ACUITY BRANDS, INC.
ACUITY BRANDS, INC.
Acuity Brands, Inc. (“Acuity Brands”) is the parent company of Acuity Brands Lighting, Inc. (“ABL”) and other wholly-owned subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred to herein as “we,” “our,” “us,” “the Company,"” or similar references) and was incorporated in 2001 under the laws of the State of Delaware. We are one of the world’s leading providers ofa market-leading industrial technology company that develops, manufactures, and provides lighting and building management solutions and services for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. Our lighting and building management solutions include devices such as luminaires, lighting controls, controllerscontrols for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systems designed to optimize energy efficiency and comfort for various indoor and outdoor applications. Additionally, we continue to expand our solutions portfolio, including software and services, to provide a host of other economic benefits resulting from data analytics that enables the Internet of Things (“IoT”), supports the advancement of smart buildings, smart cities, and the smart grid, and allows businesses to develop custom applications to scale their operations. We have one1 reportable segment serving the North American lighting market and select international markets.
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.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
We utilize valuation methodologies to determine the fair values of our 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.
We 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.
The carrying values and estimated fair values of certain of our financial instruments (Level 2) were as follows at February 28, 2019 and August 31, 2018as of the dates presented (in millions):
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).
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 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 our management of liquidity and other risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.
Inventories include materials, labor, inbound freight, and related manufacturing overhead, are stated at the lower of cost (on a first-in, first-out or average cost basis) or market,and net realizable value, and consist of the following as of the dates presented (in millions):
Note 9 — Goodwill and Intangible Assets
Through multiple acquisitions, we acquired definite-lived intangible assets consisting primarily of trademarks and trade names associated with specific products, 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.
We recorded amortization expense of $10.4 million and $7.7 million during the three months ended February 29, 2020 and February 28, 2019, respectively, and $20.0 million and $15.4 million during the six months ended February 29, 2020 and February 28, 2019, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $40.9 million in fiscal 2020, $38.9 million in fiscal 2021, $38.0 million in fiscal 2022, $36.8 million in fiscal 2023, and $36.0 million in fiscal 2024.
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following table summarizes the changes in the carrying amount of goodwill during the periods presented (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended |
| | February 28, 2019 | | February 28, 2018 |
| | Before Tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount | | Before Tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount |
| Foreign currency translation adjustments | $ | (3.9 | ) | | $ | — |
| | $ | (3.9 | ) | | $ | (8.0 | ) | | $ | — |
| | $ | (8.0 | ) |
| Defined benefit pension plans: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Actuarial gain or loss | 1.3 |
| | (0.4 | ) | | 0.9 |
| | — |
| | — |
| | — |
|
| Amortization of defined benefit pension items: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Prior service cost | 1.5 |
| | (0.3 | ) | | 1.2 |
| | 1.6 |
| | (0.6 | ) | | 1.0 |
|
| Actuarial losses | 2.1 |
| | (0.5 | ) | | 1.6 |
| | 3.4 |
| | (1.0 | ) | | 2.4 |
|
| Settlement losses | 0.4 |
| | (0.1 | ) | | 0.3 |
| | — |
| | — |
| | — |
|
| Total defined benefit pension plans, net | 5.3 |
| | (1.3 | ) | | 4.0 |
| | 5.0 |
| | (1.6 | ) | | 3.4 |
|
| Other comprehensive loss | $ | 1.4 |
| | $ | (1.3 | ) | | $ | 0.1 |
| | $ | (3.0 | ) | | $ | (1.6 | ) | | $ | (4.6 | ) |
|
| | | | | | | |
| | Six Months Ended |
| | February 29, 2020 | | February 28, 2019 |
| Beginning balance | $ | 967.3 |
| | $ | 970.6 |
|
| Provisional additions from acquired businesses | 147.8 |
| | — |
|
| Adjustments to provisional amounts from acquired businesses | (23.9 | ) | | — |
|
| Foreign currency translation adjustments | (1.6 | ) | | (2.1 | ) |
| Ending balance | $ | 1,089.6 |
| | $ | 968.5 |
|
Further discussion of goodwill and other intangible assets is included within the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
Note 1210 — Debt and Lines of Credit
Lines of Credit
On June 29, 2018, we entered into a credit agreement (“Credit Agreement”) with a syndicate of banks that provides us with a $400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) and a $400.0 million unsecured delayed draw term loan facility (“Term Loan Facility”). We had no0 borrowings outstanding under the current Revolving Credit Facility as of February 29, 2020 or August 31, 2019. We had $400.0 million in borrowings outstanding under the Term Loan Facility as of February 28, 2019. Additionally, we had no29, 2020 and 0 borrowings outstanding under our previous credit facilitythe Term Loan Facility as of August 31, 20182019. Based on the repayment schedule detailed below, $385.0 million of the borrowings under the Term Loan Facility are reflected within .Long-termdebt on the Consolidated Balance Sheets as of February 29, 2020.
Generally, amounts outstanding under the Revolving Credit Facility allow for borrowings to bear interest at either the Eurocurrency Rate or the base rate at our option, plus an applicable margin. Eurocurrency Rate advances can be denominated in a variety of currencies, including U.S. Dollars, and amounts outstanding bear interest at a periodic fixed rate equal to the London Interbank Offered Rate (“LIBOR”)LIBOR or screen rate for the applicable currency plus an applicable margin. The Eurocurrency applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 1.000% to 1.375%. Base rate advances bear interest at an alternate base rate plus an applicable margin. The base rate applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.000% to 0.375%. The Term Loan Facility allows for borrowings to be drawn over a one-year period ending June 29,December 31, 2019, utilizing up to four4 separate installments, which are U.S. dollar denominated. Borrowings under the Term Loan Facility will amortize in equal quarterly installments of 2.5% per year in year one, 2.5% per year in year two, 5.0% per year in year three, 5.0% per year in year four, and 7.5% per year in year five. Any remaining borrowings under the Term Loan Facility are due and payable in full on June 29, 2023. The Term Loan Facility allowsallowed for borrowings to bear interest at either a Eurocurrency Rate or the base rate, at our option, in each case plus an applicable margin. Eurocurrency Rate advances can be denominated in a variety of currencies, including U.S. Dollars, and amounts outstanding bear interest at a periodic fixed rate equal to the LIBOR or screen rate for the applicable currency plus an applicable margin. The Eurocurrency applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.875% to 1.250%. Base Rate advances bear interest at an alternate base rate plus an applicable margin. The base rate applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.0% to 0.25%.
We are required to pay certain fees in connection with the Credit Agreement, including administrative service fees and annual facility fees. The annual facility fee is payable quarterly, in arrears, and is determined by our leverage ratio as defined in the Credit Agreement. The facility fee ranges from 0.125% to 0.25% of the aggregate $800.0 million commitment of the lenders under the Credit Agreement. The Credit Agreement contains financial covenants, including a minimum interest expense coverage ratio (“Minimum Interest Expense Coverage Ratio”) and a leverage ratio (“Maximum Leverage Ratio”) of total indebtedness to earnings before interest, 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.
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
We were in compliance with all financial covenants under the Credit Agreement as of February 28, 2019.29, 2020. At February 28, 2019,29, 2020, we had additional borrowing capacity under the Credit Agreement of $794.7$396.2 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility and the Term Loan Facility less the outstanding letters of credit of $5.3$3.8 million issued under the Revolving Credit Facility. As of February 28, 2019,29, 2020, we had outstanding letters of credit totaling $9.5$8.1 million, primarily for securing collateral requirements under our casualty insurance programs and for providing credit support for our industrial revenue bond, (not an outstanding amountwhich includes the $3.8 million issued under the Revolving Credit Facility)Facility.
Borrowings and repayments on our Revolving Credit Facility with terms of three months or less are reported on a net basis on our Consolidated Statements of Cash Flows.
Long-term Debt
At February 28,On December 16, 2019, we hadrepaid $350.0 million of publicly-traded, senior unsecured notes outstanding at a 6%in full plus accrued interest rate that are scheduled to mature in December 2019 (the “Unsecured Notes”). Although the Unsecured Notes will mature within one year from February 28, 2019, we have the ability and intent to refinance thesewith borrowings using availability under our Term Loan Facility, subjectFacility.
In addition to satisfying the applicable conditions precedent. Currently, we plan to refinance the Unsecured Notes in full withlong-term portion of borrowings under the Term Loan Facility, of which $343.3 million of the current carrying value would be due more than one year from the refinancing date. As such, this amount is reflected within Long-term debt on the Consolidated Balance Sheets as of February 28, 2019. We alsowe had $4.0 million of tax-exempt industrial revenue bonds that are scheduled to mature in 2021 and $3.0$2.2 million outstanding under fixed-rate bank loans outstanding at February 28, 2019.29, 2020. Further discussion of our long-term debt is included within the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
Interest Expense, net
Interest expense, net, is comprised primarily of interest expense on long-term debt, obligations in connection with non-qualified retirement benefits, and Revolving Credit Facility borrowings, partially offset by interest income earned on cash and cash equivalents.
The following table summarizes the components of interest expense, net for the three andsix months ended February 28, 2019 and 2018periods presented (in millions):
| | | | Three Months Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
| | February 28, 2019 |
| February 28, 2018 | | February 28, 2019 |
| February 28, 2018 | February 29, 2020 |
| February 28, 2019 | | February 29, 2020 |
| February 28, 2019 |
| Interest expense | $ | 9.1 |
| | $ | 8.7 |
| | $ | 18.3 |
| | $ | 17.4 |
| $ | 6.8 |
| | $ | 9.1 |
| | $ | 15.8 |
| | $ | 18.3 |
|
| Interest income | (0.5 | ) | | (0.7 | ) | | (1.0 | ) | | (1.3 | ) | (1.1 | ) | | (0.5 | ) | | (1.8 | ) | | (1.0 | ) |
| Interest expense, net | $ | 8.6 |
| | $ | 8.0 |
| | $ | 17.3 |
| | $ | 16.1 |
| $ | 5.7 |
| | $ | 8.6 |
| | $ | 14.0 |
| | $ | 17.3 |
|
Note 1311 — Commitments and Contingencies
In the normal course of business, we are subject to the effects of certain contractual stipulations, events, transactions, and laws and regulations that may, at times, require the recognition of liabilities, such as those related to self-insurance reservesestimated liabilities and claims, legal and contractual issues, environmental laws and regulations, guarantees, and indemnities. We establish reservesestimated liabilities when the associated costs related to uncertainties or guarantees become probable and can be reasonably estimated. For the period ended February 28, 2019,29, 2020, no material changes have occurred in our reservesestimated liabilities for self-insurance, litigation, environmental matters, guarantees and indemnities, or relevant events and circumstances, from those disclosed in the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Product Warranty and Recall Costs
Our products generally have a standard warranty term of five years 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. However, there can be no assurance that future warranty or recall costs will not exceed historical amounts or that new technology products 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 our results of operations and cash flows.
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Estimated liabilities for these product warranty and recall costs are included in Other accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets. The following table summarizes changes in the reservesestimated liabilities for product warranty and recall costs duringfor the six months ended February 28, 2019 and 2018 are summarized as followsperiods presented (in millions):
| | | | Six Months Ended | Six Months Ended |
| | February 28, 2019 | | February 28, 2018 | February 29, 2020 | | February 28, 2019 |
| Beginning balance | $ | 27.3 |
| | $ | 22.0 |
| $ | 11.5 |
| | $ | 27.3 |
|
| Warranty and recall costs | 9.6 |
| | 15.1 |
| 12.5 |
| | 9.6 |
|
| Payments and other deductions | (9.2 | ) | | (13.1 | ) | (12.5 | ) | | (9.2 | ) |
| Acquired warranty and recall liabilities | | 0.1 |
| | — |
|
ASC 606 adjustments (1) | (14.8 | ) | | — |
| — |
| | (14.8 | ) |
| Ending balance | $ | 12.9 |
| | $ | 24.0 |
| $ | 11.6 |
| | $ | 12.9 |
|
______________________________
(1) Certain service-type warranties accounted for as contingent liabilities prior to the adoption of ASC 606, Revenue from Contracts with Customers (“ASC 606”), are now reflected as contract liabilities effective September 1, 2018. Refer
Lighting Science Group Patent Litigation
On April 30, 2019 and May 1, 2019, Lighting Science Group Corp. (“LSG”) filed complaints in the International Trade Commission and United States District Court for the District of Delaware, respectively, alleging infringement of 8 patents by the Company and others. On May 17, 2019, LSG amended both of its complaints and dropped its claims regarding 1 of the patents. For the remaining 7 patents, LSG’s infringement allegations relate to certain of our LED luminaires and related systems. LSG seeks orders from the International Trade Commission to preclude the importation and sale of the accused products. LSG seeks unspecified monetary damages, costs, and attorneys’ fees in the District of Delaware action. We dispute and have numerous defenses to the New Accounting Pronouncements allegations, and Revenue Recognition footnoteswe intend to vigorously defend against LSG’s claims. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for additional information.monetary damages and a request for an exclusion order and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we currently are unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from these matters.
Securities Class Action
On January 3, 2018, a shareholder filed a class action complaint in the United States District Court for the District of Delaware against the Companyus and certain of our officers on behalf of all persons who purchased or otherwise acquired our stock between June 29, 2016 and April 3, 2017. On February 20, 2018, a different shareholder filed a second class action complaint in the same venue against the same parties on behalf of all persons who purchased or otherwise acquired our stock between October 15, 2015 and April 3, 2017. The cases were transferred on April 30, 2018, to the United States District Court for the Northern District of Georgia and subsequently were consolidated as In re Acuity Brands, Inc. Securities Litigation, Civil Action No. 1:18-cv-02140-MHC (N.D. Ga.). On October 5, 2018, the court appointedcourt-appointed lead plaintiff filed a consolidated amended class action complaint (the “Consolidated Complaint”), which supersedes the initial complaints. The Consolidated Complaint is brought on behalf of all persons who purchased our common stock between October 7, 2015 and April 3, 2017 and alleges that the Companywe and certain of our current officers and one1 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’sour products and (ii) overstated our ability to achieve profitable sales growth. The plaintiffs seek class certification, unspecified monetary damages, costs, and attorneys’ fees. We dispute the allegations in the complaints and intend to vigorously defend against the claims in the complaints.claims. We have filed a motion to dismiss the Consolidated Complaint. On August 12, 2019, the court entered an order granting our motion to dismiss in part and dismissing all claims based on 42 of the 47 statements challenged in the Consolidated Complaint but also denying the motion in part and allowing claims based on 5 challenged statements to proceed to discovery. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we are currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from the matters described above. We maintain Directorare insured, in excess of a self-retention, for Directors and Officer insurance policies that may cover any liability arising out of this litigation up to the policies’ limits, subject to a self-insured retention and other terms and conditions.Officers liability.
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Litigation
We 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 any such pending and threatened legal proceedings will not have a material adverse effect on our financial condition, results of operations, or cash 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 our financial condition, results of operations, or cash flows in future periods. We establish reserves for legal claims when associated costs become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher than the amounts reserved for such claims. However, we cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the amounts reserved.
Trade Compliance Matters
In the course of routine reviews of import and export activity, we previously determined that we misclassified and/or inaccurately valued certain international shipments of products. We are conducting a detailed review of this activity to determine the extent of any liabilities and implementing the appropriate remedial measures. At this time, we are unable to determine the likelihood or amount of loss, if any, associated with these shipments.
Litigation
We 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 our financial condition, results of operations, or cash 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 our financial condition, results of operations, or cash flows in future periods. We 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 accrued for such claims. However, we cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the accrued amounts.
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 12 — Changes in Stockholders' Equity
The following tables summarize changes in the components of stockholders' equity for the periods presented (in millions):
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock Outstanding | | | | | | | | | | |
| | Shares | | Amount | | Paid-in Capital | | Retained Earnings | | Accumulated Other
Comprehensive
Loss | | Treasury Stock, at cost | | Total |
| Balance, August 31, 2019 | 39.5 |
| | $ | 0.5 |
| | $ | 930.0 |
| | $ | 2,295.8 |
| | $ | (151.4 | ) | | $ | (1,156.0 | ) | | $ | 1,918.9 |
|
| Net income | — |
| | — |
| | — |
| | 57.0 |
| | — |
| | — |
| | 57.0 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 3.8 |
| | — |
| | 3.8 |
|
| Share-based payment amortization, issuances, and cancellations | — |
| | — |
| | 12.6 |
| | — |
| | — |
| | — |
| | 12.6 |
|
| Employee stock purchase plan issuances | — |
| | — |
| | 0.2 |
| | — |
| | — |
| | — |
| | 0.2 |
|
| Cash dividends of $0.13 per share paid on common stock | — |
| | — |
| | — |
| | (5.2 | ) | | — |
| | — |
| | (5.2 | ) |
| Balance, November 30, 2019 | 39.5 |
| | 0.5 |
| | 942.8 |
| | 2,347.6 |
| | (147.6 | ) | | (1,156.0 | ) | | 1,987.3 |
|
| Net income | — |
| | — |
| | — |
| | 57.2 |
| | — |
| | — |
| | 57.2 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (2.0 | ) | | — |
| | (2.0 | ) |
| Share-based payment amortization, issuances, and cancellations | — |
| | — |
| | 7.5 |
| | — |
| | — |
| | — |
| | 7.5 |
|
| Employee stock purchase plan issuances | — |
| | — |
| | 0.2 |
| | — |
| | — |
| | — |
| | 0.2 |
|
| Cash dividends of $0.13 per share paid on common stock | — |
| | — |
| | — |
| | (5.2 | ) | | — |
| | — |
| | (5.2 | ) |
| Stock options exercised | — |
| | — |
| | 0.1 |
| | — |
| | — |
| | — |
| | 0.1 |
|
| Balance, February 29, 2020 | 39.5 |
| | $ | 0.5 |
| | $ | 950.6 |
| | $ | 2,399.6 |
| | $ | (149.6 | ) | | $ | (1,156.0 | ) | | $ | 2,045.1 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock Outstanding | | | | | | | | | | |
| | Shares | | Amount | | Paid-in Capital | | Retained Earnings | | Accumulated Other
Comprehensive
Loss | | 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 | — |
| | — |
| | — |
| | 79.6 |
| | — |
| | — |
| | 79.6 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (6.2 | ) | | — |
| | (6.2 | ) |
| ASC 606 adjustments | — |
| | — |
| | — |
| | (13.0 | ) | | — |
| | — |
| | (13.0 | ) |
| Share-based payment amortization, issuances, and cancellations | 0.1 |
| | — |
| | 3.8 |
| | — |
| | — |
| | — |
| | 3.8 |
|
| Employee stock purchase plan issuances | — |
| | — |
| | 0.1 |
| | — |
| | — |
| | — |
| | 0.1 |
|
| Cash dividends of $0.13 per share paid on common stock | — |
| | — |
| | — |
| | (5.2 | ) | | — |
| | — |
| | (5.2 | ) |
| Repurchases of common stock | (0.2 | ) | | — |
| | — |
| | — |
| | — |
| | (25.0 | ) | | (25.0 | ) |
| Balance, November 30, 2018 | 39.9 |
| | 0.5 |
| | 910.2 |
| | 2,060.6 |
| | (121.0 | ) | | (1,099.4 | ) | | 1,750.9 |
|
| Net income | — |
| | — |
| | — |
| | 66.3 |
| | — |
| | — |
| | 66.3 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 6.3 |
| | — |
| | 6.3 |
|
| Share-based payment amortization, issuances, and cancellations | — |
| | — |
| | 7.1 |
| | — |
| | — |
| | — |
| | 7.1 |
|
| Employee stock purchase plan issuances | — |
| | — |
| | 0.2 |
| | — |
| | — |
| | — |
| | 0.2 |
|
| Cash dividends of $0.13 per share paid on common stock | — |
| | — |
| | — |
| | (5.3 | ) | | — |
| | — |
| | (5.3 | ) |
| Repurchases of common stock | (0.2 | ) | | — |
| | — |
| | — |
| | — |
| | (23.7 | ) | | (23.7 | ) |
| Balance, February 28, 2019 | 39.7 |
| | $ | 0.5 |
| | $ | 917.5 |
| | $ | 2,121.6 |
| | $ | (114.7 | ) | | $ | (1,123.1 | ) | | $ | 1,801.8 |
|
Note 13 — 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 allowances for rebates, sales incentives, product returns, and discounts to customers. Further details regarding revenue recognition are included within the Revenue Recognition footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 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 consists of the following as of the periods presented (in millions):
|
| | | | | | | |
| | February 29, 2020 | | August 31, 2019 |
| Current deferred revenues | $ | 7.0 |
| | $ | 4.7 |
|
| Non-current deferred revenues | 50.1 |
| | 46.4 |
|
Current deferred revenues primarily consist of software licenses as well as professional service and sales-type warranty fees collected prior to performing the related service. Current deferred revenues are included within Other current liabilities on the Consolidated Balance Sheets. These services are expected to be performed within one year. Non-current deferred revenues primarily consist of long-term service-type warranties, which are typically recognized ratably as revenue between five and ten years from the date of sale, and are included within Other long-term liabilities on the Consolidated Balance Sheets. Revenue recognized from beginning balances of contract liabilities during the six months ended February 29, 2020 totaled $2.4 million.
Unsatisfied performance obligations as of February 29, 2020 that do not represent contract liabilities consist primarily of orders for physical goods that have not yet been shipped, which are typically shipped within a few weeks of order receipt.
Disaggregated Revenues
Our lighting and building management solutions are sold primarily through independent sales agents who cover specific geographic areas and market channels, by internal sales representatives, through consumer retail channels, and directly to large corporate accounts. The following table shows revenue from contracts with customers by sales channel for the periods presented (in millions):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | February 29, 2020 | | February 28, 2019 | | February 29, 2020 | | February 28, 2019 |
| Independent sales network | $ | 596.9 |
| | $ | 572.4 |
| | $ | 1,214.9 |
| | $ | 1,223.4 |
|
| Direct sales network | 73.3 |
| | 87.3 |
| | 157.6 |
| | 186.3 |
|
| Retail sales | 56.8 |
| | 73.6 |
| | 110.2 |
| | 158.8 |
|
| Corporate accounts | 54.8 |
| | 74.4 |
| | 88.3 |
| | 125.6 |
|
| Other | 42.4 |
| | 46.7 |
| | 87.9 |
| | 92.9 |
|
| Total | $ | 824.2 |
| | $ | 854.4 |
| | $ | 1,658.9 |
| | $ | 1,787.0 |
|
Note 14 — Share-based Payments
We account for share-based payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors over the related requisite service period, including stock options, performance share units, and restricted shares (all part of our equity incentive plan), andas well as share units representing certain deferrals into our director deferred compensation plan or our supplemental deferred savings plan.
The following table presents share-based payment expense and new shares issued upon exercise of stock options for the three andsix months ended February 28, 2019 and 2018periods presented (in millions, except shares)millions):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| Six Months Ended |
| | February 28, 2019 |
| February 28, 2018 |
| February 28, 2019 |
| February 28, 2018 |
| Share-based payment expense | $ | 7.5 |
| | $ | 8.3 |
| | $ | 15.3 |
| | $ | 16.8 |
|
| Shares issued from option exercises | — |
| | 3,208 |
| | — |
| | 9,364 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | February 29, 2020 | | February 28, 2019 | | February 29, 2020 | | February 28, 2019 |
| Share-based payment expense | $ | 8.0 |
| | $ | 7.5 |
| | $ | 24.7 |
| | $ | 15.3 |
|
Further details regarding each of theseour stock options, restricted shares, and director compensation award programs and our share-based payments are included within the Share-based Payments footnote of the Notes to Consolidated Financial
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Statements within our Form 10-K.
Equity Plan Updates
Beginning in fiscal 2020, the Board of Directors (the “Board”) approved grants of performance share units to certain executives and key employees. These shares vest over a three-year period and are valued at the closing stock price on the date of grant. During the second quarter, additional performance shares were issued to certain key employees that vest over a two-year period based on the level of achievement of established performance thresholds and were valued at the closing stock price on the date of grant. The actual number of performance shares earned for these awards will be determined at the end of the related two-year or three-year period based on the level of achievement of established performance thresholds. We recognize compensation expense for these awards proportionately over the requisite service period for each employee when it becomes probable that the performance metric will be satisfied. As of February 29, 2020, we had approximately 67,000 performance share units outstanding.
Additionally, effective for restricted stock and performance share grants awarded in October 2019 and thereafter, the Board 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 10 years of service with the Company. As such, for awards granted in October 2019 and later, we deem the requisite service period 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.
Stock Options
As of February 29, 2020, we had approximately 917,000 options outstanding to officers and other key employees. The increase from the prior fiscal year end was due to a grant on January 31, 2020 of 500,000 options that have an exercise price equal to or greater than the fair market value of our stock as of the grant date. Of these options, 400,000 vest and become exercisable over a three year period (the "Service Options"). The remaining 100,000 vest and become exercisable over a four year period and are also subject to a market condition (the "Market Options"). All of these options expire after ten years from the date of grant.
The following weighted average assumptions were used to estimate the fair value of stock options granted in the second quarter fiscal 2020:
|
| | | |
| | Service Options | | Market Options |
| Valuation Methodology | Black-Scholes | | Monte Carlo Simulation |
| Dividend yield | 0.4% | | 0.4% |
| Expected volatility | 33.7% | | 33.7% |
| Risk-free interest rate | 1.3% | | 1.5% |
| Expected life of options | 5 years | | 7 years |
| Weighted-average fair value of options | $34.22 | | $44.74 |
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 options. All inputs noted above 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.
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Stock option activity during the periods presented was as follows:
|
| | | | | | | |
| | Outstanding | | Exercisable |
| | Number of Shares (in millions) | | Weighted Average Exercise Price | | Number of Shares (in millions) | | Weighted Average Exercise Price |
| Outstanding at August 31, 2019 | 0.4 | | $146.70 | | 0.3 | | $147.51 |
| Granted | 0.5 | | $121.87 | | | | |
| Exercised | — | * | $116.36 | | | | |
| Canceled | — | * | — | | | | |
| Outstanding at February 29, 2020 | 0.9 | | $133.18 | | 0.4 | | $151.07 |
| | | | | | | | |
| Range of option exercise prices: | | | | | | | |
| $40.01 - $100.00 (average life - 2.6 years) | 0.1 | | $62.25 | | 0.1 | | $62.25 |
| $100.01 - $160.00 (average life - 8.8 years) | 0.7 | | $123.02 | | 0.2 | | $126.16 |
| $160.01 - $210.00 (average life - 5.7 years) | 0.1 | | $207.80 | | 0.1 | | $207.80 |
| $210.01 - $239.76 (average life - 6.7 years) | — | * | $239.76 | | — | * | $239.76 |
___________________________
* Represents shares of less than 0.1 million.
There were 522 shares issued from option exercises during fiscal 2020, and 0 options were exercised during fiscal 2019. As of February 29, 2020, the total intrinsic value of options outstanding was $2.6 million, the total intrinsic value of options expected to vest was $2.6 million, and the total intrinsic value of options exercisable was $2.6 million. As of February 29, 2020, there was $18.2 million of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted-average period of approximately 2.2 years.
Note 15 — 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 make at least the minimum annual contributions to the plans to the extent indicated by actuarial valuations and statutory requirements. Plan assets are invested primarily in equity and fixed income securities.
Service cost of net periodic pension cost is allocated between Cost of products sold and Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the nature of the employee's services. All other components of net periodic pension cost are included within Miscellaneous expense, net in the Consolidated Statements of Comprehensive Income. Net periodic pension cost during the three andsix months ended February 28, 2019 and 2018 included the following components before tax for the periods presented (in millions):
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
| | | | Three Months Ended |
| Six Months Ended | Three Months Ended |
| Six Months Ended |
| | February 28, 2019 |
| February 28, 2018 |
| February 28, 2019 |
| February 28, 2018 | February 29, 2020 |
| February 28, 2019 |
| February 29, 2020 |
| February 28, 2019 |
| Service cost | $ | 0.8 |
| | $ | 0.7 |
| | $ | 1.6 |
| | $ | 1.4 |
| $ | 1.1 |
| | $ | 0.8 |
| | $ | 2.3 |
| | $ | 1.6 |
|
| Interest cost | 2.3 |
| | 2.2 |
| | 4.5 |
| | 4.4 |
| 1.9 |
| | 2.3 |
| | 3.7 |
| | 4.5 |
|
| Expected return on plan assets | (3.2 | ) | | (3.1 | ) | | (6.3 | ) | | (6.2 | ) | (3.1 | ) | | (3.2 | ) | | (6.2 | ) | | (6.3 | ) |
| Amortization of prior service cost | 0.7 |
| | 0.8 |
| | 1.5 |
| | 1.6 |
| 1.0 |
| | 0.7 |
| | 2.0 |
| | 1.5 |
|
| Settlement loss | — |
| | — |
| | 0.4 |
| | — |
| — |
| | — |
| | — |
| | 0.4 |
|
| Recognized actuarial loss | 1.0 |
| | 1.7 |
| | 2.1 |
| | 3.4 |
| 1.4 |
| | 1.0 |
| | 2.8 |
| | 2.1 |
|
| Net periodic pension cost | $ | 1.6 |
| | $ | 2.3 |
| | $ | 3.8 |
| | $ | 4.6 |
| $ | 2.3 |
| | $ | 1.6 |
| | $ | 4.6 |
| | $ | 3.8 |
|
Further details regarding our pension plans are included within the Pension and Defined Contribution Plans footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 16 — Special ChargeCharges
During fiscal 2019,2020, we recognized pre-tax special charges of $1.4$8.5 million. These chargesThe fiscal 2020 special charge consisted primarily of severance costs and ROU asset lease impairments related to moveplanned facility closures. Additionally, we recognized charges for relocation costs and ROU lease asset impairment charges associated with the previously announced transfer of activities from a planned facility closure. During fiscal 2018, we recognized special charges consisting primarily of severanceclosures. We expect these actions to streamline our business activities and employee-related benefit costs for the elimination ofto integrate recent acquisitions will allow us to reduce spending in certain operationsareas while permitting continued investment in future growth initiatives, such as new products, expanded market presence, and positions following a realignment of our operating structure, including positions within various selling, distribution,technology and administrative (“SD&A”) departments.innovation. Further details regarding our special charges are included within the Special ChargeCharges footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
CostsThe following table summarizes costs reflected within Special chargecharges on the Consolidated Statements of Comprehensive Income for the three and six months ended February 28, 2019 and 2018 are summarized as followsperiods presented (in millions):
| | | | Three Months Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
| | February 28, 2019 | | February 28, 2018 | | February 28, 2019 | | February 28, 2018 | February 29, 2020 | | February 28, 2019 | | February 29, 2020 | | February 28, 2019 |
| Severance and employee-related costs | $ | (0.3 | ) | | $ | 0.6 |
| | $ | (0.8 | ) | | $ | 0.8 |
| $ | 0.6 |
| | $ | (0.3 | ) | | $ | 5.7 |
| | $ | (0.8 | ) |
| Move and other restructuring costs | 0.7 |
| | — |
| | 2.2 |
| | — |
| |
| Other restructuring costs | | 1.0 |
| | 0.7 |
| | 2.8 |
| | 2.2 |
|
| Total special charges | $ | 0.4 |
| | $ | 0.6 |
| | $ | 1.4 |
| | $ | 0.8 |
| $ | 1.6 |
| | $ | 0.4 |
| | $ | 8.5 |
| | $ | 1.4 |
|
As of February 28, 2019,29, 2020, remaining restructuring reserves were $4.6$4.0 million and are included in Accrued compensation on the Consolidated Balance Sheets. The changes in the reserves related to these programs during the six months ended February 28, 2019period presented are summarized as follows (in millions):
| | | | Fiscal 2018 Actions | | Fiscal 2017 Actions | | Total | Fiscal 2020 Actions | | Fiscal 2019 Actions | | Fiscal 2018 Actions | | Total |
| Balance at August 31, 2018 | $ | 9.2 |
| | $ | 0.9 |
| | 10.1 |
| |
| Balance at August 31, 2019 | | $ | — |
| | $ | 1.3 |
| | $ | 0.6 |
| | 1.9 |
|
| Severance costs | (0.4 | ) | | (0.4 | ) | | (0.8 | ) | 5.8 |
| | 0.1 |
| | (0.2 | ) | | 5.7 |
|
| Payments made during the period | (4.3 | ) | | (0.4 | ) | | (4.7 | ) | (2.1 | ) | | (1.1 | ) | | (0.4 | ) | | (3.6 | ) |
| Balance at February 28, 2019 | $ | 4.5 |
| | $ | 0.1 |
| | $ | 4.6 |
| |
| Balance at February 29, 2020 | | $ | 3.7 |
| | $ | 0.3 |
| | $ | — |
| | $ | 4.0 |
|
Note 17 — Income TaxesEarnings Per Share
DuringBasic earnings per share is computed by dividing net earnings available to common stockholders by the second quarterweighted average number of fiscal 2019, we finalized our accountingcommon shares outstanding. 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.
The following table calculates basic earnings per common share and diluted earnings per common share for the tax effectsperiods presented (in millions, except per share data):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | February 29, 2020 | | February 28, 2019 | | February 29, 2020 | | February 28, 2019 |
| Net income | $ | 57.2 |
| | $ | 66.3 |
| | $ | 114.2 |
| | $ | 145.9 |
|
| Basic weighted average shares outstanding | 39.5 |
| | 39.5 |
| | 39.5 |
| | 39.7 |
|
| Common stock equivalents | 0.2 |
| | 0.1 |
| | 0.2 |
| | 0.1 |
|
| Diluted weighted average shares outstanding | 39.7 |
|
| 39.6 |
| | 39.7 |
| | 39.8 |
|
| Basic earnings per share | $ | 1.45 |
| | $ | 1.68 |
| | $ | 2.89 |
| | $ | 3.67 |
|
| Diluted earnings per share | $ | 1.44 |
|
| $ | 1.67 |
|
| $ | 2.88 |
|
| $ | 3.66 |
|
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following table presents stock options and restricted stock awards that were excluded from the diluted earnings per share calculation for the periods presented as the effect of inclusion would have been antidilutive:
|
| | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | February 29, 2020 | | February 28, 2019 | | February 29, 2020 | | February 28, 2019 |
| Stock options | 443,595 |
| | 314,673 |
| | 361,283 |
| | 290,360 |
|
| Performance stock awards | — |
| | — |
| | 7,569 |
| | — |
|
| Restricted stock awards | 102,210 |
| | 189,683 |
| | 116,962 |
| | 194,232 |
|
Further discussion of our stock options and restricted stock awards is included within the Common Stock and Related Matters and Share-based Payments footnotes of the Tax CutsNotes to Consolidated Financial Statements within our Form 10-K.
Note 18 — Comprehensive Income
Comprehensive income represents a measure of all changes in equity that result from recognized transactions and Jobs Act (“TCJA”)other economic events other than transactions with owners in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”). As a result, we recorded atheir capacity as owners. Other comprehensive income (loss) items includes foreign currency translation and pension adjustments.
The following tables summarize the changes in each component of accumulated other comprehensive loss during the periods presented (in millions):
|
| | | | | | | | | | | |
| | Foreign Currency Items | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Loss Items |
| Balance at August 31, 2019 | $ | (65.4 | ) | | $ | (86.0 | ) | | $ | (151.4 | ) |
| Other comprehensive loss before reclassifications | (1.8 | ) | | — |
| | (1.8 | ) |
Amounts reclassified from accumulated other comprehensive loss (1) | — |
| | 3.6 |
| | 3.6 |
|
| Net current period other comprehensive (loss) income | (1.8 | ) | | 3.6 |
| | 1.8 |
|
| Balance at February 29, 2020 | $ | (67.2 | ) | | $ | (82.4 | ) | | $ | (149.6 | ) |
|
| | | | | | | | | | | |
| | Foreign Currency Items | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Loss Items |
| Balance at August 31, 2018 | $ | (53.9 | ) | | $ | (60.9 | ) | | $ | (114.8 | ) |
| Other comprehensive (loss) income before reclassifications | (3.9 | ) | | 0.9 |
| | (3.0 | ) |
Amounts reclassified from accumulated other comprehensive loss (1) | — |
| | 3.1 |
| | 3.1 |
|
| Net current period other comprehensive (loss) income | (3.9 | ) | | 4.0 |
| | 0.1 |
|
| Balance at February 28, 2019 | $ | (57.8 | ) |
| $ | (56.9 | ) |
| $ | (114.7 | ) |
(1) The before tax amounts of the defined benefit pension plan items are included in net tax benefit of $0.9 million related to TCJA impacts including, but not limited to, our one-time transition tax, deferred income taxes,periodic pension cost. See the Pension and executive compensation.
Previously, we asserted that all undistributed earnings and original investments in foreign subsidiaries were indefinitely reinvested and, therefore, had not recorded any deferred taxes related to any outside basis differences associated with our foreign subsidiaries. As of February 28, 2019, the estimated undistributed earnings from foreign subsidiariesDefined Contribution Plans footnote for additional details.
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
was $78.3 million. A significant portionThe following table summarizes the tax expense or benefit allocated to each component of these earnings was subject to U.S. federal taxation in fiscal 2018 as part of the one-time transition tax. We are no longer asserting indefinite reinvestment on the portion of our unremitted earnings that were previously subject to U.S. federal taxation with the one-time transition tax. Accordingly, we recognized a deferredother comprehensive income tax liability of $0.6 million for certain foreign withholding taxes and U.S. state taxes during the current quarter. With respect to unremitted earnings and original investments in foreign subsidiaries where 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 have elected to account(loss) for the
tax on Global Intangible Low-Taxed Income (“GILTI”) as a period cost and, therefore, do not record deferred taxes related to GILTI on our foreign subsidiaries.periods presented (in millions): |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | February 29, 2020 | | February 28, 2019 |
| | Before Tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount | | Before Tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount |
| Foreign currency translation adjustments | $ | (3.7 | ) | | $ | — |
| | $ | (3.7 | ) | | $ | 4.9 |
| | $ | — |
| | $ | 4.9 |
|
| Defined benefit pension plans: | | | | | | | | | | | |
| Amortization of defined benefit pension items: | | | | | | | | | | | |
Prior service cost | 1.0 |
| | (0.3 | ) | | 0.7 |
| | 0.7 |
| | (0.1 | ) | | 0.6 |
|
| Actuarial losses | 1.4 |
| | (0.4 | ) | | 1.0 |
| | 1.0 |
| | (0.2 | ) | | 0.8 |
|
| Total defined benefit pension plans, net | 2.4 |
| | (0.7 | ) | | 1.7 |
| | 1.7 |
| | (0.3 | ) | | 1.4 |
|
| Other comprehensive (loss) income | $ | (1.3 | ) | | $ | (0.7 | ) | | $ | (2.0 | ) | | $ | 6.6 |
| | $ | (0.3 | ) | | $ | 6.3 |
|
| | | | | | | | | | | | |
| | Six Months Ended |
| | February 29, 2020 | | February 28, 2019 |
| | Before Tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount | | Before Tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount |
| Foreign currency translation adjustments | $ | (1.8 | ) | | $ | — |
| | $ | (1.8 | ) | | $ | (3.9 | ) | | $ | — |
| | $ | (3.9 | ) |
| Defined benefit pension plans: | | | | | | | | | | | |
| Actuarial gain or loss | — |
| | — |
| | — |
| | 1.3 |
| | (0.4 | ) | | 0.9 |
|
| Amortization of defined benefit pension items: | | | | | | | | | | | |
| Prior service cost | 2.0 |
| | (0.5 | ) | | 1.5 |
| | 1.5 |
| | (0.3 | ) | | 1.2 |
|
| Actuarial losses | 2.8 |
| | (0.7 | ) | | 2.1 |
| | 2.1 |
| | (0.5 | ) | | 1.6 |
|
| Settlement losses | — |
| | — |
| | — |
| | 0.4 |
| | (0.1 | ) | | 0.3 |
|
| Total defined benefit pension plans, net | 4.8 |
| | (1.2 | ) | | 3.6 |
| | 5.3 |
| | (1.3 | ) | | 4.0 |
|
| Other comprehensive income | $ | 3.0 |
| | $ | (1.2 | ) | | $ | 1.8 |
| | $ | 1.4 |
| | $ | (1.3 | ) | | $ | 0.1 |
|
Further details regarding the effects of the TCJA are included within the Income Taxes footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
Note 18 — 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 Unsecured Notes. See Debt and Lines of Credit footnote for further information.
In accordance with the registration rights agreement by and between ABL and the guarantors to the Unsecured Notes and the initial purchasers of the Unsecured Notes, ABL and the guarantors to the Notes filed a registration statement with the SEC for an offer to exchange the Unsecured Notes for an issue of SEC-registered notes with identical terms. Due to the filing of the registration statement and offer to exchange, we 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, we have included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(d) of SEC Regulation S-X since the Unsecured Notes are fully and unconditionally guaranteed by Acuity Brands and ABL IP Holding. The column marked “Parent” represents the financial condition, results of operations, and cash flows of Acuity Brands. The column marked “Subsidiary Issuer” represents the financial condition, results of operations, and cash flows of ABL. The column entitled “Subsidiary Guarantor” represents the financial condition, results of operations, and cash flows of ABL IP Holding. Lastly, the column listed as “Non-Guarantors” includes the financial condition, results of operations, and cash flows of the non-guarantor direct and indirect subsidiaries of Acuity Brands, which consist primarily of foreign subsidiaries. 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 (Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | February 28, 2019 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| ASSETS |
| Current assets: | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 152.1 |
| | $ | 17.8 |
| | $ | — |
| | $ | 62.1 |
| | $ | — |
| | $ | 232.0 |
|
| Accounts receivable, net | — |
| | 450.9 |
| | — |
| | 69.2 |
| | — |
| | 520.1 |
|
| Inventories | — |
| | 385.4 |
| | — |
| | 27.6 |
| | — |
| | 413.0 |
|
| Other current assets | 20.4 |
| | 29.9 |
| | — |
| | 17.2 |
| | — |
| | 67.5 |
|
| Total current assets | 172.5 |
| | 884.0 |
| | — |
| | 176.1 |
| | — |
| | 1,232.6 |
|
| Property, plant, and equipment, net | 0.1 |
| | 224.6 |
| | — |
| | 59.5 |
| | — |
| | 284.2 |
|
| Goodwill | — |
| | 746.3 |
| | 2.7 |
| | 219.5 |
| | — |
| | 968.5 |
|
| Intangible assets, net | — |
| | 278.8 |
| | 105.1 |
| | 98.5 |
| | — |
| | 482.4 |
|
| Deferred income taxes | 36.1 |
| | — |
| | — |
| | 6.2 |
| | (39.4 | ) | | 2.9 |
|
| Other long-term assets | 0.3 |
| | 19.1 |
| | — |
| | 1.8 |
| | — |
| | 21.2 |
|
| Investments in and amounts due from affiliates | 1,698.8 |
| | 491.4 |
| | 300.4 |
| | — |
| | (2,490.6 | ) | | — |
|
| Total assets | $ | 1,907.8 |
| | $ | 2,644.2 |
| | $ | 408.2 |
| | $ | 561.6 |
| | $ | (2,530.0 | ) | | $ | 2,991.8 |
|
| | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | 0.7 |
| | $ | 325.3 |
| | $ | — |
| | $ | 25.1 |
| | $ | — |
| | $ | 351.1 |
|
| Current maturities of long-term debt | — |
| | 6.6 |
| | — |
| | 0.4 |
| | — |
| | 7.0 |
|
| Other accrued liabilities | 9.3 |
| | 175.8 |
| | — |
| | 41.2 |
| | — |
| | 226.3 |
|
| Total current liabilities | 10.0 |
| | 507.7 |
| | — |
| | 66.7 |
| | — |
| | 584.4 |
|
| Long-term debt | — |
| | 347.1 |
| | — |
| | 2.6 |
| | — |
| | 349.7 |
|
| Deferred income taxes | — |
| | 103.5 |
| | — |
| | 25.7 |
| | (39.4 | ) | | 89.8 |
|
| Other long-term liabilities | 96.0 |
| | 55.5 |
| | — |
| | 14.6 |
| | — |
| | 166.1 |
|
| Amounts due to affiliates | — |
| | — |
| | — |
| | 131.3 |
| | (131.3 | ) | | — |
|
| Total stockholders’ equity | 1,801.8 |
| | 1,630.4 |
| | 408.2 |
| | 320.7 |
| | (2,359.3 | ) | | 1,801.8 |
|
| Total liabilities and stockholders’ equity | $ | 1,907.8 |
| | $ | 2,644.2 |
| | $ | 408.2 |
| | $ | 561.6 |
| | $ | (2,530.0 | ) | | $ | 2,991.8 |
|
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | August 31, 2018 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| ASSETS |
| Current assets: | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 80.5 |
| | $ | — |
| | $ | — |
| | $ | 48.6 |
| | $ | — |
| | $ | 129.1 |
|
| Accounts receivable, net | — |
| | 560.7 |
| | — |
| | 77.2 |
| | — |
| | 637.9 |
|
| Inventories | — |
| | 386.6 |
| | — |
| | 25.2 |
| | — |
| | 411.8 |
|
| Other current assets | 2.3 |
| | 18.6 |
| | — |
| | 11.4 |
| | — |
| | 32.3 |
|
| Total current assets | 82.8 |
| | 965.9 |
| | — |
| | 162.4 |
| | — |
| | 1,211.1 |
|
| Property, plant, and equipment, net | 0.2 |
| | 226.8 |
| | — |
| | 59.7 |
| | — |
| | 286.7 |
|
| Goodwill | — |
| | 746.5 |
| | 2.7 |
| | 221.4 |
| | — |
| | 970.6 |
|
| Intangible assets, net | — |
| | 286.6 |
| | 106.5 |
| | 105.6 |
| | — |
| | 498.7 |
|
| Deferred income taxes | 36.4 |
| | — |
| | — |
| | 6.2 |
| | (39.7 | ) | | 2.9 |
|
| Other long-term assets | 1.2 |
| | 15.6 |
| | — |
| | 2.0 |
| | — |
| | 18.8 |
|
| Investments in and amounts due from affiliates | 1,707.0 |
| | 370.6 |
| | 279.5 |
| | — |
| | (2,357.1 | ) | | — |
|
| Total assets | $ | 1,827.6 |
| | $ | 2,612.0 |
| | $ | 388.7 |
| | $ | 557.3 |
| | $ | (2,396.8 | ) | | $ | 2,988.8 |
|
| | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | 0.3 |
| | $ | 420.7 |
| | $ | — |
| | $ | 30.1 |
| | $ | — |
| | $ | 451.1 |
|
| Current maturities of long-term debt | — |
| | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
|
| Other accrued liabilities | 18.8 |
| | 170.1 |
| | — |
| | 42.3 |
| | — |
| | 231.2 |
|
| Total current liabilities | 19.1 |
| | 590.8 |
| | — |
| | 72.8 |
| | — |
| | 682.7 |
|
| Long-term debt | — |
| | 353.5 |
| | — |
| | 2.9 |
| | — |
| | 356.4 |
|
| Deferred income taxes | — |
| | 106.5 |
| | — |
| | 25.7 |
| | (39.7 | ) | | 92.5 |
|
| Other long-term liabilities | 91.7 |
| | 34.0 |
| | — |
| | 14.7 |
| | — |
| | 140.4 |
|
| Amounts due to affiliates | — |
| | — |
| | — |
| | 138.8 |
| | (138.8 | ) | | — |
|
| Total stockholders’ equity | 1,716.8 |
| | 1,527.2 |
| | 388.7 |
| | 302.4 |
| | (2,218.3 | ) | | 1,716.8 |
|
| Total liabilities and stockholders’ equity | $ | 1,827.6 |
| | $ | 2,612.0 |
| | $ | 388.7 |
| | $ | 557.3 |
| | $ | (2,396.8 | ) | | $ | 2,988.8 |
|
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended February 28, 2019 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net sales: | |
| | |
| | |
| | |
| | |
| | |
|
| External sales | $ | — |
| | $ | 756.6 |
| | $ | — |
| | $ | 97.8 |
| | $ | — |
| | $ | 854.4 |
|
| Intercompany sales | — |
| | — |
| | 12.6 |
| | 50.0 |
| | (62.6 | ) | | — |
|
| Total sales | — |
| | 756.6 |
| | 12.6 |
| | 147.8 |
| | (62.6 | ) | | 854.4 |
|
| Cost of products sold | — |
| | 466.6 |
| | — |
| | 103.3 |
| | (49.4 | ) | | 520.5 |
|
| Gross profit | — |
| | 290.0 |
| | 12.6 |
| | 44.5 |
| | (13.2 | ) | | 333.9 |
|
| Selling, distribution, and administrative expenses | 10.8 |
| | 202.1 |
| | 0.7 |
| | 37.2 |
| | (13.2 | ) | | 237.6 |
|
| Intercompany charges | (0.9 | ) | | — |
| | — |
| | 0.9 |
| | — |
| | — |
|
| Special charge | — |
| | 0.4 |
| | — |
| | — |
| | — |
| | 0.4 |
|
| Operating (loss) profit | (9.9 | ) | | 87.5 |
| | 11.9 |
| | 6.4 |
| | — |
| | 95.9 |
|
| Interest expense, net | 3.0 |
| | 4.4 |
| | — |
| | 1.2 |
| | — |
| | 8.6 |
|
| Equity earnings in subsidiaries | (77.3 | ) | | (8.7 | ) | | — |
| | — |
| | 86.0 |
| | — |
|
| Miscellaneous expense (income), net | 1.5 |
| | (0.1 | ) | | — |
| | (0.3 | ) | | — |
| | 1.1 |
|
| Income before income taxes | 62.9 |
| | 91.9 |
| | 11.9 |
| | 5.5 |
| | (86.0 | ) | | 86.2 |
|
| Income tax (benefit) expense | (3.4 | ) | | 19.3 |
| | 2.5 |
| | 1.5 |
| | — |
| | 19.9 |
|
| Net income | 66.3 |
| | 72.6 |
| | 9.4 |
| | 4.0 |
| | (86.0 | ) | | 66.3 |
|
| | | | | | | | | | | | |
| Other comprehensive income (loss) items: | | | | | | | | | | | |
| Foreign currency translation adjustments | 4.9 |
| | 4.9 |
| | — |
| | — |
| | (4.9 | ) | | 4.9 |
|
| Defined benefit plans, net of tax | 1.4 |
| | 1.1 |
| | — |
| | 0.3 |
| | (1.4 | ) | | 1.4 |
|
| Other comprehensive income items, net of tax | 6.3 |
| | 6.0 |
| | — |
| | 0.3 |
| | (6.3 | ) | | 6.3 |
|
| Comprehensive income | $ | 72.6 |
| | $ | 78.6 |
|
| $ | 9.4 |
| | $ | 4.3 |
| | $ | (92.3 | ) | | $ | 72.6 |
|
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended February 28, 2018 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net sales: | |
| | |
| | |
| | |
| | |
| | |
|
| External sales | $ | — |
| | $ | 740.4 |
| | $ | — |
| | $ | 91.7 |
| | $ | — |
| | $ | 832.1 |
|
| Intercompany sales | — |
| | — |
| | 12.5 |
| | 41.2 |
| | (53.7 | ) | | — |
|
| Total sales | — |
| | 740.4 |
| | 12.5 |
| | 132.9 |
| | (53.7 | ) | | 832.1 |
|
| Cost of products sold | — |
| | 441.0 |
| | — |
| | 95.3 |
| | (38.7 | ) | | 497.6 |
|
| Gross profit | — |
| | 299.4 |
| | 12.5 |
| | 37.6 |
| | (15.0 | ) | | 334.5 |
|
| Selling, distribution, and administrative expenses | 9.6 |
| | 211.8 |
| | 0.8 |
| | 37.2 |
| | (15.0 | ) | | 244.4 |
|
| Intercompany charges | (0.8 | ) | | (0.4 | ) | | — |
| | 1.2 |
| | — |
| | — |
|
| Special charge | — |
| | 0.6 |
| | — |
| | — |
| | — |
| | 0.6 |
|
| Operating (loss) profit | (8.8 | ) | | 87.4 |
| | 11.7 |
| | (0.8 | ) | | — |
| | 89.5 |
|
| Interest expense, net | 2.6 |
| | 4.0 |
| | — |
| | 1.4 |
| | — |
| | 8.0 |
|
| Equity earnings in subsidiaries | (106.2 | ) | | (1.0 | ) | | — |
| | 0.1 |
| | 107.1 |
| | — |
|
| Miscellaneous expense, net | 1.6 |
| | 0.8 |
| | — |
| | 0.4 |
| | — |
| | 2.8 |
|
| Income (loss) before income taxes | 93.2 |
| | 83.6 |
| | 11.7 |
| | (2.7 | ) | | (107.1 | ) | | 78.7 |
|
| Income tax (benefit) expense | (3.5 | ) | | (15.0 | ) | | 0.9 |
| | (0.6 | ) | | — |
| | (18.2 | ) |
| Net income (loss) | 96.7 |
| | 98.6 |
| | 10.8 |
| | (2.1 | ) | | (107.1 | ) | | 96.9 |
|
| | | | | | | | | | | | |
| Other comprehensive income (loss) items: | | | | | | | | | | | |
| Foreign currency translation adjustments | 2.5 |
| | 2.5 |
| | — |
| | — |
| | (2.5 | ) | | 2.5 |
|
| Defined benefit plans, net of tax | 1.8 |
| | 1.3 |
| | — |
| | 0.5 |
| | (1.8 | ) | | 1.8 |
|
| Other comprehensive income items, net of tax | 4.3 |
| | 3.8 |
| | — |
| | 0.5 |
| | (4.3 | ) | | 4.3 |
|
| Comprehensive income (loss) | $ | 101.0 |
| | $ | 102.4 |
| | $ | 10.8 |
| | $ | (1.6 | ) | | $ | (111.4 | ) | | $ | 101.2 |
|
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended February 28, 2019 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net sales: | |
| | |
| | |
| | |
| | |
| | |
|
| External sales | $ | — |
| | $ | 1,585.5 |
| | $ | — |
| | $ | 201.5 |
| | $ | — |
| | $ | 1,787.0 |
|
| Intercompany sales | — |
| | — |
| | 26.3 |
| | 103.0 |
| | (129.3 | ) | | — |
|
| Total sales | — |
| | 1,585.5 |
| | 26.3 |
| | 304.5 |
| | (129.3 | ) | | 1,787.0 |
|
| Cost of products sold | — |
| | 967.1 |
| | — |
| | 219.6 |
| | (101.1 | ) | | 1,085.6 |
|
| Gross profit | — |
| | 618.4 |
| | 26.3 |
| | 84.9 |
| | (28.2 | ) | | 701.4 |
|
| Selling, distribution, and administrative expenses | 19.7 |
| | 419.8 |
| | 1.4 |
| | 75.0 |
| | (28.2 | ) | | 487.7 |
|
| Intercompany charges | (2.2 | ) | | — |
| | — |
| | 2.2 |
| | — |
| | — |
|
| Special charge | — |
| | 1.4 |
| | — |
| | — |
| | — |
| | 1.4 |
|
| Operating (loss) profit | (17.5 | ) | | 197.2 |
| | 24.9 |
| | 7.7 |
| | — |
| | 212.3 |
|
| Interest expense, net | 6.1 |
| | 8.8 |
| | — |
| | 2.4 |
| | — |
| | 17.3 |
|
| Equity earnings in subsidiaries | (166.4 | ) | | (12.0 | ) | | — |
| | 0.1 |
| | 178.3 |
| | — |
|
| Miscellaneous expense (income), net | 3.4 |
| | (0.7 | ) | | — |
| | (0.3 | ) | | — |
| | 2.4 |
|
| Income before income taxes | 139.4 |
| | 201.1 |
| | 24.9 |
| | 5.5 |
| | (178.3 | ) | | 192.6 |
|
| Income tax (benefit) expense | (6.4 | ) | | 45.9 |
| | 5.2 |
| | 2.0 |
| | — |
| | 46.7 |
|
| Net income | 145.8 |
| | 155.2 |
| | 19.7 |
| | 3.5 |
| | (178.3 | ) | | 145.9 |
|
| | | | | | | | | | | | |
| Other comprehensive income (loss) items: | | | | | | | | | | | |
| Foreign currency translation adjustments | (3.9 | ) | | (3.9 | ) | | — |
| | — |
| | 3.9 |
| | (3.9 | ) |
| Defined benefit plans, net of tax | 4.0 |
| | 2.3 |
| | — |
| | 0.6 |
| | (2.9 | ) | | 4.0 |
|
| Other comprehensive income (loss) items, net of tax | 0.1 |
| | (1.6 | ) | | — |
| | 0.6 |
| | 1.0 |
| | 0.1 |
|
| Comprehensive income | $ | 145.9 |
| | $ | 153.6 |
| | $ | 19.7 |
| | $ | 4.1 |
| | $ | (177.3 | ) | | $ | 146.0 |
|
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended February 28, 2018 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net sales: | |
| | |
| | |
| | |
| | |
| | |
|
| External sales | $ | — |
| | $ | 1,484.6 |
| | $ | — |
| | $ | 190.3 |
| | $ | — |
| | $ | 1,674.9 |
|
| Intercompany sales | — |
| | — |
| | 24.5 |
| | 84.7 |
| | (109.2 | ) | | — |
|
| Total sales | — |
| | 1,484.6 |
| | 24.5 |
| | 275.0 |
| | (109.2 | ) | | 1,674.9 |
|
| Cost of products sold | — |
| | 871.1 |
| | — |
| | 200.2 |
| | (80.8 | ) | | 990.5 |
|
| Gross profit | — |
| | 613.5 |
| | 24.5 |
| | 74.8 |
| | (28.4 | ) | | 684.4 |
|
| Selling, distribution, and administrative expenses | 20.2 |
| | 406.5 |
| | 1.6 |
| | 74.0 |
| | (28.4 | ) | | 473.9 |
|
| Intercompany charges | (1.9 | ) | | (0.8 | ) | | — |
| | 2.7 |
| | — |
| | — |
|
| Special charge | — |
| | 0.8 |
| | — |
| | — |
| | — |
| | 0.8 |
|
| Operating (loss) profit | (18.3 | ) | | 207.0 |
| | 22.9 |
| | (1.9 | ) | | — |
| | 209.7 |
|
| Interest expense, net | 5.3 |
| | 8.0 |
| | — |
| | 2.8 |
| | — |
| | 16.1 |
|
| Equity earnings in subsidiaries | (187.1 | ) | | (2.1 | ) | | — |
| | 0.1 |
| | 189.1 |
| | — |
|
| Miscellaneous expense (income), net | 3.2 |
| | 1.3 |
| | — |
| | (0.5 | ) | | — |
| | 4.0 |
|
| Income (loss) before income taxes | 160.3 |
| | 199.8 |
| | 22.9 |
| | (4.3 | ) | | (189.1 | ) | | 189.6 |
|
| Income tax (benefit) expense | (8.5 | ) | | 27.2 |
| | 3.0 |
| | (0.5 | ) | | — |
| | 21.2 |
|
| Net income (loss) | 168.8 |
| | 172.6 |
| | 19.9 |
| | (3.8 | ) | | (189.1 | ) | | 168.4 |
|
| | | | | | | | | | | | |
| Other comprehensive income (loss) items: | | | | | | | | | | | |
| Foreign currency translation adjustments | (8.0 | ) | | (8.0 | ) | | — |
| | — |
| | 8.0 |
| | (8.0 | ) |
| Defined benefit plans, net of tax | 3.4 |
| | 2.5 |
| | — |
| | 0.9 |
| | (3.4 | ) | | 3.4 |
|
| Other comprehensive (loss) income items, net of tax | (4.6 | ) | | (5.5 | ) | | — |
| | 0.9 |
| | 4.6 |
| | (4.6 | ) |
| Comprehensive income (loss) | $ | 164.2 |
| | $ | 167.1 |
| | $ | 19.9 |
| | $ | (2.9 | ) | | $ | (184.5 | ) | | $ | 163.8 |
|
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended February 28, 2019 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net cash provided by operating activities | $ | 133.8 |
| | $ | 35.9 |
| | $ | — |
| | $ | 18.6 |
| | $ | — |
| | $ | 188.3 |
|
| Cash flows from investing activities: | | | | | | | | | | | |
|
| Purchases of property, plant, and equipment | — |
| | (20.2 | ) | | — |
| | (4.7 | ) | | — |
| | (24.9 | ) |
| Other investing activities | 0.8 |
| | 2.1 |
| | — |
| | — |
| | — |
| | 2.9 |
|
| Net cash provided by (used for) investing activities | 0.8 |
| | (18.1 | ) | | — |
| | (4.7 | ) | | — |
| | (22.0 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Borrowings on credit facility | — |
| | 86.5 |
| | — |
| | — |
| | — |
| | 86.5 |
|
| Repayments of borrowings on credit facility | — |
| | (86.5 | ) | | — |
| | — |
| | — |
| | (86.5 | ) |
| Repayments of long-term debt | — |
| | — |
| | — |
| | (0.2 | ) | | — |
| | (0.2 | ) |
| Proceeds from stock option exercises and other | 0.3 |
| | — |
| | — |
| | — |
| | — |
| | 0.3 |
|
| Repurchases of common stock | (48.7 | ) | | — |
| | — |
| | — |
| | — |
| | (48.7 | ) |
| Withholding taxes on net settlement of equity awards | (4.3 | ) | | — |
| | — |
| | — |
| | — |
| | (4.3 | ) |
| Dividends paid | (10.5 | ) | | — |
| | — |
| | — |
| | — |
| | (10.5 | ) |
| Net cash used for financing activities | (63.2 | ) | | — |
| | — |
| | (0.2 | ) | | — |
| | (63.4 | ) |
| Effect of exchange rates changes on cash | 0.2 |
| | — |
| | — |
| | (0.2 | ) | | — |
| | — |
|
| Net change in cash and cash equivalents | 71.6 |
| | 17.8 |
| | — |
| | 13.5 |
| | — |
| | 102.9 |
|
| Cash and cash equivalents at beginning of period | 80.5 |
| | — |
| | — |
| | 48.6 |
| | — |
| | 129.1 |
|
| Cash and cash equivalents at end of period | $ | 152.1 |
| | $ | 17.8 |
| | $ | — |
| | $ | 62.1 |
| | $ | — |
| | $ | 232.0 |
|
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended February 28, 2018 |
| | Parent | | Subsidiary Issuer | | Subsidiary Guarantor | | Non- Guarantors | | Consolidating Adjustments | | Consolidated |
| Net cash provided by operating activities | $ | 141.1 |
| | $ | 14.4 |
| | $ | — |
| | $ | 22.1 |
| | $ | — |
| | $ | 177.6 |
|
| Cash flows from investing activities: | | | | | | | | | | | |
|
| Purchases of property, plant, and equipment | — |
| | (15.2 | ) | | — |
| | (5.7 | ) | | — |
| | (20.9 | ) |
| Investments in subsidiaries | (26.4 | ) | | — |
| | — |
| | — |
| | 26.4 |
| | — |
|
| Acquisitions of business, net of cash acquired | — |
| | — |
| | — |
| | (26.4 | ) | | — |
| | (26.4 | ) |
| Other investing activities | 0.7 |
| | — |
| | — |
| | — |
| | — |
| | 0.7 |
|
| Net cash used for investing activities | (25.7 | ) | | (15.2 | ) | | — |
| | (32.1 | ) | | 26.4 |
| | (46.6 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Repayments of long-term debt | — |
| | — |
| | — |
| | (0.2 | ) | | — |
| | (0.2 | ) |
| Proceeds from stock option exercises and other | 1.4 |
| | — |
| | — |
| | — |
| | — |
| | 1.4 |
|
| Repurchases of common stock | (194.3 | ) | | — |
| | — |
| | — |
| | — |
| | (194.3 | ) |
| Withholding taxes on net settlement of equity awards | (6.7 | ) | | — |
| | — |
| | — |
| | — |
| | (6.7 | ) |
| Intercompany capital | — |
| | — |
| | — |
| | 26.4 |
| | (26.4 | ) | | — |
|
| Dividends paid | (10.9 | ) | | — |
| | — |
| | — |
| | — |
| | (10.9 | ) |
| Net cash (used for) provided by financing activities | (210.5 | ) | | — |
| | — |
| | 26.2 |
| | (26.4 | ) | | (210.7 | ) |
| Effect of exchange rate changes on cash | — |
| | 0.8 |
| | — |
| | (2.4 | ) | | — |
| | (1.6 | ) |
| Net change in cash and cash equivalents | (95.1 | ) | | — |
| | — |
| | 13.8 |
| | — |
| | (81.3 | ) |
| Cash and cash equivalents at beginning of period | 237.7 |
| | — |
| | — |
| | 73.4 |
| | — |
| | 311.1 |
|
| Cash and cash equivalents at end of period | $ | 142.6 |
| | $ | — |
| | $ | — |
| | $ | 87.2 |
| | $ | — |
| | $ | 229.8 |
|
| |
| Item 2. | 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”) and its subsidiaries as of February 28, 201929, 2020 and for the three andsix months ended February 29, 2020 and February 28, 2019 and 2018.2019. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report. Also, please refer to the Acuity Brands' Annual Report on Form 10-K for the fiscal year ended August 31, 2018,2019, filed with the Securities and Exchange Commission (the “SEC”) on October 25, 201829, 2019 (“Form 10-K”).
Overview
Company
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 to herein as “we,” “our,” “us,” “the Company,” or similar references). Our principal office is located in Atlanta, Georgia.
We are one of the world’s leading providers ofa market-leading industrial technology company that develops, manufactures, and provides lighting and building management solutions and services for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. Our lighting and building management solutions include devices such as luminaires, lighting controls, controllerscontrols for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systems designed to optimize energy efficiency and comfort for various indoor and outdoor applications. Additionally, we continue to expand our solutions portfolio, including software and services, to provide a host of other economic benefits resulting from data analytics that enables the Internet of Things (“IoT”),
supports the advancement of smart buildings, smart cities, and the smart grid, and allows businesses to develop custom applications to scale their operations. As of February 28, 2019,29, 2020, we operate 1822 manufacturing facilities and eight distribution facilities along with threefour warehouses to serve our extensive customer base.
We do not consider acquisitions a critical element of our strategy but seek opportunities to expand and enhance our portfolio of solutions, including the following transactions completed in the prior fiscal year:transactions:
On May 1, 2018,September 17, 2019, using cash on hand and borrowings under available under existing credit arrangements, we acquired IOTA Engineering, LLCall of the equity interests of The Luminaires Group (“IOTA”TLG”). IOTA is headquartered in Tucson, Arizona and manufactures highly engineered emergency lighting products and power equipment, a leading provider of specification-grade luminaires for commercial, institutional, hospitality, and institutional applications both in the U.S.municipal markets, all of which complement our current and internationally.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 February 12, 2018,November 25, 2019, using cash on hand, we acquired Lucid Design Group,all of the equity interests of LocusLabs, Inc (“Lucid”LocusLabs”). Lucid is headquarteredThe LocusLabs software platform supports navigation applications used on mobile devices, web browsers, and digital displays in Oakland, Californiaairports, event centers, multi-floor office buildings, and provides a data and analytics platform to make data-driven decisions to improve building efficiency and drive energy conservation and savings.
No acquisitions were completed during the first six months of fiscal 2019.campuses.
The results of operations for the three and six months ended February 29, 2020 and February 28, 2019 and 2018 are not necessarily indicative of the results to be expected for the full fiscal year due primarily to seasonality, which results in our net sales and net income generally being higher in the second half of our fiscal year, the impact of any acquisitions, and, among other reasons, the continued uncertainty of general economic conditions that may impact our key end markets for the remainder of fiscal 2019.2020. Additionally, we are uncertain of the impact of the COVID-19 pandemic to our sales channels, supply chain, manufacturing, and distribution as well as overall construction, renovation, and consumer spending.
Liquidity and Capital Resources
Our principal sources of liquidity are operating cash flows generated primarily from our business operations, cash on hand, and various sources of borrowings. Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund our operations and capital expenditures, pay dividends, repurchase shares, meet obligations as they become due, and maintain compliance with covenants contained in our financing agreements.
For the first six months of fiscal 2019,2020, we paid $24.9 million for property, plant, and equipment, primarily for equipment, tooling, new and enhanced information technology capabilities, equipment, tooling, and facility enhancements. We currently expect to invest approximately 1.5% of net sales inspend a similar amount on capital expenditures duringthroughout the second half of fiscal 2019.2020.
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 February 28, 2019, 1.229, 2020, 1.45 million shares had been repurchased under this authorization,
of which 0.4 millionauthorization. No shares were repurchased in fiscal 2019.2020. We expect to repurchase the remaining shares available for repurchase on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash.
Our short-term cash needs are expected to include funding operations as currently planned; making capital investments as currently anticipated; paying quarterly stockholder dividends as currently anticipated; paying principal and interest on debt as currently scheduled, including our seniorborrowings under our unsecured notes maturing in December 2019, which we expect to repay with borrowings available under existing credit arrangements;delayed draw term loan facility (the “Term Loan Facility”); making required contributions to our employee benefit plans; funding possible acquisitions; and potentially repurchasing shares of our outstanding common stock as authorized by the Board.stock. We believe that we will be able to meet our liquidity needs over the next 12 months based on our cash on hand, current projections of cash flow from operations, and borrowing availability under financing arrangements. Additionally, we believe that our cash flows from operations and sources of funding, including, but not limited to, future borrowings and capacity, will sufficiently support our long-term liquidity needs. However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A continued worldwide disruption could materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions.
Cash Flow
We use 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 if any; to repurchase Company stock; and to pay dividends.
Our cash position at February 28, 201929, 2020 was $232.0$380.6 million, an increasea decrease of $102.9$80.4 million from August 31, 2018.2019. During the six months ended February 28, 2019,29, 2020, we generated net cash flows from operations of $188.3$214.7 million. Cash generated from operating activities, as well as cash on-hand, wasand additional long-term debt borrowings were used during the six months ended February 28, 201929, 2020 primarily to repurchase 0.4repay our repay long term debt obligations due of $350.5 million, sharesto fund acquisitions of our outstanding common stock for $48.7$302.9 million, to fund capital expenditures of $24.9 million, to pay dividends to stockholders of $10.5$10.4 million, and to pay withholding taxes on the net settlement of equity awards of $4.3$4.7 million.
We generated $188.3$214.7 million of cash flow from operating activities during the six months ended February 28, 201929, 2020 compared with $177.6$188.3 million in the prior-year period, an increase of $10.7$26.4 million, due primarily to lower operating working capital requirements. Operating working capital (calculated by adding accounts receivable plus inventories, and subtracting accounts payable-net of acquisitions and the impact of foreign exchange rate changes) decreased approximately $35.7 million during the first six months of fiscal 2019 compared to a $26.0 million decrease during the first six months of fiscal 2018 due primarily to greater cash collections from customers year over year,requirements, partially offset by increased payments for trade payables.lower net income.
We believe that investing in assets and programs that will over time increase the overall return on our invested capital is a key factor in driving stockholder value. We paid $24.9 million and $20.9 million induring the first six months of fiscal 2020 and 2019 for property, plant, and 2018, respectively,equipment, primarily related to investments in new information technology, equipment, tooling, new and facility enhancements. We expect to invest approximately 1.5% of net sales primarily for new equipment, tooling, facility enhancements, andenhanced information technology capabilities, during fiscal 2019.and facility enhancements.
Capitalization
Our currentAs of February 29, 2020, our capital structure iswas comprised principally of senior unsecured notesborrowings on the Term Loan Facility and equity of our stockholders. Total debt outstanding was $356.7 million and $356.8$406.2 million at February 28, 201929, 2020 and consisted primarily of variable-rate obligations. At August 31, 2018, respectively, and2019, total debt outstanding was $356.6 million, which consisted primarily of fixed-rate obligations.
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 Securities and Exchange Commission (“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 ten years. Although the Unsecured Notes will mature within one year from the balance sheet, we have the ability and intent to refinance these borrowings using availability under our unsecured delayed draw term loan facility (“Term Loan Facility”) as described below. Currently, we plan to refinance the Unsecured Notes in full with borrowings under the Term Loan Facility, of which $343.3 million of the carrying value would be due greater than one year from the refinancing date. As such, this amount is reflected within Long-term debt on the Consolidated Balance Sheets as of February 28, 2019. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for more information.
On June 29, 2018, we entered into a credit agreement (“Credit Agreement”) with a syndicate of banks that provides us with a $400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) and a $400.0 million Term Loan Facility. On February 28, 2019, weWe had no borrowings outstanding under the current Revolving Credit Facility as of February 29, 2020 or August 31, 2019. We had $400.0 million in borrowings outstanding under the Term Loan Facility as of February 29, 2020 and no borrowings outstanding under the Term Loan Facility as of August 31, 2019. Based on the repayment schedule, $385.0 million of the borrowings under the Term Loan Facility are reflected within Long-term debt on the Consolidated Balance Sheets as of February 29, 2020.
In December 2019, we borrowed the full $400.0 million available under our Term Loan Facility. The proceeds were primarily used to repay the $350.0 million of senior unsecured notes, which matured on December 15, 2019, and the related accrued interest in full. Borrowings under the Term Loan Facility amortize in equal quarterly installments per year as described in the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements. Any remaining borrowings under the Term Loan Facility are due and payable in full on June 29, 2023. Additionally, see Debt and Lines of Credit footnote for interest rates related to the Term Loan Facility. There have been no other material changes outside of the ordinary course of business in our contractual obligations since August 31, 2019.
We were in compliance with all financial covenants under the Credit
Agreement as of February 28, 2019.29, 2020. At February 28, 2019,29, 2020, we had additional borrowing capacity under the Credit Agreement of $794.7$396.2 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility and the Term Loan Facility less the outstanding letters of credit of $5.3$3.8 million issued onunder the Revolving Credit Facility. As of February 28, 2019,29, 2020, we had outstanding letters of credit totaling $9.5$8.1 million, primarily for securing collateral requirements under our casualty insurance programs and for providing credit support for our industrial revenue bond, including $5.3which includes the $3.8 million issued under the Revolving Credit Facility. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for more information.
During the first six months of fiscal 2019,2020, our consolidated stockholders’ equity increased $85.0$126.2 million to $1.80$2.05 billion at February 28, 2019,29, 2020, from $1.72$1.92 billion at August 31, 2018.2019. The increase was due primarily to netcomprehensive income, earned in the period, partially offset by share repurchases, adjustments related to the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), and the payment of dividends. Our debt to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders’ equity) was 16.5%16.6% and 17.2%15.7% at February 28, 201929, 2020 and August 31, 2018,2019, respectively. The ratio of debt, net of cash, to total capitalization, net of cash, was 6.5%1.2% and 11.7%(5.8)% at February 28, 201929, 2020 and August 31, 2018,2019, respectively.
Dividends
We paid dividends on our common stock of $10.5$10.4 million and $10.9$10.5 million ($0.26 per share) during the six months ended February 29, 2020 and February 28, 2019, and 2018, respectively. All decisions regarding the declaration and payment of dividends are at the discretion of the Board and are evaluated regularly in light of our financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.
Results of Operations
Second Quarter of Fiscal 20192020 Compared with Second Quarter of Fiscal 20182019
The following table sets forth information comparing the components of net income for the three months ended February 29, 2020 and February 28, 2019 and 2018 (in millions except per share data):
| | | | Three Months Ended | | | | | Three Months Ended | | | | |
| | February 28, 2019 | | February 28, 2018 | | Increase (Decrease) | | Percent Change | February 29, 2020 | | February 28, 2019 | | Increase (Decrease) | | Percent Change |
| Net sales | $ | 854.4 |
| | $ | 832.1 |
| | $ | 22.3 |
| | 2.7 | % | $ | 824.2 |
| | $ | 854.4 |
| | $ | (30.2 | ) | | (3.5 | )% |
| Cost of products sold | 520.5 |
| | 497.6 |
| | 22.9 |
| | 4.6 | % | 480.3 |
| | 520.5 |
| | (40.2 | ) | | (7.7 | )% |
| Gross profit | 333.9 |
| | 334.5 |
| | (0.6 | ) | | (0.2 | )% | 343.9 |
| | 333.9 |
| | 10.0 |
| | 3.0 | % |
| Percent of net sales | 39.1 | % | | 40.2 | % | | (110 | ) | bps | |
| 41.7 | % | | 39.1 | % | | 260 |
| bps | |
|
| Selling, distribution, and administrative expenses | 237.6 |
| | 244.4 |
| | (6.8 | ) | | (2.8 | )% | 260.9 |
| | 237.6 |
| | 23.3 |
| | 9.8 | % |
| Special charge | 0.4 |
| | 0.6 |
| | (0.2 | ) | | NM |
| |
| Special charges | | 1.6 |
| | 0.4 |
| | 1.2 |
| | NM |
|
| Operating profit | 95.9 |
| | 89.5 |
| | 6.4 |
| | 7.2 | % | 81.4 |
| | 95.9 |
| | (14.5 | ) | | (15.1 | )% |
| Percent of net sales | 11.2 | % | | 10.8 | % | | 40 |
| bps | |
| 9.9 | % | | 11.2 | % | | (130 | ) | bps | |
|
| Other expense (income): | |
| | |
| | |
| | |
| |
| Other expense: | | |
| | |
| | |
| | |
|
| Interest expense, net | 8.6 |
| | 8.0 |
| | 0.6 |
| | 7.5 | % | 5.7 |
| | 8.6 |
| | (2.9 | ) | | (33.7 | )% |
| Miscellaneous expense, net | 1.1 |
| | 2.8 |
| | (1.7 | ) | | NM |
| 1.0 |
| | 1.1 |
| | (0.1 | ) | | (9.1 | )% |
| Total other expense | 9.7 |
| | 10.8 |
| | (1.1 | ) | | NM |
| 6.7 |
| | 9.7 |
| | (3.0 | ) | | (30.9 | )% |
| Income before income taxes | 86.2 |
| | 78.7 |
| | 7.5 |
| | 9.5 | % | 74.7 |
| | 86.2 |
| | (11.5 | ) | | (13.3 | )% |
| Percent of net sales | 10.1 | % | | 9.5 | % | | 60 |
| bps | |
| 9.1 | % | | 10.1 | % | | (100 | ) | bps |
|
|
| Income tax expense (benefit) | 19.9 |
| | (18.2 | ) | | 38.1 |
| | NM |
| |
| Income tax expense | | 17.5 |
| | 19.9 |
| | (2.4 | ) | | (12.1 | )% |
| Effective tax rate | 23.1 | % | | (23.1 | )% | | |
| | |
| 23.4 | % | | 23.1 | % | | |
| | |
|
| Net income | $ | 66.3 |
| | $ | 96.9 |
| | $ | (30.6 | ) | | (31.6 | )% | $ | 57.2 |
| | $ | 66.3 |
| | $ | (9.1 | ) | | (13.7 | )% |
| Diluted earnings per share | $ | 1.67 |
| | $ | 2.33 |
| | $ | (0.66 | ) | | (28.3 | )% | $ | 1.44 |
| | $ | 1.67 |
| | $ | (0.23 | ) | | (13.8 | )% |
| NM - not meaningful | | | | | | | | | | | | | | |
Net sales were $854.4$824.2 million for the three months ended February 28, 201929, 2020 compared with $832.1$854.4 million reported for the three months ended February 28, 2018, an increase2019, a decrease of $22.3$30.2 million, or 2.7%3.5%. For the three months ended February 28, 2019,29, 2020, we reported net income of $66.3$57.2 million, a decrease of $30.6$9.1 million, or 31.6%13.7%, compared with
$96.9 $66.3 million for the three months ended February 28, 2018.2019. For the second quarter of fiscal 2019,2020, diluted earnings per share decreased 28.3%13.8% to $1.67$1.44 compared with $2.33$1.67 reported in the year-ago period.
Fiscal 2019 results were impacted by the adoption of ASC 606, which resulted in a decrease to revenues, gross profit, and operating profit of $1.6 million, $1.1 million, and $1.2 million, respectively, during the three months ended February 28, 2019. Additionally, fiscal 2018 results were restated to reflect the impact of adopting Accounting Standards Update No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). Upon adoption of ASU 2017-07, our previously reported operating profit and other expense both increased $1.5 million for the three months ended February 28, 2018. The provisions of ASU 2017-07 had no impact to our previously reported net income or earnings per share. See New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for further details.
The following table reconciles certain 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 our results of operations, which exclude the impact of manufacturing inefficiencies, acquisition relatedacquisition-related items, amortization of acquired intangible assets, share-based payment expense, and special charges associated primarily with continued efforts to streamline the organization and certain discrete income tax benefits of the U.S. Tax Cuts and Jobs Act (the “TCJA”).integrate recent acquisitions. Although the impacts of some of these items have been recognized in prior periods and could recur in future periods, we typically exclude these charges during internal reviews of performance and use 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 net income, and adjusted diluted earnings per share, are provided to enhance the user’s overall understanding of our current financial performance. Specifically, we believe these non-U.S. GAAP measures provide greater comparability and enhanced visibility into our 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) | Three Months Ended | | | | Three Months Ended | | | | | |
| | February 28, 2019 | | February 28, 2018 | | Increase (Decrease) | Percent Change | February 29, 2020 | | | | February 28, 2019 | | | | Increase (Decrease) | Percent Change |
| Gross profit | $ | 333.9 |
| | $ | 334.5 |
| | | | $ | 343.9 |
| | | | $ | 333.9 |
| | | | $ | 10.0 |
| 3.0 | % |
| Percent of net sales | | | | 41.7 | % | | | | 39.1 | % | | 260 |
| bps |
Add-back: Manufacturing inefficiencies (1) | 0.9 |
| | — |
| | | | — |
| | | | 0.9 |
| | | | | |
Add-back: Acquisition-related items (2) | | 0.1 |
| | | | — |
| | | | | |
| Adjusted gross profit | $ | 334.8 |
|
| $ | 334.5 |
| | $ | 0.3 |
| 0.1 | % | $ | 344.0 |
| | | | $ | 334.8 |
| | | | $ | 9.2 |
| 2.7 | % |
| Percent of net sales | 39.2 | % | | 40.2 | % | | (100 | ) | bps | | | 41.7 | % | | | | 39.2 | % | | 250 |
| bps |
| | | | | | | | | | | | | | | | | |
| Selling, distribution, and administrative expenses | $ | 237.6 |
| | $ | 244.4 |
| | | | $ | 260.9 |
| | | | $ | 237.6 |
| | | | $ | 23.3 |
| 9.8 | % |
| Percent of net sales | | | | 31.7 | % | | | | 27.8 | % | | 390 |
| bps |
| Less: Amortization of acquired intangible assets | (7.7 | ) | | (6.7 | ) | | | | (10.4 | ) | | | | (7.7 | ) | | | | | |
| Less: Share-based payment expense | (7.5 | ) | | (8.3 | ) | | | | (8.0 | ) | | | | (7.5 | ) | | | | | |
Less: Acquisition-related items (2) | — |
| | (0.2 | ) | | | | (0.2 | ) | | | | — |
| | | | | |
| Adjusted selling, distribution, and administrative expenses | $ | 222.4 |
| | $ | 229.2 |
| | $ | (6.8 | ) | (3.0 | )% | $ | 242.3 |
| | | | $ | 222.4 |
| | | | $ | 19.9 |
| 8.9 | % |
| Percent of net sales | 26.0 | % | | 27.5 | % | | (150 | ) | bps | | | 29.4 | % | | | | 26.0 | % | | 340 |
| bps |
| | | | | | | | | | | | | | | | | |
| Operating profit | $ | 95.9 |
| | $ | 89.5 |
| | | | $ | 81.4 |
| | | | $ | 95.9 |
| | | | $ | (14.5 | ) | (15.1 | )% |
| Percent of net sales | | | | 9.9 | % | | | | 11.2 | % | | (130 | ) | bps |
| Add-back: Amortization of acquired intangible assets | 7.7 |
| | 6.7 |
| | | | 10.4 |
| | | | 7.7 |
| | | | | |
| Add-back: Share-based payment expense | 7.5 |
| | 8.3 |
| | | | 8.0 |
| | | | 7.5 |
| | | | | |
Add-back: Manufacturing inefficiencies (1) | 0.9 |
| | — |
| | | | — |
| | | | 0.9 |
| | | | | |
Add-back: Acquisition-related items (2) | — |
| | 0.2 |
| | | | 0.3 |
| | | | — |
| | | | | |
| Add-back: Special charge | 0.4 |
| | 0.6 |
| | | | |
| Add-back: Special charges | | 1.6 |
| | | | 0.4 |
| | | | | |
| Adjusted operating profit | $ | 112.4 |
| | $ | 105.3 |
| | $ | 7.1 |
| 6.7 | % | $ | 101.7 |
| | | | $ | 112.4 |
| | | | $ | (10.7 | ) | (9.5 | )% |
| Percent of net sales | 13.2 | % | | 12.7 | % | | 50 |
| bps | | | 12.3 | % | | | | 13.2 | % | | (90 | ) | bps |
| | | | | | | | | | | | | | | | | |
| Net income | $ | 66.3 |
| | $ | 96.9 |
| | | | $ | 57.2 |
| | | | $ | 66.3 |
| | | | $ | (9.1 | ) | (13.7 | )% |
| Add-back: Amortization of acquired intangible assets | 7.7 |
| | 6.7 |
| | | | 10.4 |
| | | | 7.7 |
| | | | | |
| Add-back: Share-based payment expense | 7.5 |
| | 8.3 |
| | | | 8.0 |
| | | | 7.5 |
| | | | | |
Add-back: Manufacturing inefficiencies (1) | 0.9 |
| | — |
| | | | — |
| | | | 0.9 |
| | | | | |
Add-back: Acquisition-related items (2) | — |
| | 0.2 |
| | | | 0.3 |
| | | | — |
| | | | | |
| Add-back: Special charge | 0.4 |
| | 0.6 |
| | | | |
| Add-back: Special charges | | 1.6 |
| | | | 0.4 |
| | | | | |
| Total pre-tax adjustments to net income | 16.5 |
| | 15.8 |
| | | | 20.3 |
| | | | 16.5 |
| | | | | |
| Income tax effects | (3.8 | ) | | (3.0 | ) | | | | (4.4 | ) | | | | (3.8 | ) | | | | | |
Less: Discrete income tax benefits of the TCJA (3) | — |
| | (31.2 | ) | | | | |
| Adjusted net income | $ | 79.0 |
| | $ | 78.5 |
| | $ | 0.5 |
| 0.6 | % | $ | 73.1 |
| | | | $ | 79.0 |
| | | | $ | (5.9 | ) | (7.5 | )% |
| | | | | | | | | | | | | | | | | |
| Diluted earnings per share | $ | 1.67 |
| | $ | 2.33 |
| | | | $ | 1.44 |
| | | | $ | 1.67 |
| | | | $ | (0.23 | ) | (13.8 | )% |
| Adjusted diluted earnings per share | $ | 1.99 |
| | $ | 1.89 |
| | $ | 0.10 |
| 5.3 | % | $ | 1.84 |
| | | | $ | 1.99 |
| | | | $ | (0.15 | ) | (7.5 | )% |
______________________________
(1) Incremental costs incurred due to manufacturing inefficiencies directly related to the closure of a facility.
(2) Acquisition-related items include profit in inventory and professional fees.
(3) Discrete income tax benefits of the TCJA recognized within Income tax expense (benefit) on the Consolidated Statements of Comprehensive Income. See Income Taxes footnote within the Notes to Consolidated Financial Statements for additional details.
Net Sales
Net sales for the three months ended February 28, 2019 increased 2.7%29, 2020 decreased 3.5% compared with the prior-year period due primarily to a 7% decrease in sales volume increase of over 3%,volumes, partially offset by a less thancontribution from acquired businesses of approximately 3% and a 1% unfavorablenet favorable change in product prices and mix of products sold (“price/mix”) as the benefits from recently announced price increases were more than offset by changes primarily. Changes in sales channel mix and toforeign currency rates did not have a much lesser degree in the mix of products sold; the realization from recent price increases was estimated to have contributed low single-digit growth to overallmeaningful impact on second quarter net sales for the quarter. Also impactingsales. Fiscal 2020 second quarter net sales wasreflected a less than 1% favorable impact of acquired revenues from acquisitions net of lost revenues from divestitures, which was largely offset by a combination of unfavorable changes in foreign exchange rates and the impact of the adoption of ASC 606. Each of ourdecline across all key sales channels experienced solid growth
during the second quartercompared with the exception ofprior year except the independent sales network,, which was relatively flat year-over-year. Dueincreased due primarily to the changing dynamics benefits from acquisitions. The overall volume decline from the prior year was a result
of several factors including an estimated market decline in the low single digits; the elimination of certain products in our 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. We also believe our current period net sales were adverselynegatively impacted by customers buying products during the first quarterincreases in tariffs sold primarily through the retail sales channel that did not meet our return objectives; and lower activity of fiscal 2019 in advance of the effective dates of recently announced price increases.relight projects for certain large corporate accounts customers.
Gross Profit
Gross profit for the second quarter of fiscal 2019 decreased $0.62020 increased $10.0 million, or 0.2%3.0%, to $333.9$343.9 million compared with $334.5$333.9 million in the prior-year period, asdue primarily to the contribution from higheracquisitions, lower costs for certain inputs, and favorable price/mix. These increases were partially offset by lower sales volume realized price increases, and benefits from productivity improvements were offset by both a shift in key customers and changes in sales channel mix described below as well as higher input costs.increased tariffs. Gross profit margin decreased 110increased 260 basis points to 39.1%41.7% for the three months ended February 28, 201929, 2020 compared with 40.2%39.1% in the prior-year period. The declineimprovement in gross profit margin was due primarily to a shift in sales among key customers within the retail channel as well as changes infavorable sales channel mix. Although current quarter gross profit reflected a mix shift towards certain sales channels and customers that generate lower gross profit margins as compared with our historical consolidated gross profit margin profile, the decline was generallycontribution from acquisitions, partially offset by proportionallythe mix of products sold and lower SD&A expenses as freight and commissions associated with suchnet sales were lower.volume. Adjusted gross profit margin for the three months ended February 28, 2019 declined 10029, 2020 increased 250 basis points to 39.2%41.7% compared with 40.2%39.2% in the prior year period.
Operating Profit
SD&A expenses for the three months ended February 28, 201929, 2020 were $237.6$260.9 million compared with $244.4$237.6 million in the prior-year period, a decreasean increase of $6.8$23.3 million, or 2.8%9.8%. The decreaseincrease in SD&A expenses was due primarily to a decrease in outbound freightthe addition of acquisitions, including higher employee costs and commission expense as well as certain cost containmentamortization of acquired intangibles, increased commissions, higher professional fees, and productivity improvements, which were partially offset by higher costs to support the increase in net sales, and to a lesser degree, additional expenses associated with acquired businesses. The decline in outbound freight and commission expense was partially due to the customer mix shift within the retail sales channel as previously noted.increased variable incentive compensation. SD&A expenses for the second quarter of fiscal 20192020 were 27.8%31.7% of net sales compared with 29.4%27.8% for the prior-year period. Adjusted SD&A expenses for the three months ended February 28, 201929, 2020 were $222.4$242.3 million (26.0%(29.4% of net sales) compared with $229.2$222.4 million (27.5%(26.0% of net sales) in the prior-year period.
We recognized pre-tax special charges of $0.4$1.6 million during the second quarter of fiscal 20192020 compared with pre-tax special charges of $0.6$0.4 million recorded during the second quarter of fiscal 2018.2019. Further details regarding our special charges are included in the Special ChargeCharges footnote of the Notes to Consolidated Financial Statements.
Operating profit for the second quarter of fiscal 20192020 was $95.9$81.4 million (11.2%(9.9% of net sales) compared with $89.5$95.9 million (10.8%(11.2% of net sales) for the prior-year period, an increasea decrease of $6.4$14.5 million, or 7.2%15.1%. The increasedecrease in operating profit was primarily due to lowerhigher SD&A expenses and increased special charges, partially offset by lowerincreased gross profit.
Adjusted operating profit increased by $7.1decreased $10.7 million, or 6.7%9.5%, to $101.7 million for the second quarter of fiscal 2020 compared with $112.4 million for the second quarter of fiscal 2019 compared with $105.3 million2019. Adjusted operating profit margin decreased to 12.3% for the second quarter of fiscal 2018. Adjusted operating profit margin increased to 13.2% for the second quarter of fiscal 20192020 compared with 12.7%13.2% for the year-ago period.
Other Expense (Income)
Other expense (income) consists principally of net interest expense and net miscellaneous expense, which includes non-service related components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses. Interest expense, net, was $8.6$5.7 million and $8.0$8.6 million for the three months ended February 29, 2020 and February 28, 2019, and 2018, respectively. The decrease in interest expense is due primarily to the interest savings associated with refinancing the previously outstanding 6% senior unsecured notes with funds under the term loan, which are subject to lower short-term borrowing rates. We reported net miscellaneous expense of $1.1$1.0 million and $2.8$1.1 million for the three months ended February 29, 2020 and February 28, 2019, and 2018, respectively.
Income Taxes and Net Income
Our effective income tax rate was 23.1%23.4% and (23.1)%23.1% for the three months ended February 29, 2020 and February 28, 2019, and 2018, respectively. The effective income tax rate for the three months ended February 28, 2018 was significantly impacted by the provisions of the TCJA, which was enacted during the second quarter of fiscal 2018. Further details regarding the TCJA are included in the Income Taxes footnote of the Notes to Consolidated Financial Statements. We currently estimate that our blended consolidated effective income tax rate, before any discrete items, will approximate 24% to 26%be approximately 23% for fiscal 2020, assuming the remainder of fiscal 2019.rates in our taxing jurisdictions remain generally consistent throughout the year.
Net income for the second quarter of fiscal 20192020 decreased $30.6$9.1 million to $66.3$57.2 million from $96.9$66.3 million reported for the prior-year period. The decrease in net income resulted primarily from a one-time tax benefit for income taxes related to the TCJA recorded in 2018 that did not recur in the current fiscal year, partially offset by increaseddecreased operating profit compared to the prior-year period.period partially offset by lower interest expense and income tax expense. Diluted earnings per share for the three months ended February 28, 201929, 2020 decreased $0.66$0.23 to $1.67$1.44 compared with diluted earnings per share of $2.33$1.67 for the prior-year period. This decrease reflects higherlower net income tax expense, partially offset by a reduced share count.
income. Adjusted net income for the second quarter of fiscal 20192020 was $79.0$73.1 million, compared with $78.5$79.0 million in the prior-year period, which represented an increasea decrease of $0.5$5.9 million, or 0.6%7.5%. Adjusted diluted earnings per share for the three months ended February 28, 2019 increased $0.10,29, 2020 decreased $0.15, or 5.3%7.5%, to $1.99$1.84 compared with $1.89$1.99 for the prior-year period.
First Six Months of Fiscal 20192020 Compared with First Six Months of Fiscal 20182019
The following table sets forth information comparing the components of net income for the six months ended February 29, 2020 and February 28, 2019 and 2018 (in millions except per share data):
| | | | Six Months Ended | | | | | Six Months Ended | | | | |
| | February 28, 2019 |
| February 28, 2018 | | Increase (Decrease) | | Percent Change | February 29, 2020 |
| February 28, 2019 | | Increase (Decrease) | | Percent Change |
| Net sales | $ | 1,787.0 |
| | $ | 1,674.9 |
| | $ | 112.1 |
| | 6.7 | % | $ | 1,658.9 |
| | $ | 1,787.0 |
| | $ | (128.1 | ) | | (7.2 | )% |
| Cost of products sold | 1,085.6 |
| | 990.5 |
| | 95.1 |
| | 9.6 | % | 959.2 |
| | 1,085.6 |
| | (126.4 | ) | | (11.6 | )% |
| Gross profit | 701.4 |
| | 684.4 |
| | 17.0 |
| | 2.5 | % | 699.7 |
| | 701.4 |
| | (1.7 | ) | | (0.2 | )% |
| Percent of net sales | 39.3 | % | | 40.9 | % | | (160 | ) | bps | |
| 42.2 | % | | 39.3 | % | | 290 |
| bps | |
|
| Selling, distribution, and administrative expenses | 487.7 |
| | 473.9 |
| | 13.8 |
| | 2.9 | % | 526.2 |
| | 487.7 |
| | 38.5 |
| | 7.9 | % |
| Special charge | 1.4 |
| | 0.8 |
| | 0.6 |
| | NM |
| |
| Special charges | | 8.5 |
| | 1.4 |
| | 7.1 |
| | NM |
|
| Operating profit | 212.3 |
| | 209.7 |
| | 2.6 |
| | 1.2 | % | 165.0 |
| | 212.3 |
| | (47.3 | ) | | (22.3 | )% |
| Percent of net sales | 11.9 | % | | 12.5 | % | | (60 | ) | bps | |
| 9.9 | % | | 11.9 | % | | (200 | ) | bps | |
|
| Other expense (income) | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Interest expense, net | 17.3 |
| | 16.1 |
| | 1.2 |
| | 7.5 | % | 14.0 |
| | 17.3 |
| | (3.3 | ) | | (19.1 | )% |
| Miscellaneous expense, net | 2.4 |
| | 4.0 |
| | (1.6 | ) | | NM |
| 2.4 |
| | 2.4 |
| | — |
| | — | % |
| Total other expense | 19.7 |
| | 20.1 |
| | (0.4 | ) | | NM |
| 16.4 |
| | 19.7 |
| | (3.3 | ) | | (16.8 | )% |
| Income before income taxes | 192.6 |
| | 189.6 |
| | 3.0 |
| | 1.6 | % | 148.6 |
| | 192.6 |
| | (44.0 | ) | | (22.8 | )% |
| Percent of net sales | 10.8 | % | | 11.3 | % | | (50 | ) | bps | |
| 9.0 | % |
| 10.8 | % | | (180 | ) | bps |
|
|
| Income tax expense | 46.7 |
| | 21.2 |
| | 25.5 |
| | NM |
| 34.4 |
| | 46.7 |
| | (12.3 | ) | | (26.3 | )% |
| Effective tax rate | 24.2 | % | | 11.2 | % | | |
| | |
| 23.1 | % | | 24.2 | % | | |
| | |
|
| Net income | $ | 145.9 |
| | $ | 168.4 |
| | $ | (22.5 | ) | | (13.4 | )% | $ | 114.2 |
| | $ | 145.9 |
| | $ | (31.7 | ) | | (21.7 | )% |
| Diluted earnings per share | $ | 3.66 |
| | $ | 4.04 |
| | $ | (0.38 | ) | | (9.4 | )% | $ | 2.88 |
| | $ | 3.66 |
| | $ | (0.78 | ) | | (21.3 | )% |
| NM - not meaningful | | | | | | | | | | | | | | |
Net sales were $1.79$1.66 billion for the six months ended February 28, 201929, 2020 compared with $1.67$1.79 billion reported for the six months ended February 28, 2018, an increase2019, a decrease of $112.1$128.1 million, or 6.7%7.2%. For the six months ended February 28, 2019,29, 2020, we reported net income of $145.9$114.2 million, a decrease of $22.5$31.7 million, or 13.4%21.7%, compared with $168.4$145.9 million for the six months ended February 28, 2018.2019. For the first six months of fiscal 2019,2020, diluted earnings per share decreased 9.4%21.3% to $3.66$2.88 compared with $4.04$3.66 reported in the year-ago period.
Fiscal 2019 results were impacted by the adoption of ASC 606, which resulted in a decrease to revenues, gross profit, and operating profit of $4.0 million, $2.2 million, and $2.4 million, respectively, during the six months ended February 28, 2019. Additionally, fiscal 2018 results were restated to reflect the impact of adopting ASU 2017-07. Upon adoption of
ASU 2017-07, our previously reported operating profit and other expense both increased $3.1 million for the six months ended February 28, 2018. The provisions of ASU 2017-07 had no impact to our previously reported net income or earnings per share. See New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for further details.
The following table reconciles certain U.S. GAAP financial measures to the corresponding non-U.S. GAAP measures referred to in the discussion of our results of operations, which exclude the impact of manufacturing inefficiencies, acquisition-related items, amortization of acquired intangible assets, share-based payment expense, and special charges associated primarily with continued efforts to streamline the organization, and certain discrete income tax benefits of the TCJA.organization. These non-U.S. GAAP financial measures, including adjusted gross profit and margin, adjusted SD&A expenses and adjusted SD&A expenses as a percent of net sales, adjusted operating profit and margin, 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, we believe these non-U.S. GAAP measures provide greater comparability and enhanced visibility into theour results of operations. The non-U.S. GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, results prepared in accordance with U.S. GAAP.
| | | (In millions, except per share data) | Six Months Ended | | | | Six Months Ended | | | | | |
| | February 28, 2019 | | February 28, 2018 | | Increase (Decrease) | Percent Change | February 29, 2020 | | | | February 28, 2019 | | | | Increase (Decrease) | Percent Change |
| Gross profit | $ | 701.4 |
| | $ | 684.4 |
| | | | $ | 699.7 |
| | | | $ | 701.4 |
| | | | $ | (1.7 | ) | (0.2 | )% |
| Percent of net sales | | | | 42.2 | % | | | | 39.3 | % | | 290 |
| bps |
Add-back: Manufacturing inefficiencies (1) | 0.9 |
| | — |
| | | | — |
| | | | 0.9 |
| | | | | |
Add-back: Acquisition-related items (2) | 1.2 |
| | — |
| | | | 1.2 |
| | | | 1.2 |
| | | | | |
| Adjusted gross profit | $ | 703.5 |
|
| $ | 684.4 |
| | $ | 19.1 |
| 2.8 | % | $ | 700.9 |
|
| | | $ | 703.5 |
| | | | $ | (2.6 | ) | (0.4 | )% |
| Percent of net sales | 39.4 | % | | 40.9 | % | | (150 | ) | bps | | | 42.3 | % | | | | 39.4 | % | | 290 |
| bps |
| | | | | | | | | | | | | | | | | |
| Selling, distribution, and administrative expenses | $ | 487.7 |
| | $ | 473.9 |
| | | | $ | 526.2 |
| | | | $ | 487.7 |
| | | | $ | 38.5 |
| 7.9 | % |
| Percent of net sales | | | | 31.7 | % | | | | 27.3 | % | | 440 |
| bps |
| Less: Amortization of acquired intangible assets | (15.4 | ) | | (13.3 | ) | | | | (20.0 | ) | | | | (15.4 | ) | | | | | |
| Less: Share-based payment expense | (15.3 | ) | | (16.8 | ) | | | | (24.7 | ) | | | | (15.3 | ) | | | | | |
Less: Acquisition-related items (2) | — |
| | (0.2 | ) | | | | (1.3 | ) | | | | — |
| | | | | |
| Adjusted selling, distribution, and administrative expenses | $ | 457.0 |
| | $ | 443.6 |
| | $ | 13.4 |
| 3.0 | % | $ | 480.2 |
| | | | $ | 457.0 |
| | | | $ | 23.2 |
| 5.1 | % |
| Percent of net sales | 25.6 | % | | 26.5 | % | | (90 | ) | bps | | | 28.9 | % | | | | 25.6 | % | | 330 |
| bps |
| | | | | | | | | | | | | | | | | |
| Operating profit | $ | 212.3 |
| | $ | 209.7 |
| | | | $ | 165.0 |
| | | | $ | 212.3 |
| | | | $ | (47.3 | ) | (22.3 | )% |
| Percent of net sales | | | | 9.9 | % | | | | 11.9 | % | | (200 | ) | bps |
| Add-back: Amortization of acquired intangible assets | 15.4 |
| | 13.3 |
| | | | 20.0 |
| | | | 15.4 |
| | | | | |
| Add-back: Share-based payment expense | 15.3 |
| | 16.8 |
| | | | 24.7 |
| | | | 15.3 |
| | | | | |
Add-back: Manufacturing inefficiencies (1) | 0.9 |
| | — |
| | | | — |
| | | | 0.9 |
| | | | | |
Add-back: Acquisition-related items (2) | 1.2 |
| | 0.2 |
| | | | 2.5 |
| | | | 1.2 |
| | | | | |
| Add-back: Special charge | 1.4 |
| | 0.8 |
| | | | |
| Add-back: Special charges | | 8.5 |
| | | | 1.4 |
| | | | | |
| Adjusted operating profit | $ | 246.5 |
| | $ | 240.8 |
| | $ | 5.7 |
| 2.4 | % | $ | 220.7 |
| | | | $ | 246.5 |
| | | | $ | (25.8 | ) | (10.5 | )% |
| Percent of net sales | 13.8 | % | | 14.4 | % | | (60 | ) | bps | | | 13.3 | % | | | | 13.8 | % | | (50 | ) | bps |
| | | | | | | | | | | | | | | | | |
| Net income | $ | 145.9 |
| | $ | 168.4 |
| | | | $ | 114.2 |
| | | | $ | 145.9 |
| | | | $ | (31.7 | ) | (21.7 | )% |
| Add-back: Amortization of acquired intangible assets | 15.4 |
| | 13.3 |
| | | | 20.0 |
| | | | 15.4 |
| | | | | |
| Add-back: Share-based payment expense | 15.3 |
| | 16.8 |
| | | | 24.7 |
| | | | 15.3 |
| | | | | |
Add-back: Manufacturing inefficiencies (1) | 0.9 |
| | — |
| | | | — |
| | | | 0.9 |
| | | | | |
Add-back: Acquisition-related items (2) | 1.2 |
| | 0.2 |
| | | | 2.5 |
| | | | 1.2 |
| | | | | |
| Add-back: Special charge | 1.4 |
| | 0.8 |
| | | | |
| Add-back: Special charges | | 8.5 |
| | | | 1.4 |
| | | | | |
| Total pre-tax adjustments to net income | 34.2 |
|
| 31.1 |
| | | | 55.7 |
|
| | | 34.2 |
| | | | | |
| Income tax effect | (8.3 | ) | | (8.3 | ) | | | | (12.6 | ) | | | | (8.3 | ) | | | | | |
Less: Discrete income tax benefits of the TCJA (3) | — |
| | (31.2 | ) | | | | |
| Adjusted net income | $ | 171.8 |
| | $ | 160.0 |
| | $ | 11.8 |
| 7.4 | % | $ | 157.3 |
| | | | $ | 171.8 |
| | | | $ | (14.5 | ) | (8.4 | )% |
| | | | | |
|
| | | | | | | | | |
|
| |
| Diluted earnings per share | $ | 3.66 |
| | $ | 4.04 |
| | | | $ | 2.88 |
| | | | $ | 3.66 |
| | | | $ | (0.78 | ) | (21.3 | )% |
| Adjusted diluted earnings per share | $ | 4.31 |
| | $ | 3.84 |
| | $ | 0.47 |
| 12.2 | % | $ | 3.97 |
| | | | $ | 4.31 |
| | | | $ | (0.34 | ) | (7.9 | )% |
______________________________
(1) Incremental costs incurred due to manufacturing inefficiencies directly related to the closure of a facility.
(2) Acquisition-related items include profit in inventory and professional fees.
(3) Discrete income tax benefits of the TCJA recognized within Income tax expense (benefit) on the Consolidated Statements of Comprehensive Income. See Income Taxes footnote within the Notes to Consolidated Financial Statements for additional details.
Net Sales
Net sales for the six months ended February 28, 2019 increased $112.129, 2020 decreased $128.1 million, or 6.7%7.2%, compared with the prior-year period due primarily to an increasea decrease in sales volume of approximately 7% and a 1% favorable impact of acquired revenues from acquisitions net of lost revenues from divestitures. This increase was12%, partially offset by the combined unfavorable impactsa contribution from acquired businesses of adopting ASC 606 and movementsapproximately 3% as well as net favorable change in price/mix of 2%. Changes in foreign exchangecurrency rates of 1%. The increase indid not have a meaningful impact on the current period's net sales. Fiscal 2020 net sales was due primarily to greater shipmentsreflected a decline across ourall key sales channels. Changeschannels compared with the prior year. The overall volume decline from the prior year was a result of several factors including an estimated market decline in product pricesthe low single digits; the elimination of certain products in our portfolio negatively impacted by the increases in tariffs sold primarily through the retail sales channel that did not meet our return objectives; and the lower activity of large projects. Price/mix of products sold (“price/mix”) were flat year over year as the benefits from recently announced price increases were offsetwas impacted by unfavorable changes primarilya favorable shift in sales channel mix and, to a much lesser degreeextent, realization from price increases implemented in thefiscal 2019 partially offset by an unfavorable mix of products sold. Due to the changing dynamics of our 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
Gross profit for the first six months of fiscal 2019 increased $17.02020 decreased $1.7 million compared to the prior-year period. Grossperiod, while gross profit margin decreasedincreased to 39.3%42.2% for the six months ended February 28, 201929, 2020 compared with 40.9%39.3% in the prior-year period. The declineimprovement in gross profit margin was due primarily to a shift in sales among key customers within the retail channel as well as changes infavorable sales channel mix. Additionally, gross profit margin was impactedmix, lower costs for certain inputs, and contribution from acquisitions, partially offset by higher materialsthe mix of products sold and freight costs.lower net sales volume. Adjusted gross profit for the six months ended February 28, 201929, 2020 was $703.5$700.9 million (39.4%(42.3% of net sales) compared with $684.4$703.5 million (40.9%(39.4% of net sales) in the prior-year period.
Operating Profit
SD&A expenses for the six months ended February 28, 201929, 2020 were $487.7$526.2 million compared with $473.9$487.7 million in the prior-year period, an increase of $13.8$38.5 million, or 2.9%7.9%. The increase in SD&A expenses was due primarily to higher share-based payment expense, the addition of acquisitions, including employee costs and amortization of acquired intangibles, and higher professional fees. Share-based payment expense increased due to higher employee related costs, increased commissionschanges made to support the greater sales volume, and expenses associated with acquired businesses. equity incentive program as part of the Company’s comprehensive review of its compensation programs, which resulted in the acceleration of share-based payment expense in the first quarter of fiscal 2020.
SD&A expenses for the first six months of fiscal 20192020 were 27.3%31.7% of net sales compared with 28.3%27.3% for the prior-year period. Adjusted SD&A expenses for the six months ended February 28, 201929, 2020 were $457.0$480.2 million (25.6%(28.9% of net sales) compared with $443.6$457.0 million (26.5%(25.6% of net sales) in the prior-year period.
We recognized a pre-tax special chargecharges of $8.5 million during the first six months of fiscal 2020, compared with pre-tax special charges of $1.4 million during the first six months of fiscal 2019, compared with a pre-tax special charge of $0.8 million during the first six months of fiscal 2018.2019. Further details regarding our special charges are included in the Special Charge footnote of the Notes to Consolidated Financial Statements.
Operating profit for the first six months of fiscal 20192020 was $212.3$165.0 million compared with $209.7$212.3 million for the prior-year period, an increasea decrease of $2.6$47.3 million, or 1.2%22.3%. The increasedecrease in operating profit was due primarily to an increase in gross profit, partially offset by an increase in SD&A expenses and aas well as higher pre-tax special charge.
charges. Adjusted operating profit increaseddecreased by $5.7$25.8 million, or 2.4%10.5%, to $220.7 million for the first six months of fiscal 2020 compared with $246.5 million for the first six months of fiscal 2019 compared with $240.8 million for the first six months of fiscal 2018.2019. Adjusted operating profit margin for the first six months of fiscal 20192020 decreased 6050 basis points to 13.8%13.3% compared with 14.4%13.8% in the year-ago period.
Other Expense (Income)
Other expense (income) consists principally of net interest expense and net miscellaneous expense, which includes non-service related components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses. Interest expense, net, was $17.3$14.0 million and $16.1$17.3 million for the six months ended February 29, 2020 and February 28, 2019, and 2018, respectively. The decrease in interest expense is due primarily to the interest savings associated with refinancing the previously outstanding 6% senior unsecured notes with funds under the term loan, which are subject to lower short-term borrowing rates. We reported net miscellaneous expense of $2.4 million and $4.0 million for the six months ended February 29, 2020 and February 28, 2019 and 2018, respectively.2019.
Income Taxes and Net Income
Our effective income tax rate was 24.2%23.1% and 11.2%24.2% for the six months ended February 28, 201929, 2020 and 2018, respectively. The effective income rate for the six months ended February 28, 2019, was significantly impacted byrespectively. We currently estimate that our blended consolidated effective income tax rate, before any discrete items, will approximate 23% for fiscal 2020, assuming the TCJA, which was enacted duringrates in our taxing jurisdictions remain generally consistent throughout the second quarter of fiscal 2018. Further details regarding the TCJA are included in the Income Taxes footnote of the Notes to Consolidated Financial Statements.year.
Net income for the first six months of fiscal 20192020 decreased $22.5$31.7 million to $145.9$114.2 million from $168.4$145.9 million reported for the prior-year period. The decrease in net income resulted primarily from a one-time tax benefit for income taxes relateddecreased operating profit compared to the TCJA recorded in 2018 that did not recur in the current fiscal year.prior-year period partially offset by lower income tax expense. Diluted earnings per share for the six months ended February 28, 201929, 2020 decreased $0.38$0.78 to $3.66$2.88 compared with diluted earnings per share of $4.04$3.66 for the prior-year period. This decrease reflects higherlower net income tax expense, partially offset by a reduced share count.
income. Adjusted net income for the first six months of fiscal 20192020 was $171.8$157.3 million compared with $160.0$171.8 million in the prior-year period, which represented a increasedecrease of $11.8$14.5 million, or 7.4%8.4%. Adjusted diluted earnings per share for the six months ended February 28, 2019 increased $0.47,29, 2020 decreased $0.34, or 12.2%7.9%, to $4.31$3.97 compared with $3.84$4.31 for the prior-year period.
Outlook
We continue to believe the execution of our strategy will provide attractive opportunities for profitable growth over the long-term. Our strategylong term. Although we are aggressively managing our response to the recent COVID-19 pandemic, its impact on our full year fiscal 2020 results and beyond is to capitalize on market growth and share gain opportunities by continuing to expand and leverage our industry-leading lighting and building management solutions portfolio, coupled with our 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, our primary market, will increase in the low-single digit range in fiscal 2019.uncertain. We continue to believe that the forecasts reflect reasonable growth expectations, but we remain cautiously optimistic givenmost significant elements of uncertainty are the angst inintensity and duration of the marketplace due to the uncertainties around political, trade,impact on construction, renovation, and economic policies, including the Trump administration’s recent comments about possibly closing the U.S./Mexico border,consumer spending as well as increases in input coststhe ability of our sales channels, supply chain, manufacturing, and volatility in interest rates. We expectdistribution to continue to outperformoperate with minimal disruption for the growth ratesremainder of the markets that we serve by executing strategies focused on growth opportunities for new constructionfiscal 2020 and renovation projects, expansion into underpenetrated geographies and channels, and growth from the continued introduction of new lighting and building management solutions as part of our integrated, tiered solutions strategy, including leveraging our 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.
We expect the pricing environment to continue to be challenging in portions of the market, particularly for more basic, lesser-featured products sold through certain sales channels as well as shifts in product mix, bothbeyond, all of which are expected to continue tocould negatively impact net sales and margins. We expect recently announced price increases to mitigate some of the pricing pressures in the market but not to have any material impact on product substitution trends to lower priced alternatives. We expect to continue to introduce products and solutions to more effectively compete in these portions of the market and to accelerate programs to reduce product costs in order to maintain our competitiveness and drive improved profitability. We expect the shift in customers within the retail sales channel to continue to have a dampening effect on gross profit dollars and gross profit margin but be largely offset by lower freight and commission costs, which are included in SD&A expenses. Additionally, in an effort to enhance our margin profile, we have initiated a review of a small portion of our product portfolio and services offering with the objective of eliminating those items and activities that do not meet our return objectives.
The U.S. federal government has recently imposed tariffs on certain Chinese imports. Certain components used in our products as well as certain sourced finished products are sourced from China and are impacted by the recently imposed tariffs. Our 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. We believe that our mitigation activities, including recently announced price increases once fully enacted, will assist to offset the added costs. Future U.S. policy changes that may be implemented, including additional tariffs, could have a positive or negative consequence on our financial performance depending on how the changes influence many factors, including businessposition, results of operations, cash flows, and consumer sentiment.
During fiscal 2018, we announced the planned consolidation of certain facilities and associated reduction in employee workforce. We recognized $12.0 million to date in special charges for this initiative primarily related to severance, employee benefit costs, and relocation costs. We expect to incur additional costs in future periods primarily related to early lease termination and additional relocation costs. Annual savings realized from the streamlining activities, once fully completed, are expected to exceed the amount of the special charges recognized. We expect to reinvest most of the savings in activities to support higher-growth opportunities, as well as drive improved profitability.
During the fourth quarter of fiscal 2018, we entered into a new credit agreement with a syndicate of banks that increased our borrowing capacity under such agreements from $250 million to $800 million. The increase in borrowing capacity provides us with the resources to support growth opportunities, including acquisitions, accommodate the current stock repurchase program, of which 4.8 million shares remain available for repurchase as of April 3, 2019, and refinance our outstanding senior unsecured notes that mature in late calendar 2019. The extent and timing of actual stock repurchases will be subject to various factors, including stock price, company performance, expected future market conditions, and other possible uses of cash, including acquisitions. We may increase our leverage to accommodate the stock repurchase program.
From a longer term perspective, we expect that our addressable markets have the potential to experience solid growth over the next decade, particularly as energy and environmental concerns continue to come to the forefront along with emerging opportunities for digital lighting to play a key role in the 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. We remain positive about the future prospects of the Company and our ability to outperform the markets we serve.outlook.
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 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 us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expense during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition; inventory valuation; 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;estimated liabilities; retirement benefits; and litigation. We base our estimates and judgments on our substantial historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. We discuss the development of accounting estimates with the Audit Committee of the Board.
There have been no material changes in our critical accounting estimates during the current period. We adopted ASC 606 during the current fiscal year, which required changes to our revenue policies but did not have a material impact to our financial condition, results of operations, or cash flows. Refer to the Revenue Recognition footnote within the Notes to Consolidated Financial Statements for further details regarding our accounting policies and critical accounting estimates under ASC 606.
For a detailed discussion of other significant accounting policies that may involve a higher degree of judgment, refer to our Form 10-K.
Cautionary Statement Regarding Forward-Looking 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 we 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) our projections regarding financial performance, liquidity, capital structure, capital expenditures, investments, share repurchases, and dividends, including our intent and ability to refinance our senior unsecured notes;dividends; (b) expectations about the impact of any changes in demand as well as volatility and uncertainty in general economic conditions and the pricing environment;conditions; (c) external forecasts projecting the North American lighting and building management solutions market growth rate and growth in our addressable markets; (d) our ability to execute and realize benefits from initiatives related to streamlining our operations, capitalize on growth opportunities, expand in key markets as well as underpenetrated geographies and channels, and introduce new lighting and building management solutions; (e)(d) our estimate of our fiscal 20192020 effective income tax rate, results of operations, and cash flows; (f)(e) our estimate of future amortization expense; (g)(f) our ability to achieve our long-term financial goals and measures and outperform the markets we serve; (h)(g) the impact of changes in the political landscape and related policy changes, including monetary, regulatory, and trade policies, including the Trump administration's recent comments about possibly closing the U.S./Mexico border; (i)policies; (h) our expectations related to mitigating efforts around recently imposed tariffs; and (j)(i) our expectations about the resolution of trade compliance,patent litigation, securities class action, trade compliance, and/or other legal matters.matters; and (j) our expectations of the impact of the recent COVID-19 pandemic. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this quarterly report. Except as required by law, we 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 quarterly report or to
reflect the occurrence of unanticipated events. Our forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience 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 us. Also, additional risks that could cause our actual results to differ materially from those expressed in our forward-looking statements are discussed in Part II, Item 1a. Risk Factors below and Part I, Item 1a. Risk Factorsof our Form 10-K, and are specifically incorporated herein by reference.10-K.
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| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
General. We are exposed to market risks that may impact our Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income, and Consolidated Statements of Cash Flows due primarily to fluctuations in interest rates, foreign exchange rates, and commodity prices. ThereOur long-term debt as of August 31, 2019 consisted primarily of fixed rate obligations, whereas we had $404 million of variable-rate obligations outstanding as of February 29, 2020, consisting primarily of borrowings under our unsecured delayed draw term loan facility. A 10% increase in market rates at February 29, 2020 would have resulted in $0.2 million of additional after-tax interest tax interest expense for the three and six months ended February 29, 2020. Except for the change in our long-term debt from primarily fixed to variable rate obligations and the broad effects of the COVID-19 pandemic as a result of its negative impact on the global economy and major financial markets there have been no other material changes to our exposure from market risks from those disclosed in Part II, Item 7a. Quantitative and Qualitative Disclosures About Market Risk of our Form 10-K.
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| Item 4. | 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 us 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 (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 us 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, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2019.29, 2020. 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 our disclosure controls and procedures are effective at a reasonable assurance level as of February 28, 2019.29, 2020. 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 our control system, include faulty judgments in decision-making or simple errors or mistakes. In addition, controls can be circumvented by an individual, by collusion between two or more people, or by management override of the control. Because of these limitations, misstatements due to error or fraud may occur and may not be detected.
During the six months ended February 29, 2020, we completed our acquisitions of The Luminaires Group (“TLG”) and LocusLabs, Inc (“LocusLabs”). 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 TLG's or LocusLab's internal control over financial reporting as of February 29, 2020. Excluding the acquisitions, there have been no changes in our internal control over financial reporting that occurred during our most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We began integrating TLG and LocusLabs into our existing control procedures from their respective dates of acquisition. We do not anticipate the integration of the acquired companies to result in changes that would materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
Lighting Science Group Patent Litigation
On April 30, 2019 and May 1, 2019, Lighting Science Group Corp. (“LSG”) filed complaints in the International Trade Commission and United States District Court for the District of Delaware, respectively, alleging infringement of eight patents by the Company and others. On May 17, 2019, LSG amended both of its complaints and dropped its claims regarding one of the patents. For the remaining seven patents, LSG’s infringement allegations relate to certain of our LED luminaires and related systems. LSG seeks orders from the International Trade Commission to preclude the importation and sale of the accused products. LSG seeks unspecified monetary damages, costs, and attorneys’ fees in the District of Delaware action. We dispute and have numerous defenses to the allegations, and we intend to vigorously defend against LSG’s claims. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and a request for an exclusion order and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we currently are unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from these matters.
Securities Class Action
On January 3, 2018, a shareholder filed a class action complaint in the United States District Court for the District of Delaware against the Companyus and certain of our officers on behalf of all persons who purchased or otherwise acquired our stock between June 29, 2016 and April 3, 2017. On February 20, 2018, a different shareholder filed a second class action complaint in the same venue against the same parties on behalf of all persons who purchased or otherwise acquired our stock between October 15, 2015 and April 3, 2017. The cases were transferred on April 30, 2018, to the United States District Court for the Northern District of Georgia and subsequently were consolidated as In re Acuity Brands, Inc. Securities Litigation, Civil Action No. 1:18-cv-02140-MHC (N.D. Ga.). On October 5, 2018, the court appointedcourt-appointed lead plaintiff filed a consolidated amended class action complaint (the “Consolidated Complaint”), which supersedes the initial complaints. The Consolidated Complaint is brought on behalf of all persons who purchased our common stock between October 7, 2015 and April 3, 2017 and alleges that the Companywe and certain of our current officers and one former executive violated the federal securities laws by making false or misleading statements and/or omitting to disclose material adverse facts that (i) concealed known trends negatively impacting sales of the Company’sour products and (ii) overstated our ability to achieve profitable sales growth. The plaintiffs seek class certification, unspecified monetary damages, costs, and attorneys’ fees. We dispute the allegations in the complaints and intend to vigorously defend against the claims in the complaints.claims. We have 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 five challenged statements to proceed to discovery. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we are currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from the matters described above. We maintain Directorare insured, in excess of a self-retention, for Directors and Officer insurance policiesOfficers liability.
Trade Compliance Matters
In the course of routine reviews of import and export activity, we previously determined that may cover any liability arising outwe misclassified and/or inaccurately valued certain international shipments of products. We are conducting a detailed review of this litigation upactivity to determine the policies’ limits, subjectextent of any liabilities and implementing the appropriate remedial measures. At this time, we are unable to a self-insured retention and other terms and conditions.determine the likelihood or amount of loss, if any, associated with these shipments.
Litigation
We are subject to various other legal claims arising in the normal course of business, including but not limited to, patent infringement, employment matters, and product liability claims, and employment matters. We are self-insured up to specified limits for certain types of claims, including product liability, and are fully self-insured for certain other types of claims, including environmental, product recall, and patent infringement.claims. Based on information currently available, it is the opinion of management that the ultimate resolution of any such pending and threatened legal proceedings will not have a material adverse effect on theour financial condition, results of operations, or cash flows of the Company.flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of any such matters, if unfavorable, could have a material adverse effect on our financial condition, results of operations, or cash flows in future periods. We establish reservesestimated
liabilities for legal claims when theassociated 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 reservedaccrued for such claims. However, we cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the amounts reserved.accrued amounts.
Information regarding reportable legal proceedings is contained in Part I, Item 3. Legal Proceedings in the Company’sour Form 10-K. Information set forth in this report’s Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements describes any legal proceedings that became reportable during the quarter ended February 28, 2019,29, 2020, and updates any descriptions of previously reported legal proceedings in which there have been material developments during such quarter. The discussion of legal proceedings included within the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements is incorporated into this Item 1 by reference.
The COVID-19 pandemic could have a material adverse effect our ability to operate, results of operations, financial condition, liquidity, and capital investments.
The World Health Organization has declared the COVID-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 local governments have implemented, certain measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances. Such preventive measures, or others 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, potential border closures, disruptions to the businesses of our channel partners, and others. Our suppliers and customers may also face these and other challenges, which could lead to a disruption in our supply chain as well as decreased construction and renovation spending and consumer demand for our products and services. These issues may also materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments. 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.
ThereOther than the item listed above, there have been no material changes in our risk factors from those disclosed in Part I, Item 1a. Risk Factors of our Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In March 2018, the Board of Directors authorized the repurchase of up to six million shares of the Company's common stock. As of February 28, 2019, we repurchased a total of 1.2 million shares under this plan. The following table reflects activity related to equity securities we repurchased during the quarter ended February 28, 2019:
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| | | | | | | | | | | | |
| Purchases of Equity Securities |
| 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 |
| 12/1/2018 through 12/31/2018 | 200,000 |
| | $ | 118.41 |
| | 200,000 |
| | 4,800,000 |
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| 1/1/2019 through 1/31/2019 | — |
| | $ | — |
| | — |
| | 4,800,000 |
|
| 2/1/2019 through 2/28/2019 | — |
| | $ | — |
| | — |
| | 4,800,000 |
|
| Total | 200,000 |
| | $ | 118.41 |
| | 200,000 |
| | 4,800,000 |
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Declaration of Dividend
On March 29, 2019,27, 2020, the the Board of Directors (the “Board”) declared a quarterly dividend of $0.13 per share. The dividend is payable on May 1, 20192020 to stockholders of record on April 17, 2019.2020.
INDEX TO EXHIBITS
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| 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, which is incorporated herein by reference. |
| EXHIBIT 10 | (a) | | | FiledReference is made to Exhibit 10.1 of registrant’s Form 8-K as filed with the Commission as part of this Form 10-Q.on January 9, 2020, which is incorporated herein by reference. |
| | (b) | | | FiledReference 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. |
| (c) | | | Reference is made to Exhibit 10.3 of registrant’s Form 8-K as partfiled with the Commission on January 9, 2020, which is incorporated herein by reference. |
| (d) | | | Reference is made to Exhibit 10.4 of registrant’s Form 10-Q.8-K as filed with the Commission on January 9, 2020, which is incorporated herein by reference. |
| (e) | | | 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. |
| EXHIBIT 31 | (a) | | | Filed with the Commission as part of this Form 10-Q. |
| | (b) | | | Filed with the Commission as part of this Form 10-Q. |
| EXHIBIT 32 | (a) | | | Filed with the Commission as part of this Form 10-Q. |
| | (b) | | | Filed with the Commission as part of this Form 10-Q. |
| EXHIBIT 101 | .INS | XBRL Instance Document | | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | .SCH | XBRL Taxonomy Extension Schema Document. | | Filed with the Commission as part of this Form 10-Q. |
| | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed with the Commission as part of this Form 10-Q. |
| | .DEF | XBRL Taxonomy Extension Definition Linkbase Document. | | Filed with the Commission as part of this Form 10-Q. |
| | .LAB | XBRL Taxonomy Extension Label Linkbase Document. | | Filed with the Commission as part of this Form 10-Q. |
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| | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed with the Commission as part of this Form 10-Q. |
| EXHIBIT 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | | Filed with the Commission as part of this Form 10-Q |
SIGNATURES
Pursuant to the requirements 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.
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| Date: | April 3, 20192, 2020 | | By: | /S/ VERNON J. NAGELNEIL M. ASHE |
| | | | | VERNON J. NAGELNEIL M. ASHE
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
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| Date: | April 3, 20192, 2020 | | By: | /S/ RICHARD K. REECEKAREN J. HOLCOM |
| | | | | RICHARD K. REECEKAREN J. HOLCOM
EXECUTIVESENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER (Principal Financial and Accounting Officer) |