UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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þ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended August 31, 2021.
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| For the fiscal year ended August 31, 2018OR |
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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.
(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) |
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1170 Peachtree Street, N.E., Suite 2300, Atlanta, Georgia 30309-7676
(Address of principal executive offices)
| 30309-7676
(Zip Code)
| (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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ☑ 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, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “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 | ☐ | Emerging Growth Companyo | ☐ | | | |
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. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☑
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 $142.58$123.30 as quoted on the New York Stock Exchange on February 28, 2018,2021, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $4.11$4.37 billion.
The number of shares outstanding of the registrant’s common stock, $0.01 par value, was 40,182,83234,924,594 shares as of October 22, 2018.2021.
DOCUMENTS INCORPORATED BY REFERENCE
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| Location in Form 10-K | | Incorporated Document |
| Part II, Item 5; Part III, Items 10, 11, 12, 13, and 14 | | Proxy Statement for 20182021 Annual Meeting of Stockholders |
ACUITY BRANDS, INC.
Table of Contents
PART I
Item 1.Business
Overview
Acuity Brands, Inc. (“Acuity Brands”)(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) is the parent company ofa market-leading industrial technology company. We use technology to solve problems in spaces and light. Through our two business segments, Acuity Brands Lighting Inc.and Lighting Controls (“ABL”) and other subsidiaries (Acuity Brands,the Intelligent Spaces Group (“ISG”), we design, manufacture, and bring to market products and services that make the world more brilliant, productive, and connected. We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management systems, and location-aware applications.
During fiscal 2021, we completed a realignment of our operations and structure to better support our business strategy, which resulted in the generation of two reportable segments: ABL and such other subsidiaries are collectively referred to herein as the “Company”), and was incorporated in 2001 under the laws of the State of Delaware. The Company is one of the world’s leading providersISG.
ABL Segment
ABL's portfolio of lighting solutions includes commercial, architectural, and building management solutionsspecialty lighting in addition to lighting controls and services for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. The Company’scomponents that can be combined to create integrated lighting and building management solutions includecontrols systems. We offer devices such as luminaires lighting controls, controllers for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systemsthat predominantly utilize light emitting diode (“LED”) technology designed to optimize energy efficiency and comfort for various indoor and outdoor applications. Additionally, the Company continues to expand its solutionsABL's' 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.
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’s lighting and building management solutions are marketed under numerous brand names, includingproducts includes but is not limited to the following brands: Lithonia Lighting®Lighting®, Holophane®Holophane®, Peerless®Peerless®, Gotham®Gotham®, Mark Architectural Lighting™LightingTM, Winona® Winona® Lighting, Juno®Juno®, Indy™IndyTM, Aculux™AculuxTM, Healthcare Lighting®Lighting®, Hydrel®Hydrel®, American Electric Lighting®Lighting®, Antique Street Lamps™Sunoptics®, Sunoptics®eldoLED®, eldoLED®, Distech Controls®, nLight®, ROAM®nLight®, Sensor Switch®Switch®, Power Sentry®IOTA®, IOTA®A-LightTM, CycloneTM, Eureka®, Lumniaire LEDTM, Luminis®, Dark to Light®, and Atrius™. AsRELOC Wiring Solutions.
Principal customers of August 31, 2018, the Company manufactures products in 17 facilities in North America and two facilities in Europe and employs approximately 13,000 associates.
Principal customersABL include electrical distributors, retail home improvement centers, electric utilities, national accounts, system integrators, digital retailers, lighting showrooms, 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’sABL's lighting and building managementlighting controls solutions are sold primarily bythrough a network of independent sales agents, electrical distributors, internal sales representatives, and system integrators whoagencies that 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 from our manufacturing facilities or through a network of distribution centers, regional warehouses, and commercial warehouses using both common carriers and a company-managedCompany-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
ABL comprised approximately 95% of consolidated revenues during fiscal 2018, sales originated in North America2021, 2020, and the United States accounted for approximately 97%2019.
ISG Segment
ISG delivers products and 89% of net sales, respectively. See the Supplemental Disaggregated Information footnote of the Notes to Consolidated Financial Statements for more information concerning the domesticservices that make spaces smarter, safer, and international net sales of the Company. The Company has one reportable segment serving the North American and select international lighting andgreener. ISG offers building management markets.
Industry Overview
Based on industry sourcessystems and government information, the Company estimates that in fiscal 2018 the size of the North American lightinglocation-aware applications and sells predominantly to system integrators. Our building management solutions market served by the Company (also referred to herein as “addressable market”) was over $20 billion and similar to the prior year as the addressable market was estimated to be flat to up low-single digits compared with fiscal 2017. The addressable marketsystem includes non-portable luminaires as defined by the National Electrical Manufacturers Association; polesproducts for outdoor lighting; emergency lighting fixtures; daylighting; lighting controls;controlling heating, ventilation, and air conditioning (“HVAC”) controls; and building management controllers, 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 lighting ballasts, electronic drivers, 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 estimates the potential size of the installed base of lighting and building management solutions to be over $500 billion.
The Company operates in a highly competitive industry that is affected by volatility from a number of general business and economic factors, such as gross domestic product growth, employment levels, credit availability, energy costs, and commodity costs. The Company’s market is based on residential and non-residential construction, both new as well as renovation and retrofit activity, which is sensitive to the volatility of these general economic factors. The Company is 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 Company estimates suggest that renovation and retrofit activity represents a growing proportion of the total non-residential lighting market. Construction spending on infrastructure projects such as highways, streets, and urban developments has a material impact on the demand for the Company’s infrastructure-focused lighting and building management solutions. Demand for the Company’s 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-residential market is influenced by: the development of new lighting technologies, including solid-state lighting, electronic drivers, embedded lighting controls, form factors, 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 technologies addressing sustainability and facilitating smarter buildings and cities. The Company is a leading provider of integrated lighting and building management solutions based on these technologies and utilizes 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 the optimal platform for enabling the IoT that collect and exchange data to increase efficiency as well as provide a host of other economic benefits resulting from data analytics and other features. The Company expects that the industry’s addressable market is likely to meaningfully expand due to the benefits and value creation provided by intelligent networked lighting, building management 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 offers 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 light emitting diode (“LED”), fluorescent, organic LED (“OLED”), high intensity discharge, 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 building access control that deliver end to endend-to-end optimization of those building systems. The Company's lighting andAtriusTM, our intelligent building management solutions are designed to enhanceplatform, enhances the occupant experience, improve the quality of the visual environment,improves building system management, and provide seamlessautomates labor intensive tasks while delivering operational energy efficiency and cost reductions,reductions. Through a connected and converged building system architecture, our platform delivers different applications, allows clients to upgrade over time with natural refresh cycles, and deploys new capability through both software and hardware updates. Customers of ISG primarily include system integrators 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 Company also sells products to original equipment manufacturers (“OEMs”) that include LED drivers, power supplies, modular wiring, sensors, glass,retail stores, airports, and inverters.
In addition, the Company provides services across applications that primarily relate to monitoring and controlling lighting and building management systems through network technologies and the commissioning of control systems. During fiscal 2017, the Company launched 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. The Company's total solution offerings now 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 total consolidated net sales for the Company in fiscal 2018, 2017, and 2016.
Sales and Marketing
Sales. The Company sells 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 Company also operates 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 its portfolio and service capabilities to 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 through digital marketing and social media. The Company operates training and education facilities in several locationsenterprise campuses throughout North America and Europe designed to enhance the lighting knowledge of customers and industry professionals.
Customers
Customers of the Company include electrical distributors, retail home improvement centers, electric utilities, national accounts, system integrators, utility distributors, 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 productselect international locations. ISG products and solutions specification process for any given project. These generally include building owners, federal, state,are marketed under numerous brand names, including but not limited to Distech Controls®, AtriusTM, and local governments, contractors, engineers, architects,Rockpile Ventures.
ISG comprised approximately 5% of consolidated revenues during fiscal 2021, 2020, and lighting designers.
No single customer accounted for more than 10% of net sales in fiscal 2018, 2017, or 2016.2019.
Manufacturing and Distribution
The Company operatesWe operate 19 manufacturing facilities, including ninesix facilities in the United States, sixseven facilities in Mexico, two facilities in Europe, and twofour 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-operatedCompany-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. The following table shows the percentage of finished goods manufactured and purchased in fiscal 20182021 by significant geographic region.
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| Manufactured | | Purchased | | Total |
| United States | 16 | % | | 8 | % | | 24 | % |
| Mexico | 55 | % | | — | % | | 55 | % |
| Asia | — | % | | 16 | % | | 16 | % |
| Others | 5 | % | | — | % | | 5 | % |
| Total | 76 | % | | 24 | % | | 100 | % |
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| | Manufactured | | Purchased | | Total |
| United States | 19 | % | | 7 | % | | 26 | % |
| Mexico | 57 | % | | — | % | | 57 | % |
| China | — | % | | 15 | % | | 15 | % |
| Others | 2 | % | | — | % | | 2 | % |
| Total | 78 | % | | 22 | % | | 100 | % |
The Company operates sixWe operate seven manufacturing facilities in Mexico, some of 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 Statesraw materials 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.
Lighting and building managementtechnology 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-managedCompany-managed truck fleet. For international customers, distribution methods are adapted to meet individual customer or country requirements. During fiscal 2018,2021, net sales initiated outside of the U.S. represented approximately 11%14% 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 2018, 2017,2021, 2020, and 2016, research and development expense2019, R&D expenses totaled $63.9$88.3 million, $52.0$82.0 million, and $47.1$74.7 million, respectively.
Sales and Marketing
Sales
We sell lighting and building technology 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. We also operate 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.
See the Segment Information, Revenue Recognition, and Supplemental Disaggregated Information footnotes of the Notes to Consolidated Financial Statements for more information concerning our sales by segment, type, and geography.
Marketing
We market our product 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 through digital marketing and social media. We operate training and education facilities in several locations
throughout North America and Europe designed to enhance the lighting knowledge of customers and industry professionals.
Industry Overview
Based on industry sources and government information, we estimate that in fiscal 2021 the size of the North American lighting and building technology solutions market we serve (referred to herein as “addressable market”) was over $20 billion. We estimate that the addressable market increased in the lower single digits as compared with fiscal 2020. The addressable market includes non-portable luminaires as defined by the National Electrical Manufacturers Association; poles for outdoor lighting; emergency lighting fixtures and lighting equipment; daylighting; lighting controls; HVAC controls; and building technology controls, 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 lamps.
We operate in a highly competitive industry that is affected by a number of general business and economic factors, such as, but not limited to, gross domestic product growth, employment levels, credit availability, interest rates, building costs, freight, construction-related labor availability, building occupancy rates, imports and trade, energy costs, freight costs, and commodity costs, including tariffs. Our market is based on non-residential and residential construction, both new as well as renovation and retrofit activity, which may be impacted by these general economic factors. Precise segmentation of the market by new construction and renovation activity is not available, though internal estimates based on third-party data estimate the size of the markets to be about the same. Non-residential construction spending on commercial, institutional, industrial, and infrastructure projects has a material impact on the demand for our lighting and building technology solutions. Demand for our residential lighting products is highly dependent on economic drivers, such as consumer spending and discretionary income, along with housing construction and home improvement spending.
Our 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 technology solutions; and design strategies and technologies addressing sustainability and facilitating intelligent buildings. We are a leading provider of integrated lighting and building technology solutions based on these technologies and utilize internally developed, licensed, or acquired intellectual property. Solid-state lighting and digital building technology systems can be converged allowing for an optimal local operating system to increase efficiency and reduce costs while also delivering productivity benefits. We expect that the industry’s addressable market is likely to expand due to the benefits and value creation provided by our intelligent building platform services and location-aware and asset tracking applications. New entrants continue to develop capabilities and solutions that are both complementary as well as competitive to those of traditional industry participants.
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 managementtechnology solutions and services is competitive and continues to evolve.evolve through acquisition and consolidation activities. Additionally, the market for artificial intelligence and software solutions is active with a wide range of competitors, from existing large companies to startup organizations. Certain global and more diversified electrical manufacturers may provide a broader product offering utilizing electrical, lighting, and building managementtechnology products as well as pricing benefits from the bundling of various offerings. In addition, there have been a growing number ofare new competitors, fromincluding Asian importers, small startup companies, toand global electronics, technology, and software companies, offering competing solutions, sometimes deploying different technologies. Asian imports have also increased competition within the lighting market.
Environmental RegulationRegulations
The operations of the CompanyWe are subject to numerous comprehensivevarious federal, state, and local laws and regulations relatingthat impose increasingly complex, stringent and costly compliance activities. These regulations include but are not limited to, the generation, storage, handling, transportation,Clean Water Act; the Safe Harbor data privacy program between the U.S. and disposalEuropean Union; the United States-Mexico-Canada-Free Trade Agreement (“USMCA”); regulations from the Occupational Safety and Health Administration agency (“OSHA”); the European Union’s General Data Protection Regulation; California’s Consumer Privacy Act and Connected Device Privacy Act; the Civil Rights Act of hazardous substances, as well as solid1964; the U.S. Foreign Corrupt Practices Act (the “FCPA”); and hazardous wastes, and to the remediationU.K. Bribery Act.
On an ongoing basis, the Company allocateswe allocate resources, including investments in capital and operating costs, relating to environmental compliance. Environmentalcomply with laws and regulations. We do not currently believe that the costs of complying with government regulations have generally become stricter in recent years, and federal, state, and local governments domestically and internationally are considering newa material impact on our financial condition, results of operations, or cash flows. However, we may be affected by future standards, laws andor regulations, including those governingimposed in response to energy, climate change, product functionality, geopolitical, corporate social responsibility, employee health and safety, privacy, or similar concerns. These standards, laws, or regulations may impact our costs of operation, the sourcing of raw material composition, air emissions, end-of-life product dispositions,materials, and energy efficiency. The Company is not awarethe manufacture and distribution of any pending legislationour products and may place restrictions and other requirements or proposed regulation related to environmental issues that would have a material adverse effectimpediments on the Company. The costproducts and solutions we can sell in certain geographical locations or may impact the willingness of respondingcertain investors to future changes, however, may be substantial.own our shares. See Part I. Item 1a. Risk Factors for additional information.
Raw Materials
Products produced by the Company require certainOur production requires raw materials, including certain grades of steel and aluminum, electrical and electronic components, plastics, and other petroleum-based materials and components. In fiscal 2018, the Company purchased approximately 104,000 tons of steel and aluminum. The Company estimates that approximately 7% of purchased raw materials are petroleum-based. Additionally, the Company estimates that approximately six million gallons of diesel fuel were consumed in fiscal 2018 through the Company’s 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 raw materials, particularly imports from China,Asia, 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. The Company monitorsWe monitor 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 and availability of itsour products and services may result in a reduction in the number of itsour suppliers.
Backlog Orders
The Company produces and stocks 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.
Intellectual Property
The Company ownsWe own or hashave licenses to use various domestic and foreign patents, trademarks, and other intellectual property related to itsour products, processes, and businesses. These intellectual property rights are important factors for itsour businesses. The Company reliesWe rely on copyright, patent, trade secret, and trademark 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 property of the Company.property. As of August 31, 2018, the Company2021, we had approximately 1,4502,600 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 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 historically have experienced and generally expects to experience, itsour highest sales in the last two quarters of each fiscal year.year; however, our seasonality has been meaningfully impacted by the COVID-19 pandemic.
The Company'sOur lighting and building managementtechnology solutions are sold to customers in both the new construction as 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 income, and financial position.
The COVID-19 Pandemic
The COVID-19 pandemic has resulted in intermittent worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets. We remain committed to prioritizing the health and well-being of our associates and their families and ensuring that we operate effectively. We have implemented policies to screen associates, contractors, and vendors for COVID-19 symptoms upon entering our manufacturing, distribution, and open-office facilities in the United States, Mexico, and other locations as permitted by law. We have also implemented one-way traffic flows, additional cleaning requirements for common spaces, mandatory face coverings, hand sanitizer stations, socially-distanced workspaces, and self-serve pay stations within our cafeterias to mitigate the spread of the Company.virus. Additionally, we have required certain employees whose job functions can be performed remotely to work primarily from home. See further discussion of the health
and safety of our employees, including our response to the COVID-19 pandemic, below within the Human Capital section of this Item 1. Business.
The COVID-19 pandemic has had an adverse impact on our results of operations. The pandemic has caused reduced construction and renovation spending as well as a disruption in our supply chain for certain components, both of which negatively impacted our fiscal 2021 sales. In fiscal 2020 we experienced a limited number of temporary facility shutdowns due to government-mandated closures. Although our facilities are now open and new government-mandated restrictions have been gradually lifted, a resurgence in COVID-19 cases may lead to the reimposition of previously lifted business closure requirements, the imposition of new restrictions, or the issuance of new or revised local or national health guidance. We also continue to incur additional health and safety costs including expenditures for personal protection equipment and facility enhancements to maintain proper distancing guidelines issued by the Centers for Disease Control and Prevention. We have taken actions to reduce costs, including the realignment of headcount with current volumes, a limit on all non-essential employee travel, other efforts to decrease discretionary spending, and reductions in our real estate footprint. Additionally, we elected to defer certain employer payroll taxes as allowable under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES" Act) signed into law on March 27, 2020. Half of these deferrals are due in December 2021, and the remaining deferrals are due in December 2022.
Although we have implemented significant measures to mitigate further spread of the virus, our employees, customers, suppliers, and contractors may continue to experience disruptions to business activities due to potential further government-mandated or voluntary shutdowns, general economic conditions, or other negative impacts of the COVID-19 pandemic. We are continuously monitoring the adverse effects of the pandemic and identifying steps to mitigate those effects. As the COVID-19 pandemic is continually evolving, we are uncertain of August 31, 2018,its ultimate duration and impact. See Part I, Item 1a. Risk Factors for further details regarding the Companypotential impacts of the COVID-19 pandemic to our results of operations, financial position, and cash flows.
Human Capital
We employed approximately 13,000 associates at August 31, 2021, of which approximately 4,2004,000 were employed in the United States approximately 8,300 in Mexico, and approximately 5008,500 were employed in Mexico. Our remaining associates were employed in other international locations including Europe, Canada, and the Asia/Pacific region. Union recognition and collective bargaining arrangements are in place or in process coveringcover approximately 9,300 persons (including approximately 1,9001,400 and 7,200 associates in the United States). Union recognitionStates and collective bargainingMexico, respectively. Arrangements related to approximately 600 associates in the United States will expire after the next fiscal year, and arrangements coveringfor approximately 8,200 persons6,800 associates in Mexico will expire within the next fiscal year, primarily due to annual negotiations with unions in Mexico. The remaining arrangements will expire after the next fiscal year and relate to approximately 1,100 persons employed within the United States. The Company believesof union contracts. We believe that it has a good relationshipwe have strong relationships with both itsour unionized and non-unionized employees.associates.
Growth and Development
A key pillar to attract, develop, and retain top talent is our focus on the growth and development of our associates. In fiscal 2021, we began a renewed focus on development through the creation of development plans for associates. We enhanced the Performance Management process to better align associate aspirations, interests, and experiences with the talent needs that enable the business. We have established quarterly check-in discussions between managers and associates to encourage more continuous performance feedback and improvement and to hold leaders accountable for creating an associate development culture. We provide self-learning resources to help associates expand their lighting, controls, and building management technical knowledge through Acuity Academy.
We are currently enhancing our career framework through our Global Career Architecture project. The focus of this project is to enable a culture that more effectively attracts, retains, rewards, and mobilizes talent. We expect this project to underpin many new initiatives in fiscal 2022, including several new development programs and tools aimed at helping both managers and associates respond to the desire to learn and grow.
Compensation and Benefits
We review our compensation and benefit plans annually to ensure that we are providing competitive, contemporary, and inclusive programs so we can attract and retain the best people and support the health and well-being of our associates and their families. Based on this review, we offer a competitive total rewards package to our associates that includes base compensation, bonuses, profit-sharing plans, stock grants, and/or retirement benefits commensurate with an employee's position, skill set, and experience.
Diversity, Equity, and Inclusion
We believe that diversity, equity, and inclusion are important factors in our ongoing success. Our goal is to ensure that all associates feel valued, respected, and accepted for their contributions regardless of their race, sex, religion, ethnicity, age, gender identity, disabilities, national origin, sexual orientation, or other unique characteristics. To promote diversity in the workplace, we have created a diversity, equity, and inclusion council that is responsible for setting our diversity strategy and creating a three-year roadmap of initiatives, many resulting from associate feedback. Our diversity, equity, and inclusion council consists of members of management as well as key human resource process leaders and leaders from our various employee resource groups. We currently have three employee resource groups: Minorities Amplifying Growth, Inclusion, and Community (“MAGIC”); the Women’s Network; and formed in fiscal 2021, People Respecting Identity, Diversity, and Equity (“PRIDE”). These groups are are designed to embrace, celebrate, and recognize the power of diversity.
Health and Safety
We strive to ensure our associates have a safe and collaborative work environment. Our management practices promote Environmental, Health & Safety (“EHS”) excellence. To achieve this standard, we have instituted an EHS Management System based on the goals and guidelines of the International Standards of Operation for Environmental Management, International Standards for Occupational Health & Safety Management, and our own guiding principles. These guidelines include identifying and controlling hazardous exposures for the prevention of injuries, preventing pollution, and complying with all relevant legal and other requirements. We use each facility’s Acuity Environmental Safety Scorecard (“AESS”) to provide visibility into the facility’s qualitative and quantitative results, with an emphasis on leading indicators that help avoid violations, accidents, and injuries. A variety of different metrics are averaged to determine a facility’s final score, which is used to rank each facility against other facilities and to find continuous improvement opportunities.
COVID-19 Response
We remain committed to prioritizing the health and well-being of our associates and their families in light of the COVID-19 pandemic. We have implemented policies to screen associates, contractors, and vendors for COVID-19 symptoms upon entering our manufacturing and distribution and open office facilities in the United States, Mexico, and other locations as permitted by law. We continue to follow guidelines issued by the World Health Organization, Centers for Disease Control and Prevention, and local health providers, adapting our policies and procedures quickly in response to continually evolving information, statistics, and best practices. During fiscal 2021, we required remote work for all whose jobs can be performed remotely and canceled significant in-person events or shifted them to virtual. We have expanded paid and unpaid leave policies to cover exposures, self-quarantines, and school closures that may impact our associates. At our manufacturing and distribution facilities, we have staggered and rotated shifts, changed traffic flows to limit interaction, provided additional hand sanitizing stations, installed plastic shields between workstations, and increased spacing at all work areas. We regularly clean work areas and encourage all associates to engage in good handwashing and hygiene practices. We also offer on-site vaccination clinics at several facilities and strongly encourage our associates to get vaccinated.
Environmental Sustainability
We are reducing the environmental impact of our products and solutions, driving efficient use of raw materials, and operating our facilities in an intelligent, environmentally friendly manner. During fiscal 2021, we established an executive-level Environmental, Social, and Governance (“ESG”) council to oversee our sustainability strategy across our business. Among other things, this council assesses risks and opportunities and guides activities related to climate change and other ESG matters. During fiscal 2021, we announced that the Company achieved 100 percent carbon neutrality in operations through a combination of carbon reduction and offsetting measures. We regularly communicate progress as part of our EarthLIGHT sustainability program.
Information Concerning Acuity Brands
The Company makes itsAcuity Brands, Inc. was incorporated in 2001 under the laws of the State of Delaware. We 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 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 on the Securities and Exchange Commission’s website at www.sec.gov.
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’sas well as our 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 the Company'sour principal executive officer and senior financial officers will be disclosed on the Company'sour website promptly following the date of such amendment or waiver. Additionally, the Statement of Responsibilities of Committees of 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” link on the Company’sour website. Each of theThe 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 iscommittee charters are available in print to any stockholder of the Companyour stockholders that requestsrequest such document by contacting the Company’sour Investor Relations department.
Item 1a.Risk Factors
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 the Company'sour financial position, results of operations, and cash flows, and financial expectations and could cause the market price of the Company'sour common stock to decrease. Such risks include, without limitation:
Risks Related to the Company'sOur 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.
The Company competesWe compete based on numerous factors, including features and benefits, brand name recognition, product quality, product and system design, energy efficiency, customer relationships, service 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, lighting controls, and building managementtechnology 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 Company’sOur business and results have been and 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. During fiscal 2021, the COVID-19 pandemic has caused a disruption in our supply chain for certain components and resulted in higher prices for significant commodities, including oil and steel, as well as increased warehousing and container costs, which has negatively impacted our business. Future increases in our costs and/or continued disruptions in the costs of these items, including import tariffs,supply or could adversely affectnegatively impact our 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’s performance.
Suppliers for certain of those items are our competitors of the Company that may, for various strategic reasons, choose to cease selling to the Company.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 Company to experience significantresult in additional 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.
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 prices to match the competition.competition or for other reasons or to exit unprofitable business. Additionally, the Companywe may not be able to increase prices to cover rising costs of components and raw materials.costs. 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.
The Company’sOur inability to effectively introduce new products and solutions could adversely affect itsour ability to 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, effective management of purchase commitments and inventory levels to support anticipated product manufacturing and demand, availability of products in appropriate quantities and costs to meet anticipated demand, and 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 the Company’s business.our business, Additionally, new products and solutions may not achieve the same profit margins as expected and as compared to the Company'sour historic products and solutions. Furthermore, other market participants, such as a well-established competitors, could develop alternative platforms for monetizing products, solutions, and services that result in a paradigm shift in our industry, particularly with respect to new and developing technologies.
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. 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. 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,solutions; new product development,development; the development, marketing, and selling of lighting, building management,technology, and software-based solutions,solutions; effective integration of acquisitions,acquisitions; and development of production capacity related to components such as LED drivers.our environmental strategies and climate change commitments. 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 IoT utilizing the Company'sour digital lighting and building managementtechnology 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.our business and reputation. 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.
The CompanyWe may experience difficulties in streamlining activities, which could impact shipments to customers, product quality, and the realization of expected savings from streamlining actions.
The Company expectsWe expect to benefit from itsour programs to streamline operations, including the consolidation of certain facilities and the reduction of overhead costs. Such benefits will only be realized to the extent that the Companywe 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 Our Operations
The COVID-19 pandemic could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital investments.
The World Health Organization has declared the Company's OperationsCOVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our products and services. The COVID-19 pandemic and similar issues in the future could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital investments. Several public health organizations have recommended, and some governments have implemented, certain measures to slow and limit the transmission of the virus, including shelter in place, social distancing ordinances, and business shutdowns. There is considerable uncertainty regarding the extent to which the COVID-19 outbreak will continue to spread, including the impact of identified and potential new variants, the extent and duration of governmental and other measures implemented to try to slow the spread of the virus, and public response to the pandemic.
The pandemic and such preventive measures, or others required or that we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations; decreased employee availability; increased claims or other expenses; potential border closures; disruptions to the businesses of our channel partners; and others. We may incur additional costs related to additional testing and screening of our employees, governmental vaccination mandates, and additional safety requirements from organizations such as OSHA. Our suppliers and customers have also faced these and other challenges, which has led to a disruption in our supply chain for certain components, decreased construction and renovation spending and consumer demand for our products and services, rising commodity costs, and increased freight, warehousing, and container costs. These disruptions and challenges may continue for an indefinite period of time and may also materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments. Additionally, the effects of COVID-19 on the global economy could adversely affect our ability to access the capital and other financial markets, and if so, we may need to consider alternative sources of funding for some of our operations and for working capital, which may increase our cost of, as well as adversely impact our access to, capital. These uncertain economic conditions may also result in the inability of our customers and other counter-parties to make payments to us, on a timely basis or at all.
Although these disruptions may continue to occur, the long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, possible impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.
Technological developments 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, 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 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.
In addition, there have been a growing number ofare new competitors, fromincluding small startup companies toand global electronics, Asian, technology, and software companies, whichoffering competing solutions, sometimes deploying different technologies. These competitors may vertically integrate and begin offering total solution packages that directly compete with the Company'sour offerings. Certain global and more diversified electrical manufacturers as well as certain global technology and building solution providers may be able to obtain a competitive advantage, either through internal development or acquisitions, over the Companyus by offering broader and more integrated solutions utilizing electrical, lighting, controls, building automation systems, and data analytics, and small startup companies may offer more localized product sales and support services within individual regions.
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. Although no individual customer exceeded 10% of sales during the current fiscal year,2021, the loss of or a substantial decrease in the
volume of purchases by certain larger customers could harm the Companyour business in a meaningful manner. The Company hasWe 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.our business.
The CompanyWe could be adversely affected by disruptions to itsour operations.
The breakdown of equipment or other events, including, but not limited to, labor disputes, strikes, workplace violence, pandemics, climate change, brown outs and other power outages, water scarcity, 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.us. Approximately 57%55% 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 cause 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 maintainsmaintain 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.
Company operating systems, information systems, or portable devices may experience a failure, a compromise of security, or a violation of data privacy laws or regulations, which could adversely impact the Company’sour operations as 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, 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, including but not limited to ransomware 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 third-party vendors to operate secure and reliable systems which may include data transfers over the internet.
The CompanyWe also providesprovide and maintainsmaintain technology to enable lighting controls systems,and building management systems, and business intelligence systems, in many cases though the internet of things (IoT) in certain of its customer offerings.technology systems. In addition to the risks noted above, there are other risks associated with these customer offerings. For example, a customer may depend on integral information from, or functionality of, Company’sour technology to support that customer’s other systems, such that a failure of Company’sour technology could impact those systems, including by loss or destruction of data. Likewise, a customer’s failure to properly configure, update, segregate, or upgrade its own network and integrations with Company’sour technology are outside of the Company’sour control and could result in a failure in functionality or security of Company’sour technology.
The CompanyCertain of our third-party vendors and certain of its third-party vendorswe 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 destruction of the Company'sour or itsour clients' confidential, proprietary and other information (including personal identifying information of individuals), or otherwise disrupt the Company'sour or itsour 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 other counterparties, lead to claims against the Company,us, which may result in the 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.
We are also subject to an increasing number of data privacy and security laws and regulations that impose requirements on the Companyus and itsour technology prior to certain use or transfer, storing, use, processing, disclosure, and protection of data and prior to sale or use of certain 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,Commission v. Facebook Ireland, Schrems (aka Schrems II) as well as the European Union’s pending ePrivacy Regulation,new and California’s implementation of its Consumer Privacy Act of 2018proposed privacy and Connected Device Privacy Act of 2018 (f.k.a. SB-327)security laws around the world all could disrupt the Company'sour ability to use or transfer data or sell products and solutions because such activities may not be in compliance with applicable law in certain jurisdictions.
System 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 systems or portable electronic devices could damage the Company'sour 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 13,000 people as of August 31, 2018,2021, approximately 8,8009,000 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 72%66% of the Company'sour workforce. Collective bargaining agreements representing approximately 57% of our workforce will expire within one year, primarily due to annual negotiations with unions in Mexico. Collective bargaining agreements representing approximately 63% of the Company's 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.
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.
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 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.
The CompanyWe may be subject to risk in connection with third-party relationships necessary to operate the Company'sour business.
The Company utilizesWe utilize strategic partners and third-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 itsour 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 contract manufactured finished goods, as well as manufacturing and distribution activities. The Company’sOur 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. 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; shipping delays or disruptions; criminal activities; 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 the Company.us.
The Company sourcesWe source certain components and approximately 15%16% of itsour finished goods from China,Asia, a significant portion of which are subject to the recently enacted import tariffs. These tariffs could increase in future periods resulting in higher costs and/or lower demand. The Company isWe are seeking to mitigate the impact of theChinese tariffs on itsour profitability, including a variety of activities such as engaging alternative non-Chinese suppliers that produce products and components whose origin is in countries other than China, insourcing the production of certain products, and raising selling prices. The CompanyWe could be adversely affected to the extent it iswe are unable to mitigate the impacts of the tariffs. In addition, if the Company's Mexican facilities cease to qualify for Maquiladora status or if the Mexican government adopts additional adverse changes to the program, the Company's manufacturing costs in Mexico would increase.
The Company operates sixWe operate seven manufacturing facilities in Mexico, some of 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 Statesraw materials 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 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 AmericanUnited States, Mexico, Canada Free Trade Agreement (“NAFTA”USMCA”) 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 the Company'sour 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.USMCA. 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. The Company sourcesWe source certain components including steel and aluminum, and approximately 15%16% of itsour finished goods from China,Asia, a significant portion of which are subject to recently enactedChinese tariffs. It remains unclear what the U.S. Administration or foreign governments will or will not do with respect to tariffs, NAFTA,the recently enacted USMCA, 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 the Company'sour products, costs, customers, suppliers, and/or the US economy or certain sectors thereof and, thus, to adversely impact the Company'sour business.
The evolution of the Company’sour products, complexity of itsour supply chain, and reliance on third-party vendors such as customs brokers and freight vendors, which may not have 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 impact the Company’sour business.
In June 2016, the United Kingdom (“U.K.”) held a referendum in which voters approved an exit from the European Union (“U.K.”) commonly referred to as “Brexit.” As a result of the referendum, the British government has begun 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's business and the business of existing and future customers and suppliers as well as have an impact on the Company's employees based in Europe, which could adversely impact its 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 rates, violations of laws, and higher costs associated with changes in regulation, could adversely impact the Company’sour 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 the Company operateswe operate may result in exposure to substantial disruptions, costs and liabilities.
The laws and regulations impacting the Companyus 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 the Company’sand compensation of our employees. In addition, permits and environmental controls are required for certain of our operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. 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 CompanyEnvironmental 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. We may also be affected by those or other future industry standards, laws or regulations, including those imposed in response to energy, climate change, our carbon footprint, 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 the Company’sour products and place restrictions and other requirements or impediments on the products and solutions the Companywe can sell in certain geographical locations.locations or on the willingness of certain investors to own our shares.
The CompanyWe may develop unexpected legal contingencies or matters that exceed insurance coverage.
The Company isWe 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 the Company'sour products, services, or solutions, as well as exposure to hazardous materials, contract disputes, or intellectual property disputes. The Company isWe 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 isare fully self-insured for certain other types of losses, including environmental, product recall, warranties, commercial disputes, and patent infringement. The Company establishes reservesWe establish accruals 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 Companywe hold and/or the amounts reservedaccrued for such claims. In the event of unexpected future developments, it is possible that the ultimate resolutions of such matters could be unfavorable. The Company’sOur 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'sour products are improperly designed, manufactured, packaged, or labeled, or are otherwise alleged to cause harm or injury, the Companywe may need to recall those items, may have increased warranty costs, and could be the target of product liability claims.
The CompanyWe may need to recall products if they are improperly designed, manufactured, packaged, or labeled, and the Company doeswe do not maintain insurance for such recall events. Many of the Company'sour 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. The Company hasWe have increasingly manufactured certain of those components and products in itsour own facilities. The Company hasWe have previously initiated product recalls as a result of potentially faulty components, assembly, installation, design, and packaging of itsour 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 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 CompanyWe may also be liable if the use or failure of any of itsour products causescause 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 the Companywe could suffer losses from a significant product liability judgment against the Companyus in excess of itsour insurance limits. The CompanyWe may not be able to obtain indemnity or reimbursement from itsour suppliers or other third parties for the warranty costs or liabilities associated with itsour products. A significant product recall, warranty claim, or product liability case could also result in adverse publicity, damage to the Company’sour reputation, and a loss of consumer confidence in itsour products.
The Company may fail to effectively estimate employer-sponsored health insurance premiums and incremental costs due to the Affordable Care Act and other healthcare considerations.
Previously enacted comprehensive federal healthcare reform legislation and proposed federal and state healthcare reform initiatives could create adverse effects for the Company. 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. Furthermore, any changes to or a repeal of previously enacted health care reform could cause the Company to incur additional expense to comply with or change its practices with respect any new or revised legislation.
The CompanyWe may not be able to adequately protect itsour intellectual property and could be the target of intellectual property claims.
The Company ownsWe own certain patents, trademarks, copyrights, trade secrets, and other intellectual property. In addition, the Company continueswe continue to file patent applications, when appropriate. The CompanyWe cannot be certain that others have not and will not infringe on itsour intellectual property rights; however, the Company seekswe seek to establish and protect those rights, which could result in significant legal expenses and adversely affect the Company'sour financial condition and results of operations.
Over the last several years, the Companywe 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 use by the Company.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. The Company believesWe believe that it doeswe 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 the Company iswe are required but unable to enter into such arrangements on acceptable economic terms, it could adversely impact the Company.us.
Risks Related to Financial Matters
Tight credit conditions could impair the ability of the Company and other industry parties to effectively access capital markets, which could negatively impact 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.
The market price and trading volume of the Company’sour shares may be volatile.
The market price of the Company’sour common shares could fluctuate significantly for many reasons, including reasons unrelated to the Company’sour 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'sOur performance could be different than analyst expectations causing a decline in the Company'sour stock price. To the extent that other large companies within the Company’sour industry experience declines in share price, the Company’sour 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 Companyus or otherwise engage in activism, which could cause the Companyus to incur substantial costs and could divert the time and attention of the Company’sour 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 (defined in the Debt and Lines of Credit note within the Notes to Consolidated Financial Statements) currently allow us to incur variable debt that is indexed to the London Inter-Bank Offered Rate (“LIBOR”) or an alternate base rate plus an applicable margin. On July 27, 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it will phase out rates for the calculation of LIBOR. As a result of this change, certain LIBOR tenors and currencies will be eliminated by the end of calendar 2021 with all other tenors and currencies of LIBOR eliminated by the end of June 2023. Although there are potential reference rate replacements for LIBOR, it is not possible to predict what rate or rates may become accepted alternatives to LIBOR for certain securities, loans, and liabilities, or the effect of these alternatives on the value of securities whose interest rates are tied to LIBOR. Even though our current Credit Agreement expires prior to the final phase out of LIBOR tenors and currencies, the consequences of the phase out of LIBOR cannot be predicted on any potential cessation, modification, renewal, or new credit agreement we may execute. As a result, our future 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's results of operationsour comprehensive income 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.our results.
| |
Item 1b. | Unresolved Staff Comments |
Item 1b.Unresolved Staff Comments
None.
TheItem 2.Properties
Our general corporate offices of the Company 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 by which reportable segment, Acuity Brands Lighting and Lighting Controls (“ABL”) or the Intelligent Spaces Group (“ISG”), the facility primarily benefits as of August 31, 2018:2021:
| | | | | | | ABL | | ISG | | Corporate | | Total |
| Nature of Facilities | Owned | | Leased | Nature of Facilities | Owned | | Leased | | Owned | | Leased | | Leased | | Owned | | Leased |
| Manufacturing facilities | 14 |
| | 5 |
| Manufacturing facilities | 10 | | | 7 | | | 2 | | | — | | | — | | | 12 | | | 7 | |
| Warehouses | 1 |
| | 2 |
| Warehouses | — | | | 1 | | | — | | | — | | | — | | | — | | | 1 | |
| Distribution centers* | 1 |
| | 7 |
| Distribution centers* | 2 | | | 7 | | | — | | | — | | | — | | | 2 | | | 7 | |
| Offices | 5 |
| | 19 |
| Offices | 5 | | | 10 | | | — | | | 3 | | | 1 | | | 5 | | | 14 | |
| Total | | Total | 17 | | | 25 | | | 2 | | | 3 | | | 1 | | | 19 | | | 29 | |
* 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, 2018:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | Mexico | | Europe | | Canada | | Total |
| ABL: | | | | | | | | | |
| Owned | 4 | | | 5 | | | 1 | | | — | | | 10 | |
| Leased | 2 | | | 2 | | | — | | | 3 | | | 7 | |
| Total | 6 | | | 7 | | | 1 | | | 3 | | | 17 | |
| | | | | | | | | |
| ISG: | | | | | | | | | |
| Owned | — | | | — | | | 1 | | | 1 | | | 2 | |
| Total | — | | | — | | | 1 | | | 1 | | | 2 | |
|
| | | | | | | | | | | | | | |
| | United States | | Mexico | | Europe | | Canada | | Total |
| Owned | 7 |
| | 4 |
| | 2 |
| | 1 |
| | 14 |
|
| Leased | 2 |
| | 2 |
| | — |
| | 1 |
| | 5 |
|
| Total | 9 |
| | 6 |
| | 2 |
| | 2 |
| | 19 |
|
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. Initiatives related to enhancing global operations may result in the future consolidation of certain facilities.
GeneralItem 3.Legal Proceedings
The Company is subject to various legal claims arising inSee the normal course of business, including, but not limited to, patent infringement, product liability claims,Commitments and employment matters. The Company is self-insured up to specified limits for certain types of claims, including product liability, and is 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 the financial condition, results of operations, or cash flowsContingencies footnote of the Company. 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 Company establishes reserves Notes to Consolidated Financial Statements for information regarding our 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 Company cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the amounts reserved.proceedings.
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 the Company and certain of its officers on behalf of all persons who purchased or otherwise acquired the Company’s 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 the Company’s 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 the Company’s common stock between October 7, 2015 and April 3, 2017 and alleges that the Company and certain of its 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 the Company’s products and (ii) overstated the Company’s ability to achieve
profitable sales growth. The plaintiffs seek class certification, unspecified monetary damages, costs, and attorneys’ fees. The Company disputes the allegations in the complaints and intends to move to dismiss the Consolidated Complaint and to vigorously defend against the 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 are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, the Company is 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. The Company is insured, in excess of a self-retention, for Directors and Officers liability.
Environmental Matters
The 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 invests capital and incurs operating costs relating 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 establishes 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 |
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 |
TheItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Our common stock of Acuity Brands is listed on the New York Stock Exchange under the symbol “AYI.” At October 22, 2018,2021, there were 2,1071,948 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 |
| Fiscal 2017 | | | | | |
| First quarter | $276.69 | | $216.89 | | $0.13 |
| Second quarter | $255.45 | | $193.06 | | $0.13 |
| Third quarter | $214.94 | | $157.33 | | $0.13 |
| Fourth quarter | $208.83 | | $162.22 | | $0.13 |
| Fiscal 2018 | | | | | |
| First quarter | $182.64 | | $153.28 | | $0.13 |
| Second quarter | $186.99 | | $141.77 | | $0.13 |
| Third quarter | $154.52 | | $109.98 | | $0.13 |
| Fourth quarter | $155.25 | | $113.91 | | $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 4, 2019, to be filed5, 2022, 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 March 2018, the Board of Directors (the “Board”) authorized the repurchase of up to six million shares of the Company'sour common stock. As of August 31, 2018, 0.8October 22, 2020, 2.2 million shares had been purchasedwere available for repurchase under this authorization. The maximum numberOn October 23, 2020, the Board authorized the repurchase of shares that may yet be purchased under the program equals 5.2 million. Additionally, the Company repurchased 1.2an additional 3.8 million shares duringof our common stock, bringing our total authorization back to six million shares at that time. Under the current year under previous authorizations from the Board, resulting in total repurchases during fiscal 2018new increased share repurchase authorization, we may repurchase shares of two million shares.
Shares may be repurchasedour 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.
As of August 31, 2021, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 3.8 million shares. The following table summarizes share repurchase activity by month for the quarter ended August 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
| 6/1/2021 through 6/30/2021 | — | | | $ | — | | | — | | | 4,399,804 | |
| 7/1/2021 through 7/31/2021 | 331,567 | | | $ | 168.88 | | | 331,567 | | | 4,068,237 | |
| 8/1/2021 through 8/31/2021 | 230,013 | | | $ | 180.21 | | | 230,013 | | | 3,838,224 | |
| Total | 561,580 | | | $ | 173.80 | | | 561,580 | | | 3,838,224 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
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 Securities 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, 2018,2021, with the cumulative total returns of the Standard & Poor’s (“S&P”) 500 Index, the S&P Midcap 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 Midcap 400 Index and the Dow Jones U.S. Building Materials & Fixtures Index. The Dow Jones U.S. Electrical Components & Equipment Index is included in the following graph as the parent companies of several major lighting companies are included in the index. During fiscal 2018, the Company was removed from the S&P 500 Index and added to the S&P Midcap 400 Index. Therefore, the S&P 500 Index will be removed from the following cumulative total return chart in future periods.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Among Acuity Brands, Inc., the S&P 500 Index, the S&P Midcap 400 Index,
the Dow Jones USU.S. Electrical Components & Equipment Index,
and the Dow Jones USU.S. Building Materials & Fixtures Index
*Assumes $100 invested on August 31, 20132016 in stock or index, including reinvestment of dividends.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Aug-16 | Aug-17 | Aug-18 | Aug-19 | Aug-20 | Aug-21 |
| | | | | | | |
| Acuity Brands, Inc. | | $ | 100 | | $ | 64 | | $ | 56 | | $ | 46 | | $ | 40 | | $ | 68 | |
| S&P Midcap 400 Index | | 100 | | 112 | | 135 | | 126 | | 131 | | 187 | |
| Dow Jones U.S. Electrical Components & Equipment Index | | 100 | | 125 | | 146 | | 131 | | 151 | | 219 | |
| Dow Jones U.S. Building Materials & Fixtures Index | | 100 | | 105 | | 111 | | 123 | | 145 | | 230 | |
Item 6.[Reserved]
|
| | | | | | | | | | | | | | | | | | | |
| | | Aug-13 |
| Aug-14 |
| Aug-15 |
| Aug-16 |
| Aug-17 |
| Aug-18 |
|
| | | | | | |
|
|
| Acuity Brands, Inc. | | $ | 100 |
| $ | 146 |
| $ | 230 |
| $ | 325 |
| $ | 209 |
| $ | 182 |
|
| S&P 500 Index | | $ | 100 |
| $ | 125 |
| $ | 126 |
| $ | 142 |
| $ | 165 |
| $ | 197 |
|
| S&P Midcap 400 Index | | $ | 100 |
| $ | 123 |
| $ | 123 |
| $ | 138 |
| $ | 156 |
| $ | 187 |
|
| Dow Jones US Electrical Components & Equipment Index | | $ | 100 |
| $ | 125 |
| $ | 113 |
| $ | 129 |
| $ | 160 |
| $ | 188 |
|
| Dow Jones US Building Materials & Fixtures Index | | $ | 100 |
| $ | 125 |
| $ | 144 |
| $ | 179 |
| $ | 188 |
| $ | 199 |
|
| |
Item 6. | Selected Financial Data |
The following table sets forth certain selected consolidated financial dataTable of the Company, which has been derived from the Consolidated Financial Statements for each of the five years in the period ended August 31, 2018. This historical information may not be indicative of the Company’s 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. |
| | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, |
| | 2018(1) | | 2017(2) | | 2016(3) | | 2015(4) | | 2014(5) |
| | (In millions, except per-share data) |
| Net sales | $ | 3,680.1 |
| | $ | 3,505.1 |
| | $ | 3,291.3 |
| | $ | 2,706.7 |
| | $ | 2,393.5 |
|
| Net income | 349.6 |
| | 321.7 |
| | 290.8 |
| | 222.1 |
| | 175.8 |
|
| Basic earnings per share | 8.54 |
| | 7.46 |
| | 6.67 |
| | 5.13 |
| | 4.07 |
|
| Diluted earnings per share | 8.52 |
| | 7.43 |
| | 6.63 |
| | 5.09 |
| | 4.05 |
|
| Cash and cash equivalents | 129.1 |
| | 311.1 |
| | 413.2 |
| | 756.8 |
| | 552.5 |
|
| Total assets | 2,988.8 |
| | 2,899.6 |
| | 2,948.0 |
| | 2,407.0 |
| | 2,145.4 |
|
| Long-term debt | 356.4 |
| | 356.5 |
| | 355.0 |
| | 352.4 |
| | 351.9 |
|
| Total debt | 356.8 |
| | 356.9 |
| | 355.2 |
| | 352.4 |
| | 351.9 |
|
| Stockholders’ equity | 1,716.8 |
| | 1,665.6 |
| | 1,659.8 |
| | 1,360.0 |
| | 1,163.5 |
|
| Cash dividends declared per common share | 0.52 |
| | 0.52 |
| | 0.52 |
| | 0.52 |
| | 0.52 |
|
| |
(1) | 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, f) excess inventory related to the closure of a facility of $3.1 million, g) gain on sale of a business of $5.4 million, and h) discrete income tax benefits of the U.S. Tax Cuts and Jobs Act of $34.6 million, totaling $0.32 per share. |
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(2) | 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. |
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(3) | 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 payment expense of $27.7 million, d) pre-tax acquisition-related items of $10.8 million, and e) pre-tax impairment of intangible asset of $5.1 million, totaling $1.21 per share. |
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(4) | 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 payment 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. |
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(5) | 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 million, b) pre-tax share-based payment expense of $17.7 million, c) pre-tax recoveries of $5.8 million associated with fraud at the Company's former freight payment and audit service provider, and d) pre-tax special charge reversal of $0.2 million related to initiatives to simplify and streamline the Company's operations, totaling $0.35 per share. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
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”)(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries for the years ended August 31, 2018, 2017,2021, 2020, and 2016.2019 (“fiscal 2021,” “fiscal 2020,” and “fiscal 2019,” respectively). The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report.
Overview
Company
Acuity Brands is the parent company ofWe are a market-leading industrial technology company. Through our two business segments, Acuity Brands Lighting Inc.and Lighting Controls (“ABL”) and other subsidiaries (Acuity Brands, ABL,the Intelligent Spaces Group (“ISG”) we design, manufacture, and such other subsidiaries are collectively referredbring to herein as the “Company”). The Company has its principal office in Atlanta, Georgia.
The Company is 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’s lighting and building management solutions include individual devices and integrated systems designed to optimize energy efficiency and comfort, enhance the occupant experience, and reduce operating costs for various indoor and outdoor applications. Individual devices include luminaires, lighting controls, controllers for various building systems, power supplies, prismatic skylights, inverters, and drivers. Additionally, the Company continues to expand its solutions portfolio to provide a host of other economic benefits, including softwaremarket products and services that enablemake the Internetworld more brilliant, productive, and connected. We achieve growth through the development of Things (“IoT”). The Company's IoT solutions provide customers with accessinnovative new products and services, including lighting, lighting controls, building management systems, and location-aware applications.
We achieve customer-focused efficiencies that allow us to robust data analytics; supportincrease market share and deliver superior returns. We look to aggressively deploy capital to grow the advancementbusiness and to enter attractive new verticals.
Capital Resources and Liquidity
We have numerous sources of smart buildings, smart cities, and the smart grid; and allow businesses to develop custom applications to scale their operations. As of August 31, 2018, the Company operates 19 manufacturing facilities and eight distribution facilities along with three warehouses to serve its extensive customer base and employs approximately 13,000 associates.
The Company does not consider acquisitions a critical element of its strategy but seeks opportunities to expand and enhance its portfolio of solutions,capital, including the following transactions:
On May 1, 2018, using cash on hand and borrowings available under existing credit arrangements, the Company acquired IOTA Engineering, LLC (“IOTA”), a provider of 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, the Company acquired Lucid Design Group, Inc (“Lucid”) a provider of a data and analytics platform to make data-driven decisions to improve building efficiency and drive energy conservation and savings.
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 IoT. DGLogik's solutions provide users with the intelligence to better manage energy usage and improve facility performance.
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.
On December 9, 2015, using cash on hand, the Company acquired 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, heating, ventilation, and air conditioning (“HVAC”), access control, closed circuit television, and related systems.
No acquisitions were completed during fiscal 2017.
Please refer to the Acquisitions and Investments footnote of the Notes to Consolidated Financial Statements for more information.
Strategy
The Company's strategy is to extend its leadership position in the North American market and certain international markets by delivering superior lighting and building management solutions. Additionally, the Company plans to continue to expand its software solution offerings. As a results-oriented, customer-centric company, management plans 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 its customers, driving world-class cost efficiency, and leveraging a culture of operational excellence through continuous improvement.
Throughout fiscal 2018, the Company believes it made progress towards achieving its strategic objectives, including expanding its access to the market, expanding its addressable market, introducing new lighting and building management solutions, and enhancing its operations to create a stronger, more effective organization. The strategic objectives were developed to enable the Company 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 flowflows generated from operations less capital expenditures, that is in excess of net income.
To increase the probability of the Company achieving these financial goals, management will continue to implement programs to enhance its capabilities at providing unparalleled customer service; creating a globally competitive cost structure; improving productivity; and introducing innovative solutions and services more rapidly and cost effectively. In addition, the Company has 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 promotes a “pay-for-performance” culture that rewards various levels of year-over-year improvement, while closely monitoring appropriate risk-taking. The expected outcome of these activities will be to better position the Company to deliver on its full potential, to provide a platform for future growth opportunities, and to allow the Company to achieve its long-term financial goals. See the Outlook section below for additional information.
Liquidity and Capital Resources
The Company's principal sources of liquidity are operating cash flows generated primarily from its business operations, cash on hand, and various sources of borrowings. Thefinancing. Our ability of the Company to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund its operationsmeet our capital allocation priorities, which are to reinvest in our organic growth, make strategic acquisitions and capital expenditures,investments, pay dividends, and repurchase shares of common stock, meet its obligations as they become due,shares. Sufficient cash flow generation is also critical to fund our operations in the short and long-term, to make required contributions to our employee benefit plans, and to maintain compliance with covenants contained in itsour financing agreements.
The Company invested $43.6 million in fiscal 2018 for capital expenditures, primarily for new equipment, tooling, facility enhancements, and information technology. The Company expects to invest approximately 1.5% of net sales in capital expenditures during fiscal 2019.
The Company's short-term cash needs are expected to include funding operations as currently planned, making anticipated capital investments, paying quarterly stockholder dividends as currently anticipated, paying principal and interest on borrowings as currently scheduled, making required contributions to its employee benefit plans, funding possible acquisitions, and potentially repurchasing up to 5.2 million shares of its outstanding common stock as authorized by the the Board of Directors (the “Board”). Management believes We believe that the Companywe will be able to meet itsour liquidity needs over the next 12 months based on itsour cash on hand, current projections of cash flowflows from operations, and borrowing availability under recently executed financing arrangements. Additionally, management believeswe believe that the Company’sour cash flows from operations and sources of funding, including, but not limited to, future borrowings and borrowing capacity, will sufficiently support theour long-term liquidity needsneeds. In the event of the Company.
In March 2018, the Board authorized the repurchase of upa sustained market deterioration, we may need additional capital, which would require us to six million shares of the Company's common stock. As of August 31, 2018, 0.8 million shares had been purchased under this authorization. Additionally, the Company repurchased 1.2 million shares during the current year under previous authorizations from the Board, resulting in total repurchases during fiscal 2018 of two million shares. The extentevaluate available alternatives and timing of future 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. The Company may increase its leverage to accommodate the stock repurchase program.take appropriate actions.
Cash Flow
The Company uses available cash and cash flow from operations, borrowings on credit arrangements, and proceeds from the exercise of stock options, to fund operations, capital expenditures, and acquisitions; to repurchase Company stock; and to pay dividends.
The Company’sOur cash position at August 31, 20182021 was $129.1$491.3 million, a decrease of $182.0$69.4 million from August 31, 2017. During2020. Cash generated from operating activities, cash on-hand, and additional long-term debt borrowings were used during the current year ended August 31, 2018, the Companyto fund our capital allocation priorities as discussed below.
We generated net$408.7 million of cash flows from operating activities of $353.2 million. Cash generated from operating activities, as well as cash on-hand, was used during the current year primarily to repurchase two million shares of the Company's outstanding common stock for $298.4 million, to fund acquisitions of $163.2 million, to fund capital expenditures of $43.6 million, to pay dividends to stockholders of $21.4 million, and to pay employee taxes of $8.2 million on the net settlement of equity awards. Additionally, the Company fully repaid all borrowings under its revolving credit facility during fiscal 2018.
During fiscal 2018, net cash generated from operating activities increased $16.6 million to $353.2 million2021 compared with $336.6$504.8 million in the prior-year period, a decrease of $96.1 million, due primarily to lower netincreased operating working capital requirements which reflect reduced variable incentive payments for prior year performance andto support the improvement in year-over-year sales as well as higher payments for income taxes, partially offset by payroll tax deferrals under the Coronavirus Aid, Relief, and Economic Security Act of 2020 and lower operating profit. 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) increased by approximately $84.7 million during fiscal 2018 compared to an increase of $34.3 million during fiscal 2017. Operating working capital requirements increased primarilyinterest payments on long-term borrowings due to greater production and purchases necessary to support the higher level of net sales. The increase in inventory during the year was due primarily to customer expansion in the home center channel, new product launches, and a buildup of finished goods to support committed projects in the corporate accounts channel. This increase in inventory was mostly offset by a corresponding increase in accounts payable during the same period. Additionally, the increase in accounts receivable during the year was due primarily to the timing oftiming.
Our significant contractual cash collections from customers.
Management believes that investing in assets and programs that will over time increase the overall return on its invested capital is a key factor in driving stockholder value. The Company invested $43.6 million and $67.3 million in fiscal 2018 and 2017, respectively, primarily for new equipment, tooling, facility enhancements, and information technology. The Company expects to invest approximately 1.5% of net sales in capital expenditures during fiscal 2019.
Contractual Obligations
The following table summarizes the Company’s contractual obligations at August 31, 2018 (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period |
| | Total | | Less than One Year | | 1 to 3 Years | | 4 to 5 Years | | After 5 Years |
Debt(1) | $ | 357.3 |
| | $ | 0.4 |
| | $ | 354.9 |
| | $ | 0.7 |
| | $ | 1.3 |
|
Interest obligations(2) | 121.8 |
| | 33.6 |
| | 34.1 |
| | 18.9 |
| | 35.2 |
|
Operating leases(3) | 76.0 |
| | 16.9 |
| | 25.4 |
| | 13.7 |
| | 20.0 |
|
Purchase obligations(4) | 243.8 |
| | 236.7 |
| | 4.7 |
| | 2.4 |
| | — |
|
Other liabilities(5) | 44.0 |
| | 4.0 |
| | 9.3 |
| | 5.0 |
| | 25.7 |
|
| Total | $ | 842.9 |
| | $ | 291.6 |
| | $ | 428.4 |
| | $ | 40.7 |
| | $ | 82.2 |
|
___________________________
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(1)
| These amounts, which represent the principal amounts outstanding at August 31, 2018, are included in the Company’s Consolidated Balance Sheets. See the Debt and Lines of Credit footnote for additional information regarding debt and other matters.
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(2)
| These amounts represent primarily the expected future interest payments on outstanding debt held by the Company at August 31, 2018 and the Company’s outstanding loans related to its corporate-owned life insurance policies (“COLI”), which constitute a small portion of the total contractual 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 Consolidated Statements of Cash Flows.
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(3)
| The Company’s operating lease obligations are described in the Commitments and Contingencies footnote.
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(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. |
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(5)
| These amounts are included in the Company’s Consolidated Balance Sheets and largely represent liabilities for which the Company is 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 elects to make contributions to the pension plans in excess of those required under 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 $4.4 million of unrecognized tax benefits as the period of cash settlement with the respective taxing authorities cannot be reasonably estimated.
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The above table does not include deferred income tax liabilities of approximately $168.5 millionrequirements as of August 31, 2018. Refer2021 include principal and interest on long-term debt as well as payments for operating lease liabilities. Our obligations related to the Income Taxes footnote for more information. This amount is not includedthese items are outlined 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.
Capitalization
The current capital structure of the Company is comprised principally of senior unsecured notes and equity of its stockholders. Total debt outstanding was $356.8 million and $356.9 million at August 31, 2018 and 2017, respectfully, and consisted primarily of fixed-rate obligations. The Company fully repaid all borrowings under its revolving credit facility during fiscal 2018. Additionally, the Company repaid $0.4 million under the fixed rate long-term bank loans during fiscal 2018.
On December 8, 2009, ABL issued $350.0 million of senior unsecured notes due in fiscal 2020 (the “Unsecured Notes”) in a private placement transaction. The Unsecured Notes were subsequently exchanged for SEC-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 10 years. See the Debt and Lines of Credit footnoteand Leases footnotes of the Notes to Consolidated Financial Statements within this Form 10-K. Additionally, we incur purchase obligations in the ordinary course of business that are enforceable and legally binding. Contractual purchase obligations for more information.years subsequent to August 31, 2021 include $451.1 million in fiscal 2022. Contractual purchase obligations beyond fiscal 2022 are not significant.
Financing Arrangements
During fiscal 2021, we received proceeds of $493.8 million through debt issuances and repaid $401.1 million of previously outstanding long-term debt, resulting in net proceeds of $92.7 million. See the Company entered into a credit agreement (“Credit Agreement”) with a syndicateDebt and Lines of banks that providesCredit footnote of the Company with aNotes to Consolidated Financial Statements for discussion of our various financing arrangements, including the terms of our $400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) and a $400.0as well as the $500.0 million aggregate principal amount of 2.150% senior unsecured delayed draw term loan facility (“Term Loan Facility”notes due December 15, 2030 (the “Unsecured Notes”). The CompanyAt August 31, 2021, our outstanding debt balance was $494.3 million compared to our cash position of $491.3 million. We were in compliance with all financial covenants under the Credit Agreementour financing arrangements as of August 31, 2018. 2021.
At August 31, 2018, the Company2021, we had additional borrowing capacity under the Credit Agreementrevolving credit facility of $794.7$395.9 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 Facilityfacility less the outstanding letters of credit of $5.3$4.1 million issued.issued under the facility. As of August 31, 2018,2021, our cash on hand combined with the Company had outstanding letters of credit totaling $10.2 million, primarily for securing collateral requirementsadditional borrowing capacity under the Company's casualty insurance programsrevolving credit facility totaled approximately $0.9 billion.
The Unsecured Notes were issued by Acuity Brands Lighting, Inc., a wholly-owned subsidiary of Acuity Brands, Inc. The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands, Inc. and ABL IP Holding LLC, a wholly-owned subsidiary of Acuity Brands, Inc. The following tables present summarized financial information for providingAcuity Brands, Inc., Acuity Brands Lighting, Inc., and ABL IP Holding LLC on a combined basis after the elimination of all intercompany balances and transactions between the combined group as well as any investments in non-guarantors as of the dates and during the period presented (in millions):
| | | | | | | | | | | | | | |
| Summarized Balance Sheet Information | | August 31, 2021 | | August 31, 2020 |
| Current assets | | $ | 1,172.0 | | | $ | 1,152.6 | |
| Current assets due from non-guarantor affiliates | | 213.4 | | | 183.3 | |
| Non-current assets | | 1,391.7 | | | 1,416.0 | |
| Current liabilities | | 595.1 | | | 530.2 | |
| Non-current liabilities | | 815.7 | | | 723.8 | |
| | | | | | | | |
| Summarized Income Statement Information | | Year Ended August 31, 2021 |
| Net sales | | $ | 2,900.0 | |
| Gross profit | | 1,244.8 | |
| | |
| Net income | | 301.7 | |
Capital Allocation Priorities
Effective capital allocation is a key driver of stockholder value. Our capital allocation priorities are to invest in our business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases.
Organic Growth Investments
We invested $43.8 million and $54.9 million in fiscal 2021 and 2020, respectively, in property, plant, and equipment, primarily related to investments in tooling, new and enhanced information technology capabilities, equipment, and facility enhancements. We currently expect to invest approximately 1.5% of net sales on capital expenditures during fiscal 2022.
Strategic Acquisitions and Investments
We seek opportunities to strategically expand and enhance our portfolio of solutions. We invested in acquisitions of businesses, net of cash acquired, of $75.3 million and $303.0 million in fiscal 2021 and 2020, respectively. These acquisitions primarily included the following transactions:
•On July 1, 2021, using cash on hand, we acquired certain assets and liabilities of ams OSRAM’s North American Digital Systems (“OSRAM DS”) business. This acquisition is intended to enhance our light emitting diode (“LED”) driver and controls technology portfolio and accelerate our innovation, expand our access to market through a more fulsome OEM product offering, and give us more control over our supply chain.
•On May 18, 2021, using cash on hand, we acquired all of the equity interests of Rockpile Ventures, an accelerator of edge artificial intelligence startups. Rockpile Ventures helps early-stage artificial intelligence companies drive co-engineering and co-selling partnerships with major cloud ecosystems, enabling faster adoption from proof-of-concept trials to market scale.
•On September 17, 2019, using cash on hand and borrowings under available existing credit supportarrangements at that time, 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 complement our 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 November 25, 2019, using cash on hand, we acquired all of the Company’s industrial revenue bond, including $5.3 million issued underequity interests of LocusLabs, Inc (“LocusLabs”). The LocusLabs software platform supports navigation applications used on mobile devices, web browsers, and digital displays in airports, event centers, multi-floor office buildings, and campuses.
Please refer to the Revolving Credit Facility. See the Debt and Lines of CreditAcquisitions footnote of theNotes to Consolidated Financial Statements.
During fiscal 2018, the Company’s consolidated stockholders’ equity increased $51.2 million to $1.72 billion at August 31, 2018 from $1.67 billion at August 31, 2017. The increase was due primarily to net income earned in the period, stock issuances resulting primarily from the exercise of stock options, and actuarial gains on pension plans, partially offset by share repurchases, the payment of dividends, shares withheld for employee taxes on vested restricted stock grants, and foreign currency translation adjustments. The Company’s debt to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders’ equity) was 17.2% and 17.6% at August 31, 2018 and 2017, respectively. The ratio of debt, net of cash, to total capitalization, net of cash, was 11.7% and 2.7% at August 31, 2018 and 2017, respectively.more information.
Dividends
Acuity BrandsWe paid dividends on itsour common stock of $21.4$19.1 million ($0.52 per share) in fiscal 20182021 and $22.7$20.8 million ($0.52 per share) in fiscal 2017,2020, indicating a quarterly dividend rate of $0.13 per share. All decisions regarding the declaration and payment of dividends by Acuity Brands are at the discretion of the Company’s Board of Directors (the “Board”) and are evaluated regularly in light of the Company’sour financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.
Share Repurchases
During fiscal 2021, we repurchased 3.8 million shares of our outstanding common stock for $434.9 million. As of August 31, 2021, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 3.8 million shares. We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash.
The COVID-19 Pandemic
The COVID-19 pandemic has resulted in intermittent worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets. We remain committed to prioritizing the health and well-being of our associates and their families and ensuring that we operate effectively. We have implemented policies to screen associates, contractors, and vendors for COVID-19 symptoms upon entering our manufacturing, distribution, and open-office facilities in the United States, Mexico, and other locations as permitted by law. We have also implemented one-way traffic flows, additional cleaning requirements for common spaces, mandatory face coverings, hand sanitizer stations, socially-distanced workspaces, and self-serve pay stations within our cafeterias to mitigate the spread of the virus. Additionally, we have required certain employees whose job functions can be performed remotely to work primarily from home.
The COVID-19 pandemic has had an adverse impact on our results of operations. The pandemic has caused reduced construction and renovation spending as well as a disruption in our supply chain for certain components, both of which negatively impacted our fiscal 2021 sales. In fiscal 2020 we experienced a limited number of temporary facility shutdowns due to government-mandated closures. Although our facilities are open and government-mandated restrictions have been gradually lifted, a resurgence in COVID-19 cases may lead to the reimposition of previously lifted business closure requirements, the imposition of new restrictions, or the issuance of new or revised local or national health guidance. We also continue to incur additional health and safety costs including expenditures for personal protection equipment and facility enhancements to maintain proper distancing guidelines issued by the Centers for Disease Control and Prevention. We have taken actions to reduce costs, including the realignment of headcount with current volumes, a limit on all non-essential employee travel, other efforts to decrease discretionary spending, and reductions in our real estate footprint. Additionally, we elected to defer certain employer payroll taxes as allowable under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES" Act) signed into law on March 27, 2020. Half of these deferrals are due in December 2021, and the remaining deferrals are due in December 2022.
Although we have implemented significant measures to mitigate further spread of the virus, our employees, customers, suppliers, and contractors may continue to experience disruptions to business activities due to potential
further government-mandated or voluntary shutdowns, general economic conditions, or other negative impacts of the COVID-19 pandemic. We are continuously monitoring the adverse effects of the pandemic and identifying steps to mitigate those effects. As the COVID-19 pandemic is continually evolving, we are uncertain of its ultimate duration and impact. See Part I, Item 1a. Risk Factors for further details regarding the potential impacts of COVID-19 to our results of operations, financial position, and cash flows.
Results of Operations
Fiscal 2018 ComparedThe following is a discussion of our results of operations in fiscal 2021 compared to fiscal 2020. A discussion of our fiscal 2020 results of operations compared to fiscal 2019 can be found within Part II, Item 7.Management's Discussion and Analysis within our fiscal 2020 Annual Report on Form 10-K filed with Fiscal 2017the Securities and Exchange Commission on October 23, 2020.
The following table sets forth information comparing the components of net income for the year ended August 31, 20182021 with the year ended August 31, 20172020 (in millions except per share data):
| | | | Year Ended August 31, | | Increase | | Percent | | Year Ended August 31, | | Increase | | Percent |
| | 2018 | | 2017 | | (Decrease) | | Change | | 2021 | | 2020 | | (Decrease) | | Change |
| Net sales | $ | 3,680.1 |
| | $ | 3,505.1 |
| | $ | 175.0 |
| | 5.0 | % | Net sales | $ | 3,461.0 | | | $ | 3,326.3 | | | $ | 134.7 | | | 4.0 | % |
| Cost of products sold | 2,193.3 |
| | 2,023.9 |
| | 169.4 |
| | 8.4 | % | Cost of products sold | 1,986.0 | | | 1,923.9 | | | 62.1 | | | 3.2 | % |
| Gross profit | 1,486.8 |
| | 1,481.2 |
| | 5.6 |
| | 0.4 | % | Gross profit | 1,475.0 | | | 1,402.4 | | | 72.6 | | | 5.2 | % |
| Percent of net sales | 40.4 | % | | 42.3 | % | | (190 | ) | bps | |
| Percent of net sales | 42.6 | % | | 42.2 | % | | 40 | | bps | |
| Selling, distribution, and administrative expenses | 1,026.6 |
| | 951.1 |
| | 75.5 |
| | 7.9 | % | Selling, distribution, and administrative expenses | 1,044.1 | | | 1,028.5 | | | 15.6 | | | 1.5 | % |
| Special charge | 5.6 |
| | 11.3 |
| | (5.7 | ) | | NM |
| |
| Special charges | | Special charges | 3.3 | | | 20.0 | | | (16.7) | | | NM |
| Operating profit | 454.6 |
| | 518.8 |
| | (64.2 | ) | | (12.4 | )% | Operating profit | 427.6 | | | 353.9 | | | 73.7 | | | 20.8 | % |
| Percent of net sales | 12.4 | % | | 14.8 | % | | (240 | ) | bps | |
| Percent of net sales | 12.4 | % | | 10.6 | % | | 180 | | bps | |
| Other expense (income): | |
| | |
| | |
| | |
| |
| Other expense: | | Other expense: | | | | | | | |
| Interest expense, net | 33.5 |
| | 32.5 |
| | 1.0 |
| | 3.1 | % | Interest expense, net | 23.2 | | | 23.3 | | | (0.1) | | | (0.4) | % |
| Miscellaneous income, net | (4.8 | ) | | (6.3 | ) | | 1.5 |
| | NM |
| |
| Miscellaneous expense, net | | Miscellaneous expense, net | 8.2 | | | 5.9 | | | 2.3 | | | NM |
| Total other expense | 28.7 |
| | 26.2 |
| | 2.5 |
| | 9.5 | % | Total other expense | 31.4 | | | 29.2 | | | 2.2 | | | 7.5 | % |
| Income before income taxes | 425.9 |
| | 492.6 |
| | (66.7 | ) | | (13.5 | )% | Income before income taxes | 396.2 | | | 324.7 | | | 71.5 | | | 22.0 | % |
| Percent of net sales | 11.6 | % | | 14.1 | % | | (250 | ) | bps | |
| Percent of net sales | 11.4 | % | | 9.8 | % | | 160 | | bps | |
| Income tax expense | 76.3 |
| | 170.9 |
| | (94.6 | ) | | (55.4 | )% | Income tax expense | 89.9 | | | 76.4 | | | 13.5 | | | 17.7 | % |
| Effective tax rate | 17.9 | % | | 34.7 | % | | |
| | |
| Effective tax rate | 22.7 | % | | 23.5 | % | | | | |
| Net income | $ | 349.6 |
| | $ | 321.7 |
| | $ | 27.9 |
| | 8.7 | % | Net income | $ | 306.3 | | | $ | 248.3 | | | $ | 58.0 | | | 23.4 | % |
| Diluted earnings per share | $ | 8.52 |
| | $ | 7.43 |
| | $ | 1.09 |
| | 14.7 | % | Diluted earnings per share | $ | 8.38 | | | $ | 6.27 | | | $ | 2.11 | | | 33.7 | % |
| NM - not meaningful | | | | | | | | NM - not meaningful | | | | | | |
Net sales increased $175.0$134.7 million, or 5.0%4.0%, to $3.68$3.46 billion for the year ended August 31, 20182021 compared with $3.51$3.33 billion reported for the year ended August 31, 2017.2020. For the year ended August 31, 2018, the Company2021, we reported net income of $349.6$306.3 million compared with $321.7$248.3 million for the year ended August 31, 2017,2020, an increase of $27.9$58.0 million, or 8.7%23.4%. For fiscal 2018,2021, diluted earnings per share increased 14.7%33.7% to $8.52$8.38 from $7.43$6.27 for the prior-year period.
The following table reconciles certain U.S. generally accepted accounting principles (“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, excess inventory adjustments, certain manufacturing inefficiencies, amortization of acquired intangible assets, share-based payment expense, special charges associated primarily with continued efforts to streamline the organization, a gain associated with the saleand impairments of the Company's Spanish lighting business, a gain on the sale of an investmentinvestments in an unconsolidated affiliate, and certain discrete income tax benefits of the Tax Cuts and Jobs Act (“TCJA”).affiliates. Although the impacts of these items have been recognized in prior periods and could recur in future periods, management typically excludes these items during internal reviews of performance and uses these non-U.S. GAAP measures for baseline comparative operational analysis, decision making, and other activities. 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 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 the Company'sour 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions, except per share data) | Year Ended August 31, | | | | | |
| | 2021 | | | 2020 | | Increase (Decrease) | Percent Change |
| Gross profit | $ | 1,475.0 | | | | $ | 1,402.4 | | | | | $ | 72.6 | | 5.2 | % |
| Percent of net sales | | | 42.6 | % | | | 42.2 | % | | 40 | | bps |
| | | | | | | | | |
Add-back: Acquisition-related items (1) | — | | | | 1.2 | | | | | | |
| Adjusted gross profit | $ | 1,475.0 | | | | $ | 1,403.6 | | | | | $ | 71.4 | | 5.1 | % |
| Percent of net sales | | | 42.6 | % | | | 42.2 | % | | 40 | | bps |
| | | | | | | | | |
| Selling, distribution, and administrative expenses | $ | 1,044.1 | | | | $ | 1,028.5 | | | | | $ | 15.6 | | 1.5 | % |
| Percent of net sales | | | 30.2 | % | | | 30.9 | % | | (70) | | bps |
| Less: Amortization of acquired intangible assets | (40.7) | | | | (41.7) | | | | | | |
| Less: Share-based payment expense | (32.5) | | | | (38.2) | | | | | | |
Less: Acquisition-related items (1) | (2.2) | | | | (1.3) | | | | | | |
| Adjusted selling, distribution, and administrative expenses | $ | 968.7 | | | | $ | 947.3 | | | | | $ | 21.4 | | 2.3 | % |
| Percent of net sales | | | 28.0 | % | | | 28.5 | % | | (50) | | bps |
| | | | | | | | | |
| Operating profit | $ | 427.6 | | | | $ | 353.9 | | | | | $ | 73.7 | | 20.8 | % |
| Percent of net sales | | | 12.4 | % | | | 10.6 | % | | 180 | | bps |
| Add-back: Amortization of acquired intangible assets | 40.7 | | | | 41.7 | | | | | | |
| Add-back: Share-based payment expense | 32.5 | | | | 38.2 | | | | | | |
| | | | | | | | | |
Add-back: Acquisition-related items (1) | 2.2 | | | | 2.5 | | | | | | |
| Add-back: Special charges | 3.3 | | | | 20.0 | | | | | | |
| Adjusted operating profit | $ | 506.3 | | | | $ | 456.3 | | | | | $ | 50.0 | | 11.0 | % |
| Percent of net sales | | | 14.6 | % | | | 13.7 | % | | 90 | | bps |
| | | | | | | | | |
| Other expense | $ | 31.4 | | | | $ | 29.2 | | | | | $ | 2.2 | | 7.5 | % |
| Less: Impairments of investments | (6.0) | | | | — | | | | | | |
| Adjusted other expense | $ | 25.4 | | | | $ | 29.2 | | | | | $ | (3.8) | | (13.0) | % |
| | | | | | | | | |
| Net income | $ | 306.3 | | | | $ | 248.3 | | | | | $ | 58.0 | | 23.4 | % |
| Add-back: Amortization of acquired intangible assets | 40.7 | | | | 41.7 | | | | | | |
| Add-back: Share-based payment expense | 32.5 | | | | 38.2 | | | | | | |
| | | | | | | | | |
Add-back: Acquisition-related items (1) | 2.2 | | | | 2.5 | | | | | | |
| Add-back: Special charges | 3.3 | | | | 20.0 | | | | | | |
| Add-back: Impairments of investments | 6.0 | | | | — | | | | | | |
| Total pre-tax adjustments to net income | 84.7 | | | | 102.4 | | | | | | |
| Income tax effect | (19.3) | | | | (23.4) | | | | | | |
| Adjusted net income | $ | 371.7 | | | | $ | 327.3 | | | | | $ | 44.4 | | 13.6 | % |
| | | | | | | | | |
| Diluted earnings per share | $ | 8.38 | | | | $ | 6.27 | | | | | $ | 2.11 | | 33.7 | % |
| Adjusted diluted earnings per share | $ | 10.17 | | | | $ | 8.27 | | | | | $ | 1.90 | | 23.0 | % |
| | | | | | | | | |
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|
| | | | | | | | | | | | | |
| (In millions, except per share data) | Year Ended August 31, | | Increase (Decrease) | Percent Change |
| | 2018 | | 2017 | |
| Gross profit | $ | 1,486.8 |
| | $ | 1,481.2 |
| | | |
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 | $ | 1,491.6 |
| | $ | 1,482.8 |
| | $ | 8.8 |
| 0.6 | % |
| Percent of net sales | 40.5 | % | | 42.3 | % | | (180 | ) | bps |
| | | | | | | |
| Selling, distribution, and administrative expenses | $ | 1,026.6 |
| | $ | 951.1 |
| | | |
| 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 | $ | 963.7 |
| | $ | 891.1 |
| | $ | 72.6 |
| 8.1 | % |
| Percent of net sales | 26.2 | % | | 25.4 | % | | 80 |
| bps |
| | | | | | | |
| Operating profit | $ | 454.6 |
| | $ | 518.8 |
| | | |
| 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 charge | 5.6 |
| | 11.3 |
| | | |
| Adjusted operating profit | $ | 527.9 |
| | $ | 591.7 |
| | $ | (63.8 | ) | (10.8 | )% |
| Percent of net sales | 14.3 | % | | 16.9 | % | | (260 | ) | bps |
| | | | | | | |
| Other expense | $ | 28.7 |
| | $ | 26.2 |
| | | |
| Add-back: Gain on sale of investment in unconsolidated affiliate | — |
| | 7.2 |
| | | |
| Add-back: Gain on sale of business | 5.4 |
| | — |
| | | |
| Adjusted other expense | $ | 34.1 |
| | $ | 33.4 |
| | $ | 0.7 |
| 2.1 | % |
| | | | | | | |
| 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 charge | 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 profit in inventory and professional fees.
(2) Incremental costs incurred due to manufacturing inefficiencies directly related to the closure
(3) Excess inventory related to the closure of a facility.
(4) Discrete income tax benefits of the TCJA include provisional estimates 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 of $3.46 billion for the year ended August 31, 20182021 increased by 5.0%$134.7 million, or 4.0%, compared with the prior-year periodperiod. This increase was driven by improved sales performance in the second half of fiscal 2021. Sales in our ABL segment of $3.29 billion increased $106.4 million, or 3.3%, compared to the prior year. Within our ABL segment, sales through the independent sales network and direct sales network increased 5% and 9%, respectively, due primarily to an increase in sales volumes of approximately 7%these channels continuing to benefit from improved service levels and an approximately 1% favorable impactimproving economy. However, corporate accounts sales for fiscal 2021 were 12% lower year over year due to fewer nonessential renovations from large retailers in the first half of acquired revenues from acquisitions, partially offset by the impact of an unfavorable change in product pricesfiscal year, and the mix of products sold (“price/mix”) of approximately 3%. Sales of LED-based luminaires during the year ended August 31, 2018 accounted for approximately two-thirds of total net sales. The increase in volumes wasretail sales declined 17% due primarily to greater shipments of Atrius-based luminairesa customer inventory rebalancing in fiscal 2021. Sales within our ISG segment increased 21% to customers$190.0 million due primarily to strong demand for building and HVAC controls. Changes in certain key vertical applicationsforeign currency rates and higher shipments within the home center channel. Therevenues from acquired companies did not have a meaningful impact on net unfavorable price/mix was primarily due to lower pricing on certain luminaires as a result of increased competition in portions of the marketsales for more basic, lesser-featured products; changes in product mix reflecting the substitution of certain products with less costly form factors resulting in lower price points; and changes in sales channel mix, which reflected fewer large commercial projects that generally include higher priced solutions. Due to the changing dynamics of the Company's product portfolio, including the increase of integrated lighting and building management solutions, it is not possible to precisely quantify or differentiate the individual components of volume, price, and mix.fiscal 2021.
Gross Profit
Gross profit for fiscal 20182021 increased $5.6$72.6 million, or 0.4%5.2%, to $1.49$1.48 billion compared with $1.48$1.40 billion for the prior year. Grossyear due. The increase in gross profit and margin decreasedwas due primarily to 40.4%increased sales as well as product and productivity improvements, partially offset by higher component and freight costs.
Operating Profit
SD&A expenses of $1.04 billion for the year ended August 31, 20182021 increased $15.6 million, or 1.5%, compared with 42.3% for the year ended August 31, 2017. 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 $8.8 million, or 0.6%, to $1.49 billion compared with $1.48 billion for the prior year. Adjusted gross profit margin decreased 180 basis points to 40.5% compared to 42.3% in the prior year.
Operating Profit
SD&A expenses for the year ended August 31, 2018 increased $75.5 million, or 7.9%, to $1.03 billion compared with $951.1 million in the prior year. The increase in SD&A expensesexpense was due primarily to higher outbound freight to support the increase in sales as well as increased employee-related costs, partially offset by lower travel expense and sales and marketing costs due to higher employee related costs, including additional headcount from acquisitions, increased freight chargescost control and commissionstravel restrictions that have continued since the start of the COVID-19 pandemic. Additionally, share-based payment expense decreased in fiscal 2021 due to support greater sales volume, higher professional fees related to recent acquisitions, and to a lesser degree,the discontinuation of certain other operating expenses. retirement provisions in the equity incentive program that resulted in the acceleration of share-based payment expense for fiscal 2020 grants.
Compared with the prior-year period, SD&A expenses as a percent of net sales increased 80decreased 70 basis points to 27.9%30.2% for fiscal 20182021 from 27.1%30.9% in fiscal 2017.2020. Adjusted SD&A expenses were $963.7$968.7 million, or 26.2%28.0% of net sales, in fiscal 20182021 compared to $891.1$947.3 million, or 25.4%28.5% of net sales, in the year-ago period.
During the year ended August 31, 2018, the Company2021, we recognized pre-tax special charges of $5.6$3.3 million compared with pre-tax special charges of $11.3$20.0 million recorded during the year ended August 31, 2017.2020. 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 20182021 was $454.6$427.6 million compared with $518.8$353.9 million reported for the prior-year period, a decreasean increase of $64.2$73.7 million, or 12.4%20.8%. Operating profit margin decreased 240increased 180 basis points to 12.4% for fiscal 20182021 compared with 14.8%10.6% for fiscal 2017.2020. The decreaseincrease in operating profit was due primarily to the impact of price/mix onmargin reflects favorable gross profit as well as higher SD&A expenses, partially offset by higher sales volumesmargin, a decline in special charges, and a lower net special charge.our ability to leverage our operating costs.
Adjusted operating profit decreased $63.8increased $50.0 million, or 10.8%11.0%, to $527.9$506.3 million compared with $591.7$456.3 million for fiscal 2017.2020. Adjusted operating profit margin was 14.3%14.6% and 16.9%13.7% for fiscal 20182021 and 2017,2020, 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 $33.5$23.2 million and $32.5$23.3 million for the years ended August 31, 20182021 and 2017,2020, respectively. The Company
We reported net miscellaneous incomeexpense of $4.8$8.2 million in fiscal 20182021 compared with net miscellaneous income of$6.3$5.9 million in fiscal 2017. Net miscellaneous income2020. During fiscal 2021, we recorded impairment charges totaling $6.0 million for certain unconsolidated equity investments. Further details regarding the impairment charges are included a gain of $5.4 million associated within the saleFair Value Measurements footnote of the Company’s 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.
Notes to Consolidated Financial Statements.
Income Taxes and Net Income
The Company'sOur effective income tax rate was 17.9%22.7% and 34.7%23.5% for the years ended August 31, 20182021 and 2017,2020, respectively. The change in our effective income tax rate foryear over year is due primarily to the year ended August 31, 2018 was significantly impacted by the provisionsimpacts of the TCJA, which was enacted during the second quarter of fiscal 2018.discrete items. Further details regarding the TCJAincome taxes are included in the Income Taxes footnote of the Notes to Consolidated Financial
Statements. The Company estimatesWe estimate that itsour effective tax rate for fiscal 20192022 will be approximately 25%23% before any discrete items, assuming the rates in itsour taxing jurisdictions remain generally consistent throughout the year.
Net income for fiscal 20182021 increased $27.9$58.0 million, or 8.7%23.4%, to $349.6$306.3 million from $321.7$248.3 million reported for the prior year. The increase in net income resulted primarily from an increase in operating profit compared to the benefit recognizedprior-year period partially offset by higher income tax expense related to the TCJA, partially offset by a decreaseincrease in operating profit. Adjusted net income for fiscal 2018 decreased 0.8%2021 increased 13.6% to $362.9$371.7 million compared with $365.9$327.3 million in the year-ago period.
Diluted earnings per share for fiscal 2021 was $8.38 compared with $6.27 for the prior-year period, an increase of $2.11, or 33.7%. This increase reflects higher net income as well as lower outstanding diluted shares. Adjusted diluted earnings per share for fiscal 20182021 was $8.84$10.17 compared with $8.45$8.27 for the prior-year period, which represented an increase of $0.39,$1.90, or 4.6%23.0%.
Fiscal 2017 Compared with Fiscal 2016
Segment Results
The following table setstables set forth information comparing the componentsoperating results of net incomeour segments, ABL and ISG, for the year ended August 31, 20172021 with the year ended August 31, 20162020 (in millions except per share data):millions). We have recast historical information to conform to the current segment structure.
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| | Year Ended August 31, | | | | |
| ABL | | 2021 | | 2020 | | Increase (Decrease) | | Percent Change |
| Net sales | | $ | 3,287.3 | | | $ | 3,180.9 | | | $ | 106.4 | | | 3.3 | % |
| | | | | | | | |
| Operating profit | | $ | 476.2 | | | $ | 425.8 | | | $ | 50.4 | | | 11.8 | % |
| Add-back: Amortization of acquired intangible assets | | 27.9 | | | 27.4 | | | | | |
| Add-back: Share-based payment expense | | 11.0 | | | 13.4 | | | | | |
Add-back: Acquisition-related items (1) | | — | | | 1.2 | | | | | |
| Adjusted operating profit | | $ | 515.1 | | | $ | 467.8 | | | $ | 47.3 | | | 10.1 | % |
| | | | | | | | |
| Operating profit margin | | 14.5 | % | | 13.4 | % | | 110 | | bps |
| Adjusted operating profit margin | | 15.7 | % | | 14.7 | % | | 100 | | bps |
| | | | | | | | |
|
| | | | | | | | | | | | | | |
| | Year Ended August 31, | | Increase | | Percent |
| | 2017 | | 2016 | | (Decrease) | | Change |
| Net sales | $ | 3,505.1 |
| | $ | 3,291.3 |
| | $ | 213.8 |
| | 6.5 | % |
| Cost of products sold | 2,023.9 |
| | 1,855.1 |
| | 168.8 |
| | 9.1 | % |
| Gross profit | 1,481.2 |
| | 1,436.2 |
| | 45.0 |
| | 3.1 | % |
| Percent of net sales | 42.3 | % | | 43.6 | % | | (130 | ) | bps | |
|
| Selling, distribution, and administrative expenses | 951.1 |
| | 946.0 |
| | 5.1 |
| | 0.5 | % |
| Special charge | 11.3 |
| | 15.0 |
| | (3.7 | ) | | NM |
|
| Operating profit | 518.8 |
| | 475.2 |
| | 43.6 |
| | 9.2 | % |
| Percent of net sales | 14.8 | % | | 14.4 | % | | 40 |
| bps | |
|
| Other expense (income): | |
| | |
| | |
| | |
|
| Interest expense, net | 32.5 |
| | 32.2 |
| | 0.3 |
| | 0.9 | % |
| Miscellaneous income, net | (6.3 | ) | | (1.6 | ) | | (4.7 | ) | | NM |
|
| Total other expense | 26.2 |
| | 30.6 |
| | (4.4 | ) | | (14.4 | )% |
| Income before income taxes | 492.6 |
| | 444.6 |
| | 48.0 |
| | 10.8 | % |
| Percent of net sales | 14.1 | % | | 13.5 | % | | 60 |
| bps | |
|
| Income tax expense | 170.9 |
| | 153.8 |
| | 17.1 |
| | 11.1 | % |
| Effective tax rate | 34.7 | % | | 34.6 | % | | |
| | |
|
| Net income | $ | 321.7 |
| | $ | 290.8 |
| | $ | 30.9 |
| | 10.6 | % |
| Diluted earnings per share | $ | 7.43 |
| | $ | 6.63 |
| | $ | 0.80 |
| | 12.1 | % |
| NM - not meaningful | | | | | | | |
Net(1) Acquisition-related items include profit in inventory.
ABL net sales increased $213.8 million, or 6.5%, to $3.51 billion for the year ended August 31, 20172021 increased 3.3% compared with $3.29 billion reportedtheprior-year period due primarily to improvements within the independent sales network and direct sales network channels as our go-to-market activities leveraged improvements in the construction market and wider economy. These gains were partially offset by lower sales in the retail channel due to a customer inventory rebalancing and in the corporate accounts channel due to fewer nonessential renovations from large retailers in the first half of the fiscal year. Operating profit for ABL was $476.2 million (14.5% of ABL net sales) for the year ended August 31, 2016. For2021 compared to $425.8 million (13.4% of ABL net sales) in the prior-year period, an increase of $50.4 million. The increase in operating profit was due primarily to higher sales as well as product and productivity improvements, partially offset by higher component, freight, and operating costs. The operating profit margin increase year ended August 31, 2017, the Company reported net income of $321.7over year reflects higher sales as well as our ability to successfully leverage our operating costs. Adjusted operating profit for ABL increased $47.3 million compared with $290.8to $515.1 million for the year ended August 31, 2016, an increase of $30.9 million, or 10.6%. For fiscal 2017, diluted earnings per share increased 12.1% to $7.43 from $6.63 for2021 compared with the prior-yearprior year period.
The following table reconciles certain U.S. generally accepted accounting principles (“U.S. GAAP”) financial measures to the corresponding non-U.S. GAAP measures referred to in the discussion of the Company’s results of operations, which exclude the impact of acquisition-related items, certain manufacturing inefficiencies, amortization of acquired intangible assets, share-based payment expense, impairment of intangible asset, special charges associated primarily with continued efforts to streamline the organization, and a gain on the sale of an investment in an unconsolidated affiliate. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, | | | | |
| ISG | | 2021 | | 2020 | | Increase (Decrease) | | Percent Change |
| Net sales | | $ | 190.0 | | | $ | 157.0 | | | $ | 33.0 | | | 21.0 | % |
| | | | | | | | |
| Operating profit (loss) | | $ | 9.9 | | | $ | (3.9) | | | $ | 13.8 | | | NM |
| Add-back: Amortization of acquired intangible assets | | 12.8 | | | 14.3 | | | | | |
| Add-back: Share-based payment expense | | 2.9 | | | 4.5 | | | | | |
| | | | | | | | |
| Adjusted operating profit | | $ | 25.6 | | | $ | 14.9 | | | $ | 10.7 | | | 71.8 | % |
| | | | | | | | |
| Operating profit (loss) margin | | 5.2 | % | | (2.5) | % | | 770 | | bps |
| Adjusted operating profit margin | | 13.5 | % | | 9.5 | % | | 400 | | bps |
| | | | | | | | |
|
| | | | | | | | | | | | | |
(In millions, except per share data) | Year Ended August 31, | | Increase (Decrease) | Percent Change |
| | 2017 | | 2016 | |
| Gross profit | $ | 1,481.2 |
| | $ | 1,436.2 |
| | | |
Add-back: Acquisition-related items (1) | — |
| | 2.8 |
| | | |
Add-back: Manufacturing inefficiencies (2) | 1.6 |
| | — |
| | | |
| Adjusted gross profit | $ | 1,482.8 |
| | $ | 1,439.0 |
| | $ | 43.8 |
| 3.0 | % |
| Percent of net sales | 42.3 | % | | 43.7 | % | | (140 | ) | bps |
| | | | | | | |
| Selling, distribution, and administrative expenses | $ | 951.1 |
| | $ | 946.0 |
| | | |
| Less: Amortization of acquired intangible assets | (28.0 | ) | | (21.4 | ) | | | |
| Less: Share-based payment expense | (32.0 | ) | | (27.7 | ) | | | |
Less: Acquisition-related items (1) | — |
| | (8.0 | ) | | | |
| Less: Impairment of intangible asset | — |
| | (5.1 | ) | | | |
| Adjusted selling, distribution, and administrative expenses | $ | 891.1 |
| | $ | 883.8 |
| | $ | 7.3 |
| 0.8 | % |
| Percent of net sales | 25.4 | % | | 26.9 | % | | (150 | ) | bps |
| | | | | | | |
| Operating profit | $ | 518.8 |
| | $ | 475.2 |
| | | |
| Add-back: Amortization of acquired intangible assets | 28.0 |
| | 21.4 |
| | | |
| Add-back: Share-based payment expense | 32.0 |
| | 27.7 |
| | | |
Add-back: Acquisition-related items (1) | — |
| | 10.8 |
| | | |
| Add-back: Impairment of intangible asset | — |
| | 5.1 |
| | | |
Add-back: Manufacturing inefficiencies (2) | 1.6 |
| | — |
| | | |
| Add-back: Special charge | 11.3 |
| | 15.0 |
| | | |
| Adjusted operating profit | $ | 591.7 |
| | $ | 555.2 |
| | $ | 36.5 |
| 6.6 | % |
| Percent of net sales | 16.9 | % | | 16.9 | % | | — |
| bps |
| | | | | | | |
| Other expense | $ | 26.2 |
| | $ | 30.6 |
| | | |
| Add-back: Gain on sale of investment in unconsolidated affiliate | 7.2 |
| | — |
| | | |
| Adjusted other expense | $ | 33.4 |
| | $ | 30.6 |
| | $ | 2.8 |
| 9.2 | % |
| | | | | | | |
| Net income | $ | 321.7 |
| | $ | 290.8 |
| | | |
| Add-back: Amortization of acquired intangible assets | 28.0 |
| | 21.4 |
| | | |
| Add-back: Share-based payment expense | 32.0 |
| | 27.7 |
| | | |
Add-back: Acquisition-related items (1) | — |
| | 10.8 |
| | | |
| Add-back: Impairment of intangible asset | — |
| | 5.1 |
| | | |
Add-back: Manufacturing inefficiencies (2) | 1.6 |
| | — |
| | | |
| Add-back: Special charge | 11.3 |
| | 15.0 |
| | | |
| Less: Gain on sale of investment in unconsolidated affiliate | (7.2 | ) | | — |
| | | |
| Total pre-tax adjustments to net income | 65.7 |
| | 80.0 |
| | | |
| Income tax effect | (21.5 | ) | | (27.1 | ) | | | |
| Adjusted net income | $ | 365.9 |
| | $ | 343.7 |
| | $ | 22.2 |
| 6.5 | % |
| | | | | | | |
| Diluted earnings per share | $ | 7.43 |
| | $ | 6.63 |
| | | |
| Adjusted diluted earnings per share | $ | 8.45 |
| | $ | 7.84 |
| | $ | 0.61 |
| 7.8 | % |
______________________________
(1) Acquisition-related items include acquired profit in inventory, professional fees, and certain contract termination costs.
(2) Incremental costs incurred due to manufacturing inefficiencies directly related to the closure of a facility.
Net Sales
NetISG net sales for the year ended August 31, 20172021 increased by 6.5%21.0% compared with the prior-year period duedriven primarily toby strong demand for building and HVAC controls. ISG operating profit was $9.9 million for the year ended
August 31, 2021 compared with a $3.9 million operating loss in the prior-year period, an increase in sales volumes of approximately 6% and an approximately 2% favorable impact of acquired revenues from acquisitions, partially offset by the impact of an unfavorable change in product prices and the mix of products sold (“price/mix”) of approximately 1%. Sales of LED-based luminaires during the year ended August 31, 2017 accounted for approximately two-thirds of total net sales. The change in price/mix$13.8 million. This increase was due primarily to changes in the mix of products sold and lower pricing on luminaires, reflecting the decline in certain LED componenthigher sales, partially offset by increased employee costs. Due to the changing dynamics of the Company's product portfolio, including the increase of integrated lighting and building management solutions, it is not possible to precisely quantify or differentiate the individual components of volume, price, and mix.
Gross Profit
GrossAdjusted operating profit for fiscal 2017ISG increased $45.0$10.7 million or 3.1%, to $1.48 billion compared with $1.44 billion for the prior year. Gross profit margin decreased to 42.3%$25.6 million for the year ended August 31, 20172021 compared with 43.6% for the year ended August 31, 2016. This margin decline was primarily attributable to increased manufacturing expenses driven largely by higher wages and freight costs as well as higher quality costs, partially offset by the additional contribution on higher net sales. Materials and component costs were favorable as declining prices for certain LED components were only partially offset by rising costs for certain commodities, including steel. Gross profit margin was negatively impacted by unfavorable price/mix. Adjusted gross profit for fiscal 2017 increased $43.8 million, or 3.0%, to $1.48 billion compared with $1.44 billion for the prior year. Adjusted gross profit margin decreased 140 basis points to 42.3% compared to 43.7% in the prior year.
Operating Profit
SD&A expenses for the year ended August 31, 2017 increased $5.1 million, or 0.5%, to $951.1 million compared with $946.0 million in the prior year. The increase in SD&A expenses was due primarily to higher costs related to freight, commissions, and investments in additional headcount, which reflects the Company's investments in capabilities related to areas of future growth and enhanced customer service, as well as additional costs associated with acquired businesses, partially offset by lower incentive compensation expense. Compared with the prior-year period, SD&A expenses as a percent of sales decreased 160 basis pointsperiod.
Outlook
We expect the challenging global supply chain environment to 27.1% forcontinue into fiscal 2017 from 28.7% in fiscal 2016. Adjusted SD&A expenses were $891.1 million, or 25.4% of net sales, in fiscal 2017 compared2022. We currently expect ABL to $883.8 million, or 26.9% ofgrow net sales in the year-ago period.
During the year ended August 31, 2017, the Company recognized pre-tax special charges of $11.3 million, which consisted primarily of severance and employee-related benefit costshigh single digits for the eliminationfull year of certain operations2022 and positions followingISG to deliver net sales growth in the mid-teens. Additionally, we expect a realignment of the Company’s operating structure, including positions within various SD&A departments. During fiscal 2016, the Company recognized pre-tax special charges of $15.0 million. These charges related primarily to the Company's continued efforts to integrate recent acquisitions and to streamline the organization by realigning certain responsibilities primarily within various SD&A departments, as well as the consolidation of certain production activities. Further details regarding the Company's special charges are included in the Special Charge footnote of the Notes to Consolidated Financial Statements.
Operating42% plus annualized gross profit for fiscal 2017 was $518.8 million compared with $475.2 million reportedmargin for the prior-year period, an increasefull year of $43.6 million, or 9.2%. Operating profit margin increased 40 basis points to 14.8% for fiscal 2017 compared with 14.4% for fiscal 2016 due primarily to an increase in sales volume, lower material2022, and component costs, and lower incentive compensation expense, partially offset by higher manufacturing expenses, greater freight and commission costs, investments in additional headcount, and increased amortization of acquired intangible assets. Additionally, the Company recorded an impairment charge of $5.1 million during fiscal 2016; no such charges were recorded during fiscal 2017.
Adjusted operating profit increased $36.5 million, or 6.6%, to $591.7 million compared with $555.2 million for fiscal 2016. Adjusted operating profit margin was 16.9% for both fiscal 2017 and 2016.
Other Expense (Income)
Other expense (income) for the Company consists principally of net interest expense and net miscellaneous expense (income), which includes gains and losses related to foreign exchange rate changes. Interest expense, net, was $32.5 million and $32.2 million for the years ended August 31, 2017 and 2016, respectively. The Company reported net miscellaneous income of $6.3 million in fiscal 2017 compared with net miscellaneous income of$1.6 million in
fiscal 2016. Net miscellaneous income for the year ended August 31, 2017 included a gain of $7.2 million associated with the sale of an investment in an unconsolidated affiliate.
Provision for Income Taxes and Net Income
The effective income tax rate was 34.7% and 34.6% for the years ended August 31, 2017 and 2016, respectively.
Net income for fiscal 2017 increased $30.9 million, or 10.6%, to $321.7 million from $290.8 million reported for the prior year. The increase in net income resulted primarily from higher operating profit and higher miscellaneous income, partially offset by a higher provision for income taxes. Adjusted net income for fiscal 2017 increased 6.5% to $365.9 million compared with $343.7 million in the year-ago period. Adjusted diluted earnings per share for fiscal 2017 was $8.45 compared with $7.84 for the prior-year period, which represented an increase of $0.61, or 7.8%.
Outlook
Management continues towe believe the execution of the Company's strategy will provide attractive opportunities for profitable growth over the long-term. The Company's strategy is to capitalize on market growth and share gain opportunities by continuing to expand and leverage its industry-leading lighting and building management solutions portfolio, coupled with its extensive market presence and financial strength, to produce attractive financial performance over the long-term.
Third-party forecasts and leading indicators suggest that the North American lighting market, the Company’s primary market, will increase in the low-single digit range in fiscal 2019. Management expects towe can continue to outperform the growth rates of the markets that the Company serves by executing its strategies focused on growth opportunities for new construction and renovation projects, expansion into underpenetrated geographies and channels, and growth from the continued introduction of new lighting and building management solutionsleverage our operating costs as part of the Company’s integrated, tiered solutions strategy, including leveraging its unique, technology driven solutions portfolio to capture market share in the nascent, but rapidly growing, market for data capture, analytics, and other services, assisting in transforming buildings and campuses from cost centers to strategic assets.
Management expects 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 are expected to continue to negatively impactwe increase net sales and margins. Management expects 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 the Company’s competitiveness and drive improved profitability.
The U.S. federal government has recently imposed tariffs on certain Chinese imports. Certain components used in the Company’s products as well as certain sourced finished products are sourced from China and are impacted by the recently imposed tariffs. Management’s efforts to mitigate the impact of these added costs include a variety of activities, such as finding alternative suppliers, in-sourcing the production of certain products, and raising prices. Management believes that its mitigation activities, including recently announced price increases once fully enacted, will assist to offset the added costs. The Company’s margins may continue to be negatively impacted, particularly in the first quarter of fiscal 2019, due to a delay in the full realization of the expected benefits from the mitigation activities. Future U.S. policy changes that may be implemented, including additional tariffs, could have a positive or negative consequence on the Company’s financial performance depending on how the changes influence many factors, including business and consumer sentiment.
During fiscal 2018, the Company recognized a pre-tax special charge primarily related to the planned consolidation of certain facilities and associated reduction in employee workforce. The special charge consisted primarily of severance and employee-related benefit costs. Management expects to incur additional costs in future periods associated with the closing of facilities, primarily attributable to early lease termination costs and relocation costs. Annual savings realized from the streamlining activities, once fully completed, are expected to exceed the amount of the special charge, and the Company expects to reinvest portions thereof in activities to support higher-growth opportunities as well as drive improved profitability.
During the fourth quarter of fiscal 2018, the Company entered into a new credit agreement with a syndicate of banks that increased the Company’s borrowing capacity under such agreement from $250 million to $800 million. The increase in borrowing capacity provides the Company with the resources to support growth opportunities, including acquisitions, and accommodate the current stock repurchase program of which 5.2 million shares remain available for repurchase. 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. The Company may increase its leverage to accommodate the stock repurchase program.
Management expects the TCJA that was passed on December 22, 2017, to favorably impact the Company’s net income, diluted earnings per share, and cash flows in future periods, due primarily to the reduction in the federal corporate tax rate from 35% to 21% effective for periods beginning January 1, 2018. Additionally, positive business sentiment and other favorable aspects of the new tax law could incentivize additional investments in facilities and infrastructure in the U.S. that may increase future demand in the end-markets that the Company serves. Management currently estimates that the Company’s fiscal 2019 blended consolidated effective income tax rate before discrete items will approximate 25%. The estimated tax rate may differ from actual results, possibly materially, due to changes in interpretations of the TCJA and assumptions made by the Company, as well as guidance that may be issued and actions the Company may take as a result of the TCJA.
From a longer term perspective, management expects that the Company’s addressable markets have the potential to experience solid growth over the next decade, particularly as energy and environmental concerns come to the forefront along with emerging opportunities for digital lighting to play a key role in the 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 remains positive about the future prospects of the Company and its ability to outperform the markets it serves.sales.
Accounting Standards Adopted in Fiscal 20182021 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 andas well as 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; inventory valuation; depreciation, amortization, and the recoverability of long-lived assets, including goodwill and intangible assets; share-based payment expense; medical, product warranty and recall, and other reserves; retirement benefits; and litigation. Management bases itsjudgments. We base our estimates and judgments on itsour substantial historical experience andand/or other relevant factors, such as projections of future performance, 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 the Company’sour Audit Committee of the Board of Directors.Directors on a recurring basis. See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for a summary of theour accounting policies of the Company.policies.
Management believesWe believe the following accounting topics represent the Company’sour critical accounting estimates: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, we estimate and record provisions for certain rebates, sales incentives, product returns, and discounts to customers, are estimated and recorded, in most instances, as a reductionreductions 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 accruedrecorded 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.
Inventories
Inventories include materials, direct labor, in-bound freight, customs, duties, tariffs, 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 reviewsIndefinite-lived intangible assets consist of trade names acquired through multiple acquisitions that are expected to generate cash flows indefinitely. Significant estimates and assumptions were used to both identify and determine the initial fair value of these acquired intangible assets, often with the assistance of third-party valuation specialists. These assumptions include, but are not limited to, estimated future net sales and profitability, customer attrition rates, royalty rates, and discount rates. Goodwill is calculated as the residual value of an acquisition's purchase price less the value of the identifiable net assets and is thus dependent on the appropriate identification and valuation of the net assets obtained in an acquisition.
We also 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 or an 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 or an indefinite-lived intangible 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 another appropriate fair value 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-specificCompany-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 Company would beoccurs, we are required to record a non-cash charge to earnings for the write-down in the value of such assets, whichassets. Such charges 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 Company is comprised of oneWe perform our goodwill impairment analysis at the reporting unit withlevel using a goodwill balancecombination of $970.6 million as of August 31, 2018. During fiscal 2018, the Companydiscounted future cash flows and relevant market multiples. Our discounted cash flow analyses required significant assumptions about discount rates, short and long-term growth rates, and future profitability. We utilized a qualitative assessment of the fair value of goodwillestimated discount rates ranging from 9.0% to 12.0% as of June 1, 2018. To perform this assessment,2021, based on the Company identifiedCapital Asset Pricing Model, which considers the risk-free interest rate, beta, market risk premium, and analyzedsize premium to determine an appropriate discount rate for a reporting unit. Short-term growth rates were based on management’s forecasted financial results, which consider key business drivers such as specific revenue growth initiatives, market share changes, growth in our addressable market, and general economic factors such as macroeconomic conditions, industrycredit availability, and market conditions, and company-specific factors. Additionally, factors that would have the greatest impact on the fair value of the Company were compared to thoseinterest rates. Short-term growth rates used in the previous quantitativefiscal 2021 impairment test performedanalysis reflected additional estimation uncertainty as of June 1, 2017 to identify potentially significant variances to the reasonableness of the assumptions. Taking into consideration these factors, the Company estimated the potential change in the fair value of goodwill compared with the previous quantitative impairment test. As a result of the analysis performed, management believesCOVID-19 pandemic. We calculated the discounted cash flows attributable to our reporting units for a 10-year discrete period with a terminal value and compared this calculation to the discounted cash flows generated over a 40-year period to corroborate the reasonableness of assumptions used. The long-term growth rate used in determining terminal value was estimated at 3.5% and was primarily based on our understanding of projections for expected long-term growth in our addressable market and historical long-term performance.
We corroborate the values determined from our discounted cash flow models using a relevant market multiple, generally published earnings and/or revenue multiples. We also reconcile the sum of the fair values for each reporting unit to our market capitalization at the testing date, including consideration of a control premium.
Any reasonably likely change in the assumptions used in these analyses, including revenue growth rates, the discount rates, long-term growth rates, or relevant multiples would not cause the carrying value of any reporting unit to exceed its estimated fair value as determined under the goodwill impairment analysis. See the Significant Accounting Policies footnote of the reporting unit continuesNotes 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.Consolidated Financial Statements for further details.
Indefinite-Lived Intangible Assets
The Company’sOur indefinite-lived intangible assets consist of eight13 trade names with an aggregate carrying value of approximately $144.3 million. Management$174.8 million at August 31, 2021. 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.Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”). Future cash flows associated with each of the Company’sour indefinite-lived trade names are calculated by multiplying a theoretical royalty rate a willing third party would pay for use of the particular trade name by estimated future net sales attributable to the relevant trade name. The present valuevalues of the resulting after-tax cash flowflows is management’sour current estimate of the fair value of theeach trade names. name.
This fair value model requires managementus to make several significant assumptions, including specific estimated future net sales (including short and long-term growth rates), the royalty rate, and the discount rate.rate for each trade name.
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 the Company'sour addressable market, and general economic factors, such as macroeconomic conditions, credit availability, and interest rates. Short-term growth rates used in the fiscal 2021 impairment analysis reflected additional estimation uncertainty as a result of the COVID-19 pandemic. The long-term growth rate used in determining terminal value iswas estimated at 3%3.5% and iswas based primarily on the Company’sour understanding of projections for expected long-term growth within itsfor 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. 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 ratemodel, which would result in lower expected future after-tax cash flows in the valuationfair value model. The CompanyWe utilized a range of estimated discount rates between 9% and 16%12% as of June 1, 2018,2021, based on the Capital Asset Pricing Model, which considers the current risk-free interest rate, beta, market risk premium, and entity specific size premium.premium appropriate for each intangible.
During fiscal 2018, the Company2021, we performed an evaluation of the fair values of itsour indefinite-lived trade names. The Company’snames . Our expected revenues arewere based on the Company’sour fiscal 2019 expectations2022 projections and recent third-party lighting, controls, and building managementtechnology solutions market growth estimates for fiscal 20192023 through 2023. The Company2025 as of June 1, 2021. We also included revenue growth estimates based on current initiatives expected to help the Company improve performance. During fiscal 2018,2021, estimated theoretical royalty rates ranged between 1% and 4%3%. The impairment analyses of our indefinite-lived intangible asset analysis did not result in any impairment charges, as theassets indicated that their fair values exceeded thetheir carrying valuesvalues; therefore, no impairments were recorded for each of the trade names. However, the estimated fair value of one trade name exceeded its carrying value by a small margin. Management believes the assumptions used to estimate the fair value of this trade name were reasonable, and sensitivity analysis indicated that the trade name would likely not be impaired by a material amount if reasonably differing assumptions had been used.fiscal 2021. Any reasonably likely change in the assumptions used in the analyses for the otherour trade names, including revenue growth rates, royalty rates, and discount rates, would not be material to the Company’sour financial condition or results of operations.
Definite-Lived Intangible Assets
The Company evaluates the remaining useful lives of its 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 considers each reporting period 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 recorded no impairment charges for its definite-lived intangible assets during fiscal 2018 or 2017.
Self-Insurance
The Company self-insures, 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’s 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’s 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. Although the Company believes that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Company’s self-insurance obligations, future expense, and cash flow. The Company is 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 is fully self-insured for certain other types of liabilities, including environmental, product recall, warranty, and patent infringement.
The Company is also self-insured for the majority of its medical benefit plans up to certain limits. The Company estimates its aggregate liability for claims incurred by applying a lag factor to the Company’s historical claims and administrative cost experience. The appropriateness of the Company’s lag factor is evaluated and revised, if necessary, annually. Although management believes 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’s medical benefit plan liabilities, future expense, and cash flow.
Retirement Benefits
The Company sponsors domestic and international defined benefit pension plans, 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 Company and market data and are evaluated annually as of the plans’ measurement date. See the Pensions and Defined Contribution PlansSignificant Accounting Policies footnote of the Notes to Consolidated Financial Statements for further information on the Company’s plans, including the potential impact of changes to certain of these assumptions.details.
Share-based Payment Expense
The Company recognizesWe recognize compensation cost relating tofor share-based payment transactions in the financial statements based onunder the estimated fair valueprovisions of the equity instrument issued. The Company accounts forASC Topic 718, Compensation — Stock Compensation (“ASC 718”). Restricted stock options, restricted shares,awards, performance stock awards, and sharedirector stock 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-Based Payments footnote of the Notes to Consolidated Financial Statements)valued based on the grant-date fair value estimated underof our common stock on the provisionsgrant date. We review the values of ASC Topic 718, Compensation — Stock Compensation (“ASC 718”).
The Company employsour performance awards on a frequent and recurring basis and adjust those values based on the probability that the related performance metric will be satisfied. We utilize the Black-Scholes model in deriving the fair value estimates of certain share-basedour stock option awards that only have a service requirement, and we utilize the Monte Carlo simulation model to determine grant date fair value estimates of stock options also subject to a market condition.
Additionally, we estimate 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.
We generally recognize compensation cost for share-based payment transactions on a straight-line basis over an award's requisite service period as defined by ASC 718. In certain circumstances, such as when a performance award is subject to graded vesting, we apply the accelerated attribution method to recognize compensation cost related to our share-based payment awards.
See the Significant Accounting Policies and Share-BasedShare-based Payments footnotes footnote of the Notes to Consolidated Financial Statementsfor morefurther information regarding theon these awards, including assumptions used in estimating the fair value of stock options.
During fiscal 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting, (“ASU 2016-09”), which changes certain aspects of accounting for share-based payments to employees, particularly with respect to the presentation of excess tax benefits and deficiencies within the Company's Consolidated Statements of Comprehensive Income and the Consolidated Statements of Cash Flows. See the New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for more information.our awards.
Product Warranty and Recall Costs
The Company'sOur products generally have a standard warranty term of five years. The Company records an allowanceWe accrue 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 expectsAlthough we expect that historical activity will continue to be the best indicator of future warranty costs. Therecosts, 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 allowancesaccruals may be required, which could have a material adverse impact on the Company’sour results of operations and cash flow.
Litigation
The Company recognizes expenseWe also sell certain service-type warranties that extend coverages for legal claims when payments associated withproducts beyond their base warranties. We account for service-type warranties as distinct performance obligations, allocate an appropriate amount of transaction price to these transactions, and recognize revenue for these contracts ratably over the claims become probable and can be reasonably estimated. Duelife of the additional warranty period. We allocate transaction price to our service-type warranties largely based on expectations of cost plus margin based on our estimate of future claims. These estimates are subject to a higher level of estimation uncertainty than other estimates, as we have less experience in costs in the difficulty in estimating costs of resolving legal claims, actual costs could have a material adverse impact on the Company’s results of operations and cash flow.extended warranty period. Claims related to service-type warranties are expensed as incurred.
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,” and similar terms that relate to future events, performance, or results of the Company. In addition, the Company, or the executive officers on the Company’s behalf, may from time to time make forward-looking statements in reports and other documents the Company fileswe file with the U.S. Securities 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, including our expected margins and ability to leverage operating costs, liquidity, capital structure, capital expenditures, investments, share repurchases, and dividends; (b) expectations about the impact of any changes in demand as well as volatilityexternal and uncertainty in general economic conditions and the pricing environment; (c) externalinternal forecasts projecting the North American lighting and building management solutions market growth rate and growth in our addressable market; (c) expectations about the Company's addressable markets;impact of any changes in demand, including improvements in our end markets, as well as volatility, challenges, competition, and uncertainty in general economic conditions; (d) the Company'sexpectations about volatility in raw material costs, freight costs, and component and labor availability; (e) our ability to execute and realize benefits from initiatives related to streamlining itsour operations and integrating recent acquisitions, realize synergies from acquisitions, capitalize on growth opportunities expand in key markets as well as underpenetrated geographies and channels,with the intention of becoming a larger, more dynamic company, and introduce new lightinginnovative products and building management solutions; (e) the Company’sservices; (f) our estimate of itsour fiscal 20192022 effective income tax rates, as well as the impact of the TCJA on the Company's financial position,rate, results of operations, cash flows, and cash flows; (f) the Company’scapital spending; (g) our estimate of future amortization expense; (g) the Company’s(h) our ability to achieve itsour long-term financial goals and measures and outperformmeasures; (i) the markets its serves; (h) the impact to the Company of changes in the political landscape and related policy changes, including monetary, regulatory, and trade policies; (i) the Company's expectations relating to mitigating efforts around recently imposed tariffs; and (j) the Company'sour expectations about the resolution of trade compliance, securities class action and/orand other legal matters.regulatory matters; (k) our expectations of the impact of the ongoing COVID-19 pandemic; (l) our human capital initiatives in fiscal 2022, and (m) our ability to reduce our carbon output and seize market opportunities related to sustainability. You are cautioned not to place undue reliance on any forward looking statements, which speak only as of the date of this quarterlyannual 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, Item 1a. Risk 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 isare 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.
| |
Item 7a. | Quantitative and Qualitative Disclosures about Market Risk |
General. The Company isItem 7a.Quantitative and Qualitative Disclosures about Market Risk
General
We are exposed to worldwide market risks that may impact the our Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income, Consolidated Statements of Cash Flows, and Consolidated Statements of Stockholders' Equity, and Consolidated Statements of Cash Flows due primarily to changing interest and foreign exchange rates as well as volatilityrates. We do not currently engage in significant commodity prices.hedging transactions for raw materials. The following discussion provides additional information regarding theour 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, 2018, the variable-rateOur long-term debt of the Company was solely comprised of the $4.0 million long-term industrial revenue bond. The Company had no borrowings outstanding under the Revolving Credit Facility as of August 31, 2018. A 10% increase in market interest rates at2020 consisted primarily of variable-rate obligations, whereas as of August 31, 2018, would have resulted in a de minimis amount2021, our long-term debt consisted of additional annual after-tax interest expense.fixed-rate senior unsecured notes. A fluctuation in interest rates would not affect interest expense or cash flows related to the Company’s fixed-rate debt which includes the $350.0 million publicly-traded fixed-rate notes. Adebt. However, a 10% increase in market interest rates at August 31, 20182021 would have decreased the estimated fair value of these debt obligationsour senior unsecured notes by approximately $1.5$9.2 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 20182021 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 $14$13 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 $17$16 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 $15$12 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 $18$14 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 utilizes a variety
Item 8. Financial Statements and components in its production process including petroleum-based products, steel, and aluminum. In fiscal 2018, the Company purchased approximately 104,000 tons of steel and aluminum. The Company estimates that approximately 7% of raw materials purchased are petroleum-based and that approximately six million gallons of diesel fuel were consumed in fiscal 2018. Failure to effectively manage future increases in the costs of these items could have an adverse impact on the Company's results of operations and cash flow.Supplementary Data
| |
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, 2018.2021. 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, 2018,2021, 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 operationsbusinesses of IOTA Engineering, LLCRockpile Ventures and Lucid Design Group, Inc.ams OSRAM’s North American Digital Systems, (collectively, the “2018“2021 Acquisitions”), which are included in the Company’s consolidated financial statements as of August 31, 20182021 and for the period from the respective acquisition dates through August 31, 2018.2021. As of August 31, 2018,2021, the 20182021 Acquisitions constituted less than 2% and 1%4% of the Company’s tangibleconsolidated assets and net tangible assets, respectively.stockholders' equity. For the year ended August 31, 2018,2021, the 20182021 Acquisitions constituted less than 1% 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 25, 201827, 2021 is included within this Form 10-K.
|
| | | | | | | |
/s/ VERNONNEIL M. ASHE | | /s/ KAREN J. NAGEL | | /s/ RICHARD K. REECEHOLCOM |
Vernon J. Nagel
Neil M. AsheChairman, President and Chief Executive Officer | | Richard K. Reece
ExecutiveKaren J. Holcom
Senior Vice President and
Chief Financial Officer
|
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors 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, 20182021 and 2017,2020, the related consolidated statements of comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended August 31, 2018,2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at August 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2018,2021, in conformity with U.S. generally accepted accounting principles.
We also 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, 2018,2021, 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 25, 201827, 2021 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Valuation of Indefinite-Lived Trade Names
| | | | | |
| Description of the Matter | At August 31, 2021, the Company’s indefinite-lived intangible assets consisted of thirteen trade names with an aggregate carrying value of approximately $174.8 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 if an event occurs or circumstances change that would more likely than not indicate that the fair value of the indefinite-lived trade name is below its carrying amount. 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. Short-term growth rates reflect increased estimation uncertainty as a result of the COVID-19 pandemic. |
| 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, including the impact of the COVID-19 pandemic, 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 have served as the Company’s auditor since 2002.
Atlanta, Georgia
October 25, 201827, 2021
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 Acuity Brands, Inc.’s internal control over financial reporting as of August 31, 2018,2021, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Acuity Brands, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of August 31, 2018,2021, based on the COSO criteria.
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 operationsbusinesses of IOTA Engineering, LLC (IOTA) or Lucid Design Group, Inc. (Lucid)Rockpile Ventures and ams Osram's North American Digital Systems (collectively, the 20182021 Acquisitions), which are included in the 20182021 consolidated financial statements of the Company and constituted less than 2% and 1%4% of tangibletotal assets and net tangible assets, respectively,stockholders' equity as of August 31, 20182021 and less than 1% of net sales and pre-tax income for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of IOTA and Lucid.the 2021 Acquisitions.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 31, 20182021 and 2017,2020, the related consolidated statements of comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended August 31, 2018,2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated October 25, 201827, 2021 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 over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 25, 201827, 2021
ACUITY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
| | | | | | | | | | | |
| | August 31, |
| | 2021 | | 2020 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 491.3 | | | $ | 560.7 | |
| Accounts receivable, less reserve for doubtful accounts of $1.2 and $2.6, respectively | 571.8 | | | 500.3 | |
| Inventories | 398.7 | | | 320.1 | |
| Prepayments and other current assets | 82.5 | | | 58.6 | |
| Total current assets | 1,544.3 | | | 1,439.7 | |
| Property, plant, and equipment, net | 269.1 | | | 270.5 | |
| Operating lease right-of-use assets | 58.0 | | | 63.4 | |
| Goodwill | 1,094.7 | | | 1,080.0 | |
| Intangible assets, net | 573.2 | | | 605.9 | |
| Deferred income taxes | 1.9 | | | 2.7 | |
| Other long-term assets | 33.9 | | | 29.5 | |
| Total assets | $ | 3,575.1 | | | $ | 3,491.7 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 391.5 | | | $ | 326.5 | |
| Current maturities of debt | — | | | 24.3 | |
| Current operating lease liabilities | 15.9 | | | 17.2 | |
| Accrued compensation | 95.3 | | | 89.0 | |
| Other accrued liabilities | 189.5 | | | 160.6 | |
| Total current liabilities | 692.2 | | | 617.6 | |
| Long-term debt | 494.3 | | | 376.8 | |
| Long-term operating lease liabilities | 46.7 | | | 56.8 | |
| Accrued pension liabilities | 60.2 | | | 91.6 | |
| Deferred income taxes | 101.0 | | | 94.9 | |
| Other long-term liabilities | 136.2 | | | 126.5 | |
| Total liabilities | 1,530.6 | | | 1,364.2 | |
Commitments and contingencies (see Commitments and Contingencies footnote) | 0 | | 0 |
| 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; 54,018,978 and 53,885,165 issued, respectively | 0.5 | | | 0.5 | |
| Paid-in capital | 995.6 | | | 963.6 | |
| Retained earnings | 2,810.3 | | | 2,523.3 | |
| Accumulated other comprehensive loss | (98.2) | | | (132.7) | |
| Treasury stock, at cost — 18,826,611 and 15,012,449 shares, respectively | (1,663.7) | | | (1,227.2) | |
| Total stockholders’ equity | 2,044.5 | | | 2,127.5 | |
| Total liabilities and stockholders’ equity | $ | 3,575.1 | | | $ | 3,491.7 | |
|
| | | | | | | |
| | August 31, |
| | 2018 | | 2017 |
| ASSETS |
| Current assets: | |
| | |
|
| Cash and cash equivalents | $ | 129.1 |
| | $ | 311.1 |
|
| Accounts receivable, less reserve for doubtful accounts of $1.3 and $1.9, respectively | 637.9 |
| | 573.3 |
|
| Inventories | 411.8 |
| | 328.6 |
|
| Prepayments and other current assets | 32.3 |
| | 32.6 |
|
| Total current assets | 1,211.1 |
| | 1,245.6 |
|
| Property, plant, and equipment, at cost: | |
| | |
|
| Land | 22.9 |
| | 22.5 |
|
| Buildings and leasehold improvements | 189.1 |
| | 180.7 |
|
| Machinery and equipment | 516.6 |
| | 484.6 |
|
| Total property, plant, and equipment | 728.6 |
| | 687.8 |
|
| Less — Accumulated depreciation and amortization | (441.9 | ) | | (400.1 | ) |
| Property, plant, and equipment, net | 286.7 |
| | 287.7 |
|
| Goodwill | 970.6 |
| | 900.9 |
|
| Intangible assets | 498.7 |
| | 448.8 |
|
| Deferred income taxes | 2.9 |
| | 3.4 |
|
| Other long-term assets | 18.8 |
| | 13.2 |
|
| Total assets | $ | 2,988.8 |
| | $ | 2,899.6 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | |
| | |
|
| Accounts payable | $ | 451.1 |
| | $ | 395.1 |
|
| Current maturities of long-term debt | 0.4 |
| | 0.4 |
|
| Accrued compensation | 67.0 |
| | 41.8 |
|
| Other accrued liabilities | 164.2 |
| | 163.6 |
|
| Total current liabilities | 682.7 |
| | 600.9 |
|
| Long-term debt | 356.4 |
| | 356.5 |
|
| Accrued pension liabilities | 64.6 |
| | 96.9 |
|
| Deferred income taxes | 92.5 |
| | 108.2 |
|
| Self-insurance reserves | 7.9 |
| | 7.9 |
|
| Other long-term liabilities | 67.9 |
| | 63.6 |
|
| Total liabilities | 1,272.0 |
| | 1,234.0 |
|
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; 53,667,327 and 53,549,840 issued, respectively | 0.5 |
| | 0.5 |
|
| Paid-in capital | 906.3 |
| | 881.0 |
|
| Retained earnings | 1,999.2 |
| | 1,659.9 |
|
| Accumulated other comprehensive loss | (114.8 | ) | | (99.7 | ) |
| Treasury stock, at cost — 13,676,689 and 11,678,002 shares, respectively | (1,074.4 | ) | | (776.1 | ) |
| Total stockholders’ equity | 1,716.8 |
| | 1,665.6 |
|
| Total liabilities and stockholders’ equity | $ | 2,988.8 |
| | $ | 2,899.6 |
|
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)
| | | | | | | | | | | | | | | | | |
| | Year Ended August 31, |
| | 2021 | | 2020 | | 2019 |
| Net sales | $ | 3,461.0 | | | $ | 3,326.3 | | | $ | 3,672.7 | |
| Cost of products sold | 1,986.0 | | | 1,923.9 | | | 2,193.0 | |
| Gross profit | 1,475.0 | | | 1,402.4 | | | 1,479.7 | |
| Selling, distribution, and administrative expenses | 1,044.1 | | | 1,028.5 | | | 1,015.0 | |
| Special charges | 3.3 | | | 20.0 | | | 1.8 | |
| Operating profit | 427.6 | | | 353.9 | | | 462.9 | |
| Other expense: | | | | | |
| Interest expense, net | 23.2 | | | 23.3 | | | 33.3 | |
| Miscellaneous expense, net | 8.2 | | | 5.9 | | | 4.7 | |
| Total other expense | 31.4 | | | 29.2 | | | 38.0 | |
| Income before income taxes | 396.2 | | | 324.7 | | | 424.9 | |
| Income tax expense | 89.9 | | | 76.4 | | | 94.5 | |
| Net income | $ | 306.3 | | | $ | 248.3 | | | $ | 330.4 | |
| | | | | |
| Earnings per share: | | | | | |
| Basic earnings per share | $ | 8.44 | | | $ | 6.29 | | | $ | 8.32 | |
| Basic weighted average number of shares outstanding | 36.3 | | | 39.5 | | | 39.7 | |
| Diluted earnings per share | $ | 8.38 | | | $ | 6.27 | | | $ | 8.29 | |
| Diluted weighted average number of shares outstanding | 36.6 | | | 39.6 | | | 39.8 | |
| Dividends declared per share | $ | 0.52 | | | $ | 0.52 | | | $ | 0.52 | |
| | | | | |
| Comprehensive income: | | | | | |
| Net income | $ | 306.3 | | | $ | 248.3 | | | $ | 330.4 | |
| Other comprehensive income (loss) items: | | | | | |
| Foreign currency translation adjustments | 13.3 | | | 11.9 | | | (11.5) | |
| Defined benefit plans, net of tax | 21.2 | | | 6.8 | | | (25.1) | |
| Other comprehensive income (loss) items, net of tax | 34.5 | | | 18.7 | | | (36.6) | |
| Comprehensive income | $ | 340.8 | | | $ | 267.0 | | | $ | 293.8 | |
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2018 | | 2017 | | 2016 |
| Net sales | $ | 3,680.1 |
| | $ | 3,505.1 |
| | $ | 3,291.3 |
|
| Cost of products sold | 2,193.3 |
| | 2,023.9 |
| | 1,855.1 |
|
| Gross profit | 1,486.8 |
| | 1,481.2 |
| | 1,436.2 |
|
| Selling, distribution, and administrative expenses | 1,026.6 |
| | 951.1 |
| | 946.0 |
|
| Special charge | 5.6 |
| | 11.3 |
| | 15.0 |
|
| Operating profit | 454.6 |
| | 518.8 |
| | 475.2 |
|
| Other expense (income): | |
| | |
| | |
|
| Interest expense, net | 33.5 |
| | 32.5 |
| | 32.2 |
|
| Miscellaneous income, net | (4.8 | ) | | (6.3 | ) | | (1.6 | ) |
| Total other expense | 28.7 |
| | 26.2 |
| | 30.6 |
|
| Income before income taxes | 425.9 |
| | 492.6 |
| | 444.6 |
|
| Income tax expense | 76.3 |
| | 170.9 |
| | 153.8 |
|
| Net income | $ | 349.6 |
| | $ | 321.7 |
| | $ | 290.8 |
|
| | | | | | |
| Earnings per share: | |
| | |
| | |
|
| Basic earnings per share | $ | 8.54 |
| | $ | 7.46 |
| | $ | 6.67 |
|
| Basic weighted average number of shares outstanding | 40.9 |
| | 43.1 |
| | 43.5 |
|
| Diluted earnings per share | $ | 8.52 |
| | $ | 7.43 |
| | $ | 6.63 |
|
| Diluted weighted average number of shares outstanding | 41.0 |
| | 43.3 |
| | 43.8 |
|
| Dividends declared per share | $ | 0.52 |
| | $ | 0.52 |
| | $ | 0.52 |
|
| | | | | | |
| Comprehensive income: | | | | | |
| Net income | $ | 349.6 |
| | $ | 321.7 |
| | $ | 290.8 |
|
| Other comprehensive income (loss) items: | | | | | |
| Foreign currency translation adjustments | (25.2 | ) | | 19.0 |
| | (5.6 | ) |
| Defined benefit plans, net | 21.2 |
| | 20.7 |
| | (23.4 | ) |
| Other comprehensive (loss) income items, net of tax | (4.0 | ) | | 39.7 |
| | (29.0 | ) |
| Comprehensive income | $ | 345.6 |
| | $ | 361.4 |
| | $ | 261.8 |
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(inIn millions)
| | | | | | | | | | | | | | | | | |
| | Year Ended August 31, |
| | 2021 | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 306.3 | | | $ | 248.3 | | | $ | 330.4 | |
| Adjustments to reconcile net income to net cash flows from operating activities: | | | | | |
| Depreciation and amortization | 100.1 | | | 101.1 | | | 88.3 | |
| Share-based payment expense | 32.5 | | | 38.2 | | | 29.2 | |
| (Gain) loss on the sale or disposal of property, plant, and equipment | (0.1) | | | 0.3 | | | 0.9 | |
| Asset impairments | 6.0 | | | 8.8 | | | — | |
| Deferred income taxes | (2.7) | | | (6.7) | | | 9.3 | |
| Changes in operating assets and liabilities, net of acquisitions | | | | | |
| Accounts receivable | (68.7) | | | 74.5 | | | 97.7 | |
| Inventories | (35.5) | | | 38.0 | | | 70.8 | |
| Prepayments and other current assets | (18.2) | | | 12.9 | | | (34.0) | |
| Accounts payable | 65.5 | | | (19.6) | | | (111.5) | |
| Other | 23.5 | | | 9.0 | | | 13.6 | |
| Net cash provided by operating activities | 408.7 | | | 504.8 | | | 494.7 | |
| Cash flows from investing activities: | | | | | |
| Purchases of property, plant, and equipment | (43.8) | | | (54.9) | | | (53.0) | |
| Proceeds from sale of property, plant, and equipment | 4.7 | | | 0.2 | | | — | |
| Acquisitions of businesses, net of cash acquired | (75.3) | | | (303.0) | | | (2.9) | |
| Other investing activities | (3.5) | | | (2.1) | | | 2.9 | |
| Net cash used for investing activities | (117.9) | | | (359.8) | | | (53.0) | |
| Cash flows from financing activities: | | | | | |
| | | | | |
| Issuances of long-term debt | 493.8 | | | 400.0 | | | 86.5 | |
| Repayments of long-term debt | (401.1) | | | (355.7) | | | (86.9) | |
| Repurchases of common stock | (434.9) | | | (69.3) | | | (81.6) | |
| Proceeds from stock option exercises and other | 3.2 | | | 0.9 | | | 0.6 | |
| Payments of taxes withheld on net settlement of equity awards | (4.5) | | | (5.4) | | | (6.0) | |
| Dividends paid | (19.1) | | | (20.8) | | | (20.8) | |
| | | | | |
| Net cash used for financing activities | (362.6) | | | (50.3) | | | (108.2) | |
| Effect of exchange rate changes on cash and cash equivalents | 2.4 | | | 5.0 | | | (1.6) | |
| Net change in cash and cash equivalents | (69.4) | | | 99.7 | | | 331.9 | |
| Cash and cash equivalents at beginning of year | 560.7 | | | 461.0 | | | 129.1 | |
| Cash and cash equivalents at end of year | $ | 491.3 | | | $ | 560.7 | | | $ | 461.0 | |
| Supplemental cash flow information: | | | | | |
| Income taxes paid | $ | 86.4 | | | $ | 64.6 | | | $ | 92.9 | |
| Interest paid | $ | 22.2 | | | $ | 29.8 | | | $ | 35.6 | |
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2018 | | 2017 | | 2016 |
| Cash flows from operating activities: | |
| | |
| | |
|
| Net income | $ | 349.6 |
| | $ | 321.7 |
| | $ | 290.8 |
|
| Adjustments to reconcile net income to net cash flows from operating activities: | |
| | |
| | |
|
| Depreciation and amortization | 80.3 |
| | 74.6 |
| | 62.6 |
|
| Share-based payment expense | 32.3 |
| | 32.0 |
| | 27.7 |
|
| Loss (gain) on the sale or disposal of property, plant, and equipment | 0.6 |
| | 0.3 |
| | (0.9 | ) |
| Asset impairments | — |
| | — |
| | 5.1 |
|
| Deferred income taxes | (38.2 | ) | | (7.7 | ) | | (8.2 | ) |
| 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 | (62.8 | ) | | 2.7 |
| | (94.6 | ) |
| Inventories | (74.4 | ) | | (32.4 | ) | | (24.0 | ) |
| Prepayments and other current assets | 0.7 |
| | 6.0 |
| | (10.5 | ) |
| Accounts payable | 52.5 |
| | (4.6 | ) | | 65.3 |
|
| Other current liabilities | 19.1 |
| | (63.5 | ) | | 60.6 |
|
| Other | (1.1 | ) | | 14.7 |
| | 14.0 |
|
| Net cash provided by operating activities | 353.2 |
| | 336.6 |
| | 387.9 |
|
| Cash flows from investing activities: | |
| | |
| | |
|
| Purchases of property, plant, and equipment | (43.6 | ) | | (67.3 | ) | | (83.7 | ) |
| Proceeds from sale of property, plant, and equipment | — |
| | 5.5 |
| | 2.2 |
|
| Acquisitions of businesses and intangible assets, net of cash acquired | (163.2 | ) | | — |
| | (623.2 | ) |
| Proceeds from sale of business | 1.1 |
| | — |
| | — |
|
| Proceeds from sale of investment in unconsolidated affiliate | — |
| | 13.2 |
| | — |
|
| Other investing activities | — |
| | (0.2 | ) | | — |
|
| Net cash used for investing activities | (205.7 | ) | | (48.8 | ) | | (704.7 | ) |
| Cash flows from financing activities: | |
| | |
| | |
|
| Borrowings on credit facility | 395.4 |
| | — |
| | — |
|
| Repayments of borrowings on credit facility | (395.4 | ) | | — |
| | — |
|
| (Repayments) issuances of long-term debt | (0.4 | ) | | 1.0 |
| | 2.5 |
|
| Repurchases of common stock | (298.4 | ) | | (357.9 | ) | | — |
|
| Proceeds from stock option exercises and other | 1.7 |
| | 3.0 |
| | 14.2 |
|
| Payments for employee taxes on net settlement of equity awards | (8.2 | ) | | (15.2 | ) | | (16.6 | ) |
| Dividends paid | (21.4 | ) | | (22.7 | ) | | (22.9 | ) |
| Net cash used for financing activities | (326.7 | ) | | (391.8 | ) | | (22.8 | ) |
| Effect of exchange rate changes on cash and cash equivalents | (2.8 | ) | | 1.9 |
| | (4.0 | ) |
| Net change in cash and cash equivalents | (182.0 | ) | | (102.1 | ) | | (343.6 | ) |
| Cash and cash equivalents at beginning of year | 311.1 |
| | 413.2 |
| | 756.8 |
|
| Cash and cash equivalents at end of year | $ | 129.1 |
| | $ | 311.1 |
| | $ | 413.2 |
|
| Supplemental cash flow information: | |
| | |
| | |
|
| Income taxes paid during the period | $ | 126.6 |
| | $ | 173.6 |
| | $ | 120.7 |
|
| Interest paid during the period | $ | 36.7 |
| | $ | 33.6 |
| | $ | 32.8 |
|
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 Outstanding | | | | | | | | | | |
| Shares | | Amount | | Paid-in
Capital | | Retained
Earnings | | Accumulated Other
Comprehensive
Loss Items | | Treasury
Stock, at cost | | Total |
| Balance, August 31, 2018 | 40.0 | | | $ | 0.5 | | | $ | 906.3 | | | $ | 1,999.2 | | | $ | (114.8) | | | $ | (1,074.4) | | | $ | 1,716.8 | |
| Net income | — | | | — | | | — | | | 330.4 | | | — | | | — | | | 330.4 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (36.6) | | | — | | | (36.6) | |
| Share-based payment amortization, issuances, and cancellations | 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 | — | | | — | | | — | | | (20.8) | | | — | | | — | | | (20.8) | |
| | | | | | | | | | | | | |
| 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 | |
| Net income | — | | | — | | | — | | | 248.3 | | | — | | | — | | | 248.3 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 18.7 | | | — | | | 18.7 | |
| Share-based payment amortization, issuances, and cancellations | 0.1 | | | — | | | 32.7 | | | — | | | — | | | — | | | 32.7 | |
| Employee stock purchase plan issuances | — | | | — | | | 0.8 | | | — | | | — | | | — | | | 0.8 | |
| Cash dividends of $0.52 per share paid on common stock | — | | | — | | | — | | | (20.8) | | | — | | | — | | | (20.8) | |
| Stock options exercised | — | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | |
| Repurchases of common stock | (0.7) | | | — | | | — | | | — | | | — | | | (71.2) | | | (71.2) | |
| Balance, August 31, 2020 | 38.9 | | | 0.5 | | | 963.6 | | | 2,523.3 | | | (132.7) | | | (1,227.2) | | | 2,127.5 | |
| Net income | — | | | — | | | — | | | 306.3 | | | — | | | — | | | 306.3 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 34.5 | | | — | | | 34.5 | |
| Share-based payment amortization, issuances, and cancellations | 0.1 | | | — | | | 28.8 | | | — | | | — | | | — | | | 28.8 | |
| Employee stock purchase plan issuances | — | | | — | | | 1.0 | | | — | | | — | | | — | | | 1.0 | |
| Cash dividends of $0.52 per share paid on common stock | — | | | — | | | — | | | (19.1) | | | — | | | — | | | (19.1) | |
| Stock options exercised | — | | | — | | | 2.2 | | | — | | | — | | | — | | | 2.2 | |
| Repurchases of common stock | (3.8) | | | — | | | — | | | — | | | — | | | (436.5) | | | (436.5) | |
| Cumulative effect of adoption of ASC 326 | — | | | — | | | — | | | (0.2) | | | — | | | — | | | (0.2) | |
| Balance, August 31, 2021 | 35.2 | | | $ | 0.5 | | | $ | 995.6 | | | $ | 2,810.3 | | | $ | (98.2) | | | $ | (1,663.7) | | | $ | 2,044.5 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock Outstanding | | | | | | | | | | |
| | Shares | | Amount | | Paid-in Capital | | Retained Earnings | | Accumulated Other
Comprehensive
Loss Items | | Treasury Stock, at cost | | Total |
| Balance, August 31, 2015 | 43.3 |
| | $ | 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 | 0.1 |
| | — |
| | 8.4 |
| | — |
| | — |
| | 1.6 |
| | 10.0 |
|
| Amortization, issuance, and cancellations 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 | 0.3 |
| | — |
| | 13.5 |
| | — |
| | — |
| | — |
| | 13.5 |
|
| Excess tax benefits from share-based payments | — |
| | — |
| | 25.6 |
| | — |
| | — |
| | — |
| | 25.6 |
|
| 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 | — |
| | — |
| | — |
| | 349.6 |
| | — |
| | — |
| | 349.6 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (4.0 | ) | | — |
| | (4.0 | ) |
| 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 | — |
| | — |
| | — |
| | (21.4 | ) | | — |
| | — |
| | (21.4 | ) |
| Stock options exercised | — |
| | — |
| | 1.1 |
| | — |
| | — |
| | — |
| | 1.1 |
|
| 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 |
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
|
| |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
1.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 subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred(referred to herein as “we,” “our,” “us,” the “Company”) and“Company,” or similar references) was incorporated in 2001 under the laws of the State of Delaware. The Company is oneWe are a market-leading industrial technology company. Through our 2 business segments, Acuity Brands Lighting and Lighting Controls (“ABL”) and the Intelligent Spaces Group (“ISG”) we design, manufacture, and bring to market products and services that make the world more brilliant, productive, and connected. We achieve growth through the development of the world’s leading providersinnovative new products and services, including building management systems, lighting, lighting controls, and location-aware applications.
ABL Segment
ABL's portfolio of lighting solutions includes commercial, architectural, and building management solutionsspecialty lighting in addition to lighting controls and services for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. The Company’scomponents that can be combined to create integrated lighting and building management solutions includecontrols systems. We offer devices such as luminaires lighting controls, controllers for various building systems, power supplies, prismatic skylights, inverters, and drivers, as well as integrated systemsthat predominantly utilize light emitting diode (“LED”) technology designed to optimize energy efficiency and comfort for various indoor and outdoor applications. Additionally,ABL's' portfolio of products includes but is not limited to the Company continuesfollowing brands: Lithonia Lighting®, Holophane®, Peerless®, Gotham®, Mark Architectural LightingTM, Winona® Lighting, Juno®, IndyTM, AculuxTM, Healthcare Lighting®, Hydrel®, American Electric Lighting®, Sunoptics®, eldoLED®, nLight®, Sensor Switch®, IOTA®, A-LightTM, CycloneTM, Eureka®, Lumniaire LEDTM, Luminis®, Dark to expand its solutions portfolio to provide a hostLight®, and RELOC Wiring Solutions.
Principal customers of other economic benefits, including softwareABL include electrical distributors, retail home improvement centers, electric utilities, national accounts, digital retailers, lighting showrooms, and services that enable the Internet of Things (“IoT”). The Company's IoT solutions provide customers with access to robust data analytics; support the advancement of smart buildings, smart cities, and the smart grid; and allow businesses to develop custom applications to scale their operations. The Company has one reportable segment serving theenergy service companies located in North American lighting marketAmerica and select international markets.markets serving new construction, renovation and retrofit, and maintenance and repair applications. ABL's lighting and lighting controls solutions are sold primarily through a network of independent sales agencies that cover specific geographic areas and market channels, by internal sales representatives, through consumer retail channels, and directly to large corporate accounts. Products are delivered directly from our manufacturing facilities 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.
The ABL comprised approximately 95% of consolidated revenues during fiscal 2021, 2020, and 2019.
ISG Segment
ISG offers building management systems and location-aware applications and sells predominantly to system integrators. Our building management system includes products for controlling heating, ventilation, and air conditioning (“HVAC”), lighting, shades, and building access that deliver end-to-end optimization of those building systems. AtriusTM, our intelligent building platform, enhances the occupant experience, improves building system management, and automates labor intensive tasks while delivering operational energy efficiency and cost reductions. Through a connected and converged building system architecture, our platform delivers different applications, allows clients to upgrade over time with natural refresh cycles, and deploys new capability through both software and hardware updates. Customers of ISG primarily include system integrators as well as retail stores, airports, and enterprise campuses throughout North America and select international locations. ISG products and solutions are marketed under numerous brand names, including but not limited to Distech Controls®, AtriusTM, and Rockpile Ventures.
ISG comprised approximately 5% of consolidated revenues during fiscal 2021, 2020, and 2019.
We have prepared 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, Inc. and its wholly-owned subsidiaries.
2.
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 2 — Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Acuity Brands, Inc. and its wholly-owned subsidiaries after elimination of intercompany transactions and accounts.
Revenue Recognition
The Company records revenue when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the Company’s price to the customer is fixed and determinable, and collectability is reasonably 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 shipment for terms designated free on board shipping point. For sales designated free on board destination, customers take delivery when the product is received at the customer’s designated site. Provisions for certain rebates, sales incentives, product returns, and discounts to customers are recorded in the same period the related revenue is recorded.
The Company also maintains one-time or ongoing 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, merchandising of the Company’s products, introductory marketing funds 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 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 $41.3 million and $38.1 million as of August 31, 2018 and 2017, respectively, and 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 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.
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|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 7%) 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 for integrated lighting solutions represent multiple-element arrangements that include tangible products as well as services that are essential to the functionality of the solution. These services primarily relate to installation, monitoring, and lighting controls services. All of these elements 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.
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.
Revenue Recognition
Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for information related to our revenue recognition accounting policies.
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.
Accounts Receivable
The Company recordsWe record accounts receivable at net realizable value. This value includes a reserve for doubtful accounts to reflect our estimate of expected credit losses anticipated on accounts receivable balances. The allowance is based onover the contractual term of our receivables. Our estimation of current expected credit losses reflects our considerations of 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 additionally consider the impact of general economic conditions, including construction spending, unemployment rates, and macroeconomic growth, on our customers' future ability to meet their obligations. We 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.
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, andlighting controls, building management solutionssystems, and location-aware applications as well as their dispersion across many different geographic areas. OneNo customer two customers each, andaccounted for 10% of receivables at August 31, 2021; however, one customer accounted for approximately 10% of receivables at August 31, 2018, 2017,2020 and 2016, respectively.2019. No single customer accounted for more than 10% of net sales in fiscal 2018, 2017,2021, 2020, or 2016.2019.
Reclassifications
Certain prior-period amounts have been reclassified to conform to the current year presentation. No material reclassifications occurred during the current period. Refer to the New Accounting Pronouncements footnote for additional information regarding retrospective reclassifications related to accounting standards adopted in the current year.
Subsequent Events
The Company has evaluated subsequent events for recognition and disclosure for occurrences and transactions after the date of the consolidated financial statements as of August 31, 2018.
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| |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Inventories
Inventories include materials, direct labor, in-boundinbound freight, customs, duties, tariffs, 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 as of the dates presented (in millions):
| | | | August 31, | | August 31, |
| | 2018 | | 2017 | | 2021 | | 2020 |
Raw materials, supplies, and work in process(1) | $ | 196.8 |
| | $ | 176.5 |
| Raw materials, supplies, and work in process(1) | $ | 209.5 | | | $ | 170.3 | |
| Finished goods | 251.8 |
| | 180.8 |
| Finished goods | 227.2 | | | 199.1 | |
| Inventories excluding reserves | 448.6 |
| | 357.3 |
| Inventories excluding reserves | 436.7 | | | 369.4 | |
| Less: Reserves | (36.8 | ) | | (28.7 | ) | Less: Reserves | (38.0) | | | (49.3) | |
| Total inventories | $ | 411.8 |
| | $ | 328.6 |
| Total inventories | $ | 398.7 | | | $ | 320.1 | |
| |
(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 does not believe the segregation of raw materials and work in process is meaningful information. |
Management reviews(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, we do not believe the segregation of raw materials and work in process is meaningful information.
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 or market conditions could render certain inventory obsolete and could have a material adverse impact on the Company’sour operating results in the period the change occurs. The following table summarizes the changes in our inventory reserves for the periods presented (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended August 31, |
| 2021 | | 2020 | | 2019 |
| Beginning balance | $ | 49.3 | | | $ | 22.3 | | | $ | 36.8 | |
| Additions to reserve | 21.4 | | | 36.3 | | | 10.7 | |
| Disposals of reserved inventory | (32.7) | | | (11.1) | | | (25.1) | |
| Foreign currency translation adjustments | — | | | 1.8 | | | (0.1) | |
| Ending balance | $ | 38.0 | | | $ | 49.3 | | | $ | 22.3 | |
Assets Held for Sale
In accordance with applicable U.S. GAAP, the Company classifiesWe classify assets as held for sale upon the development ofwhen a plan for disposal is developed and ceasesapproved, the asset is available for immediate sale, an active program to locate a buyer at a price reasonable in relation to current fair value is initiated, and transfer of the asset is expected to be completed within one year. We cease the depreciation and amortization of the assets at that date. The Company did not classify any assetswhen all of these criteria have been met. We classified as held for sale 1 building with a total carrying value of $6.6 million and 3 buildings with a total carrying value of $4.1 million within Prepayments and other current assets on the Consolidated Balance Sheets as of August 31, 2018 or 2017.2021 and 2020, respectively. At each balance sheet date, we concluded the fair value less costs to sell exceeded the carrying value of each of these assets.
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Goodwill and Other Intangibles
Goodwill amounted to $970.6 million and $900.9 million as of August 31, 2018 and 2017, respectively. The changechanges in the carrying amount of goodwill during fiscal 2018 and 2017 isthe periods presented by segment are summarized as follows (in millions):
|
| | | |
| | Carrying Amount |
| Balance as of August 31, 2016 | $ | 947.8 |
|
| Adjustments to provisional amounts | (56.5 | ) |
| Foreign currency translation adjustments | 9.6 |
|
| Balance as of August 31, 2017 | 900.9 |
|
| Additions from acquired businesses | 77.0 |
|
| Foreign currency translation adjustments | (7.3 | ) |
| Balance as of August 31, 2018 | $ | 970.6 |
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | | | | | | | | | | | | | | | |
| ABL | | ISG | | Total |
| Balance as of August 31, 2019 | $ | 907.2 | | | $ | 60.1 | | | $ | 967.3 | |
| Additions from acquired businesses | 142.1 | | | 5.7 | | | 147.8 | |
| Adjustments to provisional amounts from acquired businesses | (41.9) | | | 0.4 | | | (41.5) | |
| Foreign currency translation adjustments | 5.2 | | | 1.2 | | | 6.4 | |
| Balance as of August 31, 2020 | 1,012.6 | | | 67.4 | | | 1,080.0 | |
| Additions from acquired businesses | 6.9 | | | 3.1 | | | 10.0 | |
| | | | | |
| Foreign currency translation adjustments | 2.7 | | | 2.0 | | | 4.7 | |
| Balance as of August 31, 2021 | $ | 1,022.2 | | | $ | 72.5 | | | $ | 1,094.7 | |
Summarized information for the Company’sour acquired intangible assets is as follows as of the dates presented (in millions)millions except amortization periods):
| | | | August 31, | | | August 31, |
| | 2018 | | 2017 | | | 2021 | | 2020 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Weighted Average Amortization Period in Years | | Gross Carrying
Amount | | Accumulated
Amortization | | Gross Carrying
Amount | | Accumulated
Amortization |
| Definite-lived intangible assets: | |
| | |
| | |
| | |
| Definite-lived intangible assets: | | | | | | | | | |
| Patents and patented technology | $ | 135.8 |
| | $ | (62.2 | ) | | $ | 124.1 |
| | $ | (51.5 | ) | Patents and patented technology | 11 | | $ | 164.6 | | | $ | (104.4) | | | $ | 163.6 | | | $ | (89.5) | |
| Trademarks and trade names | 27.2 |
| | (13.2 | ) | | 27.2 |
| | (12.0 | ) | Trademarks and trade names | 24 | | 27.2 | | | (17.1) | | | 27.2 | | | (15.8) | |
| Distribution network | 61.8 |
| | (42.7 | ) | | 61.8 |
| | (35.2 | ) | Distribution network | 28 | | 61.8 | | | (45.0) | | | 61.8 | | | (42.8) | |
| Customer relationships | 298.8 |
| | (51.1 | ) | | 240.8 |
| | (43.1 | ) | Customer relationships | 20 | | 429.2 | | | (117.9) | | | 421.4 | | | (94.3) | |
| Other | — |
| | — |
| | 4.6 |
| | (4.6 | ) | |
| | Total definite-lived intangible assets | $ | 523.6 |
|
| $ | (169.2 | ) |
| $ | 458.5 |
|
| $ | (146.4 | ) | Total definite-lived intangible assets | 19 | | $ | 682.8 | | | $ | (284.4) | | | $ | 674.0 | | | $ | (242.4) | |
| Indefinite-lived trade names | $ | 144.3 |
| | |
| | $ | 136.7 |
| | |
| Indefinite-lived trade names | | $ | 174.8 | | | | | $ | 174.3 | | | |
Through multiple acquisitions, the Companywe acquired definite-lived intangible assets consisting primarily of customer relationships, patented technology, distribution networks, and 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 short-term and long-term net sales and profitability, customer attrition rates, royalty rates, and discount rates. Certain of the Company'sour intangible assets are attributable to foreign operations and are impacted by currency translation due to movements in foreign currency rates year over year.
The CompanyWe recorded amortization expense of $28.5$40.7 million, $28.0$41.7 million, and $21.4$30.8 million related to acquired intangible assets with finite lives during fiscal 2018, 2017, 2021, 2020, and 2016,2019, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $31.1 million in fiscal 2019, $31.1 million in fiscal 2020, $28.2 million in fiscal 2021, $26.5$41.2 million in fiscal 2022, and $25.2$40.5 million in fiscal 2023.2023, $40.0 million in fiscal 2024, $31.9 million in fiscal 2025, and $29.1 million in fiscal 2026.
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 ASCAccounting Standards Codification (“ASC”) Topic 350, Intangibles — Goodwill and Other (“ASC 350”). ASC 350 allows for an 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, a quantitative analysis is required. The qualitative step may be bypassed entirely in favor of a quantitative test. The quantitative analysis identifies 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
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
the fair value of a reporting unit exceeds its carrying value, goodwill is not considered impaired. Conversely, if the carrying value of a reporting unit exceeds its fair value, an impairment charge for the difference iswould be recorded.
In fiscal 20182021 and 2016,2020, we used a quantitative analysis to calculate the fair value of our reporting units using a combination of discounted future cash flows and relevant market multiples. In fiscal 2019, we used a qualitative fair value analysis was used to determine the likelihood of goodwill impairment for the Company’s one 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 2018, 2017,2021, 2020, or 2016.2019.
The impairment test for indefinite-lived trade names consists of comparing the fair value of a trade name with its carrying value. If the carrying amount exceeds the estimated fair value, an impairment loss would be recorded in the amount of the excess. The Company estimatesWe 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. The impairment analyses of our indefinite-lived trade name analysis did not result in an impairment charge for fiscal 2018, as theintangible assets indicated that their fair values exceeded thetheir carrying values for each of the trade names. However, the estimated fair value of one trade name exceeded its carrying value by a small margin. Management believes the assumptions used to estimate the fair value of this trade namefiscal 2021, and thus no impairment charges were reasonable, and sensitivity analysis indicatedrecorded during that the trade name would likely not be impaired by a material amount if reasonably differing assumptions had been used.year. Any reasonably likely change in the assumptions used in the analyses for the otherour trade names would not be material to the Company’sour financial condition or results of operations.
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|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Thethe indefinite-lived trade name analysis did not result in an impairment chargeintangible asset analyses for fiscal 2017, as the fair values exceeded the carrying values for each of the trade names. However, during fiscal 2016, management began to rationalize the Company's portfolio of brands, resulting in the initiation of the phase out of one of the trade names. As a result, during fiscal 2016 the Company recognized2020, we recorded an impairment charge of $5.1$1.4 million related to thisfor 1 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 Incomefor related to our ABL segment. The impairment analyses of the year ended August 31, 2016. Theother 12 indefinite-lived intangible assets indicated that their fair values exceeded their carrying values. Based on the results of the indefinite-lived intangible asset analysis foranalyses performed in fiscal 2016 did not result in any other2019, we concluded that our analyses supported the indefinite-lived trade names' values; therefore, no impairment charges were recorded.
Short-term growth rates used in the fiscal 2021 and 2020 impairment analyses reflected additional estimation uncertainty as the fair values exceeded the carrying values for eacha result of the other trade names.COVID-19 pandemic.
Other Long-Term Assets
Other long-term assets consist of the following as of the dates presented (in millions):
|
| | | | | | | |
| | August 31, |
| | 2018 | | 2017 |
| Deferred contract costs | $ | 12.8 |
| | $ | 6.7 |
|
| Net overfunded pension plans | 1.6 |
| | — |
|
Other(1) | 4.4 |
| | 6.5 |
|
| Total other long-term assets | $ | 18.8 |
| | $ | 13.2 |
|
| | | | | | | | | | | |
| | August 31, |
| | 2021 | | 2020 |
Deferred contract costs(1) | $ | 12.9 | | | $ | 12.3 | |
| | | |
| Investments in debt and equity securities | 5.3 | | | 6.0 | |
| | | |
| | | |
| Pensions plans in which plan assets exceed benefit obligation | 13.0 | | | — | |
Tax credits(2) | — | | | 8.6 | |
Other(3) | 2.7 | | | 2.6 | |
| Total other long-term assets | $ | 33.9 | | | $ | 29.5 | |
(1)Amount includes costs incurred whose economic benefit will be realized greater than one year from August 31, 2021.
(2)Amount represents research and development tax credit receivables related to certain amended prior year tax returns.
(3)Included within this category are company-owned life insurance investments. We maintain life insurance policies on 62 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, 2021.
| | |
(1)
ACUITY BRANDS, INC |
Amounts primarilyinclude deferred debt issuance costs related to the Company's credit facilities and company-owned life insurance investments. The Company maintains life insurance policies on 69 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, 2018.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Other Current Liabilities
Other current liabilities consist of the following as of the dates presented (in millions):
| | | | | | | | | | | |
| | August 31, |
| | 2021 | | 2020 |
Customer incentive programs(1) | $ | 33.9 | | | $ | 27.7 | |
Refunds to customers(1) | 28.1 | | | 31.0 | |
Current deferred revenues(1) | 7.7 | | | 5.4 | |
| Sales commissions | 28.9 | | | 26.5 | |
| Freight costs | 17.6 | | | 11.7 | |
Warranty and recall costs(2) | 16.8 | | | 13.8 | |
Tax-related items(3) | 11.7 | | | 12.7 | |
Interest on long-term debt(4) | 2.4 | | | 1.0 | |
| Other | 42.4 | | | 30.8 | |
| Total other current liabilities | $ | 189.5 | | | $ | 160.6 | |
(1)Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for additional information.
(2)Refer to the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements for additional information.
(3)Includes accruals for income, property, sales and use, and value added taxes.
(4)Refer to the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for additional information.
Other Long-Term Liabilities
Other long-term liabilities consist of the following as of the dates presented (in millions):
| | | | | | | | | | | |
| | August 31, |
| | 2021 | | 2020 |
Deferred compensation and postretirement benefits other than pensions(1) | $ | 43.1 | | | $ | 42.7 | |
Deferred revenues(2) | 56.7 | | | 53.6 | |
Unrecognized tax position liabilities, including interest(3) | 19.7 | | | 18.9 | |
Self-insurance liabilities(4) | 3.9 | | | 6.5 | |
Product warranty and recall costs(4) | 3.5 | | | 2.3 | |
| Other | 9.3 | | | 2.5 | |
| Total other long-term liabilities | $ | 136.2 | | | $ | 126.5 | |
____________________________________ |
| | | | | | | |
| | August 31, |
| | 2018 | | 2017 |
Deferred compensation and postretirement benefits other than pensions(1) | $ | 40.0 |
| | $ | 39.7 |
|
| Long-term warranty obligations | 15.7 |
| | 10.7 |
|
Unrecognized tax position liabilities, including interest(2) | 4.9 |
| | 7.0 |
|
Other(3) | 7.3 |
| | 6.2 |
|
| Total other long-term liabilities | $ | 67.9 |
| | $ | 63.6 |
|
| |
(1)(2)Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for additional information. (3)Refer to the Income Taxes footnote of the Notes to Consolidated Financial Statements for additional information. (4)Refer to the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements for additional information. | The Company maintains 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. In addition, one plan provides for an automatic contribution by the Company of 3% of an eligible employee’s compensation. The Company maintains life insurance policies on certain current and former officers and other key employees as a means of satisfying a portion of these obligations. |
| |
(2)
| See the Income Taxes footnote for more information.
|
| |
(3)
| Amount primarily includes deferred rent and deferred revenue. |
Shipping and Handling Fees and Costs
The Company includesWe include shipping and handling fees billed to customers in Net sales 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 sold in the Consolidated Statements of Comprehensive Income. Other shipping and handling costs are included in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income and totaled $154.9$132.0 million, $138.3$121.9 million, and $124.0$138.4 million in fiscal 2018, 2017, 2021, 2020,and 2016,2019, respectively.
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| |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Share-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,stock, performance stock units, and sharedirector stock 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-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, andperformance stock units, options issued, as well as shareand stock units deferred into the Director Deferred Compensation Plan. The CompanyWe recorded $32.3$32.5 million, $32.0$38.2 million, and $27.7$29.2 million of share-based payment expense for the years ended August 31, 2018, 2017,2021, 2020, and 2016,2019, respectively. The total income tax benefit recognized for share-based payment arrangementsexpense was $8.4$6.5 million, $11.1$6.6 million, and $9.6$6.5 million for the years ended August 31, 2018, 2017,2021, 2020, and 2016,2019, respectively. The Company accountsWe generally recognize compensation cost for any awards with graded vestingshare-based payment transactions on a straight-line basis. Additionally, forfeitures of share-based awards are estimated based on historical experience atbasis over an award's requisite service period as defined by ASC 718. In certain circumstances, such as when a performance award is subject to graded vesting, we apply the time of grant and are revised in subsequent periods if actual forfeitures differ from initial estimates. The Company did not capitalize any expenseaccelerated attribution method to recognize compensation cost related to our share-based payments and haspayment awards.
We have recorded share-based payment expense, net of estimated forfeitures, in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income.
Prior to fiscal 2018, Excess tax benefits of tax deductions in excess of andand/or expense of tax shortfalls below recognizedrelated to share-based payment cost were reported within Paid-in capital on the Consolidated Balance Sheets. Conversely, these amountsawards are reported withinIncome tax expenseon the Consolidated Statements of Comprehensive Incomefor fiscal 2018. See the New Accounting Pronouncements footnote for more information. The CompanyWe recognized net excess tax shortfallsexpense related to share-based payment cost of $0.8$0.5 million during fiscal 2018 and excess tax benefits related to share-based payment cost of $5.2, $1.4 million, and $25.6$1.6 million during 2017for the years ended August 31, 2021, 2020, and 2016,2019, respectively.
See the Share-based Payments footnote of the Notes to Consolidated Financial Statements for more information.
DepreciationProperty, Plant, and Equipment
For financial reporting purposes, depreciationProperty, plant, and equipment is determinedinitially recorded at cost and depreciated principally on a straight-line basis using estimated useful lives of plant and equipment (10(3 to 40 years for buildings and related improvements and 32 to 15 years for machinery and equipment), while accelerated for financial reporting purposes. 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 $51.8$59.4 million, $46.6$59.4 million, and $41.2$57.5 million during fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. The balance in property, plant, and equipment consisted of the following as of the dates presented (in millions):
| | | | | | | | | | | |
| August 31, |
| | 2021 | | 2020 |
| Land | $ | 22.4 | | | $ | 22.2 | |
| Buildings and leasehold improvements | 198.0 | | | 192.2 | |
| Machinery and equipment | 624.9 | | | 588.4 | |
| Total property, plant, and equipment, at cost | 845.3 | | | 802.8 | |
| Less: Accumulated depreciation and amortization | (576.2) | | | (532.3) | |
| Property, plant, and equipment, net | $ | 269.1 | | | $ | 270.5 | |
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. R&D does not include all new product development costs and is included in Selling, distribution, and administrative expenses in the Company’s our Consolidated
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Statements of Comprehensive Income. R&D expense amounted to $63.9$88.3 million, $52.0$82.0 million, and $47.1$74.7 million during fiscal 2018, 2017, 2021, 2020, and 2016,2019, respectively.
Advertising
Advertising costs are expensed as incurred and are included within Selling, distribution, and administrative expenses in the Company’s our Consolidated Statements of Comprehensive Income. These costs totaled $20.6$15.9 million, $18.6$15.1 million, and $18.4$18.5 million during fiscal 2018, 2017, 2021, 2020, and 2016,2019, respectively.
Interest Expense, Net
Interest expense, net, is comprised primarily of interest expense on long-term debt revolvingand line of credit facility borrowings, and loans collateralized by assets related to a company-owned life insurance program, partially offset by interest income earned on cash and cash equivalents.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table summarizes the components of interestInterest expense, net during the periods presented (in millions):
| | | | Year Ended August 31, | | Year Ended August 31, |
| | 2018 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 |
| Interest expense | $ | 35.5 |
| | $ | 34.1 |
| | $ | 33.3 |
| Interest expense | $ | 24.2 | | | $ | 26.4 | | | $ | 36.4 | |
| Interest income | (2.0 | ) | | (1.6 | ) | | (1.1 | ) | Interest income | (1.0) | | | (3.1) | | | (3.1) | |
| Interest expense, net | $ | 33.5 |
| | $ | 32.5 |
| | $ | 32.2 |
| Interest expense, net | $ | 23.2 | | | $ | 23.3 | | | $ | 33.3 | |
Miscellaneous Income,Expense, Net
Miscellaneous income,expense, net, is composedcomprised primarily of non-service related components of net periodic pension cost, gains orand losses onassociated with foreign currency itemscurrency-related transactions, and other non-operating items. Gains or lossesgains and losses. Amounts relating to foreign currency itemstransactions consisted of incomenet expense of $0.1$1.3 million in fiscal 2018,2021, net expense of $0.5$5.9 million in fiscal 2017,2020, and incomenet gains of $0.8$0.6 million in fiscal 2016. During fiscal 2018, the Company recognized a $5.4 million gain on the sale of a foreign domiciled business, which includes the reclassification of $8.7 million in accumulated foreign currency gains from Accumulated other comprehensive loss. During fiscal 2017, the Company recognized a $7.2 million gain associated with the sale of an investment in an unconsolidated affiliate.2019.
Income Taxes
The Company isWe 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 assets and liabilities. On December 22, 2017,Refer to the PresidentIncome Taxes footnote of the United States signed into law the U.S. Tax Cuts and Jobs Act (“TCJA”). See the Income Taxes footnote within the Notes to Consolidated Financial Statements for additional details regarding the impact of the TCJA on the Company.information.
Foreign Currency Translation
The functional currency for the foreign operations of the Company is generally the local currency where the foreign operations 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.
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.
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table presents the changes in each component of accumulated other comprehensive income (loss)loss net of tax during the year ended August 31, 2018periods presented (in millions):
| | | | | | | | | | Foreign Currency Items | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Loss Items |
| | Foreign Currency Items | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Loss Items | |
| Balance as of August 31, 2016 | $ | (47.7 | ) | | $ | (91.7 | ) | | $ | (139.4 | ) | |
| Balance as of August 31, 2019 | | Balance as of August 31, 2019 | $ | (65.4) | | | $ | (86.0) | | | $ | (151.4) | |
| Other comprehensive income (loss) before reclassifications | | Other comprehensive income (loss) before reclassifications | 11.9 | | | (0.6) | | | 11.3 | |
Amounts reclassified from accumulated other comprehensive loss (1) | | Amounts reclassified from accumulated other comprehensive loss (1) | — | | | 7.4 | | | 7.4 | |
| Net current period other comprehensive income | | Net current period other comprehensive income | 11.9 | | | 6.8 | | | 18.7 | |
| Balance as of August 31, 2020 | | Balance as of August 31, 2020 | (53.5) | | | (79.2) | | | (132.7) | |
| Other comprehensive income before reclassifications | 19.0 |
| | 12.6 |
| | 31.6 |
| Other comprehensive income before reclassifications | 13.3 | | | 13.9 | | | 27.2 | |
Amounts reclassified from accumulated other comprehensive loss (1) | — |
| | 8.1 |
| | 8.1 |
| Amounts reclassified from accumulated other comprehensive loss (1) | — | | | 7.3 | | | 7.3 | |
| Net current period other comprehensive income | 19.0 |
| | 20.7 |
| | 39.7 |
| Net current period other comprehensive income | 13.3 | | | 21.2 | | | 34.5 | |
| Balance at August 31, 2017 | (28.7 | ) |
| (71.0 | ) |
| (99.7 | ) | |
| Other comprehensive 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 at August 31, 2018 | $ | (53.9 | ) | | $ | (60.9 | ) | | $ | (114.8 | ) | |
| Balance as of August 31, 2021 | | Balance as of August 31, 2021 | $ | (40.2) | | | $ | (58.0) | | | $ | (98.2) | |
| |
(1)(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 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 income, net on the Consolidated Statements of Comprehensive Income.
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The following table presents the tax expense or benefit allocated to each component of other comprehensive income (loss) forduring the three years ended August 31, 2018periods presented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended August 31, |
| 2021 | | 2020 | | 2019 |
| 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 | $ | 13.3 | | | $ | — | | | $ | 13.3 | | | $ | 11.9 | | | $ | — | | | $ | 11.9 | | | $ | (11.5) | | | $ | — | | | $ | (11.5) | |
| Defined benefit pension plans: | | | | | | | | | | | | | | | | | |
| Tax adjustments | — | | | (3.2) | | | (3.2) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Actuarial gains (losses) | 17.5 | | | (3.6) | | | 13.9 | | | (0.7) | | | 0.1 | | | (0.6) | | | (40.8) | | | 9.7 | | | (31.1) | |
| Amortization of defined benefit pension items: | | | | | | | | | | | | | | | | | |
| Prior service cost | 2.9 | | | (0.6) | | | 2.3 | | | 4.0 | | | (0.9) | | | 3.1 | | | 3.5 | | | (0.9) | | | 2.6 | |
| Actuarial losses | 5.5 | | | (1.2) | | | 4.3 | | | 5.6 | | | (1.3) | | | 4.3 | | | 4.1 | | | (1.0) | | | 3.1 | |
| Settlement losses | 3.9 | | | — | | | 3.9 | | | — | | | — | | | — | | | 0.4 | | | (0.1) | | | 0.3 | |
| Total defined benefit plans, net | 29.8 | | | (8.6) | | | 21.2 | | | 8.9 | | | (2.1) | | | 6.8 | | | (32.8) | | | 7.7 | | | (25.1) | |
| Other comprehensive income (loss) | $ | 43.1 | | | $ | (8.6) | | | $ | 34.5 | | | $ | 20.8 | | | $ | (2.1) | | | $ | 18.7 | | | $ | (44.3) | | | $ | 7.7 | | | $ | (36.6) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, |
| | 2018 | | 2017 | | 2016 |
| | 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 | $ | (25.2 | ) | | $ | — |
| | $ | (25.2 | ) | | $ | 19.0 |
| | $ | — |
| | $ | 19.0 |
| | $ | (5.6 | ) | | $ | — |
| | $ | (5.6 | ) |
| Defined benefit pension plans: | | | | | | | | | | | | | | | | | |
| Actuarial gains (losses) | 18.4 |
| | (4.4 | ) | | 14.0 |
| | 18.3 |
| | (5.7 | ) | | 12.6 |
| | (42.2 | ) | | 13.5 |
| | (28.7 | ) |
| Amortization of defined benefit pension items: | | | | | | | | | | | | | | | | | |
| Prior service cost | 3.1 |
| | (0.7 | ) | | 2.4 |
| | 3.1 |
| | (0.7 | ) | | 2.4 |
| | 3.1 |
| | (1.1 | ) | | 2.0 |
|
| Actuarial losses | 6.8 |
| | (2.0 | ) | | 4.8 |
| | 8.9 |
| | (3.2 | ) | | 5.7 |
| | 4.9 |
| | (1.6 | ) | | 3.3 |
|
| Total defined benefit plans, net | 28.3 |
| | (7.1 | ) | | 21.2 |
| | 30.3 |
| | (9.6 | ) | | 20.7 |
| | (34.2 | ) | | 10.8 |
| | (23.4 | ) |
| Other comprehensive income (loss) | $ | 3.1 |
| | $ | (7.1 | ) | | $ | (4.0 | ) | | $ | 49.3 |
| | $ | (9.6 | ) | | $ | 39.7 |
| | $ | (39.8 | ) | | $ | 10.8 |
| | $ | (29.0 | ) |
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
3.Note 3 — New Accounting Pronouncements
Accounting Standards Adopted in Fiscal 20182021
ASC Topic 326 — Credit Losses (“ASC 326”)
In MarchJune 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting,2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-09”2016-13”), which changes certain aspectsrequires an entity to assess impairment of accounting for share-based payments to employees. The standard requires that all excess tax benefits and deficiencies previously recorded as additional paid-in capital be prospectively recorded in income tax expense, which could create volatility in the Company's effective income tax rate on a quarter by quarter basis 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 benefits to be presented as an operating activityits financial instruments based on the statemententity's estimate of cash flows rather than as a financing activityexpected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and taxes paidclarify the implementation guidance. These standards have been collectively codified within ASC 326. The provisions of ASC 326 are effective for employee withholdings to be presented as a financing activity. The Companyfiscal years, and interim reporting periods within those years, beginning after December 15, 2019. We adopted ASU 2016-09 effectivethe provisions of ASC 326 as of September 1, 2017. Excess tax benefits2020, the beginning of fiscal 2021, and deficiencies are recorded within Income tax expense within the Consolidated Statementsapplied these changes through an immaterial cumulative-effect adjustment of Comprehensive Income on a prospective basis as required by the standard; however, the Company elected to present changes to the statement of cash flows
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ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
on a retrospective basis as allowed by the standard in order to maintain comparability between fiscal years. As such, cash flows from operations for the years ended August 31, 2017 and 2016 increased $20.4$0.2 million and $42.2 million, respectively, with a corresponding decrease to cash flows from financing activities, compared to amounts previously reported.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA signed into law in December 2017. The Company adopted ASU 2018-02 effective as of the beginningdate of adoption. Our estimation of current expected credit losses reflects our considerations of the current reporting periodimpact of general economic conditions, including construction spending, unemployment rates, the effects of the COVID-19 pandemic, and recorded a reclassification for the stranded tax effects resulting from the TCJA from Accumulated other comprehensive lossmacroeconomic growth, on our customers' ability to Retained earnings in the amount of $11.1 million on the Consolidated Balance Sheets during the year ended August 31, 2018. Refer to the Income Taxes footnote for further details.meet their obligations.
Accounting Standards Yet to Be Adopted
In August 2018, the FASB issued ASU No. 2018-15 — Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Isthat is a Service Contract (“ASU 2018-15”),
In August 2018, the FASB issued ASU 2018-15, which will requirerequires customers to apply internal-use software guidance to determine the implementation costs that are able to be capitalized. Capitalized implementation costs will beare required to be amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use. ASU 2018-15 is effective for fiscal years, (andand interim reporting periods within those years)years, beginning after December 15, 2019. The Company will implement the standard as required in fiscal 2021. The provisions ofWe adopted ASU 2018-15 areas of September 1, 2020 on a prospective basis. This standard did not expected to have a material effect on the Company'sour financial condition, results of operations, or cash flows.
Accounting Standards Yet to Be Adopted
ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”)
In March 2017,December 2019, the FASB issued ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving2019-12, which simplifies the Presentationaccounting for income taxes, eliminates certain exceptions within ASC Topic 740, Income Taxes,and clarifies certain aspects of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“the current guidance to promote consistency among reporting entities. ASU 2017-07”), which will change the presentation of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost will be 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 benefit pension cost will be presented separately outside of operating income. Additionally, only service costs may be capitalized in assets. ASU 2017-072019-12 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The Company will implement2020, or our fiscal 2022. Most amendments within the standard asare required in fiscal 2019. Theto be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We do not expect the provisions of ASU 2017-07 are not expected2019-12 to have a material impact on the Company'sour financial condition, results of operations, orand cash flows.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business (“ASU 2017-01”), which requires an evaluation of whether substantially all of the fair value of assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the transaction does not qualify as a business. The guidance also requires an acquired business to include at least one substantive process and narrows the definition of outputs. ASU 2017-01 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The Company is currently evaluating the impact of the provisions of ASU 2017-01 and will implement the standard as required in fiscal 2019.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (“ASU 2016-15”), which is intended to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows including 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. ASU 2016-15 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The Company will implement the standard as required in fiscal 2019, and the provisions of ASU 2016-15 are not expected to have a material impact on the Company's financial statement disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 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. In January 2018, the FASB issued ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842 (“ASU 2018-01”), which establishes an optional transition practical expedient when applying the guidance in ASU 2016-02. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2016-02”), and ASU 2018-11, Targeted Improvements (“ASU 2016-11”). ASU 2018-10 affects narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 provides an additional transition method
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ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
and an additional practical expedient for lessors. Each of these updates have the same effective date as the original standard. The Company is currently evaluating the impact of the provisions of ASU 2016-02 and the related amendments and will implement the standard as required in fiscal 2020.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which replaces most 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 judgments. ASC 606 permits two transition methods: the full retrospective method and the modified retrospective method. Under the full retrospective method, the standard would be applied to each prior reporting period presented with the cumulative effect of applying the standard recognized at the earliest period shown. Under the modified retrospective method, the cumulative effect of applying the standard would be recognized at the date of initial application. ASC 606 is effective for annual reporting periods beginning after December 15, 2017.
The Company has an implementation team tasked with identifying potential differences that will result from applying the new revenue recognition standard to the Company's contracts with its customers. The implementation team has completed its contract reviews and reported its findings and progress to management as well as to the Audit Committee of the Board of Directors. The most significant changes will relate to additional deferral of revenue recognition for certain services provided and the gross presentation of right of return assets and refund liabilities for sales with a right of return. Based on the current portfolio of the Company's revenue generating activities, these changes will not have a material impact on the Company's consolidated financial condition, results of operations, or cash flows. The Company will adopt ASC 606 using the modified retrospective approach effective September 1, 2018.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
4.Note 4 — Acquisitions and Investments
The Company does not considerfollowing discussion relates to 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 at their respective acquisition dates. There were no acquisitionscompleted during fiscal 2017.2021, 2020, and 2019.
Fiscal 20182021 Acquisitions
IOTA Engineering, LLCams OSRAM's North American Digital Systems Business
On May July 1, 2018,2021, using cash on hand, we acquired certain assets and borrowings available under existing credit arrangements, the Companyliabilities of ams OSRAM’s North American Digital Systems business (“OSRAM DS”). This acquisition is intended to enhance our LED driver and controls technology portfolio and accelerate our innovation, expand our access to market through a more fulsome original equipment manufacturer (“OEM”) product offering, and give us more control over our supply chain.
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Rockpile Ventures
On May 18, 2021, using cash on hand, we acquired all of the equity interests of IOTA Engineering,Rockpile Ventures, an accelerator of edge artificial intelligence (“AI”) startups. Rockpile Ventures helps early-stage artificial intelligence companies drive co-engineering and co-selling partnerships with major cloud ecosystems, enabling faster adoption from proof-of-concept trials to market scale.
Accounting for Fiscal 2021 Acquisitions
We accounted for the acquisitions of Rockpile Ventures and OSRAM DS in accordance with ASC Topic 805, Business Combinations (“ASC 805”). Acquired assets and liabilities were recorded at their estimated acquisition-date fair values, and acquisition-related costs were expensed as incurred. The aggregate purchase price of these acquisitions reflects preliminary goodwill of $10.0 million and definite-lived customer-based intangible assets of $6.1 million, which have a preliminary useful life of approximately 11 years. Goodwill recognized from these acquisitions is comprised primarily of expected synergies from obtaining more control over our supply chain and technology, combining the operations of the acquired business with our operations, and acquiring the associated trained workforce. As of August 31, 2021, goodwill from these acquisitions totaling $6.9 million is expected to be tax deductible. Amounts recognized for these acquisitions are deemed to be provisional until disclosed otherwise, as we continue to gather information related to the identification and valuation of acquired assets and liabilities, including but not limited to, acquired interests in technology startups, tax-related items, final net working capital purchase adjustments, if any, and the residual impacts on the valuation of intangible assets.
Fiscal 2020 and 2019 Acquisitions
The Luminaires Group
On September 17, 2019, using cash on hand and borrowings under available existing credit arrangements at that time, 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 complement our dynamic lighting portfolio. 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®.
LocusLabs, Inc.
On November 25, 2019, using cash on hand, we acquired all of the equity interests of LocusLabs, Inc (“LocusLabs”). The LocusLabs software platform supports navigation applications used on mobile devices, web browsers, and digital displays in airports, event centers, multi-floor office buildings, and campuses.
WhiteOptics, LLC
On June 20, 2019, using cash on hand, we acquired all of the equity interests of WhiteOptics, LLC (“IOTA”WhiteOptics”). IOTA is headquarteredWhiteOptics manufactures advanced optical components used to reflect, diffuse, and control light for LED lighting used in Tucson, Arizona and manufactures highly engineered emergency lighting products and power equipment for commercial and institutional applications both in the U.S. and international markets.applications. The operating results of IOTAWhiteOptics have been included in the Company'sour consolidated financial statements since the date of acquisition and are not material to the Company's financial condition, results of operations, or cash flows.
Lucid Design Group, Inc.
On February 12, 2018, using cash on hand, the Company acquired all of the equity interests of 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. The operating results of Lucid have been included in the Company's consolidated financial statements since the date of acquisition and are not material to the Company's financial condition, results of operations, or cash flows.
acquisition.
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Accounting for Fiscal 20182020 and Fiscal 2019 Acquisitions
Acquisition-related costs were expensedThe TLG and LocusLabs acquisitions are referred to herein collectively as incurred. Preliminary amounts related tothe “2020 Acquisitions.” We finalized the acquisition accounting for these acquisitions are reflected in the Consolidated Balance Sheets2020 Acquisitions during the first quarter of fiscal 2021. There were no material changes to our financial statements as a result of August 31, 2018.the finalization of the acquisition accounting for the 2020 Acquisitions. The aggregate preliminary purchase price of these acquisitionsthe 2020 Acquisitions reflects total goodwill and identified intangible assets of approximately $77.0$107.6 million and $81.8$180.6 million, respectively. 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 1416 years. These amounts are deemed to be provisional until disclosed otherwise,Goodwill recognized from these acquisitions is comprised primarily due to the Company continuing to gather informationof expected benefits related to complementing and expanding our solutions portfolio, including dynamic lighting and software, as well as the identificationtrained workforce acquired with these businesses and valuation of certain deferredexpected synergies from combining the operations the acquired businesses with our operations. Goodwill from these acquisitions totaling $77.7 million is tax items.deductible.
Fiscal 2016 Acquisitions
DGLogik, Inc.
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 IoT. 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. The operating results of DGLogik have been included in the Company's consolidated financial statements since the date of acquisition and are not material to the Company's financial condition, results of operations, or cash flows. The CompanyWe finalized the acquisition accounting for DGLogik duringWhiteOptics in fiscal 2017, and the amounts are reflected on the Consolidated Balance Sheets.2020 in accordance with ASC 805. There were no material changes to the Company’s financial statements as a result of the finalization of the acquisition accounting.
Juno Lighting LLC
On December 10, 2015, using cash on hand, the Company acquired for approximately $380.0 million all of the equity interests of 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.The operating results of Juno Lighting have been included in the Company's consolidated financial statements since the date of acquisition.
Provisional amounts recognized at the acquisition date related to the Juno Lighting acquisition were prospectively adjusted in the second quarter of fiscal 2017 to reflect the finalization of the valuation of customer relationships and certain accrued liabilities. These adjustments resulted in an increase to intangible assets, net of $81.1 million, a decrease to goodwill of $50.5 million, an increase to deferred income tax liabilities of $29.6 million, and a decrease to net operating working capital of $1.0 million in the second quarter of fiscal 2017. Additionally, the Company recorded $1.5 million of additional amortization expense during fiscal 2017 to reflect the amortization that would have been recognized in previous periods if the adjustment to intangibles was recognized as of the acquisition date. The fair values of assets acquired and liabilities assumed were finalized and reflected on the Consolidated Balance Sheets prospectively as of February 28, 2017.
Geometri LLC
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. The operating results of Geometri have been included in the Company’s consolidated financial statements since the date of acquisition. The Company finalized the acquisition accounting for Geometri during fiscal 2017, and the amounts are reflected on the Consolidated Balance Sheets. There were no material changes to the Company’s financial statements as a result of the finalization of the acquisition accounting.
Distech Controls Inc.
On September 1, 2015, using cash on hand, the Company acquired for approximately $240.0 million all of the outstanding capital stock of Distech Controls Inc. (“Distech Controls”), a provider of building automation solutions that allow for the integration of lighting, heating, ventilation, and air conditioning (“HVAC”), access control, closed circuit television, and related systems. Distech Controls is headquartered in Quebec, Canada. The Company finalized the acquisition accounting for Distech Controls during fiscal 2016. There were no material changes to the Company’sour financial statements as a result of the finalization of the acquisition accounting.
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ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
5.Note 5 — Fair Value Measurements
The Company determinesWe determine fair value measurements based on the assumptions a market participant would use in pricing an asset or liability. ASC Topic 820, Fair Value Measurements and DisclosuresMeasurement (“ASC 820”), establishes a three level hierarchy making a distinctionthat distinguishes 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 Company's cash and cash equivalents (Level 1), which are required to be carried at fair value and measured on a recurring basis, were $129.1 million and $311.1 million as of August 31, 2018 and 2017, respectively.
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 used 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.
We use quoted market prices to determine the fair value of Level 1 assets and liabilities. Our cash and cash equivalents (Level 1), which are required to be carried at fair value and measured on a recurring basis, were $491.3 million and $560.7 million as of August 31, 2021 and 2020, respectively.
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 |
The carrying values and estimated fair values of certain financial instruments as of the Company’s financial instrumentsdates presented were as follows at(in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | August 31, 2021 | | August 31, 2020 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Assets: | | | | | | | |
| Investments in debt and equity securities | $ | 5.3 | | | $ | 5.3 | | | $ | 6.0 | | | $ | 6.0 | |
| Liabilities: | | | | | | | |
| Senior unsecured public notes, net of unamortized discount and deferred costs | $ | 494.3 | | | $ | 496.5 | | | $ | — | | | $ | — | |
| Borrowings under Term Loan Facility | — | | | — | | | 395.0 | | | 395.0 | |
| Industrial revenue bond | — | | | — | | | 4.0 | | | 4.0 | |
| Bank loans | — | | | — | | | 2.1 | | | 2.3 | |
| | | | | | | |
We hold 1 convertible debt security investment with a carrying value of $4.0 million that is scheduled to mature in September 2023. At August 31, 20182021, the fair value for this instrument approximated its cost based on the contractual terms of the arrangement as well as prevailing market interest rates for debt of similar terms and 2017 (in millions):maturity (Level 2).
We hold equity investments in unconsolidated affiliates without readily determinable fair value. These strategic investments represent less than a 20% ownership interest in each of the privately-held affiliates, and we do not maintain power over or control of the entities. We have elected the practical expedient in ASC Topic 321, Investments—Equity Securities, to measure these investments at cost less any impairment adjusted for observable price changes, if any. Based on these considerations, we estimate that the historical cost less impairments of the acquired shares represents the fair value of the investments as of August 31, 2021. During the first quarter of fiscal 2021, we recorded an impairment charge for one of these investments for $4.0 million as a recapitalization of the underlying company diluted our holding value. We additionally recorded an impairment charge of $2.0 million during the fourth quarter of fiscal 2021 for another investment due to a deterioration in the financial condition and long-term prospects of the underlying company. These impairments are reflected in Miscellaneous expense, net for the year ended August 31, 2021 within our Consolidated Statements of Comprehensive Income. |
| | | | | | | | | | | | | | | |
| | August 31, 2018 | | August 31, 2017 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Senior unsecured public notes, net of unamortized discount and deferred costs | $ | 349.5 |
| | $ | 361.7 |
| | $ | 349.1 |
| | $ | 379.7 |
|
| Industrial revenue bond | 4.0 |
| | 4.0 |
| | 4.0 |
| | 4.0 |
|
| Bank loans | 3.3 |
| | 3.3 |
| | 3.8 |
| | 3.8 |
|
TheOur senior unsecured public notes are carried at the outstanding balance, net of unamortized bond discount 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 asSee Debt and Lines of the end of the reporting period. The industrial revenue bond is a tax-exempt, variable-rate instrument that resetsCredit footnote for further details on a weekly basis; therefore, the Company estimates that the face amount of the bond approximates fair value as of August 31, 2018 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 estimated based on discounted future cash flows using rates currently available for debt of similar terms and maturity (Level 2).our long-term borrowings.
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.
Note 6 — Leases
We lease property and equipment under operating lease arrangements, most of which relate to distribution centers and manufacturing facilities in the U.S., Mexico, and Canada. We include both the contractual term as well as any renewal option that we are reasonably certain to exercise in the determination of our lease terms. For leases with a term of greater than 12 months, we value lease liabilities as the present value of the lease payments over the related term. Related assets are equal to the calculated lease liabilities adjusted for incentives and other items as prescribed by ASC Topic 842, Leases (“ASC 842”). We apply the short-term lease exception to leases with a term of 12 months or less and exclude such leases from our Consolidated Balance Sheets. Payments related to these short-term leases are expensed on a straight-line basis over the lease term and reflected as a component of lease cost within our Consolidated Statements of Comprehensive Income. Lease payments generally consist of fixed amounts, and variable amounts based on a market rate or an index are not material to our consolidated lease cost. We have elected to use the practical expedient present in ASC 842 to not separate lease and non-lease
|
| |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
components for all significant underlying asset classes and instead account for them together as a single lease component in the measurement of our lease liabilities.
6. PensionGenerally, the rate implicit in our leases is not readily determinable. Therefore, we discount future lease payments using our estimated incremental borrowing rate at lease commencement. We determine this rate based on a credit-adjusted risk-free rate, which approximates a secured rate over the lease term. The weighted average discount rate for operating leases was 2% as of August 31, 2021 and Defined Contribution Plans
Company-sponsored Pension Plans
The Company has 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 makes 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.2020.
The following tables reflecttable presents the statusfuture undiscounted payments due on our operating lease liabilities as well as a reconciliation of those payments to our operating lease liabilities recorded as of the Company’s domestic (U.S.-based) and international pension plans at August 31, 2018 and 2017date presented (in millions):
| | | | | | | | | | |
| | August 31, |
| Fiscal year | | 2021 | | |
| 2022 | | $ | 16.8 | | | |
| 2023 | | 14.3 | | | |
| 2024 | | 11.1 | | | |
| 2025 | | 9.4 | | | |
| 2026 | | 5.5 | | | |
| Thereafter | | 8.1 | | | |
| Total undiscounted lease payments | | 65.2 | | | |
| Less: Discount due to interest | | (2.6) | | | |
| Present value of lease liabilities | | $ | 62.6 | | | |
|
| | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | August 31, | | August 31, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| Change in benefit obligation: | |
| | |
| | |
| | |
|
| Benefit obligation at beginning of year | $ | 215.5 |
| | $ | 223.0 |
| | $ | 53.5 |
| | $ | 57.3 |
|
| Service cost | 2.7 |
| | 3.5 |
| | 0.2 |
| | 0.2 |
|
| Interest cost | 7.3 |
| | 6.9 |
| | 1.3 |
| | 1.1 |
|
| Actuarial gain | (14.3 | ) | | (10.2 | ) | | (4.5 | ) | | (3.2 | ) |
| Benefits paid | (8.0 | ) | | (7.7 | ) | | (5.5 | ) | | (1.0 | ) |
| Other | — |
| | — |
| | 0.5 |
| | (0.9 | ) |
| Benefit obligation at end of year | 203.2 |
| | 215.5 |
| | 45.5 |
| | 53.5 |
|
| Change in plan assets: | |
| | |
| | |
| | |
|
| Fair value of plan assets at beginning of year | $ | 136.8 |
| | $ | 128.8 |
| | $ | 34.1 |
| | $ | 30.3 |
|
| Actual return on plan assets | 11.3 |
| | 12.1 |
| | 0.9 |
| | 4.1 |
|
| Employer contributions | 9.3 |
| | 3.6 |
| | 1.2 |
| | 1.0 |
|
| Benefits paid | (8.0 | ) | | (7.7 | ) | | (5.5 | ) | | (1.0 | ) |
| Other | — |
| | — |
| | 0.2 |
| | (0.3 | ) |
| Fair value of plan assets at end of year | 149.4 |
| | 136.8 |
| | 30.9 |
| | 34.1 |
|
| Funded status at the end of year | $ | (53.8 | ) | | $ | (78.7 | ) | | $ | (14.6 | ) | | $ | (19.4 | ) |
| Amounts recognized in the consolidated balance sheets consist of: | |
| | |
| | |
| | |
|
| Non-current assets | $ | 1.6 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Current liabilities | (5.3 | ) | | (1.2 | ) | | (0.1 | ) | | — |
|
| Non-current liabilities | (50.1 | ) | | (77.5 | ) | | (14.5 | ) | | (19.4 | ) |
| Net amount recognized in Consolidated Balance Sheets | $ | (53.8 | ) | | $ | (78.7 | ) | | $ | (14.6 | ) | | $ | (19.4 | ) |
| Accumulated benefit obligation | $ | 202.7 |
| | $ | 215.3 |
| | $ | 45.5 |
| | $ | 53.5 |
|
| Pre-tax amounts in accumulated other comprehensive income: | |
| | |
| | |
| | |
|
| Prior service cost | $ | (4.6 | ) | | $ | (7.7 | ) | | $ | — |
| | $ | — |
|
| Net actuarial loss | (58.8 | ) | | (78.7 | ) | | (12.9 | ) | | (18.2 | ) |
| Amounts in accumulated other comprehensive income | $ | (63.4 | ) | | $ | (86.4 | ) | | $ | (12.9 | ) | | $ | (18.2 | ) |
| Pensions plans in which benefit obligation exceeds plan assets: | | | | | | | |
| Projected benefit obligation | $ | 119.2 |
| | $ | 215.5 |
| | $ | 45.5 |
| | $ | 53.5 |
|
| Accumulated benefit obligation | 118.7 |
| | 215.3 |
| | 45.5 |
| | 53.5 |
|
| Plan assets | 63.8 |
| | 136.8 |
| | 30.9 |
| | 34.1 |
|
| 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 | $ | 3.1 |
| | $ | 3.1 |
| | $ | — |
| | $ | — |
|
| Net actuarial loss | $ | 2.9 |
| | $ | 4.5 |
| | $ | 1.5 |
| | $ | 2.2 |
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Net periodic pensionLease cost is allocated between recorded within Cost of products soldand or Selling, distribution, and administrative expensesin the Consolidated Statements of Comprehensive Incomebased on the natureprimary use of the employee's other services. Componentsrelated right of net periodic pensionuse (“ROU”) asset. The components of total lease cost forwere as follows during the fiscal yearsperiods presented (in millions):
| | | | | | | | | | | |
| Year Ended August 31, |
| 2021 | | 2020 |
| Operating lease cost | $ | 18.3 | | | $ | 18.1 | |
| Variable lease cost | 2.0 | | | 2.3 | |
| Short-term lease cost | 2.2 | | | 2.8 | |
| Total lease cost | $ | 22.5 | | | $ | 23.2 | |
Prior to the adoption of ASC 842, we recognized rent expense of $22.6 million during the year ended August 31, 2018, 2017,2019.
Cash paid for operating lease liabilities during the year ended August 31, 2021 and 2016 included2020 was $26.2 million and $18.7 million, respectively. ROU assets obtained in exchange for lease liabilities, including those obtained from recent acquisitions, during the following (in millions):year ended August 31, 2021 and 2020 were $12.9 million and $27.2 million, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| Service cost | $ | 2.7 |
| | $ | 3.5 |
| | $ | 3.6 |
| | $ | 0.2 |
| | $ | 0.2 |
| | $ | 0.1 |
|
| Interest cost | 7.3 |
| | 6.9 |
| | 8.0 |
| | 1.3 |
| | 1.1 |
| | 1.7 |
|
| Expected return on plan assets | (10.2 | ) | | (9.4 | ) | | (9.2 | ) | | (2.2 | ) | | (1.9 | ) | | (1.9 | ) |
| Amortization of prior service cost | 3.1 |
| | 3.1 |
| | 3.1 |
| | — |
| | — |
| | — |
|
| Recognized actuarial loss | 4.5 |
| | 5.3 |
| | 3.0 |
| | 2.3 |
| | 3.6 |
| | 1.9 |
|
| Net periodic pension cost | $ | 7.4 |
| | $ | 9.4 |
| | $ | 8.5 |
| | $ | 1.6 |
| | $ | 3.0 |
| | $ | 1.8 |
|
Weighted average assumptions used in computing the benefit obligation are as follows:
|
| | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | 2018 | | 2017 | | 2018 | | 2017 |
| Discount rate | 3.9 | % | | 3.5 | % | | 2.9 | % | | 2.5 | % |
| Rate of compensation increase | 5.5 | % | | 5.5 | % | | 3.1 | % | | 3.2 | % |
Weighted average assumptions used in computing net periodic pension cost are as follows:
|
| | | | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| Discount rate | 3.5 | % | | 3.2 | % | | 4.3 | % | | 2.5 | % | | 2.1 | % | | 2.1 | % |
| Expected return on plan assets | 7.5 | % | | 7.5 | % | | 7.5 | % | | 6.5 | % | | 6.5 | % | | 6.5 | % |
| Rate of compensation increase | 5.5 | % | | 5.5 | % | | 5.5 | % | | 3.1 | % | | 3.2 | % | | 2.8 | % |
It is the Company’s 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’s estimated benefit payments availableWe do not have material leases that have not yet commenced as of the measurement date. The Company uses a publicly published yield curve to assistAugust 31, 2021 that create significant rights and obligations.
We have subleased certain properties. Lease income from these subleases is recognized in the developmentConsolidated Statements of its discount rates. The Company estimates that each 100 basis point increaseComprehensive Income as it is earned and is not material to our consolidated results of operations. We do not have any other significant transactions in which we are the discount rate would reduce net periodic pension cost approximately $1.4 million and approximately $0.6 million for the domestic plans and international plans, respectively. The expected return on plan assets is derived from a periodic study of long-term historical rates of return on the various asset classes included in the Company’s targeted pension plan asset allocation. The Company estimates that each 100 basis point reduction in the expected return on plan assets would result in additional net periodic pension cost of $1.5 million and $0.3 million for domestic plans and international plans, respectively. The rate of compensation increase is also evaluated and adjusted by the Company, if necessary, annually.lessor.
The Company’s 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 conducts 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 2018, the U.S. targeted asset allocation2020, we committed to plans to vacate certain leased properties, which indicated that it was 55% equity securities, 40% fixed income securities, and 5% real estate securities. The Company’s 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 2018, the international asset target allocation approximated 62% equity securities, 23% fixed income securities, and 15% multi-strategy funds.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The Company’s pension plan asset allocation at August 31, 2018 and 2017 by asset category is as follows:
|
| | | | | | | | | | | |
| | % of Plan Assets |
| | Domestic Plans | | International Plans |
| | 2018 | | 2017 | | 2018 | | 2017 |
| Equity securities | 57.5 | % | | 58.1 | % | | 61.9 | % | | 63.9 | % |
| Fixed income securities | 37.8 | % | | 37.2 | % | | 25.5 | % | | 23.2 | % |
| Multi-strategy investments | — | % | | — | % | | 12.6 | % | | 8.2 | % |
| Real estate | 4.7 | % | | 4.7 | % | | — | % | | 4.7 | % |
| Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
The Company’s pension plan assets are stated at fair value based 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 fundsmore likely than not that are registered with the Securities and Exchange Commission 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 byrelated ROU assets were below their carrying values. We assessed the fund lessrecoverability of these assets using an undiscounted cash flow model and concluded that 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 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 thecarrying values of the underlying holdings (i.e. significant observable inputs) but doassets were 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 international plans divested from the real estate fund during the current fiscal year, which was previously valuedfully recoverable. We recorded impairment charges of $7.4 million related to these assets using NAV as a practical expedient and was excluded from the fair value hierarchy.
|
| |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
discounted cash flow model to estimate their fair values. The following tables presentrecoverability and impairment tests required significant assumptions including estimated future cash flows, the fair valueidentification of the domestic pension plan assets by major category as of August 31, 2018 and 2017 (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 |
| | 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 |
| | |
| | |
| | |
|
|
| | | | | | | | | | | | | | | |
| | | | 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, 2017 | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets included in the fair value hierarchy: | | | | | | | |
| Mutual funds: | |
| | |
| | |
| | |
|
| Domestic large cap equity fund | $ | 43.4 |
| | $ | 43.4 |
| | $ | — |
| | $ | — |
|
| Foreign equity fund | 21.5 |
| | 21.5 |
| | — |
| | — |
|
| Collective trust: Domestic small cap equities | 14.6 |
| | — |
| | 14.6 |
| | — |
|
| Short-term fixed income investments | 4.7 |
| | 4.7 |
| | — |
| | — |
|
| Total assets in the fair value hierarchy | 84.2 |
|
|
|
|
|
|
|
|
|
|
| Assets calculated at net asset value: | | | | | | | |
| Fixed-income investments | 46.2 |
| | | | | | |
| Real estate fund | 6.4 |
| | | | | | |
| Total assets at net asset value | 52.6 |
| | | | | | |
| Total assets at fair value | $ | 136.8 |
| | |
| | |
| | |
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following tables present the fair value of the international pension plan assets by major category as of August 31, 2018 and 2017 (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 |
| | 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 |
| | August 31, 2017 | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets included in the fair value hierarchy: | | | | | | | |
| Equity securities | $ | 21.8 |
| | $ | — |
| | $ | 21.8 |
| | $ | — |
|
| Short-term fixed income investments | 0.2 |
| | 0.2 |
| | — |
| | — |
|
| Multi-strategy investments | 2.8 |
| | — |
| | 2.8 |
| | — |
|
| Fixed-income investments | 7.7 |
| | — |
| | 7.7 |
| | — |
|
| Total assets in the fair value hierarchy | 32.5 |
| | | | | | |
| Assets calculated at net asset value: | | | | | | | |
| Real estate fund | 1.6 |
| | | | | | |
| Total assets at net asset value | 1.6 |
| | | | | | |
| Total fair value of assets | $ | 34.1 |
| | |
| | |
| | |
|
The Company expects to contribute approximately $5.3 million and $1.1 million during fiscal 2019 to its domestic and international defined benefit plans, respectively. These amounts are based on the total contributions required during fiscal 2019 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 (in millions):
|
| | | | | | | |
| | Domestic Plans | | International Plans |
| 2019 | $ | 12.6 |
| | $ | 0.8 |
|
| 2020 | 9.1 |
| | 0.9 |
|
| 2021 | 9.8 |
| | 0.9 |
|
| 2022 | 10.3 |
| | 1.0 |
|
| 2023 | 17.3 |
| | 1.0 |
|
| 2024-2028 | 70.8 |
| | 5.6 |
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Multi-employer Pension Plans
The Company contributes to two multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of its union-represented employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
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’s contributions to these plans were $0.5 million, $0.5 million, and $0.7 million for the years ended August 31, 2018, 2017, and 2016, 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 million. During fiscal 2017, the Company early settled this withdrawal liability.
Defined Contribution Plans
The Company also has defined contribution plans to which both employeeswithin each asset group, and the Company make contributions. The cost to the Companydetermination of appropriate discount rates. No impairments were recorded for these plans was $8.0 million, $8.0 million, and $6.9 million for the years ended August 31, 2018, 2017, and 2016, respectively. Employer matching amounts are allocatedleases in accordance with the participants’ investment elections for elective deferrals. At August 31, 2018, assets of the domestic defined contribution plans included shares of the Company’s common stock with a market value of approximately $9.9 million, which represented approximately 2.6% of the total fair market value of the assets in the Company’s domestic defined contribution plans.fiscal 2021 or fiscal 2019.
7.Note 7 — Debt and Lines of Credit
Debt
The Company’sOur debt is carried at August 31, 2018the outstanding balance net of any related unamortized discounts and 2017deferred costs and consisted of the following as of the dates presented (in millions):
| | | | | | | | | | | |
| | August 31, |
| | 2021 | | 2020 |
| Senior unsecured public notes due December 2030, principal | $ | 500.0 | | | $ | — | |
| Senior unsecured public notes due December 2030, unamortized discount and deferred costs | (5.7) | | | — | |
| Borrowings under Term Loan Facility | — | | | 395.0 | |
| Industrial revenue bond due June 2021 | — | | | 4.0 | |
| Bank loans | — | | | 2.1 | |
| Total debt | $ | 494.3 | | | $ | 401.1 | |
|
| | | | | | | |
| | August 31, |
| | 2018 | | 2017 |
| Senior unsecured public notes due December 2019, principal | $ | 350.0 |
| | $ | 350.0 |
|
| Senior unsecured public notes due December 2019, unamortized discount and deferred costs | (0.5 | ) | | (0.9 | ) |
| Industrial revenue bond due June 2021 | 4.0 |
| | 4.0 |
|
| Bank loans | 3.3 |
| | 3.8 |
|
| Total debt outstanding, net of unamortized discount and deferred costs | $ | 356.8 |
| | $ | 356.9 |
|
FutureOur next scheduled future principal paymentspayment of long-term debt are $0.4is $500.0 million $350.4 million, $4.5 million, $0.4 million, $0.3 million, and $1.3 milliondue upon the maturity of the senior unsecured notes in fiscal 2019, 2020, 2021, 2022, 2023, and after 2023, respectively.December 2030.
Long-term Debt
On December 1, 2009, the Company announced a private offering by ABL,November 10, 2020, Acuity Brands’ wholly-owned principal operating subsidiary, of $350.0Brands Lighting, Inc. issued $500.0 million aggregate principal amount of 2.150% senior unsecured notes due in fiscal 2020December 15, 2030 (the “Unsecured Notes”). The Unsecured Notes bear interest at a rate of 2.150% per annum and were issued at a price equal to 99.737% of their face value. Interest on the Unsecured Notes is paid semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2021. The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands, Inc. and ABL IP Holding LLC, (“ABL IP 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 for a term of 10 years. Interest on the Unsecured Notes is payable semi-annually on June 15 and December 15.Inc. Additionally, the Company capitalized $3.1we recorded $4.8 million of deferred issuance costs related to the Unsecured Notes thatas a direct deduction from the face amount of the Unsecured Notes. These issuance costs are being amortized over the 10-year term of the Unsecured Notes.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In accordance withAugust 31, 2021, the registration rights agreement by and between ABL and the Guarantors and the initial purchasersbalance of the Unsecured Notes ABLnet of unamortized discount and the Guarantors filed a registration statement with the Securities and Exchange Commission (“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.deferred issuance costs was $494.3 million.
TheAdditionally, we had $4.0 million of tax-exempt industrial revenue bond matures in June 2021. The interest rate on the $4.0bonds and $2.1 million bond was approximately 1.7% at August 31, 2018 and 0.9% at August 31, 2017.
The Company also had $3.3 million outstanding under fixed-rate bank loans. These loans have interest rates between 0.8%outstanding as of August 31, 2020. We repaid the industrial revenue bonds at maturity on June 1, 2021, and 2.0% and mature over 7we repaid the bank loans in the second quarter of fiscal 2021, prior to 12 years, subject to monthly or quarterly repayment schedules.their maturity date.
Lines of Credit
On June 29, 2018, the Companywe entered into a credit agreement (“Credit Agreement”) with a syndicate of banks that provides the Companyus with a $400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) and provided us with a $400.0 million unsecured delayed draw term loan facility (“Term Loan Facility”). The CompanyFacility. We had no$395.0 million in borrowings outstanding under the current Revolving CreditTerm Loan Facility as of August 31, 2018. Additionally,2020, which we fully repaid during the Company hadfirst quarter of fiscal 2021 using the proceeds from the Unsecured Notes. The Credit Agreement allows for no future borrowings outstanding under its previous credit facility as of August 31, 2017.the Term Loan Facility. The Credit Agreement expires in June 2023.
Generally, amounts outstanding under the Revolving Credit Facility allow for borrowings to bear interest at either the Eurocurrency Rate or the base rate at the Company'sour 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 LIBOR for the applicable currency plus an applicable margin. The Eurocurrency applicable margin is based on the Company’sour 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 the Company’sour leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.0%0.000% to 0.375%. The Term Loan Facility allows for borrowings to be drawn over a one-year period ending June 29, 2019, utilizing up to four separate installments, which
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We 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 the Company’s 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 the Company’s 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 the Company’s leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.0% to 0.25%.
The Company is 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 the Company’sour leverage ratio as defined in the Credit Agreement. The facility fee ranges from 0.125% to 0.250% of the aggregate $800$400.0 million remaining 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, tax, depreciation, and amortization (“EBITDA”), as such terms are defined in the Credit Agreement. These ratios are computed at the end of each fiscal quarter for the most recent 12-month period. The Credit Agreement generally allows for a Minimum Interest Expense Coverage Ratio of 2.50 and a Maximum Leverage Ratio of 3.50, subject to certain conditions, as such terms are defined in the Credit Agreement.
The Company wasWe were in compliance with all financial covenants under the Credit Agreement as of August 31, 2018.2021. As of August 31, 2018, the Company2021, we had outstanding letters of credit totaling $10.2$4.1 million, primarily for securing collateral requirements under the Company'sour casualty insurance programs and for providing credit support for the Company’s industrial revenue bond (not an outstanding amount under the Revolving Credit Facility).programs. At August 31, 2018, the Company2021, we had additional borrowing capacity under the Credit Agreement of $794.7$395.9 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 $5.3$4.1 million issued under the Revolving Credit Facility.
None of the Company’sour existing debt instruments include provisions that would require an acceleration of repayments based solely on changes in the Company’sour credit ratings.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
8. Common Stock and Related Matters
Common Stock
Changes in common stock for the years ended August 31, 2018, 2017, and 2016 were as follows (amounts and shares in millions):
|
| | | | | | |
| | Common Stock |
| | Shares | | Amount |
| | | | (At par) |
| Balance at August 31, 2015 | 53.0 |
| | $ | 0.5 |
|
| Issuance of restricted stock grants, net of cancellations | 0.1 |
| | — |
|
| Stock options exercised | 0.3 |
| | — |
|
| 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 |
|
___________________________
* Represents shares of less than 0.1 million.
As of August 31, 2018 and 2017, the Company had 13.7 million and 11.7 million of repurchased shares recorded as treasury stock at an original repurchase cost of $1.1 billion and $776.1 million, respectively.
In March 2018, the Board of Directors (the “Board”) authorized the repurchase of up to six million shares of the Company's common stock. As of August 31, 2018, 0.8 million shares had been purchased under this authorization. Additionally, the Company repurchased 1.2 million shares during the current year under previous authorizations from the Board, resulting in total repurchases during fiscal 2018 of two million shares.
Preferred Stock
The Company has 50 million shares of preferred stock authorized. No shares of preferred stock were issued in fiscal 2018 or 2017, and no shares of preferred stock are outstanding.
Earnings per Share
Prior to fiscal 2017, basic earnings per share was computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding, which was modified to include the effects of all participating securities during the period, as prescribed by the two-class method under ASC Topic 260, Earnings Per Share (“ASC 260”). Participating securities included unvested share-based payment awards with a right to receive nonforfeitable dividends. The equity plan approved by stockholders in January 2013 changed the dividend provisions, causing share-based payment awards to lose the right to receive nonforfeitable dividends. Due to this change, any shares granted after January 2013 were not participating securities as prescribed by the two-class method under ASC 260 and were accounted for in the diluted earnings per share calculation described below. Income attributable to participating securities was $0.4 million for the year ended August 31, 2016.
The impact of participating securities was not material for the year ended August 31, 2017, and there were no participating securities outstanding during the year ended August 31, 2018. Therefore, basic earnings per share for these periods is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding for these periods. Diluted earnings per share is computed similarly but reflects the potential dilution that would occur if dilutive options were exercised, all unvested share-based payment awards were vested, 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, 2018, 2017, and 2016 (in millions, except per share data):
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2018 | | 2017 | | 2016 |
| Net income | $ | 349.6 |
| | $ | 321.7 |
| | $ | 290.8 |
|
| Basic weighted average shares outstanding | 40.9 |
| | 43.1 |
| | 43.5 |
|
| Common stock equivalents | 0.1 |
| | 0.2 |
| | 0.3 |
|
| Diluted weighted average shares outstanding | 41.0 |
| | 43.3 |
| | 43.8 |
|
| Basic earnings per share | $ | 8.54 |
| | $ | 7.46 |
| | $ | 6.67 |
|
| Diluted earnings per share | $ | 8.52 |
| | $ | 7.43 |
| | $ | 6.63 |
|
Stock options of approximately 179,000, 117,000, and 40,000 were excluded from the diluted earnings per share calculation for the years ended August 31, 2018, 2017, and 2016, respectively, as the effect of inclusion would have been antidilutive. Restricted stock shares of approximately 227,000, 99,000, and 4,000, were excluded from the diluted earnings per share calculation for the years ended August 31, 2018, 2017, and 2016, respectively, as the effect of inclusion would have been antidilutive.
9. Share-based Payments
Omnibus Stock Compensation Incentive and Directors’ Equity Plans
In January 2013, the Company's stockholders approved the Acuity Brands, Inc. Omnibus Stock Compensation Incentive Plan, which reserved 2.3 million shares for issuance. In January 2018, the Company’s stockholders approved the Amended and Restated Acuity Brands, Inc. 2012 Omnibus Stock Compensation Incentive Plan (“Amended 2012 Plan”), which, among other things, authorized up to an additional 380,000 shares for issuance resulting in an aggregate of 2.7 million of shares authorized for issuance pursuant to the Amended 2012 Plan. The Compensation Committee of the Board is authorized to issue awards consisting of incentive and non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock awards, performance stock units, stock bonus awards, and cash-based awards to eligible employees, non-employee directors, and outside consultants.
Shares available for grant under the Amended 2012 Plan, including those previously issued and outstanding prior to the amendment, were approximately 1.6 million, 1.4 million, and 1.6 million at August 31, 2018, 2017, and 2016, respectively. Any shares subject to an award under the Amended 2012 Plan that are forfeited, canceled, expire or that are settled for cash will be available for future grant under the Amended 2012 Plan.
Restricted Stock Awards
As of August 31, 2018, the Company had approximately 353,000 shares outstanding of restricted stock to officers, directors, and other key employees under the Amended 2012 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 $27.9 million, $27.2 million, and $23.7 million in fiscal 2018, 2017, and 2016, respectively.
Activity related to restricted stock awards during the fiscal year ended August 31, 2018 was as follows (in millions, except per share data):
|
| | | | | |
| | Number of Shares | | Weighted Average Grant Date Fair Value Per Share |
| Outstanding at August 31, 2017 | 0.4 | | $ | 197.41 |
|
| Granted | 0.2 | | $ | 154.95 |
|
| Vested | (0.2) | | $ | 177.79 |
|
| Outstanding at August 31, 2018 | 0.4 | | $ | 186.63 |
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
As of August 31, 2018, there was $44.5 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.6 years. The total weighted average fair value of shares vested during the years ended August 31, 2018, 2017, and 2016, was approximately $26.6 million, $24.8 million, and $18.8 million, respectively.
Stock Options
As of August 31, 2018, the Company had approximately 343,000 options outstanding to officers and other key employees under the Amended 2012 Plan. Options issued under the Amended 2012 Plan are generally granted with an exercise price equal to the fair market value of the Company’s stock on the date of grant (but never less than the fair market value on the grant date) and expire 10 years from the date of grant. These options generally vest and become exercisable over a three-year period. Compensation expense recognized related to the awards under the current and prior equity incentive plans was $3.1 million, $3.6 million, and $2.9 million in fiscal 2018, 2017, and 2016, respectively.
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’s 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 Company 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:
|
| | | | | |
| | 2018 | | 2017 | | 2016 |
| Dividend yield | 0.3% | | 0.2% | | 0.3% |
| Expected volatility | 30.9% | | 28.5% | | 30.7% |
| Risk-free interest rate | 2.0% | | 1.3% | | 1.4% |
| Expected life of options | 4 years | | 4 years | | 4 years |
| Weighted-average fair value of options | $41.87 | | $57.40 | | $52.83 |
Stock option activity during the years ended August 31, 2018, 2017, and 2016 was as follows:
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | |
| | Outstanding | | Exercisable |
| | Number of Shares (in millions) | | Weighted Average Exercise Price | | Number of Shares (in millions) | | Weighted Average Exercise Price |
| 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 |
| 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 |
| Range of option exercise prices: | | | | | | | |
| $40.01 - $100.00 (average life - 4.1 years) | 0.1 | | $62.25 | | 0.1 | | $62.25 |
| $100.01 - $160.00 (average life - 6.7 years) | 0.1 | | $131.42 | | 0.1 | | $120.77 |
| $160.01 - $210.00 (average life - 7.2 years) | 0.1 | | $207.80 | | — | * | $207.80 |
| $210.01 - $239.76 (average life - 8.1 years) | — | * | $239.76 | | — | * | $239.76 |
___________________________
* Represents shares of less than 0.1 million.
The total intrinsic value of options exercised during the years ended August 31, 2018, 2017, and 2016 was $0.5 million, $1.3 million, and $50.0 million, respectively. As of August 31, 2018, the total intrinsic value of options outstanding was $9.1 million, the total intrinsic value of options expected to vest was $9.1 million, and the total intrinsic value of options exercisable was $9.1 million. As of August 31, 2018, there was $2.9 million of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted-average period of approximately 1.2 years.
Employee Deferred Share Units
The Company previously allowed employees to defer a portion of restricted stock awards granted in fiscal 2003 and fiscal 2004 into the 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, 2018, approximately 9,000 fully vested share units remain deferred, but undistributed, under the Amended 2012 Plan. There was no compensation expense related to these share units during fiscal years 2018, 2017, and 2016.
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 in 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 reserved for issuance under the 2011 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. Total shares available for issuance under both plans were approximately 370,000 at August 31, 2018, and 390,000 at August 31, 2017 and 400,000 at August 31, 2016. As of August 31, 2018, approximately 122,000 share units were deferred, but undistributed, under the 2006 Plan and the 2011 Plan. Compensation expense recognized related to the share units under these plans was $1.3 million, $1.2 million, and $1.1 million in fiscal 2018, 2017, and 2016, respectively.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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’s common stock reserved for purchase under the plan, of which approximately 1.0 million shares remain available as of August 31, 2018. Employees may participate at their discretion.
10.Note 8 — Commitments and Contingencies
Self-Insurance
The Company'sOur policy is 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, actual claims, 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
as necessary.
Leases
The Company leasesWe lease certain of itsour buildings and equipment under noncancelablenoncancellable lease agreements. Future minimum annual lease payments under noncancelable leases are $16.9 million, $14.0 million, $11.4 million, $8.0 million, $5.7 million, and $20.0 million Please refer to the Leases footnote of the Notes to Consolidated Financial Statements for fiscal 2019, 2020, 2021, 2022, 2023, and after 2023, respectively.
Total rent expense was $22.3 million, $20.0 million, and $17.6 million in fiscal 2018, 2017, and 2016, respectively.
Purchase Obligations
The Company incurs purchase obligations in the ordinary course of business that are enforceable and legally binding. Obligations for years subsequent to August 31, 2018 include $236.7 million, $2.5 million, $2.2 million, and $2.4 million in fiscal 2019, 2020, 2021, and 2022, respectively. As of August 31, 2018, the Company had no purchase obligations extending beyond August 31, 2023.additional information.
Collective Bargaining Agreements
Approximately 72%66% of the Company’sour total work force is covered by collective bargaining agreements. Collective bargaining agreements representing approximately 63%57% of the Company’sour work force will expire within one year, primarily due to annual negotiations with unionsof union contracts in Mexico.
Securities Class Action
On October 5, 2021, the parties to the shareholder class action litigation previously disclosed (and further described below) executed a term sheet for settlement of the litigation, subject to documentation of the settlement and
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
approval of the District Court after notice to class members. If the settlement is approved, we expect that the agreed-upon settlement payment of $15.8 million will be funded entirely by applicable Directors and Officers liability insurance. As such, we do not anticipate a significant net loss or cash outflow as a result of the settlement of this matter.
The case was originally filed on January 3, 2018, a shareholder filed a class action complaint in the United States District Court for the District of Delaware against the Company and certain of itsour officers on behalf of all persons who purchased or otherwise acquired the Company’sour 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 the Company’sour 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
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 the Company’sour common stock between October 7, 2015 and April 3, 2017 and alleges that the Companywe and certain of its current officers and oneour former executiveofficers/executives 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 the Company’sour products and (ii) overstated the Company’sour ability to achieve profitable sales growth. The plaintiffs seek class certification, unspecified monetary damages, costs, and attorneys’ fees. The Company disputesWe dispute the allegations in the complaints and intends to movecomplaints. 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 vigorously defendproceed to discovery. The Eleventh Circuit Court of Appeals granted the Company permission to file an interlocutory appeal of the District Court’s class certification order, and the briefing of that appeal has been completed. On October 7, 2021, the Eleventh Circuit Court of Appeals entered an order holding the appeal from the class certification order in abeyance pending a decision from the District Court concerning approval of the proposed settlement.
Shareholder Derivative Complaint
On October 1, 2021, certain alleged shareholders of the Company filed a putative derivative complaint in the United States District Court for the Northern District of Georgia asserting claims against 3 of the individuals named as defendants in the above securities action for breach of fiduciary duty and certain other claims arising out of the alleged facts and circumstances upon which the claims in the above securities class action are based (the “Derivative Complaint”). The Company is named as a nominal defendant, and the plaintiffs seek on behalf of the Company unspecified damages from the individual defendants and other relief. Prior to filing the Derivative Complaint, the derivative plaintiffs sent letters to the Company’s Board of Directors (the “Board”) demanding that the Company investigate and pursue substantially the same claims against the claims. individual defendants that are asserted in the Derivative Complaint. The Company’s Board formed a demand evaluation committee consisting of independent directors to investigate these matters and make a recommendation to the Board regarding the best interests of the Company in connection therewith. The committee’s work is ongoing.
Estimating an amount or range of possible losses or gains 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 factualevidential and legal issues have not been resolved. For these reasons, the Company iswe are currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or gains or a range of possible losses or gains resulting from the matters described above. The Company is 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 liability 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 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 establishes reservesWe establish estimated liabilities 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 reservedaccrued for such claims. However, the Companywe cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
lower than the amounts reserved.accrued amounts.
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 establishes reservesWe establish accruals 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 reservedaccrued 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 Company for specific unrecognized liabilities of the acquiree in existence as of the date of acquisition. For some acquisitions of businesses, the Company acts 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 Company may be reimbursed through the holdback funds are usually uncertain as of the date of the change of control. In certain circumstances, the Company is 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 does not believe that any amounts it is likely to be required to pay under these acquisition-related liabilities, including net holdback funds, will be material to the Company’s financial position, results of operations, or cash flow.
Product Warranty and Recall Costs
The Company'sOur products generally have a standard warranty term of five years. The Company recordsyears that assure our products comply with agreed upon specifications. We record an allowanceaccrual 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. In certain limited cases, the Company has warranty arrangements for terms that exceed the standard term. Given that these longer-term warranties are not included in the Company’s historical experience, the Company utilizes estimated failure rates from industry sources to determine the potential future warranty cost. 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 allowancesincreases in the accrual may be required, which could have a material adverse impact on the Company’sour results of operations and cash flow.flows.
ReservesEstimated liabilities for product warranty and recall costs are included in Other accrued liabilities andor Other long-term liabilities on the Consolidated Balance Sheets.based upon when we expect to settle the incurred warranty. The following table summarizes changes in the reservesestimated liabilities for product warranty and recall costs during the fiscal years ended August 31, 2018, 2017, and 2016 are summarized as followsperiods presented (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended August 31, |
| 2021 | | 2020 | | 2019 |
| Beginning balance | $ | 16.1 | | | $ | 11.5 | | | $ | 27.3 | |
| Warranty and recall costs | 32.3 | | | 32.0 | | | 18.7 | |
| Payments and other deductions | (28.4) | | | (27.5) | | | (19.7) | |
| Acquired warranty and recall liabilities | 0.3 | | | 0.1 | | | — | |
ASC 606 adjustments (1) | — | | | — | | | (14.8) | |
| Ending balance | $ | 20.3 | | | $ | 16.1 | | | $ | 11.5 | |
(1) Certain service-type warranties accounted for as contingent liabilities prior to the adoption of ASC 606 (defined below) are now reflected as contract liabilities effective September 1, 2018.
Note 9 — Segment Information
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2018 | | 2017 | | 2016 |
| Beginning balance | $ | 22.0 |
| | $ | 15.5 |
| | $ | 9.6 |
|
| Warranty and recall costs | 32.4 |
| | 39.8 |
| | 25.7 |
|
| Payments and other deductions | (27.7 | ) | | (33.3 | ) | | (20.8 | ) |
| Acquired warranty and recall liabilities | 0.6 |
| | — |
| | 1.0 |
|
| Ending balance | $ | 27.3 |
| | $ | 22.0 |
| | $ | 15.5 |
|
The Company has received reportsDuring the third quarter of fiscal 2021, we completed a limited numberrealignment of alleged thermal events involving certain configurations of its nPP16 family of power packs, some of which allegedly involved breaches of the power pack’s plastic housing. None of these events have resulted in any injuries,our operations and there has been only one report of minimal property damage beyond the power pack housing. The Company’s testing has identified that these types of events do not originatestructure to better support our business strategy. As a result, beginning in the power pack device itself but rather occur when there is a faultthird quarter of fiscal 2021, we now report our financial results of operations in the field-connected load wiring that is external to
2 reportable segments, ABL and ISG, consistent with how our chief operating decision maker
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
currently evaluates operating results, assesses performance, and allocates resources within the Company. We have recast historical information to conform to the current segment structure.
The accounting policies of our reportable segments are the power pack. Althoughsame as those described in the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements within our Form 10-K. Corporate expenses that are primarily administrative in function and benefit the Company doeson an entity-wide basis are not believeallocated to our segments. These include expenses related to governance, policy setting, compliance, and certain other shared services functions. Additionally, we do not allocate net interest expense, miscellaneous expense, special charges, or assets to our segments. Accordingly, this information is not used by the deviceschief operating decision maker to make operating decisions and assess performance and is therefore excluded from our disclosures.
The following table presents financial information by operating segment for the periods presented (in millions):
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| ABL | | ISG | | Corporate | | Eliminations(1) | | Total |
| Year Ended August 31, 2021: | | | | | | | | | |
| Net sales | $ | 3,287.3 | | | $ | 190.0 | | | $ | — | | | $ | (16.3) | | | $ | 3,461.0 | |
| Operating profit (loss) | 476.2 | | | 9.9 | | | (58.5) | | | — | | | 427.6 | |
| Depreciation and amortization | 84.3 | | | 14.7 | | | 1.1 | | | — | | | 100.1 | |
| | | | | | | | | |
| Year Ended August 31, 2020: | | | | | | | | | |
| Net sales | $ | 3,180.9 | | | $ | 157.0 | | | $ | — | | | $ | (11.6) | | | $ | 3,326.3 | |
| Operating profit (loss) | 425.8 | | | (3.9) | | | (68.0) | | | — | | | 353.9 | |
| Depreciation and amortization | 83.7 | | | 16.3 | | | 1.1 | | | — | | | 101.1 | |
| | | | | | | | | |
| Year Ended August 31, 2019: | | | | | | | | | |
| Net sales | $ | 3,548.4 | | | $ | 137.5 | | | $ | — | | | $ | (13.2) | | | $ | 3,672.7 | |
| Operating profit (loss) | 510.2 | | | (18.1) | | | (29.2) | | | — | | | 462.9 | |
| Depreciation and amortization | 72.6 | | | 14.6 | | | 1.1 | | | — | | | 88.3 | |
____________________________
(1) This column represents intersegment sales. Profit on these sales eliminates within gross profit on a consolidated basis.
The following table reconciles operating profit by segment to income before income taxes (in millions):
| | | | | | | | | | | | | | | | | | | |
| Year Ended August 31, | | |
| 2021 | | 2020 | | 2019 | | |
| Operating profit - ABL | $ | 476.2 | | | $ | 425.8 | | | $ | 510.2 | | | |
| Operating profit (loss) - ISG | 9.9 | | | (3.9) | | | (18.1) | | | |
| Unallocated corporate amounts | (58.5) | | | (68.0) | | | (29.2) | | | |
| Operating profit | 427.6 | | | 353.9 | | | 462.9 | | | |
| Interest expense, net | 23.2 | | | 23.3 | | | 33.3 | | | |
| Miscellaneous expense, net | 8.2 | | | 5.9 | | | 4.7 | | | |
| Income before income taxes | $ | 396.2 | | | $ | 324.7 | | | $ | 424.9 | | | |
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 10 — 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 goods and services and is recognized net of rebates, sales incentives, product returns, and discounts to customers. We allocate the expected consideration to be collected to each distinct performance obligation identified in a sale based on its standalone selling price. Sales and use taxes collected on behalf of governmental authorities are defectiveexcluded from revenues.
Payment is generally due and received within 60 days from the point of sale or that a recall is necessary, the Company has, out of an abundance of caution, reported the issueprior to the appropriate regulatory authorities,transfer of control of certain goods and itservices. No payment terms extend beyond one year, and we apply the practical expedient within ASC Topic 606 — Revenue from Contracts with Customers (“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 possiblerecognized, we record a refund liability for the expected value of future returns primarily based on historical experience, specific notification of pending returns, or contractual terms with the respective customers. Although historical product returns generally have been within expectations, there can be no assurance that such authorities may disagree with our conclusions. The Company doesfuture product returns will not believe the issue willexceed historical amounts. A significant increase in product returns could have a material adverse impact on our operating results in future periods.
Refund liabilities recorded under ASC 606 related to rights of return, cash discounts, and other miscellaneous credits to customers were $28.1 million and $31.0 million as of August 31, 2021 and August 31, 2020, respectively, and are reflected within Other accrued liabilities on the business, financial condition, cash flow, or resultsConsolidated Balance Sheets. Additionally, we record right of operationsreturn assets for products expected to be returned to our distribution centers, which are included within Prepayments and other current assets on the Consolidated Balance Sheets. Such assets totaled $6.4 million and $10.3 million as of August 31, 2021 and 2020, respectively.
We also maintain one-time and 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 expected 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 be settled based on the context of the Company. There canindividual 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 no assurance, however, that actual costs, penalties, or otherrecorded as reductions of revenue. Amounts due to our customers associated with these programs totaled $33.9 million and $27.7 million as of August 31, 2021 and 2020, respectively, and are reflected within Other accrued liabilities or damage on the Consolidated Balance Sheets.
Costs to obtain and fulfill contracts, such as sales commissions, are generally short-term in nature and are expensed as incurred.
Nature of Goods and Services
Products
Substantially all of the revenues for the periods presented were generated from short-term contracts with our customers to deliver only tangible goods such as luminaires, lighting controls, and controls for various building systems. 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 Company’s reputationcustomer’s delivery site.
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Professional Services
We collect fees associated with training, installation, and technical support services, primarily related to the issue willset up of our lighting and building technology solutions. We recognize revenue for these one-time services at the time the service is performed. 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. We allocate transaction price to our service-type warranties largely based on expectations of cost plus margin based on our estimate of future claims. These estimates are subject to a higher level of estimation uncertainty than other estimates, as we have less experience in costs in the extended 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 service 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 the 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 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 timing for products, professional services, and software as described above.
Contract Balances
Our rights related to collections from customers are unconditional and are reflected within Accounts receivable on the Consolidated Balance Sheets. We do not have a material adverse impact 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 consist of the following as of the dates presented (in millions):
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| August 31, |
| 2021 | | 2020 |
| Current deferred revenues | $ | 7.7 | | | $ | 5.4 | |
| Non-current deferred revenues | 56.7 | | | 53.6 | |
| | | |
Current deferred revenues primarily consist of software licenses as well as professional service and service-type warranty fees collected prior to performing the related service and are included within Other current liabilities on the business, financial condition, cash flow, or resultsConsolidated Balance Sheets. These services are expected to be performed within one year. Revenue earned from beginning contract balances during the year ended August 31, 2021 approximated the current deferred revenue balance at August 31, 2020.
Non-current deferred revenues primarily consist of operationslong-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.
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Unsatisfied performance obligations that do not represent contract liabilities are expected to be satisfied within one year from August 31, 2021 and consist primarily of orders for physical goods that have not yet been shipped.
Disaggregated Revenues
Our ABL segment's lighting and lighting controls 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. ISG sells predominantly to system integrators. The following table shows revenue from contracts with customers by sales channel and reconciles to our segment information for the periods presented (in millions):
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| Year Ended August 31, |
| 2021 | | 2020 | | 2019 |
| ABL: | | | | | |
| Independent sales network | $ | 2,400.5 | | | $ | 2,284.3 | | | $ | 2,397.6 | |
| Direct sales network | 358.1 | | | 329.0 | | | 383.3 | |
| Retail sales | 181.5 | | | 218.3 | | | 273.0 | |
| Corporate accounts | 168.7 | | | 191.8 | | | 312.8 | |
| Other | 178.5 | | | 157.5 | | | 181.7 | |
| Total ABL | 3,287.3 | | | 3,180.9 | | | 3,548.4 | |
| ISG | 190.0 | | | 157.0 | | | 137.5 | |
| Eliminations | (16.3) | | | (11.6) | | | (13.2) | |
| Total | $ | 3,461.0 | | | $ | 3,326.3 | | | $ | 3,672.7 | |
Note 11 — Share-based Payments
Omnibus Stock Compensation Incentive and Directors’ Equity Plans
In January 2018, our stockholders approved the Amended and Restated Acuity Brands, Inc. 2012 Omnibus Stock Compensation Incentive Plan (the “Stock Incentive Plan”), which, among other things, resulted in an aggregate of 2.7 million of shares authorized for issuance pursuant to the Stock Incentive Plan. The Compensation Committee of the Company.Board of Directors (the “Compensation Committee") is authorized to issue awards consisting of incentive and non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock awards, performance stock units, stock bonus awards, and cash-based awards to eligible employees, non-employee directors, and outside consultants.
Trade Compliance MattersShares available for grant under the Stock Incentive Plan, including those previously issued and outstanding prior to the amendment, were approximately 0.3 million, 0.7 million, and 1.4 million at August 31, 2021, 2020, and 2019, respectively. Any shares subject to an award under the Stock Incentive Plan that are forfeited, canceled, expired, or settled for cash will be available for future grant under the Stock Incentive Plan.
Restricted stock awards, performance stock awards, and director stock units representing certain deferrals into the Director Deferred Compensation Plan are valued based on the fair value of our common stock on the grant date. We review the values of our performance awards on a frequent and recurring basis and adjust those values based on the probability that the related performance metric will be satisfied. We utilize the Black-Scholes model in deriving the fair value estimates of our stock option awards that only have a service requirement, and we utilize the Monte Carlo simulation model to determine grant date fair value estimates of stock options also subject to a market condition.
Effective for certain restricted stock and performance stock grants awarded in fiscal 2020, the Compensation Committee reinstated a policy that provides for the continued vesting of stock awards following retirement for all eligible participants who have attained age 60 and have at least ten years of service with the Company. We deem the requisite service period for these awards for a participant to be the shorter of either the award's stated vesting period or the time from grant until the participant satisfies the age and service criteria. The Compensation Committee discontinued this policy effective for restricted stock and performance stock grants awarded in October 2020 and thereafter.
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Effective for performance stock unit grants awarded in fiscal 2021, the Compensation Committee approved an amendment to replace the retirement provision that states if a person who receives a performance stock unit award has five years of service, a portion of the award becomes non-forfeitable on each anniversary date of the grant.
We generally recognize compensation cost for share-based payment transactions on a straight-line basis over an award's requisite service period as defined by ASC 718. In certain circumstances, such as when a performance award is subject to graded vesting, we apply the courseaccelerated attribution method to recognize compensation cost related to our share-based payment awards.
Compensation expense recognized related to the awards under the current and prior equity incentive plans during the periods presented is summarized as follows (in millions):
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| Year Ended August 31, |
| 2021 | | 2020 | | 2019 |
| Restricted stock awards and units | $ | 15.1 | | | $ | 24.6 | | | $ | 25.1 | |
| Stock options | 9.2 | | | 4.9 | | | 2.7 | |
| Performance stock units | 6.8 | | | 7.3 | | | — | |
| Director stock units | 1.4 | | | 1.4 | | | 1.4 | |
| Total share-based payment expense | $ | 32.5 | | | $ | 38.2 | | | $ | 29.2 | |
Restricted Stock
As of routine reviewsAugust 31, 2021, we had approximately 0.4 million shares outstanding of importrestricted stock to officers, directors, and export activity,other key employees under the Company previously determined that it misclassified and/or inaccuratelyStock Incentive Plan, including restricted stock units. The grants vest primarily over a four-year period and are valued certain international shipmentsat the closing stock price on the date of products.the grant.
Activity related to restricted stock awards during the periods presented was as 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 | |
| Granted | 0.2 | | $ | 122.10 | |
| Vested | (0.1) | | $ | 171.92 | |
| Forfeited | (0.1) | | $ | 135.43 | |
| Outstanding at August 31, 2020 | 0.4 | | $ | 134.68 | |
| Granted | 0.2 | | $ | 108.79 | |
| Vested | (0.1) | | $ | 150.44 | |
| Forfeited | (0.1) | | $ | 116.33 | |
| Outstanding at August 31, 2021 | 0.4 | | $ | 116.77 | |
___________________________
* Represents amounts of less than 0.1 million.
As of August 31, 2021, there was $28.1 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.8 years. The Company is conductingtotal fair value of stock vested during the years ended August 31, 2021, 2020, and 2019 was approximately $19.5 million, $22.8 million, and $26.9 million, respectively.
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Stock Options
As of August 31, 2021, we had approximately 1.2 million options outstanding to officers and other key employees under the Stock Incentive Plan. Of these options, 0.8 million vest and become exercisable over a detailed reviewthree-year period (the "Service Options"). The remaining 0.4 million vest and become exercisable over a four-year period and are also subject to a market condition (the "Market Options"). Options issued under the Stock Incentive Plan are generally granted with an exercise price equal to the fair market value of this activityour stock on the date of grant, but never less than the fair market value on the grant date, and expire 10 years from the date of grant.
The fair value of each Service Option was estimated on the date of grant using the Black-Scholes model, and the fair value of each Market Option was estimated on the date of grant using the Monte Carlo simulation 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 our 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 for the Service Options and equal to the contractual term for the Market Options. We used historical exercise behavior data of similar employee groups to determine the expected life of the Service Options. The expected life of the Market Options is based on projected exercise dates resulting from the Monte Carlo simulation for each award tranche. All inputs noted above are estimates made at the time of grant. All inputs into the Black-Scholes model and the Monte Carlo simulation 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 the stock options granted in the fiscal years presented:
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| | Market Options | | Service Options |
| | 2021 | | 2020 | | 2020 | | 2019 |
| Dividend yield | | 0.5% | | 0.4% | | 0.4% | | 0.4% |
| Expected volatility | | 36.5% | | 33.7% | | 33.7% | | 32.8% |
| Risk-free interest rate | | 0.7% | | 1.5% | | 1.3% | | 3.0% |
| Expected life of options | | 8 years | | 7 years | | 5 years | | 4 years |
| Weighted-average fair value of options | | $40.45 | | $44.74 | | $34.22 | | $34.06 |
There were no Market Options granted in fiscal 2019. There were no Service Options granted during the fiscal year ended August 31, 2021.
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Stock option activity during the periods presented was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Outstanding | | Exercisable |
| Number of
Options
(in millions) | | Weighted Average
Exercise Price | | Number of
Options
(in millions) | | Weighted Average
Exercise Price |
| 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 | |
| Granted | 0.5 | | $ | 121.87 | | | | | |
| Exercised | — | * | $ | 116.36 | | | | | |
| | | | | | | |
| Outstanding at August 31, 2020 | 0.9 | | $ | 133.19 | | | 0.4 | | $ | 151.07 | |
| Granted | 0.3 | | $ | 108.96 | | | | | |
| Exercised | — | * | $ | 108.58 | | | | | |
| | | | | | | |
| Outstanding at August 31, 2021 | 1.2 | | $ | 127.98 | | | 0.5 | | $ | 142.36 | |
| Range of option exercise prices: | | | | | | | |
| | | | | | | |
| $40.01 - $100.00 (average life - 1.1 years) | 0.1 | | $ | 62.54 | | | 0.1 | | $ | 62.54 | |
| $100.01 - $160.00 (average life - 7.9 years) | 1.0 | | $ | 119.18 | | | 0.3 | | $ | 125.13 | |
| $160.01 - $210.00 (average life - 4.2 years) | 0.1 | | $ | 207.80 | | | 0.1 | | $ | 207.80 | |
| $210.01 - $239.76 (average life - 5.1 years) | — | * | $ | 239.76 | | | 0.1 | * | $ | 239.76 | |
___________________________
* Represents amounts of less than 0.1 million.
The total intrinsic value of options exercised was $1.2 million during the year ended August 31, 2021 and de minimis during the year ended August 31, 2020. There were no options exercised during fiscal 2019. As of August 31, 2021, the total intrinsic value of options outstanding was $70.9 million, the total intrinsic value of options expected to vest was $42.8 million, and the total intrinsic value of options exercisable was $27.4 million. As of August 31, 2021, there was $17.0 million of total unrecognized compensation cost related to unvested options. This cost is expected to be recognized over a weighted-average period of approximately 2.2 years.
Performance Stock Units
Beginning in fiscal 2020, the Board approved grants of performance stock units to certain executives and key employees. These grants vest primarily over a three-year period and are valued at the closing stock price at the date of grant. The actual number of performance stock units earned for these awards will be determined at the end of the related performance period based on the level of achievement of established performance thresholds. We recognize compensation expense for these grants proportionately over the requisite service period for each employee when it becomes probable that the performance metric will be satisfied. For performance stock units subject to graded vesting, we apply the accelerated attribution method for expense recognition. As of August 31, 2021, we had approximately 0.1 million performance stock units outstanding.
As of August 31, 2021 there was $3.8 million of total unrecognized compensation cost related to unvested performance stock units. This cost is expected to be recognized over a weighted-average period of approximately 1.5 years.
Employee Deferred Stock Units
We previously allowed employees to defer a portion of restricted stock awards granted in fiscal 2003 and fiscal 2004 into the SDSP as stock units. The stock units are payable in shares of stock at the time of distribution from the SDSP. As of August 31, 2021, approximately 7,000 fully vested stock units remain deferred, but undistributed, under the Stock Incentive Plan. There was no compensation expense related to these stock units during fiscal years 2021, 2020, and 2019.
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Director Deferred Stock Units
Total shares available for issuance under the Director Plan were approximately 0.3 million, 0.3 million, and 0.4 million at August 31, 2021, 2020, and 2019, respectively. As of August 31, 2021, approximately 0.1 million stock units were deferred but undistributed under the Director Plan.
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 our common stock reserved for purchase under the plan, of which approximately 1.0 million shares remain available as of August 31, 2021. Employees may participate at their discretion.
Note 12 — Pension and Defined Contribution Plans
Company-sponsored Pension Plans
We 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. We historically have made 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. Current period net actuarial gains in our projected benefit obligation primarily reflect an increase in the discount rate from our prior year valuation, partially offset by settlement losses during the year ended August 31, 2021.
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following tables reflect the status of our domestic (U.S.-based) and implementinginternational pension plans as of the appropriate remedial measures. At this time,dates presented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | August 31, | | August 31, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Change in benefit obligation: | | | | | | | |
| Benefit obligation at beginning of year | $ | 249.6 | | | $ | 239.2 | | | $ | 49.2 | | | $ | 44.6 | |
| Service cost | 4.6 | | | 4.3 | | | 0.3 | | | 0.3 | |
| Interest cost | 5.3 | | | 6.4 | | | 0.9 | | | 0.9 | |
| | | | | | | |
| Actuarial (gains) losses | (5.2) | | | 8.5 | | | 1.7 | | | 0.7 | |
| | | | | | | |
| | | | | | | |
| Benefits paid | (29.6) | | | (8.8) | | | (1.3) | | | (1.4) | |
| Other | — | | | — | | | 1.8 | | | 4.1 | |
| Benefit obligation at end of year | 224.7 | | | 249.6 | | | 52.6 | | | 49.2 | |
| Change in plan assets: | | | | | | | |
| Fair value of plan assets at beginning of year | 167.1 | | | 151.5 | | | 35.1 | | | 30.7 | |
| Actual return on plan assets | 21.7 | | | 19.0 | | | 5.3 | | | 1.9 | |
| Employer contributions | 23.4 | | | 5.4 | | | 2.1 | | | 0.8 | |
| Benefits paid | (29.6) | | | (8.8) | | | (1.3) | | | (1.4) | |
| Other | — | | | — | | | 1.0 | | | 3.1 | |
| Fair value of plan assets at end of year | 182.6 | | | 167.1 | | | 42.2 | | | 35.1 | |
| | | | | | | |
| Funded status at the end of year | $ | (42.1) | | | $ | (82.5) | | | $ | (10.4) | | | $ | (14.1) | |
| | | | | | | |
| Amounts recognized in the consolidated balance sheets consist of: | | | | | | | |
| Non-current assets | $ | 13.0 | | | $ | — | | | $ | — | | | $ | — | |
| Current liabilities | (5.2) | | | (5.0) | | | (0.1) | | | — | |
| Non-current liabilities | (49.9) | | | (77.5) | | | (10.3) | | | (14.1) | |
| Net amount recognized in consolidated balance sheets | $ | (42.1) | | | $ | (82.5) | | | $ | (10.4) | | | $ | (14.1) | |
| Accumulated benefit obligation | $ | 223.8 | | | $ | 249.1 | | | $ | 51.7 | | | $ | 49.2 | |
| Pre-tax amounts in accumulated other comprehensive loss: | | | | | | | |
| Prior service cost | $ | (5.6) | | | $ | (8.4) | | | $ | (0.1) | | | $ | — | |
| Net actuarial loss | (55.2) | | | (79.2) | | | (11.3) | | | (13.5) | |
| Amounts in accumulated other comprehensive loss | $ | (60.8) | | | $ | (87.6) | | | $ | (11.4) | | | $ | (13.5) | |
| Pensions plans in which benefit obligation exceeds plan assets: | | | | | | | |
| Projected benefit obligation | $ | 81.7 | | | $ | 249.6 | | | $ | 52.6 | | | $ | 49.2 | |
| Accumulated benefit obligation | 80.8 | | | 249.1 | | | 51.7 | | | 49.2 | |
| Plan assets | 26.6 | | | 167.1 | | | 42.2 | | | 35.1 | |
| Pensions plans in which plan assets exceed benefit obligation: | | | | | | | |
| Projected benefit obligation | $ | 143.0 | | | $ | — | | | $ | — | | | $ | — | |
| Accumulated benefit obligation | 143.0 | | | — | | | — | | | — | |
| Plan assets | 156.0 | | | — | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Service cost of net periodic pension cost is allocated between Cost of products sold and Selling, distribution, and administrative expenses in the CompanyConsolidated Statements of Comprehensive Income based on the function 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. We utilize a corridor approach to amortize cumulative unrecognized actuarial gains or losses over either the average expected future service of active participants or average life expectancy of plan participants based on each plan’s composition. The corridor is unabledetermined as the greater of the excess of 10% of plan assets or the projected benefit obligation at each valuation date. Amounts related to prior service cost are amortized over the average remaining expected future service period for active participants in each plan.
Net periodic pension cost during the periods presented included the following components before tax (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Service cost | $ | 4.6 | | | $ | 4.3 | | | $ | 2.9 | | | $ | 0.3 | | | $ | 0.3 | | | $ | 0.2 | |
| Interest cost | 5.3 | | | 6.4 | | | 7.7 | | | 0.9 | | | 0.9 | | | 1.3 | |
| Expected return on plan assets | (11.0) | | | (10.4) | | | (10.5) | | | (2.3) | | | (2.0) | | | (1.9) | |
| Amortization of prior service cost | 2.9 | | | 4.0 | | | 3.5 | | | — | | | — | | | — | |
| | | | | | | | | | | |
| Settlement | 3.9 | | | — | | | 0.4 | | | — | | | — | | | — | |
| Recognized actuarial loss | 4.1 | | | 4.2 | | | 2.7 | | | 1.4 | | | 1.4 | | | 1.4 | |
| Net periodic pension cost | $ | 9.8 | | | $ | 8.5 | | | $ | 6.7 | | | $ | 0.3 | | | $ | 0.6 | | | $ | 1.0 | |
Weighted average assumptions used in computing the benefit obligation are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Discount rate | 2.4 % | | 2.2 | % | | 1.9 % | | 1.9 | % |
| Rate of compensation increase | 5.0 % | | 5.0 | % | | 3.4 % | | 3.0 | % |
Weighted average assumptions used in computing net periodic pension cost are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Plans | | International Plans |
| | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Discount rate | 2.2 | % | | 2.8 | % | | 3.9 | % | | 1.9 | % | | 2.0 | % | | 2.9 | % |
| Expected return on plan assets | 6.8 | % | | 7.0 | % | | 7.3 | % | | 6.5 | % | | 6.5 | % | | 6.5 | % |
| Rate of compensation increase | 5.0 | % | | 5.0 | % | | 5.5 | % | | 3.4 | % | | 3.0 | % | | 3.1 | % |
It is our policy to adjust, on an annual basis, the discount rate used to determine the likelihoodprojected benefit obligation to approximate rates on high-quality, long-term obligations based on our estimated benefit payments available as of the measurement date. We use published yield curves to assist in the development of our discount rates. We estimate that a 100 basis point increase in the discount rate would reduce net periodic pension cost approximately $0.9 million for the domestic plans and $0.6 million for the international plans. 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 our targeted pension plan asset allocation 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 $1.7 million and $0.4 million for domestic plans and international plans, respectively. We also evaluate the rate of compensation increase annually and adjust if necessary.
Our investment objective for domestic plan assets is to earn a rate of return sufficient to 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 debt and equity securities. We 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. At August 31, 2021, the U.S. targeted asset allocation was 40% equity securities, 55% fixed income
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
securities, and 5% real estate securities. Our investment objective for the international plan assets is also to add value by exceeding the long-term growth of the plans’ liabilities. At August 31, 2021, the international asset target allocation approximated 16% equity securities, 20% fixed income securities, and 64% multi-strategy investments.
Our pension plan asset allocation by asset category as of the dates presented is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | % of Plan Assets |
| Domestic Plans | | International Plans |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Equity securities | 41.2 | % | | 58.2 | % | | 16.1 | % | | 76.9 | % |
| Fixed income securities | 54.3 | % | | 37.3 | % | | 20.1 | % | | 13.7 | % |
| Multi-strategy investments | — | % | | — | % | | 63.8 | % | | 9.4 | % |
| Real estate | 4.5 | % | | 4.5 | % | | — | % | | — | % |
| Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Our pension plan assets are stated at fair value based 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 based on its daily net asset value; however, the collective trust is not deemed to be actively traded (Level 2).
Fixed Income Investments
The fixed income 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
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| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 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.
The following tables present the fair value of the domestic pension plan assets by major category as of the dates presented (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 |
| August 31, 2021 | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets included in the fair value hierarchy: | | | | | | | |
| Mutual funds: | | | | | | | |
| Domestic large cap equity fund | $ | 38.9 | | | $ | 38.9 | | | $ | — | | | $ | — | |
| Foreign equity fund | 23.1 | | | 23.1 | | | — | | | — | |
| Collective trust: Domestic small cap equities | 13.3 | | | — | | | 13.3 | | | — | |
| Short-term fixed income investments | 6.9 | | | 6.9 | | | — | | | — | |
| Total assets in the fair value hierarchy | 82.2 | | | | | | | |
| Assets calculated at net asset value: | | | | | | | |
| Fixed-income investments | 92.3 | | | | | | | |
| Real estate fund | 8.1 | | | | | | | |
| Total assets at net asset value | 100.4 | | | | | | | |
| Total assets at fair value | $ | 182.6 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 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, 2020 | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets included in the fair value hierarchy: | | | | | | | |
| Mutual funds: | | | | | | | |
| Domestic large cap equity fund | $ | 55.6 | | | $ | 55.6 | | | $ | — | | | $ | — | |
| Foreign equity fund | 26.0 | | | 26.0 | | | — | | | — | |
| Collective trust: Domestic small cap equities | 15.7 | | | — | | | 15.7 | | | — | |
| Short-term fixed income investments | 5.2 | | | 5.2 | | | — | | | — | |
| Total assets in the fair value hierarchy | 102.5 | | | | | | | |
| Assets calculated at net asset value: | | | | | | | |
| Fixed-income investments | 57.0 | | | | | | | |
| Real estate fund | 7.6 | | | | | | | |
| Total assets at net asset value | 64.6 | | | | | | | |
| Total assets at fair value | $ | 167.1 | | | | | | | |
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 quoted prices in active markets (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 international pension plan assets by major category as of the dates presented (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 |
| August 31, 2021 | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets included in the fair value hierarchy: | | | | | | | |
| Equity securities | $ | 6.8 | | | $ | — | | | $ | 6.8 | | | $ | — | |
| Short-term fixed income investments | 1.0 | | | 1.0 | | | — | | | — | |
| | | | | | | |
| Multi-strategy investments | 26.9 | | | — | | | 26.9 | | | — | |
| Fixed-income investments | 7.5 | | | — | | | 7.5 | | | — | |
| Total assets at fair value | $ | 42.2 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 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, 2020 | | (Level 1) | | (Level 2) | | (Level 3) |
| Assets included in the fair value hierarchy: | | | | | | | |
| Equity securities | $ | 27.0 | | | $ | — | | | $ | 27.0 | | | $ | — | |
| Short-term fixed income investments | 0.3 | | | 0.3 | | | — | | | — | |
| Multi-strategy investments | 3.3 | | | — | | | 3.3 | | | — | |
| Fixed-income investments | 4.5 | | | — | | | 4.5 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total assets at fair value | $ | 35.1 | | | | | | | |
We do not expect to contribute to the domestic qualified plans in fiscal 2022 based on the funded status of the plans as well as current legal minimum funding requirements. We expect to contribute approximately $1.5 million during fiscal 2022 to our international defined benefit plans. These amounts are based on the total contributions required during fiscal 2022 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 during the years ending August 31 (in millions):
| | | | | | | | | | | |
| Domestic Plans | | International Plans |
| 2022 | $ | 13.2 | | | $ | 1.2 | |
| 2023 | 11.9 | | | 1.3 | |
| 2024 | 12.0 | | | 1.3 | |
| 2025 | 12.9 | | | 1.4 | |
| 2026 | 14.8 | | | 1.4 | |
| 2027-2031 | 65.0 | | | 8.4 | |
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Multi-employer Pension Plans
We contribute to 2 multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of our union-represented employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
•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 loss, if any, associatedthe plan, referred to as a withdrawal liability.
Our contributions to these plans were $0.6 million for the years ended August 31, 2021 and 2020, and $0.5 million for the year ended August 31, 2019.
Defined Contribution Plans
We have defined contribution plans to which both employees and we make contributions. Employer matching amounts are allocated in accordance with these shipments.the participants’ investment elections for elective deferrals and totaled $8.4 million, $8.2 million, and $8.1 million for the years ended August 31, 2021, 2020, and2019, respectively. At August 31, 2021, assets of the domestic defined contribution plans included shares of our common stock with a market value of approximately $8.9 million, which represented approximately 1.8% of the total fair market value of the assets in our domestic defined contribution plans.
11.Note 13 — Special ChargeCharges
During the year ended August 31, 2018, the Company2021, we recognized pre-tax special charges of $5.6$3.3 million. These charges wereconsisted primarily of charges for relocation costs and adjustments related to chargesseverance costs associated with the previously announced transfer of $10.6 million related to theactivities from 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 plannedfacility closures as well as other streamlining activities that are no longer expected to occur, primarily due to the Company's sale of its Spanish lighting business during the fourth quarter of fiscal 2018.
During fiscal 2017, the Company recognized pre-tax special charges of $11.3 million consisting primarily of severance and employee-related benefit costs for the elimination of certain operations and positions following a realignment of the Company's operating structure, including positions within various selling, distribution, and administrative (“SD&A”) departments.activities.
The details of the special charges during the years ended August 31, 2018 and 2017periods presented are summarized as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended August 31, |
| 2021 | | 2020 | | 2019 |
| Severance and employee-related costs | $ | 1.7�� | | | $ | 9.3 | | | $ | (0.5) | |
| ROU lease asset impairment charges | — | | | 7.4 | | | — | |
| Relocation and other restructuring costs | 1.6 | | | 3.3 | | | 2.3 | |
| Total special charges | $ | 3.3 | | | $ | 20.0 | | | $ | 1.8 | |
|
| | | | | | | |
| | Year Ended August 31, |
| | 2018 | | 2017 |
| Severance and employee-related costs | $ | 5.4 |
| | $ | 11.2 |
|
| Other restructuring costs | 0.2 |
| | 0.1 |
|
| Total special charges | $ | 5.6 |
|
| $ | 11.3 |
|
As of August 31, 2018,2021, remaining reservesaccruals were $10.1$1.7 million and are included in Accrued compensation and in the Consolidated Balance Sheets. The changes in the reservesaccruals related to these programs during the year ended August 31, 2018period presented are summarized as follows (in millions):
| | | | | | | | | | | |
| Year Ended | | | | | | |
| August 31, 2021 | | | | | | |
| Balance as of August 31, 2020 | $ | 3.0 | | | | | | | |
| Severance costs | 1.7 | | | | | | | |
| Relocation and other restructuring costs | 1.6 | | | | | | | |
| Payments made during the period | (4.6) | | | | | | | |
| Balance as of August 31, 2021 | $ | 1.7 | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Fiscal 18 Actions | | Fiscal 2017 Actions | | Fiscal 2016 Actions | | Total |
| Balance as of August 31, 2017 | $ | — |
| | $ | 11.2 |
| | $ | 1.4 |
| | $ | 12.6 |
|
| Severance costs | 10.4 |
| | (4.8 | ) | | (0.2 | ) | | 5.4 |
|
| Payments made during the period | (1.2 | ) | | (5.5 | ) | | (1.2 | ) | | (7.9 | ) |
| Balance as of August 31, 2018 | $ | 9.2 |
| | $ | 0.9 |
| | $ | — |
| | $ | 10.1 |
|
|
| |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 14 — Common Stock and Related Matters
12.Common Stock
Changes in common stock during the periods presented were as follows (amounts and shares in millions):
| | | | | | | | | | | |
| Common Stock |
| | Shares | | Amount |
| | | (At par) |
| 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 | |
| Issuance of restricted stock grants, net of cancellations | 0.1 | | | — | |
| Stock options exercised | — | | * | — | |
| Balance at August 31, 2020 | 53.9 | | | 0.5 | |
| Issuance of restricted stock grants, net of cancellations | 0.1 | | | — | |
| Stock options exercised | — | | * | — | |
| Balance at August 31, 2021 | 54.0 | | | $ | 0.5 | |
___________________________
* Represents shares of less than 0.1 million.
As of August 31, 2021 and 2020, we had 18.8 million and 15.0 million of repurchased shares recorded as treasury stock at an original repurchase cost of $1.66 billion and $1.23 billion, respectively.
During fiscal 2021, we repurchased 3.8 million shares of our outstanding common stock. As of August 31, 2021, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 3.8 million shares. We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible capital allocation priorities.
Preferred Stock
We have 50 million shares of preferred stock authorized. No shares of preferred stock were issued in fiscal 2021 or 2020, and no 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 for these periods. Diluted earnings per share is computed similarly but reflects the potential dilution that would occur if dilutive options were exercised, unvested share-based payment awards were vested, and other distributions related to deferred stock agreements were incurred. The dilutive effects of share-based payment awards subject to market and/or performance conditions that were not met during the period are excluded from the computation of diluted earnings per share.
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table calculates basic earnings per common share and diluted earnings per common share during the periods presented (in millions, except per share data):
| | | | | | | | | | | | | | | | | |
| Year Ended August 31, |
| 2021 | | 2020 | | 2019 |
| Net income | $ | 306.3 | | | $ | 248.3 | | | $ | 330.4 | |
| Basic weighted average shares outstanding | 36.3 | | | 39.5 | | | 39.7 | |
| Common stock equivalents | 0.3 | | | 0.1 | | | 0.1 | |
| Diluted weighted average shares outstanding | 36.6 | | | 39.6 | | | 39.8 | |
| Basic earnings per share | $ | 8.44 | | | $ | 6.29 | | | $ | 8.32 | |
| Diluted earnings per share | $ | 8.38 | | | $ | 6.27 | | | $ | 8.29 | |
The following table presents stock options, restricted stock awards, and performance stock units that were excluded from the diluted earnings per share calculation for the periods presented as the effect of inclusion would have been antidilutive (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended August 31, |
| 2021 | | 2020 | | 2019 |
| Stock options | 0.8 | | | 0.6 | | | 0.3 | |
| Restricted stock awards | — | | * | 0.2 | | | 0.2 | |
| Performance stock units | — | | | — | | * | — | |
_______________________* Represents shares of less than 0.1 million.
Note 15 — 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 during the periods presented (in millions):
| | | | | | | | | | | | | | | | | |
| | Year Ended August 31, |
| | 2021 | | 2020 | | 2019 |
| Provision for current federal taxes | $ | 65.4 | | | $ | 54.6 | | | $ | 60.3 | |
| Provision for current state taxes | 12.8 | | | 12.5 | | | 14.7 | |
| Provision for current foreign taxes | 14.4 | | | 16.0 | | | 10.2 | |
| (Benefit) provision for deferred taxes | (2.7) | | | (6.7) | | | 9.3 | |
| Total provision for income taxes | $ | 89.9 | | | $ | 76.4 | | | $ | 94.5 | |
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2018 | | 2017 | | 2016 |
| Provision for current federal taxes | $ | 88.9 |
| | $ | 151.2 |
| | $ | 139.6 |
|
| Provision for current state taxes | 16.4 |
| | 20.4 |
| | 17.6 |
|
| Provision for current foreign taxes | 9.2 |
| | 7.0 |
| | 5.1 |
|
| Benefit for deferred taxes | (38.2 | ) | | (7.7 | ) | | (8.5 | ) |
| Total provision for income taxes | $ | 76.3 |
| | $ | 170.9 |
| | $ | 153.8 |
|
A reconciliation ofThe following table reconciles the provision at the federal statutory rate to the total provision for income taxes is as followsduring the periods presented (in millions):
| | | | Year Ended August 31, | | Year Ended August 31, |
| | 2018 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 |
| Federal income tax computed at statutory rate | $ | 109.4 |
| | $ | 172.4 |
| | $ | 155.6 |
| Federal income tax computed at statutory rate | $ | 83.2 | | | $ | 68.2 | | | $ | 89.2 | |
| State income tax, net of federal income tax benefit | 11.5 |
| | 12.2 |
| | 11.0 |
| State income tax, net of federal income tax benefit | 10.7 | | | 9.7 | | | 12.2 | |
| Foreign permanent differences and rate differential | (2.0 | ) | | (1.6 | ) | | (2.0 | ) | Foreign permanent differences and rate differential | 2.4 | | | 2.4 | | | 2.1 | |
| Discrete income tax benefits of the TCJA | (34.6 | ) | | — |
| | — |
| |
| Discrete income tax benefits of the U.S. Tax Cuts and Jobs Act | | Discrete income tax benefits of the U.S. Tax Cuts and Jobs Act | — | | | — | | | (2.2) | |
| Research and development tax credits | | Research and development tax credits | (7.6) | | | (7.1) | | | (18.1) | |
| Unrecognized tax benefits | | Unrecognized tax benefits | 0.7 | | | 1.8 | | | 12.2 | |
| Other, net | (8.0 | ) | | (12.1 | ) | | (10.8 | ) | Other, net | 0.5 | | | 1.4 | | | (0.9) | |
| Total provision for income taxes | $ | 76.3 |
| | $ | 170.9 |
| | $ | 153.8 |
| Total provision for income taxes | $ | 89.9 | | | $ | 76.4 | | | $ | 94.5 | |
Components of the net deferred income tax liabilities at August 31, 2018 and 2017as of the dates presented include (in millions):
| | | | | | | | | | | |
| | August 31, |
| | 2021 | | 2020 |
| Deferred income tax liabilities: | | | |
| Depreciation | $ | (19.0) | | | $ | (23.3) | |
| Goodwill and intangibles | (155.2) | | | (153.1) | |
| Operating lease right of use asset | (14.3) | | | (15.6) | |
| Other liabilities | (8.2) | | | (5.3) | |
| Total deferred income tax liabilities | (196.7) | | | (197.3) | |
| Deferred income tax assets: | | | |
| Self-insurance | 1.8 | | | 2.1 | |
| Pension | 9.9 | | | 22.2 | |
| Deferred compensation | 21.3 | | | 22.2 | |
| Net operating losses | 5.4 | | | 5.6 | |
| Other accruals not yet deductible | 41.3 | | | 32.0 | |
| Operating lease liabilities | 15.4 | | | 18.2 | |
| Other assets | 12.0 | | | 9.3 | |
| Total deferred income tax assets | 107.1 | | | 111.6 | |
| Valuation allowance | (9.5) | | | (6.5) | |
| Net deferred income tax liabilities | $ | (99.1) | | | $ | (92.2) | |
|
| | | | | | | |
| | August 31, |
| | 2018 | | 2017 |
| Deferred income tax liabilities: | |
| | |
|
| Depreciation | $ | (15.0 | ) | | $ | (20.0 | ) |
| Goodwill and intangibles | (151.2 | ) | | (194.9 | ) |
| Other liabilities | (2.3 | ) | | (4.0 | ) |
| Total deferred income tax liabilities | (168.5 | ) | | (218.9 | ) |
| Deferred income tax assets: | |
| | |
|
| Self-insurance | 2.6 |
| | 4.1 |
|
| Pension | 18.1 |
| | 33.7 |
|
| Deferred compensation | 23.7 |
| | 32.9 |
|
| Net operating losses | 6.2 |
| | 13.7 |
|
| Other accruals not yet deductible | 24.9 |
| | 33.3 |
|
| Other assets | 7.0 |
| | 10.6 |
|
| Total deferred income tax assets | 82.5 |
| | 128.3 |
|
| Valuation allowance | (3.6 | ) | | (14.2 | ) |
| Net deferred income tax liabilities | $ | (89.6 | ) | | $ | (104.8 | ) |
On December 22, 2017,As of August 31, 2021, the TCJAestimated undistributed earnings from foreign subsidiaries was signed into law making significant changes$165.1 million. We have recorded a deferred income tax liability of $3.3 million for certain foreign withholding taxes and U.S. state taxes related to the Internal Revenue Code. Changes for fiscal year 2018 include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
for tax years beginning after December 31, 2017 and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company’s U.S. federal corporate tax rate was 25.7% for the current fiscal year. The TCJA also included changes expectedwhich we do not assert indefinite reinvestment. With respect to take effect during fiscal 2019 that include, but are 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. On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to finalize the calculations for certain income tax effects of the TCJA. In accordance with SAB 118, the Company has made reasonable estimates and recorded provisional amounts as described below. Under the transitional provisions of SAB 118, the Company has a one-year measurement period to complete the accounting for the initial tax effects of the TCJA. The Company is still in the process of completing that accounting. The Company recognized a provisional discrete tax benefit estimate of $34.6 million within Income tax expense on the Consolidated Statements of Comprehensive Income following the enactment of the TCJA. This provisional amount included a benefit of $31.6 million to decrease the Company's deferred income taxes to the revised statutory federal rate as well as a current estimated benefit of approximately $3.0 million for the transition tax on unremitted foreign earnings.
The Company's accounting for the income tax effects of the TCJA will be completed during the measurement period allowed under SAB 118, and the Company will record any necessary adjustments in the period such adjustments are identified. While the Company was able to make a reasonable estimate of the impact of the income tax effects of the new law, the impact of the tax legislation may differ from current provisional estimates, possibly materially, due to among other things, changes in interpretation or assumptions the company has made, guidance that may be issued, and actions the Company may make as a result of the tax legislation.
The Company previously asserted that all undistributed earnings and original investments in foreign subsidiaries were indefinitelywhere we are continuing to assert indefinite reinvestment, any future remittances could be subject to additional foreign withholding taxes, 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 account for the tax on Global Intangible Low-Taxed Income (“GILTI”) as a period cost and, therefore, hasdo not recorded anyrecord deferred taxes related to any outside basis differences associated with itsGILTI on our foreign subsidiaries as of August 31, 2018. The estimated undistributed earnings from foreign subsidiaries is $76.5 million as of August 31, 2018. While the Company has included a provisional estimate of the transition tax on these earnings, the impact of the TCJA on the Company's existing assertion of indefinite reinvestment is still being evaluated, pursuant to SAB 118. The Company will complete its analysis of the impact of the TCJA on its outside basis differences in foreign subsidiaries and respective indefinite reinvestment assertions during the measurement period.
With respect to the new TCJA provision on global intangible low-taxed income, which will apply to the Company starting in fiscal year 2019, the Company has not yet made an accounting policy election on the deferred tax treatment.subsidiaries.
At August 31, 2018, the Company2021, we had state tax credit carryforwards of approximately $0.8$1.5 million, which will expire beginning in 2026.2022. At August 31, 2018, the Company2021, we had federal net operating loss carryforwards of $47.9$28.7 million that expire beginning in 2030,2029, state net operating loss carryforwards of $13.4$30.1 million that beginbegan expiring in 2018. The Company has utilized all its2022, and foreign net operating loss carryforwards.carryforwards of $3.4 million that expire beginning in 2026.
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The gross amount of unrecognized tax benefits as of August 31, 20182021 and 20172020 totaled $4.4$17.7 million and $6.0$17.2 million, respectively, which includes $3.8$17.1 million and $4.4$16.7 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 20132015 or for foreign income tax examinations before 2011. The Company does2014. We do not anticipate unrecognized tax benefits will significantly increase or decrease within the next twelve months.
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
A reconciliation ofThe following table reconciles the change in the unrecognized income tax benefit (reported in Other long-term liabilities on the Consolidated Balance Sheets) forduring the years ended August 31, 2018 and 2017 is as followsperiods presented (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended August 31, |
| 2021 | | 2020 | | 2019 |
| Unrecognized tax benefits balance at beginning of year | $ | 17.2 | | | $ | 16.6 | | | $ | 4.4 | |
| Additions based on tax positions related to the current year | 5.2 | | | 2.3 | | | 2.0 | |
| Additions for tax positions of prior years | 0.1 | | | — | | | 10.9 | |
| Reductions for tax positions of prior years | (0.1) | | | (0.4) | | | — | |
| Reductions due to settlements | (4.6) | | | (1.2) | | | — | |
| Reductions due to lapse of statute of limitations | (0.1) | | | (0.1) | | | (0.7) | |
| Unrecognized tax benefits balance at end of year | $ | 17.7 | | | $ | 17.2 | | | $ | 16.6 | |
|
| | | | | | | |
| | Year Ended August 31, |
| | 2018 | | 2017 |
| Unrecognized tax benefits balance at beginning of year | $ | 6.0 |
| | $ | 5.2 |
|
| Additions based on tax positions related to the current year | 0.6 |
| | 1.2 |
|
| Additions for tax positions of prior years | 1.0 |
| | 0.4 |
|
| Reductions due to settlements | (2.2 | ) | | — |
|
| Reductions due to lapse of statute of limitations | (1.0 | ) | | (0.8 | ) |
| Unrecognized tax benefits balance at end of year | $ | 4.4 |
| | $ | 6.0 |
|
Total accrued interest was $0.5$2.0 million, $1.7 million, and $1.0 million as of August 31, 20182021, 2020, and 2017,2019, respectively. There were no accruals related to income tax penalties during fiscal 2018.2021. 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. We are routinely under audit from various tax jurisdictions. We do not currently anticipate material audit assessments.
13.
| | |
| ACUITY BRANDS, INC |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 16 — Supplemental Disaggregated Information
The Company has one reportable segment. Sales of lighting, lighting controls, and building managementtechnology solutions, excluding services, accounted for approximately 99% of total consolidated net sales in fiscal 2018, 2017,2021, 2020, and 2016. The2019. 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 forduring and as of the years ended August 31, 2018, 2017, and 2016periods presented (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended August 31, |
| 2021 | | 2020 | | 2019 |
Net sales(1): | | | | | |
Domestic(2) | $ | 2,982.4 | | | $ | 2,925.0 | | | $ | 3,277.4 | |
| International | 478.6 | | | 401.3 | | | 395.3 | |
| Total | $ | 3,461.0 | | | $ | 3,326.3 | | | $ | 3,672.7 | |
| Operating profit: | | | | | |
Domestic(2) | $ | 369.9 | | | $ | 300.6 | | | $ | 419.3 | |
| International | 57.7 | | | 53.3 | | | 43.6 | |
| Total | $ | 427.6 | | | $ | 353.9 | | | $ | 462.9 | |
| Income before income taxes: | | | | | |
Domestic(2) | $ | 343.7 | | | $ | 274.2 | | | $ | 386.4 | |
| International | 52.5 | | | 50.5 | | | 38.5 | |
| Total | $ | 396.2 | | | $ | 324.7 | | | $ | 424.9 | |
Long-lived assets(3): | | | | | |
Domestic(2) | $ | 284.4 | | | $ | 298.6 | | | $ | 246.9 | |
| International | 76.6 | | | 64.8 | | | 48.1 | |
| Total | $ | 361.0 | | | $ | 363.4 | | | $ | 295.0 | |
(1)Net sales are attributed to each country based on the selling location.
(2)Domestic amounts include amounts for U.S. based operations.
(3)Long-lived assets include net property, plant, and equipment, operating lease right-of-use assets, and other long-term assets as reflected in the Consolidated Balance Sheets.
|
| | | | | | | | | | | |
| | Year Ended August 31, |
| | 2018 | | 2017 | | 2016 |
Net sales(1): | |
| | |
| | |
|
Domestic(2) | $ | 3,292.6 |
| | $ | 3,123.1 |
| | $ | 2,928.3 |
|
| International | 387.5 |
| | 382.0 |
| | 363.0 |
|
| Total | $ | 3,680.1 |
| | $ | 3,505.1 |
| | $ | 3,291.3 |
|
| Operating profit: | | | |
| | |
|
Domestic(2) | $ | 414.2 |
| | $ | 497.5 |
| | $ | 457.6 |
|
| International | 40.4 |
| | 21.3 |
| | 17.6 |
|
| Total | $ | 454.6 |
| | $ | 518.8 |
| | $ | 475.2 |
|
| Income before provision for income taxes: | | | |
| | |
|
Domestic(2) | $ | 386.4 |
| | $ | 478.5 |
| | $ | 430.8 |
|
| International | 39.5 |
| | 14.1 |
| | 13.8 |
|
| Total | $ | 425.9 |
| | $ | 492.6 |
| | $ | 444.6 |
|
Long-lived assets(3): | | | |
| | |
|
Domestic(2) | $ | 256.4 |
| | $ | 252.8 |
| | $ | 254.5 |
|
| International | 52.0 |
| | 51.5 |
| | 41.4 |
|
| Total | $ | 308.4 |
| | $ | 304.3 |
| | $ | 295.9 |
|
| |
(1)
| Net sales are attributed to each country based on the selling location. |
| |
(2)
| Domestic amounts include amounts 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 as reflected in the Consolidated Balance Sheets.
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
14. Supplemental Guarantor Condensed Consolidating Financial Statements
In December 2009, ABL, the 100% owned and principal operating subsidiary of 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 Notes and the initial purchasers of the Notes, ABL and the guarantors to the Notes filed a registration statement with the SEC for an offer to exchange the Notes for an issue of SEC-registered notes with identical terms. Due to the filing of the registration statement and offer to exchange, the Company 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 has included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(d) of SEC Regulation S-X since the 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. Consolidating 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 the Company's 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 |
CONDENSED CONSOLIDATING BALANCE SHEETS
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| 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 |
CONDENSED CONSOLIDATING BALANCE SHEETS
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | At August 31, 2017 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| ASSETS |
| Current assets: | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 237.7 |
| | $ | — |
| | $ | — |
| | $ | 73.4 |
| | $ | — |
| | $ | 311.1 |
|
| Accounts receivable, net | — |
| | 494.6 |
| | — |
| | 78.7 |
| | — |
| | 573.3 |
|
| Inventories | — |
| | 305.5 |
| | — |
| | 23.1 |
| | — |
| | 328.6 |
|
| Other current assets | 1.6 |
| | 15.8 |
| | — |
| | 15.2 |
| | — |
| | 32.6 |
|
| Total current assets | 239.3 |
| | 815.9 |
| | — |
| | 190.4 |
| | — |
| | 1,245.6 |
|
| Property, plant, and equipment, net | 0.2 |
| | 228.3 |
| | — |
| | 59.2 |
| | — |
| | 287.7 |
|
| Goodwill | — |
| | 677.7 |
| | 2.7 |
| | 220.5 |
| | — |
| | 900.9 |
|
| Intangible assets, net | — |
| | 235.5 |
| | 109.8 |
| | 103.5 |
| | — |
| | 448.8 |
|
| Deferred income taxes | 51.6 |
| | — |
| | — |
| | 8.0 |
| | (56.2 | ) | | 3.4 |
|
| Other long-term assets | 1.5 |
| | 10.9 |
| | — |
| | 0.8 |
| | — |
| | 13.2 |
|
| Investments in and amounts due from affiliates | 1,500.3 |
| | 330.4 |
| | 234.2 |
| | — |
| | (2,064.9 | ) | | — |
|
| Total assets | $ | 1,792.9 |
| | $ | 2,298.7 |
| | $ | 346.7 |
| | $ | 582.4 |
| | $ | (2,121.1 | ) | | $ | 2,899.6 |
|
| | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | 0.9 |
| | $ | 366.4 |
| | $ | — |
| | $ | 27.8 |
| | $ | — |
| | $ | 395.1 |
|
| Current maturities of long-term debt | — |
| | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
|
| Accrued liabilities | 27.6 |
| | 138.9 |
| | — |
| | 38.9 |
| | — |
| | 205.4 |
|
| Total current liabilities | 28.5 |
| | 505.3 |
| | — |
| | 67.1 |
| | — |
| | 600.9 |
|
| Long-term debt | — |
| | 353.1 |
| | — |
| | 3.4 |
| | — |
| | 356.5 |
|
| Deferred income taxes | — |
| | 134.6 |
| | — |
| | 29.8 |
| | (56.2 | ) | | 108.2 |
|
| Other long-term liabilities | 98.7 |
| | 49.3 |
| | — |
| | 20.4 |
| | — |
| | 168.4 |
|
| Amounts due to affiliates | — |
| | — |
| | — |
| | 128.8 |
| | (128.8 | ) | | — |
|
| Total stockholders’ equity | 1,665.7 |
| | 1,256.4 |
| | 346.7 |
| | 332.9 |
| | (1,936.1 | ) | | 1,665.6 |
|
| Total liabilities and stockholders’ equity | $ | 1,792.9 |
| | $ | 2,298.7 |
| | $ | 346.7 |
| | $ | 582.4 |
| | $ | (2,121.1 | ) | | $ | 2,899.6 |
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | — |
| | 1,949.7 |
| | — |
| | 442.2 |
| | (198.6 | ) | | 2,193.3 |
|
| Gross profit | — |
| | 1,326.0 |
| | 53.6 |
| | 173.4 |
| | (66.2 | ) | | 1,486.8 |
|
| Selling, distribution, and administrative expenses | 47.4 |
| | 884.5 |
| | 3.2 |
| | 157.6 |
| | (66.1 | ) | | 1,026.6 |
|
| Intercompany charges | (59.2 | ) | | 49.5 |
| | — |
| | 9.7 |
| | — |
| | — |
|
| Special charge | — |
| | 5.6 |
| | — |
| | — |
| | — |
| | 5.6 |
|
| Operating profit | 11.8 |
| | 386.4 |
| | 50.4 |
| | 6.1 |
| | (0.1 | ) | | 454.6 |
|
| Interest expense, net | 11.1 |
| | 16.9 |
| | — |
| | 5.5 |
| | — |
| | 33.5 |
|
| Equity earnings in subsidiaries | (344.3 | ) | | (18.5 | ) | | — |
| | 0.2 |
| | 362.6 |
| | — |
|
| Miscellaneous income, net | — |
| | (0.2 | ) | | — |
| | (4.6 | ) | | — |
| | (4.8 | ) |
| 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 pension plans, net | 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 |
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 | — |
| | 1,764.5 |
| | — |
| | 432.8 |
| | (173.4 | ) | | 2,023.9 |
|
| Gross profit | — |
| | 1,340.7 |
| | 49.4 |
| | 146.3 |
| | (55.2 | ) | | 1,481.2 |
|
| Selling, distribution, and administrative expenses | 45.0 |
| | 824.8 |
| | 3.6 |
| | 132.8 |
| | (55.1 | ) | | 951.1 |
|
| Intercompany charges | (56.9 | ) | | 47.7 |
| | — |
| | 9.2 |
| | — |
| | — |
|
| Special charge | — |
| | 11.3 |
| | — |
| | — |
| | — |
| | 11.3 |
|
| Operating profit | 11.9 |
| | 456.9 |
| | 45.8 |
| | 4.3 |
| | (0.1 | ) | | 518.8 |
|
| Interest expense, net | 11.0 |
| | 16.1 |
| | — |
| | 5.4 |
| | — |
| | 32.5 |
|
| Equity earnings in subsidiaries | (320.9 | ) | | (7.7 | ) | | — |
| | 0.2 |
| | 328.4 |
| | — |
|
| Miscellaneous (income) expense, net | — |
| | (8.0 | ) | | — |
| | 1.7 |
| | — |
| | (6.3 | ) |
| 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 pension plans, net | 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 |
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 income taxes | 291.0 |
| | 404.6 |
| | 43.6 |
| | (2.4 | ) | | (292.2 | ) | | 444.6 |
|
| Income tax expense | 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 loss items, net of tax | (29.0 | ) | | (17.0 | ) | | — |
| | (9.5 | ) | | 26.5 |
| | (29.0 | ) |
| Comprehensive income (loss) | $ | 261.8 |
| | $ | 249.9 |
| | $ | 28.0 |
| | $ | (12.2 | ) | | $ | (265.7 | ) | | $ | 261.8 |
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended August 31, 2018 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net cash provided by operating activities | $ | 323.8 |
| | $ | 30.2 |
| | $ | — |
| | $ | 36.0 |
| | $ | (36.8 | ) | | $ | 353.2 |
|
| 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 |
|
| Net cash used for investing activities | (154.7 | ) | | (167.7 | ) | | — |
| | (38.0 | ) | | 154.7 |
| | (205.7 | ) |
| Cash flow 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 | ) |
| Payments for employee 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 |
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | ) |
| Payments for employee 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 |
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 | $ | 319.2 |
| | $ | 54.8 |
| | $ | — |
| | $ | 13.9 |
| | $ | — |
| | $ | 387.9 |
|
| Cash flows from 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 investing activities | (405.6 | ) | | (460.8 | ) | | — |
| | (243.9 | ) | | 405.6 |
| | (704.7 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Issuance of long-term debt | — |
| | — |
| | — |
| | 2.5 |
| | — |
| | 2.5 |
|
| Proceeds from stock option exercises and other | 14.2 |
| | — |
| | — |
| | — |
| | — |
| | 14.2 |
|
| Payments for employee taxes on net settlement of equity awards | (16.6 | ) | | — |
| | — |
| | — |
| | — |
| | (16.6 | ) |
| Intercompany capital | — |
| | 405.6 |
| | — |
| | — |
| | (405.6 | ) | | — |
|
| Dividends paid | (22.9 | ) | | — |
| | — |
| | — |
| | — |
| | (22.9 | ) |
| Net cash provided by financing activities | (25.3 | ) | | 405.6 |
| | — |
| | 2.5 |
| | (405.6 | ) | | (22.8 | ) |
| 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 |
|
|
|
ACUITY BRANDS, INC |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
15. Quarterly Financial Data (Unaudited)
|
| | | | | | | | | | | | | | | |
| | 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 | $ | 350.2 |
| | $ | 334.9 |
| | $ | 389.4 |
| | $ | 412.3 |
|
| 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 2017 |
| (In millions) | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
| Net sales | $ | 851.2 |
| | $ | 804.7 |
| | $ | 891.6 |
| | $ | 957.6 |
|
| Gross profit | $ | 359.6 |
| | $ | 335.8 |
| | $ | 378.9 |
| | $ | 406.9 |
|
| Net income | $ | 81.7 |
| | $ | 67.3 |
| | $ | 82.2 |
| | $ | 90.5 |
|
| Basic earnings per share | $ | 1.87 |
| | $ | 1.54 |
| | $ | 1.91 |
| | $ | 2.16 |
|
| Diluted earnings per share | $ | 1.86 |
| | $ | 1.53 |
| | $ | 1.90 |
| | $ | 2.15 |
|
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 |
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
| |
Item 9a. | Controls and Procedures |
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”), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission (“SEC”(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, 2018.2021. 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 are effective at a reasonable assurance level as of August 31, 2018.2021. 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.
Management’s annual report on the Company’s internal control over financial reporting and the independent registered public accounting firm’s attestation report are included in the Company’s 2018 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.
During the year ended August 31, 2018, the Company2021, we completed itsour acquisitions of IOTA Engineering, LLCRockpile Ventures and ams OSRAM's North American Digital Systems business (“IOTA”) and Lucid Design Group, Inc (“Lucid”OSRAM DS”), (collectively,collectively the “2018(“2021 Acquisitions”). As of August 31, 2018, the 2018 Acquisitions constituted less than 2% and 1% of the Company’s tangible assets and net tangible assets, respectively. For the year ended August 31, 2018, the 2018 Acquisitions constituted less than 1% of both the Company's net sales and pre-tax income. 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 IOTA's or Lucid'sthe 2021 Acquisitions' internal control over financial reporting as of August 31, 2018.2021. Excluding the acquisitions, there have been no changes in the Company’sour internal control over financial reporting that occurred during the Company’sour most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.The Companyreporting. We began integrating IOTA and Lucidthe 2021 Acquisitions into itsour existing control procedures from their respective dates of acquisition. The Company doesWe do not anticipate the integration of the acquired companies to result in changes that would materially affect itsour internal control over financial reporting.
Management’s annual report on our internal control over financial reporting and the independent registered public accounting firm’s attestation report are included in our 2021 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.
| |
Item 9b. | Other Information |
Item 9b.Other Information
None.
PART III
| |
Item 10. | Directors, Executive Officers, and Corporate Governance |
Item 10.Directors, Executive Officers, and Corporate Governance
The information required by this item, with respect to directors and corporate governance, iswill be included under the captions caption Item 1 — Election of Directors and Information Concerning the Board and Its Committeesof the Company’sour proxy statement for the annual meeting of stockholders to be held January 4, 2019,5, 2022, 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 4, 2019,5, 2022, 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,the code of ethics, will be included under the caption Section 16(a) Beneficial Ownership Reporting Compliancecaptions Governance Policies and Procedures and Contacting the Board of the Company’sDirectors of our proxy statement for the annual meeting of stockholders to be held January 4, 2019,5, 2022, 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 the code of ethics, will be included under the caption Questions and Answers about Communications, Governance, and Company Documents of the Company’s proxy statement for the annual meeting of stockholders to be held January 4, 2019, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
| |
Item 11. | Executive Compensation |
Item 11.Executive Compensation
The information required by this item will be included under the captions Compensation of Directors, Director Information, Concerning the Board and Its Committees, Compensation Committee Interlocks and Insider Participation, Report of the Compensation and Management Development Committee, Compensation Discussion and Analysis, Fiscal 20182021 Summary Compensation Table, Fiscal 20182021 Grants of Plan-Based Awards, Outstanding Equity Awards at Fiscal 20182021 Year-End, Option Exercises and Stock Vested in Fiscal 2018,2021, Pension Benefits in Fiscal 2018,2021, CEO Pay Ratio, Fiscal 2018 Nonqualified2021 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 4, 2019,5, 2022, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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 4, 2019,5, 2022, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
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 4, 2019,5, 2022, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
| |
Item 14. | Principal Accountant Fees and Services |
Item 14.Principal Accountant Fees and Services
The information required by this item will be included under the caption captions Audit Fees Billed by Independent Registered Public Accounting Firmand Other Fees, Preapproval Policies and Procedures, and Report of the Company’sAudit Committee of our proxy statement for the annual meeting of stockholders to be held January 4, 2019,5, 2022, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
PART IV
| |
Item 15. | Exhibits and Financial Statement Schedules |
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: | |
| | 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): | |
| | 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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| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (2) | 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 | |
| (3) | 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 | |
|
| | | | | | | | | | | | | | |
| 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(d) of registrant’s Form 10-Q as filed with the Commission on January 9, 2017,7, 2021, which is incorporated herein by reference. | |
| (e) | | | Reference is made to Exhibit 3(e) of registrant's Form 10-Q as filed with the Commission on January 7, 2021, 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) | | | Filed with the Commission as part of this Form 10-K. | |
| (c) | | | Reference is made to Exhibit 4.1 of registrant's Form 8-K as filed with the Commission on November 10, 2020, which is incorporated herein by reference. | |
| (d) | First Supplemental Indenture, dated as of November 10, 2020, among Acuity Brands Lighting, Inc, as issuer, andInc., Acuity Brands, Inc. and ABL IP Holding, LLC, as guarantors, and Wells FargoU.S. Bank National Association, as trustee. | | Reference is made to Exhibit 4.14.2 of registrant’sregistrant's Form 8-K as filed with the Commission on December 9, 2009,November 10, 2020, which is incorporated herein by reference. | |
| (c)(e) | | | Reference is made to Exhibit 4.24.3 of registrant’sregistrant's Form 8-K as filed with the Commission on December 9, 2009,November 10, 2020, which is incorporated herein by reference. | |
| (f) | | | Reference is made to Exhibit 4.3 of registrant's Form 8-K as filed with the Commission on November 10, 2020, which is incorporated herein by reference. | |
| EXHIBIT 10(i) | (1) | | | Reference is made to Exhibit 10.1 of registrant’s Form 10-Q as filed with the Commission on July 3, 2018, which is incorporated herein by reference. | |
| (2) | | | Reference is made to Exhibit 10.1 of registrant's Form 8-K as filed with the Commission on April 24, 2019, which is incorporated herein by reference. | |
|
| | | | | | | | | | | | | |
| 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. |
| (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(b) of the registrant's Form 10-Q as filed with the Commission on July 2, 2019, which is incorporated herein by reference. |
| (14) | | | Filed with the Commission as part of this Form 10-K. |
| (15) | | | Reference is made to Exhibit 99.1 of registrant’s Form 8-K filed with the Commission on July 6, 2006, which is incorporated herein by reference. |
| (14)(16) | | | 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. |
| | | | | | | | | | | | | | |
| (15)(17) | | | 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. |
|
| (18) | | | | 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. |
| (16)(19) | | | 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. |
| (17)(20) | | | 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. |
| (18)(21) | | | 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. |
| (19)(22) | | | 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. |
| (20)(23) | | | 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. |
| (21)(24) | | | 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. |
| (22)(25) | | | 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. |
| (23)(26) | | | 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. |
| (24)(27) | | | 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. |
| (28) | | | Reference is made to Exhibit 10(a) of registrant's Form 10-Q as filed with the Commission on January 7, 2020, which is incorporated herein by reference. |
| (29) | | | FiledReference is made to Exhibit 10(iii)A(24) of the registrant’s Form 10-K as filed with the Commission as part of this Form 10-K.on October 25, 2018, which is incorporated herein by reference. |
| (25)(30) | | | 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. |
| (26)(31) | | | 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. |
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| (27)(32) | | | 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. |
| (28)(33) | | | 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. |
| (29)(34) | | | 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. |
| (30)(35) | | | 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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| (31)(36) | | | 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. |
| (32)(37) | | | 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. |
| (33)(38) | | | 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. |
| (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. |
| (40) | | | Reference is made to Exhibit 10.1 of registrant’s Form 8-K as filed with the Commission on January 9, 2020, which is incorporated herein by reference. |
| (41) | | | Reference is made to Exhibit 10.2 of registrant’s Form 8-K as filed with the Commission on January 9, 2020, which is incorporated herein by reference. |
| (42) | | | Reference is made to Exhibit 10.3 of registrant’s Form 8-K as filed with the Commission on January 9, 2020, which is incorporated herein by reference. |
| (43) | | | Reference is made to Exhibit 10.4 of registrant’s Form 8-K as filed with the Commission on January 9, 2020, which is incorporated herein by reference. |
| (44) | | | Reference is made to Exhibit 10.5 of registrant’s Form 8-K as filed with the Commission on January 9, 2020, which is incorporated herein by reference. |
| (45) | | | 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. |
| (34)(46) | | | 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. |
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| (35)(47) | | | 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. |
| (36) | | | 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. |
| (37)(48) | | | 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. |
| (38)(49) | | | 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. |
| (39)(50) | | | 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. |
| (40)(51) | | | Reference is made to Exhibit 10(iii)A(4) of the registrant's Form 10-Q as filed with the Commission on April 2, 2014, which is incorporated herein by reference. |
| (41)(52) | | | 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. |
| (42)(53) | | | 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. |
| (43)(54) | | | Reference 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. |
| (44)(55) | | | Reference is made to Exhibit 10(iii)A(45) of the registrant's Form 10-K as filed with the Commission on October 26, 2017, which is incorporated herein by reference. |
| (45)(56) | | | 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. |
| (57) | | | 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. |
| (58) |
| | Reference is made to Exhibit 10(iii)A(51) of the registrant's Form 10-K as filed with the Commission on October 29, 2019, which is incorporated herein by reference. |
| (59) | | | Reference is made to Exhibit 10(iii)A(52) of the registrant's Form 10-K as filed with the Commission on October 29, 2019, which is incorporated herein by reference. |
| (60) | | | Reference is made to Exhibit 10(iii)A(53) of the registrant's Form 10-K as filed with the Commission on October 29, 2019, which is incorporated herein by reference. |
| (61) | | | Reference is made to Exhibit 10(a) of registrant's Form 10-Q as filed with the Commission on January 7, 2020, which is incorporated herein by reference. |
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| (62) | | | Reference is made to Exhibit 10(iii)A(54) of the registrant's Form 10-K as filed with the Commission on October 29, 2019, which is incorporated herein by reference. |
| (63) | | | Reference is made to Exhibit 10(iii)A(55) of the registrant's Form 10-K as filed with the Commission on October 29, 2019, which is incorporated herein by reference. |
| (64) | | | 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. |
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| (46)(65) | | | 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)(66) | | | 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)(67) | | | 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. |
| (49)(68) | | | 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. |
| (50)(69) | | | 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. |
| (51) | | | 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. |
| (52) | | | 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. |
| (53) | | | 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. |
| (54) | | | Reference is made to Exhibit 10(iii)A(3) of the registrant's Form 10-Q as filed with the Commission on April 2, 2014, which is incorporated herein by reference. |
| (55) | | | 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. |
| (56) | | | 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. |
| (57) | | | Reference is made to Exhibit 10(iii)A(59) of the registrant's Form 10-K as filed with the Commission on October 27, 2016, which is incorporated herein by reference. |
| (58) | | | Filed with the Commission as part of this Form 10-K. |
| (59) | | | 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. |
| (60) | | | 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. |
| (61)(70) | | | FiledReference is made to Exhibit 10(iii)A(61) of the registrant’s Form 10-K as filed with the Commission as part of this Form 10-K.
|
| on October 25, 2018, which is incorporated herein by reference. |
| | | | |
| (62)(71) | | | FiledReference is made to Exhibit 10(iii)A(62) of the registrant’s Form 10-K as filed with the Commission as part of this Form 10-K.
on October 25, 2018, which is incorporated herein by reference. |
| (63)(72) | | | 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. |
| (73) | | | 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. |
| (74) | | | Reference is made to Exhibit 10(iii)A(81) of the registrant’s Form 10-K as filed with the Commission on October 23, 2020, which is incorporated herein by reference. |
| (75) | | | Reference is made to Exhibit 10(iii)A(82) of the registrant’s Form 10-K as filed with the Commission on October 23, 2020, which is incorporated herein by reference. |
| (76) | | | Reference is made to Exhibit 10(iii)A(83) of the registrant’s Form 10-K as filed with the Commission on October 23, 2020, which is incorporated herein by reference. |
| | | | | | | | | | | | | | |
| (77) | | | Reference is made to Exhibit 10(iii)A(84) of the registrant’s Form 10-K as filed with the Commission on October 23, 2020, which is incorporated herein by reference. |
| (78) | | | Reference is made to Exhibit 10(iii)A(85) of the registrant’s Form 10-K as filed with the Commission on October 23, 2020, which is incorporated herein by reference. |
| (79) |
| | Reference is made to Exhibit 10(iii)A(86) of the registrant’s Form 10-K as filed with the Commission on October 23, 2020, which is incorporated herein by reference. |
| (80) |
| | Filed with the Commission as part of this Form 10-K. |
| (64)(81) | | | Reference is made to Exhibit 10(iii)A(87) of the registrant’s Form 10-K as filed with the Commission on October 23, 2020, which is incorporated herein by reference. |
| (82) | | | Reference is made to Exhibit 10(iii)A(88) of the registrant’s Form 10-K as filed with the Commission on October 23, 2020, which is incorporated herein by reference. |
| (83) | | | Filed with the Commission as part of this Form 10-K. |
| (84) | | | 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. |
| (65)(85) | | | 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. |
| (66)(86) | | | 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. |
| (67)(87) | | | 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. |
| (68)(88) | | | 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. |
| (69)(89) | | | 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. |
| (70)(90) | | | 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. |
| (71)(91) | | | 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. |
| | | | | | | | | | | | | | |
| (72)(92) | | | Reference is made to Exhibit 10(iii)A(70) of the registrant's Form 10-K as filed with the Commission on October 27, 2016, which is incorporated herein by reference. |
| (73)(93) | | | Reference is made to Exhibit 10(iii)A(72) of the registrant's Form 10-K as filed with the Commission on October 26, 2017, which is incorporated herein by reference. |
| (74)(94) | | | Reference is made to Exhibit 10(iii)A(72) of the registrant's Form 10-K as filed with the Commission on October 27, 2016, which is incorporated herein by reference. |
| (75)(95) | | | Reference is made to Exhibit 10(iii)A(73) of the registrant's Form 10-K as filed with the Commission on October 27, 2016, which is incorporated herein by reference. |
| (76)(96) |
| | Reference is made to Annex A of the registrant’s Proxy Statement as filed with the Commission on November 21, 2017, which is incorporated herein by reference. |
|
| | | | |
| (77)(97) | | | Reference is made to Annex B of the registrant’s Proxy Statement as filed with the Commission on November 21,2017,21, 2017, which is incorporated herein by reference. |
| (78)(98) | | | Reference is made to Exhibit 10(iii)A(1) of the registrant's Form 10-Q as filed with the Commission on April 4, 2018, which is incorporated herein by reference. |
| (79)(99) | | | Reference is made to Exhibit 10(iii)A(2) of the registrant's Form 10-Q as filed with the Commission on April 4, 2018, which is incorporated herein by reference. |
| (80)(100) | | | Reference is made to Exhibit 10(iii)A(3) of the registrant's Form 10-Q as filed with the Commission on April 4, 2018, which is incorporated herein by reference. |
| (101) | | | Reference is made to Exhibit 10(iii)A(93) of the registrant's Form 10-K as filed with the Commission on October 29, 2019, which is incorporated herein by reference. |
| (102) | | | Reference is made to Exhibit 10(c) of registrant's Form 10-Q as filed with the Commission on January 7, 2020, which is incorporated herein by reference. |
| (103) | | | Reference is made to Exhibit 10(iii)A(94) of the registrant's Form 10-K as filed with the Commission on October 29, 2019, which is incorporated herein by reference. |
| (104) | | | Reference is made to Exhibit 10(d) of registrant's Form 10-Q as filed with the Commission on January 7, 2020, which is incorporated herein by reference. |
| EXHIBIT 21 | | | | Filed with the Commission as part of this Form 10-K. |
EXHIBIT 2322 | | | | Filed with the Commission as part of this Form 10-K. |
EXHIBIT 2423 | | | | 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 on Form 10-K forInteractive Data File because its XBRL tags are embedded within the year ended August 31, 2018, filed on October 25, 2018, formatted inInline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of August 31, 2018 and 2017, (ii) the Consolidated Statements of Comprehensive Income for the years ended August 31, 2018, 2017, and 2016, (iii) the Consolidated Statements of Cash Flows for the years ended August 31, 2018, 2017, and 2016, (iv) the Consolidated Statements of Stockholders' Equity for the years ended August 31, 2018, 2017, and 2016 and (v) the Notes to Consolidated Financial Statements.document. |
| .SCH | XBRL Taxonomy Extension Schema Document. | | Filed with the Commission as part of this Form 10-K. |
| .CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed with the Commission as part of this Form 10-K. |
| .DEF | XBRL Taxonomy Extension Definition Linkbase Document. | | Filed with the Commission as part of this Form 10-K. |
| .LAB | XBRL Taxonomy Extension Label Linkbase Document. | | Filed with the Commission as part of this Form 10-K. |
| .PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed with the Commission as part of this Form 10-K. |
89
| |
Item 16. | Exhibits and Financial Statement Schedules |
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 25, 201827, 2021 | | By: | /S/ VERNON J. NAGELNEIL M. ASHE |
| | | | Vernon J. Nagel
Neil M. Ashe
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. NAGELNEIL M. ASHE | | Chairman, President and Chief Executive Officer | | October 25, 201827, 2021 |
Vernon J. NagelNeil M. Ashe | | | |
| | | | |
/s/ RICHARD K. REECEKAREN J. HOLCOM | | ExecutiveSenior Vice President and Chief Financial Officer (Principle(Principal Financial and Accounting Officer) | | October 25, 201827, 2021 |
Richard K. ReeceKaren J. Holcom | | | |
| | | | |
| * | | Director | | October 25, 201827, 2021 |
| W. Patrick Battle | | | | |
| | | | |
| * | | Director | | October 25, 201827, 2021 |
Peter C. BrowningMark J. Sachleben | | | | |
| | | | |
| * | | Director | | October 25, 201827, 2021 |
| G. Douglas Dillard, Jr. | | | | |
| | | | |
| * | | Director | | October 25, 201827, 2021 |
| James H. Hance, Jr. | | | | |
| | | | |
| * | | Director | | October 25, 201827, 2021 |
Robert F. McCulloughMaya Leibman | | | | |
| | | | |
| * | | Director | | October 25, 201827, 2021 |
Julia B. NorthLaura G. O'Shaughnessy | | | | |
| | | | |
| * | | Director | | October 25, 201827, 2021 |
| Dominic J. Pileggi | | | | |
| | | | |
| * | | Director | | October 25, 201827, 2021 |
| Ray M. Robinson | | | | |
| | | | |
| * | | Director | | October 25, 201827, 2021 |
Norman H. Wesley | | | | |
| | | | |
* | | Director | | October 25, 2018 |
| Mary A. Winston | | | | |
| | | | | |
| *BY: | /s/ RICHARD K. REECEKAREN J. HOLCOM | | Attorney-in-Fact | | October 25, 201827, 2021 |
| Richard K. ReeceKaren J. Holcom | | | | |
Schedule II
Acuity Brands, Inc.
Valuation and Qualifying Accounts
For the Years Ended August 31, 2018, 2017, and 2016
(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, 2018 | |
| | |
| | |
| | |
| | |
|
| Reserve for doubtful accounts | $ | 1.9 |
| | (0.3 | ) | | (0.2 | ) | | 0.1 |
| | $ | 1.3 |
|
| Reserve for estimated product returns, net | $ | 13.6 |
| | 79.4 |
| | — |
| | 78.4 |
| | $ | 14.6 |
|
| Reserve for estimated cash discounts | $ | 4.1 |
| | 28.3 |
| | — |
| | 27.8 |
| | $ | 4.6 |
|
| Reserve for estimated other deductions | $ | 3.6 |
| | 25.7 |
| | — |
| | 25.1 |
| | $ | 4.2 |
|
| Deferred tax asset valuation allowance | $ | 14.2 |
| | 0.2 |
| | (6.7 | ) | | 4.1 |
| | $ | 3.6 |
|
| Year Ended August 31, 2017 | |
| | |
| | |
| | |
| | |
|
| Reserve for doubtful accounts | $ | 1.7 |
| | 0.3 |
| | 0.1 |
| | 0.2 |
| | $ | 1.9 |
|
| Reserve for estimated product returns, net | $ | 10.9 |
| | 84.7 |
| | — |
| | 82.0 |
| | $ | 13.6 |
|
| Reserve for estimated cash discounts | $ | 4.7 |
| | 29.0 |
| | — |
| | 29.6 |
| | $ | 4.1 |
|
| Reserve for estimated other deductions | $ | 1.7 |
| | 20.5 |
| | — |
| | 18.6 |
| | $ | 3.6 |
|
| Deferred tax asset valuation allowance | $ | 16.4 |
| | 1.5 |
| | (0.6 | ) | | 3.1 |
| | $ | 14.2 |
|
| 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 |
|
