Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands, Inc. (referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries for the years ended August 31, 2021, 2020, and 2019 (“fiscal 2021,” “fiscal 2020,” and “fiscal 2019,” respectively). The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report.
Overview
Company
We are a market-leading industrial technology company. Through our two business segments, Acuity Brands Lighting and Lighting Controls (“ABL”) and the Intelligent Spaces Group (“ISG”) we design, manufacture, and bring to market products and services that make the world more brilliant, productive, and connected. We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management systems, and location-aware applications.
We achieve customer-focused efficiencies that allow us to increase market share and deliver superior returns. We look to aggressively deploy capital to grow the business and to enter attractive new verticals.
Capital Resources and Liquidity
We have numerous sources of capital, including cash on hand and cash flows generated from operations as well as various sources of financing. Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to meet our capital allocation priorities, which are to reinvest in our organic growth, make strategic acquisitions and investments, pay dividends, and repurchase shares. Sufficient cash flow generation is also critical to fund our operations in the short and long-term, to make required contributions to our employee benefit plans, and to maintain compliance with covenants contained in our financing agreements. 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 flows 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 borrowing capacity, will sufficiently support our long-term liquidity needs. In the event of a sustained market deterioration, we may need additional capital, which would require us to evaluate available alternatives and take appropriate actions.
Cash
Our cash position at August 31, 2021 was $491.3 million, a decrease of $69.4 million from August 31, 2020. Cash generated from operating activities, cash on-hand, and additional long-term debt borrowings were used during the current year to fund our capital allocation priorities as discussed below.
We generated $408.7 million of cash flows from operating activities during fiscal 2021 compared with $504.8 million in the prior-year period, a decrease of $96.1 million, due primarily to increased operating working capital requirements to support the improvement in year-over-year sales as well as higher payments for income taxes, partially offset by payroll tax deferrals under the Coronavirus Aid, Relief, and Economic Security Act of 2020 and lower interest payments on long-term borrowings due to timing.
Our significant contractual cash requirements as of August 31, 2021 include principal and interest on long-term debt as well as payments for operating lease liabilities. Our obligations related to these items are outlined in the Debt and Lines of Credit and Leases footnotes of the Notes to Consolidated Financial Statements within this Form 10-K. Additionally, we incur purchase obligations in the ordinary course of business that are enforceable and legally binding. Contractual purchase obligations for years subsequent to August 31, 2021 include $451.1 million in fiscal 2022. Contractual purchase obligations beyond fiscal 2022 are not significant.
Financing Arrangements
During fiscal 2021, we received proceeds of $493.8 million through debt issuances and repaid $401.1 million of previously outstanding long-term debt, resulting in net proceeds of $92.7 million. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for discussion of our various financing arrangements, including the terms of our $400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) as well as the $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”). At August 31, 2021, our outstanding debt balance was $494.3 million compared to our cash position of $491.3 million. We were in compliance with all financial covenants under our financing arrangements as of August 31, 2021.
At August 31, 2021, we had additional borrowing capacity under the revolving credit facility of $395.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the facility less the outstanding letters of credit of $4.1 million issued under the facility. As of August 31, 2021, our cash on hand combined with the additional borrowing capacity under the revolving credit facility totaled approximately $0.9 billion.
The Unsecured Notes were issued by Acuity Brands Lighting, Inc., a wholly-owned subsidiary of Acuity Brands, Inc. The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands, Inc. and ABL IP Holding LLC, a wholly-owned subsidiary of Acuity Brands, Inc. The following tables present summarized financial information for Acuity Brands, Inc., Acuity Brands Lighting, Inc., and ABL IP Holding LLC on a combined basis after the elimination of all intercompany balances and transactions between the combined group as well as any investments in non-guarantors as of the dates and during the period presented (in millions):
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Summarized Balance Sheet Information
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August 31, 2021
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|
August 31, 2020
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Current assets
|
|
$
|
1,172.0
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|
$
|
1,152.6
|
|
Current assets due from non-guarantor affiliates
|
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213.4
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|
183.3
|
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Non-current assets
|
|
1,391.7
|
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|
1,416.0
|
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Current liabilities
|
|
595.1
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|
530.2
|
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Non-current liabilities
|
|
815.7
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|
723.8
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Summarized Income Statement Information
|
|
Year Ended August 31, 2021
|
Net sales
|
|
$
|
2,900.0
|
|
Gross profit
|
|
1,244.8
|
|
|
|
|
Net income
|
|
301.7
|
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Capital Allocation Priorities
Effective capital allocation is a key driver of stockholder value. Our capital allocation priorities are to invest in our business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases.
Organic Growth Investments
We invested $43.8 million and $54.9 million in fiscal 2021 and 2020, respectively, in property, plant, and equipment, primarily related to investments in tooling, new and enhanced information technology capabilities, equipment, and facility enhancements. We currently expect to invest approximately 1.5% of net sales on capital expenditures during fiscal 2022.
Strategic Acquisitions and Investments
We seek opportunities to strategically expand and enhance our portfolio of solutions. We invested in acquisitions of businesses, net of cash acquired, of $75.3 million and $303.0 million in fiscal 2021 and 2020, respectively. These acquisitions primarily included the following transactions:
•On July 1, 2021, using cash on hand, we acquired certain assets and liabilities of ams OSRAM’s North American Digital Systems (“OSRAM DS”) business. This acquisition is intended to enhance our light emitting diode (“LED”) driver and controls technology portfolio and accelerate our innovation, expand our access to market through a more fulsome OEM product offering, and give us more control over our supply chain.
•On May 18, 2021, using cash on hand, we acquired all of the equity interests of Rockpile Ventures, an accelerator of edge artificial intelligence startups. Rockpile Ventures helps early-stage artificial intelligence companies drive co-engineering and co-selling partnerships with major cloud ecosystems, enabling faster adoption from proof-of-concept trials to market scale.
•On September 17, 2019, using cash on hand and borrowings under available existing credit arrangements at that time, we acquired all of the equity interests of The Luminaires Group (“TLG”), a leading provider of specification-grade luminaires for commercial, institutional, hospitality, and municipal markets, all of which complement our dynamic lighting portfolio. TLG’s indoor and outdoor lighting fixtures are marketed to architects, landscape architects, interior designers, and engineers through five niche lighting brands: A-light™, Cyclone™, Eureka®, Luminaire LED™, and Luminis®.
•On November 25, 2019, using cash on hand, we acquired all of the equity interests of LocusLabs, Inc (“LocusLabs”). The LocusLabs software platform supports navigation applications used on mobile devices, web browsers, and digital displays in airports, event centers, multi-floor office buildings, and campuses.
Please refer to the Acquisitions footnote of the Notes to Consolidated Financial Statements for more information.
Dividends
We paid dividends on our common stock of $19.1 million ($0.52 per share) in fiscal 2021 and $20.8 million ($0.52 per share) in fiscal 2020, indicating a quarterly dividend rate of $0.13 per share. All decisions regarding the declaration and payment of dividends are at the discretion of the Board of Directors (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.
Share Repurchases
During fiscal 2021, we repurchased 3.8 million shares of our outstanding common stock for $434.9 million. As of August 31, 2021, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 3.8 million shares. We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash.
The COVID-19 Pandemic
The COVID-19 pandemic has resulted in intermittent worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets. We remain committed to prioritizing the health and well-being of our associates and their families and ensuring that we operate effectively. We have implemented policies to screen associates, contractors, and vendors for COVID-19 symptoms upon entering our manufacturing, distribution, and open-office facilities in the United States, Mexico, and other locations as permitted by law. We have also implemented one-way traffic flows, additional cleaning requirements for common spaces, mandatory face coverings, hand sanitizer stations, socially-distanced workspaces, and self-serve pay stations within our cafeterias to mitigate the spread of the virus. Additionally, we have required certain employees whose job functions can be performed remotely to work primarily from home.
The COVID-19 pandemic has had an adverse impact on our results of operations. The pandemic has caused reduced construction and renovation spending as well as a disruption in our supply chain for certain components, both of which negatively impacted our fiscal 2021 sales. In fiscal 2020 we experienced a limited number of temporary facility shutdowns due to government-mandated closures. Although our facilities are open and government-mandated restrictions have been gradually lifted, a resurgence in COVID-19 cases may lead to the reimposition of previously lifted business closure requirements, the imposition of new restrictions, or the issuance of new or revised local or national health guidance. We also continue to incur additional health and safety costs including expenditures for personal protection equipment and facility enhancements to maintain proper distancing guidelines issued by the Centers for Disease Control and Prevention. We have taken actions to reduce costs, including the realignment of headcount with current volumes, a limit on all non-essential employee travel, other efforts to decrease discretionary spending, and reductions in our real estate footprint. Additionally, we elected to defer certain employer payroll taxes as allowable under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES" Act) signed into law on March 27, 2020. Half of these deferrals are due in December 2021, and the remaining deferrals are due in December 2022.
Although we have implemented significant measures to mitigate further spread of the virus, our employees, customers, suppliers, and contractors may continue to experience disruptions to business activities due to potential
further government-mandated or voluntary shutdowns, general economic conditions, or other negative impacts of the COVID-19 pandemic. We are continuously monitoring the adverse effects of the pandemic and identifying steps to mitigate those effects. As the COVID-19 pandemic is continually evolving, we are uncertain of its ultimate duration and impact. See Part I, Item 1a. Risk Factors for further details regarding the potential impacts of COVID-19 to our results of operations, financial position, and cash flows.
Results of Operations
The following is a discussion of our results of operations in fiscal 2021 compared to fiscal 2020. A discussion of our fiscal 2020 results of operations compared to fiscal 2019 can be found within Part II, Item 7. Management's Discussion and Analysis within our fiscal 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 23, 2020.
The following table sets forth information comparing the components of net income for the year ended August 31, 2021 with the year ended August 31, 2020 (in millions except per share data):
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Year Ended August 31,
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Increase
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Percent
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2021
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2020
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(Decrease)
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Change
|
Net sales
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$
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3,461.0
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|
|
$
|
3,326.3
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$
|
134.7
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|
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4.0
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%
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Cost of products sold
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1,986.0
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|
|
1,923.9
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|
|
62.1
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|
|
3.2
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%
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Gross profit
|
1,475.0
|
|
|
1,402.4
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|
|
72.6
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|
|
5.2
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%
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Percent of net sales
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42.6
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%
|
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42.2
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%
|
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40
|
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bps
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Selling, distribution, and administrative expenses
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1,044.1
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|
|
1,028.5
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|
|
15.6
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|
1.5
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%
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Special charges
|
3.3
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|
|
20.0
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(16.7)
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|
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NM
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Operating profit
|
427.6
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|
|
353.9
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|
73.7
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|
20.8
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%
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Percent of net sales
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12.4
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%
|
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10.6
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%
|
|
180
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bps
|
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Other expense:
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Interest expense, net
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23.2
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|
23.3
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(0.1)
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(0.4)
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%
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Miscellaneous expense, net
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8.2
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|
5.9
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|
2.3
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NM
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Total other expense
|
31.4
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|
29.2
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|
2.2
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|
7.5
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%
|
Income before income taxes
|
396.2
|
|
|
324.7
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|
|
71.5
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|
|
22.0
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%
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Percent of net sales
|
11.4
|
%
|
|
9.8
|
%
|
|
160
|
|
bps
|
|
Income tax expense
|
89.9
|
|
|
76.4
|
|
|
13.5
|
|
|
17.7
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%
|
Effective tax rate
|
22.7
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%
|
|
23.5
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%
|
|
|
|
|
Net income
|
$
|
306.3
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|
|
$
|
248.3
|
|
|
$
|
58.0
|
|
|
23.4
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%
|
Diluted earnings per share
|
$
|
8.38
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|
|
$
|
6.27
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|
|
$
|
2.11
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|
|
33.7
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%
|
NM - not meaningful
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|
|
|
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|
Net sales increased $134.7 million, or 4.0%, to $3.46 billion for the year ended August 31, 2021 compared with $3.33 billion reported for the year ended August 31, 2020. For the year ended August 31, 2021, we reported net income of $306.3 million compared with $248.3 million for the year ended August 31, 2020, an increase of $58.0 million, or 23.4%. For fiscal 2021, diluted earnings per share increased 33.7% to $8.38 from $6.27 for the prior-year period.
The following table reconciles certain U.S. generally accepted accounting principles (“U.S. GAAP”) financial measures to the corresponding non-U.S. GAAP measures referred to in the discussion of our results of operations, which exclude the impact of acquisition-related items, amortization of acquired intangible assets, share-based payment expense, special charges associated primarily with continued efforts to streamline the organization, and impairments of investments in unconsolidated affiliates. Although the impacts of these items have been recognized in prior periods and could recur in future periods, management typically excludes these items during internal reviews of performance and uses these non-U.S. GAAP measures for baseline comparative operational analysis, decision making, and other activities. These non-U.S. GAAP financial measures, including adjusted gross profit and margin, adjusted selling, distribution, and administrative (“SD&A”) expenses and adjusted SD&A expenses as a percent of net sales, adjusted operating profit and margin, adjusted other expense, adjusted net income, and adjusted diluted earnings per share, are provided to enhance the user’s overall understanding of 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.
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(In millions, except per share data)
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Year Ended August 31,
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|
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2021
|
|
|
2020
|
|
Increase (Decrease)
|
Percent Change
|
Gross profit
|
$
|
1,475.0
|
|
|
|
$
|
1,402.4
|
|
|
|
|
$
|
72.6
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|
5.2
|
%
|
Percent of net sales
|
|
|
42.6
|
%
|
|
|
42.2
|
%
|
|
40
|
|
bps
|
|
|
|
|
|
|
|
|
|
|
Add-back: Acquisition-related items (1)
|
—
|
|
|
|
1.2
|
|
|
|
|
|
|
Adjusted gross profit
|
$
|
1,475.0
|
|
|
|
$
|
1,403.6
|
|
|
|
|
$
|
71.4
|
|
5.1
|
%
|
Percent of net sales
|
|
|
42.6
|
%
|
|
|
42.2
|
%
|
|
40
|
|
bps
|
|
|
|
|
|
|
|
|
|
|
Selling, distribution, and administrative expenses
|
$
|
1,044.1
|
|
|
|
$
|
1,028.5
|
|
|
|
|
$
|
15.6
|
|
1.5
|
%
|
Percent of net sales
|
|
|
30.2
|
%
|
|
|
30.9
|
%
|
|
(70)
|
|
bps
|
Less: Amortization of acquired intangible assets
|
(40.7)
|
|
|
|
(41.7)
|
|
|
|
|
|
|
Less: Share-based payment expense
|
(32.5)
|
|
|
|
(38.2)
|
|
|
|
|
|
|
Less: Acquisition-related items (1)
|
(2.2)
|
|
|
|
(1.3)
|
|
|
|
|
|
|
Adjusted selling, distribution, and administrative expenses
|
$
|
968.7
|
|
|
|
$
|
947.3
|
|
|
|
|
$
|
21.4
|
|
2.3
|
%
|
Percent of net sales
|
|
|
28.0
|
%
|
|
|
28.5
|
%
|
|
(50)
|
|
bps
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
$
|
427.6
|
|
|
|
$
|
353.9
|
|
|
|
|
$
|
73.7
|
|
20.8
|
%
|
Percent of net sales
|
|
|
12.4
|
%
|
|
|
10.6
|
%
|
|
180
|
|
bps
|
Add-back: Amortization of acquired intangible assets
|
40.7
|
|
|
|
41.7
|
|
|
|
|
|
|
Add-back: Share-based payment expense
|
32.5
|
|
|
|
38.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add-back: Acquisition-related items (1)
|
2.2
|
|
|
|
2.5
|
|
|
|
|
|
|
Add-back: Special charges
|
3.3
|
|
|
|
20.0
|
|
|
|
|
|
|
Adjusted operating profit
|
$
|
506.3
|
|
|
|
$
|
456.3
|
|
|
|
|
$
|
50.0
|
|
11.0
|
%
|
Percent of net sales
|
|
|
14.6
|
%
|
|
|
13.7
|
%
|
|
90
|
|
bps
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
$
|
31.4
|
|
|
|
$
|
29.2
|
|
|
|
|
$
|
2.2
|
|
7.5
|
%
|
Less: Impairments of investments
|
(6.0)
|
|
|
|
—
|
|
|
|
|
|
|
Adjusted other expense
|
$
|
25.4
|
|
|
|
$
|
29.2
|
|
|
|
|
$
|
(3.8)
|
|
(13.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
306.3
|
|
|
|
$
|
248.3
|
|
|
|
|
$
|
58.0
|
|
23.4
|
%
|
Add-back: Amortization of acquired intangible assets
|
40.7
|
|
|
|
41.7
|
|
|
|
|
|
|
Add-back: Share-based payment expense
|
32.5
|
|
|
|
38.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add-back: Acquisition-related items (1)
|
2.2
|
|
|
|
2.5
|
|
|
|
|
|
|
Add-back: Special charges
|
3.3
|
|
|
|
20.0
|
|
|
|
|
|
|
Add-back: Impairments of investments
|
6.0
|
|
|
|
—
|
|
|
|
|
|
|
Total pre-tax adjustments to net income
|
84.7
|
|
|
|
102.4
|
|
|
|
|
|
|
Income tax effect
|
(19.3)
|
|
|
|
(23.4)
|
|
|
|
|
|
|
Adjusted net income
|
$
|
371.7
|
|
|
|
$
|
327.3
|
|
|
|
|
$
|
44.4
|
|
13.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
8.38
|
|
|
|
$
|
6.27
|
|
|
|
|
$
|
2.11
|
|
33.7
|
%
|
Adjusted diluted earnings per share
|
$
|
10.17
|
|
|
|
$
|
8.27
|
|
|
|
|
$
|
1.90
|
|
23.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
______________________________
(1) Acquisition-related items include profit in inventory and professional fees.
Net Sales
Net sales of $3.46 billion for the year ended August 31, 2021 increased by $134.7 million, or 4.0%, compared with the prior-year period. This increase was driven by improved sales performance in the second half of fiscal 2021. Sales in our ABL segment of $3.29 billion increased $106.4 million, or 3.3%, compared to the prior year. Within our ABL segment, sales through the independent sales network and direct sales network increased 5% and 9%, respectively, due primarily to these channels continuing to benefit from improved service levels and an improving economy. However, corporate accounts sales for fiscal 2021 were 12% lower year over year due to fewer nonessential renovations from large retailers in the first half of the fiscal year, and retail sales declined 17% due primarily to a customer inventory rebalancing in fiscal 2021. Sales within our ISG segment increased 21% to $190.0 million due primarily to strong demand for building and HVAC controls. Changes in foreign currency rates and revenues from acquired companies did not have a meaningful impact on net sales for fiscal 2021.
Gross Profit
Gross profit for fiscal 2021 increased $72.6 million, or 5.2%, to $1.48 billion compared with $1.40 billion for the prior year due. The increase in gross profit and margin was due primarily to increased sales as well as product and productivity improvements, partially offset by higher component and freight costs.
Operating Profit
SD&A expenses of $1.04 billion for the year ended August 31, 2021 increased $15.6 million, or 1.5%, compared with the prior year. The increase in SD&A expense was due primarily to higher outbound freight to support the increase in sales as well as increased employee-related costs, partially offset by lower travel expense and sales and marketing costs due to cost control and travel restrictions that have continued since the start of the COVID-19 pandemic. Additionally, share-based payment expense decreased in fiscal 2021 due to the discontinuation of certain retirement provisions in the equity incentive program that resulted in the acceleration of share-based payment expense for fiscal 2020 grants.
Compared with the prior-year period, SD&A expenses as a percent of net sales decreased 70 basis points to 30.2% for fiscal 2021 from 30.9% in fiscal 2020. Adjusted SD&A expenses were $968.7 million, or 28.0% of net sales, in fiscal 2021 compared to $947.3 million, or 28.5% of net sales, in the year-ago period.
During the year ended August 31, 2021, we recognized pre-tax special charges of $3.3 million compared with pre-tax special charges of $20.0 million recorded during the year ended August 31, 2020. Further details regarding our special charges are included in the Special Charges footnote of the Notes to Consolidated Financial Statements.
Operating profit for fiscal 2021 was $427.6 million compared with $353.9 million reported for the prior-year period, an increase of $73.7 million, or 20.8%. Operating profit margin increased 180 basis points to 12.4% for fiscal 2021 compared with 10.6% for fiscal 2020. The increase in operating profit margin reflects favorable gross profit margin, a decline in special charges, and our ability to leverage our operating costs.
Adjusted operating profit increased $50.0 million, or 11.0%, to $506.3 million compared with $456.3 million for fiscal 2020. Adjusted operating profit margin was 14.6% and 13.7% for fiscal 2021 and 2020, respectively.
Other Expense
Other expense consists 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 $23.2 million and $23.3 million for the years ended August 31, 2021 and 2020, respectively.
We reported net miscellaneous expense of $8.2 million in fiscal 2021 compared with $5.9 million in fiscal 2020. During fiscal 2021, we recorded impairment charges totaling $6.0 million for certain unconsolidated equity investments. Further details regarding the impairment charges are included in the Fair Value Measurements footnote of the Notes to Consolidated Financial Statements.
Income Taxes and Net Income
Our effective income tax rate was 22.7% and 23.5% for the years ended August 31, 2021 and 2020, respectively. The change in our effective income tax rate year over year is due primarily to the impacts of discrete items. Further details regarding income taxes are included in the Income Taxes footnote of the Notes to Consolidated Financial
Statements. We estimate that our effective tax rate for fiscal 2022 will be approximately 23% before any discrete items, assuming the rates in our taxing jurisdictions remain generally consistent throughout the year.
Net income for fiscal 2021 increased $58.0 million, or 23.4%, to $306.3 million from $248.3 million reported for the prior year. The increase in net income resulted primarily from an increase in operating profit compared to the prior-year period partially offset by higher income tax expense related to the increase in profit. Adjusted net income for fiscal 2021 increased 13.6% to $371.7 million compared with $327.3 million in the year-ago period.
Diluted earnings per share for fiscal 2021 was $8.38 compared with $6.27 for the prior-year period, an increase of $2.11, or 33.7%. This increase reflects higher net income as well as lower outstanding diluted shares. Adjusted diluted earnings per share for fiscal 2021 was $10.17 compared with $8.27 for the prior-year period, an increase of $1.90, or 23.0%.
Segment Results
The following tables set forth information comparing the operating results of our segments, ABL and ISG, for the year ended August 31, 2021 with the year ended August 31, 2020 (in millions). We have recast historical information to conform to the current segment structure.
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Year Ended August 31,
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ABL
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2021
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2020
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|
Increase (Decrease)
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Percent Change
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Net sales
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$
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3,287.3
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|
|
$
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3,180.9
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|
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$
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106.4
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|
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3.3
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%
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|
|
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Operating profit
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$
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476.2
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|
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$
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425.8
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|
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$
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50.4
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|
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11.8
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%
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Add-back: Amortization of acquired intangible assets
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27.9
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27.4
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Add-back: Share-based payment expense
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11.0
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13.4
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Add-back: Acquisition-related items (1)
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—
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1.2
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Adjusted operating profit
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$
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515.1
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$
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467.8
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$
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47.3
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10.1
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%
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Operating profit margin
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14.5
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%
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13.4
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%
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110
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bps
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Adjusted operating profit margin
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15.7
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%
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14.7
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%
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100
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bps
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_____________________________
(1) Acquisition-related items include profit in inventory.
ABL net sales for the year ended August 31, 2021 increased 3.3% compared with the prior-year period due primarily to improvements within the independent sales network and direct sales network channels as our go-to-market activities leveraged improvements in the construction market and wider economy. These gains were partially offset by lower sales in the retail channel due to a customer inventory rebalancing and in the corporate accounts channel due to fewer nonessential renovations from large retailers in the first half of the fiscal year. Operating profit for ABL was $476.2 million (14.5% of ABL net sales) for the year ended August 31, 2021 compared to $425.8 million (13.4% of ABL net sales) in the prior-year period, an increase of $50.4 million. The increase in operating profit was due primarily to higher sales as well as product and productivity improvements, partially offset by higher component, freight, and operating costs. The operating profit margin increase year over year reflects higher sales as well as our ability to successfully leverage our operating costs. Adjusted operating profit for ABL increased $47.3 million to $515.1 million for the year ended August 31, 2021 compared with the prior year period.
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Year Ended August 31,
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ISG
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2021
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2020
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Increase (Decrease)
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Percent Change
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Net sales
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$
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190.0
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$
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157.0
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$
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33.0
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21.0
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%
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Operating profit (loss)
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$
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9.9
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$
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(3.9)
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$
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13.8
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NM
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Add-back: Amortization of acquired intangible assets
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12.8
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14.3
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Add-back: Share-based payment expense
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2.9
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|
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4.5
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Adjusted operating profit
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$
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25.6
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|
|
$
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14.9
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|
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$
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10.7
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|
|
71.8
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%
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|
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|
|
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|
Operating profit (loss) margin
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5.2
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%
|
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(2.5)
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%
|
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770
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bps
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Adjusted operating profit margin
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13.5
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%
|
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9.5
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%
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400
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bps
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ISG net sales for the year ended August 31, 2021 increased 21.0% compared with the prior-year period driven primarily by strong demand for building and HVAC controls. ISG operating profit was $9.9 million for the year ended
August 31, 2021 compared with a $3.9 million operating loss in the prior-year period, an increase of $13.8 million. This increase was due primarily to higher sales, partially offset by increased employee costs. Adjusted operating profit for ISG increased $10.7 million to $25.6 million for the year ended August 31, 2021 compared with the prior-year period.
Outlook
We expect the challenging global supply chain environment to continue into fiscal 2022. We currently expect ABL to grow net sales in the high single digits for the full year of 2022 and ISG to deliver net sales growth in the mid-teens. Additionally, we expect a 42% plus annualized gross profit margin for the full year of 2022, and we believe that we can continue to leverage our operating costs as we increase net sales.
Accounting Standards Adopted in Fiscal 2021 and Accounting Standards Yet to Be Adopted
See the New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for information on recently adopted and upcoming standards.
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. As discussed in the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenue and expense during the reporting period. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and judgments on our substantial historical experience and/or other relevant factors, such as projections of future performance, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. We discuss the development of accounting estimates with our Audit Committee of the Board of Directors on a recurring basis. See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for a summary of our accounting policies.
We believe the following accounting topics represent our critical accounting estimates.
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. In the period of revenue recognition, we estimate and record provisions for certain rebates, sales incentives, product returns, and discounts to customers, in most instances, as reductions of revenue. We also maintain one-time or on-going marketing and trade-promotion programs with certain customers that require us to estimate and accrue the expected costs of such programs. Generally, these items are estimated based on customer agreements, historical trends, and expected demand. For sales with multiple deliverables, significant judgment may be required to determine which performance obligations are distinct and should be accounted for separately. We allocate the expected consideration to be collected to each distinct performance obligation based on its standalone selling price. Standalone selling price is generally estimated using a cost plus margin valuation when no observable input is available.
Actual results could differ from estimates, which would require adjustments to recorded amounts. Please refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for additional information regarding estimates related to revenue recognition.
Inventories
Inventories include materials, direct labor, in-bound freight, customs, duties, tariffs, and related manufacturing overhead and are stated at the lower of cost (on a first-in, first-out or average-cost basis) and net realizable value. We review inventory quantities on hand and record a provision for excess or obsolete inventory primarily based on estimated future demand and current market conditions. A significant change in customer demand, market conditions, or technology could render certain inventory obsolete and thus could have a material adverse impact on our operating results in the period the change occurs.
Goodwill and Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets consist of trade names acquired through multiple acquisitions that are expected to generate cash flows indefinitely. Significant estimates and assumptions were used to both identify and determine the initial fair value of these acquired intangible assets, often with the assistance of third-party valuation specialists. These assumptions include, but are not limited to, estimated future net sales and profitability, customer attrition rates, royalty rates, and discount rates. Goodwill is calculated as the residual value of an acquisition's purchase price less the value of the identifiable net assets and is thus dependent on the appropriate identification and valuation of the net assets obtained in an acquisition.
We also review goodwill and indefinite-lived intangible assets for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that would more likely than not indicate that the fair value of the goodwill or an indefinite-lived asset is below its carrying value. An impairment loss for goodwill or an indefinite-lived intangible asset would be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would be determined based on either discounted future cash flows or another appropriate fair value method. The evaluation of goodwill and indefinite-lived intangibles for impairment requires management to use significant judgments and estimates in accordance with U.S. GAAP including, but not limited to, economic, industry, and Company-specific qualitative factors, projected future net sales, operating results, and cash flows.
Although we currently believe that the estimates used in the evaluation of goodwill and indefinite-lived intangibles are reasonable, differences between actual and expected net sales, operating results, and cash flows and/or changes in the discount rates or theoretical royalty rates used could cause these assets to be deemed impaired. If this occurs, we are required to record a non-cash charge to earnings for the write-down in the value of such assets. Such charges could have a material adverse effect on our results of operations and financial position but not our cash flows from operations.
Goodwill
We perform our goodwill impairment analysis at the reporting unit level using a combination of discounted future cash flows and relevant market multiples. Our discounted cash flow analyses required significant assumptions about discount rates, short and long-term growth rates, and future profitability. We utilized estimated discount rates ranging from 9.0% to 12.0% as of June 1, 2021, based on the Capital Asset Pricing Model, which considers the risk-free interest rate, beta, market risk premium, and size premium to determine an appropriate discount rate for a reporting unit. Short-term growth rates were based on management’s forecasted financial results, which consider key business drivers such as specific revenue growth initiatives, market share changes, growth in our addressable market, and general economic factors such as macroeconomic conditions, credit availability, and interest rates. Short-term growth rates used in the fiscal 2021 impairment analysis reflected additional estimation uncertainty as a result of the COVID-19 pandemic. We calculated the discounted cash flows attributable to our reporting units for a 10-year discrete period with a terminal value and compared this calculation to the discounted cash flows generated over a 40-year period to corroborate the reasonableness of assumptions used. The long-term growth rate used in determining terminal value was estimated at 3.5% and was primarily based on our understanding of projections for expected long-term growth in our addressable market and historical long-term performance.
We corroborate the values determined from our discounted cash flow models using a relevant market multiple, generally published earnings and/or revenue multiples. We also reconcile the sum of the fair values for each reporting unit to our market capitalization at the testing date, including consideration of a control premium.
Any reasonably likely change in the assumptions used in these analyses, including revenue growth rates, the discount rates, long-term growth rates, or relevant multiples would not cause the carrying value of any reporting unit to exceed its estimated fair value as determined under the goodwill impairment analysis. See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for further details.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets consist of 13 trade names with an aggregate carrying value of $174.8 million at August 31, 2021. We utilized significant assumptions to estimate the fair value of these indefinite-lived trade names using a fair value model based on discounted future cash flows (“fair value model”) in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”). Future cash flows associated with each of our indefinite-lived trade names are calculated by multiplying a theoretical royalty rate a willing third party would pay for use of the particular trade name by estimated future net sales attributable to the relevant trade name. The present values of the resulting after-tax cash flows is our current estimate of the fair value of each trade name.
This fair value model requires us to make several significant assumptions, including specific estimated future net sales (including short and long-term growth rates), the royalty rate, and the discount rate for each trade name.
Future net sales and short-term growth rates are estimated for each particular trade name based on management’s financial forecasts, which consider key business drivers, such as specific revenue growth initiatives, market share changes, expected growth in our addressable market, and general economic factors, such as macroeconomic conditions, credit availability, and interest rates. Short-term growth rates used in the fiscal 2021 impairment analysis reflected additional estimation uncertainty as a result of the COVID-19 pandemic. The long-term growth rate used in determining terminal value was estimated at 3.5% and was based primarily on our understanding of projections for expected long-term growth for our addressable market and historical long-term performance. The theoretical royalty rate is estimated primarily using management’s assumptions regarding the amount a willing third party would pay to use the particular trade name and is compared with market information for similar intellectual property within and outside of the industry. If future operating results are unfavorable compared with forecasted amounts, we may be required to reduce the theoretical royalty rate used in the fair value model, which would result in lower expected future after-tax cash flows in the fair value model. We utilized a range of estimated discount rates between 9% and 12% as of June 1, 2021, based on the Capital Asset Pricing Model, which considers the current risk-free interest rate, beta, market risk premium, and size premium appropriate for each intangible.
During fiscal 2021, we performed an evaluation of the fair values of our indefinite-lived trade names . Our expected revenues were based on our fiscal 2022 projections and recent third-party lighting, controls, and building technology solutions market growth estimates for fiscal 2023 through 2025 as of June 1, 2021. We also included revenue growth estimates based on current initiatives expected to help improve performance. During fiscal 2021, estimated theoretical royalty rates ranged between 1% and 3%. The impairment analyses of our indefinite-lived intangible assets indicated that their fair values exceeded their carrying values; therefore, no impairments were recorded for fiscal 2021. Any reasonably likely change in the assumptions used in the analyses for our trade names, including revenue growth rates, royalty rates, and discount rates, would not be material to our financial condition or results of operations. See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for further details.
Share-based Payment Expense
We recognize compensation cost for share-based payment transactions in the financial statements under the provisions of ASC Topic 718, Compensation — Stock Compensation (“ASC 718”). Restricted stock awards, performance stock awards, and director stock units representing certain deferrals into the Director Deferred Compensation Plan are valued based on the fair value of our common stock on the grant date. We review the values of our performance awards on a frequent and recurring basis and adjust those values based on the probability that the related performance metric will be satisfied. We utilize the Black-Scholes model in deriving the fair value estimates of our stock option awards that only have a service requirement, and we utilize the Monte Carlo simulation model to determine grant date fair value estimates of stock options also subject to a market condition.
Additionally, we estimate forfeitures of all share-based awards at the time of grant, which are revised in subsequent periods if actual forfeitures differ from initial estimates. Forfeitures are estimated based on historical experience. If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period.
We generally recognize compensation cost for share-based payment transactions on a straight-line basis over an award's requisite service period as defined by ASC 718. In certain circumstances, such as when a performance award is subject to graded vesting, we apply the accelerated attribution method to recognize compensation cost related to our share-based payment awards.
See the Share-based Payments footnote of the Notes to Consolidated Financial Statements for further information on these awards, including assumptions used in estimating the fair value of our awards.
Product Warranty and Recall Costs
Our products generally have a standard warranty term of five years. We accrue for the estimated amount of future warranty costs when the related revenue is recognized. Estimated future warranty costs are primarily based on historical experience of identified warranty claims. We are fully self-insured for product warranty costs. Historical warranty costs have been within expectations. Although we expect that historical activity will continue to be the best indicator of future warranty costs, there can be no assurance that future warranty costs will not exceed historical amounts. Estimated costs related to product recalls based on a formal campaign soliciting repair or return of that product are accrued when they are deemed to be probable and can be reasonably estimated. If actual future
warranty or recall costs exceed recorded amounts, additional accruals may be required, which could have a material adverse impact on our results of operations and cash flow.
We also sell certain service-type warranties that extend coverages for products beyond their base warranties. We account for service-type warranties as distinct performance obligations, allocate an appropriate amount of transaction price to these transactions, and recognize revenue for these contracts ratably over the life of the additional warranty period. We allocate transaction price to our service-type warranties largely based on expectations of cost plus margin based on our estimate of future claims. These estimates are subject to a higher level of estimation uncertainty than other estimates, as we have less experience in costs in the extended warranty period. Claims related to service-type warranties are expensed as incurred.
Cautionary Statement Regarding Forward-Looking Statements and Information
This filing contains forward-looking statements within the meaning of the federal securities laws. Statements made herein that may be considered forward-looking include statements incorporating terms such as “expects,” “believes,” “intends,” “anticipates,” and similar terms that relate to future events, performance, or results of the Company. In addition, the Company, or the executive officers on the Company’s behalf, may from time to time make forward-looking statements in reports and other documents 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, including our expected margins and ability to leverage operating costs, liquidity, capital structure, capital expenditures, investments, share repurchases, and dividends; (b) external and internal forecasts projecting the North American lighting and building management solutions market growth rate and growth in our addressable market; (c) expectations about the impact of any changes in demand, including improvements in our end markets, as well as volatility, challenges, competition, and uncertainty in general economic conditions; (d) expectations about volatility in raw material costs, freight costs, and component and labor availability; (e) our ability to execute and realize benefits from initiatives related to streamlining our operations and integrating recent acquisitions, realize synergies from acquisitions, capitalize on growth opportunities with the intention of becoming a larger, more dynamic company, and introduce innovative products and services; (f) our estimate of our fiscal 2022 effective income tax rate, results of operations, cash flows, and capital spending; (g) our estimate of future amortization expense; (h) our ability to achieve our long-term financial goals and measures; (i) the impact of changes in the political landscape and related policy changes, including monetary, regulatory, and trade policies; (j) our expectations about the resolution of securities class action and other regulatory matters; (k) our expectations of the impact of the ongoing COVID-19 pandemic; (l) our human capital initiatives in fiscal 2022, and (m) our ability to reduce our carbon output and seize market opportunities related to sustainability. You are cautioned not to place undue reliance on any forward looking statements, which speak only as of the date of this annual 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 annual 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 the historical experience of the organization 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 that have affected us as a company. Also, additional risks that could cause our actual results to differ materially from those expressed in our forward-looking statements are discussed in Part I, Item 1a. Risk Factors of this Annual Report on Form 10-K, and are specifically incorporated herein by reference.
The industry and market data contained in this report are based either on management’s own estimates or, where indicated, independent industry publications, reports by governmental agencies, or market research firms or other published independent sources and, in each case, are believed by our management to be reasonable estimates. However, industry and market data are subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process, and other limitations and uncertainties inherent in any statistical survey of market shares. We have not independently verified market and industry data from third-party sources.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
ACUITY BRANDS, INC.
The management of Acuity Brands, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of August 31, 2021. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management believes that, as of August 31, 2021, the Company’s internal control over financial reporting is effective.
Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the acquired businesses of Rockpile Ventures and ams OSRAM’s North American Digital Systems, (collectively, the “2021 Acquisitions”), which are included in the Company’s consolidated financial statements as of August 31, 2021 and for the period from the respective acquisition dates through August 31, 2021. As of August 31, 2021, the 2021 Acquisitions constituted less than 4% of the Company’s consolidated assets and stockholders' equity. For the year ended August 31, 2021, the 2021 Acquisitions constituted less than 1% of both the Company's net sales and pre-tax income.
The Company’s independent registered public accounting firm has issued an audit report on their audit of the Company’s internal control over financial reporting. This report dated October 27, 2021 is included within this Form 10-K.
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/s/ NEIL M. ASHE
|
|
/s/ KAREN J. HOLCOM
|
Neil M. Ashe
Chairman, President and
Chief Executive Officer
|
|
Karen J. Holcom
Senior Vice President and
Chief Financial Officer
|
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Acuity Brands, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Acuity Brands, Inc. (the Company) as of August 31, 2021 and 2020, the related consolidated statements of comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended August 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at August 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of August 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated October 27, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Valuation of Indefinite-Lived Trade Names
|
|
|
|
|
|
Description of the Matter
|
At August 31, 2021, the Company’s indefinite-lived intangible assets consisted of thirteen trade names with an aggregate carrying value of approximately $174.8 million. As explained in Note 2 to the consolidated financial statements, the Company tests indefinite-lived trade names for impairment on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not indicate that the fair value of the indefinite-lived trade name is below its carrying amount. If the carrying amount exceeds the estimated fair value, an impairment loss would be recorded in the amount equal to the excess.
Auditing the Company’s impairment tests for indefinite-lived trade names was especially complex due to the judgmental nature of the significant assumptions used in the determination of estimated fair values for trade names. The Company estimates the fair values of trade names using a fair value model based on discounted future cash flows. Significant assumptions used to estimate the value of the trade names included estimated future net sales (including short- and long-term growth rates), discount rates and royalty rates, all of which are forward-looking and could be affected by economic, industry and company-specific qualitative factors. Short-term growth rates reflect increased estimation uncertainty as a result of the COVID-19 pandemic.
|
How We Addressed the Matter in Our Audit
|
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s annual impairment process. This included testing controls over management’s review of the discounted cash flow model, including the significant assumptions described above.
To test the fair values of the Company’s indefinite-lived trade names, our audit procedures included, among others, evaluating the Company’s use of the discounted cash flow model, the completeness and accuracy of the underlying data and the significant assumptions described above. We compared the significant assumptions to current industry, market and economic trends, including the impact of the COVID-19 pandemic, the Company’s historical results and other relevant factors. We involved our valuation specialists to assist in evaluating the Company’s discount rates and royalty rates. In addition, we considered the accuracy of the Company’s historical projections of net sales compared to actual net sales. We also performed a sensitivity analysis to evaluate the potential change in the fair values of the trade names resulting from changes in the significant assumptions.
|
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Atlanta, Georgia
October 27, 2021
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Acuity Brands, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Acuity Brands, Inc.’s internal control over financial reporting as of August 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Acuity Brands, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of August 31, 2021, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the acquired businesses of Rockpile Ventures and ams Osram's North American Digital Systems (collectively, the 2021 Acquisitions), which are included in the 2021 consolidated financial statements of the Company and constituted less than 4% of total assets and stockholders' equity as of August 31, 2021 and less than 1% of net sales and pre-tax income for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the 2021 Acquisitions.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 31, 2021 and 2020, the related consolidated statements of comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended August 31, 2021, and the related notes and our report dated October 27, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 27, 2021
ACUITY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
2021
|
|
2020
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
491.3
|
|
|
$
|
560.7
|
|
Accounts receivable, less reserve for doubtful accounts of $1.2 and $2.6, respectively
|
571.8
|
|
|
500.3
|
|
Inventories
|
398.7
|
|
|
320.1
|
|
Prepayments and other current assets
|
82.5
|
|
|
58.6
|
|
Total current assets
|
1,544.3
|
|
|
1,439.7
|
|
Property, plant, and equipment, net
|
269.1
|
|
|
270.5
|
|
Operating lease right-of-use assets
|
58.0
|
|
|
63.4
|
|
Goodwill
|
1,094.7
|
|
|
1,080.0
|
|
Intangible assets, net
|
573.2
|
|
|
605.9
|
|
Deferred income taxes
|
1.9
|
|
|
2.7
|
|
Other long-term assets
|
33.9
|
|
|
29.5
|
|
Total assets
|
$
|
3,575.1
|
|
|
$
|
3,491.7
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
391.5
|
|
|
$
|
326.5
|
|
Current maturities of debt
|
—
|
|
|
24.3
|
|
Current operating lease liabilities
|
15.9
|
|
|
17.2
|
|
Accrued compensation
|
95.3
|
|
|
89.0
|
|
Other accrued liabilities
|
189.5
|
|
|
160.6
|
|
Total current liabilities
|
692.2
|
|
|
617.6
|
|
Long-term debt
|
494.3
|
|
|
376.8
|
|
Long-term operating lease liabilities
|
46.7
|
|
|
56.8
|
|
Accrued pension liabilities
|
60.2
|
|
|
91.6
|
|
Deferred income taxes
|
101.0
|
|
|
94.9
|
|
Other long-term liabilities
|
136.2
|
|
|
126.5
|
|
Total liabilities
|
1,530.6
|
|
|
1,364.2
|
|
Commitments and contingencies (see Commitments and Contingencies footnote)
|
|
|
|
Stockholders’ equity:
|
|
|
|
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued
|
—
|
|
|
—
|
|
Common stock, $0.01 par value; 500,000,000 shares authorized; 54,018,978 and 53,885,165 issued, respectively
|
0.5
|
|
|
0.5
|
|
Paid-in capital
|
995.6
|
|
|
963.6
|
|
Retained earnings
|
2,810.3
|
|
|
2,523.3
|
|
Accumulated other comprehensive loss
|
(98.2)
|
|
|
(132.7)
|
|
Treasury stock, at cost — 18,826,611 and 15,012,449 shares, respectively
|
(1,663.7)
|
|
|
(1,227.2)
|
|
Total stockholders’ equity
|
2,044.5
|
|
|
2,127.5
|
|
Total liabilities and stockholders’ equity
|
$
|
3,575.1
|
|
|
$
|
3,491.7
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions, except per-share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Net sales
|
$
|
3,461.0
|
|
|
$
|
3,326.3
|
|
|
$
|
3,672.7
|
|
Cost of products sold
|
1,986.0
|
|
|
1,923.9
|
|
|
2,193.0
|
|
Gross profit
|
1,475.0
|
|
|
1,402.4
|
|
|
1,479.7
|
|
Selling, distribution, and administrative expenses
|
1,044.1
|
|
|
1,028.5
|
|
|
1,015.0
|
|
Special charges
|
3.3
|
|
|
20.0
|
|
|
1.8
|
|
Operating profit
|
427.6
|
|
|
353.9
|
|
|
462.9
|
|
Other expense:
|
|
|
|
|
|
Interest expense, net
|
23.2
|
|
|
23.3
|
|
|
33.3
|
|
Miscellaneous expense, net
|
8.2
|
|
|
5.9
|
|
|
4.7
|
|
Total other expense
|
31.4
|
|
|
29.2
|
|
|
38.0
|
|
Income before income taxes
|
396.2
|
|
|
324.7
|
|
|
424.9
|
|
Income tax expense
|
89.9
|
|
|
76.4
|
|
|
94.5
|
|
Net income
|
$
|
306.3
|
|
|
$
|
248.3
|
|
|
$
|
330.4
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
Basic earnings per share
|
$
|
8.44
|
|
|
$
|
6.29
|
|
|
$
|
8.32
|
|
Basic weighted average number of shares outstanding
|
36.3
|
|
|
39.5
|
|
|
39.7
|
|
Diluted earnings per share
|
$
|
8.38
|
|
|
$
|
6.27
|
|
|
$
|
8.29
|
|
Diluted weighted average number of shares outstanding
|
36.6
|
|
|
39.6
|
|
|
39.8
|
|
Dividends declared per share
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
Net income
|
$
|
306.3
|
|
|
$
|
248.3
|
|
|
$
|
330.4
|
|
Other comprehensive income (loss) items:
|
|
|
|
|
|
Foreign currency translation adjustments
|
13.3
|
|
|
11.9
|
|
|
(11.5)
|
|
Defined benefit plans, net of tax
|
21.2
|
|
|
6.8
|
|
|
(25.1)
|
|
Other comprehensive income (loss) items, net of tax
|
34.5
|
|
|
18.7
|
|
|
(36.6)
|
|
Comprehensive income
|
$
|
340.8
|
|
|
$
|
267.0
|
|
|
$
|
293.8
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
306.3
|
|
|
$
|
248.3
|
|
|
$
|
330.4
|
|
Adjustments to reconcile net income to net cash flows from operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
100.1
|
|
|
101.1
|
|
|
88.3
|
|
Share-based payment expense
|
32.5
|
|
|
38.2
|
|
|
29.2
|
|
(Gain) loss on the sale or disposal of property, plant, and equipment
|
(0.1)
|
|
|
0.3
|
|
|
0.9
|
|
Asset impairments
|
6.0
|
|
|
8.8
|
|
|
—
|
|
Deferred income taxes
|
(2.7)
|
|
|
(6.7)
|
|
|
9.3
|
|
Changes in operating assets and liabilities, net of acquisitions
|
|
|
|
|
|
Accounts receivable
|
(68.7)
|
|
|
74.5
|
|
|
97.7
|
|
Inventories
|
(35.5)
|
|
|
38.0
|
|
|
70.8
|
|
Prepayments and other current assets
|
(18.2)
|
|
|
12.9
|
|
|
(34.0)
|
|
Accounts payable
|
65.5
|
|
|
(19.6)
|
|
|
(111.5)
|
|
Other
|
23.5
|
|
|
9.0
|
|
|
13.6
|
|
Net cash provided by operating activities
|
408.7
|
|
|
504.8
|
|
|
494.7
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
(43.8)
|
|
|
(54.9)
|
|
|
(53.0)
|
|
Proceeds from sale of property, plant, and equipment
|
4.7
|
|
|
0.2
|
|
|
—
|
|
Acquisitions of businesses, net of cash acquired
|
(75.3)
|
|
|
(303.0)
|
|
|
(2.9)
|
|
Other investing activities
|
(3.5)
|
|
|
(2.1)
|
|
|
2.9
|
|
Net cash used for investing activities
|
(117.9)
|
|
|
(359.8)
|
|
|
(53.0)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
493.8
|
|
|
400.0
|
|
|
86.5
|
|
Repayments of long-term debt
|
(401.1)
|
|
|
(355.7)
|
|
|
(86.9)
|
|
Repurchases of common stock
|
(434.9)
|
|
|
(69.3)
|
|
|
(81.6)
|
|
Proceeds from stock option exercises and other
|
3.2
|
|
|
0.9
|
|
|
0.6
|
|
Payments of taxes withheld on net settlement of equity awards
|
(4.5)
|
|
|
(5.4)
|
|
|
(6.0)
|
|
Dividends paid
|
(19.1)
|
|
|
(20.8)
|
|
|
(20.8)
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
(362.6)
|
|
|
(50.3)
|
|
|
(108.2)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
2.4
|
|
|
5.0
|
|
|
(1.6)
|
|
Net change in cash and cash equivalents
|
(69.4)
|
|
|
99.7
|
|
|
331.9
|
|
Cash and cash equivalents at beginning of year
|
560.7
|
|
|
461.0
|
|
|
129.1
|
|
Cash and cash equivalents at end of year
|
$
|
491.3
|
|
|
$
|
560.7
|
|
|
$
|
461.0
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Income taxes paid
|
$
|
86.4
|
|
|
$
|
64.6
|
|
|
$
|
92.9
|
|
Interest paid
|
$
|
22.2
|
|
|
$
|
29.8
|
|
|
$
|
35.6
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated Other
Comprehensive
Loss Items
|
|
Treasury
Stock, at cost
|
|
Total
|
Balance, August 31, 2018
|
40.0
|
|
|
$
|
0.5
|
|
|
$
|
906.3
|
|
|
$
|
1,999.2
|
|
|
$
|
(114.8)
|
|
|
$
|
(1,074.4)
|
|
|
$
|
1,716.8
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
330.4
|
|
|
—
|
|
|
—
|
|
|
330.4
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(36.6)
|
|
|
—
|
|
|
(36.6)
|
|
Share-based payment amortization, issuances, and cancellations
|
0.2
|
|
|
—
|
|
|
23.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23.1
|
|
Employee stock purchase plan issuances
|
—
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
Cash dividends of $0.52 per share paid on common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(20.8)
|
|
|
—
|
|
|
—
|
|
|
(20.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
(0.7)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(81.6)
|
|
|
(81.6)
|
|
ASC 606 adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
(13.0)
|
|
|
—
|
|
|
—
|
|
|
(13.0)
|
|
Balance, August 31, 2019
|
39.5
|
|
|
0.5
|
|
|
930.0
|
|
|
2,295.8
|
|
|
(151.4)
|
|
|
(1,156.0)
|
|
|
1,918.9
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
248.3
|
|
|
—
|
|
|
—
|
|
|
248.3
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18.7
|
|
|
—
|
|
|
18.7
|
|
Share-based payment amortization, issuances, and cancellations
|
0.1
|
|
|
—
|
|
|
32.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32.7
|
|
Employee stock purchase plan issuances
|
—
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.8
|
|
Cash dividends of $0.52 per share paid on common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(20.8)
|
|
|
—
|
|
|
—
|
|
|
(20.8)
|
|
Stock options exercised
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Repurchases of common stock
|
(0.7)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71.2)
|
|
|
(71.2)
|
|
Balance, August 31, 2020
|
38.9
|
|
|
0.5
|
|
|
963.6
|
|
|
2,523.3
|
|
|
(132.7)
|
|
|
(1,227.2)
|
|
|
2,127.5
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
306.3
|
|
|
—
|
|
|
—
|
|
|
306.3
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34.5
|
|
|
—
|
|
|
34.5
|
|
Share-based payment amortization, issuances, and cancellations
|
0.1
|
|
|
—
|
|
|
28.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28.8
|
|
Employee stock purchase plan issuances
|
—
|
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
Cash dividends of $0.52 per share paid on common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(19.1)
|
|
|
—
|
|
|
—
|
|
|
(19.1)
|
|
Stock options exercised
|
—
|
|
|
—
|
|
|
2.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.2
|
|
Repurchases of common stock
|
(3.8)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(436.5)
|
|
|
(436.5)
|
|
Cumulative effect of adoption of ASC 326
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
Balance, August 31, 2021
|
35.2
|
|
|
$
|
0.5
|
|
|
$
|
995.6
|
|
|
$
|
2,810.3
|
|
|
$
|
(98.2)
|
|
|
$
|
(1,663.7)
|
|
|
$
|
2,044.5
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note 1 — Description of Business and Basis of Presentation
Acuity Brands, Inc. (referred to herein as “we,” “our,” “us,” the “Company,” or similar references) was incorporated in 2001 under the laws of the State of Delaware. We are a market-leading industrial technology company. Through our two business segments, Acuity Brands Lighting and Lighting Controls (“ABL”) and the Intelligent Spaces Group (“ISG”) we design, manufacture, and bring to market products and services that make the world more brilliant, productive, and connected. We achieve growth through the development of innovative new products and services, including building management systems, lighting, lighting controls, and location-aware applications.
ABL Segment
ABL's portfolio of lighting solutions includes commercial, architectural, and specialty lighting in addition to lighting controls and components that can be combined to create integrated lighting controls systems. We offer devices such as luminaires that predominantly utilize light emitting diode (“LED”) technology designed to optimize energy efficiency and comfort for various indoor and outdoor applications. ABL's' portfolio of products includes but is not limited to the following brands: Lithonia Lighting®, Holophane®, Peerless®, Gotham®, Mark Architectural LightingTM, Winona® Lighting, Juno®, IndyTM, AculuxTM, Healthcare Lighting®, Hydrel®, American Electric Lighting®, Sunoptics®, eldoLED®, nLight®, Sensor Switch®, IOTA®, A-LightTM, CycloneTM, Eureka®, Lumniaire LEDTM, Luminis®, Dark to Light®, and RELOC Wiring Solutions.
Principal customers of ABL include electrical distributors, retail home improvement centers, electric utilities, national accounts, digital retailers, lighting showrooms, and energy service companies located in North America and select international markets serving new construction, renovation and retrofit, and maintenance and repair applications. ABL's lighting and lighting controls solutions are sold primarily through a network of independent sales agencies that cover specific geographic areas and market channels, by internal sales representatives, through consumer retail channels, and directly to large corporate accounts. Products are delivered directly from our manufacturing facilities or through a network of distribution centers, regional warehouses, and commercial warehouses using both common carriers and a company-managed truck fleet. To serve international customers, the sales forces utilize a variety of distribution methods to meet specific individual customer or country requirements.
ABL comprised approximately 95% of consolidated revenues during fiscal 2021, 2020, and 2019.
ISG Segment
ISG offers building management systems and location-aware applications and sells predominantly to system integrators. Our building management system includes products for controlling heating, ventilation, and air conditioning (“HVAC”), lighting, shades, and building access that deliver end-to-end optimization of those building systems. AtriusTM, our intelligent building platform, enhances the occupant experience, improves building system management, and automates labor intensive tasks while delivering operational energy efficiency and cost reductions. Through a connected and converged building system architecture, our platform delivers different applications, allows clients to upgrade over time with natural refresh cycles, and deploys new capability through both software and hardware updates. Customers of ISG primarily include system integrators as well as retail stores, airports, and enterprise campuses throughout North America and select international locations. ISG products and solutions are marketed under numerous brand names, including but not limited to Distech Controls®, AtriusTM, and Rockpile Ventures.
ISG comprised approximately 5% of consolidated revenues during fiscal 2021, 2020, and 2019.
We have prepared the Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) to present the financial position, results of operations, and cash flows of Acuity Brands, Inc. and its wholly-owned subsidiaries.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note 2 — Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Acuity Brands, Inc. and its wholly-owned subsidiaries after elimination of intercompany transactions and accounts.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for information related to our revenue recognition accounting policies.
Cash and Cash Equivalents
Cash in excess of daily requirements is invested in time deposits and marketable securities and is included in the accompanying balance sheets at fair value. We consider time deposits and marketable securities with an original maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable
We record accounts receivable at net realizable value. This value includes a reserve for doubtful accounts to reflect our estimate of expected credit losses over the contractual term of our receivables. Our estimation of current expected credit losses reflects our considerations of historical write-offs, an analysis of past due accounts based on the contractual terms of the receivables, and the economic status of customers, if known. We additionally consider the impact of general economic conditions, including construction spending, unemployment rates, and macroeconomic growth, on our customers' future ability to meet their obligations. We believe that the allowance is sufficient to cover uncollectible amounts; however, there can be no assurance that unanticipated future business conditions of customers will not have a negative impact on our results of operations.
Concentrations of Credit Risk
Concentrations of credit risk with respect to receivables, which are typically unsecured, are generally limited due to the wide variety of customers and markets using our lighting, lighting controls, building management systems, and location-aware applications as well as their dispersion across many different geographic areas. No customer accounted for 10% of receivables at August 31, 2021; however, one customer accounted for approximately 10% of receivables at August 31, 2020 and 2019. No single customer accounted for more than 10% of net sales in fiscal 2021, 2020, or 2019.
Reclassifications
Certain prior-period amounts have been reclassified to conform to the current year presentation. No material reclassifications occurred during the current period.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Inventories
Inventories include materials, direct labor, inbound freight, customs, duties, tariffs, and related manufacturing overhead, are stated at the lower of cost (on a first-in, first-out or average cost basis) and net realizable value, and consist of the following as of the dates presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
2021
|
|
2020
|
Raw materials, supplies, and work in process(1)
|
$
|
209.5
|
|
|
$
|
170.3
|
|
Finished goods
|
227.2
|
|
|
199.1
|
|
Inventories excluding reserves
|
436.7
|
|
|
369.4
|
|
Less: Reserves
|
(38.0)
|
|
|
(49.3)
|
|
Total inventories
|
$
|
398.7
|
|
|
$
|
320.1
|
|
_______________________________________
(1) Due to the immaterial amount of estimated work in process and the short lead times for the conversion of raw materials to finished goods, we do not believe the segregation of raw materials and work in process is meaningful information.
We review inventory quantities on hand and record a provision for excess or obsolete inventory primarily based on estimated future demand and current market conditions. A significant change in customer demand or market conditions could render certain inventory obsolete and could have a material adverse impact on our operating results in the period the change occurs. The following table summarizes the changes in our inventory reserves for the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Beginning balance
|
$
|
49.3
|
|
|
$
|
22.3
|
|
|
$
|
36.8
|
|
Additions to reserve
|
21.4
|
|
|
36.3
|
|
|
10.7
|
|
Disposals of reserved inventory
|
(32.7)
|
|
|
(11.1)
|
|
|
(25.1)
|
|
Foreign currency translation adjustments
|
—
|
|
|
1.8
|
|
|
(0.1)
|
|
Ending balance
|
$
|
38.0
|
|
|
$
|
49.3
|
|
|
$
|
22.3
|
|
Assets Held for Sale
We classify assets as held for sale when a plan for disposal is developed and approved, the asset is available for immediate sale, an active program to locate a buyer at a price reasonable in relation to current fair value is initiated, and transfer of the asset is expected to be completed within one year. We cease the depreciation and amortization of the assets when all of these criteria have been met. We classified as held for sale one building with a total carrying value of $6.6 million and three buildings with a total carrying value of $4.1 million within Prepayments and other current assets on the Consolidated Balance Sheets as of August 31, 2021 and 2020, respectively. At each balance sheet date, we concluded the fair value less costs to sell exceeded the carrying value of each of these assets.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Goodwill and Other Intangibles
The changes in the carrying amount of goodwill during the periods presented by segment are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABL
|
|
ISG
|
|
Total
|
Balance as of August 31, 2019
|
$
|
907.2
|
|
|
$
|
60.1
|
|
|
$
|
967.3
|
|
Additions from acquired businesses
|
142.1
|
|
|
5.7
|
|
|
147.8
|
|
Adjustments to provisional amounts from acquired businesses
|
(41.9)
|
|
|
0.4
|
|
|
(41.5)
|
|
Foreign currency translation adjustments
|
5.2
|
|
|
1.2
|
|
|
6.4
|
|
Balance as of August 31, 2020
|
1,012.6
|
|
|
67.4
|
|
|
1,080.0
|
|
Additions from acquired businesses
|
6.9
|
|
|
3.1
|
|
|
10.0
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
2.7
|
|
|
2.0
|
|
|
4.7
|
|
Balance as of August 31, 2021
|
$
|
1,022.2
|
|
|
$
|
72.5
|
|
|
$
|
1,094.7
|
|
Summarized information for our acquired intangible assets is as follows as of the dates presented (in millions except amortization periods):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2021
|
|
2020
|
|
Weighted Average Amortization Period in Years
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
Definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
Patents and patented technology
|
11
|
|
$
|
164.6
|
|
|
$
|
(104.4)
|
|
|
$
|
163.6
|
|
|
$
|
(89.5)
|
|
Trademarks and trade names
|
24
|
|
27.2
|
|
|
(17.1)
|
|
|
27.2
|
|
|
(15.8)
|
|
Distribution network
|
28
|
|
61.8
|
|
|
(45.0)
|
|
|
61.8
|
|
|
(42.8)
|
|
Customer relationships
|
20
|
|
429.2
|
|
|
(117.9)
|
|
|
421.4
|
|
|
(94.3)
|
|
|
|
|
|
|
|
|
|
|
|
Total definite-lived intangible assets
|
19
|
|
$
|
682.8
|
|
|
$
|
(284.4)
|
|
|
$
|
674.0
|
|
|
$
|
(242.4)
|
|
Indefinite-lived trade names
|
|
|
$
|
174.8
|
|
|
|
|
$
|
174.3
|
|
|
|
Through multiple acquisitions, we acquired definite-lived intangible assets consisting primarily of customer relationships, patented technology, distribution networks, and trademarks and trade names associated with specific products, which are amortized over their estimated useful lives. Indefinite-lived intangible assets consist of trade names that are expected to generate cash flows indefinitely. Significant estimates and assumptions were used to determine the initial fair value of these acquired intangible assets, including estimated future short-term and long-term net sales and profitability, customer attrition rates, royalty rates, and discount rates. Certain of our intangible assets are attributable to foreign operations and are impacted by currency translation due to movements in foreign currency rates year over year.
We recorded amortization expense of $40.7 million, $41.7 million, and $30.8 million related to acquired intangible assets during fiscal 2021, 2020, and 2019, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $41.2 million in fiscal 2022, $40.5 million in fiscal 2023, $40.0 million in fiscal 2024, $31.9 million in fiscal 2025, and $29.1 million in fiscal 2026.
We test goodwill and indefinite-lived intangible assets for impairment on an annual basis or more frequently as facts and circumstances change, as required by Accounting Standards Codification (“ASC”) Topic 350, Intangibles — Goodwill and Other (“ASC 350”). ASC 350 allows for an optional qualitative analysis for goodwill to determine the likelihood of impairment. If the qualitative review results in a more likely than not probability of impairment, a quantitative analysis is required. The qualitative step may be bypassed entirely in favor of a quantitative test. The quantitative analysis identifies impairments by comparing the fair value of a reporting unit with its carrying value, including goodwill. The fair values can be determined based on a combination of valuation techniques including the expected present value of future cash flows, a market multiple approach, and a comparable transaction approach. If
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
the fair value of a reporting unit exceeds its carrying value, goodwill is not considered impaired. Conversely, if the carrying value of a reporting unit exceeds its fair value, an impairment charge for the difference would be recorded.
In fiscal 2021 and 2020, we used a quantitative analysis to calculate the fair value of our reporting units using a combination of discounted future cash flows and relevant market multiples. In fiscal 2019, we used a qualitative fair value analysis to determine the likelihood of goodwill impairment. The analysis for goodwill did not result in an impairment charge during fiscal 2021, 2020, or 2019.
The impairment test for indefinite-lived trade names consists of comparing the fair value of a trade name with its carrying value. If the carrying amount exceeds the estimated fair value, an impairment loss would be recorded in the amount of the excess. We estimate the fair value of indefinite-lived trade names using a fair value model based on discounted future cash flows. Significant assumptions, including estimated future net sales, royalty rates, and discount rates, are used in the determination of estimated fair value for indefinite-lived trade names. The impairment analyses of our indefinite-lived intangible assets indicated that their fair values exceeded their carrying values for fiscal 2021, and thus no impairment charges were recorded during that year. Any reasonably likely change in the assumptions used in the analyses for our trade names would not be material to our financial condition or results of operations.
Based on the results of the indefinite-lived intangible asset analyses for fiscal 2020, we recorded an impairment charge of $1.4 million for one trade name in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income related to our ABL segment. The impairment analyses of the other 12 indefinite-lived intangible assets indicated that their fair values exceeded their carrying values. Based on the results of the indefinite-lived intangible asset analyses performed in fiscal 2019, we concluded that our analyses supported the indefinite-lived trade names' values; therefore, no impairment charges were recorded.
Short-term growth rates used in the fiscal 2021 and 2020 impairment analyses reflected additional estimation uncertainty as a result of the COVID-19 pandemic.
Other Long-Term Assets
Other long-term assets consist of the following as of the dates presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
2021
|
|
2020
|
Deferred contract costs(1)
|
$
|
12.9
|
|
|
$
|
12.3
|
|
|
|
|
|
Investments in debt and equity securities
|
5.3
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
Pensions plans in which plan assets exceed benefit obligation
|
13.0
|
|
|
—
|
|
Tax credits(2)
|
—
|
|
|
8.6
|
|
Other(3)
|
2.7
|
|
|
2.6
|
|
Total other long-term assets
|
$
|
33.9
|
|
|
$
|
29.5
|
|
_______________________________________
(1)Amount includes costs incurred whose economic benefit will be realized greater than one year from August 31, 2021.
(2)Amount represents research and development tax credit receivables related to certain amended prior year tax returns.
(3)Included within this category are company-owned life insurance investments. We maintain life insurance policies on 62 former employees primarily to satisfy obligations under certain deferred compensation plans. These company-owned life insurance policies are presented net of loans that are secured by these policies. This program is frozen, and no new policies were issued in the three-year period ended August 31, 2021.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Other Current Liabilities
Other current liabilities consist of the following as of the dates presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
2021
|
|
2020
|
Customer incentive programs(1)
|
$
|
33.9
|
|
|
$
|
27.7
|
|
Refunds to customers(1)
|
28.1
|
|
|
31.0
|
|
Current deferred revenues(1)
|
7.7
|
|
|
5.4
|
|
Sales commissions
|
28.9
|
|
|
26.5
|
|
Freight costs
|
17.6
|
|
|
11.7
|
|
Warranty and recall costs(2)
|
16.8
|
|
|
13.8
|
|
Tax-related items(3)
|
11.7
|
|
|
12.7
|
|
Interest on long-term debt(4)
|
2.4
|
|
|
1.0
|
|
Other
|
42.4
|
|
|
30.8
|
|
Total other current liabilities
|
$
|
189.5
|
|
|
$
|
160.6
|
|
____________________________________
(1)Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for additional information.
(2)Refer to the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements for additional information.
(3)Includes accruals for income, property, sales and use, and value added taxes.
(4)Refer to the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for additional information.
Other Long-Term Liabilities
Other long-term liabilities consist of the following as of the dates presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
2021
|
|
2020
|
Deferred compensation and postretirement benefits other than pensions(1)
|
$
|
43.1
|
|
|
$
|
42.7
|
|
Deferred revenues(2)
|
56.7
|
|
|
53.6
|
|
Unrecognized tax position liabilities, including interest(3)
|
19.7
|
|
|
18.9
|
|
Self-insurance liabilities(4)
|
3.9
|
|
|
6.5
|
|
Product warranty and recall costs(4)
|
3.5
|
|
|
2.3
|
|
Other
|
9.3
|
|
|
2.5
|
|
Total other long-term liabilities
|
$
|
136.2
|
|
|
$
|
126.5
|
|
____________________________________
(1)We maintain several non-qualified retirement plans for the benefit of eligible employees, primarily deferred compensation plans. The deferred compensation plans provide for elective deferrals of an eligible employee’s compensation and, in some cases, matching contributions by the organization. In addition, one plan provides an automatic contribution of 3% of an eligible employee’s compensation. We maintain life insurance policies on certain former officers and other key employees as a means of satisfying a portion of these obligations.
(2)Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for additional information.
(3)Refer to the Income Taxes footnote of the Notes to Consolidated Financial Statements for additional information.
(4)Refer to the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements for additional information.
Shipping and Handling Fees and Costs
We include shipping and handling fees billed to customers in Net sales in the Consolidated Statements of Comprehensive Income. Shipping and handling costs associated with inbound freight and freight between manufacturing facilities and distribution centers are generally recorded in Cost of products sold in the Consolidated Statements of Comprehensive Income. Other shipping and handling costs are included in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income and totaled $132.0 million, $121.9 million, and $138.4 million in fiscal 2021, 2020, and 2019, respectively.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Share-based Payments
We recognize compensation cost relating to share-based payment transactions in the financial statements based on the estimated grant date fair value of the equity instrument issued. We account for stock options, restricted stock, performance stock units, and director stock units representing certain deferrals into the Nonemployee Director Deferred Compensation Plan (the “Director Plan”) or the Supplemental Deferred Savings Plan (“SDSP”) (both of which are discussed further in the Share-based Payments footnote) based on the grant-date fair value estimated under the current provisions of ASC Topic 718, Compensation — Stock Compensation (“ASC 718”).
Share-based payment expense includes expense related to restricted stock, performance stock units, options issued, and stock units deferred into the Director Plan. We recorded $32.5 million, $38.2 million, and $29.2 million of share-based payment expense for the years ended August 31, 2021, 2020, and 2019, respectively. The total income tax benefit recognized for share-based payment expense was $6.5 million, $6.6 million, and $6.5 million for the years ended August 31, 2021, 2020, and 2019, respectively. We generally recognize compensation cost for share-based payment transactions on a straight-line basis over an award's requisite service period as defined by ASC 718. In certain circumstances, such as when a performance award is subject to graded vesting, we apply the accelerated attribution method to recognize compensation cost related to our share-based payment awards.
We have recorded share-based payment expense, net of estimated forfeitures, in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income. Excess tax benefits and/or expense related to share-based payment awards are reported within Income tax expense on the Consolidated Statements of Comprehensive Income. We recognized net excess tax expense related to share-based payment cost of $0.5 million, $1.4 million, and $1.6 million for the years ended August 31, 2021, 2020, and 2019, respectively.
See the Share-based Payments footnote of the Notes to Consolidated Financial Statements for more information.
Property, Plant, and Equipment
Property, plant, and equipment is initially recorded at cost and depreciated principally on a straight-line basis using estimated useful lives of plant and equipment (3 to 40 years for buildings and related improvements and 2 to 15 years for machinery and equipment) for financial reporting purposes. Accelerated depreciation methods are used for income tax purposes. Leasehold improvements are amortized over the shorter of the life of the lease or the estimated useful life of the improvement. Depreciation expense amounted to $59.4 million, $59.4 million, and $57.5 million during fiscal 2021, 2020, and 2019, respectively. The balance in property, plant, and equipment consisted of the following as of the dates presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
2021
|
|
2020
|
Land
|
$
|
22.4
|
|
|
$
|
22.2
|
|
Buildings and leasehold improvements
|
198.0
|
|
|
192.2
|
|
Machinery and equipment
|
624.9
|
|
|
588.4
|
|
Total property, plant, and equipment, at cost
|
845.3
|
|
|
802.8
|
|
Less: Accumulated depreciation and amortization
|
(576.2)
|
|
|
(532.3)
|
|
Property, plant, and equipment, net
|
$
|
269.1
|
|
|
$
|
270.5
|
|
Research and Development
Research and development (“R&D”) expense, which is expensed as incurred, consists of compensation, payroll taxes, employee benefits, materials, supplies, and other administrative costs. R&D does not include all new product development costs and is included in Selling, distribution, and administrative expenses in our Consolidated
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Statements of Comprehensive Income. R&D expense amounted to $88.3 million, $82.0 million, and $74.7 million during fiscal 2021, 2020, and 2019, respectively.
Advertising
Advertising costs are expensed as incurred and are included within Selling, distribution, and administrative expenses in our Consolidated Statements of Comprehensive Income. These costs totaled $15.9 million, $15.1 million, and $18.5 million during fiscal 2021, 2020, and 2019, respectively.
Interest Expense, Net
Interest expense, net, is comprised primarily of interest expense on long-term debt and line of credit borrowings, partially offset by interest income earned on cash and cash equivalents.
The following table summarizes the components of Interest expense, net during the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Interest expense
|
$
|
24.2
|
|
|
$
|
26.4
|
|
|
$
|
36.4
|
|
Interest income
|
(1.0)
|
|
|
(3.1)
|
|
|
(3.1)
|
|
Interest expense, net
|
$
|
23.2
|
|
|
$
|
23.3
|
|
|
$
|
33.3
|
|
Miscellaneous Expense, Net
Miscellaneous expense, net, is comprised primarily of non-service related components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses. Amounts relating to foreign currency transactions consisted of net expense of $1.3 million in fiscal 2021, net expense of $5.9 million in fiscal 2020, and net gains of $0.6 million in fiscal 2019.
Income Taxes
We are taxed at statutory corporate rates after adjusting income reported for financial statement purposes for certain items that are treated differently for income tax purposes. Deferred income tax expenses or benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. Refer to the Income Taxes footnote of the Notes to Consolidated Financial Statements for additional information.
Foreign Currency Translation
The functional currency for foreign operations is generally the local currency where the foreign operations are domiciled. The translation of foreign currencies into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet dates and for revenue and expense accounts using a weighted average exchange rate each month during the year. The gains or losses resulting from the balance sheet translation are included in Foreign currency translation adjustments in the Consolidated Statements of Comprehensive Income and are excluded from net income.
Comprehensive Income
Comprehensive income represents a measure of all changes in equity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Other comprehensive income (loss) includes foreign currency translation and pension adjustments.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The following table presents the changes in each component of accumulated other comprehensive loss net of tax during the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Items
|
|
Defined Benefit Pension Plans
|
|
Accumulated Other Comprehensive Loss Items
|
Balance as of August 31, 2019
|
$
|
(65.4)
|
|
|
$
|
(86.0)
|
|
|
$
|
(151.4)
|
|
Other comprehensive income (loss) before reclassifications
|
11.9
|
|
|
(0.6)
|
|
|
11.3
|
|
Amounts reclassified from accumulated other comprehensive loss (1)
|
—
|
|
|
7.4
|
|
|
7.4
|
|
Net current period other comprehensive income
|
11.9
|
|
|
6.8
|
|
|
18.7
|
|
Balance as of August 31, 2020
|
(53.5)
|
|
|
(79.2)
|
|
|
(132.7)
|
|
Other comprehensive income before reclassifications
|
13.3
|
|
|
13.9
|
|
|
27.2
|
|
Amounts reclassified from accumulated other comprehensive loss (1)
|
—
|
|
|
7.3
|
|
|
7.3
|
|
Net current period other comprehensive income
|
13.3
|
|
|
21.2
|
|
|
34.5
|
|
Balance as of August 31, 2021
|
$
|
(40.2)
|
|
|
$
|
(58.0)
|
|
|
$
|
(98.2)
|
|
_______________________________________
(1)The before tax amounts of the defined benefit pension plan items are included in net periodic pension cost. See the Pension and Defined Contribution Plans footnote for additional details.
The following table presents the tax expense or benefit allocated to each component of other comprehensive income (loss) during the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
|
Before Tax Amount
|
|
Tax (Expense) or Benefit
|
|
Net of Tax Amount
|
|
Before Tax Amount
|
|
Tax (Expense) or Benefit
|
|
Net of Tax Amount
|
|
Before Tax Amount
|
|
Tax (Expense) or Benefit
|
|
Net of Tax Amount
|
Foreign currency translation adjustments
|
$
|
13.3
|
|
|
$
|
—
|
|
|
$
|
13.3
|
|
|
$
|
11.9
|
|
|
$
|
—
|
|
|
$
|
11.9
|
|
|
$
|
(11.5)
|
|
|
$
|
—
|
|
|
$
|
(11.5)
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax adjustments
|
—
|
|
|
(3.2)
|
|
|
(3.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Actuarial gains (losses)
|
17.5
|
|
|
(3.6)
|
|
|
13.9
|
|
|
(0.7)
|
|
|
0.1
|
|
|
(0.6)
|
|
|
(40.8)
|
|
|
9.7
|
|
|
(31.1)
|
|
Amortization of defined benefit pension items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
2.9
|
|
|
(0.6)
|
|
|
2.3
|
|
|
4.0
|
|
|
(0.9)
|
|
|
3.1
|
|
|
3.5
|
|
|
(0.9)
|
|
|
2.6
|
|
Actuarial losses
|
5.5
|
|
|
(1.2)
|
|
|
4.3
|
|
|
5.6
|
|
|
(1.3)
|
|
|
4.3
|
|
|
4.1
|
|
|
(1.0)
|
|
|
3.1
|
|
Settlement losses
|
3.9
|
|
|
—
|
|
|
3.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
(0.1)
|
|
|
0.3
|
|
Total defined benefit plans, net
|
29.8
|
|
|
(8.6)
|
|
|
21.2
|
|
|
8.9
|
|
|
(2.1)
|
|
|
6.8
|
|
|
(32.8)
|
|
|
7.7
|
|
|
(25.1)
|
|
Other comprehensive income (loss)
|
$
|
43.1
|
|
|
$
|
(8.6)
|
|
|
$
|
34.5
|
|
|
$
|
20.8
|
|
|
$
|
(2.1)
|
|
|
$
|
18.7
|
|
|
$
|
(44.3)
|
|
|
$
|
7.7
|
|
|
$
|
(36.6)
|
|
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note 3 — New Accounting Pronouncements
Accounting Standards Adopted in Fiscal 2021
ASC Topic 326 — Credit Losses (“ASC 326”)
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on the entity's estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. These standards have been collectively codified within ASC 326. The provisions of ASC 326 are effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2019. We adopted the provisions of ASC 326 as of September 1, 2020, the beginning of fiscal 2021, and applied these changes through an immaterial cumulative-effect adjustment of $0.2 million to retained earnings as of the date of adoption. Our estimation of current expected credit losses reflects our considerations of the impact of general economic conditions, including construction spending, unemployment rates, the effects of the COVID-19 pandemic, and macroeconomic growth, on our customers' ability to meet their obligations.
ASU 2018-15 — Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”)
In August 2018, the FASB issued ASU 2018-15, which requires customers to apply internal-use software guidance to determine the implementation costs that are able to be capitalized. Capitalized implementation costs are required to be amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use. ASU 2018-15 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2019. We adopted ASU 2018-15 as of September 1, 2020 on a prospective basis. This standard did not have a material effect on our financial condition, results of operations, or cash flows.
Accounting Standards Yet to Be Adopted
ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”)
In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC Topic 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, or our fiscal 2022. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We do not expect the provisions of ASU 2019-12 to have a material impact on our financial condition, results of operations, and cash flows.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
Note 4 — Acquisitions
The following discussion relates to acquisitions completed during fiscal 2021, 2020, and 2019.
Fiscal 2021 Acquisitions
ams OSRAM's North American Digital Systems Business
On July 1, 2021, using cash on hand, we acquired certain assets and liabilities of ams OSRAM’s North American Digital Systems business (“OSRAM DS”). This acquisition is intended to enhance our LED driver and controls technology portfolio and accelerate our innovation, expand our access to market through a more fulsome original equipment manufacturer (“OEM”) product offering, and give us more control over our supply chain.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Rockpile Ventures
On May 18, 2021, using cash on hand, we acquired all of the equity interests of Rockpile Ventures, an accelerator of edge artificial intelligence (“AI”) startups. Rockpile Ventures helps early-stage artificial intelligence companies drive co-engineering and co-selling partnerships with major cloud ecosystems, enabling faster adoption from proof-of-concept trials to market scale.
Accounting for Fiscal 2021 Acquisitions
We accounted for the acquisitions of Rockpile Ventures and OSRAM DS in accordance with ASC Topic 805, Business Combinations (“ASC 805”). Acquired assets and liabilities were recorded at their estimated acquisition-date fair values, and acquisition-related costs were expensed as incurred. The aggregate purchase price of these acquisitions reflects preliminary goodwill of $10.0 million and definite-lived customer-based intangible assets of $6.1 million, which have a preliminary useful life of approximately 11 years. Goodwill recognized from these acquisitions is comprised primarily of expected synergies from obtaining more control over our supply chain and technology, combining the operations of the acquired business with our operations, and acquiring the associated trained workforce. As of August 31, 2021, goodwill from these acquisitions totaling $6.9 million is expected to be tax deductible. Amounts recognized for these acquisitions are deemed to be provisional until disclosed otherwise, as we continue to gather information related to the identification and valuation of acquired assets and liabilities, including but not limited to, acquired interests in technology startups, tax-related items, final net working capital purchase adjustments, if any, and the residual impacts on the valuation of intangible assets.
Fiscal 2020 and 2019 Acquisitions
The Luminaires Group
On September 17, 2019, using cash on hand and borrowings under available existing credit arrangements at that time, we acquired all of the equity interests of The Luminaires Group (“TLG”), a leading provider of specification-grade luminaires for commercial, institutional, hospitality, and municipal markets, all of which complement our dynamic lighting portfolio. TLG’s indoor and outdoor lighting fixtures are marketed to architects, landscape architects, interior designers, and engineers through five niche lighting brands: A-light™, Cyclone™, Eureka®, Luminaire LED™, and Luminis®.
LocusLabs, Inc.
On November 25, 2019, using cash on hand, we acquired all of the equity interests of LocusLabs, Inc (“LocusLabs”). The LocusLabs software platform supports navigation applications used on mobile devices, web browsers, and digital displays in airports, event centers, multi-floor office buildings, and campuses.
WhiteOptics, LLC
On June 20, 2019, using cash on hand, we acquired all of the equity interests of WhiteOptics, LLC (“WhiteOptics”). WhiteOptics manufactures advanced optical components used to reflect, diffuse, and control light for LED lighting used in commercial and institutional applications. The operating results of WhiteOptics have been included in our consolidated financial statements since the date of acquisition.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Accounting for Fiscal 2020 and Fiscal 2019 Acquisitions
The TLG and LocusLabs acquisitions are referred to herein collectively as the “2020 Acquisitions.” We finalized the acquisition accounting for the 2020 Acquisitions during the first quarter of fiscal 2021. There were no material changes to our financial statements as a result of the finalization of the acquisition accounting for the 2020 Acquisitions. The aggregate purchase price of the 2020 Acquisitions reflects total goodwill and identified intangible assets of approximately $107.6 million and $180.6 million, respectively. Identified intangible assets consist of indefinite-lived marketing-related intangibles as well as definite-lived customer-based and technology-based assets, which have a weighted average useful life of approximately 16 years. Goodwill recognized from these acquisitions is comprised primarily of expected benefits related to complementing and expanding our solutions portfolio, including dynamic lighting and software, as well as the trained workforce acquired with these businesses and expected synergies from combining the operations the acquired businesses with our operations. Goodwill from these acquisitions totaling $77.7 million is tax deductible.
We finalized the acquisition accounting for WhiteOptics in fiscal 2020 in accordance with ASC 805. There were no material changes to our financial statements as a result of the finalization of the acquisition accounting.
Note 5 — Fair Value Measurements
We determine fair value measurements based on the assumptions a market participant would use in pricing an asset or liability. ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a three level hierarchy that distinguishes between market participant assumptions based on (i) unadjusted quoted prices for identical assets or liabilities in an active market (Level 1), (ii) quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (Level 2), and (iii) prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (Level 3).
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. No transfers between the levels of the fair value hierarchy occurred during the current fiscal period. In the event of a transfer in or out of a level within the fair value hierarchy, the transfers would be recognized on the date of occurrence.
We use quoted market prices to determine the fair value of Level 1 assets and liabilities. Our cash and cash equivalents (Level 1), which are required to be carried at fair value and measured on a recurring basis, were $491.3 million and $560.7 million as of August 31, 2021 and 2020, respectively.
Disclosures of fair value information about financial instruments, for which it is practicable to estimate that value, are required each reporting period in addition to any financial instruments carried at fair value on a recurring basis as prescribed by ASC Topic 825, Financial Instruments (“ASC 825”). In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The carrying values and estimated fair values of certain financial instruments as of the dates presented were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2021
|
|
August 31, 2020
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Assets:
|
|
|
|
|
|
|
|
Investments in debt and equity securities
|
$
|
5.3
|
|
|
$
|
5.3
|
|
|
$
|
6.0
|
|
|
$
|
6.0
|
|
Liabilities:
|
|
|
|
|
|
|
|
Senior unsecured public notes, net of unamortized discount and deferred costs
|
$
|
494.3
|
|
|
$
|
496.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Borrowings under Term Loan Facility
|
—
|
|
|
—
|
|
|
395.0
|
|
|
395.0
|
|
Industrial revenue bond
|
—
|
|
|
—
|
|
|
4.0
|
|
|
4.0
|
|
Bank loans
|
—
|
|
|
—
|
|
|
2.1
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
We hold one convertible debt security investment with a carrying value of $4.0 million that is scheduled to mature in September 2023. At August 31, 2021, the fair value for this instrument approximated its cost based on the contractual terms of the arrangement as well as prevailing market interest rates for debt of similar terms and maturity (Level 2).
We hold equity investments in unconsolidated affiliates without readily determinable fair value. These strategic investments represent less than a 20% ownership interest in each of the privately-held affiliates, and we do not maintain power over or control of the entities. We have elected the practical expedient in ASC Topic 321, Investments—Equity Securities, to measure these investments at cost less any impairment adjusted for observable price changes, if any. Based on these considerations, we estimate that the historical cost less impairments of the acquired shares represents the fair value of the investments as of August 31, 2021. During the first quarter of fiscal 2021, we recorded an impairment charge for one of these investments for $4.0 million as a recapitalization of the underlying company diluted our holding value. We additionally recorded an impairment charge of $2.0 million during the fourth quarter of fiscal 2021 for another investment due to a deterioration in the financial condition and long-term prospects of the underlying company. These impairments are reflected in Miscellaneous expense, net for the year ended August 31, 2021 within our Consolidated Statements of Comprehensive Income.
Our senior unsecured public notes are carried at the outstanding balance, net of unamortized bond discount and deferred costs, as of the end of the reporting period. Fair value is estimated based on discounted future cash flows using rates currently available for debt of similar terms and maturity (Level 2). See Debt and Lines of Credit footnote for further details on our long-term borrowings.
ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value to 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.
Note 6 — Leases
We lease property and equipment under operating lease arrangements, most of which relate to distribution centers and manufacturing facilities in the U.S., Mexico, and Canada. We include both the contractual term as well as any renewal option that we are reasonably certain to exercise in the determination of our lease terms. For leases with a term of greater than 12 months, we value lease liabilities as the present value of the lease payments over the related term. Related assets are equal to the calculated lease liabilities adjusted for incentives and other items as prescribed by ASC Topic 842, Leases (“ASC 842”). We apply the short-term lease exception to leases with a term of 12 months or less and exclude such leases from our Consolidated Balance Sheets. Payments related to these short-term leases are expensed on a straight-line basis over the lease term and reflected as a component of lease cost within our Consolidated Statements of Comprehensive Income. Lease payments generally consist of fixed amounts, and variable amounts based on a market rate or an index are not material to our consolidated lease cost. We have elected to use the practical expedient present in ASC 842 to not separate lease and non-lease
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
components for all significant underlying asset classes and instead account for them together as a single lease component in the measurement of our lease liabilities.
Generally, the rate implicit in our leases is not readily determinable. Therefore, we discount future lease payments using our estimated incremental borrowing rate at lease commencement. We determine this rate based on a credit-adjusted risk-free rate, which approximates a secured rate over the lease term. The weighted average discount rate for operating leases was 2% as of August 31, 2021 and 2020.
The following table presents the future undiscounted payments due on our operating lease liabilities as well as a reconciliation of those payments to our operating lease liabilities recorded as of the date presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
Fiscal year
|
|
2021
|
|
|
2022
|
|
$
|
16.8
|
|
|
|
2023
|
|
14.3
|
|
|
|
2024
|
|
11.1
|
|
|
|
2025
|
|
9.4
|
|
|
|
2026
|
|
5.5
|
|
|
|
Thereafter
|
|
8.1
|
|
|
|
Total undiscounted lease payments
|
|
65.2
|
|
|
|
Less: Discount due to interest
|
|
(2.6)
|
|
|
|
Present value of lease liabilities
|
|
$
|
62.6
|
|
|
|
The weighted average remaining lease term for our operating leases was five years as of August 31, 2021.
Lease cost is recorded within Cost of products sold or Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the primary use of the related right of use (“ROU”) asset. The components of total lease cost were as follows during the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
Operating lease cost
|
$
|
18.3
|
|
|
$
|
18.1
|
|
Variable lease cost
|
2.0
|
|
|
2.3
|
|
Short-term lease cost
|
2.2
|
|
|
2.8
|
|
Total lease cost
|
$
|
22.5
|
|
|
$
|
23.2
|
|
Prior to the adoption of ASC 842, we recognized rent expense of $22.6 million during the year ended August 31, 2019.
Cash paid for operating lease liabilities during the year ended August 31, 2021 and 2020 was $26.2 million and $18.7 million, respectively. ROU assets obtained in exchange for lease liabilities, including those obtained from recent acquisitions, during the year ended August 31, 2021 and 2020 were $12.9 million and $27.2 million, respectively.
We do not have material leases that have not yet commenced as of August 31, 2021 that create significant rights and obligations.
We have subleased certain properties. Lease income from these subleases is recognized in the Consolidated Statements of Comprehensive Income as it is earned and is not material to our consolidated results of operations. We do not have any other significant transactions in which we are the lessor.
During fiscal 2020, we committed to plans to vacate certain leased properties, which indicated that it was more likely than not that the fair value of the related ROU assets were below their carrying values. We assessed the recoverability of these assets using an undiscounted cash flow model and concluded that the carrying values of the assets were not fully recoverable. We recorded impairment charges of $7.4 million related to these assets using a
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
discounted cash flow model to estimate their fair values. The recoverability and impairment tests required significant assumptions including estimated future cash flows, the identification of assets within each asset group, and the determination of appropriate discount rates. No impairments were recorded for leases in fiscal 2021 or fiscal 2019.
Note 7 — Debt and Lines of Credit
Debt
Our debt is carried at the outstanding balance net of any related unamortized discounts and deferred costs and consisted of the following as of the dates presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
2021
|
|
2020
|
Senior unsecured public notes due December 2030, principal
|
$
|
500.0
|
|
|
$
|
—
|
|
Senior unsecured public notes due December 2030, unamortized discount and deferred costs
|
(5.7)
|
|
|
—
|
|
Borrowings under Term Loan Facility
|
—
|
|
|
395.0
|
|
Industrial revenue bond due June 2021
|
—
|
|
|
4.0
|
|
Bank loans
|
—
|
|
|
2.1
|
|
Total debt
|
$
|
494.3
|
|
|
$
|
401.1
|
|
Our next scheduled future principal payment of long-term debt is $500.0 million due upon the maturity of the senior unsecured notes in December 2030.
Long-term Debt
On November 10, 2020, Acuity Brands Lighting, Inc. issued $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”). The Unsecured Notes bear interest at a rate of 2.150% per annum and were issued at a price equal to 99.737% of their face value. Interest on the Unsecured Notes is paid semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2021. The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands, Inc. and ABL IP Holding LLC, a wholly-owned subsidiary of Acuity Brands, Inc. Additionally, we recorded $4.8 million of deferred issuance costs related to the Unsecured Notes as a direct deduction from the face amount of the Unsecured Notes. These issuance costs are amortized over the 10-year term of the Unsecured Notes. As of August 31, 2021, the balance of the Unsecured Notes net of unamortized discount and deferred issuance costs was $494.3 million.
Additionally, we had $4.0 million of tax-exempt industrial revenue bonds and $2.1 million under fixed-rate bank loans outstanding as of August 31, 2020. We repaid the industrial revenue bonds at maturity on June 1, 2021, and we repaid the bank loans in the second quarter of fiscal 2021, prior to their maturity date.
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 provided us with a $400.0 million Term Loan Facility. We had $395.0 million in borrowings outstanding under the Term Loan Facility as of August 31, 2020, which we fully repaid during the first quarter of fiscal 2021 using the proceeds from the Unsecured Notes. The Credit Agreement allows for no future borrowings under the Term Loan Facility. The Credit Agreement expires in June 2023.
Generally, amounts outstanding under the Revolving Credit Facility allow for borrowings to bear interest at either the Eurocurrency Rate or the base rate at 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 LIBOR for the applicable currency plus an applicable margin. The Eurocurrency applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 1.000% to 1.375% Base rate advances bear interest at an alternate base rate plus an applicable margin. The base rate applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.000% to 0.375%.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
We are required to pay certain fees in connection with the Credit Agreement, including administrative service fees and annual facility fees. The annual facility fee is payable quarterly, in arrears, and is determined by our leverage ratio as defined in the Credit Agreement. The facility fee ranges from 0.125% to 0.250% of the aggregate $400.0 million remaining commitment of the lenders under the Credit Agreement. The Credit Agreement contains financial covenants, including a minimum interest expense coverage ratio (“Minimum Interest Expense Coverage Ratio”) and a leverage ratio (“Maximum Leverage Ratio”) of total indebtedness to earnings before interest, tax, depreciation, and amortization (“EBITDA”), as such terms are defined in the Credit Agreement. These ratios are computed at the end of each fiscal quarter for the most recent 12-month period. The Credit Agreement generally allows for a Minimum Interest Expense Coverage Ratio of 2.50 and a Maximum Leverage Ratio of 3.50, subject to certain conditions, as such terms are defined in the Credit Agreement.
We were in compliance with all financial covenants under the Credit Agreement as of August 31, 2021. As of August 31, 2021, we had outstanding letters of credit totaling $4.1 million, primarily for securing collateral requirements under our casualty insurance programs. At August 31, 2021, we had additional borrowing capacity under the Credit Agreement of $395.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less the outstanding letters of credit of $4.1 million issued under the Revolving Credit Facility.
None of our existing debt instruments include provisions that would require an acceleration of repayments based solely on changes in our credit ratings.
Note 8 — Commitments and Contingencies
Self-Insurance
Our policy is to self-insure up to certain limits traditional risks, including workers’ compensation, comprehensive general liability, and auto liability. Our self-insured retention for each claim involving workers’ compensation, comprehensive general liability (including product liability claims), and auto liability is limited per occurrence of such claims. A provision for claims under this self-insured program, based on our estimate of the aggregate liability for claims incurred, is revised and recorded annually. The estimate is derived from both internal and external sources including, but not limited to, our independent actuary. We are also self-insured up to certain limits for certain other insurable risks, primarily physical loss to property and business interruptions resulting from such loss lasting two days or more in duration. Insurance coverage is maintained for catastrophic property and casualty exposures, as well as those risks required to be insured by law or contract. We are fully self-insured for certain other types of liabilities, including environmental, product recall, warranty, and patent infringement. The actuarial estimates are subject to uncertainty from various sources including, among others, changes in claim reporting patterns, claim settlement patterns, actual claims, judicial decisions, legislation, and economic conditions. Although we believe that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect our self-insurance obligations, future expense, and cash flow.
We are also self-insured for the majority of our medical benefit plans up to certain limits. We estimate our aggregate liability for claims incurred by applying a lag factor to our historical claims and administrative cost experience. The appropriateness of our lag factor is evaluated annually and revised as necessary.
Leases
We lease certain of our buildings and equipment under noncancellable lease agreements. Please refer to the Leases footnote of the Notes to Consolidated Financial Statements for additional information.
Collective Bargaining Agreements
Approximately 66% of our total work force is covered by collective bargaining agreements. Collective bargaining agreements representing approximately 57% of our work force will expire within one year, primarily due to annual negotiations of union contracts in Mexico.
Securities Class Action
On October 5, 2021, the parties to the shareholder class action litigation previously disclosed (and further described below) executed a term sheet for settlement of the litigation, subject to documentation of the settlement and
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
approval of the District Court after notice to class members. If the settlement is approved, we expect that the agreed-upon settlement payment of $15.8 million will be funded entirely by applicable Directors and Officers liability insurance. As such, we do not anticipate a significant net loss or cash outflow as a result of the settlement of this matter.
The case was originally filed on January 3, 2018, in the United States District Court for the District of Delaware against the Company and certain of our officers on behalf of all persons who purchased or otherwise acquired our stock between June 29, 2016 and April 3, 2017. On February 20, 2018, a different shareholder filed a second class action complaint in the same venue against the same parties on behalf of all persons who purchased or otherwise acquired our stock between October 15, 2015 and April 3, 2017. The cases were transferred on April 30, 2018, to the United States District Court for the Northern District of Georgia and subsequently were consolidated as In re Acuity Brands, Inc. Securities Litigation, Civil Action No. 1:18-cv-02140-MHC (N.D. Ga.). On October 5, 2018, the court-appointed lead plaintiff filed a consolidated amended class action complaint (the “Consolidated Complaint”), which supersedes the initial complaints. The Consolidated Complaint is brought on behalf of all persons who purchased our common stock between October 7, 2015 and April 3, 2017 and alleges that we and certain of our former officers/executives violated the federal securities laws by making false or misleading statements and/or omitting to disclose material adverse facts that (i) concealed known trends negatively impacting sales of our products and (ii) overstated our ability to achieve profitable sales growth. The plaintiffs seek unspecified monetary damages, costs, and attorneys’ fees. We dispute the allegations in the complaints. We filed a motion to dismiss the Consolidated Complaint. On August 12, 2019, the court entered an order granting our motion to dismiss in part and dismissing all claims based on 42 of the 47 statements challenged in the Consolidated Complaint but also denying the motion in part and allowing claims based on five challenged statements to proceed to discovery. The Eleventh Circuit Court of Appeals granted the Company permission to file an interlocutory appeal of the District Court’s class certification order, and the briefing of that appeal has been completed. On October 7, 2021, the Eleventh Circuit Court of Appeals entered an order holding the appeal from the class certification order in abeyance pending a decision from the District Court concerning approval of the proposed settlement.
Shareholder Derivative Complaint
On October 1, 2021, certain alleged shareholders of the Company filed a putative derivative complaint in the United States District Court for the Northern District of Georgia asserting claims against three of the individuals named as defendants in the above securities action for breach of fiduciary duty and certain other claims arising out of the alleged facts and circumstances upon which the claims in the above securities class action are based (the “Derivative Complaint”). The Company is named as a nominal defendant, and the plaintiffs seek on behalf of the Company unspecified damages from the individual defendants and other relief. Prior to filing the Derivative Complaint, the derivative plaintiffs sent letters to the Company’s Board of Directors (the “Board”) demanding that the Company investigate and pursue substantially the same claims against the individual defendants that are asserted in the Derivative Complaint. The Company’s Board formed a demand evaluation committee consisting of independent directors to investigate these matters and make a recommendation to the Board regarding the best interests of the Company in connection therewith. The committee’s work is ongoing.
Estimating an amount or range of possible losses or gains resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key evidential 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 gains or a range of possible losses or gains resulting from the matters described above.
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
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
lower than the accrued amounts.
Environmental Matters
Our operations are subject to numerous comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances, as well as solid and hazardous wastes, and to the remediation of contaminated sites. In addition, permits and environmental controls are required for certain operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, we invest capital and incur operating costs relating to environmental compliance. Environmental laws and regulations have generally become stricter in recent years. We are not aware of any pending legislation or proposed regulation related to environmental issues that would have a material adverse effect. The cost of responding to future changes may be substantial. We establish accruals for known environmental claims when the associated costs become probable and can be reasonably estimated. The actual cost of environmental issues may be substantially higher than that accrued due to difficulty in estimating such costs.
Guarantees and Indemnities
We are a party to contracts entered into in the normal course of business in which it is common for us to agree to indemnify third parties for certain liabilities that may arise out of or relate to the subject matter of the contract. In most cases, we cannot estimate the potential amount of future payments under these indemnities until events arise that would result in a liability under the indemnities.
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 accrual 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 increases in the accrual may be required, which could have a material adverse impact on our results of operations and cash flows.
Estimated liabilities for product warranty and recall costs are included in Other accrued liabilities or Other long-term liabilities on the Consolidated Balance Sheets based upon when we expect to settle the incurred warranty. The following table summarizes changes in the estimated liabilities for product warranty and recall costs during the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Beginning balance
|
$
|
16.1
|
|
|
$
|
11.5
|
|
|
$
|
27.3
|
|
Warranty and recall costs
|
32.3
|
|
|
32.0
|
|
|
18.7
|
|
Payments and other deductions
|
(28.4)
|
|
|
(27.5)
|
|
|
(19.7)
|
|
Acquired warranty and recall liabilities
|
0.3
|
|
|
0.1
|
|
|
—
|
|
ASC 606 adjustments (1)
|
—
|
|
|
—
|
|
|
(14.8)
|
|
Ending balance
|
$
|
20.3
|
|
|
$
|
16.1
|
|
|
$
|
11.5
|
|
______________________________
(1) Certain service-type warranties accounted for as contingent liabilities prior to the adoption of ASC 606 (defined below) are now reflected as contract liabilities effective September 1, 2018.
Note 9 — Segment Information
During the third quarter of fiscal 2021, we completed a realignment of our operations and structure to better support our business strategy. As a result, beginning in the third quarter of fiscal 2021, we now report our financial results of operations in two reportable segments, ABL and ISG, consistent with how our chief operating decision maker
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
currently evaluates operating results, assesses performance, and allocates resources within the Company. We have recast historical information to conform to the current segment structure.
The accounting policies of our reportable segments are the same as those described in the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements within our Form 10-K. Corporate expenses that are primarily administrative in function and benefit the Company on an entity-wide basis are not allocated to our segments. These include expenses related to governance, policy setting, compliance, and certain other shared services functions. Additionally, we do not allocate net interest expense, miscellaneous expense, special charges, or assets to our segments. Accordingly, this information is not used by the chief operating decision maker to make operating decisions and assess performance and is therefore excluded from our disclosures.
The following table presents financial information by operating segment for the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABL
|
|
ISG
|
|
Corporate
|
|
Eliminations(1)
|
|
Total
|
Year Ended August 31, 2021:
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,287.3
|
|
|
$
|
190.0
|
|
|
$
|
—
|
|
|
$
|
(16.3)
|
|
|
$
|
3,461.0
|
|
Operating profit (loss)
|
476.2
|
|
|
9.9
|
|
|
(58.5)
|
|
|
—
|
|
|
427.6
|
|
Depreciation and amortization
|
84.3
|
|
|
14.7
|
|
|
1.1
|
|
|
—
|
|
|
100.1
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31, 2020:
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,180.9
|
|
|
$
|
157.0
|
|
|
$
|
—
|
|
|
$
|
(11.6)
|
|
|
$
|
3,326.3
|
|
Operating profit (loss)
|
425.8
|
|
|
(3.9)
|
|
|
(68.0)
|
|
|
—
|
|
|
353.9
|
|
Depreciation and amortization
|
83.7
|
|
|
16.3
|
|
|
1.1
|
|
|
—
|
|
|
101.1
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31, 2019:
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,548.4
|
|
|
$
|
137.5
|
|
|
$
|
—
|
|
|
$
|
(13.2)
|
|
|
$
|
3,672.7
|
|
Operating profit (loss)
|
510.2
|
|
|
(18.1)
|
|
|
(29.2)
|
|
|
—
|
|
|
462.9
|
|
Depreciation and amortization
|
72.6
|
|
|
14.6
|
|
|
1.1
|
|
|
—
|
|
|
88.3
|
|
____________________________
(1) This column represents intersegment sales. Profit on these sales eliminates within gross profit on a consolidated basis.
The following table reconciles operating profit by segment to income before income taxes (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2021
|
|
2020
|
|
2019
|
|
|
Operating profit - ABL
|
$
|
476.2
|
|
|
$
|
425.8
|
|
|
$
|
510.2
|
|
|
|
Operating profit (loss) - ISG
|
9.9
|
|
|
(3.9)
|
|
|
(18.1)
|
|
|
|
Unallocated corporate amounts
|
(58.5)
|
|
|
(68.0)
|
|
|
(29.2)
|
|
|
|
Operating profit
|
427.6
|
|
|
353.9
|
|
|
462.9
|
|
|
|
Interest expense, net
|
23.2
|
|
|
23.3
|
|
|
33.3
|
|
|
|
Miscellaneous expense, net
|
8.2
|
|
|
5.9
|
|
|
4.7
|
|
|
|
Income before income taxes
|
$
|
396.2
|
|
|
$
|
324.7
|
|
|
$
|
424.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note 10 — Revenue Recognition
We recognize revenue when we transfer control of goods and services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for goods and services and is recognized net of rebates, sales incentives, product returns, and discounts to customers. We allocate the expected consideration to be collected to each distinct performance obligation identified in a sale based on its standalone selling price. Sales and use taxes collected on behalf of governmental authorities are excluded from revenues.
Payment is generally due and received within 60 days from the point of sale or prior to the transfer of control of certain goods and services. No payment terms extend beyond one year, and we apply the practical expedient within ASC Topic 606 — Revenue from Contracts with Customers (“ASC 606”) to conclude that no significant financing terms exist within our contracts with customers. Allowances for cash discounts to customers are estimated using the expected value method based on historical experience and are recorded as a reduction to sales.
Our standard terms and conditions of sale allow for the return of certain products within four months of the date of shipment. We also provide for limited product return rights to certain distributors and other customers, primarily for slow moving or damaged items subject to certain defined criteria. The limited product return rights generally allow customers to return resalable products purchased within a specified time period and subject to certain limitations, including, at times, when accompanied by a replacement order of equal or greater value. At the time revenue is recognized, we record a refund liability for the expected value of future returns primarily based on historical experience, specific notification of pending returns, or contractual terms with the respective customers. Although historical product returns generally have been within expectations, there can be no assurance that future product returns will not exceed historical amounts. A significant increase in product returns could have a material adverse impact on our operating results in future periods.
Refund liabilities recorded under ASC 606 related to rights of return, cash discounts, and other miscellaneous credits to customers were $28.1 million and $31.0 million as of August 31, 2021 and August 31, 2020, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets. Additionally, we record right of return assets for products expected to be returned to our distribution centers, which are included within Prepayments and other current assets on the Consolidated Balance Sheets. Such assets totaled $6.4 million and $10.3 million as of August 31, 2021 and 2020, respectively.
We also maintain one-time and ongoing promotions with our customers, which may include rebate, sales incentive, marketing, and trade-promotion programs with certain customers that require us to estimate and accrue the expected costs of such programs. These arrangements may include volume rebate incentives, cooperative marketing programs, merchandising of our products, introductory marketing funds for new products, and other trade-promotion activities conducted by the customer. Costs associated with these programs are generally estimated based on the most likely amount expected to be settled based on the context of the individual contract and are reflected within the Consolidated Statements of Comprehensive Income in accordance with ASC 606, which in most instances requires such costs to be recorded as reductions of revenue. Amounts due to our customers associated with these programs totaled $33.9 million and $27.7 million as of August 31, 2021 and 2020, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets.
Costs to obtain and fulfill contracts, such as sales commissions, are generally short-term in nature and are expensed as incurred.
Nature of Goods and Services
Products
Substantially all of the revenues for the periods presented were generated from short-term contracts with our customers to deliver only tangible goods such as luminaires, lighting controls, and controls for various building systems. We record revenue from these contracts when the customer obtains control of those goods. For sales designated free on board shipping point, control is transferred and revenue is recognized at the time of shipment. For sales designated free on board destination, customers take control and revenue is recognized when a product is delivered to the customer’s delivery site.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Professional Services
We collect fees associated with training, installation, and technical support services, primarily related to the set up of our lighting and building technology solutions. We recognize revenue for these one-time services at the time the service is performed. We also sell certain service-type warranties that extend coverages for products beyond their base warranties. We account for service-type warranties as distinct performance obligations and recognize revenue for these contracts ratably over the life of the additional warranty period. We allocate transaction price to our service-type warranties largely based on expectations of cost plus margin based on our estimate of future claims. These estimates are subject to a higher level of estimation uncertainty than other estimates, as we have less experience in costs in the extended warranty period. Claims related to service-type warranties are expensed as incurred.
Software
Software sales include licenses for software, data usage fees, and software as a service arrangements, which generally extend for one year or less. We recognize revenue for software based on the contractual rights provided to a customer, which typically results in the recognition of revenue ratably over the contractual service period.
Shipping and Handling Activities
We account for all shipping and handling activities as activities to fulfill the promise to transfer products to our customers. As such, we do not consider shipping and handling activities to be separate performance obligations, and we expense these costs as incurred.
Contracts with Multiple Performance Obligations
A small portion of our revenue was derived from the combination of any or all of our products, professional services, and software licenses. Significant judgment may be required to determine which performance obligations are distinct and should be accounted for separately. We allocate the expected consideration to be collected to each distinct performance obligation based on its standalone selling price. Standalone selling price is generally determined using a cost plus margin valuation when no observable input is available. The amount of consideration allocated to each performance obligation is recognized as revenue in accordance with the timing for products, professional services, and software as described above.
Contract Balances
Our rights related to collections from customers are unconditional and are reflected within Accounts receivable on the Consolidated Balance Sheets. We do not have any other significant contract assets. Contract liabilities arise when we receive cash or an unconditional right to collect cash prior to the transfer of control of goods or services.
The amount of transaction price from contracts with customers allocated to our contract liabilities consist of the following as of the dates presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
2021
|
|
2020
|
Current deferred revenues
|
$
|
7.7
|
|
|
$
|
5.4
|
|
Non-current deferred revenues
|
56.7
|
|
|
53.6
|
|
|
|
|
|
Current deferred revenues primarily consist of software licenses as well as professional service and service-type warranty fees collected prior to performing the related service and are included within Other current liabilities on the Consolidated Balance Sheets. These services are expected to be performed within one year. Revenue earned from beginning contract balances during the year ended August 31, 2021 approximated the current deferred revenue balance at August 31, 2020.
Non-current deferred revenues primarily consist of 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.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Unsatisfied performance obligations that do not represent contract liabilities are expected to be satisfied within one year from August 31, 2021 and consist primarily of orders for physical goods that have not yet been shipped.
Disaggregated Revenues
Our ABL segment's lighting and lighting controls are sold primarily through independent sales agents who cover specific geographic areas and market channels, by internal sales representatives, through consumer retail channels, and directly to large corporate accounts. ISG sells predominantly to system integrators. The following table shows revenue from contracts with customers by sales channel and reconciles to our segment information for the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
ABL:
|
|
|
|
|
|
Independent sales network
|
$
|
2,400.5
|
|
|
$
|
2,284.3
|
|
|
$
|
2,397.6
|
|
Direct sales network
|
358.1
|
|
|
329.0
|
|
|
383.3
|
|
Retail sales
|
181.5
|
|
|
218.3
|
|
|
273.0
|
|
Corporate accounts
|
168.7
|
|
|
191.8
|
|
|
312.8
|
|
Other
|
178.5
|
|
|
157.5
|
|
|
181.7
|
|
Total ABL
|
3,287.3
|
|
|
3,180.9
|
|
|
3,548.4
|
|
ISG
|
190.0
|
|
|
157.0
|
|
|
137.5
|
|
Eliminations
|
(16.3)
|
|
|
(11.6)
|
|
|
(13.2)
|
|
Total
|
$
|
3,461.0
|
|
|
$
|
3,326.3
|
|
|
$
|
3,672.7
|
|
Note 11 — Share-based Payments
Omnibus Stock Compensation Incentive and Directors’ Equity Plans
In January 2018, our stockholders approved the Amended and Restated Acuity Brands, Inc. 2012 Omnibus Stock Compensation Incentive Plan (the “Stock Incentive Plan”), which, among other things, resulted in an aggregate of 2.7 million of shares authorized for issuance pursuant to the Stock Incentive Plan. The Compensation Committee of the Board of Directors (the “Compensation Committee") is authorized to issue awards consisting of incentive and non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock awards, performance stock units, stock bonus awards, and cash-based awards to eligible employees, non-employee directors, and outside consultants.
Shares available for grant under the Stock Incentive Plan, including those previously issued and outstanding prior to the amendment, were approximately 0.3 million, 0.7 million, and 1.4 million at August 31, 2021, 2020, and 2019, respectively. Any shares subject to an award under the Stock Incentive Plan that are forfeited, canceled, expired, or settled for cash will be available for future grant under the Stock Incentive Plan.
Restricted stock awards, performance stock awards, and director stock units representing certain deferrals into the Director Deferred Compensation Plan are valued based on the fair value of our common stock on the grant date. We review the values of our performance awards on a frequent and recurring basis and adjust those values based on the probability that the related performance metric will be satisfied. We utilize the Black-Scholes model in deriving the fair value estimates of our stock option awards that only have a service requirement, and we utilize the Monte Carlo simulation model to determine grant date fair value estimates of stock options also subject to a market condition.
Effective for certain restricted stock and performance stock grants awarded in fiscal 2020, the Compensation Committee reinstated a policy that provides for the continued vesting of stock awards following retirement for all eligible participants who have attained age 60 and have at least ten years of service with the Company. We deem the requisite service period for these awards for a participant to be the shorter of either the award's stated vesting period or the time from grant until the participant satisfies the age and service criteria. The Compensation Committee discontinued this policy effective for restricted stock and performance stock grants awarded in October 2020 and thereafter.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Effective for performance stock unit grants awarded in fiscal 2021, the Compensation Committee approved an amendment to replace the retirement provision that states if a person who receives a performance stock unit award has five years of service, a portion of the award becomes non-forfeitable on each anniversary date of the grant.
We generally recognize compensation cost for share-based payment transactions on a straight-line basis over an award's requisite service period as defined by ASC 718. In certain circumstances, such as when a performance award is subject to graded vesting, we apply the accelerated attribution method to recognize compensation cost related to our share-based payment awards.
Compensation expense recognized related to the awards under the current and prior equity incentive plans during the periods presented is summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Restricted stock awards and units
|
$
|
15.1
|
|
|
$
|
24.6
|
|
|
$
|
25.1
|
|
Stock options
|
9.2
|
|
|
4.9
|
|
|
2.7
|
|
Performance stock units
|
6.8
|
|
|
7.3
|
|
|
—
|
|
Director stock units
|
1.4
|
|
|
1.4
|
|
|
1.4
|
|
Total share-based payment expense
|
$
|
32.5
|
|
|
$
|
38.2
|
|
|
$
|
29.2
|
|
Restricted Stock
As of August 31, 2021, we had approximately 0.4 million shares outstanding of restricted stock to officers, directors, and other key employees under the Stock Incentive Plan, including restricted stock units. The grants vest primarily over a four-year period and are valued at the closing stock price on the date of the grant.
Activity related to restricted stock awards during the periods presented was as follows (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Grant Date
Fair Value Per
Share
|
Outstanding at August 31, 2018
|
0.4
|
|
$
|
186.63
|
|
Granted
|
0.2
|
|
$
|
120.73
|
|
Vested
|
(0.2)
|
|
$
|
184.60
|
|
Forfeited*
|
—
|
|
$
|
159.88
|
|
Outstanding at August 31, 2019
|
0.4
|
|
$
|
156.32
|
|
Granted
|
0.2
|
|
$
|
122.10
|
|
Vested
|
(0.1)
|
|
$
|
171.92
|
|
Forfeited
|
(0.1)
|
|
$
|
135.43
|
|
Outstanding at August 31, 2020
|
0.4
|
|
$
|
134.68
|
|
Granted
|
0.2
|
|
$
|
108.79
|
|
Vested
|
(0.1)
|
|
$
|
150.44
|
|
Forfeited
|
(0.1)
|
|
$
|
116.33
|
|
Outstanding at August 31, 2021
|
0.4
|
|
$
|
116.77
|
|
___________________________
* Represents amounts of less than 0.1 million.
As of August 31, 2021, there was $28.1 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.8 years. The total fair value of stock vested during the years ended August 31, 2021, 2020, and 2019 was approximately $19.5 million, $22.8 million, and $26.9 million, respectively.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Stock Options
As of August 31, 2021, we had approximately 1.2 million options outstanding to officers and other key employees under the Stock Incentive Plan. Of these options, 0.8 million vest and become exercisable over a three-year period (the "Service Options"). The remaining 0.4 million vest and become exercisable over a four-year period and are also subject to a market condition (the "Market Options"). Options issued under the Stock Incentive Plan are generally granted with an exercise price equal to the fair market value of our stock on the date of grant, but never less than the fair market value on the grant date, and expire 10 years from the date of grant.
The fair value of each Service Option was estimated on the date of grant using the Black-Scholes model, and the fair value of each Market Option was estimated on the date of grant using the Monte Carlo simulation model. The dividend yield was calculated based on annual dividends paid and the trailing 12-month average closing stock price at the time of grant. Expected volatility was based on historical volatility of our stock, calculated using the most recent time period equal to the expected life of the options. The risk-free interest rate was based on the U.S. Treasury yield for a term equal to the expected life of the options at the time of grant for the Service Options and equal to the contractual term for the Market Options. We used historical exercise behavior data of similar employee groups to determine the expected life of the Service Options. The expected life of the Market Options is based on projected exercise dates resulting from the Monte Carlo simulation for each award tranche. All inputs noted above are estimates made at the time of grant. All inputs into the Black-Scholes model and the Monte Carlo simulation are estimates made at the time of grant. Actual realized value of each option grant could materially differ from these estimates, without impact to future reported net income.
The following weighted average assumptions were used to estimate the fair value of the stock options granted in the fiscal years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Options
|
|
Service Options
|
|
|
2021
|
|
2020
|
|
2020
|
|
2019
|
Dividend yield
|
|
0.5%
|
|
0.4%
|
|
0.4%
|
|
0.4%
|
Expected volatility
|
|
36.5%
|
|
33.7%
|
|
33.7%
|
|
32.8%
|
Risk-free interest rate
|
|
0.7%
|
|
1.5%
|
|
1.3%
|
|
3.0%
|
Expected life of options
|
|
8 years
|
|
7 years
|
|
5 years
|
|
4 years
|
Weighted-average fair value of options
|
|
$40.45
|
|
$44.74
|
|
$34.22
|
|
$34.06
|
There were no Market Options granted in fiscal 2019. There were no Service Options granted during the fiscal year ended August 31, 2021.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Stock option activity during the periods presented was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
Number of
Options
(in millions)
|
|
Weighted Average
Exercise Price
|
|
Number of
Options
(in millions)
|
|
Weighted Average
Exercise Price
|
Outstanding at August 31, 2018
|
0.3
|
|
$
|
154.69
|
|
|
0.2
|
|
$
|
134.13
|
|
Granted
|
0.1
|
*
|
$
|
116.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2019
|
0.4
|
|
$
|
146.70
|
|
|
0.3
|
|
$
|
147.51
|
|
Granted
|
0.5
|
|
$
|
121.87
|
|
|
|
|
|
Exercised
|
—
|
*
|
$
|
116.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2020
|
0.9
|
|
$
|
133.19
|
|
|
0.4
|
|
$
|
151.07
|
|
Granted
|
0.3
|
|
$
|
108.96
|
|
|
|
|
|
Exercised
|
—
|
*
|
$
|
108.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2021
|
1.2
|
|
$
|
127.98
|
|
|
0.5
|
|
$
|
142.36
|
|
Range of option exercise prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$40.01 - $100.00 (average life - 1.1 years)
|
0.1
|
|
$
|
62.54
|
|
|
0.1
|
|
$
|
62.54
|
|
$100.01 - $160.00 (average life - 7.9 years)
|
1.0
|
|
$
|
119.18
|
|
|
0.3
|
|
$
|
125.13
|
|
$160.01 - $210.00 (average life - 4.2 years)
|
0.1
|
|
$
|
207.80
|
|
|
0.1
|
|
$
|
207.80
|
|
$210.01 - $239.76 (average life - 5.1 years)
|
—
|
*
|
$
|
239.76
|
|
|
0.1
|
*
|
$
|
239.76
|
|
___________________________
* Represents amounts of less than 0.1 million.
The total intrinsic value of options exercised was $1.2 million during the year ended August 31, 2021 and de minimis during the year ended August 31, 2020. There were no options exercised during fiscal 2019. As of August 31, 2021, the total intrinsic value of options outstanding was $70.9 million, the total intrinsic value of options expected to vest was $42.8 million, and the total intrinsic value of options exercisable was $27.4 million. As of August 31, 2021, there was $17.0 million of total unrecognized compensation cost related to unvested options. This cost is expected to be recognized over a weighted-average period of approximately 2.2 years.
Performance Stock Units
Beginning in fiscal 2020, the Board approved grants of performance stock units to certain executives and key employees. These grants vest primarily over a three-year period and are valued at the closing stock price at the date of grant. The actual number of performance stock units earned for these awards will be determined at the end of the related performance period based on the level of achievement of established performance thresholds. We recognize compensation expense for these grants proportionately over the requisite service period for each employee when it becomes probable that the performance metric will be satisfied. For performance stock units subject to graded vesting, we apply the accelerated attribution method for expense recognition. As of August 31, 2021, we had approximately 0.1 million performance stock units outstanding.
As of August 31, 2021 there was $3.8 million of total unrecognized compensation cost related to unvested performance stock units. This cost is expected to be recognized over a weighted-average period of approximately 1.5 years.
Employee Deferred Stock Units
We previously allowed employees to defer a portion of restricted stock awards granted in fiscal 2003 and fiscal 2004 into the SDSP as stock units. The stock units are payable in shares of stock at the time of distribution from the SDSP. As of August 31, 2021, approximately 7,000 fully vested stock units remain deferred, but undistributed, under the Stock Incentive Plan. There was no compensation expense related to these stock units during fiscal years 2021, 2020, and 2019.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Director Deferred Stock Units
Total shares available for issuance under the Director Plan were approximately 0.3 million, 0.3 million, and 0.4 million at August 31, 2021, 2020, and 2019, respectively. As of August 31, 2021, approximately 0.1 million stock units were deferred but undistributed under the Director Plan.
Employee Stock Purchase Plan
Employees are able to purchase, through payroll deduction, common stock at a 5% discount on a monthly basis. There were 1.5 million shares of our common stock reserved for purchase under the plan, of which approximately 1.0 million shares remain available as of August 31, 2021. Employees may participate at their discretion.
Note 12 — Pension and Defined Contribution Plans
Company-sponsored Pension Plans
We have several pension plans, both qualified and non-qualified, covering certain hourly and salaried employees. Benefits paid under these plans are based generally on employees’ years of service and/or compensation during the final years of employment. We historically have made at least the minimum annual contributions to the plans to the extent indicated by actuarial valuations and statutory requirements. Plan assets are invested primarily in equity and fixed income securities. Current period net actuarial gains in our projected benefit obligation primarily reflect an increase in the discount rate from our prior year valuation, partially offset by settlement losses during the year ended August 31, 2021.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The following tables reflect the status of our domestic (U.S.-based) and international pension plans as of the dates presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
International Plans
|
|
August 31,
|
|
August 31,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
249.6
|
|
|
$
|
239.2
|
|
|
$
|
49.2
|
|
|
$
|
44.6
|
|
Service cost
|
4.6
|
|
|
4.3
|
|
|
0.3
|
|
|
0.3
|
|
Interest cost
|
5.3
|
|
|
6.4
|
|
|
0.9
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
Actuarial (gains) losses
|
(5.2)
|
|
|
8.5
|
|
|
1.7
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
(29.6)
|
|
|
(8.8)
|
|
|
(1.3)
|
|
|
(1.4)
|
|
Other
|
—
|
|
|
—
|
|
|
1.8
|
|
|
4.1
|
|
Benefit obligation at end of year
|
224.7
|
|
|
249.6
|
|
|
52.6
|
|
|
49.2
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
167.1
|
|
|
151.5
|
|
|
35.1
|
|
|
30.7
|
|
Actual return on plan assets
|
21.7
|
|
|
19.0
|
|
|
5.3
|
|
|
1.9
|
|
Employer contributions
|
23.4
|
|
|
5.4
|
|
|
2.1
|
|
|
0.8
|
|
Benefits paid
|
(29.6)
|
|
|
(8.8)
|
|
|
(1.3)
|
|
|
(1.4)
|
|
Other
|
—
|
|
|
—
|
|
|
1.0
|
|
|
3.1
|
|
Fair value of plan assets at end of year
|
182.6
|
|
|
167.1
|
|
|
42.2
|
|
|
35.1
|
|
|
|
|
|
|
|
|
|
Funded status at the end of year
|
$
|
(42.1)
|
|
|
$
|
(82.5)
|
|
|
$
|
(10.4)
|
|
|
$
|
(14.1)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
Non-current assets
|
$
|
13.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current liabilities
|
(5.2)
|
|
|
(5.0)
|
|
|
(0.1)
|
|
|
—
|
|
Non-current liabilities
|
(49.9)
|
|
|
(77.5)
|
|
|
(10.3)
|
|
|
(14.1)
|
|
Net amount recognized in consolidated balance sheets
|
$
|
(42.1)
|
|
|
$
|
(82.5)
|
|
|
$
|
(10.4)
|
|
|
$
|
(14.1)
|
|
Accumulated benefit obligation
|
$
|
223.8
|
|
|
$
|
249.1
|
|
|
$
|
51.7
|
|
|
$
|
49.2
|
|
Pre-tax amounts in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
Prior service cost
|
$
|
(5.6)
|
|
|
$
|
(8.4)
|
|
|
$
|
(0.1)
|
|
|
$
|
—
|
|
Net actuarial loss
|
(55.2)
|
|
|
(79.2)
|
|
|
(11.3)
|
|
|
(13.5)
|
|
Amounts in accumulated other comprehensive loss
|
$
|
(60.8)
|
|
|
$
|
(87.6)
|
|
|
$
|
(11.4)
|
|
|
$
|
(13.5)
|
|
Pensions plans in which benefit obligation exceeds plan assets:
|
|
|
|
|
|
|
|
Projected benefit obligation
|
$
|
81.7
|
|
|
$
|
249.6
|
|
|
$
|
52.6
|
|
|
$
|
49.2
|
|
Accumulated benefit obligation
|
80.8
|
|
|
249.1
|
|
|
51.7
|
|
|
49.2
|
|
Plan assets
|
26.6
|
|
|
167.1
|
|
|
42.2
|
|
|
35.1
|
|
Pensions plans in which plan assets exceed benefit obligation:
|
|
|
|
|
|
|
|
Projected benefit obligation
|
$
|
143.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accumulated benefit obligation
|
143.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Plan assets
|
156.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Service cost of net periodic pension cost is allocated between Cost of products sold and Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the function of the employee's services. All other components of net periodic pension cost are included within Miscellaneous expense, net in the Consolidated Statements of Comprehensive Income. We utilize a corridor approach to amortize cumulative unrecognized actuarial gains or losses over either the average expected future service of active participants or average life expectancy of plan participants based on each plan’s composition. The corridor is determined as the greater of the excess of 10% of plan assets or the projected benefit obligation at each valuation date. Amounts related to prior service cost are amortized over the average remaining expected future service period for active participants in each plan.
Net periodic pension cost during the periods presented included the following components before tax (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
International Plans
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Service cost
|
$
|
4.6
|
|
|
$
|
4.3
|
|
|
$
|
2.9
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
Interest cost
|
5.3
|
|
|
6.4
|
|
|
7.7
|
|
|
0.9
|
|
|
0.9
|
|
|
1.3
|
|
Expected return on plan assets
|
(11.0)
|
|
|
(10.4)
|
|
|
(10.5)
|
|
|
(2.3)
|
|
|
(2.0)
|
|
|
(1.9)
|
|
Amortization of prior service cost
|
2.9
|
|
|
4.0
|
|
|
3.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
|
3.9
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Recognized actuarial loss
|
4.1
|
|
|
4.2
|
|
|
2.7
|
|
|
1.4
|
|
|
1.4
|
|
|
1.4
|
|
Net periodic pension cost
|
$
|
9.8
|
|
|
$
|
8.5
|
|
|
$
|
6.7
|
|
|
$
|
0.3
|
|
|
$
|
0.6
|
|
|
$
|
1.0
|
|
Weighted average assumptions used in computing the benefit obligation are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
International Plans
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Discount rate
|
2.4 %
|
|
2.2
|
%
|
|
1.9 %
|
|
1.9
|
%
|
Rate of compensation increase
|
5.0 %
|
|
5.0
|
%
|
|
3.4 %
|
|
3.0
|
%
|
Weighted average assumptions used in computing net periodic pension cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
International Plans
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Discount rate
|
2.2
|
%
|
|
2.8
|
%
|
|
3.9
|
%
|
|
1.9
|
%
|
|
2.0
|
%
|
|
2.9
|
%
|
Expected return on plan assets
|
6.8
|
%
|
|
7.0
|
%
|
|
7.3
|
%
|
|
6.5
|
%
|
|
6.5
|
%
|
|
6.5
|
%
|
Rate of compensation increase
|
5.0
|
%
|
|
5.0
|
%
|
|
5.5
|
%
|
|
3.4
|
%
|
|
3.0
|
%
|
|
3.1
|
%
|
It is our policy to adjust, on an annual basis, the discount rate used to determine the projected benefit obligation to approximate rates on high-quality, long-term obligations based on our estimated benefit payments available as of the measurement date. We use published yield curves to assist in the development of our discount rates. We estimate that a 100 basis point increase in the discount rate would reduce net periodic pension cost approximately $0.9 million for the domestic plans and $0.6 million for the international plans. The expected return on plan assets is derived primarily from a periodic study of long-term historical rates of return on the various asset classes included in our targeted pension plan asset allocation as well as future expectations. We estimate that each 100 basis point reduction in the expected return on plan assets would result in additional net periodic pension cost of $1.7 million and $0.4 million for domestic plans and international plans, respectively. We also evaluate the rate of compensation increase annually and adjust if necessary.
Our investment objective for domestic plan assets is to earn a rate of return sufficient to exceed the long-term growth of the plans’ liabilities without subjecting plan assets to undue risk. The plan assets are invested primarily in high quality debt and equity securities. We conduct a periodic strategic asset allocation study to form a basis for the allocation of pension assets between various asset categories. Specific allocation percentages are assigned to each asset category with minimum and maximum ranges established for each. The assets are then managed within these ranges. At August 31, 2021, the U.S. targeted asset allocation was 40% equity securities, 55% fixed income
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
securities, and 5% real estate securities. Our investment objective for the international plan assets is also to add value by exceeding the long-term growth of the plans’ liabilities. At August 31, 2021, the international asset target allocation approximated 16% equity securities, 20% fixed income securities, and 64% multi-strategy investments.
Our pension plan asset allocation by asset category as of the dates presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Plan Assets
|
|
Domestic Plans
|
|
International Plans
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Equity securities
|
41.2
|
%
|
|
58.2
|
%
|
|
16.1
|
%
|
|
76.9
|
%
|
Fixed income securities
|
54.3
|
%
|
|
37.3
|
%
|
|
20.1
|
%
|
|
13.7
|
%
|
Multi-strategy investments
|
—
|
%
|
|
—
|
%
|
|
63.8
|
%
|
|
9.4
|
%
|
Real estate
|
4.5
|
%
|
|
4.5
|
%
|
|
—
|
%
|
|
—
|
%
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Our pension plan assets are stated at fair value based on quoted market prices in an active market, quoted redemption values, or estimates based on reasonable assumptions as of the most recent measurement period. See the Fair Value Measurements footnote for a description of the fair value guidance. No transfers between the levels of the fair value hierarchy occurred during the current fiscal period. In the event of a transfer in or out of a level within the fair value hierarchy, the transfers would be recognized on the date of occurrence. Certain pension assets valued at net asset value (“NAV”) per share as a practical expedient are excluded from the fair value hierarchy. Investments in pension plan assets are described in further detail below.
Short-term Fixed Income Investments
Short-term investments consist of money market funds, which are valued at the daily closing price as reported by the relevant fund (Level 1).
Mutual Funds
Mutual funds held by the domestic plans are open-end mutual funds that are registered with the Securities and Exchange Commission (“SEC”) and seek to either replicate or outperform a related index. These funds are required to publish their daily net asset value and to transact at that price. The mutual funds held by the domestic plans are deemed to be actively traded (Level 1).
Collective Trust
The collective trust seeks to outperform the overall small-cap stock market and is comprised of small-cap equity securities with quoted prices in active markets for identical investments. The value of this fund is calculated on each business day based on its daily net asset value; however, the collective trust is not deemed to be actively traded (Level 2).
Fixed Income Investments
The fixed income fund seeks to maximize total return by investing primarily in a diversified portfolio of intermediate and long-term debt securities and is valued using the NAV of units of a management investment company’s trust. The NAV, as provided by the fund's trustee, is used as a practical expedient to estimate fair value. As such, these funds are excluded from the fair value hierarchy. The NAV is based on the fair value of the underlying investments held by the fund less the fund's liabilities.
Real Estate Fund
The real estate fund invests primarily in commercial real estate and includes mortgage loans that are backed by the associated property's investment objective. The fund seeks real estate returns, risk, and liquidity appropriate to a core fund. The fund also seeks to provide current income with the potential for long-term capital appreciation. This investment is valued based on the NAV per share, without further adjustment. The NAV, as provided by the fund's trustee, is used as a practical expedient to estimate fair value and is therefore excluded from the fair value
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
hierarchy. NAV is based on the fair value of the underlying investments. Investors may request to redeem all or any portion of their shares on a quarterly basis. Each investor must provide a written redemption request at least sixty days prior to the end of the quarter for which the request is to be effective. If insufficient funds are available to honor all redemption requests at any point in time, available funds will be allocated pro-rata based on the total number of shares held by each investor. All decisions regarding whether to honor redemption requests are made by the fund’s board of directors.
The following tables present the fair value of the domestic pension plan assets by major category as of the dates presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Fair Value
as of
|
|
Quoted Market
Prices in Active
Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
August 31, 2021
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets included in the fair value hierarchy:
|
|
|
|
|
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
Domestic large cap equity fund
|
$
|
38.9
|
|
|
$
|
38.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign equity fund
|
23.1
|
|
|
23.1
|
|
|
—
|
|
|
—
|
|
Collective trust: Domestic small cap equities
|
13.3
|
|
|
—
|
|
|
13.3
|
|
|
—
|
|
Short-term fixed income investments
|
6.9
|
|
|
6.9
|
|
|
—
|
|
|
—
|
|
Total assets in the fair value hierarchy
|
82.2
|
|
|
|
|
|
|
|
Assets calculated at net asset value:
|
|
|
|
|
|
|
|
Fixed-income investments
|
92.3
|
|
|
|
|
|
|
|
Real estate fund
|
8.1
|
|
|
|
|
|
|
|
Total assets at net asset value
|
100.4
|
|
|
|
|
|
|
|
Total assets at fair value
|
$
|
182.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Fair Value
as of
|
|
Quoted Market
Prices in Active
Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
August 31, 2020
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets included in the fair value hierarchy:
|
|
|
|
|
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
Domestic large cap equity fund
|
$
|
55.6
|
|
|
$
|
55.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign equity fund
|
26.0
|
|
|
26.0
|
|
|
—
|
|
|
—
|
|
Collective trust: Domestic small cap equities
|
15.7
|
|
|
—
|
|
|
15.7
|
|
|
—
|
|
Short-term fixed income investments
|
5.2
|
|
|
5.2
|
|
|
—
|
|
|
—
|
|
Total assets in the fair value hierarchy
|
102.5
|
|
|
|
|
|
|
|
Assets calculated at net asset value:
|
|
|
|
|
|
|
|
Fixed-income investments
|
57.0
|
|
|
|
|
|
|
|
Real estate fund
|
7.6
|
|
|
|
|
|
|
|
Total assets at net asset value
|
64.6
|
|
|
|
|
|
|
|
Total assets at fair value
|
$
|
167.1
|
|
|
|
|
|
|
|
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
International Plan Investments
The international plans' assets consist primarily of funds invested in equity securities, multi-strategy investments, and fixed income investments. These securities are calculated using the values of the underlying holdings (i.e. significant observable inputs) but do not have quoted prices in active markets (Level 2). The short-term fixed income investments represents cash and cash equivalents held by the funds at fiscal year end (Level 1). The following tables present the fair value of the international pension plan assets by major category as of the dates presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Fair Value
as of
|
|
Quoted Market
Prices in Active
Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
August 31, 2021
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets included in the fair value hierarchy:
|
|
|
|
|
|
|
|
Equity securities
|
$
|
6.8
|
|
|
$
|
—
|
|
|
$
|
6.8
|
|
|
$
|
—
|
|
Short-term fixed income investments
|
1.0
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Multi-strategy investments
|
26.9
|
|
|
—
|
|
|
26.9
|
|
|
—
|
|
Fixed-income investments
|
7.5
|
|
|
—
|
|
|
7.5
|
|
|
—
|
|
Total assets at fair value
|
$
|
42.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Fair Value
as of
|
|
Quoted Market
Prices in Active
Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
August 31, 2020
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets included in the fair value hierarchy:
|
|
|
|
|
|
|
|
Equity securities
|
$
|
27.0
|
|
|
$
|
—
|
|
|
$
|
27.0
|
|
|
$
|
—
|
|
Short-term fixed income investments
|
0.3
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Multi-strategy investments
|
3.3
|
|
|
—
|
|
|
3.3
|
|
|
—
|
|
Fixed-income investments
|
4.5
|
|
|
—
|
|
|
4.5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
$
|
35.1
|
|
|
|
|
|
|
|
We do not expect to contribute to the domestic qualified plans in fiscal 2022 based on the funded status of the plans as well as current legal minimum funding requirements. We expect to contribute approximately $1.5 million during fiscal 2022 to our international defined benefit plans. These amounts are based on the total contributions required during fiscal 2022 to satisfy current legal minimum funding requirements for qualified plans and estimated benefit payments for non-qualified plans.
Benefit payments are made primarily from funded benefit plan trusts. Benefit payments are expected to be paid as follows during the years ending August 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
International Plans
|
2022
|
$
|
13.2
|
|
|
$
|
1.2
|
|
2023
|
11.9
|
|
|
1.3
|
|
2024
|
12.0
|
|
|
1.3
|
|
2025
|
12.9
|
|
|
1.4
|
|
2026
|
14.8
|
|
|
1.4
|
|
2027-2031
|
65.0
|
|
|
8.4
|
|
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Multi-employer Pension Plans
We contribute to two multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of our union-represented employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
•Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
•If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be shared by the remaining participating employers.
•If a participating employer chooses to stop participating in some of its multi-employer plans, the employer may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
Our contributions to these plans were $0.6 million for the years ended August 31, 2021 and 2020, and $0.5 million for the year ended August 31, 2019.
Defined Contribution Plans
We have defined contribution plans to which both employees and we make contributions. Employer matching amounts are allocated in accordance with the participants’ investment elections for elective deferrals and totaled $8.4 million, $8.2 million, and $8.1 million for the years ended August 31, 2021, 2020, and 2019, respectively. At August 31, 2021, assets of the domestic defined contribution plans included shares of our common stock with a market value of approximately $8.9 million, which represented approximately 1.8% of the total fair market value of the assets in our domestic defined contribution plans.
Note 13 — Special Charges
During the year ended August 31, 2021, we recognized pre-tax special charges of $3.3 million. These charges consisted primarily of charges for relocation costs and adjustments related to severance costs associated with the previously announced transfer of activities from planned facility closures as well as other streamlining activities.
The details of the special charges during the periods presented are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Severance and employee-related costs
|
$
|
1.7
|
|
|
$
|
9.3
|
|
|
$
|
(0.5)
|
|
ROU lease asset impairment charges
|
—
|
|
|
7.4
|
|
|
—
|
|
Relocation and other restructuring costs
|
1.6
|
|
|
3.3
|
|
|
2.3
|
|
Total special charges
|
$
|
3.3
|
|
|
$
|
20.0
|
|
|
$
|
1.8
|
|
As of August 31, 2021, remaining accruals were $1.7 million and are included in Accrued compensation in the Consolidated Balance Sheets. The changes in the accruals related to these programs during the period presented are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
August 31, 2021
|
|
|
|
|
|
|
Balance as of August 31, 2020
|
$
|
3.0
|
|
|
|
|
|
|
|
Severance costs
|
1.7
|
|
|
|
|
|
|
|
Relocation and other restructuring costs
|
1.6
|
|
|
|
|
|
|
|
Payments made during the period
|
(4.6)
|
|
|
|
|
|
|
|
Balance as of August 31, 2021
|
$
|
1.7
|
|
|
|
|
|
|
|
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note 14 — Common Stock and Related Matters
Common Stock
Changes in common stock during the periods presented were as follows (amounts and shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Shares
|
|
Amount
|
|
|
|
(At par)
|
Balance at August 31, 2018
|
53.7
|
|
|
$
|
0.5
|
|
Issuance of restricted stock grants, net of cancellations
|
0.1
|
|
|
—
|
|
|
|
|
|
Balance at August 31, 2019
|
53.8
|
|
|
0.5
|
|
Issuance of restricted stock grants, net of cancellations
|
0.1
|
|
|
—
|
|
Stock options exercised
|
—
|
|
*
|
—
|
|
Balance at August 31, 2020
|
53.9
|
|
|
0.5
|
|
Issuance of restricted stock grants, net of cancellations
|
0.1
|
|
|
—
|
|
Stock options exercised
|
—
|
|
*
|
—
|
|
Balance at August 31, 2021
|
54.0
|
|
|
$
|
0.5
|
|
___________________________
* Represents shares of less than 0.1 million.
As of August 31, 2021 and 2020, we had 18.8 million and 15.0 million of repurchased shares recorded as treasury stock at an original repurchase cost of $1.66 billion and $1.23 billion, respectively.
During fiscal 2021, we repurchased 3.8 million shares of our outstanding common stock. As of August 31, 2021, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 3.8 million shares. We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible capital allocation priorities.
Preferred Stock
We have 50 million shares of preferred stock authorized. No shares of preferred stock were issued in fiscal 2021 or 2020, and no shares of preferred stock are outstanding.
Earnings per Share
Basic earnings per share for the periods presented is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding for these periods. Diluted earnings per share is computed similarly but reflects the potential dilution that would occur if dilutive options were exercised, unvested share-based payment awards were vested, and other distributions related to deferred stock agreements were incurred. The dilutive effects of share-based payment awards subject to market and/or performance conditions that were not met during the period are excluded from the computation of diluted earnings per share.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The following table calculates basic earnings per common share and diluted earnings per common share during the periods presented (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Net income
|
$
|
306.3
|
|
|
$
|
248.3
|
|
|
$
|
330.4
|
|
Basic weighted average shares outstanding
|
36.3
|
|
|
39.5
|
|
|
39.7
|
|
Common stock equivalents
|
0.3
|
|
|
0.1
|
|
|
0.1
|
|
Diluted weighted average shares outstanding
|
36.6
|
|
|
39.6
|
|
|
39.8
|
|
Basic earnings per share
|
$
|
8.44
|
|
|
$
|
6.29
|
|
|
$
|
8.32
|
|
Diluted earnings per share
|
$
|
8.38
|
|
|
$
|
6.27
|
|
|
$
|
8.29
|
|
The following table presents stock options, restricted stock awards, and performance stock units that were excluded from the diluted earnings per share calculation for the periods presented as the effect of inclusion would have been antidilutive (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Stock options
|
0.8
|
|
|
0.6
|
|
|
0.3
|
|
Restricted stock awards
|
—
|
|
*
|
0.2
|
|
|
0.2
|
|
Performance stock units
|
—
|
|
|
—
|
|
*
|
—
|
|
_______________________
* Represents shares of less than 0.1 million.
Note 15 — Income Taxes
We account for income taxes using the asset and liability approach as prescribed by ASC Topic 740, Income Taxes (“ASC 740”). This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Using the enacted tax rates in effect for the year in which the differences are expected to reverse, deferred tax liabilities and assets are determined based on the differences between the financial reporting and the tax basis of an asset or liability.
The provision for income taxes consists of the following components during the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Provision for current federal taxes
|
$
|
65.4
|
|
|
$
|
54.6
|
|
|
$
|
60.3
|
|
Provision for current state taxes
|
12.8
|
|
|
12.5
|
|
|
14.7
|
|
Provision for current foreign taxes
|
14.4
|
|
|
16.0
|
|
|
10.2
|
|
(Benefit) provision for deferred taxes
|
(2.7)
|
|
|
(6.7)
|
|
|
9.3
|
|
Total provision for income taxes
|
$
|
89.9
|
|
|
$
|
76.4
|
|
|
$
|
94.5
|
|
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The following table reconciles the provision at the federal statutory rate to the total provision for income taxes during the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Federal income tax computed at statutory rate
|
$
|
83.2
|
|
|
$
|
68.2
|
|
|
$
|
89.2
|
|
State income tax, net of federal income tax benefit
|
10.7
|
|
|
9.7
|
|
|
12.2
|
|
Foreign permanent differences and rate differential
|
2.4
|
|
|
2.4
|
|
|
2.1
|
|
Discrete income tax benefits of the U.S. Tax Cuts and Jobs Act
|
—
|
|
|
—
|
|
|
(2.2)
|
|
Research and development tax credits
|
(7.6)
|
|
|
(7.1)
|
|
|
(18.1)
|
|
Unrecognized tax benefits
|
0.7
|
|
|
1.8
|
|
|
12.2
|
|
Other, net
|
0.5
|
|
|
1.4
|
|
|
(0.9)
|
|
Total provision for income taxes
|
$
|
89.9
|
|
|
$
|
76.4
|
|
|
$
|
94.5
|
|
Components of the net deferred income tax liabilities as of the dates presented include (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
2021
|
|
2020
|
Deferred income tax liabilities:
|
|
|
|
Depreciation
|
$
|
(19.0)
|
|
|
$
|
(23.3)
|
|
Goodwill and intangibles
|
(155.2)
|
|
|
(153.1)
|
|
Operating lease right of use asset
|
(14.3)
|
|
|
(15.6)
|
|
Other liabilities
|
(8.2)
|
|
|
(5.3)
|
|
Total deferred income tax liabilities
|
(196.7)
|
|
|
(197.3)
|
|
Deferred income tax assets:
|
|
|
|
Self-insurance
|
1.8
|
|
|
2.1
|
|
Pension
|
9.9
|
|
|
22.2
|
|
Deferred compensation
|
21.3
|
|
|
22.2
|
|
Net operating losses
|
5.4
|
|
|
5.6
|
|
Other accruals not yet deductible
|
41.3
|
|
|
32.0
|
|
Operating lease liabilities
|
15.4
|
|
|
18.2
|
|
Other assets
|
12.0
|
|
|
9.3
|
|
Total deferred income tax assets
|
107.1
|
|
|
111.6
|
|
Valuation allowance
|
(9.5)
|
|
|
(6.5)
|
|
Net deferred income tax liabilities
|
$
|
(99.1)
|
|
|
$
|
(92.2)
|
|
As of August 31, 2021, the estimated undistributed earnings from foreign subsidiaries was $165.1 million. We have recorded a deferred income tax liability of $3.3 million for certain foreign withholding taxes and U.S. state taxes related to foreign earnings for which we do not assert indefinite reinvestment. 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 account 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.
At August 31, 2021, we had state tax credit carryforwards of approximately $1.5 million, which will expire beginning in 2022. At August 31, 2021, we had federal net operating loss carryforwards of $28.7 million that expire beginning in 2029, state net operating loss carryforwards of $30.1 million that began expiring in 2022, and foreign net operating loss carryforwards of $3.4 million that expire beginning in 2026.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The gross amount of unrecognized tax benefits as of August 31, 2021 and 2020 totaled $17.7 million and $17.2 million, respectively, which includes $17.1 million and $16.7 million, respectively, of net unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. We recognize potential interest and penalties related to unrecognized tax benefits as a component of income tax expense; such accrued interest and penalties are not material. With few exceptions, we are no longer subject to United States federal, state, and local income tax examinations for years ended before 2015 or for foreign income tax examinations before 2014. We do not anticipate unrecognized tax benefits will significantly increase or decrease within the next twelve months.
The following table reconciles the change in the unrecognized income tax benefit (reported in Other long-term liabilities on the Consolidated Balance Sheets) during the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Unrecognized tax benefits balance at beginning of year
|
$
|
17.2
|
|
|
$
|
16.6
|
|
|
$
|
4.4
|
|
Additions based on tax positions related to the current year
|
5.2
|
|
|
2.3
|
|
|
2.0
|
|
Additions for tax positions of prior years
|
0.1
|
|
|
—
|
|
|
10.9
|
|
Reductions for tax positions of prior years
|
(0.1)
|
|
|
(0.4)
|
|
|
—
|
|
Reductions due to settlements
|
(4.6)
|
|
|
(1.2)
|
|
|
—
|
|
Reductions due to lapse of statute of limitations
|
(0.1)
|
|
|
(0.1)
|
|
|
(0.7)
|
|
Unrecognized tax benefits balance at end of year
|
$
|
17.7
|
|
|
$
|
17.2
|
|
|
$
|
16.6
|
|
Total accrued interest was $2.0 million, $1.7 million, and $1.0 million as of August 31, 2021, 2020, and 2019, respectively. There were no accruals related to income tax penalties during fiscal 2021. Interest, net of tax benefits, and penalties are included in Income tax expense within the Consolidated Statements of Comprehensive Income. The classification of interest and penalties did not change during the current fiscal year. We are routinely under audit from various tax jurisdictions. We do not currently anticipate material audit assessments.
|
|
|
ACUITY BRANDS, INC
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note 16 — Supplemental Disaggregated Information
Sales of lighting, lighting controls, and building technology solutions, excluding services, accounted for approximately 99% of total consolidated net sales in fiscal 2021, 2020, and 2019. Our geographic distribution of net sales, operating profit, income before provision for income taxes, and long-lived assets is summarized in the following table during and as of the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
2021
|
|
2020
|
|
2019
|
Net sales(1):
|
|
|
|
|
|
Domestic(2)
|
$
|
2,982.4
|
|
|
$
|
2,925.0
|
|
|
$
|
3,277.4
|
|
International
|
478.6
|
|
|
401.3
|
|
|
395.3
|
|
Total
|
$
|
3,461.0
|
|
|
$
|
3,326.3
|
|
|
$
|
3,672.7
|
|
Operating profit:
|
|
|
|
|
|
Domestic(2)
|
$
|
369.9
|
|
|
$
|
300.6
|
|
|
$
|
419.3
|
|
International
|
57.7
|
|
|
53.3
|
|
|
43.6
|
|
Total
|
$
|
427.6
|
|
|
$
|
353.9
|
|
|
$
|
462.9
|
|
Income before income taxes:
|
|
|
|
|
|
Domestic(2)
|
$
|
343.7
|
|
|
$
|
274.2
|
|
|
$
|
386.4
|
|
International
|
52.5
|
|
|
50.5
|
|
|
38.5
|
|
Total
|
$
|
396.2
|
|
|
$
|
324.7
|
|
|
$
|
424.9
|
|
Long-lived assets(3):
|
|
|
|
|
|
Domestic(2)
|
$
|
284.4
|
|
|
$
|
298.6
|
|
|
$
|
246.9
|
|
International
|
76.6
|
|
|
64.8
|
|
|
48.1
|
|
Total
|
$
|
361.0
|
|
|
$
|
363.4
|
|
|
$
|
295.0
|
|
_______________________________________
(1)Net sales are attributed to each country based on the selling location.
(2)Domestic amounts include amounts for U.S. based operations.
(3)Long-lived assets include net property, plant, and equipment, operating lease right-of-use assets, and other long-term assets as reflected in the Consolidated Balance Sheets.