AYI-2014.11.30 - 10Q
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
Form 10-Q
_____________________________________________
(Mark One)
 
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended November 30, 2014.
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.
_____________________________________________
ACUITY BRANDS, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________
Delaware
 
58-2632672
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
1170 Peachtree Street, N.E., Suite 2300,
Atlanta, Georgia
(Address of principal executive offices)
 
30309-7676
(Zip Code)
(404) 853-1400
(Registrant’s telephone number, including area code)

None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

_____________________________________________
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 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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock $0.01 par value 43,368,808 shares as of January 5, 2015.
 


Table of Contents

ACUITY BRANDS, INC.
Table of Contents

 
 
Page No.
 
 
 
 
 
 
 
 
 EX-10(iii)A
 EX-31.A
 EX-31.B
 EX-32.A
 EX-32.B
 EX-101.INSTANCE DOCUMENT
 EX-101.SCHEMA DOCUMENT
 EX-101.CALCULATION LINKBASE DOCUMENT
 EX-101.LABELS LINKBASE DOCUMENT
 EX-101.PRESENTATION LINKBASE DOCUMENT


2

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statement
ACUITY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per-share data)
 
November 30, 2014
 
August 31, 2014
 
(unaudited)
 
 
ASSETS
 
 
 
Current Assets:
 

 
 
Cash and cash equivalents
$
583.0

 
$
552.5

Accounts receivable, less reserve for doubtful accounts of $1.6 and $1.9 as of November 30, 2014 and August 31, 2014, respectively
371.8

 
373.4

Inventories
214.2

 
212.0

Deferred income taxes
20.8

 
21.5

Prepayments and other current assets
35.7

 
27.3

Total Current Assets
1,225.5

 
1,186.7

Property, Plant, and Equipment, at cost:
 

 
 
Land
7.3

 
7.8

Buildings and leasehold improvements
115.8

 
116.0

Machinery and equipment
390.4

 
375.8

Total Property, Plant, and Equipment
513.5

 
499.6

Less — Accumulated depreciation and amortization
352.8

 
347.1

Property, Plant, and Equipment, net
160.7

 
152.5

Other Assets:
 

 
 
Goodwill
567.9

 
569.4

Intangible assets, net
227.6

 
231.6

Deferred income taxes
3.4

 
3.0

Other long-term assets
21.0

 
24.9

Total Other Assets
819.9

 
828.9

Total Assets
$
2,206.1

 
$
2,168.1

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 

 
 
Accounts payable
$
277.5

 
$
287.4

Accrued compensation
41.1

 
54.8

Accrued pension liabilities, current
1.2

 
1.2

Other accrued liabilities
133.8

 
127.1

Total Current Liabilities
453.6

 
470.5

Long-Term Debt
353.6

 
353.6

Accrued Pension Liabilities, less current portion
62.1

 
65.1

Deferred Income Taxes
58.4

 
58.4

Self-Insurance Reserves, less current portion
7.2

 
6.8

Other Long-Term Liabilities
60.5

 
50.2

Total Liabilities
995.4

 
1,004.6

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; 52,824,677 issued and 43,105,422 outstanding at November 30, 2014; 52,581,917 issued and 42,862,662 outstanding at August 31, 2014
0.5

 
0.5

Paid-in capital
770.5

 
761.5

Retained earnings
939.1

 
893.6

Accumulated other comprehensive loss
(79.2
)
 
(71.9
)
Treasury stock, at cost, 9,719,255 shares at November 30, 2014 and August 31, 2014
(420.2
)
 
(420.2
)
Total Stockholders’ Equity
1,210.7

 
1,163.5

Total Liabilities and Stockholders’ Equity
$
2,206.1

 
$
2,168.1


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


3

Table of Contents

ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In millions, except per-share data)
 
Three Months Ended
 
November 30, 2014
 
November 30, 2013
Net Sales
$
647.4

 
$
574.7

Cost of Products Sold
374.4

 
337.6

Gross Profit
273.0

 
237.1

Selling, Distribution, and Administrative Expenses
176.3

 
159.7

Special Charge
10.0

 

Operating Profit
86.7

 
77.4

Other Expense/(Income):
 

 
 
Interest Expense, net
7.9

 
8.0

Miscellaneous (Income)/Expense, net
(0.9
)
 
0.6

Total Other Expense
7.0

 
8.6

Income before Provision for Income Taxes
79.7

 
68.8

Provision for Income Taxes
28.6

 
24.3

Net Income
$
51.1

 
$
44.5

 
 
 
 
Earnings Per Share:
 

 
 
Basic Earnings per Share
$
1.18

 
$
1.03

Basic Weighted Average Number of Shares Outstanding
43.0

 
42.6

Diluted Earnings per Share
$
1.17

 
$
1.03

Diluted Weighted Average Number of Shares Outstanding
43.3

 
42.9

Dividends Declared per Share
$
0.13

 
$
0.13

 
 
 
 
Comprehensive Income:
 
 
 
Net Income
$
51.1

 
$
44.5

Other Comprehensive Income/(Expense) Items:
 
 
 
Foreign currency translation adjustments
(7.2
)
 
2.3

Defined benefit pension plans, net of tax
(0.1
)
 
0.6

Other Comprehensive Income/(Expense), net of tax
(7.3
)
 
2.9

Comprehensive Income
$
43.8

 
$
47.4


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.




4

Table of Contents

ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
 
Three Months Ended
 
November 30,
 
2014
 
2013
Cash Provided by/(Used for) Operating Activities:
 
 
 
Net income
$
51.1

 
$
44.5

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
 
 
 
Depreciation and amortization
11.3

 
10.6

Share-based compensation expense
4.1

 
4.5

Excess tax benefits from share-based payments
(9.2
)
 
(5.2
)
Deferred income taxes
0.4

 
0.8

Change in assets and liabilities, net of effect of acquisitions, divestitures, and effect of exchange rate changes:
 
 
 
Accounts receivable
(0.7
)
 
(14.0
)
Inventories
(2.9
)
 
(5.0
)
Prepayments and other current assets
(8.8
)
 
(4.7
)
Accounts payable
(8.8
)
 
(5.4
)
Other current liabilities
6.7

 
19.8

Other
3.5

 
(2.5
)
Net Cash Provided by Operating Activities
46.7

 
43.4

Cash Provided by/(Used for) Investing Activities:
 

 
 

Purchases of property, plant, and equipment
(18.5
)
 
(8.5
)
Proceeds from sale of property, plant, and equipment

 
0.9

Net Cash Used for Investing Activities
(18.5
)
 
(7.6
)
Cash Provided by/(Used for) Financing Activities:
 

 
 

Proceeds from stock option exercises and other
4.9

 
2.6

Excess tax benefits from share-based payments
9.2

 
5.2

Dividends paid
(5.6
)
 
(5.6
)
Other financing activities
(3.2
)
 

Net Cash Provided by Financing Activities
5.3

 
2.2

Effect of Exchange Rate Changes on Cash
(3.0
)
 
1.0

Net Change in Cash and Cash Equivalents
30.5

 
39.0

Cash and Cash Equivalents at Beginning of Period
552.5

 
359.1

Cash and Cash Equivalents at End of Period
$
583.0

 
$
398.1

Supplemental Cash Flow Information:
 

 
 

Income taxes paid during the period
$
17.1

 
$
13.4

Interest paid during the period
$
10.7

 
$
10.5


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


5

Table of Contents

ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in millions, except per-share data and as indicated)


1.
Description of Business and Basis of Presentation
Acuity Brands, Inc. (“Acuity Brands”) is the parent company of Acuity Brands Lighting, Inc. (“ABL”) and other subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred to herein as the “Company”). 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 drivers, 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 has one operating segment serving the North American lighting market and select international markets.
The Consolidated Financial Statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and present the financial position, results of operations, and cash flows of Acuity Brands and its wholly-owned subsidiaries. References made to years are for fiscal year periods.
These unaudited interim consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s consolidated financial position as of November 30, 2014, the consolidated statements of comprehensive income for the three months ended November 30, 2014 and 2013, and the consolidated cash flows for the three months ended November 30, 2014 and 2013. Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. However, the Company believes that the disclosures included herein are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company as of and for the three years ended August 31, 2014 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on October 29, 2014 (File No. 001-16583) (“Form 10-K”).
The results of operations for the three months ended November 30, 2014 and 2013 are not necessarily indicative of the results to be expected for the full fiscal year because the net sales and net income of the Company historically have been higher in the second half of its fiscal year and because, among other reasons, the continued uncertainty of general economic conditions that may impact the key end markets of the Company for the remainder of fiscal 2015.

2.     Significant Accounting Policies
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior-period amounts have been reclassified to conform to the current year presentation. No material reclassifications occurred during the current period.

3.
New Accounting Pronouncements
Accounting Standards Adopted in Fiscal 2015
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) (“ASU 2013-05”), which applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively


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Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The provisions of ASU 2013-05 did not have a material effect on the Company's financial condition, results of operations, or cash flows.
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) (“ASU 2013-11”), which applies to the presentation of unrecognized tax benefits as a liability on the balance sheet when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose. ASU 2013-11 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The provisions of ASU 2013-11 did not have a material effect on the Company's financial condition, results of operations, or cash flows.
Accounting Standards Yet to Be Adopted    
In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016. The Company is currently evaluating the impact of the provisions of ASU 2014-09.

4.
Fair Value Measurements
The Company determines fair value measurements based on the assumptions a market participant would use in pricing the asset or liability. ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a three level hierarchy making a distinction between market participant assumptions based on (i) unadjusted quoted prices for identical assets or liabilities in an active market (Level 1), (ii) quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (Level 2), and (iii) prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (Level 3).
The following table presents information about assets and liabilities required to be carried at fair value and measured on a recurring basis as of November 30, 2014 and August 31, 2014:
 
Fair Value Measurements as of:
 
November 30, 2014
 
August 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total Fair Value
Assets:
 

 
 
 
 
 
 

 
 

 
 
 
 
 
 

Cash and cash equivalents
$
583.0

 
$

 
$

 
$
583.0

 
$
552.5

 
$

 
$

 
$
552.5

Other
0.6

 

 

 
0.6

 
0.6

 

 

 
0.6

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
$
0.6

 
$

 
$
8.5

 
$
9.1

 
$
0.6

 
$

 
$
11.6

 
$
12.2


The Company utilizes valuation methodologies to determine the fair values of its financial assets and liabilities in conformity with the concepts of “exit price” and the fair value hierarchy as prescribed in ASC 820. All valuation methods and assumptions are validated at least quarterly to ensure the accuracy and relevance of the fair values. There were no material changes to the valuation methods or assumptions used to determine fair values during the current period.
The Company used the following valuation methods and assumptions in estimating the fair value of the following assets and liabilities:
The fair value of Level 1 assets and liabilities is determined based on quoted market prices.
The fair value of Level 3 liabilities is estimated using a discounted cash flow technique with significant inputs that are not observable in the market, appropriately discounted considering the uncertainties associated with the obligation. Changes in these inputs, including probability assessments or the discount rate, could result in a higher or lower fair value measurement. Any reasonably likely change in the assumptions used in the analysis would not result in a material change to the fair value of these liabilities.


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Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


No transfers between the levels of the fair value hierarchy occurred during the current fiscal period. In the event of a transfer in or out of a level within the fair value hierarchy, the transfers would be recognized on the date of occurrence.
The Company's Level 3 liabilities consist of certain acquisition-related liabilities. The change in these liabilities during fiscal 2015 was due to a $3.2 decrease from payments, a $0.7 increase in the estimated fair value, and a $0.6 decrease due to currency rate fluctuations in the period. The expense associated with the change in the estimated fair value was included in Selling, Distribution, and Administrative Expenses within the Consolidated Statements of Comprehensive Income.
Disclosures of fair value information about financial instruments (whether or not recognized in the balance sheet), for which it is practicable to estimate that value, are required each reporting period in addition to any financial instruments carried at fair value on a recurring basis as prescribed by ASC Topic 825, Financial Instruments (“ASC 825”). In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.
The carrying values and estimated fair values of certain of the Company’s financial instruments were as follows at November 30, 2014 and August 31, 2014:
 
November 30, 2014
 
August 31, 2014
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Liabilities:
 
 
 
 
 

 
 

Senior unsecured public notes, net of unamortized discount
$
349.6

 
$
392.2

 
$
349.6

 
$
391.2

Industrial revenue bond
4.0

 
4.0

 
4.0

 
4.0

The senior unsecured public notes are carried at the outstanding balance, net of bond discounts, as of the end of the reporting period. Fair value is estimated based on discounted future cash flows using rates currently available for debt of similar terms and maturity (Level 2).
The tax-exempt industrial revenue bond is carried at the outstanding balance as of the end of the reporting period. The industrial revenue bond is a variable-rate instrument that resets on a weekly basis; therefore, the Company estimates that the face amount of the bond approximates fair value as of November 30, 2014 based on bonds of similar terms and maturity (Level 2).
ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value to the Company. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In evaluating the Company’s management of liquidity and other risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.

5.
Goodwill and Intangible Assets
Through multiple acquisitions, the Company acquired intangible assets consisting primarily of trademarks and trade names associated with specific products with finite lives, definite-lived distribution networks, patented technology, non-compete agreements, and customer relationships, which are amortized over their estimated useful lives. Indefinite-lived intangible assets consist of trade names that are expected to generate cash flows indefinitely.
The Company recorded amortization expense of $2.8 and $2.7 related to intangible assets with finite lives during the three months ended November 30, 2014 and 2013, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $11.1 in fiscal 2015, $10.5 in fiscal 2016, $10.2 in fiscal 2017, $10.2 in fiscal 2018, and $10.1 in fiscal 2019.
The change in the carrying amount of goodwill during the three months ended November 30, 2014 is due to foreign currency translation adjustments. Further discussion of the Company’s goodwill and other intangible assets is included within the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.



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Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


6.
Inventories
Inventories include materials, labor, in-bound freight, and related manufacturing overhead, are stated at the lower of cost (on a first-in, first-out or average cost basis) or market, and consist of the following:
 
November 30, 2014
 
August 31, 2014
Raw materials, supplies, and work in process(1)
$
126.5

 
$
125.7

Finished goods
99.9

 
97.6

 
226.4

 
223.3

Less: Reserves
(12.2
)
 
(11.3
)
Total Inventory
$
214.2

 
$
212.0

_______________________________________
(1) 
Due to the immaterial amount of estimated work in process and the short lead times for the conversion of raw materials to finished goods, the Company does not believe the segregation of raw materials and work in process to be meaningful information.

7.
Earnings Per Share
Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding, which has been modified to include the effects of all participating securities (unvested share-based payment awards with a right to receive nonforfeitable dividends) as prescribed by the two-class method under ASC Topic 260, Earnings Per Share (“ASC 260”), during the period. The new equity plan approved in January 2013 changed the dividend provisions causing share-based payment awards to lose the right to receive nonforfeitable dividends. Due to this change, any shares granted after January 2013 are not participating securities as prescribed by the two-class method under ASC 260 and are accounted for in the diluted earnings per share calculation described below.

Diluted earnings per share is computed similarly but reflects the potential dilution that would occur if dilutive options were exercised, restricted stock awards (unvested share-based payment awards without a right to receive nonforfeitable dividends) were vested, and other distributions related to deferred stock agreements were incurred. Stock options of approximately 76,617 and 29,974 for the three months ended November 30, 2014 and 2013, respectively, were excluded from the diluted earnings per share calculation as the effect of inclusion would have been antidilutive. Restricted stock of approximately 37,429 and 33,807 for the three months ended November 30, 2014 and 2013, respectively, were excluded from the diluted earnings per share calculation as the effect of inclusion would have been antidilutive. Further discussion of the Company’s stock options and restricted stock awards is included within the Common Stock and Related Matters and Share-Based Payments footnotes of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.
The following table calculates basic earnings per common share and diluted earnings per common share for the three months ended November 30, 2014 and 2013:
 
Three Months Ended
 
November 30, 2014
 
November 30, 2013
Basic Earnings per Share:
 

 
 

Net income
$
51.1

 
$
44.5

Less: Income attributable to participating securities
(0.3
)
 
(0.5
)
Net income available to common shareholders
$
50.8

 
$
44.0

Basic weighted average shares outstanding
43.0

 
42.6

Basic earnings per share
$
1.18

 
$
1.03

Diluted Earnings per Share:
 

 
 

Net income
$
51.1

 
$
44.5

Less: Income attributable to participating securities
(0.3
)
 
(0.5
)
Net income available to common shareholders
$
50.8

 
$
44.0

Basic weighted average shares outstanding
43.0

 
42.6

Common stock equivalents
0.3

 
0.3

Diluted weighted average shares outstanding
43.3

 
42.9

Diluted earnings per share
$
1.17

 
$
1.03



9

Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



8.    Comprehensive Income
Comprehensive income represents a measure of all changes in equity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Other comprehensive income for the Company includes foreign currency translation and pension adjustments.
The following table presents the changes in each component of accumulated other comprehensive loss:
 
 Foreign Currency Items
 
 Defined Benefit Pension Plans
 
 Accumulated Other Comprehensive Loss Items
Balance at August 31, 2014
$
(18.1
)
 
$
(53.8
)
 
$
(71.9
)
Other Comprehensive Income/(Expense) before reclassifications
(7.2
)
 
(1.0
)
 
(8.2
)
Amounts reclassified from accumulated other comprehensive income

 
0.9

 
0.9

Net current-period Other Comprehensive Income/(Expense)
(7.2
)
 
(0.1
)
 
(7.3
)
Balance at November 30, 2014
$
(25.3
)
 
$
(53.9
)
 
$
(79.2
)
The following table presents the tax (expense)/benefit allocated to each component of other comprehensive income/(expense) for the three months ended November 30, 2014 and 2013:
 
Three Months Ended
 
November 30, 2014
 
November 30, 2013
 
 Before Tax Amount
 
 Tax (Expense) or Benefit
 
 Net of Tax Amount
 
 Before Tax Amount
 
 Tax (Expense) or Benefit
 
 Net of Tax Amount
Foreign Currency Translation Adjustments
$
(7.2
)
 
$

 
$
(7.2
)
 
$
2.3

 
$

 
$
2.3

Defined Benefit Pension Plans:
 
 
 
 
 
 
 
 
 
 
 
Actuarial gain or loss
(1.3
)
 
0.3

 
(1.0
)
 

 

 

Amortization of defined benefit pension items:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
0.2

(1) 
(0.1
)
 
0.1

 
0.2

(1) 
(0.1
)
 
0.1

Actuarial losses
1.1

(1) 
(0.3
)
 
0.8

 
0.8

(1) 
(0.3
)
 
0.5

Total Defined Benefit Pension Plans, net

 
(0.1
)
 
(0.1
)
 
1.0

 
(0.4
)
 
0.6

Other Comprehensive Income/(Expense)
$
(7.2
)
 
$
(0.1
)
 
$
(7.3
)
 
$
3.3

 
$
(0.4
)
 
$
2.9

_______________________________________
(1) 
These accumulated other comprehensive income components are included in net periodic pension cost. See Pension and Profit Sharing Plans footnote within the Notes to Consolidated Financial Statements for additional details.


9.
Debt
Lines of Credit
On August 27, 2014, the Company executed a new $250.0 revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility replaced the Company’s prior $250.0 revolving credit facility, which was scheduled to mature on January 31, 2017. The Revolving Credit Facility will mature and all amounts outstanding will be due and payable on August 27, 2019.
The Revolving Credit Facility contains financial covenants, including a minimum interest coverage ratio (“Minimum Interest Coverage Ratio”) and a leverage ratio (“Maximum Leverage Ratio”) of total indebtedness to EBITDA (earnings before interest, taxes, depreciation and amortization expense), as such terms are defined in the Revolving Credit Facility agreement. These ratios are computed at the end of each fiscal quarter for the most recent 12-month period. The Revolving Credit Facility allows for a Maximum Leverage Ratio of 3.50 and a Minimum Interest Coverage Ratio of 2.50, subject to certain conditions defined in the financing agreement. The Company was in compliance with all financial covenants under the Revolving Credit Facility as of November 30, 2014. At November 30, 2014, the Company had additional borrowing capacity under the Revolving Credit Facility of $243.8 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 $6.2 issued under the Revolving Credit Facility. As of November 30, 2014, the Company had outstanding letters of credit totaling $10.4, primarily for securing collateral requirements under the casualty insurance programs


10

Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


for Acuity Brands and providing credit support for the Company’s industrial revenue bond, including $6.2 issued under the Revolving Credit Facility.
Generally, amounts outstanding under the Revolving Credit Facility bear interest at a “Eurocurrency Rate.” Eurocurrency Rate advances can be denominated in a variety of currencies, including U.S. Dollars, and amounts outstanding bear interest at a periodic fixed rate equal to the London Inter Bank Offered Rate (“LIBOR”) for the applicable currency plus a margin as determined by the Company's leverage ratio (“Applicable Margin”). The Applicable Margin is based on the Company’s leverage ratio, as defined in the Revolving Credit Facility, with such margin ranging from 1.000% to 1.575%.
The Company is required to pay certain fees in connection with the Revolving Credit Facility, including administrative service fees and an annual facility fee. The annual facility fee is payable quarterly in arrears and is determined by the Company’s leverage ratio as defined in the Revolving Credit Facility. This facility fee ranges from 0.125% to 0.300% of the aggregate $250.0 commitment of the lenders under the Revolving Credit Facility.
Notes
At November 30, 2014, the Company had $350.0 of publicly-traded, senior unsecured notes outstanding at a 6% interest rate that are scheduled to mature in December 2019 (the “Notes”) and $4.0 of tax-exempt industrial revenue bonds that are scheduled to mature in 2021. Further discussion of the Company’s debt is included within the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.
Interest Expense
Interest expense, net, is comprised primarily of interest expense on long-term debt, obligations in connection with non-qualified retirement benefits, and Revolving Credit Facility borrowings partially offset by interest income on cash and cash equivalents.
The following table summarizes the components of interest expense, net:
 
Three Months Ended
 
November 30, 2014
 
November 30, 2013
Interest expense
$
8.1

 
$
8.1

Interest income
(0.2
)
 
(0.1
)
Interest expense, net
$
7.9

 
$
8.0


10.
Commitments and Contingencies
In the normal course of business, the Company is subject to the effects of certain contractual stipulations, events, transactions, and laws and regulations that may, at times, require the recognition of liabilities, such as those related to self-insurance reserves and claims, legal and contractual issues, environmental laws and regulations, guarantees, and indemnities. The Company establishes reserves when the associated costs related to uncertainties or guarantees become probable and can be reasonably estimated. For the period ended November 30, 2014, no material changes have occurred in the Company's reserves for self-insurance, litigation, environmental matters, guarantees and indemnities, or relevant events and circumstances, from those disclosed in the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.
Product Warranty and Related Issues
Acuity Brands records an allowance for the estimated amount of future warranty costs when the related revenue is recognized. Estimated costs related to product recalls based on a formal campaign soliciting repair or return of that product are accrued when they are deemed to be probable and can be reasonably estimated. Estimated future warranty and recall costs are primarily based on historical experience of identified warranty and recall claims. However, there can be no assurance that future warranty or recall costs will not exceed historical amounts or new technology products, which may include extended warranties, 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 results of operations and cash flows.


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ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Reserves for product warranty and related issues are included in Other accrued liabilities on the Consolidated Balance Sheets. The changes in the reserves for product warranty and related issues during the three months ended November 30, 2014 and 2013 are summarized as follows:
 
Three Months Ended
 
November 30,
 
2014
 
2013
Beginning of period
$
8.5

 
$
5.9

Warranty and recall costs
3.0

 
4.4

Payments and other deductions
(3.3
)
 
(3.8
)
End of period
$
8.2

 
$
6.5


Amounts included in the table above for fiscal 2014 were adjusted to include certain warranty and recall costs as well as payments and other deductions primarily for products or components shipped to customers at no charge and labor costs to satisfy the product warranty and recall obligations of the Company.

Litigation
The Company is subject to various legal claims arising in the normal course of business, including patent infringement and product recall claims. Based on information currently available, it is the opinion of management that the ultimate resolution of pending and threatened legal proceedings will not have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. However, in the event of unexpected future developments, it is possible that the ultimate resolution of any such matters, if unfavorable, could have a material adverse effect on the financial condition, results of operations, or cash flows of the Company in future periods. The Company establishes reserves for legal claims when associated costs become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher than the amounts reserved for such claims. However, the Company cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the amounts reserved.

11.
Share-Based Payments
The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors of the Company, including stock options and restricted shares (all part of the Company's equity incentive plan), and share units representing certain deferrals into the Company's director deferred compensation plan or the Company's supplemental deferred savings plan. Each of these award programs is more fully discussed within the Company’s Form 10-K. The Company recorded $4.1 and $4.5 of share-based expense for the three months ended November 30, 2014 and 2013, respectively. Benefits of tax deductions in excess of recognized share-based compensation cost are reported as a financing cash flow and were $9.2 and $5.2 for the three months ended November 30, 2014 and 2013, respectively. New shares issued upon exercise of stock options were 123,857 and 52,727 for the three months ended November 30, 2014 and 2013, respectively.
Further details regarding the Company’s share-based payments are included within the Share-Based Payments footnote of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.

12.    Pension and Profit Sharing Plans
The Company has several pension plans, both qualified and non-qualified, covering certain hourly and salaried employees. Benefits paid under these plans are based generally on employees’ years of service and/or compensation during the final years of employment. Plan assets are invested primarily in equity and fixed income securities.


12

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ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Net periodic pension cost for the Company’s defined benefit pension plans during the three months ended November 30, 2014 and 2013 included the following components before tax:
 
Three Months Ended
 
November 30, 2014
 
November 30, 2013
Service cost
$
0.8

 
$
0.6

Interest cost
2.1

 
2.2

Expected return on plan assets
(2.8
)
 
(2.5
)
Amortization of prior service cost
0.2

 
0.2

Recognized actuarial loss
1.1

 
0.8

Net periodic pension cost
$
1.4

 
$
1.3


13.
Special Charge
Fiscal 2013 Actions
During fiscal 2013, the Company continued efforts to streamline the organization through the planned closure of certain production facilities as well as the realignment of responsibilities primarily within various selling, distribution, and administrative departments. These actions allowed the Company to reduce costs and enhance customer service capabilities, while permitting continued investment in future growth initiatives, such as new products, expanded market presence, and technology and innovation.
During fiscal 2013, the Company recorded a pre-tax special charge of $7.8 consisting of severance and employee-related costs of $7.6 and lease termination costs of $0.2, which were included in Special Charge in the Consolidated Statements of Comprehensive Income. During fiscal 2014, the Company recognized a reversal of pre-tax special charges of $0.2 due primarily to lower-than-anticipated costs related to severance and employee-related expenses of $0.6 partially offset by production transfer costs of $0.4. During fiscal 2015, the Company recognized a reversal of pre-tax special charges of $0.1 due primarily to lower-than-anticipated costs related to severance and employee-related expenses.
Fiscal 2015 Actions
During fiscal 2015, the Company continued efforts to streamline the organization by realigning certain responsibilities primarily within various selling, distribution, and administrative departments and the consolidation of certain production activities. The Company expects that these actions to streamline its business activities, in addition to those taken in previous fiscal years, will allow it to reduce spending in certain areas while permitting continued investment in future growth initiatives, such as new products, expanded market presence, and technology and innovation. During fiscal 2015, the Company recorded a pre-tax special charge of $10.1 consisting primarily of severance and employee-related costs.
As of November 30, 2014, remaining severance reserves were $8.9 and are included in Accrued Compensation on the Consolidated Balance Sheets. The changes in the reserves related to these programs during the three months ended November 30, 2014 are summarized as follows:
 
Fiscal 2013 Actions
 
Fiscal 2015 Actions
 
Total
Balance at August 31, 2014
$
0.8

 
$

 
$
0.8

Special charge
(0.1
)
 
10.1

 
10.0

Payments made during the period
(0.1
)
 
(1.8
)
 
(1.9
)
Balance at November 30, 2014
$
0.6

 
$
8.3

 
$
8.9




13

Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


14.
Supplemental Guarantor Condensed Consolidating Financial Statements
In December 2009, ABL, the wholly-owned and principal operating subsidiary of the Company, refinanced the then current outstanding debt through the issuance of the Notes. See Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements within the Company’s Form 10-K for further information.
In accordance with the registration rights agreement by and between ABL and the guarantors to the Notes and the initial purchasers of the Notes, ABL and the guarantors to the Notes filed a registration statement with the SEC for an offer to exchange the Notes for an issue of SEC-registered notes with identical terms. Due to the filing of the registration statement and offer to exchange, the Company determined the need for compliance with Rule 3-10 of SEC Regulation S-X (“Rule 3-10”). In lieu of providing separate audited financial statements for ABL and ABL IP Holding, the Company has included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(d) of SEC Regulation S-X since the Notes are fully and unconditionally guaranteed by Acuity Brands and ABL IP Holding. The column marked “Parent” represents the financial condition, results of operations, and cash flows of Acuity Brands. The column marked “Subsidiary Issuer” represents the financial condition, results of operations, and cash flows of ABL. The column entitled “Subsidiary Guarantor” represents the financial condition, results of operations, and cash flows of ABL IP Holding. Lastly, the column listed as “Non-Guarantors” includes the financial condition, results of operations, and cash flows of the non-guarantor direct and indirect subsidiaries of Acuity Brands, which consist primarily of foreign subsidiaries. Eliminations were necessary in order to arrive at consolidated amounts. In addition, the equity method of accounting was used to calculate investments in subsidiaries. Accordingly, this basis of presentation is not intended to present our financial condition, results of operations, or cash flows for any purpose other than to comply with the specific requirements for parent-subsidiary guarantor reporting.


14

Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


CONDENSED CONSOLIDATING BALANCE SHEETS
 
November 30, 2014
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Consolidating Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
Current Assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
538.8

 
$
6.2

 
$

 
$
38.0

 
$

 
$
583.0

Accounts receivable, net

 
324.4

 

 
47.4

 

 
371.8

Inventories

 
197.7

 

 
16.5

 

 
214.2

Other current assets
17.3

 
29.2

 

 
10.0

 

 
56.5

Total Current Assets
556.1

 
557.5

 

 
111.9

 

 
1,225.5

Property, Plant, and Equipment, net
0.3

 
122.3

 

 
38.1

 

 
160.7

Goodwill

 
524.2

 
2.7

 
41.0

 

 
567.9

Intangible assets, net

 
85.2

 
120.4

 
22.0

 

 
227.6

Deferred income taxes
30.8

 

 

 
3.1

 
(30.5
)
 
3.4

Other long-term assets
1.2

 
17.2

 

 
2.6

 

 
21.0

Investments in and amounts due from subsidiaries
719.5

 
209.6

 
148.5

 

 
(1,077.6
)
 

Total Assets
$
1,307.9

 
$
1,516.0

 
$
271.6

 
$
218.7

 
$
(1,108.1
)
 
$
2,206.1

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
$
0.3

 
$
261.7

 
$

 
$
15.5

 
$

 
$
277.5

Other accrued liabilities
27.1

 
120.3

 

 
28.7

 

 
176.1

Total Current Liabilities
27.4

 
382.0

 

 
44.2

 

 
453.6

Long-Term Debt

 
353.6

 

 

 

 
353.6

Deferred Income Taxes

 
88.9

 

 

 
(30.5
)
 
58.4

Other Long-Term Liabilities
69.8

 
35.6

 

 
24.4

 

 
129.8

Amounts due to affiliates

 

 

 
72.0

 
(72.0
)
 

Total Stockholders’ Equity
1,210.7

 
655.9

 
271.6

 
78.1

 
(1,005.6
)
 
1,210.7

Total Liabilities and Stockholders’ Equity
$
1,307.9

 
$
1,516.0

 
$
271.6

 
$
218.7

 
$
(1,108.1
)
 
$
2,206.1



15

Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


CONDENSED CONSOLIDATING BALANCE SHEETS
 
August 31, 2014
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Consolidating Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
Current Assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
516.0

 
$
3.1

 
$

 
$
33.4

 
$

 
$
552.5

Accounts receivable, net

 
331.0

 

 
42.4

 

 
373.4

Inventories

 
196.8

 

 
15.2

 

 
212.0

Other current assets
9.4

 
31.6

 

 
7.8

 

 
48.8

Total Current Assets
525.4

 
562.5

 

 
98.8

 

 
1,186.7

Property, Plant, and Equipment, net
0.4

 
121.4

 

 
30.7

 

 
152.5

Goodwill

 
524.2

 
2.7

 
42.5

 

 
569.4

Intangible assets, net

 
86.6

 
121.5

 
23.5

 

 
231.6

Deferred income taxes
30.4

 

 

 
3.1

 
(30.5
)
 
3.0

Other long-term assets
4.2

 
18.0

 

 
2.7

 

 
24.9

Investments in and amounts due from subsidiaries
692.6

 
130.2

 
142.3

 

 
(965.1
)
 

Total Assets
$
1,253.0

 
$
1,442.9

 
$
266.5

 
$
201.3

 
$
(995.6
)
 
$
2,168.1

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
$
1.1

 
$
268.2

 
$

 
$
18.1

 
$

 
$
287.4

Other accrued liabilities
25.0

 
129.5

 

 
28.6

 

 
183.1

Total Current Liabilities
26.1

 
397.7

 

 
46.7

 

 
470.5

Long-Term Debt

 
353.6

 

 

 

 
353.6

Deferred Income Taxes

 
88.9

 

 

 
(30.5
)
 
58.4

Other Long-Term Liabilities
63.4

 
34.4

 

 
24.3

 

 
122.1

Amounts due to affiliates

 

 

 
52.3

 
(52.3
)
 

Total Stockholders’ Equity
1,163.5

 
568.3

 
266.5

 
78.0

 
(912.8
)
 
1,163.5

Total Liabilities and Stockholders’ Equity
$
1,253.0

 
$
1,442.9

 
$
266.5

 
$
201.3

 
$
(995.6
)
 
$
2,168.1




16

Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended November 30, 2014
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Consolidating Adjustments
 
Consolidated
Net Sales:
 

 
 

 
 

 
 

 
 

 
 

External sales
$

 
$
580.8

 
$

 
$
66.6

 
$

 
$
647.4

Intercompany sales

 

 
9.7

 
26.7

 
(36.4
)
 

Total Sales

 
580.8

 
9.7

 
93.3

 
(36.4
)
 
647.4

Cost of Products Sold

 
332.1

 

 
68.7

 
(26.4
)
 
374.4

Gross Profit

 
248.7

 
9.7

 
24.6

 
(10.0
)
 
273.0

Selling, Distribution, and Administrative Expenses
7.6

 
158.6

 
1.0

 
19.1

 
(10.0
)
 
176.3

Intercompany charges
(0.8
)
 
0.4

 

 
0.4

 

 

 Special Charge

 
10.0

 

 

 

 
10.0

Operating Profit/(Loss)
(6.8
)
 
79.7

 
8.7

 
5.1

 

 
86.7

Interest expense (income), net
2.6

 
5.4

 

 
(0.1
)
 

 
7.9

Equity earnings in subsidiaries
(57.2
)
 
(4.4
)
 

 

 
61.6

 

Miscellaneous (income) expense, net

 
(0.5
)
 

 
(0.4
)
 

 
(0.9
)
Income before Provision for Income Taxes
47.8

 
79.2

 
8.7

 
5.6

 
(61.6
)
 
79.7

Provision/(Benefit) for Income Taxes
(3.3
)
 
27.2

 
3.5

 
1.2

 

 
28.6

Net Income
$
51.1

 
$
52.0

 
$
5.2

 
$
4.4

 
$
(61.6
)
 
$
51.1

 
 
 
 
 
 
 
 
 
 
 
 
Other Comprehensive Income/(Expense) Items:
 
 
 
 
 
 
 
 
 
 
 
  Foreign Currency Translation Adjustments
(7.2
)
 
(7.2
)
 

 

 
7.2

 
(7.2
)
  Defined Benefit Pension Plans, net
(0.1
)
 
0.4

 

 
(0.5
)
 
0.1

 
(0.1
)
Other Comprehensive Income/(Expense) Items, net of tax
(7.3
)
 
(6.8
)
 

 
(0.5
)
 
7.3

 
(7.3
)
Comprehensive Income/(Expense)
$
43.8

 
$
45.2

 
$
5.2

 
$
3.9

 
$
(54.3
)
 
$
43.8




17

Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended November 30, 2013
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Consolidating Adjustments
 
Consolidated
Net Sales:
 

 
 

 
 

 
 

 
 

 
 

External sales
$

 
$
512.0

 
$

 
$
62.7

 
$

 
$
574.7

Intercompany sales

 

 
8.7

 
23.5

 
(32.2
)
 

Total Sales

 
512.0

 
8.7

 
86.2

 
(32.2
)
 
574.7

Cost of Products Sold

 
295.3

 

 
64.6

 
(22.3
)
 
337.6

Gross Profit

 
216.7

 
8.7

 
21.6

 
(9.9
)
 
237.1

Selling, Distribution, and Administrative Expenses
7.0

 
142.5

 
0.7

 
19.4

 
(9.9
)
 
159.7

Intercompany charges
(0.8
)
 
0.4

 

 
0.4

 

 

Special Charge

 

 

 

 

 

Operating Profit/(Loss)
(6.2
)
 
73.8

 
8.0

 
1.8

 

 
77.4

Interest expense (income), net
2.5

 
5.5

 

 

 

 
8.0

Equity earnings in subsidiaries
(50.1
)
 
(1.3
)
 

 

 
51.4

 

Miscellaneous (income) expense, net

 

 

 
0.6

 

 
0.6

Income before Provision for Income Taxes
41.4

 
69.6

 
8.0

 
1.2

 
(51.4
)
 
68.8

Provision/(Benefit) for Income Taxes
(3.1
)
 
24.5

 
3.1

 
(0.2
)
 

 
24.3

Net Income
$
44.5

 
$
45.1

 
$
4.9

 
$
1.4

 
$
(51.4
)
 
$
44.5

 
 
 
 
 
 
 
 
 
 
 
 
Other Comprehensive Income/(Expense) Items:
 
 
 
 
 
 
 
 
 
 
 
  Foreign Currency Translation Adjustments
2.3

 
2.3

 

 

 
(2.3
)
 
2.3

  Defined Benefit Pension Plans, net
0.6

 
0.3

 

 
0.2

 
(0.5
)
 
0.6

Other Comprehensive Income/(Expense) Items, net of tax
2.9

 
2.6

 

 
0.2

 
(2.8
)
 
2.9

Comprehensive Income/(Expense)
$
47.4

 
$
47.7

 
$
4.9

 
$
1.6

 
$
(54.2
)
 
$
47.4



















18

Table of Contents
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
Three Months Ended November 30, 2014
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Consolidating Adjustments
 
Consolidated
Net Cash Provided by Operating Activities
$
23.7

 
$
12.2

 
$

 
$
10.8

 
$

 
$
46.7

Cash Provided by (Used for) Investing Activities:
 
 
 
 
 
 
 
 
 
 
 

Purchases of property, plant, and equipment

 
(8.3
)
 

 
(10.2
)
 

 
(18.5
)
Investments in subsidiaries
(9.4
)
 

 

 

 
9.4

 

Net Cash Used for Investing Activities
(9.4
)
 
(8.3
)
 

 
(10.2
)
 
9.4

 
(18.5
)
Cash Provided by (Used for) Financing Activities:
 

 
 

 
 

 
 

 
 

 
 

Proceeds from stock option exercises and other
4.9

 

 

 

 

 
4.9

Excess tax benefits from share-based payments
9.2

 

 

 

 

 
9.2

Intercompany capital

 

 

 
9.4

 
(9.4
)
 

Dividends paid
(5.6
)
 

 

 

 

 
(5.6
)
Other financing activities

 

 

 
(3.2
)
 

 
(3.2
)
Net Cash Provided by Financing Activities
8.5

 

 

 
6.2

 
(9.4
)
 
5.3

Effect of Exchange Rate Changes on Cash

 
(0.8
)
 

 
(2.2
)
 

 
(3.0
)
Net Change in Cash and Cash Equivalents
22.8

 
3.1

 

 
4.6

 

 
30.5

Cash and Cash Equivalents at Beginning of Period
516.0

 
3.1

 

 
33.4

 

 
552.5

Cash and Cash Equivalents at End of Period
$
538.8

 
$
6.2

 
$

 
$
38.0

 
$

 
$
583.0



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ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
Three Months Ended November 30, 2013
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Consolidating Adjustments
 
Consolidated
Net Cash Provided by Operating Activities
$
38.0

 
$
7.5

 
$

 
$
(2.1
)
 
$

 
$
43.4

Cash Provided by (Used for) Investing Activities:
  

 
  

 
  

 
  

 
  

 
 

Purchases of property, plant, and equipment

 
(7.4
)
 

 
(1.1
)
 

 
(8.5
)
Proceeds from sale of property, plant, and equipment

 
0.9

 

 

 

 
0.9

Net Cash Used for Investing Activities

 
(6.5
)
 

 
(1.1
)
 

 
(7.6
)
Cash Provided by (Used for) Financing Activities:
 

 
 

 
 

 
 

 
 

 
 

Proceeds from stock option exercises and other
2.6

 

 

 

 

 
2.6

Excess tax benefits from share-based payments
5.2

 

 

 

 

 
5.2

Dividends paid
(5.6
)
 

 

 

 

 
(5.6
)
Net Cash Provided by Financing Activities
2.2

 

 

 

 

 
2.2

Effect of Exchange Rate Changes on Cash

 
(0.1
)
 

 
1.1

 

 
1.0

Net Change in Cash and Cash Equivalents
40.2

 
0.9

 

 
(2.1
)
 

 
39.0

Cash and Cash Equivalents at Beginning of Period
331.0

 
0.8

 

 
27.3

 

 
359.1

Cash and Cash Equivalents at End of Period
$
371.2

 
$
1.7

 
$

 
$
25.2

 
$

 
$
398.1




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Item 2.
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, Inc. and its subsidiaries as of November 30, 2014 and for the three months ended November 30, 2014 and 2013. For a more complete understanding of this discussion, please read the Notes to Consolidated Financial Statements included in this report. Also, please refer to the Company’s 2014 Annual Report on Form 10-K for the fiscal year ended August 31, 2014, filed with the Securities and Exchange Commission (the “SEC”) on October 29, 2014 (“Form 10-K”).
Overview
Company
Acuity Brands, Inc. (“Acuity Brands”) is the parent company of Acuity Brands Lighting, Inc. (“ABL”) and other subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred to herein as the “Company”). The Company, with its principal office in Atlanta, Georgia, employs approximately 7,000 people worldwide.
The Company designs, produces, and distributes a broad array of lighting solutions, components, 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 drivers, 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 a diversified portfolio of lighting, controls, and daylighting brands. The Company integrates conventional and advanced solid-state lighting fixtures with digital controls and daylighting products to create greater energy efficiencies and higher quality of light for a broad and diverse customer base. As of November 30, 2014, the Company operates 16 manufacturing facilities and seven distribution facilities along with three warehouses to serve its extensive customer base.
Please refer to the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements for more information.
Liquidity and Capital Resources
The Company’s principal sources of liquidity are operating cash flows generated primarily from its business operations, cash on hand, and various sources of borrowings. 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 and capital expenditures, pay dividends, meet its obligations as they become due, and maintain compliance with covenants contained in its financing agreements.
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 operations as currently planned, making anticipated capital investments, paying quarterly stockholder dividends as currently anticipated, paying principal and interest on borrowings as currently scheduled, making required contributions to its employee benefit plans, funding potential acquisitions, and potentially repurchasing shares of its outstanding common stock as authorized by the Board of Directors (the "Board"). Two million shares of the Company’s common stock are currently authorized and available for repurchase under an existing repurchase program. The Company expects to repurchase these shares on an opportunistic basis. The Company currently expects to invest approximately two percent of net sales during fiscal 2015 of which $18.5 had been invested as of November 30, 2014, primarily for equipment, tooling, facility enhancements, and new and enhanced information technology capabilities. Additionally, management believes that the Company’s cash flows from operations and sources of funding, including, but not limited to, borrowing capacity, will sufficiently support the long-term liquidity needs of the Company.
The Company operates five manufacturing facilities in Mexico which 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 a stipulated time frame.  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, which have become stricter in recent years.   Certain new regulations required


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to maintain compliance with the terms of the Maquiladora program are effective in January 2015. Failure to comply with these new regulations could have an adverse effect on the Company’s financial position, results of operations, and cash flows.
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 common stock of the Company, fund acquisitions, and pay dividends.
The Company’s cash position at November 30, 2014 was $583.0, an increase of $30.5 from August 31, 2014. Cash flow generated from operations and cash generated from stock issued under employee and director compensation plans during the period were partially used during the first three months of fiscal 2015 primarily to make capital expenditures of $18.5 and pay dividends to stockholders of $5.6.
The Company generated $46.7 of cash flow from operating activities during the three months ended November 30, 2014 compared with $43.4 in the prior-year period, an increase of $3.3, due primarily to higher net income and lower operating working capital requirements partially offset by increased variable incentive compensation payments. Operating working capital (calculated by adding accounts receivable plus inventories, and subtracting accounts payable-net of acquisitions and the impact of foreign exchange rate changes) increased by approximately $12.4 during the first three months of fiscal 2015 compared to an increase of approximately $24.4 during the first three months of fiscal 2014 primarily as a result of the timing of payments from customers compared to the prior year period.
Management believes that investing in assets and programs that will over time increase the overall return on its invested capital is a key factor in driving stockholder value. The Company invested $18.5 and $8.5 in the first three months of fiscal 2015 and 2014, respectively, primarily related to investments in new equipment, tooling, and information technology. As noted above, the Company expects to invest approximately two percent of net sales primarily for equipment, tooling, facility enhancements, and new and enhanced information technology capabilities during fiscal 2015.
Capitalization
The current capital structure of the Company is comprised principally of senior unsecured notes and equity of its stockholders. As of November 30, 2014, total debt outstanding of $353.6 remained substantially unchanged from August 31, 2014 and consisted primarily of fixed-rate obligations.
On August 27, 2014, 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 January 31, 2017. The Revolving Credit Facility will mature and all amounts outstanding thereunder will be due and payable on August 27, 2019.
The Company was in compliance with all financial covenants under the Revolving Credit Facility as of November 30, 2014. At November 30, 2014, the Company had additional borrowing capacity under the Revolving Credit Facility of $243.8 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 $6.2 issued under the Revolving Credit Facility. As of November 30, 2014, the Company had outstanding letters of credit totaling $10.4, primarily for securing collateral requirements under the casualty insurance programs for Acuity Brands and providing credit support for the Company’s industrial revenue bond, including $6.2 issued under the Revolving Credit Facility. See the Debt footnote of the Notes to Consolidated Financial Statements.
During the first three months of fiscal 2015, the Company’s consolidated stockholders’ equity increased $47.2 to $1,210.7 at November 30, 2014 from $1,163.5 at August 31, 2014. The increase was due primarily to net income earned in the period, as well as amortization of stock-based compensation, stock issuances resulting primarily from the exercise of stock options, and amortization of pension plan prior service costs and actuarial losses partially offset by dividend payments 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 22.6% and 23.3% at November 30, 2014 and August 31, 2014, respectively. The ratio of debt, net of cash, to total capitalization, net of cash, was (23.4)% at November 30, 2014 and (20.6)% at August 31, 2014.
Dividends
Acuity Brands paid dividends on its common stock of $5.6 ($0.13 per share) during the three months ended November 30, 2014 and 2013. All decisions regarding the declaration and payment of dividends by Acuity Brands are at the discretion of the Board and are evaluated regularly in light of the Company’s financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.


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Results of Operations
First Quarter of Fiscal 2015 Compared with First Quarter of Fiscal 2014
The following table sets forth information comparing the components of net income for the three months ended November 30, 2014 and 2013:
 
Three Months Ended
 
 
 
 
 
November 30, 2014
 
November 30, 2013
 
Increase (Decrease)
 
Percent Change
Net Sales
$
647.4

 
$
574.7

 
$
72.7

 
12.7
 %
Cost of Products Sold
374.4

 
337.6

 
36.8

 
10.9