UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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R☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended August 31, 2019.
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| For the fiscal year ended August 31, 2016 |
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o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to . |
Commission file number 001-16583.
ACUITY BRANDS, INC.INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | 001-16583 | | 58-2632672 |
| (State or other jurisdiction of incorporation or organization) | | (Commission File Number) | | (I.R.S. Employer Identification Number) |
1170 Peachtree Street, N.E., Suite 2300, Atlanta, Georgia
(Address of principal executive offices)
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(Zip Code)
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(404) 1170 Peachtree Street, N.E., Suite 2300, Atlanta, Georgia30309-7676
(Address of principal executive offices)
(404) 853-1400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Classeach class | | Trading symbol | | Name of Each Exchangeeach exchange on Which Registeredwhich registered |
Common Stock ($0.01 Par Value)stock, $0.01 par value per share | | AYI | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesþ☑No o☐
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐Noþ☑
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. Yesþ☑Noo☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yesþ☑ Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filerþ | ☑ | Accelerated Filero | ☐ | Non-accelerated Filero | ☐ |
Smaller Reporting Companyo |
| ☐ | (Do not check if a smaller reporting company)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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o☐Noþ☑
Based on the closing price of the Registrant’s common stock of $209.43$130.12 as quoted on the New York Stock Exchange on February 29, 2016,28, 2019, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $9,113,731,801.$4.55 billion.
The number of shares outstanding of the registrant’s common stock, $0.01 par value, was 44,082,63939,643,111 shares as of October 26, 2016.23, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
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| Location in Form 10-K | | Incorporated Document |
Part II, Item 5 | | Proxy Statement for 2016 Annual Meeting of Stockholders |
| 5; Part III, Items 10, 11, 12, 13, and 14 | | Proxy Statement for 20162019 Annual Meeting of Stockholders |
ACUITY BRANDS, INC.
Table of Contents
PART I
($ in millions, except per-share data and as indicated)
Overview
Acuity Brands, Inc. (“Acuity Brands”) is the parent company of Acuity Brands Lighting, Inc. (“ABL”) and other wholly-owned subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred to herein as the "Company”),“we,” “our,” “us,” “the Company,” or similar references) and was incorporated in 2001 under the laws of the State of Delaware. The Company isWe are one of the world’s leading providers of lighting and building management solutions and services for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. The Company’sOur lighting and building management solutions vary from individualinclude devices to intelligent network systems. Individual devices includesuch as luminaires, lighting controls, lighting components, controllerscontrols for various building systems, (including HVAC, lighting, shades and access control), power supplies, prismatic skylights, and prismatic skylights. Among other benefits, intelligent networkdrivers, as well as integrated systems candesigned to optimize energy efficiency and comfort as well as enhance the occupant experience for various indoor and outdoor applications, all the while reducing operating costs.applications. Additionally, the Company continueswe continue to expand itsour solutions portfolio, including software and services, to provide a host of other economic benefits resulting from data analytics that enables the “InternetInternet of Things” ("IoT"Things (“IoT”) and, supports the advancement of smart buildings, smart cities, and the smart grid.grid, and allows businesses to develop custom applications to scale their operations. We have one reportable segment serving the North American lighting market and select international markets.
As a results-driven, customer-centric company, management continues to align the unique capabilities and resources of the organization to drive profitable growth by providing comprehensive, differentiated, and integrated lighting and building management solutions and services for customers, driving world-class cost efficiency, and leveraging a culture of operational excellence through continuous improvement.
Lighting and building management solutions vary significantly in terms of functionality and performance and are selected based on a customer's specification, including the aesthetic desires and performance requirements for a given application. The Company’sOur lighting and building management solutions are marketed under numerous brand names, including but not limited to Lithonia Lighting®, Holophane®, Peerless®, Gotham®, Mark Architectural Lighting™, Winona® Lighting, Juno®, Indy™, AccuLite®, Aculux™, Healthcare Lighting®, Hydrel®, American Electric Lighting®, Carandini®, Antique Street Lamps™, Sunoptics®, RELOC® Wiring Solutions, eldoLED®, Distech Controls®, nLight®, ROAM®, Sensor Switch®, Power Sentry®, IOTA®, and Acuity Controls™Atrius™. As of August 31, 2016, the Company manufactures2019, we manufacture products in 1716 facilities in North America and threetwo facilities in Europe.Europe and employ approximately 12,000 associates.
Principal customers include electrical distributors, system integrators, retail home improvement centers, electric utilities, national accounts, system integrators, digital retailers, lighting showrooms, national accounts, and energy service companies located in North America and select international markets serving new construction, renovation and retrofit, and maintenance and repair applications. In North America, the Company’sOur lighting and building management solutions are sold primarily bythrough independent sales agents electrical distributors, system integrators, and sales representatives who cover specific geographic areas and market channels.channels, by internal sales representatives, through consumer retail channels, and directly to large corporate accounts. Products are delivered directly or through a network of distribution centers, regional warehouses, and commercial warehouses using both common carriers and a company-managed truck fleet. To serve international customers, the sales forces utilize a variety of distribution methods to meet specific individual customer or country requirements. In fiscal 2016,2019, sales originated in North America and the United States accounted for approximately 96%98% and 89% of net sales.sales, respectively. See the Supplemental Disaggregated Information footnote of the Notes to Consolidated Financial Statements for more information concerning theour domestic and international net sales of the Company. The Company has one reportable segment serving the North American and select international lighting and building management markets.sales.
Industry Overview
Based on industry sources and government information, the Company estimateswe estimate that in fiscal 20162019 the size of the North American lighting and building management solutions market served by the Companywe serve (also referred to herein as “addressable market”) was approximately $19over $20 billion and similar to the prior year as the addressable market was estimated to be down modestly to flat compared with fiscal 2018. The addressable market includes non-portable luminaires (asas defined by the National Electrical Manufacturers Association),Association; poles for outdoor lighting,lighting; emergency lighting fixtures, daylighting,fixtures; daylighting; lighting controls, as well ascontrols; heating, ventilation, and air conditioning (“HVAC”) controls; and building management controllerscontrols, software, and systems. This market estimate is based on a combination of external industry data and internal estimates and excludes portable and vehicular lighting fixtures and certain related lighting components, such as non-integrated lighting ballasts and most lamps. A source of demand for the lighting and building management industry is attributed to the renovation and retrofit of less efficient lighting and building management systems. While the precise size of the North American market is not known, the Company estimateswe estimate the potential size of the installed base of lighting and building management solutions to be well in excess ofover $500 billion.
The Company operates
We operate in a highly competitive industry that is affected by volatility from a number of general business and economic factors, such as, but not limited to, gross domestic product growth, employment levels, credit availability, building costs, building occupancy rates, imports and trade, energy costs, and commodity costs. The Company’scosts, including tariffs. Our market is based on residentialnon-residential and non-residentialresidential construction, both
new andas well as renovation and retrofit activity, which is sensitive to the volatility of these general economic factors. The Company isWe are not aware of any data that accurately quantifies the split of the non-residential lighting market between new construction and renovation and retrofit activity; however, recent trends developed from industry sources and Companyour estimates suggestindicate that renovation and retrofit activity represents a growing proportion of the total non-residential lighting market. Construction spending on commercial, institutional, industrial, and infrastructure projects such as highways, streets, and urban developments has a material impact on the demand for the Company’s infrastructure-focusedour lighting and building management solutions. Demand for the Company’sour lighting and building management solutions sold through certain retail channels is highly dependent on economic drivers, such as consumer spending and discretionary income, along with housing construction and home improvement spending.
The residential and non-residentialOur market is influenced by: the development of new lighting technologies, including solid-state lighting, electronic drivers, embedded lighting controls, and more effective optical designs and lamps; federal, state, and local requirements for updated energy codes; incentives by federal, state, and local municipal authorities, as well as utility companies, for using more energy-efficient lighting and building management solutions; and design strategies and technologies addressing sustainability and facilitating smarter buildings and cities. The Company isWe are a leading provider of integrated lighting and building management solutions based on these technologies and utilizesutilize internally developed, licensed, or acquired intellectual property. Solid-state lighting and digital building management systems provide the opportunity for lighting and building management systems to be integrated in a manner resulting in theallowing for an optimal platform for enabling the IoT that collectcollects and exchangeexchanges data to increase efficiency as well as provide a host of other economic benefits resulting from data analytics and other features. TheWe expect that the industry’s addressable market is likely to meaningfully expand due to the benefits and value creation provided by intelligent networked lighting, and building management systems.systems, and the IoT. New entrants, including both well-established as well as new software and technology companies, therefore continue to develop capabilities and solutions that are both complementary as well as competitive to those of traditional industry participants.
Products and Solutions
The Company offersWe offer a broad portfolio of indoor and outdoor lighting and building management solutions for commercial, institutional, industrial, infrastructure, and residential applications. The portfolio of lighting solutions includes lighting products utilizing fluorescent, light emitting diode ("LED"(“LED”), organic LED ("OLED"),fluorescent, incandescent, high intensity discharge, halogen, and metal halide and incandescent light sources to illuminate an extensive number of applications as well as standalone and embedded lighting control solutions from simple to sophisticated, wired and wireless. Lighting and controls products and solutions include the following: recessed, surface, and suspended lighting; downlighting; decorative lighting; emergency and exit lighting; track lighting; daylighting; special-use lighting; street and roadway lighting; parking garage lighting; underwater lighting; area pedestrian, flood, and decorative site lighting; landscape lighting; occupancy sensors; photocontrols; relay panels; architectural dimming panels; and integrated lighting controls systems. Building management solutions include products and solutions for controlling HVAC, lighting, shades, and access control that deliver end to end optimization of those building systems. The Company'sOur lighting and building management solutions are designed to enhance the occupant experience, improve the quality of the visual environment, and provide seamless operational energy efficiency and cost reductions, as well as increased digital functionality due to a unique capability to collect vast amounts of data that can better enable the IoT for building owners.
The solutions portfolio of the Company We also includes modular wiring, LED drivers, sensors, glass, and inverters sold primarilysell products to original equipment manufacturers ("OEMs"(“OEMs”). that include LED drivers, power supplies, modular wiring, sensors, glass, and inverters.
In addition, the Company provideswe provide services across applications that primarily relate to monitoring and controlling lighting and building management systems through network technologies and the commissioning of control systems. We also offer the Atrius™ IoT platform, which delivers connectivity and intelligence to a space via an expansive network of smart LED lighting and controls and a software platform that gathers, unlocks and transforms raw data to enable a broad range of software solutions addressing critical business challenges. Our total solution offerings include recurring services that deliver an array of capabilities, including indoor positioning, asset tracking, space utilization, spatial analytics, and energy management.
Sales of lighting and building management solutions, excluding services, accounted for approximately 99% of our total consolidated net sales for the Company in fiscal 2016, 2015,2019, 2018, and 2014.2017.
Sales and Marketing
Sales. The Company sellsSales
We sell lighting and building management solutions to customers in the North American market utilizing numerous sales forces, including internal direct salespeople and independent sales agencies, based on the channel and geography served. The CompanyWe also operatesoperate separate European sales forces, including independent international sales agencies and system integrators, and an international sales group coordinating export sales outside of North America and Europe.
Marketing. The Company markets itsMarketing
We market our portfolio and service capabilities to customers and/or end users in multiple channels through a broad spectrum of marketing and promotional methods, including direct customer contact, trade shows, on-site training, print and digital advertising in industry publications, product brochures, and other literature, as well as the internetthrough digital marketing and
social media. The Company operatesWe operate training and displayeducation facilities in several locations throughout North America and Europe designed to enhance the lighting knowledge of customers and industry professionals.
Customers
Customers of the CompanyOur customers include electrical distributors, system integrators, retail home improvement centers, electric utilities, national accounts, system integrators, utility distributors, national accounts, value-added resellers, digital retailers, government entities and municipalities, lighting showrooms, developers, OEMs, and energy service companies. In addition, there are a variety of other professionals who can represent a significant influence in the product and solutions specification process for any given project. These generally include building owners, federal, state, and local governments, contractors, engineers, architects, and lighting designers.
No single customer accounted for more than 10% of net sales in fiscal 2016. A single customer of the Company, The Home Depot, accounted for approximately 11% and 12% of net sales in fiscal 2015 and 2014, respectively. These sales include products for resale as well as for lighting its facilities.
Manufacturing and Distribution
The Company operates 20We operate 18 manufacturing facilities, including nineeight facilities in the United States, six facilities in Mexico, threetwo facilities in Europe, and two in Canada. The Company utilizesWe utilize a blend of internal and outsourced manufacturing processes and capabilities to fulfill a variety of customer needs in the most cost-effective manner. Certain critical processes, such as reflector forming and anodizing, high-end glass production, surface mount circuit board production, and assembly are performed (not exclusively) at company-operated facilities, offering the ability to differentiate products through superior capabilities. Other components, such as lamps, LEDs, certain LED light engines,drivers, lamps, sockets, and ballasts are purchased primarily from third-party vendors. The Company’sOur investment in itsour production facilities is focused primarily on improving capabilities, product quality, and manufacturing efficiency as well as environmental, health, and safety compliance. The CompanyWe also utilizesutilize contract manufacturing from U.S., Asian, and European sources for certain products. Of totalThe following table shows the percentage of finished goods manufactured and purchased in fiscal 2016,2019 by significant geographic region.
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| | Manufactured | | Purchased | | Total |
| United States | 19 | % | | 7 | % | | 26 | % |
| Mexico | 60 | % | | — | % | | 60 | % |
| China | — | % | | 11 | % | | 11 | % |
| Others | 3 | % | | — | % | | 3 | % |
| Total | 82 | % | | 18 | % | | 100 | % |
We operate six facilities in Mexico, which are authorized to operate as Maquiladoras by the Company’s U.S. operations produced approximately 22%, its Mexican operations produced approximately 57%, its European operations produced approximately 3%,Ministry of Economy of Mexico. Maquiladora status allows us to import certain items from the United States into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame. Maquiladora status, which is renewed periodically, is subject to various restrictions and finished product manufactured by others accounted for approximately 18%.requirements, including compliance with the terms of the Maquiladora program and other local regulations, which have become stricter in recent years.
Lighting and building management solutions are delivered directly from manufacturing facilities or through a network of strategically located distribution centers, regional warehouses, and commercial warehouses in North America using both common carriers and a company-managed truck fleet. For international customers, distribution methods are adapted to meet individual customer or country requirements. During fiscal 2019, net sales initiated outside of the U.S. represented approximately 11% of total net sales. See the Supplemental Disaggregated Information footnote of the Notes to Consolidated Financial Statements for additional information regarding the geographic distribution of net sales, operating profit, and long-lived assets.
Research and Development
Research and development (“R&D”) is defined as the critical investigation aimed at discovery of new knowledge and the conversion of that knowledge into the design of a new product or significant improvement to an existing product. The Company investsWe invest in the development of new products and solutions as well as the enhancement of existing offerings with a focus on improving the performance-to-cost ratio and energy efficiency. The CompanyWe also developsdevelop software applications and capabilities to enhance data analytics offerings. R&D expenses consist of compensation, payroll taxes, employee benefits, materials, supplies, and other administrative costs, but do not include all new product development costs. For fiscal 2016, 2015,2019, 2018, and 2014,2017, research and development expense totaled $47.1, $41.1,$74.7 million, $63.9 million, and $35.3,$52.0 million, respectively.
Competition
The Company experiencesWe experience competition based on numerous factors, including features and benefits, price, brand name recognition, product quality, product and system design, energy efficiency, customer relationships, and service capabilities, and price.capabilities. The market for lighting and building management solutions and services is competitive and continues to evolve.evolve through acquisitions and consolidation of niche manufacturers. Certain global and more diversified electrical manufacturers may provide a broader product offering utilizing electrical, lighting, and building management products as well as pricing benefits from the bundling of various offerings. In addition, there have been a growing number of new competitors, fromincluding lower cost Asian imports, small startup companies, toand global electronics, technology, and software companies, offering newcompeting solutions, sometimes deploying different technologies.
Asian imports have also increased competition within the lighting market.
Environmental Regulation
TheOur operations of the Company are subject to numerous comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances, as well as solid and hazardous wastes, and to the remediation of contaminated sites. In addition, permits and environmental controls are required for certain of the Company’sour operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, the Company allocateswe allocate resources, including investments in capital and operating costs relating to environmental compliance. Environmental laws and regulations have generally become stricter in recent years, and federal, state, and local governments domestically and internationally are considering new laws and regulations, including those governing raw material composition, carbon dioxide and other air emissions, end-of-life product dispositions, and energy efficiency. The Company isWe are not aware of any pending legislation or proposed regulation related to environmental issues that would have a material adverse effect on the Company.us. The cost of responding to future changes, however, may be substantial.
Raw Materials
The products produced by the Company requireOur production requires certain raw materials, including certain grades of steel and aluminum, electrical and electronic components, plastics, and other petroleum-based materials and components. In fiscal 2016, the Company2019, we purchased approximately 100,00090,000 tons of steel and aluminum. The Company estimatesWe estimate that approximately 8%7% of purchased raw materials are petroleum-based. Additionally, the Company estimateswe estimate that approximately fivesix million gallons of diesel fuel were consumed in fiscal 20162019 through the Company’sour distribution activities. The Company purchasesWe purchase most raw materials and other components on the open market and reliesrely on third parties for providingto provide certain finished goods. While these items are generally available from multiple sources, the cost of products sold may be affected by changes in the market price of raw materials and tariffs on certain materials, particularly imports from China, as well as disruptions in availability of raw materials, components, and sourced finished goods.
The Company doesWe do not currently engage in or expect to engage in significant commodity hedging transactions for raw materials, though the Company haswe have and will continue to commit to purchase certain materials for a period of up to 12 months. Significant increases in the prices of the Company’s products due to increases in the cost of raw materialsWe monitor and components could have a negative effect on demand for products and on profitability. While the Company has generally been able to pass along these increases in cost in the form of higher selling prices for its products, there can be no assurance that future disruptions in either supply or price of these materials will not negatively affect future results.
The Company monitors and investigatesinvestigate alternative suppliers and materials based on numerous attributes including quality, service, and price. The CompanyWe currently sourcessource raw materials and components from a number of suppliers, but the Company’sour ongoing efforts to improve the cost effectiveness of itsour products and services may result in a reduction in the number of itsour suppliers. A reduction in the number of suppliers could cause increased risk associated with reliance on a single or limited number of suppliers for certain raw materials, component parts (such as LEDs, lamps, ballasts, and power supplies), and finished goods.
Backlog Orders
The Company producesWe produce and stocksstock quantities of inventory at key distribution centers and warehouses throughout North America and to a much lesser degree, certain European markets. The backlog of orders at any given time is affected by various factors, including seasonality, cancellations, sales promotions, production cycle times, and the timing of receipt and shipment of orders, which are usually shipped within a few weeks of order receipt. Accordingly, a comparison of backlog orders from period to period is not necessarily meaningful and may not be indicative of future shipments.
Patents, Licenses, and Trademarks
The Company ownsIntellectual Property
We own or hashave licenses to use various domestic and foreign patents, trademarks, and trademarksother intellectual property related to itsour products, processes, and businesses. These intellectual property rights are important factors for itsour businesses. To protect these proprietary rights, the Company reliesWe rely on copyright, patent, trade secret, and trademark laws.laws as well as agreements, restrictive covenants, and internal processes and controls to protect these proprietary rights. Despite these protections, unauthorized parties may attempt to infringe on theour intellectual propertyproperty. As of the Company.August 31, 2019, we had approximately 1,500 active United States and foreign patents. While patents and patent applications in the aggregate are important to theour competitive position, of the Company, no single patent or patent application is individually material to the Company.
us.
Seasonality and Cyclicality
The Company’sOur business exhibits some seasonality, with net sales being affected by the impact of weather and seasonal demand on construction and installation programs, particularly during the winter months, as well as the annual budget cycles of major customers. Because of these seasonal factors, the Company haswe have experienced, and generally expectsexpect to experience, itsour highest sales in the last two quarters of each fiscal year.
The Company'sOur lighting and building management solutions are sold to customers in both the new construction andas well as renovation and retrofit markets for residential and non-residential applications. The construction market is cyclical in nature and subject to changes in general economic conditions.conditions and fiscal policies. Sales volume has a major impact on the profitability of the Company.our profitability. Economic downturns and the potential decline in key construction markets may have a material adverse effect on theour net sales and operating incomeincome. Additionally, tariffs have caused pull forwards of the Company.customer orders to avoid price increases.
International OperationsEmployees
The Company manufactures and assembles products at numerous facilities, someAs of August 31, 2019, we employed approximately 12,000 associates, of which approximately 4,200 were employed in the United States, approximately 7,200 in Mexico, and approximately 600 in other international locations, including Europe, Canada, and the Asia/Pacific region. Union recognition and collective bargaining arrangements are located outsidein place or in process, covering approximately 8,000 persons (including approximately 1,700 in the United States). Union recognition and collective bargaining arrangements covering approximately 6,800 persons will expire within the next fiscal year, primarily due to annual negotiations of union contracts in Mexico. The remaining arrangements will expire after the next fiscal year and relate to approximately 1,200 persons employed within the United States. Approximately 73% of the products produced by the Company are manufactured outside the United States, primarily in MexicoWe believe that we have a good relationship with both our unionized and Europe. In addition, the Company sources certain finished goods from third parties with operations outside the United States, primarily in Asia.
Of the products produced by the Company, approximately 70% are manufactured at six facilities in Mexico. These facilities are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows the Company to import certain items from the United States into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame. Maquiladora status, which is renewed periodically, is subject to various restrictions and requirements, including compliance with the terms of the Maquiladora program and other local regulations, which have become stricter in recent years.
During fiscal 2016, net sales initiated outside of the U.S. represented approximately 11% of total net sales. See the Supplemental Disaggregated Information footnote of the Notes to Consolidated Financial Statements for additional information regarding the geographic distribution of net sales, operating profit, and long-lived assets.non-unionized employees.
Information Concerning Acuity Brands
The Company makes itsWe make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (and all amendments to these reports) and proxy statements, together with all reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 by the Company’sour officers, directors, and beneficial owners of 10% or more of the Company’sour common stock, available free of charge through the “SEC Filings” link within the “Investors” section on the Company’sour website, located at www.acuitybrands.com, as soon as reasonably practicable after they are filed with or furnished to the SEC.Securities and Exchange Commission. Information included on the Company’sour website is not incorporated by reference into this Annual Report on Form 10-K. The Company’sOur reports are also available aton the Securities and Exchange Commission’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549 or on their website at www.sec.gov. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Additionally, the Company haswe have adopted a written Code of Ethics and Business Conduct that applies to all of the Company’sour directors, officers, and employees, including itsour principal executive officer and senior financial officers. The Code of Ethics and Business Conduct and the Company’sour Corporate Governance Guidelines are available free of charge through the “Corporate Governance” link on the Company’sour website. Any amendments to, or waivers of, the Code of Ethics and Business Conduct for our principal executive officer and senior financial officers will be disclosed on our website promptly following the date of such amendment or waiver. Additionally, the Statement of Responsibilities of Committees of the Board of Directors (the “Board”) and the Statement of Rules and Procedures of Committees of the Board, which contain the charters for the Company’sour Audit Committee, Compensation Committee, and Governance Committee, and the rules and procedures relating thereto, are available free of charge through the “Corporate Governance”Governance��� link on the Company’sour website. Each of the Code of Ethics and Business Conduct, the Corporate Governance Guidelines, the Statement of Responsibilities of Committees of the Board, and the Statement of Rules and Procedures of Committees of the Board is available in print to any stockholder of the Companyour stockholders that requestsrequest such document by contacting the Company’sour Investor Relations department.
Employees
As of August 31, 2016, the Company employed approximately 11,800 associates, of which approximately 4,300 were employed in the United States, approximately 7,000 in Mexico, and approximately 500 in other international locations, including Europe, Canada, and the Asia/Pacific region. Union recognition and collective bargaining
arrangements are in place or in process, covering approximately 8,600 persons (including approximately 2,000 in the United States). Union recognition and collective bargaining arrangements covering approximately 8,100 persons will expire within the next fiscal year. The Company believes that it has a good relationship with both its unionized and non-unionized employees.
This filing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A variety of risks and uncertainties could cause the Company’sour actual results to differ materially from the anticipated results or other expectations expressed in the Company’sour forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Information” included in Management's Discussion and Analysis of Financial Condition and Results of Operations. These risks could adversely impact our financial position, results of operations, and cash flows and could cause the market price of our common stock to decrease. Such risks include, without limitation:
Risks Related to Economic FactorsOur Strategy
General business, political, and economic conditions, including the strength of the construction market, political events, or other factors may affect demand for the Company’sour products and services, which could impact results of operations.services.
The Company competesWe compete based on suchnumerous factors, asincluding features and benefits, brand name recognition, product quality, product and reputation,system design, energy efficiency, customer relationships, service product features, innovation,capabilities, and price. Asian imports have also increased competition within the lighting market. In addition, the Company operateswe operate in a highly competitive environment that is influenced by a number of general business and economic factors, such as economic vitality, employment levels, credit availability, interest rates, trends in vacancy rates and rent values, energy costs, and commodity costs. Sales of lighting and building management solutions depend significantly on the level of activity in new construction and renovation/retrofits. Declines in general economic activity, appropriations, and regulations, including tax and trade policy and other political uncertainties, may negatively impact new construction and renovation projects, which in turn may impact demand for the Company’sour product and service offerings. The impact of these factors could adversely affect the Company’s financial position, results of operations, and cash flows.
The Company’sOur results may be adversely affected by fluctuations in the cost or availability of raw materials, components, purchased finished goods, or services.
The Company utilizesWe utilize a variety of raw materials and components in itsour production process including steel, aluminum, lamps, certain rare earth materials, LEDs, LED drivers, ballasts, wire, electronic components, power supplies, petroleum-based by-products, natural gas, and copper. The CompanyWe also sourcessource certain finished goods externally. Future increases in the costs of these items, including import tariffs, could adversely affect profitability, as there can be no assurance that future price increases will be successfully passed through to customers. The CompanyWe generally sourcessource these goods from a number of suppliers. However, there are a limited number of suppliers for certain components and certain purchased finished goods, which on a limited basis results in sole-source supplier situations. Disruptions in the supply of those items could negatively impact the Company’sour performance. Suppliers for certain of those items are our competitors that may, for various strategic reasons, choose to cease selling to us. In addition, the Company'sour ongoing efforts to improve the cost effectiveness of itsour products and services may result in a reduction in the number of itsour suppliers, and in turn, increased risk associated with reliance on a single or limited number of suppliers. Furthermore, volatility in certain commodities, such as oil, impacts all suppliers and, therefore, may cause the Companyus to experience significant price increases from time to time regardless of the number and availability of suppliers. Profitability and volume could be negatively impacted by limitations inherent within the supply chain of certain of these component parts, including competitive, governmental, and legal limitations, natural disasters, and other events that could impact both supply and price. Additionally, the Company iswe are dependent on certain service providers for key operational functions. While there are a number of suppliers of these services, the cost to change service providers and set up new processes could be significant. Variability in cost and availability of raw materials, components, purchased finished goods, or services could adversely affect the Company’s financial position, results of operations, and cash flows.
Tight credit conditions could impair the ability of the Company and other industry parties to effectively access capital markets, which could negatively impact the Company’s capital position and demand for the Company’s products and services.
The impact of tight credit conditions could impair the ability of real estate developers, property owners, and contractors to effectively access capital markets or obtain reasonable costs of capital on borrowed funds, resulting in depressed levels of construction and renovation projects. The inability of these constituents to borrow money to fund construction and renovation projects may reduce the demand for the Company’s products and services and could adversely affect the Company’s financial position, results of operations, and cash flows.
In addition to the impact on customers, tight credit conditions could impair the Company’s ability to effectively access capital. This could impair the Company’s ability to refinance debt as it becomes due or to obtain additional credit, if needed. The inability to effectively access capital markets could adversely affect the Company’s financial position, results of operations, and cash flows.
The market price and trading volume of the Company’s shares may be volatile.
The market price of the Company’s common shares could fluctuate significantly for many reasons, including reasons unrelated to the Company’s specific performance, such as reports by industry analysts, investor perceptions, or negative announcements by customers, competitors, or suppliers regarding their own performance, as well as general global economic, industry, and political conditions. SInce management does not provide guidance, the Company's performance could be different than analyst expectations causing a decline in the Company's stock price. To the extent that other large companies within the Company’s industry experience declines in share price, the Company’s share price may decline as well. In addition, when the market price of a company’s shares drops significantly, shareholders could institute securities class action lawsuits against the Company. Such a lawsuit could cause the Company to incur substantial costs and could divert the time and attention of the Company’s management and other resources.
Risks Related to the Company's Strategy
The Company’sOur results may be adversely affected by itsour inability to maintain pricing.
Aggressive pricing actions by competitors, including Asian importers and those within the technology and services sectors, may affect the Company’sour ability to achieve desired revenue growth and profitability levels under itsour current pricing strategies. The CompanyWe may also decide to lower pricingprices to match the competition.competition or exit unprofitable business. Additionally, the Companywe may not be able to increase prices to cover rising costs of components and raw materials. Even if the Companywe were able to increase prices to cover costs, competitive pricing pressures may not allow the Companyus to pass on any more than the cost increases. Alternatively, if component and raw material costs were to decline, the marketplace may not allow the Companyus to hold prices at their current levels, which could negatively impact net sales, profitability, and cash flows.levels.
The Company’s
Our inability to effectively introduce new products and solutions could adversely affect itsour ability to compete and its operating performance.compete.
Continual introductions of new products and solutions, services, and technologies, enhancement of existing products and services, and effective servicing of customers are key to the Company’sour competitive strategy. The success of new product and solution introductions depends on a number of factors, including, but not limited to, timely and successful product development, product quality, market acceptance, the Company’sour ability to manage the risks associated with product life cycles, such as additional inventory obsolescence risk as product life cycles begin to shorten, new products and production capabilities, the effective management of purchase commitments and inventory levels to support anticipated product manufacturing and demand, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products may have quality or other defects in the early stages of introduction. Accordingly, the Companywe cannot fully predict the ultimate effect of new product introductions on our business. Additionally, new products and transitions onsolutions may not achieve the Company’s business, financial condition, results of operations,same profit margins as expected and cash flows.as compared to our historic products and solutions.
The CompanyWe may pursue future growth through strategic acquisitions, alliances, or investments, which may not yield anticipated benefits.
The Company hasWe have strengthened itsour business through strategic acquisitions, alliances, and investments and may continue to do so as opportunities arise in the future. Such investments have been and may be in start-up or development stage entities. The CompanyWe will benefit from such activity only to the extent that itwe can effectively leverage and integrate the assets or capabilities of the acquired businesses and alliances, including, but not limited to, personnel, technology, and operating processes. Uncertainty is inherent within the acquisition, alliance, and investment process and unforeseen circumstances arising from recent and future transactions could offset the anticipated benefits. In addition,Moreover, unanticipated events, negative revisions to valuation assumptions and estimates, diversion of resources and management's attention from other business concerns, and difficulties in attaining synergies, among other factors, could adversely affect the Company’sour ability to recover initial and subsequent investments, particularly those related to acquired goodwill and intangible assets or non-controlling interests. Any of these factors could adversely affect the Company’s financial condition, results of operations, and cash flows. In addition, such investment transactions may limit the Company'sour ability to invest in other activities, which could be more profitable or advantageous.
The inability to effectively execute itsour business strategies could adversely affect the Company’sour financial condition and results of operations.
Various uncertainties and risks are associated with the implementation of a number of aspects of the Company’sour global business strategies, including but not limited to, the development, marketing and selling of new products and solutions, new product development, the development, marketing, and selling of lighting, and building management, and software-based solutions, and effective integration of acquisitions, and the development of production capacity related to components such as LED drivers.acquisitions. Those uncertainties and risks include, but are not limited to: diversion of management’s attention; difficulty in retaining or attracting employees; negative impact on relationships with distributors and customers; obsolescence of current products and slow new product development; inability to effectively participate in the emerging opportunities of the Internet of ThingsIoT utilizing the Company'sour digital lighting and building management systems; additional streamlining efforts; inability to produce certain components with quality, performance, and cost attributes equal to or better than provided by other component manufacturers; and unforeseen difficulties in the implementation of the management operating structure. Problems with strategy execution could offset anticipated benefits, disrupt service to customers, and impact product quality as well as adversely affect the Company’s financial condition and results of operations. In addition, withour business. With the addition of new products and solutions, the Companywe may encounter new and different competitors that may have more experience with respect to such products and solutions. Any new products and solutions may not achieve the same profit margins as expected and as compared to the Company's historic products and solutions.
The CompanyWe may experience difficulties in streamlining activities, which could impact shipments to customers, product quality, and the ability to realize therealization of expected savings from streamlining actions.
The Company expectsWe expect to benefit from its ongoingour programs to streamline operations, including the consolidation of certain manufacturing facilities and the reduction of overhead costs,costs. Such benefits will only be realized to the extent that itwe can effectively leverage assets, personnel, and operating processes in the transition of production between manufacturing facilities. Uncertainty is inherent within the facility consolidation process and unforeseen circumstances could offset the anticipated benefits, disrupt service to customers, and impact product quality.
Risks Related to the Company'sOur Operations
Technological developments intellectual property issues, and increased competition could affect the Company’sour operating profit margins and sales volume.
The Company competesWe compete in an industry and markets where technology and innovation play major roles in the competitive landscape. The Company isWe are highly engaged in the investigation, development, and implementation of new technologies and services. Securing employee talent, key partnerships, and alliances, as well as employee talent, including having access to technologies, services, and solutions developed by others, andas well as obtaining appropriate patents and the right to utilize patents of other parties all play a significant role in protecting the Company’sour freedom to operate and development activities.operate. Additionally, the continual development of new technologies (e.g., LED, OLED, lamp/ballast systems, drivers, lighting controls systems, sensors, communication devices, software, etc.) by existing and new source suppliers — including non-traditional competitors with significant resources — looking for either direct market access or partnerships with competing large manufacturers, coupled with significant associated exclusivity and/or patent activity, could adversely affect the Company’sour ability to sustain operating profit margins and desirable levels of sales volume. Also, certain key suppliers of components compete with the Company and could choose to cease supplying the Company, which could temporarily disrupt production by the Company until alternative supplier relationships are established.
In addition, there have been a growing number of new competitors, from small startup companies to global electronics, companies.Asian, technology, and software companies, which may vertically integrate and begin offering total solution packages that directly compete with our offerings. Certain global and more diversified electrical manufacturers as well as certain global softwaretechnology and building solution providers may be able to obtain a competitive advantage over the Companyus by offering broader and more integrated solutions utilizing electrical, lighting, andcontrols, building automation systems, and data analytics, and small startup companies may offer more localized product sales and support services within individual regions, which could adversely affect on the Company’s business, financial condition, results of operations, and cash flows.regions.
Over the last several years, the Company and others in the industry have received an increased number of allegations of patent infringement from competitors and other non-practicing entity patent holders, often coupled with offers to license such patents for use by the Company. Such offers typically relate to various technologies including certain methods of designing circuits, the use of visible light to communicate data, the use of certain wireless networking methods, and the design of specific products. The Company believes that it does not need or will be able to invalidate or access such patents through licensing, cross-licensing, or other mutually beneficial arrangements, although to the extent the Company is required but unable to enter into such arrangements on acceptable economic terms, it could adversely affect the Company’s business, financial condition, results of operations, and cash flows.
The CompanyWe may be unable to sustain significant customer and/or channel partner relationships.
Relationships with customers are directly impacted by the Company’sour ability to deliver quality products and services. TheAlthough no individual customer exceeded 10% of sales during the current fiscal year, the loss of or a substantial decrease in the volume of purchases by certain significantlarger customers could harm the Company’s sales, profitability, and cash flows. The Company hasour business in a meaningful manner. We have relationships with channel partners such as electrical distributors, home improvement retailers, independent sales agencies, system integrators, and value-added resellers. While the Company maintainswe maintain positive, and in many cases long-term, relationships with these channel partners, the sudden or unplanned loss of a number of these channel partners or a substantial decrease in the volume of purchases from a major channel partner or a group of channel partners could adversely affect the Company’s sales, profitability, and cash flows.our business.
The CompanyWe could be adversely affected by disruptions of itsto our operations.
The breakdown of equipment or other events, including, but not limited to, labor disputes, strikes, workplace violence, pandemics, cyber-attacks, civil disruptions, or catastrophic events such as war or natural disasters, leading to production interruptions in the Company’sour or one or more of itsour suppliers’ facilities could adversely affect the Company’s financial results and cash flows.us. Approximately 57%60% of the Company’sour finished products are manufactured in Mexico, a country that periodically experiences heightened civil unrest or may experience trade disputes with the U.S., both of which could also disruptcause a disruption of the supply of products to or from these facilities. Further, because many of the Company’sour customers are to varying degrees dependent on planned deliveries from the Company’sour facilities, those customers that have to reschedule their own production or delay opening a facility due to the Company’sour missed deliveries as a result of these disruptions could pursue financial claims against the Company. The Companyus. We may incur costs to correct any of these problems in addition to facing claims from customers. Further, the Company’sour reputation among actual and potential customers may be harmed and result in a loss of business. While the Company haswe have developed business continuity plans, including alternative capacity, to support responses to such events or disruptions and maintains insurance policies covering, among other things, physical damage and business interruptions, these policies may not cover all losses. The CompanyWe could incur uninsured losses and liabilities arising from such events, including damage to itsour reputation, loss of customers, and substantial losses in operational capacity, any of which could adversely affect its financial condition, results of operations, and cash flows.capacity.
Failure of a Company operating systems, information systems, or information system ordevices may experience a failure, a compromise of security, with respect to an operating or information system or portable electronic device or a violation of data privacy laws or regulations, which could adversely affect the Company’s results ofimpact our operations and financial condition oras well as the effectiveness of internal controls over operations and financial reporting.
The Company isWe are highly dependent on various software and automated systems to record and process operational and financial transactions. The CompanyWe could experience a failure of one or more of these software and automated systems or could fail to complete all necessary data reconciliation or other conversion controls when implementing a new software system. The CompanyWe could also experience a compromise of itsour security due to many reasons, including technical system flaws, clerical, data input or record-keeping errors, or tampering or manipulation of itsour systems by employees or unauthorized third parties.parties, including viruses, malware, or phishing. Information security risks also exist with respect to the use of portable
electronic devices, such as laptops and smartphones, which are particularly vulnerable to loss and theft. The CompanyWe may also be subject to disruptions of any of these systems arising from events that are wholly or partially beyond itsour control (for example, natural disasters, acts of terrorism, cyber attacks, epidemics, computer viruses, and electrical/telecommunications outages). All of these risks are also applicable where the Company relieswe rely on outside vendors to provide services, which may operate in a cloud environment. The Company isWe are dependent on the third-party vendors to operate secure and reliable systems which may include data transfers over the internet.
The CompanyWe also maintains informationprovide and maintain technology to supportenable lighting controls systems, building management systems, and business intelligence systems, in many cases though the internet of things (IoT) in certain of itsour customer offerings, which are integral to the functionality of those integrated systems.offerings. In addition to the risks noted above, there are other risks associated with these customer offerings. CustomersFor example, a customer may be installing softwaredepend on their networksintegral information from, or functionality of, our technology to support that customer’s other systems, such that a failure of our technology could impact those systems, including by loss or destruction of data. Likewise, a customer’s failure to properly configure, update, or upgrade its own network and utilizing portable electronic devices, which may have security protocol variations thatintegrations with our technology are outside of the Company’sour control and could result in a datafailure in functionality or security compromise.of our technology.
The Company and certainCertain of itsour third-party vendors and we may receive and store personal information in connection with human resources operations, customer offerings, and other aspects of the business. A material network breach in the security of these systems could include the theft of intellectual property, trade secrets, the unauthorized release, gathering, monitoring, misuse, loss, change, or employeedestruction of our or our clients' confidential, proprietary and customer information.other information (including personal identifying information of individuals), or otherwise disrupt our or our clients' or other third parties' business operations. To the extent that any disruption or security breach results in a loss or damage to the Company'sour data, or an inappropriate disclosure of confidential or customer or employee information, it could cause significant damage to the Company'sour reputation, affect relationships with the Company'sour customers, employees, and employees,other counterparties, lead to claims against us, which may result in the Company,payment of fines, penalties, and costs, and ultimately harm the Company'sour business. In addition, the Companywe may be required to incur significant costs, or regulatory fines, penalties, or intervention, to protect against damage caused by these disruptions or security breaches in the future.
The Company isWe are also subject to an increasing number of data privacy and security laws and regulations that prohibitimpose requirements on us and our technology prior to certain transfersuse or transfer, storing, use, processing, disclosure, and protection of data including but not limitedand prior to transfers within and outside the Company fromsale or use of certain jurisdictions to others.technologies. Failure to comply with such laws and regulations could result in the imposition of fines, penalties and other costs. The legal and regulatory data privacy framework is evolving and uncertain. For example, the European Court of Justice’s decision in October 2015 to invalidate the Safe Harbor data privacy program between the United States and the European Union, the European Union’s implementation of the General Data Protection Regulation in 2018, the European Union’s pending ePrivacy Regulation, and California’s implementation of its Consumer Privacy Act of 2018 and Connected Device Privacy Act of 2018 (f.k.a. SB-327) all could disrupt the Company'sour ability to use or transfer data from Europe to the United Statesor sell products and solutions because such activities may not be in compliance with applicable law.law in certain jurisdictions.
Operating systemSystem failures, ineffective system implementation or disruptions, failure to comply with data privacy and security laws or regulations, or the compromise of security with respect to internal or external operating systems or portable electronic devices could damage our systems or infrastructure, subject the Companyus to liability claims, or regulatory fines, penalties, or intervention, harm the Company’sour reputation, interrupt the Company’sour operations, disrupt customer operations, and adversely affect the Company’sour internal control over financial reporting, business, financial condition, results of operations, or cash flows.
Changes in the Company'sour relationship with employees, changes in U.S. or international employment regulations, an inability to attract and retain talented employees, or a loss of key employees could adversely impact the effectiveness of the Company’sour operations.
The CompanyWe employed approximately 11,80012,000 people as of August 31, 2016,2019, approximately 7,5007,800 of whom are employed in international locations. As such, the Company haswe have significant exposure to changes in domestic and foreign laws governing relationships with employees, including wage and hour laws and regulations, fair labor standards, minimum wage requirements, overtime pay, unemployment tax rates, workers' compensation rates, citizenship requirements, and payroll taxes, which likely would have a direct impact on the Company'sour operating costs. Union recognition and collective bargaining agreements are in place or in process covering approximately 73%67% of the Company's workforce.our workforce, primarily due to annual negotiations with unions in Mexico. Collective bargaining agreements representing approximately 69%57% of the Company'sour workforce will expire within one year. While the Company believeswe believe that it haswe have good relationships with both itsour unionized and non-unionized employees, the Companywe may become vulnerable to a strike, work stoppage, or other labor action by these employees that could have an adverse effect on the Company’s business, financial condition, results of operations, or cash flows.employees.
The Company reliesWe rely upon the knowledge and experience of employees involved in functions throughout the organization that require technical expertise and knowledge of the industry. An inability to attract and retain such employees could adversely impact the Company’sour ability to execute key operational functions and could adversely affect the Company’s operations.functions.
There are inherent risks in our solutions and services businesses.
Risks inherent in the sale of solutions and services include assuming greater responsibility for successfully delivering projects that meet a particular customer specification, includingincluding: defining and controlling contract scope and timing, efficiently executing projects, and managing the performance and quality of the Company’s subcontractors and suppliers. As the Company expands itswe expand our service offerings, reliance on the technical infrastructure to provide services to customers will increase. If the Company failswe fail to appropriately manage and secure the technical infrastructure required, customers could experience service outages or delays in implementation of services. If the Company iswe are unable to manage and mitigate these risks, the Companywe could incur liabilities and other losses that would adversely affect the Company’s results of operations.losses.
Risks Related to Legal and Regulatory Matters
The Company is subject to a broad range of standards, laws and regulations in the jurisdictions in which it operates, and the Company may be exposed to substantial disruptions, costs and liabilities associated with the failure to comply with such standards, laws, and regulations.
The Company is subject to a broad range of standards, laws and regulations in the jurisdictions in which the Company operates which could result in increased costs or liabilities or adversely impact the Company's ability to sell its products and solutions. These laws and regulations impose increasingly complex, stringent and costly compliance activities, including but not limited to environmental, health, and safety protection standards and permitting, labeling and other requirements regarding, among other things, electronic and wireless communications, air emissions, wastewater discharges, the use, handling, and disposal of hazardous or toxic materials, the remediation of environmental contamination, and working conditions for the Company’s employees. Some environmental laws, such as Superfund, the Clean Water Act, and comparable laws in U.S. states and other jurisdictions world-wide, impose joint and several liability for the cost of environmental remediation, natural resource damages, third party claims, and
other expenses, without regard to the fault or the legality of the original conduct, on those persons who contributed to the release of a hazardous substance into the environment. The Company may also be affected by future industry standards, laws or regulations, including those imposed in response to energy, climate change, product functionality, geopolitical, or similar concerns. These standards, laws, or regulations may impact the sourcing of raw materials and the manufacture and distribution of the Company’s products and place restrictions and other requirements or impediments on the products and solutions the Company can sell in certain geographical locations.
The Company may develop unexpected legal contingencies or matters that exceed insurance coverage.
The Company is subject to and in the future may be subject to various claims, including legal claims arising in the normal course of business, which may include without limitation employment claims, product recall, personal injury, network security, data privacy, or property damage claims resulting from the use of the Company's products, services, or solutions or exposure to hazardous materials, contract disputes, or intellectual property disputes. The Company is insured up to specified limits for certain types of losses with a self-insurance retention per occurrence, including product or professional liability, network security, and data privacy claims, and is fully self-insured for certain other types of losses, including environmental, product recall, warranties, commercial disputes, and patent infringement. The Company establishes reserves for legal claims when the costs associated with the claims become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the level of insurance coverage held by the Company and/or the amounts reserved for such claims. In the event of unexpected future developments, it is possible that the ultimate resolutions of such matters, if unfavorable, could adversely affect the Company’s results of operations, financial position, or cash flows. The Company’s insurance coverage is negotiated on an annual basis, and insurance policies in the future may have coverage exclusions that could cause claim-related costs to rise.
If the Company's products are improperly designed, manufactured, packaged, or labeled, the Company may need to recall those items, may have increased warranty costs, and could be the target of product liability claims.
The Company may need to recall products if they are improperly designed, manufactured, packaged, or labeled, and the Company does not maintain insurance for such recall events. Many of the Company's products and solutions have become more complex in recent years and include more sophisticated and sensitive electronic components. The Company has increasingly manufactured certain of those components and products in its own facilities. The Company has previously initiated product recalls as a result of potentially faulty components, assembly, installation, and packaging of its products, and widespread product recalls could result in significant losses due to the costs of a recall, the destruction of product inventory, penalties, and lost sales due to the unavailability of a product for a period of time. In addition, products developed by the Company that incorporate new technologies, such as LED technology, generally provide for more extensive warranty protection which may result in higher costs if warranty claims on these products are higher than historical amounts. The Company may also be liable if the use of any of its products causes harm, and could suffer losses from a significant product liability judgment against the Company in excess of its insurance limits. The Company may not be able to obtain indemnity or reimbursement from its suppliers or other third parties for the warranty costs or liabilities associated with its products. A significant product recall, warranty claim, or product liability case could also result in adverse publicity, damage to the Company’s reputation, and a loss of consumer confidence in its products, which could adversely affect the Company’s business, financial condition, results of operations, and cash flows.
Failure to effectively estimate employer-sponsored health insurance premiums and incremental costs due to the Affordable Care Act could materially and adversely affect the Company's financial condition, results of operations, and cash flows.
In March 2010, the United States federal government enacted comprehensive health care reform legislation, which, among other things, includes guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new taxes on health insurers, self-insured companies, and health care benefits. The legislation imposes implementation effective dates that began in 2010 and extend through 2020 with many of the changes requiring additional guidance and regulations from federal agencies. Possible adverse effects could include increased costs, exposure to expanded liability, and requirements for the Company to revise the ways in which healthcare and other benefits are provided to employees. To date, the Company has experienced increased costs related to such legislation; however, due to the phased-in nature of the implementation and the lack of interpretive guidance, the Company continues to monitor the potential impacts the health care reform legislation will have on the Company’s financial results. Future costs could adversely affect the Company's financial condition, results of operations, and cash flows.
The Company may not be able to adequately protect its intellectual property.
The Company owns certain patents, trademarks, copyrights, trade secrets, and other intellectual property. In addition, the Company continues to file patent applications, when appropriate. The Company cannot be certain that others have not and will not infringe on its intellectual property rights; however, the Company seeks to establish and protect those rights, which could result in significant legal expenses and adversely affect the Company's financial condition and results of operations.
Compliance with reporting requirements related to the use of conflict minerals, within the meaning of the Dodd-Frank Wall Street Reform and Consumer Protection Act, may result in additional expense, supply chain limitations, or loss of customers.
In July 2010, the United States federal government enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act, which contained provisions regarding the use of certain minerals, including cassiterite, wolframite, coltan, and gold (collectively, "Conflict Minerals"), sourced from the Democratic Republic of Congo and adjoining countries. In August 2012, the SEC adopted annual reporting requirements for public companies that use Conflict Minerals. The number of suppliers who provide conflict-free minerals may be limited, which could have an adverse effect on the Company’s ability to source these products at competitive prices and in sufficient quantities in the future. In addition, due to the complexity and sophistication of the Company's supply chain, compliance with the reporting requirements involves significant efforts and may increase costs. In addition, pressure from customers for more information or due diligence could result in increased costs or potentially the loss of certain customers.
Risks Related to Other Factors
The CompanyWe may be subject to risk in connection with third partythird-party relationships necessary to operate the Company'sour business.
The Company utilizesWe utilize strategic partners and third partythird-party relationships in order to operate and grow itsour business. For instance, the Company utilizeswe utilize third parties to contract manufacture certain products, subcontract installation and commissioning, as well as perform certain selling, distribution, and administrative functions. The CompanyWe cannot control the actions or performance, including product quality, of these third parties and therefore, cannot be certain that the Companywe or itsour end-users will be satisfied. Any future actions of or any failure to act by any third party on which the Company’sour business relies could cause the Companyus to incur losses or interruptions in its operations and adversely affect the Company’s financial condition and results ofour operations.
The Company isWe are subject to risks related to operations and suppliers outside the United States.
The Company hasWe have substantial activities outside of the United States, including sourcing of products, materials, components, and purchasedcontract manufactured finished goods. The Company’sgoods, as well as manufacturing and distribution activities. Our operations, as well as those of key vendors, are therefore subject to regulatory, economic, political, military, and other events in countries where these operations are located, particularly Mexico.located. In addition to the risks that are common to both the Company’sour domestic and international operations, the Company faceswe face risks specifically related to itsour foreign operations and sourcing activities, including but not limited to: foreign currency fluctuations; unstable political, social, regulatory, economic, financial, and market conditions; laws that prohibit shipments to certain countries or restricted parties and that prohibit improper payments to government officials such as the Foreign Corrupt Practices Act and the U.K. Bribery Act; potential for privatization and other confiscatory actions; trade restrictions and disruption; criminal activities; unforeseen increases in tariffs and taxes; corruption; and other changes in regulation in international jurisdictions that could result in substantial additional legal or compliance obligations for us.
We source certain components and approximately 11% of our finished goods from China, which are subject to the Company. The Company operatesrecently enacted import tariffs. These tariffs could increase in future periods resulting in higher costs and/or lower demand. We are seeking to mitigate the impact of the tariffs on our profitability, including a variety of activities such as engaging alternative suppliers that produce products and components whose origin is in countries other than China, insourcing the production of certain products, and raising selling prices. We could be adversely affected to the extent we are unable to mitigate the impacts of the tariffs.
We operate six manufacturing facilities in Mexico, which are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows the Companyus to import certain items from the United States into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame. Maquiladora status, which is renewed periodically, is subject to various restrictions and requirements, including compliance with the terms of the Maquiladora program and other local regulations, which have become stricter in recent years.
Certain regulations related In addition, if our Mexican facilities cease to qualify for Maquiladora status or if the Mexican government adopts additional adverse changes to the Maquiladora program, became effectiveour manufacturing costs in January 2015. Failure to comply with these new regulations could adversely affect the Company’s financial position, results of operations, and cash flows primarily because the CompanyMexico would in such event be required to pay value-added tax on material imported into Mexico and then seek a refund of those amounts months later after the material is exported from Mexico.increase.
The Company isWe are also subject to certain other laws and regulations affecting itsour international operations, including laws and regulations such as the North American Free Trade Agreement (“NAFTA”) which, among other things, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. A majority of our sales are subject to NAFTA. The U.S. government has indicated its intent to alter its approach to international trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries, including NAFTA. In addition, the US government has initiated or is considering imposing tariffs on certain foreign goods, including steel and aluminum. Related to this action, certain foreign governments, including China, have instituted or are considering imposing tariffs on certain U.S. goods. We source certain components and approximately 11% of our finished goods from China, which are subject to recently enacted tariffs. It remains unclear what the U.S. Administration or foreign governments will or will not do with respect to tariffs, NAFTA, or other international trade agreements and policies. A trade war or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, costs, customers, suppliers, and/or the US economy or certain sectors thereof and, thus, to adversely impact our business.
The evolution of the Company’sour products, complexity of itsour supply chain, and historical reliance
on third-party vendors such as customs brokers and freight vendors, which may not have had effective processes and controls to enable the Companyus to fully and accurately comply with such requirements, could subject the Companyus to liabilities for past, present, or future periods. Such liabilities could adversely affect the Company’s business, financial condition, results of operations, and cash flows.
impact our business.
In June 2016, the United Kingdom (U.K.(“U.K.”) held a referendum in which voters approved an exit from the European Union (“E.U.”) commonly referred to as “Brexit.” As a result of the referendum, it is expected that the British government will beginhas been negotiating the terms of the U.K.’s future relationship with the E.U. Although it is unknown what those terms will be, it is possible that there will be greater restrictions on imports and exports between the U.K. and E.U. countries and increased regulatory complexities. These changes could cause disruptions to and create uncertainty surrounding the Company'sour business and the business of existing and future customers and suppliers as well as have an impact on the Company'sour employees based in Europe, which could adversely affect its business, financial condition, results of operations, and cash flows.impact our business. The actual effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. markets either during a transitional period or more permanently.
The Company continuesWe continue to monitor conditions affecting itsour international locations, including potential changes in income from a strengthening or weakening in foreign exchange rates in relation to the U.S. dollar. Some of these risks, including but not limited to foreign exchange risk,rates, violations of laws, and higher costs associated with changes in regulation, could adversely impact our business.
Risks Related to Legal and Regulatory Matters
Failure to comply with the broad range of standards, laws and regulations in the jurisdictions in which we operate may result in exposure to substantial disruptions, costs and liabilities.
The laws and regulations impacting us impose increasingly complex, stringent and costly compliance activities, including but not limited to environmental, health, and safety protection standards and permitting, labeling and other requirements regarding, among other things, electronic and wireless communications, air emissions, wastewater discharges, the use, handling, and disposal of hazardous or toxic materials, remediation of environmental contamination, and working conditions for and compensation of our employees. Some environmental laws, such as Superfund, the Clean Water Act, and comparable laws in U.S. states and other jurisdictions world-wide, impose joint and several liability for the cost of environmental remediation, natural resource damages, third-party claims, and other expenses, without regard to the fault or the legality of the original conduct, on those persons who contributed to the release of a hazardous substance into the environment. We may also be affected by future standards, laws or regulations, including those imposed in response to energy, climate change, product functionality, geopolitical, corporate social responsibility, or similar concerns. These standards, laws, or regulations may impact our costs of operation, the sourcing of raw materials, and the manufacture and distribution of our products and place restrictions and other requirements or impediments on the products and solutions we can sell in certain geographical locations or on the willingness of certain investors to own our shares.
We may develop unexpected legal contingencies or matters that exceed insurance coverage.
We are subject to and in the future may be subject to various claims, including legal claims arising in the normal course of business. Such claims may include without limitation employment claims, product recall, personal injury, network security, data privacy, or property damage claims resulting from the use of our products, services, or solutions, as well as exposure to hazardous materials, contract disputes, or intellectual property disputes. We are insured up to specified limits for certain types of losses with a self-insurance retention per occurrence, including product or professional liability, and cyber liability, including network security and data privacy claims, and are fully self-insured for certain other types of losses, including environmental, product recall, warranties, commercial disputes, and patent infringement. We establish reserves for legal claims when the costs associated with the claims become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the level of insurance coverage we hold and/or the amounts reserved for such claims. In the event of unexpected future developments, it is possible that the ultimate resolutions of such matters could be unfavorable. Our insurance coverage is negotiated on an annual basis, and insurance policies in the future may have coverage exclusions that could cause claim-related costs to rise.
If our products are improperly designed, manufactured, packaged, or labeled, or are otherwise alleged to cause harm or injury, we may need to recall those items, may have increased warranty costs, and could be the target of product liability claims.
We may need to recall products if they are improperly designed, manufactured, packaged, or labeled, and we do not maintain insurance for such recall events. Many of our products and solutions have become more complex in recent
years and include more sophisticated and sensitive electronic components. A problem or issue relating to any individual component could have the effect of creating a compounded problem for an integrated solution, which could result in significant costs and losses. We have increasingly manufactured certain of those components and products in our own facilities. We have previously initiated product recalls as a result of potentially faulty components, assembly, installation, design, and packaging of our products. Widespread product recalls could result in significant losses due to the costs of a recall, the destruction of product inventory, penalties, and lost sales due to the unavailability of a product for a period of time. In addition, products we developed that incorporate new technologies, such as LED technology, generally provide for more extensive warranty protection which may result in higher costs if warranty claims on these products are higher than historical amounts. We may also be liable if the use of any of our products cause harm, whether from fire, shock, harmful materials or components, alleged adverse health impacts from exposure to light emitted by our products, or any other personal injury or property damage, and we could suffer losses from a significant product liability judgment against us in excess of our insurance limits. We may not be able to obtain indemnity or reimbursement from our suppliers or other third parties for the warranty costs or liabilities associated with our products. A significant product recall, warranty claim, or product liability case could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our products.
We may not be able to adequately protect our intellectual property and could be the target of intellectual property claims.
We own certain patents, trademarks, copyrights, trade secrets, and other intellectual property. In addition, we continue to file patent applications, when appropriate. We cannot be certain that others have not and will not infringe on our intellectual property rights; however, we seek to establish and protect those rights, which could result in significant legal expenses and adversely affect the Company’s business,our financial condition and results of operations,operations.
Over the last several years, we and others in the industry have received an increased number of allegations of patent infringement from competitors and from non-practicing entity patent holders, often coupled with offers to license such patents for our use. Such offers typically relate to various technologies including electronics, power systems, controls, and software, as well as the use of visible light to communicate data, the use of certain wireless networking methods, and the design of specific products. We believe that we do not need or will be able to invalidate or access such patents through licensing, cross-licensing, or other mutually beneficial arrangements, although to the extent we are required but unable to enter into such arrangements on acceptable economic terms, it could adversely impact us.
Risks Related to Financial Matters
The market price and trading volume of our shares may be volatile.
The market price of our common shares could fluctuate significantly for many reasons, including reasons unrelated to our specific performance, such as reports by industry analysts, investor perceptions, or negative announcements by customers, competitors, or suppliers regarding their own performance, as well as general global economic, industry, and political conditions. Since management does not provide guidance, our performance could be different than analyst expectations causing a decline in our stock price. To the extent that other large companies within our industry experience declines in share price, our share price may decline as well. In addition, when the market price of a company’s shares drops significantly, shareholders could institute securities class action lawsuits against us or otherwise engage in activism, which could cause us to incur substantial costs and could divert the time and attention of our management and other resources.
Changes to LIBOR may adversely impact the interest rate paid on some of our loans and consequently, our earnings and cash flows.
The borrowing facilities under our Credit Agreement, including under the Term Loan Facility, currently allow us to incur variable debt that is indexed to the London Inter-Bank Offered Rate (“LIBOR”). Upon maturity in December 2019, we intend to refinance in full our $350 million of Senior Notes outstanding with borrowings under our Term Loan Facility. We expect that interest on those borrowings, as well as on certain other borrowings under our Credit Agreement, would be based on LIBOR, plus an applicable margin. On July 27, 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR to the LIBOR administrator after 2021. The announcement also indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide LIBOR submissions to the LIBOR administrator or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable benchmark for certain securities, loans, and liabilities, what rate or rates may become accepted alternatives to LIBOR or the effect of any such changes in views or alternatives on the value of securities whose interest rates are tied to LIBOR. Recent proposals for LIBOR reforms may result in the
establishment of new methods of calculating LIBOR or the establishment of one or more alternative benchmark rates. Although our Credit Agreement provides for application of successor base rates, the successor base rates may be related to LIBOR, and the consequences of any potential cessation, modification or other reform of LIBOR cannot be predicted at this time. As a result, our interest expense may increase, our ability to refinance some or all of our existing indebtedness may be impacted and our available cash flow may be adversely affected.
Risks related to the Company'sour defined benefit retirement plans may adversely impact results of operations and cash flows.
Significant changes in actual investment returns on defined benefit plan assets, discount rates, and other factors could adversely affect the Company'sour results of operations and the amount of contributions the Company iswe are required to make to the defined benefit plans in future periods. As the Company'sour defined benefit plan assets and liabilities are marked-to-market on an annual basis, large non-cash gains or losses could be recorded in the fourth quarter of each fiscal year. In accordance with United States generally accepted accounting principles, the income or expense for the plans is calculated using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements for the defined benefit plans are dependent upon, among other things, interest rates, underlying asset returns, and the impact of legislative or regulatory changes related to defined benefit funding obligations. Unfavorable changes in these factors could adversely affect the Company's financial position, results of operations, and cash flows.our results.
| |
| Item 1b. | Unresolved Staff Comments |
None.
TheOur general corporate offices of Acuity Brands are located in Atlanta, Georgia. Because of the diverse nature of operations and the large number of individual locations, it is neither practical nor meaningful to describe each of theour operating facilities owned or leased by the Company.leased. The following listing summarizes the significant facility categories as of August 31, 2016:2019:
| | | Nature of Facilities | Owned | | Leased | Owned | | Leased |
| Manufacturing Facilities | 12 |
| | 8 |
| |
| Manufacturing facilities | | 13 |
| | 5 |
|
| Warehouses | — |
| | 2 |
| 1 |
| | 3 |
|
| Distribution Centers* | 1 |
| | 6 |
| |
| Distribution centers* | | 2 |
| | 7 |
|
| Offices | 4 |
| | 17 |
| 5 |
| | 17 |
|
* The majority of the distribution centers also have certain manufacturing and assembly capabilities.
The following table provides additional geographic information related to the Company’sour manufacturing facilities as of August 31, 2016:2019:
| | | | United States | | Mexico | | Europe | | Canada | | Total | United States | | Mexico | | Europe | | Canada | | Total |
| Owned | 6 |
| | 4 |
| | 1 |
| | 1 |
| | 12 |
| 6 |
| | 4 |
| | 2 |
| | 1 |
| | 13 |
|
| Leased | 3 |
| | 2 |
| | 2 |
| | 1 |
| | 8 |
| 2 |
| | 2 |
| | — |
| | 1 |
| | 5 |
|
| Total | 9 |
| | 6 |
| | 3 |
| | 2 |
| | 20 |
| 8 |
| | 6 |
| | 2 |
| | 2 |
| | 18 |
|
The Company believesWe believe that itsour properties are well maintained and in good operating condition and that itsour properties are suitable and adequate for itsour present needs. During fiscal 2017, the Company expects to make investments to expand capacity at certain manufacturing and other non-manufacturing facilities. In addition, initiativesInitiatives related to enhancing the global supply chainoperations may result in the future consolidation of certain facilities.
Although a loss at any of the facilities could temporarily impact the Company’s ability to serve the needs of its customers, a substantial loss at the Company’s largest manufacturing facilities in Mexico could have a material, adverse effect on the Company’s financial position, results of operations, and cash flows. The Company believes the financial impact of any loss would be partially mitigated by various insurance programs in place as well as capacity contingencies developed as part of an enterprise-wide contingency plan.
General
The Company isWe are subject to various legal claims arising in the normal course of business, including, but not limited to, patent infringement, product liability claims, and employment matters. The Company isWe are self-insured up to specified limits for certain types of claims, including product liability, and iswe are fully self-insured for certain other types of claims, including environmental, product recall, and patent infringement. Based on information currently available, it is the opinion of management that the ultimate resolution of any such pending and threatened legal proceedings will not have a material
adverse effect on theour financial condition, results of operations, or cash flows of the Company.flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of any such matters, if unfavorable, could have a material adverse effect on theour financial condition, results of operations, or cash flows of the Company in future periods. The Company establishesWe establish reserves for legal claims when the costs associated with the claims become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher than the amounts reserved for such claims. However, the Companywe cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the amounts reserved.
Lighting Science Group Patent Litigation
On April 30, 2019 and May 1, 2019, Lighting Science Group Corp. (“LSG”) filed complaints in the International Trade Commission and United States District Court for the District of Delaware, respectively, alleging infringement of eight patents by the Company. On May 17, 2019, LSG amended both of its complaints and dropped its claims regarding one of the patents. For the remaining seven patents, LSG’s infringement allegations relate to certain of our LED luminaires and related systems. LSG seeks orders from the International Trade Commission to preclude the importation and sale of the accused products. LSG seeks unspecified monetary damages, costs, and attorneys’ fees in the District of Delaware action. We dispute and have numerous defenses to the allegations, and we intend to vigorously defend against LSG’s claims. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and a request for an exclusion order and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we currently are unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from these matters.
Securities Class Action
On January 3, 2018, a shareholder filed a class action complaint in the United States District Court for the District of Delaware against us and certain of our officers on behalf of all persons who purchased or otherwise acquired our stock between June 29, 2016 and April 3, 2017. On February 20, 2018, a different shareholder filed a second class action complaint in the same venue against the same parties on behalf of all persons who purchased or otherwise acquired our stock between October 15, 2015 and April 3, 2017. The cases were transferred on April 30, 2018, to the United States District Court for the Northern District of Georgia and subsequently were consolidated as In re Acuity Brands, Inc. Securities Litigation, Civil Action No. 1:18-cv-02140-MHC (N.D. Ga.). On October 5, 2018, the court-appointed lead plaintiff filed a consolidated amended class action complaint (the “Consolidated Complaint”), which supersedes the initial complaints. The Consolidated Complaint is brought on behalf of all persons who purchased our common stock between October 7, 2015 and April 3, 2017 and alleges that we and certain of our current officers and one former executive violated the federal securities laws by making false or misleading statements and/or omitting to disclose material adverse facts that (i) concealed known trends negatively impacting sales of our products and (ii) overstated our ability to achieve profitable sales growth. The plaintiffs seek class certification, unspecified monetary damages, costs, and attorneys’ fees. We dispute the allegations in the complaints and intend to move to dismiss the Consolidated Complaint and to vigorously defend against the claims. We filed a motion to dismiss the Consolidated Complaint. On August 12, 2019, the court entered an order granting our motion to dismiss in part and dismissing all claims based on 42 of the 47 statements challenged in the Consolidated Complaint but also denying the motion in part and allowing claims based on 5 challenged statements to proceed to discovery. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we are currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from the matters described above. We are insured, in excess of a self-retention, for Directors and Officers liability.
Environmental Matters
TheOur operations of the Company are subject to numerous comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances, as well as solid and hazardous wastes, and to the remediation of contaminated sites. In addition, permits and environmental controls are required for certain of the Company’s operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, the Company investswe invest capital and incursincur operating costs relatingrelated to environmental compliance. Environmental laws and regulations have generally become stricter in recent years. The cost of responding to future changes may be substantial. The Company establishesWe establish reserves for known environmental claims when the costs associated with the claims become probable and can be reasonably estimated. The actual cost of environmental issues may be substantially higher than that reserved due to difficulty in estimating such costs.
| |
| Item 4. | Mine Safety Disclosures |
Not applicable.
PART II
| |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
TheOur common stock of Acuity Brands is listed on the New York Stock Exchange under the symbol “AYI”.“AYI.” At October 26, 2016,23, 2019, there were 2,8562,004 stockholders of record. The following table sets forth the New York Stock Exchange high and low sale prices and the dividend payments for Acuity Brands’ common stock for the periods indicated.
|
| | | | | |
| | Price per Share | | Dividends |
| | High | | Low | | per Share |
| 2015 | | | | | |
| First Quarter | $143.67 | | $117.19 | | $0.13 |
| Second Quarter | $164.13 | | $127.85 | | $0.13 |
| Third Quarter | $183.53 | | $157.05 | | $0.13 |
| Fourth Quarter | $211.82 | | $174.60 | | $0.13 |
| 2016 | | | | | |
| First Quarter | $234.43 | | $168.33 | | $0.13 |
| Second Quarter | $241.90 | | $169.42 | | $0.13 |
| Third Quarter | $264.00 | | $209.06 | | $0.13 |
| Fourth Quarter | $280.89 | | $231.89 | | $0.13 |
The indicated annual dividend rate on the Company's common stock is $0.52 per share. However, all decisions regarding the declaration and payment of dividends are at the discretion of the Board of Directors of the Company (the "Board") and will be evaluated regularly in light of the Company’s financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors that the Board deems relevant. The information required by this item with respect to equity compensation plans is included under the caption Equity Compensation Plans in the Company’sour proxy statement for the annual meeting of stockholders to be held January 6, 2017, to be filed8, 2020, which we will file with the Securities and Exchange Commission pursuant to Regulation 14A, and14A. The proxy statement is incorporated herein by reference.
Issuer Purchases of Equity Securities
In September 2011,March 2018, the Board authorized the repurchase of twoup to six million shares of the Company's outstandingour common stock. NoneAs of the Company’s outstanding common stock hasAugust 31, 2019, 1.45 million shares had been repurchasedpurchased under the current plan; therefore, thethis authorization. The maximum number of shares that may yet be purchased under the program equals two million.4.55 million shares.
Depending on market conditions,The following table summarizes share repurchase activity by month for the quarter ended August 31, 2019:
|
| | | | | | | | | | | | |
| Period | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Maximum Number of Shares that May Yet Be Purchased Under the Plans |
| 6/1/2019 through 6/30/2019 | — |
| | $ | — |
| | — |
| | 4,800,000 |
|
| 7/1/2019 through 7/31/2019 | 250,000 |
| | $ | 131.58 |
| | 250,000 |
| | 4,550,000 |
|
| 8/1/2019 through 8/31/2019 | — |
| | $ | — |
| | — |
| | 4,550,000 |
|
| Total | 250,000 |
| | $ | 131.58 |
| | 250,000 |
| | 4,550,000 |
|
We may repurchase shares may be repurchasedof our common stock from time to time at prevailing market prices, depending on market conditions, through open market or privately negotiated transactions. No date has been established for the completion of the share repurchase program, and the Company iswe are not obligated to repurchase any shares. Subject to applicable corporate securities laws, repurchases may be made at such times and in such amounts as management deems appropriate. Repurchases under the program can be discontinued at any time management feels additional repurchases are not warranted.
Company Stock Performance
The following information in this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SECSecurities and Exchange Commission or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and it will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent specifically incorporated by reference into such filing.
The following graph compares the cumulative total return to shareholders on the Company’sour outstanding stock during the five years ended August 31, 2016,2019, with the cumulative total returns of the Standard & Poor’s (“S&P”) 500Midcap 400 Index, the Dow Jones U.S. Electrical Components & Equipment Index, and the Dow Jones U.S. Building Materials & Fixtures Index. The Company isWe are a component of both the S&P 500Midcap 400 Index and the Dow Jones U.S. Building Materials & Fixtures Index. The Dow Jones U.S. Electrical Components & Equipment Index is also included in the following graph as the parent companies of several major lighting companies are included in the index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Among Acuity Brands, Inc., the S&P 500Midcap 400 Index,
the Dow Jones US Electrical Components & Equipment Index,
and the Dow Jones US Building Materials & Fixtures Index
*Assumes $100 invested on August 31, 20112014 in stock or index, including reinvestment of dividends.
|
| | | | | | | | | | | | | | | | | | | |
| | | Aug-11 |
| Aug-12 |
| Aug-13 |
| Aug-14 |
| Aug-15 |
| Aug-16 |
|
| | | | | | | | |
| Acuity Brands, Inc. | | $ | 100 |
| $ | 141 |
| $ | 189 |
| $ | 275 |
| $ | 434 |
| $ | 614 |
|
| S&P 500 | | $ | 100 |
| $ | 118 |
| $ | 140 |
| $ | 175 |
| $ | 176 |
| $ | 198 |
|
| Dow Jones US Electrical Components & Equipment | | $ | 100 |
| $ | 124 |
| $ | 155 |
| $ | 194 |
| $ | 175 |
| $ | 200 |
|
| Dow Jones US Building Materials & Fixtures | | $ | 100 |
| $ | 150 |
| $ | 190 |
| $ | 238 |
| $ | 275 |
| $ | 341 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | | Aug-14 |
| Aug-15 |
| Aug-16 |
| Aug-17 |
| Aug-18 |
| Aug-19 |
|
| | | | | | |
|
|
| Acuity Brands, Inc. | | $ | 100 |
| $ | 158 |
| $ | 223 |
| $ | 144 |
| $ | 125 |
| $ | 103 |
|
| S&P Midcap 400 Index | | $ | 100 |
| $ | 100 |
| $ | 112 |
| $ | 126 |
| $ | 151 |
| $ | 142 |
|
| Dow Jones US Electrical Components & Equipment Index | | $ | 100 |
| $ | 90 |
| $ | 103 |
| $ | 128 |
| $ | 150 |
| $ | 135 |
|
| Dow Jones US Building Materials & Fixtures Index | | $ | 100 |
| $ | 115 |
| $ | 143 |
| $ | 150 |
| $ | 159 |
| $ | 177 |
|
| |
| Item 6. | Selected Financial Data |
The following table sets forth certain selected consolidated financial data, of the Company which has been derived from the Consolidated Financial Statements for each of the five years in the period ended August 31, 2016.2019. This historical information may not be indicative of the Company’sour future performance. The information set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and the notes thereto.
| | | | Years Ended August 31, | Year Ended August 31, |
| | 2016(1) | | 2015(2) | | 2014(3) | | 2013(4) | | 2012(5) | 2019(1) | | 2018(2) | | 2017(3) | | 2016(4) | | 2015(5) |
| | (In millions, except per-share data) | (In millions, except per-share data) |
| Net sales | $ | 3,291.3 |
| | $ | 2,706.7 |
| | $ | 2,393.5 |
| | $ | 2,089.1 |
| | $ | 1,933.7 |
| $ | 3,672.7 |
| | $ | 3,680.1 |
| | $ | 3,505.1 |
| | $ | 3,291.3 |
| | $ | 2,706.7 |
|
| Net income | 290.8 |
| | 222.1 |
| | 175.8 |
| | 127.4 |
| | 116.3 |
| 330.4 |
| | 349.6 |
| | 321.7 |
| | 290.8 |
| | 222.1 |
|
| Basic earnings per share | 6.67 |
| | 5.13 |
| | 4.07 |
| | 2.97 |
| | 2.75 |
| 8.32 |
| | 8.54 |
| | 7.46 |
| | 6.67 |
| | 5.13 |
|
| Diluted earnings per share | 6.63 |
| | 5.09 |
| | 4.05 |
| | 2.95 |
| | 2.72 |
| 8.29 |
| | 8.52 |
| | 7.43 |
| | 6.63 |
| | 5.09 |
|
| Cash and cash equivalents | 413.2 |
| | 756.8 |
| | 552.5 |
| | 359.1 |
| | 284.5 |
| 461.0 |
| | 129.1 |
| | 311.1 |
| | 413.2 |
| | 756.8 |
|
Total assets(6) | 2,948.0 |
| | 2,407.0 |
| | 2,145.4 |
| | 1,888.5 |
| | 1,722.2 |
| 3,172.4 |
| | 2,988.8 |
| | 2,899.6 |
| | 2,948.0 |
| | 2,407.0 |
|
| Long-term debt | 355.0 |
| | 352.4 |
| | 351.9 |
| | 351.6 |
| | 351.2 |
| 347.5 |
| | 356.4 |
| | 356.5 |
| | 355.0 |
| | 352.4 |
|
| Total debt | 355.2 |
| | 352.4 |
| | 351.9 |
| | 351.6 |
| | 351.2 |
| 356.6 |
| | 356.8 |
| | 356.9 |
| | 355.2 |
| | 352.4 |
|
| Stockholders’ equity | 1,659.8 |
| | 1,360.0 |
| | 1,163.5 |
| | 993.5 |
| | 834.0 |
| 1,918.9 |
| | 1,716.8 |
| | 1,665.6 |
| | 1,659.8 |
| | 1,360.0 |
|
| Cash dividends declared per common share | 0.52 |
| | 0.52 |
| | 0.52 |
| | 0.52 |
| | 0.52 |
| 0.52 |
| | 0.52 |
| | 0.52 |
| | 0.52 |
| | 0.52 |
|
| |
| (1) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2019 include a) pre-tax special charges of $1.8 million related to streamlining initiatives, b) pre-tax amortization of acquired intangible assets of $30.8 million, c) pre-tax share-based payment expense of $29.2 million, d) pre-tax acquisition-related items of $2.5 million, and e) certain manufacturing inefficiencies related to the closure of a facility of $0.9 million, totaling $1.28 per share. |
| |
| (2) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2018 include a) pre-tax special charges of $5.6 million related to streamlining initiatives, b) pre-tax amortization of acquired intangible assets of $28.5 million, c) pre-tax share-based payment expense of $32.3 million, d) pre-tax acquisition-related items of $3.8 million, e) excess inventory related to the closure of a facility of $3.1 million, f) gain on sale of a business of $5.4 million, and g) discrete income tax benefits of the U.S. Tax Cuts and Jobs Act of $34.6 million, totaling $0.32 per share. |
| |
| (3) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2017 include a) pre-tax special charges of $11.3 million related to streamlining initiatives, b) pre-tax amortization of acquired intangible assets of $28.0 million, c) pre-tax share-based payment expense of $32.0 million, d) gain on sale of investment in unconsolidated affiliate of $7.2 million, and e) manufacturing related inefficiencies directly related to the closure of a facility of $1.6 million, totaling $1.02 per share. |
| |
| (4) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2016 include a) pre-tax special charges of $15.0 million related to streamlining initiatives, b) pre-tax amortization of acquired intangible assets of $21.4 million, c) pre-tax share-based compensationpayment expense of $27.7 million, d) pre-tax acquisitions-relatedacquisition-related items of $10.8 million, and e) pre-tax impairment of intangible asset of $5.1 million, totaling $1.21 per share. |
| |
(2)(5) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2015 include a) pre-tax special charges of $12.4 million related to streamlining initiatives, b) pre-tax amortization of acquired intangible assets of $11.0 million, c) pre-tax share-based compensationpayment expense of $18.2 million, d) non tax-deductible professional fees of $3.2 million related to acquisitions, and e) pre-tax net loss on financial instruments of $2.6 million, totaling $0.74 per share. |
| |
(3) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2014 include a) pre-tax amortization of acquired intangible assets of $11.2, b) pre-tax share-based compensation expense of $17.7, c) pre-tax recoveries of $5.8 associated with fraud at the Company's former freight payment and audit service provider, and d) a pre-tax special charge reversal of $0.2 related to initiatives to simplify and streamline the Company's operations, totaling $0.35 per share. |
| |
(4) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2013 include a) pre-tax amortization of acquired intangible assets of $10.9, b) pre-tax share-based compensation expense of $16.5, c) pre-tax incremental costs of $8.4 incurred due to manufacturing inefficiencies directly related to the Cochran, GA manufacturing facility closure; d) pre-tax costs of $8.1 as a result of fraud at the Company's former freight payment and audit service provider; and e) a pre-tax special charge of $8.5 related to initiatives to simplify and streamline the Company's operations, totaling $0.76 per share. |
| |
(5) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2012 include a) pre-tax amortization of acquired intangible assets of $11.2, b) pre-tax share-based compensation expense of $15.9, c) $13.3 of pre-tax special charges, primarily related to severance and production transfer costs; d) pre-tax non-cash impairments of $1.2 attributable to the abandonment of inventory that was not transferred to other facilities; and e) pre-tax incremental costs incurred due to manufacturing inefficiencies directly related to the Cochran facility closure, which amounted to approximately $3.2, totaling $0.68 per share. |
| |
(6) | Fiscal 2015, 2014, 2013, and 2012 amounts include the reclassification of deferred income taxes from short-term to long-term related to the adoption of ASU 2015-17. See the New Accounting Pronouncements footnote for more information.
|
| |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
($ in millions, except per-share data and as indicated)
The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes included within this report. References made to years are for fiscal year periods.
The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands, Inc. (“Acuity Brands”) and its subsidiaries for the years ended August 31, 20162019, 2018, and 2015. For a more complete understanding of this2017. The following discussion pleaseshould be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statementsincluded inwithin this report.
Overview
Company
Acuity Brands Inc. (“Acuity Brands”) is the parent company of Acuity Brands Lighting, Inc. (“ABL”) and other wholly-owned subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred to herein as the "Company”)“we,” “our,” “us,” “the Company,” or similar references). The Company, with itsOur principal office is located in Atlanta, Georgia, employed approximately 11,800 people worldwide asGeorgia.
We are one of August 31, 2016.
The Company designs, produces, and distributes a broad arraythe world’s leading providers of lighting and building management solutions and services for commercial, institutional, industrial, infrastructure, and residential applications for various markets throughout North America and select international markets. The Company'sOur lighting and building management solutions include devices such as luminaires, lighting controls,controllers controls for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systems designed to optimize energy efficiency and comfort for various indoor and outdoor applications. The Company is one of the world's leading producers and distributors of lighting and building management solutions, with a broad, highly configurable, diversified product offering. As of August 31, 2016, the Company operated 20 manufacturing facilities and seven distribution facilities along with two warehouses to serve its extensive customer base.
The Company does not consider acquisitions a critical element of its strategy, but seeks opportunitiesAdditionally, we continue to expand and enhance its portfolio of solutions, including the following transactions:
On June 30, 2016, using cash on hand and common stock, the Company acquired DGLogik, Inc. ("DGLogik"), a provider of innovative software solutions that enable and visualize the Internet of Things. DGLogik's solutions provide users with the intelligence to better manage energy usage and improve facility performance. DGLogik is headquartered in the San Francisco Bay Area, California.
On December 10, 2015, using cash on hand, the Company acquired Juno Lighting LLC ("Juno Lighting"), a leading provider of downlighting and track lighting fixtures for both residential and commercial applications. Juno Lighting is headquartered in Des Plaines, Illinois.
On December 9, 2015, using cash on hand, the Company acquired certain assets and assumed certain liabilities of Geometri, LLC ("Geometri"), a provider of a software and services platform for mapping, navigation, and analytics.
On September 1, 2015, using cash on hand, the Company acquired Distech Controls Inc. ("Distech Controls"), a provider of building automation solutions that allow for the integration of lighting, HVAC, access control, closed circuit television, and related systems. Distech Controls is headquartered in Quebec, Canada.
On April 15, 2015, using cash on hand, the Company acquired for cash substantially all of the assets and assumed certain liabilities of ByteLight, Inc. ("ByteLight"), a provider of indoor location software for light-emitting diode (“LED”) lighting. ByteLight is headquartered in Boston, Massachusetts.
In addition, during fiscal 2015, the Company made a strategic, non-controlling investment in a company specializing in light sensory networks.
Strategy
The Company's strategy is to extend its leadership position in the North American market and certain markets internationally by delivering superior lighting and building management solutions. The Company’s lighting and building management solutions vary from individual devices to intelligent network systems. Individual devices include luminaires, lighting controls, lighting components, controllers for various building systems (including HVAC, lighting, shades and access control), power supplies, and prismatic skylights. Among other benefits, intelligent network systems can optimize energy efficiency and comfort as well as enhance the occupant experience for various indoor and outdoor applications, all the while reducing operating costs. Additionally, the Company continues to expand itsour solutions portfolio, including
software and services, to provide a host of other economic benefits resulting from data analytics that enables the “InternetInternet of Things” (IoT) andThings (“IoT”), supports the advancement of smart buildings, smart cities, and the smart grid.grid, and allows businesses to develop custom applications to scale their operations. As of August 31, 2019, we employed approximately 12,000 associates and operated 18 manufacturing facilities, nine distribution facilities, and four warehouses to serve our extensive customer base.
We do not consider acquisitions a critical element of our strategy but seek opportunities to expand and enhance our portfolio of solutions, including the following transactions:
On September 17, 2019, using cash on hand and borrowings under available existing credit arrangements, we acquired all of the equity interests of The Luminaires Group (“TLG”), a leading provider of specification-grade luminaires for commercial, institutional, hospitality, and municipal markets, all of which complements our current and dynamic lighting portfolio. TLG’s indoor and outdoor lighting fixtures are marketed to architects, landscape architects, interior designers and engineers through five niche lighting brands: A-light, Cyclone, Eureka, Luminaire LED and Luminis.
On June 20, 2019, using cash on hand we acquired all of the equity interests of WhiteOptics, LLC (“WhiteOptics”). WhiteOptics is headquartered in New Castle, Delaware and manufactures advanced optical components used to reflect, diffuse, and control light for LED lighting used in commercial and institutional applications.
On May 1, 2018, using cash on hand and borrowings available under existing credit arrangements, we acquired IOTA Engineering, LLC (“IOTA”). IOTA is headquartered in Tucson, Arizona and manufactures highly engineered emergency lighting products and power equipment for commercial and institutional applications both in the U.S. and internationally.
On February 12, 2018, using cash on hand, we acquired Lucid Design Group, Inc (“Lucid”). Lucid is headquartered in Oakland, California and provides a data and analytics platform to make data-driven decisions to improve building efficiency and drive energy conservation and savings.
No acquisitions were completed during fiscal 2017.
Please refer to the Acquisitions footnote of the Notes to Consolidated Financial Statements for more information.
Strategy
Our strategy is to extend our leadership position in the North American market and certain international markets by delivering superior lighting and building management solutions. Additionally, we plan to continue to expand our software solution offerings, including IoT enabled solutions. As a results-oriented, customer-centric company, management will continueplans to align the unique capabilities and resources of the organization to drive profitable growth through a keen focus on providing comprehensive and differentiated lighting and building management solutions for itsour customers, driving world-class cost efficiency, and leveraging a culture of operational excellence through continuous improvement.
Throughout fiscal 2016, the Company believes it2019, we believe we made significant progress towards achieving itsour strategic objectives, including expanding itsour access to the market, expanding itsour addressable market, introducing new lighting and building management
solutions, and enhancing itsour operations to create a stronger, more effective organization. TheOur strategic objectives were developed to enable the Companyin order to meet or exceed the following financial goals during an entire business cycle:
Operating profit margin in the mid-teens or higher;
Diluted earnings per share growth in excess of 15% per annum;
Return on stockholders’ equity of 20% or better per annum; and
Cash flow from operations, less capital expenditures, that is in excess of net income.income; and
Return on invested capital in excess of our weighted average cost of capital.
To increase theenhance our probability of the Company achieving these financial goals, management will continue to implement programs to enhance itsour capabilities at providing unparalleled customer service; creating a globally competitive cost structure; improving productivity; and introducing new and innovative solutions and services more rapidly and cost effectively. In addition, the Company haswe have invested considerable resources to teach and train associates to utilize tools and techniques that accelerate success in these key areas, as well as to create a culture that demands excellence through continuous improvement. Additionally, the Company promoteswe promote a “pay-for-performance” culture that rewards associates for achieving various levels of year over yearyear-over-year improvement, while closely monitoring appropriate risk-taking. The expected outcome of these activities will be to better position the Companyourselves to deliver on itsour full potential, to provide a platform for future growth opportunities, and to allow the Company to achieve itsour long-term financial goals. See the Outlook section below for additional information.
Liquidity and Capital Resources
The Company's principleOur principal sources of liquidity are operating cash flows generated primarily from itsour business operations, cash on hand, and various sources of borrowings. TheOur ability of the Company to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund itsour operations and capital expenditures, pay dividends, repurchase shares, meet its obligations as they become due, and maintain compliance with covenants contained in itsour financing agreements.
In recent years,fiscal 2019, we invested $53.0 million in property, plant, and equipment, primarily for new and enhanced information technology capabilities, equipment, tooling, and facility enhancements. We expect to invest approximately 1.7% of net sales in capital expenditures during fiscal 2020.
In March 2018, the Board authorized the repurchase of up to six million shares of our common stock. As of August 31, 2019, 1.45 million shares had been purchased under this authorization, of which 0.7 million were repurchased in fiscal 2019. We expect to repurchase the remaining shares available for repurchase on an opportunistic basis subject to various factors including stock price, Company strengthened its liquidity positionperformance, market conditions and extended itsother possible uses of cash.
Our short-term cash needs are expected to include funding operations as currently planned; making capital investments as currently anticipated; paying quarterly stockholder dividends as currently anticipated; paying principal and interest on debt maturity profile following the issuance of $350.0 ofas currently scheduled, including our senior unsecured notes duematuring in fiscal 2020 (the “Notes”)December 2019, which we expect to repay with borrowings available under existing credit arrangements, subject to satisfying the applicable conditions precedent; making required contributions to our employee benefit plans; funding possible acquisitions; and potentially repurchasing shares of our outstanding common stock. We believe that we will be able to meet our liquidity needs over the execution of a $250.0 revolving credit facility scheduled to mature in fiscal 2019 (the “Revolving Credit Facility”). See the Capitalization section below and the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for more information.
Basednext 12 months based on itsour cash on hand, availability under existing financing arrangements, and current projections of cash flow from operations, the Company believesand borrowing availability under financing arrangements. Additionally, we believe that it will be able to meet its liquidity needs over the next 12 months. Short-term needs are expected to include funding its operations as currently planned, making anticipated capital investments, funding potential acquisitions, paying quarterly stockholder dividends as currently anticipated, paying interest on borrowings as currently scheduled, and making required contributions into its employee benefit plans, as well as potentially repurchasing shares of its outstanding common stock as authorized by the Board of Directors. Two million shares of the Company’s common stock are currently authorized and available for repurchase under the existing repurchase program. The Company expects to repurchase shares on an opportunistic basis. During fiscal 2017, the Company currently expects to invest approximately 2.5% of net sales in capital expenditures primarily for equipment, tooling, facility enhancements, and new and enhanced information technology capabilities. Additionally, management believes that the Company'sour cash flowflows from operations and sources of funding, including, but not limited to, borrowingfuture borrowings and capacity, will sufficiently support theour long-term liquidity needs of the Company.needs.
Cash Flow
The Company usesWe use available cash and cash flowflows from operations as well as proceeds from the exercise of stock options,borrowings on credit arrangements to fund operations, and capital expenditures, and acquisitions, if any; to repurchase Company stock, fund acquisitions,stock; and to pay dividends.
The Company’sOur cash position at August 31, 20162019 was $413.2, a decrease$461.0 million, an increase of $343.6$331.9 million from August 31, 2015.2018. During the year ended August 31, 2016, the Company2019, we generated net cash flows from operating activities of $345.7 with additional
cash received of $14.2 from stock issuances primarily in connection with stock option exercises.$494.7 million. Cash generated from operating activities, as well as cash on-hand, was used during the current year primarily to fund acquisitionsrepurchase 0.7 million shares of $623.2 andour outstanding common stock for $81.6 million, fund capital expenditures of $83.7 as well as$53.0 million, pay dividends to stockholders of $22.9. Foreign currency related items had an unfavorable effect$20.8 million, and pay withholding taxes on cash flowsthe net settlement of $4.0 during the current year.equity awards of $6.0 million.
During fiscal 2016,2019, net cash generated from operating activities increased $56.8$143.2 million to $345.7$494.7 million compared with $288.9 generated$351.5 million in the prior-year period due primarily to higherlower net income partially offset by higher operating working capital requirements. Operating working capital (calculated by adding accounts receivable plus inventories and subtracting accounts payable-net of acquisitions and the impact of foreign exchange rate changes) increaseddecreased by approximately $53.3$57.0 million during fiscal 20162019 compared to an increase of $38.1$84.7 million during fiscal 2015.2018. Operating working capital requirements increaseddecreased primarily due to
greater production and purchases necessarycash collections from customers year over year as well as reductions in current year inventory as a result of our efforts to supportimprove inventory turnover. These improvements were partially offset by the higher leveltiming of net sales.payments for trade payables.
Management believes that investing in assets and programs that will over time increase the overall return on the Company’sits invested capital is a key factor in driving stockholder value. The CompanyWe invested $83.7$53.0 million and $56.5$43.6 million in fiscal 20162019 and 2015,2018, respectively, in property, plant, and equipment primarily for new and enhanced information technology capabilities, equipment, tooling, machinery, equipment,and facility enhancements, and information technology.enhancements. We expect to invest approximately 1.7% of net sales in capital expenditures during fiscal 2020.
Contractual Obligations
The following table summarizes the Company’sour contractual obligations at August 31, 2016:2019 (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period(6) |
| | Total | | Less than One Year | | 1 to 3 Years | | 4 to 5 Years | | After 5 Years |
Debt(1) | $ | 356.5 |
| | $ | 0.2 |
| | $ | 0.6 |
| | $ | 354.6 |
| | $ | 1.1 |
|
Interest Obligations(2) | 163.8 |
| | 31.9 |
| | 65.3 |
| | 31.4 |
| | 35.2 |
|
Operating Leases(3) | 60.2 |
| | 15.1 |
| | 21.7 |
| | 13.2 |
| | 10.2 |
|
Purchase Obligations(4) | 198.6 |
| | 193.8 |
| | 4.8 |
| | — |
| | — |
|
Other Long-term Liabilities(5) | 42.9 |
| | 4.3 |
| | 6.6 |
| | 3.6 |
| | 28.4 |
|
| Total | $ | 822.0 |
| | $ | 245.3 |
| | $ | 99.0 |
| | $ | 402.8 |
| | $ | 74.9 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period |
| | Total | | Less than One Year | | 1 to 3 Years | | 4 to 5 Years | | After 5 Years |
Debt(1) | $ | 356.7 |
| | $ | 350.3 |
| | $ | 4.8 |
| | $ | 0.7 |
| | $ | 0.9 |
|
Interest obligations(2) | 95.2 |
| | 23.6 |
| | 25.2 |
| | 20.9 |
| | 25.5 |
|
Operating leases(3) | 68.7 |
| | 16.7 |
| | 23.4 |
| | 11.8 |
| | 16.8 |
|
Purchase obligations(4) | 357.2 |
| | 347.2 |
| | 10.0 |
| | — |
| | — |
|
Other liabilities(5) | 44.9 |
| | 1.8 |
| | 3.2 |
| | 1.5 |
| | 38.4 |
|
| Total | $ | 922.7 |
| | $ | 739.6 |
| | $ | 66.6 |
| | $ | 34.9 |
| | $ | 81.6 |
|
___________________________
| |
(1) | These amounts, (whichwhich represent the principal amounts outstanding at August 31, 2016)2019, are included in the Company’s our Consolidated Balance Sheets. See the Debt and Lines of Credit footnote for additional information regarding debt and other matters. |
| |
(2) | These amounts primarily represent primarily theour expected future interest payments on outstanding debt held by the Company at August 31, 20162019 and the Company’sour outstanding loans related to itsour corporate-owned life insurance policies (“COLI”), which constitute a small portion of the total amountscontractual obligations shown. COLI-related interest payments included in this table are estimates. These estimates are based on various assumptions, including age at death, loan interest rate, and tax bracket. The amounts in this table do not include COLI-related payments after ten years due to the difficulty in calculating a meaningful estimate that far in the future. Note that payments related to debt and the COLI are reflected in the Company’s our Consolidated Statements of Cash Flows. |
| |
(3) | The Company’sOur operating lease obligations are described in the Commitments and Contingencies footnote.
|
| |
(4) | Purchase obligations include commitments to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including open purchase orders. |
| |
(5) | These amounts are included in the Company’s our Consolidated Balance Sheets and largely represent other liabilities for which the Company iswe are obligated to make future payments under certain long-term employee benefit programs. Estimates of the amounts and timing of these amounts are based on various assumptions, including expected return on plan assets, interest rates, and other variables. The amounts in this table do not include amounts related to future funding obligations under the defined benefit pension plans. The amount and timing of these future funding obligations are subject to many variables and are also dependent on whether or not the Company electswe elect to make contributions to the pension plans in excess of those required under ERISA.Employee Retirement Income Security Act of 1974. Such voluntary contributions may reduce or defer the funding obligations. See the Pension and Profit Sharing Plans footnote for additional information. These amounts exclude $5.2$16.6 million of unrecognized tax benefits as the period of cash settlement with the respective taxing authorities cannot be reasonably estimated. |
| |
(6)
| Deferred income tax liabilities as of August 31, 2016 were approximately $187.8. Refer to the Income Taxes footnote for more information. This amount is not included in the total contractual obligations table because the Company believes this presentation would not be meaningful. Deferred income tax liabilities are calculated based on temporary differences between the tax bases of assets and liabilities and their respective book bases, which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, scheduling deferred income tax liabilities as payments due by period could be misleading, because this scheduling would not relate to liquidity needs.
|
The above table does not include deferred income tax liabilities of approximately $174.4 million as of August 31, 2019. Refer to the Income Taxes footnote for more information. This amount is not included in the total contractual obligations table because we believe this presentation would not be meaningful. Deferred income tax liabilities are calculated based on temporary differences between the tax and book bases of assets and liabilities, which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, scheduling deferred income tax liabilities as payments due by period could be misleading, because this scheduling would not relate to liquidity needs.
Capitalization
TheOur current capital structure of the Company is comprised principally of senior unsecured notes and equity of itsour stockholders. Total debt outstanding consistingwas $356.6 million and $356.8 million at August 31, 2019 and 2018, respectfully, and consisted primarily of fixed-rate obligations net of discount and deferred costs, was $355.2 at August 31, 2016 compared with $352.4 at August 31, 2015. Duringobligations. We fully repaid all borrowings under our revolving credit facility during fiscal 2016,2019. Additionally, we repaid $0.4 million under the Company borrowed $2.5 under recently-executed fixed rate long-term bank loans.loans during fiscal 2019.
On December 8, 2009, ABL issued the Notes$350.0 million of senior unsecured notes due in December 2019 (the “Unsecured Notes”) in a private placement transaction with an aggregate principal amount of $350.0.transaction. The Unsecured Notes were subsequently exchanged for SEC-registeredSecurities and Exchange Commission registered notes with substantially identical terms. The Unsecured Notes bear interest at a rate of 6% per annum and were issued at a price equal to 99.797% of their face value and for a term of 10ten years. Although
the Unsecured Notes will mature within one year from August 31, 2019, we have the ability and intent to refinance these borrowings using availability under our unsecured delayed draw term loan facility (“Term Loan Facility”) as described below, subject to satisfying the applicable conditions precedent. Currently, we plan to refinance the Unsecured Notes in full with borrowings under the Term Loan Facility, of which $341.2 million of the carrying value would be due more than one year from the anticipated refinancing date. As such, this amount is reflected within Long-term debt on the Consolidated Balance Sheets as of August 31, 2019. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for more information.
On June 29, 2018, we entered into a credit agreement (“Credit Agreement”) with a syndicate of banks that provides us with a $400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) and a $400.0 million Term Loan Facility. On August 27, 2014, the Company executed31, 2019, we had no borrowings outstanding under the Revolving Credit Facility with a borrowing capacity of $250.0. The Revolving Creditand no borrowings under the Term Loan Facility replaced the Company's prior $250.0 revolving credit facility, which was scheduled to mature on January 31, 2017. The Revolving Credit Facility will mature and all amounts outstanding thereunder will be due and payable on August 27, 2019. The Company was compliant. We were in compliance with all financial covenants under the Revolving Credit FacilityAgreement as of August 31, 2016. As of August 31, 2016, the Company had outstanding letters of credit totaling $11.0, primarily for securing collateral requirements under the casualty insurance programs for the Company and providing credit support for the Company's industrial revenue bond.2019. At August 31, 2016, the Company2019, we had additional borrowing capacity under the Revolving Credit FacilityAgreement of $243.9$796.2 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility and the Term Loan Facility less the outstanding letters of credit of $6.1$3.8 million issued under the Revolving Credit Facility. As of August 31, 2019, we had outstanding letters of credit totaling $8.0 million, primarily for securing collateral requirements under our casualty insurance programs and for providing credit support for our industrial revenue bond, including $3.8 million issued under the Revolving Credit Facility. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements.for more information.
During fiscal 2016, the Company’s2019, our consolidated stockholders’ equity increased $299.8$202.1 million to $1,659.8$1.92 billion at August 31, 20162019 from $1,360.0$1.72 billion at August 31, 2015.2018. The increase was due primarily to net income earned in the period, as well as amortization of stock-based compensation, and stock issuances resulting primarily from the exercise of stock options, partially offset by payment of dividends,share repurchases, pension plan adjustments, dividend payments, adjustments related to the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), shares withheld for employee taxes on vested restricted stock grants, and foreign currency translation adjustments. The Company’sOur debt to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders’ equity) was 17.6%15.7% and 20.6%17.2% at August 31, 20162019 and 2015,2018, respectively. The ratio of debt, net of cash, to total capitalization, net of cash, was (3.6)(5.8)% and 11.7% at August 31, 20162019 and (42.3)% at August 31, 2015 as cash on hand continued to exceed debt.2018, respectively.
Dividends
Acuity BrandsWe paid dividends on itsour common stock of $22.9$20.8 million ($0.52 per share) in fiscal 20162019 and $22.7$21.4 million ($0.52 per share) in fiscal 2015. The indicated2018, indicating a quarterly dividend rate isof $0.13 per share. However, allAll decisions regarding the declaration and payment of dividends by Acuity Brands are at the discretion of the Company’s Board of Directors and are evaluated regularly in light of the Company’sour financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Company’s Board of Directors deems relevant.
Results of Operations
Fiscal 20162019 Compared with Fiscal 20152018
The following table sets forth information comparing the components of net income for the year ended August 31, 20162019 with the year ended August 31, 2015:2018 (in millions except per share data):
|
| | | | | | | | | | | | | | |
| | Years Ended August 31, | | Increase | | Percent |
| | 2016 | | 2015 | | (Decrease) | | Change |
| Net Sales | $ | 3,291.3 |
| | $ | 2,706.7 |
| | $ | 584.6 |
| | 21.6 | % |
| Cost of Products Sold | 1,855.1 |
| | 1,561.1 |
| | 294.0 |
| | 18.8 | % |
| Gross Profit | 1,436.2 |
| | 1,145.6 |
| | 290.6 |
| | 25.4 | % |
| Percent of net sales | 43.6 | % | | 42.3 | % | | 130 |
| bps | |
|
| Selling, Distribution, and Administrative Expenses | 946.0 |
| | 756.9 |
| | 189.1 |
| | 25.0 | % |
| Special Charge | 15.0 |
| | 12.4 |
| | 2.6 |
| | 21.0 | % |
| Operating Profit | 475.2 |
| | 376.3 |
| | 98.9 |
| | 26.3 | % |
| Percent of net sales | 14.4 | % | | 13.9 | % | | 50 |
| bps | |
|
| Other Expense (Income): | |
| | |
| | |
| | |
|
| Interest Expense, net | 32.2 |
| | 31.5 |
| | 0.7 |
| | 2.2 | % |
| Miscellaneous (Income) Expense, net | (1.6 | ) | | 1.2 |
| | (2.8 | ) | | 233.3 | % |
| Total Other Expense | 30.6 |
| | 32.7 |
| | (2.1 | ) | | (6.4 | )% |
| Income before Provision for Income Taxes | 444.6 |
| | 343.6 |
| | 101.0 |
| | 29.4 | % |
| Percent of net sales | 13.5 | % | | 12.7 | % | | 80 |
| bps | |
|
| Provision for Income Taxes | 153.8 |
| | 121.5 |
| | 32.3 |
| | 26.6 | % |
| Effective tax rate | 34.6 | % | | 35.4 | % | | |
| | |
|
| Net Income | $ | 290.8 |
| | $ | 222.1 |
| | $ | 68.7 |
| | 30.9 | % |
| Diluted Earnings per Share | $ | 6.63 |
| | $ | 5.09 |
| | $ | 1.54 |
| | 30.3 | % |
|
| | | | | | | | | | | | | | |
| | Year Ended August 31, | | Increase | | Percent |
| | 2019 | | 2018 | | (Decrease) | | Change |
| Net sales | $ | 3,672.7 |
| | $ | 3,680.1 |
| | $ | (7.4 | ) | | (0.2 | )% |
| Cost of products sold | 2,193.0 |
| | 2,194.7 |
| | (1.7 | ) | | (0.1 | )% |
| Gross profit | 1,479.7 |
| | 1,485.4 |
| | (5.7 | ) | | (0.4 | )% |
| Percent of net sales | 40.3 | % | | 40.4 | % | | (10 | ) | bps | |
|
| Selling, distribution, and administrative expenses | 1,015.0 |
| | 1,019.0 |
| | (4.0 | ) | | (0.4 | )% |
| Special charges | 1.8 |
| | 5.6 |
| | (3.8 | ) | | NM |
|
| Operating profit | 462.9 |
| | 460.8 |
| | 2.1 |
| | 0.5 | % |
| Percent of net sales | 12.6 | % | | 12.5 | % | | 10 |
| bps | |
|
| Other expense: | |
| | |
| | |
| | |
|
| Interest expense, net | 33.3 |
| | 33.5 |
| | (0.2 | ) | | (0.6 | )% |
| Miscellaneous expense, net | 4.7 |
| | 1.4 |
| | 3.3 |
| | NM |
|
| Total other expense | 38.0 |
| | 34.9 |
| | 3.1 |
| | 8.9 | % |
| Income before income taxes | 424.9 |
| | 425.9 |
| | (1.0 | ) | | (0.2 | )% |
| Percent of net sales | 11.6 | % | | 11.6 | % | | — |
| bps | |
|
| Income tax expense | 94.5 |
| | 76.3 |
| | 18.2 |
| | 23.9 | % |
| Effective tax rate | 22.2 | % | | 17.9 | % | | |
| | |
|
| Net income | $ | 330.4 |
| | $ | 349.6 |
| | $ | (19.2 | ) | | (5.5 | )% |
| Diluted earnings per share | $ | 8.29 |
| | $ | 8.52 |
| | $ | (0.23 | ) | | (2.7 | )% |
| NM - not meaningful | | | | | | | |
Net sales increased $584.6,decreased $7.4 million, or 21.6%0.2%, to $3,291.3$3.67 billion for the year ended August 31, 20162019 compared with $2,706.7$3.68 billion reported for the year ended August 31, 2015.2018. For the year ended August 31, 2016, the Company2019, we reported net income of $290.8$330.4 million compared with $222.1$349.6 million for the year ended August 31, 2015, an increase2018, a decrease of $68.7,$19.2 million, or 30.9%5.5%. For fiscal 2016,2019, diluted earnings per share increased 30.3%decreased 2.7% to $6.63$8.29 from $5.09$8.52 for the prior-year period.
Fiscal 2019 results were impacted by the adoption of ASC 606, which resulted in a decrease to revenues, gross profit, and operating profit of $8.9 million, $4.8 million, and $5.2 million, respectively, during the year ended August 31, 2019. Additionally, fiscal 2018 results were retrospectively adjusted to reflect the impact of adopting Accounting Standards Update No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). Upon adoption of ASU 2017-07, our previously reported operating profit and other expense both increased $6.2 million for the year ended August 31, 2018. The provisions of ASU 2017-07 had no impact to our previously reported net income or earnings per share. See New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for further details.
The following table reconciles certain financial measures prepared in accordance with U.S. generally accepted accounting principles ("(“U.S. GAAP"GAAP”) financial measures to the corresponding non-U.S. GAAP measures referred to in the discussion of the Company’sour results of operations, which exclude the impact of acquisition-related items, certain manufacturing inefficiencies and excess inventory adjustments related to the closure of a facility, amortization of acquired intangible assets, share-based compensationpayment expense, impairment of intangible asset, special charges associated primarily with continued efforts to streamline the organization, and net lossesa gain associated with financial instruments.the sale of our former Spanish lighting business, and certain discrete income tax benefits of the Tax Cuts and Jobs Act (“TCJA”). Although special charges, amortizationthe impacts of acquired intangible assets, and share-based compensation expensethese items have been recognized in prior periods and could recur in future periods, management typically excludes the impact of these chargesitems during internal reviews of performance and uses these non-U.S. GAAP measures for baseline comparative operational analysis, decision making, and other activities. Primarily due to the impact of the four acquisitions completed during fiscal 2016, the Company experienced noticeable increases in amortization of acquired intangibles, share-based payments used to improve retention and align the interest of key leaders of acquired businesses, and special charges due to activities to streamline and integrate those acquisitions. These non-U.S. GAAP financial measures, including adjusted gross profit and margin, adjusted selling, distribution, and administrative (“SD&A”) expenses and adjusted SD&A expenses as a percent of net sales, adjusted operating profit and margin, adjusted other income/expense, adjusted net income, and adjusted diluted earnings per share, are provided to enhance the user’s overall understanding of the Company’sour current financial performance. Specifically, the Company believeswe believe these non-U.S. GAAP measures provide greater comparability and enhanced visibility into theour results of operations. The non-U.S. GAAP financial measures
should be considered in addition to, and not as a substitute for or superior to, results prepared in accordance with U.S. GAAP.
|
| | | | | | | | | | | | | |
| | Years Ended August 31, | | Increase (Decrease) | Percent Change |
| | 2016 | | 2015 | |
| Gross Profit | $ | 1,436.2 |
| | $ | 1,145.6 |
| | | |
Add-back: Acquisition-related items (1) | 2.8 |
| | — |
| | | |
| Adjusted Gross Profit | $ | 1,439.0 |
| | $ | 1,145.6 |
| | $ | 293.4 |
| 25.6 | % |
| Percent of net sales | 43.7 | % | | 42.3 | % | | 140 |
| bps |
| | | | | | | |
| Selling, Distribution, and Administrative Expenses | $ | 946.0 |
| | $ | 756.9 |
| | | |
| Less: Amortization of acquired intangible assets | (21.4 | ) | | (11.0 | ) | | | |
| Less: Share-based compensation expense | (27.7 | ) | | (18.2 | ) | | | |
Less: Acquisition-related items (1) | (8.0 | ) | | (3.2 | ) | | | |
| Less: Impairment of intangible asset | (5.1 | ) | | — |
| | | |
| Adjusted Selling, Distribution, and Administrative Expenses | $ | 883.8 |
| | $ | 724.5 |
| | $ | 159.3 |
| 22.0 | % |
| Percent of net sales | 26.9 | % | | 26.8 | % | | 10 |
| bps |
| | | | | | | |
| Operating Profit | $ | 475.2 |
| | $ | 376.3 |
| | | |
| Add-back: Amortization of acquired intangible assets | 21.4 |
| | 11.0 |
| | | |
| Add-back: Share-based compensation expense | 27.7 |
| | 18.2 |
| | | |
Add-back: Acquisition-related items (1) | 10.8 |
| | 3.2 |
| | | |
| Add-back: Impairment of intangible asset | 5.1 |
| | — |
| | | |
| Add-back: Special charge | 15.0 |
| | 12.4 |
| | | |
| Adjusted Operating Profit | $ | 555.2 |
| | $ | 421.1 |
| | $ | 134.1 |
| 31.8 | % |
| Percent of net sales | 16.9 | % | | 15.6 | % | | 130 |
| bps |
| | | | | | | |
| Other Expense (Income) | $ | 30.6 |
| | $ | 32.7 |
| | | |
| Add-back: Net loss on financial instruments | — |
| | (2.6 | ) | | | |
| Adjusted Other Expense (Income) | $ | 30.6 |
| | $ | 30.1 |
| | $ | 0.5 |
| 1.7 | % |
| | | | | | | |
| Net Income | $ | 290.8 |
| | $ | 222.1 |
| | | |
| Add-back: Amortization of acquired intangible assets | 21.4 |
| | 11.0 |
| | | |
| Add-back: Share-based compensation expense | 27.7 |
| | 18.2 |
| | | |
Add-back: Acquisition-related items (1) | 10.8 |
| | 3.2 |
| | | |
| Add-back: Impairment of intangible asset | 5.1 |
| | — |
| | | |
| Add-back: Special charge | 15.0 |
| | 12.4 |
| | | |
| Add-back: Net loss on financial instruments | — |
| | 2.6 |
| | | |
| Total pre-tax adjustments to Net Income | $ | 80.0 |
| | $ | 47.4 |
| | | |
| Income tax effect | (27.1 | ) | | (15.4 | ) | | | |
| Adjusted Net Income | $ | 343.7 |
| | $ | 254.1 |
| | $ | 89.6 |
| 35.3 | % |
| | | | | | | |
| Diluted Earnings per Share | $ | 6.63 |
| | $ | 5.09 |
| | | |
| Adjusted Diluted Earnings per Share | $ | 7.84 |
| | $ | 5.83 |
| | $ | 2.01 |
| 34.5 | % |
|
| | | | | | | | | | | | | |
| (In millions, except per share data) | Year Ended August 31, | | Increase (Decrease) | Percent Change |
| | 2019 | | 2018 | |
| Gross profit | $ | 1,479.7 |
| | $ | 1,485.4 |
| | | |
Add-back: Manufacturing inefficiencies (1) | 0.9 |
| | — |
| | | |
Add-back: Acquisition-related items (2) | 1.2 |
| | 1.7 |
| | | |
Add-back: Excess inventory (3) | — |
|
| 3.1 |
| | | |
| Adjusted gross profit | $ | 1,481.8 |
| | $ | 1,490.2 |
| | $ | (8.4 | ) | (0.6 | )% |
| Percent of net sales | 40.3 | % | | 40.5 | % | | (20 | ) | bps |
| | | | | | | |
| Selling, distribution, and administrative expenses | $ | 1,015.0 |
| | $ | 1,019.0 |
| | | |
| Less: Amortization of acquired intangible assets | (30.8 | ) | | (28.5 | ) | | | |
| Less: Share-based payment expense | (29.2 | ) | | (32.3 | ) | | | |
Less: Acquisition-related items (2) | (1.3 | ) | | (2.1 | ) | | | |
| Adjusted selling, distribution, and administrative expenses | $ | 953.7 |
| | $ | 956.1 |
| | $ | (2.4 | ) | (0.3 | )% |
| Percent of net sales | 26.0 | % | | 26.0 | % | | — |
| bps |
| | | | | | | |
| Operating profit | $ | 462.9 |
| | $ | 460.8 |
| | | |
| Add-back: Amortization of acquired intangible assets | 30.8 |
| | 28.5 |
| | | |
| Add-back: Share-based payment expense | 29.2 |
| | 32.3 |
| | | |
Add-back: Manufacturing inefficiencies (1) | 0.9 |
| | — |
| | | |
Add-back: Acquisition-related items (2) | 2.5 |
| | 3.8 |
| | | |
Add-back: Excess inventory (3) | — |
| | 3.1 |
| | | |
| Add-back: Special charges | 1.8 |
| | 5.6 |
| | | |
| Adjusted operating profit | $ | 528.1 |
| | $ | 534.1 |
| | $ | (6.0 | ) | (1.1 | )% |
| Percent of net sales | 14.4 | % | | 14.5 | % | | (10 | ) | bps |
| | | | | | | |
| Other expense | $ | 38.0 |
| | $ | 34.9 |
| | | |
| Add-back: Gain on sale of business | — |
| | 5.4 |
| | | |
| Adjusted other expense | $ | 38.0 |
| | $ | 40.3 |
| | $ | (2.3 | ) | (5.7 | )% |
| | | | | | | |
| Net income | $ | 330.4 |
| | $ | 349.6 |
| | | |
| Add-back: Amortization of acquired intangible assets | 30.8 |
| | 28.5 |
| | | |
| Add-back: Share-based payment expense | 29.2 |
| | 32.3 |
| | | |
Add-back: Manufacturing inefficiencies (1) | 0.9 |
| | — |
| | | |
Add-back: Acquisition-related items (2) | 2.5 |
| | 3.8 |
| | | |
Add-back: Excess inventory (3) | — |
| | 3.1 |
| | | |
| Add-back: Special charges | 1.8 |
| | 5.6 |
| | | |
| Less: Gain on sale of business | — |
| | (5.4 | ) | | | |
| Total pre-tax adjustments to net income | 65.2 |
| | 67.9 |
| | | |
| Income tax effect | (14.2 | ) | | (20.0 | ) | | | |
Less: Discrete income tax benefits of the TCJA (4) | — |
| | (34.6 | ) | | | |
| Adjusted net income | $ | 381.4 |
| | $ | 362.9 |
| | $ | 18.5 |
| 5.1 | % |
| | | | | | | |
| Diluted earnings per share | $ | 8.29 |
| | $ | 8.52 |
| | | |
| Adjusted diluted earnings per share | $ | 9.57 |
| | $ | 8.84 |
| | $ | 0.73 |
| 8.3 | % |
______________________________
(1) Incremental costs incurred due to manufacturing inefficiencies directly related to the closure of a facility.
(2) Acquisition-related items include acquired profit in inventory and professional fees, and certain contract termination costs.fees.
(3) Excess inventory related to the closure of a facility.
(4) Discrete income tax benefits of the TCJA recognized within Income tax expense on the Consolidated Statements of Comprehensive Income. See Income Taxes footnote within the Notes to Consolidated Financial Statements for additional details.
Net Sales
Net sales for the year ended August 31, 2016 increased2019 decreased by 21.6%0.2% compared with the prior-year period due primarily to an increaseas a 1% decline in sales volumes of approximately 15% and the favorable impact of acquired revenues from acquisitions of 9%, partiallywas offset by the impact of an unfavorable changefavorable changes in product prices and the mix of products sold ("(“price/mix"mix”). The volume decline was a result of approximately 2%several factors, which included prior year’s significant initial stocking of product in the stores of a new customer in the retail sales channel that did not repeat in the current period; the elimination of certain products in our portfolio sold primarily through the retail sales channel that did not meet our return objectives; and unfavorable foreign currency rate changes of less than 1%. Sales volume was higher across most product categories and key sales channels. Sales of LED-based luminaires during the year ended August 31, 2016 increased almost 50% compared to the year-ago period and represented approximately 60% of total net sales.softer market conditions. The favorable change in price/mix was due primarily to unfavorable pricing on LED luminaires, reflecting the decline in certain LED component costs, as well as a changechanges in sales channel mix.mix and implemented price increases, which were partially offset by changes in the mix of product sold. The combined negative impact of changes in foreign currencies, the adoption of ASC 606, and acquisitions net of divestitures was de minimis. Due to the changing dynamics of the Company'sour product portfolio, including the increase of integrated lighting and building management solutions, as well as the proliferation of new products due to the adoption of solid-state lighting, it is not possible to precisely quantify or differentiate the individual components of volume, price, and mix.
Gross Profit
Gross profit for fiscal 2016 increased $290.6,2019 decreased $5.7 million, or 25.4%0.4%, to $1,436.2$1.48 billion compared with $1,145.6$1.49 billion for the prior year. The increase in gross profit was due primarily to additional contribution on higher net sales, lower material and component costs, and improved productivity. These items were partially offset by unfavorable price/mix, acquisition-related items, and specifically in the fourth quarter, certain disruptions in the supply chain. As a result of these factors, grossGross profit margin increased 130 basis pointsdecreased to 43.6%40.3% for the year ended August 31, 20162019 compared with 42.3%40.4% for the year ended August 31, 2015.
2018. The decline in gross profit margin was due primarily to a shift in sales among key customers within the retail channel, tariff costs, and the under-absorption of manufacturing costs as a result of inventory reduction efforts, partially offset by inter-channel mix, price increases, and favorable materials and inbound freight costs. Adjusted gross profit for fiscal 2016 increased $293.4,2019 decreased $8.4 million, or 25.6%0.6%, to $1,439.0$1.48 billion compared with $1,145.6$1.49 billion for the prior year. Adjusted gross profit margin increased 140decreased 20 basis points to 43.7%40.3% compared to 42.3%40.5% in the prior year.
Operating Profit
Selling, Distribution, and Administrative (“SD&A”)&A expenses of $1.02 billion for the year ended August 31, 2016 increased $189.1,2019 decreased $4.0 million, or 25.0%, to $946.0 compared with $756.9 in the prior year.0.4%. The increasedecrease in SD&A expenses was primarily due primarily to higher costslower outbound freight charges, which was partially due to support the greatercustomer shift within the retail sales volume, including freight and commissions, higher employee-related costs, higher amortization of acquired intangible assets related to recent acquisitions, certain other acquisition-related items, and the impairment of an intangible asset. The increase in employee costs reflects the Company's investments in capabilities related to areas of future growthchannel, as well as enhanced customer service. The increase in employeelower employee-related costs, also includes increased variable compensation expense as well as share-based compensation expense due primarily to restricted stock issued as part of certain recent acquisitions. These items were partially offset by savings from recent streamlining efforts.expenses associated with acquired businesses. Compared with the prior-year period, SD&A expenses as a percent of net sales increased 70decreased 10 basis points to 28.7%27.6% for fiscal 20162019 from 28.0%27.7% in fiscal 2015.2018. Adjusted SD&A expenses were $883.8,$953.7 million, or 26.9%26.0% of net sales, in fiscal 20162019 compared to $724.5,$956.1 million, or 26.8%26.0% of net sales, in the year-ago period.
The CompanyDuring the year ended August 31, 2019, we recognized pre-tax special charges of $15.0 during fiscal 2016$1.8 million compared with pre-tax special charges of $12.4$5.6 million recorded during fiscal 2015. These charges related primarily to the Company's continued efforts to integrate recent acquisitions, streamline the organization by realigning certain responsibilities primarily within various selling, distribution, and administrative departments, and the consolidation of certain production activities.year ended August 31, 2018. Further details regarding the Company'sour special charges are included in the Special Charge Charges footnote of the Notes to Consolidated Financial Statements.
Operating profit for fiscal 20162019 was $475.2$462.9 million compared with $376.3$460.8 million reported for the prior-year period, an increase of $98.9,$2.1 million, or 26.3%0.5%. Operating profit margin increased 5010 basis points to 14.4%12.6% for fiscal 20162019 compared with 13.9%12.5% for fiscal 20152018. The increase in operating profit was due primarily to higher gross profit,a decrease in SD&A expenses and a lower net special charge, partially offset by higher costs to support greater sales volume, special charges, employee-related costs, including variable incentive compensation, acquisition-related items, and the impairment of an intangible asset.lower gross profit.
Adjusted operating profit increased $134.1,decreased $6.0 million, or 31.8%1.1%, to $555.2$528.1 million compared with $421.1$534.1 million for fiscal 2015.2018. Adjusted operating profit margin increased 130 basis points to 16.9% compared with adjusted operating profit margin of 15.6% in the year-ago period.was 14.4% and 14.5% for fiscal 2019 and 2018, respectively.
Other Expense (Income)
Other expense (income) for the Company consists principally of net interest expense and net miscellaneous expense, (income) which includes non-service related components of net periodic pension cost, gains and losses related toassociated with foreign exchange rate changes.currency-related transactions, and non-operating gains and losses. Interest expense, net, was $32.2$33.3 million and $31.5$33.5 million for the years ended August 31, 20162019 and 2015,2018, respectively. The CompanyWe reported net miscellaneous incomeexpense of $1.6$4.7 million in fiscal 20162019 compared with net$1.4 million in fiscal 2018. Net miscellaneous expense of$1.2 infor fiscal 2015.2018 included a gain of $5.4 million associated with the sale of our former Spanish lighting business.
Provision for Income Taxes and Net Income
TheOur effective income tax rate was 34.6%22.2% and 35.4%17.9% for the years ended August 31, 20162019 and 2015,2018, respectively. The Company estimateseffective income tax rate for the year ended August 31, 2018 was significantly impacted by the provisions of the TCJA, which was enacted during the second quarter of fiscal 2018. Further details regarding the TCJA are included in the Income Taxes footnote of the Notes to Consolidated Financial Statements. We estimate that itsour effective tax rate for fiscal 20172020 will be approximately 35.5%23% before any discrete items, and assuming the rates in itsour taxing jurisdictions remain generally consistent throughout the year.
Net income for fiscal 2016 increased $68.7,2019 decreased $19.2 million, or 30.9%5.5%, to $290.8$330.4 million from $222.1$349.6 million reported for the prior year. The increasedecrease in net income resulted primarily from higher operating profit partially offset by highera one-time tax expense.
benefit for income taxes related to the TCJA recorded in 2018 that did not recur in the current fiscal year. Adjusted net income for fiscal 20162019 increased 35.3%5.1% to $343.7$381.4 million compared with $254.1$362.9 million in the year-ago period. Diluted earnings per share for fiscal 2019 was $8.29 compared with $8.52 for the prior-year period, which represented a decrease of $0.23 or 2.7%. Adjusted diluted earnings per share for fiscal 20162019 was $7.84$9.57 compared with $5.83$8.84 for the prior-year period, which represented an increase of $2.01,$0.73, or 34.5%8.3%.
Fiscal 20152018 Compared with Fiscal 20142017
The following table sets forth information comparing the components of net income for the year ended August 31, 20152018 with the year ended August 31, 2014:2017 (in millions except per share data):
|
| | | | | | | | | | | | | | |
| | Years Ended August 31, | | Increase | | Percent |
| | 2015 | | 2014 | | (Decrease) | | Change |
| Net Sales | $ | 2,706.7 |
| | $ | 2,393.5 |
| | $ | 313.2 |
| | 13.1 | % |
| Cost of Products Sold | 1,561.1 |
| | 1,414.3 |
| | 146.8 |
| | 10.4 | % |
| Gross Profit | 1,145.6 |
| | 979.2 |
| | 166.4 |
| | 17.0 | % |
| Percent of net sales | 42.3 | % | | 40.9 | % | | 140 |
| bps | |
|
| Selling, Distribution, and Administrative Expenses | 756.9 |
| | 680.3 |
| | 76.6 |
| | 11.3 | % |
| Special Charge | 12.4 |
| | (0.2 | ) | | 12.6 |
| | NM |
|
| Operating Profit | 376.3 |
| | 299.1 |
| | 77.2 |
| | 25.8 | % |
| Percent of net sales | 13.9 | % | | 12.5 | % | | 140 |
| bps | |
|
| Other Expense (Income): | |
| | |
| | |
| | |
|
| Interest Expense, net | 31.5 |
| | 32.1 |
| | (0.6 | ) | | (1.9 | )% |
| Miscellaneous Expense (Income), net | 1.2 |
| | 1.3 |
| | (0.1 | ) | | (7.7 | )% |
| Total Other Expense | 32.7 |
| | 33.4 |
| | (0.7 | ) | | (2.1 | )% |
| Income before Provision for Income Taxes | 343.6 |
| | 265.7 |
| | 77.9 |
| | 29.3 | % |
| Percent of net sales | 12.7 | % | | 11.1 | % | | 160 |
| bps | |
|
| Provision for Income Taxes | 121.5 |
| | 89.9 |
| | 31.6 |
| | 35.2 | % |
| Effective tax rate | 35.4 | % | | 33.8 | % | | |
| | |
|
| Net Income | $ | 222.1 |
| | $ | 175.8 |
| | $ | 46.3 |
| | 26.3 | % |
| Diluted Earnings per Share | $ | 5.09 |
| | $ | 4.05 |
| | $ | 1.04 |
| | 25.7 | % |
| NM - not meaningful | | | | | | | |
|
| | | | | | | | | | | | | | |
| | Year Ended August 31, | | Increase | | Percent |
| | 2018 | | 2017 | | (Decrease) | | Change |
| Net sales | $ | 3,680.1 |
| | $ | 3,505.1 |
| | $ | 175.0 |
| | 5.0 | % |
| Cost of products sold | 2,194.7 |
| | 2,024.0 |
| | 170.7 |
| | 8.4 | % |
| Gross profit | 1,485.4 |
| | 1,481.1 |
| | 4.3 |
| | 0.3 | % |
| Percent of net sales | 40.4 | % | | 42.3 | % | | (190 | ) | bps | |
|
| Selling, distribution, and administrative expenses | 1,019.0 |
| | 942.3 |
| | 76.7 |
| | 8.1 | % |
| Special charges | 5.6 |
| | 11.3 |
| | (5.7 | ) | | NM |
|
| Operating profit | 460.8 |
| | 527.5 |
| | (66.7 | ) | | (12.6 | )% |
| Percent of net sales | 12.5 | % | | 15.0 | % | | (250 | ) | bps | |
|
| Other expense: | |
| | |
| | |
| | |
|
| Interest expense, net | 33.5 |
| | 32.5 |
| | 1.0 |
| | 3.1 | % |
| Miscellaneous expense, net | 1.4 |
| | 2.4 |
| | (1.0 | ) | | NM |
|
| Total other expense | 34.9 |
| | 34.9 |
| | — |
| | — | % |
| Income before income taxes | 425.9 |
| | 492.6 |
| | (66.7 | ) | | (13.5 | )% |
| Percent of net sales | 11.6 | % | | 14.1 | % | | (250 | ) | bps | |
|
| Income tax expense | 76.3 |
| | 170.9 |
| | (94.6 | ) | | (55.4 | )% |
| Effective tax rate | 17.9 | % | | 34.7 | % | | |
| | |
|
| Net income | $ | 349.6 |
| | $ | 321.7 |
| | $ | 27.9 |
| | 8.7 | % |
| Diluted earnings per share | $ | 8.52 |
| | $ | 7.43 |
| | $ | 1.09 |
| | 14.7 | % |
| NM - not meaningful | | | | | | | |
Net sales increased $313.2,$175.0 million, or 13.1%5.0%, to $2,706.7$3.68 billion for the year ended August 31, 20152018 compared with $2,393.5$3.51 billion reported for the year ended August 31, 2014.2017. For the year ended August 31, 2015, the Company2018, we reported net income of $222.1$349.6 million compared with $175.8$321.7 million for the year ended August 31, 2014,2017, an increase of $46.3,$27.9 million, or 26.3%8.7%. For fiscal 2015,2018, diluted earnings per share increased 25.7%14.7% to $5.09$8.52 from $4.05$7.43 for the prior-year period.
Fiscal 2018 and fiscal 2017 results were retrospectively adjusted to reflect the impact of adopting ASU 2017-07. Upon adoption of ASU 2017-07, our previously reported operating profit and other expense both increased $6.2 million for the year ended August 31, 2018 and $8.7 million for the year ended August 31, 2017. The provisions of ASU 2017-07 had no impact to our previously reported net income or earnings per share. See New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for further details.
The following table reconciles certain U.S. GAAP financial measures to the corresponding non-U.S. GAAP measures referred to in the discussion of the Company’sour results of operations, which exclude the impact of acquisition-related items, certain manufacturing inefficiencies and excess inventory adjustments related to the closure of a facility, amortization of acquired intangibles,intangible assets, share-based compensationpayment expense, acquisition-related items, incremental recoveries related to a fraud at a freight service provider, special charges associated primarily with continued efforts to streamline the organization, and net lossesa gain associated with financial instruments.the sale of our former Spanish lighting business, a gain on the sale of an investment in an unconsolidated affiliate, and certain discrete income tax benefits of the TCJA.
|
| | | | | | | | | | | | | |
| | Years Ended August 31, | | Increase (Decrease) | Percent Change |
| | 2015 | | 2014 | |
| Selling, Distribution, and Administrative Expenses | $ | 756.9 |
| | $ | 680.3 |
| | | |
| Less: Amortization of acquired intangible assets | (11.0 | ) | | (11.2 | ) | | | |
| Less: Share-based compensation expense | (18.2 | ) | | (17.7 | ) | | | |
| Add-back: Freight service provider fraud-related recoveries | — |
| | 5.8 |
| | | |
Less: Acquisition-related items (1) | (3.2 | ) | | — |
| | | |
| Adjusted Selling, Distribution, and Administrative Expenses | $ | 724.5 |
| | $ | 657.2 |
| | $ | 67.3 |
| 10.2 | % |
| Percent of net sales | 26.8 | % | | 27.5 | % | | (70 | ) | bps |
| | | | | | | |
| Operating Profit | $ | 376.3 |
| | $ | 299.1 |
| | | |
| Add-back: Amortization of acquired intangible assets | 11.0 |
| | 11.2 |
| | | |
| Add-back: Share-based compensation expense | 18.2 |
| | 17.7 |
| | | |
| Less: Freight service provider fraud-related recoveries | — |
| | (5.8 | ) | | | |
Add-back: Acquisition-related items (1) | 3.2 |
| | — |
| | | |
| Add-back/(Less): Special charge | 12.4 |
| | (0.2 | ) | | | |
| Adjusted Operating Profit | $ | 421.1 |
| | $ | 322.0 |
| | $ | 99.1 |
| 30.8 | % |
| Percent of net sales | 15.6 | % | | 13.5 | % | | 210 |
| bps |
| | | | | | | |
| Other Expense (Income) | $ | 32.7 |
| | $ | 33.4 |
| | | |
| Add-back: Net loss on financial instruments | (2.6 | ) | | — |
| | | |
| Adjusted Other Expense (Income) | $ | 30.1 |
| | $ | 33.4 |
| | $ | (3.3 | ) | (9.9 | )% |
| | | | | | | |
| Net Income | $ | 222.1 |
| | $ | 175.8 |
| | | |
| Add-back: Amortization of acquired intangible assets | 11.0 |
| | 11.2 |
| | | |
| Add-back: Share-based compensation expense | 18.2 |
| | 17.7 |
| | | |
Add-back: Acquisition-related items (1) | 3.2 |
| | — |
| | | |
| Less: Freight service provider fraud-related recoveries | — |
| | (5.8 | ) | | | |
| Add-back/(Less): Special charge | 12.4 |
| | (0.2 | ) | | | |
| Add-back: Net loss on financial instruments | 2.6 |
| | — |
| | | |
| Total pre-tax adjustments to Net Income | $ | 47.4 |
| | $ | 22.9 |
| | | |
| Income tax effect | (15.4 | ) | | (7.9 | ) | | | |
| Adjusted Net Income | $ | 254.1 |
| | $ | 190.8 |
| | $ | 63.3 |
| 33.2 | % |
| | | | | | | |
| Diluted Earnings per Share | $ | 5.09 |
| | $ | 4.05 |
| | | |
| Adjusted Diluted Earnings per Share | $ | 5.83 |
| | $ | 4.40 |
| | $ | 1.43 |
| 32.5 | % |
|
| | | | | | | | | | | | | |
(In millions, except per share data) | Year Ended August 31, | | Increase (Decrease) | Percent Change |
| | 2018 | | 2017 | |
| Gross profit | $ | 1,485.4 |
| | $ | 1,481.1 |
| | | |
Add-back: Acquisition-related items (1) | 1.7 |
| | — |
| | | |
Add-back: Manufacturing inefficiencies (2) | — |
| | 1.6 |
| | | |
Add-back: Excess inventory (3) | 3.1 |
| | — |
| | | |
| Adjusted gross profit | $ | 1,490.2 |
| | $ | 1,482.7 |
| | $ | 7.5 |
| 0.5 | % |
| Percent of net sales | 40.5 | % | | 42.3 | % | | (180 | ) | bps |
| | | | | | | |
| Selling, distribution, and administrative expenses | $ | 1,019.0 |
| | $ | 942.3 |
| | | |
| Less: Amortization of acquired intangible assets | (28.5 | ) | | (28.0 | ) | | | |
| Less: Share-based payment expense | (32.3 | ) | | (32.0 | ) | | | |
Less: Acquisition-related items (1) | (2.1 | ) | | — |
| | | |
| Adjusted selling, distribution, and administrative expenses | $ | 956.1 |
| | $ | 882.3 |
| | $ | 73.8 |
| 8.4 | % |
| Percent of net sales | 26.0 | % | | 25.2 | % | | 80 |
| bps |
| | | | | | | |
| Operating profit | $ | 460.8 |
| | $ | 527.5 |
| | | |
| Add-back: Amortization of acquired intangible assets | 28.5 |
| | 28.0 |
| | | |
| Add-back: Share-based payment expense | 32.3 |
| | 32.0 |
| | | |
Add-back: Acquisition-related items (1) | 3.8 |
| | — |
| | | |
Add-back: Manufacturing inefficiencies (2) | — |
| | 1.6 |
| | | |
Add-back: Excess inventory (3) | 3.1 |
| | — |
| | | |
| Add-back: Special charges | 5.6 |
| | 11.3 |
| | | |
| Adjusted operating profit | $ | 534.1 |
| | $ | 600.4 |
| | $ | (66.3 | ) | (11.0 | )% |
| Percent of net sales | 14.5 | % | | 17.1 | % | | (260 | ) | bps |
| | | | | | | |
| Other expense | $ | 34.9 |
| | $ | 34.9 |
| | | |
| Add-back: Gain on sale of investment in unconsolidated affiliate | — |
| | 7.2 |
| | | |
| Add-back: Gain on sale of business | 5.4 |
| | — |
| | | |
| Adjusted other expense | $ | 40.3 |
| | $ | 42.1 |
| | $ | (1.8 | ) | (4.3 | )% |
| | | | | | | |
| Net income | $ | 349.6 |
| | $ | 321.7 |
| | | |
| Add-back: Amortization of acquired intangible assets | 28.5 |
| | 28.0 |
| | | |
| Add-back: Share-based payment expense | 32.3 |
| | 32.0 |
| | | |
Add-back: Acquisition-related items (1) | 3.8 |
| | — |
| | | |
Add-back: Manufacturing inefficiencies (2) | — |
| | 1.6 |
| | | |
Add-back: Excess inventory (3) | 3.1 |
| | — |
| | | |
| Add-back: Special charges | 5.6 |
| | 11.3 |
| | | |
| Less: Gain on sale of investment in unconsolidated affiliate | — |
| | (7.2 | ) | | | |
| Less: Gain on sale of business | (5.4 | ) | | — |
| | | |
| Total pre-tax adjustments to net income | 67.9 |
| | 65.7 |
| | | |
| Income tax effect | (20.0 | ) | | (21.5 | ) | | | |
Less: Discrete income tax benefits of the TCJA (4) | (34.6 | ) | | — |
| | | |
| Adjusted net income | $ | 362.9 |
| | $ | 365.9 |
| | $ | (3.0 | ) | (0.8 | )% |
| | | | | | | |
| Diluted earnings per share | $ | 8.52 |
| | $ | 7.43 |
| | | |
| Adjusted diluted earnings per share | $ | 8.84 |
| | $ | 8.45 |
| | $ | 0.39 |
| 4.6 | % |
______________________________
(1) Acquisition-related items include acquired profit in inventory and professional fees.
(2) Incremental costs incurred due to manufacturing inefficiencies directly related to the closure of a facility.
(3) Excess inventory related to the closure of a facility.
(4) Discrete income tax benefits of the TCJA recognized within Income tax expense on the Consolidated Statements of Comprehensive Income. See Income Taxes footnote within the Notes to Consolidated Financial Statements for additional details.
Net Sales
Net sales for the year ended August 31, 20152018 increased by 13.1%5.0% compared with the prior-year period due primarily to an increase in sales volumes of approximately 15%,7% and an approximately 1% favorable impact of acquired revenues from acquisitions, partially offset by the impact of an unfavorable change in product prices and the price/mix of products sold ("price/mix") of approximately 1% and unfavorable foreign currency rate changes of 1%3%. Sales volume was higher across most product categories and key sales channels as the Company realized greater demand for LED-based luminaires. Sales of LED-based luminaires during the year ended August 31, 2015 increased 57% compared to the year-ago period and represented 46% of total net sales. The changeincrease in price/mixvolumes was due primarily to greater shipments of Atrius-based luminaires to customers in certain key vertical applications and higher shipments within the home center channel. The net unfavorable price/mix was primarily due to lower pricing on LEDcertain luminaires as a result of increased competition in portions of the market for more basic, lesser-featured products; changes in product mix reflecting the declinesubstitution of certain products with less costly form factors resulting in certain LED component costs, as well as a changelower price points; and changes in sales channel mix.mix, which reflected fewer large commercial projects that generally include higher priced solutions. Due to the changing dynamics of the Company'sour product portfolio, including the increase of integrated lighting and building management solutions, as well as the proliferation of new products due to the adoption of solid-state lighting, it is not possible to precisely quantify volume or differentiate the individual components of price/volume, price, and mix.
Gross Profit
Gross profit for fiscal 20152018 increased $166.4,$4.3 million, or 17.0%0.3%, to $1,145.6$1.49 billion compared with $979.2$1.48 billion for the prior year. The increase in grossGross profit margin was due primarilydecreased to additional contribution on higher net sales, lower material and component costs, and improved manufacturing productivity. These items were partially offset by unfavorable price/mix and40.4% for the unfavorable impact of foreign currency rate changes. As a result of these factors, gross profit margin increased 140 basis points toyear ended August 31, 2018 compared with 42.3% for the year ended August 31, 20152017. Gross profit margin was lower than the prior-year period primarily due to unfavorable price/mix; higher material, component, and freight costs; increased wages; and additional reserves for excess inventory related to the closure of a facility. These declines were partially offset by higher sales volumes, productivity improvements, and gross profit attributable to acquisitions. Adjusted gross profit for fiscal 2018 increased $7.5 million, or 0.5%, to $1.49 billion compared with 40.9%$1.48 billion for the year ended August 31, 2014.prior year. Adjusted gross profit margin decreased 180 basis points to 40.5% compared to 42.3% in the prior year.
Operating Profit
Selling, Distribution, and Administrative (“SD&A”)&A expenses for the year ended August 31, 20152018 increased $76.6,$76.7 million, or 11.3%8.1%, to $756.9$1.02 billion compared with $680.3$942.3 million in the prior year. The increase in SD&A expenses was primarily due primarily to higher employee related costs, including additional headcount from acquisitions, increased freight charges and commissions to support the greater sales volume, including freighthigher professional fees related to acquisitions, and commissions, and higher employee-related costs, including variable incentive compensation costs, partially offset by savings from recent streamlining efforts.to a lesser degree, certain other operating expenses. Compared with the prior-year period, SD&A expenses as a percent of net sales declined 40increased 80 basis points to 28.0%27.7% for fiscal 20152018 from 28.4%26.9% in fiscal 2014.2017. Adjusted SD&A expenses were $724.5,$956.1 million, or 26.8%26.0% of net sales, in fiscal 20152018 compared to $657.2,$882.3 million, or 27.5%25.2% of net sales, in the year-ago period.
During the year ended August 31, 2015, the Company2018, we recognized pre-tax special charges of $12.4 related primarily to the Company's continued efforts to streamline the organization by realigning certain responsibilities primarily within various selling, distribution, and administrative departments and the consolidation of certain production activities. During fiscal 2014, the Company recorded a reversal of$5.6 million compared with pre-tax net special charges of $0.2 due primarily to lower-than-anticipated costs related to previously-initiated streamlining efforts of $0.6 partially offset by production transfer costs of $0.4.$11.3 million recorded during the year ended August 31, 2017. Further details regarding the Company'sour special charges are included in the Special Charge Charges footnote of the Notes to Consolidated Financial Statements.
Operating profit for fiscal 20152018 was $376.3$460.8 million compared with $299.1$527.5 million reported for the prior-year period, an increasea decrease of $77.2,$66.7 million, or 25.8%12.6%. Operating profit margin increased 140decreased 250 basis points to 13.9% for fiscal 2015 compared with 12.5% for fiscal 20142018 compared with 15.0% for fiscal 2017. The decrease in operating profit was due primarily to higherthe impact of price/mix on gross profit as well as higher SD&A expenses, partially offset by higher costs to support greater sales volume,volumes and lower net special charges, and employee-related costs, including variable incentive compensation.charges.
Adjusted operating profit increased $99.1,decreased $66.3 million, or 30.8%11.0%, to $421.1$534.1 million compared with $322.0$600.4 million for fiscal 2014.2017. Adjusted operating profit margin increased 210 basis points to 15.6% compared with adjusted operating profit margin of 13.5% in the year-ago period.was 14.5% and 17.1% for fiscal 2018 and 2017, respectively.
Other Expense (Income)
Other expense (income) for the Company consists principally of net interest expense and net miscellaneous expense, (income) which includes non-service related components of net periodic pension cost, gains and losses related toassociated with foreign exchange rate changes.currency-related transactions, and non-operating gains and losses. Interest expense, net, was $31.5$33.5 million and $32.1$32.5 million for the years ended August 31, 20152018 and 2014,2017, respectively. The CompanyWe reported net miscellaneous expense of $1.2$1.4 million in fiscal 20152018 compared with $1.3$2.4 million in fiscal 2014.2017. Net miscellaneous expense included a gain of $5.4 million associated with the sale of our former Spanish lighting business and a gain of $7.2 million associated with the sale of an investment in an unconsolidated affiliate for fiscal 2018 and 2017, respectively.
Provision for
Income Taxes and Net Income
TheOur effective income tax rate was 35.4%17.9% and 33.8%34.7% for the years ended August 31, 20152018 and 2014,2017, respectively. The fiscal 2014 effective income tax rate benefited from a reductionfor the year ended August 31, 2018 was significantly impacted by the provisions of the TCJA, which was enacted during the second quarter of fiscal 2018. Further details regarding the TCJA are included in certain income tax reserves which did not recur in fiscal 2015.the Income Taxes footnote of the Notes to Consolidated Financial Statements.
Net income for fiscal 20152018 increased $46.3,$27.9 million, or 26.3%8.7%, to $222.1$349.6 million from $175.8$321.7 million reported for fiscal 2014.the prior year. The increase in net income resulted primarily from higher operating profitthe benefit recognized related to the TCJA, partially offset by higher tax expense.
a decrease in operating profit. Adjusted net income for fiscal 2015 increased 33.2%2018 decreased 0.8% to $254.1$362.9 million compared with $190.8$365.9 million in the year-ago period. Diluted earnings per share for fiscal 2014.2018 was $8.52 compared with $7.43 for the prior-year period, which represented an increase of $1.09 or 14.7%. Adjusted diluted earnings per share for fiscal 2015 were $5.832018 was $8.84 compared with $4.40$8.45 for fiscal 2014,the prior-year period, which represented an increase of $1.43,$0.39, or 32.5%4.6%.
Outlook
Management believes thatWe continue to believe the execution of the Company'sour strategy will provide attractive opportunities for continued profitable growth. The Company'sgrowth over the long-term. Our strategy is to capitalize on market growth and share gain opportunities by continuing to expand and leverage itsour industry-leading lighting and building management solutions portfolio, combinedcoupled with itsour extensive market presence and financial strength. Managementstrength, to produce attractive financial performance over the long-term.
We remain cautious about overall market conditions within the lighting industry for fiscal 2020 primarily due to continued economic uncertainties caused by global trade issues, including tariffs. We expect market demand for lighting products to remain sluggish until there is more clarity regarding these global trade issues. Additionally, we expect that labor shortages in certain markets will continue to dampen growth rates for both the construction and lighting markets. Nonetheless, our focus for fiscal 2020 will be to drive top-line growth through market share gains and enhance margins, while implementing appropriate cost containment measures as necessitated by market demand.
Management estimates a fiscal 2020 annual tax rate of approximately 23% before any discrete items, assuming the creationtax rates in the Company’s taxing jurisdictions remain generally consistent throughout the year. Additionally, management expects fiscal 2020 capital expenditures will approximate 1.7% of a world-class, cost-efficient supply chain and service capability, while also reducing and/or eliminating resources allocated to specific areas of slower and/net sales.
or declining growth. Management continues to positionWe believe our fiscal 2020 first quarter net sales could be down in the Company to optimize short-term performance while investing in and deploying resources for long-term profitable growth opportunities.
During fiscal 2016, the Company recorded a pre-tax special charge of $15.0 for actions initiated to streamline the organization, including the integration of recent acquisitions. These streamlining activities include the consolidation of selected production activities and realignment certain responsibilities, primarily within various selling, distribution, and administrative departments. Management expects to realize annual savings equal to at least twice the amount of the charge and to achieve the full annualized run-rate by the end of the secondmid-to-high single-digit percentage range compared with first quarter of fiscal 2017. Management expects2019 primarily due to incur additional costs associatedthe pull forward of orders by certain customers in advance of announced price increases in the prior-year period as well as our recent efforts to reduce our exposure to products whose profitability has been most negatively impacted by tariffs and are sold primarily through the retail sales channel. The decline in net sales should be partially mitigated by the recently acquired TLG. While we believe prior year’s pull forward of orders contributed significantly to first quarter of fiscal 2019 net sales growth rate of 11%, we are unable to specifically quantify its impact. Therefore, it is not possible to precisely know how this will impact this year’s first quarter results compared with these and potential future integration and streamlining activities in fiscal 2017.the year-ago period.
Overall, the economy in North America and certain markets the Company serves in EuropeWe expect to continue to move along at a measured, but sometimes inconsistent pace. The 2016 U.S. presidential election and other events, such as the United Kingdom’s referendum vote to exit the European Union, continue to create uncertainty and volatility. This uncertainty and volatility has the potential to affect consumer and business sentiment which in turn could negatively impact global economic activity. This notwithstanding, management remains bullish regarding the Company’s prospects for continued future profitable growth. Management expectsoutperform the growth rate for lighting and building management solutions in the North American market, which includes renovation and retrofit activity and comprises approximately 96% percentrates of the Company’s revenues, will bekey markets that we serve in the mid-to-upper single digit rangefuture periods, subject to quarterly volatility and excluding our actions to prune less profitable portions of our product portfolio, by continuing to execute our various strategies. These strategies focus on growth opportunities for fiscal 2017 based on third-party forecastsnew construction and other key leading indicators. The Company’s order rates through the month of September seem to reflect this favorable trend. In addition to the projected growth in the Company’s primary end-markets, management believes that the Company should benefit from recent acquisitions, furtherrenovation projects, expansion into underpenetrated geographies and channels, and growth from the continued introduction of new lighting and building automationmanagement solutions as part of our integrated, tiered solutions strategy, including leveraging our unique, technology driven solutions portfolio, including IoT enabled solutions, to capture market share in the nascent, but rapidly growing, market for data capture, analytics, and expansionother services, assisting in underpenetrated geographiestransforming buildings and channels.campuses from cost centers to strategic assets.
We expect the pricing environment to continue to be challenging in portions of the market, particularly for more basic, lesser-featured products sold through certain sales channels as well as shifts in product mix, both of which could continue to negatively impact net sales and margins. We expect recently announced price increases to mitigate some of the pricing pressures in the market but not to have any material impact on product substitution trends to lower priced alternatives. We expect to continue to introduce products and solutions to more effectively compete in these portions of the market and to accelerate programs to reduce product costs in order to maintain our competitiveness and drive improved profitability.
Starting in calendar 2018, the U.S. federal government began imposing tariffs on certain Chinese imports and threatened to impose tariffs on all products imported from Mexico. We produce a meaningful percentage of our products in Mexico. Certain components used in our products as well as source certain finished products from China that are impacted by the recently imposed Chinese tariffs. Our efforts to mitigate the impact of these added costs include a variety of activities, such as finding alternative suppliers, producing components and finished goods in countries other than China, in-
sourcing the production of certain products, and raising prices. We believe that our mitigation activities, including recently announced price increases once fully enacted, will assist to offset the added costs. Future U.S. policy changes that may be implemented, including additional tariffs, could have a positive or negative consequence on our financial performance depending on how the changes influence many factors, including business and consumer sentiment.
We expect to refinance our $350 million public notes maturing in December 2019 through borrowings under our Term Loan, which we would expect to have a meaningfully lower interest rate. Our borrowing capacity additionally provides us with the resources to support our growth opportunities, including acquisitions, and accommodate the current stock repurchase program, of which 4.55 million shares remain available for repurchase as of August 31, 2019. The extent and timing of actual stock repurchases will be subject to various factors, including stock price, company performance, expected future market conditions, and other possible uses of cash, including acquisitions. We may increase our leverage to accommodate the stock repurchase program.
From a longer term perspective, management expectswe expect that the Company’sour addressable markets willhave the potential to experience solid growth over the next decade, particularly as energy and environmental concerns continue to come to the forefront along with emerging opportunities for digital lighting to play a key role in the "Internet of Things" (IoT)IoT through the use of intelligent networked lighting and building automation systems that can collect and exchange data to increase efficiency as well as provide a host of other economic benefits resulting from data analytics. Management remainsWe remain positive about the future prospects of the Company and itsour ability to outperform the markets it serves.we serve.
Accounting Standards Adopted in Fiscal 20162019 and Accounting Standards Yet to Be Adopted
See the New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for information on recently adopted and upcoming standards.
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in the Company’s our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. As discussed in the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expense during the reporting period. On an ongoing basis, management evaluates itswe evaluate our estimates and judgments, including those related to revenue recognition; accounts receivable; inventory valuation; depreciation, amortization, and the recoverability of long-lived assets, including goodwill and intangible assets; share-based compensationpayment expense; medical, product warranty and recall, and other reserves; income taxes; retirement benefits; litigation; and environmental matters. Management bases itslitigation. We base our estimates and judgments on itsour substantial historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Management discussesWe discuss the development of accounting estimates with our Audit Committee of the Company’s Audit Committee.Board of Directors. See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for a summary of the accounting policies of the Company.policies.
The management believesWe believe the following represent the Company’sour critical accounting policies and estimates:
Revenue Recognition
The Company recordsWe recognize revenue when we transfer control of goods and services to our customers. Revenue is measured as the following criteria are met: persuasive evidenceamount of a sales arrangement exists, delivery has occurred, the Company’s priceconsideration we expect to the customer is fixedreceive in exchange for goods and determinable, and collectability is reasonably assured.services. In the period of revenue recognition, provisions for certain rebates, sales incentives, product returns, and discounts to customers are estimated and recorded, in most instances, as a reduction of revenue. The CompanyWe also maintainsmaintain one-time or on-going marketing and trade-promotion programs with certain customers that require the Companyus to estimate and accrue the expected costs of such programs. TheseGenerally, these items are estimated based on customer agreements, historical trends, and expected demand. For sales with multiple deliverables, significant judgment may be required to determine which performance obligations are distinct and should be accounted for separately. We allocate the expected consideration to be collected to each distinct performance obligation based on its standalone selling price. Standalone selling price is generally estimated using a cost plus margin valuation when no observable input is available.
Actual results could differ from estimates, which would require adjustments to accrued amounts. SeePlease refer to the Significant Accounting PoliciesRevenue Recognition footnote of the Notes to Consolidated Financial Statementsfor additional information about these assumptions and estimates.regarding estimates related to revenue recognition.
Accounts Receivable
The Company records accounts receivable at net realizable value. This value includes an allowance for estimated uncollectible accounts to reflect losses anticipated on accounts receivable balances. The allowance is based on historical write-offs, an analysis of past due accounts based on the contractual terms of the receivables, and economic status of customers, if known. Management believes that the allowance is sufficient to cover uncollectible amounts; however, there can be no assurance that unanticipated future business conditions of customers will not have a negative impact on the Company’s results of operations.
Inventories
Inventories include materials, direct labor, in-bound freight, and related manufacturing overhead and are stated at the lower of cost (on a first-in, first-out or average-cost basis) or market. Management reviewsand net realizable value. We review inventory quantities on hand and recordsrecord a provision for excess or obsolete inventory primarily based on estimated future demand and current market conditions. A significant change in customer demand, market conditions, or technology could render certain inventory obsolete and thus could have a material adverse impact on the Company’sour operating results in the period the change occurs.
Goodwill and Indefinite-Lived Intangible Assets
The Company reviewsWe review goodwill and indefinite-lived intangible assets for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that would more likely than not indicate that the fair value of the goodwill andor indefinite-lived asset is below its carrying value. All other long-lived and intangible assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss for goodwill andor an indefinite-lived intangiblesintangible asset would be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would be determined based on either discounted future cash flows or otheranother appropriate fair value methods.method. The evaluation of goodwill and indefinite-lived intangibles for impairment requires management to use significant judgments and estimates in accordance with U.S. GAAP including, but not limited to, economic, industry, and company-specific qualitative factors, projected future net sales, operating results, and cash flows.
Although managementwe currently believesbelieve that the estimates used in the evaluation of goodwill and indefinite-lived intangibles are reasonable, differences between actual and expected net sales, operating results, and cash flows and/or changes in the discount raterates or theoretical royalty raterates used could cause these assets to be deemed impaired. If this were to occur, the Companywe would be required to record a non-cash charge to earnings for the write-down in the value of such assets, which could have a material adverse effect on the Company’sour results of operations and financial position but not itsour cash flows from operations.
Goodwill
The CompanyOur business is comprised of one reporting unit with a goodwill balance of $947.8$967.3 million as of August 31, 2016. The Company2019. During fiscal 2019, we utilized a qualitative assessment to determineof the likelihood of impairmentfair value of goodwill as of June 1, 2016.2019. To doperform this the Companyassessment, we identified and analyzed macroeconomic conditions, industry and market conditions, and company-specific factors. Additionally, factors that most affectwould have the greatest impact on the fair value of the Companyorganization were compared to those used in the previousmost recent quantitative impairment test, which was performed as of June 1, 2017, to identify potentially significant variances to further support the reasonableness of the assumptions.
Taking into consideration these factors, the Companywe estimated the potential change in the fair value of goodwill compared with the previousour most recent quantitative impairment test. As a result of thisthe analysis performed, management believes the estimated
fair value of the reporting unit continues to exceed its carrying value by a substantial margin and does not represent a more likely than not possibility of potential impairment. The goodwill analysis did not result in an impairment charge.
Indefinite-Lived Intangible Assets
The Company’sOur indefinite-lived intangible assets consist of seveneight trade names with an aggregate carrying value of approximately $135.0. Management$141.3 million. We utilized significant assumptions to estimate the fair value of these indefinite-lived trade names using a fair value model based on discounted future cash flows (“fair value model”) in accordance with U.S. GAAP. Future cash flows associated with each of the Company’sour indefinite-lived trade names are calculated by applyingmultiplying a theoretical royalty rate a willing third party would pay for use of the particular trade name toby estimated future net sales.sales attributable to the relevant trade name. The present value of the resulting after-tax cash flow is management’sour current estimate of the fair value of the trade names. This fair value model requires managementus to make several significant assumptions, including estimated future net sales (including short and long-term growth rates), the royalty rate, and the discount rate.
Future net sales and short-term growth rates are estimated for each particular trade name based on management’s financial forecasts, which consider key business drivers, such as specific revenue growth initiatives, market share changes, expected growth in non-residential and residential construction markets,our addressable market, and general economic factors, such as credit availability and interest rates. The long-term growth rate used in determining terminal value is estimated at 3.0% for the Company3% and is based primarily on the Company’sour understanding of projections for expected long-term growth in non-residential construction, the Company’s keywithin our addressable market and historical long-term performance. The theoretical royalty rate is estimated primarily using management’s assumptions regarding the amount a willing third party would pay to use the particular trade name and is compared with market information for similar intellectual property within and outside of the industry. Differences between expected and actual results can result in significantly different valuations. If future operating results are unfavorable compared with forecasted amounts, the Companywe may be required to reduce the theoretical royalty rate used in the fair value model. A reduction
in the theoretical royalty rate would result in lower expected future after-tax cash flows in the valuation model. The CompanyWe utilized a range of estimated discount rates between 9% and 16%14% as of June 1, 2016,2019, based on the Capital Asset Pricing Model, which considers the updatedcurrent risk-free interest rate, beta, market risk premium, and entity specific size premium.
During fiscal 2016, the Company2019, we performed an evaluation of the fair values of itsour indefinite-lived trade names. The Company’sOur expected revenues are based on the Company’sour fiscal 20172020 expectations and recent lighting, controls, and building management solutions market growth estimates for fiscal 20172020 through 2021. The Company2024. We also included revenue growth estimates based on current initiatives expected to help the Company improve performance. During fiscal 2016,2019, estimated theoretical royalty rates ranged between 1% and 4%. During fiscal 2016, management began to rationalizeBased on the Company's portfolio of brands, resulting in the initiation of the phase out of one of the trade names. The Company recognized an impairment charge of $5.1 related to this trade name and concluded the trade name is definite-lived. The indefinite-lived intangible asset analysis did not result in any other impairment charges, as the fair values exceeded the carrying values for each of the other trade names. The estimated fair valuesresults of the indefinite-lived intangible assets exceed the carrying values by such a significant amountasset analyses, we concluded that anyour indefinite-lived trade names are fairly stated; therefore, no impairment charges were recorded for fiscal 2019. Any reasonably likely change in the assumptions used in the analyses for our trade names, including revenue growth rates, royalty rates, and discount rates, would not cause the carrying values to exceed the estimated fair values as determined by the fair value analyses. The Company determined that any estimated potential impairment related to the trade names based on changes in the assumptions, which would be less likely to occur, would not be material to the Company’sour financial condition or results of operations.
Definite-Lived Intangible Assets
The Company evaluatesWe evaluate the remaining useful lives of itsour definite-lived intangible assets on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that would warrant a revision to the remaining period of amortization. The Company considersFor each reporting period we consider whether an event occurred or circumstances changed that would more likely than not indicate that the fair value of the definite-lived asset is below its carrying value. The Company notedWe recorded no such events or changesimpairment charges for our definite-lived intangible assets during fiscal 20162019 or 2015.2018.
Self-Insurance
The Company self-insures,We self-insure, up to certain limits, traditional risks including workers’ compensation, comprehensive general liability, and auto liability. A provision for claims under this self-insured program, based on the Company’sour estimate of the aggregate liability for claims incurred, is revised and recorded annually. The estimate is derived from both internal and external sources including, but not limited to, the Company’sour independent actuary. The actuarial estimates are subject to uncertainty from various sources including, among others, changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions.conditions, among others. Although the Company believeswe believe that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Company’sour self-insurance obligations, future expense, and cash flow. The Company isWe are also self-insured up to
certain limits for certain other insurable risks, primarily physical loss to property and business interruptions resulting from such loss lasting two days or more in duration. Insurance coverage is maintained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. The Company isWe are fully self-insured for certain other types of liabilities, including environmental, product recall, warranty, and patent infringement.
The Company isWe are also self-insured for the majority of itsour medical benefit plans up to certain limits. The Company estimates itsWe estimate our aggregate liability for claims incurred by applying a lag factor to the Company’sour historical claims and administrative cost experience. The appropriateness of the Company’sour lag factor is evaluated and revised, if necessary, annually. Although management believeswe believe that the current estimates are reasonable, significant differences related to claim reporting patterns, plan design, legislation, and general economic conditions could materially affect the Company’sour medical benefit plan liabilities, future expense, and cash flow.
Income Taxes
The Company uses certain assumptions and estimates in determining the income taxes payable or refundable for the current year, income tax expense, and deferred income tax liabilities and assets, which represent temporary and permanent differences between amounts within the financial statements and the income tax basis. Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“ASC 740”), requires the evaluation and testing of the recoverability of deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the relevant factors, it is more likely than not that all or some portion of the deferred tax assets will not be realized. Reasonable judgment and estimates are required in determining whether a valuation allowance is necessary and, if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, the Company considers a number of factors, including, but not limited to: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of existing temporary differences; and the length of time carryovers can be utilized.
In light of the multiple tax jurisdictions in which the Company operates, the Company’s tax returns are subject to routine audit by the Internal Revenue Service (“IRS”) and other taxation authorities. The results of these audits at times produce uncertainty regarding particular tax positions taken in the year(s) of review. The Company records uncertain tax positions as prescribed by ASC 740, which requires recognition at the time when it is more likely than not that the position in question will be upheld. Although management believes that the judgment and estimates involved are reasonable and that the necessary provisions have been recorded, changes in circumstances or unexpected events could adversely or positively affect the Company’s financial position, results of operations, and cash flows.
Retirement Benefits
The Company sponsorsWe sponsor domestic and international defined benefit pension plans, and defined contribution plans, and other postretirement plans. Assumptions are used to determine the estimated fair value of plan assets, the actuarial value of plan liabilities, and the current and projected costs for these employee benefit plans and include, among other factors, estimated discount rates, expected returns on the pension fund assets, estimated mortality rates, the rates of increase in employee compensation levels, and, for one international plan, retroactive inflationary adjustments. These assumptions are determined based on Companyorganizational and market data and are evaluated annually as of the plans’ measurement date. See the Pensions and Defined Contribution Plans footnote of the Notes to Consolidated Financial Statements for further information on the Company’sour plans, including the potential impact of changes to certain of these assumptions.
Share-Based CompensationShare-based Payment Expense
The Company recognizesWe recognize compensation cost relating to share-based payment transactions in the financial statements based on the estimated grant date fair value of the equity instrument issued. The Company accountsWe account for stock options, restricted shares, and share units representing certain deferrals into the Director Deferred Compensation Plan or the Supplemental Deferred Savings Plan (both of which are discussed further in the Share-BasedShare-based Payments footnote of the Notes to
Consolidated Financial Statements) based on the grant-date fair value estimated under the provisions of ASC Topic 718, Compensation — Stock Compensation (“ASC 718”).
The Company employsWe utilize the Black-Scholes model in deriving the fair value estimates of certain share-basedour stock option awards and estimatesestimate forfeitures of all share-based awards at the time of grant, which are revised in subsequent periods if actual forfeitures differ from initial estimates. Forfeitures are estimated based on historical experience. If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period. See the Significant Accounting Policies and Share-BasedShare-based Payments footnotes of the Notes to Consolidated Financial Statements for more information regarding the assumptions used in estimating the fair value of stock options.
Product Warranty and Recall Costs
The Company recordsOur products generally have a standard warranty term of five years. We record an allowance for the estimated amount of future warranty costs when the related revenue is recognized. Estimated future warranty costs are primarily based on historical experience of identified warranty claims. The Company isWe are fully self-insured for product warranty costs. Historical warranty costs have been within expectations. The Company expectsWe expect that historical activity will continue to be the best indicator of future warranty costs. There can be no assurance that future warranty costs will not exceed historical amounts or that incorporating new technologies, such as LED components into products, may not generate unexpected costs.amounts. Estimated costs related to product recalls based on a formal campaign soliciting repair or return of that product are accrued when they are deemed to be probable and can be reasonably estimated. If actual future warranty or recall costs exceed recorded amounts, additional allowances may be required, which could have a material adverse impact on the Company’sour results of operations and cash flow.
We also sell certain service-type warranties that extend coverages for products beyond their base warranties. We account for service-type warranties as distinct performance obligations and recognize revenue for these contracts ratably over the life of the additional warranty period. Claims related to service-type warranties are expensed as incurred.
Litigation
The Company recognizesWe recognize expense for legal claims when payments associated with the claims become probable and can be reasonably estimated. Due to the difficulty in estimating costs of resolving legal claims, actual costs could have a material adverse impact on the Company’sour results of operations and cash flow.
Environmental Matters
The Company recognizes expense for known environmental claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual cost of resolving environmental issues may be higher than that reserved primarily due to difficulty in estimating such costs and potential changes in the status of government regulations. The Company is self-insured for environmental matters.
Cautionary Statement Regarding Forward-Looking Statements and Information
This filing contains forward-looking statements within the meaning of the federal securities laws. Statements made herein that may be considered forward-looking include statements incorporating terms such as “expects”, “believes”, “intends”, “anticipates”“expect,” “believe,” “intend,” “anticipate,” and similar terms that relate to future events, performance, or results of the Company.organization. In addition, the Company,we, or the executive officers on the Company’sour behalf, may from time to time make forward-looking statements in reports and other documents the Company fileswe file with the SECSecurities and Exchange Commission or in connection with oral statements made to the press, current and potential investors, or others. Forward-looking statements include, without limitation: (a) the Company’sour projections regarding financial performance, liquidity, capital structure, capital expenditures, investments, share repurchases, and dividends;dividends, including our intent and ability to refinance our senior unsecured notes; (b) expectations about the impact of any changes in demand as well as volatility and uncertainty in general economic conditions;conditions and the pricing environment; (c) external forecasts projecting industry unit volumes;the North American lighting and building management solutions market growth rate and growth in our addressable markets; (d) expectations about the impact of volatility and uncertainty in component and commodity costs and availability, and the Company's ability to manage those challenges, as well as the Company’s response with pricing of its products; (e) the Company'sour ability to execute and realize benefits from initiatives related to streamlining itsour operations, capitalizingcapitalize on growth opportunities, expandingexpand in key markets enhancing service to the customer,as well as underpenetrated geographies and investing in product innovation; (f) the Company’schannels, and introduce new lighting and building management solutions; (e) estimate of itsour fiscal 2017 annual2020 tax rate; (g) the Company’srates, results of operations, and cash flows; (f) our estimate of future amortization expense; (h) the Company's ability to integrate acquisitions and achieve accretive results, and (i) the Company’s(g) our ability to achieve itsour long-term financial goals and measures.measures and outperform the markets we serve; (h) the impact of changes in the political landscape and related policy changes, including monetary, regulatory, and trade policies; (i) our expectations related to mitigating efforts around recently imposed tariffs; (j) our expectations about the resolution of trade compliance, securities class action, patent litigation, and/or other legal matters; and (k) the impacts of new accounting pronouncements. You are cautioned not to place undue reliance on any forward-lookingforward looking statements, which speak only as of the date of this annual report. Except as required by law, the Company undertakeswe undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. The Company’sOur forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the historical experience of the Companyorganization and management’s present expectations or projections. These risks and uncertainties include, but are not limited to, customer and supplier relationships and prices; competition; ability to realize anticipated benefits from initiatives taken and timing of benefits; market demand; litigation and other contingent liabilities; and economic, political, governmental, and technological factors affecting the Company.that have affected us as a company. Also, additional risks
that could cause the Company’sour actual results to differ materially from those expressed in the Company’sour forward-looking statements are discussed in Part I, “ItemItem 1a. Risk Factors”Factors of this Annual Report on Form 10-K, and are specifically incorporated herein by reference.
The industry and market data contained in this report are based either on our management’s own estimates or, where indicated, independent industry publications, reports by governmental agencies, or market research firms or other published independent sources and, in each case, are believed by our management to be reasonable estimates. However, industry and market data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market shares. We have not independently verified market and industry data from third-party sources.
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| Item 7a. | Quantitative and Qualitative Disclosures about Market Risk |
($ in millions)General
General. The Company isWe are exposed to worldwide market risks that may impact the our Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income, Consolidated Statements of Stockholders' Equity, and Consolidated Statements of Cash Flows due primarily to changing interest and foreign exchange rates as well as volatility in commodity prices. The following discussion provides additional information regarding the market risks of the Company.risks.
Interest Rates.Rates
Interest rate fluctuations expose the variable-rate debt of the Companyorganization to changes in interest expense and cash flows. At August 31, 2016,2019, the variable-rate debt of the Company was solely comprised of theour $4.0 million long-term industrial revenue bond. We had no borrowings outstanding under the Revolving Credit Facility as of August 31, 2019. A 10% increase in market interest rates at August 31, 2016,2019, would have resulted in a de minimusminimis amount of additional annual after-tax interest expense. A fluctuation in interest rates would not affect interest expense or cash flows related to the Company’sour fixed-rate debt, which includes the $350.0 million publicly-traded fixed-rate notes. A 10% increase in market interest rates at August 31, 20162019 would have decreased the estimated fair value of these debt obligations by approximately $2.9.$0.4 million. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements contained in this Form 10-K for additional information regarding the Company’s debt.information.
Foreign Exchange Rates.Rates
The majority of our net sales, expense, and capital purchases of the Company are transacted in U.S. dollars. However, exposure with respect to foreign exchange rate fluctuation exists due to the Company’sour operations in Mexico and Canada, where a significant portion of products sold are produced or sourced from the United States, and, to a lesser extent, in Europe. Based on fiscal 20162019 performance, a hypothetical decline in the value of the Canadian dollar in relation to the U.S. dollar of 10% would negatively impact operating profit by approximately $12 million, while a hypothetical appreciation of 10% in the value of the Canadian dollar in relation to the U.S. dollar would favorably impact operating profit by approximately $15.$15 million. In addition to products and services sold in Mexico, a significant portion of the goods sold in the United States are manufactured in Mexico. A hypothetical 10% decrease in the value of the Mexican peso in relation to the U.S. dollar would favorably impact operating profit by approximately $9,$13 million, while a hypothetical increase of 10% in the value of the Mexican peso in relation to the U.S. dollar would negatively impact operating profits by approximately $12.$16 million. The individual impacts to the operating profit of the Company of hypothetical currency fluctuations in the Canadian dollar and Mexican peso have been calculated in isolation from any potential responses to address such exchange rate changes in the Company’sour foreign markets.
The Company’sOur exposure to foreign currency risk related to itsour operations in Europe is immaterial and has been excluded from this analysis.
Commodity Prices. The Company utilizesPrices
We utilize a variety of raw materials and components in itsour production processprocesses including petroleum-based products, steel, and aluminum. In fiscal 2016, the Company2019, we purchased approximately 100,00090,000 tons of steel and aluminum. The Company estimatesWe estimate that approximately 8%7% of raw materials purchased are petroleum-based and that approximately fivesix million gallons of diesel fuel were consumed in fiscal 2016.2019. Failure to effectively manage future increases in the costs of these items could have an adverse impact on the Company'sour results of operations and cash flow.
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Item 8. | Financial Statements and Supplementary Data |
Index to Consolidated Financial Statements
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
ACUITY BRANDS, INC.
The management of Acuity Brands, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of August 31, 2016.2019. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management believes that, as of August 31, 2016,2019, the Company’s internal control over financial reporting is effective.
Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the acquired operations of Juno Lighting LLC and Distech Controls Inc. (collectively, the “2016 Acquisitions”), which are included in the Company’s consolidated financial statements as of August 31, 2016 and for the period from the respective acquisition dates through August 31, 2016. As of August 31, 2016, the 2016 Acquisitions constituted less than 15% and 28% of the Company’s tangible assets and net tangible assets, respectively. For the year ended August 31, 2016, the 2016 Acquisitions constituted less than 10% of both the Company's net sales and pre-tax income.
The Company’s independent registered public accounting firm has issued an audit report on their audit of the Company’s internal control over financial reporting. This report dated October 27, 201629, 2019 is included within this Form 10-K.
|
| | |
| /s/ VERNON J. NAGEL | | /s/ RICHARD K. REECEKAREN J. HOLCOM |
Vernon J. Nagel Chairman President, and Chief Executive Officer | | Richard K. ReeceKaren J. Holcom
ExecutiveSenior Vice President and
Chief Financial Officer |
Report of Independent Registered Public Accounting Firm
The
To the Stockholders and Board of Directors and Stockholders
of Acuity Brands, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Acuity Brands, Inc. (the Company) as of August 31, 20162019 and 2015, and2018, the related consolidated statements of comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended August 31, 2016. Our audits also included2019, and the related notes (collectively referred to as the “consolidated financial statement schedule listed instatements”). In our opinion, the Index at Item 15(a). These consolidated financial statements and schedule arepresent fairly, in all material respects, the responsibilityfinancial position of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statementsCompany at August 31, 2019 and schedule based on our audits.2018, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2019, in conformity with U.S. generally accepted accounting principles.
We conducted our auditsalso have 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 August 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated October 29, 2019 expressed an unqualified opinion thereon.
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. An audit includesmisstatement, 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 supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements referredthat was communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relates to accounts or disclosures that are material respects,to the consolidated financial position of Acuity Brands, Inc. at August 31, 2016statements and 2015, and the consolidated results of its operations and its cash flows for each(2) involved our especially challenging, subjective or complex judgments. The communication of the three yearscritical audit matter does not alter in the period ended August 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, inany way our opinion on the related financial statement schedule, when considered in relation to the basicconsolidated financial statements, taken as a whole, presents fairly in all material respectsand we are not, by communicating the information set forth therein.critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Valuation of Indefinite-Lived Trade Names
|
| |
| Description of the Matter | At August 31, 2019, the Company’s indefinite-lived intangible assets consisted of eight trade names with an aggregate carrying value of approximately $141.3 million. As explained in Note 2 to the consolidated financial statements, the Company tests indefinite-lived trade names for impairment on an annual basis or more frequently as facts and circumstances change. If the carrying amount exceeds the estimated fair value, an impairment loss would be recorded in the amount equal to the excess. Auditing the Company’s impairment tests for indefinite-lived trade names was especially complex due to the judgmental nature of the significant assumptions used in the determination of estimated fair values for trade names. The Company estimates the fair values of trade names using a fair value model based on discounted future cash flows. Significant assumptions used to estimate the value of the trade names included estimated future net sales (including short- and long-term growth rates), discount rates and royalty rates, all of which are forward-looking and could be affected by economic, industry and company-specific qualitative factors.
|
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s annual impairment process. This included testing controls over management’s review of the discounted cash flow model, including the significant assumptions described above. To test the fair values of the Company’s indefinite-lived trade names, our audit procedures included, among others, evaluating the Company’s use of the discounted cash flow model, the completeness and accuracy of the underlying data and the significant assumptions described above. We compared the significant assumptions to current industry, market and economic trends, the Company’s historical results and other relevant factors. We involved our valuation specialists to assist in evaluating the Company’s discount rates and royalty rates. In addition, we considered the accuracy of the Company’s historical projections of net sales compared to actual net sales. We also performed a sensitivity analysis to evaluate the potential change in the fair values of the trade names resulting from changes in the significant assumptions. |
/s/ Ernst & Young LLP
We alsohave served as the Company’s auditor since 2002.
Atlanta, Georgia
October 29, 2019
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Acuity Brands, Inc.
Opinion on Internal Control over Financial Reporting
We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), Acuity Brands, Inc.’s internal control over financial reporting as of August 31, 2016,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) andframework) (the COSO criteria). In our report dated October 27, 2016 expressed an unqualified opinion, thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 27, 2016
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Acuity Brands, Inc.
We have audited Acuity Brands, Inc.’s (the Company) maintained, in all material respects, effective internal control over financial reporting as of August 31, 2016,2019, based on criteria establishedthe COSO criteria.
We also have audited, in Internal Control — Integrated Framework issued byaccordance with the Committee of Sponsoring Organizationsstandards of the Treadway Commission (2013 Framework) (the COSO criteria). Acuity Brands, Inc.’sPublic Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 31, 2019 and 2018, the related consolidated statements of comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended August 31, 2019, and the related notes and our report dated October 29, 2019 expressed an unqualified opinion thereon.
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 Overover Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’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 Public Company Accounting Oversight Board (United States).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.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the acquired operations of Juno Lighting LLC (“Juno Lighting”) and Distech Controls Inc. (“Distech Controls”) (collectively, the “2016 Acquisitions”), which are included in the company’s 2016 consolidated financial statements of Acuity Brands, Inc. As of August 31, 2016, the 2016 Acquisitions constituted less than 15% and 28% of the company’s tangible assets and net tangible assets, respectively. For the year ended August 31, 2016, the 2016 Acquisitions constituted less than 10% of both the company's net sales and pre-tax income.
Our audit of internal control over financial reporting of Acuity Brands, Inc. also did not include an evaluation of the internal control over financial reporting of Juno Lighting and Distech Controls.
In our opinion, Acuity Brands, Inc. maintained, in all material respects, effective internal control over financial reporting as of August 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Acuity Brands, Inc. as of August 31, 2016 and 2015, and the related consolidated statements of comprehensive income, cash flows, and stockholders’ equity for each of the three years in the period ended August 31, 2016 of Acuity Brands, Inc. and our report dated October 27, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 27, 201629, 2019
ACUITY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
|
| | | | | | | |
| | August 31, |
| | 2016 | | 2015 |
| | (In millions, except share data) |
| ASSETS |
| Current Assets: | |
| | |
|
| Cash and cash equivalents | $ | 413.2 |
| | $ | 756.8 |
|
| Accounts receivable, less reserve for doubtful accounts of $1.7 and $1.3 as of August 31, 2016 and 2015, respectively | 572.8 |
| | 411.7 |
|
| Inventories | 295.2 |
| | 224.8 |
|
| Prepayments and other current assets | 41.7 |
| | 20.1 |
|
| Total Current Assets | 1,322.9 |
| | 1,413.4 |
|
| Property, Plant, and Equipment, at cost: | |
| | |
|
| Land | 23.1 |
| | 6.7 |
|
| Buildings and leasehold improvements | 174.4 |
| | 128.4 |
|
| Machinery and equipment | 448.2 |
| | 391.9 |
|
| Total Property, Plant, and Equipment | 645.7 |
| | 527.0 |
|
| Less — Accumulated depreciation and amortization | 377.9 |
| | 352.4 |
|
| Property, Plant, and Equipment, net | 267.8 |
| | 174.6 |
|
| Other Assets: | |
| | |
|
| Goodwill | 947.8 |
| | 565.0 |
|
| Intangible assets | 381.4 |
| | 223.4 |
|
| Deferred income taxes | 5.1 |
| | 3.5 |
|
| Other long-term assets | 23.0 |
| | 27.1 |
|
| Total Other Assets | 1,357.3 |
| | 819.0 |
|
| Total Assets | $ | 2,948.0 |
| | $ | 2,407.0 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current Liabilities: | |
| | |
|
| Accounts payable | $ | 401.0 |
| | $ | 311.1 |
|
| Current maturities of long-term debt | 0.2 |
| | — |
|
| Accrued compensation | 93.9 |
| | 78.2 |
|
| Accrued pension liabilities, current | 1.3 |
| | 1.6 |
|
| Other accrued liabilities | 176.1 |
| | 130.0 |
|
| Total Current Liabilities | 672.5 |
| | 520.9 |
|
| Long-Term Debt | 355.0 |
| | 352.4 |
|
| Accrued Pension Liabilities, less current portion | 119.9 |
| | 83.9 |
|
| Deferred Income Taxes | 74.6 |
| | 31.7 |
|
| Self-Insurance Reserves, less current portion | 7.2 |
| | 6.9 |
|
| Other Long-Term Liabilities | 59.0 |
| | 51.2 |
|
| Total Liabilities | 1,288.2 |
| | 1,047.0 |
|
Commitments and Contingencies (see Commitments and Contingencies footnote) |
|
| |
|
|
| Stockholders’ Equity: | |
| | |
|
| Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued | — |
| | — |
|
| Common stock, $0.01 par value; 500,000,000 shares authorized; 53,415,687 issued and 43,736,230 outstanding at August 31, 2016; 53,024,284 issued and 43,305,029 outstanding at August 31, 2015 | 0.5 |
| | 0.5 |
|
| Paid-in capital | 856.4 |
| | 797.1 |
|
| Retained earnings | 1,360.9 |
| | 1,093.0 |
|
| Accumulated other comprehensive loss items | (139.4 | ) | | (110.4 | ) |
| Treasury stock, at cost, 9,679,457 shares at August 31, 2016 and 9,719,255 shares at August 31, 2015 | (418.6 | ) | | (420.2 | ) |
| Total Stockholders’ Equity | 1,659.8 |
| | 1,360.0 |
|
| Total Liabilities and Stockholders’ Equity | $ | 2,948.0 |
| | $ | 2,407.0 |
|
|
| | | | | | | |
| | August 31, |
| | 2019 | | 2018 |
| ASSETS |
| Current assets: | |
| | |
|
| Cash and cash equivalents | $ | 461.0 |
| | $ | 129.1 |
|
| Accounts receivable, less reserve for doubtful accounts of $1.0 and $1.3, respectively | 561.0 |
| | 637.9 |
|
| Inventories | 340.8 |
| | 411.8 |
|
| Prepayments and other current assets | 79.0 |
| | 32.3 |
|
| Total current assets | 1,441.8 |
| | 1,211.1 |
|
| Property, plant, and equipment, at cost: | |
| | |
|
| Land | 22.6 |
| | 22.9 |
|
| Buildings and leasehold improvements | 190.7 |
| | 189.1 |
|
| Machinery and equipment | 544.4 |
| | 516.6 |
|
| Total property, plant, and equipment | 757.7 |
| | 728.6 |
|
| Less — Accumulated depreciation and amortization | (480.4 | ) | | (441.9 | ) |
| Property, plant, and equipment, net | 277.3 |
| | 286.7 |
|
| Goodwill | 967.3 |
| | 970.6 |
|
| Intangible assets, net | 466.0 |
| | 498.7 |
|
| Deferred income taxes | 2.3 |
| | 2.9 |
|
| Other long-term assets | 17.7 |
| | 18.8 |
|
| Total assets | $ | 3,172.4 |
| | $ | 2,988.8 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | |
| | |
|
| Accounts payable | $ | 338.8 |
| | $ | 451.1 |
|
| Current maturities of long-term debt | 9.1 |
| | 0.4 |
|
| Accrued compensation | 73.2 |
| | 67.0 |
|
| Other accrued liabilities | 175.0 |
| | 164.2 |
|
| Total current liabilities | 596.1 |
| | 682.7 |
|
| Long-term debt | 347.5 |
| | 356.4 |
|
| Accrued pension liabilities | 99.7 |
| | 64.6 |
|
| Deferred income taxes | 92.7 |
| | 92.5 |
|
| Self-insurance reserves | 6.8 |
| | 7.9 |
|
| Other long-term liabilities | 110.7 |
| | 67.9 |
|
| Total liabilities | 1,253.5 |
| | 1,272.0 |
|
Commitments and contingencies (see Commitments and Contingencies footnote) |
|
| |
|
|
| Stockholders’ equity: | |
| | |
|
| Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued | — |
| | — |
|
| Common stock, $0.01 par value; 500,000,000 shares authorized; 53,778,155 and 53,667,327 issued, respectively | 0.5 |
| | 0.5 |
|
| Paid-in capital | 930.0 |
| | 906.3 |
|
| Retained earnings | 2,295.8 |
| | 1,999.2 |
|
| Accumulated other comprehensive loss | (151.4 | ) | | (114.8 | ) |
| Treasury stock, at cost — 14,325,197 and 13,676,689 shares, respectively | (1,156.0 | ) | | (1,074.4 | ) |
| Total stockholders’ equity | 1,918.9 |
| | 1,716.8 |
|
| Total liabilities and stockholders’ equity | $ | 3,172.4 |
| | $ | 2,988.8 |
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions, except per-share data)
|
| | | | | | | | | | | |
| | Years Ended August 31, |
| | 2016 | | 2015 | | 2014 |
| | (In millions, except per-share data) |
| Net Sales | $ | 3,291.3 |
| | $ | 2,706.7 |
| | $ | 2,393.5 |
|
| Cost of Products Sold | 1,855.1 |
| | 1,561.1 |
| | 1,414.3 |
|
| Gross Profit | 1,436.2 |
| | 1,145.6 |
| | 979.2 |
|
| Selling, Distribution, and Administrative Expenses | 946.0 |
| | 756.9 |
| | 680.3 |
|
| Special Charge | 15.0 |
| | 12.4 |
| | (0.2 | ) |
| Operating Profit | 475.2 |
| | 376.3 |
| | 299.1 |
|
| Other Expense (Income): | |
| | |
| | |
|
| Interest expense, net | 32.2 |
| | 31.5 |
| | 32.1 |
|
| Miscellaneous (income) expense, net | (1.6 | ) | | 1.2 |
| | 1.3 |
|
| Total Other Expense | 30.6 |
| | 32.7 |
| | 33.4 |
|
| Income before Provision for Income Taxes | 444.6 |
| | 343.6 |
| | 265.7 |
|
| Provision for Income Taxes | 153.8 |
| | 121.5 |
| | 89.9 |
|
| Net Income | $ | 290.8 |
| | $ | 222.1 |
| | $ | 175.8 |
|
| | | | | | |
| Earnings Per Share: | |
| | |
| | |
|
| Basic Earnings per Share | $ | 6.67 |
| | $ | 5.13 |
| | $ | 4.07 |
|
| Basic Weighted Average Number of Shares Outstanding | 43.5 |
| | 43.1 |
| | 42.8 |
|
| Diluted Earnings per Share | $ | 6.63 |
| | $ | 5.09 |
| | $ | 4.05 |
|
| Diluted Weighted Average Number of Shares Outstanding | 43.8 |
| | 43.4 |
| | 43.0 |
|
| | | | | | |
| Dividends Declared per Share | $ | 0.52 |
| | $ | 0.52 |
| | $ | 0.52 |
|
| | | | | | |
| Comprehensive Income: | | | | | |
| Net income | $ | 290.8 |
| | $ | 222.1 |
| | $ | 175.8 |
|
| Other Comprehensive Income (Loss) Items: | | | | | |
| Foreign currency translation adjustments | (5.6 | ) | | (24.0 | ) | | 0.7 |
|
| Defined benefit plans, net | (23.4 | ) | | (14.5 | ) | | (10.0 | ) |
| Other Comprehensive Loss Items, net of tax | (29.0 | ) | | (38.5 | ) | | (9.3 | ) |
| Comprehensive Income | $ | 261.8 |
| | $ | 183.6 |
| | $ | 166.5 |
|
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2019 | | 2018 | | 2017 |
| Net sales | $ | 3,672.7 |
| | $ | 3,680.1 |
| | $ | 3,505.1 |
|
| Cost of products sold | 2,193.0 |
| | 2,194.7 |
| | 2,024.0 |
|
| Gross profit | 1,479.7 |
| | 1,485.4 |
| | 1,481.1 |
|
| Selling, distribution, and administrative expenses | 1,015.0 |
| | 1,019.0 |
| | 942.3 |
|
| Special charges | 1.8 |
| | 5.6 |
| | 11.3 |
|
| Operating profit | 462.9 |
| | 460.8 |
| | 527.5 |
|
| Other expense: | |
| | |
| | |
|
| Interest expense, net | 33.3 |
| | 33.5 |
| | 32.5 |
|
| Miscellaneous expense, net | 4.7 |
| | 1.4 |
| | 2.4 |
|
| Total other expense | 38.0 |
| | 34.9 |
| | 34.9 |
|
| Income before income taxes | 424.9 |
| | 425.9 |
| | 492.6 |
|
| Income tax expense | 94.5 |
| | 76.3 |
| | 170.9 |
|
| Net income | $ | 330.4 |
| | $ | 349.6 |
| | $ | 321.7 |
|
| | | | | | |
| Earnings per share: | |
| | |
| | |
|
| Basic earnings per share | $ | 8.32 |
| | $ | 8.54 |
| | $ | 7.46 |
|
| Basic weighted average number of shares outstanding | 39.7 |
| | 40.9 |
| | 43.1 |
|
| Diluted earnings per share | $ | 8.29 |
| | $ | 8.52 |
| | $ | 7.43 |
|
| Diluted weighted average number of shares outstanding | 39.8 |
| | 41.0 |
| | 43.3 |
|
| Dividends declared per share | $ | 0.52 |
| | $ | 0.52 |
| | $ | 0.52 |
|
| | | | | | |
| Comprehensive income: | | | | | |
| Net income | $ | 330.4 |
| | $ | 349.6 |
| | $ | 321.7 |
|
| Other comprehensive income (loss) items: | | | | | |
| Foreign currency translation adjustments | (11.5 | ) | | (25.2 | ) | | 19.0 |
|
| Defined benefit plans, net of tax | (25.1 | ) | | 21.2 |
| | 20.7 |
|
| Other comprehensive (loss) income items, net of tax | (36.6 | ) | | (4.0 | ) | | 39.7 |
|
| Comprehensive income | $ | 293.8 |
| | $ | 345.6 |
| | $ | 361.4 |
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
| | | | | | | | | | | |
| | Years Ended August 31, |
| | 2016 | | 2015 | | 2014 |
| | (In millions) |
| Cash Provided by (Used for) Operating Activities: | |
| | |
| | |
|
| Net income | $ | 290.8 |
| | $ | 222.1 |
| | $ | 175.8 |
|
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | |
| | |
| | |
|
| Depreciation and amortization | 62.6 |
| | 45.8 |
| | 43.4 |
|
| Share-based compensation expense | 27.7 |
| | 18.2 |
| | 17.7 |
|
| Excess tax benefits from share-based payments | (25.6 | ) | | (17.6 | ) | | (10.4 | ) |
| (Gain) loss on the sale or disposal of property, plant, and equipment | (0.9 | ) | | 0.7 |
| | 0.3 |
|
| Asset impairments | 5.1 |
| | — |
| | 0.1 |
|
| Deferred income taxes | (8.2 | ) | | 2.8 |
| | (0.2 | ) |
| Loss on financial instruments, net | — |
| | 2.6 |
| | — |
|
| Change in assets and liabilities, net of effect of acquisitions, divestitures and effect of exchange rate changes: | | | |
| | |
|
| Accounts receivable | (94.6 | ) | | (46.1 | ) | | (55.4 | ) |
| Inventories | (24.0 | ) | | (15.1 | ) | | (9.0 | ) |
| Prepayments and other current assets | (10.5 | ) | | 0.7 |
| | (6.6 | ) |
| Accounts payable | 65.3 |
| | 23.1 |
| | 37.6 |
|
| Other current liabilities | 60.6 |
| | 59.3 |
| | 59.8 |
|
| Other | (2.6 | ) | | (7.6 | ) | | (20.0 | ) |
| Net Cash Provided by Operating Activities | 345.7 |
| | 288.9 |
| | 233.1 |
|
| Cash Provided by (Used for) Investing Activities: | |
| | |
| | |
|
| Purchases of property, plant, and equipment | (83.7 | ) | | (56.5 | ) | | (35.3 | ) |
| Proceeds from sale of property, plant, and equipment | 2.2 |
| | 1.3 |
| | 1.0 |
|
| Acquisitions of businesses and intangible assets, net of cash acquired | (623.2 | ) | | (14.6 | ) | | — |
|
| Other investing activities | — |
| | (2.6 | ) | | — |
|
| Net Cash Used for Investing Activities | (704.7 | ) | | (72.4 | ) | | (34.3 | ) |
| Cash Provided by (Used for) Financing Activities: | |
| | |
| | |
|
| Issuance of long-term debt | 2.5 |
| | — |
| | — |
|
| Proceeds from stock option exercises and other | 14.2 |
| | 11.6 |
| | 8.4 |
|
| Excess tax benefits from share-based payments | 25.6 |
| | 17.6 |
| | 10.4 |
|
| Dividends paid | (22.9 | ) | | (22.7 | ) | | (22.5 | ) |
| Other financing activities | — |
| | (10.4 | ) | | (2.6 | ) |
| Net Cash Provided by (Used for) Financing Activities | 19.4 |
| | (3.9 | ) | | (6.3 | ) |
| Effect of Exchange Rate Changes on Cash | (4.0 | ) | | (8.3 | ) | | 0.9 |
|
| Net Change in Cash and Cash Equivalents | (343.6 | ) | | 204.3 |
| | 193.4 |
|
| Cash and Cash Equivalents at Beginning of Year | 756.8 |
| | 552.5 |
| | 359.1 |
|
| Cash and Cash Equivalents at End of Year | $ | 413.2 |
| | $ | 756.8 |
| | $ | 552.5 |
|
| Supplemental Cash Flow Information: | |
| | |
| | |
|
| Income taxes paid during the period | $ | 120.7 |
| | $ | 106.3 |
| | $ | 77.4 |
|
| Interest paid during the period | $ | 32.8 |
| | $ | 32.2 |
| | $ | 32.5 |
|
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2019 | | 2018 | | 2017 |
| Cash flows from operating activities: | |
| | |
| | |
|
| Net income | $ | 330.4 |
| | $ | 349.6 |
| | $ | 321.7 |
|
| Adjustments to reconcile net income to net cash flows from operating activities: | |
| | |
| | |
|
| Depreciation and amortization | 88.3 |
| | 80.3 |
| | 74.6 |
|
| Share-based payment expense | 29.2 |
| | 32.3 |
| | 32.0 |
|
| Loss on the sale or disposal of property, plant, and equipment | 0.9 |
| | 0.6 |
| | 0.3 |
|
| Deferred income taxes | 9.3 |
| | (38.2 | ) | | (7.7 | ) |
| Gain on sale of business | — |
| | (5.4 | ) | | — |
|
| Gain on sale of investment in unconsolidated affiliate | — |
| | — |
| | (7.2 | ) |
| Change in assets and liabilities, net of effect of acquisitions, divestitures, and exchange rate changes: | | | |
| | |
|
| Accounts receivable | 97.7 |
| | (62.8 | ) | | 2.7 |
|
| Inventories | 70.8 |
| | (74.4 | ) | | (32.4 | ) |
| Prepayments and other current assets | (34.0 | ) | | 0.7 |
| | 6.0 |
|
| Accounts payable | (111.5 | ) | | 52.5 |
| | (4.6 | ) |
| Other current liabilities | (11.9 | ) | | 19.1 |
| | (63.5 | ) |
| Other | 25.5 |
| | (2.8 | ) | | 14.7 |
|
| Net cash provided by operating activities | 494.7 |
| | 351.5 |
| | 336.6 |
|
| Cash flows from investing activities: | |
| | |
| | |
|
| Purchases of property, plant, and equipment | (53.0 | ) | | (43.6 | ) | | (67.3 | ) |
| Proceeds from sale of property, plant, and equipment | — |
| | — |
| | 5.5 |
|
| Acquisition of businesses, net of cash acquired | (2.9 | ) | | (163.2 | ) | | — |
|
| Proceeds from sale of business | — |
| | 1.1 |
| | — |
|
| Proceeds from sale of investment in unconsolidated affiliate | — |
| | — |
| | 13.2 |
|
| Other investing activities | 2.9 |
| | 1.7 |
| | (0.2 | ) |
| Net cash used for investing activities | (53.0 | ) | | (204.0 | ) | | (48.8 | ) |
| Cash flows from financing activities: | |
| | |
| | |
|
| Borrowings on credit facility | 86.5 |
| | 395.4 |
| | — |
|
| Repayments of borrowings on credit facility | (86.5 | ) | | (395.4 | ) | | — |
|
| (Repayments) issuances of long-term debt | (0.4 | ) | | (0.4 | ) | | 1.0 |
|
| Repurchases of common stock | (81.6 | ) | | (298.4 | ) | | (357.9 | ) |
| Proceeds from stock option exercises and other | 0.6 |
| | 1.7 |
| | 3.0 |
|
| Payments of taxes withheld on net settlement of equity awards | (6.0 | ) | | (8.2 | ) | | (15.2 | ) |
| Dividends paid | (20.8 | ) | | (21.4 | ) | | (22.7 | ) |
| Net cash used for financing activities | (108.2 | ) | | (326.7 | ) | | (391.8 | ) |
| Effect of exchange rate changes on cash and cash equivalents | (1.6 | ) | | (2.8 | ) | | 1.9 |
|
| Net change in cash and cash equivalents | 331.9 |
| | (182.0 | ) | | (102.1 | ) |
| Cash and cash equivalents at beginning of year | 129.1 |
| | 311.1 |
| | 413.2 |
|
| Cash and cash equivalents at end of year | $ | 461.0 |
| | $ | 129.1 |
| | $ | 311.1 |
|
| Supplemental cash flow information: | |
| | |
| | |
|
| Income taxes paid during the period | $ | 92.9 |
| | $ | 126.6 |
| | $ | 173.6 |
|
| Interest paid during the period | $ | 35.6 |
| | $ | 36.7 |
| | $ | 33.6 |
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
| | | | Common Stock | | Paid-in Capital | | Retained Earnings | | Accumulated Other
Comprehensive
Loss Items | | Treasury Stock | | Total | Common Stock Outstanding | | | | | | | | | | |
| | (In millions) | Shares | | Amount | | Paid-in Capital | | Retained Earnings | | Accumulated Other
Comprehensive
Loss Items | | Treasury Stock, at cost | | Total |
| Balance, August 31, 2013 | $ | 0.5 |
| | $ | 735.5 |
| | $ | 740.3 |
| | $ | (62.6 | ) | | $ | (420.2 | ) | | $ | 993.5 |
| |
| Balance, August 31, 2016 | | 43.7 |
| | $ | 0.5 |
| | $ | 856.4 |
| | $ | 1,360.9 |
| | $ | (139.4 | ) | | $ | (418.6 | ) | | $ | 1,659.8 |
|
| Net income | | — |
| | — |
| | — |
| | 321.7 |
| | — |
| | — |
| | 321.7 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | 39.7 |
| | — |
| | 39.7 |
|
| Amortization, issuance, and cancellations of restricted stock grants | | 0.1 |
| | — |
| | 16.4 |
| | — |
| | — |
| | 0.4 |
| | 16.8 |
|
| Employee stock purchase plan issuances | | — |
| | — |
| | 0.9 |
| | — |
| | — |
| | — |
| | 0.9 |
|
| Cash dividends of $0.52 per share paid on common stock | | — |
| | — |
| | — |
| | (22.7 | ) | | — |
| | — |
| | (22.7 | ) |
| Stock options exercised | | — |
| | — |
| | 2.1 |
| | — |
| | — |
| | — |
| | 2.1 |
|
| Repurchases of common stock | | (2.0 | ) | | — |
| | — |
| | — |
| | — |
| | (357.9 | ) | | (357.9 | ) |
| Excess tax benefits from share-based payments | | — |
| | — |
| | 5.2 |
| | — |
| | — |
| | — |
| | 5.2 |
|
| Balance, August 31, 2017 | | 41.8 |
| | 0.5 |
| | 881.0 |
| | 1,659.9 |
| | (99.7 | ) | | (776.1 | ) | | 1,665.6 |
|
| Net income | — |
| | — |
| | 175.8 |
| | — |
| | — |
| | 175.8 |
| — |
| | — |
| | — |
| | 349.6 |
| | — |
| | — |
| | 349.6 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | (9.3 | ) | | — |
| | (9.3 | ) | — |
| | — |
| | — |
| | — |
| | (4.0 | ) | | — |
| | (4.0 | ) |
| Amortization, issuance, and forfeitures of restricted stock grants | — |
| | 7.2 |
| | — |
| | — |
| | — |
| | 7.2 |
| |
| Employee Stock Purchase Plan issuances | — |
| | 0.4 |
| | — |
| | — |
| | — |
| | 0.4 |
| |
| Reclassification of stranded tax effects of the Tax Cuts and Jobs Act | | — |
| | — |
| | — |
| | 11.1 |
| | (11.1 | ) | | — |
| | — |
|
| Amortization, issuance, and cancellations of restricted stock grants | | 0.2 |
| | — |
| | 23.6 |
| | — |
| | — |
| | 0.1 |
| | 23.7 |
|
| Employee stock purchase plan issuances | | — |
| | — |
| | 0.6 |
| | — |
| | — |
| | — |
| | 0.6 |
|
| Cash dividends of $0.52 per share paid on common stock | — |
| | — |
| | (22.5 | ) | | — |
| | — |
| | (22.5 | ) | — |
| | — |
| | — |
| | (21.4 | ) | | — |
| | — |
| | (21.4 | ) |
| Stock options exercised | — |
| | 8.0 |
| | — |
| | — |
| | — |
| | 8.0 |
| — |
| | — |
| | 1.1 |
| | — |
| | — |
| | — |
| | 1.1 |
|
| Excess tax benefits from share-based payments | — |
| | 10.4 |
| | — |
| | — |
| | — |
| | 10.4 |
| |
| Balance, August 31, 2014 | 0.5 |
| | 761.5 |
| | 893.6 |
| | (71.9 | ) | | (420.2 | ) | | 1,163.5 |
| |
| Repurchases of common stock | | (2.0 | ) | | — |
| | — |
| | — |
| | — |
| | (298.4 | ) | | (298.4 | ) |
| Balance, August 31, 2018 | | 40.0 |
| | 0.5 |
| | 906.3 |
| | 1,999.2 |
| | (114.8 | ) | | (1,074.4 | ) | | 1,716.8 |
|
| Net income | — |
| | — |
| | 222.1 |
| | — |
| | — |
| | 222.1 |
| — |
| | — |
| | — |
| | 330.4 |
| | — |
| | — |
| | 330.4 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | (38.5 | ) | | — |
| | (38.5 | ) | — |
| | — |
| | — |
| | — |
| | (36.6 | ) | | — |
| | (36.6 | ) |
| Amortization, issuance, and forfeitures of restricted stock grants | — |
| | 6.4 |
| | — |
| | — |
| | — |
| | 6.4 |
| |
| Employee Stock Purchase Plan issuances | — |
| | 0.5 |
| | — |
| | — |
| | — |
| | 0.5 |
| |
| Amortization, issuance, and cancellations of restricted stock grants | | 0.2 |
| | — |
| | 23.1 |
| | — |
| | — |
| | — |
| | 23.1 |
|
| Employee stock purchase plan issuances | | — |
| | — |
| | 0.6 |
| | — |
| | — |
| | — |
| | 0.6 |
|
| Cash dividends of $0.52 per share paid on common stock | — |
| | — |
| | (22.7 | ) | | — |
| | — |
| | (22.7 | ) | — |
| | — |
| | — |
| | (20.8 | ) | | — |
| | — |
| | (20.8 | ) |
| Stock options exercised | — |
| | 11.1 |
| | — |
| | — |
| | — |
| | 11.1 |
| |
| Excess tax benefits from share-based payments | — |
| | 17.6 |
| | — |
| | — |
| | — |
| | 17.6 |
| |
| Balance, August 31, 2015 | 0.5 |
| | 797.1 |
| | 1,093.0 |
| | (110.4 | ) | | (420.2 | ) | | 1,360.0 |
| |
| Net income | — |
| | — |
| | 290.8 |
| | — |
| | — |
| | 290.8 |
| |
| Other comprehensive loss | — |
| | — |
| | — |
| | (29.0 | ) | | — |
| | (29.0 | ) | |
| Common Stock issued from Treasury Stock for acquisition of business |
|
| | 8.4 |
| |
|
| |
|
| | 1.6 |
| | 10.0 |
| |
| Amortization, issuance, and forfeitures of restricted stock grants | — |
| | 11.1 |
| | — |
| | — |
| | — |
| | 11.1 |
| |
| Employee Stock Purchase Plan issuances | — |
| | 0.7 |
| | — |
| | — |
| | — |
| | 0.7 |
| |
| Cash dividends of $0.52 per share paid on common stock | — |
| | — |
| | (22.9 | ) | | — |
| | — |
| | (22.9 | ) | |
| Stock options exercised | — |
| | 13.5 |
| | — |
| | — |
| | — |
| | 13.5 |
| |
| Excess tax benefits from share-based payments | — |
| | 25.6 |
| | — |
| | — |
| | — |
| | 25.6 |
| |
| Balance, August 31, 2016 | $ | 0.5 |
| | $ | 856.4 |
| | $ | 1,360.9 |
| | $ | (139.4 | ) | | $ | (418.6 | ) | | $ | 1,659.8 |
| |
| Repurchases of common stock | | (0.7 | ) | | — |
| | — |
| | — |
| | — |
| | (81.6 | ) | | (81.6 | ) |
| ASC 606 adjustments | | — |
| | — |
| | — |
| | (13.0 | ) | | — |
| | — |
| | (13.0 | ) |
| Balance, August 31, 2019 | | 39.5 |
| | $ | 0.5 |
| | $ | 930.0 |
| | $ | 2,295.8 |
| | $ | (151.4 | ) | | $ | (1,156.0 | ) | | $ | 1,918.9 |
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Amounts in millions, except per-share data and as indicated)
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| |
1. | Description of Business and Basis of Presentation |
Note 1 — Description of Business and Basis of Presentation
Acuity Brands, Inc. (“Acuity Brands”) is the parent company of Acuity Brands Lighting, Inc. (“ABL”) and other wholly-owned subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred to herein as “we,” “our,” “us,” “the Company,” or similar references) and was incorporated in 2001 under the "Company”). The Company designs, produces, and distributes a broad arraylaws of the State of Delaware. We are one of the world’s leading providers of lighting and building management solutions and services for commercial, institutional, industrial, infrastructure, and residential applications for various markets throughout North America and select international markets. The Company'sOur lighting and building management solutions include devices such as luminaires, lighting controls,controllers controls for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systems designed to optimize energy efficiency and comfort for various indoor and outdoor applications. The Company has oneAdditionally, we continue to expand our solutions portfolio, including software and services, to provide a host of other economic benefits resulting from data analytics that enables the Internet of Things (“IoT”), supports the advancement of smart buildings, smart cities, and the smart grid, and allows businesses to develop custom applications to scale their operations. We have 1 reportable segment serving the North American lighting market and select international markets.
The Company does not consider acquisitions a critical element of its strategy, but seeks opportunities to expand and enhance its portfolio of solutions, includingWe have prepared the following transactions:
On June 30, 2016, using cash on hand and treasury stock, the Company acquired DGLogik, Inc. ("DGLogik"), a provider of innovative software solutions that enable and visualize the Internet of Things. DGLogik's solutions provide users with the intelligence to better manage energy usage and improve facility performance. DGLogik is headquartered in the San Francisco Bay Area, California.
On December 10, 2015, using cash on hand, the Company acquired Juno Lighting LLC ("Juno Lighting"), a leading provider of downlighting and track lighting fixtures for both residential and commercial applications. Juno Lighting is headquartered in Des Plaines, Illinois.
On December 9, 2015, using cash on hand, the Company acquired certain assets and assumed certain liabilities of Geometri, LLC ("Geometri"), a provider of a software and services platform for mapping, navigation, and analytics.
On September 1, 2015, using cash on hand, the Company acquired Distech Controls Inc. ("Distech Controls"), a provider of building automation solutions that allow for the integration of lighting, HVAC, access control, closed circuit television, and related systems. Distech Controls is headquartered in Quebec, Canada.
During the quarter ended May 31, 2015, using cash on hand, the Company acquired substantially all of the assets and assumed certain liabilities of ByteLight, Inc. (“ByteLight”), a provider of indoor location software for light-emitting diode (“LED”) lighting. ByteLight is headquartered in Boston, Massachusetts.
The operating results of these acquisitions have been included in the Company’s consolidated financial statements since the respective dates of acquisition.
In addition, during fiscal 2015, the Company made a strategic, non-controlling investment in a company specializing in light sensory networks. This investment was accounted for using the cost method and is reflected in Other long term assets on the Consolidated Balance Sheets.
The Consolidated Financial Statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) andto present the financial position, results of operations, and cash flows of Acuity Brands and its wholly-owned subsidiaries. References made to years are for fiscal year periods, unless noted otherwise.
2.Note 2 — Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Acuity Brands and its wholly-owned subsidiaries after elimination of intercompany transactions and accounts.
Revenue Recognition
The Company recordsWe recognize revenue when we transfer control of goods and services to our customers. Revenue is measured as the following criteria are met: persuasive evidenceamount of an arrangement exists, delivery has occurred, the Company’s priceconsideration we expect to the customerreceive in exchange for goods and services and is fixed and determinable, and collectability is reasonably
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
assured. Delivery is not considered to have occurred until the customer assumes the risks and rewards of ownership. Customers take delivery at the time of shipmentallowances for terms designated free on board shipping point. For sales designated free on board destination, customers take delivery when the product is delivered to the customer’s delivery site. Provisions for certain rebates, sales incentives, product returns, service-type warranties, and discounts to customers are recorded incustomers. Please refer to the same period the related revenue is recorded.
The Company also maintains one-time or on-going marketing and trade-promotion programs with certain customers that require the Company to estimate and accrue the expected costs of such programs. These arrangements include cooperative marketing programs, merchandisingRevenue Recognition footnote of the Company’s products, introductory marketing funds Notes to Consolidated Financial Statements for new products, and other trade-promotion activities conducted by the customer. Costs associated with these programs are reflected within the Company’s Consolidated Statements of Comprehensive Income in accordance with the Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition (“ASC 605”), which in most instances requires such costs be recorded as a reduction of revenue. The liabilities associated with the programs totaled $41.0 and $35.6 of August 31, 2016 and 2015, respectively, are reflected within Other accrued liabilities on the Consolidated Balance Sheets.
The Company's standard terms and conditions of sale allow returns of certain products within four months of the date of shipment. The Company also provides for limited product return rights to certain distributors and other customers, primarily for slow moving or damaged items subject to certain defined criteria. The limited product return rights generally allow customers to return resalable products purchased within a specified time period and subject to certain limitations, including, at times, when accompanied by a replacement order of equal or greater value. At the time revenue is recognized, the Company records a provision for the estimated amount of future returns primarily based on historical experience, specific notification of pending returns, or based on contractual terms with the respective customers. Although historical product returns generally have been within expectations, there can be no assurance that future product returns will not exceed historical amounts. A significant increase in product returns could have a material adverse impact on the Company's operating results in future periods.
Revenue is earned on services and the sale of products. Revenue is recognized for the sale of products when the above criteria are met and for services rendered in the period of performance.
Revenue Recognition for Arrangements with Multiple Deliverables
A small portion (less than 4%) of the Company's revenues are derived from the combination of any or all of: (i) the sale and license of its products, (ii) fees associated with training, installation, and technical support services, (iii) monitoring and lighting control services, and (iv) providing services related to data analytics. Certain agreements, particularly related to lighting controls systems, represent multiple-element arrangements that include tangible products that contain software that is essential to the functionality of the systems and undelivered elements that primarily relate to installation, monitoring, and lighting control services. The undelivered elements associated with installation, monitoring, and lighting control services are reviewed and analyzed to determine separability in relation to the delivered elements and appropriate pricing treatment based on (a) vendor-specific objective evidence, (b) third-party evidence, or (c) management estimates. If deemed separate units of accounting, the revenue and associated cost of sales related to the delivered elements are recognized at the time of delivery, while those related to the undelivered elements are recognized appropriately based on the period of performance. If the separation criterion for the undelivered elements is not met because the undelivered elements are essential to the functionality of the lighting controls systems, all revenue and cost of sales attributable to the contract are deferred at the time of sale and are both generally recognized on a straight-line basis over the respective contract periods.additional information.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash in excess of daily requirements is invested in time deposits and marketable securities and is included in the accompanying balance sheets at fair value. The Company considersWe consider time deposits and marketable securities with an original maturity of three months or less when purchased to be cash equivalents.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
Accounts Receivable
The Company recordsWe record accounts receivable at net realizable value. This value includes a reserve for doubtful accounts to reflect losses anticipated on accounts receivable balances. The allowance is based on historical write-offs, an analysis of past due accounts based on the contractual terms of the receivables, and the economic status of customers, if known. Management believesWe believe that the allowance is sufficient to cover uncollectible amounts; however, there can be no assurance that unanticipated future business conditions of customers will not have a negative impact on the Company’sour results of operations.
Prior to the adoption of the new revenue accounting standard described in the New Accounting Pronouncements footnote, we recorded reserves for product returns, cash discounts, and other deductions due to customers as a reduction to our outstanding receivables. The changes in these reserves during the fiscal years ended August 31, 2019, 2018, and 2017 are summarized as follows (in millions):
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2019 | | 2018 | | 2017 |
| Beginning balance | $ | 23.4 |
| | $ | 21.3 |
| | $ | 17.3 |
|
| Refund costs | — |
| | 133.4 |
| | 134.2 |
|
| Payments and other deductions | — |
| | (131.3 | ) | | (130.2 | ) |
ASC 606 adjustments (1) | (23.4 | ) | | — |
| | — |
|
| Ending balance | $ | — |
| | $ | 23.4 |
| | $ | 21.3 |
|
| |
(1) | Estimated liabilities for returns, cash discounts, and other deductions are now reflected as Other current liabilities within our consolidated financial statements. Refer to the New Accounting Pronouncements and Revenue Recognition footnotes for additional information. |
Concentrations of Credit Risk
Concentrations of credit risk with respect to receivables, which are typically unsecured, are generally limited due to the wide variety of customers and markets using the Company’sour lighting and building management solutions as well as their dispersion across many different geographic areas. Receivables from The Home Depot were approximately $62.7 and $59.9 at August 31, 2016 and 2015, respectively. No other singleOne customer accounted for more thanapproximately 10% of consolidated receivables at August 31, 2016 or 2015. Additionally, net sales to The Home Depot2019, and 2018. Two customers each accounted for approximately 11% and 12% in fiscal 2015 and 2014, respectively.10% of receivables at August 31, 2017. No single customer accounted for more than 10% of net sales in fiscal 2016.2019, 2018, or 2017.
Reclassifications
Certain prior-period amounts have been reclassified to conform to the current year presentation, including a reclassification of $23.1 frompresentation. No material reclassifications occurred during the current deferred income taxesperiod. Refer to noncurrent deferred income taxes as of August 31, 2015 on the Consolidated Balance Sheets,New Accounting Pronouncements footnote for additional information regarding retrospective reclassifications related to accounting standards adopted in the adoption of Accounting Standards Update 2015-17. See the New Accounting Pronouncements footnote for more information.current year.
Subsequent Events
The Company hasWe have evaluated subsequent events for recognition and disclosure for occurrences and transactions after the date of the consolidated financial statements as of August 31, 2016.2019. See Subsequent Event footnote for additional details regarding subsequent events.
Inventories
Inventories include materials, direct labor, in-boundinbound freight, and related manufacturing overhead, are stated at the lower of cost (on a first-in, first-out or average cost basis) or market,and net realizable value, and consist of the following:following (in millions):
| | | | August 31, | August 31, |
| | 2016 | | 2015 | 2019 | | 2018 |
Raw materials, supplies, and work in process(1) | $ | 170.3 |
| | $ | 125.7 |
| $ | 179.4 |
| | $ | 196.8 |
|
| Finished goods | 145.3 |
| | 113.9 |
| 183.7 |
| | 251.8 |
|
| | 315.6 |
| | 239.6 |
| |
| Inventories excluding reserves | | 363.1 |
| | 448.6 |
|
| Less: Reserves | (20.4 | ) | | (14.8 | ) | (22.3 | ) | | (36.8 | ) |
| Total Inventory | $ | 295.2 |
| | $ | 224.8 |
| |
| Total inventories | | $ | 340.8 |
| | $ | 411.8 |
|
| |
(1) | Due to the immaterial amount of estimated work in process and the short lead times for the conversion of raw materials to finished goods, the Company doeswe do not believe the segregation of raw materials and work in process to beis meaningful information. |
Management reviewsWe review inventory quantities on hand and recordsrecord a provision for excess or obsolete inventory primarily based on estimated future demand and current market conditions. A significant change in customer demand or market conditions could render certain inventory obsolete and thus could have a material adverse impact on the Company’sour operating results in the period the change occurs.
Assets Held for Sale
The Company classifies assets as held for sale upon the development of a plan for disposal and in accordance with applicable U.S. GAAP and ceases the depreciation and amortization of the assets at that date. The Company is actively marketing the property classified as held for sale. As of August 31, 2016, the carrying value of the property held for sale was $5.4, which is included in Prepayments and other current assets on the Consolidated Balance Sheets.
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
Assets Held for Sale
In accordance with U.S. GAAP, we classify assets as held for sale upon the development of a plan for disposal and cease the depreciation and amortization of the assets at that date. We did 0t classify any assets as held for sale as of August 31, 2019 or 2018.
Goodwill and Other Intangibles
Goodwill amounted to $947.8$967.3 million and $565.0$970.6 million as of August 31, 20162019 and 2015,2018, respectively. The changechanges in the carrying amount of goodwill during fiscal 2016 is2019 and 2018 are summarized as follows:follows (in millions):
|
| | | |
| | Carrying Amount |
| Balance, August 31, 2017 | $ | 900.9 |
|
| Additions from acquired businesses | 77.0 |
|
| Foreign currency translation adjustments | (7.3 | ) |
| Balance, August 31, 2018 | 970.6 |
|
| Additions from an acquired business | 2.0 |
|
| Adjustments to provisional amounts | (0.2 | ) |
| Foreign currency translation adjustments | (5.1 | ) |
| Balance as of August 31, 2019 | $ | 967.3 |
|
|
| | | |
| Balance as of August 31, 2015 | $ | 565.0 |
|
| Additions from acquired businesses | 381.5 |
|
| Foreign currency translation adjustments | 1.3 |
|
| Balance as of August 31, 2016 | $ | 947.8 |
|
Summarized information for the Company’sour acquired intangible assets is as follows:follows (in millions except amortization periods):
|
| | | | | | | | | | | | | | | | | |
| | | | August 31, |
| | | | 2019 | | 2018 |
| | Weighted Average Amortization Period in Years | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Definite-lived intangible assets: | | | |
| | |
| | |
| | |
|
| Patents and patented technology | 12 | | $ | 135.7 |
| | $ | (72.9 | ) | | $ | 137.2 |
| | $ | (62.2 | ) |
| Trademarks and trade names | 19 | | 27.2 |
| | (14.5 | ) | | 27.2 |
| | (13.2 | ) |
| Distribution network | 28 | | 61.8 |
| | (39.7 | ) | | 61.8 |
| | (37.5 | ) |
| Customer relationships | 21 | | 299.2 |
| | (72.1 | ) | | 300.0 |
| | (56.3 | ) |
| Total definite-lived intangible assets | 17 | | $ | 523.9 |
|
| $ | (199.2 | ) |
| $ | 526.2 |
|
| $ | (169.2 | ) |
| Indefinite-lived trade names | | | $ | 141.3 |
| | |
| | $ | 141.7 |
| | |
|
|
| | | | | | | | | | | | | | | |
| | August 31, |
| | 2016 | | 2015 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Definite-lived intangible assets: | |
| | |
| | |
| | |
|
| Patents and patented technology | $ | 112.3 |
| | $ | (39.9 | ) | | $ | 72.7 |
| | $ | (30.3 | ) |
| Trademarks and trade names | 27.2 |
| | (10.7 | ) | | 25.4 |
| | (9.7 | ) |
| Distribution network | 61.8 |
| | (33.0 | ) | | 61.8 |
| | (30.8 | ) |
| Customer relationships | 157.9 |
| | (29.3 | ) | | 55.2 |
| | (20.8 | ) |
| Other | 4.9 |
| | (4.8 | ) | | 5.1 |
| | (4.7 | ) |
| Total | $ | 364.1 |
| | $ | (117.7 | ) | | $ | 220.2 |
| | $ | (96.3 | ) |
| Indefinite-lived trade names | $ | 135.0 |
| | |
| | $ | 99.5 |
| | |
|
Through multiple acquisitions, the Companywe acquired intangible assets consisting primarily of trademarks and trade names associated with specific products with finite lives, definite-lived distribution networks, patented technology, non-compete agreements, and customer relationships, which are amortized over their estimated useful lives. Indefinite-lived intangible assets consist of trade names that are expected to generate cash flows indefinitely. Significant estimates and assumptions were used to determine the initial fair value of these acquired intangible assets, including estimated future net sales, customer attrition rates, royalty rates, and discount rates. The current year increase in the gross carrying amounts for the acquiredCertain of our intangible assets was due primarilyare attributable to the acquisitions of Distech Controls, Juno Lighting, Geometriforeign operations and DGLogik (refer to the Acquisitions and Investments footnote), while decreases wereare impacted by currency translation due to the impairment of an indefinite-lived trade name andmovements in foreign currency translation adjustments.rates year over year.
The CompanyWe recorded amortization expense of $21.4, $11.0,$30.8 million, $28.5 million, and $11.2$28.0 million related to intangible assets with finite lives during fiscal 2016, 2015, 2019, 2018, and 2014,2017, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $23.0 in fiscal 2017, $23.0 in fiscal 2018, $23.0 in fiscal 2019, $22.6$30.8 million in fiscal 2020, and $21.2$28.0 million in fiscal 2021.2021, $27.0 million in fiscal 2022, $25.9 million in fiscal 2023, and $25.4 million in fiscal 2024.
The Company testsWe test goodwill and indefinite-lived intangible assets for impairment on an annual basis or more frequently as facts and circumstances change, as required by ASC Topic 350, Intangibles — Goodwill and Other (“ASC 350”). The goodwill impairment test has three steps: a qualitative review and a two-step quantitative method. The preliminary stepASC 350 allows for aan optional qualitative analysis for goodwill to determine the likelihood of impairment. If the qualitative review results in a more likely than not probability of impairment, the firsta quantitative stepanalysis is required. The firstqualitative step may
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
be bypassed entirely in favor of a quantitative test. The quantitative analysis identifies potential impairments by comparing the fair value of a reporting unit with its carrying value, including goodwill. The fair values can be determined based on a combination of valuation techniques including the expected present value of future cash flows, a market multiple approach, and a comparable transaction approach. If the fair value of a reporting unit exceeds theits carrying value, goodwill is not considered impaired and the second step is not necessary. Ifimpaired. Conversely, if the carrying value of a reporting unit exceeds theits fair value, the second step calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying value. If the implied fair value of the goodwill is less than the carrying value, an impairment charge for the difference is recorded.
In fiscal 2016,2019 and 2018, a qualitative fair value analysis was used to determine the likelihood of goodwill impairment for the Company’s oneour 1 reporting unit. During fiscal 2017, a quantitative analysis, based on discounted future cash flows, was used to determine the likelihood of impairment. The analysis for goodwill did not result in an impairment charge during fiscal 2016, 2015, 2019, 2018, or 2014.2017.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
The impairment test for indefinite-lived trade names consists of comparing the fair value of the asseta trade name with its carrying value. The Company estimates the fair value of indefinite-lived trade names using a fair value model based on discounted future cash flows. If the carrying amount exceeds the estimated fair value, an impairment loss would be recorded in the amount of the excess. We estimate the fair value of indefinite-lived trade names using a fair value model based on discounted future cash flows. Significant assumptions, including estimated future net sales, royalty rates, and discount rates, are used in the determination of estimated fair value for indefinite-lived trade names. During fiscal 2016, management began to rationalizeBased on the Company's portfolioresults of brands, resulting in the initiation of the phase out of one of the trade names. The Company recognized an impairment charge of $5.1 related to this trade name and concluded the trade name is definite-lived. The impairment charge is included in Selling, Distribution, and Administrative Expenses in the Consolidated Statements of Comprehensive Income. The indefinite-lived intangible asset analysis did not result in any otheranalyses, we concluded that our indefinite-lived trade names are fairly stated for the years presented; therefore, no impairment charges aswere recorded for fiscal 2019, 2018, or2017. Any reasonably likely change in the fair values exceeded the carrying values for each of the other trade names. None ofassumptions used in the analyses for the indefinite-livedour trade names resulted in an impairment charge during fiscal 2015would not be material to our financial condition or 2014.results of operations.
Other Long-Term Assets
Other long-term assets consist of the following:following (in millions):
|
| | | | | | | |
| | August 31, |
| | 2016 | | 2015 |
| Deferred contract costs | $ | 8.3 |
| | $ | 10.7 |
|
Capitalized software costs(1) | 0.8 |
| | 1.6 |
|
Investment in noncontrolling affiliate(2) | 8.0 |
| | 8.0 |
|
Other(3) | 5.9 |
| | 6.8 |
|
| Total | $ | 23.0 |
| | $ | 27.1 |
|
|
| | | | | | | |
| | August 31, |
| | 2019 | | 2018 |
| Deferred contract costs | $ | 15.4 |
| | $ | 12.8 |
|
| Net overfunded pension plans | — |
| | 1.6 |
|
Other(1) | 2.3 |
| | 4.4 |
|
| Total other long-term assets | $ | 17.7 |
| | $ | 18.8 |
|
| |
(1) | The Company recorded amortization expense related to capitalized software costs of $0.3, $0.4, and $0.4 in fiscal 2016, 2015, and 2014, respectively. |
| |
(2)
| The Company holds an equity investment in an unconsolidated affiliate. This strategic investment represents less than a 20% ownership interest in the privately-held affiliate, and the Company does not maintain power over or control of the entity. The Company accounts for this investment using the cost method. Subsequent to fiscal 2016, this investment was sold resulting in the recognition of a gain. |
| |
(3)
| Other - Amounts primarilyinclude deferred debt issuance costs related to its revolvingour credit facilityfacilities and company-owned life insurance investments. The Company maintainsWe maintain life insurance policies on 7466 former employees primarily to satisfy obligations under certain deferred compensation plans. These company-owned life insurance policies are presented net of loans that are secured by these policies. This program is frozen, and no new policies were issued in the three-year period ended August 31, 2016.2019.
|
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Other Long-Term Liabilities
Other long-term liabilities consist of the following:following (in millions):
|
| | | | | | | |
| | August 31, |
| | 2019 | | 2018 |
Deferred compensation and postretirement benefits other than pensions(1) | $ | 41.6 |
| | $ | 40.0 |
|
Service-type warranties(2) | 46.3 |
| | 14.8 |
|
Unrecognized tax position liabilities, including interest(3) | 17.6 |
| | 4.9 |
|
Other(4) | 5.2 |
| | 8.2 |
|
| Total other long-term liabilities | $ | 110.7 |
| | $ | 67.9 |
|
|
| | | | | | | |
| | August 31, |
| | 2016 | | 2015 |
Deferred compensation and postretirement benefits other than pensions(1) | $ | 37.3 |
| | $ | 34.1 |
|
| Long-term warranty obligations | 4.9 |
| | 2.5 |
|
Unrecognized tax position liabilities, including interest(2) | 6.1 |
| | 5.2 |
|
| Multi-employer pension plan withdrawal liabilities | 3.9 |
| | 0.2 |
|
Other(3) | 6.8 |
| | 9.2 |
|
| Total | $ | 59.0 |
| | $ | 51.2 |
|
| |
(1) | Deferred compensation and postretirement benefits other than pensions — The Company maintainsWe maintain several non-qualified retirement plans for the benefit of eligible employees, primarily deferred compensation plans. The deferred compensation plans provide for elective deferrals of an eligible employee’s compensation and, in some cases, matching contributions by the Company.organization. In addition, one plan provides for an automatic contribution by the Company of 3% of an eligible employee’s compensation. The Company maintainsWe maintain life insurance policies on certain current and former officers and other key employees as a means of satisfying a portion of these obligations.
|
| |
(2) | Certain service-type warranties accounted for as contingent liabilities prior to the adoption of ASC 606 are now reflected as contract liabilities effective September 1, 2018. Refer to the New Accounting Pronouncements and Revenue Recognition footnotes for additional information. |
| |
(2)(3)
| See the Income Taxes footnote for more information. |
| |
(3)(4)
| Other - Amount primarily includes deferred revenue and deferred rent.
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
Shipping and Handling Fees and Costs
The Company includesWe include shipping and handling fees billed to customers in Net Salessales in the Consolidated Statements of Comprehensive Income. Shipping and handling costs associated with inbound freight and freight between manufacturing facilities and distribution centers are generally recorded in Cost of Products Soldproducts sold in the Consolidated Statements of Comprehensive Income. Other shipping and handling costs are included in Selling, Distribution,distribution, and Administrative Expensesadministrative expenses in the Consolidated Statements of Comprehensive Income and totaled $124.0, $105.6,$138.4 million, $154.9 million, and $100.9$138.3 million in fiscal 2016, 2015, 2019, 2018,and 2014,2017, respectively.
Share-Based CompensationShare-based Payments
The Company recognizesWe recognize compensation cost relating to share-based payment transactions in the financial statements based on the estimated grant date fair value of the equity or liability instrument issued. The Company accountsWe account for stock options, restricted shares, and share units representing certain deferrals into the Nonemployee Director Deferred Compensation Plan (the “Director Plan”) or the Supplemental Deferred Savings Plan (“SDSP”) (both of which are discussed further in the Share-BasedShare-based Payments footnote) based on the grant-date fair value estimated under the current provisions of ASC Topic 718, Compensation — Stock Compensation (“ASC 718”).
Share-based payment expense includes expense related to restricted stock and options issued, as well as share units deferred into the Director Deferred Compensation Plan. The CompanyWe recorded $27.7, $18.2,$29.2 million, $32.3 million, and $17.7$32.0 million of share-based payment expense for the years endingended August 31, 2016, 2015,2019, 2018, and 2014,2017, respectively. The total income tax benefit recognized for share-based compensation arrangementspayment expense was $9.6, $6.4,$6.5 million, $8.4 million, and $6.0$11.1 million for the years ended August 31, 2016, 2015,2019, 2018, and 2014,2017, respectively. The Company accountsWe account for any awards with graded vesting on a straight-line basis. Additionally, forfeitures of share-based awards are estimated based on historical experience at the time of grant and are revised in subsequent periods if actual forfeitures differ from initial estimates. The CompanyWe did not capitalize any expense related to share-based payments and hashave recorded share-based payment expense, net of estimated forfeitures, in Selling, Distribution,distribution, and Administrative Expensesadministrative expenses in the Consolidated Statements of Comprehensive Income.
Benefits ofExcess tax deductions in excess of recognizedbenefits and/or expense related to share-based compensation costpayment awards are reported as a financing cash flow, rather than as an operating cash flow, inwithin Income tax expense on the Company’s Consolidated Statements of Cash Flows and amounted to $25.6, $17.6, and $10.4 Comprehensive Income for fiscal 2016, 2015,2019 and 2014,fiscal 2018. We recognized net excess tax expense related to share-based payment cost of $1.6 million and $0.8 million for the years ended August 31, 2019 and 2018, respectively. For fiscal 2017, we reported net excess tax benefits related to share-based payment cost of $5.2 million within Paid-in capital on the Consolidated Balance Sheets.
See the Share-BasedShare-based Payments footnote of the Notes to Consolidated Financial Statements for more information.
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Depreciation
For financial reporting purposes, depreciationDepreciation is determined principally on a straight-line basis using estimated useful lives of plant and equipment (10 to 40 years for buildings and related improvements and 3 to 15 years for machinery and equipment), for financial reporting purposes, while accelerated depreciation methods are used for income tax purposes. Leasehold improvements are amortized over the shorter of the life of the lease or the estimated useful life of the improvement. Depreciation expense amounted to $40.9, $34.4,$57.5 million, $51.8 million, and $31.8$46.6 million during fiscal 2016, 2015,2019, 2018, and 2014,2017, respectively.
Research and Development
Research and development (“R&D”) expense, which is expensed as incurred, consists of compensation, payroll taxes, employee benefits, materials, supplies, and other administrative costs, butcosts. R&D does not include all new product development costs and is included in Selling, Distribution,distribution, and Administrative Expensesadministrative expenses in the Company’s our Consolidated Statements of Comprehensive Income. R&D expense amounted to $47.1, $41.1,$74.7 million, $63.9 million, and $35.3$52.0 million during fiscal 2016, 2015, 2019, 2018, and 2014,2017, respectively.
Advertising
Advertising costs are expensed as incurred and are included within Selling, Distribution,distribution, and Administrative Expensesadministrative expenses in the Company’s our Consolidated Statements of Comprehensive Income. These costs totaled $18.4, $12.0,$18.5 million, $20.6 million, and $13.3$18.6 million during fiscal 2016, 2015,2019, 2018, and2017, respectively.
Interest Expense, Net
Interest expense, net, is comprised primarily of interest expense on long-term debt, obligations in connection with non-qualified retirement benefits, and 2014, respectively. line of credit borrowings, partially offset by interest income earned on cash and cash equivalents.
The increase duringfollowing table summarizes the components of interest expense, net (in millions):
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2019 | | 2018 | | 2017 |
| Interest expense | $ | 36.4 |
| | $ | 35.5 |
| | $ | 34.1 |
|
| Interest income | (3.1 | ) | | (2.0 | ) | | (1.6 | ) |
| Interest expense, net | $ | 33.3 |
| | $ | 33.5 |
| | $ | 32.5 |
|
Miscellaneous Expense, Net
Miscellaneous expense, net, is comprised primarily of non-service related components of net periodic pension cost, gains or losses on foreign currency items, and other non-operating items. Gains or losses relating to foreign currency items consisted of net gains of $0.6 million in fiscal 2016 is primarily due to2019, net gains of $0.1 million in fiscal 2018, and net expense of $0.5 million in fiscal 2017. During fiscal 2018, we recognized a $5.4 million gain on the impactsale of acquisitions.
Service Arrangements with Customers
The Company maintains a service program with oneforeign domiciled business, which included the reclassification of its retail customers that affords the Company certain in-store benefits, including lighting display maintenance. Costs$8.7 million in accumulated foreign currency gains from Accumulated other comprehensive loss. During fiscal 2017, we recognized a $7.2 million gain associated with this program totaled $7.0, $6.6, and $6.1the sale of an investment in fiscal 2016, 2015, and 2014, respectively. These costs have been included within Selling, Distribution, and Administrative Expenses in the Company’s Consolidated Statements of Comprehensive Income.an unconsolidated affiliate.
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
Interest Expense, NetIncome Taxes
Interest expense, net, is comprised primarilyWe are taxed at statutory corporate rates after adjusting income reported for financial statement purposes for certain items that are treated differently for income tax purposes. Deferred income tax expenses or benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of interest expense on long-term debt, revolving credit facility borrowings,assets and loans collateralized by assets related to a company-owned life insurance program, partially offset by interest income on cash and cash equivalents.
The following table summarizes the components of interest expense, net:
|
| | | | | | | | | | | |
| | Years Ended August 31, |
| | 2016 | | 2015 | | 2014 |
| Interest expense | $ | 33.3 |
| | $ | 32.6 |
| | $ | 32.6 |
|
| Interest income | (1.1 | ) | | (1.1 | ) | | (0.5 | ) |
| Interest expense, net | $ | 32.2 |
| | $ | 31.5 |
| | $ | 32.1 |
|
Foreign Currency Translation
The functional currency for foreign operations is the local currency where the foreign operations of the Company is the local currency.are domiciled. The translation of foreign currencies into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet dates and for revenue and expense accounts using a weighted average exchange rate each month during the year. The gains or losses resulting from the balance sheet translation are included in Foreign currency translation adjustments in the Consolidated Statements of Comprehensive Income and are excluded from net income.
Miscellaneous Expense (Income), Net
Miscellaneous expense (income), net, is composed primarily of gains or losses on foreign currency items and other non-operating items. Gains or losses relating to foreign currency items consisted of income of $0.8 in fiscal 2016, expense of $0.7 in fiscal 2015, and expense of $1.5 in fiscal 2014.
Income Taxes
The Company is taxed at statutory corporate rates after adjusting income reported for financial statement purposes for certain items that are treated differently for income tax purposes. Deferred income tax expenses or benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities.
Comprehensive Income
Comprehensive income represents a measure of all changes in equity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Other comprehensive income for the Company(loss) includes foreign currency translation and pension adjustments.
The following table presents the changes in each component of Accumulated Other Comprehensive Loss Items,accumulated other comprehensive loss net of tax.tax during the year ended August 31, 2019 (in millions):
|
| | | | | | | | | | | |
| | Foreign Currency Items | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Loss Items |
| Balance as of August 31, 2017 | $ | (28.7 | ) | | $ | (71.0 | ) | | $ | (99.7 | ) |
| Other comprehensive (loss) income before reclassifications | (16.5 | ) | | 14.0 |
| | (2.5 | ) |
Amounts reclassified from accumulated other comprehensive loss (1) | (8.7 | ) | | 7.2 |
| | (1.5 | ) |
| Net current period other comprehensive (loss) income | (25.2 | ) | | 21.2 |
| | (4.0 | ) |
| Reclassification of stranded tax effects of TCJA | — |
| | (11.1 | ) | | (11.1 | ) |
| Balance as of August 31, 2018 | (53.9 | ) |
| (60.9 | ) |
| (114.8 | ) |
| Other comprehensive loss before reclassifications | (11.5 | ) | | (31.1 | ) | | (42.6 | ) |
Amounts reclassified from accumulated other comprehensive loss (1) | — |
| | 6.0 |
| | 6.0 |
|
| Net current period other comprehensive loss | (11.5 | ) | | (25.1 | ) | | (36.6 | ) |
| Balance at August 31, 2019 | $ | (65.4 | ) | | $ | (86.0 | ) | | $ | (151.4 | ) |
| |
(1) | The before tax amounts of the defined benefit pension plan items are included in net periodic pension cost. See the Pension and Defined Contribution Plans footnotefor additional details. The reclassification of foreign currency items relates to the sale of a foreign domiciled business and is included within Miscellaneous expense, net on the Consolidated Statements of Comprehensive Income. |
|
| | | | | | | | | | | |
| | Foreign Currency Items | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Loss Items |
| Balance at August 31, 2015 | $ | (42.1 | ) | | $ | (68.3 | ) | | $ | (110.4 | ) |
| Other comprehensive loss before reclassifications | (5.6 | ) | | (28.7 | ) | | (34.3 | ) |
| Amounts reclassified from accumulated other comprehensive income | — |
| | 5.3 |
| | 5.3 |
|
| Net current-period other comprehensive loss | (5.6 | ) | | (23.4 | ) | | (29.0 | ) |
| Balance at August 31, 2016 | $ | (47.7 | ) | | $ | (91.7 | ) | | $ | (139.4 | ) |
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
The following table presents the tax (expense)/expense or benefit allocated to each component of other comprehensive income (expense).(loss) for the three years ended August 31, 2019 (in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended August 31, |
| | 2016 | | 2015 | | 2014 |
| | Before Tax Amount | | Tax (Expense) or Benefit | | Net of Tax Amount | | Before Tax Amount | | Tax (Expense) or Benefit | | Net of Tax Amount | | Before Tax Amount | | Tax (Expense) or Benefit | | Net of Tax Amount |
| Foreign Currency Translation Adjustments | $ | (5.6 | ) | | $ | — |
| | $ | (5.6 | ) | | $ | (24.0 | ) | | $ | — |
| | $ | (24.0 | ) | | $ | 0.7 |
| | $ | — |
| | $ | 0.7 |
|
| Defined Benefit Pension Plans: | | | | | | | | | | | | | | | | | |
| Actuarial losses | (42.2 | ) | | 13.5 |
| | (28.7 | ) | | (27.9 | ) | | 10.7 |
| | (17.2 | ) | | (18.2 | ) | | 5.6 |
| | (12.6 | ) |
| Amortization of defined benefit pension items: | | | | | | | | | | | | | | | | | |
Prior service cost (1) | 3.1 |
| | (1.1 | ) | | 2.0 |
| | 1.4 |
| | (0.6 | ) | | 0.8 |
| | 0.8 |
| | (0.3 | ) | | 0.5 |
|
Actuarial losses (1) | 4.9 |
| | (1.6 | ) | | 3.3 |
| | 4.1 |
| | (2.2 | ) | | 1.9 |
| | 3.1 |
| | (1.0 | ) | | 2.1 |
|
| Total Defined Benefit Plans, net | (34.2 | ) | | 10.8 |
| | (23.4 | ) | | (22.4 | ) | | 7.9 |
| | (14.5 | ) | | (14.3 | ) | | 4.3 |
| | (10.0 | ) |
| Other Comprehensive Income (Loss) | $ | (39.8 | ) | | $ | 10.8 |
| | $ | (29.0 | ) | | $ | (46.4 | ) | | $ | 7.9 |
| | $ | (38.5 | ) | | $ | (13.6 | ) | | $ | 4.3 |
| | $ | (9.3 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, |
| | 2019 | | 2018 | | 2017 |
| | Before Tax Amount | | Tax (Expense) or Benefit | | Net of Tax Amount | | Before Tax Amount | | Tax (Expense) or Benefit | | Net of Tax Amount | | Before Tax Amount | | Tax (Expense) or Benefit | | Net of Tax Amount |
| Foreign currency translation adjustments | $ | (11.5 | ) | | $ | — |
| | $ | (11.5 | ) | | $ | (25.2 | ) | | $ | — |
| | $ | (25.2 | ) | | $ | 19.0 |
| | $ | — |
| | $ | 19.0 |
|
| Defined benefit pension plans: | | | | | | | | | | | | | | | | | |
| Actuarial (losses) gains | (40.8 | ) | | 9.7 |
| | (31.1 | ) | | 18.4 |
| | (4.4 | ) | | 14.0 |
| | 18.3 |
| | (5.7 | ) | | 12.6 |
|
| Amortization of defined benefit pension items: | | | | | | | | | | | | | | | | | |
| Prior service cost | 3.5 |
| | (0.9 | ) | | 2.6 |
| | 3.1 |
| | (0.7 | ) | | 2.4 |
| | 3.1 |
| | (0.7 | ) | | 2.4 |
|
| Actuarial losses | 4.1 |
| | (1.0 | ) | | 3.1 |
| | 6.8 |
| | (2.0 | ) | | 4.8 |
| | 8.9 |
| | (3.2 | ) | | 5.7 |
|
| Settlement losses | 0.4 |
| | (0.1 | ) | | 0.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total defined benefit plans, net | (32.8 | ) | | 7.7 |
| | (25.1 | ) | | 28.3 |
| | (7.1 | ) | | 21.2 |
| | 30.3 |
| | (9.6 | ) | | 20.7 |
|
| Other comprehensive (loss) income | $ | (44.3 | ) | | $ | 7.7 |
| | $ | (36.6 | ) | | $ | 3.1 |
| | $ | (7.1 | ) | | $ | (4.0 | ) | | $ | 49.3 |
| | $ | (9.6 | ) | | $ | 39.7 |
|
| |
(1)
| The before tax amount of these other comprehensive income components is included in net periodic pension cost. See the Pension and Defined Contribution Plans footnotefor additional details.
|
3.Note 3 — New Accounting Pronouncements
Accounting Standards Adopted in Fiscal 20162019
ASU 2017-01 -— Clarifying the Definition of a Business
In November 2015,January 2017, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"2017-01”), requiring thatwhich requires an evaluation of whether substantially all tax liabilities andof the fair value of assets be classified as noncurrentobtained in an acquisition is concentrated in a classified statementsingle identifiable asset or a group of financial position. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016.similar identifiable assets. If so, the transaction does not qualify as a business. The Company earlyguidance also requires an acquired business to include at least one substantive process and narrows the definition of outputs. We adopted ASU 2015-17, which resulted in2017-01 effective September 1, 2018 and applied the guidance prospectively. The provisions of ASU 2017-01 did not have a reclassificationmaterial effect on our financial condition, results of $23.1 from current deferred income taxes to noncurrent deferred income taxes on the Consolidated Balance Sheets asoperations, or cash flows.
ASU 2016-15 — Statement of August 31, 2015.Cash Flows
Accounting Standards Yet to Be Adopted
In MarchAugust 2016, the FASB issued ASU No. 2016-09, Improvements2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which is intended to Employee Share-Based Paymentreduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. These cash flows include debt prepayment and extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance. We adopted ASU 2016-15 effective September 1, 2018 and applied the changes retrospectively. We maintain life insurance policies on certain former employees primarily to satisfy obligations under certain deferred compensation plans. As required by the standard, proceeds from these policies are now classified as cash inflows from investing activities. We received proceeds of $0.8 million and $1.7 million from settlements of corporate-owned life insurance policies during the years ended August 31, 2019 and 2018, respectively, and received 0 cash from these policies during the year ended August 31, 2017. As such, cash flows from operations for the year ended August 31, 2018 decreased $1.7 million with a corresponding increase to cash flows from investing activities, compared to amounts previously reported. The remaining provisions of ASU 2016-15 did not impact our financial statements for the periods presented.
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
ASU 2017-07 — Presentation of Net Periodic Pension Cost
In March 2017, the FASB issued ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”), which changes the presentation of net periodic pension cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost is now included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic pension cost are presented separately outside of operating income. Additionally, only service costs may be capitalized in assets. We adopted ASU 2017-07 effective as of September 1, 2018. We applied the standard retrospectively for the presentation of the service cost component and the other components of net periodic pension cost within our income statements. As a practical expedient, we used amounts previously disclosed in the Pension and Defined Contribution Plans footnote of the Notes to Consolidated Financial Statements within our fiscal 2018 Form 10-K as the basis for retrospective application because amounts capitalized in inventory at a given point in time are de minimis and determining these amounts was impractical. Upon adoption of ASU 2017-07, our previously reported Operating profit for the years ended August 31, 2018 and 2017 increased $6.2 million and $8.7 million, respectively, with a corresponding increase to Miscellaneous expense, net. The provisions of ASU 2017-07 have no impact to our net income or earnings per share.
The impact of the provisions of ASU 2017-07 on the Consolidated Statements of Comprehensive Income for the years ended August 31, 2018 and 2017 are as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2018 | | Year Ended August 31, 2017 |
| | As Revised | | Previously Reported | | Higher (Lower) | | As Revised | | Previously Reported | | Higher (Lower) |
| Cost of products sold | $ | 2,194.7 |
| | $ | 2,193.3 |
| | $ | 1.4 |
| | $ | 2,024.0 |
| | $ | 2,023.9 |
| | $ | 0.1 |
|
| Selling, distribution, and administrative expenses | 1,019.0 |
| | 1,026.6 |
| | (7.6 | ) | | 942.3 |
| | 951.1 |
| | (8.8 | ) |
| Miscellaneous expense, net | 1.4 |
| | (4.8 | ) | | 6.2 |
| | 2.4 |
| | (6.3 | ) | | 8.7 |
|
ASC 606 — Revenue from Contracts with Customers
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which replaced the existing revenue recognition guidance in U.S. GAAP. Since the issuance of ASU 2014-09, the FASB released several amendments to improve and clarify the implementation guidance, as well as to change the effective date. These standards have been collectively codified within Accounting, (" Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard also requires additional disclosures about the nature, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in those judgments.
We adopted ASC 606 effective September 1, 2018 using the modified retrospective method and recognized a cumulative effect of applying ASC 606 of $13.0 million in Retained earnings on the Consolidated Balance Sheet as of this date. We applied the standard to all contracts as of the transition date. Information for prior years presented has not been retrospectively adjusted and continues to reflect the authoritative accounting standards in effect for those periods.
Adjustments related to the adoption of ASC 606 include additional deferrals of revenue recognition for service-type warranties and the gross presentation of right of return assets and refund liabilities for sales with a right of return. The effects of the adoption of ASC 606 on our Consolidated Statement of Comprehensive Income for the year ended August 31, 2019 and the Consolidated Balance Sheet as of August 31, 2019 are as follows (in millions except per share amounts):
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | |
| Consolidated Statement of Comprehensive Income | | Year Ended August 31, 2019 |
| | | As Currently Reported | | Without ASC 606 Adoption | | Higher (Lower) |
| Net sales | | $ | 3,672.7 |
| | $ | 3,681.6 |
| | $ | (8.9 | ) |
| Cost of products sold | | 2,193.0 |
| | 2,197.1 |
| | (4.1 | ) |
| Selling, distribution, and administrative expenses | | 1,015.0 |
| | 1,014.6 |
| | 0.4 |
|
| Operating profit | | 462.9 |
| | 468.1 |
| | (5.2 | ) |
| Income tax expense | | 94.5 |
| | 95.7 |
| | (1.2 | ) |
| Net income | | 330.4 |
| | 334.4 |
| | (4.0 | ) |
| | | | | | | |
| Basic earnings per share | | $ | 8.32 |
| | $ | 8.42 |
| | $ | (0.10 | ) |
| Diluted earnings per share | | 8.29 |
| | 8.39 |
| | (0.10 | ) |
|
| | | | | | | | | | | |
| Consolidated Balance Sheet | | August 31, 2019 |
| | | As Currently Reported | | Without ASC 606 Adoption | | Higher (Lower) |
| Accounts receivable, net | | $ | 561.0 |
| | 539.6 |
| | $ | 21.4 |
|
| Prepayments and other current assets | | 79.0 |
| | 65.1 |
| | 13.9 |
|
| Other accrued liabilities | | 175.0 |
| | 139.4 |
| | 35.6 |
|
| Deferred income tax liabilities | | 92.7 |
| | 98.0 |
| | (5.3 | ) |
| Other long-term liabilities | | 110.7 |
| | 88.7 |
| | 22.0 |
|
| Retained earnings | | 2,295.8 |
| | 2,312.8 |
| | (17.0 | ) |
Accounting Standards Yet to Be Adopted
In August 2018, the FASB issued ASU 2016-09"No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”), which will change certain aspectsrequire companies to apply internal-use software guidance to determine the implementation costs of accountingthese arrangements that can be capitalized. Capitalized implementation costs will be required to be amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for share-based payments to employees.its intended use. ASU 2016-092018-15 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016.2019. The standard requires that all excess tax benefits and deficiencies currently recorded as additional paid in capital be prospectively recorded in income tax expense. As such, implementation of this standard could create volatility in the Company's effective income tax rate on a quarter by quarter basis. The volatility in the effective income tax rate is due primarily to fluctuations in the Company's stock price and the timing of stock option exercises and vesting of restricted share grants. The standard also requires excess tax benefitsallows changes to be presented as an operating activity on the statement of cash flows rather than as a financing activity. This element of the guidance may be applied either retrospectively or prospectively. The Company intends to implementWe will adopt the standard as required in fiscal 2018.2021. The provisions of ASU 2018-15 are not expected to have a material effect on our financial condition, results of operations, or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. The provisions of ASU 2016-13 are effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2019. Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We will adopt the amendments as required in fiscal 2021. The provisions of ASU 2016-13 are not expected to have a material effect on our financial condition, results of operations, or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases, (" (“ASU 2016-02"2016-02”), which requires lessees to include most leases on the balance sheet. ASU 2016-02 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2018. Since the issuance of ASU 2016-02, the FASB released several amendments to improve and clarify the implementation guidance, as well as to change the allowable adoption methods. These standards have been collectively codified within ASC 842, Leases (“ASC 842”). The Company is currently evaluatingstandard allows entities to present the effects of the accounting change as either a cumulative adjustment as of the beginning of the earliest period presented or as of the date of adoption. We have an implementation team tasked with reviewing our lease obligations and determining the impact of the provisionsnew standard to our financial statements. The team is also tasked with identifying appropriate changes to our business processes, systems, and controls to support recognition and disclosure under the new standard. The implementation team completed its review of ASU 2016-02.
In July 2015,our lease obligations outstanding at August 31, 2019 and is in the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments ("ASU 2015-16"), which simplifies the accounting for measurement-periodprocess of reviewing and finalizing transition adjustments to provisional amounts recognized inthe balance sheet. The implementation team reports its findings and progress of the project to management on a business combination. ASU 2015-16 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016. The provisions of ASU 2015-16 are not expectedfrequent basis and to have a material effect on the Company's financial condition, results of operations, or cash flows.
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
In April 2015,Audit Committee of the FASB issued ASU No. 2015-05, Customer's Accounting For Fees Paid In A Cloud Computing Arrangement (“ASU 2015-05”), which provides guidance forBoard of Directors on a customer's accounting for cloud computing costs. ASU 2015-05 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2015. The provisionsquarterly basis. Based on our lease portfolio as of ASU 2015-05 areAugust 31, 2019, we preliminarily expect the adoption of ASC 842 to result in the recognition of operating lease liabilities between $63 million and $68 million. We expect the corresponding operating lease right of use assets to approximate the lease total liabilities less our deferred rent balance as of August 31, 2019. We do not expectedexpect ASC 842 to have a material effectimpact on the Company's financial condition, resultsour consolidated statements of operations,comprehensive income or cash flows.
In May 2014, Further details regarding our undiscounted future lease payments as well as the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 is effective for fiscal years (and interim reporting periodstiming of those payments are included within those years) beginning after December 15, 2017. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the impact Commitments and Contingencies footnote of the provisions of ASU 2014-09.Notes to Consolidated Financial Statements within our Form 10-K. We will adopt ASC 842 as required effective September 1, 2019.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
4.Note 4 — Acquisitions
The following discussion relates to acquisitions completed during fiscal 2019 and Investments
The Company does not consider2018.No acquisitions a critical element of its strategy but seeks opportunities for growth through acquisitions and investments. In recent years, the Company has acquired or made investments in a number of businesses that participate in the lighting, building management and related markets, including the businesses discussed below. The acquisitions and investments were made with the intent to further expand and complement the Company’s lighting and building management solutions portfolio. The purchased companies were fully incorporated into the Company’s operations.completed during fiscal 2017.
Fiscal 20162019 Acquisitions
DGLogik, Inc.WhiteOptics, LLC
On June 30, 2016,20, 2019, using cash on hand, and treasury stock, the Companywe acquired DGLogik, Inc. ("DGLogik"), a provider of innovative software solutions that enable and visualize the Internet of Things. DGLogik's solutions provide users with the intelligence to better manage energy usage and improve facility performance. DGLogik is headquartered in the San Francisco Bay Area, California.
Juno Lighting LLC
On December 10, 2015, using cash on hand, the Company acquired for approximately $380 all of the equity interests of Juno LightingWhiteOptics, LLC ("Juno Lighting"(“WhiteOptics”), a leading provider of downlighting and track lighting fixtures for both residential and commercial applications. Juno Lighting. WhiteOptics is headquartered in Des Plaines, Illinois. AtNew Castle, Delaware and manufactures advanced optical components used to reflect, diffuse, and control light for light emitting diode (“LED”) lighting used in commercial and institutional applications. The operating results of WhiteOptics have been included in our consolidated financial statements since the timedate of acquisition Juno Lighting generated annual revenuesand are not material to our financial condition, results of approximately $250 (unaudited).operations, or cash flows.
GeometriFiscal 2018 Acquisitions
IOTA Engineering, LLC
On December 9, 2015,May 1, 2018, using cash on hand and borrowings available under existing credit arrangements, we acquired all of the Company acquired certain assetsequity interests of IOTA Engineering, LLC (“IOTA”). IOTA is headquartered in Tucson, Arizona and assumed certain liabilitiesmanufactures highly engineered emergency lighting products and power equipment for commercial and institutional applications both in the U.S. and international markets. The operating results of Geometri, LLC ("Geometri"), a providerIOTA have been included in our consolidated financial statements since the date of a softwareacquisition and services platform for mapping, navigation, and analytics.are not material to our financial condition, results of operations, or cash flows.
Distech ControlsLucid Design Group, Inc.
On September 1, 2015,February 12, 2018, using cash on hand, the Companywe acquired for approximately $240 all of the outstanding capital stockequity interests of Distech Controls Inc. ("Distech Controls"Lucid Design Group, Inc (“Lucid”), a provider of building automation solutions that allow for the integration of lighting, HVAC, access control, closed circuit television, and related systems. Distech Controls. Lucid is headquartered in Quebec, Canada. AtOakland, California and provides a data and analytics platform to make data-driven decisions to improve building efficiency and drive energy conservation and savings. The operating results of Lucid have been included in our consolidated financial statements since the timedate of acquisition Distech Controls generated annual revenuesand are not material to our financial condition, results of operations, or cash flows.
Accounting for Acquisitions
Acquisition-related costs were expensed as incurred. Preliminary amounts related to the acquisition accounting for WhiteOptics and finalized amounts related to the acquisition accounting for Lucid and IOTA are reflected in the Consolidated Balance Sheets as of August 31, 2019. WhiteOptics did not have a material impact to our financial position or results of operations for fiscal 2019. We finalized the acquisition accounting for Lucid and IOTA during the second and third quarter of fiscal 2019, respectively. There were no material changes to our financial statements as a result of the finalization of the acquisition accounting for Lucid or IOTA. The aggregate purchase price of these acquisitions reflects total goodwill and identified intangible assets of approximately $80 Canadian Dollars (unaudited).$76.8 million and $81.8 million, respectively, as of August 31, 2019. Identified intangible assets consist of indefinite-lived marketing related intangibles as well as definite-lived customer-based and technology-based assets, which have a weighted average useful life of approximately 14 years.
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| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
AccountingNote 5 — Revenue Recognition
We recognize revenue when we transfer control of goods and services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for Fiscal 2016 Acquisitions
goods and services and is recognized net of allowances for rebates, sales incentives, product returns, and discounts to customers. Sales and use taxes collected on behalf of governmental authorities are excluded from revenues. Payment is generally due and received within 60 days from the point of sale or prior to the transfer of control of certain goods and services. No payment terms extend beyond one year, and we apply the practical expedient within ASC 606 to conclude that no significant financing terms exist within our contracts with customers. Allowances for cash discounts to customers are estimated using the expected value method based on historical experience and are recorded as a reduction to sales. Our standard terms and conditions of sale allow for the return of certain products within four months of the date of shipment. We also provide for limited product return rights to certain distributors and other customers, primarily for slow moving or damaged items subject to certain defined criteria. The limited product return rights generally allow customers to return resalable products purchased within a specified time period and subject to certain limitations, including, at times, when accompanied by a replacement order of equal or greater value. At the time revenue is recognized, we record a refund liability for the expected value of future returns primarily based on historical experience, specific notification of pending returns, or based on contractual terms with the respective customers. Although historical product returns generally have been within expectations, there can be no assurance that future product returns will not exceed historical amounts. A significant increase in product returns could have a material adverse impact on our operating results of these acquisitions have been included in the Company's consolidated financial statements since the respective dates of acquisition. Acquisition-related costs were expensed as incurred. Preliminary amountsfuture periods.
Refund liabilities recorded under ASC 606 related to the acquisition accounting for these investments are reflected in the Consolidated Balance Sheetsrights of return, cash discounts, and other miscellaneous credits to customers were $37.3 million and $41.2 million as of August 31, 2016. The aggregate consideration2019 and September 1, 2018, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets. Additionally, we record right of these acquisitions was preliminarily allocated as follows:
|
| | | |
| Consideration | |
| Cash paid, net of cash acquired | $ | 623.2 |
|
| Shares issued from Treasury Stock | 10.0 |
|
| Total Purchase Price | $ | 633.2 |
|
| | |
| Allocation | |
| Goodwill | $ | 381.5 |
|
| Intangible assets: | |
Customer-based1 | 102.3 |
|
Marketing-related2 | 42.3 |
|
Technology-based3 | 39.3 |
|
| | |
| Property and equipment | 63.1 |
|
| Other assets acquired | 120.5 |
|
| Deferred tax liabilities | (58.3 | ) |
| Other liabilities assumed | (57.5 | ) |
| | $ | 633.2 |
|
______________________________
(1) Customer-based intangibles have useful lives between 12 and 20 years, with a weighted average amortization period of approximately 17 years.
(2) Marketing-related intangibles are considered indefinite-lived.
(3) Technology-based intangibles have useful lives between five and 10 years, with a weighted average amortization period of approximately 8 years.
These amounts are deemedreturn assets for products expected to be provisional until disclosed otherwise,returned to our distribution centers, which are included within Prepayments and other current assets on the Consolidated Balance Sheets. Such assets totaled $13.9 million and $16.4 million as of August 31, 2019 and September 1, 2018, respectively.
We also maintain one-time or ongoing promotions with our customers, which may include rebate, sales incentive, marketing, and trade-promotion programs with certain customers that require us to estimate and accrue the Company continuesexpected costs of such programs. These arrangements may include volume rebate incentives, cooperative marketing programs, merchandising of our products, introductory marketing funds for new products, and other trade-promotion activities conducted by the customer. Costs associated with these programs are generally estimated based on the most likely amount expected to gather informationbe settled based on the context of the individual contract and are reflected within the Consolidated Statements of Comprehensive Income in accordance with ASC 606, which in most instances requires such costs to be recorded as reductions of revenue. Amounts due to our customers associated with these programs totaled $34.5 million and $43.9 million as of August 31, 2019 and September 1, 2018, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets.
Costs to obtain and fulfill contracts, such as sales commissions and shipping and handling activities, are short-term in nature and are expensed as incurred.
Nature of Goods and Services
Products
Approximately 95% of revenues for the periods presented were generated from short-term contracts with our customers to deliver tangible goods such as luminaires, lighting controls, controls for various building systems, power supplies, prismatic skylights, and drivers. We record revenue from these contracts when the customer obtains control of those goods. For sales designated free on board shipping point, control is transferred and revenue is recognized at the time of shipment. For sales designated free on board destination, customers take control and revenue is recognized when a product is delivered to the customer’s delivery site.
Professional Services
We collect fees associated with training, installation, and technical support services, primarily related to the identification and valuationset up of intangible and other acquired assets and liabilities. These amounts are expected to change asour lighting solutions. We recognize revenue for these one-time services at the Company finalizestime the allocation.service is performed. We also sell certain service-type warranties that extend coverages for products beyond their base warranties. We account for
Proforma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to the Company's consolidated results of operations. The acquisitions represented less than 10% of net sales and pre-tax income on a proforma basis (assuming acquisition transactions were completed as of September 1, 2014) for the years ended August 31, 2016 and 2015 (unaudited).
Goodwill recognized in these acquisitions is comprised primarily of expected benefits related to expanding the Company’s solutions portfolio, including software and services, to provide a host of economic benefits resulting from data analytics that enables the Internet of Things (IoT) and supports the advancement of smart buildings, smart cities, and the smart grid as well as the trained workforce acquired with these businesses and expected synergies from combining the operations of the Company and the acquired businesses. Goodwill from these acquisitions totaling $6.0 is tax deductible.
Fiscal 2015 Acquisition and Investment
On April 15, 2015, using cash on hand, the Company acquired substantially all of the assets and assumed certain liabilities of ByteLight, Inc. (“ByteLight”), a provider of indoor location software for light-emitting diode (“LED”) lighting. The operating results of ByteLight have been included in the Company’s consolidated financial statements since the date of acquisition. Management finalized the acquisition accounting for ByteLight during the fourth quarter of fiscal 2015 and the amounts are reflected in the Consolidated Balance Sheets.
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| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
In addition, during fiscal 2015,service-type warranties as distinct performance obligations and recognize revenue for these contracts ratably over the Company madelife of the additional warranty period. Claims related to service-type warranties are expensed as incurred.
Software
Software sales include licenses for software, data usage fees, and software as a strategic, non-controlling investmentservice arrangements, which generally extend for one year or less. We recognize revenue for software based on the contractual rights provided to a customer, which typically results in a company specializing in light sensory networks. This investmentthe recognition of revenue ratably over the contractual service period.
Shipping and Handling Activities
We account for all shipping and handling activities as activities to fulfill the promise to transfer products to our customers. As such, we do not consider shipping and handling activities to be separate performance obligations, and we expense these costs as incurred.
Contracts with Multiple Performance Obligations
A small portion (approximately 5% for the periods presented) of our revenue was derived from the combination of any or all of our products, professional services, and software licenses. Significant judgment may be required to determine which performance obligations are distinct and should be accounted for separately. We allocate the expected consideration to be collected to each distinct performance obligation based on its standalone selling price. Standalone selling price is generally determined using a cost plus margin valuation when no observable input is available. The amount of consideration allocated to each performance obligation is recognized as revenue in accordance with the cost methodtiming for products, professional services, and issoftware as described above.
Contract Balances
Our rights related to collections from customers are unconditional and are reflected in Other long term assetswithin Accounts receivable on the Consolidated Balance Sheets. We do not have any other significant contract assets. Contract liabilities arise when we receive cash or an unconditional right to collect cash prior to the transfer of control of goods or services.
The amount of transaction price from contracts with customers allocated to our contract liabilities as of August 31, 2019 and September 1, 2018 consists of the following (in millions):
|
| | | | | | | |
| | August 31, 2019 | | September 1, 2018 |
| Current deferred revenues | $ | 4.7 |
| | $ | 4.8 |
|
| Non-current deferred revenues | 46.4 |
| | 35.0 |
|
Current deferred revenues primarily consist of customer prepayments, software licenses, and to a lesser extent professional service and service-type warranty fees collected prior to performing the related service. Current deferred revenues are included within Other current liabilities on the Consolidated Balance Sheets. These services are expected to be performed within one year. Non-current deferred revenues primarily consist of long-term service-type warranties, which are typically recognized ratably as revenue between five and ten years from the date of sale, and are included within Other long-term liabilities on the Consolidated Balance Sheets. Revenue recognized from beginning balances of contract liabilities during the year ended August 31, 2019 totaled $4.1 million.
Unsatisfied performance obligations that do not represent contract liabilities consist primarily of orders for physical goods that have not yet been shipped. This backlog of orders at any given time is affected by various factors, including seasonality, cancellations, sales promotions, production cycle times, and the timing of receipt and shipment of orders, which are usually shipped within a few weeks of order receipt. Accordingly, a comparison of backlog orders from period to period is not necessarily meaningful and may not be indicative of future shipments.
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Disaggregated Revenues
Our lighting and building management solutions are sold primarily through independent sales agents who cover specific geographic areas and market channels, by internal sales representatives, through consumer retail channels, and directly to large corporate accounts. The following table shows revenue from contracts with customers by sales channel for the year ended August 31, 2019(in millions):
|
| | | |
| | Year Ended August 31, 2019 |
| Independent sales network | $ | 2,516.4 |
|
| Direct sales network | 381.1 |
|
| Retail sales | 270.2 |
|
| Corporate accounts | 318.0 |
|
| Other | 187.0 |
|
| Total | $ | 3,672.7 |
|
5.Note 6 — Fair Value Measurements
The Company determines aWe determine fair value measurementmeasurements based on the assumptions a market participant would use in pricing an asset or liability. ASC Topic 820, Fair Value Measurements and Disclosures (" (“ASC 820"820”), establishes a three level hierarchy making a distinction between market participant assumptions based on (i) unadjusted quoted prices for identical assets or liabilities in an active market (Level 1), (ii) quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (Level 2), and (iii) prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (Level 3).
The following table presents information about assetsOur cash and liabilitiescash equivalents (Level 1), which are required to be carried at fair value and measured on a recurring basis, were $461.0 million and $129.1 million as of August 31, 20162019 and 2015:2018, respectively.
|
| | | | | | | | | | | | | | | |
| | Fair Value Measurements as of: |
| | August 31, 2016 | | August 31, 2015 |
| | Level 1 | | Total Fair Value | | Level 1 | | Total Fair Value |
| Assets: | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 413.2 |
| | $ | 413.2 |
| | $ | 756.8 |
| | $ | 756.8 |
|
| Other | 0.5 |
| | 0.5 |
| | 0.5 |
| | 0.5 |
|
| Liabilities: | | | | | |
| | |
| Other | $ | 0.5 |
| | $ | 0.5 |
| | $ | 0.5 |
| | $ | 0.5 |
|
The Company utilizesWe utilize valuation methodologies to determine the fair values of itsour financial assets and liabilities in conformity with the concepts of “exit price” and the fair value hierarchy as prescribed in ASC 820. All valuation methods and assumptions are validated at least quarterly to ensure the accuracy and relevance of the fair values. There were no material changes to the valuation methods or assumptions used to determine fair values during the current period.
The Company usedWe use quoted market prices to determine the fair value of Level 1 assets and liabilities. No transfers between the levels of the fair value hierarchy occurred during the current fiscal period. In the event of a transfer in or out of a level within the fair value hierarchy, the transfers would be recognized on the date of occurrence.
Disclosures of fair value information about financial instruments (whether or not recognized in the balance sheet), for which it is practicable to estimate that value, are required each reporting period in addition to any financial instruments carried at fair value on a recurring basis as prescribed by ASC Topic 825, Financial Instruments (“ASC 825”). In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
The carrying values and estimated fair values of certain of the Company’s financial instruments were as follows at August 31, 20162019 and 2015:2018 (in millions):
|
| | | | | | | | | | | | | | | |
| | August 31, 2019 | | August 31, 2018 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Senior unsecured public notes, net of unamortized discount and deferred costs | $ | 349.9 |
| | $ | 352.7 |
| | $ | 349.5 |
| | $ | 361.7 |
|
| Industrial revenue bond | 4.0 |
| | 4.0 |
| | 4.0 |
| | 4.0 |
|
| Bank loans | 2.7 |
| | 2.9 |
| | 3.3 |
| | 3.3 |
|
|
| | | | | | | | | | | | | | | |
| | August 31, 2016 | | August 31, 2015 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Assets: | | | | | | | |
| Investment in noncontrolling affiliate | $ | 8.0 |
| | $ | 14.4 |
| | $ | 8.0 |
| | $ | 8.0 |
|
| Liabilities: | | | | | |
| | |
|
| Senior unsecured public notes, net of unamortized discount and deferred costs | $ | 348.7 |
| | $ | 388.8 |
| | $ | 348.4 |
| | $ | 386.4 |
|
| Industrial revenue bond | 4.0 |
| | 4.0 |
| | 4.0 |
| | 4.0 |
|
| Bank Loans | 2.5 |
| | 2.6 |
| | — |
| | — |
|
Investment in noncontrolling affiliate represents a strategic investment accounted for using the cost method. The Company based the fair value of the investment on an offer by a third party to purchase the business. The sale transaction subsequently closed in October 2016. (Level 3).
The senior unsecured public notes are carried at the outstanding balance, includingnet of unamortized bond discountsdiscount and deferred costs, as of the end of the reporting period. Fair value is estimated based on discounted future cash flows using rates currently available for debt of similar terms and maturity (Level 2).
The industrial revenue bond is carried at the outstanding balance as of the end of the reporting period. The industrial revenue bond is a tax-exempt, variable-rate instrument that resets on a weekly basis; therefore, the Company estimateswe estimate that the
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
face amount of the bond approximates fair value as of August 31, 20162019 based on bonds of similar terms and maturity (Level 2).
The bank loans are carried at the outstanding balance as of the end of the reporting period. Fair value is estimateestimated based on discounted future cash flows using rates currently available for debt of similar terms and maturity (Level 2).
ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value to the Company.us. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In evaluating the Company’sour management of liquidity and other risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.
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|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 7 — (Continued) |
6. Pension and Defined Contribution Plans
Company-sponsored Pension Plans
The Company hasWe have several pension plans, both qualified and non-qualified, covering certain hourly and salaried employees. Benefits paid under these plans are based generally on employees’ years of service and/or compensation during the final years of employment. The Company makesWe make at least the minimum annual contributions to the plans to the extent indicated by actuarial valuations and statutory requirements. Plan assets are invested primarily in equity and fixed income securities. During fiscal 2019, we recognized an actuarial gain of $3.4 million as well as $0.4 million in net periodic pension cost related to the early retirement of one participant within our non-qualified domestic plans.
The following tables reflect the status of the Company’s domestic (U.S.-based) and international pension plans at August 31, 2016 and 2015:
|
| | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | August 31, | | August 31, |
| | 2016 | | 2015 | | 2016 | | 2015 |
| Change in Benefit Obligation: | |
| | |
| | |
| | |
|
| Benefit obligation at beginning of year | $ | 192.2 |
| | $ | 171.5 |
| | $ | 49.8 |
| | $ | 52.5 |
|
| Service cost | 3.6 |
| | 3.1 |
| | 0.1 |
| | 0.1 |
|
| Interest cost | 8.0 |
| | 6.8 |
| | 1.7 |
| | 1.8 |
|
| Amendments | — |
| | 10.5 |
| | — |
| | — |
|
| Actuarial loss | 27.5 |
| | 7.6 |
| | 17.9 |
| | 0.5 |
|
| Benefits paid | (8.3 | ) | | (7.3 | ) | | (3.6 | ) | | (1.0 | ) |
| Other | — |
| | — |
| | (8.6 | ) | | (4.1 | ) |
| Benefit obligation at end of year | 223.0 |
| | 192.2 |
| | 57.3 |
| | 49.8 |
|
| Change in Plan Assets: | |
| | |
| | |
| | |
|
| Fair value of plan assets at beginning of year | $ | 123.9 |
| | $ | 122.5 |
| | $ | 32.6 |
| | $ | 35.2 |
|
| Actual return on plan assets | 7.9 |
| | 0.7 |
| | 5.2 |
| | (0.1 | ) |
| Employer contributions | 5.3 |
| | 8.0 |
| | 1.1 |
| | 1.1 |
|
| Benefits paid | (8.3 | ) | | (7.3 | ) | | (3.6 | ) | | (1.0 | ) |
| Other | — |
| | — |
| | (5.0 | ) | | (2.6 | ) |
| Fair value of plan assets at end of year | 128.8 |
| | 123.9 |
| | 30.3 |
| | 32.6 |
|
| Funded status at the end of year | $ | (94.2 | ) | | $ | (68.3 | ) | | $ | (27.0 | ) | | $ | (17.2 | ) |
| Amounts Recognized in the Consolidated Balance Sheets Consist of: | |
| | |
| | |
| | |
|
| Current liabilities | $ | (1.3 | ) | | $ | (1.5 | ) | | $ | — |
| | $ | (0.1 | ) |
| Non-current liabilities | (92.9 | ) | | (66.8 | ) | | (27.0 | ) | | (17.1 | ) |
| Net amount recognized in Consolidated Balance Sheets | $ | (94.2 | ) | | $ | (68.3 | ) | | $ | (27.0 | ) | | $ | (17.2 | ) |
| Accumulated Benefit Obligation | $ | 220.4 |
| | $ | 189.2 |
| | $ | 57.3 |
| | $ | 49.8 |
|
| Pre-tax amounts in accumulated other comprehensive income: | |
| | |
| | |
| | |
|
| Prior service cost | $ | (10.8 | ) | | $ | (13.9 | ) | | $ | — |
| | $ | — |
|
| Net actuarial loss | (96.9 | ) | | (71.1 | ) | | (28.2 | ) | | (19.4 | ) |
| Amounts in accumulated other comprehensive income | $ | (107.7 | ) | | $ | (85.0 | ) | | $ | (28.2 | ) | | $ | (19.4 | ) |
| Estimated amounts that will be amortized from accumulated comprehensive income over the next fiscal year: | |
| | |
| | |
| | |
|
| Prior service cost | $ | 3.1 |
| | $ | 3.1 |
| | $ | — |
| | $ | — |
|
| Net actuarial loss | 5.3 |
| | 3.1 |
| | 3.7 |
| | 2.9 |
|
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
During fiscal 2015, the domestic plans recognized $10.5 related to the following amendments to the Acuity Brands, Inc. 2002 Supplemental Executive Retirement Plan:
An incremental benefit was added for participants who were actively employed by the Company on June 26, 2015 (or who first become a participant on or after June 26, 2015). The incremental benefit provides a monthly benefit for 180 months commencing at age 60 equal to 1.4% of the participant's "average annual compensation" multiplied by his years of credited service not to exceed 10 years, divided by 12. Participants may elect to receive the actuarial equivalent of the incremental benefit in the form of a lump sum cash payment.
The definitionfollowing tables reflect the status of actuarial equivalent (with respect to accrued benefits other than the participant’s vested accrued benefit asour domestic (U.S.-based) and international pension plans at August 31, 2019 and 2018 (in millions):
|
| | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | August 31, | | August 31, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Change in benefit obligation: | |
| | |
| | |
| | |
|
| Benefit obligation at beginning of year | $ | 203.2 |
| | $ | 215.5 |
| | $ | 45.5 |
| | $ | 53.5 |
|
| Service cost | 2.9 |
| | 2.7 |
| | 0.2 |
| | 0.2 |
|
| Interest cost | 7.7 |
| | 7.3 |
| | 1.3 |
| | 1.3 |
|
| Amendments | 11.4 |
| | — |
| | — |
| | — |
|
| Actuarial losses (gains) | 26.2 |
| | (14.3 | ) | | 3.2 |
| | (4.5 | ) |
| Settlement gain | (3.4 | ) | | — |
| | — |
| | — |
|
| Benefits paid | (8.8 | ) | | (8.0 | ) | | (2.6 | ) | | (5.5 | ) |
| Other | — |
| | — |
| | (3.0 | ) | | 0.5 |
|
| Benefit obligation at end of year | 239.2 |
| | 203.2 |
| | 44.6 |
| | 45.5 |
|
| Change in plan assets: | |
| | |
| | |
| | |
|
| Fair value of plan assets at beginning of year | $ | 149.4 |
| | $ | 136.8 |
| | $ | 30.9 |
| | $ | 34.1 |
|
| Actual return on plan assets | 9.0 |
| | 11.3 |
| | 3.1 |
| | 0.9 |
|
| Employer contributions | 5.3 |
| | 9.3 |
| | 1.2 |
| | 1.2 |
|
| Benefits paid | (12.2 | ) | | (8.0 | ) | | (2.6 | ) | | (5.5 | ) |
| Other | — |
| | — |
| | (1.9 | ) | | 0.2 |
|
| Fair value of plan assets at end of year | 151.5 |
| | 149.4 |
| | 30.7 |
| | 30.9 |
|
| Funded status at the end of year | $ | (87.7 | ) | | $ | (53.8 | ) | | $ | (13.9 | ) | | $ | (14.6 | ) |
| Amounts recognized in the consolidated balance sheets consist of: | |
| | |
| | |
| | |
|
| Non-current assets | $ | — |
| | $ | 1.6 |
| | $ | — |
| | $ | — |
|
| Current liabilities | (1.8 | ) | | (5.3 | ) | | (0.1 | ) | | (0.1 | ) |
| Non-current liabilities | (85.9 | ) | | (50.1 | ) | | (13.8 | ) | | (14.5 | ) |
| Net amount recognized in consolidated balance sheets | $ | (87.7 | ) | | $ | (53.8 | ) | | $ | (13.9 | ) | | $ | (14.6 | ) |
| Accumulated benefit obligation | $ | 239.2 |
| | $ | 202.7 |
| | $ | 44.6 |
| | $ | 45.5 |
|
| Pre-tax amounts in accumulated other comprehensive loss: | |
| | |
| | |
| | |
|
| Prior service cost | $ | (12.4 | ) | | $ | (4.6 | ) | | $ | — |
| | $ | — |
|
| Net actuarial loss | (83.4 | ) | | (58.8 | ) | | (13.0 | ) | | (12.9 | ) |
| Amounts in accumulated other comprehensive loss | $ | (95.8 | ) | | $ | (63.4 | ) | | $ | (13.0 | ) | | $ | (12.9 | ) |
| Pensions plans in which benefit obligation exceeds plan assets: | | | | | | | |
| Projected benefit obligation | $ | 239.2 |
| | $ | 119.2 |
| | $ | 44.6 |
| | $ | 45.5 |
|
| Accumulated benefit obligation | 239.2 |
| | 118.7 |
| | 44.6 |
| | 45.5 |
|
| Plan assets | 151.5 |
| | 63.8 |
| | 30.6 |
| | 30.9 |
|
| Pensions plans in which plan assets exceed benefit obligation: | | | | | | | |
| Projected benefit obligation | $ | — |
| | $ | 84.0 |
| | $ | — |
| | $ | — |
|
| Accumulated benefit obligation | — |
| | 84.0 |
| | — |
| | — |
|
| Plan assets | — |
| | 85.6 |
| | — |
| | — |
|
| Estimated amounts that will be amortized from accumulated comprehensive income over the next fiscal year: | |
| | |
| | |
| | |
|
| Prior service cost | $ | 4.0 |
| | $ | 3.1 |
| | $ | — |
| | $ | — |
|
| Net actuarial loss | $ | 4.1 |
| | $ | 2.9 |
| | $ | 1.4 |
| | $ | 1.5 |
|
Upon the occurrence of a Section 409A change in control event (as defined in the SERP), the SERP shall be terminated consistent with the requirements of Treasury Regulation section 1.409A-3(j)(4)(ix)(B), and the Company shall, within five (5) days of such an event, pay to each participant a lump sum cash payment equal to the lump sum actuarial equivalent of the participant’s accrued benefit as of such date.Components |
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Service cost of net periodic pension cost foris allocated between Cost of products sold and Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the nature of the employee's services. All other components of net periodic pension cost are included within Miscellaneous expense, net in the Consolidated Statements of Comprehensive Income. Net periodic pension cost during the fiscal years ended August 31, 2016, 2015, 2019, 2018, and 20142017 included the following:following components before tax (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Service cost | $ | 2.9 |
| | $ | 2.7 |
| | $ | 3.5 |
| | $ | 0.2 |
| | $ | 0.2 |
| | $ | 0.2 |
|
| Interest cost | 7.7 |
| | 7.3 |
| | 6.9 |
| | 1.3 |
| | 1.3 |
| | 1.1 |
|
| Expected return on plan assets | (10.5 | ) | | (10.2 | ) | | (9.4 | ) | | (1.9 | ) | | (2.2 | ) | | (1.9 | ) |
| Amortization of prior service cost | 3.5 |
| | 3.1 |
| | 3.1 |
| | — |
| | — |
| | — |
|
| Settlement | 0.4 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Recognized actuarial loss | 2.7 |
| | 4.5 |
| | 5.3 |
| | 1.4 |
| | 2.3 |
| | 3.6 |
|
| Net periodic pension cost | $ | 6.7 |
| | $ | 7.4 |
| | $ | 9.4 |
| | $ | 1.0 |
| | $ | 1.6 |
| | $ | 3.0 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| Service cost | $ | 3.6 |
| | $ | 3.1 |
| | $ | 2.4 |
| | $ | 0.1 |
| | $ | 0.1 |
| | $ | 0.1 |
|
| Interest cost | 8.0 |
| | 6.8 |
| | 7.0 |
| | 1.7 |
| | 1.8 |
| | 1.9 |
|
| Expected return on plan assets | (9.2 | ) | | (9.2 | ) | | (8.0 | ) | | (1.9 | ) | | (1.8 | ) | | (2.0 | ) |
| Amortization of prior service cost | 3.1 |
| | 1.4 |
| | 0.8 |
| | — |
| | — |
| | — |
|
| Settlement | — |
| | — |
| | — |
| | — |
| | — |
| | (0.1 | ) |
| Recognized actuarial loss | 3.0 |
| | 2.2 |
| | 2.0 |
| | 1.9 |
| | 1.9 |
| | 1.1 |
|
| Net periodic pension cost | $ | 8.5 |
| | $ | 4.3 |
| | $ | 4.2 |
| | $ | 1.8 |
| | $ | 2.0 |
| | $ | 1.0 |
|
Weighted average assumptions used in computing the benefit obligation are as follows:
| | | | Domestic Plans | | International Plans | Domestic Plans | | International Plans |
| | 2016 | | 2015 | | 2016 | | 2015 | 2019 | | 2018 | | 2019 | | 2018 |
| Discount rate | 3.2 | % | | 4.3 | % | | 2.1 | % | | 3.7 | % | 2.8 | % | | 3.9 | % | | 2.0 | % | | 2.9 | % |
| Rate of compensation increase | 5.5 | % | | 5.5 | % | | 2.8 | % | | 3.1 | % | 5.0 | % | | 5.5 | % | | 3.1 | % | | 3.1 | % |
Weighted average assumptions used in computing net periodic benefitpension cost are as follows:
|
| | | | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Discount rate | 3.9 | % | | 3.5 | % | | 3.2 | % | | 2.9 | % | | 2.5 | % | | 2.1 | % |
| Expected return on plan assets | 7.3 | % | | 7.5 | % | | 7.5 | % | | 6.5 | % | | 6.5 | % | | 6.5 | % |
| Rate of compensation increase | 5.5 | % | | 5.5 | % | | 5.5 | % | | 3.1 | % | | 3.1 | % | | 3.2 | % |
|
| | | | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| Discount rate | 4.3 | % | | 4.0 | % | | 4.8 | % | | 2.1 | % | | 3.6 | % | | 4.5 | % |
| Expected return on plan assets | 7.5 | % | | 7.5 | % | | 7.5 | % | | 6.5 | % | | 5.6 | % | | 6.2 | % |
| Rate of compensation increase | 5.5 | % | | 5.5 | % | | 5.5 | % | | 2.8 | % | | 3.1 | % | | 3.3 | % |
It is the Company’sour policy to adjust, on an annual basis, the discount rate used to determine the projected benefit obligation to approximate rates on high-quality, long-term obligations based on the Company’sour estimated benefit payments available as of the measurement date. The Company usesWe use a publicly published yield curve to assist in the development of itsour discount rates. The Company estimatesWe estimate that each 100 basis point increase in the discount rate would result in reducedreduce net periodic pension cost ofapproximately $1.4 million and approximately $1.2 and $1.6million for the domestic plans and international plans, respectively. The expected return on plan assets is derived primarily from a periodic study of long-term historical rates of return on the various asset classes included in the Company’sour targeted pension plan asset allocation. The Company
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
estimatesallocation as well as future expectations. We estimate that each 100 basis point reduction in the expected return on plan assets would result in additional net periodic pension cost of $1.3$1.5 million and $0.3 million for domestic plans and international plans, respectively. TheWe also evaluate the rate of compensation increase is also evaluatedannually and is adjusted by the Company,adjust if necessary, annually.necessary.
The Company’sOur investment objective for domestic plan assets is to earn a rate of return sufficient to match or exceed the long-term growth of the plans’ liabilities without subjecting plan assets to undue risk. The plan assets are invested primarily in high quality equity and debt securities. The Company conductsWe conduct a periodic strategic asset allocation study to form a basis for the allocation of pension assets between various asset categories. Specific allocation percentages are assigned to each asset category with minimum and maximum ranges established for each. The assets are then managed within these ranges. During fiscal 2016,2019, the U.S. targeted asset allocation was 55% equity securities, 40% fixed income securities, and 5% real estate securities. The Company’sOur investment objective for the international plan assets is also to add value by matching or exceeding the long-term growth of the plans’ liabilities. During fiscal 2016,2019, the international asset target allocation approximated 60%75% equity securities, 25%15% fixed income securities, and 10% multi-strategy funds, and 5% real estate securities.investments.
The Company’s
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Our pension plan asset allocation at August 31, 20162019 and 20152018 by asset category is as follows:
|
| | | | | | | | | | | |
| | % of Plan Assets |
| | Domestic Plans | | International Plans |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Equity securities | 53.3 | % | | 57.5 | % | | 73.0 | % | | 61.9 | % |
| Fixed income securities | 41.8 | % | | 37.8 | % | | 17.1 | % | | 25.5 | % |
| Multi-strategy investments | — | % | | — | % | | 9.9 | % | | 12.6 | % |
| Real estate | 4.9 | % | | 4.7 | % | | — | % | | — | % |
| Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
|
| | | | | | | | | | | |
| | % of Plan Assets |
| | Domestic Plans | | International Plans |
| | 2016 | | 2015 | | 2016 | | 2015 |
| Equity securities | 55.4 | % | | 55.8 | % | | 61.1 | % | | 64.1 | % |
| Fixed income securities | 39.1 | % | | 39.1 | % | | 25.0 | % | | 21.5 | % |
| Multi-strategy investments | — | % | | — | % | | 8.9 | % | | 9.5 | % |
| Real estate | 5.5 | % | | 5.1 | % | | 5.0 | % | | 4.9 | % |
| Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
The Company’sOur pension plan assets are stated at fair value frombased on quoted market prices in an active market, quoted redemption values, or estimates based on reasonable assumptions as of the most recent measurement period. See the Fair Value Measurements footnote for a description of the fair value guidance.
No transfers between the levels of the fair value hierarchy occurred during the current fiscal period. In the event of a transfer in or out of a level within the fair value hierarchy, the transfers would be recognized on the date of occurrence. Certain pension assets valued at net asset value (“NAV”) per share as a practical expedient are excluded from the fair value hierarchy. Investments in pension plan assets are described in further detail below.
Short-term Fixed Income Investments
Short-term investments consist of money market funds, which are valued at the daily closing price as reported by the relevant fund (Level 1).
Mutual Funds
Mutual funds held by the domestic plans are open-end mutual funds that are registered with the Securities and Exchange Commission (“SEC”) and seek to either replicate or outperform a related index. These funds are required to publish their daily net asset value and to transact at that price. The mutual funds held by the domestic plans are deemed to be actively traded (Level 1).
Collective Trust
The collective trust seeks to outperform the overall small-cap stock market and is comprised of small cap equity securities with quoted prices in active markets for identical investments. The value of this fund is calculated on each business day by dividing the total value of assets, less liabilities, by the number of units of each class outstanding but is not published (Level 2).
Fixed Income Investments
The fixed interest fund seeks to maximize total return by investing primarily in a diversified portfolio of intermediate and long-term debt securities and is valued using the NAV of units of a management investment company’s trust. The NAV, as provided by the fund's trustee, is used as a practical expedient to estimate fair value. As such, these funds are excluded from the fair value hierarchy. The NAV is based on the fair value of the underlying investments held by the fund less the fund's liabilities.
Real Estate Fund
The real estate fund invests primarily in commercial real estate and includes mortgage loans that are backed by the associated property's investment objective. The fund seeks real estate returns, risk, and liquidity appropriate to a core fund. The fund also seeks to provide current income with the potential for long-term capital appreciation. This investment is valued based on the NAV per share, without further adjustment. The NAV, as provided by the fund's trustee, is used as a practical expedient to estimate fair value and is therefore excluded from the fair value hierarchy. NAV is based on the fair value of the underlying investments. Investors may request to redeem all or any portion of their shares on a quarterly basis. Each investor must provide a written redemption request at least sixty days prior to the end of the quarter for which the request is to be effective. If insufficient funds are available to honor all redemption requests at
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
any point in time, available funds will be allocated pro-rata based on the total number of shares held by each investor. All decisions regarding whether to honor redemption requests are made by the fund’s board of directors.
International Plan Investments
The international plans' assets consist primarily of funds invested in equity securities, multi-strategy investments, and fixed income investments. These securities are calculated using the values of the underlying holdings (i.e. significant observable inputs) but do not have actively quoted market prices (Level 2). The short-term fixed income investments represents cash and cash equivalents held by the funds at fiscal year end (Level 1).
The following tables present the fair value of the domestic pension plan assets by major category as of August 31, 20162019 and 2015:2018 (in millions):
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements |
| | Fair Value as of | | Quoted Market Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| Assets | August 31, 2016 | | (Level 1) | | (Level 2) | | (Level 3) |
| Mutual Funds: | |
| | |
| | |
| | |
|
| Domestic large cap equity fund | $ | 46.5 |
| | $ | 46.5 |
| | $ | — |
| | $ | — |
|
| Foreign equity fund | 12.3 |
| | 12.3 |
| | — |
| | — |
|
| Real Estate Fund | 7.1 |
| | — |
| | — |
| | 7.1 |
|
| Short-Term Fixed Income Investments | 6.2 |
| | 6.2 |
| | — |
| | — |
|
| Fixed-Income Investments | 44.2 |
| | — |
| | 44.2 |
| | — |
|
| Collective Trust: Domestic small cap equities | 12.5 |
| | — |
| | 12.5 |
| | — |
|
| | $ | 128.8 |
| | |
| | |
| | |
|
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements |
| | Fair Value as of | | Quoted Market Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| | August 31, 2019 | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets included in the fair value hierarchy: | | | | | | | |
| Mutual funds: | |
| | |
| | |
| | |
|
| Domestic large cap equity fund | $ | 45.6 |
| | $ | 45.6 |
| | $ | — |
| | $ | — |
|
| Foreign equity fund | 20.5 |
| | 20.5 |
| | — |
| | — |
|
| Collective trust: Domestic small cap equities | 14.6 |
| | — |
| | 14.6 |
| | — |
|
| Short-term fixed income investments | 6.0 |
| | 6.0 |
| | — |
| | — |
|
| Total assets in the fair value hierarchy | 86.7 |
|
|
|
|
|
|
|
|
|
|
| Assets calculated at net asset value: | | | | | | | |
| Fixed-income investments | 57.4 |
| | | | | | |
| Real estate fund | 7.4 |
| | | | | | |
| Total assets at net asset value | 64.8 |
| | | | | | |
| Total assets at fair value | $ | 151.5 |
| | |
| | |
| | |
|
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements |
| | Fair Value as of | | Quoted Market Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| | August 31, 2018 | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets included in the fair value hierarchy: | | | | | | | |
| Mutual funds: | |
| | |
| | |
| | |
|
| Domestic large cap equity fund | $ | 48.3 |
| | $ | 48.3 |
| | $ | — |
| | $ | — |
|
| Foreign equity fund | 20.8 |
| | 20.8 |
| | — |
| | — |
|
| Collective trust: Domestic small cap equities | 16.8 |
| | — |
| | 16.8 |
| | — |
|
| Short-term fixed income investments | 7.6 |
| | 7.6 |
| | — |
| | — |
|
| Total assets in the fair value hierarchy | 93.5 |
|
|
|
|
|
|
|
|
|
|
| Assets calculated at net asset value: | | | | | | | |
| Fixed-income investments | 48.9 |
| | | | | | |
| Real estate fund | 7.0 |
| | | | | | |
| Total assets at net asset value | 55.9 |
| | | | | | |
| Total assets at fair value | $ | 149.4 |
| | |
| | |
| | |
|
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements |
| | Fair Value as of | | Quoted Market Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| Assets | August 31, 2015 | | (Level 1) | | (Level 2) | | (Level 3) |
| Mutual Funds: | |
| | |
| | |
| | |
|
| Domestic large cap equity fund | $ | 44.9 |
| | $ | 44.9 |
| | $ | — |
| | $ | — |
|
| Foreign equity fund | 11.9 |
| | 11.9 |
| | — |
| | — |
|
| Real Estate Fund | 6.3 |
| | — |
| | — |
| | 6.3 |
|
| Short-Term Fixed Income Investments | 6.6 |
| | 6.6 |
| | — |
| | — |
|
| Fixed-Income Investments | 41.8 |
| | — |
| | 41.8 |
| | — |
|
| Collective Trust: Domestic small cap equities | 12.4 |
| | — |
| | 12.4 |
| | — |
|
| | $ | 123.9 |
| | |
| | |
| | |
|
The following tables present the fair value of the international pension plan assets by major category as of August 31, 20162019 and 2015:2018 (in millions):
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements |
| | Fair Value as of | | Quoted Market Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| Assets | August 31, 2016 | | (Level 1) | | (Level 2) | | (Level 3) |
| Equity Securities | $ | 18.5 |
| | $ | — |
| | $ | 18.5 |
| | $ | — |
|
| Short-Term Investments | 0.5 |
| | 0.5 |
| | — |
| | — |
|
| Real Estate Fund | 1.5 |
| | — |
| | — |
| | 1.5 |
|
| Multi-Strategy Investments | 2.7 |
| | — |
| | 2.7 |
| | — |
|
| Fixed-Income Investments | 7.1 |
| | — |
| | 7.1 |
| | — |
|
| | $ | 30.3 |
| | |
| | |
| | |
|
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements |
| | Fair Value as of | | Quoted Market Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| | August 31, 2019 | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets included in the fair value hierarchy: | | | | | | | |
| Equity securities | $ | 22.4 |
| | $ | — |
| | $ | 22.4 |
| | $ | — |
|
| Short-term fixed income investments | 0.3 |
| | 0.3 |
| | — |
| | — |
|
| Multi-strategy investments | 3.0 |
| | — |
| | 3.0 |
| | — |
|
| Fixed-income investments | 5.0 |
| | — |
| | 5.0 |
| | — |
|
| Total assets at fair value | $ | 30.7 |
| | |
| | |
| | |
|
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements |
| | Fair Value as of | | Quoted Market Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| | August 31, 2018 | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets included in the fair value hierarchy: | | | | | | | |
| Equity securities | $ | 19.1 |
| | $ | — |
| | $ | 19.1 |
| | $ | — |
|
| Short-term fixed income investments | 0.3 |
| | 0.3 |
| | — |
| | — |
|
| Multi-strategy investments | 3.9 |
| | — |
| | 3.9 |
| | — |
|
| Fixed-income investments | 7.6 |
| | — |
| | 7.6 |
| | — |
|
| Total assets at fair value | $ | 30.9 |
| | |
| | |
| | |
|
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements |
| | Fair Value as of | | Quoted Market Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| Assets | August 31, 2015 | | (Level 1) | | (Level 2) | | (Level 3) |
| Equity Securities | $ | 20.9 |
| | $ | — |
| | $ | 20.9 |
| | $ | — |
|
| Real Estate Fund | 1.6 |
| | — |
| | — |
| | 1.6 |
|
| Multi-Strategy Investments | 3.1 |
| | — |
| | 3.1 |
| | — |
|
| Fixed-Income Investments | 7.0 |
| | — |
| | 7.0 |
| | — |
|
| | $ | 32.6 |
| | |
| | |
| | |
|
Publicly-traded securities are valued at the last reported sales price on the last business day of the period. Investments traded in the over-the-counter market and listed securities for which no sale was reported on the last day of the period are valued at the last reported bid price.
Investments in real estate are stated at estimated fair values based on the fund management’s valuations and upon appraisal reports prepared periodically by independent real estate appraisers. These investments are classified as Level 3 assets within the fair value hierarchy. The purpose of the appraisal is to estimate the fair value of the real estate as of a specific date based on the most probable price for which the appraised real estate will sell in a competitive market under all conditions requisite to a fair sale. Estimated fair value is based on (i) discounted cash flows using certain market assumptions, including holding period, discount rates, capitalization rates, rent and expense growth rates, future capital expenditures and the ultimate sale of the property at the end of the holding period; (ii) direct capitalization method; or (iii) comparable sales method.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
The tables below present a rollforward of the domestic and international pension plans’ Level 3 assets for the years ended August 31, 2016 and 2015:
|
| | | | | | | |
| | Domestic Real Estate Fund |
| | Years Ended August 31, |
| | 2016 | | 2015 |
| Balance, beginning of year | $ | 6.3 |
| | $ | 5.6 |
|
| Net unrealized gain relating to instruments still held at the reporting date | 0.5 |
| | 0.5 |
|
| Shares purchased, including from dividend reinvestment | 0.3 |
| | 0.2 |
|
| Balance, end of year | $ | 7.1 |
| | $ | 6.3 |
|
|
| | | | | | | |
| | International Real Estate Fund |
| | Years Ended August 31, |
| | 2016 | | 2015 |
| Balance, beginning of year | $ | 1.6 |
| | $ | 1.7 |
|
| Net unrealized loss relating to instruments still held at the reporting date | (0.1 | ) | | (0.1 | ) |
| Balance, end of year | $ | 1.5 |
| | $ | 1.6 |
|
The Company expectsWe expect to contribute approximately $2.3$3.6 million and $1.0 million during fiscal 20172020 to itsour domestic qualified plans and international defined benefit plans, respectively. These amounts are based on the total contributions required during fiscal 20172020 to satisfy current legal minimum funding requirements for qualified plans and estimated benefit payments for non-qualified plans.
Benefit payments are made primarily from funded benefit plan trusts. Benefit payments are expected to be paid as follows for the years ending August 31:31 (in millions):
|
| | | | | | | |
| | Domestic Plans | | International Plans |
| 2020 | $ | 9.5 |
| | $ | 1.0 |
|
| 2021 | 9.3 |
| | 1.0 |
|
| 2022 | 12.5 |
| | 1.0 |
|
| 2023 | 24.2 |
| | 1.1 |
|
| 2024 | 17.8 |
| | 1.1 |
|
| 2025-2029 | 66.8 |
| | 6.3 |
|
|
| | | | | | | |
| | Domestic Plans | | International Plans |
| 2017 | $ | 7.9 |
| | $ | 3.3 |
|
| 2018 | 8.1 |
| | 3.4 |
|
| 2019 | 8.3 |
| | 3.5 |
|
| 2020 | 8.5 |
| | 3.6 |
|
| 2021 | 11.9 |
| | 3.7 |
|
| 2022-2026 | 69.0 |
| | 20.0 |
|
Multi-employer Pension Plans
The Company contributesWe contribute to three2 multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of itsour union-represented employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be shared by the remaining participating employers.
If a participating employer chooses to stop participating in some of its multi-employer plans, the employer may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
The Company’sOur contributions to these plans were $0.7, $0.5 and $0.4million for the years ended August 31, 2016, 2015,2019, 2018, and 2014,2017, respectively. During fiscal 2016 as a result of closing a facility, the Company withdrew from one of these multi-employer pension plans and incurred a withdrawal liability of $3.9.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
Defined Contribution Plans
The CompanyWe also hashave defined contribution plans to which both employees and the Companywe make contributions. TheOur cost to the Company for these plans was $6.9, $5.6,$8.1 million, $8.0 million, and $5.3$8.0 million for the years ended August 31, 2016, 2015,2019, 2018, and 2014,2017, respectively. Employer matching amounts are allocated in accordance with the participants’ investment elections for elective deferrals. At August 31, 2016,2019, assets of the domestic defined contribution plans included shares of the Company’sour common stock with a market value of approximately $22.3,$7.4 million, which represented approximately 7.3%2.0% of the total fair market value of the assets in the Company’sour domestic defined contribution plans.
7.Note 8 — Debt and Lines of Credit
Debt
The Company’sOur debt at August 31, 20162019 and 20152018 consisted of the following:following (in millions):
|
| | | | | | | |
| | August 31, |
| | 2019 | | 2018 |
| Senior unsecured public notes due December 2019, principal | $ | 350.0 |
| | $ | 350.0 |
|
| Senior unsecured public notes due December 2019, unamortized discount and deferred costs | (0.1 | ) | | (0.5 | ) |
| Industrial revenue bond due June 2021 | 4.0 |
| | 4.0 |
|
| Bank loans | 2.7 |
| | 3.3 |
|
| Total debt outstanding, net of unamortized discount and deferred costs | $ | 356.6 |
| | $ | 356.8 |
|
|
| | | | | | | |
| | August 31, |
| | 2016 | | 2015 |
| Senior unsecured public notes due December 2019, principal | $ | 350.0 |
| | $ | 350.0 |
|
| Senior unsecured public notes due December 2019, unamortized discount and deferred costs | (1.3 | ) | | (1.6 | ) |
| Industrial revenue bond due 2021 | 4.0 |
| | 4.0 |
|
| Bank loans | 2.5 |
| | — |
|
| Total debt outstanding | $ | 355.2 |
| | $ | 352.4 |
|
Future principal payments of long-term debt are $0.2,$350.3 million, $4.4 million, $0.4 million, $0.4 million, $0.3 $0.3, $350.3, $4.3,million, and $1.1$0.9 million in fiscal 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, and after 2021,2024, respectively.
Long-term Debt
On December 1, 2009, the Companywe announced a private offering by ABL, Acuity Brands’ wholly-owned principal operating subsidiary, of $350.0 million aggregate principal amount of senior unsecured notes due in fiscal 2020December 2019 (the “Notes”“Unsecured Notes”). The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands and ABL IP Holding LLC (“ABL IP Holding”,Holding,” and, together with Acuity Brands, the “Guarantors”), a wholly-owned subsidiary of Acuity Brands. The Unsecured Notes are senior unsecured obligations of ABL and rank equally in right of payment with all of ABL’s existing and future senior unsecured indebtedness. The guarantees of Acuity Brands and ABL IP Holding are senior unsecured obligations of Acuity Brands and ABL IP Holding and rank equally in right of payment with their other senior unsecured indebtedness. The Unsecured Notes bear interest at a rate of 6% per annum and were issued at a price equal to 99.797% of their face value and for a term of 10 years. Interest on the Unsecured Notes is payable semi-annually on June 15 and December 15. Additionally, the Companywe capitalized $3.1 million of deferred issuance costs related to the Unsecured Notes that are being amortized over the 10-year term of the Unsecured Notes.
In accordance with the registration rights agreement by and between ABL and the Guarantors and the initial purchasers of the Unsecured Notes, ABL and the Guarantors filed a registration statement with the SEC for an offer to exchange the Notes for SEC-registered notes with substantially identical terms. The registration became effective on August 17, 2010, and all of the Unsecured Notes were exchanged.
The $4.0 industrial revenue bond matures in 2021. The interest rate on the $4.0 bond was approximately 0.7% at August 31, 2016 and 0.1% at August 31, 2015.
The Company also had $2.5 outstanding under fixed-rate bank loans executed during fiscal 2016. These loans have interest rates between 0.8% and 2.0% and mature over seven to 12 years, subject to monthly or quarterly repayment schedules.
Lines of Credit
On August 27, 2014, the Company executed a $250.0 revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility replaced the Company’s prior $250.0 revolving credit facility (the “prior facility”), which was scheduled to mature on January 31, 2017. The Revolving Credit Facility will mature and all amounts outstanding will be due and payable on August 27, 2019.
The Revolving Credit Facility contains financial covenants, including a minimum interest coverage ratio (“Minimum Interest Coverage Ratio”) and a leverage ratio (“Maximum Leverage Ratio”) of total indebtedness to EBITDA (earnings
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
Although the Unsecured Notes will mature within one year from August 31, 2019, we have the ability and intent to refinance these borrowings using availability under our term loan facility described below, subject to satisfying the applicable conditions precedent. Currently, we plan to refinance the Unsecured Notes in full at maturity with borrowings under the term loan facility, of which $341.2 million of the current carrying value of the Unsecured Notes would be due more than one year from the anticipated refinancing date. As such, this amount is reflected within Long-term debt on the Consolidated Balance Sheets as of August 31, 2019.
We also had $4.0 million of tax-exempt industrial revenue bonds that are scheduled to mature in June 2021 outstanding at August 31, 2019. The interest rate on the $4.0 million bonds was approximately 1.7% at August 31, 2019 and 2018. Additionally, we had $2.7 million outstanding under fixed-rate bank loans. These loans have interest rates between 0.8% and 2.0% and mature between December 2022 and February 2028, subject to monthly or quarterly repayment schedules.
Lines of Credit
On June 29, 2018, we entered into a credit agreement (“Credit Agreement”) with a syndicate of banks that provides us with a $400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) and a $400.0 million unsecured delayed draw term loan facility (“Term Loan Facility”). We had 0 borrowings outstanding under the Revolving Credit Facility or Term Loan Facility as of August 31, 2019 or 2018.
Generally, amounts outstanding under the Revolving Credit Facility allow for borrowings to bear interest at either the Eurocurrency Rate or the base rate at our option, plus an applicable margin. Eurocurrency Rate advances can be denominated in a variety of currencies, including U.S. Dollars, and amounts outstanding bear interest at a periodic fixed rate equal to the London Inter-Bank Offered Rate ("LIBOR") for the applicable currency plus an applicable margin. The Eurocurrency applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 1.000% to 1.375% Base rate advances bear interest at an alternate base rate plus an applicable margin. The base rate applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.0% to 0.375%. The Term Loan Facility allows for borrowings to be drawn over a one-year period ending December 31, 2019, utilizing up to four separate installments, which are U.S. dollar denominated. Borrowings under the Term Loan Facility will amortize in equal quarterly installments of 2.5% per year in year one, 2.5% per year in year two, 5.0% per year in year three, 5.0% per year in year four, and 7.5% per year in year five. Any remaining borrowings under the Term Loan Facility are due and payable in full on June 29, 2023. The Term Loan Facility allows for borrowings to bear interest at either a Eurocurrency Rate or the base rate, at our option, in each case plus an applicable margin. Eurocurrency Rate advances can be denominated in a variety of currencies, including U.S. Dollars, and amounts outstanding bear interest at a periodic fixed rate equal to the LIBOR for the applicable currency plus an applicable margin. The Eurocurrency applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.875% to 1.250%. Base Rate advances bear interest at an alternate base rate plus an applicable margin. The base rate applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.0% to 0.25%.
We are required to pay certain fees in connection with the Credit Agreement, including administrative service fees and annual facility fees. The annual facility fee is payable quarterly, in arrears, and is determined by our leverage ratio as defined in the Credit Agreement. The facility fee ranges from 0.125% to 0.250% of the aggregate $800 million commitment of the lenders under the Credit Agreement. The Credit Agreement contains financial covenants, including a minimum interest expense coverage ratio (“Minimum Interest Expense Coverage Ratio”) and a leverage ratio (“Maximum Leverage Ratio”) of total indebtedness to earnings before interest, taxes,tax, depreciation, and amortization expense)(“EBITDA”), as such terms are defined in the Revolving Credit Facility agreement.Agreement. These ratios are computed at the end of each fiscal quarter for the most recent 12-month period. The Revolving Credit FacilityAgreement generally allows for a Minimum Interest Expense Coverage Ratio of 2.50 and a Maximum Leverage Ratio of 3.50, and a Minimum Interest Coverage Ratio of 2.50, subject to certain conditions, as such terms are defined in the financing agreement. Generally, amounts outstanding under the Revolving Credit Facility bear interest at a “Eurocurrency Rate”. Eurocurrency rate advances can be denominatedAgreement.
We were in a variety of currencies, including U.S. dollars, and amounts outstanding bear interest at a periodic fixed rate equal to the London Inter Bank Offered Rate (“LIBOR”) for the applicable currency plus a margin as determined by the Company's leverage ratio (“Applicable Margin”). The Applicable Margin is based on the Company’s leverage ratio, as defined in the Revolving Credit Facility, with such margin ranging from 1.000% to 1.575%. Additionally, the Company is required to pay certain fees in connection with the Revolving Credit Facility, including administrative service fees and an annual facility fee. The annual facility fee is payable quarterly in arrears and is determined by the Company’s leverage ratio as defined in the Revolving Credit Facility. This facility fee ranges from 0.125% to 0.300% of the aggregate $250.0 commitment of the lenders under the Revolving Credit Facility.
The Company was compliantcompliance with all financial covenants under the Revolving Credit FacilityAgreement as of August 31, 2016. As of August 31, 2016, the Company had outstanding letters of credit totaling $11.0, primarily for securing collateral requirements under the Company's casualty insurance programs and providing credit support for the Company’s industrial revenue bond (not an outstanding amount under the Revolving Credit Facility).2019. At August 31, 2016, the Company2019, we had additional borrowing capacity under the Revolving Credit FacilityAgreement of $243.9$796.2 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility and the Term Loan Facility less the outstanding letters of credit of $6.1$3.8 million issued under the Revolving Credit Facility. As of August 31, 2019, we had outstanding letters of credit totaling $8.0 million, primarily for securing collateral requirements under our casualty insurance programs and for providing credit support for our industrial revenue bond, which includes $3.8 million we issued under the Revolving Credit Facility.
None of the Company’s existing debt instruments include provisions that would require an acceleration of repayments based solely on changes in the Company’s credit ratings.
8. Common Stock and Related Matters
(share data presented in whole units except where otherwise indicated)
Common Stock
Changes in common stock for the years ended August 31, 2016, 2015, and 2014 were as follows:
|
| | | | | | |
| | Common Stock |
| | Shares | | Amount |
| (Amounts and shares in millions) | | | (At par) |
| Balance at August 31, 2013 | 52.2 |
| | $ | 0.5 |
|
| Issuance of restricted stock grants, net of forfeitures | 0.2 |
| | — |
|
| Stock options exercised | 0.2 |
| | — |
|
| Balance at August 31, 2014 | 52.6 |
| | $ | 0.5 |
|
| Issuance of restricted stock grants, net of forfeitures | 0.2 |
| | — |
|
| Stock options exercised | 0.2 |
| | — |
|
| Balance at August 31, 2015 | 53.0 |
| | $ | 0.5 |
|
| Issuance of restricted stock grants, net of forfeitures | 0.1 |
| | — |
|
| Stock options exercised | 0.3 |
| | — |
|
| Balance at August 31, 2016 | 53.4 |
| | $ | 0.5 |
|
As of August 31, 2016 and 2015, the Company had 9.7 million repurchased shares recorded as treasury stock at an original repurchase cost of $418.6 and $420.2.
In September 2011, the Company's Board of Directors authorized the repurchase of two million shares of the Company's outstanding common stock. No shares have been repurchased under this plan.
Preferred Stock
The Company has 50 million shares of preferred stock authorized. No shares of preferred stock were issued in fiscal 2016 or 2015 and no shares of preferred stock are outstanding.
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
None of our existing debt instruments include provisions that would require an acceleration of repayments based solely on changes in our credit ratings.
Note 9 — Common Stock and Related Matters
Common Stock
Changes in common stock for the years ended August 31, 2019, 2018, and 2017 were as follows (amounts and shares in millions):
|
| | | | | | |
| | Common Stock |
| | Shares | | Amount |
| | | | (At par) |
| Balance at August 31, 2016 | 53.4 |
| | $ | 0.5 |
|
| Issuance of restricted stock grants, net of cancellations | 0.1 |
| | — |
|
| Stock options exercised | — |
| * | — |
|
| Balance at August 31, 2017 | 53.5 |
| | $ | 0.5 |
|
| Issuance of restricted stock grants, net of cancellations | 0.2 |
| | — |
|
| Stock options exercised | — |
| * | — |
|
| Balance at August 31, 2018 | 53.7 |
| | $ | 0.5 |
|
| Issuance of restricted stock grants, net of cancellations | 0.1 |
| | — |
|
| Balance at August 31, 2019 | 53.8 |
| | $ | 0.5 |
|
___________________________
* Represents shares of less than 0.1 million.
As of August 31, 2019 and 2018, we had 14.3 million and 13.7 million of repurchased shares recorded as treasury stock at an original repurchase cost of $1.2 billion and $1.1 billion, respectively.
In March 2018, the Board of Directors (the “Board”) authorized the repurchase of up to 6000000 shares of common stock. As of August 31, 2019, 1.45 million shares had been purchased under this authorization, of which 0.7 million were repurchased in fiscal 2019.
Preferred Stock
We have 50 million shares of preferred stock authorized. NaN shares of preferred stock were issued in fiscal 2019 or 2018, and 0 shares of preferred stock are outstanding.
Earnings per Share
Basic earnings per share for the periods presented is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding which has been modified to include the effects of all participating securities (unvested share-based payment awards with a right to receive nonforfeitable dividends) as prescribed by the two-class method under ASC Topic 260, Earnings Per Share (“ASC 260”), during the period.for these periods. Diluted earnings per share is computed similarly but reflects the potential dilution that would occur if dilutive options were exercised, and restricted stockall unvested share-based payment awards were vested. Stock optionsvested, and other distributions related to deferred stock agreements were incurred.
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table calculates basic earnings per common share and diluted earnings per common share for the years ended August 31, 2016, 2015,2019, 2018, and 2014:2017 (in millions, except per share data):
| | | | Years Ended August 31, | Year Ended August 31, |
| (Amounts and shares in millions, except earnings per share) | 2016 | | 2015 | | 2014 | |
| Basic Earnings per Share: | |
| | |
| | |
| |
| | | 2019 | | 2018 | | 2017 |
| Net income | $ | 290.8 |
| | $ | 222.1 |
| | $ | 175.8 |
| $ | 330.4 |
| | $ | 349.6 |
| | $ | 321.7 |
|
| Less: Income attributable to participating securities | (0.4 | ) | | (1.0 | ) | | (1.6 | ) | |
| Net income available to common shareholders | $ | 290.4 |
| | $ | 221.1 |
| | $ | 174.2 |
| |
| Basic weighted average shares outstanding | 43.5 |
| | 43.1 |
| | 42.8 |
| |
| Basic earnings per share | $ | 6.67 |
| | $ | 5.13 |
| | $ | 4.07 |
| |
| Diluted Earnings per Share: | |
| | |
| | |
| |
| Net income | $ | 290.8 |
| | $ | 222.1 |
| | $ | 175.8 |
| |
| Less: Income attributable to participating securities | (0.4 | ) | | (1.0 | ) | | (1.6 | ) | |
| Net income available to common shareholders | $ | 290.4 |
| | $ | 221.1 |
| | $ | 174.2 |
| |
| Basic weighted average shares outstanding | 43.5 |
| | 43.1 |
| | 42.8 |
| 39.7 |
| | 40.9 |
| | 43.1 |
|
| Common stock equivalents | 0.3 |
| | 0.3 |
| | 0.2 |
| 0.1 |
| | 0.1 |
| | 0.2 |
|
| Diluted weighted average shares outstanding | 43.8 |
| | 43.4 |
| | 43.0 |
| 39.8 |
| | 41.0 |
| | 43.3 |
|
| Basic earnings per share | | $ | 8.32 |
| | $ | 8.54 |
| | $ | 7.46 |
|
| Diluted earnings per share | $ | 6.63 |
| | $ | 5.09 |
| | $ | 4.05 |
| $ | 8.29 |
| | $ | 8.52 |
| | $ | 7.43 |
|
Stock options of approximately 300,000, 179,000, and 117,000 were excluded from the diluted earnings per share calculation for the years ended August 31, 2019, 2018, and 2017, respectively, as the effect of inclusion would have been antidilutive. Restricted stock shares of approximately 160,000, 227,000, and 99,000 were excluded from the diluted earnings per share calculation for the years ended August 31, 2019, 2018, and 2017, respectively, as the effect of inclusion would have been antidilutive.
9. Share-BasedNote 10 — Share-based Payments
(share data presented in whole units except where otherwise indicated)
Omnibus Stock Compensation Incentive and Directors’ Equity Plans
In January 2013, the Company’s2018, our stockholders approved the Amended and Restated Acuity Brands, Inc. 2012 Omnibus Stock Compensation Incentive Plan (“2012(the “Stock Incentive Plan”) to replace the Amended and Restated 2007 Acuity Brands, Inc. Long Term Incentive Plan (“2007 Plan”). An, which, among other things, resulted in an aggregate of 2.32.7 million of shares are authorized for issuance underpursuant to the new plan including 1.9 million previously issuable shares underStock Incentive Plan. The Compensation Committee of the 2007 PlanBoard is authorized to issue awards consisting of incentive and 400,000 newly authorized shares. In addition, 1.7 million shares that were previously approved by the Company’s stockholdersnon-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock awards, performance stock units, stock bonus awards, and that are subjectcash-based awards to outstanding awards granted under the 2007 Plan are issuable under the 2012 Plan.eligible employees, non-employee directors, and outside consultants.
Shares available for grant under all plansthe Stock Incentive Plan, including those previously issued and outstanding prior to the amendment, were approximately 1.4 million, 1.6 million, 1.8 million, and 2.11.4 million at August 31, 2016, 2015,2019, 2018, and 2014,2017, respectively. ForfeitedAny shares subject to an award under the Stock Incentive Plan that are returned to the pool of sharesforfeited, canceled, expire or that are settled for cash will be available for grant.future grant under the Stock Incentive Plan.
Restricted Stock Awards
As of August 31, 2016, the Company2019, we had approximately 444,000350,000 shares outstanding of restricted stock to officers, directors, and other key employees under the 2012Stock Incentive Plan, including restricted stock units granted to foreign employees. The shares vest primarily over a four-year period and are valued at the closing stock price on the date of the grant. Compensation expense recognized related to the awards under the equity incentive plans was $23.7, $14.8,$25.1 million, $27.9 million, and $14.2$27.2 million in fiscal 2016, 2015,2019, 2018, and 2014,2017, respectively.
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
Activity related to restricted stock awards during the fiscal year ended August 31, 20162019 was as follows:follows (in millions, except per share data):
|
| | | | | |
| | Number of Shares | | Weighted Average Grant Date Fair Value Per Share |
| Outstanding at August 31, 2018 | 0.4 | | $ | 186.63 |
|
| Granted | 0.2 | | $ | 120.73 |
|
| Vested | (0.2) | | $ | 184.60 |
|
| Forfeited* | — | | $ | 159.88 |
|
| Outstanding at August 31, 2019 | 0.4 | | $ | 156.32 |
|
|
| | | | | |
| | Number of Shares (in millions) | | Weighted Average Grant Date Fair Value Per Share |
| Outstanding at August 31, 2015 | 0.5 | | $ | 116.02 |
|
| Granted | 0.2 | | $ | 209.49 |
|
| Vested | (0.2) | | $ | 94.19 |
|
| Forfeited | (0.1) | | $ | 182.42 |
|
| Outstanding at August 31, 2016 | 0.4 | | $ | 159.50 |
|
* Represents shares of less than 0.1 million.
As of August 31, 2016,2019, there was $52.6$34.6 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.81.6 years. The total weighted average fair value of shares vested during the years ended August 31, 2016, 2015,2019, 2018, and 2014,2017 was approximately $18.8, $14.3,$26.9 million, $26.6 million, and $13.0,$24.8 million, respectively.
Stock Options
As of August 31, 2016, the Company2019, we had approximately 258,000420,000 options outstanding to officers and other key employees under the 2012Stock Incentive Plan. Options issued under the 2012Stock Incentive Plan are generally granted with an exercise price equal to the fair market value of the Company’sour stock on the date of grant, (butbut never less than the fair market value on the grant date)date, and expire 10 years from the date of grant. These options generally vest and become exercisable over a three-year period. The stock options granted under the Directors’ Plan vested and became exercisable one year from the date of grant. Options under the Directors' Plan have an exercise price equal to the fair market value of the Company’s stock on the date of the grant and expire 10 years from that date. As of August 31, 2016, there were no options outstanding under the Director’s Plan. Compensation expense recognized related to the awards under the current and prior equity incentive plans was $2.9, $2.4,$2.7 million, $3.1 million, and $2.4$3.6 million in fiscal 2016, 2015,2019, 2018, and 2014,2017, respectively. There was no expense related to the director plan in fiscal 2016, 2015, and 2014.
The fair value of each option was estimated on the date of grant using the Black-Scholes model. The dividend yield was calculated based on annual dividends paid and the trailing 12-month average closing stock price at the time of grant. Expected volatility was based on historical volatility of the Company’sour stock, calculated using the most recent time period equal to the expected life of the options. The risk-free interest rate was based on the U.S. Treasury yield for a term equal to the expected life of the options at the time of grant. The CompanyWe used historical exercise behavior data of similar employee groups to determine the expected life of options. All inputs into the Black-Scholes model are estimates made at the time of grant. Actual realized value of each option grant could materially differ from these estimates, without impact to future reported net income.
The following weighted average assumptions were used to estimate the fair value of stock options granted in the fiscal years ended August 31:
|
| | | | | |
| | 2019 | | 2018 | | 2017 |
| Dividend yield | 0.4% | | 0.3% | | 0.2% |
| Expected volatility | 32.8% | | 30.9% | | 28.5% |
| Risk-free interest rate | 3.0% | | 2.0% | | 1.3% |
| Expected life of options | 4 years | | 4 years | | 4 years |
| Weighted-average fair value of options | $34.06 | | $41.87 | | $57.40 |
|
| | | | | |
| | 2016 | | 2015 | | 2014 |
| Dividend yield | 0.3% | | 0.4% | | 0.7% |
| Expected volatility | 30.7% | | 33.9% | | 38.4% |
| Risk-free interest rate | 1.4% | | 1.5% | | 1.3% |
| Expected life of options | 4 years | | 4 years | | 5 years |
| Weighted-average fair value of options | $52.83 | | $37.43 | | $34.37 |
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
Stock option activity during the years ended August 31, 2016, 2015,2019, 2018, and 20142017 was as follows:
|
| | | | | | | |
| | Outstanding | | Exercisable |
| | Number of Shares (in millions) | | Weighted Average Exercise Price | | Number of Shares (in millions) | | Weighted Average Exercise Price |
| Outstanding at August 31, 2016 | 0.3 | | $129.85 | | 0.1 | | $83.89 |
| Granted | — | * | $239.76 | | | | |
| Exercised | — | * | $139.69 | | | | |
| Outstanding at August 31, 2017 | 0.3 | | $156.43 | | 0.2 | | $106.54 |
| Granted | — | * | $156.39 | | | | |
| Exercised | — | * | $115.27 | | | | |
| Outstanding at August 31, 2018 | 0.3 | | $154.69 | | 0.2 | | $134.13 |
| Granted | 0.1 | | $116.40 | | | | |
| Outstanding at August 31, 2019 | 0.4 | | $146.70 | | 0.3 | | $147.51 |
| Range of option exercise prices: | | | | | | | |
| $40.01 - $100.00 (average life - 3.1 years) | 0.1 | | $62.25 | | 0.1 | | $62.25 |
| $100.01 - $160.00 (average life - 6.9 years) | 0.2 | | $125.66 | | 0.1 | | $125.09 |
| $160.01 - $210.00 (average life - 6.2 years) | 0.1 | | $207.80 | | 0.1 | | $207.80 |
| $210.01 - $239.76 (average life - 7.1 years) | 0.1 | | $239.76 | | — | * | $239.76 |
|
| | | | | | | |
| | Outstanding | | Exercisable |
| | Number of Shares (in millions) | | Weighted Average Exercise Price | | Number of Shares (in millions) | | Weighted Average Exercise Price |
| Outstanding at August 31, 2013 | 0.8 | | $43.16 | | 0.5 | | $38.00 |
| Granted | 0.1 | | $103.74 | | | | |
| Exercised | (0.2) | | $40.31 | | | | |
| Outstanding at August 31, 2014 | 0.7 | | $50.58 | | 0.5 | | $41.05 |
| Granted | 0.1 | | $135.63 | | | | |
| Exercised | (0.3) | | $39.35 | | | | |
| Outstanding at August 31, 2015 | 0.5 | | $71.95 | | 0.3 | | $51.05 |
| Granted | 0.1 | | $207.80 | | | | |
| Exercised | (0.3) | | $51.34 | | | | |
| Outstanding at August 31, 2016 | 0.3 | | $129.85 | | 0.1 | | $83.89 |
| Range of option exercise prices: | | | | | | | |
| $40.00 - $100.00 (average life - 5.9 years) | 0.1 |
| $61.59 | | 0.1 |
| $61.59 |
| $100.01 - $160.00 (average life - 7.7 years) | 0.1 | | $121.45 | | — | * | $114.81 |
| $160.01 - $210.00 (average life - 9.2 years) | 0.1 | | $207.80 | | — |
| $— |
| |
* | Represents shares of less than 0.1. |
* Represents shares of less than 0.1 million.
The total intrinsic value of options exercised during the years ended August 31, 2016, 2015,2018 and 20142017 was $50.0, $33.3,$0.5 million, and $16.3,$1.3 million, respectively. There were 0 options exercised during fiscal 2019. As of August 31, 2016,2019, the total intrinsic value of options outstanding was $37.5,$5.8 million, the total intrinsic value of options expected to vest was $37.3,$0.7 million, and the total intrinsic value of options exercisable was $21.9.$5.1 million. As of August 31, 2016,2019, there was $3.8$2.8 million of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted-average period of approximately 1.41.3 years.
Employee Deferred Share Units
The CompanyWe previously allowed employees to defer a portion of restricted stock awards granted in fiscal 2003 and fiscal 2004 into the Supplemental Deferred Savings Plan (“SDSP”)SDSP as share units. The share units are payable in shares of stock at the time of distribution from the SDSP. As of August 31, 2016,2019, approximately 10,0009,000 fully vested share units remain deferred, but undistributed, under the 2012Stock Incentive Plan. There was no0 compensation expense related to these share units during fiscal years 2016, 2015,2019, 2018, and 2014.2017.
Director Deferred Share Units
The Company previously required its Directors to defer at least 50% of their annual retainer into the 2006 Nonemployee Director Deferred Compensation Plan ("2006 Plan"). Shares deferred under the 2006 Plan are to be paid inTotal shares at retirement from the Board. In January 2012, the Company's stockholders approved the 2011 Nonemployee Director Deferred Compensation Plan ("2011 Plan"), following the expiration of the 2006 Plan on November 30, 2011. Pursuant to the 2011 Plan, fees deferred by nonemployee directors can be invested in deferred stock units to be paid in shares or credited to an interest-bearing account to be paid in cash at retirement from the Board. 300,000 shares of common stock were reservedavailable for issuance under the 2011Director Plan which incorporated approximately 86,000 shares previously available for grant under the 2006 Plan. Beginning in fiscal year 2013, the deferral requirement was adjusted to 55% of the annual director fees. On September 28, 2012, the 2011 Plan was amended to allow for stock grants in lieu of mandatory deferrals for the non-cash component of a nonemployee director's annual fee if a director exceeds the stock ownership requirement of five-times the annual cash retainer fee. Shares available for issuance under both plans were approximately 400,000360,000, 370,000, and 390,000 at August 31, 2016, 2015,2019, 2018, and 2014.2017. As of August 31, 2016,2019, approximately 130,000119,000 share units were deferred but undistributed under the 2006 Plan and the 2011Director Plan.
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ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
Compensation expense recognized related to the share units under these plansour the Director Plan was $1.1$1.4 million, $1.0$1.3 million, and $0.8$1.2 million in fiscal 2016, 2015,2019, 2018, and 2014,2017, respectively.
Employee Stock Purchase Plan
Employees are able to purchase, through payroll deduction, common stock at a 5% discount on a monthly basis. There were 1.5 million shares of the Company’sour common stock reserved for purchase under the plan, of which approximately 1.0 million shares remain available as of August 31, 2016.2019. Employees may participate at their discretion.
10. |
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 11 — Commitments and Contingencies
Self-Insurance
ItOur policy is the policy of the Company to self-insure — up to certain limits — traditional risks, including workers’ compensation, comprehensive general liability, and auto liability. The Company’sOur self-insured retention for each claim involving workers’ compensation, comprehensive general liability (including product liability claims), and auto liability is limited per occurrence of such claims. A provision for claims under this self-insured program, based on the Company’sour estimate of the aggregate liability for claims incurred, is revised and recorded annually. The estimate is derived from both internal and external sources including, but not limited to, the Company’sour independent actuary. The Company isWe are also self-insured up to certain limits for certain other insurable risks, primarily physical loss to property and business interruptions resulting from such loss lasting two days or more in duration. Insurance coverage is maintained for catastrophic property and casualty exposures, as well as those risks required to be insured by law or contract. The Company isWe are fully self-insured for certain other types of liabilities, including environmental, product recall, warranty, and patent infringement. The actuarial estimates are subject to uncertainty from various sources including, among others, changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although the Company believeswe believe that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Company’sour self-insurance obligations, future expense, and cash flow.
The Company isWe are also self-insured for the majority of itsour medical benefit plans up to certain limits. The Company estimates itsWe estimate our aggregate liability for claims incurred by applying a lag factor to the Company’sour historical claims and administrative cost experience. The appropriateness of the Company’sour lag factor is evaluated annually and revised annually, as necessary.
Leases
The Company leasesWe lease certain of itsour buildings and equipment under noncancelable lease agreements. Future minimum annual lease payments under noncancelable leases are $15.1, $12.1, $9.6, $7.5, $5.7,$16.7 million, $13.5 million, $9.9 million, $7.2 million, $4.6 million, and $10.2$16.8 million for fiscal 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, and after 2021,2024, respectively.
Total rent expense was $17.6, $16.0,$22.6 million, $22.3 million, and $16.5$20.0 million in fiscal 2016, 2015,2019, 2018, and 2014,2017, respectively.
Purchase Obligations
The Company has incurredWe incur purchase obligations in the ordinary course of business that are enforceable and legally binding. Obligations for years subsequent to August 31, 20162019 include $193.8$347.2 million, $5.0 million, and $5.0 million in fiscal 20172020, and $4.8 in fiscal 2018.2021, respectively. As of August 31, 2016, the Company2019, we had no0 purchase obligations extending beyond August 31, 2018.2022.
Collective Bargaining Agreements
Approximately 73%67% of the Company’sour total work force is covered by collective bargaining agreements. Collective bargaining agreements representing approximately 69%57% of the Company’sour work force will expire within one year.year, primarily due to annual negotiations of union contracts with in Mexico.
Lighting Science Group Patent Litigation
On April 30, 2019 and May 1, 2019, Lighting Science Group Corp. (“LSG”) filed complaints in the International Trade Commission and United States District Court for the District of Delaware, respectively, alleging infringement of 8 patents by the Company. On May 17, 2019, LSG amended both of its complaints and dropped its claims regarding 1 of the patents. For the remaining 7 patents, LSG’s infringement allegations relate to certain of our LED luminaires and related systems. LSG seeks orders from the International Trade Commission to preclude the importation and sale of the accused products. LSG seeks unspecified monetary damages, costs, and attorneys’ fees in the District of Delaware action. We dispute and have numerous defenses to the allegations, and we intend to vigorously defend against LSG’s claims. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and a request for an exclusion order and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we currently are unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from these matters.
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Securities Class Action
On January 3, 2018, a shareholder filed a class action complaint in the United States District Court for the District of Delaware against us and certain of our officers on behalf of all persons who purchased or otherwise acquired our stock between June 29, 2016 and April 3, 2017. On February 20, 2018, a different shareholder filed a second class action complaint in the same venue against the same parties on behalf of all persons who purchased or otherwise acquired our stock between October 15, 2015 and April 3, 2017. The cases were transferred on April 30, 2018, to the United States District Court for the Northern District of Georgia and subsequently were consolidated as In re Acuity Brands, Inc. Securities Litigation, Civil Action No. 1:18-cv-02140-MHC (N.D. Ga.). On October 5, 2018, the court-appointed lead plaintiff filed a consolidated amended class action complaint (the “Consolidated Complaint”), which supersedes the initial complaints. The Consolidated Complaint is brought on behalf of all persons who purchased our common stock between October 7, 2015 and April 3, 2017 and alleges that we and certain of our current officers and 1 former executive violated the federal securities laws by making false or misleading statements and/or omitting to disclose material adverse facts that (i) concealed known trends negatively impacting sales of our products and (ii) overstated our ability to achieve profitable sales growth. The plaintiffs seek class certification, unspecified monetary damages, costs, and attorneys’ fees. We dispute the allegations in the complaints and intend to move to dismiss the Consolidated Complaint and to vigorously defend against the claims. We filed a motion to dismiss the Consolidated Complaint. On August 12, 2019, the court entered an order granting our motion to dismiss in part and dismissing all claims based on 42 of the 47 statements challenged in the Consolidated Complaint but also denying the motion in part and allowing claims based on 5 challenged statements to proceed to discovery. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we are currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from the matters described above. We are insured, in excess of a self-retention, for Directors and Officers liability.
Litigation
The Company isWe are subject to various other legal claims arising in the normal course of business, including patent infringement, employment matters, and product recallliability claims. Based on information currently available, it is the opinion of management that the ultimate resolution of pending and threatened legal proceedings will not have a material adverse effect on the financial condition, results of operations, or cash flows of the Company.flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of any such matters, if unfavorable, could have a material adverse effect on the financial condition, results of operations, or cash flows of the Company in future periods. The
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ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
Company establishesWe establish reserves for legal claims when associated costs become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher than the amounts reserved for such claims. However, the Companywe cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the amounts reserved.
Environmental Matters
TheOur operations of the Company are subject to numerous comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances, as well as solid and hazardous wastes, and to the remediation of contaminated sites. In addition, permits and environmental controls are required for certain of the Company’s operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, the Company investswe invest capital and incursincur operating costs relating to environmental compliance. Environmental laws and regulations have generally become stricter in recent years. The Company isWe are not aware of any pending legislation or proposed regulation related to environmental issues that would have a material adverse effect on the Company.effect. The cost of responding to future changes may be substantial. The Company establishesWe establish reserves for known environmental claims when the associated costs become probable and can be reasonably estimated. The actual cost of environmental issues may be substantially higher than that reserved due to difficulty in estimating such costs.
|
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Guarantees and Indemnities
The Company isWe are a party to contracts entered into in the normal course of business in which it is common for the Companyus to agree to indemnify third parties for certain liabilities that may arise out of or relate to the subject matter of the contract. In most cases, the Companywe cannot estimate the potential amount of future payments under these indemnities until events arise that would result in a liability under the indemnities.
Acquisition-Related Liabilities
During the negotiations related to business combinations, the previous owners of the acquired entity (“acquiree”) typically indemnify the Companyus for specific unrecognized liabilities of the acquiree in existence as of the date of acquisition. For some acquisitions of businesses, the Company actswe act in the place of escrow agents in the holding of funds, including accrued interest (collectively, the “holdback funds”), used to fulfill pre-acquisition obligations agreed to be paid by the acquiree. These funds represent consideration given to the previous owners of the businesses acquired and are payable to them, net of any pre-acquisition obligations satisfied within a stated amount of time, at a future date. Any potential pre-acquisition obligations for which the Companywe may be reimbursed through the holdback funds are usually uncertain as of the date of the change of control. In certain circumstances, the Company iswe are capable of the identification and quantification of particular liabilities including, but not limited to, uncertain tax positions, legal issues, and other outstanding obligations not recognized in the financial statements of the acquired entity. Under ASC Topic 805, Business Combinations, these unrecognized liabilities are recorded as obligations of the Company with a corresponding receivable due from the previous owners as of the date of acquisition and are included as part of the acquisition accounting. The actual costs of resolving pre-acquisition obligations may be substantially higher than the holdback funds or amounts reserved. The Company doesWe do not believe that any amounts it iswe are likely to be required to pay under these acquisition-related liabilities, including net holdback funds, will be material to the Company’sour financial position, results of operations, or cash flow.
Product Warranty and Recall Costs
The Company records an allowanceOur products generally have a standard warranty term of five years that assure our products comply with agreed upon specifications. We record a reserve for the estimated amount of future warranty costs when the related revenue is recognized. Estimated costs related to product recalls based on a formal campaign soliciting repair or return of that product are accrued when they are deemed to be probable and can be reasonably estimated. Estimated future warranty and recall costs are primarily based on historical experience of identified warranty and recall claims. However, there can be no assurance that future warranty or recall costs will not exceed historical amounts or that new technology products which may include extended warranties, may not generate unexpected costs. If actual future warranty or recall costs exceed historical amounts, additional allowancesreserves may be required, which could have a material adverse impact on the Company’sour results of operations and cash flow.flows.
Reserves for product warranty and recall costs are included in Other accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets. The changes in the reserves for product warranty and recall costs during the fiscal years ended August 31, 2019, 2018, and 2017 are summarized as follows (in millions):
66 |
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2019 | | 2018 | | 2017 |
| Beginning balance | $ | 27.3 |
| | $ | 22.0 |
| | $ | 15.5 |
|
| Warranty and recall costs | 18.7 |
| | 32.4 |
| | 39.8 |
|
| Payments and other deductions | (19.7 | ) | | (27.7 | ) | | (33.3 | ) |
| Acquired warranty and recall liabilities | — |
| | 0.6 |
| | — |
|
ASC 606 adjustments (1) | (14.8 | ) | | — |
| | — |
|
| Ending balance | $ | 11.5 |
| | $ | 27.3 |
| | $ | 22.0 |
|
______________________________
(1) Certain service-type warranties accounted for as contingent liabilities prior to the adoption of ASC 606 are now reflected as contract liabilities effective September 1, 2018. Refer to the New Accounting Pronouncements and Revenue Recognition footnotes for additional information.
Trade Compliance Matters
In the course of routine reviews of import and export activity, we previously determined that we misclassified and/or inaccurately valued certain international shipments of products. We are conducting a detailed review of this activity to
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| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
The changes in product warranty and recall reserves (included in Other accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets) during the fiscal years ended August 31, 2016, 2015, and 2014 are summarized as follows:
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Balance at September 1 | $ | 9.6 |
| | $ | 8.5 |
| | $ | 5.9 |
|
| Warranty and recall costs | 25.7 |
| | 16.1 |
| | 19.5 |
|
| Payments and other deductions | (20.8 | ) | | (15.0 | ) | | (16.9 | ) |
| Acquired warranty and recall liabilities | 1.0 |
| | — |
| | — |
|
| Balance at August 31 | $ | 15.5 |
| | $ | 9.6 |
| | $ | 8.5 |
|
Trade Compliance Matters
Prior to the close of the acquisition, Distech Controls discovered shipments by it and its subsidiaries during the past five years of standard commercial building control products directly or indirectly to customers in a country that may constitute violations of U.S. and Canadian sanctions or export regulations, including those administered by the U.S. Office of Foreign Asset Control (“OFAC”) and the Export Controls Division of the Canadian Department of Foreign Affairs, Trade and Development ("DFATD"). Distech Controls estimates that it received total revenue of approximately $0.3 from these shipments. Distech Controls has voluntarily self-reported the potential violations to OFAC and DFATD and retained outside counsel that conducted an investigation of the matter and filed a full voluntary disclosure with these agencies. Now that the Company has acquired Distech Controls, the Company has greater access to information regarding Distech Controls’ prior operations and will continue to assess the matter and implement related ongoing compliance and remediation efforts.
The Company intends to fully cooperate with respect to any investigations by governmental agencies of the potential violations. The former shareholders of Distech Controls have jointly agreed to indemnify the Company for damages, if any, as a result of, in respect of, connected with or arising out of the potential violations or any inaccuracy or breach of the representations made by Distech Controls to the Company related thereto, up to a specified aggregate amount, which is not material to the Company's consolidated financial statements. These indemnity obligations are supported by an escrow account containing proceeds from the transaction equal to the specified aggregate amount. The Company currently believes that this indemnity will be sufficient to cover any damages related to the potential violations and the costs and expenses related to the investigation thereof and any related remedial actions. The Company therefore does not expect this matter to have a material adverse effect on the business, financial condition, cash flow, or results of operations of the Company. There can be no assurance, however, that actual damages, costs and expenses will not be in excess of the indemnity or that the Company and its affiliates will not be subject to other damages, including but not limited to damage to the Company's reputation or monetary or non-monetary penalties as permitted under applicable trade laws, that may not be fully covered by the indemnity. Estimated liabilities for legal fees as well as potential fines or penalties related to this matter are included in Other accrued liabilities within the Consolidated Balance Sheets.
The Company discovered through a review of shipment activity that it misclassified certain shipments of component parts to its manufacturing facilities under applicable import/export regulations. Although no claim has been asserted against the Company, the Company is reviewing these shipments to determine the extent of any liabilities and implementing the extent of availableappropriate remedial measures. The Company is unable atAt this time, we are unable to determine the likelihood or amount of loss, if any, lossassociated with these shipments.
Note 12 — Special Charges
During the year ended August 31, 2019, we recognized pre-tax special charges of $1.8 million. These charges were primarily related to move costs associated with the misclassificationpreviously announced transfer of these shipments.
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ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
11. Special Charge
During fiscal 2016 and 2015, the Company recordedactivities from a pre-tax special charge consisting primarily ofplanned facility closure. Additionally, we recognized severance and employee-related costs for actions initiated during fiscal 2019 related to our ongoing efforts to streamline the organization,business, including the integration ofintegrating recent acquisitions. These streamlining activities include the consolidation of selected production activities and realignment of certain responsibilities, primarily within various selling, distribution, and administrative departments. The Company expectsWe expect that these actions to streamline itsour business activities, in addition to those taken in previous fiscal years, will allow itus to reduce spending in certain areas while permitting continued investment in future growth initiatives, such as new products, expanded market presence, and technology and innovation. The severance costs related to fiscal 2019 actions were more than offset by reversals of prior year severance costs related to certain planned streamlining activities that did not occur.
During fiscal 2018, we recognized pre-tax special charges of $5.6 million primarily related to charges of $10.6 million related to the planned consolidation of certain facilities and associated reduction in employee headcount, partially offset by the reversal of previously recorded special charges of $5.0 million. The reversal was related to certain planned streamlining activities that did not occur, primarily due to the sale of our Spanish lighting business during the fourth quarter of fiscal 2018.
The details of the special charges during the years ended August 31, 20162019, 2018, and 20152017 are summarized as follows:follows (in millions):
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2019 | | 2018 | | 2017 |
| Severance and employee-related costs | $ | (0.5 | ) | | $ | 5.4 |
| | $ | 11.2 |
|
| Other restructuring costs | 2.3 |
| | 0.2 |
| | 0.1 |
|
| Total special charges | $ | 1.8 |
| | $ | 5.6 |
| | $ | 11.3 |
|
|
| | | | | | | |
| | Year ended August 31, |
| | 2016 | | 2015 |
| Severance and employee-related costs | $ | 9.9 |
| | $ | 11.4 |
|
| Multi-employer pension plan withdrawal costs | 3.9 |
| | — |
|
| Production transfer costs | 1.2 |
| | 0.5 |
|
| Lease termination costs | — |
| | 0.5 |
|
| Special charge | $ | 15.0 |
| | $ | 12.4 |
|
As of August 31, 2016,2019, remaining reserves were $6.6$1.9 million and are included in Accrued Compensation oncompensation and in the Consolidated Balance Sheets. The changes in the reserves related to these programs during the year ended August 31, 20162019 are summarized as follows:follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Fiscal 2019 Actions | | Fiscal 2018 Actions | | Fiscal 2017 Actions | | Total |
| Balance as of August 31, 2018 | $ | — |
| | $ | 9.2 |
| | $ | 0.9 |
| | $ | 10.1 |
|
| Severance costs | 1.9 |
| | (2.0 | ) | | (0.4 | ) | | (0.5 | ) |
| Payments made during the period | (0.6 | ) | | (6.6 | ) | | (0.5 | ) | | (7.7 | ) |
| Balance as of August 31, 2019 | $ | 1.3 |
| | $ | 0.6 |
| | $ | — |
| | $ | 1.9 |
|
|
| | | | | | | | | | | |
| | Fiscal 2016 Actions | | Fiscal 2015 Actions | | Total |
| Balance as of August 31, 2015 | $ | — |
| | $ | 4.9 |
| | $ | 4.9 |
|
| Severance and employee-related costs | 10.4 |
| | (0.5 | ) | | 9.9 |
|
| Payments made during the period | (4.0 | ) | | (4.2 | ) | | (8.2 | ) |
| Balance as of August 31, 2016 | $ | 6.4 |
| | $ | 0.2 |
| | $ | 6.6 |
|
|
|
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
12.Note 13 — Income Taxes
The Company accountsWe account for income taxes using the asset and liability approach as prescribed by ASC Topic 740, Income Taxes (“ASC 740”). This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Using the enacted tax rates in effect for the year in which the differences are expected to reverse, deferred tax liabilities and assets are determined based on the differences between the financial reporting and the tax basis of an asset or liability.
The provision for income taxes consists of the following components:components (in millions):
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2019 | | 2018 | | 2017 |
| Provision for current federal taxes | $ | 60.3 |
| | $ | 88.9 |
| | $ | 151.2 |
|
| Provision for current state taxes | 14.7 |
| | 16.4 |
| | 20.4 |
|
| Provision for current foreign taxes | 10.2 |
| | 9.2 |
| | 7.0 |
|
| Provision (benefit) for deferred taxes | 9.3 |
| | (38.2 | ) | | (7.7 | ) |
| Total provision for income taxes | $ | 94.5 |
| | $ | 76.3 |
| | $ | 170.9 |
|
|
| | | | | | | | | | | |
| | Years Ended August 31, |
| | 2016 | | 2015 | | 2014 |
| Provision for current federal taxes | $ | 139.6 |
| | $ | 101.5 |
| | $ | 77.1 |
|
| Provision for current state taxes | 17.6 |
| | 13.1 |
| | 9.0 |
|
| Provision for current foreign taxes | 5.1 |
| | 4.3 |
| | 4.3 |
|
| (Benefit) provision for deferred taxes | (8.5 | ) | | 2.6 |
| | (0.5 | ) |
| Total provision for income taxes | $ | 153.8 |
| | $ | 121.5 |
| | $ | 89.9 |
|
The following table reconciles the provision at the federal statutory rate to the total provision for income taxes (in millions):
68 |
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2019 | | 2018 | | 2017 |
| Federal income tax computed at statutory rate | $ | 89.2 |
| | $ | 109.4 |
| | $ | 172.4 |
|
| State income tax, net of federal income tax benefit | 12.2 |
| | 11.5 |
| | 12.2 |
|
| Foreign permanent differences and rate differential | 2.1 |
| | (2.0 | ) | | (1.6 | ) |
| Discrete income tax benefits of the TCJA | (2.2 | ) | | (34.6 | ) | | — |
|
| Research and development tax credits | (18.1 | ) | | (3.3 | ) | | (3.0 | ) |
| Unrecognized tax benefits | 12.2 |
| | 0.4 |
| | 0.8 |
|
| Other, net | (0.9 | ) | | (5.1 | ) | | (9.9 | ) |
| Total provision for income taxes | $ | 94.5 |
| | $ | 76.3 |
| | $ | 170.9 |
|
Components of the net deferred income tax liabilities at August 31, 2019 and 2018 include (in millions):
|
| | | | | | | |
| | August 31, |
| | 2019 | | 2018 |
| Deferred income tax liabilities: | |
| | |
|
| Depreciation | $ | (22.0 | ) | | $ | (15.0 | ) |
| Goodwill and intangibles | (149.6 | ) | | (151.2 | ) |
| Other liabilities | (2.8 | ) | | (2.3 | ) |
| Total deferred income tax liabilities | (174.4 | ) | | (168.5 | ) |
| Deferred income tax assets: | |
| | |
|
| Self-insurance | 2.6 |
| | 2.6 |
|
| Pension | 22.7 |
| | 18.1 |
|
| Deferred compensation | 20.5 |
| | 23.7 |
|
| Net operating losses | 6.2 |
| | 6.2 |
|
| Other accruals not yet deductible | 26.9 |
| | 24.9 |
|
| Other assets | 9.7 |
| | 7.0 |
|
| Total deferred income tax assets | 88.6 |
| | 82.5 |
|
| Valuation allowance | (4.6 | ) | | (3.6 | ) |
| Net deferred income tax liabilities | $ | (90.4 | ) | | $ | (89.6 | ) |
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
A reconciliationOn December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“TCJA”). The TCJA included changes that took effect during fiscal 2019 including, but not limited to, additional limitations on certain executive compensation, limitations on interest deductions, a new U.S. tax on certain offshore earnings referred to as Global Intangible Low-Taxed Income (“GILTI”), a new alternative U.S. tax on certain Base Erosion Anti-Avoidance (“BEAT”) payments from a U.S. company to any foreign related party, a new deduction for Foreign Derived Intangible Income (“FDII”), and the repeal of the Section 199 domestic production activities deduction. Our U.S. federal statutorycorporate tax rate was 21.0% for the current fiscal year. During fiscal 2018, we recorded a provisional discrete tax benefit of $34.6 million within Income tax expense on the Consolidated Statements of Comprehensive Income following the enactment of the TCJA. During fiscal 2019, we recorded an additional tax benefit of $2.2 million related to TCJA impacts including, but not limited to, our one-time transition tax, deferred income taxes, and executive compensation. The total tax benefit related to the total provision forenactment of the TCJA was $36.8 million, which included a benefit of $32.5 million to decrease our deferred income taxes isto the revised statutory federal rate as follows:well as a current estimated benefit of approximately $4.3 million for the transition tax on unremitted foreign earnings.
|
| | | | | | | | | | | |
| | Years Ended August 31, |
| | 2016 | | 2015 | | 2014 |
| Federal income tax computed at statutory rate | $ | 155.6 |
| | $ | 120.3 |
| | $ | 93.0 |
|
| State income tax, net of federal income tax benefit | 11.0 |
| | 8.6 |
| | 6.7 |
|
| Foreign permanent differences and rate differential | (2.0 | ) | | (1.4 | ) | | (1.0 | ) |
| Other, net | (10.8 | ) | | (6.0 | ) | | (8.8 | ) |
| Total provision for income taxes | $ | 153.8 |
| | $ | 121.5 |
| | $ | 89.9 |
|
Components of the net deferred income tax liabilities at August 31, 2016 and 2015 include:
|
| | | | | | | |
| | August 31, |
| | 2016 | | 2015 |
| Deferred Income Tax Liabilities: | |
| | |
|
| Depreciation | $ | (22.5 | ) | | $ | (9.6 | ) |
| Goodwill and intangibles | (161.6 | ) | | (105.1 | ) |
| Other liabilities | (3.7 | ) | | (4.2 | ) |
| Total deferred income tax liabilities | (187.8 | ) | | (118.9 | ) |
| Deferred Income Tax Assets: | |
| | |
|
| Self-insurance | 4.0 |
| | 3.9 |
|
| Pension | 41.7 |
| | 29.2 |
|
| Deferred compensation | 28.9 |
| | 27.5 |
|
| Net operating losses | 14.3 |
| | 15.7 |
|
| Other accruals not yet deductible | 33.5 |
| | 18.8 |
|
| Other assets | 12.3 |
| | 10.6 |
|
| Total deferred income tax assets | 134.7 |
| | 105.7 |
|
| Valuation Allowance | (16.4 | ) | | (15.0 | ) |
| Net deferred income tax liabilities | $ | (69.5 | ) | | $ | (28.2 | ) |
The Company currently intends to indefinitely reinvestPreviously, we asserted that all undistributed earnings of and original investments in foreign subsidiaries which amountedwere indefinitely reinvested and, therefore, had not recorded any deferred taxes related to approximately $83.2 atany outside basis differences associated with our foreign subsidiaries. As of August 31, 2016; however, this amount could fluctuate due2019, the estimated undistributed earnings from foreign subsidiaries was $107.7 million. A significant portion of these earnings was subject to changesU.S. federal taxation in business, economic, or other conditions. Earnings is the most significant componentfiscal 2018 as part of the basis differencewhich is indefinitely reinvested. If theseone-time transition tax. We are no longer asserting indefinite reinvestment on the portion of our unremitted earnings that were distributedpreviously subject to U.S. federal taxation with the one-time transition tax. Accordingly, we recognized a deferred income tax liability of $0.6 million for certain foreign withholding taxes and U.S. state taxes. With respect to unremitted earnings and original investments in the form of dividends or otherwise or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, the Company wouldwhere we are continuing to assert indefinite reinvestment, any future remittances could be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. Determination oftaxes, U.S. state taxes, and certain tax impacts relating to foreign currency exchange effects. It is not practicable to estimate the amount of any unrecognized tax effects on these reinvested earnings and original investments in foreign subsidiaries.
We have elected to account for the tax on Global Intangible Low-Taxed Income (“GILTI”) as a period cost and, therefore, do not record deferred income tax liabilitytaxes related to these earnings or investments is not practicable.GILTI on our foreign subsidiaries.
At August 31, 2016, the Company2019, we had state tax credit carryforwards of approximately $1.1,$2.2 million, which will expire between 2018 and 2025.beginning in 2021. At August 31, 2016, the Company2019, we had federal net operating loss carryforwards of $24.3$32.9 million that expire beginning in 2030, state net operating loss carryforwards of $12.5$20.3 million that begin expiring in 2028,2020, and foreign net operating loss carryforwards of $21.2$1.8 million that begin expiringexpire beginning in 2017.2026.
The gross amount of unrecognized tax benefits as of August 31, 20162019 and 20152018 totaled $5.2$16.6 million and $4.5,$4.4 million, respectively, which includes $3.9$15.9 million and $2.2,$3.8 million, respectively, of net unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. The Company recognizesWe recognize potential interest and penalties related to unrecognized tax benefits as a component of income tax expense; such accrued interest and penalties are not material. With few exceptions, the Company iswe are no longer subject to United States federal, state, and local income tax examinations for years ended before 20122013 or for foreign income tax examinations before 2010. The Company does2013. We do not anticipate unrecognized tax benefits will significantly increase or decrease within the next twelve months.
The following table reconciles the change in the unrecognized income tax benefit (reported in Other long-term liabilities on the Consolidated Balance Sheets) for the years ended August 31, 2019 and 2018 (in millions):
69 |
| | | | | | | |
| | Year Ended August 31, |
| | 2019 | | 2018 |
| Unrecognized tax benefits balance at beginning of year | $ | 4.4 |
| | $ | 6.0 |
|
| Additions based on tax positions related to the current year | 2.0 |
| | 0.6 |
|
| Additions for tax positions of prior years | 10.9 |
| | 1.0 |
|
| Reductions due to settlements | — |
| | (2.2 | ) |
| Reductions due to lapse of statute of limitations | (0.7 | ) | | (1.0 | ) |
| Unrecognized tax benefits balance at end of year | $ | 16.6 |
| | $ | 4.4 |
|
Total accrued interest was $1.0 million and $0.5 million as of August 31, 2019 and 2018, respectively. There were 0 accruals related to income tax penalties during fiscal 2019. Interest, net of tax benefits, and penalties are included in Income tax expense within the Consolidated Statements of Comprehensive Income. The classification of interest and penalties did not change during the current fiscal year.
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
A reconciliationNote 14 — Subsequent Event
On September 17, 2019, using cash on hand and borrowings under available existing credit arrangements, we acquired all of the change in the unrecognized income tax benefit (reported in Other long-term liabilities on the Consolidated Balance Sheetsequity interests of The Luminaires Group (“TLG”), a leading provider of specification-grade luminaires for the years ended August 31, 2016commercial, institutional, hospitality, and 2015 is as follows:municipal markets. TLG’s indoor and outdoor lighting fixtures are marketed to architects, landscape architects, interior designers and engineers through 5 niche lighting brands: A-light, Cyclone, Eureka, Luminaire LED and Luminis.
|
| | | | | | | |
| | 2016 | | 2015 |
| Unrecognized tax benefits balance at September 1 | $ | 4.5 |
| | $ | 3.0 |
|
| Additions based on tax positions related to the current year | 1.0 |
| | 0.8 |
|
| Additions for tax positions of prior years | 0.5 |
| | 1.5 |
|
| Reductions due to lapse of statute of limitations | (0.8 | ) | | (0.8 | ) |
| Unrecognized tax benefits balance at August 31 | $ | 5.2 |
| | $ | 4.5 |
|
Total accrued interest was $0.9 and $0.7 as of August 31, 2016 and 2015, respectively. There were no accruals related to income tax penalties during fiscal 2016. Interest, net of tax benefits, and penalties are included in income tax expense. The classification of interest and penalties did not change during the current fiscal year.
13.Note 15 — Supplemental Disaggregated Information
The Company has oneWe have 1 reportable segment. Sales of lightingproducts and building management solutions, excluding services, accounted for approximately 99% of total consolidated net sales in fiscal 2016, 2015,2019, 2018, and 2014. The2017. Our geographic distribution of the Company’s net sales, operating profit, income before provision for income taxes, and long-lived assets is summarized in the following table for the years ended August 31:31, 2019, 2018, and2017 (in millions):
| | | | 2016 | | 2015 | | 2014 | Year Ended August 31, |
Net sales(1) | |
| | |
| | |
| |
| | | 2019 | | 2018 | | 2017 |
Net sales(1): | | |
| | |
| | |
|
Domestic(2) | $ | 2,928.3 |
| | $ | 2,450.1 |
| | $ | 2,155.0 |
| $ | 3,277.4 |
| | $ | 3,292.6 |
| | $ | 3,123.1 |
|
| International | 363.0 |
| | 256.6 |
| | 238.5 |
| 395.3 |
| | 387.5 |
| | 382.0 |
|
| Total | $ | 3,291.3 |
| | $ | 2,706.7 |
| | $ | 2,393.5 |
| $ | 3,672.7 |
| | $ | 3,680.1 |
| | $ | 3,505.1 |
|
| Operating profit | | | |
| | |
| |
| Operating profit: | | | | |
| | |
|
Domestic(2) | $ | 457.6 |
| | $ | 364.0 |
| | $ | 287.8 |
| $ | 419.3 |
| | $ | 419.0 |
| | $ | 503.3 |
|
| International | 17.6 |
| | 12.3 |
| | 11.3 |
| 43.6 |
| | 41.8 |
| | 24.2 |
|
| Total | $ | 475.2 |
| | $ | 376.3 |
| | $ | 299.1 |
| $ | 462.9 |
| | $ | 460.8 |
| | $ | 527.5 |
|
| Income before Provision for Income Taxes | | | |
| | |
| |
| Income before provision for income taxes: | | | | |
| | |
|
Domestic(2) | $ | 430.8 |
| | $ | 329.4 |
| | $ | 257.1 |
| $ | 386.4 |
| | $ | 386.4 |
| | $ | 478.5 |
|
| International | 13.8 |
| | 14.2 |
| | 8.6 |
| 38.5 |
| | 39.5 |
| | 14.1 |
|
| Total | $ | 444.6 |
| | $ | 343.6 |
| | $ | 265.7 |
| $ | 424.9 |
| | $ | 425.9 |
| | $ | 492.6 |
|
Long-lived assets(3) | | | |
| | |
| |
Long-lived assets(3): | | | | |
| | |
|
Domestic(2) | $ | 254.5 |
| | $ | 179.6 |
| | $ | 148.3 |
| $ | 248.9 |
| | $ | 256.4 |
| | $ | 252.8 |
|
| International | 41.4 |
| | 25.6 |
| | 31.2 |
| 48.4 |
| | 52.0 |
| | 51.5 |
|
| Total | $ | 295.9 |
| | $ | 205.2 |
| | $ | 179.5 |
| $ | 297.3 |
| | $ | 308.4 |
| | $ | 304.3 |
|
| |
(1) | Net sales are attributed to each country based on the selling location. |
| |
(2) | Domestic amounts include net sales (including export sales), operating profit, income before provision for income taxes, and long-lived assetsamounts for U.S. based operations. |
| |
(3) | Long-lived assets include net property, plant, and equipment, long-term deferred income tax assets, and other long-term assets.assets as reflected in the Consolidated Balance Sheets. |
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
14.Note 16 — Supplemental Guarantor Condensed Consolidating Financial Statements
In December 2009, ABL, the 100% owned and principal operating subsidiary of the Company,Acuity Brands, refinanced the then current outstanding debt through the issuance of the Notes. See Debt and Lines of Credit footnote for further information.
In accordance with the registration rights agreement by and between ABL and the guarantors to the Unsecured Notes and the initial purchasers of the Unsecured Notes, ABL and the guarantors to the Notes filed a registration statement with the SEC for an offer to exchange the Unsecured Notes for an issue of SEC-registered notes with identical terms. Due to the filing of the registration statement and offer to exchange, the Companywe determined the need for compliance with Rule 3-10 of SEC Regulation S-X (“Rule 3-10”). In lieu of providing separate audited financial statements for ABL and ABL IP Holding, the Company haswe have included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(d) of SEC Regulation S-X since the Unsecured Notes are fully and unconditionally guaranteed by Acuity Brands and ABL IP Holding. The column marked “Parent” represents the financial condition, results of operations, and cash flows of Acuity Brands. The column marked “Subsidiary Issuer” represents the financial condition, results of operations, and cash flows of ABL. The column entitled “Subsidiary Guarantor” represents the financial condition, results of operations, and cash flows of ABL IP Holding. Lastly, the column listed as “Non-Guarantors” includes the financial condition, results of operations, and cash flows of the non-guarantor direct and indirect subsidiaries of Acuity Brands, which consist primarily of foreign subsidiaries. EliminationsConsolidating adjustments were necessary in order to arrive at consolidated amounts. In addition, the equity method of accounting was used to calculate investments in subsidiaries. Accordingly, this basis of presentation is not intended to present our financial condition, results of operations, or cash flows for any purpose other than to comply with the specific requirements for parent-subsidiary guarantor reporting.
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
CONDENSED CONSOLIDATING BALANCE SHEETS
(In millions)
| | | | At August 31, 2016 | At August 31, 2019 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
ASSETS | | Current Assets: | |
| | |
| | |
| | |
| | |
| | |
| |
| Current assets: | | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 368.2 |
| | $ | — |
| | $ | — |
| | $ | 45.0 |
| | $ | — |
| | $ | 413.2 |
| $ | 361.9 |
| | $ | 18.1 |
| | $ | — |
| | $ | 81.0 |
| | $ | — |
| | $ | 461.0 |
|
| Accounts receivable, net | — |
| | 503.0 |
| | — |
| | 69.8 |
| | — |
| | 572.8 |
| — |
| | 484.7 |
| | — |
| | 76.3 |
| | — |
| | 561.0 |
|
| Inventories | — |
| | 274.7 |
| | — |
| | 20.5 |
| | — |
| | 295.2 |
| — |
| | 317.1 |
| | — |
| | 23.7 |
| | — |
| | 340.8 |
|
| Other current assets | 2.5 |
| | 14.3 |
| | — |
| | 24.9 |
| | — |
| | 41.7 |
| 32.2 |
| | 27.1 |
| | — |
| | 19.7 |
| | — |
| | 79.0 |
|
| Total Current Assets | 370.7 |
| | 792.0 |
| | — |
| | 160.2 |
| | — |
| | 1,322.9 |
| |
| Property, Plant, and Equipment, net | 0.3 |
| | 217.8 |
| | — |
| | 49.7 |
| | — |
| | 267.8 |
| |
| Total current assets | | 394.1 |
| | 847.0 |
| | — |
| | 200.7 |
| | — |
| | 1,441.8 |
|
| Property, plant, and equipment, net | | 0.2 |
| | 220.7 |
| | — |
| | 56.4 |
| | — |
| | 277.3 |
|
| Goodwill | — |
| | 735.8 |
| | 2.7 |
| | 209.3 |
| | — |
| | 947.8 |
| — |
| | 747.6 |
| | 2.7 |
| | 217.0 |
| | — |
| | 967.3 |
|
| Intangible assets, net | — |
| | 168.1 |
| | 113.4 |
| | 99.9 |
| | — |
| | 381.4 |
| — |
| | 271.0 |
| | 103.7 |
| | 91.3 |
| | — |
| | 466.0 |
|
| Deferred income taxes | 47.5 |
| | — |
| | — |
| | 6.5 |
| | (48.9 | ) | | 5.1 |
| 30.2 |
| | — |
| | — |
| | 5.8 |
| | (33.7 | ) | | 2.3 |
|
| Other long-term assets | 1.4 |
| | 20.4 |
| | — |
| | 1.2 |
| | — |
| | 23.0 |
| 1.1 |
| | 15.2 |
| | — |
| | 1.4 |
| | — |
| | 17.7 |
|
| Investments in and amounts due from affiliates | 1,347.6 |
| | 299.6 |
| | 200.5 |
| | — |
| | (1,847.7 | ) | | — |
| 1,627.9 |
| | 476.8 |
| | 321.6 |
| | — |
| | (2,426.3 | ) | | — |
|
| Total Assets | $ | 1,767.5 |
| | $ | 2,233.7 |
| | $ | 316.6 |
| | $ | 526.8 |
| | $ | (1,896.6 | ) | | $ | 2,948.0 |
| |
| Total assets | | $ | 2,053.5 |
| | $ | 2,578.3 |
| | $ | 428.0 |
| | $ | 572.6 |
| | $ | (2,460.0 | ) | | $ | 3,172.4 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | Current Liabilities: | |
| | |
| | |
| | |
| | |
| | |
| |
| Current liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | 1.2 |
| | $ | 371.3 |
| | $ | — |
| | $ | 28.5 |
| | $ | — |
| | $ | 401.0 |
| $ | 0.7 |
| | $ | 314.4 |
| | $ | — |
| | $ | 23.7 |
| | $ | — |
| | $ | 338.8 |
|
| Current maturities of long-term debt | — |
| | — |
| | — |
| | 0.2 |
| | — |
| | 0.2 |
| — |
| | 8.7 |
| | — |
| | 0.4 |
| | — |
| | 9.1 |
|
| Accrued liabilities | 14.5 |
| | 215.4 |
| | — |
| | 41.4 |
| | — |
| | 271.3 |
| |
| Total Current Liabilities | 15.7 |
| | 586.7 |
| | — |
| | 70.1 |
| | — |
| | 672.5 |
| |
| Long-Term Debt | — |
| | 352.8 |
| | — |
| | 2.2 |
| | — |
| | 355.0 |
| |
| Deferred Income Taxes | — |
| | 95.5 |
| | — |
| | 28.0 |
| | (48.9 | ) | | 74.6 |
| |
| Other Long-Term Liabilities | 92.0 |
| | 64.8 |
| | — |
| | 29.3 |
| | — |
| | 186.1 |
| |
| Other accrued liabilities | | 11.8 |
| | 186.0 |
| | — |
| | 50.4 |
| | — |
| | 248.2 |
|
| Total current liabilities | | 12.5 |
| | 509.1 |
| | — |
| | 74.5 |
| | — |
| | 596.1 |
|
| Long-term debt | | — |
| | 345.2 |
| | — |
| | 2.3 |
| | — |
| | 347.5 |
|
| Deferred income taxes | | — |
| | 105.8 |
| | — |
| | 20.6 |
| | (33.7 | ) | | 92.7 |
|
| Other long-term liabilities | | 122.1 |
| | 80.4 |
| | — |
| | 14.7 |
| | — |
| | 217.2 |
|
| Amounts due to affiliates | — |
| | — |
| | — |
| | 96.9 |
| | (96.9 | ) | | — |
| — |
| | — |
| | — |
| | 146.4 |
| | (146.4 | ) | | — |
|
| Total Stockholders’ Equity | 1,659.8 |
| | 1,133.9 |
| | 316.6 |
| | 300.3 |
| | (1,750.8 | ) | | 1,659.8 |
| |
| Total Liabilities and Stockholders’ Equity | $ | 1,767.5 |
| | $ | 2,233.7 |
| | $ | 316.6 |
| | $ | 526.8 |
| | $ | (1,896.6 | ) | | $ | 2,948.0 |
| |
| Total stockholders’ equity | | 1,918.9 |
| | 1,537.8 |
| | 428.0 |
| | 314.1 |
| | (2,279.9 | ) | | 1,918.9 |
|
| Total liabilities and stockholders’ equity | | $ | 2,053.5 |
| | $ | 2,578.3 |
| | $ | 428.0 |
| | $ | 572.6 |
| | $ | (2,460.0 | ) | | $ | 3,172.4 |
|
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
CONDENSED CONSOLIDATING BALANCE SHEETS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | At August 31, 2015 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| ASSETS |
| Current Assets: | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 479.9 |
| | $ | — |
| | $ | — |
| | $ | 276.9 |
| | $ | — |
| | $ | 756.8 |
|
| Accounts receivable, net | — |
| | 365.5 |
| | — |
| | 46.2 |
| | — |
| | 411.7 |
|
| Inventories | — |
| | 208.6 |
| | — |
| | 16.2 |
| | — |
| | 224.8 |
|
| Other current assets | 1.6 |
| | 11.6 |
| | — |
| | 6.9 |
| | — |
| | 20.1 |
|
| Total Current Assets | 481.5 |
| | 585.7 |
| | — |
| | 346.2 |
| | — |
| | 1,413.4 |
|
| Property, Plant, and Equipment, net | 0.3 |
| | 139.8 |
| | — |
| | 34.5 |
| | — |
| | 174.6 |
|
| Goodwill | — |
| | 524.2 |
| | 2.7 |
| | 38.1 |
| | — |
| | 565.0 |
|
| Intangible assets, net | — |
| | 87.4 |
| | 117.3 |
| | 18.7 |
| | — |
| | 223.4 |
|
| Deferred income taxes | 41.9 |
| | — |
| | — |
| | 5.2 |
| | (43.6 | ) | | 3.5 |
|
| Other long-term assets | 1.3 |
| | 23.8 |
| | — |
| | 2.0 |
| | — |
| | 27.1 |
|
| Investments in and amounts due from affiliates | 934.7 |
| | 333.5 |
| | 168.5 |
| | — |
| | (1,436.7 | ) | | — |
|
| Total Assets | $ | 1,459.7 |
| | $ | 1,694.4 |
| | $ | 288.5 |
| | $ | 444.7 |
| | $ | (1,480.3 | ) | | $ | 2,407.0 |
|
| | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current Liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | 0.9 |
| | $ | 291.6 |
| | $ | — |
| | $ | 18.6 |
| | $ | — |
| | $ | 311.1 |
|
| Other accrued liabilities | 20.4 |
| | 162.7 |
| | — |
| | 26.7 |
| | — |
| | 209.8 |
|
| Total Current Liabilities | 21.3 |
| | 454.3 |
| | — |
| | 45.3 |
| | — |
| | 520.9 |
|
| Long-Term Debt | — |
| | 352.4 |
| | — |
| | — |
| | — |
| | 352.4 |
|
| Deferred Income Taxes | — |
| | 75.3 |
| | — |
| | — |
| | (43.6 | ) | | 31.7 |
|
| Other Long-Term Liabilities | 78.4 |
| | 42.7 |
| | — |
| | 20.9 |
| | — |
| | 142.0 |
|
| Amounts due to affiliates | — |
| | — |
| | — |
| | 77.5 |
| | (77.5 | ) | | — |
|
| Total Stockholders’ Equity | 1,360.0 |
| | 769.7 |
| | 288.5 |
| | 301.0 |
| | (1,359.2 | ) | | 1,360.0 |
|
| Total Liabilities and Stockholders’ Equity | $ | 1,459.7 |
| | $ | 1,694.4 |
| | $ | 288.5 |
| | $ | 444.7 |
| | $ | (1,480.3 | ) | | $ | 2,407.0 |
|
(In millions)
73 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | At August 31, 2018 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| ASSETS |
| Current assets: | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 80.5 |
| | $ | — |
| | $ | — |
| | $ | 48.6 |
| | $ | — |
| | $ | 129.1 |
|
| Accounts receivable, net | — |
| | 560.7 |
| | — |
| | 77.2 |
| | — |
| | 637.9 |
|
| Inventories | — |
| | 386.6 |
| | — |
| | 25.2 |
| | — |
| | 411.8 |
|
| Other current assets | 2.3 |
| | 18.6 |
| | — |
| | 11.4 |
| | — |
| | 32.3 |
|
| Total current assets | 82.8 |
| | 965.9 |
| | — |
| | 162.4 |
| | — |
| | 1,211.1 |
|
| Property, plant, and equipment, net | 0.2 |
| | 226.8 |
| | — |
| | 59.7 |
| | — |
| | 286.7 |
|
| Goodwill | — |
| | 746.5 |
| | 2.7 |
| | 221.4 |
| | — |
| | 970.6 |
|
| Intangible assets, net | — |
| | 286.6 |
| | 106.5 |
| | 105.6 |
| | — |
| | 498.7 |
|
| Deferred income taxes | 36.4 |
| | — |
| | — |
| | 6.2 |
| | (39.7 | ) | | 2.9 |
|
| Other long-term assets | 1.2 |
| | 15.6 |
| | — |
| | 2.0 |
| | — |
| | 18.8 |
|
| Investments in and amounts due from affiliates | 1,707.0 |
| | 370.6 |
| | 279.5 |
| | — |
| | (2,357.1 | ) | | — |
|
| Total assets | $ | 1,827.6 |
| | $ | 2,612.0 |
| | $ | 388.7 |
| | $ | 557.3 |
| | $ | (2,396.8 | ) | | $ | 2,988.8 |
|
| | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | 0.3 |
| | $ | 420.7 |
| | $ | — |
| | $ | 30.1 |
| | $ | — |
| | $ | 451.1 |
|
| Current maturities of long-term debt | — |
| | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
|
| Other accrued liabilities | 18.8 |
| | 170.1 |
| | — |
| | 42.3 |
| | — |
| | 231.2 |
|
| Total current liabilities | 19.1 |
| | 590.8 |
| | — |
| | 72.8 |
| | — |
| | 682.7 |
|
| Long-term debt | — |
| | 353.5 |
| | — |
| | 2.9 |
| | — |
| | 356.4 |
|
| Deferred income taxes | — |
| | 106.5 |
| | — |
| | 25.7 |
| | (39.7 | ) | | 92.5 |
|
| Other long-term liabilities | 91.7 |
| | 34.0 |
| | — |
| | 14.7 |
| | — |
| | 140.4 |
|
| Amounts due to affiliates | — |
| | — |
| | — |
| | 138.8 |
| | (138.8 | ) | | — |
|
| Total stockholders’ equity | 1,716.8 |
| | 1,527.2 |
| | 388.7 |
| | 302.4 |
| | (2,218.3 | ) | | 1,716.8 |
|
| Total liabilities and stockholders’ equity | $ | 1,827.6 |
| | $ | 2,612.0 |
| | $ | 388.7 |
| | $ | 557.3 |
| | $ | (2,396.8 | ) | | $ | 2,988.8 |
|
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2016 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net Sales: | |
| | |
| | |
| | |
| | |
| | |
|
| External sales | $ | — |
| | $ | 2,919.7 |
| | $ | — |
| | $ | 371.6 |
| | $ | — |
| | $ | 3,291.3 |
|
| Intercompany sales | — |
| | — |
| | 47.4 |
| | 131.2 |
| | (178.6 | ) | | — |
|
| Total Sales | — |
| | 2,919.7 |
| | 47.4 |
| | 502.8 |
| | (178.6 | ) | | 3,291.3 |
|
| Cost of Products Sold | — |
| | 1,602.2 |
| | — |
| | 379.3 |
| | (126.4 | ) | | 1,855.1 |
|
| Gross Profit | — |
| | 1,317.5 |
| | 47.4 |
| | 123.5 |
| | (52.2 | ) | | 1,436.2 |
|
| Selling, Distribution, and Administrative Expenses | 47.2 |
| | 834.6 |
| | 3.8 |
| | 112.6 |
| | (52.2 | ) | | 946.0 |
|
| Intercompany charges | (59.5 | ) | | 50.4 |
| | — |
| | 9.1 |
| | — |
| | — |
|
| Special Charge | — |
| | 15.0 |
| | — |
| | — |
| | — |
| | 15.0 |
|
| Operating Profit | 12.3 |
| | 417.5 |
| | 43.6 |
| | 1.8 |
| | — |
| | 475.2 |
|
| Interest expense, net | 10.5 |
| | 16.1 |
| | — |
| | 5.6 |
| | — |
| | 32.2 |
|
| Equity earnings in subsidiaries | (289.2 | ) | | (3.2 | ) | | — |
| | 0.2 |
| | 292.2 |
| | — |
|
| Miscellaneous income, net | — |
| | — |
| | — |
| | (1.6 | ) | | — |
| | (1.6 | ) |
| Income (Loss) before Provision for Income Taxes | 291.0 |
| | 404.6 |
| | 43.6 |
| | (2.4 | ) | | (292.2 | ) | | 444.6 |
|
| Provision for Income Taxes | 0.2 |
| | 137.7 |
| | 15.6 |
| | 0.3 |
| | — |
| | 153.8 |
|
| Net Income (Loss) | 290.8 |
| | 266.9 |
| | 28.0 |
| | (2.7 | ) | | (292.2 | ) | | 290.8 |
|
| | | | | | | | | | | | |
| Other Comprehensive Income (Loss) Items: | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | (5.6 | ) | | (5.6 | ) | | — |
| | — |
| | 5.6 |
| | (5.6 | ) |
| Defined Benefit Pension Plans, net | (23.4 | ) | | (11.4 | ) | | — |
| | (9.5 | ) | | 20.9 |
| | (23.4 | ) |
| Other Comprehensive Income (Loss) Items after Provision for Income Taxes | (29.0 | ) | | (17.0 | ) | | — |
| | (9.5 | ) | | 26.5 |
| | (29.0 | ) |
| Other Comprehensive Income (Loss) | $ | 261.8 |
| | $ | 249.9 |
| | $ | 28.0 |
| | $ | (12.2 | ) | | $ | (265.7 | ) | | $ | 261.8 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2019 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net sales: | |
| | |
| | |
| | |
| | |
| | |
|
| External sales | $ | — |
| | $ | 3,253.6 |
| | $ | — |
| | $ | 419.1 |
| | $ | — |
| | $ | 3,672.7 |
|
| Intercompany sales | — |
| | — |
| | 52.7 |
| | 204.7 |
| | (257.4 | ) | | — |
|
| Total sales | — |
| | 3,253.6 |
| | 52.7 |
| | 623.8 |
| | (257.4 | ) | | 3,672.7 |
|
| Cost of products sold | — |
| | 1,940.1 |
| | — |
| | 454.1 |
| | (201.2 | ) | | 2,193.0 |
|
| Gross profit | — |
| | 1,313.5 |
| | 52.7 |
| | 169.7 |
| | (56.2 | ) | | 1,479.7 |
|
| Selling, distribution, and administrative expenses | 15.6 |
| | 897.6 |
| | 2.8 |
| | 155.3 |
| | (56.3 | ) | | 1,015.0 |
|
| Intercompany charges | (33.2 | ) | | 25.6 |
| | — |
| | 7.6 |
| | — |
| | — |
|
| Special charges | — |
| | 1.8 |
| | — |
| | — |
| | — |
| | 1.8 |
|
| Operating profit | 17.6 |
| | 388.5 |
| | 49.9 |
| | 6.8 |
| | 0.1 |
| | 462.9 |
|
| Interest expense, net | 10.9 |
| | 17.4 |
| | — |
| | 5.0 |
| | — |
| | 33.3 |
|
| Equity earnings in subsidiaries | (330.0 | ) | | (23.2 | ) | | — |
| | 0.2 |
| | 353.0 |
| | — |
|
| Miscellaneous expense (income), net | 6.7 |
| | (2.1 | ) | | — |
| | 0.1 |
| | — |
| | 4.7 |
|
| Income before income taxes | 330.0 |
| | 396.4 |
| | 49.9 |
| | 1.5 |
| | (352.9 | ) | | 424.9 |
|
| Income tax (benefit) expense | (0.4 | ) | | 84.5 |
| | 10.5 |
| | (0.1 | ) | | — |
| | 94.5 |
|
| Net income | 330.4 |
| | 311.9 |
| | 39.4 |
| | 1.6 |
| | (352.9 | ) | | 330.4 |
|
| | | | | | | | | | | | |
| Other comprehensive income (loss) items: | | | | | | | | | | | |
| Foreign currency translation adjustments | (11.5 | ) | | (11.5 | ) | | — |
| | — |
| | 11.5 |
| | (11.5 | ) |
| Defined benefit plans, net of tax | (25.1 | ) | | (17.1 | ) | | — |
| | (0.2 | ) | | 17.3 |
| | (25.1 | ) |
| Other comprehensive loss items, net of tax | (36.6 | ) | | (28.6 | ) | | — |
| | (0.2 | ) | | 28.8 |
| | (36.6 | ) |
| Comprehensive income | $ | 293.8 |
| | $ | 283.3 |
| | $ | 39.4 |
| | $ | 1.4 |
| | $ | (324.1 | ) | | $ | 293.8 |
|
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2015 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net Sales: | |
| | |
| | |
| | |
| | |
| | |
|
| External sales | $ | — |
| | $ | 2,446.9 |
| | $ | — |
| | $ | 259.8 |
| | $ | — |
| | $ | 2,706.7 |
|
| Intercompany sales | — |
| | — |
| | 41.2 |
| | 105.5 |
| | (146.7 | ) | | — |
|
| Total Sales | — |
| | 2,446.9 |
| | 41.2 |
| | 365.3 |
| | (146.7 | ) | | 2,706.7 |
|
| Cost of Products Sold | — |
| | 1,388.0 |
| | — |
| | 276.5 |
| | (103.4 | ) | | 1,561.1 |
|
| Gross Profit | — |
| | 1,058.9 |
| | 41.2 |
| | 88.8 |
| | (43.3 | ) | | 1,145.6 |
|
| Selling, Distribution, and Administrative Expenses | 34.0 |
| | 684.4 |
| | 4.0 |
| | 77.8 |
| | (43.3 | ) | | 756.9 |
|
| Intercompany charges | (45.4 | ) | | 39.7 |
| | — |
| | 5.7 |
| | — |
| | — |
|
| Special Charge | — |
| | 12.4 |
| | — |
| | — |
| | — |
| | 12.4 |
|
| Operating Profit | 11.4 |
| | 322.4 |
| | 37.2 |
| | 5.3 |
| | — |
| | 376.3 |
|
| Interest expense (income), net | 9.9 |
| | 21.8 |
| | — |
| | (0.2 | ) | | — |
| | 31.5 |
|
| Equity earnings in subsidiaries | (221.2 | ) | | (5.2 | ) | | — |
| | — |
| | 226.4 |
| | — |
|
| Miscellaneous expense (income), net | — |
| | 2.8 |
| | — |
| | (1.6 | ) | | — |
| | 1.2 |
|
| Income (Loss) before Provision for Income Taxes | 222.7 |
| | 303.0 |
| | 37.2 |
| | 7.1 |
| | (226.4 | ) | | 343.6 |
|
| Provision for Income Taxes | 0.6 |
| | 103.5 |
| | 14.9 |
| | 2.5 |
| | — |
| | 121.5 |
|
| Net Income (Loss) | 222.1 |
| | 199.5 |
| | 22.3 |
| | 4.6 |
| | (226.4 | ) | | 222.1 |
|
| | | | | | | | | | | | |
| Other Comprehensive Income (Loss) Items: | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | (24.0 | ) | | (24.0 | ) | | — |
| | — |
| | 24.0 |
| | (24.0 | ) |
| Defined Benefit Pension Plans, net | (14.5 | ) | | 6.3 |
| | — |
| | 0.5 |
| | (6.8 | ) | | (14.5 | ) |
| Other Comprehensive Income (Loss) Items after Provision for Income Taxes | (38.5 | ) | | (17.7 | ) | | — |
| | 0.5 |
| | 17.2 |
| | (38.5 | ) |
| Other Comprehensive Income (Loss) | $ | 183.6 |
| | $ | 181.8 |
| | $ | 22.3 |
| | $ | 5.1 |
| | $ | (209.2 | ) | | $ | 183.6 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2018 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net sales: | |
| | |
| | |
| | |
| | |
| | |
|
| External sales | $ | — |
| | $ | 3,275.7 |
| | $ | — |
| | $ | 404.4 |
| | $ | — |
| | $ | 3,680.1 |
|
| Intercompany sales | — |
| | — |
| | 53.6 |
| | 211.2 |
| | (264.8 | ) | | — |
|
| Total sales | — |
| | 3,275.7 |
| | 53.6 |
| | 615.6 |
| | (264.8 | ) | | 3,680.1 |
|
| Cost of products sold | — |
| | 1,951.2 |
| | — |
| | 442.1 |
| | (198.6 | ) | | 2,194.7 |
|
| Gross profit | — |
| | 1,324.5 |
| | 53.6 |
| | 173.5 |
| | (66.2 | ) | | 1,485.4 |
|
| Selling, distribution, and administrative expenses | 41.0 |
| | 884.6 |
| | 3.2 |
| | 156.3 |
| | (66.1 | ) | | 1,019.0 |
|
| Intercompany charges | (59.2 | ) | | 49.5 |
| | — |
| | 9.7 |
| | — |
| | — |
|
| Special charges | — |
| | 5.6 |
| | — |
| | — |
| | — |
| | 5.6 |
|
| Operating profit | 18.2 |
| | 384.8 |
| | 50.4 |
| | 7.5 |
| | (0.1 | ) | | 460.8 |
|
| Interest expense, net | 11.1 |
| | 16.9 |
| | — |
| | 5.5 |
| | — |
| | 33.5 |
|
| Equity earnings in subsidiaries | (344.3 | ) | | (18.5 | ) | | — |
| | 0.2 |
| | 362.6 |
| | — |
|
| Miscellaneous expense (income), net | 6.4 |
| | (1.8 | ) | | — |
| | (3.2 | ) | | — |
| | 1.4 |
|
| Income before income taxes | 345.0 |
| | 388.2 |
| | 50.4 |
| | 5.0 |
| | (362.7 | ) | | 425.9 |
|
| Income tax (benefit) expense | (4.6 | ) | | 72.0 |
| | 8.5 |
| | 0.4 |
| | — |
| | 76.3 |
|
| Net income | 349.6 |
| | 316.2 |
| | 41.9 |
| | 4.6 |
| | (362.7 | ) | | 349.6 |
|
| | | | | | | | | | | | |
| Other comprehensive income (loss) items: | | | | | | | | | | | |
| Foreign currency translation adjustments | (25.2 | ) | | (25.2 | ) | | — |
| | — |
| | 25.2 |
| | (25.2 | ) |
| Defined benefit plans, net of tax | 21.2 |
| | 16.9 |
| | — |
| | 4.3 |
| | (21.2 | ) | | 21.2 |
|
| Other comprehensive (loss) income items, net of tax | (4.0 | ) | | (8.3 | ) | | — |
| | 4.3 |
| | 4.0 |
| | (4.0 | ) |
| Comprehensive income | $ | 345.6 |
| | $ | 307.9 |
| | $ | 41.9 |
| | $ | 8.9 |
| | $ | (358.7 | ) | | $ | 345.6 |
|
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2017 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net sales: | |
| | |
| | |
| | |
| | |
| | |
|
| External sales | $ | — |
| | $ | 3,105.2 |
| | $ | — |
| | $ | 399.9 |
| | $ | — |
| | $ | 3,505.1 |
|
| Intercompany sales | — |
| | — |
| | 49.4 |
| | 179.2 |
| | (228.6 | ) | | — |
|
| Total sales | — |
| | 3,105.2 |
| | 49.4 |
| | 579.1 |
| | (228.6 | ) | | 3,505.1 |
|
| Cost of products sold | — |
| | 1,764.6 |
| | — |
| | 432.8 |
| | (173.4 | ) | | 2,024.0 |
|
| Gross profit | — |
| | 1,340.6 |
| | 49.4 |
| | 146.3 |
| | (55.2 | ) | | 1,481.1 |
|
| Selling, distribution, and administrative expenses | 39.2 |
| | 824.6 |
| | 3.6 |
| | 130.0 |
| | (55.1 | ) | | 942.3 |
|
| Intercompany charges | (56.9 | ) | | 47.7 |
| | — |
| | 9.2 |
| | — |
| | — |
|
| Special charges | — |
| | 11.3 |
| | — |
| | — |
| | — |
| | 11.3 |
|
| Operating profit | 17.7 |
| | 457.0 |
| | 45.8 |
| | 7.1 |
| | (0.1 | ) | | 527.5 |
|
| Interest expense, net | 11.0 |
| | 16.1 |
| | — |
| | 5.4 |
| | — |
| | 32.5 |
|
| Equity earnings in subsidiaries | (320.9 | ) | | (7.7 | ) | | — |
| | 0.2 |
| | 328.4 |
| | — |
|
| Miscellaneous expense (income), net | 5.8 |
| | (7.9 | ) | | — |
| | 4.5 |
| | — |
| | 2.4 |
|
| Income (loss) before income taxes | 321.8 |
| | 456.5 |
| | 45.8 |
| | (3.0 | ) | | (328.5 | ) | | 492.6 |
|
| Income tax expense (benefit) | 0.1 |
| | 158.0 |
| | 15.7 |
| | (2.9 | ) | | — |
| | 170.9 |
|
| Net income (loss) | 321.7 |
| | 298.5 |
| | 30.1 |
| | (0.1 | ) | | (328.5 | ) | | 321.7 |
|
| | | | | | | | | | | | |
| Other comprehensive income (loss) items: | | | | | | | | | | | |
| Foreign currency translation adjustments | 19.0 |
| | 19.0 |
| | — |
| | — |
| | (19.0 | ) | | 19.0 |
|
| Defined benefit plans, net of tax | 20.7 |
| | 11.8 |
| | — |
| | 7.5 |
| | (19.3 | ) | | 20.7 |
|
| Other comprehensive income items, net of tax | 39.7 |
| | 30.8 |
| | — |
| | 7.5 |
| | (38.3 | ) | | 39.7 |
|
| Comprehensive income | $ | 361.4 |
| | $ | 329.3 |
| | $ | 30.1 |
| | $ | 7.4 |
| | $ | (366.8 | ) | | $ | 361.4 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2014 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net Sales: | |
| | |
| | |
| | |
| | |
| | |
|
| External sales | $ | — |
| | $ | 2,150.6 |
| | $ | — |
| | $ | 242.9 |
| | $ | — |
| | $ | 2,393.5 |
|
| Intercompany sales | — |
| | — |
| | 37.2 |
| | 94.8 |
| | (132.0 | ) | | — |
|
| Total Sales | — |
| | 2,150.6 |
| | 37.2 |
| | 337.7 |
| | (132.0 | ) | | 2,393.5 |
|
| Cost of Products Sold | — |
| | 1,255.5 |
| | — |
| | 250.5 |
| | (91.7 | ) | | 1,414.3 |
|
| Gross Profit | — |
| | 895.1 |
| | 37.2 |
| | 87.2 |
| | (40.3 | ) | | 979.2 |
|
| Selling, Distribution, and Administrative Expenses | 27.8 |
| | 612.5 |
| | 4.1 |
| | 76.2 |
| | (40.3 | ) | | 680.3 |
|
| Intercompany charges | (39.6 | ) | | 34.7 |
| | — |
| | 4.9 |
| | — |
| | — |
|
| Special Charge | — |
| | (0.2 | ) | | — |
| | — |
| | — |
| | (0.2 | ) |
| Operating Profit | 11.8 |
| | 248.1 |
| | 33.1 |
| | 6.1 |
| | — |
| | 299.1 |
|
| Interest expense (income), net | 10.0 |
| | 22.2 |
| | — |
| | (0.1 | ) | | — |
| | 32.1 |
|
| Equity earnings in subsidiaries | (174.2 | ) | | (4.0 | ) | | — |
| | — |
| | 178.2 |
| | — |
|
| Miscellaneous (income) expense, net | — |
| | (1.6 | ) | | — |
| | 1.8 |
| | 1.1 |
| | 1.3 |
|
| Income (Loss) before Provision for Income Taxes | 176.0 |
| | 231.5 |
| | 33.1 |
| | 4.4 |
| | (179.3 | ) | | 265.7 |
|
| Provision for Income Taxes | 0.2 |
| | 75.5 |
| | 13.1 |
| | 1.1 |
| | — |
| | 89.9 |
|
| Net Income (Loss) | 175.8 |
| | 156.0 |
| | 20.0 |
| | 3.3 |
| | (179.3 | ) | | 175.8 |
|
| | | | | | | | | | | | |
| Other Comprehensive Income (Loss) Items: | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | 0.7 |
| | 0.7 |
| | — |
| | — |
| | (0.7 | ) | | 0.7 |
|
| Defined Benefit Pension Plans, net | (10.0 | ) | | (3.7 | ) | | — |
| | (5.2 | ) | | 8.9 |
| | (10.0 | ) |
| Other Comprehensive Income (Loss) Items after Provision for Income Taxes | (9.3 | ) | | (3.0 | ) | | — |
| | (5.2 | ) | | 8.2 |
| | (9.3 | ) |
| Other Comprehensive Income (Loss) | $ | 166.5 |
| | $ | 153.0 |
| | $ | 20.0 |
| | $ | (1.9 | ) | | $ | (171.1 | ) | | $ | 166.5 |
|
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2016 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net Cash Provided by Operating Activities | $ | 277.0 |
| | $ | 54.8 |
| | $ | — |
| | $ | 13.9 |
| | $ | — |
| | $ | 345.7 |
|
| Cash Provided by (Used for) Investing Activities: | | | | | | | | | | | |
| Purchases of property, plant, and equipment | — |
| | (67.1 | ) | | — |
| | (16.6 | ) | | — |
| | (83.7 | ) |
| Proceeds from sale of property, plant, and equipment | — |
| | 0.2 |
| | — |
| | 2.0 |
| | — |
| | 2.2 |
|
| Investments in subsidiaries | (405.6 | ) | | — |
| | — |
| | — |
| | 405.6 |
| | — |
|
| Acquisitions of businesses and intangible assets | — |
| | (393.9 | ) | | — |
| | (229.3 | ) | | — |
| | (623.2 | ) |
| Net Cash (Used for) Provided by Investing Activities | (405.6 | ) | | (460.8 | ) | | — |
| | (243.9 | ) | | 405.6 |
| | (704.7 | ) |
| Cash Provided by (Used for) Financing Activities: | | | |
| | |
| | |
| | |
| | |
|
| Issuance of long-term debt | — |
| | — |
| | — |
| | 2.5 |
| | — |
| | 2.5 |
|
| Proceeds from stock option exercises and other | 14.2 |
| | — |
| | — |
| | — |
| | — |
| | 14.2 |
|
| Repurchases of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Excess tax benefits from share-based payments | 25.6 |
| | — |
| | — |
| | — |
| | — |
| | 25.6 |
|
| Intercompany capital | — |
| | 405.6 |
| | — |
| | — |
| | (405.6 | ) | | — |
|
| Dividends paid | (22.9 | ) | | — |
| | — |
| | — |
| | — |
| | (22.9 | ) |
| Net Cash Provided by (Used for) Financing Activities | 16.9 |
| | 405.6 |
| | — |
| | 2.5 |
| | (405.6 | ) | | 19.4 |
|
| Effect of Exchange Rate Changes on Cash | — |
| | 0.4 |
| | — |
| | (4.4 | ) | | — |
| | (4.0 | ) |
| Net Change in Cash and Cash Equivalents | (111.7 | ) | | — |
| | — |
| | (231.9 | ) | | — |
| | (343.6 | ) |
| Cash and Cash Equivalents at Beginning of Year | 479.9 |
| | — |
| | — |
| | 276.9 |
| | — |
| | 756.8 |
|
| Cash and Cash Equivalents at End of Year | $ | 368.2 |
| | $ | — |
| | $ | — |
| | $ | 45.0 |
| | $ | — |
| | $ | 413.2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2019 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net cash provided by operating activities | $ | 391.1 |
| | $ | 63.4 |
| | $ | — |
| | $ | 43.1 |
| | $ | (2.9 | ) | | $ | 494.7 |
|
| Cash flows from investing activities: | | | | | | | | | | | |
| Purchases of property, plant, and equipment | — |
| | (44.5 | ) | | — |
| | (8.5 | ) | | — |
| | (53.0 | ) |
| Investments in subsidiaries | (2.9 | ) | | — |
| | — |
| | — |
| | 2.9 |
| | — |
|
| Acquisitions of businesses and intangible assets | — |
| | (2.9 | ) | | — |
| | — |
| | — |
| | (2.9 | ) |
| Other investing activities | 0.8 |
| | 2.1 |
| | — |
| | — |
| | — |
| | 2.9 |
|
| Net cash used for investing activities | (2.1 | ) | | (45.3 | ) | | — |
| | (8.5 | ) | | 2.9 |
| | (53.0 | ) |
| Cash flow from financing activities: | | | |
| | |
| | |
| | |
| | |
|
| Borrowings on credit facility | — |
| | 86.5 |
| | — |
| | — |
| | — |
| | 86.5 |
|
| Repayments of borrowings on credit facility | — |
| | (86.5 | ) | | — |
| | — |
| | — |
| | (86.5 | ) |
| Repayments of long-term debt | — |
| | — |
| | — |
| | (0.4 | ) | | — |
| | (0.4 | ) |
| Proceeds from stock option exercises and other | 0.6 |
| | — |
| | — |
| | — |
| | — |
| | 0.6 |
|
| Repurchases of common stock | (81.6 | ) | | — |
| | — |
| | — |
| | — |
| | (81.6 | ) |
| Withholding taxes on net settlement of equity awards | (6.0 | ) | | — |
| | — |
| | — |
| | — |
| | (6.0 | ) |
| Dividends paid | (20.8 | ) | | — |
| | — |
| | — |
| | — |
| | (20.8 | ) |
| Net cash used for financing activities | (107.8 | ) | | — |
| | — |
| | (0.4 | ) | | — |
| | (108.2 | ) |
| Effect of exchange rate changes on cash | 0.2 |
| | — |
| | — |
| | (1.8 | ) | | — |
| | (1.6 | ) |
| Net change in cash and cash equivalents | 281.4 |
| | 18.1 |
| | — |
| | 32.4 |
| | — |
| | 331.9 |
|
| Cash and cash equivalents at beginning of year | 80.5 |
| | — |
| | — |
| | 48.6 |
| | — |
| | 129.1 |
|
| Cash and cash equivalents at end of year | $ | 361.9 |
| | $ | 18.1 |
| | $ | — |
| | $ | 81.0 |
| | $ | — |
| | $ | 461.0 |
|
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2015 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net Cash Provided by Operating Activities | $ | 212.1 |
| | $ | 55.2 |
| | $ | — |
| | $ | 21.6 |
| | $ | — |
| | $ | 288.9 |
|
| Cash Provided by (Used for) Investing Activities: | | | | | | | | | | | |
| Purchases of property, plant, and equipment | — |
| | (41.9 | ) | | — |
| | (14.6 | ) | | — |
| | (56.5 | ) |
| Proceeds from sale of property, plant, and equipment | — |
| | 1.3 |
| | — |
| | — |
| | — |
| | 1.3 |
|
| Investments in subsidiaries | (254.7 | ) | | (245.2 | ) | | — |
| | — |
| | 499.9 |
| | — |
|
| Acquisitions of businesses | — |
| | (14.6 | ) | | — |
| | — |
| | — |
| | (14.6 | ) |
| Other investing activities | — |
| | (2.6 | ) | | — |
| | — |
| | — |
| | (2.6 | ) |
| Net Cash (Used for) Provided by Investing Activities | (254.7 | ) | | (303.0 | ) | | — |
| | (14.6 | ) | | 499.9 |
| | (72.4 | ) |
| Cash Provided by (Used for) Financing Activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Proceeds from stock option exercises and other | 11.6 |
| | — |
| | — |
| | — |
| | — |
| | 11.6 |
|
| Excess tax benefits from share-based payments | 17.6 |
| | — |
| | — |
| | — |
| | — |
| | 17.6 |
|
| Intercompany capital | — |
| | 245.2 |
| | — |
| | 254.7 |
| | (499.9 | ) | | — |
|
| Dividends paid | (22.7 | ) | | — |
| | — |
| | — |
| | — |
| | (22.7 | ) |
| Other financing activities | — |
| | — |
| | — |
| | (10.4 | ) | | — |
| | (10.4 | ) |
| Net Cash Provided by (Used for) Financing Activities | 6.5 |
| | 245.2 |
| | — |
| | 244.3 |
| | (499.9 | ) | | (3.9 | ) |
| Effect of Exchange Rate Changes on Cash | — |
| | (0.5 | ) | | — |
| | (7.8 | ) | | — |
| | (8.3 | ) |
| Net Change in Cash and Cash Equivalents | (36.1 | ) | | (3.1 | ) | | — |
| | 243.5 |
| | — |
| | 204.3 |
|
| Cash and Cash Equivalents at Beginning of Year | 516.0 |
| | 3.1 |
| | — |
| | 33.4 |
| | — |
| | 552.5 |
|
| Cash and Cash Equivalents at End of Year | $ | 479.9 |
| | $ | — |
| | $ | — |
| | $ | 276.9 |
| | $ | — |
| | $ | 756.8 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2018 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net cash provided by operating activities | $ | 322.1 |
| | $ | 30.2 |
| | $ | — |
| | $ | 36.0 |
| | $ | (36.8 | ) | | $ | 351.5 |
|
| Cash flows from investing activities: | | | | | | | | | | | |
| Purchases of property, plant, and equipment | — |
| | (31.4 | ) | | — |
| | (12.2 | ) | | — |
| | (43.6 | ) |
| Investments in subsidiaries | (154.7 | ) | | — |
| | — |
| | — |
| | 154.7 |
| | — |
|
| Acquisitions of businesses and intangible assets | — |
| | (136.3 | ) | | — |
| | (26.9 | ) | | — |
| | (163.2 | ) |
| Proceeds from sale of business | — |
| | — |
| | — |
| | 1.1 |
| | — |
| | 1.1 |
|
| Other investing activities | 1.7 |
| | — |
| | — |
| | — |
| | — |
| | 1.7 |
|
| Net cash used for investing activities | (153.0 | ) | | (167.7 | ) | | — |
| | (38.0 | ) | | 154.7 |
| | (204.0 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Borrowings on credit facility | — |
| | 395.4 |
| | — |
| | — |
| | — |
| | 395.4 |
|
| Repayments of borrowings on credit facility | — |
| | (395.4 | ) | | — |
| | — |
| | — |
| | (395.4 | ) |
| Issuance of long-term debt | — |
| | — |
| | — |
| | (0.4 | ) | | — |
| | (0.4 | ) |
| Proceeds from stock option exercises and other | 1.7 |
| | — |
| | — |
| | — |
| | — |
| | 1.7 |
|
| Repurchases of common stock | (298.4 | ) | | — |
| | — |
| | — |
| | — |
| | (298.4 | ) |
| Withholding taxes on net settlement of equity awards | (8.2 | ) | | — |
| | — |
| | — |
| | — |
| | (8.2 | ) |
| Intercompany dividends | — |
| | — |
| | — |
| | (36.8 | ) | | 36.8 |
| | — |
|
| Intercompany capital | — |
| | 136.6 |
| | — |
| | 18.1 |
| | (154.7 | ) | | — |
|
| Dividends paid | (21.4 | ) | | — |
| | — |
| | — |
| | — |
| | (21.4 | ) |
| Net cash (used for) provided by financing activities | (326.3 | ) | | 136.6 |
| | — |
| | (19.1 | ) | | (117.9 | ) | | (326.7 | ) |
| Effect of exchange rate changes on cash | — |
| | 0.9 |
| | — |
| | (3.7 | ) | | — |
| | (2.8 | ) |
| Net change in cash and cash equivalents | (157.2 | ) | | — |
| | — |
| | (24.8 | ) | | — |
| | (182.0 | ) |
| Cash and cash equivalents at beginning of year | 237.7 |
| | — |
| | — |
| | 73.4 |
| | — |
| | 311.1 |
|
| Cash and cash equivalents at end of year | $ | 80.5 |
| | $ | — |
| | $ | — |
| | $ | 48.6 |
| | $ | — |
| | $ | 129.1 |
|
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2014 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net Cash Provided by Operating Activities | $ | 188.7 |
| | $ | 35.1 |
| | $ | — |
| | $ | 9.3 |
| | $ | — |
| | $ | 233.1 |
|
| Cash Provided by (Used for) Investing Activities: | | | | | | | | | | | |
| Purchases of property, plant, and equipment | — |
| | (29.2 | ) | | — |
| | (6.1 | ) | | — |
| | (35.3 | ) |
| Proceeds from sale of property, plant, and equipment | — |
| | 1.0 |
| | — |
| | — |
| | — |
| | 1.0 |
|
| Investments in subsidiaries | — |
| | (4.5 | ) | | — |
| | 4.5 |
| | — |
| | — |
|
| Net Cash Used for Investing Activities | — |
| | (32.7 | ) | | — |
| | (1.6 | ) | | — |
| | (34.3 | ) |
| Cash Provided by (Used for) Financing Activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Proceeds from stock option exercises and other | 8.4 |
| | — |
| | — |
| | — |
| | — |
| | 8.4 |
|
| Excess tax benefits from share-based payments | 10.4 |
| | — |
| | — |
| | — |
| | — |
| | 10.4 |
|
| Dividends paid | (22.5 | ) | | — |
| | — |
| | — |
| | — |
| | (22.5 | ) |
| Other financing activities | — |
| | — |
| | — |
| | (2.6 | ) | | — |
| | (2.6 | ) |
| Net Cash Used for Financing Activities | (3.7 | ) | | — |
| | — |
| | (2.6 | ) | | — |
| | (6.3 | ) |
| Effect of Exchange Rate Changes on Cash | — |
| | (0.1 | ) | | — |
| | 1.0 |
| | — |
| | 0.9 |
|
| Net Change in Cash and Cash Equivalents | 185.0 |
| | 2.3 |
| | — |
| | 6.1 |
| | — |
| | 193.4 |
|
| Cash and Cash Equivalents at Beginning of Year | 331.0 |
| | 0.8 |
| | — |
| | 27.3 |
| | — |
| | 359.1 |
|
| Cash and Cash Equivalents at End of Year | $ | 516.0 |
| | $ | 3.1 |
| | $ | — |
| | $ | 33.4 |
| | $ | — |
| | $ | 552.5 |
|
(In millions)
79 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2017 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net cash provided by operating activities | $ | 262.3 |
| | $ | 41.4 |
| | $ | — |
| | $ | 32.9 |
| | $ | — |
| | $ | 336.6 |
|
| Cash flows from investing activities: | | | | | | | | | | | |
| Purchases of property, plant, and equipment | — |
| | (53.1 | ) | | — |
| | (14.2 | ) | | — |
| | (67.3 | ) |
| Proceeds from sale of property, plant, and equipment | — |
| | 0.2 |
| | — |
| | 5.3 |
| | — |
| | 5.5 |
|
| Proceeds from sale of investment in unconsolidated affiliate | — |
| | 13.2 |
| | — |
| | — |
| | — |
| | 13.2 |
|
| Other investing activities | — |
| | (0.2 | ) | | — |
| | — |
| | — |
| | (0.2 | ) |
| Net cash used for investing activities | — |
| | (39.9 | ) | | — |
| | (8.9 | ) | | — |
| | (48.8 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Issuance of long-term debt | — |
| | — |
| | — |
| | 1.0 |
| | — |
| | 1.0 |
|
| Proceeds from stock option exercises and other | 3.0 |
| | — |
| | — |
| | — |
| | — |
| | 3.0 |
|
| Repurchases of common stock | (357.9 | ) | | — |
| | — |
| | — |
| | — |
| | (357.9 | ) |
| Withholding taxes on net settlement of equity awards | (15.2 | ) | | — |
| | — |
| | — |
| | — |
| | (15.2 | ) |
| Dividends paid | (22.7 | ) | | — |
| | — |
| | — |
| | — |
| | (22.7 | ) |
| Net cash (used for) provided by financing activities | (392.8 | ) | | — |
| | — |
| | 1.0 |
| | — |
| | (391.8 | ) |
| Effect of exchange rate changes on cash | — |
| | (1.5 | ) | | — |
| | 3.4 |
| | — |
| | 1.9 |
|
| Net change in cash and cash equivalents | (130.5 | ) | | — |
| | — |
| | 28.4 |
| | — |
| | (102.1 | ) |
| Cash and cash equivalents at beginning of year | 368.2 |
| | — |
| | — |
| | 45.0 |
| | — |
| | 413.2 |
|
| Cash and cash equivalents at end of year | $ | 237.7 |
| | $ | — |
| | $ | — |
| | $ | 73.4 |
| | $ | — |
| | $ | 311.1 |
|
|
|
| ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
15.Note 17 — Quarterly Financial Data (Unaudited)
|
| | | | | | | | | | | | | | | |
| | Fiscal Year 2016 |
| | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
| Net Sales | $ | 736.6 |
| | $ | 777.8 |
| | $ | 851.5 |
| | $ | 925.5 |
|
| Gross Profit | $ | 319.4 |
| | $ | 336.9 |
| | $ | 377.9 |
| | $ | 402.1 |
|
| Net Income | $ | 68.4 |
| | $ | 65.5 |
| | $ | 74.0 |
| | $ | 82.9 |
|
| Basic Earnings per Share | $ | 1.58 |
| | $ | 1.50 |
| | $ | 1.70 |
| | $ | 1.90 |
|
| Diluted Earnings per Share | $ | 1.57 |
| | $ | 1.49 |
| | $ | 1.69 |
| | $ | 1.89 |
|
|
| | | | | | | | | | | | | | | |
| | Fiscal Year 2019 |
| (In millions) | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
| Net sales | $ | 932.6 |
| | $ | 854.4 |
| | $ | 947.6 |
| | $ | 938.1 |
|
| Gross profit | $ | 367.5 |
| | $ | 333.9 |
| | $ | 383.6 |
| | $ | 394.7 |
|
| Net income | $ | 79.6 |
| | $ | 66.3 |
| | $ | 88.4 |
| | $ | 96.1 |
|
| Basic earnings per share | $ | 1.99 |
| | $ | 1.68 |
| | $ | 2.23 |
| | $ | 2.43 |
|
| Diluted earnings per share | $ | 1.98 |
| | $ | 1.67 |
| | $ | 2.22 |
| | $ | 2.42 |
|
|
| | | | | | | | | | | | | | | |
| | Fiscal Year 2018 |
| (In millions) | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
| Net sales | $ | 842.8 |
| | $ | 832.1 |
| | $ | 944.0 |
| | $ | 1,061.2 |
|
Gross profit (1) | $ | 349.9 |
| | $ | 334.5 |
| | $ | 389.1 |
| | $ | 411.9 |
|
| Net income | $ | 71.5 |
| | $ | 96.9 |
| | $ | 73.0 |
| | $ | 108.2 |
|
| Basic earnings per share | $ | 1.71 |
| | $ | 2.34 |
| | $ | 1.81 |
| | $ | 2.71 |
|
| Diluted earnings per share | $ | 1.70 |
| | $ | 2.33 |
| | $ | 1.80 |
| | $ | 2.70 |
|
|
| | | | | | | | | | | | | | | |
| | Fiscal Year 2015 |
| | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
| Net Sales | $ | 647.4 |
| | $ | 616.1 |
| | $ | 683.7 |
| | $ | 759.5 |
|
| Gross Profit | $ | 273.0 |
| | $ | 255.7 |
| | $ | 295.6 |
| | $ | 321.3 |
|
| Net Income | $ | 51.1 |
| | $ | 46.4 |
| | $ | 64.5 |
| | $ | 60.1 |
|
| Basic Earnings per Share | $ | 1.18 |
| | $ | 1.07 |
| | $ | 1.49 |
| | $ | 1.39 |
|
| Diluted Earnings per Share | $ | 1.17 |
| | $ | 1.07 |
| | $ | 1.48 |
| | $ | 1.37 |
|
| |
(1) | Fiscal 2018 quarterly gross profit amounts have been retrospectively adjusted to reflect the impact of ASU 2017-07 to our interim periods. See the New Accounting Pronouncements footnote for further details. |
Certain amounts in the tables above have been rounded. Accordingly, the sum of the quarters may not be an exact match to the full year amounts.
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| |
| Item 9a. | Controls and Procedures |
Disclosure controls and procedures are controls and other procedures that are designed to reasonably ensure that information required to be disclosed in the reports filed or submitted by the Companyus under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”Commission (the “SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to reasonably ensure that information required to be disclosed by the Companyus in the reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by SEC rules, the Company haswe have evaluated the effectiveness of the design and operation of itsour disclosure controls and procedures as of August 31, 2016.2019. This evaluation was carried out under the supervision and with the participation of management, including the principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of the Company’sour disclosure controls and procedures wereare effective at a reasonable assurance level as of August 31, 2016.2019. However, because all disclosure procedures must rely to a significant degree on actions or decisions made by employees throughout the organization, such as reporting of material events, the Company and its reporting officers believe that they cannot provide absolute assurance that all control issues and instances of fraud or errors and omissions, if any, within the Company will be detected. Limitations within any control system, including the Company’sour control system, include faulty judgments in decision-making or simple errors or mistakes. In addition, controls can be circumvented by an individual, by collusion between two or more people, or by management override of the control. Because of these limitations, misstatements due to error or fraud may occur and may not be detected.
During fiscal 2016, the Company completed its acquisitions of Distech Controls Inc. ("Distech Controls") and Juno Lighting LLC ("Juno Lighting"). SEC guidance permits management to omit an assessment of an acquired business' internal control over financial reporting from management's assessment of internal control over financial reporting for a period not to exceed one year from the date of the acquisition. Accordingly, management has not assessed Distech Controls' or Juno Lighting's internal control over financial reporting as of August 31, 2016.
Management’s annual report on the Company’sour internal control over financial reporting and the independent registered public accounting firm’s attestation report are included in the Company’s 2016our 2019 Financial Statements in Item 8 of this Annual Report on Form 10-K, under the headings, Management’s Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting Firm as it relates to Internal Control Over Financial Reporting, respectively, and are incorporated herein by reference.
Excluding the acquisitions, there have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company began integrating Distech Controls and Juno Lighting into its existing control procedures from the date of acquisition. The Company does not anticipate the integration of the acquired companies to result in changes that would materially affect its internal control over financial reporting.
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| Item 9b. | Other Information |
None.
PART III
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| Item 10. | Directors, Executive Officers, and Corporate Governance |
The information required by this item, with respect to directors and corporate governance, is included under the captions Item 1 — Election of Directors, and Information Concerning the Board Composition, Board and Its Committees, Risk Oversight, and Board Evaluation Process of the Company’sour proxy statement for the annual meeting of stockholders to be held January 6, 2017,8, 2020, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
The information required by this item, with respect to executive officers, will be included under the caption Executive Officers of the Company’sour proxy statement for the annual meeting of stockholders to be held January 6, 2017,8, 2020, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
The information required by this item, with respect to beneficial ownership reporting, will be included under the caption Section 16(a) Beneficial Ownership Reporting Compliance of the Company’s proxy statement for the annual meeting of stockholders to be held January 6, 2017, to be filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.
The information required by this item, with respect to the code of ethics, will be included under the caption QuestionsGovernance Policies and Answers about Communications, Governance, Procedures and Company Documents Contacting the Board of the Company’sDirectors of our proxy statement for the annual meeting of stockholders to be held January 6, 2017,8, 2020, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
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| Item 11. | Executive Compensation |
The information required by this item will be included under the captions Compensation of Directors, Information Concerning theBoard Composition, Board and Its Committees, Compensation Committee Interlocks and Insider Participation, Report of the Compensation Committee, Compensation Discussion and Analysis, Fiscal 20162019 Summary Compensation Table, Fiscal 20162019 Grants of Plan-Based Awards, Outstanding Equity Awards at Fiscal 20162019 Year-End, Option Exercises and Stock Vested in Fiscal 2016,2019, Pension Benefits in Fiscal 2016,2019, Fiscal 2016 Nonqualified2019 Non-Qualified Deferred Compensation, Employment Arrangements, Potential Payments upon Termination, and Equity Compensation Plans of the Company’sour proxy statement for the annual meeting of stockholders to be held January 6, 2017,8, 2020, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item will be included under the captions Beneficial Ownership of the Company’s Securities and Equity Compensation Plans of the Company’sour proxy statement for the annual meeting of stockholders to be held January 6, 2017,8, 2020, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
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| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this item will be included under the caption Certain Relationships and Related Party Transactions of the Company’sour proxy statement for the annual meeting of stockholders to be held January 6, 2017,8, 2020, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
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| Item 14. | Principal Accountant Fees and Services |
The information required by this item will be included under the caption Audit Fees Billed by Independent Registered Public Accounting Firmand Other Fees, Pre-Approval Policies and Procedures, and Report of the Company’sAudit Committee of our proxy statement for the annual meeting of stockholders to be held January 6, 2017,8, 2020, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
PART IV
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| Item 15. | Exhibits and Financial Statement Schedules |
(a) The following documents are filed as a part of this report:
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| (2) | Financial Statement Schedules: | | Financial Statement Schedules: | |
| | | | Any of Schedules I through V not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto | |
| | Any of Schedules I through V not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto | | |
| (3) | Exhibits filed with this report (begins on next page): | | Exhibits filed with this report (begins on next page): | |
| | Copies of exhibits will be furnished to stockholders upon request at a nominal fee. Requests should be sent to Acuity Brands, Inc., Investor Relations Department, 1170 Peachtree Street, N.E., Suite 2300, Atlanta, Georgia 30309-7676 | | Copies of exhibits will be furnished to stockholders upon request at a nominal fee. Requests should be sent to Acuity Brands, Inc., Investor Relations Department, 1170 Peachtree Street, N.E., Suite 2300, Atlanta, Georgia 30309-7676 | |
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EXHIBIT 2 | (a) | Agreement and Plan of Merger among Acuity Brands, Inc., Acuity Merger Sub, Inc. and Acuity Brands Holdings, Inc., dated September 25, 2007. | | Reference is made to Exhibit 10.1 of registrant’s Form 8-K as filed with the Commission on September 26, 2007, which is incorporated herein by reference. |
| (b) | Agreement and Plan of Distribution by and between Acuity Brands, Inc. and Zep Inc., dated as of October 31, 2007. | | Reference is made to Exhibit 2.1 of registrant’s Form 8-K as filed with the Commission on November 6, 2007, which is incorporated herein by reference. |
EXHIBIT 3 | (a) | | | Reference is made to Exhibit 3.1 of registrant’s Form 8-K as filed with the Commission on September 26, 2007, which is incorporated herein by reference. |
| | (b) | | | Reference is made to Exhibit 3.2 of registrant’s Form 8-K as filed with the Commission on September 26, 2007, which is incorporated herein by reference. |
| | (c) |
| | Reference is made to Exhibit 3(c) of registrant’s Form 10-Q as filed with the Commission on January 9, 2017, which is incorporated herein by reference. |
| (d) | | | Reference is made to Exhibit 3.13(d) of registrant’s Form 8-K10-Q as filed with the Commission on October 5, 2016,January 9, 2017, which is incorporated herein by reference. |
| EXHIBIT 4 | (a) | | | Reference is made to Exhibit 4.1 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. |
| | (b) | Indenture, dated December 8, 2009, among Acuity Brands Lighting, Inc, as issuer, and Acuity Brands, Inc. and ABL IP Holding LLC, as guarantors, and Wells Fargo Bank, National Association, as trustee. | | Reference is made to Exhibit 4.1 of registrant’s Form 8-K as filed with the Commission on December 9, 2009, which is incorporated herein by reference. |
| | (c) | | | Reference is made to Exhibit 4.2 of registrant’s Form 8-K as filed with the Commission on December 9, 2009, which is incorporated herein by reference. |
| (d) | | | Filed with the Commission as part of this Form 10-K. |
| EXHIBIT 10(i) | (1) | Tax Disaffiliation | | Reference is made to Exhibit 10 (i)A(17)10.1 of the registrant’s Form 10-K10-Q as filed with the Commission on November 1, 2005,July 3, 2018, which is incorporated herein by reference. |
| | (2) | Tax Disaffiliation Agreement between Acuity Brands, Inc. and Zep Inc., | | Reference is made to Exhibit 10.1 of registrant's Form 8-K as filed with the Commission on November 6, 2007,April 24, 2019, which is incorporated herein by reference. |
| (3) | 5-Year Revolving Credit Agreement, dated as of August 27, 2014 among Acuity Brands, Inc., the Subsidiary Borrowers from time to time parties hereto, the Lenders from time to time parties hereto, JPMorgan Chase Bank, N.A., as Swing Line Lender, LC Issuer and Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent and Bank of America, N.A., Branch Banking & Trust Company and Keybank National Association, as Co-Documentation Agents. | | Reference is made to Exhibit 10.1 of registrant’s Form 8-K as filed with the Commission on August 28, 2014, which is incorporated herein by reference. |
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| EXHIBIT 10(iii)A | | Management Contracts and Compensatory Arrangements: | | |
| | (1) | | | Reference is made to Exhibit 10.6 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. |
| | (2) | | | Reference is made to Exhibit 10(iii)A(3) of registrant’s Form 10-Q as filed with the Commission on January 14, 2002, which is incorporated herein by reference. |
| | (3) | | | Reference is made to Exhibit 99.1 of registrant’s Form 8-K filed with the Commission on October 27, 2006, which is incorporated herein by reference. |
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| | (4) | | | Reference is made to Exhibit 10(iii)A(2) of registrant’s Form 10-Q as filed with the Commission on January 4, 2007, which is incorporated herein by reference. |
| | (5) | | | Reference is made to Exhibit 10(iii)A(3) of registrant’s Form 10-Q as filed with the Commission on July 10, 2007, which is incorporated herein by reference. |
| | (6) | | | Reference is made to Exhibit 10.14 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. |
| | (7) | | | Reference is made to Exhibit 10(iii)A(2) of registrant’s Form 10-Q as filed with the Commission on January 14, 2003, which is incorporated by reference. |
| | (8) | | | Reference is made to Exhibit 10(iii)A(8) of the registrant’s Form 10-Q as filed with the Commission on July 14, 2003, which is incorporated by reference. |
| | (9) | | | Reference is made to Exhibit 10(iii)A(36) of the registrant’s Form 10-K as filed with the Commission on October 29, 2004, which is incorporated by reference. |
| | (10) | | | Reference is made to Exhibit 99.2 of registrant’s Form 8-K filed with the Commission on July 6, 2006, which is incorporated herein by reference. |
| | (11) | | | Reference is made to Exhibit 10(iii)A(6) of registrant’s Form 10-Q as filed with the Commission on July 10, 2007, which is incorporated herein by reference. |
| | (12) | | | Reference is made to Exhibit 10 (c) of registrant’s Form 10-Q as filed with the Commission on March 31, 2010, which is incorporated herein by reference. |
| | (13) | | | Reference is made to Exhibit 10.15 of registrant's Form 8-K as filed with the Commission on December 14, 2001, which is incorporated here in by reference. |
| (14) | Amendment No. 1 to Acuity Brands, Inc. Executives’ Deferred Compensation Plan. | | Reference is made to Exhibit 10(iii)A(3)10(b) of the registrant’sregistrant's Form 10-Q as filed with the Commission on January 14, 2003,July 2, 2019, which is incorporated herein by reference. |
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| | (15)(14) | | | Reference is made to Exhibit 10(iii)A(61)99.1 of the registrant’s Form 10-K as8-K filed with the Commission on November 2,July 6, 2006, which is incorporated herein by reference. |
| | (16)(15) | | | Reference is made to Exhibit 10(iii)A(86) of the registrant’s Form 10-K as filed with the Commission on October 27, 2008, which is incorporated herein by reference. |
| | (17)(16) | | | Reference is made to Exhibit 10(iii)A(68) of the registrant's Form 10-K as filed with the Commission on October 26, 2012, which is incorporated herein by reference. |
| | (17) | | | Reference is made to Exhibit 10(c) of the registrant's Form 10-Q as filed with the Commission on January 9, 2019, which is incorporated herein by reference. |
| (18) | | | Reference is made to Exhibit 10.16 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. |
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| | (19) | | | Reference is made to Exhibit 10(iii)A(5) of registrant’s Form 10-Q as filed with the Commission on July 10, 2007, which is incorporated herein by reference. |
| | (20) | | | Reference is made to Exhibit 10.18 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. |
| | (21) | | | Reference is made to Exhibit 10.19 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. |
| | (22) | | | Reference is made to Exhibit 10(iii)A(2) of the registrant’s Form 10-Q as filed with the Commission on April 14, 2003, which is incorporated by reference. |
| | (23) | | | Reference is made to Exhibit 10.21 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. |
| | (24) | | | Reference is made to Exhibit 10.25 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. |
| | (25) | | | Reference is made to Exhibit 10(iii)A(1) of the registrant’s Form 10-Q as filed with the Commission on July 1, 2015, which is incorporated by reference. |
| | (26) | | | Reference is made to Exhibit 10(c) of the registrant's Form 10-Q as filed with the Commission on July 2, 2019, which is incorporated herein by reference. |
| (27) | | | Reference is made to Exhibit 10(iii)A(24) of the registrant’s Form 10-K as filed with the Commission on October 25, 2018, which is incorporated herein by reference. |
| (28) | | | Reference is made to Exhibit 99.1 of registrant’s Form 8-K filed with the Commission on April 27, 2006, which is incorporated herein by reference. |
| | (27)(29) | | | Reference is made to Exhibit 10(iii)A(4) of the registrant’s Form 10-Q as filed with the Commission on July 14, 2003, which is incorporated by reference. |
| | (28)(30) | | | Reference is made to Exhibit 10(III)A(1) of the registrant’s Form 10-Q as filed with the Commission on July 6, 2004, which is incorporated by reference. |
| | (29)(31) | | | Reference is made to Exhibit 10(III)A(2) of the registrant’s Form 10-Q as filed with the Commission on July 6, 2004, which is incorporated by reference. |
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| | (30)(32) | | | Reference is made to Exhibit 99.3 of registrant’s Form 8-K filed with the Commission on April 27, 2006, which is incorporated herein by reference. |
| | (31)(33) | | | Reference is made to Exhibit 10(iii)A(2) of registrant’s Form 10-Q as filed with the Commission on April 4, 2007, which is incorporated herein by reference. |
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| | (32)(34) | | | Reference is made to Exhibit 10(iii)A(78) of the registrant’s Form 10-K as filed with the Commission on October 30, 2009, which is incorporated herein by reference. |
| | (33)(35) | | | Reference is made to Exhibit 10(iii)A(2) of the registrant's Form 10-Q as filed with the Commission on April 2, 2014, which is incorporated herein by reference. |
| | (34)(36) | | | Reference is made to Exhibit 10(a) of the registrant's Form 10-Q as filed with the Commission on April 3, 2019, which is incorporated herein by reference. |
| (37) | | | Reference is made to Exhibit 10(III)A(3) of the registrant’s Form 10-Q filed with the Commission on January 6, 2005 incorporated by reference. |
| | (35)(38) | | | Reference is made to Exhibit 10(III)A(4) of the registrant’s Form 10-Q as filed with the Commission on January 6, 2005, which is incorporated by reference. |
| | (36)(39) | | | Reference is made to Exhibit 10(III)A(5) of the registrant’s Form 10-Q as filed with the Commission on January 6, 2005, which is incorporated by reference. |
| | (37)(40) | | | Reference is made to Exhibit 10(III)A(1) of the registrant’s Form 10-Q as filed with the Commission on April 4, 2005, which is incorporated by reference. |
| | (38)(41) | | | Reference is made to Exhibit 10.1 of registrant’s Form 8-K filed with the Commission on November 18, 2005, which is incorporated herein by reference. |
| | (39)(42) | | | Reference is made to Exhibit 10(iii)A(81) of the registrant’s Form 10-K as filed with the Commission on October 30, 2009, which is incorporated herein by reference. |
| | (40)(43) | | | Reference is made to Exhibit 10 (f) of registrant’s Form 10-Q as filed with the Commission on March 31, 2010, which is incorporated herein by reference. |
| | (41)(44) | | | Reference is made to Exhibit 10(iii)A(2)A(4) of the registrant's Form 10-Q as filed with the Commission on April 2, 2014, which is incorporated herein by reference. |
| | (42)(45) | | | Reference is made to Exhibit 10(iii)A(46) of the registrant's Form 10-K as filed with the Commission on October 29, 2014, which is incorporated herein by reference. |
| | (43)(46) | | | Reference is made to Exhibit 10(iii)A(43) of the registrant's Form 10-K as filed with the Commission on October 27, 2015, which is incorporated herein by reference. |
| | (44)(47) | | | FiledReference is made to Exhibit 10(iii)A(44) of the registrant's Form 10-K as filed with the Commission on October 27, 2016, which is incorporated herein by reference. |
| (48) | | | Reference is made to Exhibit 10(iii)A(45) of the registrant's Form 10-K as part of this Form 10-K.filed with the Commission on October 26, 2017, which is incorporated herein by reference. |
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| | (45)(49) | | | Reference is made to Exhibit 10(a) of the registrant's Form 10-Q as filed with the Commission on January 9, 2019, which is incorporated herein by reference. |
| (50) | | | Reference is made to Exhibit 10(b) of the registrant's Form 10-Q as filed with the Commission on April 3, 2019, which is incorporated herein by reference. |
| (51) |
| | Filed with the Commission as part of this Form 10-K. |
| (52) | | | Filed with the Commission as part of this Form 10-K. |
| (53) | | | Filed with the Commission as part of this Form 10-K. |
| (54) | | | Filed with the Commission as part of this Form 10-K. |
| (55) | | | Filed with the Commission as part of this Form 10-K. |
| (56) | | | Reference is made to Exhibit 99.1 of registrant’s Form 8-K filed with the Commission on December 2, 2005, which is incorporated herein by reference. |
| | (46)(57) | | | Reference is made to Exhibit A of the registrant’s Proxy Statement as filed with the Commission on November 16, 2007, which is incorporated herein by reference. |
| | (47)(58) | | | Reference is made to Exhibit 99.1 of the registrant’s Form 8-K as filed with the Commission on January 4, 2008, which is incorporated herein by reference. |
| | (48)(59) | Acuity Brands, Inc. 2007 Management Compensation and Incentive Plan. | | Reference is made to Exhibit B of the registrant’s Proxy Statement as filed with the Commission on November 16, 2007, which is incorporated herein by reference. |
| (49) | Acuity Brands, Inc. Management Compensation and Incentive Plan Fiscal Year 2008 Plan Rules for Executive Officers. | | Reference is made to Exhibit 99.2 of the registrant’s Form 8-K as filed with the Commission on January 4, 2008, which is incorporated herein by reference. |
| (50) | | | Reference is made to Exhibit 10 (i) of registrant’s Form 10-Q as filed with the Commission on April 8, 2009, which is incorporated herein by reference. |
| | (51)(60) | | | Reference is made to Exhibit 10 (j) of registrant’s Form 10-Q as filed with the Commission on April 8, 2009, which is incorporated herein by reference. |
| | (52)(61) | | | Reference is made to Exhibit 10 (f) of registrant’s Form 10-Q as filed with the Commission on April 8, 2009, which is incorporated herein by reference. |
| | (53)(62) | | | Reference is made to Exhibit 10(iii)A(1) of the registrant's Form 10-Q as filed with the Commission on January 9, 2015. |
| | (54)(63) | | | Reference is made to Exhibit 10(iii)A(79) of the registrant’s Form 10-K as filed with the Commission on October 30, 2009, which is incorporated herein by reference. |
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| | (55)(64) | | | Reference is made to Exhibit 10 (d) of registrant’s Form 10-Q as filed with the Commission on March 31, 2010, which is incorporated herein by reference. |
| | (56)(65) | | | Reference is made to Exhibit 10(iii)A(2)A(3) of the registrant's Form 10-Q as filed with the Commission on April 2, 2014, which is incorporated herein by reference. |
| | (57)(66) | | | Reference is made to Exhibit 10(iii)A(58) of the registrant's Form 10-K as filed with the Commission on October 29, 2014, which is incorporated herein by reference. |
| | (58)(67) | | | Reference is made to Exhibit 10(iii)A(57) of the registrant's Form 10-K as filed with the Commission on October 27, 2015, which is incorporated herein by reference. |
| | (59)(68) | | | FiledReference is made to Exhibit 10(iii)A(59) of the registrant's Form 10-K as filed with the Commission as part of this Form 10-K.on October 27, 2016, which is incorporated herein by reference. |
| | (60)(69) | | | Reference is made to Exhibit 10(iii)A(58) of the registrant’s Form 10-K as filed with the Commission on October 25, 2018, which is incorporated herein by reference. |
| (70) | | | Reference is made to Exhibit 10(iii)A(2) of the registrant's Form 10-Q as filed with the Commission on January 9, 2015. |
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| | (61)(71) | | | Reference is made to Exhibit 10(iii)A(84) of the registrant’s Form 10-K as filed with the Commission on October 30, 2009, which is incorporated herein by reference. |
| | (62)(72) | | | Reference is made to Exhibit 10(iii)A(61) of the registrant’s Form 10-K as filed with the Commission on October 25, 2018, which is incorporated herein by reference. |
| (73) | | | Reference is made to Exhibit 10(iii)A(62) of the registrant’s Form 10-K as filed with the Commission on October 25, 2018, which is incorporated herein by reference. |
| (74) | | | Reference is made to Exhibit 10(b) of the registrant's Form 10-Q as filed with the Commission on January 9, 2019, which is incorporated herein by reference. |
| (75) | | | Reference is made to Exhibit 10(iii)A(63) of the registrant’s Form 10-K as filed with the Commission on October 25, 2018, which is incorporated herein by reference. |
| (76) | | | Reference is made to Exhibit 10.1 of registrant’s Form 8-K as filed with the Commission on February 9, 2010, which is incorporated herein by reference. |
| | (63)(77) | | | Reference is made to Exhibit A of the
registrant’s Proxy Statement as filed with the Commission on November 19, 2012, which is incorporated herein by reference. |
| | (64)(78) | | | Reference is made to Exhibit B of the
registrant’s Proxy Statement as filed with the Commission on November 19, 2012, which is incorporated herein by reference. |
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| | (65)(79) | | | Reference is made to Exhibit 10(iii)A(72) of the registrant's Form 10-K as filed with the Commission on October 29, 2013, which is incorporated herein by reference. |
| | (66)(80) | | | Reference is made to Exhibit 10(iii)A(1) of the registrant's Form 10-Q as filed with the Commission on April 2, 2014, which is incorporated herein by reference. |
| | (67)(81) | | | Reference is made to Exhibit 10(iii)A(65) of the registrant's Form 10-K as filed with the Commission on October 29, 2014, which is incorporated herein by reference. |
| | (68)(82) | | | Reference is made to Exhibit 10(iii)A(66) of the registrant's Form 10-K as filed with the Commission on October 29, 2014, which is incorporated herein by reference. |
| | (69)(83) | | | Reference is made to Exhibit 10(iii)A(1) of the registrant's Form 10-Q as filed with the Commission on April 6, 2016, which is incorporated herein by reference. |
| | (70)(84) | | | FiledReference is made to Exhibit 10(iii)A(70) of the registrant's Form 10-K as filed with the Commission as part of this Form 10-K.on October 27, 2016, which is incorporated herein by reference. |
| | (71)(85) | | | FiledReference is made to Exhibit 10(iii)A(72) of the registrant's Form 10-K as filed with the Commission as part of this Form 10-K.on October 26, 2017, which is incorporated herein by reference. |
| | (72)(86) | | | FiledReference is made to Exhibit 10(iii)A(72) of the registrant's Form 10-K as filed with the Commission as part of this Form 10-K.on October 27, 2016, which is incorporated herein by reference. |
| | (73)(87) | | | FiledReference is made to Exhibit 10(iii)A(73) of the registrant's Form 10-K as filed with the Commission as part of this Form 10-K.on October 27, 2016, which is incorporated herein by reference. |
EXHIBIT 21 | (88) |
| | ListReference is made to Annex A of Subsidiaries. | | Filedthe registrant’s Proxy Statement as filed with the Commission as part of this Form 10-K.on November 21, 2017, which is incorporated herein by reference. |
EXHIBIT 23 | (89) | | | ConsentReference is made to Annex B of Independent Registered Public Accounting Firm. | | Filedthe registrant’s Proxy Statement as filed with the Commission as part of this Form 10-K.on November 21,2017, which is incorporated herein by reference. |
EXHIBIT 24 | (90) | | | PowersReference is made to Exhibit 10(iii)A(1) of Attorney. | | Filedthe registrant's Form 10-Q as filed with the Commission as part of this Form 10-K.on April 4, 2018, which is incorporated herein by reference. |
EXHIBIT 31 | (a)(91) | Rule 13a-14(a)/15d-14(a) Certification, signed by Vernon J. Nagel. | | FiledReference is made to Exhibit 10(iii)A(2) of the registrant's Form 10-Q as filed with the Commission as part of this Form 10-K.on April 4, 2018, which is incorporated herein by reference. |
| | (b)(92) | Rule 13a-14(a)/15d-14(a) Certification, signed by Richard K. Reece. | | FiledReference is made to Exhibit 10(iii)A(3) of the registrant's Form 10-Q as filed with the Commission as part of this Form 10-K. |
EXHIBIT 32 | (a) | Section 1350 Certification, signedon April 4, 2018, which is incorporated herein by Vernon J. Nagel. | | Filed with the Commission as part of this Form 10-K.reference. |
| | (b)(93) | Section 1350 Certification, signed by Richard K. Reece. | | Filed with the Commission as part of this Form 10-K. |
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| (94) | | | Filed with the Commission as part of this Form 10-K. |
| EXHIBIT 21 | | | | Filed with the Commission as part of this Form 10-K. |
| EXHIBIT 23 | | | | Filed with the Commission as part of this Form 10-K. |
| EXHIBIT 24 | | | | Filed with the Commission as part of this Form 10-K. |
| EXHIBIT 31 | (a) | | | Filed with the Commission as part of this Form 10-K. |
| (b) | | | Filed with the Commission as part of this Form 10-K. |
| EXHIBIT 32 | (a) | | | Filed with the Commission as part of this Form 10-K. |
| (b) | | | Filed with the Commission as part of this Form 10-K. |
| EXHIBIT 101 | .INS | XBRL Instance Document | | The following financial information frominstance document does not appear in the Company's Annual Report onInteractive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| .SCH | XBRL Taxonomy Extension Schema Document. | | Filed with the Commission as part of this Form 10-K for10-K. |
| .CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed with the year ended August 31, 2016, filed on October 27, 2016, formatted in Commission as part of this Form 10-K. |
| .DEF | XBRL (Extensible Business Reporting Language): (i)Taxonomy Extension Definition Linkbase Document. | | Filed with the Consolidated Balance SheetsCommission as part of August 31, 2016 and 2015, (ii)this Form 10-K. |
| .LAB | XBRL Taxonomy Extension Label Linkbase Document. | | Filed with the Consolidated StatementsCommission as part of Comprehensive Income for the years ended August 31, 2016, 2015, and 2014, (iii) the Consolidated Statements of Cash Flows for the years ended August 31, 2016, 2015, and 2014, (iv) the Consolidated Statements of Stockholders' Equity for the years ended August 31, 2016, 2015, and 2014 and (v) the Notes to Consolidated Financial Statements.this Form 10-K. |
| .PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed with the Commission as part of this Form 10-K. |
| |
| Item 16. | Form 10-K Summary |
None.
SIGNATURES
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.
ACUITY BRANDS, INC.
|
| | | | |
| Date: | October 27, 201629, 2019 | | By: | /S/ VERNON J. NAGEL |
| | | | | Vernon J. Nagel Chairman President, and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | | |
| Signature | | Title | | Date |
| | | | | |
| /s/ VERNON J. NAGEL | | Chairman President, and Chief Executive Officer | | October 27, 201629, 2019 |
| Vernon J. Nagel | | | |
| | | | | |
/s/ RICHARD K. REECEKAREN J. HOLCOM | | ExecutiveSenior Vice President and Chief Financial Officer (Principle(Principal Financial and Accounting Officer) | | October 27, 201629, 2019 |
Richard K. ReeceKaren J. Holcom | | | |
| | | | | |
| * | | Director | | October 27, 201629, 2019 |
| W. Patrick Battle | | | | |
| | | | | |
| * | | Director | | October 27, 201629, 2019 |
| Peter C. Browning | | | | |
| | | | | |
| * | | Director | | October 27, 201629, 2019 |
| G. Douglas Dillard, Jr. | | | | |
| | | | |
| * | | Director | | October 29, 2019 |
| James H. Hance, Jr. | | | | |
| | | | | |
| * | | Director | | October 27, 2016 |
Gordon D. Harnett | | | | |
| | | | |
* | | Director | | October 27, 201629, 2019 |
| Robert F. McCullough | | | | |
| | | | | |
| * | | Director | | October 27, 201629, 2019 |
| Julia B. North | | | | |
| | | | | |
| * | | Director | | October 27, 201629, 2019 |
| Dominic J. Pileggi | | | | |
| | | | | |
| * | | Director | | October 27, 201629, 2019 |
| Ray M. Robinson | | | | |
| | | | | |
| * | | Director | | October 27, 201629, 2019 |
Norman H. WesleyMary A. Winston | | | | |
| | | | | | |
| *BY: | /s/ RICHARD K. REECEKAREN J. HOLCOM | | Attorney-in-Fact | | October 27, 201629, 2019 |
| | Richard K. ReeceKaren J. Holcom | | | | |
Schedule II
Acuity Brands, Inc.
Valuation and Qualifying Accounts
For the Years Ended August 31, 2016, 2015, and 2014
(In millions)
|
| | | | | | | | | | | | | | | | |
| | Balance at | | Additions and Reductions Charged to | | | | |
| | Beginning of Year | | Costs and Expenses | | Other Accounts | | Deductions | | Balance at End of Year |
| Year Ended August 31, 2016 | |
| | |
| | |
| | |
| | |
|
| Reserve for doubtful accounts | $ | 1.3 |
| | 0.3 |
| | 0.4 |
| | 0.3 |
| | $ | 1.7 |
|
| Reserve for estimated product returns, net | $ | 6.2 |
| | 62.6 |
| | 0.9 |
| | 58.8 |
| | $ | 10.9 |
|
| Reserve for estimated cash discounts | $ | 3.0 |
| | 32.0 |
| | 0.9 |
| | 31.2 |
| | $ | 4.7 |
|
| Reserve for estimated other deductions | $ | 1.3 |
| | 11.9 |
| | — |
| | 11.5 |
| | $ | 1.7 |
|
| Deferred tax asset valuation allowance | $ | 15.0 |
| | (0.2 | ) | | 1.6 |
| | — |
| | $ | 16.4 |
|
| Year Ended August 31, 2015 | |
| | |
| | |
| | |
| | |
|
| Reserve for doubtful accounts | $ | 1.9 |
| | 0.1 |
| | — |
| | 0.7 |
| | $ | 1.3 |
|
| Reserve for estimated product returns, net | $ | 4.3 |
| | 44.7 |
| | — |
| | 42.8 |
| | $ | 6.2 |
|
| Reserve for estimated cash discounts | $ | 2.7 |
| | 21.7 |
| | — |
| | 21.4 |
| | $ | 3.0 |
|
| Reserve for estimated other deductions | $ | 1.3 |
| | 9.1 |
| | — |
| | 9.1 |
| | $ | 1.3 |
|
| Deferred tax asset valuation allowance | $ | 13.6 |
| | (0.4 | ) | | 1.8 |
| | — |
| | $ | 15.0 |
|
| Year Ended August 31, 2014 | |
| | |
| | |
| | |
| | |
|
| Reserve for doubtful accounts | $ | 1.5 |
| | 0.8 |
| | — |
| | 0.4 |
| | $ | 1.9 |
|
| Reserve for estimated product returns, net | $ | 1.5 |
| | 35.9 |
| | — |
| | 33.1 |
| | $ | 4.3 |
|
| Reserve for estimated cash discounts | $ | 2.2 |
| | 19.5 |
| | — |
| | 19.0 |
| | $ | 2.7 |
|
| Reserve for estimated other deductions | $ | 1.0 |
| | 7.4 |
| | — |
| | 7.1 |
| | $ | 1.3 |
|
| Deferred tax asset valuation allowance | $ | 12.4 |
| | 0.4 |
| | 0.8 |
| | — |
| | $ | 13.6 |
|
