UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
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(Mark One) | ||
R | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended August 31, 2012. | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to . | ||
Commission file number 001-16583.
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ACUITY BRANDS, INC.
(Exact name of registrant as specified in its charter)
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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 (Address of principal executive offices) | 30309-7676 (Zip Code) | |
(404) 853-1400
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock ($0.01 Par Value) | New York Stock Exchange | |
Preferred Stock Purchase Rights | New York Stock Exchange | |
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ | Accelerated Filer o | Non-accelerated Filer o | Smaller Reporting Company o |
(Do not check if a smaller reporting company) | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
Based on the closing price of the Registrant’s common stock of $62.19 as quoted on the New York Stock Exchange on February 29, 2012, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $2,634,125,859.
The number of shares outstanding of the registrant’s common stock, $0.01 par value, was 42,424,650 shares as of October 24, 2012.
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DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K | Incorporated Document | |
Part II, Item 5 | Proxy Statement for 2012 Annual Meeting of Stockholders | |
Part III, Items 10, 11, 12, 13, and 14 | Proxy Statement for 2012 Annual Meeting of Stockholders | |
ACUITY BRANDS, INC.
Table of Contents
Page No. | ||
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PART I
Item 1. | Business |
($ in millions, except per-share data and as indicated)
Overview
Acuity Brands, Inc. (“Acuity Brands”), the parent company of Acuity Brands Lighting, Inc. (“ABL”), and other subsidiaries (collectively referred to herein as “the Company”), was incorporated in 2001 under the laws of the State of Delaware. The Company is one of the world’s leading providers of lighting solutions for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. The Company’s lighting solutions include devices such as luminaires, lighting controls, power supplies, prismatic skylights, light-emitting diode (“LED”) lamps, and integrated lighting systems for indoor and outdoor applications utilizing a combination of light sources, including daylight, and other devices controlled by software that monitors and manages light levels while optimizing energy consumption (collectively referred to herein as “lighting solutions”). As a goal-oriented, customer-centric company, we expect to continue to align the unique capabilities and resources of our organization to drive profitable growth through a keen focus on providing comprehensive and differentiated lighting solutions for our customers, driving world-class cost efficiency, and leveraging a culture of continuous improvement.
The Company manufactures or procures lighting devices primarily in North America, Europe and Asia. These devices can be sold separately or as part of an integrated lighting system. Devices used in lighting systems vary significantly in terms of functionality and performance and are selected based on a customer's specifications, including the aesthetic desires and performance requirements for a given lighting application. The Company’s lighting solutions are marketed under numerous brand names, including Lithonia Lighting®, Holophane®, Peerless®, Mark Architectural Lighting™, Hydrel®, American Electric Lighting®, Gotham®, Carandini®, RELOC®, Antique Street Lamps™, Tersen™, Winona® Lighting, Synergy® Lighting Controls, Sensor Switch®, Lighting Control & Design™, Dark to Light®, ROAM®, Sunoptics®, acculamp™, Pathway Connectivity™, and Healthcare Lighting®. As of August 31, 2012, the Company manufactures products in 18 facilities in North America and two facilities in Europe.
Principal customers include electrical distributors, retail home improvement centers, electric utilities, municipalities, lighting showrooms, and energy service companies located in North America and select international markets serving new construction, renovation, and facility maintenance applications. In North America, the Company’s lighting solutions are sold primarily by independent sales agents, electrical wholesalers, and factory sales representatives who cover specific geographic areas and market channels. Products are delivered directly or through a network of distribution centers, regional warehouses, and commercial warehouses using both common carriers and a company-owned truck fleet. To serve international customers, the sales forces utilize a variety of distribution methods to meet specific individual customer or country requirements. In fiscal 2012, North American sales accounted for approximately 98% of net sales. See the Geographic Information footnote of the Notes to Consolidated Financial Statements for more information concerning the domestic and international net sales of the Company. The Company has one operating segment serving the North American lighting market and select international markets.
Specialty Products Business Spin-off
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 $.01 per share, to the Company’s stockholders of record as of October 17, 2007. The Company’s stockholders received one Zep share, together with an associated preferred stock purchase right, for every two shares of the Company’s common stock they owned. Stockholders received cash in lieu of fractional shares for amounts less than one full Zep share.
Refer to the Discontinued Operations footnote of the Notes to Consolidated Financial Statements for information regarding the impact of the Spin-off.
Industry Overview
Based on industry sources and government information, the Company estimates that in fiscal 2012 the size of the North American lighting market served by the Company (also referred to herein as “N.A. addressable lighting market”) was approximately $12 billion and includes non-portable luminaires (as defined by the National Electrical Manufacturers Association), poles for outdoor lighting, emergency lighting fixtures, daylighting, and energy management and architectural lighting control solutions. This market estimate is based on a combination of external industry data and internal estimates, and excludes portable and vehicular lighting fixtures and certain related lighting components, such as lighting ballasts and most lamps. The U.S. market, which represents approximately 75% of the North American market, is relatively fragmented.
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The Company operates in a highly competitive industry that is affected by volatility from a number of general business and economic factors, such as gross domestic product growth, employment levels, credit availability, energy costs, and commodity costs. The Company’s primary market is based on non-residential construction, both new and renovation activity, which is sensitive to the volatility of these general economic factors. The Company is not aware of any data that accurately quantifies the split of the non-residential lighting market between new construction and renovations; however, recent trends developed from industry sources and Company estimates suggest that renovation activity, including retrofit, represents a growing proportion of the total non-residential lighting market. Construction spending on infrastructure projects such as highways, streets, and urban developments has a material impact on the demand for the Company’s infrastructure-focused lighting solutions. Demand for the Company’s lighting solutions sold through its retail channels is highly dependent on economic drivers, such as consumer spending and discretionary income, along with housing construction and home improvement spending.
A growing source of demand for the lighting industry is attributed to the renovation and retrofit of lighting systems in existing buildings. The Company estimates the potential market size of the installed base of U.S. non-residential lighting to be significant (approximately $200 billion) based on square footage of existing non-residential buildings, of which a majority represents potential space for relighting activities as they contain older, less efficient lighting systems.
The industry is influenced by the development of new lighting technologies, including LED, electronic ballasts, embedded lighting controls, and more effective optical designs and lamps; federal, state, and local requirements for updated energy codes; incentives by federal, state, and local municipal authorities, as well as utility companies, for using more energy-efficient lighting solutions; and design technologies addressing sustainability. The Company is a leading provider of lighting solutions based on these technologies and utilizes internally developed, licensed, or acquired intellectual property. The industry is experiencing competition from new entrants with a focus on new technology-based lighting devices and controls components.
Products
The Company provides a wide variety of lighting solutions, as well as services used in the following applications:
Lighting Solutions and Services:
• | Commercial & Institutional — Includes stores, hotels, offices, schools, and hospitals, as well as other government and public buildings. Lighting solutions that serve these applications include recessed, surface, and suspended lighting products, recessed downlighting, track lighting, daylighting, and lighting controls (occupancy sensors, photocontrols, relay panels, architectural dimming panels, and integrated lighting controls systems), as well as special-use lighting products. The outdoor areas associated with these applications are addressed by a variety of outdoor lighting products, such as area and flood lighting, decorative site lighting, and landscape lighting. |
• | Industrial — Includes primarily warehouses and manufacturing facilities, which utilize a variety of general purpose, daylighting, and special-use lighting solutions. |
• | Infrastructure — Includes highways, tunnels, airports, railway yards, and ports. Products that serve these applications include street, area, high-mast, off-set roadway, sign lighting, poles, and integrated controls systems. |
• | Residential — Includes a combination of decorative, utilitarian, and downlighting products. |
• | Services — Includes monitoring and controlling of lighting systems through network technologies. |
Sales of lighting solutions accounted for approximately 99% of total consolidated net sales for Acuity Brands in fiscal 2012, 2011, and 2010.
Sales and Marketing
Sales. The Company sells to customers in the North American market with separate sales forces targeted at delivering value added lighting solutions and services to various customer, channel, and geographic segments. As of August 31, 2012, these sales forces consist of approximately 250 company-employed salespeople and a network of approximately 200 independent sales agencies, each of which employs numerous salespeople. The Company also operates two separate European sales forces and an international sales group coordinating export sales outside of North America and Europe.
Marketing. The Company markets its portfolio to end users in multiple channels through a broad spectrum of marketing and promotional vehicles, including direct customer contact, trade shows, on-site training, print advertising in industry publications, product brochures and other literature, as well as the Internet and other electronic media. The Company owns and operates training and display facilities in numerous locations throughout North America and Europe designed to enhance the
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lighting knowledge of customers and industry professionals.
Customers
Customers of the Company include electrical distributors, retail home improvement centers, electric utilities, utility distributors, municipalities, federal, state, and local governments, contractors, lighting showrooms, and energy service companies. In addition, there are a variety of other professionals, who could represent a significant influence in the product specification process for any given project. These generally include business owners, contractors, engineers, architects, and lighting designers.
A single customer of the Company, The Home Depot, accounted for approximately 10% of net sales of the Company in both fiscal 2012 and 2011 and 11% in fiscal 2010. The loss of The Home Depot’s business could temporarily adversely affect the Company’s results of operations.
Manufacturing
The Company operates 20 manufacturing facilities, including 11 facilities in the United States, six facilities in Mexico, two facilities in Europe, and one in Canada. The Company utilizes a blend of internal and outsourced manufacturing processes and capabilities to fulfill a variety of customer needs in the most cost-effective manner. Critical processes, including reflector forming and anodizing, high-end glass production, surface mount circuit board production, software development, and assembly, are primarily performed at company-owned facilities, offering the ability to differentiate end-products through superior capabilities. Other critical components, such as lamps, LEDs, sockets, ballasts, and power supplies are purchased primarily from outside vendors. The Company’s investment in its production facilities is focused on improving capabilities, product quality, and manufacturing efficiency. The Company also utilizes contract manufacturing from U.S., Asian, and European sources for certain products. Additionally, the Company purchases certain finished goods, including poles, to complement its area lighting fixtures, as well as a variety of residential and commercial lighting equipment. In fiscal 2012, net sales of finished product manufactured by others accounted for approximately 22% of the Company’s net sales, while the Company’s U.S. operations produced approximately 29%; Mexico produced approximately 48%; and Europe produced approximately 1%.
Distribution
Lighting solutions are delivered directly or through a network of strategically located distribution centers, regional warehouses, and commercial warehouses in North America using both common carriers and a company-owned truck fleet. For international customers, distribution methods are adapted to meet individual customer or country requirements.
Research and Development
Research and development (“R&D”) efforts are targeted toward the development of lighting solutions with an ever-increasing performance-to-cost ratio and energy efficiency, while mutually beneficial relationships with lamp, ballast, LED, and power supply manufacturers are maintained to understand technology enhancements and incorporate them in the design of the Company’s lighting solutions. For fiscal 2012, 2011, and 2010, research and development expense totaled $34.7, $31.3, and $26.6, respectively.
Competition
The lighting market served by the Company is highly competitive, with some of the largest suppliers of lighting components also serving many of the same markets and competing for the same customers. Competition is based on numerous factors, including brand name recognition, product quality, product and lighting system design, energy efficiency, customer relationships, service capabilities, and price. The Company’s largest competitors in the North American lighting market include Cooper Industries plc, Hubbell Incorporated, and Koninklijke Philips Electronics N.V. The Company estimates that the largest publicly traded manufacturers (including Acuity Brands), which participate in varying degrees in the total North American lighting market, have approximately half of the total market share. In addition to these large competitors, the Company also competes with hundreds of manufacturers of varying size, and, to a lesser degree, large, diversified global electronics companies, such as OSRAM AG, Schneider Electric, and General Electric Company.
The market for lighting solutions and services is competitive and continues to evolve. Certain global and more diversified electrical manufacturers may be able to obtain a competitive advantage over the Company by offering broader and more integrated electrical solutions utilizing electrical, lighting, and building automation products. In addition, there have been a growing number of new competitors, from small startup companies to global consumer electronics companies, offering solid-state (primarily LED) lighting solutions to compete with traditional lighting providers.
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Environmental Regulation
The operations of the Company are subject to numerous comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances, as well as solid and hazardous wastes, and to the remediation of contaminated sites. In addition, permits and environmental controls are required for certain of the Company’s operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, the Company allocates resources, including investments in capital and operating costs relating to environmental compliance. Environmental laws and regulations have generally become stricter in recent years, and federal, state, and local governments domestically and internationally are considering new laws and regulations, including those governing raw material composition, air emissions, end-of-life product dispositions, and energy-efficiency. The Company is not aware of any pending legislation or proposed regulation related to environmental issues that would have a material adverse effect on the Company. The cost of responding to future changes, however, may be substantial.
Raw Materials
The devices produced by the Company require certain raw materials, including certain grades of steel and aluminum, electrical components, plastics, and other petroleum-based materials and components. In fiscal 2012, the Company purchased approximately 90,000 tons of steel and aluminum. The Company estimates that less than 8% of purchased raw materials are petroleum-based. Additionally, the Company estimates that approximately four million gallons of diesel fuel were consumed in fiscal 2012 through the Company’s distribution activities. The Company purchases most raw materials and other components on the open market and relies on third parties for providing certain finished goods. While these items are generally available from multiple sources, the cost of products sold may be affected by changes in the market price of raw materials, as well as disruptions in availability of raw materials, components, and sourced finished goods.
The Company does not currently engage in or expect to engage in significant commodity hedging transactions for raw materials, though the Company has and will continue to commit to purchase certain materials for a period of up to 12 months. Significant increases in the prices of the Company’s products due to increases in the cost of raw materials and components could have a negative effect on demand for products and on profitability. While the Company has generally been able to pass along these increases in cost in the form of higher selling prices for its products, there can be no assurance that future disruptions in either supply or price of these materials will not negatively affect future results.
The Company monitors and investigates alternative suppliers and materials based on numerous attributes including quality, service, and price. The Company currently sources raw materials from a number of suppliers, but the Company’s ongoing efforts to improve the cost effectiveness of its products and services may result in a reduction in the number of its suppliers. A reduction in the number of suppliers could cause increased risk associated with reliance on a limited number of suppliers for certain raw materials, component parts (such as lamps, LEDs, ballasts, and power supplies), and finished goods.
Backlog Orders
The Company produces and stocks quantities of inventory at key distribution centers and warehouses throughout North America. The backlog of orders at any given time is affected by various factors, including seasonality, cancellations, sales promotions, production cycle times, and the timing of receipt and shipment of orders, which are usually shipped within a few weeks of order receipt. Accordingly, a comparison of backlog orders from period to period is not necessarily meaningful and may not be indicative of actual future shipments.
Patents, Licenses and Trademarks
The Company owns or has licenses to use various domestic and foreign patents and trademarks related to its products, processes, and businesses. These intellectual property rights are important factors for its businesses. To protect these proprietary rights, the Company relies on copyright, patent, trade secret, and trademark laws. Despite these protections, unauthorized parties may attempt to infringe on the intellectual property of the Company. Management is not aware of any pending claims asserting that the Company does not have the right to use intellectual property that is material to the Company. While patents and patent applications in the aggregate are important to the competitive position of the Company, no single patent or patent application is individually material to the Company.
Seasonality and Cyclicality
The Company’s business exhibits some seasonality, with net sales being affected by the impact of weather and seasonal demand on construction and installation programs, particularly during the winter months, as well as the annual budget cycles of major customers. Because of these seasonal factors, the Company has experienced, and generally expects to experience, its highest sales in the last two quarters of each fiscal year.
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A significant portion of net sales relates to customers in the new construction and renovation markets. The new construction market is cyclical in nature and subject to changes in general economic conditions. Unit sales volume has a major impact on the profitability of the Company. Economic downturns and the potential decline in key construction markets may have a material adverse effect on the net sales and operating income of the Company.
International Operations
The Company manufactures and assembles products at numerous facilities, some of which are located outside the United States. Approximately 49% of the products sold by the Company are manufactured by the Company outside the United States, specifically operations in Mexico and Europe.
Of the Company’s total products sold, approximately 48% are produced at six facilities in Mexico. Most of these facilities are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows the Company to import certain items from the United States into Mexico duty-free, provided that such items, after processing, are exported from Mexico within 18 months. Maquiladora status, which is renewed every year, is subject to various restrictions and requirements, including compliance with the terms of the Maquiladora program and other local regulations. Additionally, the Company is currently transferring production to existing facilities, including those in Mexico, related to the closure of its operations located in Cochran, Georgia (the “Cochran facility”), in order to better utilize manufacturing capacity.
For fiscal 2012, net sales initiated outside of the U.S. represented approximately 11% of total net sales. See the Geographic Information footnote of the Notes to Consolidated Financial Statements for additional information regarding the geographic distribution of net sales, operating profit, and long-lived assets.
Information Concerning Acuity Brands
The Company makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (and all amendments to these reports) and proxy statements, together with all reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 by the Company’s officers, directors, and beneficial owners of 10% or more of the Company’s common stock, available free of charge through the “SEC Filings” link on the Company’s website, located at www.acuitybrands.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. Information included on the Company’s website is not incorporated by reference into this Annual Report on Form 10-K. The Company’s reports are also available at the Securities and Exchange Commission’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549 or on their website at www.sec.gov. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Additionally, the Company has adopted a written Code of Ethics and Business Conduct that applies to all of the Company’s directors, officers, and employees, including its principal executive officer and senior financial officers. The Code of Ethics and Business Conduct and the Company’s Corporate Governance Guidelines are available free of charge through the “Corporate Governance” link on the Company’s website. Any amendments to, or waivers of, the Code of Ethics and Business Conduct for our principal executive officer and senior financial officers will be disclosed on our website promptly following the date of such amendment or waiver. Additionally, the Statement of Responsibilities of Committees of the Board and the Statement of Rules and Procedures of Committees of the Board, which contain the charters for the Company’s Audit Committee, Compensation Committee, and Governance Committee, and the rules and procedures relating thereto, are available free of charge through the “Corporate Governance” link on the Company’s website. Each of the Code of Ethics and Business Conduct, the Corporate Governance Guidelines, the Statement of Responsibilities of Committees of the Board, and the Statement of Rules and Procedures of Committees of the Board is available in print to any stockholder of the Company that requests such document by contacting the Company’s Investor Relations department.
Employees
Acuity Brands employs slightly more than 6,000 people, of which approximately 2,900 are employed in the United States, slightly less than 3,000 in Mexico, and approximately 200 in other international locations, including Europe, Canada, and the Asia/Pacific region. Union recognition and collective bargaining arrangements are in place, covering approximately 3,800 persons (including approximately 1,100 in the United States). The Company believes that it has a good relationship with both its unionized and non-unionized employees.
Item 1a. | Risk Factors |
This filing contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. A variety of risks and uncertainties could cause Acuity Brands’ actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. See “Cautionary Statement Regarding
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Forward-Looking Information” on page 29. These risks include, without limitation:
Risks Related to the Business of Acuity Brands, Inc.
General business and economic conditions, including the strength of the construction market, may affect demand for the Company’s products and services, which could impact results from operations.
The Company competes based on such factors as name recognition and reputation, service, product features, innovation, and price. In addition, the Company operates in a highly competitive environment that is influenced by a number of general business and economic factors, such as general economic vitality, employment levels, credit availability, interest rates, trends in vacancy rates and rent values, energy costs, and commodity costs. Sales of lighting equipment depend significantly on the level of activity in new construction and renovations. Declines in general economic activity may negatively impact new construction and renovation projects, which in turn may impact demand for the Company’s product and service offerings. The impact of these factors could adversely affect the Company’s financial position, results from operations, and cash flows.
Tight credit conditions could impair the ability of the Company and other industry parties to effectively access capital markets, which could negatively impact the Company’s capital position and demand for the Company’s products and services.
The impact of tight credit conditions could continue to impair the ability of real estate developers, property owners, and contractors to effectively access capital markets or obtain reasonable costs of capital on borrowed funds, resulting in a decline in construction and renovation projects. The inability of these constituents to borrow money to fund construction and renovation projects reduces the demand for the Company’s products and services and could adversely affect the Company’s results from operations and cash flows.
In addition to the impact on customers, tight credit conditions could impair the Company’s ability to effectively access capital. This could impair the Company’s ability to refinance debt as it becomes due or to obtain additional credit, if needed. The inability to effectively access capital markets could adversely affect the Company’s financial position, results from operations, and cash flows.
Acuity Brands’ results may be adversely affected by fluctuations in the cost or availability of raw materials, components, and purchased finished goods.
The Company utilizes a variety of raw materials and components in its production process including steel, aluminum, lamps, certain rare earth materials, LEDs, ballasts, power supplies, petroleum-based by-products, natural gas, and copper. Future increases in the costs of these items could adversely affect operating margins, as there can be no assurance that future raw material and component price increases will be successfully passed through to customers. The Company generally sources these goods from a number of suppliers and, therefore, is reasonably insulated from risks affecting any one supplier. However, there are a limited number of suppliers for certain components and certain purchased finished goods, and disruptions in the supply of those items could negatively impact the Company’s short-term performance. In addition, volatility in certain commodities, such as oil, impacts all suppliers and, therefore, may cause the Company to experience significant price increases from time to time regardless of the number and availability of suppliers. Profitability and volume could be negatively impacted by limitations inherent within the supply chain of certain of these component parts, including competitive, governmental, and legal limitations, natural disasters, and other events that could impact both supply and price. Variability in cost and availability could adversely affect the Company’s results from operations and cash flows.
In July 2010, the United States federal government enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act, which contained provisions that mandated the creation of rules by the SEC for public companies to ascertain the region of origin of conflict minerals (i.e., cassiterite, wolframite, coltan, and gold) used in the production of goods. In August 2012, the SEC adopted new rules requiring disclosures of conflict minerals that are necessary to the functionality or production of products manufactured or contracted to be manufactured by public companies. The new rule will require companies to perform due diligence and disclose through the issuance of a report whether or not such minerals originate from the Democratic Republic of Congo or an adjoining country. The new rule could affect sourcing at competitive prices and availability in sufficient quantities of certain minerals used in the manufacture of the Company’s products, including tantalum, tin, gold, and tungsten. The number of suppliers who provide conflict-free minerals may be limited, which could have an adverse affect on the Company’s ability to source these products in the future. In addition, costs attributable to compliance with the disclosure requirements of the SEC’s new rules, such as costs related to determining the source of certain minerals used in our products, will be incurred and could be material. The costs of compliance, including those related to supply chain research, unexpected consequences to the Company’s reputation, the limited number of suppliers, and possible changes in the sourcing of these materials, could adversely affect the Company’s results from operations and cash flows.
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Acuity Brand’s results may be adversely affected by the Company’s inability to maintain pricing.
Aggressive pricing actions by competitors may affect the Company’s ability to achieve desired unit volume growth and profitability levels under its current pricing strategies. The Company may also decide to lower pricing to match the competition. Additionally, the Company may not be able to increase prices to cover rising costs of components and raw materials. Even if the Company were able to increase prices to cover costs, competitive pricing pressures may not allow the Company to pass on any more than the cost increases. Alternatively, if component and raw material costs were to decline, the marketplace may not allow the Company to hold prices at their current levels, which could negatively impact both net sales and gross margins.
Acuity Brands may experience difficulties in the consolidation of manufacturing facilities which could impact the shipments to customers, product quality, and the ability to realize the expected savings from streamlining actions.
The Company will benefit from its ongoing programs to streamline operations, including the consolidation of certain manufacturing facilities and the reduction of overhead costs, only to the extent that it can effectively leverage assets, personnel, and operating processes in the transition of production between manufacturing facilities. Uncertainty is inherent within the facility consolidation process, and unforeseen circumstances could offset the anticipated benefits, disrupt service to customers, and impact product quality.
Acuity Brands is subject to risks related to operations outside the United States.
The Company has substantial activities outside of the United States, including sourcing of products, materials, and components. The Company’s operations, as well as those of key vendors, are therefore subject to regulatory, economic, political, military, and other events in countries where these operations are located, particularly Mexico. In addition to the risks that are common to both the Company’s domestic and international operations, the Company faces risks specifically related to its foreign operations, including but not limited to: foreign currency fluctuations; unstable political, social, regulatory, economic, financial, and market conditions; potential for privatization and other confiscatory actions; trade restrictions and disruption; criminal activities; and unforeseen increases in tariffs and taxes. The Company continues to monitor conditions affecting its international locations, including potential changes in income from a strengthening or weakening in foreign exchange rates in relation to the U.S. dollar. Some of these risks, including foreign exchange risk, could have a material adverse effect on the Company’s business, financial condition, results from operations, and cash flows in the future.
Technological developments and increased competition could affect the Company’s operating profit margins and sales volume.
The Company competes in an industry where technology and innovation play major roles in the competitive landscape. The Company is highly engaged in the investigation, development, and implementation of new technologies. Securing key partnerships and alliances as well as employee talent, including having access to technologies developed by others, and obtaining appropriate patents play a significant role in protecting the Company’s intellectual property and development activities. Additionally, the continual development of new technologies (e.g., LED, OLED, lamp/ballast systems, lighting controls systems, etc.) by existing and new source suppliers — including non-traditional competitors with significant resources — looking for either direct market access or partnerships with competing large manufacturers, coupled with significant associated exclusivity and/or patent activity, could adversely affect the Company’s ability to sustain operating profit margins and desirable levels of sales volume. Also, certain key suppliers of components compete with the Company and could choose to cease supplying the Company, which could temporarily disrupt production by the Company until alternative supplier relationships are established. In addition, there have been a growing number of new competitors, from small startup companies to global consumer electronics companies, offering solid-state (primarily LED) lighting solutions to compete with traditional lighting providers. Certain global and more diversified electrical manufacturers may be able to obtain a competitive advantage over the Company by offering broader and more integrated electrical solutions utilizing electrical, lighting, and building automation products, and small startup companies may offer more localized product sales and support services within individual regions, which could have a material adverse effect on the Company’s business, financial condition, results from operations, and cash flows.
The Company’s inability to effectively introduce new products could adversely affect its ability to compete and its operating performance.
Continual introductions of new products, services, and technologies, enhancement of existing products and services, and effective servicing of customers are key to the Company’s competitive strategy. The success of new product introductions depends on a number of factors, including, but not limited to, timely and successful product development, market acceptance, the Company’s ability to manage the risks associated with product life cycles, such as new products and production
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capabilities, the effective management of purchase commitments and inventory levels to support anticipated product manufacturing and demand, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products may have quality or other defects in the early stages of introduction. Accordingly, the Company cannot fully predict the ultimate effect of new product introductions and transitions on the Company’s business, financial condition, results from operations, and cash flows.
Acuity Brands is subject to a broad range of environmental, health, and safety laws and regulations in the jurisdictions in which it operates, and the Company may be exposed to substantial environmental, health, and safety costs and liabilities.
The Company is subject to a broad range of environmental, health, and safety laws and regulations in the jurisdictions in which the Company operates. These laws and regulations impose increasingly stringent environmental, health, and safety protection standards and permitting requirements regarding, among other things, air emissions, wastewater storage, treatment, and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination, and working conditions for the Company’s employees. Some environmental laws, such as Superfund, the Clean Water Act, and comparable laws in U.S. states and other jurisdictions world-wide, impose joint and several liability for the cost of environmental remediation, natural resource damages, third party claims, and other expenses, without regard to the fault or the legality of the original conduct, on those persons who contributed to the release of a hazardous substance into the environment. The Company may also be affected by future laws or regulations, including those imposed in response to energy, climate change, geopolitical, or similar concerns. These laws may impact the sourcing of raw materials and the manufacture and distribution of the Company’s products and place restrictions on the products the Company can sell in certain geographical locations.
The costs of complying with these laws and regulations, including participation in assessments and remediation of contaminated sites and installation of pollution control facilities, have been, and in the future could be, significant. In addition, these laws and regulations may also result in substantial environmental liabilities associated with divested assets, third party locations, and past activities. The Company has established reserves for environmental remediation activities and liabilities where appropriate. However, the cost of addressing environmental matters (including the timing of any charges related thereto) cannot be predicted with certainty, and these reserves may not ultimately be adequate, especially in light of potential changes in environmental conditions, changing interpretations of laws and regulations by regulators and courts, the discovery of previously unknown environmental conditions, the risk of governmental orders to carry out additional compliance on certain sites not initially included in remediation in progress, the Company’s potential liability to remediate sites for which provisions have not previously been established, and the adoption of more stringent environmental laws. Such future developments could result in increased environmental costs and liabilities and could require significant capital and other ongoing expenditures, any of which could have a material adverse effect on the Company’s financial condition or results. In addition, the presence of environmental contamination at the Company’s properties could adversely affect its ability to sell a property, receive full value for a property, or use a property as collateral for a loan.
Acuity Brands may develop unexpected legal contingencies or matters that exceed insurance coverage.
The Company is subject to various claims, including legal claims arising in the normal course of business. The Company is insured up to specified limits for certain types of losses with a self-insurance retention of $0.5 per occurrence, including product liability claims, and is fully self-insured for certain other types of losses, including environmental, product recall, warranties, commercial disputes, and patent infringement. The Company establishes reserves for legal claims when the costs associated with the claims become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the level of insurance coverage held by the Company and/or the amounts reserved for such claims. In the event of unexpected future developments, it is possible that the ultimate resolutions of such matters, if unfavorable, could have a material adverse effect on the Company’s results from operations, financial position, or cash flows. The Company’s insurance coverage is negotiated on an annual basis, and insurance policies in the future may have coverage exclusions that could cause claim-related costs to rise.
If Acuity Brands’ products are improperly designed, manufactured, packaged, or labeled, the Company may need to recall those items, may have increased warranty costs, and could be the target of product liability claims.
The Company may need to recall products if they are improperly designed, manufactured, packaged, or labeled, and the Company does not maintain insurance for such recall events. The Company has previously initiated product recalls as a result of potentially faulty components, assembly, installation, and packaging of its products, and widespread product recalls could result in significant losses due to the costs of a recall, the destruction of product inventory, and lost sales due to the unavailability of a product for a period of time. In addition, products developed by the Company that incorporate new technologies, such as LED technology, generally provide for more extensive warranty protection which may result in higher costs if warranty claims on these products are higher than historical amounts. The Company may also be liable if the use of any
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of its products causes injury, and could suffer losses from a significant product liability judgment against the Company in excess of its insurance limits. A significant product recall, warranty claim, or product liability case could also result in adverse publicity, damage to the Company’s reputation, and a loss of consumer confidence in its products, which could have a material adverse effect on the Company’s business, financial results, and cash flows.
Failure to effectively estimate employer-sponsored health insurance premiums and incremental costs due to the Affordable Healthcare Act could materially and adversely affect our results of operations, financial position, and cash flows.
In March 2010, the United States federal government enacted comprehensive health care reform legislation, which, among other things, includes guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new taxes on health insurers, self-insured companies, and health care benefits. The legislation imposes implementation effective dates that began in 2010 and extend through 2020 with many of the changes requiring additional guidance from federal agencies and regulations. Possible adverse effects could include increased costs, exposure to expanded liability, and requirements for the Company to revise the ways in which healthcare and other benefits are provided to employees. To date, the Company has not experienced material costs related to such legislation, however, due to the phased-in nature of the implementation and the lack of interpretive guidance, the Company continues to monitor the potential impacts the health care reform legislation will have on the Company’s financial results.
Acuity Brands may pursue future growth through strategic acquisitions and alliances, which may not yield anticipated benefits.
The Company has strengthened its business through strategic acquisitions and alliances and may continue to do so as opportunities arise in the future. The Company will benefit from such activity only to the extent that it can effectively leverage the assets of the acquired businesses and alliances, including personnel, technology, and operating processes. Uncertainty is inherent within the acquisition and alliance process, and unforeseen circumstances arising from recent and future acquisitions or alliances could offset their anticipated benefits. In addition, unanticipated events, negative revisions to valuation assumptions and estimates, and/or difficulties in attaining synergies, among other factors, could adversely affect the Company’s ability to recover initial and subsequent investments, particularly those related to acquired goodwill and intangible assets. Any of these factors could adversely affect the Company’s financial condition, results from operations, and cash flows.
Acuity Brands may be unable to sustain significant customer and/or channel partner relationships.
Relationships with customers, including The Home Depot which historically has represented slightly greater than 10% of the Company’s total net sales, are directly impacted by the Company’s ability to deliver high-quality products and services. The Company and The Home Depot do not have a written obligation for the purchase of products. The loss of or a substantial decrease in the volume of purchases by The Home Depot could temporarily harm the Company’s sales, profitability, and cash flows. The Company also has relationships with channel partners such as electrical distributors and independent sale agencies. While the Company has experienced positive, and in most cases long-term, relationships with these channel partners, the loss of a number of these channel partners or a substantial decrease in the volume of purchases from a major channel partner or a group of channel partners could, at least in the short-term, adversely affect the Company’s sales, profitability, and cash flows.
Acuity Brands could be adversely affected by disruptions of its operations.
The breakdown of equipment or other events, including labor disputes, strikes, pandemics or catastrophic events such as war or natural disasters, leading to production interruptions in the Company’s or one or more of its suppliers’ facilities could have a material adverse effect on the Company’s financial results and cash flows. Approximately 48% of the Company’s finished products are manufactured in Mexico, a country that periodically experiences heightened civil unrest, which could also disrupt supply of products from these facilities. Further, because many of the Company’s customers are, to varying degrees, dependent on planned deliveries from the Company’s facilities, those customers that have to reschedule their own production or delay opening a facility due to the Company’s missed deliveries could pursue financial claims against the Company. The Company may incur costs to correct any of these problems, in addition to facing claims from customers. Further, the Company’s reputation among actual and potential customers may be harmed and result in a loss of business. While the Company has developed business continuity plans, including alternative capacity, to support responses to such events or disruptions and maintains insurance policies covering, among other things, physical damage and business interruptions, these policies may not cover all losses. The Company could incur uninsured losses and liabilities arising from such events, including damage to its reputation, loss of customers, and substantial losses in operational capacity, any of which could have a material adverse effect on its financial results and cash flows.
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Failure of a Company operating or information system or a compromise of security with respect to an operating or information system or portable electronic device could adversely affect the Company’s results from operations and financial condition or the effectiveness of internal controls over operations and financial reporting.
The Company is highly dependent on automated systems to record and process Company and customer transactions and certain other components of the Company’s financial statements. Additionally, the Company maintains information technology to support lighting controls systems in customer offerings, which are integral to the functionality of those integrated systems. The Company could experience a failure of one or more of these systems or could fail to complete all necessary data reconciliation or other conversion controls when implementing a new software system. The Company could also experience a compromise of its security due to technical system flaws, clerical, data input or record-keeping errors, or tampering or manipulation of its systems by employees or unauthorized third parties. Information security risks also exist with respect to the use of portable electronic devices, such as laptops and smartphones, which are particularly vulnerable to loss and theft. The Company may also be subject to disruptions of any of these systems arising from events that are wholly or partially beyond its control (for example, natural disasters, acts of terrorism, epidemics, computer viruses, and electrical/telecommunications outages). All of these risks are also applicable where the Company relies on outside vendors to provide services. Operating system failures, ineffective system implementation or disruptions, or the compromise of security with respect to operating systems or portable electronic devices could subject the Company to liability claims, harm the Company’s reputation, interrupt the Company’s operations, disrupt customer operations, and adversely affect the Company’s internal control over financial reporting, business, results from operations, financial condition or cash flows.
The inability to attract and retain talented employees and/or a loss of key employees could adversely affect the effectiveness of the Company’s operations.
The Company relies upon the knowledge and experience of employees involved in functions throughout the organization that require technical expertise and knowledge of the industry. A loss of such employees could adversely impact the Company’s ability to execute key operational functions and could adversely affect the Company’s operations.
The risks associated with the inability to effectively execute its strategies could adversely affect the Company’s results from operations and financial condition.
Various uncertainties and risks are associated with the implementation of a number of aspects of the Company’s global business strategy, including but not limited to new product development, effective integration of acquisitions, and efforts to streamline operations. Those uncertainties and risks include, but are not limited to: diversion of management’s attention; difficulty in retaining or attracting employees; negative impact on relationships with distributors and customers; obsolescence of current products and slow new product development; additional streamlining efforts; and unforeseen difficulties in the implementation of the management operating structure. Problems with strategy execution could offset anticipated benefits, disrupt service to customers, and impact product quality, and could adversely affect the Company’s financial condition and results from operations.
Risks Related to Ownership of Acuity Brands Common Stock
The market price and trading volume of the Company’s shares may be volatile.
The market price of the Company’s common shares could fluctuate significantly for many reasons, including for reasons unrelated to the Company’s specific performance, such as reports by industry analysts, investor perceptions, or negative announcements by customers, competitors or suppliers regarding their own performance, as well as general economic and industry conditions. To the extent that other large companies within the Company’s industry experience declines in their share price, the Company’s share price may decline as well. In addition, when the market price of a company’s shares drops significantly, shareholders could institute securities class action lawsuits against the company. A lawsuit against the Company could cause the Company to incur substantial costs and could divert the time and attention of the Company’s management and other resources.
Item 2. | Properties |
The general corporate offices of Acuity Brands are located in Atlanta, Georgia. Because of the diverse nature of operations and the large number of individual locations, it is neither practical nor meaningful to describe each of the operating facilities owned or leased by the Company. The following listing summarizes the significant facility categories:
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Nature of Facilities | Owned | Leased | |||
Manufacturing Facilities | 12 | 8 | |||
Warehouses | — | 2 | |||
Distribution Centers | 2 | 5 | |||
Offices | 3 | 18 | |||
The following table provides additional geographic information related to Acuity Brands’ manufacturing facilities:
United States | Mexico | Europe | Canada | Total | ||||||||||
Owned | 6 | 5 | 1 | — | 12 | |||||||||
Leased | 5 | 1 | 1 | 1 | 8 | |||||||||
Total | 11 | 6 | 2 | 1 | 20 | |||||||||
None of the individual properties of Acuity Brands is considered to have a value that is significant in relation to the assets of Acuity Brands as a whole. Though a loss at certain facilities could have an impact on the Company’s ability to serve the needs of its customers, the Company believes that the financial impact would be partially mitigated by various insurance programs in place. Acuity Brands believes that its properties are well maintained and are in good operating condition and that its properties are suitable and adequate for its present needs. The Company believes that it has additional capacity available at most of its production facilities and that it could increase production without substantial capital expenditures. As noted above, initiatives related to enhancing the global supply chain may continue to result in the consolidation of certain manufacturing facilities. The Company believes that the remaining facilities will have sufficient capacity to serve current and projected market demand.
Item 3. | Legal Proceedings |
General
Acuity Brands is subject to various legal claims arising in the normal course of business, including, but not limited to, patent infringement, product liability claims, and employment matters. Acuity Brands 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 financial condition, results of operations, or cash flows of Acuity Brands. 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 Acuity Brands in future periods. Acuity Brands 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 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 Company’s operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, Acuity Brands 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. Acuity Brands establishes reserves for known environmental claims when the costs associated with the claims become probable and can be reasonably estimated. The actual cost of environmental issues may be substantially higher or lower than that reserved due to difficulty in estimating such costs.
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PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The common stock of Acuity Brands, Inc. (“Acuity Brands” or the “Company”) is listed on the New York Stock Exchange under the symbol “AYI”. At October 22, 2012, there were 3,533 stockholders of record. The following table sets forth the New York Stock Exchange high and low sale prices and the dividend payments for Acuity Brands’ common stock for the periods indicated.
Price per Share | Dividends | ||||
High | Low | per Share | |||
2011 | |||||
First Quarter | $54.30 | $39.25 | $0.13 | ||
Second Quarter | $60.73 | $52.21 | $0.13 | ||
Third Quarter | $61.45 | $52.80 | $0.13 | ||
Fourth Quarter | $60.94 | $38.74 | $0.13 | ||
2012 | |||||
First Quarter | $50.27 | $33.13 | $0.13 | ||
Second Quarter | $64.26 | $47.82 | $0.13 | ||
Third Quarter | $64.82 | $49.60 | $0.13 | ||
Fourth Quarter | $66.66 | $48.11 | $0.13 | ||
The Company currently plans to pay quarterly dividends for fiscal 2013 on its common stock at an annual rate of $0.52 per share. All decisions regarding the declaration and payment of dividends are at the discretion of the Board of Directors of the Company and will be evaluated regularly in light of the Company’s financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors that the Company’s Board deems relevant. The information required by this item with respect to equity compensation plans is included under the caption Equity Compensation Plans in the Company’s proxy statement for the annual meeting of stockholders to be held January 4, 2013, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Issuer Purchases of Equity Securities
In September 2011, the Company's Board of Directors authorized the repurchase of two million shares, or almost 5%, of the Company's outstanding common stock. None of the Company’s outstanding common stock was repurchased under the current plan during fiscal 2012.
Depending on market conditions, shares may be repurchased from time to time at prevailing market prices through open market or privately negotiated transactions. No date has been established for the completion of the share repurchase program, and the Company is not obligated to repurchase any shares. Subject to applicable corporate securities laws, repurchases may be made at such times and in such amounts as management deems appropriate. Repurchases under the program can be discontinued at any time management feels additional repurchases are not warranted.
None of the Company’s outstanding common stock was repurchased during the quarter ended August 31, 2012.
Company Stock Performance
The following information in this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent specifically incorporated by reference into such filing.
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The following graph compares the cumulative total return to shareholders on the Company’s outstanding stock during the five years ended August 31, 2012, with the cumulative total returns of the Standard & Poor’s (“S&P”) MidCap 400 Index, the Dow Jones U.S. Electrical Components & Equipment Index, and the Dow Jones U.S. Building Materials & Fixtures Index. The Company is a component of both the S&P Midcap 400 Index and Dow Jones U.S. Building Materials & Fixtures Index. The Dow Jones U.S. Electrical Components & Equipment Index is also included in the following graph as the parent companies of several major lighting companies are included in the index.
Aug-07 | Aug-08 | Aug-09 | Aug-10 | Aug-11 | Aug-12 | ||||||||||||||
Acuity Brands, Inc. | $ | 100 | $ | 101 | $ | 76 | $ | 93 | $ | 111 | $ | 156 | |||||||
S&P Midcap 400 Index | $ | 100 | $ | 96 | $ | 78 | $ | 88 | $ | 108 | $ | 121 | |||||||
Dow Jones US Electrical Components & Equipment Index | $ | 100 | $ | 95 | $ | 74 | $ | 78 | $ | 97 | $ | 120 | |||||||
Dow Jones US Building Materials & Fixtures Index | $ | 100 | $ | 91 | $ | 68 | $ | 69 | $ | 77 | $ | 115 | |||||||
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Item 6. | Selected Financial Data |
The following table sets forth certain selected consolidated financial data of Acuity Brands which have been derived from the Consolidated Financial Statements of Acuity Brands for each of the five years in the period ended August 31, 2012. Amounts have been adjusted to reflect the specialty products business as discontinued operations as a result of the Spin-off. Refer to Part 1, Item 1 above for additional information regarding the Spin-off. This historical information may not be indicative of the Company’s future performance. The information set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and the notes thereto.
Years Ended August 31, | |||||||||||||||||||
2012(1) | 2011 | 2010(2) | 2009(3) | 2008(4) | |||||||||||||||
(In millions, except per-share data) | |||||||||||||||||||
Net sales | $ | 1,933.7 | $ | 1,795.7 | $ | 1,626.9 | $ | 1,657.4 | $ | 2,026.6 | |||||||||
Income from Continuing Operations | 116.3 | 105.5 | 79.0 | 85.2 | 148.6 | ||||||||||||||
Income (loss) from Discontinued Operations | — | — | 0.6 | (0.3 | ) | (0.3 | ) | ||||||||||||
Net Income | 116.3 | 105.5 | 79.6 | 84.9 | 148.3 | ||||||||||||||
Basic earnings per share from Continuing Operations | $ | 2.75 | $ | 2.46 | $ | 1.83 | $ | 2.05 | $ | 3.58 | |||||||||
Basic earnings (loss) per share from Discontinued Operations | — | — | 0.01 | (0.01 | ) | (0.01 | ) | ||||||||||||
Basic earnings per share | $ | 2.75 | $ | 2.46 | $ | 1.84 | $ | 2.04 | $ | 3.57 | |||||||||
Diluted earnings per share from Continuing Operations | $ | 2.72 | $ | 2.42 | $ | 1.79 | $ | 2.01 | $ | 3.51 | |||||||||
Diluted earnings (loss) per share from Discontinued Operations | — | — | 0.01 | (0.01 | ) | (0.01 | ) | ||||||||||||
Diluted earnings per share | $ | 2.72 | $ | 2.42 | $ | 1.80 | $ | 2.00 | $ | 3.50 | |||||||||
Cash and cash equivalents | $ | 284.5 | $ | 170.2 | $ | 191.0 | $ | 18.7 | $ | 297.1 | |||||||||
Total assets | 1,736.9 | 1,597.4 | 1,503.6 | 1,290.6 | 1,408.7 | ||||||||||||||
Long-term debt (less current maturities) | 353.5 | 353.4 | 353.3 | 22.0 | 204.0 | ||||||||||||||
Total debt | 353.5 | 353.4 | 353.3 | 231.5 | 363.9 | ||||||||||||||
Stockholders’ equity | 834.0 | 757.0 | 694.4 | 672.2 | 575.5 | ||||||||||||||
Cash dividends declared per common share | $ | 0.52 | $ | 0.52 | $ | 0.52 | $ | 0.52 | $ | 0.54 | |||||||||
_______________________________________
(1) | Income from Continuing Operations, Net Income, Basic Earnings per Share from Continuing Operations, and Diluted Earnings per Share from Continuing Operations for fiscal 2012 include expenses incurred in the closing of the Cochran, GA manufacturing facility and other streamlining activities. Amounts related to these restructuring charges were comprised of the following: a) $13.3 of pre-tax special charges ($8.8 after-tax), or $0.21 per share, primarily related to severance and production transfer costs; b) pre-tax non-cash impairments of $1.2 ($0.8 after-tax), or $0.02 per share, attributable to the abandonment of usable inventory that will not be transferred to other facilities; and c) pre-tax incremental costs incurred due to manufacturing inefficiencies directly related to the Cochran facility closure, which amounted to approximately $3.2 ($2.0 after-tax), or $0.05 per share. |
(2) | Income from Continuing Operations, Net Income, Basic Earnings per Share from Continuing Operations, and Diluted Earnings per Share from Continuing Operations for fiscal 2010 include a pre-tax special charge of $8.4 ($5.5 after-tax), or $0.13 per share, for estimated costs the Company incurred to simplify and streamline its operations. Net income, Basic Earnings per Share from Continuing Operations, and Diluted Earnings per Share from Continuing Operations for fiscal 2010 also include a pre-tax loss of $10.5 ($6.8 after-tax), or $0.16 per share, related to the loss on early debt extinguishment. |
(3) | Income from Continuing Operations, Net Income, Basic Earnings per Share from Continuing Operations, and Diluted Earnings per Share from Continuing Operations for fiscal 2009 include a pre-tax special charge of $26.7 ($16.8 after-tax), or $0.40 per share, for estimated costs to simplify and streamline the Company’s operations. |
(4) | Income from Continuing Operations, Net Income, Basic Earnings per Share from Continuing Operations, and Diluted Earnings per Share from Continuing Operations for fiscal 2008 include a pre-tax special charge of $14.6 ($9.1 after-tax), or $0.21 per share, for estimated costs to simplify and streamline the Company’s operations. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
($ in millions, except per-share data and as indicated)
The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes included within this report. References made to years are for fiscal year periods.
The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands and its subsidiaries for the years ended August 31, 2012 and 2011. For a more complete understanding of this discussion, please read the Notes to Consolidated Financial Statements included in this report.
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 lighting solutions and services for commercial, institutional, industrial, infrastructure, and residential applications for various markets throughout North America and select international markets. The Company's lighting solutions include devices such as luminaires, lighting controls, power supplies, prismatic skylights, light-emitting diode (“LED”) lamps, and integrated lighting systems for indoor and outdoor applications utilizing a combination of light sources, including daylight, and other devices controlled by software that monitors and manages light levels while optimizing energy consumption (collectively referred to herein as “lighting solutions”). The Company is one of the world's leading producers and distributors of lighting solutions, 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 a broad and diverse customer base. As of August 31, 2012, the Company operates 20 manufacturing facilities and seven distribution facilities along with two warehouses to serve its extensive customer base.
Since fiscal 2010, the Company has made several acquisitions to expand and enhance its portfolio of lighting solutions, including the following:
On May 12, 2011, the Company acquired for cash all of the ownership interests in Healthcare Lighting, Inc. (“Healthcare Lighting”), a leading provider of specialized, high-performance lighting solutions for healthcare facilities based in Fairview, Pennsylvania. The operating results for Healthcare Lighting have been included in the Company's consolidated financial statements since the date of acquisition.
On February 23, 2011, the Company acquired for cash all of the ownership interests in Washoe Equipment, Inc., d/b/a Sunoptics Prismatic Skylights, and CBC Plastics LLC (collectively, “Sunoptics”), a premier designer, manufacturer, and marketer of high-performance, prismatic daylighting solutions based in Sacramento, California. The operating results for Sunoptics have been included in the Company's consolidated financial statements since the date of acquisition.
On October 14, 2010, the Company acquired for cash all of the outstanding capital stock of Winona Lighting, Inc. (“Winona Lighting”), a premier provider of architectural and high-performance indoor and outdoor lighting solutions headquartered in Winona, Minnesota. The operating results for Winona Lighting have been included in the Company's consolidated financial statements since the date of acquisition.
On July 26, 2010, the Company acquired for cash the remaining outstanding capital stock of Renaissance Lighting, Inc. (“Renaissance”), a privately-held innovator of solid-state LED architectural lighting devices based in Herndon, Virginia. Previously, the Company entered into a strategic partnership with Renaissance, which included a noncontrolling interest in Renaissance and a license to Renaissance's intellectual property estate. The operating results of Renaissance have been included in the Company's consolidated financial statements since the date of acquisition.
Strategy
Our strategy is to extend our leadership position in the lighting market by delivering superior lighting solutions. As a goal-oriented, customer-centric company, we will continue to align the unique capabilities and resources of our organization to drive profitable growth through a keen focus on providing comprehensive and differentiated lighting solutions for our customers, driving world-class cost efficiency, and leveraging a culture of continuous improvement.
Throughout fiscal 2012, the Company believes it made significant progress towards achieving its strategic objectives,
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including expanding its access to the market, introducing new lighting solutions, and enhancing its operations to create a stronger, more effective organization. The strategic objectives were developed to enable the Company to meet or exceed the following financial goals during an entire business cycle:
• | Operating margins in the mid-teens or higher; |
• | Earnings per share growth in excess of 15% per annum; |
• | Return on stockholders’ equity of 20% or better per annum; and |
• | Cash flow from operations, less capital expenditures, that is in excess of net income. |
To increase the probability of the Company achieving these financial goals, management will continue to implement programs to enhance its capabilities at providing unparalleled customer service; creating a globally competitive cost structure; improving productivity; and introducing new and innovative lighting solutions and services more rapidly and cost effectively. In addition, the Company has invested considerable resources to teach and train associates to utilize tools and techniques that accelerate success in these key areas, as well as to create a culture that demands excellence through continuous improvement. Additionally, the Company promotes a “pay-for-performance” culture that rewards achievement, while closely monitoring appropriate risk-taking. The expected outcome of these activities will be to better position the Company to deliver on its full potential, to provide a platform for future growth opportunities, and to allow the Company to achieve its long-term financial goals. See the Outlook section below for additional information.
Liquidity and Capital Resources
The Company's principle sources of liquidity are operating cash flows generated primarily from its business operations, cash on hand, and various sources of borrowings. The ability of the Company to generate sufficient cash flow from operations or to 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.
Over the previous three years, the Company strengthened its liquidity position and extended its debt maturity profile following the issuance of $350.0 of senior unsecured notes due in fiscal 2020 (the “Notes”) and the execution of a new $250.0 revolving credit facility scheduled to mature in fiscal 2017 (the “Revolving Credit Facility”). See the Capitalization section below and the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for more information.
Based on its cash on hand, availability under existing financing arrangements and current projections of cash flow from operations, the Company believes that it will be able to meet its liquidity needs over the next 12 months. Short-term needs are expected to include funding its operations as currently planned, making anticipated capital investments, funding potential acquisitions, paying quarterly stockholder dividends as currently anticipated, paying interest on borrowings as currently scheduled, and making required contributions into its employee benefit plans, as well as potentially repurchasing shares of its outstanding common stock as authorized by the Board of Directors. Two million shares of the Company’s common stock are currently authorized and available for repurchase under the existing repurchase program. The Company expects to repurchase these shares on an opportunistic basis. The Company currently expects to invest during fiscal 2013 approximately $40.0 primarily for equipment, tooling, and new and enhanced information technology capabilities. Additionally, management believes that the Company's cash flow from operations and sources of funding, including, but not limited to, borrowing capacity, will sufficiently support the long-term liquidity needs of the Company.
Cash Flow
The Company uses available cash and cash flow from operations, as well as proceeds from the exercise of stock options, to fund operations and capital expenditures, repurchase Company stock, fund acquisitions, and pay dividends.
The Company’s cash position at August 31, 2012 was $284.5, an increase of $114.3 from August 31, 2011. During the year ended August 31, 2012, the Company generated net cash from operating activities of $172.2 with additional cash received of $7.6 from stock issuances in connection with stock option exercises. Cash generated from operating activities, as well as cash on-hand, was used during the current year for capital expenditures of $31.4 and acquisitions (net of cash assumed) of $3.8. In addition, the Company paid dividends to stockholders of $22.0 and repurchased common stock of the Company for $9.2. Foreign currency related items had an unfavorable effect on cash flows of $4.1 during the current year.
During fiscal 2012, the Company generated net cash from operating activities of $172.2 compared with $161.1 generated in the prior-year period due primarily to higher net income during fiscal 2012 compared with the prior-year period.
Operating working capital (calculated by adding accounts receivable plus inventories, and subtracting accounts payable-net of acquisitions), increased modestly by approximately $0.5 in fiscal 2012 compared to fiscal 2011. However, the underlying
18
components of operating working capital changed more noticeably. The slight increase in accounts receivable was attributable to the higher level of net sales in fiscal 2012 compared with fiscal 2011, mostly offset by the timing of receipts from customers. The increase in inventory, primarily raw materials, was due mostly to higher relative costs of raw materials used in products based on newer technologies, such as solid state lighting, a temporary increase of certain inventories in order to maintain service levels during the production moves associated with the closure of the Cochran, Georgia, manufacturing facility (the “Cochran facility”, see the Results of Operations section and the Special Charge footnote within the Notes to Consolidated Financial Statements for more information) and certain strategic purchases of commodities and components. Accounts payable increased almost entirely due to the aforementioned inventory purchases.
Management believes that investing in assets and programs that will over time increase the overall return on the Company’s invested capital is a key factor in driving stockholder value. The Company invested $31.4 and $23.3 in fiscal 2012 and 2011, respectively, primarily for new tooling, machinery, equipment, and information technology.
Contractual Obligations
The following table summarizes the Company’s contractual obligations at August 31, 2012:
Payments Due by Period | |||||||||||||||||||
Total | Less than One Year | 1 to 3 Years | 4 to 5 Years | After 5 Years | |||||||||||||||
Debt(1) | $ | 353.5 | $ | — | $ | — | $ | — | $ | 353.5 | |||||||||
Interest Obligations(2) | 263.2 | 31.2 | 64.1 | 65.8 | 102.1 | ||||||||||||||
Operating Leases(3) | 54.4 | 15.3 | 19.5 | 13.3 | 6.3 | ||||||||||||||
Purchase Obligations(4) | 104.0 | 99.5 | 3.0 | 1.5 | — | ||||||||||||||
Other Long-term Liabilities(5) | 58.7 | 5.8 | 10.6 | 6.7 | 35.6 | ||||||||||||||
Total | $ | 833.8 | $ | 151.8 | $ | 97.2 | $ | 87.3 | $ | 497.5 | |||||||||
___________________________
(1) | These amounts (which represent the amounts outstanding at August 31, 2012) are included in the Company’s Consolidated Balance Sheets. See the Debt and Lines of Credit footnote for additional information regarding debt and other matters. |
(2) | These amounts represent primarily the expected future interest payments on outstanding debt held by the Company at August 31, 2012 and the Company’s outstanding loans related to its corporate-owned life insurance policies (“COLI”), which constitute a small portion of the total amounts shown. COLI-related interest payments included in this table are estimates. These estimates are based on various assumptions, including age at death, loan interest rate, and tax bracket. The amounts in this table do not include COLI-related payments after ten years due to the difficulty in calculating a meaningful estimate that far in the future. Note that payments related to debt and the COLI are reflected in the Company’s Consolidated Statements of Cash Flows. |
(3) | The Company’s operating lease obligations are described in the Commitments and Contingencies footnote. |
(4) | Purchase obligations include commitments to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including open purchase orders. |
(5) | These amounts are included in the Company’s Consolidated Balance Sheets and largely represent other liabilities for which the Company is obligated to make future payments under certain long-term employee benefit programs. Estimates of the amounts and timing of these amounts are based on various assumptions, including expected return on plan assets, interest rates, and other variables. The amounts in this table do not include amounts related to future funding obligations under the defined benefit pension plans. The amount and timing of these future funding obligations are subject to many variables and also depend on whether or not the Company elects to make contributions to the pension plans in excess of those required under ERISA. Such voluntary contributions may reduce or defer the funding obligations. See the Pension and Profit Sharing Plans footnote for additional information. These amounts exclude $7.0 of unrecognized tax benefits as a reasonable estimate of the period of cash settlement with the respective taxing authorities that cannot be determined. |
Capitalization
The current capital structure of the Company is comprised principally of senior unsecured notes and equity of its stockholders. As of August 31, 2012, total debt outstanding of $353.5 remained substantially unchanged from August 31, 2011 and consisted primarily of fixed-rate obligations.
On December 8, 2009, ABL issued the Notes in a private placement transaction with an aggregate principle amount of $350.0. The Notes were subsequently exchanged for SEC-registered notes with substantially identical terms. 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. See Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for more information.
On January 31, 2012, the Company executed the Revolving Credit Facility with a borrowing capacity of $250.0. The Revolving Credit Facility replaced the Company's prior $250.0 revolving credit facility, which was scheduled to mature on October 19, 2012. The Company recognized a write-off of less than $0.1 in deferred financing costs in connection with this replacement. The Revolving Credit Facility will mature and all amounts outstanding thereunder will be due and payable on January 31, 2017. The Company was compliant with all financial covenants under the Revolving Credit Facility as of
19
August 31, 2012. As of August 31, 2012, the Company had outstanding letters of credit totaling $9.9, primarily for securing collateral requirements under the casualty insurance programs for Acuity Brands and providing credit support for the Company's industrial revenue bond. At August 31, 2012, the Company had additional borrowing capacity under the Revolving Credit Facility of $244.3 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 $5.7 issued under the Revolving Credit Facility. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements.
During fiscal 2012, the Company’s consolidated stockholders’ equity increased $77.0 to $834.0 at August 31, 2012 from $757.0 at August 31, 2011. The increase was due primarily to net income earned in the period, as well as amortization of stock-based compensation, and stock issuances resulting primarily from the exercise of stock options, partially offset by repurchases of common stock, payment of dividends, pension plan adjustments, and foreign currency translation adjustments. The Company’s debt to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders’ equity) was 29.8% and 31.8% at August 31, 2012 and August 31, 2011, respectively. The ratio of debt, net of cash, to total capitalization, net of cash, was 7.6% at August 31, 2012 and 19.4% at August 31, 2011, which decreased due primarily to the substantial increase in the Company’s cash balance for the current year.
Dividends
Acuity Brands paid dividends on its common stock of $22.0 ($0.52 per share) in fiscal 2012 and $22.6 ($0.52 per share) in fiscal 2011. Acuity Brands currently plans to pay quarterly dividends at a rate of $0.13 per share. All decisions regarding the declaration and payment of dividends by Acuity Brands are at the discretion of the Company’s Board of Directors and are evaluated regularly in light of the Company’s financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Company’s Board of Directors deems relevant.
Results of Operations
Fiscal 2012 Compared with Fiscal 2011
The following table sets forth information comparing the components of net income for the year ended August 31, 2012 with the year ended August 31, 2011:
Years Ended August 31, | Increase | Percent | ||||||||||||
2012 | 2011 | (Decrease) | Change | |||||||||||
Net Sales | $ | 1,933.7 | $ | 1,795.7 | $ | 138.0 | 7.7 | % | ||||||
Cost of Products Sold | 1,145.7 | 1,065.7 | 80.0 | 7.5 | % | |||||||||
Gross Profit | 788.0 | 730.0 | 58.0 | 7.9 | % | |||||||||
Percent of net sales | 40.8 | % | 40.7 | % | 10 | bps | ||||||||
Selling, Distribution, and Administrative Expenses | 566.7 | 541.3 | 25.4 | 4.7 | % | |||||||||
Special Charge | 13.3 | — | 13.3 | 100.0 | % | |||||||||
Operating Profit | 208.0 | 188.7 | 19.3 | 10.2 | % | |||||||||
Percent of net sales | 10.8 | % | 10.5 | % | 30 | bps | ||||||||
Other Expense (Income) | ||||||||||||||
Interest Expense, net | 30.7 | 29.9 | 0.8 | 2.7 | % | |||||||||
Miscellaneous (Income) Expense, net | (1.7 | ) | 1.2 | (2.9 | ) | NM | ||||||||
Total Other Expense | 29.0 | 31.1 | (2.1 | ) | (6.8 | )% | ||||||||
Income before Provision for Income Taxes | 179.0 | 157.6 | 21.4 | 13.6 | % | |||||||||
Percent of net sales | 9.3 | % | 8.8 | % | 50 | bps | ||||||||
Provision for Taxes | 62.7 | 52.1 | 10.6 | 20.3 | % | |||||||||
Effective tax rate | 35.0 | % | 33.1 | % | ||||||||||
Net Income | $ | 116.3 | $ | 105.5 | $ | 10.8 | 10.2 | % | ||||||
Diluted Earnings per Share | $ | 2.72 | $ | 2.42 | $ | 0.30 | 12.4 | % | ||||||
NM - not meaningful
Net sales increased $138.0, or 7.7%, to $1,933.7 for the year ended August 31, 2012 compared with $1,795.7 reported in
20
the year ended August 31, 2011. For the year ended August 31, 2012, the Company reported net income of $116.3 compared with $105.5 for the year ended August 31, 2011, an increase of $10.8, or slightly more than 10%. For fiscal 2012, diluted earnings per share increased more than 12% to $2.72 from $2.42 for the prior-year period. The Company recognized approximately $8.8, or $0.21 per share, in after-tax special charges related to the closure of the Cochran facility and other streamlining efforts in fiscal 2012 with no comparative charges recognized in the same period for fiscal 2011. More information on the impact of the streamlining efforts on fiscal 2012 results is below.
The table below reconciles certain U.S. GAAP financial measures to the corresponding non-U.S. GAAP measures referred to in the discussion of the Company’s results of operations, which exclude restructuring charges associated primarily with continued efforts to streamline the organization through the planned closing of a manufacturing facility, other costs associated with manufacturing inefficiencies and abandoned inventory directly related to the manufacturing facility closure, the reduction in workforce, and by realigning responsibilities primarily within various SD&A departments. Although restructuring charges related to other efforts to improve overall Company efficiency have been recognized in prior periods and could recur in future periods, management typically excludes the impact of restructuring charges during internal reviews of performance and uses these non-U.S. GAAP measures for baseline comparative operational analysis, decision making, and other activities. These non-U.S. GAAP financial measures, including adjusted gross profit and margin, adjusted operating profit and margin, adjusted net income, and adjusted diluted earnings per share, are provided to enhance the user’s overall understanding of the Company’s 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 special charges and certain other expenses. The non-U.S. GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, results prepared in accordance with U.S. GAAP.
Years Ended August 31, | |||||||
2012 | 2011 | ||||||
Gross Profit | $ | 788.0 | $ | 730.0 | |||
Add-back: Manufacturing inefficiencies(2) | 3.2 | — | |||||
Add-back: Abandonment of inventory(3) | 1.2 | — | |||||
Adjusted Gross Profit | $ | 792.4 | $ | 730.0 | |||
Percent of net sales | 41.0 | % | 40.7 | % | |||
Operating Profit | $ | 208.0 | $ | 188.7 | |||
Add-back: Special Charge(1) | 13.3 | — | |||||
Add-back: Manufacturing inefficiencies(2) | 3.2 | — | |||||
Add-back: Abandonment of inventory(3) | 1.2 | — | |||||
Adjusted Operating Profit | $ | 225.7 | $ | 188.7 | |||
Percent of net sales | 11.7 | % | 10.5 | % | |||
Net Income | $ | 116.3 | $ | 105.5 | |||
Add-back: Special Charge, net of tax | 8.8 | — | |||||
Add-back: Manufacturing inefficiencies, net of tax | 2.0 | — | |||||
Add-back: Abandonment of inventory, net of tax | 0.8 | — | |||||
Adjusted Net Income | $ | 127.9 | $ | 105.5 | |||
Diluted Earnings per Share | $ | 2.72 | $ | 2.42 | |||
Add-back: Special Charge, net of tax | 0.21 | — | |||||
Add-back: Manufacturing inefficiencies, net of tax | 0.05 | — | |||||
Add-back: Abandonment of inventory, net of tax | 0.02 | — | |||||
Adjusted Diluted Earnings per Share | $ | 3.00 | $ | 2.42 | |||
_______________________________________
(1) | Special charge primarily comprised of severance and production transfer costs related to streamlining efforts. |
(2) | Incremental costs incurred due to manufacturing inefficiencies directly related to the Cochran facility closure. |
(3) | Non-cash impairments attributable to the abandonment of usable inventory that will not be transferred to other facilities and directly related to the Cochran facility closure. |
Net Sales
Net sales for the year ended August 31, 2012, increased by 7.7% compared with the prior-year period. Excluding the impact from acquisitions during the comparable period, net sales for fiscal 2012 rose 6.5% over the prior-year period. Volumes
21
increased approximately 5% year-over-year due to increased shipments of lighting solutions across most product groups. Although it is not possible to precisely quantify the separate impact of changes in product prices and the mix of products sold (“price/mix”), favorable changes in price/mix contributed slightly less than two percentage points to the year-over-year increase in net sales. The Company experienced higher volumes across a number of sales channels, particularly in the non-residential commercial and industrial channel and home center channel. Revenue derived from the sale of LED-based luminaires increased at a healthy pace during the current year, and, now, these products represent almost 10% of the Company’s net sales. The impact on the Company’s net sales from acquisitions and foreign currency items was not significant.
Gross Profit
Gross profit for fiscal 2012 increased $58.0, or 7.9%, to $788.0 compared with $730.0 for the prior year. The increase was due primarily to improvements in price/mix, higher sales volumes, and net benefits recognized from productivity improvements attributable to streamlining activities. These benefits were partially offset by the impact of higher material and component costs that were not fully recovered through implemented price increases and higher freight costs to support the higher level of sales in fiscal 2012. The recent relatively lower material and component costs did not have an immediate effect on the Company’s results due to the first-in, first-out (FIFO) accounting method for inventoriable costs, which creates a lag in expense recognition until such time the products are manufactured and sold. Gross profit margin improved 10 basis points to 40.8% for the year ended August 31, 2012 compared with 40.7% for the year ended August 31, 2011.
Excluding the impact of expenses associated with the closure of the Cochran facility, adjusted gross profit was $792.4 in fiscal 2012 compared to gross profit (with no corresponding restructuring charges in Cost of Products Sold) of $730.0 in fiscal 2011, which amounted to an increase of $62.4, or 8.5%. Adjusted gross profit margin (excluding the expenses associated with the Cochran facility closure in Cost of Products Sold) increased 30 basis points to 41.0% in fiscal 2012 compared to 40.7% (with no corresponding charges) reported in the prior-year period.
Operating Profit
Selling, Distribution, and Administrative (“SD&A”) expenses for the year ended August 31, 2012 increased $25.4, or 4.7%, to $566.7 compared with $541.3 in the prior year. The increase in SD&A expenses was due primarily to higher commission and freight costs in support of higher sales, higher employee incentive compensation, and selected spending for long-term growth opportunities, including investments in innovation and technology. Compared with the prior-year period, SD&A expenses as a percent of sales improved 80 basis points to 29.3% for fiscal 2012 from 30.1% in fiscal 2011, as a result of relatively slower growth in SD&A expenses to support the increased level of sales.
During the year ended August 31, 2012, the Company recorded a pre-tax charge of $13.3 related to the initiatives to streamline and simplify operations. The special charge was related primarily to severance and related employee benefit costs and production transfer expenses associated with the closure of a manufacturing facility in Cochran, Georgia, workforce reductions in the Company’s operations in Spain, and realignment of responsibilities within certain SD&A departments. In addition, the Company recognized other charges directly related to these streamlining efforts, specifically non-cash charges of $1.2 attributable to the abandonment of usable inventory that will not be transferred to other facilities and approximately $3.2 of costs incurred due to production inefficiencies directly attributable to the closure of the Cochran facility reported in Cost of Products Sold. See the Outlook section for more information on these actions.
Operating profit for fiscal 2012 was $208.0 compared with $188.7 reported for the prior-year period, an increase of $19.3, or 10.2%. The year-over-year increase was due primarily to the growth in net sales and net benefits recognized from streamlining activities, which were partially offset by increases in material and component costs, incremental charges to facilitate the closure of the Cochran facility and the transfer of production to other locations, and higher SD&A expenses necessary to support the higher net sales as discussed above. Operating profit margin increased to 10.8% compared with 10.5% in the prior-year period.
Adjusted operating profit (excluding the special charge and expenses associated with the Cochran facility closure) for fiscal 2012 increased by $37.0, or 19.6%, compared to operating profit (with no corresponding charges) of $188.7 for fiscal 2011. Adjusted operating profit margin (excluding the special charge and expenses associated with the Cochran facility closure) increased 120 basis points to 11.7% compared with operating profit margin (with no corresponding charges) of 10.5% in the year-ago period.
Other Expense (Income)
Other expense (income) for the Company consists principally of net interest expense and net miscellaneous expense (income) due primarily to foreign exchange related gains and losses. Interest expense, net, was $30.7 and $29.9 for the years ended August 31, 2012 and 2011, respectively. The increase in interest expense, net, was due primarily to higher interest related
22
to obligations associated with non-qualified retirement plans. The change in net miscellaneous income of $1.7 in fiscal 2012 compared with $1.2 of net miscellaneous expense in fiscal 2011 was due primarily to the favorable impact of exchange rate changes on foreign currency exposures, primarily those associated with the Mexican peso.
Provision for Income Taxes and Net Income
The effective income tax rate was 35.0% and 33.1% for the years ended August 31, 2012 and 2011, respectively. The increase in the effective tax rate was due primarily to the reduced impact of favorable permanent tax items on higher taxable income, unrecognizable tax benefits for losses in Spain, and the expiration of the research and development tax credit, which occurred at the end of calendar year 2011. The Company estimates that the effective tax rate for fiscal 2013 will be approximately 35.0% if the rates in its taxing jurisdictions remain generally consistent throughout the year.
Net income for fiscal 2012 increased $10.8, or 10.2%, to $116.3 from $105.5 reported for the prior year. The increase in net income resulted primarily from higher operating profit and gains on foreign currency items, partially offset by higher tax expense.
Adjusted net income (excluding the special charge and expenses associated with the Cochran facility closure) for fiscal 2012 increased approximately 21% to $127.9 compared with $105.5 of net income (with no corresponding charges) in the year-ago period. Adjusted diluted earnings per share for fiscal 2012 were $3.00 (excluding the special charge and expenses associated with the Cochran facility closure) compared with diluted earnings per share (with no corresponding charges) of $2.42 for the prior-year period, which represented an increase of $0.58, or approximately 24%.
Fiscal 2011 Compared with Fiscal 2010
The following table sets forth information comparing the components of net income for the year ended August 31, 2011 with the year ended August 31, 2010:
Years Ended August 31, | Increase | Percent | ||||||||||||
2011 | 2010 | (Decrease) | Change | |||||||||||
Net Sales | $ | 1,795.7 | $ | 1,626.9 | $ | 168.8 | 10.4 | % | ||||||
Cost of Products Sold | 1,065.7 | 965.4 | 100.3 | 10.4 | % | |||||||||
Gross Profit | 730.0 | 661.5 | 68.5 | 10.4 | % | |||||||||
Percent of net sales | 40.7 | % | 40.7 | % | — | bps | ||||||||
Selling, Distribution, and Administrative Expenses | 541.3 | 495.4 | 45.9 | 9.3 | % | |||||||||
Special Charge | — | 8.4 | (8.4 | ) | (100.0 | )% | ||||||||
Operating Profit | 188.7 | 157.7 | 31.0 | 19.7 | % | |||||||||
Percent of net sales | 10.5 | % | 9.7 | % | 80 | bps | ||||||||
Other Expense (Income) | ||||||||||||||
Interest Expense, net | 29.9 | 29.4 | 0.5 | 1.7 | % | |||||||||
Loss on Early Debt Extinguishment | — | 10.5 | (10.5 | ) | (100.0 | )% | ||||||||
Miscellaneous Expense (Income), net | 1.2 | (1.0 | ) | 2.2 | NM | |||||||||
Total Other Expense | 31.1 | 38.9 | (7.8 | ) | (20.1 | )% | ||||||||
Income from Continuing Operations before Provision for Income Taxes | 157.6 | 118.8 | 38.8 | 32.7 | % | |||||||||
Percent of net sales | 8.8 | % | 7.3 | % | 150 | bps | ||||||||
Provision for Taxes | 52.1 | 39.8 | 12.3 | 30.9 | % | |||||||||
Effective tax rate | 33.1 | % | 33.5 | % | ||||||||||
Income from Continuing Operations | 105.5 | 79.0 | 26.5 | 33.5 | % | |||||||||
Income from Discontinued Operations | — | 0.6 | (0.6 | ) | (100.0 | )% | ||||||||
Net Income | $ | 105.5 | $ | 79.6 | $ | 25.9 | 32.5 | % | ||||||
Diluted Earnings per Share from Continuing Operations | $ | 2.42 | $ | 1.79 | $ | 0.63 | 35.2 | % | ||||||
Diluted Gain per Share from Discontinued Operations | $ | — | $ | 0.01 | $ | (0.01 | ) | (100.0 | )% | |||||
Diluted Earnings per Share | $ | 2.42 | $ | 1.80 | $ | 0.62 | 34.4 | % | ||||||
NM - not meaningful
23
Results from Continuing Operations
Net sales were $1,795.7 for the year ended August 31, 2011, compared with $1,626.9 reported in the year ended August 31, 2010, an increase of $168.8, or 10.4%. For the year ended August 31, 2011, the Company reported income from continuing operations of $105.5 compared with $79.0 for the year ended August 31, 2010. For fiscal 2011, diluted earnings per share from continuing operations increased 35% to $2.42, from $1.79 for the prior-year period. For the year ended August 31, 2010, the Company recorded $5.5 in after-tax special charges related to estimated costs to be incurred to simplify and streamline operations and consolidate certain manufacturing facilities, which included an after-tax non-cash asset impairment charge of $2.4. In addition, a $6.8 after-tax loss associated with the early extinguishment of debt was incurred during fiscal 2010. The special charges and loss on early extinguishment of debt negatively impacted the fiscal 2010 results by $0.29 per diluted share, with no comparative charges recognized in same period for fiscal 2011.
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.
Years Ended August 31, | |||||||
2011 | 2010 | ||||||
Operating Profit | $ | 188.7 | $ | 157.7 | |||
Addback: Special Charge | — | 8.4 | |||||
Adjusted Operating Profit | $ | 188.7 | $ | 166.1 | |||
Percent of net sales | 10.5 | % | 10.2 | % | |||
Income from Continuing Operations | $ | 105.5 | $ | 79.0 | |||
Addback: Special Charge, net of tax | — | 5.5 | |||||
Addback: Loss on Early Debt Extinguishment, net of tax | — | 6.8 | |||||
Adjusted Income from Continuing Operations | $ | 105.5 | $ | 91.3 | |||
Diluted Earnings per Share from Continuing Operations | $ | 2.42 | $ | 1.79 | |||
Addback: Special Charge, net of tax | — | 0.13 | |||||
Addback: Loss on Early Debt Extinguishment, net of tax | — | 0.16 | |||||
Adjusted Diluted Earnings per Share from Continuing Operations | $ | 2.42 | $ | 2.08 | |||
Net Sales
Net sales for the year ended August 31, 2011, increased by 10.4% compared with the prior-year period. Excluding the impact from acquisitions, net sales for fiscal 2011 rose slightly less than 8% year-over-year. Volumes increased approximately 5% over the prior-year period driven largely by increased shipments of lighting solutions across multiple sales channels, particularly in the non-residential commercial and industrial, the home center, and the stock and flow portion of the distribution channels, partially offset by the decline in sales volume for certain international locations. The Company estimates that favorable changes in product prices and the mix of products sold ("price/mix") contributed approximately two percentage points to the year-over-year increase in net sales with the remainder due to favorable foreign currency translation on international sales.
Gross Profit
Gross profit for fiscal 2011 increased $68.5, or 10.4%, to $730.0 compared with $661.5 for the prior year. The increase was due primarily to the rise in overall sales volumes, improvements in price/mix, favorable contributions from acquired businesses, and benefits from productivity improvements. These benefits were partially offset by the impact of significantly higher material and component costs that were not recovered through implemented price increases, which the Company estimates had an adverse effect on gross profit of approximately $15.0 in fiscal 2011. Gross profit margin remained flat at 40.7% for the years ended August 31, 2011 and 2010, respectively.
Operating Profit
SD&A expenses for the year ended August 31, 2011, were $541.3 compared with $495.4 in the prior year, which represented a $45.9, or 9.3%, year-over-year increase. The increase in SD&A expenses was due primarily to additional costs associated with recently acquired businesses, higher commission and freight costs in support of higher sales, and selected spending for long-term growth opportunities, including investments in innovation and technology. Compared with the prior-
24
year period, SD&A expenses as a percent of sales improved 40 basis points to 30.1% for fiscal 2011, as a result of relatively slower growth in SD&A expenses to support the increased level of sales.
During fiscal 2011, the Company achieved the annualized savings run rate of approximately $10.0 from the streamlining efforts taken during fiscal 2010. During the year ended August 31, 2010, the Company recorded a pre-tax charge of $8.4 related to the initiatives to streamline and simplify operations. The charge was comprised of a $5.1 non-cash asset impairment charge associated with a facility that the Company planned to close with the remainder representing severance and related employee benefit costs associated with the consolidation of certain manufacturing facilities and a reduction in workforce.
Operating profit for fiscal 2011 was $188.7 compared with $157.7 reported for the prior-year period, an increase of $31.0, or 19.7%. The year-over-year increase was due primarily to the higher net sales, benefits from productivity improvements and no repeat of a special charge that was recorded in the prior-year period, which were partially offset by increases in material and component costs and higher commission and freight costs necessary to support the higher net sales as discussed above. Operating profit margin increased to 10.5% compared with 9.7% in the prior-year period.
Operating profit for fiscal 2011 increased by $22.6, or 13.6%, compared to adjusted operating profit (excluding the special charge) of $166.1 for fiscal 2010. Operating profit margin increased 30 basis points compared with the adjusted operating profit margin (excluding the special charge) of 10.2% in the year-ago period.
Other Expense (Income)
Other expense (income) for the Company consists principally of net interest expense and net miscellaneous expense (income) due primarily to foreign exchange related gains and losses. Interest expense, net, was $29.9 and $29.4 for the years ended August 31, 2011 and 2010, respectively. The slight increase in interest expense, net, was due primarily to higher average outstanding debt balances and increased interest related to obligations associated with non-qualified retirement plans. The increase in net miscellaneous expense to $1.2 in fiscal 2011 compared with $1.0 of net miscellaneous income in fiscal 2010 was due primarily to the unfavorable impact of exchange rates on certain foreign currency items, particularly associated with Mexican peso-denominated exposures.
During fiscal 2010, the Company recognized a pre-tax loss of $10.5 related to debt refinancing activities.
Provision for Income Taxes and Income from Continuing Operations
The effective income tax rate was 33.1% and 33.5% for the years ended August 31, 2011 and 2010, respectively.
Income from continuing operations for fiscal 2011 increased $26.5 to $105.5 from $79.0 (including $5.5 for the after-tax special charge and $6.8 for the loss on early debt extinguishment) reported for the prior year. The increase in income from continuing operations resulted primarily from higher operating profit and no corresponding charge in the current period for the loss from the early debt extinguishment in fiscal 2010, partially offset by higher tax expense and foreign currency losses.
Income from continuing operations for fiscal 2011 was $105.5 compared with $91.3 of adjusted income from continuing operations (excluding the special charge and the loss on the early extinguishment of debt) in the year-ago period. Diluted earnings per share from continuing operations for fiscal 2011 was $2.42 compared with adjusted diluted earnings per share from continuing operations (excluding the special charge and the loss on the early extinguishment of debt) of $2.08 for the prior-year period.
Results from Discontinued Operations and Net Income
The Company recorded $0.6 of income from discontinued operations for fiscal 2010 due to revisions of estimates of certain legal reserves established at the time of the spin-off of its specialty products business (the “Spin-off”), Zep Inc. (“Zep”).
Net income for fiscal 2011 increased $25.9, or 32.5%, to $105.5 from $79.6 for the year-ago period. The increase in net income resulted primarily from the above noted increase in operating profit mostly driven by higher net sales in the current-year period and no repeat of a special charge that was recorded in the prior-year period. Additionally, no loss on the early extinguishment of debt occurred in the current-year period. The increase in operating profit was partially offset by higher tax and miscellaneous expenses.
Outlook
Management believes that the execution of the Company’s strategy will provide opportunities for continued future growth. The Company’s strategy is to capitalize on market growth opportunities by continuing to expand and leverage its industry-leading product and solutions portfolio combined with its extensive market presence and financial strength.
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Management continues to position the Company to optimize short-term performance while investing in and deploying resources for long-term profitable growth opportunities.
From an overall market perspective, third-party forecasts for the U.S. non-residential construction market, a key market for the company, remain favorable though estimates for growth vary significantly. The current consensus estimate is that non-residential construction will grow modestly through fiscal 2013, while the growth rate for the North American lighting market will be higher, suggesting growth in the mid-single digit range for fiscal 2013. However, the North American lighting market has experienced a slowdown in the rate of growth over the past few months, reflecting both a tepid economic recovery in the U.S. and macro-level uncertainties in the U.S. and globally. Nonetheless, management believes that opportunities exist that will allow the Company to continue to outperform the markets it serves, including benefits from growing renovation and tenant improvement projects, further expansion in underpenetrated geographies and channels, and growth from the introduction of innovative products and lighting solutions.
For the year ended August 31, 2012, the Company recognized $17.7 of pre-tax special charges associated with actions to streamline the organization, including the reduction of its workforce in Spain, and for other expenses directly attributable to the closure of the Cochran facility. During the first quarter of fiscal 2013, the Company expects to incur additional pre-tax special charges of approximately $2.0 associated with the facility closing along with related production inefficiencies of approximately $3.0. These additional costs could vary depending on the timing of the transfer of production. The Company expects to realize annualized savings from these streamlining activities of approximately $14.0 of which approximately $4.0 was realized during the second half of fiscal 2012. The Company expects to be at the total annualized savings run rate from the streamlining activities by the end of the first quarter of fiscal 2013, following the completion of the transfer of production and closure of the facility.
From a longer term perspective, management expects that its addressable markets will experience solid growth over the next decade, particularly as energy and environmental concerns come to the forefront. Management remains very positive about the future prospects of the Company and its ability to continue to outperform the markets it serves.
Accounting Standards Adopted in Fiscal 2012 and Accounting Standards Yet to Be Adopted
See New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for information on recently adopted and upcoming standards.
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in the Company’s Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. As discussed in the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expense during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to inventory valuation; depreciation, amortization and the recoverability of long-lived assets, including goodwill and intangible assets; share-based compensation expense; 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 accounting estimates with the Company’s Audit Committee. See the Summary of Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for a summary of the accounting policies of Acuity Brands.
The management of Acuity Brands believes the following represent the Company’s critical accounting estimates:
Revenue Recognition
The Company records revenue when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the Company’s price to the customer is fixed and determinable, and collectability is reasonably assured. In the period of revenue recognition, provisions for certain rebates, sales incentives, product returns, and discounts to customers are estimated and recorded, in most instances, as a reduction of revenue. The Company also maintains one-time or on-going marketing and trade-promotion programs with certain customers that require the Company to estimate and accrue the expected costs of such programs. These items are estimated based on customer agreements, historical trends, and expected demand. Actual results could differ from estimates, which would require adjustments to accrued amounts.
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Accounts Receivable
The Company records accounts receivable at net realizable value. This value includes an allowance for estimated uncollectible accounts to reflect losses anticipated on accounts receivable balances. The allowance is based on historical write-offs, an analysis of past due accounts based on the contractual terms of the receivables, and economic status of customers, if known. Management believes that the allowance is sufficient to cover uncollectible amounts; however, there can be no assurance that unanticipated future business conditions of customers will not have a negative impact on the Company’s results of operations.
Inventories
Inventories include materials, direct labor, in-bound freight, and related manufacturing overhead, and are stated at the lower of cost (on a first-in, first-out or average-cost basis) or market. Management reviews inventory quantities on hand and records a provision for excess or obsolete inventory primarily based on estimated future demand and current market conditions. A significant change in customer demand or market conditions could render certain inventory obsolete and thus could have a material adverse impact on the Company’s operating results in the period the change occurs.
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 goodwill and indefinite lived intangibles for impairment requires management to use significant judgments and estimates in accordance with U.S. GAAP including, but not limited to, economic, industry, and company-specific qualitative factors, projected future net sales, operating results, and cash flows.
Although 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 flows 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 record a non-cash charge to earnings for the write-down in value of such assets, which could have a material adverse effect on the Company’s results of operations and financial position, but not its cash flows from operations.
Goodwill
The Company is comprised of one reporting unit with a goodwill balance of $554.9. The Company utilized a qualitative assessment to determine the likelihood of impairment of goodwill as of June 1, 2012. To do this, the Company identified and analyzed macroeconomic, industry, and company-specific factors. Additionally, factors that most affect the fair value of the Company were compared to those used in the previous year’s impairment test to identify potentially significant variances to further support the reasonableness of the assumptions.
Taking into consideration these factors, the Company estimated the potential change in the fair value of goodwill compared with the previous year’s impairment test. As a result of this analysis, management believes the estimated fair value of the reporting unit continues to exceed its carrying value by a substantial margin and does not represent a more likely than not possibility of potential impairment. The goodwill analysis did not result in an impairment charge.
Indefinite Lived Intangible Assets
The Company’s indefinite lived intangible assets consist of five unamortized trade names with an aggregate carrying value of approximately $96.1. Management utilized significant assumptions to estimate the fair value of these unamortized trade names using a fair value model based on discounted future cash flows (“fair value model”) in accordance with U.S. GAAP. Future cash flows associated with each of the Company’s unamortized trade names are calculated by applying a theoretical royalty rate a willing third party would pay for use of the particular trade name to estimated future net sales. The present value of the resulting after-tax cash flow is management’s current estimate of the fair value of the trade names. This fair value model requires management to make several significant assumptions, including estimated future net sales, the royalty rate, and the discount rate.
Future net sales and short-term growth rates are estimated for each particular trade name based on management’s financial forecasts, which consider key business drivers, such as specific revenue growth initiatives, market share changes,
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expected growth in non-residential and residential construction markets, and general economic factors, such as credit availability and interest rates. The long-term growth rate used in determining terminal value is estimated at 3.5% for the Company and is based primarily on the Company’s understanding of projections for expected long-term growth in non-residential construction, the Company’s key market, and historical long-term performance. The theoretical royalty rate is estimated primarily using management’s assumptions regarding the amount a willing third party would pay to use the particular trade name and is compared with market information for similar intellectual property within and outside of the industry. Differences between expected and actual results can result in significantly different valuations. If future operating results are unfavorable compared with forecasted amounts, the Company may be required to reduce the theoretical royalty rate used in the fair value model. A reduction in the theoretical royalty rate would result in lower expected future after-tax cash flows in the valuation model. The Company utilized a range of estimated discount rates between 11% and 14% as of June 1, 2012, based on the Capital Asset Pricing Model, which considers the updated risk-free interest rate, beta, market risk premium, and entity specific size premium.
During fiscal 2012, the Company performed an evaluation of the fair value of its five unamortized trade names. The Company’s expected revenues are based on the Company’s fiscal 2013 expectations and recent lighting market growth estimates for fiscal 2013 through 2017. The Company also included revenue growth estimates based on current initiatives expected to help the Company improve performance. During fiscal 2012, estimated theoretical royalty rates ranged between 1% and 5%. The indefinite lived intangible asset analysis did not result in an impairment charge, as the fair values exceeded the carrying values for each trade name by a significant amount. The estimated fair values of the indefinite lived intangible assets exceed the carrying values by such a significant amount that any reasonably likely change in the assumptions used in the analyses, including revenue growth rates and the discount rate, would not cause the carrying values to exceed the estimated fair values as determined by the fair value analyses. The Company determined that any estimated potential impairment related to the trade names based on changes in the assumptions that would be less likely to occur would not be material to the Company’s financial results, trend of earnings, or financial position.
Self-Insurance
The Company self-insures, up to certain limits, traditional risks including workers’ compensation, comprehensive general liability, and auto liability. The Company’s 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 Company’s estimate of the aggregate liability for claims incurred, is revised and recorded annually. The estimate is derived from both internal and external sources including but not limited to the Company’s independent actuary. The 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 two days or more in duration. Insurance coverage is maintained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. The Company is fully self-insured for certain other types of liabilities, including environmental, product recall, warranty, and patent infringement. The actuarial estimates are subject to uncertainty from various sources, including, among others, changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although the Company believes that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Company’s self-insurance obligations, future expense and cash flow.
The Company is also self-insured for the majority of its medical benefit plans with individual claims limited to $0.3. The Company estimates its aggregate liability for claims incurred by applying a lag factor to the Company’s historical claims and administrative cost experience. The appropriateness of the Company’s lag factor is evaluated and revised, if necessary, annually. Although management believes that the current estimates are reasonable, significant differences related to claim reporting patterns, plan design, legislation, and general economic conditions could materially affect the Company’s medical benefit plan liabilities, future expense and cash flow.
Income Taxes
The Company uses certain assumptions and estimates in determining the income taxes payable or refundable for the current year, income tax expense, and deferred income tax liabilities and assets, which represent temporary and permanent differences between amounts within the financial statements and the income tax basis. Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“ASC 740”), requires the evaluation and testing of the recoverability of deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the relevant factors, it is more likely than not that all or some portion of the deferred tax assets will not be realized. Reasonable judgment and estimates are required in determining whether a valuation allowance is necessary and, if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, the Company considers a number of factors, including, but not limited to: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of existing temporary differences;
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and the length of time carryovers can be utilized.
In light of the multiple tax jurisdictions in which the Company operates, the Company’s tax returns are subject to routine audit by the Internal Revenue Service (“IRS”) and other taxation authorities. The results of these audits at times produce uncertainty regarding particular tax positions taken in the year(s) of review. The Company records uncertain tax positions as prescribed by ASC 740, which requires recognition at the time when it is more likely than not that the position in question will be upheld. Although management believes that the judgment and estimates involved are reasonable and that the necessary provisions have been recorded, changes in circumstances or unexpected events could adversely affect the Company’s financial position, results from operations, and cash flows.
Retirement Benefits
The Company sponsors domestic and international defined benefit pension plans and defined contribution plans and other postretirement plans. Assumptions are used to determine the estimated fair value of plan assets, the actuarial value of plan liabilities, and the current and projected costs for these employee benefit plans and include, among other factors, estimated discount rates, expected returns on the pension fund assets, estimated mortality rates, the rates of increase in employee compensation levels, and, for one international plan, retroactive inflationary adjustments. These assumptions are determined based on Company and market data and are evaluated annually as of the plans’ measurement date. See the Pensions and Profit Sharing Plans footnote of the Notes to Consolidated Financial Statements for further information on the Company’s plans.
Share-Based Compensation Expense
The Company recognizes compensation cost relating to share-based payment transactions in the financial statements based on the estimated fair value of the equity instrument issued. The Company accounts for stock options, restricted shares, and share units representing certain deferrals into the Director Deferred Compensation Plan or the Supplemental Deferred Savings Plan (both of which are discussed further in the Share-Based Payments footnote of the Notes to Consolidated Financial Statements) based on the grant-date fair value estimated under the current provisions of ASC Topic 718, Compensation — Stock Compensation (“ASC 718”).
The Company employs the Black-Scholes model in deriving the fair value estimates of certain share-based awards and records estimates of forfeitures of all share-based awards at the time of grant, which are revised in subsequent periods if actual forfeitures differ from initial estimates. Forfeitures are estimated based on historical experience. If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period. See the Summary of Significant Accounting Policies and Share-Based Payments footnotes of the Notes to Consolidated Financial Statements for more information regarding the assumptions used in estimating the fair value of stock options.
Product Warranty and Recall Costs
The Company records an allowance for the estimated amount of future warranty or recall costs when the related revenue is recognized, primarily based on historical experience of identified warranty claims. The Company is fully self-insured for product warranty and recall costs. Historical warranty costs have been within expectations, however, there can be no assurance that future warranty costs will not exceed historical amounts or that using new technologies such as LED products may not generate unexpected costs. If actual future warranty or recall costs exceed historical amounts, additional allowances may be required, which could have a material adverse impact on the Company’s operating results and cash flow in future periods.
Litigation
The Company recognizes expense for legal claims when payments associated with the claims become probable and can be reasonably estimated. Due to the difficulty in estimating costs of resolving legal claims, actual costs may be substantially higher or lower than the amounts reserved.
Environmental Matters
The Company recognizes expense for known environmental claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual cost of resolving environmental issues may be higher or lower than that reserved primarily due to difficulty in estimating such costs and potential changes in the status of government regulations. The Company is self-insured for environmental matters.
Cautionary Statement Regarding Forward-Looking Information
This filing contains forward-looking statements within the meaning of the federal securities laws. Statements made herein
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that may be considered forward-looking include statements incorporating terms such as “expects”, “believes”, “intends”, “anticipates” and similar terms that relate to future events, performance, or results of the Company. In addition, the Company, or the executive officers on the Company’s behalf, may from time to time make forward-looking statements in reports and other documents the Company files with the SEC or in connection with oral statements made to the press, current and potential investors, or others. Forward-looking statements include, without limitation: (a) the Company’s 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 industry unit volumes; (d) expectations about the impact of volatility and uncertainty in component and commodity costs and availability, and the Company's ability to manage those challenges, as well as the Company’s response with pricing of its products; (e) the Company's 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 Company’s estimate of its fiscal 2013 annual tax rate; (g) the Company’s expectations regarding the timing, costs, and savings of streamlining events, and the
Company’s ability to effectively execute the announced changes, including, but not limited to, transition of manufacturing capacity, labor negotiations, and disposition of property; (h) the Company’s future amortization expense; and (i) the Company’s 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 annual 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 annual report or to reflect the occurrence of unanticipated events. The Company’s 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 management’s present expectations or projections. These risks and uncertainties include, but are not limited to, customer and supplier relationships and prices; competition; ability to realize anticipated benefits from initiatives taken and timing of benefits; market demand; litigation and other contingent liabilities; and economic, political, governmental, and technological factors affecting the Company. Also, additional risks that could cause the Company’s actual results to differ materially from those expressed in the Company’s forward-looking statements are discussed in Part I, “Item 1a. Risk Factors” of this Annual Report on Form 10-K, and are specifically incorporated herein by reference.
Item 7a. | Quantitative and Qualitative Disclosures about Market Risk |
General. The Company is exposed to worldwide market risks that may impact the Consolidated Balance Sheets, Consolidated Statements of Income, and Consolidated Statements of Cash Flows due primarily to changing interest and foreign exchange rates as well as volatility in commodity prices. The following discussion provides additional information regarding the market risks of Acuity Brands.
Interest Rates. Interest rate fluctuations expose the variable-rate debt of the Company to changes in interest expense and cash flows. At August 31, 2012, the variable-rate debt of the Company was solely comprised of the $4.0 long-term industrial revenue bond. A 10% increase in market interest rates at August 31, 2012, would have resulted in a de minimus amount of additional annual after-tax interest expense. A fluctuation in interest rates would not affect interest expense or cash flows related to the Company’s fixed-rate debt which includes the $350.0 publicly-traded fixed-rate notes. A 10% increase in market interest rates at August 31, 2012, would have decreased the estimated fair value of these debt obligations by approximately $8.0. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements, contained in this Form 10-K, for additional information regarding the Company’s debt.
Foreign Exchange Rates. The majority of net sales, expense, and capital purchases of the Company are transacted in U.S. dollars. However, exposure with respect to foreign exchange rate fluctuation exists due to the Company’s operations in Mexico and Canada, where a significant portion of products sold are sourced from the United States, and, to a lesser extent, in Europe. A hypothetical decline in the value of the Canadian dollar in relation to the U.S. dollar of 10% as of August 31, 2012 would negatively impact operating profit by approximately $10.0, while a hypothetical appreciation of 10% in the value of the Canadian dollar in relation to the U.S. dollar as of August 31, 2012 would favorably impact operating profit by approximately $10.0. In addition to products and services sold in Mexico, a significant portion of the goods sold in the United States are manufactured in Mexico. A hypothetical 10% increase in the value of the Mexican peso in relation to the U.S. dollar as of August 31, 2012 would negatively impact operating profits by approximately $5.0, while a hypothetical decrease of 10% in the value of the Mexican peso in relation to the U.S. dollar as of August 31, 2012 would favorably impact operating profit by approximately $5.0. The individual impacts to the operating profit of the Company of hypothetical currency fluctuations in the Canadian dollar and Mexican peso have been calculated in isolation from any potential responses to address such exchange rate changes in the Company’s foreign markets.
The Company’s exposure to foreign currency risk related to its operations in Europe is immaterial and has been excluded from this analysis.
Commodity Prices. The Company utilizes a variety of raw materials and components in its production process including
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petroleum-based products, steel, and aluminum. In fiscal 2012, the Company purchased approximately 90,000 tons of steel and aluminum. The Company estimates that less than 8% of the raw materials purchased are petroleum-based and that approximately four million gallons of diesel fuel were consumed in fiscal 2012. Failure to effectively manage future increases in the costs of these items could adversely affect the ability to maintain or increase operating margins.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page | |
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
ACUITY BRANDS, INC.
The management of Acuity Brands, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of August 31, 2012. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on this assessment, management believes that, as of August 31, 2012, the Company’s internal control over financial reporting is effective.
The Company’s independent registered public accounting firm has issued an audit report on their audit of the Company’s internal control over financial reporting. This report dated October 26, 2012 appears on page 35 of this Form 10-K.
/s/ VERNON J. NAGEL | /s/ RICHARD K. REECE | |
Vernon J. Nagel Chairman, President, and Chief Executive Officer | Richard K. Reece Executive Vice President and Chief Financial Officer | |
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Acuity Brands, Inc.
We have audited the accompanying consolidated balance sheets of Acuity Brands, Inc. as of August 31, 2012 and 2011, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended August 31, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Acuity Brands, Inc. at August 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Acuity Brands, Inc.’s internal control over financial reporting as of August 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 26, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 26, 2012
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Report of Independent Registered Public Accounting Firm on Internal Control
Over Financial Reporting
The Board of Directors and Stockholders
Acuity Brands, Inc.
We have audited Acuity Brands, Inc.’s internal control over financial reporting as of August 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Acuity Brands, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Acuity Brands, Inc. maintained, in all material respects, effective internal control over financial reporting as of August 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Acuity Brands, Inc. as of August 31, 2012 and 2011, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended August 31, 2012 of Acuity Brands, Inc. and our report dated October 26, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 26, 2012
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ACUITY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
August 31, | |||||||
2012 | 2011 | ||||||
(In millions, except share data) | |||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 284.5 | $ | 170.2 | |||
Accounts receivable, less reserve for doubtful accounts of $1.4 and $1.8 at August 31, 2012 and 2011, respectively | 263.8 | 262.6 | |||||
Inventories | 194.1 | 165.9 | |||||
Deferred income taxes | 13.0 | 16.0 | |||||
Prepayments and other current assets | 23.6 | 15.8 | |||||
Total Current Assets | 779.0 | 630.5 | |||||
Property, Plant, and Equipment, at cost: | |||||||
Land | 7.3 | 8.4 | |||||
Buildings and leasehold improvements | 115.5 | 121.2 | |||||
Machinery and equipment | 345.7 | 355.3 | |||||
Total Property, Plant, and Equipment | 468.5 | 484.9 | |||||
Less — Accumulated depreciation and amortization | 329.3 | 341.7 | |||||
Property, Plant, and Equipment, net | 139.2 | 143.2 | |||||
Other Assets: | |||||||
Goodwill | 554.9 | 559.2 | |||||
Intangible assets | 230.8 | 234.2 | |||||
Deferred income taxes | 4.1 | 2.0 | |||||
Other long-term assets | 28.9 | 28.3 | |||||
Total Other Assets | 818.7 | 823.7 | |||||
Total Assets | $ | 1,736.9 | $ | 1,597.4 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 232.7 | $ | 203.8 | |||
Accrued compensation | 44.9 | 45.0 | |||||
Accrued pension liabilities, current | 1.2 | 1.2 | |||||
Other accrued liabilities | 86.0 | 81.4 | |||||
Total Current Liabilities | 364.8 | 331.4 | |||||
Long-Term Debt | 353.5 | 353.4 | |||||
Accrued Pension Liabilities, less current portion | 90.1 | 60.5 | |||||
Deferred Income Taxes | 33.4 | 36.4 | |||||
Self-Insurance Reserves, less current portion | 6.6 | 7.3 | |||||
Other Long-Term Liabilities | 54.5 | 51.4 | |||||
Commitments and Contingencies (see Commitments and Contingencies footnote) | |||||||
Stockholders’ Equity: | |||||||
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued | — | — | |||||
Common stock, $0.01 par value; 500,000,000 shares authorized; and 51,508,358 issued and 41,789,103 outstanding at August 31, 2012; and 50,956,137 issued and 41,488,882 outstanding at August 31, 2011 | 0.5 | 0.5 | |||||
Paid-in capital | 703.1 | 680.3 | |||||
Retained earnings | 635.3 | 541.0 | |||||
Accumulated other comprehensive loss items | (84.7 | ) | (53.8 | ) | |||
Treasury stock, at cost, 9,719,255 shares and 9,467,255 shares at August 31, 2012 and 2011, respectively | (420.2 | ) | (411.0 | ) | |||
Total Stockholders’ Equity | 834.0 | 757.0 | |||||
Total Liabilities and Stockholders’ Equity | $ | 1,736.9 | $ | 1,597.4 | |||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
36
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended August 31, | |||||||||||
2012 | 2011 | 2010 | |||||||||
(In millions, except per-share data) | |||||||||||
Net Sales | $ | 1,933.7 | $ | 1,795.7 | $ | 1,626.9 | |||||
Cost of Products Sold | 1,145.7 | 1,065.7 | 965.4 | ||||||||
Gross Profit | 788.0 | 730.0 | 661.5 | ||||||||
Selling, Distribution, and Administrative Expenses | 566.7 | 541.3 | 495.4 | ||||||||
Special Charge | 13.3 | — | 8.4 | ||||||||
Operating Profit | 208.0 | 188.7 | 157.7 | ||||||||
Other Expense (Income): | |||||||||||
Interest expense, net | 30.7 | 29.9 | 29.4 | ||||||||
Miscellaneous (income) expense, net | (1.7 | ) | 1.2 | (1.0 | ) | ||||||
Loss on early debt extinguishment | — | — | 10.5 | ||||||||
Total Other Expense | 29.0 | 31.1 | 38.9 | ||||||||
Income from Continuing Operations before Provision for Income Taxes | 179.0 | 157.6 | 118.8 | ||||||||
Provision for Income Taxes | 62.7 | 52.1 | 39.8 | ||||||||
Income from Continuing Operations | 116.3 | 105.5 | 79.0 | ||||||||
Income from Discontinued Operations | — | — | 0.6 | ||||||||
Net Income | $ | 116.3 | $ | 105.5 | $ | 79.6 | |||||
Earnings Per Share: | |||||||||||
Basic Earnings per Share from Continuing Operations | $ | 2.75 | $ | 2.46 | $ | 1.83 | |||||
Basic Earnings per Share from Discontinued Operations | — | — | 0.01 | ||||||||
Basic Earnings per Share | $ | 2.75 | $ | 2.46 | $ | 1.84 | |||||
Basic Weighted Average Number of Shares Outstanding | 41.4 | 42.2 | 42.5 | ||||||||
Diluted Earnings per Share from Continuing Operations | $ | 2.72 | $ | 2.42 | $ | 1.79 | |||||
Diluted Earnings per Share from Discontinued Operations | — | — | 0.01 | ||||||||
Diluted Earnings per Share | $ | 2.72 | $ | 2.42 | $ | 1.80 | |||||
Diluted Weighted Average Number of Shares Outstanding | 41.9 | 42.8 | 43.3 | ||||||||
Dividends Declared per Share | $ | 0.52 | $ | 0.52 | $ | 0.52 | |||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
37
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended August 31, | |||||||||||
2012 | 2011 | 2010 | |||||||||
(In millions) | |||||||||||
Cash Provided by (Used for) Operating Activities: | |||||||||||
Net income | $ | 116.3 | $ | 105.5 | $ | 79.6 | |||||
Subtract: Income from Discontinued Operations | — | — | (0.6 | ) | |||||||
Income from Continuing Operations | 116.3 | 105.5 | 79.0 | ||||||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | |||||||||||
Depreciation and amortization | 39.8 | 40.1 | 36.5 | ||||||||
Noncash compensation expense, net | 10.3 | 8.4 | 9.0 | ||||||||
Excess tax benefits from share-based payments | (4.9 | ) | (5.3 | ) | (2.8 | ) | |||||
Loss on early debt extinguishment | — | — | 10.5 | ||||||||
Loss on the sale or disposal of property, plant, and equipment | 0.5 | 0.4 | 0.5 | ||||||||
Asset impairments | 0.3 | 0.3 | 5.1 | ||||||||
Deferred income taxes | 6.2 | 10.3 | 7.4 | ||||||||
Other non-cash items | 0.1 | 0.1 | — | ||||||||
Change in assets and liabilities, net of effect of acquisitions, divestitures and effect of exchange rate changes: | |||||||||||
Accounts receivable | (2.3 | ) | 2.9 | (29.2 | ) | ||||||
Inventories | (28.6 | ) | (5.3 | ) | (8.6 | ) | |||||
Prepayments and other current assets | (2.2 | ) | 0.7 | 1.8 | |||||||
Accounts payable | 29.6 | 5.5 | 33.5 | ||||||||
Other current liabilities | 9.7 | 0.5 | 21.8 | ||||||||
Other | (2.6 | ) | (3.0 | ) | (4.0 | ) | |||||
Net Cash Provided by Operating Activities | 172.2 | 161.1 | 160.5 | ||||||||
Cash Provided by (Used for) Investing Activities: | |||||||||||
Purchases of property, plant, and equipment | (31.4 | ) | (23.3 | ) | (21.9 | ) | |||||
Proceeds from sale of property, plant, and equipment | 0.1 | 1.2 | 0.2 | ||||||||
Acquisitions of businesses and intangible assets, net of cash acquired | (3.8 | ) | (90.4 | ) | (22.6 | ) | |||||
Net Cash Used for Investing Activities | (35.1 | ) | (112.5 | ) | (44.3 | ) | |||||
Cash Provided by (Used for) Financing Activities: | |||||||||||
Repayments of long-term debt | — | — | (237.9 | ) | |||||||
Issuance of long-term debt | — | — | 346.5 | ||||||||
Repurchases of common stock | (9.2 | ) | (61.0 | ) | (36.1 | ) | |||||
Proceeds from stock option exercises and other | 7.6 | 6.5 | 6.5 | ||||||||
Excess tax benefits from share-based payments | 4.9 | 5.3 | 2.8 | ||||||||
Dividends paid | (22.0 | ) | (22.6 | ) | (22.6 | ) | |||||
Net Cash (Used for) Provided by Financing Activities | (18.7 | ) | (71.8 | ) | 59.2 | ||||||
Effect of Exchange Rate Changes on Cash | (4.1 | ) | 2.4 | (3.1 | ) | ||||||
Net Change in Cash and Cash Equivalents | 114.3 | (20.8 | ) | 172.3 | |||||||
Cash and Cash Equivalents at Beginning of Period | 170.2 | 191.0 | 18.7 | ||||||||
Cash and Cash Equivalents at End of Period | $ | 284.5 | $ | 170.2 | $ | 191.0 | |||||
Supplemental Cash Flow Information: | |||||||||||
Income taxes paid during the period | $ | 50.7 | $ | 34.2 | $ | 32.7 | |||||
Interest paid during the period | $ | 31.6 | $ | 29.9 | $ | 30.8 | |||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
38
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
Accumulated Other Comprehensive Income (Loss) Items | |||||||||||||||||||||||||||||||
Comprehensive Income | Common Stock | Paid-in Capital | Retained Earnings | Pension Liability | Currency Translation Adjustment | Treasury Stock | Total | ||||||||||||||||||||||||
(In millions, except share and per-share data) | |||||||||||||||||||||||||||||||
Balance, August 31, 2009 | $ | 0.5 | $ | 647.2 | $ | 404.2 | $ | (42.0 | ) | $ | (15.4 | ) | $ | (322.3 | ) | $ | 672.2 | ||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||
Net income | $ | 79.6 | — | — | 79.6 | — | — | — | 79.6 | ||||||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||||||||
Foreign currency translation adjustment (net of tax expense of $0) | (3.2 | ) | — | — | — | — | (3.2 | ) | — | (3.2 | ) | ||||||||||||||||||||
Pension liability adjustment (net of tax of $6.0) | (10.7 | ) | — | — | — | (10.7 | ) | — | — | (10.7 | ) | ||||||||||||||||||||
Other comprehensive loss | (13.9 | ) | |||||||||||||||||||||||||||||
Comprehensive income | $ | 65.7 | |||||||||||||||||||||||||||||
Common Stock reissued from Treasury Shares for acquisition of businesses | — | (3.6 | ) | (2.1 | ) | — | — | 5.7 | — | ||||||||||||||||||||||
Amortization, issuance, and forfeitures of restricted stock grants | — | 9.0 | — | — | — | — | 9.0 | ||||||||||||||||||||||||
Employee Stock Purchase Plan issuances | — | 0.3 | — | — | — | — | 0.3 | ||||||||||||||||||||||||
Cash dividends of $0.52 per share paid on common stock | — | — | (22.6 | ) | — | — | — | (22.6 | ) | ||||||||||||||||||||||
Stock options exercised | — | 6.2 | — | — | — | — | 6.2 | ||||||||||||||||||||||||
Repurchases of common stock | — | — | — | — | — | (39.1 | ) | (39.1 | ) | ||||||||||||||||||||||
Tax effect on stock options and restricted stock | — | 2.8 | — | — | — | — | 2.8 | ||||||||||||||||||||||||
Other | — | — | (0.1 | ) | — | — | — | (0.1 | ) | ||||||||||||||||||||||
Balance, August 31, 2010 | 0.5 | 661.9 | 459.0 | (52.7 | ) | (18.6 | ) | (355.7 | ) | 694.4 | |||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||
Net income | $ | 105.5 | — | — | 105.5 | — | — | — | 105.5 | ||||||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||||||||
Foreign currency translation adjustment (net of tax expense of $0) | 9.9 | — | — | — | — | 9.9 | — | 9.9 | |||||||||||||||||||||||
Pension liability adjustment (net of tax of $4.2) | 7.6 | — | — | — | 7.6 | — | — | 7.6 | |||||||||||||||||||||||
Other comprehensive income | 17.5 | ||||||||||||||||||||||||||||||
Comprehensive income | $ | 123.0 | |||||||||||||||||||||||||||||