities within ADS Mexicana have been segregated among senior management individuals responsible for
sales; quality and product development; and manufacturing. Supplemental training on ADS Mexicana’s Code of
Business Conduct and Ethics has been provided to ADS Mexicana personnel and additional training has been
provided to ADS Mexicana personnel who provide oversight of claims submitted to the Ethics Hotline. We have
leveraged new technology implemented at ADS Mexicana that has strengthened controls and allows for further
oversight by ADS, Inc. The hiring of additional ADS Mexicana personnel as described above occurred during fiscal
year 2020 and necessitated additional time in fiscal 2021 for such personnel to positively impact the control
environment, improve process and execute controls for a sufficient period of time such that the operating
effectiveness of those changes were demonstrated through testing. We have evaluated the design and operating
effectiveness of the controls implemented and concluded that the controls are adequately designed and have
operated effectively for a sufficient period of time during fiscal 2021.
Changes in Internal Control over Financial Reporting
As of March 31, 2021, management evaluated and integrated the internal controls of the acquired Infiltrator business
into the Company's existing operations. Other than the controls enhanced or implemented to integrate the Infiltrator
business and the remediation of the material weakness discussed above, there were no changes in our internal
control over financial reporting identified in management’s evaluation pursuant to Rules 13a15(d) or 15d-15(d) of
the Exchange Act during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B.
Other Information
None.
52
Advanced Drainage Systems, Inc.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The information contained under the captions “EXECUTIVE OFFICERS”, “ELECTION OF DIRECTORS”
and “OTHER DIRECTOR INFORMATION, COMMITTEES OF DIRECTORS AND CORPORATE
GOVERNANCE INFORMATION” in our definitive Proxy Statement for the 2021 Annual Meeting of
Shareholders, to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act (the “Proxy
Statement”), is incorporated herein by reference.
Item 11.
Executive Compensation
The information contained under the captions “COMPENSATION OF MANAGEMENT,” “OTHER
DIRECTOR INFORMATION, COMMITTEES OF DIRECTORS AND CORPORATE GOVERNANCE
INFORMATION”, “REPORT OF THE COMPENSATION COMMITTEE” and “COMPENSATION
DISCUSSION AND ANALYSIS" in the Proxy Statement is incorporated herein by reference. Notwithstanding the
foregoing, the information contained in the Proxy Statement under the caption “REPORT OF THE
COMPENSATION COMMITTEE” shall be deemed furnished, and not filed, in this Report on Form 10-K and
shall not be deemed incorporated by reference into any filing we make under the Securities Act of 1933, as
amended, or the Exchange Act.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information contained under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT” and "EQUITY COMPENSATION PLAN INFORMATION" in the Proxy
Statement is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information contained under the captions “CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS” and “OTHER DIRECTOR INFORMATION, COMMITTEES OF DIRECTORS AND
CORPORATE GOVERNANCE INFORMATION” in the Proxy Statement is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information contained under the caption “AUDIT AND OTHER SERVICE FEES” in the Proxy Statement is
incorporated herein by reference.
53
Advanced Drainage Systems, Inc.
Item 15.
Exhibits and Financial Statement Schedules
(a)1. Financial Statements. See “Table of Contents” on page F-1.
PART IV
(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 financial statements or related notes.
(a)3.
Exhibits. See “Index to Exhibits.”
54
Advanced Drainage Systems, Inc.
Exhibit
Number
2.1
3.1
3.1A
3.2
INDEX TO EXHIBITS
Description
Agreement and Plan of Merger, dated as of July 31, 2019, among Advanced Drainage Systems, Inc.,
ADS Ocean Merger Sub, Inc., Infiltrator Water Technologies Ultimate Holdings, Inc. and 2461461
Ontario Limited, an Ontario corporation (incorporated by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission
on August 1, 2019).
Amended and Restated Certificate of Incorporation of Advanced Drainage Systems, Inc. (incorporated
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed
with the Securities and Exchange Commission on July 30, 2014).
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to
the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and
Exchange Commission on July 24, 2020).
Second Amended and Restated Bylaws of Advanced Drainage Systems, Inc. (incorporated by
reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed
with the Securities and Exchange Commission on July 30, 2014).
3.2A
First Amendment to Second Amended and Restated Bylaws of Advanced Drainage Systems, Inc.
(incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No.
001-36557) filed with the Securities and Exchange Commission on July 24, 2020).
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
Form of Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 5 to
the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities
and Exchange Commission on July 14, 2014).
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 5 to
the Registrant’s Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities
and Exchange Commission on July 14, 2014).
Registration Rights Agreement, dated as of July 30, 2014, by and among Advanced Drainage Systems,
Inc. and the stockholders from time to time party thereto (incorporated by reference to Exhibit 4.1 to
the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and
Exchange Commission on July 30, 2014).
Description of Registrant's Securities.
Indenture, dated September 23, 2019, among Advanced Drainage Systems, Inc., each of the guarantors
party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1
to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and
Exchange Commission on September 23, 2019).
Form of 5.000% Senior Notes due 2027 (included with Indenture, dated September 23, 2019, among
Advanced Drainage Systems, Inc., each of the guarantors party thereto and U.S. Bank National
Association, as trustee) (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on
Form 8-K (File No. 001-36557) filed with the Securities and Exchange Commission on September 23,
2019).
First Supplemental Indenture, dated March 31, 2021 among Advanced Drainage Systems, Inc., each of
the guarantors party thereto and U.S. Bank National Association, as trustee.#
Credit Agreement, dated as of July 31, 2019, by and among Advanced Drainage Systems, Inc.,
Barclays Bank PLC, as administrative agent, the several lenders from time to time party thereto,
Barclays Bank PLC and Morgan Stanley Senior Funding, Inc., as joint lead arrangers, joint
bookrunners, syndication agents and documentation agents (incorporated by reference to Exhibit 10.1
to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and
Exchange Commission on August 1, 2019).
55
Advanced Drainage Systems, Inc.
Exhibit
Number
10.1A
10.2
10.4†
Description
First Amendment to Credit Agreement, by and among the Advanced Drainage Systems, Inc., the banks
and other financial institutions or entities parties thereto, constituting all the Lenders under the Credit
Agreement, the Issuing Lenders party thereto and Barclays Bank PLC, as administrative agent
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.
001-36557) filed with the Securities and Exchange Commission on September 30, 2019).
Advanced Drainage Systems, Inc. Guarantee and Collateral Agreement (incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the
Securities and Exchange Commission on August 1, 2019).
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 on June 20, 2014).
10.4A† First Amendment to Amended 2000 Incentive Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the
Securities and Exchange Commission on August 15, 2014).
10.5† Advanced Drainage Systems, Inc. 2008 Restricted Stock Plan (incorporated by reference to
Exhibit 10.10 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).
10.5A† First Amendment to the 2008 Restricted Stock Plan (incorporated by reference to Exhibit 10.2 to Form
8-K filed February 10, 2017).
10.6† Advanced Drainage Systems, Inc. 2013 Stock Option Plan (incorporated by reference to Exhibit 10.11
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).
10.6A† First Amendment to 2013 Stock Option Plan (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K (File No. 001-36557) filed with the Securities and Exchange
Commission on August 15, 2014).
10.6B† Form of Amendment to Pre-2017 Stock Option Agreements (incorporated by reference to Exhibit
10.11B of Form 10-K filed May 10, 2017).
10.6C†
10.7†
10.10†
10.11†
10.12†
10.10†
Form of Amendment to Pre-2017 Stock Option Agreements (incorporated by reference to Exhibit
10.11B of Form 10-K filed May 10, 2017).
Executive Employment Agreement, dated as of September 1, 2017, by and between Advanced
Drainage Systems, Inc. and D. Scott Barbour (incorporated by reference to Exhibit 10.3 to Form 8-K
filed August 17, 2017).
Amended and Restated Executive Employment Agreement, dated as of June 20, 2014, by and between
Advanced Drainage Systems, Inc. and Ronald 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).
Amended and Restated Executive Employment Agreement, dated as of June 20, 2014, by and between
Advanced Drainage Systems, Inc. and Robert 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).
Form of Indemnification Agreement (incorporated by 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 the Securities
and Exchange Commission on June 6, 2014).
Form of Incentive Stock Option Agreement pursuant to 2000 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.18 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).
56
Advanced Drainage Systems, Inc.
Exhibit
Number
10.10A† Form of Incentive Stock Option Agreement (post-IPO) pursuant to 2000 Incentive Stock Option Plan
Description
(incorporated by reference to Exhibit 10.18A to Form 10-K for the year ended March 31, 2015 filed
with the Securities and Exchange Commission on March 29, 2016).
10.14†
10.15†
10.16†
10.17
10.18
10.18A
10.19†
10.21†
10.22
10.23
10.24
10.25
Form of Non-Qualified Stock Option Agreement (other than for Joseph A. Chlapaty) pursuant to 2013
Stock Option Plan (incorporated by reference to Exhibit 10.19 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).
Form of Restricted Stock Agreement (other than for Joseph A. Chlapaty) pursuant to 2008 Restricted
Stock Plan (incorporated by reference to Exhibit 10.20 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).
Form of Director Stock Agreement (incorporated by reference to Exhibit 10.21 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).
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 Registration Statement on Form S-1 (File No. 333-194980) filed with the Securities and
Exchange Commission on June 6, 2014).
Interestholders Agreement, dated as of June 5, 2009, by and among Tubos y Plasticos ADS Chile
Limitada, Tigre Chile S.A., and Tuberias T-A Limitada, joined by Advanced Drainage Systems, Inc.
and Tigre S.A. — Tubos e Conexoes, as amended on July 31, 2009, October 2009, December 15,
2009, May 18, 2010, August 10, 2010, April 1, 2011 and January 25, 2012, with First Addendum to
Interestholders Agreement, dated as of June 27, 2011 (incorporated by reference to Exhibit 10.23 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).
Second Addendum to Interestholders Agreement, dated as of December 1, 2013 but entered into on
September 30, 2014, by and among Tubos y Plasticos ADS Chile Limitada, Tigre Chile S.A., Tuberias
Tigre-ADS Limitada, Advanced Drainage Systems, Inc. and Tigre S.A. — Tubos e Conexoes
(incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (File
No. 001-36557) filed with the Securities and Exchange Commission on November 10, 2014).
Executive Employment Agreement dated November 9, 2015, by and between the Company and
Scott A. Cottrill (incorporated by reference to Exhibit 10.1 to Form 8-K filed November 9, 2015).
Form of Restricted Stock Agreement (other than for Joseph A. Chlapaty) pursuant to 2008 Restricted
Stock Plan (incorporated by reference to Exhibit 10.4 to Form 8-K filed February 10, 2017).
Form of Non-Qualified Stock Option Agreement pursuant to 2013 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to Form 8-K filed February 10, 2017).
Advanced Drainage Systems, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit
10.1 to our Current Report on Form 8-K, File No. 001-36557, filed on September 8, 2017).
Form of Restricted Stock Award Notice and Award Agreement pursuant to 2017 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, File No. 001-
36557, filed on September 8, 2017).
Form of Notice of Grant of Stock Options and Stock Option Award Agreement pursuant to 2017
Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K,
File No. 001-36557, filed on September 8, 2017).
57
Advanced Drainage Systems, Inc.
Exhibit
Number
10.26
10.27
10.28
10.30†
10.31†
10.32†
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Description
Form of Director Restricted Stock Award Notice and Award Agreement pursuant to 2017 Omnibus
Incentive Plan (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q, File
No. 001-36557, filed on November 6, 2017).
Form of Performance Unit Award Agreement pursuant to 2017 Omnibus Incentive Plan (incorporated
by reference to Exhibit 10.1 of Form 8-K, filed on May 30, 2018).
Confidentiality Agreement by and between the Company and Joseph A. Chlapaty (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K, File No. 001-36557, filed on August 17,
2017).
Executive Employment Agreement, dated as of November 10, 2016, by and between Advanced
Drainage Systems, Inc. and Kevin C. Talley (incorporated by reference to Exhibit 10.36 of Form 10-K,
filed on May 30, 2019).
Amended and Restated Employment Agreement, effective as of May 27, 2015, by and between
Infiltrator Water Technologies, LLC and Roy E. Moore, Jr. (incorporated by reference to Exhibit 10.31
of Form 10-K, filed on June 1, 2020).
Advanced Drainage Systems, Inc. Employee Stock Ownership Plan, as amended May 30, 2019
(incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q (File No.
001-36557) filed with the Securities and Exchange Commission on August 1, 2019.
List of Subsidiaries. #
Consent of Deloitte & Touche LLP. #
Power of Attorney. #
Certification of President and Chief Executive Officer of Advanced Drainage Systems, Inc. pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. #
Certification of Executive Vice President and Chief Financial Officer of Advanced Drainage Systems,
Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. #
Certification of Principal Executive Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. #
Certification of Principal Financial Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. #
101.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. #
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
† Management contract or compensatory plan.
#
Filed herewith.
Item 16.
Form 10-K Summary
None.
58
Advanced Drainage Systems, Inc.
Pursuant 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 its behalf by the undersigned thereunto duly authorized.
Date: May 27, 2021
SIGNATURES
ADVANCED DRAINAGE SYSTEMS, INC.
By:
Name: D. Scott Barbour
Title:
/s/ D. Scott Barbour
President and Chief Executive Officer
(Principal Executive Officer)
By:
Name:
Title:
/s/ Scott A. Cottrill
Scott A. Cottrill
Chief Financial Officer (Principal
Financial Officer)
/s/ Tim A. Makowski
By:
Name: Tim A. Makowski
Title:
Vice President, Controller and Chief
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons in their indicated capacities, on May 19, 2021.
Signature
/s/ D. Scott Barbour
D. Scott Barbour
/s/ Scott A. Cottrill
Scott A. Cottrill
/s/ Tim A. Makowski
Tim A. Makowski
/s/ C. Robert Kidder**
C. Robert Kidder
/s/ Anesa T. Chaibi **
Anesa T. Chaibi
/s/ Michael B. Coleman **
Michael B. Coleman
/s/ Robert M. Eversole**
Robert M. Eversole
/s/ Alexander R. Fischer**
Alexander R. Fischer
/s/ Tanya Fratto**
Tanya Fratto
/s/ M.A. (Mark) Haney**
M.A. (Mark) Haney
/s/ Ross M. Jones**
Ross M. Jones
/s/ Carl A. Nelson, Jr.**
Carl A. Nelson, Jr.
/s/ Manuel J. Perez de la Mesa**
Manuel J. Perez de la Mesa
Title
Director, President and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President, Chief Financial Officer
and Secretary (Principal Financial Officer)
Vice President, Controller and Chief Accounting Officer
(Principal Accounting Officer)
Chairman of the Board of Directors and Director
Director
Director
Director
Director
Director
Director
Director
Director
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
pursuant to powers of attorney executed by such directors.
By:
/s/ Scott A. Cottrill
Scott A. Cottrill, Attorney-in-fact
59
Advanced Drainage Systems, Inc.
TABLE OF CONTENTS
Audited Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm ................................................................................
Consolidated Balance Sheets as of March 31, 2021 and 2020 ..............................................................................
Consolidated Statements of Operations for the fiscal years ended March 31, 2021, 2020 and 2019 ....................
Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended March 31, 2021, 2020,
and 2019 ...........................................................................................................................................................
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2021, 2020, and 2019 ..................
Page
F-1
F-4
F-5
F-6
F-7
Consolidated Statements of Stockholders’ Equity (Deficit) and Mezzanine Equity for the fiscal years ended
March 31, 2021, 2020, and 2019 ......................................................................................................................
F-8
Notes to Consolidated Financial Statements ......................................................................................................... F-11
Schedule II, Consolidated Valuation and Qualifying Accounts for the fiscal years ended March 31, 2021,
2020, and 2019.................................................................................................................................................. F-49
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Advanced Drainage Systems, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Advanced Drainage Systems, Inc. and
subsidiaries (the "Company") as of March 31, 2021 and 2020, the related consolidated statements of the income,
comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended March
31, 2021, and the related notes and the financial statement schedules listed in the Index at Item 15 (collectively
referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of March 2021 and 2020, and the results of its operations and its
cash flows for each of the three years in the period ended March 31, 2021, in conformity with applicable financial
reporting framework accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2021, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated May 27, 2021, expressed an unqualified opinion
on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 6 to the financial statements, effective April 1, 2019, the Company adopted FASB Accounting
Standards Update (“ASU”), ASC 842 Leases, using the modified approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-1
Goodwill, Infiltrator Water Technologies Reporting Unit —Refer to Note 8 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves comparing the carrying value of each reporting unit
to the estimated fair value of the reporting unit. The Company’s determination of estimated fair value of the
reporting unit is determined by considering both the market approach and the income approach. The determination
of the estimated fair value requires management to make significant estimates and assumptions related to the
valuation of the reporting unit. Changes in these assumptions could have a significant impact on either the fair value
of the reporting unit, the amount of any goodwill impairment charge, or both. The Company’s consolidated goodwill
balance was $599.1 million as of March 31, 2021, of which $495.8 million was allocated to the Infiltrator reporting
unit, which is the reporting unit that exhibits significant sensitivity to changes in estimates and assumptions given
the limited cushion between the carrying value and estimated fair value. As of March 31, 2021, the estimated fair
value of the Infiltrator reporting unit exceeded its carrying value by more than 25%.
We identified the valuation of goodwill for Infiltrator as a critical audit matter because of the significant
assumptions made by management to estimate its fair value. Those assumptions included revenue growth rates,
forecasted EBITDA, and the selection of the discount rate. Our performance of audit procedures to evaluate the
assumptions required a high degree of auditor judgment and an increased extent of audit effort, including the need to
involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to testing the fair value of the Infiltrator reporting unit focused on revenue growth rates,
forecasted EBITDA, and the selection of the discount rate and included the following procedures, among others:
(cid:120) We tested the operating effectiveness of management’s internal controls over revenue growth rates,
forecasted EBITDA, and the selection of the discount rate.
(cid:120) We assessed the reasonableness of management’s forecast by comparing the forecasted revenue growth
rates and forecasted EBITDA
internal
communications to management and the board of directors, as well as comparing the forecasted revenue
growth rates to peer company and industry historical revenue growth rates and forecasts.
to Infiltrator’s historical results and
information used
(cid:120) With the assistance of our fair value specialists, we evaluated the reasonableness of the following
significant valuation assumptions:
o The discount rate, by testing the source information underlying the determination of the discount
rate and testing the mathematical accuracy of the calculation.
o The long-term revenue growth rate in the terminal period through industry and macroeconomic
benchmarking.
/s/ Deloitte & Touche LLP
Columbus, Ohio
May 27, 2021
We have served as the Company's auditor since 2002.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Advanced Drainage Systems, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Advanced Drainage Systems, Inc. and subsidiaries
(the “Company”) as of March 31, 2021, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of March
31,2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended March 31, 2021, of the
Company and our report dated May 27, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
Columbus, Ohio
May 27, 2021
F-3
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
$
$
$
(Amounts in thousands, except par value)
ASSETS
Current assets:
Cash
Receivables (less allowance for doubtful accounts of $5,323 and $5,035, respectively)
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Other assets:
Goodwill
Intangible assets, net
Other assets
Total assets
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt obligations
Current maturities of finance lease obligations
Accounts payable
Other accrued liabilities
Accrued income taxes
Total current liabilities
Long-term debt obligation (less unamortized debt issuance costs of $2,030 and $2,419,
respectively)
Long-term finance lease obligations
Deferred tax liabilities
Other liabilities
Total liabilities
Commitments and contingencies (see Note 15)
Mezzanine equity:
Redeemable convertible preferred stock: $0.01 par value; 47,070 shares authorized;
44,170 shares issued; 19,275 and 21,562 shares outstanding, respectively
Deferred compensation — unearned ESOP shares
Total mezzanine equity
Stockholders’ equity:
Common stock: $0.01 par value; 1,000,000 shares authorized; 72,071 and 69,810
shares issued, respectively; 71,570 and 69,319 shares outstanding, respectively
Paid-in capital
Common stock in treasury, at cost
Accumulated other comprehensive loss
Retained deficit
Total ADS stockholders’ equity
Noncontrolling interest in subsidiaries
Total stockholders’ equity
Total liabilities, mezzanine equity and stockholders’ equity
$
As of March 31,
2021
2020
195,009
236,191
300,961
10,817
742,978
504,275
599,072
482,016
85,491
2,413,832
7,000
19,318
171,098
116,151
4,703
318,270
782,220
32,964
162,185
54,767
1,350,406
240,944
(11,033)
229,911
11,578
918,587
(10,959)
(24,220)
(75,202)
819,784
13,731
833,515
2,413,832
$
$
$
$
174,233
200,028
282,398
9,552
666,211
481,380
597,819
555,338
69,140
2,369,888
7,955
20,382
106,710
101,116
2,050
238,213
1,089,368
44,501
175,616
37,608
1,585,306
269,529
(22,432)
247,097
11,555
827,573
(10,461)
(35,325)
(267,619)
525,723
11,762
537,485
2,369,888
See accompanying notes to consolidated financial statements.
F-4
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Net sales
Cost of goods sold
Cost of goods sold - ESOP special dividend compensation
$
Gross profit
Operating expenses:
Selling, general and administrative
Selling, general and administrative - ESOP special dividend
compensation
Loss on disposal of assets and costs from exit and disposal
activities
Intangible amortization
Income (loss) from operations
Other expense:
Interest expense
Derivative (gains) losses and other (income) expense, net
Income (loss) before income taxes
Income tax expense
Equity in net (income) loss of unconsolidated affiliates
Net income (loss)
Less: net income attributable to noncontrolling interest
Net income (loss) attributable to ADS
Weighted average common shares outstanding:
Basic
Diluted
Fiscal Year Ended March 31,
2020
1,673,805
1,188,716
168,610
316,479
2021
1,982,780
1,292,698
—
690,082
$
$
2019
1,384,733
1,057,766
—
326,967
267,574
271,338
186,027
—
78,142
—
4,275
73,708
344,525
35,658
(3,404)
312,271
86,382
(201)
226,090
1,860
224,230
70,155
71,566
5,338
57,010
(95,349)
82,711
1,554
(179,614)
14,092
(1,909)
(191,797)
1,377
(193,174)
63,820
63,820
3,647
7,880
129,413
18,618
(815)
111,610
30,049
95
81,466
3,694
77,772
57,025
57,611
1.23
1.22
Net income (loss) per share available to common stockholders:
Basic
Diluted
$
$
2.64
2.59
$
$
(3.21) $
(3.21) $
See accompanying notes to consolidated financial statements.
F-5
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
Net (loss) income
Currency translation gain (loss)
Comprehensive income (loss)
Less: other comprehensive gain (loss) attributable to
noncontrolling interest, net of tax
Less: net income attributable to noncontrolling interest
Total comprehensive income (loss) attributable to ADS
$
$
Fiscal Year Ended March 31,
2020
(191,797) $
(12,324)
(204,121)
2021
226,090
12,684
238,774
$
1,579
1,860
235,335
$
(2,866)
1,377
(202,632) $
2019
81,466
(5,749)
75,717
(1,129)
3,694
73,152
See accompanying notes to consolidated financial statements.
F-6
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash Flows from Operating Activities
Net income (loss)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
Deferred income taxes
Loss on disposal of assets and costs from exit and disposal
activities
ESOP and stock-based compensation
ESOP special dividend compensation
Amortization of deferred financing charges
Inventory step up related to Infiltrator acquisition
Fair market value adjustments to derivatives
Equity in net (income) loss of unconsolidated affiliates
Other operating activities
Changes in working capital:
Receivables
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued expenses and other liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities
Capital expenditures
Acquisition of Infiltrator, net of cash acquired
Other investing activities
Net cash used in investing activities
Cash Flows from Financing Activities
Proceeds from Term Loan Facility
Payments on Term Loan Facility
Proceeds from syndication of Term Loan Facility
Payments on syndicated Term Loan Facility
Proceeds from Senior Notes
Proceeds from Revolving Credit Agreement
Payments on Revolving Credit Agreement
Debt issuance costs
Proceeds from PNC Credit Agreement
Payments on PNC Credit Agreement
Payments on Prudential Senior Notes
Payments of notes, mortgages, and other debt
Payments on finance lease obligations
Proceeds from common stock offering, net of offering costs
Acquisition of noncontrolling interest in BaySaver
Cash dividends paid
Proceeds from option exercises
Other financing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash
Net change in cash
Cash at beginning of year
Cash at end of year
Fiscal Year Ended March 31,
2020
2021
2019
$
226,090
$
(191,797) $
81,466
145,586
(13,477)
4,275
65,434
—
382
—
(3,355)
(201)
6,770
(34,760)
(14,561)
(1,208)
71,241
452,216
(78,757)
—
883
(77,874)
—
—
—
(207,000)
—
—
(100,000)
—
—
—
—
—
(21,491)
—
—
(32,155)
7,553
(1,490)
(354,583)
1,017
20,776
174,233
195,009
$
124,940
(2,924)
5,338
32,395
246,752
34,476
7,880
3,128
(1,909)
(6,005)
5,170
19,086
(1,929)
31,588
306,189
(67,677)
(1,089,322)
6,529
(1,150,470)
1,300,000
(1,300,000)
700,000
(51,750)
350,000
277,900
(177,900)
(34,606)
253,900
(388,300)
(100,000)
—
(27,119)
293,648
—
(92,127)
8,163
(237)
1,011,572
(1,949)
165,342
8,891
174,233
$
71,900
12,813
3,647
21,828
—
735
—
2,346
95
(5,219)
(17,953)
(2,034)
(1,004)
(16,942)
151,678
(43,412)
—
868
(42,544)
—
—
—
—
—
—
—
—
405,700
(442,800)
(25,000)
(940)
(24,284)
—
(8,821)
(26,148)
5,908
(1,270)
(117,655)
(175)
(8,696)
17,587
8,891
$
See accompanying notes to consolidated financial statements.
F-7
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Advanced Drainage Systems, Inc.
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Advanced Drainage Systems, Inc. and subsidiaries (collectively referred to as
“ADS” and the “Company”), incorporated in Delaware, designs, manufactures and markets high performance
thermoplastic corrugated pipe and related water management products, primarily in North and South America
and Europe. ADS’s broad product line includes corrugated high-density polyethylene (or “HDPE”) pipe,
polypropylene (or “PP”) pipe and related water management products.
The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, references to
“year” pertain to the fiscal year. For example, 2021 refers to fiscal 2021, which is the period from April 1,
2020 to March 31, 2021.
On July 31, 2019, the Company completed the acquisition of Infiltrator Water Technologies Ultimate
Holdings, Inc. (“Infiltrator”) (the “Acquisition”). Infiltrator is a leading national provider of plastic leachfield
chambers and systems, septic tanks and accessories, primarily for use in residential applications. Infiltrator’
products are used in on-site septic wastewater treatment systems in the United States and Canada. See “Note
4. Acquisitions” for additional information on the Acquisition.
The Company is managed and reports results of operations in three reportable segments: Pipe, Infiltrator and
International. The Company also reports the results of its Allied Products and all other business segments as
Allied Products & Other.
Principles of Consolidation - The consolidated financial statements include the Company, its wholly-owned
subsidiaries, its majority owned subsidiaries, and variable interest entities (“VIEs”) of which the Company is
the primary beneficiary. The Company uses the equity method of accounting for equity investments where it
exercises significant influence but does not hold a controlling financial interest. Such investments are recorded
in Other assets in the Consolidated Balance Sheets and the related equity in earnings from these investments
are included in Equity in net (income) loss of unconsolidated affiliates in the Consolidated Statements of
Operations. All intercompany balances and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the fiscal 2021 presentation.
Estimates - The preparation of 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 of contingencies and
liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting
period. Significant estimates include, but are not limited to, the allowance for doubtful accounts, valuation of
inventory, useful lives of property, plant and equipment and amortizing intangible assets, determination of the
proper accounting for leases, valuation of equity method investments, goodwill, intangible assets and other
long-lived assets for impairment, accounting for stock-based compensation and the ESOP, valuation of the
redeemable convertible preferred stock, determination of allowances for sales returns, rebates and discounts,
determination of the valuation allowance, if any, on deferred tax assets, and reserves for uncertain tax
positions. Management’s estimates and assumptions are evaluated on an ongoing basis and are based on
historical experience, current conditions and available information. Management believes the accounting
estimates are appropriate and reasonably determined; however, due to the inherent uncertainties in making
these estimates, actual results could differ from those estimates.
F-11
Advanced Drainage Systems, Inc.
Receivables and Allowance for Doubtful Accounts - Receivables include trade receivables, net of an
allowance for doubtful accounts, and other miscellaneous receivables. Receivables at March 31, 2021 and
2020 are as follows:
(Amounts in thousands)
Trade receivables, net
Other miscellaneous receivables
Receivables, net
2021
233,753
2,438
236,191
$
$
2020
195,968
4,060
200,028
$
$
The Company extends credit to customers based on an evaluation of their financial condition and collateral is
generally not required. The Company records an allowance for credit losses at the time accounts receivable are
recorded based on the Company’s historical write-off activity, an evaluation of the current economic
environment and the Company’s expectations of future economic conditions.
Inventories - Inventories are stated at the lower of cost or net realizable value. The Company’s inventories are
maintained on the first-in, first-out (“FIFO”) method. Costs include the cost of acquiring materials, including
in-bound freight from vendors and freight incurred for the transportation of raw materials, tooling or finished
goods between the Company’s manufacturing plants and its distribution centers, direct and indirect labor,
factory overhead and certain corporate overhead costs related to the production of inventory. The portion of
fixed manufacturing overhead that relates to capacity in excess of normal capacity is expensed in the period in
which it is incurred and is not included in inventory. Net realizable value of inventory is established with
consideration given to deterioration, obsolescence, and other factors. The Company periodically evaluates the
carrying value of inventories and adjustments are made whenever necessary to reduce the carrying value to net
realizable value.
Property, Plant and Equipment and Depreciation Method - Property, plant and equipment are recorded at
cost less accumulated depreciation, with the exception of assets acquired through acquisitions, which are
initially recorded at fair value. Equipment acquired under finance lease is recorded at the present value of the
future minimum lease payments. Depreciation is computed for financial reporting purposes using the straight-
line method over the estimated useful lives of the related assets or the lease term, if shorter, as follows:
Buildings and leasehold improvements
Machinery and production equipment
Transportation equipment
Years
20 to 45 or the lease term if shorter
3 to 18
3 to 12
Costs of additions and major improvements are capitalized, whereas maintenance and repairs that do not
improve or extend the life of the asset are charged to expense as incurred. When assets are retired or disposed,
the cost and related accumulated depreciation are removed from the asset accounts and any resulting gain or
loss is reflected in Loss on disposal of assets and costs from exit and disposal activities in the Consolidated
Statements of Operations. Construction in progress is also recorded at cost and includes capitalized interest,
capitalized payroll costs and related costs such as taxes and other fringe benefits.
Goodwill - The Company records acquisitions resulting in the consolidation of an enterprise using the
acquisition method of accounting. Under this method, the Company records the assets acquired, including
intangible assets that can be identified, and liabilities assumed based on their estimated fair values at the date
of acquisition. 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 be greater than fair value. If the fair value of the reporting unit
exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and the
Company is not required to perform further testing. If the carrying value of a reporting unit’s goodwill
exceeds its fair value, then the Company would record an impairment loss equal to the difference. With
respect to this testing, a reporting unit is a component of the Company for which discrete financial information
is available and regularly reviewed by management. The fair value of goodwill is determined by considering
F-12
Advanced Drainage Systems, Inc.
both the income and market approach. Determining the fair value of a reporting unit is judgmental in nature
and involves the use of significant estimates and assumptions. These estimates 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 comparison.
The fair value estimates are based on assumptions management believes to be reasonable but are inherently
uncertain. For the fiscal year ended March 31, 2021, the Company completed a quantitative assessment of the
Infiltrator reporting unit and determined no impairment charge was required. For the fiscal year ended March
31, 2020, the Company completed a quantitative fair value assessment for all reporting units and determined
no impairment charge was required. For all other fiscal years presented, ADS completed a quantitative fair
value assessment of the Canada reporting unit and determined no impairment charge was required.
GAAP allows entities testing goodwill for impairment the option of performing a qualitative assessment
before calculating the fair value of a reporting unit for the goodwill impairment test. If the qualitative
assessment is performed, an entity is no longer required to calculate the fair value of a reporting unit unless
the entity determines that, based on that assessment, it is not more likely than not that its fair value is less than
its carrying amount. ADS applied the qualitative assessment to all other reporting units for the annual
impairment tests performed as of March 31, 2021 and 2019. The qualitative assessments indicated that no
impairment charges were required for goodwill.
Intangible Assets
Intangible Assets — Definite-Lived - Definite-lived intangible assets are amortized using the straight-line
method or an accelerated method over their estimated useful lives and are tested for recoverability whenever
events or changes in circumstances indicate that carrying amounts of the asset group may not be recoverable.
Asset groups are established primarily by determining the lowest level of cash flows available. If the estimated
undiscounted future 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 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-Lived - Indefinite-lived intangible assets are tested for impairment annually as
of March 31 or whenever events or changes in circumstances indicate the carrying value may be greater than
fair value. Determining the fair value of these assets is judgmental in nature and involves the use of significant
estimates 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 of return to discount
anticipated performance. An impairment loss is recognized when the estimated fair value of the intangible
asset is less than the carrying value.
ADS completed a quantitative fair value measurement of indefinite-lived trademarks as of March 31, 2020.
The test indicated that the fair value of the indefinite-lived trademarks substantially exceeded the carrying
value, indicating that no impairment existed.
GAAP allows entities testing indefinite-lived intangible assets for impairment the option of performing a
qualitative assessment before calculating the fair value of the indefinite-lived intangible assets for the
impairment test. If the qualitative assessment is performed, an entity is no longer required to calculate the fair
value of an indefinite-lived intangible assets unless the entity determines that, based on that assessment, it is
more likely than not that its fair value is less than its carrying amount. ADS applied the qualitative assessment
to specific trademarks for the annual impairment tests performed as of March 31, 2021 and 2019. For the
qualitative test, ADS assessed various assumptions, events and circumstances that would have affected the
estimated fair value of the reporting unit as compared to its latest quantitative fair value measurement. The
results of this assessment indicated that it is not more likely than not that the trademarks fair value is less than
the reporting unit carrying value. The Company did not incur any impairment charges for Intangible assets.
F-13
Advanced Drainage Systems, Inc.
Other Assets - Other assets include operating lease right of use assets, investments in unconsolidated affiliates
accounted for under the equity method, capitalized software development costs, including cloud computing
costs, deposits, central parts, and other miscellaneous assets. See “Note 6. Leases” for further information on
the operating lease right of use assets. The Company capitalizes development costs for internal use software.
Capitalization of software development costs begins in the application development stage and ends when the
asset is placed into service. The Company amortizes such costs using the straight-line method over estimated
useful lives of 2 to 10 years, which is included in Selling, general and administrative expenses or Cost of
goods sold within the Consolidated Statements of Operations depending on the nature of the asset and its
intended use. Central parts represent spare production equipment items which are used to replace worn or
broken production equipment parts and help reduce the risk of prolonged equipment outages. The cost of
central parts is amortized on a straight-line basis over estimated useful lives of 3 to 10 years.
The Company evaluates its investments in unconsolidated affiliates for impairment whenever events or
changes in circumstances indicate that the carrying amount might not be recoverable and recognizes an
impairment loss when a decline in value below carrying value is determined to be other-than-temporary.
Under these circumstances, the Company would adjust the investment down to its estimated fair value, which
then becomes its new carrying value. The impairment charge, if any, is included in Equity in net (income) loss
of unconsolidated affiliates in the Consolidated Statements of Operations. See “Note 11. Investment in
Unconsolidated Affiliates.”
Other assets as of the fiscal years ended March 31 consisted of the following:
(Amounts in thousands)
Right of use assets - Operating leases
Investments in unconsolidated affiliates
Capitalized software development costs, net
Deposits
Central parts
Other
Total other assets
2021
31,237 $
11,861
11,170
4,649
7,015
19,559
85,491 $
2020
24,875
9,250
11,045
3,842
6,745
13,383
69,140
$
$
The following table sets forth amortization expense related to Other assets in each of the fiscal years ended
March 31:
(Amounts in thousands)
Capitalized software development costs
Central parts
Other
$
2021
2020
2019
3,578 $
186
80
3,116 $
87
85
2,659
73
1,419
F-14
Advanced Drainage Systems, Inc.
Leases - The Company determines whether an arrangement contains a lease at inception by determining if the
contract conveys the right to control the use of identified plant, property, and equipment for a period of time in
exchange for consideration and other facts and circumstances as defined by ASC 842. For each lease which
has an accounting lease term of greater than 12 months, the Company records the right-of-use asset and lease
liability on the balance sheet. The accounting lease term includes cancellable and renewal periods which are
reasonably assured. The lease liability is measured utilizing the incremental borrowing rate unless the
Company can specifically determine the rate implicit in the lease. Leases are evaluated for appropriate
classification as operating or financing at lease inception. For leases classified as finance leases at lease
inception, the Company records a finance lease asset and lease financing obligation equal to the present value
of the minimum lease payments. The finance lease right of use asset is recorded in Property, plant and
equipment, net and amortized to its expected residual value at the end of the lease term using the straight-line
method, and the lease financing obligation is amortized using the effective interest method over the lease term
with the rental payments being allocated to principal and interest. For leases classified as operating leases, the
Company records the operating lease right of use asset in Other assets and operating lease obligation in Other
accrued liabilities and Other liabilities. Operating lease rent expense over the useful life using the straight-line
method.
Foreign Currency Translation - Assets 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 of exchange on the last day of the
reporting period. Revenues and expenses are translated at a monthly average exchange rate and equity
transactions are translated using either the actual exchange rate on the day of the transaction or a monthly
average historical exchange rate. The South American Joint Venture operates within Argentina, which on July
1, 2018, was identified for high inflationary accounting. The Company has determined the effect of a change
in the exchange rate under high inflationary accounting does not have a material effect on the Company’s
results in any annual period. For the fiscal years ended March 31, 2021 and 2020, the Company’s
Accumulated other comprehensive loss (“AOCL”) consisted of foreign currency translation gains and losses.
Net Sales - The Company generates revenue by selling pipe and related water management products primarily
to distributors, retailers, buying groups and co-operative buying groups. Products are shipped predominately
by the Company’s internal fleet, and the Company does not provide any additional revenue generating
services after product delivery. Payment terms and conditions vary by contract.
Revenue is recognized at the point in-time obligations under the terms of a contract with a customer are
satisfied, which generally occurs upon the transfer of control of the promised goods. In substantially all of the
Company’s contracts with customers, control is transferred to the customer upon delivery. The Company
recognizes revenue in an amount that reflects the consideration the Company expects to be entitled to in
exchange for those goods or services.
Shipping Costs - The Company incurs shipping costs to deliver products to customers using an in-house fleet
or common carrier. Typically shipping costs are prepaid and included in the product price; however, in some
instances, the Company bills shipping costs to customers. Shipping costs are also incurred to physically move
raw materials, tooling and products between manufacturing and distribution facilities. Shipping costs to
deliver products to customers for the fiscal years ended March 31, 2021, 2020, and 2019 were $174.2 million,
$149.0 million, and $131.3 million, respectively, and are included in Cost of goods sold. Shipping costs billed
to customers were $7.3 million, $7.9 million, and $7.7 million during the fiscal years ended March 31, 2021,
2020, and 2019, respectively, and are included in Net sales.
Stock-Based Compensation - See “Note 17. Stock-Based Compensation” for information about the stock-
based compensation award programs and related accounting policies.
Advertising - The Company expenses advertising costs as incurred. Advertising costs are recorded in Selling,
general and administrative expenses in the Consolidated Statements of Operations. The total advertising costs
were $4.1 million, $4.9 million, and $3.8 million for the fiscal years ended March 31, 2021, 2020, and 2019,
respectively.
F-15
Advanced Drainage Systems, Inc.
Self-Insurance - The 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. The Company accrues for claims incurred but not reported based on an
estimate of future claims related to events that occurred prior to the fiscal year end if it has not met the
aggregate stop-loss coverage limit. Amounts expensed totaled $42.4 million, $50.3 million, and $42.4 million
for the fiscal years ended March 31, 2021, 2020, and 2019, respectively, of which employees contributed $8.5
million, $7.9 million, and $6.7 million, respectively.
ADS is also self-insured for various other general insurance programs to the extent of the applicable
deductible limits on the Company’s insurance coverage. These programs include primarily automobile,
general liability, cybersecurity and employment practices coverage with a deductible of $0.5 million per
occurrence for general liability and $0.8 million per occurrence for automobile or claim incurred. Amounts
expensed during the period, including an estimate for claims incurred but not reported at year end, were $1.7
million, $2.5 million, and $2.3 million, for the years ended March 31, 2021, 2020, and 2019, respectively.
ADS is also self-insured for workers’ compensation insurance with stop-loss coverage for claims that exceed
$0.3 million per incident up to the respective state statutory limits. Amounts expensed, including an estimate
for claims incurred but not reported, were $3.0 million, $3.0 million, and $2.8 million for the fiscal years
ended March 31, 2021, 2020, and 2019, respectively.
Income Taxes - Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized and represent the future tax consequences 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 be recovered or settled. Valuation allowances are established against
deferred tax assets when it is more likely than not that the realization of those deferred tax assets will not
occur. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The deferred income tax provision represents the change during the
reporting period in the deferred tax assets and deferred 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 is more likely than not to be sustained upon
examination, including resolution of any related appeals or litigation process, based upon the technical merits
of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the
financial statements is the largest amount of tax benefit that has a greater than 50% likelihood of being
realized upon ultimate settlement with the relevant taxing authority.
Fair Values - The fair value framework requires the categorization of assets and liabilities into three levels
based upon assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable
measure of fair value, whereas Level 3 generally requires significant management judgment.
ADS’s policy for determining when transfers between levels have occurred is to use the actual date of the
event or change in circumstances that caused the transfer.
Concentrations of Risk - The Company has a large, active customer base of approximately twenty thousand
customers with two customers, Ferguson Enterprises and Core and Main, each representing more than 10% of
annual net sales. Such customers accounted for 22.8%, 24.3%, and 25.4% of fiscal 2021, 2020 and 2019 net
sales, respectively. The Company’s customer base is diversified across the range of end markets that it serves.
Financial instruments that potentially subject the Company to a concentration of credit risk consist principally
of Receivables. The Company provides its products to customers based on an evaluation of the customers’
financial condition, generally without requiring collateral. Exposure to losses on Receivables is principally
dependent on each customer’s financial condition. The Company performs ongoing credit evaluations of its
customers. The Company monitors the exposure for credit losses and maintains allowances for anticipated
losses. Concentrations of credit risk with respect to Receivables are limited due to the large number of
customers comprising the Company’s customer base and their dispersion across many different geographies.
F-16
Advanced Drainage Systems, Inc.
One customer, Ferguson Enterprises, accounted for approximately 18.1% and 18.2% of Receivables at
March 31, 2021 and 2020, respectively.
Derivatives - The Company recognizes derivative instruments as either assets or liabilities and measure those
instruments at fair value. ADS uses interest rate swaps, commodity options in the form of collars and swaps,
and foreign currency forward contracts to manage various exposures to interest rate, commodity price, and
exchange rate fluctuations. These instruments do not qualify for hedge accounting treatment. Interest rate
swap gains and losses resulting from the difference between the spot rate and applicable base rate is recorded
in the Consolidated Statements of Operations in Interest expense. For commodity options in the form of
collars and swaps, and foreign currency forward contracts, gains and losses from contract settlements and
changes in fair value of the derivative instruments are recognized in Derivative (gains) losses and other
(income) expense, net in the Consolidated Statements of Operations. The Company’s 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 fixed amount 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 of business, and
therefore, qualify as normal purchase contracts. There were no agreements outstanding as of March 31, 2021.
The cost of such resin is recognized in Cost of goods sold in the Consolidated Statements of Operations.
Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
Measurement of Credit Losses - In June 2016, the Finance Accounting Standards Board (“FASB”) issued an
accounting standard update (“ASU”) which provides amended guidance on the measurement of credit losses
on financial instruments, including trade receivables. This standard requires the use of an impairment model
referred to as the current expected credit loss model. This standard is effective for fiscal years beginning after
December 15, 2019, including interim periods within those years, and early adoption is permitted for fiscal
years beginning after December 15, 2018. The Company adopted this standard effective April 1, 2020. The
Company’s adoption of the standard did not have a material impact on the Company’s Consolidated Financial
Statements.
Recent Accounting Guidance Not Yet Adopted
Reference Rate Reform - In March 2020, the FASB issued an ASU that provides optional expedients and
exceptions related to financial reporting impacts related to the expected market transition from LIBOR to
another reference rates. The amendments are effective on March 12, 2020 and an entity may elect to adopt
prospectively through December 31, 2022. The Company is currently evaluating the impact of this standard on
the Consolidated Financial Statements.
Income Taxes – In December 2019, the FASB issued an ASU to simplify the accounting for income taxes by
removing certain exceptions to the general principles in ASC 740, Income Taxes and improve the
comparability of financial statements. The amendments in this ASU are effective for fiscal years beginning
after December 15, 2020, and early adoption is permitted. The Company does not expect the adoption of this
standard to have an impact on the Consolidated Financial Statements.
Except for the pronouncements described above, there have been no new accounting pronouncements issued
or adopted since the filing of the fiscal 2020 Form 10-K that have significance, or potential significance, to the
Consolidated Financial Statements.
2.
LOSS ON DISPOSAL OF ASSETS AND COSTS FROM EXIT AND DISPOSAL ACTIVITIES
In fiscal 2021, the Company undertook certain restructuring activities (the “2021 Restructuring Plan”), which
followed the Company’s initiation of a restructuring plan in fiscal 2018 (the “2018 Restructuring Plan”).
F-17
Advanced Drainage Systems, Inc.
Actions taken under the 2021 Restructuring Plan included reducing headcount and eliminating nonessential
costs designed to improve the Company’s cost structure. The Company does not currently have an estimate of
additional costs or an expected end date for the restructuring actions. The following table summarizes the
activity included in Loss on disposal of assets and costs from exit and disposal activities recorded during the
periods presented.
(Amounts in thousands)
Accelerated depreciation
Plant severance
Headcount reduction
Product optimization
Other restructuring activities
$
Total 2021 and 2018 Restructuring Plan activities
$
Acquisition related severance and other costs
Loss on other disposals and partial disposals of property,
2021
2020
2019
— $
—
1,879
—
—
1,879 $
—
— $
—
—
—
—
— $
2,557 $
430
131
306
283
475
1,625
—
2,022
plant and equipment
2,396
2,781
Total loss on disposal of assets and costs from exit
and disposal activities
$
4,275 $
5,338 $
3,647
The restructuring activities are classified as operating expenses and not allocated to a segment.
A reconciliation of the beginning and ending amounts of restructuring liability related to the 2021 and 2018
Restructuring Plan for the fiscal years ended March 31, 2021 and 2020 is as follows:
(Amounts in thousands)
Balance at beginning of year
Expenses
Non-cash expenses
Payments
Balance at end of year
As of March 31, 2021, the Company had $0.6 million of short-term severance liability related to the
restructuring activities recorded in Other accrued liabilities in the Consolidated Balance Sheet.
574
1,879
—
(1,838)
615
1,696
—
—
(1,122)
574
2020
2021
$
$
$
$
3.
REVENUE RECOGNITION
On April 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”), and
all related amendments using the modified retrospective transition method. The adoption of ASC 606 did not
impact the opening retained earnings balance or cause a material shift in the amount or timing of revenue
recognition. Results for reporting periods beginning after April 1, 2018 are presented under ASC 606, while
prior period amounts were not adjusted and continue to be reported in a consistent manner with historical
accounting policies.
The Company generates revenue by selling pipe and related water management products primarily to
distributors, retailers, buying groups and co-operative buying groups. Products are shipped predominately by
the Company’s internal fleet, and the Company does not provide any additional revenue generating services
after product delivery. Payment terms and conditions vary by contract.
Revenue is recognized at the point in-time obligations under the terms of a contract with a customer are
satisfied, which generally occurs upon the transfer of control of the promised goods. In substantially all of the
Company’s contracts with customers, control is transferred to the customer upon delivery. The Company
recognizes revenue in an amount that reflects the consideration the Company expects to be entitled to in
exchange for those goods or services. Revenue is presented in the Consolidated Statements of Operations net
F-18
Advanced Drainage Systems, Inc.
of allowances for returns, rebates, discounts, and taxes collected concurrently with revenue-producing
activities.
The Company disaggregates net sales by Domestic, International and Infiltrator and further disaggregates
Domestic and International by product type, consistent with its reportable segment disclosure. This
disaggregation level best depicts how the nature, amount, timing and uncertainty of revenue and cash flows
are affected by economic factors. Refer to “Note 21. Business Segments Information” for the Company’s
disaggregation of Net sales by reportable segment.
Significant Judgments - The Company’s performance obligation under contracts with customers is to sell and
deliver pipe and related water management products. The Company’s contracts with customers may contain
multiple performance obligations by promising to deliver multiple products to the customer. For these
contracts, the Company accounts for individual performance obligations separately if they are distinct. The
transaction price is allocated to the separate performance obligations on a relative standalone selling price
basis.
The Company’s products are generally sold with a right of return, and the Company may provide credits or
incentives, which are accounted for as variable consideration when estimating the amount of revenue to
recognize. Variable consideration is estimated at contract inception and updated at the end of each reporting
period as additional information becomes available and only to the extent that it is probable that a significant
reversal of any incremental revenue will not occur.
Contract Balances - The Company recognizes a contract asset representing the Company’s right to recover
products upon the receipt of returned products and a contract liability for the customer refund. The adoption of
this standard resulted in the Company recording a contract asset for estimated inventory returns. The
following table presents the balance of the Company’s contract asset and liability as of March 31, 2021 and
2020:
Contract asset - product returns
Refund liability
March 31,
2021
March 31,
2020
$
(In thousands)
694
1,801
$
594
1,458
Practical Expedients and Exemptions - The Company expenses incremental costs to obtain a contract (e.g.
sales commissions) when incurred as the amortization period would have been one year or less. These costs
are recorded within selling, general and administrative expenses on the Consolidated Statements of
Operations.
The Company elected the accounting policy election permitted by ASC 606 to account for shipping and
handling costs as activities to fulfill the promise to transfer the goods when these activities are performed after
a customer obtains control of the goods.
The Company elected the accounting policy to exclude from the transaction price all sales taxes that are
assessed by a governmental authority and that are imposed on and concurrent with a specific revenue-
producing transaction and collected by the Company from a customer, for example, sales, use, value added,
and some excise taxes.
Further, the Company does not disclose the value of unsatisfied performance obligations for contracts with an
original expected length of one year or less.
F-19
Advanced Drainage Systems, Inc.
4.
ACQUISITIONS
Fiscal 2020 Acquisition of Infiltrator
On July 31, 2019 (the “Closing Date”), the Company completed its Acquisition of Infiltrator pursuant to an
Agreement and Plan of Merger (the “Merger Agreement”) dated July 31, 2019. Infiltrator manufactures and
sells wastewater systems for homes and provides drainage chambers for septic and storm water management.
The total fair value of consideration transferred was $1,147.2 million. The Merger Agreement was funded
through the Bridge Loan Facility as further described in “Note 13. Debt”. The results of operations of
Infiltrator are included in the Consolidated Statements of Operations after July 31, 2019.
The following table summarizes the consideration transferred and the purchase price allocation of the assets
acquired and liabilities assumed. The Company finalized the valuation of the assets acquired and liabilities
assumed during the second quarter of fiscal 2021.
(Amounts in thousands)
Cash
Total current assets, excluding cash
Property, plant and equipment
Goodwill
Intangible assets, net
Other assets
Total current liabilities
Deferred tax liabilities
Other liabilities
Total fair value of consideration transferred
$
$
57,375
75,847
92,285
495,841
575,000
17,275
(22,038)
(132,385)
(11,970)
1,147,230
The fair value of consideration transferred includes $6.0 million of Infiltrator payable to the Company and
$6.6 million of Infiltrator receivable due from the Company.
The goodwill of $495.8 million represents the excess of consideration transferred over the fair value of assets
acquired and liabilities assumed and is attributable to expected revenue synergies, as well as operating
efficiencies and cost savings. The goodwill is not deductible for tax purposes and is assigned to the Infiltrator
segment.
Of the $132.4 million of purchase price allocated to deferred tax liabilities, $82.3 million related to the step up
of GAAP basis for fair market valuations, while the remaining $50.1 million were acquired deferred tax
liabilities. Of the total $82.3 million, $80.2 million was attributed to intangible assets. See “Note 18. Income
Taxes” for additional information.
The purchase price excludes transaction costs. During the fiscal year ended March 31, 2020, the Company
incurred $22.9 million of transaction costs related to the Acquisition such as legal, accounting, valuation and
other professional services. For tax purposes, $7.1 million of transaction costs are not deductible. The
Company did not incur any transaction costs during the fiscal year end March 31, 2021. These costs are
included in selling, general and administrative expenses in the Consolidated Statements of Operations and
Consolidated Statements of Comprehensive Income (Loss).
F-20
Advanced Drainage Systems, Inc.
The identifiable intangible assets recorded in connection with the closing of the Acquisition are based on
valuations including customer relationships, patents and developed technology, and tradename and trademarks
totaling $575.0 million. Customer relationships are amortized using an accelerated method over an estimated
useful life of 20 years. Patents and developed technology and tradename and trademarks are on a straight-line
basis over the respective useful lives of 10 and 20 years.
(Amounts in thousands)
Customer relationships
Patents and developed technology
Tradename and trademarks
Total identifiable intangible assets
Fair value
360,000
150,000
65,000
575,000
$
$
Estimated useful
lives
20 years
10 years
20 years
The net sales to external customers of Infiltrator since the acquisition are included in the Consolidated
Statements of Operations for the fiscal year ended March 31, 2020 was $169.3 million. The income before
taxes of Infiltrator since the acquisition are included in the Consolidated Statements of Operations for the
fiscal year ended March 31, 2020 was $8.2 million.
The unaudited pro forma information for the fiscal years ended March 31, 2020 and 2019 presented below
includes the effects of the Acquisition as if it had been consummated as of April 1, 2018, with adjustments to
give effect to pro forma events that are directly attributable to the Acquisition. Adjustments include those
related to the amortization of acquired intangible assets, increases in interest expense due to additional
borrowings incurred to finance the Acquisition, transaction costs, the elimination of transactions between the
Company and Infiltrator and the estimated tax impacts thereof. The unaudited pro forma information does not
reflect any operating efficiency or potential cost savings that could result from the consolidation of Infiltrator.
Accordingly, the unaudited pro forma information is presented for informational purposes only and is not
necessarily indicative of the actual results of the combined company if the Acquisition had occurred at the
beginning of the period presented, nor is it indicative of the future results of operations.
(Amounts in thousands)
Net sales
Net income (loss) attributable to ADS
$
2020
1,760,208
(145,244)
$
2019
1,608,450
27,411
Fiscal 2019 Acquisition of Noncontrolling interest in BaySaver
BaySaver Technologies LLC (“BaySaver”) was a joint venture that was established to produce and distribute
water quality filters and separators used in the removal of sediment and pollution from storm water. During
the third quarter of fiscal 2019, ADS purchased the remaining 35% ownership interest in BaySaver for a
purchase price of $8.8 million. The purchase of the remaining 35% ownership interest was reflected as a
reduction in the Redeemable noncontrolling interest in subsidiary in the Consolidated Balance Sheets and as a
financing activity in the Consolidated Statement of Cash Flows. Additionally, resulting from this transaction,
the Company recorded a $0.4 million non-cash adjustment to deferred taxes. BaySaver is now a wholly-owned
subsidiary of ADS.
5.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net as of the fiscal years ended March 31 consisted of the following:
(Amounts in thousands)
Land, buildings and improvements
Machinery and production equipment
Transportation equipment
Construction in progress
Total cost
Less: accumulated depreciation
Property, plant and equipment, net
2021
263,191
646,592
210,738
71,873
1,192,394
(688,119)
504,275
$
$
2020
253,379
631,932
208,037
19,925
1,113,273
(631,893)
481,380
$
$
F-21
Advanced Drainage Systems, Inc.
The following table sets forth depreciation expense related to Property, plant and equipment in each of the
fiscal years ended March 31:
(Amounts in thousands)
Depreciation expense (inclusive of leased assets depreciation)(1)
2021
2020
2019
$
68,034
$
64,642
$
59,869
(1) Depreciation expense does not include accelerated depreciation expense from the 2018 Restructuring
plan. See “Note 2. Loss on Disposal of Assets and Costs from Exit and Disposal Activities” for
additional discussion.
6.
LEASES
ASC 842 Adoption - In February 2016, the FASB issued an ASU which amends the guidance for leases
(“ASC 842”). The Company adopted the provisions of ASC 842 beginning on April 1, 2019 using the
transition methodology in ASC 842 which does not require adjustments to comparative periods or require
modified disclosures. The Company elected the transition relief practical expedient package as described in
ASC 842-10-65-1. ASC 842 provides lessees with the option of electing an accounting policy, by class of
underlying asset, in which the lessee may choose not to separate nonlease components from lease components.
The Company elected this practical expedient for leases of certain classes of equipment, including forklifts
and fleet tractors and trailers. The Company also elected the accounting policy to not recognize the right-of-
use asset and lease liability for leases with an accounting lease term of twelve months or less (“Short-term
leases”). The adoption of ASC 842 resulted in the recording of $13.3 million of additional lease liabilities and
right-of-use assets to the beginning balance of the Company’s Consolidated Balance Sheet. Infiltrator adopted
ASC 842 on July 31, 2019 using the same methodology and policy elections taken by the Company on April
1, 2019. The Infiltrator adoption of ASC 842 resulted in the recording of $11.2 million of additional lease
liabilities and corresponding right-of-use assets to the beginning balance of the Company’s Consolidated
Balance Sheet. At the date of adoption, ASC 842 did not have an impact on the Company’s Consolidated
Statement of Operations and Consolidated Statement of Cash Flows.
Nature of the Company’s Leases - The Company has operating and finance leases for plants, yards, corporate
offices, tractors, trailers and other equipment. The Company’s leases have remaining terms of less than one
year to 30 years. A portion of the Company’s real estate leases include an option to extend the leases for up to
5 years. The Company has included renewal options which are reasonably certain to be exercised in its right-
of-use assets and lease liabilities.
The Company’s lease payments are generally fixed. Certain equipment leases contain residual value
guarantees that create a contingent obligation on the part of the Company to compensate the lessor if the
leased asset cannot be sold for an amount in excess of a specified minimum value at the conclusion of the
lease term. The calculation is based on the original cost of the transportation equipment, less lease payments
made, compared to a percentage of the transportation equipment’s fair market value at the time of sale. All
leased units covered by this guarantee have been classified as finance leases and a corresponding finance lease
obligation was recorded. Therefore, no contingent obligation is needed.
For all leases with an initial expected term of more than 12 months, the Company recorded, at the adoption
date of ASC 842 or lease commencement date for leases entered into after the adoption date, a lease liability,
which is the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;
and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a
specified asset for the lease term. The Company will utilize its collateralized incremental borrowing rate
commensurate to the lease term as the discount rate for its leases, unless the Company can specifically
determine the lessor’s implicit rate. The incremental borrowing rate for each lease is determined based on the
Company’s credit rating, adjusted for the impacts of collateral, and the lease term.
F-22
Advanced Drainage Systems, Inc.
Lease Cost - The components of lease cost for the years ended March 31, 2021 and March 31, 2020 were:
(Amounts in thousands)
Operating lease cost
Operating lease cost
Operating lease cost
Short-term lease cost
Total operating lease cost
Finance lease cost
Amortization of right-of-use
assets
Amortization of right-of-use
assets
Interest on lease liabilities
Total finance lease cost
Income Statement Classification
2021
2020
Cost of goods sold
Selling, general and administrative
Cost of goods sold
Cost of goods sold
Selling, general and administrative
Interest expense
$
$
$
8,391 $
1,593
3,963
13,947 $
5,548
1,204
2,393
9,145
16,442
17,059
1,433
2,436
20,311 $
2,543
4,344
23,946
Supplemental cash flow information related to leases for the periods presented were as follows:
(Amounts in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
2021
2020
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases(a)
$
$
9,984
3,205
21,491
15,173
9,907
6,572
4,675
27,119
10,529
5,078
(a) The Company acquired $27.6 million of property, plant and equipment under finance leases in the fiscal
years ended March 31, 2019.
Supplemental balance sheet information related to leases as of the periods presented were as follows:
(Amounts in thousands)
Operating leases
Right-of-use assets
Current lease liabilities
Non-current lease liabilities
Total operating lease liabilities
Finance leases
Right-of-use assets
Current lease liabilities
Non-current lease liabilities
Total finance lease liabilities
Weighted average lease term (in years):
Operating leases
Finance leases
Weighted average discount rate:
Operating leases
Finance leases
Balance Sheet Classification
2021
2020
Other assets
Other accrued liabilities
Other liabilities
Property, plant and equipment
Current maturities of finance lease
obligations
Long-term finance lease obligations
$31,237
8,995
22,393
$31,388
$ 24,875
7,757
17,173
$ 24,930
80,904
90,756
19,318
32,964
$52,282
20,382
44,501
$ 64,883
6.46
9.39
6.97
10.72
3.75%
4.90%
3.57%
5.36%
F-23
Advanced Drainage Systems, Inc.
The following is a schedule by year of future minimum lease payments on a rolling twelve-month basis under
operating and finance leases and the present value of the net minimum lease payments as of March 31, 2021:
(Amounts in thousands)
Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
Total minimum lease payments
Less: amount representing interest
Present value of net minimum lease payments
Operating Leases
10,947
$
7,691
6,255
5,128
3,331
6,965
40,317
8,929
31,388
$
$
Finance Leases
$
$
$
21,202
14,816
9,845
5,856
3,043
2,103
56,865
4,583
52,282
As of March 31, 2020, total contractual obligations for operating and finance leases were as follows:
(Amounts in thousands)
Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
Total minimum lease payments
Less: amount representing interest
Present value of net minimum lease payments
Operating Leases
8,511
$
5,717
3,839
2,768
2,041
6,075
28,951
4,021
24,930
$
$
Finance Leases
$
$
$
23,492
19,478
13,182
8,355
4,736
4,722
73,965
9,082
64,883
Disclosures Related to Periods Prior to the Adoption of ASC 842 –
The following sets forth the interest and depreciation expense related to capital leases recorded in each fiscal
year ended March 31:
(Amounts in thousands)
Lease interest expense
Depreciation of leased assets
7.
INVENTORIES
2019
$
5,215
19,155
Inventories as of the fiscal years ended March 31 consisted of the following:
(Amounts in thousands)
Raw materials
Finished goods
Total Inventories
2021
2020
$
$
75,294
225,667
300,961
$
$
66,524
215,874
282,398
The Company had no work-in-process inventories as of March 31, 2021 and 2020. During fiscal years ended
March 31, 2021 and 2020, the Company incurred production-related general and administrative costs included
in the cost of finished goods inventory of $40.1 million and $38.8 million, respectively, of which $7.9 million
and $8.6 million remained in inventory at March 31, 2021 and 2020, respectively.
F-24
Advanced Drainage Systems, Inc.
8.
GOODWILL AND INTANGIBLE ASSETS
Goodwill - The carrying amount of goodwill by reportable segment is as follows:
As Previously Reported
(Amounts in thousands)
Balance at March 31, 2019
Reallocation due to change in segments
Acquisition
Currency translation
Balance at March 31, 2020
Currency translation
Balance at March 31, 2021
International
Pipe
Infiltrator
Allied
Products
& Other
Total
— $
10,533 $
— $
— 34,442
— $102,638
—
— 57,663
— 495,841
—
(660)
(660)
—
9,873 $ 57,663 $495,841 $ 34,442 $597,819
1,253
1,253
11,126 $ 57,663 $495,841 $ 34,442 $599,072
— 495,841
—
—
—
—
—
Domestic
$ 92,105 $
(92,105)
—
—
— $
—
— $
$
$
Intangible Assets – Intangible assets as of March 31, 2021 and 2020 consisted of the following:
(Amounts in thousands)
Definite-lived intangible assets
Developed technology
Customer relationships
Patents
Trademarks and tradenames
Total definite lived intangible assets
Indefinite-lived intangible assets (a)
Trademarks
Total Intangible assets
Gross
Intangible
2021
Accumulated
Amortization
Net
Intangible
Gross
Intangible
2020
Accumulated
Amortization
Net
Intangible
$177,579 $ (49,842) $127,737 $177,579 $ (32,437) $145,142
(47,051) 330,691
2,532
65,111
(90,643) 543,476
(97,115) 280,627
2,101
59,685
(164,034) 470,150
377,742
8,985
69,878
634,184
377,742
8,951
69,847
634,119
(6,884)
(10,193)
(6,419)
(4,736)
11,866
— 11,862
$646,050 $ (164,034) $482,016 $645,981 $ (90,643) $555,338
— 11,866
11,862
(a)
Indefinite-lived intangible assets decreased as a result of foreign currency translation.
The following table presents the amortization expense and weighted average amortization period for definite-
lived intangible assets at March 31, 2021:
Amortization expense (in thousands)
Developed technology
Customer relationships
Patents
Non-compete and other contractual agreements
Trademarks and tradenames
2021
2020
2019
$ 17,405 $ 12,517 $
50,177
699
—
5,427
36,093
522
22
7,856
2,517
3,546
546
22
1,249
Weighted
Average
Amortization
Period
(in years)
7.2
14.8
2.9
—
17.1
The following table presents the future intangible asset amortization expense based on existing intangible
assets at March 31, 2021:
(Amounts in thousands)
Amortization expense
2022
2025
$ 60,767 $ 51,970 $ 47,681 $ 44,591 $ 40,815 $224,326 $470,150
Thereafter
Total
2023
2026
Fiscal Year
2024
F-25
Advanced Drainage Systems, Inc.
9.
FAIR VALUE MEASUREMENT
When applying fair value principles in the valuation of assets and liabilities, the Company is required to
maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company has not
changed its valuation techniques used in measuring the fair value of any financial assets or liabilities during
the fiscal years presented. The fair value estimates take into consideration the credit risk of both the Company
and its counterparties.
When active market quotes are not available for financial assets and liabilities, ADS uses industry standard
valuation models. Where applicable, these models project future cash flows and discount the future amounts to
a present value using market-based observable inputs including credit risk, interest rate curves, foreign
currency rates and forward and spot prices for currencies. In circumstances where market-based observable
inputs are not available, management judgment is used to develop assumptions to estimate fair value.
Generally, the fair value of Level 3 instruments is estimated as the net present value of expected future cash
flows based on internal and external inputs.
Recurring Fair Value Measurements
The assets and liabilities carried at fair value as of the fiscal years ended March 31 were as follows:
(Amounts in thousands)
Assets:
Derivative assets — diesel fuel contracts
Total assets at fair value on a recurring basis
Liabilities:
Derivative liability - diesel fuel contracts
Total liabilities at fair value on a recurring
basis
(Amounts in thousands)
Assets:
Derivative assets — diesel fuel contracts
Total assets at fair value on a recurring basis
Liabilities:
Derivative liability - diesel fuel contracts
Contingent consideration for acquisitions (a)
Total liabilities at fair value on a recurring
basis
Total
Level 1
Level 2
Level 3
March 31, 2021
1,194 $
1,194 $
— $
— $
1,194 $
1,194 $
32 $
— $
32 $
32 $
— $
32 $
—
—
—
—
Total
Level 1
Level 2
Level 3
March 31, 2020
36 $
36 $
— $
— $
36 $
36 $
2,228 $
60
— $
—
2,228 $
—
2,288 $
— $
2,228 $
—
—
—
60
60
$
$
$
$
$
$
$
$
(a)
The fair value of the contingent consideration for acquisitions is based on management’s estimate of
contractual payments based on future product certifications obtained.
There were no transfers in or out of Level 3 for the fiscal years ended March 31, 2021 and 2020.
Valuation of Contingent Consideration for Acquisitions - The method used to price these liabilities is
considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.
Valuation of Debt - The carrying amounts of current financial assets and liabilities approximate fair value
because of the immediate or short-term maturity of these items, or in the case of derivative instruments,
because they are recorded at fair value. The following table presents the carrying and fair value of the
Company’s Senior Notes (as defined below and further discussed in “Note 13. Debt”) for the periods
presented:
F-26
Advanced Drainage Systems, Inc.
Senior Notes
March 31, 2021
March 31, 2020
Fair Value
Carrying
Value
Fair Value
Carrying
Value
(In thousands)
(In thousands)
$ 367,633 $ 350,000 $ 314,951 $ 350,000
The fair value of the Senior Notes was determined based on a quoted market data for the Company’s Senior
Notes. The categorization of the framework used to evaluate the Senior Notes is considered Level 2. The
Company believes the carrying amount on the remaining long-term debt, including the Term Loan Facility
and Revolving Credit Facility, is not materially different from its fair value as the interest rates and terms of
the borrowings are similar to currently available borrowings.
10.
INVESTMENT IN CONSOLIDATED AFFILIATES
ADS has one consolidated joint venture, ADS Mexicana, which is 51% owned by the Company’s wholly-
owned subsidiary ADS Worldwide, Inc. The equity owned by the Company’s joint venture partner is shown
as Noncontrolling interest in subsidiaries in the Consolidated Balance Sheets and the joint venture partner’s
portion of net income is shown as Net income attributable to noncontrolling interest in the Consolidated
Statements of Operations.
ADS Mexicana - ADS participates in joint ventures for the purpose of expanding upon the growth of
manufacturing and selling HDPE corrugated pipe and PVC conduit in emerging markets. ADS invested in
ADS Mexicana for the purpose of expanding upon growth of manufacturing and selling ADS licensed HDPE
corrugated pipe and related products in the Mexican and Central American markets via the joint venture
partner’s local presence and expertise throughout the region. The Company executed a Technology, Patents
and Trademarks Sub-License Agreement and a Distribution Agreement with ADS Mexicana that provides
ADS Mexicana with the rights to manufacture and sell ADS licensed products in Mexico and Central
America. The Company has concluded that it holds a variable interest in and is the primary beneficiary of
ADS Mexicana based on the power to direct the most significant activities of ADS Mexicana and the
obligation to absorb losses and the right to receive benefits that could be significant to ADS Mexicana. As the
primary beneficiary, the Company is required to consolidate the assets and liabilities of ADS Mexicana.
The table below includes the assets and liabilities of ADS Mexicana that are consolidated as of March 31,
2021 and 2020. The balances exclude intercompany transactions that are eliminated upon consolidation.
(Amounts in thousands)
Assets
Current assets
Property, plant and equipment, net
Other noncurrent assets
Total assets
Liabilities
Current liabilities
Noncurrent liabilities
Total liabilities
2021
2020
$
$
$
$
21,556
13,891
1,425
36,872
9,186
1,462
10,648
$
$
$
$
18,357
12,438
1,317
32,112
6,350
1,131
7,481
F-27
Advanced Drainage Systems, Inc.
11.
INVESTMENT IN UNCONSOLIDATED AFFILIATES
The Company participates in an unconsolidated joint venture, the South American Joint Venture, which is
50% owned by the Company’s wholly-owned subsidiary ADS Chile.
South American Joint Venture - The Company’s investment in this unconsolidated joint venture was formed
for the purpose of expanding upon the growth of manufacturing and selling HDPE corrugated pipe in the
South American market via the joint venture partner’s local presence and expertise throughout the region. The
Company has concluded that it is appropriate to account for this investment using the equity method, whereby
the Company’s share of the income or loss of the joint venture is reported in the Consolidated Statements of
Operations under Equity in net (income) loss of unconsolidated affiliates and the Company’s investment in the
joint venture is included in Other assets in the Consolidated Balance Sheets. The Company is not required to
consolidate the South American Joint Venture as it is not the primary beneficiary, although the Company does
hold significant variable interests in the South American Joint Venture through the equity investment and debt
guarantee.
12. RELATED PARTY TRANSACTIONS
ADS Mexicana - ADS conducts business in Mexico and Central America through its joint venture ADS
Mexicana. ADS Mexicana’s Revolving Credit Facility expired on June 22, 2018 and was replaced by an
Intercompany Revolving Credit Promissory Note (the “Intercompany Note”) with a borrowing capacity of
$12.0 million. The Intercompany Note matures on June 22, 2022. The Intercompany Note indemnifies the
ADS Mexicana joint venture partner for 49% of any unpaid borrowing. The interest rates under the
Intercompany Note are determined by certain base rates or London Interbank Offered Rate (“LIBOR”) plus an
applicable margin based on the Leverage Ratio. As of March 31, 2021 and 2020, there were no borrowings
under the Intercompany Note.
South American Joint Venture - The Company’s South American Joint Venture manufactures and sells
HDPE corrugated pipe in the South American market. ADS is the guarantor for 50% of the South American
Joint Venture’s credit facility, and the debt guarantee is shared equally with the joint venture partner. The
maximum potential obligation under this guarantee totals $11.0 million as of March 31, 2021. The maximum
borrowing permitted under the South American Joint Venture’s credit facility is $22.0 million. This credit
facility allows borrowings in either Chilean pesos or US dollars at a fixed interest rate determined at inception
of each draw on the facility. The guarantee of the South American Joint Venture’s debt expires on
December 31, 2023. ADS does not anticipate any required contributions related to the balance of this credit
facility. As of March 31, 2021 and 2020, the outstanding principal balance of the credit facility including
letters of credit was $10.0 million and $9.3 million, respectively. As of March 31, 2021, there were no U.S.
dollar denominated loans. The weighted average interest rate as of March 31, 2021 was 3.5% on Chilean peso
denominated loans.
Tigre-ADS USA - Tigre-ADS USA was a joint venture established to manufacture and sell PVC fittings for
waterworks, plumbing, and HVAC applications primarily in the United States and Canadian markets. ADS
owned 49% of the outstanding shares of capital stock of Tigre-ADS USA which it exchanged for a release
from the existing debt guarantees in fiscal 2019. The Company still considers Tigre-ADS USA a related party
as a result of the Company’s joint venture in the South American Joint Venture discussed above.
The following tables summarizes the purchases by ADS from related parties and sales by ADS to related
parties for the periods presented:
(Amounts in thousands)
2020
2019
2021
Purchases from South American Joint Venture
Sales to South American Joint Venture
Purchases from Tigre USA
$
$
547
582
1,970
$
696
934
1,966
1,323
1,191
354
F-28
Advanced Drainage Systems, Inc.
13. DEBT
Long-term debt as of the fiscal years ended March 31 consisted of the following:
(Amounts in thousands)
Term Loan Facility
Senior Notes
Revolving Credit Facility
Equipment financing
Total
Unamortized debt issuance costs
Current maturities
Long-term debt obligations
2021
441,250
350,000
—
—
791,250
(2,030)
(7,000)
782,220
$
$
2020
648,250
350,000
100,000
1,492
1,099,742
(2,419)
(7,955)
1,089,368
$
$
Bridge Credit Facility - On July 31, 2019, the Company entered into a credit agreement (the “Base Credit
Agreement”) by and among the Company, as borrower, Barclays Bank PLC, as administrative agent, the
several lenders from time to time party thereto.
The Base Credit Agreement provided for a term loan facility in an initial aggregate principal amount of up to
$1.3 billion (the “Bridge Loan Facility”), a revolving credit facility in an initial aggregate principal amount of
up to $350 million (the “Bridge Revolving Credit Facility”), a letter of credit sub-facility in the initial
aggregate available amount of up to $50 million, as a sublimit of such Revolving Credit Facility (the “Bridge
L/C Facility”) and a swing line sub-facility in the aggregate available amount of up to $50 million, as a
sublimit of the Revolving Credit Facility (together with the Bridge Loan Facility, the Bridge Revolving Credit
Facility and the Bridge L/C Facility, the “Bridge Credit Facility”).
On July 31, 2019, the Company borrowed approximately $1.3 billion under the Bridge Loan Facility and
$145 million under the Bridge Revolving Credit Facility, which amounts were to (i) finance the consideration
paid in connection with the closing of the Acquisition, (ii) repay the total outstanding amount as of the
Closing Date under the Company’s then existing revolving credit facility with PNC, (iii) repay outstanding
amounts of existing indebtedness incurred by Infiltrator under its outstanding credit facility in effect prior to
the Acquisition, and (iv) pay certain transaction fees and expenses associated with the Acquisition and the
Bridge Loan Facility. Approximately $300.0 million of outstanding borrowings under the Base Credit
Agreement were repaid on September 10, 2019 with proceeds from the Company’s public offering of common
stock as further described in “Note 19. Net Income Per Share and Stockholders’ Equity” and approximately
$300.0 million of outstanding borrowings under the Bridge Loan Facility were repaid on September 23, 2019
with proceeds from the Company’s offering of $350.0 million Senior Notes, as defined and further described
below.
As a result of this borrowing, on July 31, 2019, the Company initially capitalized approximately $46.9 million
of deferred financing fees associated with the Bridge Credit Facility. This amount was later reduced by
$14.9 million due to refunds received by ADS. The remaining deferred financing costs were written off due to
loss on early extinguishment of debt resulting from the $300.0 million principal payment primarily from the
Common Stock Offering, $300.0 million principal payment from the issuance of Senior Notes due 2027, and
$700.0 million principal payment from the issuance of the Senior Secured Credit Facility on September 24,
2019. These financings resulted in the Company treating the Bridge Credit Facility as having been
extinguished and replaced with the Common Stock Offering, Senior Notes due 2027 and the syndicated Senior
Secured Credit Facility for accounting purposes under ASC 470-50 Modifications and Extinguishments. The
loss on early extinguishment of debt, which is included in Interest expense in the Company's Consolidated
Statements of Operations, primarily reflects the write-off of unamortized debt issuance costs and discounts.
F-29
Advanced Drainage Systems, Inc.
Repayment of Prudential Senior Notes - On July 29, 2019, the Company repaid in full all of its and its
subsidiaries’ indebtedness and other obligations totaling $104.4 million under that certain Second Amended
and Restated Private Shelf Agreement, dated as of June 22, 2017 (as amended the “Shelf Note Agreement”) of
the Company’s Senior Notes (“Prudential Senior Notes”), by and among the Company, as issuer, the
guarantors from time to time a party thereto, PGIM, Inc., as a purchaser and the other purchasers from time to
time a party thereto. The Company repaid the outstanding indebtedness under the Shelf Note Agreement using
borrowings from the Company’s Second Amended and Restated Credit Agreement (the “PNC Credit
Agreement”) as in effect as of July 29, 2019. Concurrently with the repayment, the Shelf Noteholders
authorized and directed PNC Bank, National Association, in its capacity as Collateral Agent (as defined in the
Shelf Note Agreement) to release the security interests and liens securing the Shelf Note Agreement and the
Shelf Note Agreement was terminated.
As a result of the repayment described above, the Company expensed approximately $4.2 million primarily
consisting of prepayment premium or penalty associated with the debt payoff activity and the write-off of
unamortized deferred financing fees, as the payoff meets the criteria to be accounted for as a debt
extinguishment.
Repayment of PNC Credit Agreement - On the Closing Date, using borrowings of the new Bridge Loan
Facility the Company repaid in full all of its and its subsidiaries indebtedness and other obligations totaling
$239.2 million under the PNC Credit Agreement. Concurrently with the repayment, all security interests and
liens held by the Collateral Agent (as defined in the PNC Credit Agreement) securing the PNC Credit
Agreement were terminated and released and the PNC Credit Agreement was terminated.
As a result of the repayment described above, the Company expensed approximately $2.0 million primarily
consisting of the write-off of unamortized deferred financing fees associated with the debt payoff activity, as
the payoff meets the criteria to be accounted for as a debt extinguishment.
Issuance of Senior Notes due 2027 - On September 23, 2019, the Company issued $350.0 million aggregate
principal amount of 5.0% senior notes due 2027 (the “Senior Notes”) pursuant to an Indenture, dated
September 23, 2019 (the “Indenture”), among the Company, the guarantors party thereto (the “Guarantors”)
and U.S. Bank National Association, as Trustee (the “Trustee”). The Senior Notes are guaranteed by each of
the Company’s present and future direct and indirect wholly owned domestic subsidiaries that is a guarantor
under the Company's Senior Secured Credit Facility. The Senior Notes were offered and sold either to persons
reasonably believed to be “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of
1933 (the “Securities Act”) or to persons outside the United States under Regulation S of the Securities Act.
Interest on the Senior Notes will be payable semi-annually in cash in arrears on March 31 and September 30
of each year, commencing on March 31, 2020, at a rate of 5.0% per annum. The Senior Notes will mature
on September 30, 2027. The Company used the majority of the net proceeds from the offering of the Senior
Notes for the repayment of $300.0 million of its outstanding borrowings under the Company’s Bridge Loan
Facility. The deferred financing costs associated with the Senior Notes totaled $2.1 million and are recorded
as a direct reduction from the carrying amount of the related debt.
F-30
Advanced Drainage Systems, Inc.
The Company may redeem the Senior Notes, in whole or in part, at any time on or after September 30, 2022 at
established redemption prices. At any time prior to September 30, 2022, the Company may also redeem up
to 40% of the Senior Notes with net cash proceeds of certain equity offerings at a redemption price equal
to 105.0% of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest, if
any, to, but excluding, the redemption date. In addition, at any time prior to September 30, 2022, the Company
may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount
of the Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption
date plus an applicable “make-whole” premium.
The Indenture contains customary events of default, including, among other things, payment default, failure to
comply with covenants or agreements contained in the Indenture or the Senior Notes and certain provisions
related to bankruptcy events. The Indenture also contains customary negative covenants.
New Senior Secured Credit Facility - On September 24, 2019, the Company successfully completed a
$700 million syndication of the remaining balance of the Bridge Credit Facility subsequent to the
aforementioned Common Stock Offering and Senior Notes due 2027 and in connection with the syndication,
the Company amended the Base Credit Agreement (the “Senior Secured Credit Facility”). The Senior Secured
Credit Facility reduced the applicable margin utilized in the determination of the interest rate, as well as other
provisions.
The Senior Secured Credit Facility provides for a term loan facility in an initial aggregate principal amount of
$700 million (the “Term Loan Facility”), a revolving credit facility in an initial aggregate principal amount of
up to $350 million (the “Revolving Credit Facility”), a letter of credit sub-facility in the initial aggregate
available amount of up to $50 million, as a sublimit of such Revolving Credit Facility (the “L/C Facility”) and
a swing line sub-facility in the aggregate available amount of up to $50 million, as a sublimit of the Revolving
Credit Facility (together with the Term Loan Facility, the Revolving Credit Facility and the L/C Facility, the
“Senior Secured Credit Facility”). During fiscal 2020, the Company paid $51.8 million of the Term Loan
Facility. During fiscal 2021, the Company paid $207.0 million of the Term Loan Facility and $100.0 million
of the Revolving Credit Facility. Letters of credit outstanding at March 31, 2021 amount to $11.0 million and
reduced the availability of the Revolving Credit Facility.
In connection with entering into the Senior Secured Credit Facility, the Company capitalized approximately
$0.4 million in deferred financing fees. To the extent not previously paid, all then-outstanding amounts under
the Term Loan Facility are due and payable on the maturity date of the Term Loan Facility, which is seven
years from the Closing Date. Borrowings under the Revolving Credit Facility are available beginning on
September 24, 2019 and, to the extent not previously paid, all then-outstanding amounts under the Revolving
Credit Facility are due and payable on the maturity date of the Revolving Credit Facility, which is five
years from the Closing Date.
At the option of the Company, borrowings under the Term Loan Facility and under the Revolving Credit
Facility (subject to certain limitations) bear interest at either a base rate (as determined pursuant to the Senior
Secured Credit Facility) or at a Eurocurrency Rate, based on LIBOR (as defined in the Senior Secured Credit
Facility), plus the applicable margin as set forth therein from time to time. In the case of the Revolving Credit
Facility, the applicable margin is based on the Company’s consolidated senior secured net leverage ratio (as
defined in the Senior Secured Credit Facility). All borrowings under the Term Loan Facility used to finance
the Merger Consideration as described above initially bear interest at a Eurocurrency Rate applicable to
Eurocurrency Loans (as defined in the Senior Secured Credit Facility) denominated in U.S. Dollars.
The Company is also required to pay a commitment fee that is based upon the undrawn amounts of the
Revolving Credit Facility at a rate per annum based upon a calculated ratio as prescribed within the Senior
Secured Credit Facility. As of March 31, 2021, the rate the Company was committed to paying on the
undrawn portion was equal to 0.2%.
F-31
Advanced Drainage Systems, Inc.
The Company’s obligations under the Senior Secured Credit Facility have been secured by granting a first
priority lien on substantially all of the Company’s assets (subject to certain exceptions and limitations), and
each of StormTech, LLC, Advanced Drainage of Ohio, Inc. and Infiltrator Water Technologies, LLC
(collectively the “Guarantors”) has agreed to guarantee the obligations of the Company under the Senior
Secured Credit Facility and to secure the obligations thereunder by granting a first priority lien in substantially
all of such Guarantor’s assets (subject to certain exceptions and limitations).
Principal Maturities - Maturities of long-term debt (excluding interest and deferred financing costs) as of
March 31, 2021 are summarized below:
(Amounts in thousands)
Principal maturities
14. DERIVATIVE TRANSACTIONS
Fiscal Years Ending March 31,
2024
2025
2023
2022
2026
Thereafter
Total
$ 7,000 $ 7,000 $ 7,000 $ 7,000 $ 7,000 $756,250 $791,250
The Company uses interest rate swaps and commodity options in the form of collars and swaps to manage its
various exposures to interest rate and commodity price fluctuations. For the interest rate swap executed on
June 28, 2017, gains and losses resulting from the difference between the spot rate and applicable base rate is
recorded in Interest expense. The Company’s interest rate swap was terminated during the year ended March
31, 2020 in conjunction with the new Senior Secured Credit Facility. For collars and commodity swaps,
contract settlement gains and losses are recorded in the Consolidated Statements of Operations in Derivative
(gains) losses and other (income) expense, net. Gains and losses related to mark-to-market adjustments for
changes in fair value of the derivative contracts are also recorded in the Consolidated Statements of
Operations in Derivative (gains) losses and other (income) expense, net.
A summary of the fair values for the various derivatives at March 31, 2021 and 2020 is presented below:
2021
Assets
Liabilities
(Amounts in thousands)
Diesel fuel option collars and swaps
(Amounts in thousands)
Diesel fuel option collars and swaps
Receivables Other assets
$
1,125 $
69 $
Other accrued
liabilities
Other
liabilities
(31) $
(1)
2020
Assets
Liabilities
Receivables Other assets
21 $
$
15 $
Other accrued
liabilities
Other
liabilities
(2,000) $
(228)
The Company recorded net losses and net (gains) on mark-to-market adjustments for changes in the fair value
of derivative contracts as well as net losses and net (gains) on the settlement of derivative contracts as follows:
(Amounts in thousands)
Interest rate swaps
Foreign exchange forward contracts
Diesel fuel option collars and swaps
Total net unrealized mark to market losses (gains)
(Amounts in thousands)
Interest rate swaps
Foreign exchange forward contracts
Diesel fuel option collars and swaps
Total net realized losses (gains)
F-32
Net Unrealized Mark-to-Market Losses (Gains)
2020
2021
2019
$
$
$
$
— $
—
(3,355)
(3,355) $
1,029 $
—
2,099
3,128 $
1,712
60
574
2,346
Net Realized Losses (Gains)
2020
2021
2019
— $
47
1,409
1,456 $
378 $
102
357
837 $
(329)
(163)
(698)
(1,190)
Advanced Drainage Systems, Inc.
15. COMMITMENTS AND CONTINGENCIES
Purchase Commitments - The Company has historically secured supplies of resin raw material by agreeing to
purchase quantities during a future given period at a fixed price. These purchase contracts typically ranged
from 1 to 12 months and occur in the ordinary course of business. The Company, also, enters into equipment
purchase contracts with manufacturers. The Company does not have any outstanding purchase commitments
as of March 31, 2021.
Litigation and Other Proceedings - The Company is involved from time to time in various legal proceedings
that arise in the ordinary course of business, including but not limited to commercial disputes, environmental
matters, employee related claims, intellectual property disputes and litigation in connection with transactions
including acquisitions and divestitures. The Company does not believe that such litigation, claims, and
administrative proceedings will have a material adverse impact on the Company’s financial position or results
of operations. The Company records a liability when a loss is considered probable, and the amount can be
reasonably estimated.
16. EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan (“ESOP”) - The Company established the Advanced Drainage
Systems, Inc. ESOP (the “ESOP” or the “Plan”) effective April 1, 1993. The Plan was funded through a
transfer of assets from the Company’s tax-qualified profit-sharing retirement plan, as well as a 30-year term
loan from ADS. Within 30 days following the repayment of the ESOP loan, which will occur no later than
March 2023, the ESOP committee can direct the shares of redeemable convertible preferred stock owned by
the ESOP to be converted into shares of the Company’s common stock. The Plan operates as a tax-qualified
leveraged ESOP and was designed to enable eligible employees to acquire stock ownership interest in ADS.
Employees of ADS who have reached the age of 18 are generally eligible to participate in the Plan on
March 31 after six months of service. Upon retirement, disability, death, or vested terminations, (i) a
participant or designated beneficiary may elect to receive the amount in their account attributable to the 1993
transfer of assets from the Company’s tax-qualified profit sharing retirement plan in the form of cash or ADS
stock with any fractional shares paid in cash; (ii) stock credited to the participants’ ESOP stock account
resulting from the ESOP’s loan repayments are distributed in the form of ADS stock, and (iii) amounts
credited to the participants’ ESOP cash 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 to diversify specified percentages of the
number of shares of ADS stock credited to the participant’s ESOP stock account in compliance with
applicable law.
The Company is obligated to make contributions to the Plan, which, when aggregated with the Plan’s
dividends on the Plan’s unallocated shares of redeemable convertible preferred stock, equal the amount
necessary to enable the Plan to make its regularly scheduled payments of principal and interest due on its term
loan to ADS. As the Plan makes annual payments of principal and interest, an appropriate percentage of
preferred stock is allocated to ESOP participants’ accounts in accordance with plan terms that are compliant
with applicable Internal Revenue Code and regulatory provisions.
The carrying value of redeemable convertible preferred stock held by the ESOP trust, but not yet earned by the
ESOP participants or used for dividends, is reported as Deferred compensation — unearned ESOP shares
within the Mezzanine equity section of the Consolidated Balance Sheets.
Compensation expense and related dividends paid with ESOP shares for services rendered throughout the
period are recognized based upon the annual fair value of the shares allocated. Deferred compensation —
unearned ESOP shares is relieved at fair value, with any difference between the annual fair value and the
carrying value of shares when allocated being added to Additional paid in capital. The fair value of the shares
allocated was $79.56, $22.70, and $19.90 per share of redeemable convertible preferred stock at March 31,
2021, 2020, and 2019, respectively, resulting in an average annual fair value per share of $51.13, $21.31, and
$19.95 per share for the fiscal years ended March 31, 2021, 2020, and 2019, respectively. During the fiscal
years ended March 31, 2021, 2020, and 2019, the Company recognized compensation expense of $45.0
million, $20.1 million, and $15.3 million, respectively, related to allocation of ESOP shares to participants.
F-33
Advanced Drainage Systems, Inc.
Required dividends on allocated shares are generally passed through and paid in cash to the participants and
required dividends on unallocated shares are paid in cash to the Plan and generally used to service the Plan’s
debt. The ESOP committee directed the Plan trustee to retain dividends on unallocated ADS shares rather than
to service the Plan’s debt. In the fiscal years ended March 31, 2021, 2020, and 2019, the Company recognized
compensation expense and the trustee retained $0.0 million, $0.0 million and $3.3 million, respectively, for
dividends on unallocated ADS shares. These dividends were allocated to participants based on the total shares
in their account in relation to total shares allocated at March 31, 2021 and 2020.
Redeemable Convertible Preferred Stock - The Trustee of the Company’s ESOP has the ability to put shares
of the redeemable convertible preferred stock to the Company absent a market for the Company’s common
stock, and as a result the redeemable convertible preferred stock is classified as Mezzanine equity in the
Company’s Consolidated Balance Sheets. The put option requirements of the Internal Revenue Code apply in
the event that the Company’s common stock is not a registration type class of security or its trading has been
restricted. Therefore, the holders of Redeemable convertible preferred stock have a put right to require the
Company to repurchase such shares in the event that the common stock is not listed for trading or otherwise
quoted on the NYSE, AMEX, NASDAQ, or any other market more senior than the OTC Bulletin Board. As of
March 31, 2021, the applicable redemption value was $0.7818 per share as there were no unpaid cumulative
dividends.
Given that the event that may trigger redemption of the Redeemable convertible preferred stock (the listing or
quotation on a market more senior than the OTC Bulletin Board) is not solely within the Company’s control,
the redeemable convertible preferred stock is presented in the mezzanine equity section of the Consolidated
Balance Sheets. As of March 31, 2021, the Company did not adjust the carrying value of the redeemable
convertible preferred stock to its redemption value or recognize any changes in fair value as the Company did
not consider it probable that the Redeemable convertible preferred stock would become redeemable.
The Redeemable convertible preferred stock has a required cumulative 2.5% dividend (based on the
liquidation value of $0.7818 per share) and is convertible at a rate of 0.7692 shares of common stock for each
share of Redeemable convertible preferred stock. The 2.5% annual dividend is payable in cash or additional
shares of the Redeemable convertible preferred stock. During the first quarter of fiscal 2021, the Board of
Directors approved the 2.5% annual dividend to be paid in cash on March 31, 2021 to stockholders of record
as of March 15, 2021. The Redeemable convertible preferred stock has a liquidation value of $0.7818 per
share that must be paid before any distribution or payment may be made to holders of common stock in the
event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of ADS.
During fiscal year ended March 31, 2020, the Board of Directors approved a special cash dividend of $1.00
per share. See “Note 19. Net Income Per Share and Stockholders’ Equity” for additional information. Cash
and stock dividends on allocated Redeemable convertible preferred stock for the fiscal years ended March 31,
2021 and 2020, respectively, are summarized in the following table.
(Amounts in thousands)
Quarterly cash dividends
Annual cash dividends
Total cash dividends
Annual stock dividend
Annual cash dividend
Total ESOP required dividends
Allocated shares
Required dividend per share
Required dividends
2021
2020
$
$
$
$
5,238
4
5,242
349
4
353
18,124
0.0195
353
$
$
$
$
10,840
7
10,847
359
7
366
18,756
0.0195
366
In the fiscal years ended March 31, 2021 and 2020, 0.9 million and 1.0 million shares of redeemable
convertible preferred stock, respectively, were allocated to the ESOP participants, including, in addition to the
cash dividends.
F-34
Advanced Drainage Systems, Inc.
Executive Retirement Expense – ADS has employment agreements with certain executives that include
potential payments to be made to those executives upon termination at the required retirement age, which is
accrued on a straight-line basis over the service period. The compensation (benefit) expense recorded related
to the executive termination payments for the fiscal years ended March 31, 2021, 2020, and 2019 was $0.0
million, $0.2 million and $(0.2) million, respectively, and is included in Selling, general and administrative
expenses in the Consolidated Statements of Operations. As of March 31, 2021 and 2020, the executive
termination payment obligation was $2.5 million and $2.6 million, respectively, and is included in Other
accrued liabilities and Other liabilities in the Consolidated Balance Sheets.
Profit-Sharing Retirement Plan - The Company has a tax-qualified profit-sharing retirement plan with a
401(k) feature, into which Infiltrator is part of beginning in the fiscal year ended March 31, 2021, covering
substantially all U.S. eligible employees. Except for employer matching contributions made on behalf of
Infiltrator employee-participants, the Company did not make employer contributions to this plan in the fiscal
years ended March 31, 2021, 2020, and 2019. The Company has defined contribution postretirement benefit
plans covering Canadian employees. The Company recognized costs of $0.6 million, $0.5 million and $0.4
million in the fiscal years ended March 31, 2021, 2020, and 2019, respectively.
COVID-19 Pandemic Pay – In fiscal 2020, the Company communicated to all hourly employees that each
would be entitled to the equivalent of two weeks, or 80 hours, of pandemic pay regardless of whether they
experienced any interruption of employment. The Company recognized pandemic pay costs in Costs of goods
sold on the Company’s Consolidated Statement of Operations and accrued pandemic pay liability in Other
accrued liabilities on the Company’s Consolidated Balance Sheet of $4.8 million in the fiscal year ended
March 31, 2020. The Company did not recognize any pandemic pay in fiscal year 2021.
17.
STOCK-BASED COMPENSATION
The Company has several programs for stock-based payments to employees and directors, including stock
options, performance-based restricted units and restricted stock. Stock-based compensation expense is
recorded in Selling, general and administrative expenses and Cost of goods sold in the Consolidated
Statements of Operations.
The Company recognized stock-based compensation expense in the following line items on the Consolidated
Statements of Operations for the fiscal years ended March 31, 2021, 2020, and 2019:
(Amounts in thousands)
Component of income before income taxes:
Cost of goods sold
Selling, general and administrative expenses
Total stock-based compensation expense
2021
2020
2019
$
$
1,931 $
18,522
20,453 $
897 $
11,372
12,269 $
317
6,215
6,532
The following table summarizes stock-based compensation expense by award type for the fiscal years ended
March 31, 2021, 2020, and 2019:
(Amounts in thousands)
Stock-based compensation expense:
Stock options
Restricted stock
Performance-based restricted stock units
Non-employee director restricted stock
Total stock-based compensation expense
2021
2020
2019
$
$
2,908
5,177
11,017
1,351
20,453
$
$
2,554
3,807
4,682
1,226
12,269
$
$
2,550
2,064
869
1,049
6,532
Stock option awards are measured based on the grant date estimated fair value of each award. Compensation
expense for stock options is recognized on a straight-line basis over the employee’s requisite service period,
which is generally the vesting period of the grant. The Company estimates the fair value of stock options
using a Black-Scholes option-pricing model.
F-35
Advanced Drainage Systems, Inc.
The following table summarizes the assumptions used in estimating the fair value of stock options:
Common stock price
Expected stock price volatility
Risk-free interest rate
Weighted-average expected life (years)
Dividend yield
2021
$41.97 - $71.55
35.5% - 36.3%
0.4% - 0.6%
6.0
0.5% - 0.9%
2020
$27.44 - $41.85
30.1% - 30.9%
1.4% - 2.3%
6.0
0.9% - 1.3%
2019
$25.75 - $27.99
30.3% - 31.1%
2.9% - 3.1%
6.0
1.1% - 1.2%
The fair value of restricted stock and performance-based restricted stock units is based on the fair value of the
Company’s common stock at the date of grant. Compensation expense is recognized on a straight-line basis
over the employee’s requisite service period, which is generally the vesting period of the grant.
2017 Omnibus Plan
On May 24, 2017, the Board of Directors approved the 2017 Omnibus Incentive Plan (the “2017 Incentive
Plan”) which was approved by the Company’s stockholders on July 17, 2017. The 2017 Incentive Plan
provides for the issuance of a maximum of 3.5 million shares of the Company’s common stock for awards
made thereunder, which awards may consist of stock options, restricted stock, restricted stock units, stock
appreciation rights, phantom stock, cash-based awards, performance awards (which may take the form of
performance cash, performance units or performance shares) or other stock-based awards. The Company had
approximately 1.3 million shares available for awards as of March 31, 2021.
Stock Options - The stock option activity for the fiscal year ended March 31, 2021 is summarized as follows:
(Share amounts in thousands)
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Vested at end of year
Unvested at end of year
Fair value of options granted during the year
Number
of Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (in
years)
785
258
(89)
(15)
939
386
553
$
$
25.01
42.60
25.78
30.30
29.69
23.21
34.22
13.29
8.4
—
—
—
7.9
7.0
8.5
As of March 31, 2021, there was a total of $3.5 million of unrecognized compensation expense related to
unvested stock option awards under the 2017 Incentive Plan that will be recognized as an expense as the
awards vest over the remaining weighted average service period of 1.8 years. All outstanding options are
expected to vest. The aggregate intrinsic value for options outstanding and exercisable as of March 31, 2021
was $69.2 million and $31.0 million, respectively. There were 0.1 million options that were exercised during
the fiscal year ended March 31, 2021.
F-36
Advanced Drainage Systems, Inc.
Restricted Stock - The information about the unvested restricted stock grants as of March 31, 2021 is as
follows:
(Share amounts in thousands)
Unvested at beginning of year
Granted
Vested
Forfeited
Unvested at end of year
Number
of Shares
Weighted
Average
Grant Date
Fair Value
388
132
(130)
(8)
382
$
$
30.38
44.04
27.46
31.63
36.03
At March 31, 2021, there was approximately $7.3 million of unrecognized compensation expense related to
the restricted stock that will be recognized over the weighted average remaining service period of 1.6 years.
The total fair value of restricted stock that vested during fiscal year ended March 31, 2021, 2020 and 2019 was
$3.6 million, $2.3 million and $2.0 million, respectively.
Performance-based Restricted Units (“performance units”) - The information about the performance units
granted under the 2017 Omnibus Plan is as follows:
(Share amounts in thousands)
Unvested at beginning of year
Granted
Vested
Forfeited
Unvested at end of year
Number
of Shares
389
106
—
(10)
485
Weighted
Average Grant
Date Fair Value
31.07
$
50.29
—
33.55
35.21
$
At March 31, 2021, there was approximately $11.3 million of unrecognized compensation expense related to
the performance units that will be recognized over the weighted average remaining service period of 1.5 years.
For the performance units granted in fiscal 2021, 2020 and 2019, 50% of the award is based upon the
achievement of certain levels of Return on Invested Capital for the performance period and 50% is based upon
the achievement of certain levels of Free cash flow for the performance period. The performance units each
have a 3-year performance period. The performance units, and any accrued dividend equivalents, will be
settled in shares of the Company’s common stock, if the applicable performance and service conditions are
satisfied.
In addition to the performance units based on ADS performance, the Company issued performance units based
on the achievements of other performance targets. During fiscal year 2020, the Company granted 0.1 million
units, subject to achieving predetermined synergies of the now consolidated legacy ADS business and
Infiltrator, and 0.1 million units, subject to performance conditions of the Infiltrator reportable segment.
For the performance units based on the Infiltrator reportable segment, 75% of the award is based upon the
achievement of certain levels of Adjusted EBITDA for the performance period and 25% is based upon the
achievement of certain levels of Free cash flow for the performance period. These two performance unit grants
have a performance period from August 1, 2019 through March 31, 2022.
2000 and 2013 Stock Options Plans
2000 Plan - The Company’s 2000 stock option plan (“2000 Plan”) provided for the issuance of statutory and
non-statutory stock options to management based upon the discretion of the Board of Directors. The plan
generally provided for grants with the exercise price equal to fair value on the date of grant, which vest in
three equal annual amounts beginning in year five and expire after approximately 10 years from issuance. The
Company had no shares available for grant under the 2000 Plan as of March 31, 2021.
F-37
Advanced Drainage Systems, Inc.
The stock option activity for the fiscal year ended March 31, 2021 is summarized as follows:
(Share amounts in thousands)
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Vested at end of year
Unvested at end of year
Fair value of options granted during the year
Number
of Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (in
years)
71
—
(30)
(4)
37
22
15
$
$
14.69
—
14.22
15.74
14.97
14.45
15.74
—
3.4
—
—
—
2.6
2.3
3.0
As of March 31, 2021, there was a total of less than $0.1 million of unrecognized compensation expense
related to unvested stock option awards under the 2000 plan that will be recognized as an expense as the
awards vest over the remaining weighted average service period of 0.3 years. All options are expected to vest.
During the fiscal years ended March 31, 2021 and 2020, approximately 0.1 million shares vested each year.
No options vested during fiscal year ended March 31, 2019. No options were granted during the fiscal years
ended March 31, 2021, 2020, and 2019. The aggregate intrinsic value for options outstanding and currently
exercisable as of March 31, 2021 was $3.3 million and $2.0 million, respectively. The total intrinsic value of
options exercised during the fiscal years ended March 31, 2021, 2020, and 2019 were $2.1 million, $0.2
million and $0.8 million, respectively.
2013 Plan - The Company’s 2013 stock option plan (“2013 Plan”) provided for the issuance of non-statutory
common stock options to management subject to the Board’s discretion. The plan generally provided for
grants with the exercise price equal to fair value on the date of grant. The grants generally vest in three to five
equal annual amounts beginning in year one and expire after approximately 10 years from issuance. The
Company had no shares available for grant under the 2013 Plan as of March 31, 2021. All outstanding options
are expected to vest.
The stock option activity for the fiscal year ended March 31, 2021 is summarized as follows:
(Share amounts in thousands)
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Vested at end of year
Unvested at end of year
Fair value of options granted during the year
Number
of Shares
Weighted
Average
Exercise
Price
565
—
(249)
—
316
312
4
$
$
19.45
—
19.40
—
19.48
19.43
24.20
—
Weighted
Average
Remaining
Contractual
Term (in
years)
4.7
—
—
—
3.7
3.6
5.0
As of March 31, 2021, there was a total of less than $0.1 million of unrecognized compensation expense
related to unvested stock option awards under the 2013 Plan that will be recognized as an expense as the
awards vest over the remaining weighted average service period of 0.7 years.
The aggregate intrinsic value for options outstanding and currently exercisable as of March 31, 2021 was
$26.5 million and $26.2 million, respectively. The total fair value of options that vested during the fiscal years
F-38
Advanced Drainage Systems, Inc.
ended March 31, 2021, 2020, and 2019 were $0.1 million, $0.8 million, and $2.6 million, respectively. The
total intrinsic value of options exercised during the fiscal year ended March 31, 2021 was $15.2 million.
2008 Restricted Stock Plan
On September 16, 2008, the Board of Directors adopted the restricted stock plan, which provided for the
issuance of restricted stock awards to certain key employees. Employees with restricted stock have the right to
dividends on the shares awarded (vested and unvested) in addition to voting rights on non-forfeited shares.
The Company had no shares available for grant under this plan as of March 31, 2021. The Company expects
all restricted stock grants to vest.
At March 31, 2021, there was less than $0.1 million of unrecognized compensation expense related to the
restricted stock that will be recognized over the weighted average remaining service period of 0.6 years.
During the fiscal years ended March 31, 2021, 2020, and 2019, the total fair value of restricted stock that
vested was $0.2 million, $0.9 million and $1.4 million, respectively.
18. INCOME TAXES
The components of Income before income taxes for the fiscal years ended March 31 are as follows:
(Amounts in thousands)
United States
Foreign
Total
2021
291,296 $ (186,209) $
2020
20,975
6,595
312,271 $ (179,614) $
2019
103,559
8,051
111,610
$
$
The components of Income tax expense for the fiscal years ended March 31 consisted of the following:
(Amounts in thousands)
Current:
Federal
State and local
Foreign
Total current tax expense
Deferred:
Federal
State and local
Foreign
Total deferred tax expense (benefit)
Total Income tax expense
2021
2020
2019
$
$
76,986 $
17,189
5,921
100,096
(12,250)
(1,269)
(195)
(13,714)
86,382 $
10,867 $
4,655
1,546
17,068
210
(1,228)
(1,958)
(2,976)
14,092 $
11,575
3,998
2,050
17,623
11,745
1,795
(1,114)
12,426
30,049
F-39
Advanced Drainage Systems, Inc.
For the fiscal years ended March 31, the effective tax rate varied from the statutory Federal income tax rate as
a result of the following factors:
Federal statutory rate
ESOP stock appreciation, ESOP dividends and special dividend(a)
Effect of tax rate of foreign subsidiaries
State and local taxes—net of federal income tax benefit
Uncertain tax position change
Equity-based compensation
Executive compensation
Net operating losses
Other
Effective rate
2021
2020
2019
21.0%
2.7
0.5
3.9
(0.5)
(1.4)
1.5
0.2
(0.2)
27.7%
21.0%
(30.3)
0.6
(1.7)
1.2
1.1
(0.8)
1.9
(0.9)
(7.9)%
21.0%
3.2
(0.3)
4.6
(1.3)
(0.4)
1.1
—
(1.0)
26.9%
(a) This includes the special dividend paid in the first quarter of fiscal 2020 that resulted in $246.8 million in additional stock-based
compensation. Of the total stock-based compensation expense and dividends paid, approximately $242.9 million related to non-
deductible stock appreciation and deductible dividends. This decreased the effective tax rate by 28.4%. See “Note 19. Net Income
Per Share and Stockholders’ Equity” for additional information.
As discussed in “Note 4. Acquisitions”, the Company acquired Infiltrator on July 31, 2019. During the year
ended March 31, 2020, as part of the purchase price, approximately $132.4 million was attributed to deferred
tax liabilities. Of the $132.4 million, $82.3 million related to the step up of GAAP basis for fair market
valuations, while the remaining $50.1 million were acquired deferred tax liabilities. Of the total $82.3
million, $80.2 million was attributed to intangibles. The Company also acquired a federal net operating loss
of $24.0 million.
As of March 31, 2021, the Company plans to repatriate earnings from Canada and believes that there will be
no additional tax costs associated with the repatriation of such earnings other than any potential non-U.S.
withholding taxes. No deferred tax liability has been recognized as of March 31, 2021. The Company has
approximately $21.0 million of undistributed earnings from other foreign entities that are intended to be
reinvested indefinitely with the exception of cash dividends paid by the Company’s ADS Mexicana joint
venture. It is not practicable to estimate the amount of U.S. tax, which would primarily relate to withholding
tax, that might be payable on the eventual remittance of such undistributed earnings.
F-40
Advanced Drainage Systems, Inc.
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at March 31 were comprised of:
(Amounts in thousands)
Deferred tax assets:
Inventory
Stock-based compensation
Worker’s compensation
Net operating loss and credit carryforwards
Operating lease liabilities
Other
Total deferred tax assets
Less: valuation allowance
Total net deferred tax assets
Deferred tax liabilities:
Intangible assets
Property, plant and equipment
Operating lease assets
Goodwill
Other
Total deferred tax liabilities
Net deferred tax liabilities
2021
2020
805
5,084
2,603
1,202
7,403
7,878
24,975
(405)
24,570
106,012
66,546
7,365
5,686
568
186,177
161,607
$
$
2,065
2,770
2,317
2,059
6,160
6,684
22,055
(941)
21,114
121,276
63,649
6,147
4,527
600
196,199
175,085
Net deferred tax assets and liabilities are included in Other assets and Deferred tax liabilities, respectively, on
the Consolidated Balance Sheets. The related balances at March 31 were as follows:
(Amounts in thousands)
Net non-current deferred tax assets
Net non-current deferred tax liabilities
2021
$
578
162,185
$
2020
531
175,616
As a result of the acquisition of Infiltrator, the Company acquired state net operating losses (“NOLs”) and
state credit carryforward attributes. The Company has recorded deferred tax assets related to state NOLs of
$0.9 million as of March 31, 2020, with carryforward periods ranging from 5 to 20 years. Any losses not
utilized within a specific state’s carryforward period will expire. A valuation allowance has been recorded
against $0.1 million of these deferred tax assets as of March 31, 2020 for state NOLs that the Company does
not expect to realize within their respective carryforward periods. The Company has no deferred tax assets and
valuation allowances related to state NOLs as of March 31, 2021. Tax benefits associated with state tax credits
will also expire if not utilized and amounted to $0.9 million and $0.8 million at March 31, 2021 and 2020,
respectively. A valuation allowance in the amount of $0.3 million and $0.5 million has been established
related to state credits the Company does not expect to utilize as of March 31, 2021 and 2020, respectively.
Deferred tax assets related to foreign NOLs were $0.1 million and $0.3 million as of March 31, 2021 and
2020, respectively, with carryforward periods ranging from 20 years to indefinite carryforward periods. Any
losses not utilized within a specific carryforward period will expire. A valuation allowance has been recorded
against $0.1 million of these deferred tax assets as of March 31, 2021 and 2020 for foreign NOLs that the
Company does not expect to realize within their respective carryforward periods.
F-41
Advanced Drainage Systems, Inc.
Accounting for Uncertain Tax Positions
As of March 31, 2021, The Company had unrecognized tax benefit of $1.7 million, which if resolved
favorably, would reduce income tax expense by $1.7 million. A reconciliation of the beginning and ending
amounts of unrecognized tax benefits for the years ended March 31 is as follows:
(Amounts in thousands)
Balance at beginning of year
Tax positions taken in current year
Decreases in tax positions for prior years
Increases in tax positions for prior years
Settlements
Lapse of statute of limitations
Foreign translation adjustment
Balance at end of year
2021
2020
2019
$
$
3,343 $
—
—
105
(284)
(1,640)
162
1,686 $
5,681 $
—
(1,398)
1,907
(124)
(2,589)
(134)
3,343 $
7,593
164
(198)
136
(200)
(1,595)
(219)
5,681
The short-term portion of the unrecognized tax benefit of $0.3 million at March 31, 2021 is recorded in Other
accrued liabilities on the Company’s Consolidated Balance Sheet. The long-term portion of unrecognized tax
benefits are recorded in Other liabilities in the Company’s Consolidated Balance Sheets. These amounts
include potential accrued interest and penalties of $0.5 million and $0.8 million at March 31, 2021 and 2020,
respectively.
The Company believes that over the next twelve months, it is reasonably possible that up to $0.3 million of
unrecognized tax benefits could be resolved as the result of settlements of audits and the expiration of statutes
of limitation. Final settlement of these issues may result in payments that are more or less than this amount,
but the Company does not anticipate that the resolution of these matters will result in a material change to its
consolidated financial position or results of operations.
The Company is currently open to audit under the statute of limitations by the IRS for the fiscal years ended
March 31, 2018 through March 31, 2021. 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, 2017 through March 31, 2021. The foreign
income tax returns are open to audit under the statute of limitations for the years ended March 31, 2017
through March 31, 2021.
19. NET INCOME PER SHARE AND STOCKHOLDERS’ EQUITY
Basic net income per share is calculated by dividing the Net income available to common stockholders by the
weighted-average number of common shares outstanding during the period, without consideration for
common stock equivalents. Diluted net income per share is computed by dividing the Net income available to
common stockholders by the weighted-average number of common stock equivalents outstanding for the
period.
Holders of certain unvested participating restricted stock have non-forfeitable rights to dividends when
declared on common stock, and holders of redeemable convertible preferred stock participate in dividends on
an as-converted basis when declared on common stock. As a result, unvested participating restricted stock and
redeemable convertible preferred stock meet the definition of participating securities, which requires the
Company to apply the two-class method to compute both basic and diluted net income per share. The two-
class method is an earnings allocation formula that treats participating securities as having rights to earnings
that would otherwise have been available to common stockholders.
The dilutive effect of stock options, redeemable common stock, performance units and unvested
nonparticipating restricted stock is based on the more dilutive of the treasury stock method or the diluted two-
class method. These potential common stock equivalents are only included in the calculations when their
effect is dilutive.
F-42
Advanced Drainage Systems, Inc.
The following table presents information necessary to calculate net income per share for the fiscal years ended
March 31, 2021, 2020, and 2019, as well as potentially dilutive securities excluded from the weighted average
number of diluted common shares outstanding because their inclusion would have been anti-dilutive:
(Amounts in thousands, except per share data)
NET INCOME (LOSS) PER SHARE — BASIC:
Net income (loss) attributable to ADS
Adjustment for:
Dividends paid to participating securities
Net income available to common stockholders
and participating securities
Undistributed income allocated to participating securities
Net income available to common stockholders — Basic
Weighted average number of common shares outstanding — Basic
Net income (loss) per common share — Basic
NET INCOME (LOSS) PER SHARE — DILUTED:
Net income (loss) available to common stockholders — Diluted
Weighted average number of common shares outstanding — Basic
$
Assumed restricted stock - nonparticipating
Assumed exercise of stock options
Assumed performance units
Weighted average number of common shares outstanding —
Diluted
Net income (loss) per common share —Diluted
$
Potentially dilutive securities excluded as anti-dilutive
2021
2020
2019
$
224,230
$
(193,174) $
77,772
(5,591)
(11,544)
(2,116)
218,639
(33,251)
185,388
70,155
2.64
185,388
70,155
247
844
320
71,566
2.59
14,594
(204,718)
—
(204,718)
63,820
$
(3.21) $
(204,718)
63,820
—
—
—
63,820
$
(3.21) $
14,449
75,656
(5,474)
70,182
57,025
1.23
70,182
57,025
39
547
-
57,611
1.22
5,966
Common Stock Offering – On September 10, 2019, the Company issued and sold an aggregate
of 10,350,000 shares of common stock, $0.01 par value per share, which included the full exercise of the
underwriters’ option to purchase additional shares, at a price of $29.75 per share, before underwriting
discounts and commissions. The common stock was sold pursuant to the Company’s shelf registration
statement and related prospectus supplement. The Company received proceeds of $293.6 million from the
issuance after deducting underwriting discounts and commissions and offering expenses. The Company used
the net proceeds for the repayment of a portion of the outstanding borrowings under the Senior Secured Credit
Facility.
Stockholders’ Equity - The Company did not repurchase any shares of common stock during fiscal years 2021
and 2020. In February 2017, the Company’s Board of Directors authorized the Company to repurchase up to
$50 million of ADS common stock in accordance with applicable securities laws. As of March 31, 2021,
approximately $42.1 million of common stock may be repurchased under the authorization. The repurchase
program does not obligate the Company to acquire any particular amount of common stock and may be
suspended or terminated at any time at the Company’s discretion.
F-43
Advanced Drainage Systems, Inc.
Special Dividend and the Employees Stock Ownership Plan (“ESOP”) - During fiscal year ended March 31,
2020, the Board of Directors approved a special cash dividend of $1.00 per share and quarterly dividends of
$0.09 per share. The special and quarterly dividend were paid to all stockholders on June 14, 2019 to
stockholders of record at the close of business on June 3, 2019. The total dividend payment was $81.6 million.
The dividends received by the unallocated redeemable convertible preferred stock held in the ESOP trust was
used to pay $12.0 million of the ESOP loan back to the Company resulting in approximately 11.6 million
shares of the Company’s redeemable convertible preferred stock being allocated to ESOP participants. The
Company recognized $246.8 million in stock-based compensation expense based on the fair value on the date
the Board of Directors approved the special dividend. The Board of Director’s approval committed the ESOP
to use those proceeds to pay down the ESOP loan. The special dividend compensation expense was
recognized in Cost of goods sold - ESOP special dividend compensation and Selling, general and
administrative expenses - ESOP special dividend compensation on the Company’s Consolidated Statement of
Operations. The Company’s ESOP is further described in “Note 16. Employee Benefit Plans”.
20. OTHER ACCRUED LIABILITIES
Other accrued liabilities as of fiscal years ended March 31 consisted of the following:
(Amounts in thousands)
Accrued compensation and benefits(1)
Accrued rebate liability(2)
Lease liability - Operating leases
Self-insurance accruals
Other
Total accrued liabilities
2021
2020
$
$
42,075
16,834
8,995
11,257
36,990
116,151
$
$
33,215
14,479
7,757
12,486
33,179
101,116
(1) Accrued compensation and benefits is primarily comprised of accrued payroll, bonuses and commissions.
(2) Accrued rebate liability represents the Company’s estimated rebates to be paid to customers.
21. BUSINESS SEGMENT INFORMATION
ADS operates its business in three distinct reportable segments: “Pipe”, “International” and “Infiltrator.”
“Allied Products & Other” represents the Company’s Allied Products and all other business segments. “Pipe”
and “Allied Products & Other” were previously included as Domestic. The Chief Operating Decision Maker
(“CODM”) reviews financial information and makes operational decisions based on Net Sales and Segment
Adjusted Gross Profit. The Company calculates Segment Adjusted Gross Profit as net sales less costs of goods
sold, depreciation and amortization, stock-based compensation, non-cash charges and certain other expenses.
A measure of assets is not applicable, as segment assets are not regularly reviewed by the CODM for
evaluating performance or allocating resources.
Pipe – The Pipe segment manufactures and markets high performance thermoplastic corrugated pipe
throughout the United States. The Company maintains and serves these markets through product distribution
relationships with many of the largest national and independent waterworks distributors, buying groups and
co-ops, major national retailers as well as an extensive network of hundreds of small to medium-sized
distributors across the U.S.
Products include single wall pipe, N-12 HDPE pipe sold into the Storm sewer, Infrastructure and Agriculture
markets, High Performance polypropylene pipe sold into the Storm sewer, Infrastructure and sanitary sewer
markets. Products are designed primarily for storm water management in the construction and infrastructure
marketplace across a broad range of end markets and applications, including non-residential, residential,
agriculture and infrastructure. Products are manufactured using HDPE and polypropylene plastic material.
Infiltrator – Infiltrator is a leading national provider of plastic leachfield chambers and systems, septic tanks
and accessories, primarily for use in residential applications. Infiltrator products are used in on-site septic
wastewater treatment systems in the United States and Canada.
F-44
Advanced Drainage Systems, Inc.
International – The International segment manufactures and markets pipe and allied products in certain
regions outside of the United States, including Company owned facilities in Canada, subsidiaries that
distribute to Europe and the Middle East, exports and through the Company’s joint ventures with local
partners in Mexico and South America. The Company’s Mexican joint venture, ADS Mexicana, primarily
serves the Mexican and Central American markets, while its South American Joint Venture, Tigre-ADS, is
the primary channel to serve the South American markets. The Company’s International product lines include
single wall pipe, N-12 HDPE pipe, high performance PP pipe and certain geographies also sell the
Company’s broad line of Allied Products & Other.
Allied Products & Other – Allied Products & Other manufactures and markets products throughout the
United States. Products include StormTech, Nyloplast, ARC Septic Chambers, Inserta Tee, water quality
filters and structures, Fittings, and FleXstorm. The Company maintains and serves these markets through
product distribution relationships with many of the largest national and independent waterworks distributors,
major national retailers as well as an extensive network of hundreds of small to medium-sized distributors
across the U.S. The Company also sells through a broad variety of buying groups and co-ops in the United
States. The Company aggregates operating segments within the Allied Products & Other segment disclosure.
None of the operating segments within the Allied Products & Other businesses segment disclosure exceeds
the quantitative thresholds for separate segment reporting.
F-45
Advanced Drainage Systems, Inc.
The following table sets forth reportable segment information with respect to the amount of Net sales
contributed by each class of similar products for the fiscal years ended March 31:
(Amounts in thousands)
Pipe
Infiltrator
International
International - Pipe
International - Allied Products & Other
Total International
Allied Products & Other
Intersegment Eliminations
Total Consolidated
(Amounts in thousands)
Pipe
Infiltrator
International
International - Pipe
International - Allied Products & Other
Total International
Allied Products & Other
Intersegment Eliminations
Total Consolidated
(Amounts in thousands)
Pipe
Infiltrator
International
International - Pipe
International - Allied Products & Other
Total International
Allied Products & Other
Intersegment Eliminations
Total Consolidated
2021
Net Sales
Intersegment
Net Sales
Net Sales from
External
Customers
$ 1,059,200 $
397,813
(6,280) $ 1,052,920
329,144
(68,669)
121,468
43,390
164,858
442,447
(81,538)
$ 1,982,780 $
(6,589)
—
(6,589)
—
81,538
114,879
43,390
158,269
442,447
—
— $ 1,982,780
2020
Net Sales
Intersegment
Net Sales
Net Sales from
External
Customers
$
954,633 $
211,005
(2,030) $
(41,657)
952,603
169,348
108,624
39,957
148,581
403,273
(43,687)
$ 1,673,805 $
—
—
—
—
43,687
108,624
39,957
148,581
403,273
—
— $ 1,673,805
2019
Net Sales
Intersegment
Net Sales
Net Sales from
External
Customers
$
868,805 $
—
— $
—
868,805
—
122,836
37,766
160,602
355,326
—
$ 1,384,733 $
122,836
—
37,766
—
160,602
—
355,326
—
—
—
— $ 1,384,733
F-46
Advanced Drainage Systems, Inc.
The following sets forth certain financial information attributable to the reportable segments for the fiscal
years ended March 31:
(Amounts in thousands)
Segment adjusted gross profit
Pipe
Infiltrator
International
Allied Products & Other
Intersegment Eliminations
Total
Depreciation and amortization
Pipe
Infiltrator
International
Allied Products & Other(a)
Total
Capital expenditures
Pipe
Infiltrator
International
Allied Products & Other(a)
Total
2021
2020
2019
322,846 $
191,163
49,921
225,052
(503)
788,479 $
239,531 $
98,245
36,999
201,206
(1,895)
574,086 $
191,002
—
37,191
168,729
—
396,922
46,078 $
12,468
5,430
81,610
145,586 $
46,611 $
7,159
6,013
65,157
124,940 $
17,135 $
54,024
1,627
5,971
78,757 $
33,629 $
24,917
2,623
6,508
67,677 $
49,419
—
5,938
16,543
71,900
34,878
—
3,765
4,769
43,412
$
$
$
$
$
$
(a)
Includes depreciation and amortization and capital expenditures not allocated to a reportable segment.
The amortization expense of Infiltrator intangible assets acquired is included in Allied Products & Other.
Reconciliation of Gross Profit to Segment Adjusted Gross profit
(Amounts in thousands)
Reconciliation of Segment Adjusted Gross Profit:
Total Gross Profit
Depreciation and amortization
ESOP and stock-based compensation expense
ESOP special dividend compensation
COVID-19 related expenses (a)
Inventory step up related to Infiltrator acquisition
Total Segment Adjusted Gross Profit
2021
2020
2019
$
$
690,082 $
66,408
31,792
—
197
—
788,479 $
316,479 $
62,225
14,319
168,610
4,573
7,880
574,086 $
326,967
59,164
10,791
—
—
—
396,922
(a) Represents the Company’s pandemic pay expense included in Gross profit in connection with the
Company’s response to the COVID-19 pandemic, see “Note 16. Employee Benefit Plans” for additional
information.
Geographic Sales and Assets Information
Net sales are attributed to the geographic location based on the location of the customer. The table below
represents the Net sales and long-lived asset information by geographic location for each of the fiscal years
ended March 31:
(Amounts in thousands)
Net Sales
North America
Other
Total
F-47
2021
2020
2019
$ 1,966,947 $ 1,655,219 $ 1,366,470
18,263
$ 1,982,780 $ 1,673,805 $ 1,384,733
18,586
15,833
Advanced Drainage Systems, Inc.
(Amounts in thousands)
Long-Lived Assets (a)
North America
Other
Total
2021
2020
$
$
511,290
11,861
523,151
$
$
488,125
9,250
497,375
(a) For segment reporting purposes, long-lived assets include Investments in unconsolidated affiliates,
Central parts and Property, plant and equipment.
22.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the fiscal years ended March 31 were as follows:
(Amounts in thousands)
Supplemental disclosures of cash flow
2021
2020
2019
information — cash paid during years:
Interest
Income taxes
(Amounts in thousands)
Supplemental disclosures of noncash investing
and financing activities:
Redeemable convertible preferred stock dividend
Purchases of plant, property, and equipment
included in accounts payable
ESOP distributions in common stock
Lease obligation retired upon disposition of
leased assets
$
37,614 $
97,636
41,290 $
8,710
15,679
29,841
2021
2020
2019
$
349 $
359 $
134
6,754
28,585
1,940
1,588
13,109
799
1,255
8,609
578
23.
SUBSEQUENT EVENTS
Dividends on Common Stock - During the first quarter of fiscal 2022, the Company declared a quarterly cash
dividend of $0.11 per share of common stock. The dividend is payable on June 15, 2021 to stockholders of
record at the close of business on June 1, 2021.
Master Lease Agreement - On May 12, 2021, ADS entered into a master lease arrangement with a new bank to
finance its procurement material handling equipment, trucks and trailers.
Stock Repurchase Program - During the first quarter of fiscal 2022, the Company announced that its Board of
Directors has authorized a stock repurchase program for the repurchase of up to $250 million in shares of the
Company’s common stock, in addition to the $42 million outstanding under a previous authorization.
* * * * * *
F-48
Advanced Drainage Systems, Inc.
SCHEDULE II
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Valuation and Qualifying Accounts for the Fiscal Years Ended March 31, 2021,
2020 and 2019 (in thousands):
Allowance for Doubtful Accounts:
Year ended March 31,
2021
2020
2019
Balance at
beginning
of period
$
5,035
7,653
6,826
Charged to
costs and
expenses (1)
$
1,338 $
(24)
1,154
CECL
Adoption (2)
Charged to
other
accounts (3) Deductions
99 $
Balance at
end of
period
779 $
—
—
(234)
(65)
(1,928) $
(2,360)
(262)
5,323
5,035
7,653
(1) Amount for the year ended March 31, 2020 includes $0.4 million due to the Acquisition.
(2) Amount represent the impact of the adoption of ASU 2016-13.
(3) Amounts represent the impact of foreign currency translation.
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About Advanced Drainage Systems, Inc.Advanced Drainage Systems is a leading provider of innovative water management solutions in the stormwater and on-site septic wastewater industries, providing superior drainage solutions for use in the construction and agriculture marketplace. For over 50 years, the Company has been manufacturing a variety of innovative and environmentally friendly alternatives to traditional materials. Its innovative products are used across a broad range of end markets and applications, including non-residential, residential, infrastructure and agriculture applications. The Company has established a leading position in many of these end markets by leveraging its national sales and distribution platform, overall product breadth and scale and manufacturing excellence. Founded in 1966, the Company operates a global network of approximately 60 manufacturing plants and 30 distribution centers. To learn more about ADS, please visit the Company’s website at www.adspipe.com. Advanced Drainage Systems, Inc.
4640 Trueman Blvd.
Hilliard, OH 43026
www.adspipe.com