UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended February 28, 2010
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-16583
ACUITY BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 58-2632672 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
1170 Peachtree Street, N.E., Suite 2400, Atlanta, Georgia | 30309 | |
(Address of principal executive offices) | (Zip Code) |
(404)
(Registrants telephone number, including area code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark x whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Common Stock$0.01 Par Value 43,494,827 shares as of March 29, 2010.
INDEX
2
Item 1. | Financial Statements |
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per-share data)
February 28,
2010 |
August 31,
2009 |
|||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 155.8 | $ | 18.7 | ||||
Accounts receivable, less reserve for doubtful accounts of $1.9 at February 28, 2010 and August 31, 2009 |
224.6 | 227.4 | ||||||
Inventories |
147.9 | 140.8 | ||||||
Deferred income taxes |
17.1 | 16.7 | ||||||
Prepayments and other current assets |
26.6 | 19.3 | ||||||
Total Current Assets |
572.0 | 422.9 | ||||||
Property, Plant, and Equipment, at cost: |
||||||||
Land |
7.8 | 7.3 | ||||||
Buildings and leasehold improvements |
113.5 | 111.8 | ||||||
Machinery and equipment |
340.6 | 334.7 | ||||||
Total Property, Plant, and Equipment |
461.9 | 453.8 | ||||||
Less Accumulated depreciation and amortization |
319.4 | 308.0 | ||||||
Property, Plant, and Equipment, net |
142.5 | 145.8 | ||||||
Other Assets: |
||||||||
Goodwill |
509.9 | 510.6 | ||||||
Intangible assets |
182.9 | 184.8 | ||||||
Deferred income taxes |
2.5 | 2.6 | ||||||
Other long-term assets |
23.5 | 23.9 | ||||||
Total Other Assets |
718.8 | 721.9 | ||||||
Total Assets |
$ | 1,433.3 | $ | 1,290.6 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 157.5 | $ | 162.3 | ||||
Current maturities of long-term debt |
| 209.5 | ||||||
Accrued compensation |
35.5 | 35.3 | ||||||
Accrued pension liabilities, current |
1.2 | 1.2 | ||||||
Other accrued liabilities |
66.3 | 67.8 | ||||||
Total Current Liabilities |
260.5 | 476.1 | ||||||
Long-Term Debt |
353.3 | 22.0 | ||||||
Accrued Pension Liabilities, less current portion |
52.8 | 51.1 | ||||||
Deferred Income Taxes |
11.5 | 13.0 | ||||||
Self-Insurance Reserves, less current portion |
9.4 | 8.8 | ||||||
Other Long-Term Liabilities |
46.9 | 47.4 | ||||||
Commitments and Contingencies (see Note 9) |
||||||||
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; 50,164,837 issued and 42,817,070 outstanding at February 28, 2010; and 49,851,316 issued and 42,433,143 outstanding at August 31, 2009 |
0.5 | 0.5 | ||||||
Paid-in capital |
651.6 | 647.2 | ||||||
Retained earnings |
422.9 | 404.2 | ||||||
Accumulated other comprehensive loss items |
(56.6 | ) | (57.4 | ) | ||||
Treasury stock, at cost, 7,347,767 shares at February 28, 2010 and 7,418,173 shares at August 31, 2009 |
(319.5 | ) | (322.3 | ) | ||||
Total Stockholders Equity |
698.9 | 672.2 | ||||||
Total Liabilities and Stockholders Equity |
$ | 1,433.3 | $ | 1,290.6 | ||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In millions, except per-share data)
Three Months Ended
February 28, |
Six Months Ended
February 28, |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net Sales |
$ | 383.5 | $ | 386.1 | $ | 775.2 | $ | 838.2 | ||||||||
Cost of Products Sold |
231.2 | 244.7 | 461.6 | 522.0 | ||||||||||||
Gross Profit |
152.3 | 141.4 | 313.6 | 316.2 | ||||||||||||
Selling, Distribution, and Administrative Expenses |
119.1 | 108.2 | 237.7 | 227.2 | ||||||||||||
Special Charge |
5.4 | 4.6 | 5.4 | 26.6 | ||||||||||||
Operating Profit |
27.8 | 28.6 | 70.5 | 62.4 | ||||||||||||
Other Expense (Income): |
||||||||||||||||
Interest expense, net |
8.1 | 7.5 | 14.8 | 15.5 | ||||||||||||
Loss on early debt extinguishment |
10.5 | | 10.5 | | ||||||||||||
Miscellaneous income, net |
(0.6 | ) | (0.1 | ) | (0.1 | ) | (4.1 | ) | ||||||||
Total Other Expense |
18.0 | 7.4 | 25.2 | 11.4 | ||||||||||||
Income from Continuing Operations before Provision for Income Taxes |
9.8 | 21.2 | 45.3 | 51.0 | ||||||||||||
Provision for Income Taxes |
2.6 | 6.8 | 14.8 | 17.2 | ||||||||||||
Income from Continuing Operations |
7.2 | 14.4 | 30.5 | 33.8 | ||||||||||||
Income from Discontinued Operations |
0.6 | | 0.6 | | ||||||||||||
Net Income |
$ | 7.8 | $ | 14.4 | $ | 31.1 | $ | 33.8 | ||||||||
Earnings Per Share: |
||||||||||||||||
Basic Earnings per Share from Continuing Operations |
$ | 0.17 | $ | 0.35 | $ | 0.71 | $ | 0.83 | ||||||||
Basic Earnings per Share from Discontinued Operations |
0.01 | | 0.01 | | ||||||||||||
Basic Earnings per Share |
$ | 0.18 | $ | 0.35 | $ | 0.72 | $ | 0.83 | ||||||||
Basic Weighted Average Number of Shares Outstanding |
42.5 | 40.2 | 42.4 | 40.1 | ||||||||||||
Diluted Earnings per Share from Continuing Operations |
$ | 0.16 | $ | 0.34 | $ | 0.69 | $ | 0.81 | ||||||||
Diluted Earnings per Share from Discontinued Operations |
0.01 | | 0.01 | | ||||||||||||
Diluted Earnings per Share |
$ | 0.17 | $ | 0.34 | $ | 0.70 | $ | 0.81 | ||||||||
Diluted Weighted Average Number of Shares Outstanding |
43.3 | 40.8 | 43.2 | 40.7 | ||||||||||||
Dividends Declared per Share |
$ | 0.13 | $ | 0.13 | $ | 0.26 | $ | 0.26 | ||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements .
4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
Six Months Ended
February 28, |
||||||||
2010 | 2009 | |||||||
Cash Provided by (Used for) Operating Activities: |
||||||||
Net income |
$ | 31.1 | $ | 33.8 | ||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities: |
||||||||
Depreciation and amortization |
18.8 | 17.4 | ||||||
Excess tax benefits from share-based payments |
(0.3 | ) | (0.6 | ) | ||||
Loss on early debt extinguishment |
10.5 | | ||||||
Loss on the sale or disposal of property, plant, and equipment |
0.1 | | ||||||
Asset impairments |
3.7 | 1.6 | ||||||
Deferred income taxes |
(1.7 | ) | (6.6 | ) | ||||
Other non-cash items |
3.0 | 3.4 | ||||||
Change in assets and liabilities, net of effect of acquisitions, divestitures and effect of exchange rate changes: |
||||||||
Accounts receivable |
2.3 | 46.8 | ||||||
Inventories |
(7.3 | ) | (21.9 | ) | ||||
Prepayments and other current assets |
(12.3 | ) | (1.4 | ) | ||||
Accounts payable |
(4.5 | ) | (44.5 | ) | ||||
Other current liabilities |
(1.0 | ) | (37.5 | ) | ||||
Other |
5.0 | 5.6 | ||||||
Net Cash Provided by (Used for) Operating Activities |
47.4 | (3.9 | ) | |||||
Cash Provided by (Used for) Investing Activities: |
||||||||
Purchases of property, plant, and equipment |
(9.5 | ) | (11.7 | ) | ||||
Proceeds from sale of property, plant, and equipment |
| 0.1 | ||||||
Acquisitions |
| (31.4 | ) | |||||
Net Cash Used for Investing Activities |
(9.5 | ) | (43.0 | ) | ||||
Cash Provided by (Used for) Financing Activities: |
||||||||
Repayments of long-term debt |
(237.9 | ) | (160.0 | ) | ||||
Issuance of long-term debt |
346.5 | | ||||||
Proceeds from stock option exercises and other |
2.9 | 2.6 | ||||||
Excess tax benefits from share-based payments |
0.3 | 0.6 | ||||||
Dividends paid |
(11.3 | ) | (10.6 | ) | ||||
Net Cash Provided by (Used for) Financing Activities |
100.5 | (167.4 | ) | |||||
Effect of Exchange Rate Changes on Cash |
(1.3 | ) | (10.5 | ) | ||||
Net Change in Cash and Cash Equivalents |
137.1 | (224.8 | ) | |||||
Cash and Cash Equivalents at Beginning of Period |
18.7 | 297.1 | ||||||
Cash and Cash Equivalents at End of Period |
$ | 155.8 | $ | 72.3 | ||||
Supplemental Cash Flow Information: |
||||||||
Income taxes paid during the period |
$ | 23.3 | $ | 29.1 | ||||
Interest paid during the period |
$ | 15.8 | $ | 16.3 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
1. Description of Business and Basis of Presentation
Acuity Brands, Inc. (Acuity Brands) is the parent company of Acuity Brands Lighting, Inc. (ABL), formerly known as Acuity Lighting Group, Inc., and other subsidiaries (collectively referred to herein as the Company). The Company designs, produces, and distributes a broad array of indoor and outdoor lighting fixtures and related products, including lighting controls, and services for commercial and institutional, industrial, infrastructure, and residential applications for various markets throughout North America and select international markets. The Company has one operating segment.
On April 20, 2009, the Company acquired 100% of the outstanding capital stock of Sensor Switch, Inc. (Sensor Switch), an industry-leading developer and manufacturer of lighting controls and energy management systems. Sensor Switch, based in Wallingford, Connecticut, offers a wide-breadth of products and solutions that substantially reduce energy consumption, including occupancy sensors, photocontrols, and distributed lighting control devices. The operating results of Sensor Switch have been included in the Companys consolidated financial statements since the date of acquisition.
On December 31, 2008, the Company acquired for cash and stock substantially all the assets and assumed certain liabilities of Lighting Controls & Design (LC&D). Located in Glendale, California, LC&D is a manufacturer of comprehensive digital lighting controls and software that offers a breadth of products, ranging from dimming and building interfaces to digital thermostats, all within a single, scalable system. The operating results of LC&D have been included in the Companys consolidated financial statements since the date of acquisition.
Acuity Brands completed the spin-off of its specialty products business (the Spin-off), Zep Inc. (Zep) on October 31, 2007, by distributing all of the shares of Zep common stock, par value $0.01 per share, to the Companys stockholders of record as of October 17, 2007. The Companys stockholders received one Zep share, together with an associated preferred stock purchase right, for every two shares of the Companys common stock they owned. Stockholders received cash in lieu of fractional shares for amounts less than one full Zep share.
As a result of the Spin-off, the Companys financial statements have been prepared with the results of operations and cash flows of the specialty products business presented as discontinued operations. All historical statements have been restated to conform to this presentation. Refer to Note 2 Discontinued Operations .
The Consolidated Financial Statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and present the financial position, results of operations, and cash flows of Acuity Brands and its wholly-owned subsidiaries. References made to years are for fiscal year periods.
The unaudited interim consolidated financial statements included herein have been prepared by the Company in accordance with U.S. GAAP and present the financial position, results of operations, and cash flows of the Company. These interim consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, necessary to present fairly the Companys consolidated financial position as of February 28, 2010, the consolidated results of operations for the three and six months ended February 28, 2010 and 2009, and the consolidated cash flows for the six months ended February 28, 2010 and 2009. Certain information and footnote disclosures normally included in the Companys annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. However, the Company believes that the disclosures included herein are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company as of and for the three years ended August 31, 2009 and notes thereto included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission (the SEC) on October 30, 2009 (File No. 001-16583) (Form 10-K).
The results of operations for the three and six months ended February 28, 2010 and 2009 are not necessarily indicative of the results to be expected for the full fiscal year because the net sales and net income of the Company historically have been higher in the second half of its fiscal year and because of the continued uncertainty of general economic conditions impacting the key end markets of the Company for the remainder of fiscal year 2010.
6
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
2. Discontinued Operations
As described in Description of Business and Basis of Presentatio n footnote, the Company completed the Spin-off on October 31, 2007. A summary of the operating results for the discontinued operations is as follows:
Three and six months ended
February 28, 2010 |
|||
Net Sales |
$ | | |
Income before Provision for Income Taxes |
$ | 0.6 | |
Provision for Income Taxes |
| ||
Net Income from Discontinued Operations |
$ | 0.6 | |
In conjunction with the Spin-off, Acuity Brands and Zep entered into various agreements that address the allocation of assets and liabilities between them and that define their relationship after the separation, including a distribution agreement, a tax disaffiliation agreement, an employee benefits agreement, and a transition services agreement. The income from discontinued operations relates to the revision of estimates in the current period of certain legal reserves established at the time of the Spin-off. As it was with the original reserve, the income from discontinued operations had no income tax effect. Information regarding guarantees and indemnities related to the Spin-off are included in the Commitments and Contingencies footnote.
3. Significant Accounting Policies
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.
Reclassifications
Certain prior-period amounts have been reclassified to conform to current year presentation.
Subsequent Events
The Company has evaluated for recognition and disclosure subsequent events for occurrences and transactions after the date of the condensed financial statements at February 28, 2010 and for the three and six months ended February 28, 2010.
Significant Accounting Policies
For a description of other significant accounting policies, see the Summary of Significant Accounting Policies footnote to the Financial Statements included in the Companys Form 10-K. There have been no material changes to the Companys significant accounting policies since the filing of the Companys 2009 Annual Report on Form 10-K, except as noted in the New Accounting Pronouncements footnote.
4. New Accounting Pronouncements
Accounting Standards Adopted in Fiscal 2010
In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162 (SFAS No. 168), which confirms that as of July 1, 2009, the FASB Accounting Standards Codification TM (Codification) is the single official source of authoritative, nongovernmental U.S. GAAP. All existing accounting standard documents are superseded, and all other accounting literature not included in the Codification is considered nonauthoritative. SFAS No. 168 which now resides in the Accounting Standards Codification (ASC) Topic 105, Generally Accepted Accounting Principles (ASC 105), within the Codification was effective for interim and annual periods ending after September 15, 2009 and, therefore, was adopted by the Company on November 30, 2009. The Company determined, however, that the standard did not have an effect on the Companys financial position, results of operations, or cash flows upon adoption.
7
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
In June 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-1, Topic 105 Generally Accepted Accounting Principles amendments based on Statement of Financial Accounting Standards No. 168 The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles (ASU No. 2009-1), which amends the Codification for the issuance of SFAS No. 168. See discussion on SFAS No. 168 above as adoption was concurrent with that standard.
In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-09). The amendments in this standard update define a SEC filer within the Codification and eliminate the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in order to remove potential conflicts with current SEC guidance. The relevant provisions of ASU 2010-09 were effective upon the date of issuance of February 24, 2010, and the Company adopted the amendments accordingly. As the update only pertained to disclosures, ASU 2010-09 had no impact on the Companys financial position, results of operations, or cash flows upon adoption.
In January 2010, the FASB issued ASU No. 2010-02, Consolidation (Topic 810) Accounting and Reporting for Decreases in Ownership of a Subsidiary A Scope Clarification (ASU 2010-02) . This standard update clarifies that the scope of the decrease in ownership as prescribed within Subtopic 810-10 and related guidance. Additional disclosures around the deconsolidation of a subsidiary or derecognition of a group of assets should include the valuation techniques used to measure the fair value of any retained investment, the nature of any continuing involvement with the subsidiary or entity acquiring the group of assets, and any related party implications related to the deconsolidation or derecognition transaction. The provisions of this standard were effective beginning in the first interim or annual reporting period ending on or after December 15, 2009, and applied retrospectively to the period of adoption of the latest provisions of ASC 810 as noted above. The Company adopted these amendments during the second quarter of fiscal 2010 and effective retrospectively on September 1, 2009, and the implementation had no effect on the Companys financial position, results of operations, or cash flows, as no applicable deconsolidation of a subsidiary or derecognition of assets occurred subsequent to the effective date.
In January 2010, the FASB issued ASU No. 2010-01, Equity (Topic 505) Accounting for Distributions to Shareholders with Components of Stock and Cash (ASU 2010-01) . The amendments to the Codification in ASU No. 2010-01 clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009, and applied retrospectively. The Company adopted the provisions of this standard update on February 28, 2010. The implementation of this guidance had no effect on the Companys earnings per share amounts, as the Company does not currently allow and, for the periods reported, did not allow for this form of discretion in distributions to shareholders.
In June 2008, FASB issued guidance within ASC Topic 260, Earnings Per Share (ASC 260), to clarify that unvested share-based payment awards with a right to receive nonforfeitable dividends are participating securities. The standard provides guidance on how to allocate earnings to participating securities and compute earnings per share (EPS) using the two-class method. The provisions of this standard were effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and were therefore adopted by the Company on September 1, 2009. The effect of the implementation of this guidance impacted the Companys basic and diluted EPS calculations retroactively for the three and six month periods ended February 28, 2009 as follows: 1) basic EPS is $0.35 compared with $0.36 reported previously for the second quarter of fiscal 2009, and diluted EPS is $0.34 compared with $0.35 reported previously for the second quarter of fiscal 2009; while 2) basic EPS is $0.83 compared with $0.84 reported previously for the first half of fiscal 2009, and diluted EPS is $0.81 compared with $0.83 reported previously for the first half of fiscal 2009. The EPS amounts for previously reported periods have been adjusted due to retroactive adoption of this standard.
In December 2007, the FASB issued guidance within ASC Topic 805, Business Combinations (ASC 805), which changes the accounting for business combinations through a requirement to recognize 100% of the fair values of assets acquired, liabilities assumed, and noncontrolling interests in acquisitions of less than a 100% controlling interest when the acquisition constitutes a change in control of the acquired entity. Other requirements include capitalization of acquired in-process research and development assets, expensing, as incurred, acquisition-related transaction costs and capitalizing restructuring charges as part of the acquisition only if requirements of ASC Topic 420, Exit or Disposal Obligations, are met. The standard was effective for business combination transactions for which the acquisition date was on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and was therefore adopted by the Company on September 1, 2009. The implementation of this guidance had no effect on the Companys financial position, results of operations, or cash flows as no applicable business combinations subsequent to the effective date occurred.
In December 2007, the FASB issued guidance within ASC Topic 810, Consolidation (ASC 810), that establishes the economic entity concept of consolidated financial statements, stating that holders of a residual economic interest in an entity have an equity interest in the entity, even if the residual interest is related to only a portion of the entity. Therefore, this standard requires a noncontrolling interest to be presented as a separate component of equity. The standard also states that once control is obtained, a change in control that does not result in a loss of control should be accounted for as an equity transaction. The statement requires that
8
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
a change resulting in a loss of control and deconsolidation is a significant event triggering gain or loss recognition and the establishment of a new fair value basis in any remaining ownership interests. The standard was effective for fiscal years beginning on or after December 15, 2008 and was therefore adopted by the Company on September 1, 2009. The implementation of this guidance had no effect on the Companys financial position, results of operations, or cash flows, as the Company does not currently consolidate an entity with a noncontrolling interest.
Accounting Standards Yet to Be Adopted
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements (ASU 2010-06). The updates to the Codification require new disclosures around transfers into and out of Levels 1 and 2 in the fair value hierarchy and separate disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 with early adoption permitted, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of Level 3 activity. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years with early adoption permitted. ASU 2010-06 is therefore effective for the Company no later than the beginning of the third quarter of fiscal 2010, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of Level 3 activity, which are effective no later than the beginning of fiscal 2012. The Company is currently in the process of determining the impact, if any, of adoption of the provisions of ASU No. 2010-06.
In September 2009, the FASB issued ASU No. 2009-14, Software (Topic 985) Certain Revenue Arrangements That Include Software Elements (ASU 2009-14). ASU No. 2009-14 changes the accounting model for revenue arrangements that include both tangible products and software elements to allow for alternatives when vendor-specific objective evidence does not exist. Under this guidance, tangible products containing software components and non-software components that function together to deliver the tangible products essential functionality and hardware components of a tangible product containing software components are excluded from the software revenue guidance in Subtopic 985-605, Software-Revenue Recognition ; thus, these arrangements are excluded from this update. ASU 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 with early adoption permitted. ASU 2009-14 is therefore effective for the Company no later than the beginning of fiscal 2011. The Company is currently in the process of determining the impact, if any, of adoption of the provisions of ASU 2009-14.
In September 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements (ASU 2009-13). ASU No. 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, Revenue Recognition-Multiple-Element Arrangements, of the Codification for separating consideration in multiple-deliverable arrangements. A selling price hierarchy is established for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. Additional disclosures related to a vendors multiple-deliverable revenue arrangements are also required by this update. ASU 2009-13 is effective prospectively for revenue arrangements entered into, or materially modified, in fiscal years beginning on or after June 15, 2010 with early adoption permitted. ASU 2009-13 is therefore effective for the Company no later than the beginning of fiscal 2011. The Company is currently in the process of determining the impact, if any, of adoption of the provisions of ASU 2009-13.
5. Goodwill and Intangible Assets
Through multiple acquisitions, the Company acquired intangible assets consisting primarily of trademarks associated with specific products with finite lives, definite-lived distribution networks, patented technology, non-compete agreements, and customer relationships, which are amortized over their estimated useful lives. Indefinite lived intangible assets consist of trade names that are expected to generate cash flows indefinitely.
The Company recorded amortization expense of $1.7 and $1.3 related to intangible assets with finite lives during the three months ended February 28, 2010 and 2009, respectively. The Company recorded amortization expense of $3.6 and $2.4 related to intangible assets with finite lives during the six months ended February 28, 2010 and 2009, respectively. The rise in amortization expense for the first six months of 2010 as compared with the prior-year period was primarily attributable to the amortizable intangible assets obtained in the December 31, 2008 acquisition of substantially all the assets and the assumption of certain liabilities of LC&D and the April 20, 2009 acquisition of Sensor Switch. Amortization expense is expected to be approximately $7.0 in fiscal 2010, $6.7 in fiscal 2011, $5.8 in fiscal 2012, $5.0 in fiscal 2013, and $4.9 in fiscal 2014. The decrease in expected amortization expense in fiscal 2012 is due to the completion of the amortization during fiscal 2011 of certain acquired patented technology assets. The decrease in fiscal 2013 is due to the completion of the amortization during fiscal 2012 of certain acquired customer relationships.
9
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
6. Inventories
Inventories include materials, direct labor, and related manufacturing overhead. Inventories are stated at the lower of cost (on a first-in, first-out or average cost basis) or market and consist of the following:
February 28,
2010 |
August 31,
2009 |
|||||||
Raw materials and supplies |
$ | 67.2 | $ | 69.8 | ||||
Work in process |
10.8 | 11.9 | ||||||
Finished goods |
81.3 | 70.3 | ||||||
159.3 | 152.0 | |||||||
Less: Reserves |
(11.4 | ) | (11.2 | ) | ||||
Total Inventories |
$ | 147.9 | $ | 140.8 | ||||
7. Earnings per share
In accordance with U.S. GAAP, basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding, which has been modified to include the effects of all participating securities (unvested share-based payment awards with a right to receive nonforfeitable dividends) as prescribed by the two-class method under ASC 260, during the period. Diluted earnings per share is computed similarly but reflects the potential dilution that would occur if dilutive options were exercised and other distributions related to deferred stock agreements were incurred. Stock options of 152,334 shares (whole units) were excluded from the diluted earnings per share calculation for the three and six months ended February 28, 2010, as the effect of inclusion would have been antidilutive. Further discussion of the Companys stock options and restricted stock awards are included within Notes 6 and 7 of the Notes to Consolidated Financial Statements within the Companys Form 10-K.
10
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
The following table calculates basic and diluted earnings per common share for the three and six months ended February 28, 2010 and 2009:
Three Months Ended
February 28, |
Six Months Ended
February 28, |
|||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
Basic earnings per share from continuing operations: |
||||||||||||
Income from continuing operations |
$ | 7.2 | $ | 14.4 | $ | 30.5 | $ | 33.8 | ||||
Basic weighted average shares outstanding |
42.5 | 40.2 | 42.4 | 40.1 | ||||||||
Basic earnings per share from continuing operations |
$ | 0.17 | $ | 0.35 | $ | 0.71 | $ | 0.83 | ||||
Diluted earnings per share from continuing operations: |
||||||||||||
Income from continuing operations |
$ | 7.2 | $ | 14.4 | $ | 30.5 | $ | 33.8 | ||||
Basic weighted average shares outstanding |
42.5 | 40.2 | 42.4 | 40.1 | ||||||||
Common stock equivalents |
0.8 | 0.6 | 0.8 | 0.6 | ||||||||
Diluted weighted average shares outstanding |
43.3 | 40.8 | 43.2 | 40.7 | ||||||||
Diluted earnings per share from continuing operations |
$ | 0.16 | $ | 0.34 | $ | 0.69 | $ | 0.81 | ||||
Basic earnings per share from discontinued operations: |
||||||||||||
Income from discontinued operations |
$ | 0.6 | $ | | $ | 0.6 | $ | | ||||
Basic weighted average shares outstanding |
42.5 | 40.2 | 42.4 | 40.1 | ||||||||
Basic earnings per share from discontinued operations |
$ | 0.01 | $ | | $ | 0.01 | $ | | ||||
Diluted earnings per share from discontinued operations: |
||||||||||||
Income from discontinued operations |
$ | 0.6 | $ | | $ | 0.6 | $ | | ||||
Basic weighted average shares outstanding |
42.5 | 40.2 | 42.4 | 40.1 | ||||||||
Common stock equivalents |
0.8 | 0.6 | 0.8 | 0.6 | ||||||||
Diluted weighted average shares outstanding |
43.3 | 40.8 | 43.2 | 40.7 | ||||||||
Diluted earnings per share from discontinued operations |
$ | 0.01 | $ | | $ | 0.01 | $ | | ||||
In accordance with ASC 260, of which updated provisions became effective September 1, 2009, the computation of common stock outstanding has been modified to include unvested share-based payment awards with rights to receive nonforfeitable dividends as participating securities. The application of the standard decreased both basic and diluted EPS by $0.01 for the three months ended February 28, 2009 and $0.01 and $0.02 for the six months ended February 28, 2009, respectively.
8. Comprehensive Income
U.S. GAAP guidance pertaining to comprehensive income requires the reporting of 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 includes foreign currency translation adjustments. The calculation of comprehensive income is as follows:
Three Months Ended
February 28, |
Six Months Ended
February 28, |
||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||
Net income |
$ | 7.8 | $ | 14.4 | $ | 31.1 | $ | 33.8 | |||||||
Foreign currency translation adjustments |
(2.9 | ) | (6.8 | ) | 0.8 | (31.1 | ) | ||||||||
Comprehensive income |
$ | 4.9 | $ | 7.6 | $ | 31.9 | $ | 2.7 | |||||||
9. Debt
Lines of Credit
On October 19, 2007, the Company executed a $250.0 revolving credit facility (the Revolving Credit Facility). The Revolving Credit Facility matures in October 2012 and contains financial covenants, including a minimum interest coverage ratio and a leverage
11
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
ratio (Maximum Leverage Ratio) of total indebtedness to EBITDA (earnings before interest, taxes, depreciation and amortization expense), as such terms are defined in the Revolving Credit Facility agreement. These ratios are computed at the end of each fiscal quarter for the most recent 12-month period. The Revolving Credit Facility allows for a Maximum Leverage Ratio of 3.50, subject to certain conditions defined in the financing agreement. The Company was compliant with all financial covenants under the Revolving Credit Facility as of February 28, 2010. At February 28, 2010, the Company had additional borrowing capacity under the Revolving Credit Facility of $242.7 under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $7.3 discussed below.
The Revolving Credit Facility bears interest at the option of the borrower based upon either (1) the higher of the JPMorgan Chase Bank prime rate and the federal funds effective rate plus 0.50%, or (2) the London Inter Bank Offered Rate (LIBOR) plus the Applicable Margin (a margin as determined by Acuity Brands leverage ratio). Based upon Acuity Brands leverage ratio, as defined in the Revolving Credit Facility agreement, the Applicable Margin was 0.41% as of both February 28, 2010 and 2009. During the periods ended February 28, 2010 and 2009, the Company paid commitment fees at a rate of approximately 0.1%.
At February 28, 2010, the Company had outstanding letters of credit totaling $11.5, primarily for securing collateral requirements under the casualty insurance programs for Acuity Brands and for providing credit support for the Companys industrial revenue bond. At February 28, 2010, a total of $7.3 of the letters of credit was issued under the Revolving Credit Facility, thereby reducing the total availability under the facility by such amount.
Notes
On December 1, 2009, the Company simultaneously announced the private offering by ABL, a wholly-owned subsidiary, of $350.0 aggregate senior unsecured notes due in fiscal 2020 (the Notes) and the cash tender offer for the $200.0 of publicly traded notes outstanding that were scheduled to mature in August 2010 (the 2010 Notes). In addition to the retirement of the 2010 Notes due in August 2010, the Company used the proceeds to repay the $25.3 outstanding balance on a three-year unsecured promissory note issued to the former sole shareholder of Sensor Switch as part of the Companys acquisition of Sensor Switch during fiscal 2009, as discussed below, with the remainder to be used for general corporate purposes.
The Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and ABL IP Holding LLC (ABL IP Holding), a wholly-owned subsidiary of Acuity Brands. The Notes are senior unsecured obligations of ABL and rank equally in right of payment with all of ABLs existing and future senior unsecured indebtedness. The guarantees of Acuity Brands and ABL IP Holding are senior unsecured obligations of the Company and ABL IP Holding and rank equally in right of payment with their other senior unsecured indebtedness. The Notes bear interest at a rate of 6% per annum and were issued at a price equal to 99.797% of their face value and for a term of 10 years. Interest on the Notes will be payable semi-annually on June 15 and December 15, commencing on June 15, 2010. Additionally, the Company capitalized $2.9 of deferred issuance costs related to the Notes that are being amortized over the 10-year term of the Notes.
ABL and the guarantors to the Notes expect to file a registration statement with the SEC for an offer to exchange the Notes for SEC-registered notes with substantially identical terms. If the exchange offer is not completed on or before December 8, 2010, the annual interest rate borne by the Notes will increase by 0.50% per annum until the exchange offer is completed or the shelf registration statement is declared effective.
In December 2009, Acuity Brands, Inc. commenced a cash tender offer to purchase the 2010 Notes at a priced premium of $1,050.91 per $1,000.00 (whole dollars). The aggregate principal amount of $175.7, representing approximately 87.9% of the outstanding 2010 Notes, was validly tendered. The total consideration plus the applicable accrued and unpaid interest was paid to the tendering holders on the settlement date of December 10, 2009. The loss on the transaction, including the premium paid, expenses, and the write-off of the remaining deferred issuance costs associated with the notes, was approximately $9.6. On February 23, 2010, the Company redeemed the remaining $24.3 of the 2010 Notes outstanding for consideration of $25.1 plus accrued interest. The loss, including the premium paid and expenses, on the transaction was approximately $0.9.
On April 20, 2009, ABL issued a three-year unsecured promissory note at a 6% interest rate in the amount of $30.0 to the former sole shareholder of Sensor Switch, who continued as an employee of the Company upon completion of the acquisition, as partial consideration for the acquisition of Sensor Switch during the third quarter of fiscal 2009. In accordance with certain rights to accelerate the repayment of the promissory note, ABL paid the outstanding principal balance of $25.3 in January 2010. No penalty or loss was incurred by the Company due to the prepayment of the promissory note.
The Company has outstanding $4.0 in a tax-exempt industrial revenue bond that is scheduled to mature in 2021.
Further discussion of the Companys debt is included within Note 5 of the Notes to Consolidated Financial Statements within the Companys Form 10-K.
12
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
Interest Expense
Interest expense, net, is comprised primarily of interest expense on long-term debt, obligations in connection with non-qualified retirement plans, and Revolving Credit Facility borrowings, partially offset by interest income on cash and cash equivalents.
The following table summarizes the components of interest expense, net:
Three Months Ended
February 28, |
Six Months Ended
February 28, |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Interest expense |
$ | 8.2 | $ | 7.7 | $ | 14.9 | $ | 16.4 | ||||||||
Interest income |
(0.1 | ) | (0.2 | ) | (0.1 | ) | (0.9 | ) | ||||||||
Interest expense, net |
$ | 8.1 | $ | 7.5 | $ | 14.8 | $ | 15.5 | ||||||||
10. Commitments and Contingencies
Self-Insurance
It is the policy of the Company to self-insure up to certain limits traditional risks, including workers compensation, comprehensive general liability, and auto liability. The Companys self-insured retention for each claim involving workers compensation, comprehensive general liability (including product liability claims), and auto liability is limited to $0.5 per occurrence of such claims. A provision for claims under this self-insured program, based on the Companys estimate of the aggregate liability for claims incurred, is revised and recorded annually. The estimate is derived from both internal and external sources, including but not limited to the Companys independent actuary. The Company is also self-insured up to certain limits for certain other insurable risks, primarily physical loss to property ($0.5 per occurrence) and business interruptions resulting from such loss lasting three days or more in duration. Insurance coverage is maintained for catastrophic property and casualty exposures, as well as those risks required to be insured by law or contract. The Company is fully self-insured for certain other types of liabilities, including environmental, product recall, and patent infringement. The actuarial estimates are subject to uncertainty from various sources, including, among others, changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although the Company believes that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Companys self-insurance obligations, future expense, and cash flow. The Company is also self-insured for the majority of its medical benefit plans. The Company estimates its aggregate liability for claims incurred by applying a lag factor to the Companys historical claims and administrative cost experience. The appropriateness of the Companys lag factor is evaluated and revised annually, as necessary.
Litigation
The Company is subject to various legal claims arising in the normal course of business, including patent infringement and product recall claims. Based on information currently available, it is the opinion of management that the ultimate resolution of pending and threatened legal proceedings will not have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. However, in the event of unexpected future developments, it is possible that the ultimate resolution of any such matters, if unfavorable, could have a material adverse effect on the financial condition, results of operations, or cash flows of the Company in future periods. The Company establishes reserves for legal claims when associated costs become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher than the amounts reserved for such claims. However, the Company cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the amounts reserved.
Environmental Matters
The operations of the Company are subject to numerous comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances, as well as solid and hazardous wastes, and to the remediation of contaminated sites. In addition, permits and environmental controls are required for certain of the Companys operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, the Company invests capital and incurs operating costs relating to environmental compliance. Environmental laws and regulations have generally become stricter in recent years. The cost of responding to future changes may be substantial. The Company establishes reserves for known environmental claims when the associated costs become probable and can be reasonably estimated. The actual cost of environmental issues may be substantially higher or lower than that reserved due to difficulty in estimating such costs.
13
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
Guarantees and Indemnities
The Company is a party to contracts entered into in the normal course of business in which it is common for the Company to agree to indemnify third parties for certain liabilities that may arise out of or relate to the subject matter of the contract. In most cases, the Company cannot estimate the potential amount of future payments under these indemnities until events arise that would result in a liability under the indemnities.
In conjunction with the separation of their businesses (the Distribution), Acuity Brands and Zep entered into various agreements that addressed the allocation of assets and liabilities and defined the Companys relationship with Zep after the Distribution, including a distribution agreement and a tax disaffiliation agreement. The distribution agreement provides that Acuity Brands will indemnify Zep for liabilities related to the businesses that comprise Acuity Brands. The tax disaffiliation agreement provides that Acuity Brands will indemnify Zep for certain taxes and liabilities that may arise related to the Distribution and, generally, for deficiencies, if any, with respect to federal, state, local, or foreign taxes of Zep for periods before the Distribution. Liabilities determined under the tax disaffiliation agreement terminate upon the expiration of the applicable statutes of limitation for such liabilities. There is no stated maximum potential liability included in the tax disaffiliation agreement or the distribution agreement. The Company does not believe that any amounts it is likely to be required to pay under these indemnities will be material to the Companys results of operations, financial position, or liquidity. The Company cannot estimate the potential amount of future payments under these indemnities because claims that would result in a liability under the indemnities are not fully known.
Product Warranty and Recall Costs
The Company records an allowance for the estimated amount of future warranty claims when the related revenue is recognized, primarily based on historical experience of identified warranty claims. However, there can be no assurance that future warranty costs will not exceed historical experience. If actual future warranty costs exceed historical amounts, additional allowances may be required, which could have a material adverse impact on the Companys results of operations and cash flows in future periods.
The changes in product warranty and recall reserves (included in Other accrued liabilities on the Consolidated Balance Sheets) during the six months ended February 28, 2010 are summarized as follows:
Balance at September 1, 2009 |
$ | 3.4 | ||
Adjustments to the warranty and recall reserve |
1.3 | |||
Payments made during the period |
(0.7 | ) | ||
Balance at February 28, 2010 |
$ | 4.0 | ||
11. Share-Based Payments
The Company accounts for share-based payments as prescribed by U.S. GAAP, which requires the measurement and recognition of compensation expense for share-based payment awards made to employees and directors of the Company, including stock options and restricted shares (all part of the Long-Term Incentive Plan), and share units representing certain deferrals into the Director Deferred Compensation Plan or the Supplemental Deferred Savings Plan. Each of these award programs are more fully discussed within the Companys Form 10-K. The Company recorded $3.5 of share-based expense for each of the three months ended February 28, 2010 and 2009 and $5.7 and $6.9 for the six months ended February 28, 2010 and 2009, respectively, excluding the acceleration of certain share-based expense as a result of employee terminations recorded as part of the special charges (See Special Charges footnote). The total income tax benefit recognized in the income statement for share-based compensation arrangements was $0.2 and $0.4 for the three months ended February 28, 2010 and 2009, respectively, and $0.3 and $0.6 for the six months ended February 28, 2010 and 2009, respectively.
12. Pension Plans
The Company has several pension plans, both qualified and non-qualified, covering certain hourly and salaried employees. Benefits paid under these plans are based generally on employees years of service and/or compensation during the final years of employment. The Company makes annual contributions to the plans to the extent indicated by actuarial valuations and statutory requirements. The Company expects to contribute approximately $3.1 and $1.1 to its domestic and international defined benefit plans, respectively, during fiscal 2010. Plan assets are invested primarily in equity and fixed income securities.
14
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
Net periodic pension cost for the Companys defined benefit pension plans during the three and six months ended February 28, 2010 and 2009 included the following components:
Three Months Ended
February 28, |
Six Months Ended
February 28, |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost |
$ | 0.8 | $ | 0.6 | $ | 1.6 | $ | 1.3 | ||||||||
Interest cost |
2.1 | 2.2 | 4.3 | 4.3 | ||||||||||||
Expected return on plan assets |
(1.8 | ) | (2.3 | ) | (3.7 | ) | (4.7 | ) | ||||||||
Amortization of prior service cost |
| | | | ||||||||||||
Recognized actuarial loss |
0.9 | 0.4 | 1.7 | 0.9 | ||||||||||||
Net periodic pension cost |
$ | 2.0 | $ | 0.9 | $ | 3.9 | $ | 1.8 | ||||||||
13. Special Charges
During fiscal 2008, the Company commenced actions to streamline and simplify the Companys organizational structure and operations as a result of the Spin-off of Zep. The charges consisted of severance and related employee benefit costs associated with the elimination of certain positions worldwide, consolidation of certain manufacturing facilities, the estimated costs associated with the early termination of certain leases, and share-based expense due to the modification of the terms of agreements to accelerate vesting for certain terminated employees. These actions, including those taken in fiscal 2009 as part of this program, are expected to allow the Company to better leverage efficiencies in its supply chain and support areas, while funding continued investments in other areas that support future growth opportunities.
In February 2010, the Company announced plans to continue its ongoing programs to streamline operations, including the consolidation of certain manufacturing facilities and the reduction of certain overhead costs. These actions are expected to allow the Company to better leverage efficiencies in its supply chain and support areas, while funding continued investments in other areas that support future growth opportunities. During the second quarter of fiscal 2010, the Company recorded a pre-tax charge of $5.4, or $0.08 after-tax per diluted share. The total pre-tax charge consists primarily of $1.7 for estimated severances and employee benefits related to the planned consolidation of certain manufacturing operations and a reduction in workforce and $3.7 for asset impairments related to the closing of a manufacturing facility. Approximately $46.7 of cumulative special charges related to these activities has been incurred through February 28, 2010.
The changes in the reserves related to the program during the six months ended February 28, 2010 are included in Accrued Compensation on the Consolidated Balance Sheets and are summarized as follows:
Severance | Exit Costs | |||||||
Balance as of September 1, 2009 |
$ | 11.0 | $ | 0.9 | ||||
Special charge |
1.8 | 0.3 | ||||||
Payments made during the period |
(3.7 | ) | (0.2 | ) | ||||
Balance as of February 28, 2010 |
$ | 9.1 | $ | 1.0 | ||||
14. Fair Value Measurements
The Company determines a fair value measurement based on the assumptions a market participant would use in pricing an asset or liability. This guidance established a three level hierarchy making a distinction between market participant assumptions based on (i) unadjusted quoted prices for identical assets or liabilities in an active market (Level 1), (ii) quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (Level 2), and (iii) prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (Level 3).
15
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
The following table presents information about assets and liabilities required to be carried at fair value on a recurring basis as of February 28, 2010 and August 31, 2009:
Fair Value Measurements
as of February 28, 2010: |
||||||
Level 1 | Total Fair Value | |||||
Assets: |
||||||
Cash and cash equivalents |
$ | 155.8 | $ | 155.8 | ||
Long-term investments (1) |
3.1 | 3.1 | ||||
Liabilities: |
||||||
Deferred compensation plan (2) |
$ | 3.1 | $ | 3.1 | ||
Fair Value Measurements
as of August 31, 2009: |
||||||
Level 1 | Total Fair Value | |||||
Assets: |
||||||
Cash and cash equivalents |
$ | 18.7 | $ | 18.7 | ||
Long-term investments (1) |
4.7 | 4.7 | ||||
Liabilities: |
||||||
Deferred compensation plan (2) |
$ | 4.7 | $ | 4.7 |
(1) | The Company maintains certain investments that generate returns that offset changes in certain liabilities related to deferred compensation arrangements. |
(2) | The Company maintains a self-directed, non-qualified deferred compensation plan structured as a rabbi trust primarily for certain retired executives and other highly compensated employees. |
The Company utilizes valuation methodologies to determine the fair values of its financial assets and liabilities in conformity with the concepts of exit price and the fair value hierarchy as prescribed in ASC 820, Fair Value Measurements and Disclosures . All valuation methods and assumptions are validated at least quarterly to ensure the accuracy and relevance of the fair values. There were no material changes to the valuation methods or assumptions used to determine fair values during the current period.
The Company used the following valuation methods and assumptions in estimating the fair value of the following assets and liabilities:
Cash and cash equivalents are classified as Level 1 assets. The carrying amounts for cash reflect the assets fair values, and the fair values for cash equivalents are determined based on quoted market prices.
Long-term investments are classified as Level 1 assets. These investments consist primarily of publicly traded marketable equity securities and fixed income securities, and the fair values are obtained through market observable pricing.
Deferred compensation plan liabilities are classified as Level 1 within the hierarchy. The fair values of the liabilities are directly related to the valuation of the long-term investments held in trust for the plan. Hence, the carrying value of the deferred compensation liability represents the fair value of the investment assets.
The Company does not possess any assets or liabilities that are carried at fair value on a recurring basis classified as Level 3 assets or liabilities.
Disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value are required each reporting period in addition to any financial instruments carried at fair value on a recurring basis as prescribed by ASC 825, Financial Instruments . 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.
16
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)
The carrying values and estimated fair values of certain of the Companys financial instruments were as follows at February 28, 2010 and August 31, 2009.
February 28, 2010 | August 31, 2009 | |||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||
Assets: |
||||||||||||
Investments in nonconsolidating affiliates |
$ | 9.1 | $ | 9.1 | $ | 9.1 | $ | 9.1 | ||||
Liabilities: |
||||||||||||
Senior unsecured notes |
$ | 349.3 | $ | 352.3 | $ | | $ | | ||||
Public notes at 8.375% interest |
| | 200.0 | 207.8 | ||||||||
Promissory note |
| | 27.5 | 28.0 | ||||||||
Industrial revenue bond |
4.0 | 4.0 | 4.0 | 4.0 |
Investments in nonconsolidating affiliates represents a strategic investment of less than a 20% ownership interest in a privately-held affiliate, and the Company does not maintain power over or control of the entity. The Company accounts for this investment using the cost method. Therefore, the historical cost of the acquired shares represents the carrying value of the investment, and, due to several factors, it is impracticable to determine precisely the fair value of the investment, although the Company estimates the carrying value approximates fair value at February 28, 2010.
Notes are carried at the outstanding balance, including bond discounts, as of the end of the reporting period. Fair value is estimated based on the discounted future cash flows using rates currently available for debt of similar terms and maturity.
The tax-exempt industrial revenue bond is carried at the outstanding balance as of the end of the reporting period, and the Company estimates that the carrying value approximates fair value as of February 28, 2010.
The guidance 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 of the Company. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In evaluating the Companys management of liquidity and other risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.
Nonrecurring Fair Value Measurements
As part of the streamlining actions taken during the second quarter of fiscal 2010, the Company recorded $3.7 in asset impairments related to the closure of a manufacturing facility and the abandonment of plant equipment. The Companys restructuring plans triggered impairment indicators, which required the testing of the recoverability of the building and equipment as per ASC Topic 360, Property, Plant, and Equipment (ASC 360). The fair value of the assets were estimated based primarily on undiscounted cash flows due to the short useful lives of the assets (e.g., less than one year) and the Companys intentions for future use.
As of February 28, 2010, the manufacturing facility possessed a total carrying value of $3.4 prior to the announced plan to close. Through cash flow analysis and local commercial real estate market analysis, including the existence of a market for the facility, or lack thereof, the Company determined that the fair value of the property approximated zero. Thus, an impairment charge for the entire carrying value of the facility was incurred. Due to the methodology and inputs (i.e., undiscounted future cash flows, broker quotes, and probability analysis) employed to determine the fair value of the property, the manufacturing facility was concluded to be Level 3 assets within the hierarchy.
The plant equipment had a carrying value of $0.3 as of February 28, 2010. Based on the lack of future use of the equipment and intended disposal, the assets were determined to be impaired and written during the second quarter of fiscal 2010 for the full net book value. Since managements intent and use for the asset changed and no observable market data or inputs were utilized to determine the fair value of the equipment, the equipment was determined to be a Level 3 asset within the hierarchy.
17
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
($ in millions, except per-share data and as indicated)
The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes. References made to years are for fiscal year periods.
The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands, Inc. (Acuity Brands), and its subsidiaries as of February 28, 2010 and for the three and six-month periods ended February 28, 2010 and 2009. For a more complete understanding of this discussion, please read the Notes to Consolidated Financial Statements included in this report. Also, please refer to the Companys 2009 Annual Report on Form 10-K for the fiscal year ended August 31, 2009, filed with the Securities and Exchange Commission (the SEC) on October 30, 2009 (Form 10-K) for additional information regarding the Company.
Overview
Company
Acuity Brands is the parent company of Acuity Brands Lighting, Inc., (ABL) and other subsidiaries (collectively referred to herein as the Company). The Company, with its principal office in Atlanta, Georgia, employs approximately 6,000 people worldwide.
The Company designs, produces, and distributes a broad array of indoor and outdoor lighting fixtures and related products, including lighting controls, and services for commercial and institutional, industrial, infrastructure, and residential applications for various markets throughout North America and select international markets. The Company is one of the worlds leading producers and distributors of lighting fixtures, with a broad, highly configurable product offering, consisting of roughly 500,000 active products as part of over 2,000 product groups that are sold to approximately 5,000 customers. The Company operates 22 factories and distribution facilities along with one warehouse to serve its extensive customer base.
On April 20, 2009, the Company acquired 100% of the outstanding capital stock of Sensor Switch, Inc. (Sensor Switch), an industry-leading developer and manufacturer of lighting controls and energy management systems. Sensor Switch, based in Wallingford, Connecticut, offers a wide-breadth of products and solutions that substantially reduce energy consumption, including occupancy sensors, photocontrols, and distributed lighting control devices. The operating results of Sensor Switch have been included in the Companys consolidated financial statements since the date of acquisition.
On December 31, 2008, the Company acquired for cash and stock substantially all the assets and assumed certain liabilities of Lighting Controls & Design (LC&D). Located in Glendale, California, LC&D is a manufacturer of comprehensive digital lighting controls and software that offers a breadth of products, ranging from dimming and building interfaces to digital thermostats, all within a single, scalable system. The operating results of LC&D have been included in the Companys consolidated financial statements since the date of acquisition.
Acuity Brands completed the spin-off of its specialty products business (the Spin-off), Zep Inc. (Zep), on October 31, 2007, by distributing all of the shares of Zep common stock, par value $0.01 per share, to Acuity Brands stockholders of record as of October 17, 2007. Acuity Brands stockholders received one Zep share, together with an associated preferred stock purchase right, for every two shares of the Companys common stock they owned. Stockholders received cash in lieu of fractional shares for amounts less than one full Zep share.
As a result of the Spin-off, Acuity Brands financial statements have been prepared with the results of operations and cash flows of the specialty products business presented as discontinued operations. All historical statements have been restated to conform to this presentation.
Liquidity and Capital Resources
Primary sources of liquidity for Acuity Brands are operating cash flows generated primarily from its business operations and various sources of borrowings. The ability of Acuity Brands to generate sufficient cash flow from operations and access certain capital markets, including banks, is necessary to fund its operations, to pay dividends, to meet its obligations as they become due, and to maintain compliance with covenants contained in its financing agreements.
In December 2009, the Company strengthened its liquidity position and extended its debt maturity profile following the issuance of $350.0 senior unsecured notes due in fiscal 2020 as more fully described below under the Capitalization section.
Based on its cash on hand, availability under existing financing arrangements, and current projections of cash flow from operations, Acuity Brands believes that it will be able to meet its liquidity needs over the next 12 months. These needs are expected to include funding its operations as currently planned, making anticipated capital investments, funding potential acquisitions, funding foreseen improvement initiatives, paying quarterly stockholder dividends as currently anticipated, paying interest on borrowings as currently scheduled, and making required contributions into its employee benefit plans, as well as potentially repurchasing shares of its outstanding common stock as authorized by the Board of Directors. Since October 2005, the Companys Board of Directors has
18
authorized the repurchase of 10 million shares of the Companys outstanding common stock, of which approximately 9.5 million shares had been repurchased at February 28, 2010. The Company currently expects to invest during fiscal 2010 approximately $25.0 primarily for new plant, equipment, tooling, and new and enhanced information technology capabilities, of which $9.5 was invested in the first six months of fiscal 2010. In addition, the Company expects to contribute approximately $3.1 and $1.1 to its domestic and international defined benefit plans, respectively, during fiscal 2010.
Cash Flow
Acuity Brands uses available cash and cash flow from operations, as well as proceeds from the exercise of stock options to fund operations and capital expenditures, to repurchase stock, to fund acquisitions, and to pay dividends. During the six months ended February 28, 2010, the Company received $2.9 in cash primarily from the exercise of stock options, as well as other employee stock plans. These receipts were more than offset by returns to stockholders during the first six months through the payment of $11.3 in dividends. Acuity Brands available cash position at February 28, 2010 was $155.8, an increase of $137.1 from August 31, 2009.
The Company generated $47.4 of net cash from operating activities during the first six months of fiscal 2010 compared with $3.9 of cash used in the prior-year period, an increase of $51.3. This increase was due primarily to a lower reduction of other current liabilities and the cash flow impact of a smaller increase in operating working capital (calculated by adding accounts receivable, net, plus inventories, and subtracting accounts payable) in the first six months of fiscal 2010 compared with the prior year period, partially offset by higher prepayments and other current assets. The period over period cash flow improvement due to other current liabilities was primarily attributable to higher incentive compensation and severance payments during the first six months of fiscal 2009 as compared with fiscal 2010. Operating working capital increased by approximately $9.1 to $215.0 at February 28, 2010 from $205.9 at August 31, 2009, due primarily to increased finished goods inventory added largely to improve service levels and seasonal fluctuations. Prepayments and other current assets increased as compared to the prior-year period due to payments attributable to certain executive benefit plans and higher current taxes receivable. Management believes that investing in assets and programs that, over time, will increase the overall return on its invested capital is a key factor in driving stockholder value. The Company invested $9.5 and $11.7 in the first six months of fiscal 2010 and 2009, respectively, primarily for new tooling, machinery, equipment, and information technology. As noted above, the Company expects to invest during fiscal 2010 approximately $25.0 for new plant, equipment, tooling, and new and enhanced information technology capabilities.
Capitalization
The current capital structure of Acuity Brands is comprised principally of senior notes and equity of its stockholders. As of February 28, 2010, total debt outstanding increased $121.8 to $353.3 compared with $231.5 at August 31, 2009, due primarily to the issuance of debt further explained below, partially offset by the redemption of $200.0 of publicly traded notes that were scheduled to mature in August 2010 (the 2010 Notes) and the repayment of principal on a three-year 6% unsecured promissory note issued to the former sole shareholder of Sensor Switch.
On December 8, 2009, ABL issued $350.0 senior unsecured notes due in fiscal 2020 (the Notes) in a private placement transaction. The Notes bear interest at a rate of 6% per annum and were issued at a price equal to 99.797% of their face value and for a term of 10 years. A portion of the net proceeds from the issuance of the Notes were used to retire the 2010 Notes. Additionally, management retired, without premium or penalty, the remaining $25.3 outstanding balance on the promissory note issued to the former sole shareholder of Sensor Switch.
The Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands and ABL IP Holding LLC (ABL IP Holding), a wholly-owned subsidiary of the Company. The Notes are senior unsecured obligations of ABL and rank equally in right of payment with all of ABLs existing and future senior unsecured indebtedness. The guarantees of Acuity Brands and ABL IP Holding are senior unsecured obligations of Acuity Brands and ABL IP Holding and rank equally in right of payment with their other senior unsecured indebtedness. Interest on the Notes are payable semi-annually on June 15 and December 15, commencing on June 15, 2010.
As noted above, the Company retired $175.7, or 87.9%, of the 2010 Notes through the execution of a tender offer paying a purchase price of $1,050.91 per $1,000.00 (whole dollars) in December 2009. The loss on the transaction, including the premium paid, expenses, and the write-off of deferred issuance costs associated with the notes, was approximately $9.6. In addition, the Company later redeemed during the second quarter of fiscal 2010 the remaining $24.3 of the publicly traded notes outstanding for consideration of $25.1 plus accrued interest. The loss, including the premium paid and expenses, on the redemption was approximately $0.9.
ABL and the guarantors to the Notes expect to file a registration statement with the SEC for an offer to exchange the Notes for SEC-registered notes with substantially identical terms. If the exchange offer is not completed on or before December 8, 2010, the annual interest rate borne by the Notes will increase by 0.50% per annum until the exchange offer is completed or the shelf registration statement is declared effective.
As a result of the second quarter financing activities, which included the issuance of the Notes, the retirement of the 2010 Notes, and the prepayment of the unsecured promissory note, the Company increased both its liquidity and debt positions, greatly extended its
19
debt maturity profile, and lowered its average interest rate on outstanding debt. The Company expects to subsequently incur increased interest expense for the foreseeable reporting periods based on the higher outstanding debt balance as compared with prior periods, partially offset by the lower interest rate on the Notes as compared with the 2010 Notes. The Company also capitalized an estimated $2.9 of deferred issuance costs related to the Notes that are being amortized over the 10-year term of the Notes.
On October 19, 2007, the Company executed a $250.0 revolving credit facility (the Revolving Credit Facility). The Revolving Credit Facility matures in October 2012 and contains financial covenants including a minimum interest coverage ratio and a leverage ratio (Maximum Leverage Ratio) of total indebtedness to EBITDA (earnings before interest, taxes, depreciation, and amortization expense), as such terms are defined in the Revolving Credit Facility agreement. These ratios are computed at the end of each fiscal quarter for the most recent 12-month period. The Revolving Credit Facility allows for a Maximum Leverage Ratio of 3.50, subject to certain conditions defined in the financing agreement. As of February 28, 2010, the Company was compliant with all financial covenants under the Revolving Credit Facility. At February 28, 2010, the Company had additional borrowing capacity under the Revolving Credit Facility of $242.7 under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $7.3. See the Debt footnote of the Notes to Consolidated Financial Statements.
During the first six months of fiscal 2010, the Companys consolidated stockholders equity increased $26.7 to $698.9 at February 28, 2010 from $672.2 at August 31, 2009. The increase was due primarily to net income earned in the period, as well as amortization of stock-based compensation, foreign currency translation adjustments, and stock issuances resulting primarily from the exercise of stock options, partially offset by the payment of dividends. The Companys debt to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders equity) was 33.6% and 25.6% at February 28, 2010 and August 31, 2009, respectively. The second quarter financing activities, which include the issuance of the $350.0 Notes and the early retirement of the $200.0 notes due in August 2010, increased the debt to total capitalization ratio. The ratio of debt, net of cash, to total capitalization, net of cash, was 22.0% at February 28, 2010 and 24.1% at August 31, 2009.
Dividends
The Company paid cash dividends on common stock of $11.3 ($0.26 per share) during the first six months of fiscal 2010 compared with $10.6 ($0.26 per share) during the first six months of fiscal 2009. The Company currently plans to continue to pay quarterly dividends at a rate of $0.13 per share; however, each quarterly dividend must be approved by the Board of Directors, and the actual amount to be paid, if any, is subject to change.
20
Results of Operations
Second Quarter of Fiscal 2010 Compared with Second Quarter of Fiscal 2009
The following table sets forth information comparing the components of net income for the three months ended February 28, 2010 and 2009:
Three Months Ended
February 28, |
Increase
(Decrease) |
Percent
Change |
|||||||||||||
2010 | 2009 | ||||||||||||||
Net Sales |
$ | 383.5 | $ | 386.1 | $ | (2.6 | ) | (0.7 | )% | ||||||
Cost of Products Sold |
231.2 | 244.7 | (13.5 | ) | (5.5 | )% | |||||||||
Gross Profit |
152.3 | 141.4 | 10.9 |
7.7
|
% |
||||||||||
Percent of net sales |
39.7 | % | 36.6 | % | 310 | bps | |||||||||
Selling, Distribution, and Administrative Expenses |
119.1 | 108.2 | 10.9 | 10.1 | % | ||||||||||
Special Charge |
5.4 | 4.6 | 0.8 | 17.4 | % | ||||||||||
Operating Profit |
27.8 | 28.6 | (0.8 | ) | (2.8 | )% | |||||||||
Percent of net sales |
7.3 | % | 7.4 | % | (10 | ) bps | |||||||||
Other Expense (Income) |
|||||||||||||||
Interest Expense, net |
8.1 | 7.5 | 0.6 | 8.0 | % | ||||||||||
Loss on Early Debt Extinguishment |
10.5 | | 10.5 | 100.0 | % | ||||||||||
Miscellaneous Income |
(0.6 | ) | (0.1 | ) | (0.5 | ) | 500.0 | % | |||||||
Total Other Expense (Income) |
18.0 | 7.4 | 10.6 | 143.2 | % | ||||||||||
Income from Continuing Operations before Provision for Income Taxes |
9.8 | 21.2 | (11.4 | ) | (53.8 | )% | |||||||||
Percent of net sales |
2.6 | % | 5.5 | % | (290 | ) bps | |||||||||
Provision for Taxes |
2.6 | 6.8 | (4.2 | ) | (61.8 | )% | |||||||||
Effective tax rate |
26.5 | % | 32.1 | % | |||||||||||
Income from Continuing Operations |
7.2 | 14.4 | (7.2 | ) | (50.0 | )% | |||||||||
Income from Discontinued Operations |
0.6 | | 0.6 | 100.0 | % | ||||||||||
Net Income |
$ | 7.8 | $ | 14.4 | $ | (6.6 | ) | (45.8 | )% | ||||||
Diluted Earnings per Share from Continuing Operations |
$ | 0.16 | $ | 0.34 | $ | (0.18 | ) | (52.9 | )% | ||||||
Diluted Earnings per Share from Discontinued Operations |
$ | 0.01 | $ | | $ | 0.01 | 100.0 | % | |||||||
Net sales were $383.5 for the three months ended February 28, 2010 compared with $386.1 reported in the prior-year period, a decrease of $2.6, or 0.7%. For the three months ended February 28, 2010, the Company reported income from continuing operations of $7.2 compared with $14.4 for the three months ended February 28, 2009. For the three months ended February 28, 2010 and 2009, the Company recorded $3.5 and $2.9, respectively, in after-tax special charges for estimated costs to be incurred to simplify and streamline operations and consolidate certain manufacturing facilities. The fiscal 2010 special charge included an after-tax non-cash asset impairment charge of $2.4. Diluted earnings per share from continuing operations decreased 52.9% to $0.16, which included a $0.24 reduction to diluted earnings per share related to the special charge and the loss on the early extinguishment of debt, for the second quarter of fiscal 2010 as compared with $0.34 for the second quarter of fiscal 2009, which included a $0.07 reduction to diluted earnings per share related to the special charge.
The table below reconciles certain U.S. generally accepted accounting principles (U.S. GAAP) financial measures to the corresponding non-U.S. GAAP measures, which exclude special charges associated with actions to streamline the organization, including the consolidation of certain manufacturing facilities, and the loss on the early extinguishment of debt. These non-U.S. GAAP financial measures, including adjusted operating profit, adjusted operating profit margin, adjusted income from continuing operations, and adjusted diluted earnings per share from continuing operations, are provided to enhance the users overall understanding of the Companys current financial performance. Specifically, the Company believes these non-U.S. GAAP measures provide greater comparability and enhanced visibility into the results of operations, excluding the impact of the special charges and loss on the early extinguishment of
21
debt. These 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.
Three Months Ended
February 28, |
||||||||
2010 | 2009 | |||||||
Operating Profit |
$ | 27.8 | $ | 28.6 | ||||
Addback: Special Charge |
5.4 | 4.6 | ||||||
Adjusted Operating Profit |
$ | 33.2 | $ | 33.2 | ||||
Percent of net sales |
8.7 | % | 8.6 | % | ||||
Income from Continuing Operations |
$ | 7.2 | $ | 14.4 | ||||
Addback: Special Charge, net of tax |
3.5 | 2.9 | ||||||
Addback: Loss on Early Debt Extinguishment, net of tax |
6.8 | | ||||||
Adjusted Income from Continuing Operations |
$ | 17.5 | $ | 17.3 | ||||
Diluted Earnings per Share from Continuing Operations |
$ | 0.16 | $ | 0.34 | ||||
Addback: Special Charge, net of tax |
0.08 | 0.07 | ||||||
Addback: Loss on Early Debt Extinguishment, net of tax |
0.16 | | ||||||
Adjusted Diluted Earnings per Share from Continuing Operations |
$ | 0.40 | $ | 0.41 | ||||
Net Sales
The Companys key markets continue to be negatively impacted by the decline in new construction spending due primarily to lower economic activity and tight lending standards for real estate. Net sales declined 0.7% for the three months ended February 28, 2010 compared with the prior-year period. Incremental sales from acquisitions contributed approximately 3.5 percentage points to fiscal 2010 second quarter net sales. Additionally, the translation impact of the stronger dollar on international sales contributed approximately one percentage point to current quarter net sales. Excluding the impact from acquisitions and foreign currency, net sales were down approximately five percent compared with the prior year period which the Company estimates was due primarily to unfavorable changes in product prices and the mix of product sold. Although it is not possible to precisely quantify the separate impact of price and product mix changes, the Company estimates that more than half of the decline was due to lower product selling prices in certain channels and geographies. Baseline sales volumes of lighting fixtures decreased approximately 1% in the current period compared with the same period last year.
Gross Profit
Gross profit increased $10.9, or 7.7%, to $152.3 for the three months ended February 28, 2010 compared with $141.4 for the prior-year period. Gross profit margin increased 310 basis points to 39.7% of net sales for the three months ended February 28, 2010 from 36.6% reported for the prior-year period. The year-over-year increase in gross profit margin was due primarily to lower material and component costs, and to a lesser degree, savings from streamlining efforts, contributions from recent acquisitions, and benefits from productivity improvements. These benefits were partially offset by unfavorable changes in product prices, the mix of products sold, and higher pension costs. The prior-years second quarter gross profit margins were negatively impacted by the rapid rise of material and component costs for which the Company was unable to recover in higher selling prices because of the subsequent rapid decline in such costs combined with lower market demand for lighting products.
Operating Profit
Selling, distribution, and administrative expenses (SD&A expenses) were $119.1 for the three months ended February 28, 2010 compared with $108.2 in the prior-year period, which represented an increase of $10.9, or 10.1%. SD&A expenses as a percent of net sales were 31.1% for the second quarter of fiscal 2010 compared with 28.0% for the same period in fiscal 2009. More than half of the period-over-period increase was due to higher incentive compensation and commission costs; prior-year expense for these items was at reduced levels reflecting the significant decline in the market. The remainder of the increase in SD&A expenses was due primarily to structurally higher operating costs associated with acquired businesses, as well as selected investments in sales and marketing resources and new products and services, partially offset by lower SD&A expenses due to streamlining actions taken in the prior year.
As part of the Companys ongoing initiatives to streamline and simplify operations, the Company recorded a pre-tax charge of $5.4 during the second quarter of fiscal 2010 and a $4.6 pre-tax charge in the prior-year period. The charges in both fiscal years reflect
22
severance and related employee benefit costs associated with the consolidation of certain manufacturing facilities and a reduction in workforce. The fiscal 2010 second quarter special charge includes a $3.7 non-cash asset impairment charge associated with a facility that the Company plans to close. During the second quarter of fiscal 2010, the Company realized total savings of over $12.0 from these streamlining efforts compared with approximately $6.0 of savings realized in the year-ago period. See the Outlook section for total expected savings from these actions.
Operating profit was $27.8 for the three months ended February 28, 2010 compared with $28.6 reported for the prior-year period, a decrease of $0.8, or 2.8%. Operating profit margin decreased by 10 basis points to 7.3% from 7.4% in the prior-year period. The decrease in operating profit margin in the second quarter of fiscal 2010 compared with the prior-year period was due to the increases in SD&A expenses and the special charge, partially offset by the higher gross margin explained above.
Excluding the special charges in both periods, adjusted operating profit for the second quarter of fiscal 2010 and 2009 was $33.2. Fiscal 2010 second quarter adjusted operating profit margin of 8.7% was 10 basis points higher than the prior-years adjusted margin of 8.6%.
Other Expense (Income)
Other expense (income) for the Company consists primarily of interest expense and foreign exchange related gains and losses. Interest expense, net, for the three months ended February 28, 2010 and 2009 was $8.1 and $7.5, respectively. Interest expense, net, increased 8.0% for the second quarter of fiscal 2010 compared with the second quarter of fiscal 2009 due primarily to higher average outstanding debt balances, partially offset by a lower average effective borrowing rate. In the second quarter of fiscal 2010, miscellaneous income of $0.6 represented primarily the impact of changes in exchange rates on foreign currency items.
Due to the early retirement of the 2010 Notes, the Company recognized a pre-tax loss of $10.5 during the second quarter of fiscal 2010.
Provision for Income Taxes and Income from Continuing Operations
The effective income tax rate reported by the Company was 26.5% and 32.1% for the three months ended February 28, 2010 and 2009, respectively. The effective income tax rate for the second quarter of fiscal 2010 was positively affected by various discrete items, including federal tax credits, favorable state audit settlements, and benefits from increased export of goods manufactured in the U.S. The Company estimates that the effective tax rate for the year will be approximately 33% if the rates in its taxing jurisdictions remain generally consistent throughout the year.
Income from continuing operations for the second quarter of fiscal 2010 decreased by $7.2 to $7.2 (including $3.5 for the after-tax special charge) from $14.4 (including $2.9 for the after-tax special charge) reported for the prior-year period. The decrease in income from continuing operations resulted primarily from the above noted decline in operating profit and the loss on the early debt extinguishment, partially offset by lower tax expense.
Excluding the special charges in both periods and the loss on the early extinguishment of debt, adjusted income from continuing operations for the second quarter of fiscal 2010 was $17.5 compared with $17.3 in the year-ago period. Excluding the special charges and the loss on the early extinguishment of debt, adjusted diluted earnings per share from continuing operations for the second quarter of fiscal 2010 was $0.40 compared with $0.41 for the prior-year period.
Results from Discontinued Operations and Net Income
In the second quarter of fiscal 2010, the Company recorded a $0.6 gain from discontinued operations due to revisions of estimates of certain legal reserves established at the time of the Spin-off.
Net income for the second quarter of fiscal 2010 declined to $7.8 from $14.4 reported for the prior-year period. The decrease in net income resulted primarily from the above noted decline in income from continuing operations, partially offset by lower tax expense and the gain from discontinued operations.
23
Six Months of Fiscal 2010 Compared with Six Months of Fiscal 2009
The following table sets forth information comparing the components of net income for the six months ended February 28, 2010 and 2009:
Six Months Ended
February 28, |
Increase
(Decrease) |
Percent
Change |
|||||||||||||
2010 | 2009 | ||||||||||||||
Net Sales |
$ | 775.2 | $ | 838.2 | $ | (63.0 | ) | (7.5 | )% | ||||||
Cost of Products Sold |
461.6 | 522.0 | (60.4 | ) | (11.6 | )% | |||||||||
Gross Profit |
313.6 | 316.2 | (2.6 | ) | (0.8 | )% | |||||||||
Percent of net sales |
40.5 | % | 37.7 | % | 280 | bps | |||||||||
Selling, Distribution, and Administrative Expenses |
237.7 | 227.2 | 10.5 | 4.6 | % | ||||||||||
Special Charge |
5.4 | 26.6 | (21.2 | ) | (79.7 | )% | |||||||||
Operating Profit |
70.5 | 62.4 | 8.1 | 13.0 | % | ||||||||||
Percent of net sales |
9.1 | % | 7.4 | % | 170 | bps | |||||||||
Other Expense (Income) |
|||||||||||||||
Interest Expense, net |
14.8 | 15.5 | (0.7 | ) | (4.5 | )% | |||||||||
Loss on Early Debt Extinguishment |
10.5 | | 10.5 | 100.0 | % | ||||||||||
Miscellaneous Income |
(0.1 | ) | (4.1 | ) | 4.0 | (97.6 | )% | ||||||||
Total Other Expense (Income) |
25.2 | 11.4 | 13.8 | 121.1 | % | ||||||||||
Income from Continuing Operations before Provision for Income Taxes |
45.3 | 51.0 | (5.7 | ) | (11.2 | )% | |||||||||
Percent of net sales |
5.8 | % | 6.1 | % | (30 | )bps | |||||||||
Provision for Taxes |
14.8 | 17.2 | (2.4 | ) | (14.0 | )% | |||||||||
Effective tax rate |
32.7 | % | 33.7 | % | |||||||||||
Income from Continuing Operations |
30.5 | 33.8 | (3.3 | ) | (9.8 | )% | |||||||||
Income from Discontinued Operations |
0.6 | | 0.6 | 100.0 | % | ||||||||||
Net Income |
$ | 31.1 | $ | 33.8 | $ | (2.7 | ) | (8.0 | )% | ||||||
Diluted Earnings per Share from Continuing Operations |
$ | 0.69 | $ | 0.81 | $ | (0.12 | ) | (14.8 | )% | ||||||
Diluted Earnings per Share from Discontinued Operations |
$ | 0.01 | $ | | $ | 0.01 | 100.0 | % | |||||||
Net sales were $775.2 for the six months ended February 28, 2010 compared with $838.2 reported in the prior-year period, a decline of $63.0, or 7.5%. For the six months ended February 28, 2010, the Company reported income from continuing operations of $30.5 compared with $33.8 for the six months ended February 28, 2009. For the first six months of fiscal 2010, diluted earnings per share from continuing operations decreased 14.8% to $0.69, from $0.81 for the prior-year period. For the six months ended February 28, 2010 and 2009, the Company recorded $3.5 and $16.8, respectively, in after-tax special charges for estimated costs to be incurred to simplify and streamline operations and consolidate certain manufacturing facilities. Included in the results for the six months ended February 28, 2010 was a $6.8 after-tax loss associated with the early extinguishment of debt. The special charges and loss on early extinguishment of debt negatively impacted fiscal 2010 first half results by $0.24 per diluted share; special charges recorded in the prior year negatively impacted fiscal 2009 first half results by $0.40 per diluted share.
The table below reconciles certain U.S. GAAP financial measures to the corresponding non-U.S. GAAP measures, which exclude special charges associated with actions to accelerate the streamlining of the organization, including the consolidation of certain manufacturing facilities, and the loss on the early extinguishment of debt. These non-U.S. GAAP financial measures, including adjusted operating profit, adjusted operating profit margin, adjusted income from continuing operations, and adjusted diluted earnings per share, are provided to enhance the users overall understanding of the Companys current financial performance. Specifically, the Company believes these non-U.S. GAAP measures provide greater comparability and enhanced visibility into the results of operations, excluding the impact of the special charges and loss on the early extinguishment of debt. These 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.
24
Six Months Ended
February 28, |
||||||||
2010 | 2009 | |||||||
Operating Profit |
$ | 70.5 | $ | 62.4 | ||||
Addbacks: Special Charge |
5.4 | 26.6 | ||||||
Adjusted Operating Profit |
$ | 75.9 | $ | 89.0 | ||||
Percent of net sales |
9.8 | % | 10.6 | % | ||||
Income from Continuing Operations |
$ | 30.5 | $ | 33.8 | ||||
Addback: Special Charge, net of tax |
3.5 | 16.8 | ||||||
Addback: Loss on Early Debt Extinguishment, net of tax |
6.8 | | ||||||
Adjusted Income from Continuing Operations |
$ | 40.8 | $ | 50.6 | ||||
Diluted Earnings per Share from Continuing Operations |
$ | 0.69 | $ | 0.81 | ||||
Addback: Special Charge, net of tax |
0.08 | 0.40 | ||||||
Addback: Loss on Early Debt Extinguishment, net of tax |
0.16 | | ||||||
Adjusted Diluted Earnings per Share from Continuing Operations |
$ | 0.93 | $ | 1.21 | ||||
Net Sales
The 7.5% decline in net sales for the six months ended February 28, 2010 compared with the prior-year period was due primarily to lower volume of product shipments and unfavorable pricing and mix of products sold (price/mix). These factors were due primarily to the continued decline in the non-residential and residential construction markets. Although it is impossible to precisely quantify price from product mix, the Company estimates that over half of the unfavorable price/mix was attributable to pricing with the unfavorable change in product mix largely attributable to a higher percentage of sales of lower-priced retail products. Baseline sales volumes decreased by approximately 7% in the current period compared with the same period last year, which consisted of a decline in shipments of commercial and industrial products andto a lesser extentdeclines in shipments of products serving residential and certain international markets. In the first six months of fiscal 2010, the acquisitions of LC&D and Sensor Switch contributed incremental sales of approximately $29.0, which was essentially offset by the negative impact from unfavorable price/mix. Changes in foreign currency exchange rates favorably impacted fiscal 2010 first half net sales by approximately one percentage point compared with the prior-year period.
Gross Profit
Gross profit margin increased 280 basis points to 40.5% of net sales for the six months ended February 28, 2010 from 37.7% reported for the prior-year period. The increase in gross profit margin for the current period was due primarily to lower material and component costs, and to a lesser degree, savings from streamlining efforts, contributions from the recent acquisitions, and benefits from productivity improvements. These benefits were partially offset by unfavorable changes in product prices, the mix of products sold, and higher pension costs. The prior-years first half gross profit margins were negatively impacted by the rapid rise of material and component costs for which the Company was unable to recover in higher selling prices because of the subsequent rapid decline in such costs combined with lower market demand for lighting products. Gross profit decreased $2.6, or 0.8%, to $313.6 for the six months ended February 28, 2010 compared with $316.2 for the prior-year period. The decrease in gross profit was largely attributable to the decline in overall sales volume, lower selling prices, and change in the mix of products sold, partially offset by lower material and component costs.
Operating Profit
SD&A expenses were $237.7 for the six months ended February 28, 2010 compared with $227.2 in the prior-year period, which represented an increase of $10.5, or 4.6%. SD&A expenses as a percent of sales were 30.7% for the first six months of fiscal 2010 compared with 27.1% for the same period in fiscal 2009. More than half of the period-over-period increase was due to higher incentive compensation and commissions costs; prior-year expense for these items was at reduced levels reflecting the significant decline in the market. The remainder of the increase in SD&A expenses was due primarily to structurally higher operating costs associated with acquired businesses, as well as selected investments in sales and marketing resources and new products and services.
As part of the Companys ongoing initiatives to streamline and simplify operations, the Company recorded a pre-tax charge of $5.4 during the first half of fiscal 2010 compared with $26.6 in the prior-year period. The charges in both fiscal years reflect severance and
25
related employee benefit costs associated with the consolidation of certain manufacturing facilities and a reduction in workforce, as well as non-cash asset impairment charges on certain assets related to those manufacturing facilities. The pre-tax asset impairment charges for the first half of fiscal 2010 and 2009 were $3.7 and $1.6, respectively. During the first six months of fiscal 2010, the Company realized total savings of over $23.0 from these streamlining efforts compared with approximately $8.0 of savings realized in the prior-year period. See the Outlook section for total expected savings from these actions.
Operating profit was $70.5 for the six months ended February 28, 2010 compared with $62.4 reported for the prior-year period, an increase of $8.1, or 13.0%. Operating profit margin increased to 9.1% compared with 7.4% in the prior-year period. The increase in operating profit margin in the first half of fiscal 2010 compared with the prior-year period was due to the increase in gross margin and the decrease in the special charge, partially offset by the increase in SD&A expenses as a percentage of net sales as discussed above.
Excluding the special charges in both periods, adjusted operating profit for the first half of fiscal 2010 decreased $13.1, or 14.7%, to $75.9 compared with $89.0 in the prior-year period. Adjusted operating profit margin for the first half of fiscal 2010 of 9.8% was 80 basis points lower than prior years adjusted margin of 10.6%. The decrease was due primarily to higher SD&A expenses.
Other Expense (Income)
Other expense (income) for the Company consists primarily of net interest expense and foreign exchange related gains and losses. Interest expense, net, was $14.8 and $15.5 for the six months ended February 28, 2010 and 2009, respectively. Interest expense, net, decreased 4.5% for the first half of fiscal 2010 compared with the first half of fiscal 2009 due primarily to a lower effective interest rate on borrowings, partially offset by a decrease in interest income earned due to lower short-term interest rates. Miscellaneous income for the first six months of fiscal 2010 of $0.1 declined $4.0 from the $4.1 reported in the prior-year period. The decline in miscellaneous income was due primarily to the impact of changes in exchange rates on foreign currency items.
Due to the early retirement of the 2010 Notes, the Company recognized a pre-tax loss of $10.5 during the first half of fiscal 2010.
Provision for Income Taxes and Income from Continuing Operations
The effective income tax rate reported by the Company was 32.7% and 33.7% for the six months ended February 28, 2010 and 2009, respectively. The effective income tax rate for the first half of fiscal 2010 was positively affected by federal tax credits, favorable state audit settlements, and benefits from increased export of goods manufactured in the U.S. The Company estimates that the effective tax rate for the year will be approximately 33% if the rates in its taxing jurisdictions remain generally consistent throughout the year.
Income from continuing operations for the first six months of fiscal 2010 decreased $3.3 to $30.5 (including $3.5 for the after-tax special charge) from $33.8 (including $16.8 for the after-tax special charge) reported for the prior-year period. The decrease in income from continuing operations resulted primarily from the loss from the early debt extinguishment and lower miscellaneous income, partially offset by the above noted increase in operating profit and lower tax expense.
Excluding the special charges in both periods and the loss on the early extinguishment of debt reported in fiscal 2010, adjusted income from continuing operations for the first six months of fiscal 2010 was $40.8 compared with $50.6 in the year-ago period, a decrease of $9.8, or 19.4%. The year-over-year decline in adjusted income from continuing operations was due primarily to higher SD&A expense and lower miscellaneous income. Excluding the special charges and the loss on the early extinguishment of debt, adjusted diluted earnings per share for the first six months of fiscal 2010 were $0.93 compared with $1.21 for the prior-year period. In addition to the items noted above that impacted adjusted income from continuing operations, adjusted diluted earnings per share for the first six months of the fiscal year were negatively impacted an increase in the number of shares outstanding compared with the prior-year period. The increase in shares outstanding was due primarily to shares issued as partial consideration for the acquisitions of Sensor Switch and LC&D.
Results from Discontinued Operations and Net Income
The Company incurred a $0.6 gain from discontinued operations for the first half of fiscal 2010 due to revisions of estimates of certain legal reserves established at the time of the Spin-off.
Net income for the first six months of fiscal 2010 decreased by $2.7 to $31.1 from $33.8 reported for the prior-year period. The decrease in net income resulted primarily from the loss from the early debt extinguishment and lower miscellaneous income, partially offset by the above noted increase in operating profit and lower tax expense.
Outlook
The performance of the Company, like most companies, is influenced by a multitude of factors such as the health of the economy, including employment, credit availability, consumer confidence, commodity costs, and government policy, particularly as it impacts capital formation and risk taking by businesses and commercial developers. As such, it is difficult at this time to precisely forecast the direction or intensity of future economic activity in general and more specifically with respect to overall construction demand. Key indicators continue to signal declines for North American non-residential construction activity. Accordingly, management still expects
26
that for fiscal 2010 the percentage decline for net sales in the overall markets it serves will be in the mid-teens. The Companys comparable backlog at the end of the second quarter of fiscal 2010 was down 23% compared with the prior year, although a large portion of the decline in backlog is due primarily to reduced order lead times and a reduction in late backlog.
While prices for certain materials and components, including steel and petroleum, declined from their record highs in the summer and fall of 2008, higher prices for certain materials and components have once again begun to rise, placing pressure on the Companys margins. The Company expects to respond to cost increases with higher selling prices where appropriate. However, due to the competitive forces in the current market environment, there can be no assurance that the Company will be able to pass along all cost increases or adjust prices quickly enough to offset all or a portion of potentially higher material and component prices. Notwithstanding efforts to recoup potentially higher costs, management believes pricing will continue to be competitive in certain channels and geographies but expects the negative impact to be partially offset through productivity improvements and benefits from new product introductions.
During fiscal 2010, the Company expects to realize approximately $50.0 of annualized benefits from the streamlining actions taken in fiscal 2009, of which approximately $28.0 of benefits were realized during fiscal 2009. In addition, the Company anticipates additional annualized savings beginning in fiscal 2011 of approximately $10.0 due to the streamlining efforts taken during the second quarter of fiscal 2010. These actions related to the consolidation of certain manufacturing operations and a reduction in workforce. The Company initiated such actions in an effort to continue to redeploy and invest resources in other areas where the Company believes it can create greater value for all stakeholders and accelerate profitable growth opportunities, including a continued focus on industry-leading product innovation incorporating sustainable design, relighting, and customer connectivity.
In addition to the recent acquisitions, which significantly increased the Companys presence in the growing lighting controls market, management believes the execution of the Companys strategies to accelerate investments in innovative and energy-efficient products, enhance services to its customers, and expand market presence in key sectors such as home centers and the renovation and relight market will provide growth opportunities, which should enable the Company to outperform the overall markets it serves. Additionally, management believes these actions and investments will position the Company to meet or exceed its financial goals over the longer term.
The Company expects cash flow from operations to remain strong in 2010 and intends to invest approximately $25.0 in capital expenditures during the year. Also, the Company estimates the annual tax rate to approximate 33% for fiscal 2010.
Although fiscal 2010 results are expected to be negatively impacted by current economic conditions, management remains very positive about the long-term potential of the Company and its ability to outperform the market. Management continues to position the Company to optimize short-term performance while investing in and deploying resources to further the Companys long-term profitable growth opportunities. Looking beyond the current environment, management believes the lighting and lighting-related industry will experience solid growth over the next decade, particularly as energy and environmental concerns come to the forefront, and that the Company is well-positioned to fully participate in this growing industry.
Critical Accounting Policies
Managements Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in the Companys Consolidated Financial Statements , which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to: inventory valuation; share-based compensation expense; depreciation, amortization and the recoverability of long-lived assets, including intangible assets; medical, product warranty, and other reserves; litigation; and environmental matters. Management bases its estimates and judgments on its substantial historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Management discusses the development of significant accounting estimates with the Companys Audit Committee.
For a detailed discussion of other significant accounting policies that may involve a higher degree of judgment, please refer to the Companys Form 10-K.
Goodwill and Indefinite Lived Intangible Assets
The Company reviews 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 long-lived asset is below its carrying value. All other long-lived and intangible assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss for goodwill and indefinite lived intangibles 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 other appropriate fair value methods. The evaluation of
27
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, projected future net sales, operating results, and cash flow.
Although management currently believes 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 flow and/or changes in the discount rate or theoretical royalty rate could cause these assets to be deemed impaired. If this were to occur, the Company would be required to charge to earnings the write-down in value of such assets, which could have a material adverse effect on the Companys results of operations and financial position, but not its cash flows from operations.
In light of the continuing decline in the non-residential construction market and the current performance related to its trade names, the Company continues to monitor the valuation of the indefinite lived intangible assets, in particular the Mark Lighting trade name. Since the most current indefinite lived intangible asset analysis performed in fiscal 2009, the fair values of the Companys trade names continue to exceed the carrying values by a significant amount, except for the Mark Lighting trade name. Although revenue growth estimates have been revised downward as compared to prior year estimates and performance has declined further since fiscal 2009, management currently believes that no estimated potential impairment related to the Mark Lighting trade name exists based on previous fair values coupled with the changes in estimates. Additionally, the Company determined that any estimated potential impairment related to the Mark Lighting trade name based on reasonably likely changes in the assumptions would not be material to the Companys financial results, trend of earnings, or financial position.
Cautionary Statement Regarding Forward-Looking Information
This filing contains forward-looking statements, within the meaning of the federal securities laws. Statements made herein that may be considered forward-looking include statements incorporating terms such as expects, believes, intends, anticipates and similar terms that relate to future events, performance, or results of the Company. In addition, the Company, or the executive officers on the Companys behalf, may from time to time make forward-looking statements in reports and other documents the Company files with the SEC or in connection with oral statements made to the press, potential investors or others. Forward-looking statements include, without limitation: (a) the Companys projections regarding financial performance, liquidity, capital structure, capital expenditures, and dividends; (b) expectations about the impact of volatility and uncertainty in general economic conditions; (c) external forecasts projecting unit volume decline; (d) expectations about the impact of volatility and uncertainty in component and commodity costs and the Companys ability to manage those costs as well as the Companys response with pricing of its products; (e) the Companys ability to execute and realize benefits from initiatives related to streamlining its operations, capitalizing on growth opportunities, expanding in key markets, enhancing service to the customer, and investing in product innovation; (f) the Companys estimate of its fiscal 2010 annual tax rate; and (g) the Companys ability to achieve its long-term financial goals and measures. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this quarterly report. Except as required by law, the Company undertakes no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events. The Companys forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the historical experience of the Company and managements present expectations or projections. These risks and uncertainties include, but are not limited to, customer and supplier relationships and prices; competition; ability to realize anticipated benefits from initiatives taken and timing of benefits; market demand; litigation and other contingent liabilities; and economic, political, governmental, and technological factors affecting the Company. In addition, additional risks that could cause the Companys actual results to differ materially from those expressed in the Companys forward-looking statements are discussed in Part I, Item 1a. Risk Factors of the Companys Form 10-K, and are specifically incorporated herein by reference.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
General. Acuity Brands is exposed to market risks that may impact the Consolidated Balance Sheets , Consolidated Statements of Income , and Consolidated Statements of Cash Flows due primarily to fluctuation in interest rates, foreign exchange rates and commodity prices. There have been no material changes to the Companys exposure from market risks from those disclosed in Part II, Item 7a of the Companys Form 10-K.
Item 4. | Controls and Procedures |
Disclosure controls and procedures are controls and other procedures that are designed to reasonably ensure that information required to be disclosed in the reports filed or submitted by the Company under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to reasonably ensure that information required to be disclosed by Acuity Brands in the reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
28
As required by SEC rules, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of February 28, 2010. This evaluation was carried out under the supervision and with the participation of management, including the principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of the Companys disclosure controls and procedures were effective at a reasonable assurance level as of February 28, 2010. However, because all disclosure procedures must rely to a significant degree on actions or decisions made by employees throughout the organization, such as reporting of material events, the Company and its reporting officers believe that they cannot provide absolute assurance that all control issues and instances of fraud or errors and omissions, if any, within the Company will be detected. Limitations within any control system, including the Companys control system, include faulty judgments in decision-making or simple errors or mistakes. In addition, controls can be circumvented by an individual, by collusion between two or more people, or by management override of the control. Because of these limitations, misstatements due to error or fraud may occur and may not be detected.
There have been no changes in the Companys internal control over financial reporting that occurred during the Companys most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
29
Item 1. | Legal Proceedings |
Acuity Brands is subject to various legal claims arising in the normal course of business. The Company is self-insured up to specified limits for certain types of claims, including product liability, and is fully self-insured for certain other types of claims, including environmental, product recall, and patent infringement. Based on information currently available, it is the opinion of management that the ultimate resolution of pending and threatened legal proceedings will not have a material adverse effect on the results of operations, financial position, or cash flows of the Company. However, in the event of unexpected future developments, it is possible that the ultimate resolution of such matters, if unfavorable, could have a material adverse effect on the results of operations, financial position, or cash flows of the Company in future periods. The Company establishes reserves for legal claims when the costs associated with the claims become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts reserved for such claims. However, the Company cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the amounts reserved.
Information regarding reportable legal proceedings is contained in Part I, Item 3. Legal Proceedings in the Companys Form 10-K. Information set forth in this reports Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements describes any legal proceedings that became reportable during the quarter ended February 28, 2010, and updates any descriptions of previously reported legal proceedings in which there have been material developments during such quarter. Discussion of legal proceedings included within the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements is incorporated into this Item 1 by reference.
Item 1a. | Risk Factors |
There have been no material changes in the Companys risk factors from those disclosed in Part I, Item 1a. Risk Factors of the Companys Form 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Since October 2005, the Companys Board of Directors has authorized the repurchase of 10 million shares of the Companys outstanding common stock, of which approximately 9.5 million shares had been repurchased as of February 28, 2010. However, no repurchases were made during the Companys most recently completed fiscal quarter.
Item 5. | Other Information |
Amended and Restated Supplemental Deferred Savings Plan
On March 26, 2010, the Company amended and restated the 2005 Supplemental Deferred Savings Plan (Plan) effective as of January 1, 2010. There were no substantive changes to participants benefits but rather incorporation of four previous amendments as well as new amended language for administrative and operational clarifications.
Severance Agreements
As previously disclosed, the Severance Agreements for named executive officers of the Corporation were amended to comply with certain interpretations of Section 162(m) of the Internal Revenue Code by eliminating the reference to the payment of an annual cash bonus at target and were replaced by the payment of a cash amount equal to the executives gross salary multiplied by a specified percentage (Multiplier). The Multiplier for each of the named executive officers, with the exception of Mr. Nagel, was erroneously listed in the amendments. On March 30, 2010, amendments to the Severance Agreements for each of the named executive officers, with the exception of Mr. Nagel, were executed to reflect the correct Multiplier. The amendments to the Severance Agreements are attached to this Form 10-Q as Exhibits 10(d) through 10(g) and are incorporated herein by reference.
30
Results of Annual Shareholders Meeting
At the Companys annual meeting of shareholders held on January 8, 2010 in Atlanta, Georgia, the shareholders elected the following nominees to the Board of Directors for various terms identified in the following table. Votes cast were as follows:
Term Expiring at
the Annual Meeting for |
For | Withheld | ||||
George C. Guynn |
2012 | 35,004,779 | 96,452 | |||
Vernon J. Nagel |
2012 | 34,923,740 | 177,491 | |||
Julia B. North |
2012 | 34,717,375 | 383,856 |
In addition to the above elected directors, the directors whose term of office continued after the meeting are as follows: Peter C. Browning, John L. Clendenin, Gordon D. Harnett, Robert F. McCullough, Ray M. Robinson, and Neil Williams.
Votes cast for or against, and the number of abstentions and broker non-votes for the other proposal brought before the meeting are as follows:
Proposal |
For | Against | Abstain |
Broker Non-
Votes |
||||
Ratification of the Audit Committees appointment of Ernst & Young LLP as the Companys independent registered public accounting firm | 38,157,465 | 159,478 | 68,982 | |
Item 6. | Exhibits |
Exhibits are listed on the Index to Exhibits (page 33).
31
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ACUITY BRANDS, INC. REGISTRANT |
||
DATE: March 31, 2010 |
/s/ Vernon J. Nagel |
|
VERNON J. NAGEL CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER |
||
DATE: March 31, 2010 |
/s/ Richard K. Reece |
|
RICHARD K. REECE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (Principal Financial and Accounting Officer) |
32
INDEX TO EXHIBITS
EXHIBIT 3. | (a) | Restated Certificate of Incorporation of Acuity Brands, Inc. (formerly Acuity Brands Holdings, Inc.), dated as of September 26, 2007. | Reference is made to Exhibit 3.1 of registrants Form 8-K as filed with the Commission on September 26, 2007, which is incorporated herein by reference. | |||
(b) | Certificate of Amendment of Acuity Brands, Inc. (formerly Acuity Brands Holdings, Inc.), dated as of September 26, 2007. | Reference is made to Exhibit 3.2 of registrants Form 8-K as filed with the Commission on September 26, 2007, which is incorporated herein by reference. | ||||
(c) | Amended and Restated By-Laws of Acuity Brands, Inc., effective as of January 8, 2009. | Reference is made to Exhibit 3.1 of registrants Form 8-K as filed with the Commission on October 7, 2008, which is incorporated herein by reference. | ||||
EXHIBIT 4 | (a) | Indenture, dated December 8, 2009, among Acuity Brands Lighting, Inc, as issuer, and Acuity Brands, Inc. and ABL IP Holding LLC, as guarantors, and Wells Fargo Bank, National Association, as trustee. | Reference is made to Exhibit 4.1 of registrants Form 8-K as filed with the Commission on December 9, 2009, which is incorporated herein by reference. | |||
(b) | Form of 6.00% Senior Note due 2019. | Reference is made to Exhibit 4.2 of registrants Form 8-K as filed with the Commission on December 9, 2009, which is incorporated herein by reference. | ||||
(c) | Registration Rights Agreement, dated December 8, 2009, by and among Acuity Brands Lighting, Inc., Acuity Brands, Inc. and ABL IP Holding LLC and Banc of America Securities LLC and J.P. Morgan Securities Inc., as initial purchasers. | Reference is made to Exhibit 4.3 of registrants Form 8-K as filed with the Commission on December 9, 2009, which is incorporated herein by reference. | ||||
EXHIBIT 10 | (a) | Amendment No. 1, dated as of November 12, 2009, to 5-Year Revolving Credit Agreement, dated as of October 19, 2008. | Reference is made to Exhibit 10.1 of registrants Form 8-K as filed with the Commission on November 16, 2009, which is incorporated herein by reference. | |||
(b) | Form of Indemnification Agreement. | Reference is made to Exhibit 10.1 of registrants Form 8-K as filed with the Commission on February 9, 2010, which is incorporated herein by reference. | ||||
(c) | Amended and Restated Acuity Brands, Inc., 2005 Supplemental Deferred Savings Plan, effective as of January 1, 2010. | Filed with the Commission as part of this Form 10-Q. | ||||
(d) | Amendment No. 2 to Acuity Brands, Inc. Amended and Restated Severance Agreement between Acuity Brands, Inc. and Mark A. Black. | Filed with the Commission as part of this Form 10-Q. | ||||
(e) | Amendment No. 2 to Acuity Brands, Inc. Amended and Restated Severance Agreement between Acuity Brands, Inc. and Jeremy M. Quick. | Filed with the Commission as part of this Form 10-Q. | ||||
(f) | Amendment No. 2 to Acuity Brands, Inc. Amended and Restated Severance Agreement between Acuity Brands, Inc. and Richard K. Reece. | Filed with the Commission as part of this Form 10-Q. | ||||
(g) | Amendment No. 2 to Acuity Brands, Inc. Amended and Restated Severance Agreement between Acuity Brands, Inc. and C. Dan Smith. | Filed with the Commission as part of this Form 10-Q. | ||||
EXHIBIT 31 | (a) | Certification of the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed with the Commission as part of this Form 10-Q. | |||
(b) | Certification of the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed with the Commission as part of this Form 10-Q. | ||||
EXHIBIT 32 | (a) | Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Filed with the Commission as part of this Form 10-Q. | |||
(b) | Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Filed with the Commission as part of this Form 10-Q. |
33
Exhibit 10(c)
ACUITY BRANDS, INC.
2005 SUPPLEMENTAL DEFERRED SAVINGS PLAN
(As Amended and Restated as of January 1, 2010)
ACUITY BRANDS, INC.
2005 SUPPLEMENTAL DEFERRED SAVINGS PLAN
TABLE OF CONTENTS
ARTICLE I INTRODUCTION AND ESTABLISHMENT | 1 | |||||
ARTICLE II DEFINITIONS | 2 | |||||
2.1 |
Account | 2 | ||||
2.2 |
Annual Valuation Date | 2 | ||||
2.3 |
Beneficiary | 2 | ||||
2.4 |
Business Unit | 2 | ||||
2.5 |
Change in Capitalization | 2 | ||||
2.6 |
Change in Control | 2 | ||||
2.7 |
Code | 3 | ||||
2.8 |
Company | 3 | ||||
2.9 |
Compensation | 3 | ||||
2.10 |
Deferral Subaccount | 4 | ||||
2.11 |
Deferred Restricted Stock Subaccount | 4 | ||||
2.12 |
Effective Date | 4 | ||||
2.13 |
Election Form | 4 | ||||
2.14 |
Employer | 4 | ||||
2.15 |
ERISA | 4 | ||||
2.16 |
Executive | 4 | ||||
2.17 |
Fair Market Value | 4 | ||||
2.18 |
Financial Hardship | 4 | ||||
2.19 |
Fiscal Year | 4 | ||||
2.20 |
In-Service Account | 5 | ||||
2.21 |
Matching Subaccount | 5 | ||||
2.22 |
Participant | 5 | ||||
2.23 |
Performance-Based Plan | 5 | ||||
2.24 |
Plan | 5 | ||||
2.25 |
Plan Administrator | 5 | ||||
2.26 |
Plan Year | 5 | ||||
2.27 |
Prime Rate | 5 | ||||
2.28 |
Prior Plan | 5 | ||||
2.29 |
Prior Plan Transfer Account | 5 | ||||
2.30 |
Retirement | 5 | ||||
2.31 |
Retirement Account | 5 | ||||
2.32 |
Section 409A | 5 | ||||
2.33 |
Shares | 6 | ||||
2.34 |
Subsidiary | 6 | ||||
2.35 |
Supplemental Subaccount | 6 | ||||
2.36 |
Termination for Cause | 6 | ||||
2.37 |
Termination of Service | 6 | ||||
2.38 |
Total and Permanent Disability | 7 | ||||
2.39 |
Valuation Date | 7 | ||||
2.40 |
Year of Service | 7 | ||||
ARTICLE III PARTICIPATION; DEFERRAL ELECTION |
7 |
i
3.1 |
Eligibility to Participate | 7 | ||||
3.2 |
Deferral Election | 7 | ||||
3.3 |
Deferral Subaccount | 8 | ||||
3.4 |
Deferred Restricted Stock Subaccount | 9 | ||||
3.5 |
Transfer of Accounts to Zep Plan | 9 | ||||
ARTICLE IV EMPLOYER CONTRIBUTION CREDITS; VESTING |
10 | |||||
4.1 |
Employer Contribution Credits | 10 | ||||
4.2 |
2005 and 2006 Deferral Elections And Prior Plan Transfer Accounts | 11 | ||||
4.3 |
Vesting of a Participants Account | 12 | ||||
ARTICLE V - PAYMENT OF ACCOUNTS |
13 | |||||
5.1 |
Timing and Form of Payment | 13 | ||||
5.2 |
Payment upon Certain Terminations of Service | 15 | ||||
5.3 |
Payment at Death | 15 | ||||
5.4 |
Payment at Disability | 15 | ||||
5.5 |
Financial Hardship Distribution | 16 | ||||
ARTICLE VI PLAN ADMINISTRATOR |
16 | |||||
6.1 |
Plan Administrator | 16 | ||||
6.2 |
Right and Duties | 16 | ||||
6.3 |
Compensation, Indemnity and Liability | 17 | ||||
6.4 |
Taxes | 17 | ||||
ARTICLE VII CLAIMS PROCEDURE |
17 | |||||
7.1 |
Claims for Benefits | 17 | ||||
7.2 |
Appeals | 17 | ||||
ARTICLE VIII AMENDMENT AND TERMINATION; CHANGE IN CONTROL |
18 | |||||
8.1 |
Amendments | 18 | ||||
8.2 |
Termination of Plan | 18 | ||||
8.3 |
Change In Control Provisions | 18 | ||||
ARTICLE IX MISCELLANEOUS |
19 | |||||
9.1 |
Limitation on Participants Rights | 19 | ||||
9.2 |
Benefits Unfunded | 19 | ||||
9.3 |
Other Plans | 20 | ||||
9.4 |
Receipt or Release | 20 | ||||
9.5 |
Governing Law | 20 | ||||
9.6 |
Gender, Tense, and Headings | 20 | ||||
9.7 |
Successors and Assigns; Nonalienation of Benefits | 20 | ||||
9.8 |
Combination With Other Plan | 20 | ||||
APPENDIX A - PENSION PLAN MAKE-UP CONTRIBUTION CREDIT |
A-1 | |||||
APPENDIX B - SERP MAKE-UP CONTRIBUTION CREDIT |
B-1 |
ii
ARTICLE I
INTRODUCTION AND ESTABLISHMENT
Effective as of November 30, 2001, Acuity Brands, Inc. (Company) established the Acuity Brands, Inc. Supplemental Deferred Savings Plan (Prior Plan) for the benefit of eligible management and highly compensated employees of the Company and its Subsidiaries and Business Units. The Plan was designed to assist and encourage eligible employees to accumulate capital and to supplement their retirement income.
Because the law applicable to nonqualified deferred compensation plans was significantly changed effective January 1, 2005, the Company decided to adopt a new deferred compensation plan, the 2005 Supplemental Deferred Savings Plan (the Plan) for deferrals and Company contribution credits occurring on or after January 1, 2005, and for unvested amounts credited to participants under the Prior Plan as of December 31, 2004. The vested amounts credited to participants as of December 31, 2004 under the Prior Plan remain credited under the Prior Plan and subject to the terms and conditions of the Prior Plan.
The Plan has been amended several times since its adoption and this amendment and restatement is intended to incorporate said amendments into the Plan document. Accordingly, this amendment and restatement is hereby effective as of January 1, 2010.
1
ARTICLE II
DEFINITIONS
When used in this Plan, the following terms shall have the meanings set forth below unless a different meaning is plainly required by the context:
2.1 Account means the records maintained by the Plan Administrator to determine the Participants deferrals and any Company contribution credits on the Participants behalf under this Plan. Such Account may be reflected as an entry in the Companys (or Employers) records, or as a separate account under a trust, or as a combination of both. Each Participants Account may consist of the following subaccounts: a Deferral Subaccount to reflect his deferrals of Compensation; a Matching Subaccount for Employer matching contribution credits; a Supplemental Subaccount for any supplemental Employer contribution credits; and a Deferred Restricted Stock Subaccount to reflect any deferrals of Restricted Stock. The Plan Administrator may establish such additional subaccounts as it deems necessary for the proper administration of the Plan. Effective January 1, 2009, a Participants Matching Subaccount and Supplemental Subaccount shall for vesting purposes be referred to collectively as the Participants Employer Contribution Account and shall be divided into a Pre-2009 Employer Contribution Account for Employer contribution credits prior to January 1, 2009 and Post-2008 Employer Contribution Account for Employer contribution credits on or after January 1, 2009.
2.2 Annual Valuation Date means December 31 of each year while the Plan is in effect.
2.3 Beneficiary means the person or persons last designated in writing by the Participant under the Plan to receive the vested amount in his Account in the event of such Participants death and, if no such designation has been made under this Plan, the designation of Beneficiary made by the Participant under the Prior Plan shall be deemed to be the designation under this Plan; if no such designation under either plan shall be in effect at the time of a Participants death or if all designated Beneficiaries shall have predeceased the Participant, then the Beneficiary shall be the Participants estate or his personal representative.
2.4 Business Unit means any of the operating units or divisions of the Company, or its Subsidiaries, designated as a Business Unit by the Plan Administrator.
2.5 Change in Capitalization means any increase or reduction in the number of Shares, or any change (including, but not limited to, a change in value) or exchange of Shares for a different number or kind of shares or other securities of the Company, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares, public offering, private placement, change in corporate structure or otherwise, which in the judgment of the Plan Administrator is material or significant.
2.6 Change in Control means any of the following events:
(a) The acquisition (other than from the Company in an acquisition that is approved by the Incumbent Board) by any Person (as the term person is used for purposes of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the 1934 Act)) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Companys then outstanding voting securities; or
(b) The individuals who, as of January 1, 2005, are members of the Board (the Incumbent Board), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by the Companys stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; or
(c) Consummation of a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than seventy percent (70%) (sixty percent (60%), effective as of September 29, 2006) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation; or
(d) A complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to subsection (a) above, solely because twenty percent (20%) or more of the combined voting power of the Companys then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries, or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition.
2.7 Code means the Internal Revenue Code of 1986, as amended.
2.8 Company means Acuity Brands, Inc., a Delaware corporation, or its successor or successors.
2.9 Compensation means the annual cash compensation (salary plus bonuses whether under a Performance-Based Plan or other annual bonuses) paid by the Employer to the Participant for the Plan Year, provided that a bonus actually paid during a subsequent Plan year based upon performance during the preceding Plan Year shall be treated as Compensation for such preceding Plan Year. The Participants Compensation shall include amounts deferred by the Participant to this Plan and any other deferred compensation plan of the Employer (whether or not qualified), and any salary reduction amounts contributed to a welfare plan. The term Compensation shall not include long-term incentive payments, income from stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards or other stock awards, car allowances, non-cash remuneration, such as health benefits, life insurance, and other fringe benefits, moving expenses, relocation allowances, and payments from this Plan or any other deferred compensation plan.
2.10 Deferral Subaccount means the subaccount maintained to reflect the Participants deferrals of Compensation, including amounts previously credited to a Participants Deferral Subaccount in the Prior Plan that are transferred to this Plan pursuant to Section 4.2, and any earnings thereon.
2.11 Deferred Restricted Stock Subaccount means the subaccount maintained to reflect the Participants deferrals of Restricted Stock and related dividends, including amounts previously credited to the Participant under the Prior Plan that are transferred to the Plan pursuant to Section 4.2.
2.12 Effective Date means the effective date of the amendment and restatement of this Plan, January 1, 2010, except where otherwise noted.
2.13 Election Form means the form prescribed by the Plan Administrator on which a Participant may specify the amount of his Compensation that is to be deferred pursuant to the provisions of Article III, and the time and manner of payment of his benefits. The Election Form may be accessed and completed through telephonic or electronic means as determined by the Plan Administrator.
2.14 Employer means the Company and any Subsidiary or related employer designated by the Company to participate in the Plan.
2.15 ERISA means the Employee Retirement Income Security Act of 1974, as amended.
2.16 Executive means an officer of the Company, a Subsidiary or one of the Companys Business Units, and other key employees designated as eligible pursuant to Section 3.1. Any dispute regarding any individuals classification shall be determined by the Plan Administrator in its sole discretion.
2.17 Fair Market Value means the fair market value of the Shares as determined in good faith by the Plan Administrator; provided, however, that (a) if the Shares are admitted to trading on a national securities exchange, Fair Market Value on any date shall be the closing price reported for the Shares on such exchange on such date or, if no sale was reported on such date, on the last date preceding such date on which a sale was reported, (b) if the Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation System (NASDAQ) or other comparable quotation system and have been designated as a National Market System (NMS) security, Fair Market Value on any date shall be the last sale price reported for the Shares on such system on such date or on the last day preceding such date on which a sale was reported, or (c) if the Shares are admitted to Quotation on NASDAQ and have not been designated a NMS Security, Fair Market Value on any date shall be the average of the highest bid and lowest asked prices of the Shares on such system on such date.
2.18 Financial Hardship means the occurrence of an unforeseeable emergency with respect to the Participant within the meaning of Section 409A.
2.19 Fiscal Year means the Companys fiscal year commencing on September 1 and ending on August 31 of the following calendar year, or such other 12-month period used by the Company for financial reporting purposes.
2.20 In-Service Account means an account established by a Participant which will be paid (or commence being paid) during employment on a date selected by the Participant. The Participant may establish Cash In-Service Accounts for his deferrals of Compensation and a Restricted Stock In-Service Account for his Restricted Stock deferrals.
2.21 Matching Subaccount means the subaccount maintained to reflect the Employers matching contribution credits, including amounts previously credited to a Participants Matching Subaccount in the Prior Plan that are transferred to this Plan pursuant to Section 4.2, and any earnings thereon.
2.22 Participant means an Eligible Executive as defined in Section 3.1 (or an individual who was an Eligible Executive, including individuals who were participating in the Prior Plan that have amounts transferred to this Plan), a portion of whose Compensation for any Plan Year has been deferred pursuant to the Plan or who has received Employer contribution credits, and whose interest in the Plan has not been wholly distributed.
2.23 Performance-Based Plan means a plan (or part of a plan) that pays compensation which qualifies as Performance-based compensation within the meaning of Section 409A.
2.24 Plan means the Acuity Brands, Inc. 2005 Supplemental Deferred Savings Plan, as set forth herein and as it may be amended from time to time.
2.25 Plan Administrator means the Company or, if applicable, a committee appointed pursuant to Article VI to administer the Plan.
2.26 Plan Year means January 1 through the next following December 31.
2.27 Prime Rate means the rate of interest published in the Wall Street Journal (or similar financial publication selected by the Plan Administrator) as the prime rate on a particular date (or the next business day if such date is not a business day), as determined by the Plan Administrator.
2.28 Prior Plan means the Acuity Brands, Inc. Supplemental Deferred Savings Plan, which became effective November 30, 2001, as amended.
2.29 Prior Plan Transfer Account means the amount credited to a Participant under the Prior Plan that is transferred to this Plan, which shall be managed and distributed in accordance with the provisions of this Plan.
2.30 Retirement means termination of the Participants employment with all Employers on or after attaining age 60, other than a Termination for Cause.
2.31 Retirement Account means the account established for the Participant which will be payable in the manner elected by the Participant if the Participant terminates employment upon death, Disability, or after attaining age 55 and completing at least five Years of Service.
2.32 Section 409A means Section 409A of the Code, as it may be amended from time to time, and the regulations and rulings thereunder.
2.33 Shares means the common stock, par value $.01 per share, of the Company (including any new, additional or different stock or securities resulting from a Change in Capitalization).
2.34 Subsidiary means any corporation in an unbroken chain of corporations, beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. The term Subsidiary shall also include a partnership or limited liability company in which the Company or a Subsidiary owns 50% or more of the profits interest or capital interest.
2.35 Supplemental Subaccount means the subaccount established to reflect the Employers supplemental contribution credits, including amounts previously credited to a Participants Supplemental Subaccount in the Prior Plan that are transferred to this Plan pursuant to Section 4.2, and any earnings thereon.
2.36 Termination for Cause means the Executive has terminated employment and has been found by the Plan Administrator to be guilty of theft, embezzlement, fraud or misappropriation of the Companys property or of any action which, if the individual were an officer of the Company, would constitute a breach of fiduciary duty. The final determination of whether a Participant has incurred a Termination for Cause shall be made by the Plan Administrator.
2.37 Termination of Service or similar expression means the termination of the Participants employment as an employee of the Company and all adopting Employers. A Participant who is granted a temporary leave of absence, whether with or without pay, shall not be deemed to have terminated his service. In the event of a transfer of an Executive to a position in which he would no longer be eligible to actively participate in this Plan, such transfer shall not constitute a Termination of Service.
Whether a Termination of Service takes place is determined based on the facts and circumstances surrounding the termination of the Participants employment and whether the Company and the Participant intended for the Participant to provide significant services for the Company following such termination. A change in the Participants employment status will not be considered a Termination of Service if:
(a) the Participant continues to provide services as an employee of the Company at an annual rate that is twenty percent (20%) or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is twenty percent (20%) or more of the average annual remuneration earned during the final three full calendar years of employment (or, if less, such lesser period), or
(b) the Participant continues to provide services to the Company in a capacity other than as an employee of the Company at an annual rate that is fifty percent (50%) or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or if employed less than three years, such lesser period) and the annual remuneration for such services is fifty percent (50%) or more of the average annual remuneration earned during the final three full calendar years of employment (or if less, such lesser period).
2.38 Total and Permanent Disability means the Participant: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees or directors of the Company. Medical determination of Disability may be made by either the Social Security Administration or by the provider of an accident or health plan covering employees or directors of the Company provided that the definition of disability applied under such disability insurance program complies with the requirements of the preceding sentence. Upon the request of the Plan Administrator, the Participant must submit proof to the Plan Administrator of the Social Security Administrations or the providers determination.
2.39 Valuation Date means the Annual Valuation Date, and any other date(s) selected by the Plan Administrator as of which the Accounts of Participants are valued.
2.40 Year of Service means, subject to such Break in Service rules as the Plan Administrator may establish, each 12-consecutive month period, commencing with the Participants first Hour of Service and ending on the 12-month anniversary date thereof, for which a Participant remains employed with the Employer. A Participant shall only be credited with full Years of Service. No credit is given for partial Years of Service. Hours of Service and Break in Service shall be determined hereunder in accordance with the Companys general rules for determining such matters under its tax-qualified plans.
ARTICLE III
PARTICIPATION; DEFERRAL ELECTION
3.1 Eligibility to Participate. Prior to, or at the beginning of, each Plan Year, the Company (or its designee) shall specify the Executives who are eligible to make deferral elections under the Plan for the following Plan Year and to receive Matching Subaccount and Supplemental Subaccount credits (an Eligible Executive). Such eligibility designation may be made by establishing a minimum compensation level for participation or by the use of such other criteria as the Company (or its designee) deems appropriate from time to time.
3.2 Deferral Election. For any Plan Year in which an Eligible Executive is eligible to participate, such Eligible Executive may elect on an Election Form to have a portion of the Compensation to be received by the Executive for such Plan Year deferred in accordance with the terms and conditions of the Plan. The Plan Administrator may provide for a separate election with respect to salary and annual bonus.
An Executive desiring to exercise such election shall, prior to the beginning of each Plan Year (or within 30 days after the date of the Eligible Executives initial eligibility for the Plan as determined by the Plan Administrator, if such eligibility commences other than at the beginning of a Plan Year), complete an Election Form indicating the percentage or amount of his
Compensation for such Plan Year that he elects to have deferred, provided that the Plan Administrator may extend the date for electing to defer an annual bonus under a Performance-Based Plan to the extent permitted by Section 409A. If the Eligible Executives election would result in a deferral greater than the maximum established by the Plan Administrator, any deferred amount shall be reduced to the maximum limit.
An election to defer Compensation must be filed with the Plan Administrator within the time period prescribed by the Plan Administrator. If a Participant fails to file a properly completed and duly executed Election Form with the Plan Administrator by the prescribed time, he will be deemed to have elected not to defer any Compensation under this Plan for the Plan Year, except to the extent the Plan Administrator in its sole discretion permits an extension of the election period. An Eligible Executive may not, after the applicable election date change (increase or decrease) the percentage or amount of Compensation he has elected to defer for a Plan Year.
At the time a Participant elects to defer Compensation, the Participant shall elect with respect to such deferral the time and manner in which the amount deferred (and any earnings thereon) will be distributed to the Participant. The Plan Administrator may provide that such election is a continuing election with respect to all amounts credited (and to be credited) to the Participants Account. The distribution elections, and any changes to such elections, shall be made in accordance with Article V.
The Plan Administrator may establish a minimum and maximum deferral limitation for a Plan Year for each group or class of Eligible Executives (which may be a dollar amount, a percentage of Compensation or some other limit) and may change such limitation from year to year, provided an Eligible Executive shall not be permitted to reduce his Compensation below the amount necessary to make required or elected contributions to employee benefit plans, required federal, state and local tax withholdings, and any other withholdings deemed necessary by the Plan Administrator or required by law.
The Participant may designate on the Election Form (or on a separate form provided by the Plan Administrator) a Beneficiary (or Beneficiaries) to receive payment of amounts in his Account in the event of his death. If a Participant fails to designate a Beneficiary under the Plan, the Beneficiary (ies) under the Prior Plan shall be deemed to be the Beneficiary (ies) designated under this Plan.
3.3 Deferral Subaccount. The Company shall establish a Deferral Subaccount for each Participant under the Plan. The initial amount credited to the Participants Deferral Subaccount under the Plan shall be the amount credited to the Participants Deferral Subaccount in the Prior Plan that is transferred to this Plan as provided in Section 4.2 below. Each Participants Deferral Subaccount shall thereafter be credited with the amounts of Compensation deferred by the Participant under this Plan. The timing and manner in which amounts are credited to a Participants Deferral Subaccount under this Plan shall be determined by the Plan Administrator in its discretion, but the deferral election shall be applied to each pay period in which the Participant has Compensation during his period of participation in the Plan. The Participants Deferral Subaccount shall be credited with interest at the Prime Rate, or the earnings under such other investment options that the Plan Administrator may establish, on each Annual Valuation
Date based upon the amount credited to such Subaccount as of the preceding Annual Valuation Date, and at such other times, if any, as may be determined by the Plan Administrator.
3.4 Deferred Restricted Stock Subaccount. The Company shall establish a Deferred Restricted Stock Subaccount for each Participant under the Plan who has Deferred Vested Value Subaccount credits in the Prior Plan Transfer Account being transferred from the Prior Plan. The initial amount credited to the Participants Deferred Restricted Stock Subaccount under the Plan shall be the number of shares credited to the Participants Deferred Vested Value Subaccount in the Prior Plan that is transferred to this Plan as provided in Section 4.2 below and related dividends. No further deferrals will be allowed to the Deferred Restricted Stock Subaccount by the Participant under this Plan, unless the Plan administrator determines otherwise. The Deferred Restricted Stock Subaccount will be adjusted on each Annual Valuation Date (and at such other dates, if any, as may be determined by the Plan Administrator) as if it were invested in Shares to reflect any distributions, stock dividends, stock splits or similar actions with respect to the Shares since the preceding Annual Valuation Date (or such other date). The Participants Deferred Restricted Stock Subaccount will be adjusted on each Annual Valuation Date (and at such other dates, if any, as may be determined by the Plan Administrator) to reflect the cash equivalent of any dividends with respect to the Shares since the preceding Annual Valuation Date (or such other date). The amounts credited to a Participants Deferred Restricted Stock Subaccount shall be distributed and subject to a further deferral election as provided in Section 5.1(g) below.
Effective as of the Spin-off Date (as defined in Section 3.5(c)(ii)), or as soon thereafter as is practical, the Company shall adjust the number of Shares credited to the Participants Deferred Restricted Stock Subaccount to a number of Shares equal to the product of (i) the number of Shares credited to the Participants Deferred Restricted Stock Subaccount as of the date of the distribution of the shares of Zep Inc. common stock to the stockholders of the Company (the Distribution Date), and (ii) the closing per share price of the Company common stock (trading with a due bill) on the New York Stock Exchange on the Distribution Date, divided by the closing per share price of the Companys common stock (on a when-issued basis) on the Distribution Date (or such other price as determined by the Plan Administrator to be appropriate and equitable.)
3.5 Transfer of Accounts to Zep Plan.
(a) With respect to Transferring Participants who participated in the Plan prior to the Spin-off Date, and who have made deferral elections under the Plan with respect to compensation which becomes payable on or after the Spin-off Date, the Company hereby transfers to the Zep Plan on the Spin-off Date, all rights with respect to amounts deferred (or to be deferred) pursuant to such deferral elections, and the Zep Plan will assume all obligations with respect to such deferrals. Such deferral elections and the deferred amounts shall be maintained and administered in accordance with the Zep Plan, including the payment rules and deemed investment rules of the Zep Plan.
(b) The Accounts of Transferring Participants in the Plan are hereby transferred to the Zep Plan on the Spin-off Date and the Zep Plan will assume all obligations with respect to the amounts credited to such Accounts. The amounts credited to such Accounts shall be maintained
and administered in accordance with the Zep Plan, including the payment rules and deemed investment rules of the Zep Plan.
(c) For purposes of this Section 3.5 and the Plan, the following definitions shall apply:
(i) Spin-off means the distribution of the stock of Zep Inc. to the stockholders of the Company.
(ii) Spin-off Date means the date the stock of Zep Inc. is distributed to the stockholders of the Company.
(iii) Transferring Participant means a Participant in the Plan who is a current or former employee of the Companys specialty products business or a corporate office employee who is being hired by Zep Inc. in connection with the Spin-off.
(iv) Zep Plan means the Zep Inc. Supplemental Deferred Savings Plan, effective as of October 31, 2007, and as it may be amended.
ARTICLE IV
EMPLOYER CONTRIBUTION CREDITS; VESTING
4.1 Employer Contribution Credits.
(a) Matching Subaccount. The Company shall establish a Matching Subaccount for each Participant under the Plan. The initial amount credited to the Participants Matching Subaccount under the Plan shall be the amount credited to the Participants Matching Subaccount in the Prior Plan that is transferred to this Plan as provided in Section 4.2 below. Thereafter, unless the Board otherwise determines, as of the end of each Plan Year commencing on or after January 1, 2009 (or as of such other date as the Board may determine), there shall be credited to the Matching Subaccount of each Participant who is employed on the last day of the Plan Year an amount equal to 50% of the amount of the Participants deferrals for such Plan Year, provided that the maximum amount credited to a Participants Matching Subaccount for a Plan Year shall not exceed five percent (5%) of the Participants Compensation for such Plan Year. (For Plan Years prior to January 1, 2009, the matching percentage was 25% in lieu of 50 %.) Unless the Company otherwise determines for a designated Eligible Executive (other than an Executive Officer of the Company), an Eligible Executive who is covered by a defined benefit supplemental executive retirement plan maintained by the Employer shall not be eligible to receive Employer matching contribution credits under the Plan. The amounts credited to the Participants Matching Subaccount shall automatically be credited to the Participants Retirement Account.
Unless the Company otherwise determines, the amount credited to a Participants Matching Subaccount shall be credited with interest at the Prime Rate, or the earnings under such other investment options that the Plan Administrator may establish, on each Annual Valuation Date based upon the amount credited to such subaccount as of the preceding Annual Valuation Date.
(b) Supplemental Subaccount. The Company shall establish a Supplemental Subaccount for each Participant under the Plan. The initial amount credited to the Participants Supplemental Subaccount under the Plan shall be the amount credited to the Participants Supplemental Subaccount in the Prior Plan that is transferred to this Plan as provided in Section 4.2 below. Thereafter, unless the Board otherwise determines, as of the end of each Plan Year (or as of such other date as the Board may determine), there shall be credited to the Supplemental Subaccount of each Eligible Executive who is employed on the last day of the Plan Year and who has a Year of Service for such Plan Year an amount equal to three percent (3%) of the Eligible Executives Compensation for such Plan Year. Unless the Company determines otherwise for a designated Eligible Executive, an Eligible Executive who is covered by a defined benefit supplemental executive retirement plan maintained by the Employer shall not be eligible to receive Employer supplemental contribution credits under the Plan. The amounts credited to the Participants Supplemental Subaccount shall automatically be credited to the Participants Retirement Account.
Unless the Company otherwise determines, the amount credited to an Eligible Executives Supplemental Subaccount shall be credited with interest at the Prime Rate, or the earnings under such other investment options that the Plan Administrator may establish, on each Annual Valuation Date based upon the amount credited to such subaccount as of the preceding Annual Valuation Date.
(c) Additional Employer Contribution Credits. Certain Participants are eligible to receive additional Employer contribution credits under the Plan, which additional amounts are described on an Appendix attached hereto and made a part hereof. The amount of any such additional Employer contribution credits shall automatically be credited to the Participants Retirement Account and shall be payable in accordance with Article V.
(d) Investment Options. The Plan Administrator may in its discretion establish additional investment options in which a Participants Account is deemed to be invested and provide the Participant the right to elect among such investment options. The investment options may include the right to invest in Shares and, in such event, the Plan Administrator may provide for distributions from the Plan in Shares.
4.2 2005 and 2006 Deferral Elections And Prior Plan Transfer Accounts.
(a) With respect to Eligible Executives who participated in the Prior Plan prior to January 1, 2005, and who have made deferral elections under the Prior Plan for 2005 and 2006 with respect to Compensation which becomes payable on or after January 1, 2005, the Company hereby transfers all rights with respect to such deferral elections to the Plan and the Plan hereby assumes all obligations with respect to such deferral elections. Such deferral elections shall be maintained and administered in accordance with the Plan, including the payment rules of Article V. The Plan Administrator may permit changes to such deferral elections and payment elections in accordance with Section 409A.
(b) The Accounts (or portion of Accounts) of Participants in the Prior Plan that were not vested as of December 31, 2004 (including any deferrals of unvested Restricted Stock) are hereby transferred to the Plan and the Plan hereby assumes all obligations with respect to the
unvested amounts credited to such Accounts. The unvested amounts credited to such accounts shall be maintained and administered in accordance with the Plan, including the vesting schedule of Section 4.3 and the payment rules of Article V. The Plan Administrator may permit changes to such payment elections in accordance with Section 409A.
(c) The Plan Administrator shall provide such additional payment elections to Participants (including Participants who are no longer active employees or otherwise do not actively participate in the Plan) with respect to amounts credited to the Plan pursuant to this Section 4.2 as are consistent with Section 409A, including the transitional rules.
4.3 Vesting of a Participants Account.
(a) Deferral Subaccount. Except as provided in the next sentence, a Participants interest in the amount credited to his Deferral Subaccount shall at all times be 100% vested and nonforfeitable. If a Participant incurs a Termination for Cause, he shall forfeit all earnings credited on all amounts deferred to his Deferral Subaccount that have not yet been fully distributed to him under Article V.
(b) Employer Contribution Accounts.
(i) Except in the event of a Termination for Cause (as defined in Section 2.36), a Participants interest in the amount credited to his Pre-2009 Employer Contribution Account shall become (A) 100% vested and nonforfeitable upon his death, Total and Permanent Disability, Retirement, or completion of 10 or more Years of Service and attainment of age 55 while actively employed, and (B) 50% vested upon completion of 5 Years of Service and attainment of age 55 while actively employed, with such vesting increasing 10% per year for each additional Year of Service up to 10 years.
(ii) Except in the event of a Termination for Cause, a Participants interest in the amount credited to his Post-2008 Employer Contribution Account shall become (A) 100% vested and nonforfeitable upon his death, Total and Permanent Disability, Retirement or completion of 10 or more Years of Service, or (B) 30% vested upon completion of 3 Years of Service, with such vesting increasing 10% per year for each additional Year of Service up to 10 years.
(iii) Subject to Article VIII, if the Participant incurs a Termination for Cause (regardless of whether he is otherwise vested) or if the Participants employment is terminated prior to the time specified for any vesting above, his entire Employer Contribution Accounts shall be forfeited.
(c) Deferred Restricted Stock Subaccount. A Participants interest in the amount credited to his Deferred Restricted Stock Subaccount shall vest in accordance with the terms of the underlying award agreement for such Restricted Stock.
ARTICLE V
PAYMENT OF ACCOUNTS
5.1 Timing and Form of Payment.
(a) Subject to subsection (h) below, on the Election Form, the Participant shall make an election as to the timing and form of payment for any Participant deferrals for such Plan Year and the form of payment for any Employer contribution credits for such Plan Year pursuant to Section 4.1 (such contributions are automatically credited to the Participants Retirement Account) from among the options set forth below for the Participants Retirement Account and for any Cash In-Service Account. Once the Participant elects a form of payment for the Retirement Account, and the time and form of payment for any Cash In-Service Account, those elections may only be changed twice and only in accordance with subsection (e) below.
(b) The Participant will be entitled to payment of his Retirement Account in accordance with his payment election if he terminates employment upon death, Total and Permanent Disability, or after attaining age 55. The Participant may elect that the vested amount of his Retirement Account be distributed in a lump sum, or in annual payments for a period of up to ten (10) years, provided that if the balance of the Participants Account is less than $15,000, the Participants Account will automatically be paid in a lump sum. For example, under the 10-year annual payment method, the first years payment will equal one tenth (1/10) of the total Account, the second years will equal one ninth (1/9) of the remaining Account, and so forth. Subject to subsection (h) below, payment of the Participants Retirement Account shall be made (i) if the payment is in a lump sum, within 90 days after the event entitling the Participant to payment, or (ii) if the payment is in installments, commencing in the January following the event entitling the Participant to payment.
(c) The Participant may elect to have a Cash In-Service Account payable (or commence to be paid) during January of the year selected by the Participant on the Election Form (which initial payment date may not be earlier than two years after the end of the calendar year during which amounts are first credited to such Account), in a lump sum or in annual payments over a period of up to ten (10) years, in the manner provided in (a) above, as applicable; provided, that any subsequent deferrals to such designated Cash In-Service Account must be made no later than the end of the calendar year ending two years prior to such payment date; provided, further, that a Participant may only establish such number of Cash In-Service Accounts for his Account as may be permitted by the Plan Administrator (or his designee) and the Plan Administrator may increase the minimum deferral period for Cash In-Service Accounts. Notwithstanding the Participants elections under this Section 5.1(c), in the event the Participant becomes entitled to payment of his Retirement Account under subsection (b) above or to his Account under Section 5.2 below, the remaining balance of the Participants Account shall be payable in accordance with the provisions for payment under subsection (b) or under Section 5.2 (whether or not the Cash In-Service Account was in payment status at such time).
(d) The Participant will designate each Plan Year which portion of the Participants deferrals for such Plan Year shall be credited to the Participants Retirement Account and any
Cash In-Service Accounts he has established. If a Participants Account is distributed in installments, the Account shall continue to be credited with deemed earnings, gains and losses in accordance with Article IV until the entire amount of the Account is distributed.
(e) A Participant may, not less than twelve (12) months prior to the payment dates of any Cash In-Service Accounts he has established under subsection (c) above, and with the approval of the Plan Administrator, elect to defer the date on which payment of any Cash In-Service Account shall commence and/or change the method of payment of such Cash In-Service Account, provided that, (i) after the initial election under subsection (c), a Participant may only make two election changes with respect to a particular Cash In-Service Account (after the second such election change, the election shall become irrevocable); (ii) except as otherwise permitted by Section 409A, the first in-service payment with respect to any such changed election must be deferred at least 5 years from the date such payment would otherwise have been made, (iii) except as otherwise permitted by Section 409A, the election shall not become effective for 12 months.
A Participant may, not less than twelve (12) months prior to the event entitling the Participant to payment of his Retirement Account under subsection (b) above, elect to change the method of payment of the Participants Retirement Account, provided that (i) only two such changes are permitted and after the second such election change, the election is irrevocable; (ii) the payment date for the Participants Retirement Account will be deferred for 5 years for each election change, and (iii) the election shall not become effective for 12 months.
The change of election shall be made through a method established by the Plan Administrator.
(f) Notwithstanding the Participants payment elections under this Article V, the entire amount remaining in the Participants Account will be paid to the Participant in a lump sum in January of the calendar year in which the Participant will attain age 80.
(g) Unless the Participant elected otherwise as provided below, the vested amounts credited to his Deferred Restricted Stock Subaccount were automatically paid in a single payment in January 2008. Participants were allowed to elect on such form as provided by the Plan Administrator to receive payment (i) at the same time as the initial payment of his Retirement Account (assuming the Participant qualifies under subsection (b)), or (ii) during January of the year selected by the Participant for payment of his Restricted Stock In-Service Account. If the Participant terminates employment prior to the payment date of his Restricted Stock In-Service Account or event entitling the Participant to payment under subsection (b), payment of the Participants Deferred Restricted Stock Subaccount will be made within 90 days after the Participants termination of employment. All distributions from the Participants Deferred Restricted Stock Subaccount shall be made in a lump sum. The Participant may elect to change the time (but not form) of payment of his Restricted Stock Account, provided (i) such change in the time of payment shall be made not less than twelve (12) months prior to the event entitling the Participant to payment of his Restricted Stock Account; (ii) only two such changes are permitted and after the second such election change, the election is irrevocable; (iii) the payment date for the Participants Restricted Stock Account will be deferred for 5 years for each election change, and (iv) the election shall not become effective for 12 months.
The amounts credited to the Participants Deferred Restricted Stock Subaccount shall be subject to the Financial Hardship distribution rules of Section 5.5. The amounts credited to the Deferred Restricted Stock Subaccount that are treated as invested in Shares shall be paid in Shares.
(h) Notwithstanding the other provisions of this Article V, in the event a Participant who is a key employee (as determined by the Plan Administrator in accordance with procedures established by the Committee that are consistent with Section 409A) becomes entitled to payments upon separation from service, payments shall not commence until 6 months after such Participant separates from service and on such date the payments that would have been made during such six-month period shall be made.
5.2 Payment upon Certain Terminations of Service.
Subject to Section 5.1(h) above, the vested amount of the Participants Account (including any unpaid amounts in the Participants In-Service Accounts) will be paid in a lump sum as soon as practical after the end of the month following the date on which the Participant has a Termination of Service and the elections under Section 5.1 shall not be recognized, unless the Participant has attained age 55 at the time of such Termination of Service, or the Participant qualifies for Total and Permanent Disability under the terms of this Plan.
5.3 Payment at Death.
(a) While Actively Employed. In the event a Participant dies while actively employed, the entire amount of the Participants Account will become fully vested and will be paid in accordance with the Participants death election on the Election Form and, in the absence of such election, payment will be made in a lump sum.
(b) After Termination of Service. In the event a Participant dies subsequent to Termination of Service, the remaining amount of the Participants Account, if any, will be distributed to the Participants designated Beneficiaries in the form and at the time that payments would have been made had the Participant survived.
5.4 Payment at Disability.
In the event of the Participants Total and Permanent Disability (as defined in Section 2.38), the entire amount of the Participants Account will become fully vested and payment will be made in accordance with the Participants election under subsection (b). Once payment has commenced, payments will continue as elected regardless of any future change in the Participants disability status.
5.5 Financial Hardship Distribution.
Subject to approval by the Plan Administrator, the Participant may apply to withdraw, upon a showing of Financial Hardship, part or all of his vested Account. If the Plan Administrator determines that a distribution should be made on account of Financial Hardship, distribution from the Participants Account shall be made as soon as administratively practical. Such distribution shall not exceed the dollar amount necessary to satisfy the Financial Hardship plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which the Financial Hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participants assets (to the extent the liquidation of such assets would not itself cause Financial Hardship).
ARTICLE VI
PLAN ADMINISTRATOR
6.1 Plan Administrator. The Plan Administrator shall be the Company or such committee as may be designated by the Company to administer and manage the Plan. Members of any committee shall not be required to be employees of the Company or Participants. Action of the Plan Administrator may be taken with or without a meeting of committee members. If a member of the committee is a Participant in the Plan, he shall not participate in any decision which solely affects his own Account.
6.2 Right and Duties. The Plan Administrator shall have the discretionary authority to administer and manage the Plan and shall have all powers necessary to accomplish that purpose, including (but not limited to) the following:
(a) To construe, interpret, and administer this Plan;
(b) To make allocations and determinations required by this Plan, and to maintain records relating to Participants Accounts;
(c) To compute and certify to the Company the amount and kinds of benefits payable to Participants or their beneficiaries, and to determine the time and manner in which such benefits are to be paid;
(d) To authorize all disbursements by the Company pursuant to this Plan;
(e) To maintain (or cause to be maintained) all the necessary records of the administration of this Plan;
(f) To make and publish such rules for the regulation of this Plan as are not inconsistent with the terms hereof;
(g) To delegate to other individuals or entities from time to time the performance of any of its duties or responsibilities hereunder; and
(h) To hire agents, accountants, actuaries, consultants and legal counsel to assist in operating and administering the Plan.
The Plan Administrator shall have the exclusive discretionary authority to construe and to interpret the Plan, to decide all questions of eligibility for benefits and to determine the amount and manner of payment of such benefits, and its decisions on such matters shall be final and conclusive on all parties.
6.3 Compensation, Indemnity and Liability. The Plan Administrator shall serve as such without bond and without compensation for services hereunder. All expenses of the Plan and the Plan Administrator shall be paid by the Company. If the Plan Administrator is a committee, no member of the committee shall be liable for any act or omission of any other member of the committee, nor for any act or omission on his own part, excepting his own willful misconduct. The Company shall indemnify and hold harmless the Plan Administrator and each member of the committee against any and all expenses and liabilities, including reasonable legal fees and expenses, arising out of his membership on the committee, excepting only expenses and liabilities arising out of his own willful misconduct.
6.4 Taxes. If the whole or any part of any Participants Account shall become liable for the payment of any estate, inheritance, income, or other tax which the Company shall be required to pay or withhold, the Company shall have the full power and authority to withhold and pay such tax out of any monies or other property in its hand for the account of the Participant whose interests hereunder are so liable. The Company shall provide notice of any such withholding. Prior to making any payment, the Company may require such releases or other documents from any lawful taxing authority as it shall deem necessary.
ARTICLE VII
CLAIMS PROCEDURE
7.1 Claims for Benefits. If a Participant or beneficiary (hereafter, Claimant) does not receive timely payment of any benefits which he believes are due and payable under the Plan, he may make a claim for benefits to the Plan Administrator. The claim for benefits must be in writing and addressed to the Plan Administrator or to the Company. If the claim for benefits is denied, the Plan Administrator shall notify the Claimant in writing within 90 days after the Plan Administrator initially received the benefit claim. However, if special circumstances require an extension of time for processing the claim, the Plan Administrator shall furnish notice of the extension to the Claimant prior to the termination of the initial 90-day period and such extension shall not exceed one additional, consecutive 90-day period. Any notice of a denial of benefits shall advise the Claimant of the basis for the denial, any additional material or information necessary for the Claimant to perfect his claim, and the steps which the Claimant must take to have his claim for benefits reviewed.
7.2 Appeals. Each Claimant whose claim for benefits has been denied may file a written request for a review of his claim by the Plan Administrator. The request for review must be filed by the Claimant within 60 days after he received the written notice denying his claim. The decision of the Plan Administrator will be made within 60 days after receipt of a request for review and shall be communicated in writing to the Claimant. Such written notice shall set forth the basis for the Plan Administrators decision. If there are special circumstances which require an extension of time for completing the review, the Plan Administrators decision shall be rendered not later than 120 days after receipt of a request for review.
ARTICLE VIII
AMENDMENT AND TERMINATION; CHANGE IN CONTROL
8.1 Amendments. Subject to Section 8.3, the Company (or its designee) shall have the right in its sole discretion to amend this Plan in any manner at any time; provided, however, that no such amendment shall reduce the Participants vested interest in his Account under Section 4.3 at that time. Any amendment shall be in writing and executed by a duly authorized officer of the Company. All Participants shall be bound by such amendment.
8.2 Termination of Plan. The Company expects to continue this Plan, but does not obligate itself to do so. Subject to Section 8.3, the Company reserves the right to discontinue and terminate the Plan at any time, in whole or in part, for any reason (including a change, or an impending change, in the tax laws of the United States or any State). If the Plan is terminated, the Plan Administrator shall be notified of such action in a writing executed by a duly authorized officer of the Company, and the Plan shall be terminated at the time therein set forth. The amounts credited to the Participants Accounts upon such termination shall become fully vested and shall be paid in a lump sum, provided that (i) the Company terminates at the same time any other arrangement that would be aggregated with the Plan under Section 409A; (ii) the Company does not adopt any other arrangement that would be aggregated with the Plan under Section 409A for three years; (iii) the payments upon such termination shall not commence until 12 months after the date of termination and all such payments are completed within 24 months after the date of termination; and (iv) such other requirements as may be imposed by Section 409A are satisfied. The termination of this Plan shall not result in the reduction of the amount credited to the Participants Account as of the date of such termination.
8.3 Change In Control Provisions.
(a) Amendment or Termination. Notwithstanding anything contained in this Article VIII or the Plan to the contrary, for a period of two (2) years following a Change in Control, this Plan shall not be terminated or amended to reduce, suspend or eliminate any Eligible Executives or Participants benefits or participation (or right to participate) provided under this Plan, including, without limitation, the benefits provided in Articles III and IV. Any amendment or termination of this Plan which a Participant reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control, and which was not consented to in writing by the Participant shall be null and void, and shall have no effect whatsoever with respect to the Participant.
(b) Termination of Employment. Notwithstanding anything contained in this Plan to the contrary, if a Participants employment is terminated by the Company (other than for Cause as defined in (c) below) or by the Participant for any reason within two (2) years following a Change in Control, the Participants Account shall become fully vested and the Company shall, within five (5) days, pay to the Participant a lump sum cash payment of the full amount credited to his Account with earnings determined under Sections 3.3 and 4.1 credited thereto to the date of payment. If a Participants employment is terminated (i) for Cause (as defined in (c) below) within two (2) years following a Change in Control or (ii) for any reason more than two (2) years
after a Change in Control, the provisions of Article IV shall apply to the distribution of the Participants Account.
(c) Cause. For purposes of Section 8.3(b), a termination for Cause is a termination of the Executive evidenced by a resolution adopted in good faith by the Company (or in the case of executive officers of the Company, by two-thirds of the Board of Directors of the Company) that the Participant (i) intentionally and continually failed to substantially perform his duties with the Company (other than a failure resulting from the Participants incapacity due to physical or mental illness) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance has been delivered to the Participant specifying the manner in which the Participant has failed to substantially perform, or (ii) intentionally engaged in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise; provided, however, that no termination of the Participants employment shall be for Cause as set forth in clause (ii) above until (x) there shall have been delivered to the Participant a copy of a written notice setting forth that the Participant was guilty of the conduct set forth in clause (ii) and specifying the particulars thereof in detail, and (y) the Participant shall have been provided an opportunity to be heard by the Board (with the assistance of the Participants counsel if the Participant so desires). No act, nor failure to act, on the Participants part, shall be considered intentional unless he has acted or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, in the case of any Participant who is a party to a Change in Control Agreement, no failure to perform by the Participant after a Notice of Termination (as defined in the Participants Change in Control Agreement) is given by the Participant shall constitute Cause for purposes of this Plan.
ARTICLE IX
MISCELLANEOUS
9.1 Limitation on Participants Rights. Participation in this Plan shall not give any Participant the right to be retained in the Companys employ or the employ of any Employer, or any right or interest in this Plan or any assets of the Company other than as herein provided. The Company reserves the right to terminate the employment of any Participant without any liability for any claim against the Company under this Plan, except to the extent provided herein.
9.2 Benefits Unfunded. The benefits provided by this Plan shall be unfunded. All amounts payable under this Plan to Participants shall be paid from the general assets of the Company, and nothing contained in this Plan shall require the Company to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants. This Plan shall create only a contractual obligation on the part of the Company, and Participants shall have the status of general unsecured creditors of the Company under the Plan with respect to amounts of Compensation they defer hereunder or any other obligation of the Company to pay benefits pursuant hereto. Any funds of the Company available to pay benefits pursuant to the Plan shall be subject to the claims of general creditors of the Company, and may be used for any purpose by the Company.
Notwithstanding the preceding paragraph, the Company may at any time transfer assets, including Shares, to a trust for purposes of paying all or any part of its obligations under this
Plan. However, to the extent provided in the trust only, such transferred amounts shall remain subject to the claims of general creditors of the Company. To the extent that assets are held in a trust when a Participants benefits under the Plan become payable, the Plan Administrator shall direct the trustee to pay such benefits to the Participant from the assets of the trust.
9.3 Other Plans. This Plan shall not affect the right of any Executive or Participant to participate in and receive benefits under and in accordance with the provisions of any other employee benefit plans which are now or hereafter maintained by the Company, unless the terms of such other employee benefit plan or plans specifically provide otherwise.
9.4 Receipt or Release. Any payment to a Participant in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Plan Administrator, the Company and any Employer, and the Plan Administrator may require such Participant, as a condition precedent to such payment, to execute a receipt and release to such effect.
9.5 Governing Law. This Plan shall be construed, administered, and governed in all respects in accordance with applicable federal law and, to the extent not preempted by federal law, in accordance with the laws of the State of Georgia. If any provisions of this instrument shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective.
9.6 Gender, Tense, and Headings. In this Plan, whenever the context so indicates, the singular or plural number and the masculine, feminine, or neuter gender shall be deemed to include the other. Headings and subheadings in this Plan are inserted for convenience of reference only and are not considered in the construction of the provisions hereof.
9.7 Successors and Assigns; Nonalienation of Benefits. This Plan shall inure to the benefit of and be binding upon the parties hereto and their successors and assigns; provided, however, that the amounts credited to the Account of a Participant shall not (except as provided in Section 6.4) be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to any benefits payable hereunder, including, without limitation, any assignment or alienation in connection with a separation, divorce, child support or similar arrangement, shall be null and void and not binding on the Plan or the Company. In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to substantially all of the business or assets of the Company to expressly agree to assume and perform this Agreement in the same manner that the Company would be required to perform it.
9.8 Combination With Other Plan. The Plan may be combined or merged with other deferred compensation plans of the Company and the Plan Administrator shall establish the terms and conditions relating to any such merger.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officers as of the 26 th day of March, 2010, to be effective on the Effective Date, except where otherwise noted.
ACUITY BRANDS, INC. | ||
By: |
/s/ Richard K. Reece |
|
Title: |
Executive Vice President and Chief |
|
Financial Officer |
APPENDIX A
PENSION PLAN MAKE-UP CONTRIBUTION CREDIT
(a) In General Commencing January 1, 2005 (except where such amounts have already been credited under the Prior Plan), the Company shall for each Plan Year during the Make-Up Contribution Period (as defined in subsection (b) below) for each Pension Plan Participant (as defined in subsection (d) below) make a Make-Up Contribution credit (determined in accordance with subsection (b) below) for the benefit of such Pension Plan Participant. The Make-Up Contribution for each Plan Year shall be credited to the Pension Plan Participants Make-Up Contribution Subaccount. The Make-Up Contribution Subaccount shall become vested in accordance with the following schedule:
Completed Years of Service |
Vested Percentage | Forfeited Percentage | ||
Less than 5 years |
0 | 100% | ||
5 or more years |
100% | 0% |
The Make-Up Contribution Subaccount shall be credited with interest at the Prime Rate on each Annual Valuation Date based upon the amount credited to such Subaccount as of the preceding Annual Valuation Date and at such other times, if any, as may be determined by the Plan Administrator. The vested Make-up Contribution Subaccount shall be credited to the Retirement Account and shall be distributed as provided in Article V. The Make-Up Contribution for each Plan Year shall be credited on the last day of the Plan Year, unless the Employer elects to make such credit on an earlier date. In order to be eligible to receive the Make-Up Contribution credit for the Plan Year, the Pension Plan Participant must be actively employed on the last day of the Plan Year and complete a Year of Service for such year. Any forfeiture of the credits to a Pension Plan Participants Make-Up Contribution Account shall be used to reduce future make-up contribution credits.
(b) Amount of Make-Up Contribution Credit
(i) The Make-Up Contribution credit for a Pension Plan Participant for the Plan Year shall be equal to the Present Value determined as of January 1, 2003 of the Annual Benefit Loss of the Pension Plan Participant divided by the number of years in the Make-Up Contribution Period, adjusted by the Discount Percentage. The Annual Benefit Loss for a Pension Plan Participant is the difference between (A) the aggregate annual retirement benefit (based upon the assumptions in subsection (b)(ii) below) the Pension Plan Participant was projected to receive at age 62 assuming that the Pension Plan and the 401(k) Plan (as defined in subsection (d) below) continued in operation in accordance with their terms as in effect on December 31, 2002, and (B) the aggregate annual retirement benefit (based upon the assumptions in subsection (b)(ii) below) the Pension Plan Participant was projected to receive at age 62 assuming that the Pension Plan is frozen at January 1, 2003 and the 401(k) Plan was amended effective January 1, 2003 to provide for a match of 60% on Elective Deferrals up to 6% of the Participants Annual Compensation. The Pension Plan Participants Make-Up Contribution Period is the period commencing January 1, 2003 and ending on the last day of the Plan Year in which the Pension Plan Participant attains age 62. The Present Value of the Annual Benefit Loss shall be determined by taking the amount
A-1
of the Annual Benefit Loss on the date the Pension Plan Participant attains age 62 and discounting such amount to January 1, 2003 using an interest rate of 5.12% per year and the mortality table prescribed by the IRS in Rev. Rul. 95-6.
(ii) The Annual Benefit Loss shall be calculated using the following factors and assumptions:
|
A Pension Plan Participants service and compensation under the Pension Plan are frozen as of December 31, 2002. |
|
The rate of Matching Contributions under the 401(k) Plan is increased effective January 1, 2003 to 60% on Elective Contributions up to 6% of a Participants Annual Compensation and the Pension Plan Participant will make sufficient Elective Deferrals to receive the maximum Matching Contributions. |
|
A Pension Plan Participants Annual Compensation is his or her Annual Compensation for 2000, with an increase rate of 3% per year. |
|
Pension Plan Participants Matching Contribution Account Balance in the 401(k) Plan as of December 31, 2001, will be projected to age 62 with earnings of 6% per year. |
|
401(k) Plan compensation limit of $200,000 applies for 2002 and prior years and will increase by 3% per year. |
|
Annuity and lump sum conversions are based upon a 5.12% annual interest rate and the mortality table prescribed by the IRS in Rev. Rul. 95-6. |
|
The annual retirement benefit from the 401(k) Plan is based solely upon the Pension Plan Participants Matching Contribution Account (adjusted as provided herein) and not the individuals other accounts under Section 4.1 of the 401(k) Plan. |
(iii) The Make-Up Contribution to be credited to a Pension Plan Participant for a Plan Year shall be increased over the amount credited for the prior Plan Year by the Discount Percentage to account for the passage of a year and the related foregone interest earnings potential.
(c) Change of Eligible Status If a Pension Plan Participant is treated as a Highly Compensated Employee under the 401(k) Plan for a Plan Year, the Pension Plan Participant shall be eligible to receive a Make-Up Contribution credit for such Plan Year. If the Pension Plan Participant who is a Highly Compensated Employee for a Plan Year ceases to be a Highly Compensated Employee for a subsequent Plan Year, then the Pension Plan Participant shall be ineligible to receive a Make-Up Contribution credit for such later Plan Year. If a Pension Plan Participant ceases to be eligible to participate in the 401(k) Plan for a Plan Year, the Pension Plan Participant shall not be eligible to receive a Make-Up Contribution for such Plan Year.
A-2
(d) Definitions The following definitions shall apply for purposes of this Appendix A:
(i) Pension Plan The Acuity Brands, Inc. Pension Plan, as amended through December 31, 2002.
(ii) Pension Plan Participant A participant in the Pension Plan on December 31, 2002 who (i) is an active Employee of an Employer on December 31, 2002, (ii) will be considered a Highly Compensated Employee of the Employer for 2003 or in a subsequent Plan Year for which he would be eligible for a Make-Up Contribution, and
(iii) is a Participant in the 401(k) Plan for the Plan Year commencing on January 1, 2003 and any subsequent Plan Year for which a Make-Up Contribution credit is to be made.
(iv) Discount Percentage A percentage rate equal to 5.12% per year.
(v) 401(k) Plan The Acuity Brands, Inc. 401(k) Plan for Corporate Employees as amended through December 31, 2002.
(e) Discretion of Company The Company shall have the discretion to determine the amount of the Make-Up Contribution for Pension Plan Participants each Plan Year and the Companys determination of the Make-Up Contribution credit shall be final and binding upon all parties.
(f) Amendment This Appendix A may be amended by the Company in accordance with the usual rules for amendment of the Plan in Section 8.1.
A-3
APPENDIX B
SERP MAKE-UP CONTRIBUTION CREDIT
(a) In General Commencing January 1, 2005 (except where such amounts have already been credited under the Prior Plan), the Company shall for each Plan Year during the SERP Make-Up Contribution Period (as defined in subsection (b) below) for each SERP Plan Participant (as defined in subsection (d) below) make a SERP Make-Up Contribution credit (determined in accordance with subsection (b) below) for the benefit of such SERP Plan Participant. The SERP Make-Up Contribution for each Plan Year shall be credited to the SERP Plan Participants SERP Make-Up Contribution Subaccount. The SERP Make-Up Contribution Subaccount shall at all times be fully vested and nonforfeitable. The SERP Make-Up Contribution Subaccount shall be credited with interest at the Prime Rate on each Annual Valuation Date based upon the amount credited to such Subaccount as of the preceding Annual Valuation Date and at such other times, if any, as may be determined by the Plan Administrator. The SERP Make-up Contribution Subaccount shall be credited to the Retirement Account and shall be distributed as provided in Article V. The SERP Make-Up Contribution for each Plan Year shall be credited on the last day of the Plan Year, unless the Employer elects to make such credit on an earlier date. In order to be eligible to receive the SERP Make-Up Contribution credit for the Plan Year, the SERP Plan Participant must be actively employed on the last day of the Plan Year and complete a Year of Service for such year.
(b) Amount of SERP Make-Up Contribution Credit
(i) The SERP Make-Up Contribution credit for a SERP Plan Participant for the Plan Year shall be equal to the Present Value determined as of January 1, 2003 of the Annual Benefit Loss of the SERP Plan Participant divided by the number of years in the SERP Make-Up Contribution Period, adjusted by the Discount Percentage. The Annual Benefit Loss for a SERP Plan Participant is the difference between (A) the aggregate annual supplemental retirement benefit (based upon the assumptions in subsection (b)(ii) below) the SERP Plan Participant was projected to receive at age 60 assuming that the Pension Plan, the Current SERP (as defined in subsection (d) below) and the EDCP (as defined in subsection (d) below) continued in operation in accordance with their terms as in effect on August 31, 2002, and (B) the aggregate supplemental annual retirement benefit (based upon the assumptions in subsection (b)(ii) below) the SERP Plan Participant is projected to receive at age 60 from the New SERP. The Pension Plan Participants SERP Make-Up Contribution Period is the period commencing January 1, 2003 and ending on the last day of the Plan Year in which the SERP Plan Participant attains age 60. The Present Value of the Annual Benefit Loss shall be determined by taking the amount of the Annual Benefit Loss on the date the SERP Plan Participant attains age 60 and discounting such amount to January 1, 2003 using an interest rate of 5.12% per year and the mortality table prescribed by the IRS in Rev. Rul. 95-6.
(ii) The Annual Benefit Loss shall be calculated using the following factors and assumptions:
|
A SERP Plan Participants service and compensation under the Pension Plan is frozen as of December 31, 2002. |
B-1
|
A SERP Plan Participants Annual Compensation is his or her Annual Compensation for 2002, with an increase rate of 3% per year. |
(iii) The SERP Make-Up Contribution to be credited to a SERP Plan Participant for a Plan Year shall be increased over the amount credited for the prior Plan Year by the Discount Percentage to account for the passage of a year and the related foregone interest earnings potential.
(c) Discretion of Company The Company shall have the discretion to determine the amount of the SERP Make-Up Contribution for SERP Plan Participants each Plan Year and the Companys determination of the SERP Make-Up Contribution credit shall be final and binding upon all parties.
(d) Definitions The following definitions shall apply for purposes of this Appendix B:
(i) Pension Plan The Acuity Brands, Inc. Pension Plan, as amended through December 31, 2002.
(ii) SERP Plan Participant Kenyon W. Murphy, Joseph G. Parham, Jr., and Vernon J. Nagel.
(iii) Discount Percentage A percentage rate equal to 5.12% per year.
(iv) Current SERP The Acuity Brands, Inc. Supplemental Retirement Plan for Executives as amended through December 31, 2002.
(v) New SERP The Acuity Brands, Inc. 2002 Supplemental Executive Retirement Plan, which will be effective January 1, 2003.
(vi) EDCP The Acuity Brands, Inc. Executives Deferred Compensation Plan as amended through August 31, 2002.
(e) Amendment This Appendix B may be amended by the Company in accordance with the usual rules for amendment of the Plan in Section 8.1.
B-2
Exhibit 10(d)
AMENDMENT No. 2
TO
ACUITY BRANDS, INC
AMENDED AND RESTATED SEVERANCE AGREEMENT
THIS AMENDMENT made and entered into as of the 30 th day of March, 2010, by and between ACUITY BRANDS, INC. (the Company) and MARK A. BLACK (Executive);
W I T N E S S E T H
WHEREAS, the Company and Executive entered into a Severance Agreement, dated as of November 19, 2008 (Severance Agreement), providing for the payment of certain compensation and benefits to Executive if Executives employment is terminated under certain circumstances; and
WHEREAS, the parties now desire to amend the Severance Agreement in the manner hereinafter provided;
NOW, THEREFORE, the Severance Agreement is hereby amended, as follows:
1.
Section 4.2 is hereby amended by deleting 135% from clause (i) and substituting 65% in lieu thereof.
2.
This Amendment to the Severance Agreement shall be effective as of the date of this Amendment. Except as hereby modified, the Severance Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.
EXECUTIVE |
COMPANY
ACUITY BRANDS, INC. |
|||||||
/s/ Mark A. Black |
By: | /s/ Vernon J. Nagel | ||||||
MARK A. BLACK |
Vernon J. Nagel Chairman, President and CEO |
Exhibit 10(e)
AMENDMENT No. 2
TO
ACUITY BRANDS, INC
AMENDED AND RESTATED SEVERANCE AGREEMENT
THIS AMENDMENT made and entered into as of the 30 th day of March, 2010, by and between ACUITY BRANDS, INC. (the Company) and JEREMY M. QUICK (Executive);
W I T N E S S E T H
WHEREAS, the Company and Executive entered into a Severance Agreement, dated as of November 21, 2008 (Severance Agreement), providing for the payment of certain compensation and benefits to Executive if Executives employment is terminated under certain circumstances; and
WHEREAS, the parties now desire to amend the Severance Agreement in the manner hereinafter provided;
NOW, THEREFORE, the Severance Agreement is hereby amended, as follows:
1.
Section 4.2 is hereby amended by deleting 90% from clause (i) and substituting 55% in lieu thereof.
2.
This Amendment to the Severance Agreement shall be effective as of the date of this Amendment. Except as hereby modified, the Severance Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.
EXECUTIVE |
COMPANY
ACUITY BRANDS, INC. |
|||||||
/s/ Jeremy M. Quick |
By: | /s/ Vernon J. Nagel | ||||||
JEREMY M. QUICK |
Vernon J. Nagel Chairman, President and CEO |
Exhibit 10(f)
AMENDMENT No. 2
TO
ACUITY BRANDS, INC
AMENDED AND RESTATED SEVERANCE AGREEMENT
THIS AMENDMENT made and entered into as of the 30 th day of March, 2010, by and between ACUITY BRANDS, INC. (the Company) and RICHARD K. REECE (Executive);
W I T N E S S E T H
WHEREAS, the Company and Executive entered into a Severance Agreement, dated as of April 21, 2006 (Severance Agreement), providing for the payment of certain compensation and benefits to Executive if Executives employment is terminated under certain circumstances; and
WHEREAS, the parties now desire to amend the Severance Agreement in the manner hereinafter provided;
NOW, THEREFORE, the Severance Agreement is hereby amended, as follows:
1.
Section 4.2 is hereby amended by deleting 150% from clause (i) and substituting 65% in lieu thereof.
2.
This Amendment to the Severance Agreement shall be effective as of the date of this Amendment. Except as hereby modified, the Severance Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.
EXECUTIVE |
COMPANY
ACUITY BRANDS, INC. |
|||||||
/s/ Richard K. Reece |
By: | /s/ Vernon J. Nagel | ||||||
RICHARD K. REECE |
Vernon J. Nagel Chairman, President and CEO |
Exhibit 10(g)
AMENDMENT No. 2
TO
ACUITY BRANDS, INC
AMENDED AND RESTATED SEVERANCE AGREEMENT
THIS AMENDMENT made and entered into as of the 30 th day of March, 2010, by and between ACUITY BRANDS, INC. (the Company) and C. DAN SMITH (Executive);
W I T N E S S E T H
WHEREAS, the Company and Executive entered into a Severance Agreement, dated as of November 21, 2008 (Severance Agreement), providing for the payment of certain compensation and benefits to Executive if Executives employment is terminated under certain circumstances; and
WHEREAS, the parties now desire to amend the Severance Agreement in the manner hereinafter provided;
NOW, THEREFORE, the Severance Agreement is hereby amended, as follows:
1.
Section 4.2 is hereby amended by deleting 60% from clause (i) and substituting 40% in lieu thereof.
2.
This Amendment to the Severance Agreement shall be effective as of the date of this Amendment. Except as hereby modified, the Severance Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.
EXECUTIVE |
COMPANY
ACUITY BRANDS, INC. |
|||||||
/s/ C. Dan Smith |
By: | /s/ Vernon J. Nagel | ||||||
C. DAN SMITH |
Vernon J. Nagel Chairman, President and CEO |
Exhibit 31(a)
I, Vernon J. Nagel, certify that:
1. I have reviewed this report on Form 10-Q of Acuity Brands, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: March 31, 2010
/s/ Vernon J. Nagel |
Vernon J. Nagel |
Chairman, President, and Chief Executive Officer |
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act has been provided to Acuity Brands, Inc. and will be retained by Acuity Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 31(b)
I, Richard K. Reece, certify that:
1. I have reviewed this report on Form 10-Q of Acuity Brands, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: March 31, 2010
/s/ Richard K. Reece |
Richard K. Reece |
Executive Vice President and Chief Financial Officer |
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act has been provided to Acuity Brands, Inc. and will be retained by Acuity Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32(a)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Acuity Brands, Inc. (the Corporation) for the quarter ended February 28, 2010, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned, the Chairman, President, and Chief Executive Officer of the Corporation, certifies that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
/s/ Vernon J. Nagel |
Vernon J. Nagel |
Chairman, President, and Chief Executive Officer |
March 31, 2010 |
A signed original of this written statement required by Section 906 has been provided to Acuity Brands, Inc. and will be retained by Acuity Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32(b)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Acuity Brands, Inc. (the Corporation) for the quarter ended February 28, 2010, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned, the Executive Vice President and Chief Financial Officer of the Corporation, certifies that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
/s/ Richard K. Reece |
Richard K. Reece |
Executive Vice President and Chief Financial Officer |
March 31, 2010 |
A signed original of this written statement required by Section 906 has been provided to Acuity Brands, Inc. and will be retained by Acuity Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.