AYI-2011.11.30-10Q
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
Form 10-Q
_____________________________________________
(Mark One)
 
 
R
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended November 30, 2011.
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from to .
Commission file number 001-16583.
_____________________________________________
ACUITY BRANDS, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________
Delaware
 
58-2632672
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
1170 Peachtree Street, N.E., Suite 2400,
Atlanta, Georgia
(Address of principal executive offices)
 
30309-7676
(Zip Code)
(404) 853-1400
(Registrant’s telephone number, including area code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
_____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ
     Accelerated Filer o
Non-accelerated Filer o
Smaller Reporting Company o
 
 
(Do not check if a smaller reporting company)     
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock $0.01 par value 42,106,694 shares as of January 5, 2012.
 


Table of Contents

ACUITY BRANDS, INC.
Table of Contents

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


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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

ACUITY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per-share data)
 
November 30, 2011
 
August 31, 2011
 
(unaudited)
 
 
ASSETS
 
 
 
Current Assets:
 

 
 

Cash and cash equivalents
$
172.7

 
$
170.2

Accounts receivable, less reserve for doubtful accounts of $1.8 at November 30, 2011 and August 31, 2011
262.6

 
262.6

Inventories
162.5

 
165.9

Deferred income taxes
15.7

 
16.0

Prepayments and other current assets
25.7

 
15.8

Total Current Assets
639.2

 
630.5

Property, Plant, and Equipment, at cost:
 

 
 

Land
7.1

 
8.4

Buildings and leasehold improvements
111.4

 
121.2

Machinery and equipment
355.7

 
355.3

Total Property, Plant, and Equipment
474.2

 
484.9

Less — Accumulated depreciation and amortization
340.6

 
341.7

Property, Plant, and Equipment, net
133.6

 
143.2

Other Assets:
 

 
 

Goodwill
559.6

 
559.2

Intangible assets
233.0

 
234.2

Deferred income taxes
2.0

 
2.0

Other long-term assets
27.6

 
28.3

Total Other Assets
822.2

 
823.7

Total Assets
$
1,595.0

 
$
1,597.4

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 

 
 

Accounts payable
$
198.9

 
$
203.8

Accrued compensation
22.8

 
45.0

Accrued pension liabilities, current
1.2

 
1.2

Other accrued liabilities
94.5

 
81.4

Total Current Liabilities
317.4

 
331.4

Long-Term Debt
353.4

 
353.4

Accrued Pension Liabilities, less current portion
56.7

 
60.5

Deferred Income Taxes
36.3

 
36.4

Self-Insurance Reserves, less current portion
7.3

 
7.3

Other Long-Term Liabilities
58.5

 
51.4

Commitments and Contingencies (see Commitments and Contingencies footnote)


 


Stockholders’ Equity:
 

 
 

Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued

 

Common stock, $0.01 par value; 500,000,000 shares authorized; 51,188,136 issued and 41,468,881 outstanding at November 30, 2011; and 50,956,137 issued and 41,488,882 outstanding at August 31, 2011
0.5

 
0.5

Paid-in capital
682.4

 
680.3

Retained earnings
565.5

 
541.0

Accumulated other comprehensive loss items
(62.9
)
 
(53.8
)
Treasury stock, at cost, 9,719,255 at November 30, 2011 and 9,467,255 shares at August 31, 2011
(420.1
)
 
(411.0
)
Total Stockholders’ Equity
765.4

 
757.0

Total Liabilities and Stockholders’ Equity
$
1,595.0

 
$
1,597.4

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


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Table of Contents

ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In millions, except per-share data)
 
Three Months Ended November 30,
 
2011
 
2010
Net Sales
$
474.3

 
$
425.0

Cost of Products Sold
280.7

 
248.9

Gross Profit
193.6

 
176.1

Selling, Distribution, and Administrative Expenses
140.3

 
130.6

Special Charge
2.7

 

Operating Profit
50.6

 
45.5

Other Expense (Income):
 

 
 

Interest Expense, net
7.7

 
7.5

Miscellaneous (Income) Expense, net
(2.9
)
 
1.2

Total Other Expense
4.8

 
8.7

Income before Provision for Income Taxes
45.8

 
36.8

Provision for Income Taxes
15.9

 
12.4

Net Income
$
29.9

 
$
24.4

Earnings Per Share:
 

 
 

Basic Earnings per Share
$
0.71

 
$
0.57

Basic Weighted Average Number of Shares Outstanding
41.2

 
42.0

Diluted Earnings per Share
$
0.70

 
$
0.56

Diluted Weighted Average Number of Shares Outstanding
41.7

 
42.8

Dividends Declared per Share
$
0.13

 
$
0.13


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


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Table of Contents

ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
 
Three Months Ended November 30,
 
2011
 
2010
Cash Provided by (Used for) Operating Activities:
 

 
 

Net income
$
29.9

 
$
24.4

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
 

 
 

Depreciation and amortization
10.1

 
9.6

Share-based compensation expense, net
0.2

 
(1.1
)
Excess tax benefits from share-based payments
(1.1
)
 
(2.9
)
Loss on the sale or disposal of property, plant, and equipment
0.1

 

Deferred income taxes
(2.2
)
 
(1.0
)
Change in assets and liabilities, net of effect of acquisitions, divestitures and effect of exchange rate changes:
 
 
 

Accounts receivable
(1.7
)
 
11.5

Inventories
2.9

 
(17.8
)
Prepayments and other current assets
(5.5
)
 
(5.4
)
Accounts payable
(4.2
)
 
(11.8
)
Other current liabilities
(7.2
)
 
(8.7
)
Other
6.4

 
8.5

Net Cash Provided by Operating Activities
27.7

 
5.3

Cash Provided by (Used for) Investing Activities:
 

 
 

Purchases of property, plant, and equipment
(4.2
)
 
(6.7
)
Proceeds from sale of property, plant, and equipment

 
0.1

Acquisitions of businesses and intangible assets, net of cash acquired
(3.8
)
 
(36.2
)
Net Cash Used for Investing Activities
(8.0
)
 
(42.8
)
Cash Provided by (Used for) Financing Activities:
 

 
 

Repurchases of common stock
(9.2
)
 
(2.9
)
Proceeds from stock option exercises and other
0.8

 
3.3

Excess tax benefits from share-based payments
1.1

 
2.9

Dividends paid
(5.5
)
 
(5.6
)
Net Cash Used for Financing Activities
(12.8
)
 
(2.3
)
Effect of Exchange Rate Changes on Cash
(4.4
)
 
1.0

Net Change in Cash and Cash Equivalents
2.5

 
(38.8
)
Cash and Cash Equivalents at Beginning of Period
170.2

 
191.0

Cash and Cash Equivalents at End of Period
$
172.7

 
$
152.2

Supplemental Cash Flow Information:
 

 
 

Income taxes paid during the period
$
7.5

 
$
3.0

Interest paid during the period
$
2.4

 
$
2.2


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


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Table of Contents

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


1.
Description of Business and Basis of Presentation
Acuity Brands, Inc. (“Acuity Brands”) is the parent company of Acuity Brands Lighting, Inc. (“ABL”), and other subsidiaries (collectively referred to herein as “the Company”). The Company designs, produces, and distributes a broad array of lighting solutions and services for commercial, institutional, industrial, infrastructure, and residential applications for various markets throughout North America and select international markets. The Company's lighting solutions include devices such as luminaires, lighting controls, power supplies, prismatic skylights, light-emitting diode (“LED”) lamps, and integrated lighting systems for indoor and outdoor applications utilizing a combination of light sources, including daylight, and other devices controlled by software that monitors and manages light levels while optimizing energy consumption (collectively referred to herein as “lighting solutions”). The Company has one operating segment serving the North American lighting market and select international markets.
Since fiscal 2010, the Company has made the following acquisitions to expand and enhance its portfolio of lighting solutions.
On May 12, 2011, the Company acquired for cash all of the ownership interests in Healthcare Lighting, Inc. (“Healthcare Lighting”), a leading provider of specialized, high-performance lighting solutions for healthcare facilities based in Fairview, Pennsylvania. The operating results for Healthcare Lighting have been included in the Company's consolidated financial statements since the date of acquisition.
On February 23, 2011, the Company acquired for cash all of the ownership interests in Washoe Equipment, Inc., d/b/a Sunoptics Prismatic Skylights, and CBC Plastics LLC (collectively, “Sunoptics”), a premier designer, manufacturer, and marketer of high-performance, prismatic daylighting solutions based in Sacramento, California. The operating results for Sunoptics have been included in the Company's consolidated financial statements since the date of acquisition.
On October 14, 2010, the Company acquired for cash all of the outstanding capital stock of Winona Lighting, Inc. (“Winona Lighting”), a premier provider of architectural and high-performance indoor and outdoor lighting solutions headquartered in Winona, Minnesota. The operating results for Winona Lighting have been included in the Company's consolidated financial statements since the date of acquisition.
On July 26, 2010, the Company acquired for cash the remaining outstanding capital stock of Renaissance Lighting, Inc. (“Renaissance”), a privately-held innovator of solid-state light-emitting diode (“LED”) architectural lighting devices based in Herndon, Virginia. Previously, the Company entered into a strategic partnership with Renaissance, which included a noncontrolling interest in Renaissance and a license to Renaissance's intellectual property estate. The operating results of Renaissance have been included in the Company's consolidated financial statements since the date of acquisition.
The Consolidated Financial Statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and present the financial position, results of operations, and cash flows of Acuity Brands and its wholly-owned subsidiaries. References made to years are for fiscal year periods.
The unaudited interim consolidated financial statements included herein have been prepared by the Company in accordance with U.S. GAAP and present the financial position, results of operations, and cash flows of the Company. These interim consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s consolidated financial position as of November 30, 2011, the consolidated results of operations for the three months ended November 30, 2011 and 2010, and the consolidated cash flows for the three months ended November 30, 2011 and 2010. Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. However, the Company believes that the disclosures included herein are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company as of and for the three years ended August 31, 2011 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on October 28, 2011 (File No. 001-16583) (“Form 10-K”).
The results of operations for the three months ended November 30, 2011 and 2010, are not necessarily indicative of the results to be expected for the full fiscal year because the net sales and net income of the Company historically have been higher in the second half of its fiscal year and because of the continued uncertainty of general economic conditions that may impact the key end markets of the Company for the remainder of fiscal 2012.



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


2.
Significant Accounting Policies
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior-period amounts have been reclassified to conform to the current year presentation. No material reclassifications have occurred during the current period.
Subsequent Events
The Company has evaluated subsequent events for recognition and disclosure for occurrences and transactions after the date of the condensed financial statements at November 30, 2011. No material events or transactions have occurred during the current period that require disclosure in the Notes to Consolidated Financial Statements.

3.
New Accounting Pronouncements
Accounting Standards Adopted in Fiscal 2012
No material impact was realized from recently adopted accounting standards for the three months ended November 30, 2011.
Accounting Standards Yet to Be Adopted
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which clarifies the wording and disclosures required in Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”), to converge with those used (to be used) in International Financial Reporting Standards (“IFRS”). The update explains how to measure and disclose fair value under ASC 820. However, the FASB does not expect the changes in this standards update to alter the current application of the requirements in ASC 820. The provisions of ASU 2011-04 are effective for public entities prospectively for interim and annual periods beginning after December 15, 2011. Early adoption is prohibited. Therefore, ASU 2011-04 is effective for the Company during the third quarter of fiscal 2012. The Company does not expect ASU 2011-04 to have a material effect on the Company's results of operations, financial condition, and cash flows.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 changes the presentation of comprehensive income in the financial statements for all periods reported and eliminates the option under the current guidance that allows for presentation of other comprehensive income as part of the Statement of Stockholders' Equity. The update proposes two options for the proper presentation of comprehensive income: 1) a single Statement of Comprehensive Income, which includes all components of net income and other comprehensive income; or 2) a Statement of Income followed immediately by a Statement of Comprehensive Income, which includes the summarized net income and all components of other comprehensive income. The provisions of ASU 2011-05 are effective for public entities retrospectively for annual periods, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. Therefore, ASU 2011-05 is effective for the Company in the first quarter of fiscal 2013. Although the provisions of this update will change the presentation of the consolidated financial statements of the Company, no material impact is expected on the Company's results of operations, financial condition, and cash flows.
In September 2011, the FASB issued ASU No. 2011-08, Intangibles - Goodwill and Other (Topic 350) - Testing Goodwill for Impairment (“ASU 2011-08”), which allows companies to assess qualitative factors prior to the use of the two-step quantitative method to determine if goodwill has been impaired. If the qualitative factors reviewed do not indicate that it is more likely than not that the fair value of a reporting unit does not exceed the carrying value, ASU 2011-08 deems any further impairment testing to be unnecessary. In the event that the qualitative review indicates otherwise, the company is required to perform further quantitative impairment testing as prescribed by Topic 350. Other indefinite-lived intangible assets are not


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


affected by the provisions of this standards update. ASU 2011-08 is effective for fiscal years beginning after December 31, 2011, with early adoption permitted. The Company is currently reviewing the provisions of ASU 2011-08 but does not expect it to have a material effect on the Company's results of operations, financial condition, and cash flows.

4.
Acquisitions
The Company has actively pursued opportunities for investment and growth through acquisitions. Since the fourth quarter of fiscal 2010, the Company has acquired a number of businesses that participate in the North American lighting market, as discussed below. As with previous acquisitions, the companies were purchased to further expand and complement the Company's lighting solutions portfolio and were fully incorporated into the Company's operations. None of the business combinations-individually or in the aggregate-represented a material transaction as compared to the Company's financial condition, results of operations, or cash flows in any of the periods in which control was obtained.
Healthcare Lighting Acquisition
On May 12, 2011, the Company acquired for cash all of the ownership interests in Healthcare Lighting, a leading provider of specialized, high-performance lighting solutions for healthcare facilities. Based in Fairview, Pennsylvania, Healthcare Lighting exclusively focused on servicing the healthcare industry through the design and manufacture of medical lighting products meant to enhance the visual environment in healthcare settings. The operating results of Healthcare Lighting have been included in the Company's consolidated financial statements since the date of acquisition. Preliminary amounts related to the acquisition are reflected in the Consolidated Balance Sheets as of November 30, 2011. These amounts are deemed to be provisional until disclosed otherwise, as the Company continues to gather information related to the identification and valuation of intangible and other acquired assets and liabilities.
Sunoptics Acquisition
On February 23, 2011, the Company acquired for cash all of the ownership interests in Sunoptics, a premier provider of high-performance, prismatic daylighting solutions based in Sacramento, California. Sunoptics' high-performance prismatic skylights optimized lighting performance through the use of sustainable and energy-efficient solutions for retail, industrial, warehouse, educational, governmental, and office applications. The operating results of Sunoptics have been included in the Company's consolidated financial statements since the date of acquisition. Preliminary amounts related to the acquisition are reflected in the Consolidated Balance Sheets as of November 30, 2011. These amounts are deemed to be provisional until disclosed otherwise, as the Company continues to gather information related to the identification and valuation of intangible and other acquired assets and liabilities.

5.
Assets Held For Sale
The Company classifies long-lived assets as held for sale and ceases the depreciation and amortization of the assets upon the development of a plan for disposal and in accordance with applicable U.S. GAAP. During the first quarter of fiscal 2012, the Company ceased operations at one manufacturing facility and is currently actively marketing the site for sale. As of November 30, 2011, the carrying value of the property transferred to assets held for sale (included in Prepayments and other current assets) from Property, Plant, and Equipment, net, on the Consolidated Balance Sheets equaled $4.8.
Further details regarding the Company’s other assets held for sale are included within the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.

6.
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 establishes a three level hierarchy making a distinction between market participant assumptions based on (i) unadjusted quoted prices for identical assets or liabilities in an active market (Level 1), (ii) quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (Level 2), and (iii) prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (Level 3).
The following table presents information about assets and liabilities required to be carried at fair value and measured on a recurring basis as of November 30, 2011 and August 31, 2011:


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


 
Fair Value Measurements as of:
 
November 30, 2011
 
August 31, 2011
 
Level 1
 
Total Fair Value
 
Level 1
 
Total Fair Value
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
172.7

 
$
172.7

 
$
170.2

 
$
170.2

Short-term investments(1)
0.8

 
0.8

 
0.8

 
0.8

Long-term investments(1)
1.2

 
1.2

 
1.2

 
1.2

Liabilities:
 
 
 
 
 

 
 

Deferred compensation plan(1) (current portion)
$
0.8

 
$
0.8

 
$
0.8

 
$
0.8

Deferred compensation plan(1) (long-term portion)
$
1.2

 
$
1.2

 
$
1.2

 
$
1.2

_______________________________________
(1)
The Company maintains certain investments that generate returns that offset changes in certain liabilities related to 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.
Short-term and 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 liabilities within the hierarchy. The fair values of the liabilities are directly related to the valuation of the short-term and 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.
No transfers between the levels of the fair value hierarchy occurred during the current fiscal period. In the event of a transfer in or out of a level within the fair value hierarchy, the transfers would be recognized on the date of occurrence.
Disclosures of fair value information about financial instruments (whether or not recognized in the balance sheet), for which it is practicable to estimate that value, are required each reporting period in addition to any financial instruments carried at fair value on a recurring basis as prescribed by ASC Topic 825, Financial Instruments (“ASC 825”). In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.
The carrying values and estimated fair values of certain of the Company’s financial instruments were as follows at November 30, 2011 and August 31, 2011:
 
November 30, 2011
 
August 31, 2011
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Liabilities:
 
 
 
 
 

 
 

Senior unsecured public notes, net of unamortized discount
$
349.4

 
$
394.7

 
$
349.4

 
$
373.9

Industrial revenue bond
4.0

 
4.0

 
4.0

 
4.0

The senior unsecured public 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


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


estimates that the face amount of the bond approximates fair value as of November 30, 2011.
ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value to the Company. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In evaluating the Company’s management of liquidity and other risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.

7.
Goodwill and Intangible Assets
Through multiple acquisitions, the Company acquired intangible assets consisting primarily of trademarks and trade names associated with specific products with finite lives, definite-lived distribution networks, patented technology, non-compete agreements, and customer relationships, which are amortized over their estimated useful lives. Indefinite lived intangible assets consist of trade names that are expected to generate cash flows indefinitely.
Summarized information for the Company’s acquired intangible assets is as follows:
 
November 30, 2011
 
August 31, 2011
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Amortized intangible assets:
 

 
 

 
 

 
 

Patents and patented technology
$
42.7

 
$
(14.8
)
 
$
42.7

 
$
(14.5
)
Trademarks and trade names
24.0

 
(5.3
)
 
24.0

 
(5.1
)
Distribution network
61.8

 
(25.1
)
 
61.8

 
(23.5
)
Customer relationships
57.6

 
(7.3
)
 
55.6

 
(6.4
)
Other
5.9

 
(2.6
)
 
5.9

 
(2.4
)
Total
$
192.0

 
$
(55.1
)
 
$
190.0

 
$
(51.9
)
Unamortized trade names
$
96.1

 
 

 
$
96.1

 
 

The current year increases in the gross carrying amounts for the acquired intangible assets were due primarily to the adjustments for the acquisitions of Sunoptics and Healthcare Lighting (refer to the Acquisitions footnote herein). The provisional amounts for the acquired intangible assets are deemed incomplete until disclosed otherwise as the Company continues to gather information related to the business combinations.
The Company recorded amortization expense of $3.2 and $2.3 related to intangible assets with finite lives during the three months ended November 30, 2011 and 2010, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $11.6 in fiscal 2012, $10.5 in fiscal 2013, $10.5 in fiscal 2014, $10.2 in fiscal 2015, and $9.6 in fiscal 2016.
The changes in the carrying amount of goodwill during the three months ended November 30, 2011, are summarized as follows:
Goodwill:
 

Balance as of September 1, 2011
$
559.2

Acquisitions
2.9

Adjustments for acquired businesses
(1.3
)
Currency translation adjustments
(1.2
)
Balance as of November 30, 2011
$
559.6

The increase in goodwill was attributable to completed business combinations during the first three months of fiscal 2012 and is comprised of, among other things, market participant and Company-specific expected synergies and the knowledge and expertise of employees of the acquired entities. These amounts will not be final until completion of the identification and valuation of all intangible assets acquired.
Further discussion of the Company’s goodwill and other intangible assets are included within the Significant Accounting


10

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


Policies footnote of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.

8.
Inventories
Inventories include materials, labor, in-bound freight, and related manufacturing overhead, are stated at the lower of cost (on a first-in, first-out or average cost basis) or market, and consist of the following:
 
November 30, 2011
 
August 31, 2011
Raw materials and supplies
$
88.1

 
$
90.5

Work in process
6.4

 
7.1

Finished goods
78.9

 
78.5

 
173.4

 
176.1

Less: Reserves
(10.9
)
 
(10.2
)
Total Inventory
$
162.5

 
$
165.9


9.
Earnings Per Share
Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding, which has been modified to include the effects of all participating securities (unvested share-based payment awards with a right to receive nonforfeitable dividends) as prescribed by the two-class method under ASC Topic 260, Earnings Per Share (“ASC 260”), during the period. 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 269,659 and 21,740 (whole units) were excluded from the diluted earnings per share calculation for the three months ended November 30, 2011 and 2010, respectively, as the effect of inclusion would have been antidilutive. Further discussion of the Company’s stock options and restricted stock awards are included within the Common Stock and Related Matters and Share-Based Payments footnotes of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.
The following table calculates basic earnings per common share and diluted earnings per common share for the three months ended November 30, 2011 and 2010:
 
Three Months Ended November 30,
 
2011
 
2010
Basic Earnings per Share:
 

 
 

Net income
$
29.9

 
$
24.4

Less: Income attributable to participating securities
(0.6
)
 
(0.5
)
Net income available to common shareholders
$
29.3

 
$
23.9

Basic weighted average shares outstanding
41.2

 
42.0

Basic earnings per share
$
0.71

 
$
0.57

Diluted Earnings per Share:
 

 
 

Net income
$
29.9

 
$
24.4

Less: Income attributable to participating securities
(0.6
)
 
(0.5
)
Net income available to common shareholders
$
29.3

 
$
23.9

Basic weighted average shares outstanding
41.2

 
42.0

Common stock equivalents
0.5

 
0.8

Diluted weighted average shares outstanding
41.7

 
42.8

Diluted earnings per share
$
0.70

 
$
0.56


10.
Comprehensive Income
Comprehensive income represents the measures of all changes in equity that result from recognized transactions and other


11

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


economic events other than transactions with owners in their capacity as owners. Other comprehensive income includes foreign currency translation adjustments. The calculation of comprehensive income is as follows:
 
Three Months Ended November 30,
 
2011
 
2010
Net income
$
29.9

 
$
24.4

Foreign currency translation adjustments
(9.1
)
 
4.5

Comprehensive income
$
20.8

 
$
28.9


11.
Debt
Lines of Credit
On October 19, 2007, the Company executed a $250.0 revolving credit facility (the “Revolving Credit Facility”). The Company was compliant with all financial covenants under the Revolving Credit Facility as of November 30, 2011. As of November 30, 2011, the Company had outstanding letters of credit totaling $13.4, primarily for securing collateral requirements under the casualty insurance programs for Acuity Brands, providing credit support for the Company's industrial revenue bond, and securing procurement of sourced product from international vendors. At November 30, 2011, the Company had additional borrowing capacity under the Revolving Credit Facility of $240.8 under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $9.2.
Further details regarding the Company’s lines of credit are included within the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.
Notes
At November 30, 2011, the Company had $350.0 of publicly-traded, senior unsecured notes outstanding at a 6% interest rate that are scheduled to mature in December 2019 (the “Notes”) and $4.0 of tax-exempt industrial revenue bonds that are scheduled to mature in 2021. Further discussion of the Company’s debt is included within the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.
Interest Expense
Interest expense, net, is comprised primarily of interest expense on long-term debt, obligations in connection with non-qualified retirement plans, and Revolving Credit Facility borrowings, partially offset by interest income on cash and cash equivalents.
The following table summarizes the components of interest expense, net:
 
Three Months Ended November 30,
 
2011
 
2010
Interest expense
$
7.8

 
$
7.6

Interest income
(0.1
)
 
(0.1
)
Interest expense, net
$
7.7

 
$
7.5


12.
Commitments and Contingencies
In the normal course of business, the Company is subject to the effects of certain contractual stipulations, events, transactions, and laws and regulations that may, at times, require the recognition of liabilities, such as those related to self-insurance reserves and claims, legal and contractual issues, environmental laws and regulations, guarantees, and indemnities. The Company establishes reserves when the associated costs related to uncertainties or guarantees become probable and can be reasonably estimated. For the period ended November 30, 2011, no material changes have occurred in the Company’s reserves for self-insurance, litigation, environmental matters, or guarantees and indemnities, or relevant events and circumstances, from those disclosed in the Commitments and Contingencies footnote of the Notes to the Consolidated Financial Statements within


12

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


the Company’s Form 10-K.
For more information on the Company’s commitments and contingencies, please refer to the Commitments and Contingencies footnote of the Notes to the Consolidated Financial Statements within the Company’s Form 10-K.
Product Warranty and Recall Costs
Acuity Brands records an allowance for the estimated amount of future warranty claims when the related revenue is recognized, primarily based on historical experience of identified warranty claims. However, there can be no assurance that future warranty costs will not exceed historical experience. Estimated recall costs are recognized upon such time that the Company becomes aware of product defects and other issues. If actual future warranty costs exceed historical amounts or unforeseen recall costs occur, additional allowances may be required, which could have a material adverse impact on the Company’s results of operations and cash flows in future periods.
As of August 31, 2011, the Company had product warranty and recall reserves of $4.2. The Company made payments of $1.8 related to warranty claims and recognized additional estimated warranty and recall liabilities of $1.4 during the three-month period ended November 30, 2011. As of November 30, 2011, the Company had remaining product warranty and recall reserves of $3.8 (included in Other accrued liabilities on the Consolidated Balance Sheets).

13.
Share-Based Payments
The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors of the Company, including stock options and restricted shares (all part of the Long-Term Incentive Plan), and share units representing certain deferrals into the Director Deferred Compensation Plan or the Supplemental Deferred Savings Plan. Each of these award programs are more fully discussed within the Company’s Form 10-K. The Company recorded $4.2 and $3.4 of share-based expense for the three months ended November 30, 2011 and 2010, respectively. Benefits of tax deductions in excess of recognized share-based compensation cost are reported as a financing cash flow, rather than as an operating cash flow, and amounted to $1.1 and $2.9 for the three months ended November 30, 2011 and 2010, respectively.

14.
Pension and Profit Sharing Plans
The Company has several pension plans, both qualified and non-qualified, covering certain hourly and salaried employees. Benefits paid under these plans are based generally on employees’ years of service and/or compensation during the final years of employment. Plan assets are invested primarily in equity and fixed income securities.
Net periodic pension cost for the Company’s defined benefit pension plans during the three months ended November 30, 2011 and 2010, included the following components:
 
Three Months Ended November 30,
 
2011
 
2010
Service cost
$
0.8

 
$
0.8

Interest cost
2.1

 
2.1

Expected return on plan assets
(1.9
)
 
(1.9
)
Recognized actuarial loss
1.1

 
1.2

Net periodic pension cost
$
2.1

 
$
2.2


15.
Special Charge
Fiscal 2008-2010 Actions
In previous fiscal years, the Company commenced actions to streamline and simplify its organizational structure and operations. The charges consisted of severance and related employee benefit costs associated with the elimination of certain positions worldwide, consolidation of certain manufacturing facilities, the estimated costs associated with the early termination of certain leases, and share-based expense due to the modification of the terms of agreements to accelerate vesting for certain


13

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


terminated employees. Further details regarding the Company’s previous streamlining activities are included within the Special Charge footnote of the Notes to Consolidated Financial Statements within the Company’s Form 10-K.
At August 31, 2011, the Company had severance and exit costs reserves of $3.5 and $0.3, respectively. The Company made payments of $1.6 and $0.1 related to severance and exit costs, respectively, during the three-month period ended November 30, 2011. As of November 30, 2011, the Company had remaining severance and exit costs reserves of $1.9 and $0.2, respectively, related to previous restructuring activities, which are included in Accrued Compensation on the Consolidated Balance Sheets.
Fiscal 2012 Actions
In an effort to obtain greater operating efficiencies, the Company continued efforts to streamline the organization by realigning responsibilities primarily within various Selling, Distribution, and Administrative departments, resulting in a modest reduction of its workforce initiated during fiscal 2012. The Company expects that these actions to streamline its business activities, in addition to those taken in previous fiscal years, will allow it to reduce costs, while permitting for the continued investment in future growth initiatives, such as new products, expanded market presence, and technology and innovation. Management is evaluating possible further cost-saving measures that may result in additional charges this fiscal year.
During the first quarter of fiscal 2012, the Company recognized severance costs of $2.7. In addition, the Company made payments of $1.5 related to these severance costs during the three-month period ended November 30, 2011. As of November 30, 2011, the Company had remaining reserves for severance costs of $1.2 related to the fiscal 2012 restructuring activities, which are included in Accrued Compensation on the Consolidated Balance Sheets.

16.
Supplemental Guarantor Condensed Consolidating Financial Statements
In December 2009, ABL, the wholly-owned and principal operating subsidiary of the Company, refinanced the then current outstanding debt through the issuance of the Notes. See Debt footnote herein for further information.
In accordance with the registration rights agreement by and between ABL and the Guarantors and the initial purchases of the Notes, ABL and the Guarantors to the Notes filed a registration statement with the SEC for an offer to exchange the Notes for an issue of SEC-registered notes with identical terms. Due to the filing of the registration statement and offer to exchange, the Company determined the need for compliance with Rule 3-10 of SEC Regulation S-X (“Rule 3-10”). In lieu of providing separate audited financial statements for ABL and ABL IP Holding, the Company has included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(d) of SEC Regulation S-X. The column marked “Parent” represents the financial condition, results of operations, and cash flows of Acuity Brands. The column marked “Subsidiary Issuer” represents the financial condition, results of operations, and cash flows of ABL. The column entitled “Subsidiary Guarantor” represents the financial condition, results of operations, and cash flows of ABL IP Holding. Lastly, the column listed as “Non-Guarantors” includes the financial condition, results of operations, and cash flows of the non-guarantor direct and indirect subsidiaries of Acuity Brands, which consist primarily of foreign subsidiaries. Eliminations were necessary in order to arrive at consolidated amounts. In addition, the equity method of accounting was used to calculate investments in subsidiaries. Accordingly, this basis of presentation is not intended to present our financial condition, results of operations, or cash flows for any purpose other than to comply with the specific requirements for parent-subsidiary guarantor reporting.


14

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


CONDENSED CONSOLIDATING BALANCE SHEETS
 
November 30, 2011
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
ASSETS
Current Assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
140.5

 
$
1.0

 
$

 
$
31.2

 
$

 
$
172.7

Accounts receivable, net

 
229.6

 

 
33.0

 

 
262.6

Inventories

 
153.4

 

 
9.1

 

 
162.5

Other current assets
24.3

 
10.3

 

 
6.8

 

 
41.4

Total Current Assets
164.8

 
394.3

 

 
80.1

 

 
639.2

Property, Plant, and Equipment, net

 
104.6

 

 
29.0

 

 
133.6

Goodwill

 
518.5

 
2.7

 
38.4

 

 
559.6

Intangible assets

 
106.7

 
124.5

 
1.8

 

 
233.0

Other long-term assets
4.7

 
19.5

 

 
5.4

 

 
29.6

Investments in subsidiaries
781.9

 
99.9

 

 

 
(881.8
)
 

Total Assets
$
951.4

 
$
1,243.5

 
$
127.2

 
$
154.7

 
$
(881.8
)
 
$
1,595.0

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
$
0.2

 
$
188.3

 
$

 
$
10.4

 
$

 
$
198.9

Intercompany payable (receivable)
132.7

 
(81.9
)
 
(83.6
)
 
32.8

 

 

Other accrued liabilities
20.3

 
85.3

 

 
12.9

 

 
118.5

Total Current Liabilities
153.2

 
191.7

 
(83.6
)
 
56.1

 

 
317.4

Long-Term Debt

 
353.4

 

 

 

 
353.4

Deferred Income Taxes
(30.1
)
 
69.8

 

 
(3.4
)
 

 
36.3

Other Long-Term Liabilities
62.9

 
44.3

 

 
15.3

 

 
122.5

Total Stockholders’ Equity
765.4

 
584.3

 
210.8

 
86.7

 
(881.8
)
 
765.4

Total Liabilities and Stockholders’ Equity
$
951.4

 
$
1,243.5

 
$
127.2

 
$
154.7

 
$
(881.8
)
 
$
1,595.0



15

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


 
August 31, 2011
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
ASSETS
Current Assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
127.2

 
$
0.1

 
$

 
$
42.9

 
$

 
$
170.2

Accounts receivable, net

 
228.3

 

 
34.3

 

 
262.6

Inventories

 
156.7

 

 
9.2

 

 
165.9

Other current assets
6.0

 
19.8

 

 
6.0

 

 
31.8

Total Current Assets
133.2

 
404.9

 

 
92.4

 

 
630.5

Property, Plant, and Equipment, net

 
111.3

 

 
31.9

 

 
143.2

Goodwill

 
519.8

 
2.7

 
36.7

 

 
559.2

Intangible assets

 
106.8

 
125.5

 
1.9

 

 
234.2

Other long-term assets
3.5

 
19.1

 

 
7.7

 

 
30.3

Investments in subsidiaries
741.3

 
105.7

 

 
0.1

 
(847.1
)
 

Total Assets
$
878.0

 
$
1,267.6

 
$
128.2

 
$
170.7

 
$
(847.1
)
 
$
1,597.4

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
 

 
 

 
 

 
 

 
 

 
 

Accounts payable
$
1.6

 
$
191.2

 
$

 
$
11.0

 
$

 
$
203.8

Intercompany payable (receivable)
78.1

 
(43.0
)
 
(78.6
)
 
43.5

 

 

Other accrued liabilities
14.5

 
100.7

 

 
12.4

 

 
127.6

Total Current Liabilities
94.2

 
248.9

 
(78.6
)
 
66.9

 

 
331.4

Long-Term Debt

 
353.4

 

 

 

 
353.4

Deferred Income Taxes
(30.0
)
 
69.8

 

 
(3.4
)
 

 
36.4

Other Long-Term Liabilities
56.8

 
48.2

 

 
14.2

 

 
119.2

Total Stockholders’ Equity
757.0

 
547.3

 
206.8

 
93.0

 
(847.1
)
 
757.0

Total Liabilities and Stockholders’ Equity
$
878.0

 
$
1,267.6

 
$
128.2

 
$
170.7

 
$
(847.1
)
 
$
1,597.4




16

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


CONDENSED CONSOLIDATING STATEMENTS OF INCOME
 
Quarter Ended November 30, 2011
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Net Sales:
 

 
 

 
 

 
 

 
 

 
 

External sales
$

 
$
422.8

 
$

 
$
51.5

 
$

 
$
474.3

Intercompany sales

 

 
7.4

 
16.1

 
(23.5
)
 

Total Sales

 
422.8

 
7.4

 
67.6

 
(23.5
)
 
474.3

Cost of Products Sold

 
244.7

 

 
52.1

 
(16.1
)
 
280.7

Gross Profit

 
178.1

 
7.4

 
15.5

 
(7.4
)
 
193.6

Selling, Distribution, and Administrative Expenses
6.7

 
125.6

 
0.9

 
14.5

 
(7.4
)
 
140.3

Intercompany charges
(0.9
)
 
0.6

 

 
0.3

 

 

Special Charge

 
2.7

 

 

 

 
2.7

Operating Profit
(5.8
)
 
49.2

 
6.5

 
0.7

 

 
50.6

Interest expense (income), net
2.3

 
5.5

 

 
(0.1
)
 

 
7.7

Equity earnings in subsidiaries
(34.9
)
 
(3.0
)
 

 

 
37.9

 

Miscellaneous (income) expense, net
(0.1
)
 
0.2

 

 
(3.0
)
 

 
(2.9
)
Income from Continuing Operations before Provision for Income Taxes
26.9

 
46.5

 
6.5

 
3.8

 
(37.9
)
 
45.8

Provision for Income Taxes
(3.0
)
 
15.3

 
2.5

 
1.1

 

 
15.9

Net Income
$
29.9

 
$
31.2

 
$
4.0

 
$
2.7

 
$
(37.9
)
 
$
29.9



17

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


CONDENSED CONSOLIDATING STATEMENTS OF INCOME
 
Quarter Ended November 30, 2010
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Net Sales:
 

 
 

 
 

 
 

 
 

 
 

External sales
$

 
$
367.8

 
$

 
$
57.2

 
$

 
$
425.0

Intercompany sales

 

 
6.3

 
17.9

 
(24.2
)
 

Total Sales

 
367.8

 
6.3

 
75.1

 
(24.2
)
 
425.0

Cost of Products Sold

 
215.0

 

 
51.8

 
(17.9
)
 
248.9

Gross Profit

 
152.8

 
6.3

 
23.3

 
(6.3
)
 
176.1

Selling, Distribution, and Administrative Expenses
6.7

 
113.6

 
1.2

 
15.4

 
(6.3
)
 
130.6

Intercompany charges
(0.9
)
 
0.5

 

 
0.4

 

 

Operating Profit
(5.8
)
 
38.7

 
5.1

 
7.5

 

 
45.5

Interest expense (income), net
2.1

 
5.5

 

 
(0.1
)
 

 
7.5

Equity earnings in subsidiaries
(29.5
)
 
(5.1
)
 

 
0.1

 
34.5

 

Miscellaneous (income) expense, net
(0.1
)
 
(0.1
)
 

 
1.4

 

 
1.2

Income from Continuing Operations before Provision for Income Taxes
21.7

 
38.4

 
5.1

 
6.1

 
(34.5
)
 
36.8

Provision for Income Taxes
(2.7
)
 
11.6

 
1.7

 
1.8

 

 
12.4

Net Income
$
24.4

 
$
26.8

 
$
3.4

 
$
4.3

 
$
(34.5
)
 
$
24.4





18

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


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
Quarter Ended November 30, 2011
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Net Cash Provided by (Used for) Operating Activities
$
29.9

 
$
6.5

 
$

 
$
(8.7
)
 
$

 
$
27.7

Cash Provided by (Used for) Investing Activities:
 

 
 

 
 

 
 

 
 

 
 

Purchases of property, plant, and equipment

 
(3.8
)
 

 
(0.4
)
 

 
(4.2
)
Investments in subsidiaries
(3.8
)
 

 

 

 
3.8

 

Acquisitions of business and intangible assets

 
(3.8
)
 

 

 

 
(3.8
)
Net Cash Used for Investing Activities
(3.8
)
 
(7.6
)
 

 
(0.4
)
 
3.8

 
(8.0
)
Cash Provided by (Used for) Financing Activities:
 

 
 

 
 

 
 

 
 

 
 

Proceeds from stock option exercises and other
0.8

 

 

 

 

 
0.8

Repurchases of common stock
(9.2
)
 

 

 

 

 
(9.2
)
Excess tax benefits from share-based payments
1.1

 

 

 

 

 
1.1

Intercompany capital

 
3.8

 

 

 
(3.8
)
 

Dividends paid
(5.5
)
 

 

 

 

 
(5.5
)
Net Cash (Used for) Provided by Financing Activities
(12.8
)
 
3.8

 

 

 
(3.8
)
 
(12.8
)
Effect of Exchange Rate Changes on Cash

 
(1.8
)
 

 
(2.6
)
 

 
(4.4
)
Net Change in Cash and Cash Equivalents
13.3

 
0.9

 

 
(11.7
)
 

 
2.5

Cash and Cash Equivalents at Beginning of Period
127.2

 
0.1

 

 
42.9

 

 
170.2

Cash and Cash Equivalents at End of Period
$
140.5

 
$
1.0

 
$

 
$
31.2

 
$

 
$
172.7



19

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


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
Quarter Ended November 30, 2010
 
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Net Cash (Used for) Provided by Operating Activities
$
(0.1
)
 
$
5.7

 
$

 
$
(0.3
)
 
$

 
$
5.3

Cash Provided by (Used for) Investing Activities:
 

 
 

 
 

 
 

 
 

 
 

Purchases of property, plant, and equipment

 
(5.9
)
 

 
(0.8
)
 

 
(6.7
)
Proceeds from sale of property, plant, and equipment

 
0.1

 

 

 

 
0.1

Investments in subsidiaries
(36.2
)
 

 

 

 
36.2

 

Acquisitions of business and intangible assets

 
(36.2
)
 

 

 

 
(36.2
)
Net Cash Used for Investing Activities
(36.2
)
 
(42.0
)
 

 
(0.8
)
 
36.2

 
(42.8
)
Cash Provided by (Used for) Financing Activities:
 

 
 

 
 

 
 

 
 

 
 

Proceeds from stock option exercises and other
3.3

 

 

 

 

 
3.3

Repurchases of common stock
(2.9
)
 

 

 

 

 
(2.9
)
Excess tax benefits from share-based payments
2.9

 

 

 

 

 
2.9

Intercompany capital

 
36.2

 

 

 
(36.2
)
 

Dividends paid
(5.6
)
 

 

 

 

 
(5.6
)
Net Cash (Used for) Provided by Financing Activities
(2.3
)
 
36.2

 

 

 
(36.2
)
 
(2.3
)
Effect of Exchange Rate Changes on Cash

 

 

 
1.0

 

 
1.0

Net Change in Cash and Cash Equivalents
(38.6
)
 
(0.1
)
 

 
(0.1
)
 

 
(38.8
)
Cash and Cash Equivalents at Beginning of Period
163.1

 
0.4

 

 
27.5

 

 
191.0

Cash and Cash Equivalents at End of Period
$
124.5

 
$
0.3

 
$

 
$
27.4

 
$

 
$
152.2




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Table of Contents

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
($ in millions, except per-share data and as indicated)
The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes included within this report. References made to years are for fiscal year periods.
The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands, Inc. (“Acuity Brands”), and its subsidiaries as of November 30, 2011 and for the three months ended November 30, 2011 and 2010. For a more complete understanding of this discussion, please read the Notes to Consolidated Financial Statements included in this report. Also, please refer to the Company’s 2011 Annual Report on Form 10-K for the fiscal year ended August 31, 2011, filed with the Securities and Exchange Commission (the “SEC”) on October 28, 2011 (“Form 10-K”).
Overview
Company
Acuity Brands is the parent company of Acuity Brands Lighting, Inc. (“ABL”), and other subsidiaries (collectively referred to herein as the “Company”). The Company, with its principal office in Atlanta, Georgia, employs approximately 6,000 people worldwide.
The Company designs, produces, and distributes a broad array of lighting solutions and services for commercial, institutional, industrial, infrastructure, and residential applications for various markets throughout North America and select international markets. The Company's lighting solutions include devices such as luminaires, lighting controls, power supplies, prismatic skylights, light-emitting diode (“LED”) lamps, and integrated lighting systems for indoor and outdoor applications utilizing a combination of light sources, including daylight, and other devices controlled by software that monitors and manages light levels while optimizing energy consumption (collectively referred to herein as “lighting solutions”). The Company is one of the world's leading producers and distributors of lighting solutions, with a broad, highly configurable product offering, consisting of roughly 500,000 active products as part of over 2,000 product groups that are sold to approximately 5,000 customers. As of November 30, 2011, the Company operates 22 manufacturing facilities and seven distribution facilities along with two warehouses to serve its extensive customer base.
Please refer to the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements for more information on the Company's structure.
Liquidity and Capital Resources
The Company's principle sources of liquidity are operating cash flows generated primarily from its business operations, cash on hand, and various sources of borrowings. The ability of the Company to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund its operations, to pay dividends, to meet its obligations as they become due, and to maintain compliance with covenants contained in its financing agreements.
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 and beyond. These short-term needs are expected to include funding its operations as currently planned, making anticipated capital investments, funding potential acquisitions, funding foreseen improvement initiatives, paying quarterly stockholder dividends as currently anticipated, paying interest on borrowings as currently scheduled, and making required contributions into its employee benefit plans, as well as potentially repurchasing shares of its outstanding common stock as authorized by the Board of Directors. The Company currently expects to invest during fiscal 2012 up to $40.0 primarily for equipment, tooling, and new and enhanced information technology capabilities. Additionally, management believes that the Company's debt profile and sources of funding, including, but not limited to, cash flows from operations, will sufficiently support the long-term liquidity needs of the Company.
Cash Flow
The Company uses available cash and cash flow from operations, as well as proceeds from the exercise of stock options, to fund operations and capital expenditures, repurchase Company common stock, fund acquisitions, and pay dividends.
The Company’s cash position at November 30, 2011 was $172.7, an increase of $2.5 from August 31, 2011. During the three months ended November 30, 2011, the Company generated net cash from operating activities of $27.7 with additional cash received of $0.8 from stock issuances in connection with stock option exercises. Cash generated from operating activities, as well as cash on-hand, was used during the first fiscal quarter for capital expenditures of $4.2 and acquisitions (net of cash assumed) of $3.8. In addition, the Company repurchased 252,000 shares of common stock of the Company for $9.2 and paid


21

Table of Contents

dividends to stockholders of $5.5. Changes in foreign currency exchange rates negatively impacted international cash balances by $4.4.
During the three months ended November 30, 2011, the Company generated net cash from operating activities of $27.7 compared with $5.3 generated in the prior-year period. This increase was due largely to higher net income and lower growth in operating working capital (calculated by adding accounts receivable, net, plus inventories, and subtracting accounts payable- each net of the impact of acquisitions) compared to the respective prior-year period. The prior year increase in operating working capital, excluding the impact of acquisitions, was due primarily to strategic purchases of certain commodities and components to better support customer service and relocation of production during the three months ended November 30, 2010. A similar increase in inventory levels did not occur during the three months ended November 30, 2011. Rather, overall inventory levels decreased during the three months ended November 30, 2011, as a result of the timing of inventory purchases and improved inventory management.
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 $4.2 and $6.7 in the first three months of fiscal 2012 and 2011, 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 2012.
Capitalization
The current capital structure of the Company is comprised principally of senior unsecured notes and equity of its stockholders. As of November 30, 2011, total debt outstanding of $353.4 remained substantially unchanged from August 31, 2011 and consisted primarily of fixed-rate obligations.
On October 19, 2007, the Company executed a $250.0 revolving credit facility, which matures in October 2012 (the “Revolving Credit Facility”). As of November 30, 2011, the Company was compliant with all financial covenants under the Revolving Credit Facility. At November 30, 2011, the Company had additional borrowing capacity under the Revolving Credit Facility of $240.8 under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $9.2. The Company expects to enter into a new revolving credit facility in fiscal 2012 to replace the Revolving Credit Facility. Management currently believes that the new revolving credit facility agreement will likely be consummated with both higher drawn and undrawn costs, reflecting current market terms for syndicated revolving credit facilities. See the Debt footnote of the Notes to Consolidated Financial Statements.
During the first three months of fiscal 2012, the Company’s consolidated stockholders’ equity increased $8.4 to $765.4 at November 30, 2011 from $757.0 at August 31, 2011. The increase was due primarily to net income earned in the period, as well as amortization of stock-based compensation, and stock issuances resulting primarily from the exercise of stock options, partially offset by repurchases of common stock, foreign currency translation adjustments, and payment of dividends. The Company’s debt to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders’ equity) was 31.6% and 31.8% at November 30, 2011 and August 31, 2011, respectively. The ratio of debt, net of cash, to total capitalization, net of cash, was 19.1% at November 30, 2011 and 19.4% at August 31, 2011.
Dividends
Acuity Brands paid dividends on its common stock of $5.5 ($0.13 per share) during the three months ended November 30, 2011 compared with $5.6 ($0.13 per share) during the three months ended November 30, 2010. 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 Company’s financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Acuity Brands Board of Directors deems relevant.

Results of Operations
First Quarter of Fiscal 2012 Compared with First Quarter of Fiscal 2011
The following table sets forth information comparing the components of net income for the three months ended November 30, 2011 and 2010:


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Table of Contents

 
Three Months Ended November 30,
 
Increase
 
Percent
 
2011
 
2010
 
(Decrease)
 
Change
Net Sales
$
474.3

 
$
425.0

 
$
49.3

 
11.6
 %
Cost of Products Sold
280.7

 
248.9

 
31.8

 
12.8
 %
Gross Profit
193.6

 
176.1

 
17.5

 
9.9
 %
Percent of net sales
40.8
%
 
41.4
%
 
(60
)
bps
 

Selling, Distribution, and Administrative Expenses
140.3

 
130.6

 
9.7

 
7.4
 %
Special Charge
2.7

 

 
2.7

 
100.0
 %
Operating Profit
50.6

 
45.5

 
5.1

 
11.2
 %
Percent of net sales
10.7
%
 
10.7
%
 

bps
 

Other Expense (Income)
 

 
 

 
 

 
 

Interest Expense, net
7.7

 
7.5

 
0.2

 
2.7
 %
Miscellaneous (Income) Expense, net
(2.9
)
 
1.2

 
(4.1
)
 
NM

Total Other Expense
4.8

 
8.7

 
(3.9
)
 
(44.8
)%
Income before Provision for Income Taxes
45.8

 
36.8

 
9.0

 
24.5
 %
Percent of net sales
9.7
%
 
8.7
%
 
100

bps
 

Provision for Taxes
15.9

 
12.4

 
3.5

 
28.2
 %
Effective tax rate
34.7
%
 
33.7
%
 
 

 
 

Net Income
29.9

 
24.4

 
5.5

 
22.5
 %
Diluted Earnings per Share
$
0.70

 
$
0.56

 
$
0.14

 
25.0
 %
NM - not meaningful
Net sales were $474.3 for the three months ended November 30, 2011, compared with $425.0 reported for the three months ended November 30, 2010, an increase of $49.3, or approximately 12%. For the three months ended November 30, 2011, the Company reported net income of $29.9 compared with $24.4 for the three months ended November 30, 2010. For the first quarter of fiscal 2012, diluted earnings per share increased 25% to $0.70 from $0.56 for the prior-year period.
The table below reconciles certain U.S. GAAP financial measures referred to in the discussion of the Company's results of operations to the corresponding non-U.S. GAAP measures, which exclude special charges associated with continued efforts to streamline the organization by realigning responsibilities primarily within various Selling, Distribution, and Administrative (“SD&A”) departments. Although special charges related to other efforts to improve overall Company efficiency have been recognized in prior periods and could recur in future periods, management typically excludes the impact of special charges during internal reviews of performance and uses these non-U.S. GAAP measures for baseline comparative operational analysis, decision making, and other activities. These non-U.S. GAAP financial measures, including adjusted operating profit, adjusted operating profit margin, adjusted net income, and adjusted diluted earnings per share, are provided to enhance the user's overall understanding of the Company's current financial performance. Specifically, the Company believes these non-U.S. GAAP measures provide greater comparability and enhanced visibility into the results of operations, excluding the impact of special charges. The non-U.S. GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, results prepared in accordance with U.S. GAAP.
 
Three Months Ended November 30,
 
2011
 
2010
Operating Profit
$
50.6

 
$
45.5

Addback: Special Charge
2.7

 

Adjusted Operating Profit
$
53.3

 
$
45.5

Percent of net sales
11.2
%
 
10.7
%
Net Income
$
29.9

 
$
24.4

Addback: Special Charge, net of tax
1.7

 

Adjusted Net Income
$
31.6

 
$
24.4

Diluted Earnings per Share
$
0.70

 
$
0.56

Addback: Special Charge, net of tax
0.04

 

Adjusted Diluted Earnings per Share
$
0.74

 
$
0.56



23

Table of Contents

Net Sales
Net sales for the three months ended November 30, 2011, increased by 11.6% compared with the prior-year period. Excluding the impact from acquisitions, net sales for the first quarter of fiscal 2012 rose 8.5% compared with the prior-year period. Unit volumes increased by slightly more than 7% over the prior-year period driven largely by increased shipments across most sales channels, partially offset by a decline in sales volume for certain international locations. The Company experienced higher demand within the non-residential commercial and industrial and home center channels, as well as from other large retailers. Although it is not possible to precisely quantify the separate impact of changes in product prices and the mix of products sold ("price/mix"), the Company estimates that favorable changes in price/mix contributed approximately two percentage points to the increase in net sales during the first three months of fiscal 2012, as the favorable impact of price increases implemented over the prior twelve months was partially offset by an unfavorable mix of products sold in certain channels.
Gross Profit
Gross profit for the first quarter of fiscal 2012 increased $17.5, or 9.9%, to $193.6 compared with $176.1 for the prior-year period. The increase was due primarily to the increase in overall sales volumes, favorable contributions from acquired businesses, modest improvements in price/mix, and benefits from productivity improvements. These benefits were partially offset by the impact of higher material and component costs of approximately $11.0 in the first three months of fiscal 2012 compared with the year-ago period. Although management believes that the increase in material and component costs during the first quarter of fiscal 2012 was substantially offset by price increases implemented over the prior twelve months, these higher input costs negatively impacted gross profit margins. In addition, unfavorable product mix changes, including greater sales of LED products, negatively impacted gross profit margins. These unfavorable items were partially offset by the benefits of improved spending in manufacturing operations, including productivity improvements. As a result of these factors, gross profit margin decreased by 60 basis points to 40.8% for the three months ended November 30, 2011 compared with the prior-year period.
Operating Profit
SD&A expenses for the three months ended November 30, 2011, were $140.3 compared with $130.6 in the prior-year period, which represented an increase of $9.7, or 7.4%. The increase in SD&A expenses was due primarily to additional costs associated with recently acquired businesses, higher commission and freight costs in support of higher sales, and selected spending for long-term growth opportunities. Fiscal 2012 first quarter SD&A expenses were 29.6% of net sales, 110 basis points lower than the prior-year period.
During the first quarter of fiscal 2012, the Company recorded a pre-tax special charge of $2.7 related to streamlining efforts undertaken during the current quarter. The special charge related to severance and related employee benefit costs were associated with a modest reduction in workforce. See the Outlook section for more information on these actions.
Operating profit for the first three months of fiscal 2012 was $50.6 compared with $45.5 for the prior-year period, an increase of $5.1, or 11.2%. The period-over-period increase was due primarily to the higher net sales and benefits of productivity improvements, partially offset by increases in material and component costs and the special charge as discussed above. Operating profit margin was 10.7% for the first quarter of fiscal 2012 and 2011, respectively.
Adjusted operating profit (excluding the special charge) for the first quarter of fiscal 2012 increased by $7.8, or 17.1%, to $53.3 compared to operating profit of $45.5 for the first quarter of fiscal 2011, during which the Company did not recognize a special charge. Adjusted operating profit margin (excluding the special charge) increased 50 basis points to 11.2% compared with the operating profit margin (with no corresponding special charge) of 10.7% in the year-ago period.
Other Expense (Income)
Other expense (income) for the Company consists principally of net interest expense and net miscellaneous expense (income) which is comprised primarily of foreign exchange related gains and losses. Interest expense, net, was $7.7 and $7.5 for the three months ended November 30, 2011 and 2010, respectively. The slight increase in net interest expense was due primarily to increased interest related to obligations associated with non-qualified retirement plans. The Company reported $2.9 of net miscellaneous income in the first three months of fiscal 2012 compared with $1.2 of net miscellaneous expense in the first three months of fiscal 2011. Fiscal 2012 first quarter net miscellaneous income was due mainly to the impact of favorable exchange rates on certain foreign currency items, primarily Mexican Peso-denominated exposures.
Provision for Income Taxes and Net Income
The effective income tax rate was 34.7% and 33.7% for the three months ended November 30, 2011 and 2010,


24

Table of Contents

respectively. The Company estimates that the effective tax rate for fiscal 2012 will be approximately 34.0% if the rates in its taxing jurisdictions remain generally consistent throughout the year.
Net income for the first quarter of fiscal 2012 increased $5.5 to $29.9 from $24.4 reported for the prior-year period. The increase in net income resulted primarily from higher operating profit and net miscellaneous income, partially offset by higher tax expense.
Adjusted net income (excluding the impact of the special charge) for the first three months of fiscal 2012 was $31.6 compared with $24.4 of net income (with no corresponding special charge) in the year-ago period. Adjusted diluted earnings per share (excluding the impact of the special charge) for the three months ended November 30, 2011 was $0.74 compared with diluted earnings per share (with no corresponding special charge) of $0.56 for the prior-year period.

Outlook
The performance of the Company, like most companies, is influenced by a multitude of factors, including the vitality of the economy, 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. Key indicators suggest that the U.S. non-residential construction market, a key market for the Company, is expected to remain relatively flat during the remainder of fiscal 2012. However, third-party forecasts suggest that the North American (N.A.) lighting market, which includes renovation and relight activity, will increase in the low-to-mid single digits during the remainder of fiscal 2012. This is consistent with the outlook described in the Company's Form 10-K filed on October 28, 2011.
The Company remains positive about its expectations for the remainder of fiscal 2012, which have not changed materially during the past three months. The Company continues to identify opportunities, including benefits from growing renovation and tenant improvement projects, further expansion in underpenetrated geographies and channels such as renovation, and growth from the introduction of new products and lighting solutions. This notwithstanding, management anticipates on-going volatility in both customer demand and commodity costs. Similar to prior years, the second fiscal quarter, typically the Company's weakest quarter, is expected to once again be influenced by normal seasonality and the potential for year-end inventory rebalancing by certain customers.
In an effort to obtain greater operating efficiencies, the Company continued efforts to streamline the organization by realigning responsibilities primarily within various Selling, Distribution, and Administrative departments, while allowing for continued investment in future growth initiatives, such as new products, expanded market presence, and technology and innovation. In the first quarter of fiscal 2012, the Company recognized a $2.7 pre-tax special charge consisting primarily of employee severance and benefit costs. Management estimates annualized savings of roughly $5.0 associated with these actions of which approximately $3.5 is expected to be realized in the current fiscal year. Management is evaluating possible further streamlining actions that may result in additional charges during the current fiscal year along with increased related savings.
In addition to the acquisitions completed in recent years, which significantly increased the Company's lighting solutions portfolio and expanded its addressable market, management believes the execution of the Company's strategy will provide opportunities for continued future growth. The Company's strategy is to capitalize on market growth oppo