e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended August 31, 2010.
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 001-16583.
ACUITY BRANDS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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58-2632672
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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1170 Peachtree Street, N.E., Suite 2400,
Atlanta, Georgia
(Address of principal
executive offices)
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30309-7676
(Zip
Code)
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(404) 853-1400
(Registrants telephone
number, including area code)
Securities registered pursuant
to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock ($0.01 Par Value)
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New York Stock Exchange
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Preferred Stock Purchase Rights
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New York Stock Exchange
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Securities registered pursuant
to Section 12(g) of the Act: None
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 o 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 registrants 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. 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.
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Large Accelerated
Filer þ
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Accelerated
Filer o
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Non-accelerated
Filer o
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Smaller Reporting
Company o
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(Do not check if a smaller
reporting company)
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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 Registrants common stock
of $38.98 as quoted on the New York Stock Exchange on
February 28, 2010, the aggregate market value of the voting
stock held by nonaffiliates of the registrant was $1,693,028,436.
The number of shares outstanding of the registrants common
stock, $0.01 par value, was 42,807,894 shares as of
October 28, 2010.
DOCUMENTS INCORPORATED BY REFERENCE
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Location in Form 10-K
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Incorporated Document
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Part II, Item 5
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Proxy Statement for 2010 Annual Meeting of Stockholders
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Part III, Items 10, 11, 12, 13, and 14
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Proxy Statement for 2010 Annual Meeting of Stockholders
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ACUITY
BRANDS, INC.
Table of
Contents
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PART I
($ 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 worlds
leading providers of lighting fixtures, control devices,
components, systems and services for commercial and
institutional, industrial, infrastructure, and residential
applications for various markets throughout North America and
select international markets.
The Company designs, produces, and distributes a full range of
indoor and outdoor lighting and control systems for commercial
and institutional, industrial, infrastructure, and residential
applications. The Company manufactures or procures lighting
products primarily in North America, Europe, and Asia. These
products and related services are marketed under numerous brand
names, including Lithonia
Lighting®,
Holophane®,
Peerless®,
Mark Architectural
Lightingtm,
Hydrel®,
American Electric
Lighting®,
Gotham®,
Carandini®,
Metal
Optics®,
Antique Street
Lampstm,
Tersentm,
Synergy®
Lighting Controls, Sensor
Switch®,
Lighting Control &
Designtm,
and
ROAM®.
As of August 31, 2010, the Company manufactures products in
14 plants in North America and two plants in Europe.
Principal customers include electrical distributors, retail home
improvement centers, national accounts, electric utilities,
municipalities, and lighting showrooms located in North America
and select international markets serving new construction,
renovation, and facility maintenance applications. In North
America, the Companys products and lighting systems are
sold by independent sales agents and factory sales
representatives who cover specific geographic areas and market
segments. 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 Company employs a
sales force that utilizes distribution methods to meet specific
individual customer or country requirements. In fiscal 2010,
North American sales accounted for approximately 97% 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.
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
Companys stockholders of record as of October 17,
2007. The Companys stockholders received one Zep share,
together with an associated preferred stock purchase right, for
every two shares of the Companys common stock they owned.
Stockholders received cash in lieu of fractional shares for
amounts less than one full Zep share.
As a result of the Spin-off, the Companys financial
statements have been prepared with the net assets, results of
operations, and cash flows of the specialty products business
presented as discontinued operations. All historical statements
have been restated to conform to this presentation. Refer to the
Discontinued Operations footnote of the Notes to
Consolidated Financial Statements.
Industry
Overview
Based on industry sources and government information, the
Company estimates that in fiscal 2010 the size of the North
American market for lighting fixtures, lighting controls, and
related product and services that is served by the Company was
approximately $9.3 billion. This includes non-portable
light fixtures (as defined by the National Electrical
Manufacturers Association), poles for outdoor lighting products,
emergency lighting fixtures, and energy management and
architectural lighting control systems. This market estimate is
based on a combination of external industry data and internal
estimates, and excludes portable and vehicular lighting fixtures
and related lighting
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components, such as lighting ballasts and lamps. The
U.S. market, which represents approximately 82% of the
North American market, is relatively fragmented. The Company
estimates that the top four manufacturers (including Acuity
Brands Lighting) participate in varying degrees in the total
North American lighting fixture and controls market and have
approximately half of the total market share. The remainder of
the North American market is served by hundreds of other
lighting manufacturers, including privately-owned and primarily
smaller companies.
The Company operates in a highly competitive industry that is
affected by volatility in a number of general business and
economic factors, such as gross domestic product growth,
employment levels, credit availability and commodity costs. The
Companys primary market, non-residential construction, is
sensitive to the volatility of these general economic factors.
Based on industry sources, the Company estimates that new
construction and additions in fiscal 2010 and 2009 accounted for
approximately 74% and 78%, respectively, of the non-residential
market while alterations, including renovation, accounted for
approximately 26% and 22%, respectively. This mix can vary over
time depending on economic conditions. As such, given the
current economic environment, new construction in the
non-residential market declined at a more rapid rate than
alterations, which caused the change in mix. Construction
spending on infrastructure projects such as highways, streets,
and urban developments also has a material impact on the demand
for the Companys infrastructure-focused products. Demand
for the Companys lighting products sold through its retail
channels are 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 being
attributed to the renovation and replacement of lighting systems
in existing buildings. The potential U.S. market size is
estimated to be significant (possibly greater than
$100 billion of installed base) due to square footage of
existing non-residential buildings containing older, less
efficient lighting systems.
The industry is influenced by the development of new lighting
technologies, including light emitting diode (LED),
electronic ballasts, embedded controls, and more effective
optical designs; federal and state requirements for updated
energy codes; incentives by federal, state, and local municipal
authorities, as well as utility companies for using more
energy-efficient fixtures and controls; and design technologies
addressing sustainability. Traditional lighting manufacturers,
including the Company, are offering product solutions based on
these technologies utilizing internally developed, licensed, or
acquired intellectual property. In addition, traditional
lighting manufacturers are experiencing competition from new
entrants with a focus on new technology-based lighting solutions.
Consolidation remains a key trend in the lighting equipment and
controls industry, as well as the broader electrical industry
leading to more extensive product offerings and increased
globalization. Evidence of this trend are the recent
combinations among electrical distributors, the 2008 acquisition
by Koninklijke Philips Electronics N.V. of The Gentlyte Group
Incorporated, and the Companys fiscal 2009 acquisitions of
Sensor Switch, Inc. and Lighting Control & Design,
Inc. and fiscal 2010 acquisition of Renaissance Lighting, Inc.
Products
The Company produces a wide variety of lighting fixtures and
controls systems and related products and services used in the
following applications:
Products
and Services:
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Commercial & Institutional Includes
stores, hotels, offices, schools, and hospitals, as well as
other government and public buildings. Products that serve these
applications include recessed, surface, and suspended lighting
products, recessed downlighting, track lighting, and controls
systems (occupancy sensors, photocontrols, relay panels,
architectural dimming panels, and integrated 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.
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Industrial Includes primarily warehouses and
manufacturing facilities, which utilize a variety of general
purpose and
special-use
lighting products, as well as controls systems offerings.
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Infrastructure Includes highways, tunnels,
airports, railway yards, and ports. Products that serve these
applications include street, area, high-mast, off-set roadway,
sign lighting, and integrated controls systems.
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Residential Addressed with a combination of
decorative fluorescent and downlighting products, as well as
utilitarian fluorescent products.
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Services Includes monitoring and controlling
of lighting systems through
machine-to-machine
wireless network technology for outdoor applications, as well as
energy audit and turn-key labor renovation services for indoor
applications in the commercial, industrial, institutional, and
infrastructure markets.
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Sales of products accounted for approximately 99% of total
consolidated net sales for Acuity Brands in fiscal 2010, 2009,
and 2008.
Sales and
Marketing
Sales. The Company sells to customers in the
North American market with separate sales forces targeted at
delivering value added products and services to specific
customer, channel, and geographic segments. As of
August 31, 2010, these sales forces consist of
approximately 300 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 products 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 lighting
knowledge of customers and industry professionals.
Customers
Customers of the Company include electrical distributors, retail
home improvement centers, national accounts, electric utilities,
utility distributors, municipalities, contractors, lighting
showrooms, and energy service companies. In addition, there are
a variety of other professionals, which for any given project
could represent a significant influence in the product
specification process. These generally include contractors,
engineers, architects, and lighting designers.
A single customer of the Company, The Home Depot, accounted for
approximately 11% of net sales of the Company in fiscal 2010,
2009, and 2008. The loss of The Home Depots business could
temporarily adversely affect the Companys results of
operations.
Manufacturing
The Company operates 16 manufacturing facilities, including
eight facilities in the United States, six facilities in Mexico,
and two facilities in Europe. 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 assembly,
reflector forming and anodizing and high-end glass production,
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. Investment is focused on improving
capabilities, product quality, and manufacturing efficiency.
Outsourcing production and distribution to local suppliers
factories and warehouses also provides an opportunity to lower
Company-owned component inventory while maintaining high service
levels through frequent
just-in-time
deliveries. The Company also utilizes contract manufacturing
from U.S., Asian, and European sources for certain products and
purchases certain finished goods, including poles, to complement
its area lighting fixtures and a
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variety of residential and commercial lighting equipment. In
fiscal 2010, net sales of finished product manufactured by
others accounted for approximately 22% of the Companys net
sales, while the Companys U.S. operations produced
approximately 25%; Mexico produced approximately 50%; and Europe
produced approximately 3%.
Management continues to focus on certain initiatives to make the
Company more globally competitive. One of these initiatives
relates to enhancing the Companys global supply chain and
includes the consolidation of certain manufacturing facilities
into more efficient locations. Since the beginning of fiscal
2002, the Company has closed 15 manufacturing facilities,
including two separate facilities downsized in fiscal 2010 and
2009. These consolidation efforts reduced the total square
footage used for manufacturing by approximately 39%.
Distribution
Products 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 products with an
ever-increasing
performance-to-cost
ratio and energy efficiency, while close relationships with
lamp, ballast, LED, and power supply manufacturers are
maintained to understand technology enhancements and incorporate
them in the Companys fixture designs. For fiscal 2010,
2009, and 2008, research and development expense totaled $28.0,
$20.8, and $30.3, respectively. The increase in fiscal 2010
expense was due primarily to higher incentive compensation
associated with R&D associates compared with fiscal 2009
amounts.
Competition
The lighting equipment and controls market served by the Company
is highly competitive, with some of the largest suppliers
serving many of the same markets and competing for the same
customers. Competition is based on numerous factors, including
brand name recognition, price, product quality, product and
lighting system design, energy efficiency, customer
relationships, and service capabilities. The Companys
primary competitors in the North American lighting fixture and
controls market include Cooper Industries plc., Hubbell
Incorporated, and Koninklijke Philips Electronics N.V. The
Company estimates that the four largest manufacturers (including
Acuity Brands Lighting), which participate in varying degrees in
the total North American lighting fixture and controls market,
have approximately half of the total market share. In addition
to these primary competitors, the Company also competes with
hundreds of smaller lighting manufacturers, numerous lighting
controls manufacturers of varying size, and, to a lesser degree,
large, diversified global electronics companies.
The market is competitive for lighting and lighting-related
products and services and continues to evolve. Consolidation
remains a key trend. Certain broader and more global 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 offering solid-state (primarily LED)
product solutions to compete with traditional lighting solutions.
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
Companys operations to limit air and water pollution, and
these permits are subject to modification, renewal, and
revocation by issuing authorities. On an ongoing basis, the
Company allocates considerable resources, including investments
in capital and operating costs relating to environmental
compliance. Environmental laws and regulations have generally
become stricter in recent years, and state and federal
governments domestically and internationally are considering new
laws and regulations governing raw material composition, air
emissions, and energy-efficiency. The Company is not aware of
any pending legislation or
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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. See
Item 3: Legal Proceedings for further discussion of
environmental matters.
Raw
Materials
The products 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 2010, the Company purchased
approximately 119,000 tons of steel and aluminum. The Company
estimates that less than 10% of purchased raw materials are
petroleum-based. Additionally, the Company estimates that
approximately 3.5 million gallons of diesel fuel was
consumed in fiscal 2010 through the Companys distribution
activities. The Company purchases most raw materials on the open
market and relies on third parties for providing certain
finished goods. Accordingly, the cost of products sold may be
affected by changes in the market price of raw materials or the
sourcing of 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 Companys
products due to increases in the cost of raw materials 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. Decreases in the costs of
raw materials generally are also passed along in the form of
lower selling prices.
The Company constantly monitors and investigates alternative
suppliers and materials based on numerous attributes including
quality, service, and price. The Companys 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 Company ships approximately 55% of sales orders during the
month in which those orders are placed. Sales order backlogs,
believed to be firm as of August 31, 2010 and 2009, were
$137.6 and $137.0, respectively.
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 Companys 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.
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
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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 53% of the products sold by the Company are
manufactured by the Company outside the United States.
Of the Companys total products sold, approximately 50% 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
re-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.
The Company may be required to make additional investments in
automated equipment to partially offset potential increases in
labor and wage costs.
The Companys initiatives to become more globally
competitive include streamlining its global supply chain by
reducing the number of manufacturing facilities and enhancing
the Companys worldwide procurement and sourcing
capabilities. Management believes these initiatives will result
in increased worldwide procurement and sourcing of certain raw
materials, component parts, and finished goods. As a
consequence, economic, political, military, social, or other
events in a country where the Company manufactures, procures, or
sources a significant amount of raw materials, component parts,
or finished goods, could interfere with the Companys
operations and negatively impact the Companys business.
For fiscal 2010, net sales outside 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), together with all reports
filed pursuant to Section 16 of the Securities Exchange Act
of 1934 by the Companys officers, directors, and
beneficial owners of 10% or more of the Companys common
stock, available free of charge through the SEC
Filings link on the Companys 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 Companys website is not incorporated by
reference into this Annual Report on
Form 10-K.
The Companys reports are also available at the Securities
and Exchange Commissions 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 Companys
directors, officers, and employees, including its principal
executive officer and senior financial officers. The Code of
Ethics and Business Conduct and the Companys Corporate
Governance Guidelines are available free of charge through the
Corporate Governance link on the Companys
website. 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 Companys 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
Companys 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 Companys Investor Relations
department.
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Employees
Acuity Brands employs approximately 6,000 people, of whom
approximately 3,200 are employed in the United States, 2,500 in
Mexico, 50 in Canada, and 200 in other international locations,
including Europe and the Asia/Pacific region. Union recognition
and collective bargaining arrangements are in place, covering
approximately 3,600 persons (including approximately 1,400
in the United States). The Company believes that it has a good
relationship with both its unionized and non-unionized employees.
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
Companys forward-looking statements. See Cautionary
Statement Regarding Forward-Looking Statements on
page 36. These risks include, without limitation:
Risks
Related to the Business of Acuity Brands, Inc.
General
business and economic conditions may affect demand for the
Companys 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 and
commodity costs. Declines in general economic activity may
negatively impact new construction, and renovation projects,
which in turn may impact demand for the Companys product
and service offerings. The impact of these factors could
adversely affect the Companys 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 Companys capital
position and demand for the Companys products and
services.
Tight credit conditions could impair the Companys ability
to effectively access capital. This could impair the
Companys 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
Companys financial position, results from operations, and
cash flows.
In addition, the impact of the tight credit conditions has and
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
Companys products and services and could adversely affect
the Companys results from operations and cash flow. The
lack of credit availability and the general economic conditions
over the last two years have negatively impacted the
Companys results from operations by reducing customer
demand.
Acuity
Brands is heavily dependent on the strength of construction
activity.
Sales of lighting equipment depend significantly on the level of
activity in new construction and renovations. Demand for
non-residential construction and renovation is driven by many
factors, including but not limited to economic activity,
employment levels, credit availability, interest rates,
accessibility to financing, and trends in vacancy rates and rent
values. Demand for new residential construction and remodeling
is also affected by interest rates and credit availability, as
well as the supply of existing homes, price appreciation, and
household formation rates. Significant declines in either
non-residential or residential construction activity could
significantly impact the Companys results from operations
and cash flow. Since early fiscal 2009, both the Company and the
industry
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experienced declines in sales volumes resulting from weakness in
both the non-residential and residential construction markets
due to the weak economic environment.
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,
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 supply for those items could negatively impact
the Companys short-term performance. Profitability and
volume could be negatively impacted by limitations inherent
within the supply chain of certain of these component parts,
including competitive, governmental, legal, natural disasters,
and other events that could impact both supply and price. Since
mid-fiscal 2010, the industry has experienced shortages in
certain electronic components used in the manufacturing of
ballasts and power supplies, resulting in delays in sourcing
these vital components. A persistent lack of availability of
these components could adversely impact shipments in future
periods. Variability in cost and availability could adversely
affect the Companys results from operations and cash flows.
Acuity
Brands results may be adversely affected by the
Companys inability to maintain pricing.
Aggressive pricing actions by competitors may affect the
Companys 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 which could
negatively impact gross margin percentages. 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.
During fiscal 2009, the Company continued its ongoing programs
to streamline operations, including the consolidation of certain
manufacturing facilities and the reduction of overhead costs.
Upon completion of these actions, the Company realized
annualized benefits of more than $50.0. During fiscal 2010, the
Company announced plans to relocate certain production and
down-size two facilities, and, upon completion, the Company
expects to realize $10.0 in annualized benefits. The Company
will gain from such activity 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 Companys 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 Companys 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.
Some of these risks
10
could have a material adverse effect on the Companys
business, financial condition, results from operations, and cash
flows in the future.
The Company is exposed to risks associated with fluctuations in
foreign currency exchange rates against the U.S. dollar
resulting from
non-U.S. dollar
denominated transactions, particularly in our international
operations. Potential decreases in income could result from a
strengthening or weakening in foreign exchange rates in relation
to the U.S. dollar.
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, and the remediation
of environmental contamination and working conditions for the
Companys 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,
or similar concerns. These laws may impact the manufacture and
distribution of the Companys 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 Companys 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 Companys
financial condition or results. In addition, the presence of
environmental contamination at the Companys 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 claims with a
self-insurance retention of $0.5 per occurrence, including
product liability claims, and is fully self-insured for certain
other types of claims, including environmental, product recall,
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 Companys results from
operations, financial position, or cash flows. The
Companys 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.
11
Acuity
Brands may pursue future growth through strategic acquisitions
and alliances, which may not yield anticipated
benefits.
The Company has and may continue to seek to improve its business
through strategic acquisitions and alliances. The Company will
gain from such activity only to the extent that it can
effectively leverage the assets, including personnel, technology
and operating processes, of the acquired businesses and
alliances. 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 Companys ability to recover initial
and subsequent investments, particularly those related to
acquired goodwill and intangible assets. Any of these factors
could adversely affect the Companys financial condition,
results from operations, and cash flows.
Technological
developments and increased competition could affect the
Companys 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 the obtaining of
appropriate patents play a significant role in protecting the
Companys 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
partnership with competing large manufacturers, coupled with
significant associated exclusivity
and/or
patent activity, could adversely affect the Companys
ability to sustain operating profit margin and desirable levels
of sales volume. Consolidation remains a key trend. Certain
broader and more global 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.
Acuity
Brands may be unable to sustain significant customer and/or
channel partner relationships.
Relationships forged with customers, including The Home Depot
which historically has represented slightly greater than 10% of
the Companys total net sales, are directly impacted by the
Companys ability to deliver
high-quality
products and services. The Company does not have a written
contract obligating The Home Depot to purchase its products. The
loss of or substantial decrease in the volume of purchases by
The Home Depot would harm the Companys sales,
profitability and cash flow. 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 some 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
Companys sales, profitability, and cash flows.
If
Acuity Brands products are improperly designed,
manufactured, packaged, or labeled, the Company may need to
recall those items and could be the target of product liability
claims if consumers are injured.
The Company may need to recall products if they are improperly
designed, manufactured, packaged, or labeled and does not
maintain insurance for such events. The Companys quality
control procedures relating to the raw materials, including
packaging, that it receives from third-party suppliers, as well
as the Companys quality control procedures relating to its
products after those products are designed, manufactured, and
packaged, may not be sufficient. 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 product for a period of time. The Company may also be liable
if the use of any of its products causes injury, and could
suffer losses from a significant product liability judgment
against the Company. A significant product recall or product
liability case could also result in adverse publicity, damage to
the Companys reputation, and a loss of
12
consumer confidence in its products, which could have a material
adverse effect on the Companys business, financial
results, and cash flows.
Acuity
Brands could be adversely affected by disruptions of its
operations.
The breakdown of equipment or other events, including labor
disputes, pandemics or catastrophic events such as war or
natural disasters, leading to production interruptions in the
Companys or one or more of its suppliers plants
could have a material adverse effect on the Companys
financial results and cash flows. Approximately 50% of the
Companys sales of finished products are manufactured in
Mexico, a country that is currently experiencing heightened
civil unrest, which could also disrupt supply of products from
these facilities. Further, because many of the Companys
customers are, to varying degrees, dependent on planned
deliveries from the Companys plants, those customers that
have to reschedule their own production or delay opening a
facility due to the Companys 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 Companys
reputation among actual and potential customers may be harmed
and result in a loss of business. While the Company has
developed business continuity plans 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.
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
Companys 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 Companys financial statements. 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 those 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 to it. 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 Companys reputation, interrupt the
Companys operations, and adversely affect the
Companys internal control over financial reporting,
business, results from operations, financial condition or cash
flow.
The
inability to attract and retain talented employees and/or a loss
of key employees could adversely affect the effectiveness of the
Companys 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 Companys
ability to execute key operational functions and could adversely
affect the Companys operations.
The
risks associated with the inability to effectively execute its
strategies could adversely affect the Companys results
from operations and financial condition.
Various uncertainties and risks are associated with the
implementation of a number of aspects of the Companys
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 managements
attention; difficulty in retaining or attracting employees;
negative impact on relationships with distributors and
customers; obsolescence of current products and slow new product
development;
13
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 Companys financial
condition and results from operations.
Risks
Related to Ownership of Acuity Brands Common Stock
The
market price and trading volume of the Companys shares may
be volatile.
The market price of the Companys common shares could
fluctuate significantly for many reasons, including for reasons
unrelated to the Companys 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. For example, to the extent that other large
companies within the Companys industry experience declines
in their share price, the Companys share price may decline
as well. In addition, when the market price of a companys
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
Companys management and other resources.
Risks
Related to the Spin-off of Zep Inc.
Failure
of the distribution to qualify as a tax-free transaction could
result in substantial liability.
Acuity Brands has received a private letter ruling from the
Internal Revenue Service (IRS) to the effect that,
among other things, the Spin-off (including certain related
transactions) qualifies as tax-free to Acuity Brands, Zep, and
Acuity Brands stockholders for United States federal
income tax purposes under section 355 and related
provisions of the Internal Revenue Code (IRC).
Although a private letter ruling generally is binding on the
IRS, if the factual assumptions or representations made in the
private letter ruling request are untrue or incomplete in any
material respect, then Acuity Brands will not be able to rely on
the ruling. Moreover, the IRS will not rule on whether a
distribution of shares satisfies certain requirements necessary
to obtain tax-free treatment under section 355 of the IRC.
Rather, the private letter ruling is based upon representations
by Acuity Brands that those requirements have been satisfied,
and any inaccuracy in those representations could invalidate the
ruling.
Acuity Brands has received an opinion of King &
Spalding LLP, counsel to Acuity Brands, to the effect that, with
respect to the requirements referred to above on which the IRS
will not rule, those requirements will be satisfied. The opinion
is based on, among other things, certain assumptions and
representations as to factual matters made by Acuity Brands and
Zep which, if untrue or incomplete in any material respect,
could jeopardize the conclusions reached by counsel in its
opinion. The opinion is not binding on the IRS or the courts,
and the IRS or the courts may not agree with the opinion.
If the Spin-off fails to qualify for tax-free treatment, a
substantial corporate tax would be payable by Acuity Brands,
measured by the difference between (1) the aggregate fair
market value of the shares of Zep common stock on the date of
the Spin-off and (2) Acuity Brands adjusted tax basis
in the shares of Zep common stock on the date of the Spin-off.
The corporate level tax would be payable by Acuity Brands.
However, Zep has agreed, under certain circumstances, to
indemnify Acuity Brands for this tax liability. In addition,
under the applicable Treasury regulations, each member of Acuity
Brands consolidated group at the time of the Spin-off
(including Zep) is severally liable for such tax liability.
Furthermore, if the Spin-off does not qualify as tax-free, each
Acuity Brands stockholder generally would be taxed as if he or
she had received a cash distribution equal to the fair market
value of the shares of Zep common stock on the date of the
Spin-off.
Even if the Spin-off otherwise qualifies as tax-free, Acuity
Brands nevertheless could incur a substantial corporate tax
liability under section 355(e) of the IRC, if
50 percent or more of the stock of Acuity Brands or Zep
were to be acquired as part of a plan (or a series of
related transactions) that includes the distribution. For
this purpose, any acquisitions of the stock of Acuity Brands or
of Zep stock that occurred within two years before or after the
Spin-off are presumed to be part of such a plan, although Acuity
Brands may be able to rebut that presumption. If such an
acquisition of the stock of Acuity Brands or of Zep stock
triggers the application of section 355(e), Acuity Brands
would recognize taxable gain as described above, but the
Spin-off would generally
14
remain tax-free to the Acuity Brands stockholders. If
acquisitions of Zeps stock trigger the application of
section 355(e), Zep would be obligated to indemnify Acuity
Brands for the resulting corporate-level tax liability.
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:
|
|
|
|
|
|
|
|
|
Nature of Facilities
|
|
Owned
|
|
Leased
|
|
Manufacturing Facilities
|
|
|
11
|
|
|
|
5
|
|
Warehouses
|
|
|
|
|
|
|
3
|
|
Distribution Centers
|
|
|
2
|
|
|
|
4
|
|
Offices
|
|
|
6
|
|
|
|
19
|
|
The following table provides additional geographic information
related to Acuity Brands manufacturing facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
|
|
|
|
|
|
States
|
|
Mexico
|
|
Europe
|
|
Total
|
|
Owned
|
|
|
5
|
|
|
|
5
|
|
|
|
1
|
|
|
|
11
|
|
Leased
|
|
|
3
|
|
|
|
1
|
|
|
|
1
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8
|
|
|
|
6
|
|
|
|
2
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys 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. However, 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 patent infringement and
product liability claims. 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.
15
Environmental
Matters
The operations of the Company are subject to numerous
comprehensive laws and regulations relating to the generation,
storage, handling, transportation, and disposal of hazardous
substances, as well as solid and hazardous wastes, and to the
remediation of contaminated sites. In addition, permits and
environmental controls are required for certain of the
Companys operations to limit air and water pollution, and
these permits are subject to modification, renewal, and
revocation by issuing authorities. On an ongoing basis, 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.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
|
The common stock of Acuity Brands, Inc. (Acuity
Brands) is listed on the New York Stock Exchange under the
symbol AYI. At October 25, 2010, there were
3,994 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
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
36.93
|
|
|
$
|
30.46
|
|
|
$
|
0.13
|
|
Second Quarter
|
|
$
|
39.51
|
|
|
$
|
32.17
|
|
|
$
|
0.13
|
|
Third Quarter
|
|
$
|
47.91
|
|
|
$
|
38.83
|
|
|
$
|
0.13
|
|
Fourth Quarter
|
|
$
|
45.82
|
|
|
$
|
34.70
|
|
|
$
|
0.13
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
46.19
|
|
|
$
|
23.72
|
|
|
$
|
0.13
|
|
Second Quarter
|
|
$
|
36.88
|
|
|
$
|
22.00
|
|
|
$
|
0.13
|
|
Third Quarter
|
|
$
|
31.34
|
|
|
$
|
20.02
|
|
|
$
|
0.13
|
|
Fourth Quarter
|
|
$
|
33.28
|
|
|
$
|
24.84
|
|
|
$
|
0.13
|
|
The Company plans to pay quarterly dividends for fiscal 2011 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 from time to time in light of the
Companys financial condition, earnings, growth prospects,
funding requirements, applicable law, and any other factors that
the Companys 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 Companys proxy statement for the annual meeting
of stockholders to be held January 7, 2011, to be filed
with the Securities and Exchange Commission pursuant to
Regulation 14A, and is incorporated herein by reference.
During fiscal 2010, the Company reacquired approximately
512,300 shares of the Companys outstanding common
stock, which completed the repurchase of 10 million shares
previously authorized by the Board of Directors. In July 2010,
the Companys Board of Directors authorized the repurchase
of an additional two million shares, or almost 5%, of the
Companys outstanding common stock. Approximately
535,500 shares were repurchased in fiscal 2010 under this
plan.
During fiscal 2009, the Company reissued 2.1 million shares
from treasury stock as partial consideration for the
acquisitions of Sensor Switch, Inc. (Sensor Switch)
and Lighting Controls & Design, Inc.
(LC&D). As part
16
of the merger agreement, the Company reissued slightly more than
140,000 shares from treasury stock as partial consideration
for the acquisition of LC&D during the current fiscal year.
|
|
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, 2010.
Amounts have been restated 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 Companys future performance.
The information set forth below should be read in conjunction
with Managements Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated
Financial Statements and the notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007*
|
|
|
2006*
|
|
|
|
(In millions, except per-share data)
|
|
|
Net sales
|
|
$
|
1,626.9
|
|
|
$
|
1,657.4
|
|
|
$
|
2,026.6
|
|
|
$
|
1,964.8
|
|
|
$
|
1,841.0
|
|
Income from Continuing Operations
|
|
|
79.0
|
|
|
|
85.2
|
|
|
|
148.6
|
|
|
|
128.7
|
|
|
|
79.7
|
|
Income (loss) from Discontinued Operations
|
|
|
0.6
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
19.4
|
|
|
|
26.9
|
|
Net Income
|
|
|
79.6
|
|
|
|
84.9
|
|
|
|
148.3
|
|
|
|
148.1
|
|
|
|
106.6
|
|
Basic earnings per share from Continuing Operations
|
|
$
|
1.83
|
|
|
$
|
2.05
|
|
|
$
|
3.58
|
|
|
$
|
2.96
|
|
|
$
|
1.79
|
|
Basic earnings (loss) per share from Discontinued Operations
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
0.45
|
|
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.84
|
|
|
$
|
2.04
|
|
|
$
|
3.57
|
|
|
$
|
3.41
|
|
|
$
|
2.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from Continuing Operations
|
|
$
|
1.79
|
|
|
$
|
2.01
|
|
|
$
|
3.51
|
|
|
$
|
2.89
|
|
|
$
|
1.73
|
|
Diluted earnings (loss) per share from Discontinued Operations
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
0.44
|
|
|
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.80
|
|
|
$
|
2.00
|
|
|
$
|
3.50
|
|
|
$
|
3.33
|
|
|
$
|
2.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
191.0
|
|
|
$
|
18.7
|
|
|
$
|
297.1
|
|
|
$
|
213.7
|
|
|
$
|
80.5
|
|
Total assets*
|
|
|
1,503.6
|
|
|
|
1,290.6
|
|
|
|
1,408.7
|
|
|
|
1,617.9
|
|
|
|
1,444.1
|
|
Long-term debt (less current maturities)
|
|
|
353.3
|
|
|
|
22.0
|
|
|
|
204.0
|
|
|
|
363.9
|
|
|
|
363.8
|
|
Total debt
|
|
|
353.3
|
|
|
|
231.5
|
|
|
|
363.9
|
|
|
|
363.9
|
|
|
|
363.8
|
|
Stockholders equity
|
|
|
694.4
|
|
|
|
672.2
|
|
|
|
575.5
|
|
|
|
672.0
|
|
|
|
475.5
|
|
Cash dividends declared per common share
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
$
|
0.54
|
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
|
|
|
* |
|
Total assets for years ended August 31, 2007 and 2006
include amounts related to discontinued operations. |
|
|
|
(1) |
|
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
loss on early debt extinguishment. |
|
(2) |
|
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
Companys operations. |
|
(3) |
|
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 $0.21 per
share, for estimated costs to simplify and streamline the
Companys operations. |
17
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
($ in millions, except per-share data and as indicated)
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes
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, 2010 and 2009. 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
indoor and outdoor lighting fixtures, control devices,
components, systems, and services for commercial and
institutional, industrial, infrastructure, and residential
applications for various markets throughout North America and
select international markets. The Company is one of the
worlds leading producers and distributors of lighting
fixtures, with a broad, highly configurable product offering,
consisting of roughly 500,000 active products as part of over
2,000 product groups, as well as lighting controls and other
products, that are sold to approximately 5,000 customers. As of
August 31, 2010, the Company operates 16 manufacturing
facilities and six distribution facilities along with three
warehouses to serve its extensive customer base.
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
products headquartered in Minnesota. Recognized throughout the
architectural design community, Winona Lighting served the
commercial, retail, and institutional markets with a product
portfolio of high-quality and design-oriented luminaires
suitable for decorative, custom, asymmetric, and landscape
lighting applications. As this acquisition occurred after
August 31, 2010, the operating results for Winona Lighting
have not been included in the Companys consolidated
financial statements.
On July 26, 2010, the Company acquired the remaining
outstanding capital stock of Renaissance Lighting, Inc.
(Renaissance), a privately-held, pioneering
innovator of solid-state light-emitting diode (LED)
architectural lighting. Renaissance, based in Herndon, Virginia,
offered a full range of LED-based specification-grade
downlighting luminaires and developed an extensive intellectual
property portfolio related to advanced LED optical solutions and
technologies. Previously, the Company entered into a strategic
partnership with Renaissance, which included a noncontrolling
interest in Renaissance and a license to Renaissances
intellectual property estate. The operating results of
Renaissance have been included in the Companys
consolidated financial statements since the date of acquisition.
On April 20, 2009, the Company acquired 100% of the
outstanding capital stock of Sensor Switch, Inc. (Sensor
Switch), an industry-leading developer and manufacturer of
lighting controls and energy management systems. Sensor Switch,
based in Wallingford, Connecticut, offered a wide-breadth of
products and solutions that substantially reduce energy
consumption, including occupancy sensors, photocontrols, and
distributed lighting control devices. The operating results of
Sensor Switch have been included in the Companys
consolidated financial statements since the date of acquisition.
On December 31, 2008, the Company acquired for cash and
stock substantially all the assets and assumed certain
liabilities of Lighting Controls & Design
(LC&D). Located in Glendale, California,
LC&D is a manufacturer of comprehensive digital lighting
controls and software that offered a breadth of products,
ranging from dimming and building interfaces to digital
thermostats, all within a single, scalable system. The operating
18
results of LC&D have been included in the Companys
consolidated financial statements since the date of acquisition.
Acuity Brands completed the Spin-off of its specialty products
business, Zep, on October 31, 2007, by distributing all of
the shares of Zep common stock, par value $.01 per share, to the
Companys stockholders of record as of October 17,
2007. The Companys stockholders received one Zep share,
together with an associated preferred stock purchase right, for
every two shares of the Companys common stock they owned.
Stockholders received cash in lieu of fractional shares for
amounts less than one full Zep share.
As a result of the Spin-off, the Companys financial
statements have been prepared with the net assets, results of
operations, and cash flows of the specialty products business
presented as discontinued operations. All historical statements
have been restated to conform to this presentation.
Strategy
Our strategy is to extend our market leadership position by
delivering superior lighting solutions. As a goal-oriented,
market-driven company, we will continue to align the unique
capabilities and resources of our organization to drive
profitable growth through a keen focus on providing
differentiated lighting solutions for our customers, driving
world-class cost efficiency, and leveraging a culture of
continuous improvement.
Throughout 2010, the Company believes it made significant
progress towards achieving its strategic objectives, including
expanding its access to market, introducing new products and
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 excess of 12%;
|
|
|
|
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
products 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 Companys 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 and
access certain capital markets, including banks, is necessary to
fund its operations, to pay dividends, to meet its obligations
as they become due, and to maintain compliance with covenants
contained in its financing agreements.
In December 2009, the Company strengthened its liquidity
position and extended its debt maturity profile following the
issuance of $350.0 of senior unsecured notes due in fiscal 2020,
as more fully described below under the Capitalization
section.
Based on its cash on hand, availability under existing financing
arrangements and current projections of cash flow from
operations, the Company believes that it will be able to meet
its liquidity needs over the next 12 months. These needs
are expected to include funding its operations as currently
planned, making anticipated capital
19
investments, funding certain potential acquisitions, funding
foreseen improvement initiatives, paying quarterly stockholder
dividends as currently anticipated, paying interest on
borrowings as currently scheduled, and making required
contributions into its employee benefit plans, as well as
potentially repurchasing shares of its outstanding common stock
as authorized by the Board of Directors. The Company currently
expects to invest during fiscal 2011 up to $40.0 primarily for
equipment, tooling, and new and enhanced information technology
capabilities.
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 stock, fund
acquisitions, and pay dividends. The Companys cash
position at August 31, 2010 was $191.0, an increase of
$172.3 from August 31, 2009. In addition to $160.5 of net
cash generated from operating activities during fiscal 2010, net
proceeds from refinancing activities completed in the second
quarter of fiscal 2010, as more fully described below under the
Capitalization section, contributed $108.6 to the
increase in the cash position, which was partially offset by
stock repurchases of $36.1, dividends to stockholders of $22.6,
acquisitions (net of cash assumed) and strategic investments of
$22.6, and capital expenditures of $21.9.
During fiscal 2010, the Company generated $160.5 of net cash
from operating activities compared with $92.7 generated in the
prior-year period, an increase of $67.8. The prior-year
periods net cash from operating activities was negatively
impacted by a decrease in other current liabilities due
primarily to the payment of employee incentive compensation,
which was attributable to record performance in fiscal 2008. Due
to the sizable decline in the Companys end-markets during
fiscal 2009 and the resulting volume decline in sales and
operating activities, cash in the prior-year period was
negatively impacted by the decline in accounts payable and lower
other current liabilities as previously noted, partially offset
by a decline in accounts receivable. In comparison, the current
year net cash from operating activities were not impacted to the
extent as fiscal 2009 due to the relatively minor changes in
operating working capital based on higher sales during the
second half of fiscal 2010 and the drastically lower payouts of
employee incentive compensation during fiscal 2010, which was
attributable to fiscal 2009 performance.
Operating working capital (calculated by adding accounts
receivable, net, plus inventories, and subtracting accounts
payable) as a percentage of net sales increased to 12.9% at the
end of fiscal 2010 from 12.4% at the end of fiscal 2009, due
primarily to the effects of higher net sales during the fourth
quarter of fiscal 2010 as compared to the prior-year period. At
August 31, 2010, the current ratio (calculated as total
current assets divided by total current liabilities) of the
Company was 1.9 compared with 0.9 at August 31, 2009. This
improvement in the current ratio during fiscal 2010 was due
primarily to the increase in cash as described above and the
repayment of the $200.0 of publicly traded notes that were
scheduled to mature in August 2010 (the 2010 Notes).
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 $21.9 and $21.2 in fiscal 2010 and 2009,
respectively, primarily for new tooling, machinery, equipment,
and information technology. As noted above, the Company expects
to invest up to $40.0 for new plant, equipment, tooling, and new
and enhanced information technology capabilities during fiscal
2011.
Contractual
Obligations
The following table summarizes the Companys contractual
obligations at August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
Less than
|
|
|
|
4 to 5
|
|
After 5
|
|
|
Total
|
|
One Year
|
|
1 to 3 Years
|
|
Years
|
|
Years
|
|
Debt(1)
|
|
$
|
353.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353.3
|
|
Interest Obligations(2)
|
|
|
309.0
|
|
|
|
29.5
|
|
|
|
61.1
|
|
|
|
62.5
|
|
|
|
155.9
|
|
Operating Leases(3)
|
|
|
51.3
|
|
|
|
15.0
|
|
|
|
21.1
|
|
|
|
9.2
|
|
|
|
6.0
|
|
Purchase Obligations(4)
|
|
|
80.9
|
|
|
|
80.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Long-term Liabilities(5)
|
|
|
53.3
|
|
|
|
5.2
|
|
|
|
9.8
|
|
|
|
9.1
|
|
|
|
29.2
|
|
Total
|
|
$
|
847.8
|
|
|
$
|
130.6
|
|
|
$
|
92.0
|
|
|
$
|
80.8
|
|
|
$
|
544.4
|
|
20
|
|
|
(1) |
|
These amounts (which represent the amounts outstanding at
August 31, 2010) are included in the Companys
Consolidated Balance Sheets. See the Debt and Lines of Credit
footnote for additional information regarding debt and other
matters. |
|
(2) |
|
These amounts represent the expected future interest payments on
outstanding debt held by the Company at August 31, 2010 and
the Companys outstanding loans related to its
corporate-owned life insurance policies (COLI).
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 on the Companys
Consolidated Statements of Cash Flows. |
|
(3) |
|
The Companys 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 Companys 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 $6.7 of unrecognized tax benefits as a reasonable
estimate of the period of cash settlement with the respective
taxing authorities cannot be determined. |
Capitalization
The current capital structure of the Company is comprised
principally of senior notes and equity of its stockholders. As
of August 31, 2010, total debt outstanding increased $121.8
to $353.3 compared with $231.5 at August 31, 2009, due
primarily to the issuance of debt further explained below,
partially offset by the redemption of the 2010 Notes and the
repayment of principal on a three-year 6% unsecured promissory
note issued to the former sole shareholder of Sensor Switch.
On December 8, 2009, ABL issued $350.0 of senior unsecured
notes due in fiscal 2020 (the Notes) in a private
placement transaction. As described below, 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. A portion of
the net proceeds from the issuance of the Notes were used to
retire the 2010 Notes. Additionally, management retired, without
premium or penalty, the remaining $25.3 outstanding balance on
the promissory note issued to the former sole shareholder of
Sensor Switch.
The Notes are fully and unconditionally guaranteed on a senior
unsecured basis by Acuity Brands and ABL IP Holding LLC
(ABL IP Holding, and, together with Acuity Brands,
the Guarantors), a wholly-owned subsidiary of Acuity
Brands. The Notes are senior unsecured obligations of ABL and
rank equally in right of payment with all of ABLs existing
and future senior unsecured indebtedness. The guarantees of
Acuity Brands and ABL IP Holding are senior unsecured
obligations of Acuity Brands and ABL IP Holding and rank equally
in right of payment with their other senior unsecured
indebtedness. Interest on the Notes is payable semi-annually on
June 15 and December 15, which commenced on June 15,
2010.
In accordance with the registration rights agreement by and
between ABL and the Guarantors 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
SEC-registered notes with substantially identical terms. The
registration became effective on August 17, 2010, and all
of the Notes were exchanged.
As noted above, the Company retired all of the outstanding 2010
Notes through the execution of a cash tender offer and the
subsequent redemption of any remaining 2010 Notes during fiscal
2010. The loss on the transaction,
21
including the premium paid, expenses, and the write-off of
deferred issuance costs associated with the 2010 Notes, was
approximately $10.5.
As a result of the second quarter financing activities, which
included the issuance and exchange of the Notes, the retirement
of the 2010 Notes, and the prepayment of the unsecured
promissory note, the Company increased both its liquidity and
debt positions, greatly extended its debt maturity profile, and
lowered its average interest rate on outstanding debt. The
Company expects to subsequently incur increased interest expense
for the foreseeable reporting periods based on the higher
outstanding debt balance as compared with prior periods,
partially offset by the lower interest rate on the Notes as
compared with the 2010 Notes. The Company also capitalized an
estimated $3.1 of deferred issuance costs related to the Notes
that are being amortized over the
10-year term
of the Notes.
On October 19, 2007, the Company executed a $250.0
revolving credit facility (the Revolving Credit
Facility). The Revolving Credit Facility matures in
October 2012 and contains financial covenants including a
minimum interest coverage ratio and a leverage ratio
(Maximum Leverage Ratio) of total indebtedness to
EBITDA (earnings before interest, taxes, depreciation, and
amortization expense), as such terms are defined in the
Revolving Credit Facility agreement. These ratios are computed
at the end of each fiscal quarter for the most recent
12-month
period. The Revolving Credit Facility allows for a Maximum
Leverage Ratio of 3.50, subject to certain conditions defined in
the financing agreement. As of August 31, 2010, the Company
was compliant with all financial covenants under the Revolving
Credit Facility. At August 31, 2010, the Company had
additional borrowing capacity under the Revolving Credit
Facility of $242.7 under the most restrictive covenant in effect
at the time, which represents the full amount of the Revolving
Credit Facility less outstanding letters of credit of $7.3.
During fiscal 2010, the Companys consolidated
stockholders equity increased $22.2 to $694.4 at
August 31, 2010 from $672.2 at August 31, 2009. The
increase was due primarily to net income earned in the period,
as well as amortization of stock-based compensation, 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 Companys debt to
total capitalization ratio (calculated by dividing total debt by
the sum of total debt and total stockholders equity) was
33.7% and 25.6% at August 31, 2010 and August 31,
2009, respectively. The second quarter financing activities,
which include the issuance of the $350.0 of Notes and the early
retirement of the $200.0 of 2010 Notes, increased the debt to
total capitalization ratio. The ratio of debt, net of cash, to
total capitalization, net of cash, was 18.9% at August 31,
2010 and 24.1% at August 31, 2009.
Dividends
Acuity Brands paid dividends on its common stock of $22.6 ($0.52
per share) during 2010 compared with $21.6 ($0.52 per share) in
2009. 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 Board of Directors of Acuity Brands and will
be evaluated from time to time in light of the Companys
financial condition, earnings, growth prospects, funding
requirements, applicable law, and any other factors the Acuity
Brands Board deems relevant.
22
Results
of Operations
Fiscal
2010 Compared with Fiscal 2009
The following table sets forth information comparing the
components of net income for the year ended August 31, 2010
with the year ended August 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Net Sales
|
|
$
|
1,626.9
|
|
|
$
|
1,657.4
|
|
|
$
|
(30.5
|
)
|
|
|
(1.8
|
)%
|
Cost of Products Sold
|
|
|
965.4
|
|
|
|
1,022.3
|
|
|
|
(56.9
|
)
|
|
|
(5.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
661.5
|
|
|
|
635.1
|
|
|
|
26.4
|
|
|
|
4.2
|
%
|
Percent of net sales
|
|
|
40.7
|
%
|
|
|
38.3
|
%
|
|
|
240
|
bps
|
|
|
|
|
Selling, Distribution, and Administrative Expenses
|
|
|
495.4
|
|
|
|
454.6
|
|
|
|
40.8
|
|
|
|
9.0
|
%
|
Special Charge
|
|
|
8.4
|
|
|
|
26.7
|
|
|
|
(18.3
|
)
|
|
|
(68.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
157.7
|
|
|
|
153.8
|
|
|
|
3.9
|
|
|
|
2.5
|
%
|
Percent of net sales
|
|
|
9.7
|
%
|
|
|
9.3
|
%
|
|
|
40
|
bps
|
|
|
|
|
Other Expense (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, net
|
|
|
29.4
|
|
|
|
28.5
|
|
|
|
0.9
|
|
|
|
3.2
|
%
|
Loss on Early Debt Extinguishment
|
|
|
10.5
|
|
|
|
|
|
|
|
10.5
|
|
|
|
100.0
|
%
|
Miscellaneous (Income) Expense
|
|
|
(1.0
|
)
|
|
|
(2.0
|
)
|
|
|
1.0
|
|
|
|
(50.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense (Income)
|
|
|
38.9
|
|
|
|
26.5
|
|
|
|
12.4
|
|
|
|
46.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations before Provision for Income
Taxes
|
|
|
118.8
|
|
|
|
127.3
|
|
|
|
(8.5
|
)
|
|
|
(6.7
|
)%
|
Percent of net sales
|
|
|
7.3
|
%
|
|
|
7.7
|
%
|
|
|
(40
|
)bps
|
|
|
|
|
Provision for Taxes
|
|
|
39.8
|
|
|
|
42.1
|
|
|
|
(2.3
|
)
|
|
|
(5.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
33.5
|
%
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
79.0
|
|
|
|
85.2
|
|
|
|
(6.2
|
)
|
|
|
(7.3
|
)%
|
Gain (Loss) from Discontinued Operations
|
|
|
0.6
|
|
|
|
(0.3
|
)
|
|
|
0.9
|
|
|
|
(300.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
79.6
|
|
|
$
|
84.9
|
|
|
$
|
(5.3
|
)
|
|
|
(6.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share from Continuing Operations
|
|
$
|
1.79
|
|
|
$
|
2.01
|
|
|
$
|
(0.22
|
)
|
|
|
(10.9
|
)%
|
Diluted Gain (Loss) per Share from Discontinued Operations
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
|
(200.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share
|
|
$
|
1.80
|
|
|
$
|
2.00
|
|
|
$
|
(0.20
|
)
|
|
|
(10.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
from Continuing Operations
Net sales were $1,626.9 for fiscal 2010 compared with $1,657.4
for fiscal 2009, a decrease of $30.5, or approximately 2%. For
fiscal 2010, the Company reported income from continuing
operations of $79.0 compared with $85.2 earned in the prior-year
period. Diluted earnings per share from continuing operations
for fiscal 2010 decreased 10.9% to $1.79 from $2.01 for the
prior-year period. Results for fiscal 2010 and 2009 include
after-tax special charges of $5.5 and $16.8, respectively,
related to estimated costs to be incurred to simplify and
streamline operations and to consolidate certain manufacturing
facilities. In addition, a $6.8 after-tax loss associated with
the early extinguishment of debt was incurred during the second
quarter of fiscal 2010. The special charges and loss on early
extinguishment of debt negatively impacted fiscal 2010 results
by $0.29 per diluted share; special charges recorded in the
prior year negatively impacted the fiscal 2009 results by $0.40
per diluted share.
23
The table below reconciles certain U.S. generally accepted
accounting principles (U.S. GAAP) financial
measures to the corresponding
non-U.S. GAAP
measures, which exclude special charges associated with actions
to streamline the organization, including the consolidation of
certain manufacturing facilities, and the loss on the early
extinguishment of debt. These
non-U.S. GAAP
financial measures, including adjusted operating profit,
adjusted operating profit margin, adjusted income from
continuing operations, and adjusted diluted earnings per share
from continuing operations, are provided to enhance the
users overall understanding of the Companys current
financial performance. Specifically, the Company believes these
non-U.S. GAAP
measures provide greater comparability and enhanced visibility
into the results of operations, excluding the impact of the
special charges and loss on the early extinguishment of debt.
These
non-U.S. GAAP
financial measures should be considered in addition to, and not
as a substitute for or superior to, results prepared in
accordance with U.S. GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31,
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
Operating Profit
|
|
$
|
157.7
|
|
|
|
|
|
|
$
|
153.8
|
|
Special Charge Adjustment
|
|
|
8.4
|
|
|
|
|
|
|
|
26.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Profit
|
|
$
|
166.1
|
|
|
|
|
|
|
$
|
180.5
|
|
Percent of net sales
|
|
|
10.2
|
%
|
|
|
|
|
|
|
10.9
|
%
|
Income from Continuing Operations
|
|
$
|
79.0
|
|
|
|
|
|
|
$
|
85.2
|
|
Special Charge Adjustment, net of tax
|
|
|
5.5
|
|
|
|
|
|
|
|
16.8
|
|
Addback: Loss on Early Debt Extinguishment, net of tax
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Income from Continuing Operations
|
|
$
|
91.3
|
|
|
|
|
|
|
$
|
102.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share from Continuing Operations
|
|
$
|
1.79
|
|
|
|
|
|
|
$
|
2.01
|
|
Special Charge Adjustment, net of tax
|
|
|
0.13
|
|
|
|
|
|
|
|
0.40
|
|
Addback: Loss on Early Debt Extinguishment, net of tax
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted Earnings per Share from Continuing Operations
|
|
$
|
2.08
|
|
|
|
|
|
|
$
|
2.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
Net sales for the fiscal year ended August 31, 2010,
declined approximately 2% compared with fiscal 2009. Market
conditions remained challenging in fiscal 2010 with new
U.S. non-residential construction declining 15% compared to
the prior year due to weak economic conditions. Approximately 4%
of the comparative annual decline in sales was due to
unfavorable changes in product prices and the mix of products
sold (price/mix), particularly in the
non-residential commercial and industrial channel and certain
international markets. Although it is not possible to precisely
quantify the separate impact of price and product mix changes,
the Company estimates that a majority of the decline was due to
lower product selling prices in certain channels and
geographies. Higher sales volume primarily related to the
additional sales from acquired businesses and other investments
made by the Company partially offset the negative impact of
price/mix on net sales. The acquisitions of the lighting
controls businesses in the prior year contributed approximately
3% in incremental net sales during the current year. In
addition, the translation impact of the stronger dollar on
international sales contributed approximately one percentage
point to current year net sales.
Gross
Profit
Fiscal 2010 gross profit margin increased by 240 basis
points to 40.7% of net sales compared with 38.3% reported for
the prior-year period. Gross profit for fiscal 2010 increased
$26.4, or 4.2%, to $661.5 compared with $635.1 for the
prior-year period. The increase was due primarily to lower
materials and components costs, savings from streamlining
actions, and favorable contributions from acquired businesses.
These benefits were partially offset by the impact of lower
pricing, unfavorable product mix, and higher pension and
transportation costs.
24
Operating
Profit
Selling, Distribution, and Administrative
(SD&A) expenses for fiscal 2010 were $495.4
compared with $454.6 in the prior-year period, which represented
a $40.8, or 9.0%,
year-over-year
increase. SD&A expenses as a percent of sales increased by
310 basis points to 30.5% for fiscal 2010. More than half
of the
year-over-year
increase was due to higher incentive compensation due to current
year performance relative to the Companys served markets,
as well as severely curtailed incentives earned in the prior
fiscal year. The remainder of the increase in SD&A expenses
was due primarily to higher commission and freight costs,
selected investments in sales and marketing resources and new
products and services, and structurally higher operating costs
associated with acquired businesses.
As part of the Companys initiative to streamline and
simplify operations, the Company recorded in fiscal 2010 and
2009 pre-tax charges of $8.4 and $26.7, respectively, to reflect
severance and related employee benefit costs associated with the
consolidation of certain manufacturing facilities and a
reduction in workforce, as well as non-cash asset impairment
charges on certain assets related to those manufacturing
facilities. The pre-tax, non-cash asset impairment charges for
fiscal 2010 and 2009 were $5.1 and $1.6, respectively. The
Company realized approximately $50.0 ($28.0 during fiscal 2009
and an additional $22.0 during fiscal 2010) in annualized
benefits related to these streamlining actions, which were
initiated in fiscal 2009.
Operating profit for fiscal 2010 was $157.7 compared with $153.8
reported for the prior-year period, an increase of $3.9, or
2.5%. Operating profit margin increased 40 basis points to
9.7% compared with 9.3% in the year-ago period. The increase was
due primarily to the higher gross profit as noted above and the
decrease in the special charge, partially offset by the increase
in SD&A expenses as a percentage of net sales as discussed
above.
Excluding the special charge in both periods, adjusted operating
profit for fiscal 2010 decreased $14.4, or 8.0%, to $166.1
compared with $180.5 in fiscal 2009. Adjusted operating profit
margin for fiscal 2010 of 10.2% was 70 basis points lower
than the prior years adjusted margin of 10.9%. The
decrease was due primarily to higher SD&A expenses as
explained above.
Income
from Continuing Operations before Provision for Taxes
Other expense (income) for the Company consists primarily of net
interest expense and foreign exchange related gains and losses.
Interest expense, net, was $29.4 and $28.5 for fiscal 2010 and
2009, respectively. The modest increase in interest expense,
net, was due primarily to higher interest costs related to
obligations associated with non-qualified retirement plans,
while lower
year-over-year
interest expense on borrowings was largely offset by lower
interest income both of which were impacted by lower
rates. Miscellaneous income for fiscal 2010 of $1.0 declined
from the $2.0 reported in the prior-year period. The decline in
miscellaneous income was due primarily to the impact of changes
in exchange rates on foreign currency items.
Due to the early retirement of the 2010 Notes in the second
quarter of fiscal 2010, the Company recognized a pre-tax loss of
$10.5 during the fiscal year.
Provision
for Income Taxes and Income from Continuing Operations
The effective income tax rate reported by the Company was 33.5%
and 33.1% for fiscal 2010 and 2009, respectively. The discrete
items for fiscal 2010, including federal tax credits, favorable
state audit settlements, and benefits from increased export of
goods manufactured in the U.S., were slightly lower than those
experienced in the prior-year period. The Company estimates that
the effective tax rate for fiscal year 2011 will be
approximately 34% if the rates in its taxing jurisdictions
remain generally consistent throughout the year.
Income from continuing operations for fiscal 2010 decreased $6.2
to $79.0 (including $12.3 for the after-tax special charge and
loss on early debt extinguishment) from $85.2 (including $16.8
for the after-tax special charge) reported for the prior-year
period. The decrease in income from continuing operations
resulted primarily from the loss on the early debt
extinguishment, partially offset by slightly higher operating
profit.
Excluding the special charge in both periods and the loss on the
early extinguishment of debt reported in fiscal 2010, adjusted
income from continuing operations for fiscal 2010 was $91.3
compared with $102.0 in the year-ago period, a decrease of
$10.7, or 10.5%. The
year-over-year
decline in adjusted income from continuing operations
25
was due primarily to higher SD&A expenses. Excluding the
special charges and the loss on the early extinguishment of
debt, adjusted diluted earnings per share from continuing
operations for fiscal 2010 was $2.08 compared with $2.41 for the
prior-year period. In addition to the items noted above that
impacted adjusted income from continuing operations, adjusted
diluted earnings per share from continuing operations for the
current fiscal year were negatively impacted by an increase in
the number of shares outstanding compared with the prior-year
period. The increase in the average shares outstanding was due
primarily to shares issued as partial consideration for the
acquisitions of Sensor Switch and LC&D, partially offset by
the share repurchases during the fourth quarter of fiscal 2010.
Results
from Discontinued Operations and Net Income
The Company incurred a $0.6 gain from discontinued operations
during fiscal 2010 due to revisions of estimates of certain
legal reserves established at the time of the Spin-off compared
with a fiscal 2009 loss from discontinued operations of $0.3
related to income tax adjustments.
Net income for fiscal 2010 decreased by $5.3, or 6.2%, to $79.6
from $84.9 reported for the prior-year period. The decrease in
net income resulted primarily from the loss on the early debt
extinguishment and lower miscellaneous income, partially offset
by the above noted increase in operating profit, lower income
tax expense, and the gain on discontinued operations compared
with a loss in the prior-year period.
Fiscal
2009 Compared with Fiscal 2008
The following table sets forth information comparing the
components of net income for the year ended August 31, 2009
with the year ended August 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Net Sales
|
|
$
|
1,657.4
|
|
|
$
|
2,026.6
|
|
|
$
|
(369.2
|
)
|
|
|
(18.2
|
)%
|
Cost of Products Sold
|
|
|
1,022.3
|
|
|
|
1,210.8
|
|
|
|
(188.5
|
)
|
|
|
(15.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
635.1
|
|
|
|
815.8
|
|
|
|
(180.7
|
)
|
|
|
(22.2
|
)%
|
Percent of net sales
|
|
|
38.3
|
%
|
|
|
40.3
|
%
|
|
|
(200
|
)bps
|
|
|
|
|
Selling, Distribution, and Administrative Expenses
|
|
|
454.6
|
|
|
|
540.1
|
|
|
|
(85.5
|
)
|
|
|
(15.8
|
)%
|
Special Charge
|
|
|
26.7
|
|
|
|
14.6
|
|
|
|
12.1
|
|
|
|
82.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
153.8
|
|
|
|
261.1
|
|
|
|
(107.3
|
)
|
|
|
(41.1
|
)%
|
Percent of net sales
|
|
|
9.3
|
%
|
|
|
12.9
|
%
|
|
|
(360
|
)bps
|
|
|
|
|
Other Expense (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, net
|
|
|
28.5
|
|
|
|
28.4
|
|
|
|
0.1
|
|
|
|
0.4
|
%
|
Miscellaneous (Income) Expense
|
|
|
(2.0
|
)
|
|
|
2.2
|
|
|
|
(4.2
|
)
|
|
|
(190.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense (Income)
|
|
|
26.5
|
|
|
|
30.6
|
|
|
|
(4.1
|
)
|
|
|
(13.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations before Provision for Income
Taxes
|
|
|
127.3
|
|
|
|
230.5
|
|
|
|
(103.2
|
)
|
|
|
(44.8
|
)%
|
Percent of net sales
|
|
|
7.7
|
%
|
|
|
11.4
|
%
|
|
|
(370
|
)bps
|
|
|
|
|
Provision for Taxes
|
|
|
42.1
|
|
|
|
81.9
|
|
|
|
(39.8
|
)
|
|
|
(48.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
33.1
|
%
|
|
|
35.4
|
%
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
85.2
|
|
|
|
148.6
|
|
|
|
(63.4
|
)
|
|
|
(42.7
|
)%
|
Income (Loss) from Discontinued Operations
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
84.9
|
|
|
$
|
148.3
|
|
|
$
|
(63.4
|
)
|
|
|
(42.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share from Continuing Operations
|
|
$
|
2.01
|
|
|
$
|
3.51
|
|
|
$
|
(1.50
|
)
|
|
|
(42.7
|
)%
|
Diluted Earnings (Loss) per Share from Discontinued Operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share
|
|
$
|
2.00
|
|
|
$
|
3.50
|
|
|
$
|
(1.50
|
)
|
|
|
(42.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Results
from Continuing Operations
Net sales were $1,657.4 for fiscal 2009 compared with $2,026.6
reported in the prior-year period, a decrease of $369.2, or
18.2%. For fiscal 2009, the Company reported income from
continuing operations of $85.2 compared with $148.6 earned in
fiscal 2008. Diluted earnings per share from continuing
operations were $2.01 for fiscal 2009 as compared with $3.51
reported for fiscal 2008, a decrease of 42.7%. Results for
fiscal 2009 and 2008 include after-tax special charges of $16.8
($26.7 pre-tax), or $0.40 per diluted share, and $9.1 ($14.6
pre-tax), or $0.21 per diluted share, respectively.
On December 31, 2008, Acuity Brands acquired for cash and
stock substantially all the assets and assumed certain
liabilities of LC&D. LC&D had calendar year 2008 sales
of approximately $18.0.
On April 20, 2009, the Company acquired Sensor Switch, an
industry-leading developer and manufacturer of lighting controls
and energy management systems, for an aggregate consideration of
$205.0 comprised of (i) 2 million shares of common
stock of Acuity Brands, (ii) a $30.0 note of Acuity Brands
Lighting, and (iii) approximately $130.0 of cash. A cash
payment of approximately $130.0 was funded from available cash
on hand and from borrowings under the Companys Revolving
Credit Facility. The $30.0 unsecured promissory note was payable
over three years. Sensor Switch generated sales in excess of
$37.0 during its fiscal year ending October 31, 2008.
The operating results of Sensor Switch and LC&D have been
included in the Companys consolidated financial statements
since their respective dates of acquisition.
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. These
non-U.S. GAAP
financial measures, including adjusted operating profit,
adjusted operating profit margin, adjusted income from
continuing operations, and adjusted diluted earnings per share,
are provided to enhance the users overall understanding of
the Companys current financial performance. Specifically,
the Company believes these
non-U.S. GAAP
measures provide greater comparability and enhanced visibility
into the results of operations, excluding the impact of the
special charges. These
non-U.S. GAAP
financial measures should be considered in addition to, and not
as a substitute for or superior to, results prepared in
accordance with U.S. GAAP.
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Operating Profit
|
|
$
|
153.8
|
|
|
$
|
261.1
|
|
Addbacks: Special Charge
|
|
|
26.7
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Profit
|
|
$
|
180.5
|
|
|
$
|
275.7
|
|
Percent of net sales
|
|
|
10.9
|
%
|
|
|
13.6
|
%
|
Income from Continuing Operations
|
|
$
|
85.2
|
|
|
$
|
148.6
|
|
Addback: Special Charge, net of tax
|
|
|
16.8
|
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
Adjusted Income from Continuing Operations
|
|
$
|
102.0
|
|
|
$
|
157.7
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share from Continuing Operations
|
|
$
|
2.01
|
|
|
$
|
3.51
|
|
Addback: Special Charge, net of tax
|
|
|
0.40
|
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted Earnings per Share from Continuing Operations
|
|
$
|
2.41
|
|
|
$
|
3.72
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
Net sales decreased approximately 18% in 2009 compared with 2008
due primarily to lower shipments and unfavorable impact of
foreign currency fluctuation, partially offset by revenues from
recent acquisitions. The lower volume of product shipments was
due primarily to continued decline in demand on the residential
and non-residential construction markets, particularly for
commercial and office buildings. The Company estimates shipment
volumes declined by approximately 19% in fiscal 2009 compared
with 2008, partially offset by an
27
estimated 1% improvement in price and product mix. Additionally,
unfavorable foreign currency rate fluctuations negatively
impacted net sales in fiscal 2009 by slightly less than 2%
compared with the prior year, which was largely offset by $26.0
of net sales from acquisitions.
Gross
Profit
Gross profit margin decreased by 200 basis points to 38.3%
of net sales for fiscal 2009 from 40.3% reported for the
prior-year period. Gross profit for fiscal 2009 decreased
$180.7, or 22.2%, to $635.1 compared with $815.8 for the
prior-year period. The decline in gross profit and gross profit
margin was largely attributable to the decline in net sales
noted above, increased cost for raw material and components, and
unfavorable foreign currency fluctuations. The Company estimates
raw material and component costs increased cost of goods sold by
approximately $40.0 compared with the year-ago period, with only
a small portion of the increase recovered in higher prices.
Savings from ongoing streamlining efforts, benefits from
productivity improvements, and contributions from acquisitions
helped to partially offset the negative impact of the
aforementioned items on gross profit and gross profit margin.
Operating
Profit
SD&A expenses for fiscal 2009 were $454.6 compared with
$540.1 in the prior-year period, which represented a decrease of
$85.5, or 15.8%. Approximately half of the decrease in SD&A
expenses was due to lower commissions paid to the Companys
sales forces and agents and lower freight costs, which both
typically vary directly with sales. Additionally, reduced
incentive compensation and benefits from streamlining efforts
contributed to lower fiscal 2009 SD&A expense. Partially
offsetting these reductions was the additional SD&A
expenses related to the businesses acquired in fiscal 2009.
As part of the Companys initiative to streamline and
simplify operations, the Company recorded in fiscal 2009 and
2008 pre-tax charges of $26.7 and $14.6, respectively, to
reflect severance and related employee benefit costs associated
with the elimination of certain positions worldwide and the
costs associated with the early termination of certain leases.
The fiscal 2009 charge included a non-cash expense of $1.6 for
the impairment of assets associated with the closing of a
facility. The Company estimates that it realized $39.0 ($28.0
and $11.0 from actions initiated in fiscal 2009 and 2008,
respectively) in savings during fiscal 2009 compared with the
prior year related to these actions.
Operating profit for fiscal 2009 was $153.8 compared with $261.1
reported for the prior-year period, a decrease of $107.3, or
41.1%. Operating profit margin decreased 360 basis points
to 9.3% compared with 12.9% in the year-ago period. The decrease
in operating profit in fiscal 2009 compared with the prior-year
period was due primarily to the decrease in gross profit noted
above and the $12.1 incremental special charge related to
streamlining efforts, partially offset by decreased SD&A
expenses as noted above.
Excluding the special charge in both periods, adjusted operating
profit for fiscal 2009 decreased $95.2, or 34.5%, to $180.5
compared with $275.7 in fiscal 2008. Adjusted operating profit
margin for fiscal 2009 of 10.9% was 270 basis points lower
than prior years adjusted margin of 13.6%. The decrease
was due to lower volume, increased raw material and component
costs, and unfavorable foreign currency fluctuations, partially
offset by savings from streamlining efforts, benefits from
productivity improvements, and contributions from acquisitions.
The Company believes this measure provides greater comparability
and enhanced visibility into the improvements realized.
Income
from Continuing Operations before Provision for Taxes
Other expense consists primarily of interest expense, net, and
miscellaneous income (or expense) resulting from changes in
exchange rates on foreign currency items as well as other
non-operating items. Interest expense, net, was $28.5 and $28.4
for fiscal 2009 and 2008, respectively. Fiscal 2009 interest
expense, net reflects lower interest expense resulting from the
maturity of the $160.0 public notes that was more than offset by
reduced interest income resulting from both lower cash balances
and lower short-term interest rates. For fiscal 2009, the
Company reported $2.0 of other miscellaneous income compared
with $2.2 of other miscellaneous expense in the year-ago period.
The $4.2 favorable
year-over-over
change was due primarily to the impact of changes in exchange
rates on foreign currency items.
28
Provision
for Income Taxes and Income from Continuing Operations
The effective income tax rate reported by the Company was 33.1%
and 35.4% for fiscal 2009 and 2008, respectively. The decrease
in the annual tax rate was due primarily to the greater impact
of tax credits and deductions on the lower earnings amount and
the adverse effect on prior years effective tax rate
related to the repatriation of foreign cash. Income from
continuing operations for fiscal 2009 decreased $63.4 to $85.2
(including $16.8 after-tax for the special charge) from $148.6
(including $9.1 after-tax for the special charge) reported for
the prior-year period. The decrease in income from continuing
operations was due primarily to the above noted decrease in
operating profit, partially offset by lower tax expense.
Excluding the special charge in both periods, adjusted income
from continuing operations for fiscal 2009 was $102.0 compared
with $157.7 in the year-ago period, a decrease of $55.7, or
35.3%. The
year-over-year
decline in adjusted income from continuing operations was due
primarily to the reduction in gross profit, partially offset by
lower SD&A and income tax expenses. Excluding the special
charges, adjusted diluted earnings per share from continuing
operations for fiscal 2009 was $2.41 compared with $3.72 for
fiscal 2008.
Results
from Discontinued Operations and Net Income
The loss from discontinued operations for fiscal 2009 and 2008
was $0.3. The loss in both periods relate to tax adjustments
associated with pre-spin activities.
Net income for fiscal 2009 decreased $63.4 to $84.9 from $148.3
reported for the prior-year period. The decrease in net income
resulted primarily from the above noted decline in net sales.
Outlook
The performance of the Company, like most companies, is
influenced by a multitude of factors or the vitality of the
economy, including employment, credit availability and cost,
consumer confidence, commodity costs, and government policy,
particularly as it impacts capital formation and risk taking by
businesses and commercial developers. As such, it is difficult
at this time to precisely forecast the direction or intensity of
future economic activity in general and more specifically with
respect to overall construction demand in fiscal 2011. Key
indicators suggest activity to be slightly down to flat for the
North American non-residential construction market during fiscal
2011. However, the potential for energy savings and
sustainability may buoy the demand for lighting fixtures and
controls in relation to the renovation of commercial and
institutional building and outdoor lighting markets.
Additionally, there is an industry-wide shortage of certain
types of electronic ballasts and drivers due to a global
shortage of certain common electronic components, and this has
resulted in extended lead times and limited availability for
some ballasts and drivers. This continues to be a concern of
management. This situation is expected to persist for the near
future and may adversely impact shipments. The Company has taken
steps to procure and maintain sufficient materials and
components stocks in the near term.
While prices for certain materials and components, including
steel and petroleum, declined from their record highs in the
summer and fall of 2008, prices for certain materials and
components have once again begun to rise, placing pressure on
the Companys margins. The Company expects to respond to
cost increases with higher selling prices where appropriate,
including, but not limited to, the announced price increases on
many products effective at the end of May 2010. However, due to
the competitive forces in the current market environment, there
can be no assurance that the Company will be able to pass along
all cost increases or adjust prices quickly enough to offset all
or a portion of potentially higher material and component
prices. Notwithstanding efforts to recoup potentially higher
costs, management believes pricing will continue to be
competitive in certain channels and geographies but expects the
negative impact to be offset through productivity improvements
and benefits from new product introductions.
The Company realized approximately $50.0 of annualized benefits
from the streamlining actions taken in fiscal 2009, of which
approximately $28.0 of benefits were realized during fiscal 2009
and an additional $22.0 during fiscal 2010. Also, the Company
anticipates additional annualized savings beginning in fiscal
2011 of approximately $10.0 due to the streamlining efforts
announced during the second quarter of fiscal 2010. The Company
projects realized savings at the annualized rate by the second
quarter of fiscal 2011. These actions related
29
to the consolidation of certain manufacturing operations and a
reduction in workforce. The Company initiated such actions in an
effort to continue to redeploy and invest resources in other
areas where the Company believes it can create greater value and
accelerate profitable growth opportunities, including a
continued focus on customer connectivity and industry-leading
product innovation incorporating energy-efficiency and
sustainable design.
In addition to the recent acquisitions, which significantly
increased the Companys presence in the growing lighting
controls market, management believes the execution of the
Companys strategies to accelerate investments in
innovative and energy-efficient products and services, enhance
service to its customers, and expand market presence in key
geographies and sectors such as home centers and the renovation
market will provide growth opportunities, which should enable
the Company to continue to outperform the overall markets it
serves. The Company believes it is strategically positioned to
take advantage of opportunities within the market, as complete
lighting systems will likely become an integral part of the
smart building energy management development.
Additionally, management believes these actions and investments
will position the Company to meet or exceed its financial goals
over the longer term.
The Company expects cash flow from operations to remain strong
for fiscal 2011 and intends to invest up to $40.0 in capital
expenditures during the year. In addition, the Company expects
to contribute approximately $5.8 and $1.0 to its domestic and
international defined benefit plans, respectively, during fiscal
2011. The Company estimates the annual tax rate to approximate
34% for fiscal 2011.
Although fiscal 2011 results are expected to be negatively
impacted by current economic conditions, management remains
positive about the long-term potential of the Company and its
ability to outperform the market. Although management
anticipates short-term performance will likely continue to be
negatively affected by further investments in the growing
controls and renovation markets, the Company believes that these
are necessary measures to further the Companys long-term
profitable growth opportunities. Looking beyond the current
environment, management believes the lighting and
lighting-related industry will experience solid growth over the
next decade, particularly as energy and environmental concerns
come to the forefront, and that the Company is well-positioned
to fully participate in the industry.
Accounting
Standards Adopted in Fiscal 2010
In June 2009, the Financial Accounting Standards Board
(FASB) issued SFAS No. 168, The FASB
Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FASB Statement
No. 162 (SFAS 168), which confirms
that as of July 1, 2009, the FASB Accounting Standards
Codificationtm
(Codification) is the single official source of
authoritative, nongovernmental U.S. GAAP. All existing
accounting standard documents are superseded, and all other
accounting literature not included in the Codification is
considered nonauthoritative. SFAS 168 which now
resides in the Accounting Standards Codification
(ASC) Topic 105, Generally Accepted Accounting
Principles (ASC 105), within the
Codification was effective for interim and annual
periods ending after September 15, 2009 and, therefore, was
adopted by the Company on November 30, 2009. The Company
determined, however, that the standard did not have an effect on
the Companys financial position, results of operations, or
cash flows upon adoption.
In June 2009, the FASB issued Accounting Standards Update
(ASU)
No. 2009-1,
Topic 105 Generally Accepted Accounting
Principles amendments based on Statement
of Financial Accounting Standards No. 168
The FASB Accounting Standards
CodificationTM
and the Hierarchy of Generally Accepted Accounting Principles
(ASU
2009-1),
which amends the Codification for the issuance of SFAS 168.
See discussion on SFAS 168 above as adoption was concurrent
with that standard.
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value
Measurements (ASU
2010-06).
The updates to the Codification require new disclosures around
transfers into and out of Levels 1 and 2 in the fair value
hierarchy and separate disclosures about purchases, sales,
issuances, and settlements related to Level 3 measurements.
ASU 2010-06
is effective for interim and annual reporting periods beginning
after December 15, 2009 with early adoption permitted,
except for the disclosures about purchases, sales, issuances,
and settlements in the rollforward of Level 3 activity.
Those disclosures are effective for fiscal years beginning after
December 15, 2010 and for interim periods within those
fiscal years with early adoption permitted. The Company adopted
the provisions of ASU
2010-06
effective March 1, 2010. The Company determined that the
update had no impact on its financial position, results of
operations, or cash flows upon adoption.
30
In February 2010, the FASB issued ASU
No. 2010-09,
Subsequent Events (Topic 855) Amendments to
Certain Recognition and Disclosure Requirements (ASU
2010-09).
The amendments in this standard update define a SEC filer within
the Codification and eliminate the requirement for an SEC filer
to disclose the date through which subsequent events have been
evaluated in order to remove potential conflicts with current
SEC guidance. The relevant provisions of ASU
2010-09 were
effective upon the date of issuance of February 24, 2010,
and the Company adopted the amendments accordingly. As the
update only pertained to disclosures, ASU
2010-09 had
no impact on the Companys financial position, results of
operations, or cash flows upon adoption.
In December 2008, the FASB issued revisions to ASC Topic 715,
Compensation Retirement Benefits (ASC
715), that required additional disclosures around the fair
value measurements of plan assets within an entitys
defined benefit and other post-retirement plans. The revised
guidance require disclosures around plan assets related to:
1) investment allocation decisions, 2) major
categories of plan assets, 3) inputs and valuation
techniques, 4) effect of changes in value of Level 3
assets, and 5) concentrations of risk. The provisions of
this standard were effective for fiscal years ending after
December 15, 2009, and were therefore adopted by the
Company as of the fiscal year ended August 31, 2010. As the
revisions only pertained to disclosures, the adoption of these
requirements had no impact on the Companys financial
position, results of operations, or cash flows upon adoption.
In June 2008, FASB issued guidance within ASC Topic 260,
Earnings Per Share (ASC 260), to clarify that
unvested share-based payment awards with a right to receive
nonforfeitable dividends are participating securities. The
standard provides guidance on how to allocate earnings to
participating securities and compute earnings per share
(EPS) using the two-class method. The provisions of
this standard were effective for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal
years, and were therefore adopted by the Company on
September 1, 2009. The EPS amounts for previously reported
periods have been adjusted due to retrospective adoption of this
standard. The Companys diluted EPS from continuing
operations for the years ended August 31, 2009 and 2008,
under this guidance are $2.01 and $3.51, respectively, as
compared to $2.05 and $3.57 previously reported for these
periods.
In December 2007, the FASB issued guidance within ASC Topic 805,
Business Combinations (ASC 805), which
changes the accounting for business combinations through a
requirement to recognize 100% of the fair values of assets
acquired, liabilities assumed, and noncontrolling interests in
acquisitions of less than a 100% controlling interest when the
acquisition constitutes a change in control of the acquired
entity. Other requirements include capitalization of acquired
in-process research and development assets, expensing, as
incurred, acquisition-related transaction costs and capitalizing
restructuring charges as part of the acquisition only if
requirements of ASC Topic 420, Exit or Disposal Obligations,
are met. The standard was effective for business combination
transactions for which the acquisition date was on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008 and was therefore adopted by the
Company on September 1, 2009. See the Acquisitions
footnote of the Notes to Consolidated Financial
Statements for the impact of business combinations under
this guidance on the Companys financial position, results
of operations, and cash flows.
In December 2007, the FASB issued guidance within ASC Topic 810,
Consolidation (ASC 810), that establishes the
economic entity concept of consolidated financial statements,
stating that holders of a residual economic interest in an
entity have an equity interest in the entity, even if the
residual interest is related to only a portion of the entity.
Therefore, this standard requires a noncontrolling interest to
be presented as a separate component of equity. The standard
also states that once control is obtained, a change in control
that does not result in a loss of control should be accounted
for as an equity transaction. The statement requires that a
change resulting in a loss of control and deconsolidation is a
significant event triggering gain or loss recognition and the
establishment of a new fair value basis in any remaining
ownership interests. The standard was effective for fiscal years
beginning on or after December 15, 2008 and was therefore
adopted by the Company on September 1, 2009. The
implementation of this guidance had no effect on the
Companys financial position, results of operations, or
cash flows, as the Company does not currently consolidate an
entity with a noncontrolling interest.
Accounting
Standards Yet to Be Adopted
In September 2009, the FASB issued ASU
No. 2009-14,
Software (Topic 985) Certain Revenue Arrangements
That Include Software Elements (ASU
2009-14).
ASU 2009-14
changes the accounting model for revenue
31
arrangements that include both tangible products and software
elements to allow for alternatives when vendor-specific
objective evidence does not exist. Under this guidance, tangible
products containing software components and non-software
components that function together to deliver the tangible
products essential functionality and hardware components
of a tangible product containing software components are
excluded from the software revenue guidance in Subtopic
985-605,
Software-Revenue Recognition; thus, these arrangements
are excluded from this update. ASU
2009-14 is
effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010 with early adoption permitted. ASU
2009-14 is
therefore effective for the Company no later than the beginning
of fiscal 2011. The Company is currently in the process of
determining the impact, if any, of adoption of the provisions of
ASU 2009-14.
In September 2009, the FASB issued ASU
No. 2009-13,
Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements (ASU
2009-13).
ASU 2009-13
addresses the accounting for multiple-deliverable arrangements
to enable vendors to account for products or services
(deliverables) separately rather than as a combined
unit. Specifically, this guidance amends the criteria in
Subtopic
605-25,
Revenue Recognition-Multiple-Element Arrangements, of the
Codification for separating consideration in
multiple-deliverable arrangements. A selling price hierarchy is
established for determining the selling price of a deliverable,
which is based on: (a) vendor-specific objective evidence;
(b) third-party evidence; or (c) company-specific
estimates. This guidance also eliminates the residual method of
allocation and requires that arrangement consideration be
allocated at the inception of the arrangement to all
deliverables using the relative selling price method. Additional
disclosures related to a vendors multiple-deliverable
revenue arrangements are also required by this update. ASU
2009-13 is
effective prospectively for revenue arrangements entered into,
or materially modified, in fiscal years beginning on or after
June 15, 2010 with early adoption permitted. ASU
2009-13 is
therefore effective for the Company no later than the beginning
of fiscal 2011. The Company is currently in the process of
determining the impact, if any, of adoption of the provisions of
ASU 2009-13.
Critical
Accounting Estimates
Managements Discussion and Analysis of Financial
Condition and Results of Operations addresses the financial
condition and results of operations as reflected in the
Companys Consolidated Financial Statements, which
have been prepared in accordance with U.S. 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 Companys 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 Companys critical accounting estimates:
Inventories
Inventories include materials, direct labor, 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
Companys operating results in the period the change occurs.
32
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, projected future net sales, operating results, and
cash flow.
Although management currently believes that the estimates used
in the evaluation of goodwill and indefinite lived intangibles
are reasonable, differences between actual and expected net
sales, operating results, and cash flow
and/or
changes in the discount rate or theoretical royalty rate could
cause these assets to be deemed impaired. If this were to occur,
the Company would be required to charge to earnings the
write-down in value of such assets, which could have a material
adverse effect on the Companys results of operations and
financial position, but not its cash flows from operations.
Goodwill
The Company is comprised of one reporting unit with a goodwill
balance of $515.6. In determining the fair value of the
Companys reporting unit, the Company uses a discounted
cash flow analysis, which requires significant assumptions about
discount rates as well as short and long-term growth (or
decline) rates, in accordance with U.S. GAAP. The Company
utilized an estimated discount rate of 10% as of June 1,
2010, based on the Capital Asset Pricing Model, which considers
the updated risk-free interest rate, beta, market risk premium,
and entity specific size premium. Short-term growth (or decline)
rates are based on managements forecasted financial
results, which consider key business drivers such as specific
revenue growth initiatives, market share changes, growth (or
decline) in non-residential and residential construction
markets, and general economic factors such as credit
availability and interest rates. The Company calculates the
discounted cash flows using a
10-year
period with a terminal value and compares this calculation to
the discounted cash flows generated over a
40-year
period to ensure reasonableness. The long-term growth rate used
in determining terminal value is estimated at 3% for the Company
and is primarily based on the Companys understanding of
projections for expected long-term growth in non-residential
construction, the Companys key market.
During fiscal 2010, the Company performed an evaluation of the
fair value of goodwill. The goodwill analysis did not result in
an impairment charge, as the estimated fair value of the
reporting unit continues to exceed the carrying value by such a
significant amount that any reasonably likely change in the
assumptions used in the analysis, including revenue growth rates
and the discount rate, would not cause the carrying value to
exceed the estimated fair value for the reporting unit as
determined under the step one goodwill impairment analysis.
Indefinite
Lived Intangible Assets
The Companys indefinite lived intangible assets consist of
five unamortized trade names with an aggregate carrying value of
approximately $96.1. Management utilizes significant assumptions
to estimate the fair value of these unamortized trade names
using a fair value model based on discounted future cash flows
in accordance with U.S. GAAP. Future cash flows associated
with each of the Companys 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 managements 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 (or decline) rates are
estimated for each particular trade name based on
managements forecasted financial results which consider
key business drivers such as specific revenue growth
initiatives, market share changes, expected growth (or decline)
in non-residential and residential construction
33
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% for the Company
and is primarily based on the Companys understanding of
projections for expected long-term growth in non-residential
construction, the Companys key market. The theoretical
royalty rate is estimated using a factor of operating profit
margins and managements assumptions regarding the amount a
willing third party would pay to use the particular trade name.
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 flow
in the valuation model. With the exception of the LC&D
trade names, the Company utilized a range of estimated discount
rates between 10 and 14% as of June 1, 2010, 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 2010, the Company performed an evaluation of the
fair value of its five unamortized trade names. The
Companys expected revenues are based on the Companys
fiscal 2011 plan and recent lighting market growth or decline
estimates for fiscal 2011 through 2015. The Company also
included revenue growth estimates based on current initiatives
expected to help the Company improve performance. During fiscal
2010, estimated theoretical royalty rates ranged between 1% and
4%. 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,
except for the Mark Lighting and LC&D trade names, which
had fair values that exceeded each of its carrying values of
$8.6 and $6.9, respectively, by approximately 31.4% and 4.5%,
respectively. The estimated fair values of the indefinite lived
intangible assets, other than the Mark Lighting and LC&D
trade names, 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 Mark Lighting or LC&D trade names based on
reasonable changes in the assumptions that would be less likely
to occur would not be material to the Companys 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 Companys
self-insured retention for each claim involving workers
compensation, comprehensive general liability (including product
liability claims), and auto liability is limited to $0.5 per
occurrence of such claims. A provision for claims under this
self-insured program, based on the Companys estimate of
the aggregate liability for claims incurred, is revised and
recorded annually. The estimate is derived from both internal
and external sources including but not limited to the
Companys independent actuary. The Company is also
self-insured up to certain limits for certain other insurable
risks, primarily physical loss to property ($0.5 per occurrence)
and business interruptions resulting from such loss lasting 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, and patent
infringement. The actuarial estimates calculated are subject to
uncertainty from various sources, including, among others,
changes in claim reporting patterns, claim settlement patterns,
judicial decisions, legislation, and economic conditions.
Although the Company believes that the actuarial estimates are
reasonable, significant differences related to the items noted
above could materially affect the Companys self-insurance
obligations, future expense and cash flow.
The Company is also self-insured for the majority of its medical
benefit plans with individual claims limited to $0.3. The
Company estimates its aggregate liability for claims incurred by
applying a lag factor to the Companys historical claims
and administrative cost experience. The appropriateness of the
Companys lag factor is evaluated and revised, if
necessary, annually. Although management believes that the
current estimates are reasonable, significant differences
related to claim reporting patterns, plan designs, legislation,
and general economic conditions could materially affect the
Companys medical benefit plan liabilities, future expense
and cash flow.
34
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. ASC 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; and the length of time carryovers can be utilized.
In light of the multiple tax jurisdictions in which the Company
operates, the Companys tax returns are subject to routine
audit by the Internal Revenue Service (IRS) and
other taxation authorities. 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
Companys financial position, results from operations, and
cash flows.
Retirement
Benefits
The Company sponsors domestic and international defined benefit
pension plans and domestic 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, and the rates of increase in
employee compensation levels. 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 Companys 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 or liability 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) using the modified
prospective method. Under the modified prospective method,
share-based expense recognized includes: (a) share-based
expense for all awards granted prior to, but not yet vested as
of September 1, 2005, based on the grant date fair value
estimated under the previous guidance, and (b) share-based
expense for all awards granted subsequent to September 1,
2005, based on the grant-date fair value estimated under the
current provisions of ASC Topic 718, Compensation
Stock Compensation (ASC 718). The Company
recorded $11.8, $13.0, and $12.0 of share-based expense in
continuing operations for the years ended August 31, 2010,
2009, and 2008, respectively.
The Company employs the Black-Scholes model in deriving the fair
value estimates of share-based awards and records estimates of
forfeitures of share-based awards at the time of grant, which
are revised in subsequent periods if actual forfeitures differ
from initial estimates. Therefore, the expense related to
share-based payments recognized in fiscal 2010, 2009, and 2008
has been reduced for estimated forfeitures. As of
August 31, 2010, there was $16.8 of total unrecognized
compensation cost related to unvested restricted stock. That
cost is expected to be recognized over a weighted-average period
of 2.2 years. As of August 31, 2010, there was $2.5 of
total unrecognized compensation cost related to unvested
options. That cost is expected to be recognized over a
weighted-average period of 1.6 years. 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
35
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 costs when the related revenue is recognized,
primarily based on historical experience of identified warranty
claims. Excluding costs related to recalls due to faulty
components provided by third parties, historical warranty costs
have been within expectations. However, there can be no
assurance that future warranty costs will not exceed historical
amounts. If actual future warranty costs exceed historical
amounts, additional allowances may be required, which could have
a material adverse impact on the Companys 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 most 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
that may be considered forward-looking include statements
incorporating terms such as expects,
believes, intends,
anticipates and similar terms that relate to future
events, performance, or results of the Company. In addition, the
Company, or the executive officers on the Companys behalf,
may from time to time make forward-looking statements in reports
and other documents the Company files with the SEC or in
connection with oral statements made to the press, potential
investors, or others. Forward-looking statements include,
without limitation: (a) the Companys projections
regarding financial performance, liquidity, capital structure,
capital expenditures, and dividends; (b) expectations about
the impact of volatility and uncertainty in general economic
conditions; (c) external forecasts projecting industry unit
volumes; (d) expectations about the impact of volatility
and uncertainty in component and commodity costs and
availability, and the Companys ability to manage those
challenges, as well as the Companys response with pricing
of its products; (e) the Companys ability to execute
and realize benefits from initiatives related to streamlining
its operations, capitalizing on growth opportunities, expanding
in key markets, enhancing service to the customer, and investing
in product innovation; (f) the Companys estimate of
its fiscal 2011 annual tax rate; and (g) the Companys
ability to achieve its long-term financial goals and measures.
You are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date of
this 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
Companys forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to
differ materially from the historical experience of the Company
and managements present expectations or projections. These
risks and uncertainties include, but are not limited to,
customer and supplier relationships and prices; competition;
ability to realize anticipated benefits from initiatives taken
and timing of benefits; market demand; litigation and other
contingent liabilities; and economic, political, governmental,
and technological factors affecting the Company. Also,
additional risks that could cause the Companys actual
results to differ materially from those expressed in the
Companys forward-looking statements are discussed in
Part I, Item 1a. Risk Factors of
this Annual Report on
Form 10-K,
and are specifically incorporated herein by reference.
36
|
|
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, 2010, 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, 2010, 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 Companys
fixed-rate debt which includes the $350.0 publicly-traded
fixed-rate notes. A 10% increase in market interest rates at
August 31, 2010, would have decreased the estimated fair
value of these debt obligations by approximately $12.7. 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 Companys 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
Companys operations in Canada, where a significant portion
of products sold are sourced from the United States. A
hypothetical decline in the Canadian dollar of 10% would
negatively impact operating profit by approximately $7.0. 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 Mexican peso would
negatively impact operating profits by approximately $3.7. The
impact of these hypothetical currency fluctuations has been
calculated in isolation from any response the Company would
undertake to address such exchange rate changes in the
Companys foreign markets.
Commodity Prices. The Company utilizes a
variety of raw materials and components in its production
process including petroleum-based products, steel, and aluminum.
In fiscal 2010, the Company purchased approximately 119,000 tons
of steel and aluminum. The Company estimates that less than 10%
of the raw materials purchased are petroleum-based and that
approximately 3.5 million gallons of diesel fuel was
consumed in fiscal 2010. Failure to effectively manage future
increases in the costs of these items could adversely affect the
ability to maintain or increase operating margins.
37
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Item 8.
|
Financial
Statements and Supplementary Data
|
Index to
Consolidated Financial Statements
|
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|
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Page
|
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39
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40-41
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|
|
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42
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|
|
|
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43
|
|
|
|
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44
|
|
|
|
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45
|
|
|
|
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46-87
|
|
|
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|
102
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|
38
MANAGEMENTS
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 Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
August 31, 2010. In making this assessment, the
Companys 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, 2010, the Companys internal control over
financial reporting is effective.
The Companys independent registered public accounting firm
has issued an audit report on their audit of the Companys
internal control over financial reporting. This report dated
October 29, 2010 appears on page 41 of this
Form 10-K.
|
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/s/ RICHARD K. REECE
|
Vernon J. Nagel
Chairman, President, and
Chief Executive Officer
|
|
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|
Richard K. Reece
Executive Vice President and
Chief Financial Officer
|
39
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, 2010 and 2009, 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, 2010. 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
Companys 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,
2010 and 2009, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended August 31, 2010, 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, 2010, 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 29, 2010 expressed
an unqualified opinion thereon.
Atlanta, Georgia
October 29, 2010
40
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, 2010, 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
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys 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 companys 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 companys
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
companys 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, 2010, 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, 2010 and 2009, 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, 2010 of Acuity Brands, Inc.
and our report dated October 29, 2010 expressed an
unqualified opinion thereon.
Atlanta, Georgia
October 29, 2010
41
ACUITY
BRANDS, INC.
CONSOLIDATED
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
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2010
|
|
|
2009
|
|
|
|
(In millions, except share data)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
191.0
|
|
|
$
|
18.7
|
|
Accounts receivable, less reserve for doubtful accounts of $2.0
and $1.9 at August 31, 2010 and 2009
|
|
|
255.1
|
|
|
|
227.4
|
|
Inventories
|
|
|
149.0
|
|
|
|
140.8
|
|
Deferred income taxes
|
|
|
17.3
|
|
|
|
16.7
|
|
Prepayments and other current assets
|
|
|
13.9
|
|
|
|
19.3
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
626.3
|
|
|
|
422.9
|
|
|
|
|
|
|
|
|
|
|
Property, Plant, and Equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
7.6
|
|
|
|
7.3
|
|
Buildings and leasehold improvements
|
|
|
113.7
|
|
|
|
111.8
|
|
Machinery and equipment
|
|
|
337.5
|
|
|
|
334.7
|
|
|
|
|
|
|
|
|
|
|
Total Property, Plant, and Equipment
|
|
|
458.8
|
|
|
|
453.8
|
|
Less Accumulated depreciation and amortization
|
|
|
320.4
|
|
|
|
308.0
|
|
|
|
|
|
|
|
|
|
|
Property, Plant, and Equipment, net
|
|
|
138.4
|
|
|
|
145.8
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
515.6
|
|
|
|
510.6
|
|
Intangible assets
|
|
|
199.5
|
|
|
|
184.8
|
|
Deferred income taxes
|
|
|
3.7
|
|
|
|
2.6
|
|
Other long-term assets
|
|
|
20.1
|
|
|
|
23.9
|
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
738.9
|
|
|
|
721.9
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,503.6
|
|
|
$
|
1,290.6
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
195.0
|
|
|
$
|
162.3
|
|
Current maturities of long-term debt
|
|
|
|
|
|
|
209.5
|
|
Accrued compensation
|
|
|
51.8
|
|
|
|
35.3
|
|
Accrued pension liabilities, current
|
|
|
1.1
|
|
|
|
1.2
|
|
Other accrued liabilities
|
|
|
73.4
|
|
|
|
67.8
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
321.3
|
|
|
|
476.1
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
|
353.3
|
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
Accrued Pension Liabilities, less current portion
|
|
|
71.1
|
|
|
|
51.1
|
|
|
|
|
|
|
|
|
|
|
Deferred Income Taxes
|
|
|
10.2
|
|
|
|
13.0
|
|
|
|
|
|
|
|
|
|
|
Self-Insurance Reserves, less current portion
|
|
|
7.6
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
Other Long-Term Liabilities
|
|
|
45.7
|
|
|
|
47.4
|
|
|
|
|
|
|
|
|
|
|
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; 50,441,634 issued and 42,116,473 outstanding at
August 31, 2010; and 49,851,316 issued and 42,433,143
outstanding at August 31, 2009
|
|
|
0.5
|
|
|
|
0.5
|
|
Paid-in capital
|
|
|
661.9
|
|
|
|
647.2
|
|
Retained earnings
|
|
|
459.0
|
|
|
|
404.2
|
|
Accumulated other comprehensive loss items
|
|
|
(71.3
|
)
|
|
|
(57.4
|
)
|
Treasury stock, at cost, 8,325,161 shares and
7,418,173 shares at August 31, 2010 and 2009
|
|
|
(355.7
|
)
|
|
|
(322.3
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
694.4
|
|
|
|
672.2
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
1,503.6
|
|
|
$
|
1,290.6
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
42
ACUITY
BRANDS, INC.
CONSOLIDATED
STATEMENTS OF
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions, except per-share data)
|
|
|
Net Sales
|
|
$
|
1,626.9
|
|
|
$
|
1,657.4
|
|
|
$
|
2,026.6
|
|
Cost of Products Sold
|
|
|
965.4
|
|
|
|
1,022.3
|
|
|
|
1,210.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
661.5
|
|
|
|
635.1
|
|
|
|
815.8
|
|
Selling, Distribution, and Administrative Expenses
|
|
|
495.4
|
|
|
|
454.6
|
|
|
|
540.1
|
|
Special Charge
|
|
|
8.4
|
|
|
|
26.7
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
157.7
|
|
|
|
153.8
|
|
|
|
261.1
|
|
Other Expense (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
29.4
|
|
|
|
28.5
|
|
|
|
28.4
|
|
Loss on early debt extinguishment
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
Miscellaneous (income) expense, net
|
|
|
(1.0
|
)
|
|
|
(2.0
|
)
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense
|
|
|
38.9
|
|
|
|
26.5
|
|
|
|
30.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations before Provision for Income
Taxes
|
|
|
118.8
|
|
|
|
127.3
|
|
|
|
230.5
|
|
Provision for Income Taxes
|
|
|
39.8
|
|
|
|
42.1
|
|
|
|
81.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
79.0
|
|
|
|
85.2
|
|
|
|
148.6
|
|
Income (Loss) from Discontinued Operations
|
|
|
0.6
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
79.6
|
|
|
$
|
84.9
|
|
|
$
|
148.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Share from Continuing Operations
|
|
$
|
1.83
|
|
|
$
|
2.05
|
|
|
$
|
3.58
|
|
Basic Earnings (Loss) per Share from Discontinued Operations
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Share
|
|
$
|
1.84
|
|
|
$
|
2.04
|
|
|
$
|
3.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Weighted Average Number of Shares Outstanding
|
|
|
42.5
|
|
|
|
40.8
|
|
|
|
40.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share from Continuing Operations
|
|
$
|
1.79
|
|
|
$
|
2.01
|
|
|
$
|
3.51
|
|
Diluted Earnings (Loss) per Share from Discontinued Operations
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share
|
|
$
|
1.80
|
|
|
$
|
2.00
|
|
|
$
|
3.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Weighted Average Number of Shares Outstanding
|
|
|
43.3
|
|
|
|
41.6
|
|
|
|
41.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared per Share
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
43
ACUITY
BRANDS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Cash Provided by (Used for) Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
79.6
|
|
|
$
|
84.9
|
|
|
$
|
148.3
|
|
Add: (Gain) Loss from Discontinued Operations
|
|
|
(0.6
|
)
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
79.0
|
|
|
|
85.2
|
|
|
|
148.6
|
|
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
36.5
|
|
|
|
35.7
|
|
|
|
33.8
|
|
Noncash compensation expense, net
|
|
|
9.0
|
|
|
|
10.2
|
|
|
|
5.2
|
|
Excess tax benefits from share-based payments
|
|
|
(2.8
|
)
|
|
|
(0.4
|
)
|
|
|
(5.0
|
)
|
Loss on early debt extinguishment
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
Loss on the sale or disposal of property, plant, and equipment
|
|
|
0.5
|
|
|
|
|
|
|
|
0.2
|
|
Asset impairments
|
|
|
5.1
|
|
|
|
1.6
|
|
|
|
|
|
Deferred income taxes
|
|
|
7.4
|
|
|
|
(0.4
|
)
|
|
|
2.6
|
|
Other non-cash items
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Change in assets and liabilities, net of effect of acquisitions,
divestitures and effect of exchange rate changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(29.2
|
)
|
|
|
43.2
|
|
|
|
26.6
|
|
Inventories
|
|
|
(8.6
|
)
|
|
|
10.3
|
|
|
|
0.8
|
|
Prepayments and other current assets
|
|
|
1.8
|
|
|
|
12.2
|
|
|
|
12.7
|
|
Accounts payable
|
|
|
33.5
|
|
|
|
(44.4
|
)
|
|
|
(4.6
|
)
|
Other current liabilities
|
|
|
21.8
|
|
|
|
(62.5
|
)
|
|
|
(10.9
|
)
|
Other
|
|
|
(4.0
|
)
|
|
|
2.0
|
|
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
160.5
|
|
|
|
92.7
|
|
|
|
221.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used for) Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
|
|
(21.9
|
)
|
|
|
(21.2
|
)
|
|
|
(27.2
|
)
|
Proceeds from sale of property, plant, and equipment
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Acquisitions of business and intangible assets
|
|
|
(22.6
|
)
|
|
|
(162.1
|
)
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used for Investing Activities
|
|
|
(44.3
|
)
|
|
|
(183.1
|
)
|
|
|
(30.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used for) Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(237.9
|
)
|
|
|
(162.4
|
)
|
|
|
|
|
Issuance of long-term debt
|
|
|
346.5
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(36.1
|
)
|
|
|
|
|
|
|
(155.6
|
)
|
Proceeds from stock option exercises and other
|
|
|
6.5
|
|
|
|
3.0
|
|
|
|
4.5
|
|
Excess tax benefits from share-based payments
|
|
|
2.8
|
|
|
|
0.4
|
|
|
|
5.0
|
|
Dividends received from Zep
|
|
|
|
|
|
|
|
|
|
|
58.4
|
|
Dividends paid
|
|
|
(22.6
|
)
|
|
|
(21.6
|
)
|
|
|
(22.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used for) Financing Activities
|
|
|
59.2
|
|
|
|
(180.6
|
)
|
|
|
(110.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used for) Provided by Operating Activities
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
4.2
|
|
Net Cash Used for Investing Activities
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Net Cash Used for Financing Activities
|
|
|
|
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used for (Provided by) Discontinued Operations
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
1.5
|
|
Effect of Exchange Rate Changes on Cash
|
|
|
(3.1
|
)
|
|
|
(7.1
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
172.3
|
|
|
|
(278.4
|
)
|
|
|
83.4
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
18.7
|
|
|
|
297.1
|
|
|
|
213.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
|
191.0
|
|
|
$
|
18.7
|
|
|
$
|
297.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid during the period
|
|
$
|
32.7
|
|
|
$
|
40.5
|
|
|
$
|
84.4
|
|
Interest paid during the period
|
|
$
|
30.8
|
|
|
$
|
29.1
|
|
|
$
|
34.8
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
44
ACUITY
BRANDS, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
AND
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Pension
|
|
|
Translation
|
|
|
Treasury
|
|
|
|
|
|
|
Income
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Liability
|
|
|
Adjustment
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In millions, except share and per-share data)
|
|
|
Balance, August 31, 2007
|
|
|
|
|
|
$
|
0.5
|
|
|
$
|
611.7
|
|
|
$
|
313.9
|
|
|
$
|
(19.4
|
)
|
|
$
|
9.9
|
|
|
$
|
(244.6
|
)
|
|
$
|
672.0
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
148.3
|
|
|
|
|
|
|
|
|
|
|
|
148.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148.3
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment (net of tax expense of
$0)
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
5.0
|
|
Minimum pension liability adjustment (net of tax of $2.5)
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
146.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of spin-off of specialty products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71.6
|
)
|
|
|
|
|
|
|
(11.8
|
)
|
|
|
|
|
|
|
(83.4
|
)
|
Impact of adopting FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
Amortization, issuance, and forfeitures of restricted stock
grants
|
|
|
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.2
|
|
Employee Stock Purchase Plan issuances
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
Cash dividends of $0.54 per share paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.5
|
)
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
Repurchases of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150.9
|
)
|
|
|
(150.9
|
)
|
Tax effect on stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2008
|
|
|
|
|
|
|
0.5
|
|
|
|
626.4
|
|
|
|
366.9
|
|
|
|
(25.9
|
)
|
|
|
3.1
|
|
|
|
(395.5
|
)
|
|
|
575.5
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
84.9
|
|
|
|
|
|
|
|
|
|
|
|
84.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84.9
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment (net of tax expense of
$0)
|
|
|
(18.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.5
|
)
|
|
|
|
|
|
|
(18.5
|
)
|
Pension liability adjustment (net of tax of $9.2)
|
|
|
(16.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(16.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(34.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
50.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transitional pension adjustment (net of tax of $0.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
Common Stock reissued from Treasury Shares for acquisition of
businesses
|
|
|
|
|
|
|
|
|
|
|
7.2
|
|
|
|
(25.5
|
)
|
|
|
|
|
|
|
|
|
|
|
73.2
|
|
|
|
54.9
|
|
Amortization, issuance, and forfeitures of restricted stock
grants
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Employee Stock Purchase Plan issuances
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Cash dividends of $0.52 per share paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.6
|
)
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
Tax effect on stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
45
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in millions, except per-share data and as indicated)
|
|
1.
|
Description
of Business and Basis of Presentation
|
Acuity Brands, Inc. (Acuity Brands) is the parent
company of Acuity Brands Lighting, Inc. (ABL),
formerly known as Acuity Lighting Group, Inc., and other
subsidiaries (collectively referred to herein as the
Company). The Company designs, produces, and distributes a
broad array of indoor and outdoor lighting fixtures and related
products, including lighting controls, and services for
commercial and institutional, industrial, infrastructure, and
residential applications for various markets throughout North
America and select international markets. The Company has one
operating segment.
On July 26, 2010, the Company acquired the remaining
outstanding capital stock of Renaissance Lighting, Inc.
(Renaissance), a privately-held, pioneering
innovator of solid-state light-emitting diode (LED)
architectural lighting. Renaissance, based in Herndon, Virginia,
offered a full range of LED-based specification-grade
downlighting luminaires and has developed an extensive
intellectual property portfolio related to advanced LED optical
solutions and technologies. Previously, the Company entered into
a strategic partnership with Renaissance, which included a
noncontrolling interest in Renaissance and a license to
Renaissances intellectual property estate. The operating
results of Renaissance have been included in the Companys
consolidated financial statements since the date of acquisition.
On April 20, 2009, the Company acquired 100% of the
outstanding capital stock of Sensor Switch, Inc. (Sensor
Switch), an industry-leading developer and manufacturer of
lighting controls and energy management systems. Sensor Switch,
based in Wallingford, Connecticut, offered a wide-breadth of
products and solutions that substantially reduce energy
consumption, including occupancy sensors, photocontrols, and
distributed lighting control devices. The operating results of
Sensor Switch have been included in the Companys
consolidated financial statements since the date of acquisition.
On December 31, 2008, the Company acquired for cash and
stock substantially all the assets and assumed certain
liabilities of Lighting Controls & Design
(LC&D). Located in Glendale, California,
LC&D is a manufacturer of comprehensive digital lighting
controls and software that offered a breadth of products,
ranging from dimming and building interfaces to digital
thermostats, all within a single, scalable system. The operating
results of LC&D have been included in the Companys
consolidated financial statements since the date of acquisition.
Acuity Brands completed the spin-off of its specialty products
business (the Spin-off), Zep Inc. (Zep)
on October 31, 2007, by distributing all of the shares of
Zep common stock, par value $.01 per share, to the
Companys stockholders of record as of October 17,
2007. The Companys stockholders received one Zep share,
together with an associated preferred stock purchase right, for
every two shares of the Companys common stock they owned.
Stockholders received cash in lieu of fractional shares for
amounts less than one full Zep share.
As a result of the Spin-off, the Companys financial
statements have been prepared with the net assets, results of
operations, and cash flows of the specialty products business
presented as discontinued operations. All historical statements
have been restated to conform to this presentation. Refer to the
Discontinued Operations footnote.
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.
46
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Discontinued
Operations
|
As described in the Description of Business and Basis of
Presentation footnote, the Company completed the Spin-off on
October 31, 2007. A summary of the operating results for
the discontinued operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net Sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
97.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Provision for Income Taxes
|
|
|
0.6
|
|
|
|
|
|
|
|
3.0
|
|
Provision for Income Taxes
|
|
|
|
|
|
|
0.3
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Discontinued Operations
|
|
$
|
0.6
|
|
|
$
|
(0.3
|
)
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the Spin-off, Acuity Brands and Zep entered
into various agreements that address the allocation of assets
and liabilities between them and that define their relationship
after the separation, including a distribution agreement, a tax
disaffiliation agreement, an employee benefits agreement, and a
transition services agreement. The income from discontinued
operations relates to the revision of estimates during the
second quarter of fiscal 2010 of certain legal reserves
established at the time of the Spin-off. As it was with the
original reserve, the income from discontinued operations had no
income tax effect. Information regarding guarantees and
indemnities related to the Spin-off are included in the
Commitments and Contingencies footnote.
|
|
3.
|
Significant
Accounting Policies
|
Principles
of Consolidation
The Consolidated Financial Statements include the
accounts of Acuity Brands and its wholly-owned subsidiaries
after elimination of significant intercompany transactions and
accounts.
Revenue
Recognition
The Company records revenue when the following criteria are met:
persuasive evidence of an arrangement exists, delivery has
occurred, the Companys price to the customer is fixed and
determinable, and collectability is reasonably assured. Delivery
is not considered to have occurred until the customer assumes
the risks and rewards of ownership. Customers take delivery at
the time of shipment for terms designated free on board shipping
point. For sales designated free on board destination, customers
take delivery when the product is delivered to the
customers delivery site. Provisions for certain rebates,
sales incentives, product returns, and discounts to customers
are recorded in the same period the related revenue is recorded.
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 arrangements include cooperative marketing
programs, merchandising of the Companys products, and
introductory marketing funds for new products and other
trade-promotion activities conducted by the customer. Costs
associated with these programs are reflected within the
Companys Consolidated Statements of Income in
accordance with the Accounting Standards Codification
(ASC) Topic 605, Revenue Recognition
(ASC 605), which in most instances requires such
costs be recorded as a reduction of revenue.
The Company provides for limited product return rights to
certain distributors and customers primarily for slow moving or
damaged items subject to certain defined criteria. The Company
monitors product returns and, at the time revenue is recognized,
records a provision for the estimated amount of future returns
based primarily on historical experience and specific
notification of pending returns. Although historical product
returns generally have been within expectations, there can be no
assurance that future product returns will not exceed historical
amounts. A significant increase in product returns could have a
material impact on the Companys operating results in
future periods.
47
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the Companys turnkey labor renovation services,
revenue is earned on installation services and lighting
fixtures. Revenue is recognized for the service and fixtures in
the period that the installation of the fixtures is completed.
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.
Cash
and Cash Equivalents
Cash in excess of daily requirements is invested in time
deposits and marketable securities and is included in the
accompanying balance sheets at fair value. Acuity Brands
considers time deposits and marketable securities with an
original maturity of three months or less when purchased to be
cash equivalents.
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 Companys results of
operations.
Concentrations
of Credit Risk
Concentrations of credit risk with respect to receivables, which
are typically unsecured, are generally limited due to the wide
variety of customers and markets using the Companys
products, as well as their dispersion across many different
geographic areas. Receivables from The Home Depot were
approximately $34.0 and $30.2 at August 31, 2010 and 2009,
respectively. No other single customer accounted for more than
10% of consolidated receivables at August 31, 2010.
Additionally, net sales to The Home Depot accounted for
approximately 11% of net sales of the Company in fiscal 2010,
2009, and 2008.
Reclassifications
Certain prior-period amounts have been reclassified to conform
to current year presentation.
Subsequent
Events
The Company has evaluated, for recognition and disclosure,
subsequent events for occurrences and transactions after the
date of the consolidated financial statements for the year ended
August 31, 2010.
48
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
Inventories include materials, direct labor, 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:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials and supplies
|
|
$
|
76.4
|
|
|
$
|
69.8
|
|
Work in process
|
|
|
8.8
|
|
|
|
11.9
|
|
Finished goods
|
|
|
73.2
|
|
|
|
70.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158.4
|
|
|
|
152.0
|
|
Less: Reserves
|
|
|
(9.4
|
)
|
|
|
(11.2
|
)
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
149.0
|
|
|
$
|
140.8
|
|
|
|
|
|
|
|
|
|
|
Goodwill
and Other Intangibles
Summarized information for the Companys acquired
intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and trademarks
|
|
$
|
49.4
|
|
|
$
|
(16.2
|
)
|
|
$
|
29.1
|
|
|
$
|
(14.2
|
)
|
Distribution network and customer relationships
|
|
|
89.9
|
|
|
|
(23.7
|
)
|
|
|
89.7
|
|
|
|
(19.3
|
)
|
Other
|
|
|
5.8
|
|
|
|
(1.8
|
)
|
|
|
4.6
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
145.1
|
|
|
$
|
(41.7
|
)
|
|
$
|
123.4
|
|
|
$
|
(34.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized trade names
|
|
$
|
96.1
|
|
|
|
|
|
|
$
|
96.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through multiple acquisitions, the Company acquired intangible
assets consisting primarily of trademarks associated with
specific products with finite lives, definite-lived distribution
networks, patented technology, non-compete agreements, and
customer relationships, which are amortized over their estimated
useful lives. Indefinite lived intangible assets consist of
trade names that are expected to generate cash flows
indefinitely. Significant estimates and assumptions were used to
determine the fair value of these acquired intangible assets,
including estimated future net sales, royalty rates, and
discount rates. The current year increases in the gross carrying
amounts for the acquired intangible assets were due to the
Renaissance acquisition (refer to the Acquisitions
footnote). With regards to the Renaissance acquisition, the
weighted average useful life of the intangible assets with
finite lives acquired by the Company was estimated at
7.5 years, which consisted primarily of intangible assets
related to patented technology and in-process research and
development.
The Company recorded amortization expense of $7.1, $5.4, and
$3.7 related to intangible assets with finite lives during
fiscal 2010, 2009, and 2008, respectively. Amortization expense
is generally recorded on a straight-line basis and is expected
to be approximately $8.2 in fiscal 2011, $7.3 in fiscal 2012,
$6.5 in fiscal 2013, $6.4 in fiscal 2014, and $6.2 in fiscal
2015. The decrease in expected amortization expense in fiscal
2012 is due to the completion of the amortization during fiscal
2011 of certain acquired patented technology assets. The
decrease in fiscal 2013 is due to the completion of the
amortization during fiscal 2012 of certain acquired customer
relationships. Included in these amounts are the impact of
incremental amortization expense for the December 31, 2008
acquisition of
49
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
substantially all the assets and the assumption of certain
liabilities of LC&D, the April 20, 2009 acquisition of
Sensor Switch, and the July 26, 2010 acquisition of
Renaissance.
The changes in the carrying amount of goodwill during the year
are summarized as follows:
|
|
|
|
|
Goodwill:
|
|
|
|
|
Balance as of August 31, 2009
|
|
$
|
510.6
|
|
Acquisitions
|
|
|
5.2
|
|
Adjustments
|
|
|
0.8
|
|
Currency translation adjustments
|
|
|
(1.0
|
)
|
|
|
|
|
|
Balance as of August 31, 2010
|
|
$
|
515.6
|
|
|
|
|
|
|
The Company tests indefinite lived intangible assets and
goodwill for impairment on an annual basis or more frequently as
facts and circumstances change, as required by ASC Topic 350,
Intangibles Goodwill and Other (ASC
350). The goodwill impairment test has two steps. The
first step identifies potential impairments by comparing the
fair value of a reporting unit with its carrying value,
including goodwill. The fair values are determined based on a
combination of valuation techniques including the expected
present value of future cash flows, a market multiple approach,
and a comparable transaction approach. If the fair value of a
reporting unit exceeds the carrying value, goodwill is not
impaired and the second step is not necessary. If the carrying
value of a reporting unit exceeds the fair value, the second
step calculates the possible impairment loss by comparing the
implied fair value of goodwill with the carrying value. If the
implied fair value of the goodwill is less than the carrying
value, an impairment charge is recorded. The impairment test for
unamortized trade names consists of comparing the fair value of
the asset with its carrying value. The Company estimates the
fair value of these unamortized trade names using a fair value
model based on discounted future cash flows. If the carrying
amount exceeds the measured fair value, an impairment loss would
be recorded in the amount of the excess. Significant
assumptions, including estimated future net sales, royalty
rates, and discount rates, were used in the determination of
estimated fair value for both goodwill and indefinite lived
intangible assets. Neither of the analyses resulted in an
impairment charge during fiscal 2010, 2009, or 2008.
Other
Long-Term Assets
Other long-term assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Long-term investments(1)
|
|
$
|
1.9
|
|
|
$
|
3.1
|
|
Assets held for sale
|
|
|
3.0
|
|
|
|
4.0
|
|
Investments in nonconsolidating affiliates(2)
|
|
|
|
|
|
|
8.9
|
|
Deferred debt issuance costs
|
|
|
2.6
|
|
|
|
0.1
|
|
Capitalized software costs
|
|
|
4.7
|
|
|
|
5.0
|
|
Deferred sales and marketing costs
|
|
|
6.6
|
|
|
|
1.3
|
|
Miscellaneous
|
|
|
1.3
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20.1
|
|
|
$
|
23.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Long-term investments The Company maintains
certain investments that generate returns that offset changes in
certain liabilities related to deferred compensation
arrangements. The investments primarily consist of marketable
equity securities and fixed income securities, are stated at
fair value, and are classified as trading in accordance with ASC
Topic 320, Investments Debt and Equity
Securities. Realized and unrealized gains and |
50
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
losses are included in the Consolidated Statements of Income and
generally offset the change in the deferred compensation
liability. The decrease since August 31, 2009 was due
primarily to payments made to certain participants in these
deferred compensation arrangements. |
|
(2) |
|
Investments in nonconsolidating affiliates
During fiscal 2009, the Company acquired an equity investment in
Renaissance. This strategic investment represented less than a
20% ownership interest, and the Company did not maintain power
over or control of the entity. In July 2010, the Company
acquired the remaining outstanding capital stock and, thus,
subsequent control of Renaissance. See the Acquisitions
footnote for details. |
As of August 31, 2010, the Company reported assets held for
sale of $3.4, which were comprised of $0.4 in short-term assets
and $3.0 in long-term assets. The assets represent two
properties that the Company intends to sell to third parties
within one year, or, in certain circumstances, beyond one year
as allowed by ASC Topic 360, Property, Plant, and Equipment
(ASC 360), as the facilities have been deemed
unnecessary to current operations.
Other
Long-Term Liabilities
Other long-term liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred compensation and postretirement benefits other than
pensions(1)
|
|
$
|
32.3
|
|
|
$
|
33.7
|
|
Postemployment benefit obligation(2)
|
|
|
0.4
|
|
|
|
0.4
|
|
Uncertain tax positions liability, including interest(3)
|
|
|
6.7
|
|
|
|
7.1
|
|
Deferred rent
|
|
|
2.2
|
|
|
|
2.8
|
|
Miscellaneous
|
|
|
4.1
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45.7
|
|
|
$
|
47.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Deferred compensation and long-term postretirement benefits
other than pensions The Company
maintains several non-qualified retirement plans for the benefit
of eligible employees, primarily deferred compensation plans.
The deferred compensation plans provide for elective deferrals
of an eligible employees compensation and, in some cases,
matching contributions by the Company. In addition, one plan
provides for an automatic contribution by the Company of 3% of
an eligible employees compensation. The Company maintains
certain long-term investments that offset a portion of the
deferred compensation liability. The Company maintains life
insurance policies on certain current and former officers and
other key employees as a means of satisfying a portion of these
obligations. |
|
(2) |
|
Postemployment benefit obligation ASC Topic
712, Compensation Nonretirement Postemployment
Benefits, requires the accrual of the estimated cost of
benefits provided by an employer to former or inactive employees
after employment but before retirement. The Companys
accrual relates primarily to the liability for life insurance
coverage for certain eligible employees. |
|
(3) |
|
See the Income Taxes footnote for more information. |
Shipping
and Handling Fees and Costs
The Company includes shipping and handling fees billed to
customers in Net Sales. Shipping and handling costs
associated with inbound freight and freight between
manufacturing facilities and distribution centers are generally
recorded in Cost of Products Sold. Other shipping and
handling costs are included in Selling, Distribution, and
Administrative Expenses and totaled $88.4, $86.8, and $84.6
in fiscal 2010, 2009, and 2008, respectively.
51
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Share-Based
Compensation
The Company recognizes compensation cost relating to share-based
payment transactions in the financial statements based on the
estimated fair value of the equity or liability 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) using the modified
prospective method. Under the modified prospective method,
share-based expense recognized includes: (a) share-based
expense for all awards granted prior to, but not yet vested as
of September 1, 2005, based on the grant date fair value
estimated under the previous guidance, and (b) share-based
expense for all awards granted subsequent to September 1,
2005, based on the grant-date fair value estimated under the
current provisions of ASC Topic 718, Compensation
Stock Compensation (ASC 718).
Share-based expense includes expense related to restricted stock
and options issued, as well as share units deferred into either
the Director Deferred Compensation Plan or the Supplemental
Deferred Savings Plan. The Company recorded $11.8, $13.0, and
$12.0 of share-based expense in continuing operations for the
years ending August 31, 2010, 2009, and 2008, respectively.
The total income tax benefit recognized in continuing operations
for share-based compensation arrangements was $4.2, $4.3, and
$4.7 for the years ended August 31, 2010, 2009, and 2008,
respectively. The Company accounts for any awards with graded
vesting on a straight-line basis. Additionally, forfeitures of
share-based awards are estimated based on historical experience
and recorded at the time of grant, which are revised in
subsequent periods if actual forfeitures differ from initial
estimates. The Company did not capitalize any expense related to
share-based payments and has recorded share-based expense, net
of estimated forfeitures, in Selling, Distribution, and
Administrative Expenses.
Excess tax benefits of $2.8, $0.4, and $5.0 related to
share-based compensation were included in financing activities
in the Companys Statements of Cash Flows for fiscal
2010, 2009, and 2008, respectively.
See the Share-Based Payments footnote for more
information.
Depreciation
For financial reporting purposes, depreciation is determined
principally on a straight-line basis using estimated useful
lives of plant and equipment (10 to 40 years for buildings
and related improvements and 5 to 15 years for machinery
and equipment), while accelerated depreciation methods are used
for income tax purposes. Leasehold improvements are amortized
over the shorter of the life of the lease or the estimated
useful life of the improvement. Depreciation expense amounted to
$28.5, $29.6, and $29.7 during fiscal 2010, 2009, and 2008,
respectively.
Research
and Development
Research and development (R&D) expense, which
are included in Selling, Distribution, and Administrative
Expenses in the Companys Consolidated Statements of
Income, are expensed as incurred. R&D expense amounted
to $28.0, $20.8, and $30.3 during fiscal 2010, 2009, and 2008,
respectively.
Advertising
Advertising costs are expensed as incurred and are included
within Selling, Distribution, and Administrative Expenses
in the Companys Consolidated Statements of
Income. These costs totaled $12.0, $8.7, and $7.6 during
fiscal 2010, 2009, and 2008, respectively.
Service
Arrangements with Customers
The Company maintains a service program with one of its retail
customers that affords the Company certain in-store benefits,
including lighting display maintenance. Costs associated with
this program totaled $4.9, $4.8, and
52
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$5.1 in fiscal 2010, 2009, and 2008, respectively. These costs
have been included within the Selling, Distribution, and
Administrative Expenses line item of the Companys
Consolidated Statements of Income.
Interest
Expense, Net
Interest expense, net, is comprised primarily of interest
expense on long-term debt, revolving credit facility borrowings,
and loans collateralized by assets related to the company-owned
life insurance program, partially offset by interest income on
cash and cash equivalents.
The following table summarizes the components of interest
expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Interest expense
|
|
$
|
29.8
|
|
|
$
|
29.5
|
|
|
$
|
34.7
|
|
Interest income
|
|
|
(0.4
|
)
|
|
|
(1.0
|
)
|
|
|
(6.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
29.4
|
|
|
$
|
28.5
|
|
|
$
|
28.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net, related to discontinued operations
was zero for both fiscal 2010 and 2009, respectively, and $0.3
for fiscal 2008.
Foreign
Currency Translation
The functional currency for the foreign operations of the
Company is the local currency. The translation of foreign
currencies into U.S. dollars is performed for balance sheet
accounts using exchange rates in effect at the balance sheet
dates and for revenue and expense accounts using a weighted
average exchange rate each month during the year. The gains or
losses resulting from the balance sheet translation are included
in Comprehensive Income in the Consolidated Statements
of Stockholders Equity and Comprehensive Income and
are excluded from net income.
Gains or losses relating to foreign currency items are included
in Miscellaneous expense (income), net, in the
Consolidated Statements of Income and consisted of income
of $0.7 and $2.1, in fiscal 2010 and 2009, respectively, and
expense of $2.3 in fiscal 2008.
Miscellaneous
Expense (Income), Net
Miscellaneous expense (income), net, is composed
primarily of gains or losses on foreign currency items and other
non-operating items.
Income
Taxes
The Company is taxed at regular corporate rates after adjusting
income reported for financial statement purposes for certain
items that are treated differently for income tax purposes.
Deferred income tax expenses (benefits) result from changes
during the year in cumulative temporary differences between the
tax basis and book basis of assets and liabilities.
|
|
4.
|
New
Accounting Pronouncements
|
Accounting
Standards Adopted in Fiscal 2010
In June 2009, the Financial Accounting Standards Board
(FASB) issued SFAS No. 168, The FASB
Accounting Standards
CodificationTM
and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FASB Statement
No. 162 (SFAS 168), which confirms
that as of July 1, 2009, the FASB Accounting Standards
CodificationTM
(Codification) is the single official source of
authoritative,
53
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
nongovernmental U.S. GAAP. All existing accounting standard
documents are superseded, and all other accounting literature
not included in the Codification is considered nonauthoritative.
SFAS 168 which now resides in the ASC Topic
105, Generally Accepted Accounting Principles (ASC
105), within the Codification was effective
for interim and annual periods ending after September 15,
2009 and, therefore, was adopted by the Company on
November 30, 2009. The Company determined, however, that
the standard did not have an effect on the Companys
financial position, results of operations, or cash flows upon
adoption.
In June 2009, the FASB issued Accounting Standards Update
(ASU)
No. 2009-1,
Topic 105 Generally Accepted Accounting
Principles amendments based on Statement
of Financial Accounting Standards No. 168
The FASB Accounting Standards
CodificationTM
and the Hierarchy of Generally Accepted Accounting Principles
(ASU
2009-1),
which amends the Codification for the issuance of SFAS 168.
See discussion on SFAS 168 above as adoption was concurrent
with that standard.
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value
Measurements (ASU
2010-06).
The updates to the Codification require new disclosures around
transfers into and out of Levels 1 and 2 in the fair value
hierarchy and separate disclosures about purchases, sales,
issuances, and settlements related to Level 3 measurements.
ASU 2010-06
is effective for interim and annual reporting periods beginning
after December 15, 2009 with early adoption permitted,
except for the disclosures about purchases, sales, issuances,
and settlements in the rollforward of Level 3 activity.
Those disclosures are effective for fiscal years beginning after
December 15, 2010 and for interim periods within those
fiscal years with early adoption permitted. The Company adopted
the provisions of ASU
2010-06
effective March 1, 2010. The Company determined that the
update had no impact on its financial position, results of
operations, or cash flows upon adoption.
In February 2010, the FASB issued ASU
No. 2010-09,
Subsequent Events (Topic 855) Amendments to
Certain Recognition and Disclosure Requirements (ASU
2010-09).
The amendments in this standard update define a SEC filer within
the Codification and eliminate the requirement for an SEC filer
to disclose the date through which subsequent events have been
evaluated in order to remove potential conflicts with current
SEC guidance. The relevant provisions of ASU
2010-09 were
effective upon the date of issuance of February 24, 2010,
and the Company adopted the amendments accordingly. As the
update only pertained to disclosures, ASU
2010-09 had
no impact on the Companys financial position, results of
operations, or cash flows upon adoption.
In December 2008, the FASB issued revisions to ASC Topic 715,
Compensation Retirement Benefits
(ASC 715), that required additional
disclosures around the fair value measurements of plan assets
within an entitys defined benefit and other
post-retirement plans. The revised guidance require additional
disclosures around plan assets related to: 1) investment
allocation decisions, 2) major categories of plan assets,
3) inputs and valuation techniques, 4) effect of
changes in value of Level 3 assets, and
5) concentrations of risk. The provisions of this standard
were effective for fiscal years ending after December 15,
2009, and were therefore adopted by the Company as of the fiscal
year ended August 31, 2010. As the revisions only pertained
to disclosures, the adoption of these requirements had no impact
on the Companys financial position, results of operations,
or cash flows upon adoption.
In June 2008, FASB issued guidance within ASC Topic 260,
Earnings Per Share (ASC 260), to clarify that
unvested share-based payment awards with a right to receive
nonforfeitable dividends are participating securities. The
standard provides guidance on how to allocate earnings to
participating securities and compute earnings per share
(EPS) using the two-class method. The provisions of
this standard were effective for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal
years, and were therefore adopted by the Company on
September 1, 2009. The EPS amounts for previously reported
periods have been adjusted due to retrospective adoption of this
standard. The Companys diluted EPS from continuing
operations for the years ended August 31, 2009 and 2008,
under this guidance are $2.01 and $3.51, respectively, as
compared to $2.05 and $3.57 previously reported for these
periods.
54
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2007, the FASB issued guidance within ASC Topic 805,
Business Combinations (ASC 805), which
changes the accounting for business combinations through a
requirement to recognize 100% of the fair values of assets
acquired, liabilities assumed, and noncontrolling interests in
acquisitions of less than a 100% controlling interest when the
acquisition constitutes a change in control of the acquired
entity. Other requirements include capitalization of acquired
in-process research and development assets, expensing, as
incurred, acquisition-related transaction costs and capitalizing
restructuring charges as part of the acquisition only if
requirements of ASC Topic 420, Exit or Disposal Obligations
(ASC 420), are met. The standard was effective
for business combination transactions for which the acquisition
date was on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 and was
therefore adopted by the Company on September 1, 2009. See
the Acquisitions footnote for the impact of business
combinations under this guidance on the Companys financial
position, results of operations, and cash flows.
In December 2007, the FASB issued guidance within ASC Topic 810,
Consolidation (ASC 810), that establishes the
economic entity concept of consolidated financial statements,
stating that holders of a residual economic interest in an
entity have an equity interest in the entity, even if the
residual interest is related to only a portion of the entity.
Therefore, this standard requires a noncontrolling interest to
be presented as a separate component of equity. The standard
also states that once control is obtained, a change in control
that does not result in a loss of control should be accounted
for as an equity transaction. The statement requires that a
change resulting in a loss of control and deconsolidation is a
significant event triggering gain or loss recognition and the
establishment of a new fair value basis in any remaining
ownership interests. The standard was effective for fiscal years
beginning on or after December 15, 2008 and was therefore
adopted by the Company on September 1, 2009. The
implementation of this guidance had no effect on the
Companys financial position, results of operations, or
cash flows, as the Company does not currently consolidate an
entity with a noncontrolling interest.
Accounting
Standards Yet to Be Adopted
In September 2009, the FASB issued ASU
No. 2009-14,
Software (Topic 985) Certain Revenue Arrangements
That Include Software Elements (ASU
2009-14).
ASU 2009-14
changes the accounting model for revenue arrangements that
include both tangible products and software elements to allow
for alternatives when vendor-specific objective evidence does
not exist. Under this guidance, tangible products containing
software components and non-software components that function
together to deliver the tangible products essential
functionality and hardware components of a tangible product
containing software components are excluded from the software
revenue guidance in Subtopic
985-605,
Software Revenue Recognition; thus, these
arrangements are excluded from this update. ASU
2009-14 is
effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010 with early adoption permitted. ASU
2009-14 is
therefore effective for the Company no later than the beginning
of fiscal 2011. The Company is currently in the process of
determining the impact, if any, of adoption of the provisions of
ASU 2009-14.
In September 2009, the FASB issued ASU
No. 2009-13,
Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements (ASU
2009-13).
ASU 2009-13
addresses the accounting for multiple-deliverable arrangements
to enable vendors to account for products or services
(deliverables) separately rather than as a combined
unit. Specifically, this guidance amends the criteria in
Subtopic
605-25,
Revenue Recognition Multiple-Element
Arrangements, of the Codification for separating
consideration in multiple-deliverable arrangements. A selling
price hierarchy is established for determining the selling price
of a deliverable, which is based on: (a) vendor-specific
objective evidence; (b) third-party evidence; or
(c) company-specific estimates. This guidance also
eliminates the residual method of allocation and requires that
arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price
method. Additional disclosures related to a vendors
multiple-deliverable revenue arrangements are also required by
this update. ASU
2009-13 is
effective prospectively for revenue arrangements entered into,
or materially modified, in fiscal years beginning on or after
June 15, 2010 with early adoption permitted. ASU
2009-13 is
therefore effective for the Company no later
55
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
than the beginning of fiscal 2011. The Company is currently in
the process of determining the impact, if any, of adoption of
the provisions of ASU
2009-13.
|
|
5.
|
Fair
Value Measurements
|
The Company determines a fair value measurement based on the
assumptions a market participant would use in pricing an asset
or liability. ASC 820, Fair Value Measurements and
Disclosures (ASC 820), established a three level
hierarchy making a distinction between market participant
assumptions based on (i) unadjusted quoted prices for
identical assets or liabilities in an active market
(Level 1), (ii) quoted prices in markets that are not
active or inputs that are observable either directly or
indirectly for substantially the full term of the asset or
liability (Level 2), and (iii) prices or valuation
techniques that require inputs that are both unobservable and
significant to the overall fair value measurement (Level 3).
The following table presents information about assets and
liabilities required to be carried at fair value and measured on
a recurring basis as of August 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of:
|
|
|
August 31, 2010
|
|
August 31, 2009
|
|
|
Level 1
|
|
Total Fair Value
|
|
Level 1
|
|
Total Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
191.0
|
|
|
$
|
191.0
|
|
|
$
|
18.7
|
|
|
$
|
18.7
|
|
Long-term investments(1)
|
|
|
3.1
|
|
|
|
3.1
|
|
|
|
4.7
|
|
|
|
4.7
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan(2)
|
|
$
|
3.1
|
|
|
$
|
3.1
|
|
|
$
|
4.7
|
|
|
$
|
4.7
|
|
|
|
|
(1) |
|
The Company maintains certain investments that generate returns
that offset changes in certain liabilities related to deferred
compensation arrangements. |
|
(2) |
|
The Company maintains a self-directed, non-qualified deferred
compensation plan structured as a rabbi trust primarily for
certain retired executives and other highly compensated
employees. |
The Company utilizes valuation methodologies to determine the
fair values of its financial assets and liabilities in
conformity with the concepts of exit price and the
fair value hierarchy as prescribed in ASC 820. All
valuation methods and assumptions are validated at least
quarterly to ensure the accuracy and relevance of the fair
values. There were no material changes to the valuation methods
or assumptions used to determine fair values during the current
period.
The Company used the following valuation methods and assumptions
in estimating the fair value of the following assets and
liabilities:
Cash and cash equivalents are classified as Level 1 assets.
The carrying amounts for cash reflect the assets fair
values, and the fair values for cash equivalents are determined
based on quoted market prices.
Long-term investments are classified as Level 1 assets.
These investments consist primarily of publicly traded
marketable equity securities and fixed income securities, and
the fair values are obtained through market observable pricing.
Deferred compensation plan liabilities are classified as
Level 1 within the hierarchy. The fair values of the
liabilities are directly related to the valuation of the
long-term investments held in trust for the plan. Hence, the
carrying value of the deferred compensation liability represents
the fair value of the investment assets.
The Company does not have any assets or liabilities that are
carried at fair value and measured on a recurring basis
classified as Level 3 assets or liabilities. In addition,
no transfers between the levels of the fair value hierarchy
56
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
occurred during the current fiscal period. In the event of a
transfer in or out of Level 1, the transfers would be
recognized on the date of occurrence.
Disclosures of fair value information about financial
instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value are required each
reporting period in addition to any financial instruments
carried at fair value on a recurring basis as prescribed by
ASC 825, Financial Instruments,
(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
Companys financial instruments were as follows at
August 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2010
|
|
August 31, 2009
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in nonconsolidating affiliates
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9.1
|
|
|
$
|
9.1
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured public notes, net of unamortized discount
|
|
$
|
349.3
|
|
|
$
|
384.5
|
|
|
$
|
|
|
|
$
|
|
|
Public notes at 8.375% interest
|
|
|
|
|
|
|
|
|
|
|
200.0
|
|
|
|
207.8
|
|
Promissory note
|
|
|
|
|
|
|
|
|
|
|
27.5
|
|
|
|
28.0
|
|
Industrial revenue bond
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
Investments in nonconsolidating affiliates represented a
strategic investment of less than a 20% ownership interest in
Renaissance, and, prior to the date of change of control, the
Company did not maintain power over or control of the entity.
The Company accounted for this investment using the cost method.
Therefore, the historical cost of the acquired shares
represented the carrying value of the investment. In July 2010,
the Company acquired the remaining capital stock in and control
of Renaissance and accounted for the transaction in accordance
with ASC 805.
Notes are carried at the outstanding balance, including bond
discounts, as of the end of the reporting period. Fair value is
estimated based on the discounted future cash flows using rates
currently available for debt of similar terms and maturity.
The tax-exempt industrial revenue bond is carried at the
outstanding balance as of the end of the reporting period. The
industrial revenue bond is a tax-exempt, variable-rate
instrument that resets on a weekly basis, and, therefore, the
Company estimates that the face amount of the bond approximates
fair value as of August 31, 2010.
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 of the Company. In many cases,
the fair value estimates cannot be substantiated by comparison
to independent markets, nor can the disclosed value be realized
in immediate settlement of the instruments. In evaluating the
Companys management of liquidity and other risks, the fair
values of all assets and liabilities should be taken into
consideration, not only those presented above.
Nonrecurring
Fair Value Measurements
As part of the streamlining actions taken during the second
quarter of fiscal 2010, the Company recorded $3.7 in asset
impairments related to the closure of a manufacturing facility
and the abandonment of plant equipment. The Companys
restructuring plans triggered impairment indicators, which
required the testing of the recoverability of the building and
equipment per ASC 360. The fair value of the assets were
estimated based primarily on
57
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
undiscounted cash flows due to the short useful lives of the
assets (e.g., less than one year) and the Companys
intentions for future use.
As of February 28, 2010, the manufacturing facility had a
total carrying value of $3.4 prior to the announced plan to
close. Through cash flow analysis and local commercial real
estate market analysis, including the existence of a market for
the facility, or lack thereof, the Company determined that the
fair value of the property approximated zero. Thus, an
impairment charge for the entire carrying value of the facility
was incurred. Due to the methodology and inputs (i.e.,
undiscounted future cash flows, broker quotes, and probability
analysis) employed to determine the fair value of the property,
the manufacturing facility was concluded to be a Level 3
asset within the fair value hierarchy.
Plant equipment associated with the aforementioned facility had
a carrying value of $0.3 as of February 28, 2010. Based on
the lack of future use of the equipment and intended disposal,
the assets were determined to be impaired during the second
quarter of fiscal 2010 for the full net book value. Since
managements intent and use for the asset changed and no
observable market data or inputs were utilized to determine the
fair value of the equipment, the equipment was determined to be
a Level 3 asset within the fair value hierarchy.
In addition to the aforementioned asset impairments, the Company
recognized an impairment charge during the fourth quarter of
fiscal 2010 of approximately $1.4, which was related primarily
to the diminished fair value of its
held-for-sale
facility located in Decatur, GA. Based on market evidence (e.g.,
offers, broker quotes, and similar property), the carrying value
of the property ($4.0) was deemed greater than the market value
for manufacturing plants of similar size within the area, which
correlates with the declines in commercial property values
nationwide, and an impairment charge of $1.0 was recorded.
Additionally, the impaired plant was concluded to be a
Level 3 asset within the fair value hierarchy.
|
|
6.
|
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. The Company
makes annual contributions to the plans to the extent indicated
by actuarial valuations and statutory requirements. Plan assets
are invested primarily in equity and fixed income securities.
Effective for fiscal 2009, the Company adopted the measurement
date provisions within ASC 715. Prior to 2009, the Company
measured the funded status of its plans as of May 31 of each
year. The requirement to measure plan assets and benefit
obligations as of the date of the employers fiscal
year-end statement of financial position was effective for
fiscal years ending after December 15, 2008, and was
therefore effective for the Company in fiscal 2009. The change
in measurement date to August 31 resulted in a reduction to
retained earnings of approximately $0.5, net of tax, during
fiscal 2009.
58
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables reflect the status of the Companys
domestic
(U.S.-based)
and international pension plans at August 31, 2010 and
2009. Activity related to the three-month gap period created by
the change in valuation date from May 31 to August 31 is
separately identified. The values of the below listed amounts
were measured as of August 31, 2010 and August 31,
2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
Plans
|
|
|
International Plans
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
116.8
|
|
|
$
|
110.5
|
|
|
$
|
32.2
|
|
|
$
|
35.9
|
|
Adjustments due to measurement date provisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost during gap period
|
|
|
N/A
|
|
|
|
0.6
|
|
|
|
N/A
|
|
|
|
|
|
Interest cost during gap period
|
|
|
N/A
|
|
|
|
1.7
|
|
|
|
N/A
|
|
|
|
0.5
|
|
Benefits paid during gap period
|
|
|
N/A
|
|
|
|
(1.8
|
)
|
|
|
N/A
|
|
|
|
(0.1
|
)
|
Service cost
|
|
|
2.7
|
|
|
|
2.5
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Interest cost
|
|
|
6.8
|
|
|
|
6.7
|
|
|
|
1.7
|
|
|
|
1.8
|
|
Actuarial loss (gain)
|
|
|
14.1
|
|
|
|
3.1
|
|
|
|
3.8
|
|
|
|
(1.1
|
)
|
Curtailment
|
|
|
0.2
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
Plan Settlements
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Benefits paid
|
|
|
(6.3
|
)
|
|
|
(6.9
|
)
|
|
|
(0.7
|
)
|
|
|
(0.8
|
)
|
Plan Amendments
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
134.6
|
|
|
|
116.8
|
|
|
|
35.2
|
|
|
|
32.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
75.3
|
|
|
$
|
92.9
|
|
|
$
|
21.3
|
|
|
$
|
26.0
|
|
Adjustments due to measurement date provisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions during gap period
|
|
|
N/A
|
|
|
|
0.6
|
|
|
|
N/A
|
|
|
|
0.3
|
|
Benefits paid during gap period
|
|
|
N/A
|
|
|
|
(1.8
|
)
|
|
|
N/A
|
|
|
|
(0.1
|
)
|
Actual return on plan assets
|
|
|
4.0
|
|
|
|
(11.5
|
)
|
|
|
1.3
|
|
|
|
(2.4
|
)
|
Employer contributions
|
|
|
2.7
|
|
|
|
2.0
|
|
|
|
1.2
|
|
|
|
1.2
|
|
Plan Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Benefits paid
|
|
|
(6.3
|
)
|
|
|
(6.9
|
)
|
|
|
(0.7
|
)
|
|
|
(0.8
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
75.7
|
|
|
|
75.3
|
|
|
|
21.8
|
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
$
|
(58.9
|
)
|
|
$
|
(41.5
|
)
|
|
$
|
(13.4
|
)
|
|
$
|
(10.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in Consolidated Balance Sheets
|
|
$
|
(58.9
|
)
|
|
$
|
(41.5
|
)
|
|
$
|
(13.4
|
)
|
|
$
|
(10.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Consolidated Balance Sheets Consist
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(1.1
|
)
|
|
$
|
(1.2
|
)
|
|
$
|
|
|
|
$
|
|
|
Non-current liabilities
|
|
|
(57.8
|
)
|
|
|
(40.3
|
)
|
|
|
(13.4
|
)
|
|
|
(10.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in Consolidated Balance Sheets
|
|
$
|
(58.9
|
)
|
|
$
|
(41.5
|
)
|
|
$
|
(13.4
|
)
|
|
$
|
(10.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation
|
|
$
|
133.9
|
|
|
$
|
115.6
|
|
|
$
|
35.1
|
|
|
$
|
29.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
Plans
|
|
|
International Plans
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Amounts in accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
(0.8
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
|
|
|
$
|
|
|
Net actuarial loss
|
|
|
(64.0
|
)
|
|
|
(50.5
|
)
|
|
|
(15.9
|
)
|
|
|
(13.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive income
|
|
$
|
(64.8
|
)
|
|
$
|
(51.3
|
)
|
|
$
|
(15.9
|
)
|
|
$
|
(13.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amounts that will be amortized from accumulated
comprehensive income over the next fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
Net actuarial loss
|
|
|
3.7
|
|
|
|
2.7
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Components of net periodic pension cost for the fiscal years
ended August 31, 2010, 2009, and 2008 included the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
|
International Plans
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Service cost
|
|
$
|
2.7
|
|
|
$
|
2.5
|
|
|
$
|
2.8
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Interest cost
|
|
|
6.8
|
|
|
|
6.7
|
|
|
|
6.5
|
|
|
|
1.7
|
|
|
|
1.8
|
|
|
|
1.9
|
|
Expected return on plan assets
|
|
|
(5.9
|
)
|
|
|
(7.4
|
)
|
|
|
(8.1
|
)
|
|
|
(1.5
|
)
|
|
|
(1.8
|
)
|
|
|
(2.3
|
)
|
Amortization of prior service cost
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Recognized actuarial loss
|
|
|
2.7
|
|
|
|
1.1
|
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
6.6
|
|
|
$
|
2.9
|
|
|
$
|
2.1
|
|
|
$
|
1.2
|
|
|
$
|
0.7
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used in computing the benefit
obligation are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
International Plans
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Discount rate
|
|
|
5.0
|
%
|
|
|
6.0
|
%
|
|
|
4.9
|
%
|
|
|
5.6
|
%
|
Rate of compensation increase
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
|
|
3.1
|
%
|
|
|
4.5
|
%
|
Weighted average assumptions used in computing net periodic
benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
International Plans
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010
|
|
2009
|
|
2008
|
|
Discount rate
|
|
|
6.0
|
%
|
|
|
6.3
|
%
|
|
|
6.0
|
%
|
|
|
5.6
|
%
|
|
|
5.7
|
%
|
|
|
5.4
|
%
|
Expected return on plan assets
|
|
|
8.0
|
%
|
|
|
8.3
|
%
|
|
|
8.5
|
%
|
|
|
6.8
|
%
|
|
|
7.4
|
%
|
|
|
7.4
|
%
|
Rate of compensation increase
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
|
|
4.5
|
%
|
|
|
4.7
|
%
|
|
|
4.1
|
%
|
It is the Companys policy to adjust, on an annual basis,
the discount rate used to determine the projected benefit
obligation to approximate rates on high-quality, long-term
obligations based on the Companys estimated benefit
payments available as of the measurement date. The Company uses
a publicly published yield curve to assist in the development of
its discount rates. The Company estimates that each
100 basis point increase in the discount rate would result
in reduced net periodic pension cost of approximately $0.8 for
domestic plans. The Companys discount rate used in
computing the net periodic benefit cost for its domestic plans
decreased by 25 basis points in 2010, which contributed to
the change in net periodic pension cost associated with those
plans. The discount rate used in computing the net periodic
pension cost for the Companys international plans
decreased 10 basis points in 2010 over the prior year. In
addition, lower average asset values, a lower expected return on
plan assets, and an
60
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
actuarial loss resulted in higher overall periodic benefit costs
for 2010. The expected return on plan assets is derived from a
periodic study of long-term historical rates of return on the
various asset classes included in the Companys targeted
pension plan asset allocation. The Company estimates that each
100 basis point reduction in the expected return on plan
assets would result in additional net periodic pension cost of
$0.8 and $0.1 for domestic plans and international plans,
respectively. The rate of compensation increase is also
evaluated and is adjusted by the Company, if necessary, annually.
The Companys investment objective for U.S. plan
assets is to earn a rate of return sufficient to match or exceed
the long-term growth of the plans liabilities without
subjecting plan assets to undue risk. The plan assets are
invested primarily in high quality equity and debt securities.
The Company conducts a periodic strategic asset allocation study
to form a basis for the allocation of pension assets between
various asset categories. Specific allocation percentages are
assigned to each asset category with minimum and maximum ranges
established for each. The assets are then managed within these
ranges. During 2010, the U.S. targeted asset allocation was
55% equity securities, 40% fixed income securities, and 5% real
estate securities. The Companys investment objective for
the international plan assets is also to add value by matching
or exceeding the long-term growth of the plans
liabilities. During 2010, the international asset target
allocation was 84% equity securities, 14% fixed income
securities, and 2% real estate funds.
The Companys pension plan asset allocation at
August 31, 2010 and 2009 by asset category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Plan Assets
|
|
|
Domestic
|
|
|
|
|
Plans
|
|
International Plans
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Equity securities
|
|
|
55.6
|
%
|
|
|
52.8
|
%
|
|
|
84.1
|
%
|
|
|
85.8
|
%
|
Fixed income securities
|
|
|
39.8
|
%
|
|
|
43.0
|
%
|
|
|
13.9
|
%
|
|
|
12.6
|
%
|
Real estate
|
|
|
4.6
|
%
|
|
|
4.2
|
%
|
|
|
2.0
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys pension plan assets are stated at fair value
from quoted market prices in an active market, quoted redemption
values, or estimates based on reasonable assumptions as of the
most recent measurement period. See the Fair Value
Measurements footnote for a description of the fair value
guidance.
The following table presents the fair value of the domestic
pension plan assets by major category as of August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
as of August 31, 2010
|
|
|
|
|
|
|
Quoted Market
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
as of
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Assets
|
|
August 31, 2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Mutual Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US equity securities
|
|
$
|
26.2
|
|
|
$
|
26.2
|
|
|
$
|
|
|
|
$
|
|
|
International equity securities
|
|
|
8.3
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
|
7.6
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
Real Estate Fund
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Short-Term Investments
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
|
28.1
|
|
|
|
|
|
|
|
28.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
75.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the fair value of the international
pension plan assets by major category as of August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
as of August 31, 2010
|
|
|
|
|
|
|
Quoted Market
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
as of
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Assets
|
|
August 31, 2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Equity Securities
|
|
|
18.3
|
|
|
|
18.3
|
|
|
|
|
|
|
|
|
|
Real Estate Fund
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Short-Term Investments
|
|
|
1.3
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
|
1.8
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publicly-traded securities are valued at the last reported sales
price on the last business day of the period. Investments traded
in the
over-the-counter
market and listed securities for which no sale was reported on
the last day of the period are valued at the last reported bid
price.
Investments in real estate are stated at estimated fair values
based on the fund managements valuations and upon
appraisal reports prepared periodically by independent real
estate appraisers. These investments are classified as
Level 3 assets within the fair value hierarchy. The purpose
of the appraisal is to estimate the fair value of the real
estate as of a specific date based on the most probable price
for which the appraised real estate will sell in a competitive
market under all conditions requisite to a fair sale. Estimated
fair value is based on (i) discounted cash flows using
certain market assumptions, including holding period, discount
rates, capitalization rates, rent and expense growth rates,
future capital expenditures and the ultimate sale of the
property at the end of the holding period; (ii) direct
capitalization method; or (iii) comparable sales method.
The table below presents a rollforward of the domestic pension
plans Level 3 assets for the year ended
August 31, 2010:
|
|
|
|
|
|
|
Real Estate Fund
|
|
|
|
Year Ended
|
|
|
|
August 31, 2010
|
|
|
Balance, beginning of year
|
|
$
|
3.1
|
|
Income
|
|
|
0.2
|
|
Net unrealized loss relating to instruments still held at the
reporting date
|
|
|
(0.8
|
)
|
Shares purchased from dividend reinvestment
|
|
|
1.0
|
|
Sale of shares (redemption)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
3.5
|
|
|
|
|
|
|
62
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below presents a rollforward of the international
pension plans Level 3 assets for the year ended
August 31, 2010:
|
|
|
|
|
|
|
Real Estate Fund
|
|
|
|
Year Ended
|
|
|
|
August 31, 2010
|
|
|
Balance, beginning of year
|
|
$
|
0.3
|
|
Net realized gains
|
|
|
|
|
Net unrealized gain relating to instruments still held at the
reporting date
|
|
|
0.1
|
|
Shares purchased from dividend reinvestment
|
|
|
|
|
Sale of shares (redemption)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
0.4
|
|
|
|
|
|
|
The Company expects to contribute approximately $5.8 and $1.0 to
its domestic and international defined benefit plans,
respectively, during 2011. These amounts are based on the total
contributions required during 2011 to satisfy current legal
minimum funding requirements for qualified plans and estimated
benefit payments for non-qualified plans.
Benefit payments are made primarily from funded benefit plan
trusts. Benefit payments are expected to be paid as follows for
the years ending August 31:
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
International Plans
|
|
2011
|
|
$
|
6.2
|
|
|
$
|
0.4
|
|
2012
|
|
|
6.4
|
|
|
|
0.5
|
|
2013
|
|
|
6.6
|
|
|
|
0.6
|
|
2014
|
|
|
6.7
|
|
|
|
0.7
|
|
2015
|
|
|
7.0
|
|
|
|
0.8
|
|
2016-2020
|
|
|
41.0
|
|
|
|
4.7
|
|
The Company also has defined contribution plans to which both
employees and the Company make contributions. The cost to the
Company for these plans was $4.0 in 2010, $4.3 in 2009, and $5.5
in 2008. Employer matching amounts are allocated in accordance
with the participants investment elections for elective
deferrals. At August 31, 2010, assets of the domestic
defined contribution plans included shares of the Companys
common stock with a market value of approximately $5.6, which
represented approximately 3.1% of the total fair market value of
the assets in the Companys domestic defined contribution
plans.
63
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Debt and
Lines of Credit
|
Debt
The Companys debt at August 31, 2010 and 2009
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Senior unsecured public notes due December 2019 with an
effective interest rate of 6%, net of unamortized discount of
$0.7
|
|
$
|
349.3
|
|
|
$
|
|
|
6% unsecured promissory note with quarterly principal payments;
matures April 2012
|
|
|
|
|
|
|
27.6
|
|
8.375% public notes due August 2010 with an effective interest
rate of 8.398%, net of unamortized discount of less than $0.1
|
|
|
|
|
|
|
199.9
|
|
Industrial revenue bond due 2021
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
Total debt outstanding
|
|
|
353.3
|
|
|
|
231.5
|
|
Less Amounts payable within one year included in
current liabilities
|
|
|
|
|
|
|
209.5
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of debt outstanding
|
|
$
|
353.3
|
|
|
$
|
22.0
|
|
|
|
|
|
|
|
|
|
|
All future annual principal payments of long-term debt in the
amount of $353.3 will become due after fiscal 2016.
On December 1, 2009, the Company simultaneously announced
the private offering by ABL, Acuity Brands wholly-owned
principal operating subsidiary, of $350.0 aggregate principal
amount of senior unsecured notes due in fiscal 2020 (the
Notes) and the cash tender offer for the $200.0 of
publicly traded notes outstanding that were scheduled to mature
in August 2010 (the 2010 Notes). In addition to the
retirement of the 2010 Notes, the Company used the proceeds to
repay the $25.3 outstanding balance on a three-year unsecured
promissory note issued to the former sole shareholder of Sensor
Switch as part of ABLs acquisition of Sensor Switch during
fiscal 2009, as discussed below, with the remainder used for
general corporate purposes.
The Notes are fully and unconditionally guaranteed on a senior
unsecured basis by Acuity Brands and ABL IP Holding LLC
(ABL IP Holding, and, together with Acuity Brands,
the Guarantors), a wholly-owned subsidiary of Acuity
Brands. The Notes are senior unsecured obligations of ABL and
rank equally in right of payment with all of ABLs existing
and future senior unsecured indebtedness. The guarantees of
Acuity Brands and ABL IP Holding are senior unsecured
obligations of Acuity Brands and ABL IP Holding and rank equally
in right of payment with their other senior unsecured
indebtedness. The Notes bear interest at a rate of 6% per annum
and were issued at a price equal to 99.797% of their face value
and for a term of 10 years. Interest on the Notes is
payable semi-annually on June 15 and December 15,
commencing on June 15, 2010. Additionally, the Company
capitalized $3.1 of deferred issuance costs related to the Notes
that are being amortized over the
10-year term
of the Notes.
In accordance with the registration rights agreement by and
between ABL and the Guarantors 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
SEC-registered notes with substantially identical terms. The
registration became effective on August 17, 2010, and all
of the Notes were exchanged.
As noted above, the Company retired all of the outstanding 2010
Notes through the execution of a cash tender offer and the
subsequent redemption of any remaining 2010 Notes during fiscal
2010. The loss on the transaction, including the premium paid,
expenses, and the write-off of deferred issuance costs
associated with the 2010 Notes, was approximately $10.5.
On April 20, 2009, ABL issued a three-year unsecured
promissory note at a 6% interest rate in the amount of $30.0 to
the former sole shareholder of Sensor Switch, who continued as
an employee of the Company upon completion of the acquisition,
as partial consideration for the acquisition of Sensor Switch
during the third quarter
64
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of fiscal 2009. In accordance with certain rights to accelerate
the repayment of the promissory note, ABL paid the outstanding
principal balance of $25.3 with proceeds from the Notes in
January 2010. No penalty or loss was incurred by the Company due
to the prepayment of the promissory note.
The $4.0 industrial revenue bond matures in 2021. The interest
rates on the $4.0 bond were approximately 0.4% and 0.5% at
August 31, 2010 and 2009, respectively.
Lines
of Credit
On October 19, 2007, the Company executed a $250.0
revolving credit facility (the Revolving Credit
Facility). The Revolving Credit Facility matures in
October 2012 and contains financial covenants, including a
minimum interest coverage ratio and a leverage ratio
(Maximum Leverage Ratio) of total indebtedness to
EBITDA (earnings before interest, taxes, depreciation and
amortization expense), as such terms are defined in the
Revolving Credit Facility agreement. These ratios are computed
at the end of each fiscal quarter for the most recent
12-month
period. The Revolving Credit Facility allows for a Maximum
Leverage Ratio of 3.50, subject to certain conditions defined in
the financing agreement. The Company was compliant with all
financial covenants under the Revolving Credit Facility as of
August 31, 2010. At August 31, 2010, the Company had
additional borrowing capacity under the Revolving Credit
Facility of $242.7 under the most restrictive covenant in effect
at the time, which represents the full amount of the Revolving
Credit Facility less outstanding letters of credit of $7.3
discussed below.
The Revolving Credit Facility bears interest at the option of
the borrower based upon either (1) the higher of the
JPMorgan Chase Bank prime rate and the federal funds effective
rate plus 0.50%, or (2) the London Inter Bank Offered Rate
(LIBOR) plus the Applicable Margin (a margin as
determined by Acuity Brands leverage ratio). Based upon
Acuity Brands leverage ratio, as defined in the Revolving
Credit Facility agreement, the Applicable Margins were 0.50% and
0.41% as of August 31, 2010 and 2009, respectively. During
both fiscal 2010 and 2009, the Company paid commitment fees at a
rate of approximately 0.1%, and commitment fees paid during each
of those years were approximately $0.2.
At August 31, 2010, the Company had outstanding letters of
credit totaling $11.5, primarily for securing collateral
requirements under the casualty insurance programs for Acuity
Brands and for providing credit support for the Companys
industrial revenue bond. At August 31, 2010, a total of
$7.3 of the letters of credit was issued under the Revolving
Credit Facility, thereby reducing the total availability under
the facility by such amount.
None of the Companys existing debt instruments, neither
short-term nor long-term, include provisions that would require
an acceleration of repayments based solely on changes in the
Companys credit ratings.
|
|
8.
|
Common
Stock and Related Matters
|
Stockholder
Protection Rights Agreement
The Companys Board of Directors has adopted a Stockholder
Protection Rights Agreement (the Rights Agreement).
The Rights Agreement contains provisions that are intended to
protect the Companys stockholders in the event of an
unsolicited offer to acquire the Company, including offers that
do not treat all stockholders equally and other coercive,
unfair, or inadequate takeover bids and practices that could
impair the ability of the Companys Board of Directors to
fully represent stockholders interests. Pursuant to the
Rights Agreement, the Companys Board of Directors declared
a dividend of one Right for each outstanding share
of the Companys common stock as of November 16, 2001.
The Rights will be represented by, and trade together with, the
Companys common stock until and unless certain events
occur, including the acquisition of 15% or more of the
Companys common stock by a person or group of affiliated
or associated persons (with certain exceptions, Acquiring
Persons). Unless
65
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
previously redeemed by the Companys Board of Directors,
upon the occurrence of one of the specified triggering events,
each Right that is not held by an Acquiring Person will entitle
its holder to purchase one share of common stock or, under
certain circumstances, additional shares of common stock at a
discounted price. The Rights will cause substantial dilution to
a person or group that attempts to acquire the Company on terms
not approved by the Companys Board of Directors. Thus, the
Rights are intended to encourage persons who may seek to acquire
control of the Company to initiate such an acquisition through
negotiation with the Board of Directors.
Common
Stock
Changes in common stock for the years ended August 31,
2010, 2009, and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Shares
|
|
Amount
|
|
|
|
|
(At par)
|
|
Balance at August 31, 2007
|
|
|
49.3
|
|
|
$
|
0.5
|
|
Issuance of restricted stock grants, net of forfeitures
|
|
|
0.2
|
|
|
|
|
|
Stock options exercised
|
|
|
0.2
|
|
|
|
|
|
Balance at August 31, 2008
|
|
|
49.7
|
|
|
$
|
0.5
|
|
Issuance of restricted stock grants, net of forfeitures
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
0.1
|
|
|
|
|
|
Balance at August 31, 2009
|
|
|
49.8
|
|
|
$
|
0.5
|
|
Issuance of restricted stock grants, net of forfeitures
|
|
|
0.2
|
|
|
|
|
|
Stock options exercised
|
|
|
0.4
|
|
|
|
|
|
Balance at August 31, 2010
|
|
|
50.4
|
|
|
$
|
0.5
|
|
During fiscal 2010, the Company reacquired approximately
512,300 shares of the Companys outstanding common
stock, which completed the repurchase of ten million shares
previously authorized by the Board of Directors. As of
August 31, 2010, the Company had repurchased the ten
million shares at a cost of $414.0 under this repurchase plan.
In July 2010, the Companys Board of Directors also
authorized the repurchase of an additional two million shares,
or almost 5%, of the Companys outstanding common stock, of
which approximately 535,500 shares were repurchased in
fiscal 2010 under this plan at a cost of $20.5. During fiscal
2010, the Company re-issued slightly more than
140,000 shares as partial consideration for the acquisition
of LC&D. The re-issued shares were removed from treasury
stock using the FIFO cost method. At fiscal year-end, the
remaining 8.3 million repurchased shares were recorded as
treasury stock at original repurchase cost of $355.7.
Preferred
Stock
The Company has 50 million shares of preferred stock
authorized, 5 million of which have been reserved for
issuance under the Stockholder Protection Rights Agreement. No
shares of preferred stock had been issued at August 31,
2010 and 2009.
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 260, during the period. Diluted earnings per
share is computed similarly but reflects the potential dilution
that would occur if dilutive options were exercised and
restricted stock awards were vested. Stock options of
approximately 281,000 and 334,000 were excluded from the diluted
earnings
66
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
per share calculation for the years ended August 31, 2010
and 2009, respectively, as the effect of inclusion would have
been antidilutive.
The following table calculates basic earnings per common share
and diluted earnings per common share for the years ended
August 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Basic Earnings per Share from Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
79.0
|
|
|
$
|
85.2
|
|
|
$
|
148.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
42.5
|
|
|
|
40.8
|
|
|
|
40.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.83
|
|
|
$
|
2.05
|
|
|
$
|
3.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share from Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
79.0
|
|
|
$
|
85.2
|
|
|
$
|
148.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
42.5
|
|
|
|
40.8
|
|
|
|
40.7
|
|
Common stock equivalents
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
43.3
|
|
|
|
41.6
|
|
|
|
41.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.79
|
|
|
$
|
2.01
|
|
|
$
|
3.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Share from Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
0.6
|
|
|
$
|
(0.3
|
)
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
42.5
|
|
|
|
40.8
|
|
|
|
40.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share from Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
0.6
|
|
|
$
|
(0.3
|
)
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
42.5
|
|
|
|
40.8
|
|
|
|
40.7
|
|
Common stock equivalents
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
43.3
|
|
|
|
41.6
|
|
|
|
41.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with ASC 260, of which updated provisions
became effective September 1, 2009, the computation of
weighted-average shares outstanding has been modified to include
unvested share-based payment awards with rights to receive
nonforfeitable dividends as participating securities. The
application of the standard decreased both basic and diluted EPS
by $0.04 for the year ended August 31, 2009, and decreased
basic and diluted EPS by $0.08 and $0.06, respectively, for the
year ended August 31, 2008, as compared to the previously
reported amounts.
Long-term
Incentive and Directors Equity Plans
Effective November 30, 2001, the Company adopted the Acuity
Brands, Inc., Long-Term Incentive Plan (the Plan)
for the benefit of officers and other key management personnel.
An aggregate of 8.1 million shares were originally
authorized for issuance under that plan. In October 2003, the
Board of Directors approved the Acuity Brands, Inc., Amended and
Restated Long-Term Incentive Plan (the Amended
Plan), including an increase of
67
ACUITY
BRANDS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
5 million in the number of shares available for grant.
However, the Board of Directors subsequently committed that not
more than 3 million would be available without further
shareholder approval. In December 2003, the shareholders
approved the Amended Plan. The Amended Plan provides for
issuance of share-based awards, including stock options and
performance-based and time-based restricted stock awards. The
Amended Plan was further amended in October 2007, including the
release of the remaining 2 million shares and an increase
of an additional 500,000 shares. In January 2008, the
shareholders approved the Amended Plan. In addition to the
Amended Plan, in November 2001, the Company adopted the Acuity
Brands, Inc., 2001 Nonemployee Directors Stock Option Plan
(the Directors Plan), under which
300,000 shares were authorized for issuance. In January
2007, the Directors Plan was amended to provide that no
further annual grants of stock options would be made to
nonemployee directors.
Restricted
Stock Awards
As of August 31, 2010, the Company had approximately
640,000 shares outstanding of restricted stock to officers
and other key employees under the Amended Plan. The shares vest
over a four-year period and are valued at the closing stock
price on the date of the grant. Compensation expense recognized
in continuing operations related to the awards under the Amended
Plan was $8.0, $9.0, and $8.2 in fiscal 2010, 2009, and 2008,
respectively.
Additionally, the Company awarded restricted stock to certain
employees on an individual basis based on a number of factors,
including individual achievements, additional job
responsibilities, relocation, and employee recruitment and
retention, in fiscal 2010 and prior years. As of August 31,
2010, approximately 188,000 shares related to these awards
were outstanding. Compensation expense recognized in continuing
operations related to these awards was $1.8, $1.6, and $1.4 in
fiscal 2010, 2009, and 2008, respectively.
Activity related to restricted stock awards during the fiscal
year ended August 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Grant Date
|
|
|
Number of
|
|
Fair Value Per
|
|
|
Shares
|
|
Share
|
|
Outstanding at August 31, 2009
|
|
|
0.9
|
|
|
$
|
35.65
|
|
Granted
|
|
|
0.3
|
|
|
$
|
34.08
|
|
Vested
|
|
|
(0.3
|
)
|
|
$
|
37.40
|
|
Forfeited
|
|
|
(0.1
|
)
|
|
$
|
38.42
|
|
|