PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by the more detailed information and consolidated financial statements and related notes in the documents incorporated by reference in this prospectus supplement and the accompanying prospectus, including our Annual Report on Form 10-K for the fiscal year ended March 31, 2019 (“2019 Annual Report”) and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (“First Quarter 10-Q”). This summary does not contain all of the information that you should consider before investing in our common stock. In particular, we incorporate by reference important business and financial information into this prospectus supplement. You should read this summary together with the information contained or incorporated by reference in this prospectus supplement and in the accompanying prospectus, especially the information set forth under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before making an investment decision.

Our Company

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 broad product line includes corrugated high-density polyethylene (or “HDPE”) pipe and polypropylene (or “PP”) pipe and related water management products complementary to our pipe products. Our products are generally lighter, more durable, more cost effective and easier to install than comparable alternatives made with traditional materials. Following our entrance into the non-residential construction market with the introduction of N-12 corrugated polyethylene pipe in the late 1980s, our pipe has been displacing traditional materials, such as reinforced concrete, corrugated steel and polyvinyl chloride, or PVC, across an ever expanding range of end markets, 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. 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.

We believe the increasing acceptance of thermoplastic pipe products in international markets represents an attractive growth opportunity. We further believe our extensive national footprint in the United States creates a cost and service advantage compared to our HDPE pipe producing competitors, the largest of which has only nine HDPE pipe manufacturing plants in the United States and Canada and, according to the December 24, 2018 ranking by Plastics News of Pipe, Profile & Tubing Extruders, had estimated sales of $140 million, or approximately ten times less than our net sales for the fiscal year ended March 31, 2019.

As illustrated in the charts below based on our fiscal 2019 revenue, 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.

 

We have a leading domestic and international manufacturing and distribution infrastructure, serving customers in all 50 U.S. states as well as approximately 80 other countries through 56 manufacturing plants and 32 distribution centers, including eight manufacturing plants and five distribution centers owned or leased by our joint ventures. We manufacture our corrugated pipe products in 17 different diameters ranging from 2” to 60” using a continuous extrusion process, where molten polyethylene or polypropylene is pushed through a die into a moving series of corrugated U-shaped molds. Blown air and vacuum are used to form the corrugations of the pipe which is pulled through a corrugator and then cut to length.

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”) and a variety of additional water management products (“Allied Products”) including: storm retention/detention and septic chambers; PVC drainage structures; fittings; and water quality filters and separators. We also sell various complementary products distributed through resale agreements, including geotextile products, drainage grates and other products. The table below summarizes the percentage of Net Sales for Pipe and Allied Products.

 

		2019				2018				2017
Pipe			72	%			72	%			72	%
Allied Products			28	%			28	%			28	%

For the fiscal year ended March 31, 2019, we generated net sales of $1,384.7 million, net income of $81.5 million and Adjusted EBITDA of $232.0 million. For the three months ended June 30, 2019, we generated net sales of $413.7 million, net loss of $227.5 million and Adjusted EBITDA of $80.3 million. As of June 30, 2019, we had $258.4 million of total outstanding debt. For a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, see “—Summary Historical and Unaudited Pro Forma Combined Financial Information of the Company—Company Non-GAAP Measures.”

Recent Developments

Acquisition of Infiltrator

The following summary highlights selected information related to our acquisition of Infiltrator, which we refer to as the “Acquisition.” The summary below may not contain all of the information that is important to you and is qualified in its entirety by more detailed information included or incorporated by reference into this prospectus supplement. The agreement and plan of merger entered into on July 31, 2019 between us and Infiltrator, which we collectively refer to herein as the Merger Agreement, is included as an exhibit to our Current Report on Form 8-K dated August 1, 2019, which is incorporated by reference in this prospectus supplement. The Merger Agreement contains representations warranties and covenants from Infiltrator, which representations and warranties did not survive the consummation of the Merger. The representations and warranties included in the Merger Agreement may not describe the actual state of affairs at the date they were made or at any other time, and investors should not rely on them as statements of fact. The Acquisition is subject to certain risks and uncertainties. See “Risk Factors” set forth in our First Quarter 10-Q incorporated by reference in this prospectus supplement. There can be no assurance that the expected benefits of the Acquisition will be realized when expected, or at all.

On July 31, 2019, the Company, Ocean Sub, Inc., a wholly-owned subsidiary of the Company (the “Merger Sub”), Infiltrator and 2461461 Ontario Limited, entered into a merger agreement (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Infiltrator, with Infiltrator continuing as the surviving corporation and a wholly-owned subsidiary of the Company. The closing of the Acquisition took place simultaneously upon the execution of the Merger Agreement (the “Acquisition Closing Date”).

Infiltrator is a leading national provider of plastic leach field 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 and generated $275.2 million net sales and $9.8 million in net income for the year ended December 31, 2018. Infiltrator has been a longstanding supplier and customer of the Company for over 15 years.

The below charts illustrates Infiltrator’s net sales by product and end-market for the calendar year ended December 28, 2018.

 

The Company paid an aggregate purchase price of approximately $1.08 billion in cash in connection with the Acquisition (the “Acquisition Consideration”), net of cash acquired of $48.5 million, subject to certain post-closing purchase price adjustments. Each holder of vested and unexercised Infiltrator stock options outstanding as of the Acquisition Closing Date received cash in an amount equal to per share cash portion of Acquisition Consideration in excess of the applicable exercise price per share of such options, subject to adjustment. The

Company financed the Acquisition Consideration with borrowings under the Company’s new credit agreement, which replaced the Company’s existing credit facilities, as further described below.

As a result of the Acquisition, management intends to reassess its presentation of reportable segments. While management has not reached any final conclusions, it is expected that beginning with the quarter ended September 30, 2019, we will report the Infiltrator business as a separate reportable segment.

See “The Acquisition and Related Financing” and “Risk Factors—Risks Relating to the Acquisition of Infiltrator and Related Financings” in this prospectus supplement for additional information.

Strategic Rationale for the Acquisition

We believe that the Acquisition represents a strategically and financially compelling transaction that will add scale and differentiation to our manufacturing and recycling capabilities, enhance our margin and growth profiles and diversify our product and end-market mix. Outlined below are a number of the key operating metrics and business mix statistics that we believe make this transaction compelling:

 

 

1.

The presentation of combined figures reflects the aggregate of key operating metrics and business mix statistics, as applicable, for the relevant period, for each of ADS and Infiltrator and does not reflect any pro forma adjustments for the Acquisition and certain other transactions. For additional details regarding such pro forma financial information reflecting the Acquisition and certain other transactions, please refer to “Unaudited Pro Forma Combined Financial Information” included elsewhere in this prospectus supplement.

2.	Excludes $68 million in inter-company sales.

3.	Excludes $20-25 million of run-rate cost savings which are expected to be realized in the first three years.

4.	Manufacturing facilities include facilities related to ADS joint ventures.

Leading water management platform across large and diverse end-markets.

The Acquisition strengthens our position as an industry leading provider of plastic storm water and plastic wastewater solutions globally. We have served the storm water industry for more than 50 years and have over 8.5 billion feet of pipe in service around the world. The Acquisition also adds scale in the on-site wastewater industry. We estimate that the storm water industry 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-family homes utilize septic systems. Prior to the Acquisition, we estimate that the Infiltrator business had approximately a 54% market share within the on-site leachfield systems market, with traditional stone and pipe solutions holding a 39% market share, and a 15% market share in the on-site septic tanks market, with concrete solutions holding a 76% market share and other plastic providers representing a 9% market share. On a combined basis, we estimate that we had an addressable market opportunity of approximately $7 billion for the twelve month period ended June 30, 2019, with the following splits between end markets: non-residential ($3 billion), residential ($3 billion), infrastructure ($1 billion) and agricultural ($0.2 billion). We believe that we had a combined market share of approximately 23% in non-residential, 14% in residential, 10% in infrastructure and 48% in agricultural end-markets for the twelve month period ended June 30, 2019. In addition, we estimate that 52% of our combined last twelve months net sales were generated from the non-residential end market, 33% from the residential end-market, 8% from the infrastructure end-market and 7% from the agricultural end-market.

Favorable material conversion trends drive attractive growth.

Our plastic products are generally lighter, more durable, more cost effective and easier to install than comparable alternatives made with traditional materials. For example, concrete pipe generally weighs more than 20 times as much per foot as our thermoplastic pipe, resulting in the significant handling advantages that our product line enjoys during installation by contractors. These advantages typically provide our thermoplastic pipe products with an installed cost advantage of approximately 20% over concrete pipe. Over the course of our history, we have driven conversion toward plastic solutions in the storm water industry and we believe that these trends will continue in the future as contractors and customers become more aware of the benefits of our solutions. The on-site septic business shares similar conversion dynamics with our core storm water business, with plastic septic chambers and tanks gaining share over traditional products. We estimate that high density polyethylene & polypropylene market share within the storm water industry was 10%, 20% and 32% in 2000, 2010 and 2019, respectively. Similarly, we estimate that plastic share within the leachfield product category was 44%, 58% and 61% in 2005, 2013 and 2018, respectively. Finally, within the market for plastic septic tanks, we estimate that plastic market share was 15%, 20% and 24% in 2008, 2013 and 2018, respectively.

Our market share model accelerates conversion and drives industry leadership.

Our differentiated market share model is centered on four pillars that include seeking regulatory approvals, earning the acceptance of engineers, improving market awareness for our products and driving success rates across projects. Our internal technical engineering team leverages research, studies and relationships to drive regulatory approvals with local agencies and state Departments of Transportation. The Acquisition adds important regulatory and legislative capabilities, with broad reaching relationships in the water management industry. We have approximately 50 field engineers and more than 40 internal engineers and technicians who are focused on building relationships with civil and private engineering firms to boost acceptance rates. We have over 300 sales and engineering professionals and more than 3,000 distribution partners that are driving market awareness on a daily basis. We leverage technology to ensure that we track projects efficiently and successfully obtain orders where possible.

Differentiated recycling capabilities drive low-cost operating position.

Our long-standing experience manufacturing storm water products from recycled materials allows us to realize reduced input costs that enhance our profitability. We are one of the top ten largest recycling companies in North America and are an industry leader in investing in environmentally-sound solutions. Our commitment to

sustainability is core to our business, and our StormTech chambers have managed more that 1.7 billion gallons of storm water run-off while our Barracuda water quality units treat greater than 180,000 gallons of water per minute during storm events. As the sixth largest recycling company in North America, we recycle roughly 400 million pounds of plastic annually by manufacturing our HDPE pipes with roughly 60% recycled content. Infiltrator is a world-class manufacturer of plastic solutions in the on-site septic industry with leading positions in each of its core product offerings. Our combined business benefits from Infiltrator’s differentiated recycling capabilities and position as one of the largest consumers of post-industrial plastic in the United States. In 1991, Infiltrator manufactured the first chamber from 100% recycled materials and in 1995, formally launched the “Champion Recycling facility” which sources and processes consistent materials ranging from post-industrial resins to used carpet, at attractive prices. Sourcing recycled content is less volatile from a pricing perspective than virgin resin, and we estimate that more than 55% of our combined material purchases will be recycled inputs rather than virgin resin (which represents the remaining roughly 42%).

Significant earnings upside from identified synergies and operational initiatives.

Prior to the Acquisition, we had a longstanding commercial relationship with Infiltrator. We have developed an integration strategy that we anticipate will result in run-rate synergies of approximately $4-6 million by year one, $15-18 million by year two and increasing to $20-25 million by year three. In order to realize the benefit of the synergies, we anticipate incurring approximately $7-10 million of potential one-time costs. In addition to the identified one-time cost synergies that we anticipate realizing in the near-to-medium term, we also remain focused on our continuous improvement initiatives.

Attractive margin profile and strong free cash flow provide an opportunity to deleverage.

The Acquisition would have increased our Adjusted EBITDA margins for the twelve months ended June 30, 2019 by 380 basis points. We believe our combined financial profile will provide us with meaningful free cash flow and give us an opportunity to deleverage our balance sheet over the near-term.

Senior Secured Credit Facility

On the Acquisition Closing Date, the Company entered into a credit agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) by and among the Company, as borrower, 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.

The Credit Agreement provides for a term loan facility in an initial aggregate principal amount of $1.3 billion (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”).

On the Acquisition Closing Date, the Company borrowed a total of $1.3 billion under the Term Loan Facility and $145 million under the Revolving Credit Facility, which amounts were used to (i) finance the Acquisition Consideration paid in connection with the closing of the Acquisition, (ii) repay the total outstanding amount as of the Acquisition Closing Date under the Company’s PNC Credit Agreement (as defined and described below), (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 Credit Agreement.

The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its entirety by the full text of such agreement. The Credit Agreement was filed by us as an exhibit to our Current

Report on Form 8-K filed with the SEC on August 1, 2019 and is incorporated by reference into the registration statement to which this prospectus supplement relates. See “The Acquisition and Related Financing” in this prospectus supplement for additional information.

Repayment of Indebtedness under Shelf Note Agreement and PNC Credit Agreement

On July 29, 2019, the Company repaid in full all of its and its subsidiaries indebtedness and other obligations totaling $104,433,182 under that certain Second Amended and Restated Private Shelf Agreement, dated as of June 22, 2017 (as amended, the “Shelf Note Agreement”), 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 “Shelf Noteholders”). The Company repaid the outstanding indebtedness under the Shelf Note Agreement using borrowings from the Company’s then-existing credit facility pursuant to that Second Amended and Restated Credit Agreement, dated as of June 22, 2017 (as amended, the “PNC Credit Agreement”), by and among the Company, as borrower, the guarantors from time to time a party thereto, the lenders from time to time party thereto (the “Prior Lenders”), PNC Bank, National Association, as administrative agent for the lenders party thereto, and the other parties thereto. Concurrently with the repayment, the Shelf Noteholders authorized and directed PNC Bank, National Association, in its capacity as collateral agent to release the security interests and liens securing the Shelf Note Agreement and the Shelf Note Agreement was terminated.

On the Acquisition Closing Date, using borrowings of the Term Loan Facility and the Revolving Credit Facility, the Company repaid in full all of its and its subsidiaries indebtedness and other obligations totaling $239,240,345 under the PNC Credit Agreement. Concurrently with the repayment, all security interests and liens held by the collateral agent on behalf of the Shelf Noteholders and on behalf of the Prior Lenders securing the PNC Credit Agreement were terminated and released and the PNC Credit Agreement was terminated.

See “The Acquisition and Related Financing” in this prospectus supplement for additional information.

Proposed Offering of Senior Notes

Subject to market conditions, upon completion of this offering we intend to promptly commence an offering of up to $500 million of a new series of senior notes (the “Senior Notes”) (the “Senior Note Offering”) through a private placement to certain qualified institutional buyers under Rule 144A or Regulation S of the Securities Act of 1933, as amended (the “Securities Act”). The completion of this offering is not conditioned upon the completion of the proposed Senior Note Offering. We intend to use the net proceeds from the Senior Note Offering to pay down existing indebtedness under our Senior Secured Credit Facility incurred in connection with the Acquisition, and for general working capital purposes. There is no assurance that we will commence or complete the Senior Note Offering. This prospectus supplement is not an offer to sell debt securities, including the Senior Notes. Any offer to sell debt securities will be made only by a separate offering document.

Corporate Information

We were founded in 1966 and are a Delaware corporation. Our common stock is listed on the NYSE under the symbol “WMS.” Our principal executive offices are located at 4640 Trueman Boulevard, Hilliard, Ohio 43026, and our telephone number at that address is (614) 658-0050. We refer you to the documents incorporated by reference in this prospectus supplement and the accompanying prospectus, as described in the section “Incorporation of Certain Information by Reference” in the accompanying prospectus, for more information about us and our businesses. Our corporate website is www.ads-pipe.com. Information on, and which can be accessed through, our website is not part of, and is not incorporated by reference in this prospectus supplement or the accompanying prospectus.

The Offering

 

Issuer

Advanced Drainage Systems, Inc.

 

Common stock offered

9,000,000 shares (or 10,350,000 shares if the underwriters exercise in full their option to purchase additional shares).

 

Common stock outstanding immediately after this offering

66,779,302 shares (or 68,129,302 shares if the underwriters exercise in full their option to purchase additional shares).

 

Option to purchase additional shares of common stock

The underwriters have a 30-day option to purchase up to an additional 1,350,000 shares of common stock from us.

 

New York Stock Exchange symbol

“WMS.”

 

Use of proceeds

We intend to use the net proceeds from this offering to pay down existing indebtedness under our Senior Secured Credit Facility. We intend to use the remaining proceeds (if any) for general corporate purposes. See “Use of Proceeds.”

 

Conflicts of Interest

A portion of the net proceeds from this offering will be used to pay down existing indebtedness under our Senior Secured Credit Facility as further described above under “—Recent Developments.” Because an affiliate of each of Barclays Capital Inc., Morgan Stanley & Co. LLC, BofA Securities, Inc. and PNC Capital Markets LLC are lenders under our Senior Secured Credit Facility and each will receive 5% or more of the net proceeds of this offering as a result of the partial repayment of the outstanding borrowings under our Senior Secured Credit Facility, Barclays Capital Inc., Morgan Stanley & Co. LLC, BofA Securities, Inc. and PNC Capital Markets LLC are each deemed to have a “conflict of interest” under Rule 5121 (“Rule 5121”) of the Financial Industry Regulatory Authority, Inc., or FINRA. As a result, this offering is being made in compliance with Rule 5121. Pursuant to that rule, the appointment of a “qualified independent underwriter” is not required in connection with this offering as a “bona fide public market” exists in the shares, as that term is defined in Rule 5121. See “Use of Proceeds” and “Underwriting (Conflicts of Interest).”

 

Risk Factors

An investment in our common stock involves risk. You should carefully consider the information set forth in the section entitled “Risk factors” in this prospectus supplement, In Part I—Item 1A, “Risk Factors,” of the 2019 Annual Report and in Part II—Item 4, “Risk Factors,” of the First Quarter 10-Q, each incorporated by reference in this prospectus supplement.

The number of shares of common stock to be outstanding immediately following this offering is based on 57,779,302 shares of our common stock outstanding as of June 30, 2019 and excludes:

 

•

41,559 shares of restricted stock outstanding as of June 30, 2019 under our 2008 Restricted Stock Plan;

 

•

261,568 shares of restricted stock outstanding as of June 30, 2019 under our 2017 Omnibus Plan;

•

241,134 shares of performance stock units as of June 30, 2019 under our 2017 Omnibus Plan;

 

•

79,403 shares of common stock issuable upon exercise of options outstanding as of June 30, 2019 at a weighted average exercise price of $14.61 per share under our 2000 Incentive Stock Option Plan;

 

•

1,840,586 shares of common stock issuable upon exercise of options outstanding as of June 30, 2019 at a weighted average exercise price of $20.44 per share under our 2013 Stock Option Plan and 2017 Omnibus Plan; and

 

•

2,109,591 shares of common stock reserved for future issuance as of June 30, 2019 under our 2017 Omnibus Plan.

Unless otherwise indicated, all information in this prospectus supplement assumes no exercise by the underwriters of their option to purchase additional shares.

Certain members of our management have agreed to purchase an aggregate of 162,473 shares of our common stock in this offering at the public offering price. The underwriters will receive the same underwriting discount on any shares purchased by these stockholders as they will on any other shares sold to the public in this offering.

Summary Historical and Unaudited Pro Forma Combined Financial Information of the Company

The following table sets forth summary historical consolidated financial information for the Company as of and for the three months ended June 30, 2019 and 2018 and the fiscal years ended March 31, 2019, 2018 and 2017 and summary pro forma financial information for the Company as of and for the three months ended June 30, 2019 and the fiscal year ended March 31, 2019.

The following consolidated statement of operations and consolidated statement of cash flows data for the years ended March 31, 2019, 2018 and 2017, and consolidated balance sheet data as of March 31, 2019 and 2018, were derived from our audited consolidated financial statements. The following condensed consolidated statement of operations and condensed consolidated statement of cash flows data for the three months ended June 30, 2019 and 2018 and condensed consolidated balance sheet data as of June 30, 2019, , were derived from our unaudited condensed consolidated financial statements, which, in our opinion, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our financial position and results of operations for such periods. The results for the three months ended June 30, 2019 are not necessarily indicative of results to be expected for the fiscal year ending March 31, 2020 or any interim period or any future period or year.

We have incorporated by reference herein our consolidated financial statements as of March 31, 2019 and 2018, and for the years ended March 31, 2019, 2018 and 2017, from our 2019 Annual Report, and our condensed consolidated financial statements as of June 30, 2019, and for the three months ended June 30, 2019 and 2018, from our First Quarter Form 10-Q. The following table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes thereto included in our 2019 Annual Report and our First Quarter Form 10-Q, each incorporated by reference in this prospectus supplement. This information is only a summary and should be read together with the consolidated financial statements, the related notes and other financial information incorporated by reference in this prospectus supplement.

The following summary unaudited pro forma financial information as of and for the three months ended June 30, 2019 and for the fiscal year ended March 31, 2019 are derived from our unaudited pro forma financial information that are included elsewhere in this prospectus supplement. The summary unaudited pro forma financial information as of and for the three months ended June 30, 2019 and for the year ended March 31, 2019 have been prepared to reflect the Acquisition and other transactions described under “Unaudited pro forma combined financial information,” including the completion of this offering and the use of proceeds therefrom, as if these transactions occurred on April 1, 2018 for the unaudited pro forma combined statements of operations data and June 30, 2019 for the unaudited pro forma balance sheet data. The following summary unaudited pro forma financial information is based on our assumed offering of 7,500,000 shares of common stock at an assumed purchase price of $33.33, which would result in aggregate offering proceeds of $250 million. The following summary unaudited pro forma financial information is presented for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the dates indicated, nor are they indicative of future operating results.

The unaudited combined pro forma financial information has been prepared in advance of closing of the Acquisition; the final amounts recorded upon the closing of the Acquisition may differ materially from the information presented. The unaudited combined pro forma financial information has been prepared using the acquisition method of accounting under U.S. generally accepted accounting principles, which are subject to change and interpretation. The acquisition accounting is dependent upon certain valuations and other studies that have yet to be completed. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited combined pro forma financial information. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could have a material impact on the accompanying unaudited combined pro forma financial information and the Company’s future results of operations and financial position.

 

		Pro Forma								Historical
		Three  Months Ended June 30, 2019				Fiscal  Year Ended March 31, 2019				Three Months Ended June 30,								Fiscal Year Ended March 31,
(Amounts in thousands, except per share data)										2019				2018				2019				2018				2017
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
Consolidated statement of operations data:
Net sales		$	483,944			$	1,608,450			$	413,708			$	387,847			$	1,384,733			$	1,330,354			$	1,257,261
Cost of goods sold			339,470				1,170,980				307,256				288,156				1,057,766				1,027,873				961,451
Cost of goods sold—ESOP special dividend compensation			168,610				—				168,610				—				—				—				—
Gross profit			(24,136	)			437,470				(62,158	)			99,691				326,967				302,481				295,810
Selling expenses			29,780				107,907				26,365				24,165				96,335				92,764				91,475
General and administrative expenses			34,205				116,538				31,433				21,382				89,692				98,392				110,950
Selling, general and administrative—ESOP special dividend compensation			78,142				—				78,142				—				—				—				—
Loss on disposal of assets and costs from exit and disposal activities			707				3,669				707				1,104				3,647				15,003				8,509
Intangibles amortization			12,549				49,507				1,542				1,984				7,880				8,068				8,548
Income from operations			(179,519	)			159,849				(200,347	)			51,056				129,413				88,254				76,328
Interest expense			18,001				72,582				5,264				3,802				18,618				15,262				17,467
Derivative (gains) losses and other (income) expense, net			(11	)			(433	)			(96	)			(814	)			(815	)			(3,950	)			(5,970	)
Income before income taxes			197,509				87,700				(205,515	)			48,068				111,610				76,942			$	64,831
Income tax expense			23,225				22,975				22,370				14,284				30,049				11,411				24,615
Equity in net loss of unconsolidated affiliates			(434	)			95				(434	)			133				95				739				4,308
Net income (loss)			(220,300	)			64,630				(227,451	)			33,651				81,466				64,792				35,908
Less: net income attributable to noncontrolling interest			(1,095	)			3,694				(1,095	)			1,371				3,694				2,785				2,958
Net income (loss) attributable to ADS		$	219,205			$	60,936			$	(226,356	)		$	32,280			$	77,772			$	62,007			$	32,950
Weighted average common shares outstanding:
Basic			65,076				64,525				57,576				56,594				57,025				55,696				54,919
Diluted			65,076				65,111				57,576				57,158				57,611				56,334				55,624
Net income (loss) per share
Basic		$	(3.48	)		$	0.86			$	(4.06	)		$	0.51			$	1.23			$	1.00			$	0.51
Diluted		$	(3.48	)		$	0.85			$	(4.06	)		$	0.51			$	1.22			$	0.99			$	0.50
Cash dividends declared per share		$	1.09			$	0.32			$	1.09			$	0.08			$	0.32			$	0.28			$	0.24

		Pro Forma				Historical
		As of June  30, 2019				As of June 30,								As of March 31,
(Amounts in thousands)						2019				2018				2019				2018				2017
		(unaudited)				(unaudited)				(unaudited)
Consolidated balance sheet data:
Cash		$	15,949			$	9,357			$	18,394			$	8,891			$	17,587			$	6,450
Working capital (1)			297,444				236,672				284,339				260,228				237,210				184,812
Total assets			2,291,758				1,068,415				1,090,906				1,042,159				1,043,242				1,046,285
Long-term debt			1,115,374				230,337				278,561				208,602				270,900				310,849
Long-term finance lease obligations			56,368				56,368				57,388				61,555				59,963				58,710
Total liabilities			1,612,270				608,074				626,328				541,524				609,433				695,850
Total mezzanine equity (2)			248,157				248,157				108,039				102,322				109,550				112,825
Total stockholders’ equity			431,331				212,184				356,539				398,313				324,259				237,610
Consolidated statement of cash flows data:
Net cash provided by operating activities						$	62,840			$	9,831			$	151,678			$	137,120			$	104,239
Net cash used in investing activities							(9,736	)			(6,983	)			(42,544	)			(30,445	)			(61,259	)
Net cash used in financing activities							(52,633	)			(1,598	)			(117,655	)			(94,953	)			(42,825	)
Other financial data:
Adjusted EBITDA (Non-GAAP) (3)						$	80,296			$	75,143			$	231,960			$	210,230			$	193,371
Capital expenditures							(9,723	)			(6,874	)			(43,412	)			(41,709	)			(46,676	)
Free Cash Flow (Non-GAAP) (3)						$	53,117			$	2,957			$	108,266			$	95,411			$	57,563

 

(1)	Working capital is equal to current assets less current liabilities. Working capital is an indication of liquidity and potential need for short term funding.

 

(2)

Our mezzanine equity consists of the redeemable convertible preferred stock held by our Employee Stock Ownership Plan (“ESOP”). Prior to the acquisition of the noncontrolling interest in third quarter of fiscal 2019, the redeemable noncontrolling interest in subsidiaries related to the noncontrolling interest in the BaySaver joint venture.

 

(3)	For a reconciliation of the most directly comparable GAAP financial measures to Adjusted EBITDA and Free Cash Flow, see “—Company Non-GAAP Measures” below.

Company Non-GAAP Measures

The following table presents a reconciliation of EBITDA and Adjusted EBITDA to Net income (loss), the most comparable GAAP measure, for each of the periods indicated.

 

		Three Months Ended June 30,								Fiscal Year Ended March 31,												Twelve Months Ended June 30, 2019*
(Amounts in thousands)		2019				2018				2019				2018				2017
Net income (loss)		$	(227,451	)		$	33,651			$	81,466			$	64,792			$	35,908			$	(179,636	)
Depreciation and amortization			16,694				17,827				71,900				75,003				72,355				70,767
Interest expense			5,264				3,802				18,618				15,262				17,467				20,080
Income tax expense			22,370				14,284				30,049				11,411				24,615				38,135
EBITDA			(183,123	)			69,564				202,033				166,468				150,345				(50,654	)
Loss on disposal of assets or businesses			707				1,104				3,647				15,003				8,509				3,250
ESOP and Stock-based compensation expense			7,425				5,580				21,828				18,845				17,875				23,673
ESOP special dividend compensation (1)			246,752				—				—				—				—				246,752
Transaction costs (2)			4,245				256				699				1,362				372				4,688
Derivative fair value adjustments			62				(12	)			634				(443	)			(10,921	)			—
Restatement -related costs			—				(1,231	)			(1,924	)			4,227				24,026				—
Strategic growth and operational improvement initiatives (3)			2,195				—				3,450				—				—				5,645
Other adjustments (4)			2,033				(118	)			1,593				4,768				3,165				3,759
Adjusted EBITDA		$	80,296			$	75,143			$	231,960			$	210,230			$	193,371			$	237,113
Adjusted EBITDA Margin			19.4	%			19.4	%			16.8	%			15.8	%			15.4	%			16.8	%

 

*	The information presented for the twelve months ended June 30, 2019 was calculated by subtracting the data for the three months ended June 30, 2018, from data for the fiscal year ended March 31, 2019 and adding the data for the three months ended June 30, 2019.

 

(1)	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.

 

(2)	Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with the PNC Credit Agreement and Shelf Note Agreement and potential business or asset acquisitions and dispositions.

 

(3)

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.

 

(4)

Includes foreign currency transaction (gains) losses, the proportional share of interest, income taxes, depreciation and amortization related to the South American Joint Venture, which are accounted for under the equity method of accounting, contingent consideration remeasurement and executive retirement expense (benefit). The other adjustments in fiscal 2020 also includes expenses related to the ADS Mexicana’s investigation. The other adjustments for fiscal 2019 also includes insurance proceeds received in connection with the Company’s restatement of prior period financial statements as reflected on the Company’s Form 10-K for the fiscal year ended March 31, 2015 and the Form 10-K for the fiscal year ended March 31, 2016, as amended.

The following table presents a reconciliation of Free Cash Flow to Cash flow from operating activities, the most comparable GAAP measure, for each of the periods indicated.

 

		Three Months Ended June 30,								Fiscal Year Ended March 31,
(Amounts in thousands)		2019				2018				2019				2018				2017
Cash flow from operating activities		$	62,840			$	9,831			$	151,678			$	137,120			$	104,239
Capital expenditures			(9,723	)			(6,874	)			(43,412	)			(41,709	)			(46,676	)
Free Cash Flow		$	53,117			$	2,957			$	108,266			$	95,411			$	57,563
Free Cash Flow Conversion			66.2	%			3.9	%			46.7	%			45.4	%			29.8	%

The following tables present a calculation of Adjusted EBITDA, Free Cash Flow, Net Sales and Gross Profit for the twelve months ended June 30, 2019.

 

		Twelve Months Ended March 31, 2019				Three Months Ended								Twelve Months  Ended June 30, 2019
						June 30, 2018 (1)				June 30, 2019
Net income (loss)		$	81,466				(33,651	)			(227,451	)		$	(179,636	)
Depreciation and amortization			71,900				(17,827	)			16,694				70,767
Interest expense			18,618				(3,802	)			5,264				20,080
Income tax expense			30,049				(14,284	)			22,370				38,135
EBITDA			202,033				(69,564	)			(183,123	)			(50,654	)
Loss on disposal of assets or businesses			3,647				(1,104	)			707				3,250
ESOP and stock-based compensation expense			21,828				(5,580	)			7,425				23,673
ESOP special dividend compensation			—				—				246,752				246,752
Transaction costs			699				(256	)			4,245				4,688
Derivative fair value adjustments			634				12				62				708
Restatement-related costs			(1,924	)			1,231				—				(693	)
Strategic growth and operational improvement initiatives			3,450				—				2,195				5,645
Other Adjustments			1,593				118				2,033				3,744
Adjusted EBITDA		$	231,960			$	(75,143	)		$	80,296			$	237,113
Adjusted EBITDA Margin			16.8	%											16.8	%

 

		Twelve Months Ended March 31, 2019				Three Months Ended								Twelve Months Ended June 30, 2019
						June 30, 2018 (1)				June 30, 2019
Cash flow from Operations		$	151,678				(9,831	)			62,840			$	204,687
Capital Expenditures			(43,412	)			6,874				(9,723	)			(46,261	)
Free Cash Flow		$	108,266			$	(2,957	)		$	53,117			$	158,426
Free Cash Flow Conversion			46.7	%											66.8	%

 

		Twelve Months Ended March 31, 2019				Three Months Ended								Twelve Months Ended June 30, 2019
						June 30, 2018 (1)				June 30, 2019
Net Sales		$	1,384,733				(387,847	)			413,708			$	1,410,594
Gross Profit			326,967				(99,691	)			(62,158	)			165,118

 

 

(1)	In order to calculate the twelve months ended June 30, 2019, this column is reflected as the inverse of its reported value.

Summary Historical Consolidated Financial Information of Infiltrator

The following table sets forth the summary historical consolidated financial information of Infiltrator for the periods indicated. The summary consolidated statements of operations and comprehensive income (loss) and consolidated statement of cash flows information is presented below for the three years ended December 28, 2018, December 29, 2017 and December 30, 2016 and the consolidated balance sheet information as of December 28, 2018 and December 29, 2017 have been derived from the audited consolidated financial statements of Infiltrator incorporated by reference into this prospectus supplement. The summary condensed consolidated statements of operations and comprehensive income and condensed consolidated statement of cash flows for the six months ended July 5, 2019 and June 29, 2018 and the condensed consolidated balance sheet information as of July 5, 2019 have been derived from the unaudited condensed consolidated financial statements of Infiltrator incorporated by reference into this prospectus supplement which, in the opinion of the Company’s management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of Infiltrator’s financial position and results of operations for such period. The historical results presented below are not necessarily indicative of financial results to be achieved by the Company following the Acquisition. You should read the summary historical consolidated financial information together with the historical consolidated financial statements of Infiltrator and the related notes incorporated by reference into this prospectus supplement. See “Where you can find more information” in this prospectus supplement.

 

		Six Months Ended								Year Ended
		July 5, 2019				June 29, 2018				December 28, 2018				December 29, 2017				December 30, 2016
Consolidated statement of operations data: (Amounts in thousands)
Net sales		$	160,913			$	135,903			$	275,198			$	255,226			$	233,394
Cost of goods sold			95,355				86,475				173,252				170,398				163,050
Gross profit			65,558				49,428				101,946				84,828				70,344
Selling, General, and Administrative Expenses			15,736				13,196				28,000				25,835				19,761
Transaction related expenses			1,165				252				252				931				—
Legal settlement			—				—				7,500				—				—
Amortization expense related to intangible assets			15,560				15,590				31,180				30,566				31,241
Research and development			1,095				968				1,939				764				1,258
Loss on sale of property, plant, and equipment			—				23				23				82				—
Operating income			32,002				19,399				33,052				26,650				18,084
Other income (expense):
Interest expense-net			(11,074	)			(9,648	)			(19,580	)			(23,707	)			(24,260	)
Other expense-net			(200	)			(160	)			(319	)			(280	)			(295	)
Income from operations before income taxes			20,728				9,591				13,153				2,663				(6,471	)
Income tax expense (benefit)			4,018				2,670				3,334				(40,142	)			(86	)
Net income (loss)		$	16,710			$	6,921			$	9,819			$	42,805			$	(6,385	)