ADVANCED DRAINAGE SYSTEMS, INC.WMS

ADVANCED DRAINAGE SYSTEMS, INC. Fair Value Disclosure

10-KFiled May 15, 20252 min read
FAIR VALUE MEASUREMENT AND DERIVATIVE TRANSACTIONS
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 periods 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, the Company 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.
Derivatives - A summary of the fair values for the various derivatives, which are all measured using Level 2 inputs, at March 31, 2025 and 2024 is presented below:
 Diesel fuel option collars and swaps
 Assets Liabilities
(Amounts in thousands)Receivables Other assets 
Other accrued liabilities
 
Other liabilities
March 31, 2025$223 $2 $(248)$(25)
March 31, 2024521 134 (584)(184)
There were no transfers in or out of Level 3 for the fiscal years ended March 31, 2025 and 2024.
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 2027 Notes, 2030 Notes and Equipment Financing (as further discussed in “Note 12. Debt”) for the periods presented:
 March 31, 2025 March 31, 2024
(Amounts in thousands)Fair Value Carrying Value Fair Value Carrying Value
Senior Notes due 2027$344,036 $350,000 $339,780 $350,000 
Senior Notes due 2030500,845 500,000 502,890 500,000 
Equipment Financing6,714 5,988 10,475 10,901 
Total$851,595 $855,988 $853,145 $860,901 
The fair values of the 2027 Notes and 2030 Notes were determined based on quoted market data for the Company’s 2027 Notes and 2030 Notes, respectively. The fair value of the Equipment Financing was determined based on a comparison of the interest rate and terms of such borrowings to the rates and terms of similar debt available for the period. The categorization of the framework used to evaluate the 2027 Notes, 2030 Notes and Equipment Financing are 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.

Historical Timeline

Fiscal YearFiled
2025May 15, 2025Showing above
2017May 30, 2017

About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.

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