UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
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(Mark One) | |
R | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended August 31, 2017 | |
OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to . | |
Commission file number 001-16583.
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ACUITY BRANDS, INC.
(Exact name of registrant as specified in its charter)
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Delaware | 58-2632672 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
1170 Peachtree Street, N.E., Suite 2300, Atlanta, Georgia (Address of principal executive offices) | 30309-7676 (Zip Code) | |
(404) 853-1400
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock ($0.01 Par Value) | New York Stock Exchange | |
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ | Accelerated Filer o | Non-accelerated Filer o | (Do not check if a smaller reporting company) |
Smaller Reporting Company o | Emerging Growth Company o | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
Based on the closing price of the Registrant’s common stock of $211.30 as quoted on the New York Stock Exchange on February 28, 2017, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $9,261,770,061.
The number of shares outstanding of the registrant’s common stock, $0.01 par value, was 42,080,827 shares as of October 24, 2017.
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DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K | Incorporated Document | |
Part II, Item 5; Part III, Items 10, 11, 12, 13, and 14 | Proxy Statement for 2017 Annual Meeting of Stockholders | |
ACUITY BRANDS, INC.
Table of Contents
Page No. | ||
PART I
Item 1. | Business |
Overview
Acuity Brands, Inc. (“Acuity Brands”) is the parent company of Acuity Brands Lighting, Inc. (“ABL”) and other subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred to herein as the “Company”), and was incorporated in 2001 under the laws of the State of Delaware. The Company is one of the world’s leading providers of lighting and building management solutions and services for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. The Company’s lighting and building management solutions include devices such as luminaires, lighting controls, controllers for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systems designed to optimize energy efficiency and comfort for various indoor and outdoor applications. Additionally, the Company continues to expand its solutions portfolio, including software and services, to provide a host of other economic benefits resulting from data analytics that enables the Internet of Things (“IoT”), supports the advancement of smart buildings, smart cities, and the smart grid, and allows businesses to develop custom applications to scale their operations.
As a results-driven, customer-centric company, management continues to align the unique capabilities and resources of the organization to drive profitable growth by providing comprehensive, differentiated, and integrated lighting and building management solutions and services for customers, driving world-class cost efficiency, and leveraging a culture of operational excellence through continuous improvement.
Lighting and building management solutions vary significantly in terms of functionality and performance and are selected based on a customer's specification, including the aesthetic desires and performance requirements for a given application. The Company’s lighting and building management solutions are marketed under numerous brand names, including but not limited to Lithonia Lighting®, Holophane®, Peerless®, Gotham®, Mark Architectural Lighting™, Winona® Lighting, Juno®, Indy™, Aculux™, Healthcare Lighting®, Hydrel®, American Electric Lighting®, Carandini®, Antique Street Lamps™, Sunoptics®, RELOC® Wiring Solutions, eldoLED®, Distech Controls®, Acuity Controls™, and Atrius™. As of August 31, 2017, the Company manufactures products in 16 facilities in North America and three facilities in Europe and employs approximately 12,500 associates.
Principal customers include electrical distributors, system integrators, retail home improvement centers, electric utilities, lighting showrooms, national accounts, and energy service companies located in North America and select international markets serving new construction, renovation, and maintenance and repair applications. In North America, the Company’s lighting and building management solutions are sold primarily by independent sales agents, electrical distributors, system integrators, and internal sales representatives who cover specific geographic areas and market channels. Products are delivered directly or through a network of distribution centers, regional warehouses, and commercial warehouses using both common carriers and a company-managed truck fleet. To serve international customers, the sales forces utilize a variety of distribution methods to meet specific individual customer or country requirements. In fiscal 2017, sales originated in North America accounted for greater than 97% of net sales. See the Supplemental Disaggregated 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 reportable segment serving the North American and select international lighting and building management markets.
Industry Overview
Based on industry sources and government information, the Company estimates that in fiscal 2017 the size of the North American lighting and building management solutions market served by the Company (also referred to herein as “addressable market”) was approximately $19 billion and similar to the prior year as the addressable market was estimated to be flat to up low-single digits compared with fiscal 2016. The addressable market includes non-portable luminaires as defined by the National Electrical Manufacturers Association; poles for outdoor lighting; emergency lighting fixtures; daylighting; lighting controls; heating, ventilation, and air conditioning (“HVAC”) controls; and building management controllers, software, and systems. This market estimate is based on a combination of external industry data and internal estimates, and excludes portable and vehicular lighting fixtures and certain related lighting components, such as lighting ballasts and most lamps. A source of demand for the lighting and building management industry is attributed to the renovation and retrofit of less efficient lighting and building management systems. While the precise size of the North American market is not known, the Company estimates the potential size of the installed base of lighting and building management solutions to be well in excess of $500 billion.
The Company operates in a highly competitive industry that is affected by volatility from a number of general business and economic factors, such as gross domestic product growth, employment levels, credit availability, energy
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costs, and commodity costs. The Company’s market is based on residential and non-residential construction, both new as well as renovation and retrofit activity, which is sensitive to the volatility of these general economic factors. The Company is not aware of any data that accurately quantifies the split of the non-residential lighting market between new construction and renovation and retrofit activity; however, recent trends developed from industry sources and Company estimates suggest that renovation and retrofit activity represents a growing proportion of the total non-residential lighting market. Construction spending on infrastructure projects such as highways, streets, and urban developments has a material impact on the demand for the Company’s infrastructure-focused lighting and building management solutions. Demand for the Company’s lighting and building management solutions sold through certain retail channels is highly dependent on economic drivers, such as consumer spending and discretionary income, along with housing construction and home improvement spending.
The residential and non-residential market is influenced by: the development of new lighting technologies, including solid-state lighting, electronic drivers, embedded lighting controls, form factors, and more effective optical designs and lamps; federal, state, and local requirements for updated energy codes; incentives by federal, state, and local municipal authorities, as well as utility companies, for using more energy-efficient lighting and building management solutions; and design technologies addressing sustainability and facilitating smarter buildings and cities. The Company is a leading provider of integrated lighting and building management solutions based on these technologies and utilizes internally developed, licensed, or acquired intellectual property. Solid-state lighting and digital building management systems provide the opportunity for lighting and building management systems to be integrated in a manner resulting in the optimal platform for enabling the IoT that collect and exchange data to increase efficiency as well as provide a host of other economic benefits resulting from data analytics and other features. The industry’s addressable market is likely to meaningfully expand due to the benefits and value creation provided by intelligent networked lighting, building management systems, and the IoT. New entrants, including both well-established as well as new software and technology companies, therefore continue to develop capabilities and solutions that are both complementary as well as competitive to those of traditional industry participants.
Products and Solutions
The Company offers a broad portfolio of indoor and outdoor lighting and building management solutions for commercial, institutional, industrial, infrastructure, and residential applications. The portfolio of lighting solutions includes lighting products utilizing fluorescent, light emitting diode (“LED”), organic LED (“OLED”), high intensity discharge, metal halide, and incandescent light sources to illuminate an extensive number of applications as well as standalone and embedded lighting control solutions from simple to sophisticated, wired and wireless. Lighting and controls products and solutions include the following: recessed, surface, and suspended lighting; downlighting; decorative lighting; emergency and exit lighting; track lighting; daylighting; special-use lighting; street and roadway lighting; parking garage lighting; underwater lighting; area pedestrian, flood, and decorative site lighting; landscape lighting; occupancy sensors; photocontrols; relay panels; architectural dimming panels; and integrated lighting controls systems. Building management solutions include products and solutions for controlling HVAC, lighting, shades, and access control that deliver end to end optimization of those building systems. The Company's lighting and building management solutions are designed to enhance the occupant experience, improve the quality of the visual environment, and provide seamless operational energy efficiency and cost reductions, as well as increased digital functionality due to a unique capability to collect vast amounts of data that can better enable the IoT for building owners. The solutions portfolio of the Company also includes modular wiring, LED drivers, sensors, glass, and inverters sold primarily to original equipment manufacturers (“OEMs”).
In addition, the Company provides services across applications that primarily relate to monitoring and controlling lighting and building management systems through network technologies and the commissioning of control systems. During fiscal 2017, the Company launched the Atrius™ IoT platform, which delivers connectivity and intelligence to a space via an expansive network of smart LED lighting and controls and a software platform that gathers, unlocks and transforms raw data to enable a broad range of software solutions addressing critical business challenges. The Company's total solution offerings now include recurring services that deliver an array of capabilities, including indoor positioning, asset tracking, space utilization, spatial analytics, and energy management.
Sales of lighting and building management solutions, excluding services, accounted for approximately 99% of total consolidated net sales for the Company in fiscal 2017, 2016, and 2015.
Sales and Marketing
Sales. The Company sells lighting and building management solutions to customers in the North American market utilizing numerous sales forces, including internal direct salespeople and independent sales agencies, based on the
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channel and geography served. The Company also operates separate European sales forces, including independent international sales agencies and system integrators, and an international sales group coordinating export sales outside of North America and Europe.
Marketing. The Company markets its portfolio and service capabilities to end users in multiple channels through a broad spectrum of marketing and promotional methods, including direct customer contact, trade shows, on-site training, print and digital advertising in industry publications, product brochures, and other literature, as well as through digital marketing and social media. The Company operates training and education facilities in several 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, system integrators, retail home improvement centers, electric utilities, utility distributors, national accounts, value-added resellers, government entities and municipalities, lighting showrooms, developers, OEMs, and energy service companies. In addition, there are a variety of other professionals who can represent a significant influence in the product and solutions specification process for any given project. These generally include building owners, federal, state, and local governments, contractors, engineers, architects, and lighting designers.
No single customer accounted for more than 10% of net sales in fiscal 2017 or fiscal 2016. A single customer of the Company accounted for approximately 11% of net sales in fiscal 2015. These sales included products for resale as well as for lighting the customer's facilities.
Manufacturing and Distribution
The Company operates 19 manufacturing facilities, including eight facilities in the United States, six facilities in Mexico, three facilities in Europe, and two in Canada. The Company utilizes a blend of internal and outsourced manufacturing processes and capabilities to fulfill a variety of customer needs in the most cost-effective manner. Certain critical processes, such as reflector forming and anodizing, high-end glass production, surface mount circuit board production, and assembly are performed (not exclusively) at company-operated facilities, offering the ability to differentiate products through superior capabilities. Other components, such as lamps, LEDs, certain LED light engines, sockets, and ballasts are purchased primarily from third-party vendors. The Company’s investment in its production facilities is focused primarily on improving capabilities, product quality, and manufacturing efficiency as well as environmental, health, and safety compliance. The Company also utilizes contract manufacturing from U.S., Asian, and European sources for certain products. Of total finished goods manufactured and purchased in fiscal 2017, the Company’s U.S. operations produced approximately 22%, its Mexican operations produced approximately 56%, and its European operations produced approximately 2%, and finished product manufactured by others accounted for approximately 20%.
Approximately 72% of the products manufactured by the Company are produced outside the United States, of which approximately 70% are produced at six facilities in Mexico. These facilities are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows the Company to import certain items from the United States into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame. Maquiladora status, which is renewed periodically, is subject to various restrictions and requirements, including compliance with the terms of the Maquiladora program and other local regulations, which have become stricter in recent years.
Lighting and building management solutions are delivered directly from manufacturing facilities or through a network of strategically located distribution centers, regional warehouses, and commercial warehouses in North America using both common carriers and a company-managed truck fleet. For international customers, distribution methods are adapted to meet individual customer or country requirements. During fiscal 2017, net sales initiated outside of the U.S. represented approximately 11% of total net sales. See the Supplemental Disaggregated 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.
Research and Development
Research and development (“R&D”) is defined as the critical investigation aimed at discovery of new knowledge and the conversion of that knowledge into the design of a new product or significant improvement to an existing product. The Company invests in the development of new products and solutions as well as the enhancement of existing
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offerings with a focus on improving the performance-to-cost ratio and energy efficiency. The Company also develops software applications and capabilities to enhance data analytics offerings. R&D expenses consist of compensation, payroll taxes, employee benefits, materials, supplies, and other administrative costs, but do not include all new product development costs. For fiscal 2017, 2016, and 2015, research and development expense totaled $52.0 million, $47.1 million, and $41.1 million, respectively.
Competition
The Company experiences competition based on numerous factors, including features and benefits, brand name recognition, product quality, product and system design, energy efficiency, customer relationships, service capabilities, and price. The market for lighting and building management solutions and services is competitive and continues to evolve. Certain global and more diversified electrical manufacturers may provide a broader product offering utilizing electrical, lighting, and building management products as well as pricing benefits from the bundling of various offerings. In addition, there have been a growing number of new competitors, from small startup companies to global electronics, technology, and software companies, offering competing solutions, sometimes deploying different technologies.
Environmental Regulation
The operations of the Company are subject to numerous comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances, as well as solid and hazardous wastes, and to the remediation of contaminated sites. In addition, permits and environmental controls are required for certain of the Company’s operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, the Company allocates resources, including investments in capital and operating costs relating to environmental compliance. Environmental laws and regulations have generally become stricter in recent years, and federal, state, and local governments domestically and internationally are considering new laws and regulations, including those governing raw material composition, air emissions, end-of-life product dispositions, and energy efficiency. The Company is not aware of any pending legislation or proposed regulation related to environmental issues that would have a material adverse effect on the Company. The cost of responding to future changes, however, may be substantial.
Raw Materials
Products produced by the Company require certain raw materials, including certain grades of steel and aluminum, electrical and electronic components, plastics, and other petroleum-based materials and components. In fiscal 2017, the Company purchased approximately 109,000 tons of steel and aluminum. The Company estimates that approximately 7% of purchased raw materials are petroleum-based. Additionally, the Company estimates that approximately five million gallons of diesel fuel were consumed in fiscal 2017 through the Company’s distribution activities. The Company purchases most raw materials and other components on the open market and relies on third parties for providing certain finished goods. While these items are generally available from multiple sources, the cost of products sold may be affected by changes in the market price of raw materials, as well as disruptions in availability of raw materials, components, and sourced finished goods.
The Company does not currently engage in or expect to engage in significant commodity hedging transactions for raw materials, though the Company has and will continue to commit to purchase certain materials for a period of up to 12 months. The Company monitors and investigates alternative suppliers and materials based on numerous attributes including quality, service, and price. The Company currently sources raw materials and components from a number of suppliers, but the Company’s ongoing efforts to improve the cost effectiveness of its products and services may result in a reduction in the number of its suppliers.
Backlog Orders
The Company produces and stocks quantities of inventory at key distribution centers and warehouses throughout North America and to a much lesser degree, certain European markets. The backlog of orders at any given time is affected by various factors, including seasonality, cancellations, sales promotions, production cycle times, and the timing of receipt and shipment of orders, which are usually shipped within a few weeks of order receipt. Accordingly, a comparison of backlog orders from period to period is not necessarily meaningful and may not be indicative of future shipments.
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Intellectual Property
The Company owns or has licenses to use various domestic and foreign patents, trademarks, and other intellectual property related to its products, processes, and businesses. These intellectual property rights are important factors for its businesses. The Company relies on copyright, patent, trade secret, and trademark laws as well as agreements, restrictive covenants, and internal processes and controls to protect these proprietary rights. Despite these protections, unauthorized parties may attempt to infringe on the intellectual property of the Company. As of August 31, 2017, the Company had approximately 1,275 active United States and foreign patents. While patents and patent applications in the aggregate are important to the competitive position of the Company, no single patent or patent application is individually material to the Company.
Seasonality and Cyclicality
The Company’s business exhibits some seasonality, with net sales being affected by 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.
The Company's lighting and building management solutions are sold to customers in both the new construction as well as renovation and retrofit markets for residential and non-residential applications. The construction market is cyclical in nature and subject to changes in general economic conditions. Sales volume has a major impact on the profitability of the Company. Economic downturns and the potential decline in key construction markets may have a material adverse effect on the net sales and operating income of the Company.
Employees
As of August 31, 2017, the Company employed approximately 12,500 associates, of which approximately 4,000 were employed in the United States, approximately 8,000 in Mexico, and approximately 500 in other international locations, including Europe, Canada, and the Asia/Pacific region. Union recognition and collective bargaining arrangements are in place or in process, covering approximately 9,500 persons (including approximately 2,000 in the United States). Union recognition and collective bargaining arrangements covering approximately 7,000 persons will expire within the next fiscal year, primarily due to annual negotiations with unions in Mexico. The remaining expiring arrangements relate to approximately 500 persons employed within the United States. The Company believes that it has a good relationship with both its unionized and non-unionized employees.
Information Concerning Acuity Brands
The Company makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (and all amendments to these reports) and proxy statements, together with all reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 by the Company’s officers, directors, and beneficial owners of 10% or more of the Company’s common stock, available free of charge through the “SEC Filings” link on the Company’s website, located at www.acuitybrands.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. Information included on the Company’s website is not incorporated by reference into this Annual Report on Form 10-K. The Company’s reports are also available on the Securities and Exchange Commission’s website at www.sec.gov.
Additionally, the Company has adopted a written Code of Ethics and Business Conduct that applies to all of the Company’s directors, officers, and employees, including its principal executive officer and senior financial officers. The Code of Ethics and Business Conduct and the Company’s Corporate Governance Guidelines are available free of charge through the “Corporate Governance” link on the Company’s website. Any amendments to, or waivers of, the Code of Ethics and Business Conduct for the Company's principal executive officer and senior financial officers will be disclosed on the Company's website promptly following the date of such amendment or waiver. Additionally, the Statement of Responsibilities of Committees of the Board and the Statement of Rules and Procedures of Committees of the Board, which contain the charters for the Company’s Audit Committee, Compensation Committee, and Governance Committee, and the rules and procedures relating thereto, are available free of charge through the “Corporate Governance” link on the Company’s website. Each of the Code of Ethics and Business Conduct, the Corporate Governance Guidelines, the Statement of Responsibilities of Committees of the Board, and the Statement of Rules and Procedures of Committees of the Board is available in print to any stockholder of the Company that requests such document by contacting the Company’s Investor Relations department.
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Item 1a. | Risk Factors |
This filing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A variety of risks and uncertainties could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Information” included in Management's Discussion and Analysis of Financial Condition and Results of Operations. These risks could adversely impact the Company's financial position, results of operations, and cash flows and could cause the market price of the Company's common stock to decrease. Such risks include, without limitation:
Risks Related to the Company's Strategy
General business, political, and economic conditions, including the strength of the construction market, political events, or other factors may affect demand for the Company’s products and services.
The Company competes based on such factors as name recognition and reputation, quality, 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 economic vitality, employment levels, credit availability, interest rates, trends in vacancy rates and rent values, energy costs, and commodity costs. Sales of lighting and building management solutions depend significantly on the level of activity in new construction and renovation/retrofits. Declines in general economic activity, appropriations, and regulations, including tax policy, may negatively impact new construction and renovation projects, which in turn may impact demand for the Company’s product and service offerings.
The Company’s results may be adversely affected by fluctuations in the cost or availability of raw materials, components, purchased finished goods, or services.
The Company utilizes a variety of raw materials and components in its production process including steel, aluminum, lamps, certain rare earth materials, LEDs, LED drivers, ballasts, wire, electronic components, power supplies, petroleum-based by-products, natural gas, and copper. The Company also sources certain finished goods externally. Future increases in the costs of these items could adversely affect profitability, as there can be no assurance that future price increases will be successfully passed through to customers. The Company generally sources these goods from a number of suppliers. However, there are a limited number of suppliers for certain components and certain purchased finished goods, which on a limited basis results in sole-source supplier situations. Disruptions in the supply of those items could negatively impact the Company’s performance. Suppliers for certain of those items are competitors of the Company that may, for various strategic reasons, choose to cease selling to the Company. In addition, the Company's ongoing efforts to improve the cost effectiveness of its products and services may result in a reduction in the number of its suppliers, and in turn, increased risk associated with reliance on a single or limited number of suppliers. Furthermore, volatility in certain commodities, such as oil, impacts all suppliers and, therefore, may cause the Company to experience significant price increases from time to time regardless of the number and availability of suppliers. Profitability and volume could be negatively impacted by limitations inherent within the supply chain of certain of these component parts, including competitive, governmental, and legal limitations, natural disasters, and other events that could impact both supply and price. Additionally, the Company is dependent on certain service providers for key operational functions. While there are a number of suppliers of these services, the cost to change service providers and set up new processes could be significant.
The Company’s results may be adversely affected by its inability to maintain pricing.
Aggressive pricing actions by competitors, including those within the technology and services sectors, may affect the Company’s ability to achieve desired revenue growth and profitability levels under its current pricing strategies. The Company may also decide to lower prices to match the competition. Additionally, the Company may not be able to increase prices to cover rising costs of components and raw materials. Even if the Company were able to increase prices to cover costs, competitive pricing pressures may not allow the Company to pass on any more than the cost increases. Alternatively, if component and raw material costs were to decline, the marketplace may not allow the Company to hold prices at their current levels.
The Company’s inability to effectively introduce new products and solutions could adversely affect its ability to compete.
Continual introductions of new products and solutions, services, and technologies, enhancement of existing products and services, and effective servicing of customers are key to the Company’s competitive strategy. The success of new product and solution introductions depends on a number of factors, including, but not limited to, timely and
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successful product development, product quality, market acceptance, the Company’s ability to manage the risks associated with product life cycles, such as additional inventory obsolescence risk as product life cycles begin to shorten, new products and production capabilities, the effective management of purchase commitments and inventory levels to support anticipated product manufacturing and demand, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products may have quality or other defects in the early stages of introduction. Accordingly, the Company cannot fully predict the ultimate effect of new product introductions and transitions on the Company’s business. Additionally, new products and solutions may not achieve the same profit margins as expected and as compared to the Company's historic products and solutions.
The Company may pursue future growth through strategic acquisitions, alliances, or investments, which may not yield anticipated benefits.
The Company has strengthened its business through strategic acquisitions, alliances, and investments and may continue to do so as opportunities arise in the future. Such investments have been and may be in start-up or development stage entities. The Company will benefit from such activity only to the extent that it can effectively leverage and integrate the assets or capabilities of the acquired businesses and alliances, including, but not limited to, personnel, technology, and operating processes. Moreover, unanticipated events, negative revisions to valuation assumptions and estimates, diversion of resources and management's attention from other business concerns, and difficulties in attaining synergies, among other factors, could adversely affect the Company’s ability to recover initial and subsequent investments, particularly those related to acquired goodwill and intangible assets or non-controlling interests. In addition, such investment transactions may limit the Company's ability to invest in other activities, which could be more profitable or advantageous.
The inability to effectively execute its business strategies could adversely affect the Company’s financial condition and results of operations.
Various uncertainties and risks are associated with the implementation of a number of aspects of the Company’s global business strategies, including but not limited to, the development, marketing and selling of new products and solutions, new product development, the development, marketing, and selling of lighting, building management, and software-based solutions, effective integration of acquisitions, and the development of production capacity related to components such as LED drivers. Those uncertainties and risks include, but are not limited to: diversion of management’s attention; difficulty in retaining or attracting employees; negative impact on relationships with distributors and customers; obsolescence of current products and slow new product development; inability to effectively participate in the emerging opportunities of the Internet of Things (“IoT”) utilizing the Company's digital lighting and building management systems; additional streamlining efforts; inability to produce certain components with quality, performance, and cost attributes equal to or better than provided by other component manufacturers; 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 as well as adversely affect the Company. With the addition of new products and solutions, the Company may encounter new and different competitors that may have more experience with respect to such products and solutions.
The Company may experience difficulties in streamlining activities which could impact shipments to customers, product quality, and the realization of expected savings from streamlining actions.
The Company expects to benefit from its ongoing programs to streamline operations, including the consolidation of certain manufacturing facilities and the reduction of overhead costs. Such benefits will only be realized to the extent that the Company 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.
Risks Related to the Company's Operations
Technological developments and increased competition could affect the Company’s operating profit margins and sales volume.
The Company competes in an industry and markets 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 and services. Securing key partnerships and alliances as well as employee talent, including having access to technologies, services, and solutions developed by others, and obtaining appropriate patents and the right to utilize patents of other parties all play a significant role in protecting the Company’s freedom to operate and development activities. Additionally, the continual development of new technologies by existing and new source suppliers — including
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non-traditional competitors with significant resources — looking for either direct market access or partnerships with competing large manufacturers, coupled with significant associated exclusivity and/or patent activity, could adversely affect the Company’s ability to sustain operating profit margins and desirable levels of sales volume.
In addition, there have been a growing number of new competitors, from small startup companies to global electronics, technology, and software companies, which may vertically integrate and begin offering total solution packages that directly compete with the Company's offerings. Certain global and more diversified electrical manufacturers as well as certain global technology and building solution providers may be able to obtain a competitive advantage over the Company by offering broader and more integrated solutions utilizing electrical, lighting, controls, building automation systems, and data analytics, and small startup companies may offer more localized product sales and support services within individual regions.
The Company may be unable to sustain significant customer and/or channel partner relationships.
Relationships with customers are directly impacted by the Company’s ability to deliver quality products and services. Although no individual customer exceeded 10% of sales during the current fiscal year, the loss of or a substantial decrease in the volume of purchases by certain larger customers could harm the Company in a meaningful manner. The Company has relationships with channel partners such as electrical distributors, home improvement retailers, independent sales agencies, system integrators, and value-added resellers. While the Company maintains positive, and in many cases long-term, relationships with these channel partners, the loss of a number of these channel partners or a substantial decrease in the volume of purchases from a major channel partner or a group of channel partners could adversely affect the Company.
The Company could be adversely affected by disruptions to its operations outside of its control.
The breakdown of equipment or other events, including labor disputes, strikes, workplace violence, pandemics, cyber-attacks, civil disruptions, or catastrophic events such as war or natural disasters, leading to production interruptions in the Company’s or one or more of its suppliers’ facilities could adversely affect the Company. Approximately 56% of the Company’s finished products are manufactured in Mexico, a country that periodically experiences heightened civil unrest which could cause a disruption of the supply of products to or from these facilities. Further, because many of the Company’s customers are to varying degrees dependent on planned deliveries from the Company’s facilities, those customers that have to reschedule their own production or delay opening a facility due to the Company’s missed deliveries as a result of these disruptions could pursue financial claims against the Company. The Company may incur costs to correct any of these problems in addition to facing claims from customers. Further, the Company’s reputation among actual and potential customers may be harmed and result in a loss of business. While the Company has developed business continuity plans, including alternative capacity, to support responses to such events or disruptions and maintains insurance policies covering, among other things, physical damage and business interruptions, these policies may not cover all losses. The Company could incur uninsured losses and liabilities arising from such events, including damage to its reputation, loss of customers, and substantial losses in operational capacity.
Company operating systems, information systems, or portable devices may experience a failure, a compromise of security, or a violation of data privacy laws or regulations, which could adversely impact the Company’s operations as well as the effectiveness of internal controls over operations and financial reporting.
The Company is highly dependent on various software and automated systems to record and process operational and financial transactions. The Company could experience a failure of one or more of these software and automated 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 many reasons, including technical system flaws, clerical, data input or record-keeping errors, or tampering or manipulation of its systems by employees or unauthorized third parties. Information security risks also exist with respect to the use of portable electronic devices, such as laptops and smartphones, which are particularly vulnerable to loss and theft. The Company may also be subject to disruptions of any of these systems arising from events that are wholly or partially beyond its control (for example, natural disasters, acts of terrorism, cyber attacks, epidemics, computer viruses, and electrical/telecommunications outages). All of these risks are also applicable where the Company relies on outside vendors to provide services, which may operate in a cloud environment. The Company is dependent on the third-party vendors to operate secure and reliable systems which may include data transfers over the internet.
The Company also maintains information technology to support lighting controls systems in certain of its customer offerings, which are integral to the functionality of those integrated systems. In addition to the risks noted above, there are other risks associated with these customer offerings. Customers may be installing software on their networks and
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utilizing portable electronic devices, which may have security protocol variations that are outside of the Company’s control and could result in a data security compromise.
The Company and certain of its third-party vendors may receive and store personal information in connection with human resources operations, customer offerings, and other aspects of the business. A material network breach in the security of these systems could include the theft of intellectual property, trade secrets, or employee and customer information. To the extent that any disruption or security breach results in a loss or damage to the Company's data, or an inappropriate disclosure of confidential or customer or employee information, it could cause significant damage to the Company's reputation, affect relationships with the Company's customers and employees, lead to claims against the Company, and ultimately harm the Company's business. In addition, the Company may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
The Company is also subject to an increasing number of data privacy laws and regulations that prohibit certain transfers of data, including but not limited to transfers within and outside the Company from certain jurisdictions to others. Failure to comply with such laws and regulations could result in the imposition of fines, penalties and other costs. The legal and regulatory data privacy framework is evolving and uncertain. For example, the European Court of Justice’s decision in October 2015 to invalidate the Safe Harbor data privacy program between the United States and the European Union could disrupt the Company's ability to transfer data from Europe to the United States in compliance with applicable law.
Operating system failures, ineffective system implementation or disruptions, failure to comply with data privacy laws or regulations, or the compromise of security with respect to internal or external operating systems or portable electronic devices could subject the Company to liability claims, harm the Company’s reputation, interrupt the Company’s operations, disrupt customer operations, and adversely affect the Company’s internal control over financial reporting, business, financial condition, results of operations, or cash flows.
Changes in the Company's relationship with employees, changes in U.S. or international employment regulations, an inability to attract and retain talented employees, or a loss of key employees could adversely impact the effectiveness of the Company’s operations.
The Company employed approximately 12,500 people as of August 31, 2017, approximately 8,500 of whom are employed in international locations. As such, the Company has significant exposure to changes in domestic and foreign laws governing relationships with employees, including wage and hour laws and regulations, fair labor standards, minimum wage requirements, overtime pay, unemployment tax rates, workers' compensation rates, citizenship requirements, and payroll taxes, which likely would have a direct impact on the Company's operating costs. Union recognition and collective bargaining agreements are in place or in process covering approximately 76% of the Company's workforce, primarily due to annual negotiations with unions in Mexico. Collective bargaining agreements representing approximately 56% of the Company's workforce will expire within one year. While the Company believes that it has good relationships with both its unionized and non-unionized employees, the Company may become vulnerable to a strike, work stoppage, or other labor action by these employees.
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. An inability to attract and retain such employees could adversely impact the Company’s ability to execute key operational functions.
There are inherent risks in our solutions and services businesses.
Risks inherent in the sale of solutions and services include assuming greater responsibility for successfully delivering projects that meet a particular customer specification, including defining and controlling contract scope and timing, efficiently executing projects, and managing the performance and quality of the Company’s subcontractors and suppliers. As the Company expands its service offerings, reliance on the technical infrastructure to provide services to customers will increase. If the Company fails to appropriately manage and secure the technical infrastructure required, customers could experience service outages or delays in implementation of services. If the Company is unable to manage and mitigate these risks, the Company could incur liabilities and other losses.
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The Company may be subject to risk in connection with third-party relationships necessary to operate the Company's business.
The Company utilizes strategic partners and third party relationships in order to operate and grow its business. For instance, the Company utilizes third parties to contract manufacture certain products, as well as perform certain selling, distribution, and administrative functions. The Company cannot control the actions or performance, including product quality, of these third parties and therefore, cannot be certain that the Company or its end-users will be satisfied. Any future actions of or any failure to act by any third party on which the Company’s business relies could cause the Company to incur losses or interruptions in its operations.
The Company is subject to risks related to operations and suppliers outside the United States.
The Company has substantial activities outside of the United States, including sourcing of products, materials, components and purchased finished goods. The Company’s operations, as well as those of key vendors, are therefore subject to regulatory, economic, political, military, and other events in countries where these operations are located, particularly Mexico. In addition to the risks that are common to both the Company’s domestic and international operations, the Company faces risks specifically related to its foreign operations, including but not limited to: foreign currency fluctuations; unstable political, social, regulatory, economic, financial, and market conditions; laws that prohibit shipments to certain countries or restricted parties and that prohibit improper payments to government officials such as the Foreign Corrupt Practices Act and the U.K. Bribery Act; potential for privatization and other confiscatory actions; trade restrictions and disruption; criminal activities; unforeseen increases in tariffs and taxes; corruption; and other changes in regulation in international jurisdictions that could result in substantial additional legal or compliance obligations for the Company. The Company operates six manufacturing facilities in Mexico, which are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows the Company to import certain items from the United States into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame. Maquiladora status, which is renewed periodically, is subject to various restrictions and requirements, including compliance with the terms of the Maquiladora program and other local regulations, which have become stricter in recent years.
Certain regulations related to the Maquiladora program became effective in January 2015. Failure to comply with these new regulations could adversely affect the Company’s financial position, results of operations, and cash flows primarily because the Company would in such event be required to pay value-added tax on material imported into Mexico and then seek a refund of those amounts months later after the material is exported from Mexico.
The Company is also subject to certain other laws and regulations affecting its international operations, including laws and regulations such as the North American Free Trade Agreement which, among other things, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Repeal or alteration of these laws and regulations could adversely impact the Company's business. The evolution of the Company’s products, complexity of its supply chain, and reliance on third-party vendors such as customs brokers and freight vendors, which may not have effective processes and controls to enable the Company to fully and accurately comply with such requirements, could subject the Company to liabilities for past, present, or future periods. Such liabilities could adversely impact the Company’s business, financial condition, results of operations, and cash flows.
In June 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the European Union commonly referred to as “Brexit.” As a result of the referendum, it the British government has begun negotiating the terms of the U.K.’s future relationship with the E.U. Although it is unknown what those terms will be, it is possible that there will be greater restrictions on imports and exports between the U.K. and E.U. countries and increased regulatory complexities. These changes could cause disruptions to and create uncertainty surrounding the Company's business and the business of existing and future customers and suppliers as well as have an impact on the Company's employees based in Europe, which could adversely impact its business. The actual effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. markets either during a transitional period or more permanently.
The Company continues to monitor conditions affecting its international locations, including potential changes in income from a strengthening or weakening in foreign exchange rates in relation to the U.S. dollar. Some of these risks, including but not limited to foreign exchange risk, violations of laws, and higher costs associated with changes in regulation, could adversely impact the Company’s business.
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Risks Related to Legal and Regulatory Matters
Failure to comply with the broad range of standards, laws and regulations in the jurisdictions in which the Company operates may result in exposure to substantial disruptions, costs and liabilities.
The laws and regulations impacting the Company impose increasingly complex, stringent and costly compliance activities, including but not limited to environmental, health, and safety protection standards and permitting, labeling and other requirements regarding, among other things, electronic and wireless communications, air emissions, wastewater discharges, the use, handling, and disposal of hazardous or toxic materials, the remediation of environmental contamination, and working conditions for the Company’s employees. Some environmental laws, such as Superfund, the Clean Water Act, and comparable laws in U.S. states and other jurisdictions world-wide, impose joint and several liability for the cost of environmental remediation, natural resource damages, third party claims, and other expenses, without regard to the fault or the legality of the original conduct, on those persons who contributed to the release of a hazardous substance into the environment. The Company may also be affected by future industry standards, laws or regulations, including those imposed in response to energy, climate change, product functionality, geopolitical, or similar concerns. These standards, laws, or regulations may impact the sourcing of raw materials and the manufacture and distribution of the Company’s products and place restrictions and other requirements or impediments on the products and solutions the Company can sell in certain geographical locations.
The Company may develop unexpected legal contingencies or matters that exceed insurance coverage.
The Company is subject to and in the future may be subject to various claims, including legal claims arising in the normal course of business. Such claims may include without limitation employment claims, product recall, personal injury, network security, data privacy, or property damage claims resulting from the use of the Company's products, services, or solutions, as well as exposure to hazardous materials, contract disputes, or intellectual property disputes. The Company is insured up to specified limits for certain types of losses with a self-insurance retention per occurrence, including product or professional liability, and cyber liability, including network security and data privacy claims, and is fully self-insured for certain other types of losses, including environmental, product recall, warranties, commercial disputes, and patent infringement. The Company establishes reserves for legal claims when the costs associated with the claims become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the level of insurance coverage held by the Company and/or the amounts reserved for such claims. In the event of unexpected future developments, it is possible that the ultimate resolutions of such matters could be unfavorable. The Company’s insurance coverage is negotiated on an annual basis, and insurance policies in the future may have coverage exclusions that could cause claim-related costs to rise.
If the Company's products are improperly designed, manufactured, packaged, or labeled, the Company may need to recall those items, may have increased warranty costs, and could be the target of product liability claims.
The Company may need to recall products if they are improperly designed, manufactured, packaged, or labeled, and the Company does not maintain insurance for such recall events. Many of the Company's products and solutions have become more complex in recent years and include more sophisticated and sensitive electronic components. The Company has increasingly manufactured certain of those components and products in its own facilities. The Company has previously initiated product recalls as a result of potentially faulty components, assembly, installation, and packaging of its products. Widespread product recalls could result in significant losses due to the costs of a recall, the destruction of product inventory, penalties, and lost sales due to the unavailability of a product for a period of time. In addition, products developed by the Company that incorporate new technologies, such as LED technology, generally provide for more extensive warranty protection which may result in higher costs if warranty claims on these products are higher than historical amounts. The Company may also be liable if the use of any of its products causes harm, and could suffer losses from a significant product liability judgment against the Company in excess of its insurance limits. The Company may not be able to obtain indemnity or reimbursement from its suppliers or other third parties for the warranty costs or liabilities associated with its products. A significant product recall, warranty claim, or product liability case could also result in adverse publicity, damage to the Company’s reputation, and a loss of consumer confidence in its products.
The Company may fail to effectively estimate employer-sponsored health insurance premiums and incremental costs due to the Affordable Care Act.
In March 2010, the United States federal government enacted comprehensive health care reform legislation, which, among other things, includes guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new taxes on health insurers, self-insured companies, and health care benefits. The legislation imposes implementation
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effective dates that began in 2010 and extend through 2020 with many of the changes requiring additional guidance and regulations from federal agencies. Possible adverse effects could include increased costs, exposure to expanded liability, and requirements for the Company to revise the ways in which healthcare and other benefits are provided to employees. To date, the Company has experienced increased costs related to such legislation; however, due to the phased-in nature of the implementation and the lack of interpretive guidance, the Company continues to monitor the potential impacts the health care reform legislation will have on the Company’s financial results. Furthermore, any changes to or a repeal of previously enacted health care reform could cause the Company to incur additional expense to comply with or change its practices with respect any new or revised legislation.
The Company may not be able to adequately protect its intellectual property and could be the target of intellectual property claims.
The Company owns certain patents, trademarks, copyrights, trade secrets, and other intellectual property. In addition, the Company continues to file patent applications, when appropriate. The Company cannot be certain that others have not and will not infringe on its intellectual property rights; however, the Company seeks to establish and protect those rights, which could result in significant legal expenses and adversely affect the Company's financial condition and results of operations.
Over the last several years, the Company and others in the industry have received an increased number of allegations of patent infringement from competitors and other non-practicing entity patent holders, often coupled with offers to license such patents for use by the Company. Such offers typically relate to various technologies including electronics, power systems, controls, and software, as well as the use of visible light to communicate data, the use of certain wireless networking methods, and the design of specific products. The Company believes that it does not need or will be able to invalidate or access such patents through licensing, cross-licensing, or other mutually beneficial arrangements, although to the extent the Company is required but unable to enter into such arrangements on acceptable economic terms, it could adversely impact the Company.
Risks Related to Financial Matters
Tight credit conditions could impair the ability of the Company and other industry parties to effectively access capital markets, which could negatively impact demand for the Company’s products and services.
The impact of tight credit conditions could 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 depressed levels of construction and renovation projects. The inability of these constituents to borrow money to fund construction and renovation projects may reduce the demand for the Company’s products and services.
The market price and trading volume of the Company’s shares may be volatile.
The market price of the Company’s common shares could fluctuate significantly for many reasons, including reasons unrelated to the Company’s specific performance, such as reports by industry analysts, investor perceptions, or negative announcements by customers, competitors, or suppliers regarding their own performance, as well as general global economic, industry, and political conditions. SInce management does not provide guidance, the Company's performance could be different than analyst expectations causing a decline in the Company's stock price. To the extent that other large companies within the Company’s industry experience declines in share price, the Company’s share price may decline as well. In addition, when the market price of a company’s shares drops significantly, shareholders could institute securities class action lawsuits against the Company. Such a lawsuit could cause the Company to incur substantial costs and could divert the time and attention of the Company’s management and other resources.
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Risks related to the Company's defined benefit retirement plans may adversely impact results of operations and cash flows.
Significant changes in actual investment returns on defined benefit plan assets, discount rates, and other factors could adversely affect the Company's results of operations and the amount of contributions the Company is required to make to the defined benefit plans in future periods. As the Company's defined benefit plan assets and liabilities are marked-to-market on an annual basis, large non-cash gains or losses could be recorded in the fourth quarter of each fiscal year. In accordance with United States generally accepted accounting principles the income or expense for the plans is calculated using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements for the defined benefit plans are dependent upon, among other things, interest rates, underlying asset returns, and the impact of legislative or regulatory changes related to defined benefit funding obligations. Unfavorable changes in these factors could adversely affect the Company.
Item 1b. | Unresolved Staff Comments |
None.
Item 2. | Properties |
The general corporate offices of the Company 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 as of August 31, 2017:
Nature of Facilities | Owned | Leased | |||
Manufacturing facilities | 13 | 6 | |||
Warehouses | — | 1 | |||
Distribution centers* | 1 | 6 | |||
Offices | 4 | 16 | |||
______________________________________
* The majority of the distribution centers also have certain manufacturing and assembly capabilities.
The following table provides additional geographic information related to the Company’s manufacturing facilities as of August 31, 2017:
United States | Mexico | Europe | Canada | Total | ||||||||||
Owned | 6 | 4 | 2 | 1 | 13 | |||||||||
Leased | 2 | 2 | 1 | 1 | 6 | |||||||||
Total | 8 | 6 | 3 | 2 | 19 | |||||||||
The Company believes that its properties are well maintained and in good operating condition and that its properties are suitable and adequate for its present needs. Initiatives related to enhancing the global supply chain may result in the future consolidation of certain facilities.
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Item 3. | Legal Proceedings |
General
The Company is subject to various legal claims arising in the normal course of business, including, but not limited to, patent infringement, product liability claims, and employment matters. The Company is self-insured up to specified limits for certain types of claims, including product liability, and is fully self-insured for certain other types of claims, including environmental, product recall, and patent infringement. Based on information currently available, it is the opinion of management that the ultimate resolution of pending and threatened legal proceedings will not have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. However, in the event of unexpected future developments, it is possible that the ultimate resolution of any such matters, if unfavorable, could have a material adverse effect on the financial condition, results of operations, or cash flows of the Company in future periods. The Company establishes reserves for legal claims when the costs associated with the claims become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher than the amounts reserved for such claims. However, the Company cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the amounts reserved.
Environmental Matters
The operations of the Company are subject to numerous comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances, as well as solid and hazardous wastes, and to the remediation of contaminated sites. In addition, permits and environmental controls are required for certain of the Company’s operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, the Company invests capital and incurs operating costs relating to environmental compliance. Environmental laws and regulations have generally become stricter in recent years. The cost of responding to future changes may be substantial. The Company establishes reserves for known environmental claims when the costs associated with the claims become probable and can be reasonably estimated. The actual cost of environmental issues may be substantially higher than that reserved due to difficulty in estimating such costs.
Item 4. | Mine Safety Disclosures |
Not applicable.
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PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
The common stock of Acuity Brands is listed on the New York Stock Exchange under the symbol “AYI.” At October 24, 2017, there were 2,195 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 | |||
Fiscal 2016 | |||||
First quarter | $234.43 | $168.33 | $0.13 | ||
Second quarter | $241.90 | $169.42 | $0.13 | ||
Third quarter | $264.00 | $209.06 | $0.13 | ||
Fourth quarter | $280.89 | $231.89 | $0.13 | ||
Fiscal 2017 | |||||
First quarter | $276.69 | $216.89 | $0.13 | ||
Second quarter | $255.45 | $193.06 | $0.13 | ||
Third quarter | $214.94 | $157.33 | $0.13 | ||
Fourth quarter | $208.83 | $162.22 | $0.13 | ||
The indicated annual dividend rate on the Company's common stock is $0.52 per share. However, all decisions regarding the declaration and payment of dividends are at the discretion of the Board of Directors of the Company (the “Board”) and will be evaluated regularly in light of the Company’s financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors that the Board deems relevant. The information required by this item with respect to equity compensation plans is included under the caption Equity Compensation Plans in the Company’s proxy statement for the annual meeting of stockholders to be held January 5, 2018, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Issuer Purchases of Equity Securities
During the third quarter of fiscal 2017, the Company purchased two million shares of the Company's outstanding common stock, completing the share repurchases previously authorized by the Board in September 2011. In June 2017, the Board authorized the repurchase of an additional two million shares in the future. None of the Company’s outstanding common stock has been repurchased under the current plan; therefore, the maximum number of shares that may yet be purchased under the program equals two million.
Shares may be repurchased from time to time at prevailing market prices, depending on market conditions, through open market or privately negotiated transactions. No date has been established for the completion of the share repurchase program, and the Company is not obligated to repurchase any shares. Subject to applicable corporate securities laws, repurchases may be made at such times and in such amounts as management deems appropriate. Repurchases under the program can be discontinued at any time management feels additional repurchases are not warranted.
Company Stock Performance
The following information in this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and it will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent specifically incorporated by reference into such filing.
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The following graph compares the cumulative total return to shareholders on the Company’s outstanding stock during the five years ended August 31, 2017, with the cumulative total returns of the Standard & Poor’s (“S&P”) 500 Index, the Dow Jones U.S. Electrical Components & Equipment Index, and the Dow Jones U.S. Building Materials & Fixtures Index. The Company is a component of both the S&P 500 Index and the Dow Jones U.S. Building Materials & Fixtures Index. The Dow Jones U.S. Electrical Components & Equipment Index is also included in the following graph as the parent companies of several major lighting companies are included in the index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Among Acuity Brands, Inc., the S&P 500 Index,
the Dow Jones US Electrical Components & Equipment Index,
and the Dow Jones US Building Materials & Fixtures Index
*Assumes $100 invested on August 31, 2012 in stock or index, including reinvestment of dividends.
Aug-12 | Aug-13 | Aug-14 | Aug-15 | Aug-16 | Aug-17 | ||||||||||||||
Acuity Brands, Inc. | $ | 100 | $ | 134 | $ | 195 | $ | 308 | $ | 436 | $ | 281 | |||||||
S&P 500 | $ | 100 | $ | 119 | $ | 149 | $ | 149 | $ | 168 | $ | 195 | |||||||
Dow Jones US Electrical Components & Equipment | $ | 100 | $ | 125 | $ | 156 | $ | 141 | $ | 161 | $ | 201 | |||||||
Dow Jones US Building Materials & Fixtures | $ | 100 | $ | 127 | $ | 159 | $ | 183 | $ | 228 | $ | 239 | |||||||
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Item 6. | Selected Financial Data |
The following table sets forth certain selected consolidated financial data of the Company, which has been derived from the Consolidated Financial Statements for each of the five years in the period ended August 31, 2017. This historical information may not be indicative of the Company’s future performance. The information set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and the notes thereto.
Year Ended August 31, | |||||||||||||||||||
2017(1) | 2016(2) | 2015(3) | 2014(4) | 2013(5) | |||||||||||||||
(In millions, except per-share data) | |||||||||||||||||||
Net sales | $ | 3,505.1 | $ | 3,291.3 | $ | 2,706.7 | $ | 2,393.5 | $ | 2,089.1 | |||||||||
Net income | 321.7 | 290.8 | 222.1 | 175.8 | 127.4 | ||||||||||||||
Basic earnings per share | 7.46 | 6.67 | 5.13 | 4.07 | 2.97 | ||||||||||||||
Diluted earnings per share | 7.43 | 6.63 | 5.09 | 4.05 | 2.95 | ||||||||||||||
Cash and cash equivalents | 311.1 | 413.2 | 756.8 | 552.5 | 359.1 | ||||||||||||||
Total assets | 2,899.6 | 2,948.0 | 2,407.0 | 2,145.4 | 1,888.5 | ||||||||||||||
Long-term debt | 356.5 | 355.0 | 352.4 | 351.9 | 351.6 | ||||||||||||||
Total debt | 356.9 | 355.2 | 352.4 | 351.9 | 351.6 | ||||||||||||||
Stockholders’ equity | 1,665.6 | 1,659.8 | 1,360.0 | 1,163.5 | 993.5 | ||||||||||||||
Cash dividends declared per common share | 0.52 | 0.52 | 0.52 | 0.52 | 0.52 | ||||||||||||||
_______________________________________
(1) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2017 include a) pre-tax special charges of $11.3 million related to streamlining initiatives, b) pre-tax amortization of acquired intangible assets of $28.0 million c) pre-tax share-based payment expense of $32.0 million, d) gain on sale of investment in unconsolidated affiliate of $7.2 million, and e) manufacturing related inefficiencies directly related to the closure of a facility of $1.6 million, totaling $1.02 per share. |
(2) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2016 include a) pre-tax special charges of $15.0 million related to streamlining initiatives, b) pre-tax amortization of acquired intangible assets of $21.4 million, c) pre-tax share-based payment expense of $27.7 million, d) pre-tax acquisitions-related items of $10.8 million, and e) pre-tax impairment of intangible asset of $5.1 million, totaling $1.21 per share. |
(3) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2015 include a) pre-tax special charges of $12.4 million related to streamlining initiatives, b) pre-tax amortization of acquired intangible assets of $11.0 million, c) pre-tax share-based payment expense of $18.2 million, d) non tax-deductible professional fees of $3.2 million related to acquisitions, and e) pre-tax net loss on financial instruments of $2.6 million, totaling $0.74 per share. |
(4) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2014 include a) pre-tax amortization of acquired intangible assets of $11.2 million, b) pre-tax share-based payment expense of $17.7 million, c) pre-tax recoveries of $5.8 million associated with fraud at the Company's former freight payment and audit service provider, and d) pre-tax special charge reversal of $0.2 million related to initiatives to simplify and streamline the Company's operations, totaling $0.35 per share. |
(5) | Net Income, Basic Earnings per Share, and Diluted Earnings per Share for fiscal 2013 include a) pre-tax amortization of acquired intangible assets of $10.9 million, b) pre-tax share-based payment expense of $16.5 million, c) pre-tax incremental costs of $8.4 million incurred due to manufacturing inefficiencies directly related to the Cochran, GA manufacturing facility closure; d) pre-tax costs of $8.1 million as a result of fraud at the Company's former freight payment and audit service provider, and e) a pre-tax special charge of $8.5 million related to initiatives to simplify and streamline the Company's operations, totaling $0.76 per share. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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 for the years ended August 31, 2017 and 2016. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report.
Overview
Company
Acuity Brands is the parent company of Acuity Brands Lighting, Inc. (“ABL”) and other subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred to herein as the “Company”). The Company has its principal office in Atlanta, Georgia.
The Company is one of the world’s leading providers of lighting and building management solutions and services for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. The Company’s lighting and building management solutions include devices such as luminaires, lighting controls, controllers for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systems designed to optimize energy efficiency and comfort for various indoor and outdoor applications. Additionally, the Company continues to expand its solutions portfolio, including software and services, to provide a host of other economic benefits resulting from data analytics that enables the Internet of Things (“IoT”), supports the advancement of smart buildings, smart cities, and the smart grid, and allows businesses to develop custom applications to scale their operations. As of August 31, 2017, the Company operates 19 manufacturing facilities and seven distribution facilities along with one warehouse to serve its extensive customer base and employs approximately 12,500 associates.
The Company does not consider acquisitions a critical element of its strategy but seeks opportunities to expand and enhance its portfolio of solutions, including the following transactions:
On June 30, 2016, using cash on hand and treasury stock, the Company acquired DGLogik, Inc. (“DGLogik”), a provider of innovative software solutions that enable and visualize the IoT. DGLogik's solutions provide users with the intelligence to better manage energy usage and improve facility performance.
On December 10, 2015, using cash on hand, the Company acquired Juno Lighting LLC (“Juno Lighting”), a leading provider of downlighting and track lighting fixtures for both residential and commercial applications.
On December 9, 2015, using cash on hand, the Company acquired certain assets and assumed certain liabilities of Geometri, LLC (“Geometri”), a provider of a software and services platform for mapping, navigation, and analytics.
On September 1, 2015, using cash on hand, the Company acquired Distech Controls Inc. (“Distech Controls”), a provider of building automation solutions that allow for the integration of lighting, heating, ventilation, and air conditioning (“HVAC”), access control, closed circuit television, and related systems.
On April 15, 2015, using cash on hand, the Company acquired for cash substantially all of the assets and assumed certain liabilities of ByteLight, Inc. (“ByteLight”), a provider of indoor location software for light-emitting diode (“LED”) lighting. Bytelight is headquartered in Boston, Massachusetts.
Please refer to the Acquisitions and Investments footnote of the Notes to Consolidated Financial Statements for more information.
Strategy
The Company's strategy is to extend its leadership position in the North American market and certain international markets by delivering superior lighting and building management solutions. The Company’s lighting and building management solutions vary from individual devices to intelligent network systems. Individual devices include luminaires, lighting controls, controllers for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systems designed to optimize energy efficiency and comfort for various indoor and outdoor applications. Among other benefits, intelligent network systems can optimize energy efficiency and comfort as well as enhance the occupant experience for various indoor and outdoor applications, all the while reducing operating costs. The Company also expects to accelerate investment in its Atrius™ enabled solutions during fiscal 2018. As a results-oriented, customer-centric company, management will continue to align the unique capabilities and resources of the organization to drive profitable growth through a keen focus on providing comprehensive and differentiated lighting and building management solutions for its customers, driving world-class cost efficiency, and leveraging a culture of continuous improvement.
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Throughout fiscal 2017, the Company believes it made progress towards achieving its strategic objectives, including expanding its access to the market, expanding its addressable market, introducing new lighting and building management 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 profit margin in the mid-teens or higher; |
• | Diluted 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 innovative solutions and services more rapidly and cost effectively. In addition, the Company has invested considerable resources to teach and train associates to utilize tools and techniques that accelerate success in these key areas, as well as to create a culture that demands excellence through continuous improvement. Additionally, the Company promotes a “pay-for-performance” culture that rewards various levels of year over year improvement, while closely monitoring appropriate risk-taking. The expected outcome of these activities will be to better position the Company to deliver on its full potential, to provide a platform for future growth opportunities, and to allow the Company to achieve its long-term financial goals. See the Outlook section below for additional information.
Liquidity and Capital Resources
The Company's principal sources of liquidity are operating cash flows generated primarily from its business operations, cash on hand, and various sources of borrowings. The ability of the Company to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund its operations and capital expenditures, pay dividends, meet its obligations as they become due, and maintain compliance with covenants contained in its financing agreements.
Based on its cash on hand, availability under existing financing arrangements, and current projections of cash flow from operations, the Company believes that it will be able to meet its liquidity needs over the next 12 months. Short-term needs are expected to include funding its operations as currently planned, making anticipated capital investments, funding potential acquisitions, paying quarterly stockholder dividends as currently anticipated, paying principal and interest on borrowings as currently scheduled, making required contributions into its employee benefit plans, and potentially repurchasing shares of its outstanding common stock as authorized by the Board of Directors (the “Board”).
During the current year, the Company purchased two million shares of the Company's common stock, which completed the share repurchases previously authorized by the Board. In June 2017, the Board authorized the repurchase of an additional two million shares of the Company's outstanding common stock in the future. The Company expects to repurchase shares on an opportunistic basis. No shares have been purchased under this plan as of August 31, 2017. During fiscal 2018, the Company currently expects to invest approximately 2.0% of net sales in capital expenditures primarily for equipment, tooling, facility enhancements, and new and enhanced information technology capabilities. Additionally, management believes that the Company's cash flow from operations and sources of funding, including, but not limited to, borrowing capacity, will sufficiently support the long-term liquidity needs of the Company.
Cash Flow
The Company uses available cash and cash flow from operations, as well as proceeds from the exercise of stock options, to fund operations, capital expenditures, and acquisitions, repurchase Company stock, and pay dividends.
The Company’s cash position at August 31, 2017 was $311.1 million, a decrease of $102.1 million from August 31, 2016. During the year ended August 31, 2017, the Company generated net cash from operating activities of $316.2 million and received proceeds from the sale of an investment in an unconsolidated affiliate of $13.2 million. Cash generated from operating activities, as well as cash on-hand, was used during the current year primarily to repurchase shares of the Company's outstanding common stock of $357.9 million, to fund capital expenditures of $67.3 million, and to pay dividends to stockholders of $22.7 million. Foreign currency related items had a favorable effect on cash flows of $1.9 million during the current year.
During fiscal 2017, net cash generated from operating activities decreased $29.5 million to $316.2 million compared with $345.7 million in the prior-year period due primarily to higher variable incentive compensation payments
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for prior year performance, partially offset by higher net income. Operating working capital (calculated by adding accounts receivable plus inventories, and subtracting accounts payable-net of acquisitions and the impact of foreign exchange rate changes) increased by approximately $34.3 million during fiscal 2017 compared to an increase of $53.3 million during fiscal 2016. Operating working capital requirements increased primarily due to greater production and purchases necessary to support the higher level of net sales.
Management believes that investing in assets and programs that will over time increase the overall return on the Company’s invested capital is a key factor in driving stockholder value. The Company invested $67.3 million and $83.7 million in fiscal 2017 and 2016, respectively, primarily for new equipment, tooling, facility enhancements, and information technology.
Contractual Obligations
The following table summarizes the Company’s contractual obligations at August 31, 2017 (in millions):
Payments Due by Period(6) | |||||||||||||||||||
Total | Less than One Year | 1 to 3 Years | 4 to 5 Years | After 5 Years | |||||||||||||||
Debt(1) | $ | 357.8 | $ | 0.4 | $ | 350.9 | $ | 4.9 | $ | 1.6 | |||||||||
Interest obligations(2) | 141.8 | 32.3 | 55.3 | 18.3 | 35.9 | ||||||||||||||
Operating leases(3) | 69.3 | 16.2 | 25.9 | 15.8 | 11.4 | ||||||||||||||
Purchase obligations(4) | 238.7 | 238.7 | — | — | — | ||||||||||||||
Other liabilities(5) | 45.1 | 4.2 | 11.9 | 5.0 | 24.0 | ||||||||||||||
Total | $ | 852.7 | $ | 291.8 | $ | 444.0 | $ | 44.0 | $ | 72.9 | |||||||||
___________________________
(1) | These amounts, which represent the principal amounts outstanding at August 31, 2017, are included in the Company’s Consolidated Balance Sheets. See the Debt and Lines of Credit footnote for additional information regarding debt and other matters. |
(2) | These amounts represent primarily the expected future interest payments on outstanding debt held by the Company at August 31, 2017 and the Company’s outstanding loans related to its corporate-owned life insurance policies (“COLI”), which constitute a small portion of the total contractual obligations shown. COLI-related interest payments included in this table are estimates. These estimates are based on various assumptions, including age at death, loan interest rate, and tax bracket. The amounts in this table do not include COLI-related payments after ten years due to the difficulty in calculating a meaningful estimate that far in the future. Note that payments related to debt and the COLI are reflected in the Company’s Consolidated Statements of Cash Flows. |
(3) | The Company’s operating lease obligations are described in the Commitments and Contingencies footnote. |
(4) | Purchase obligations include commitments to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including open purchase orders. |
(5) | These amounts are included in the Company’s Consolidated Balance Sheets and largely represent other liabilities for which the Company is obligated to make future payments under certain long-term employee benefit programs. Estimates of the amounts and timing of these amounts are based on various assumptions, including expected return on plan assets, interest rates, and other variables. The amounts in this table do not include amounts related to future funding obligations under the defined benefit pension plans. The amount and timing of these future funding obligations are subject to many variables and are also dependent 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 $6.0 million of unrecognized tax benefits as the period of cash settlement with the respective taxing authorities cannot be reasonably estimated. |
(6) | Deferred income tax liabilities as of August 31, 2017 were approximately $218.9 million. Refer to the Income Taxes footnote for more information. This amount is not included in the total contractual obligations table because the Company believes this presentation would not be meaningful. Deferred income tax liabilities are calculated based on temporary differences between the tax bases of assets and liabilities and their respective book bases, which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, scheduling deferred income tax liabilities as payments due by period could be misleading, because this scheduling would not relate to liquidity needs. |
Capitalization
The current capital structure of the Company is comprised principally of senior unsecured notes and equity of its stockholders. Total debt outstanding, consisting primarily of fixed-rate obligations net of discounts and deferred costs, was $356.9 million at August 31, 2017 compared with $355.2 million at August 31, 2016. During fiscal 2017, the Company borrowed $1.0 million under recently-executed fixed rate long-term bank loans.
On December 8, 2009, ABL issued $350.0 million of senior unsecured notes due in fiscal 2020 (the “Unsecured Notes”) in a private placement transaction. The Unsecured Notes were subsequently exchanged for SEC-registered notes with substantially identical terms. The Unsecured Notes bear interest at a rate of 6% per annum and were issued at a price equal to 99.797% of their face value and for a term of 10 years. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for more information.
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On August 27, 2014, the Company executed a revolving credit facility (“Revolving Credit Facility”) with a borrowing capacity of $250.0 million. The Revolving Credit Facility will mature and all amounts outstanding thereunder will be due and payable on August 27, 2019. The Company was in compliance with all financial covenants under the Revolving Credit Facility as of August 31, 2017. At August 31, 2017, the Company had additional borrowing capacity under the Revolving Credit Facility of $244.7 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $5.3 million issued under the Revolving Credit Facility. As of August 31, 2017, the Company had outstanding letters of credit totaling $10.3 million, primarily for securing collateral requirements under the Company's casualty insurance programs and for providing credit support for the Company’s industrial revenue bond, including $5.3 million issued under the Revolving Credit Facility. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements.
During fiscal 2017, the Company’s consolidated stockholders’ equity increased $5.8 million to $1.67 billion at August 31, 2017 from $1.66 billion at August 31, 2016. The increase was due primarily to net income earned in the period, pension plan adjustments, foreign currency translation adjustments, and stock issuances resulting from the exercise of stock options and vesting of restricted stock grants, partially offset by share repurchases and the 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 17.6% at August 31, 2017 and 2016. The ratio of debt, net of cash, to total capitalization, net of cash, was 2.7% at August 31, 2017 and (3.6)% at August 31, 2016.
Dividends
Acuity Brands paid dividends on its common stock of $22.7 million ($0.52 per share) in fiscal 2017 and $22.9 million ($0.52 per share) in fiscal 2016, indicating a quarterly dividend rate of $0.13 per share. However, all decisions regarding the declaration and payment of dividends by Acuity Brands are at the discretion of the Company’s Board and are evaluated regularly in light of the Company’s financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.
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Results of Operations
Fiscal 2017 Compared with Fiscal 2016
The following table sets forth information comparing the components of net income for the year ended August 31, 2017 with the year ended August 31, 2016 (in millions except per share data):
Year Ended August 31, | Increase | Percent | ||||||||||||
2017 | 2016 | (Decrease) | Change | |||||||||||
Net sales | $ | 3,505.1 | $ | 3,291.3 | $ | 213.8 | 6.5 | % | ||||||
Cost of products sold | 2,023.9 | 1,855.1 | 168.8 | 9.1 | % | |||||||||
Gross profit | 1,481.2 | 1,436.2 | 45.0 | 3.1 | % | |||||||||
Percent of net sales | 42.3 | % | 43.6 | % | (130 | ) | bps | |||||||
Selling, distribution, and administrative expenses | 951.1 | 946.0 | 5.1 | 0.5 | % | |||||||||
Special charge | 11.3 | 15.0 | (3.7 | ) | NM | |||||||||
Operating profit | 518.8 | 475.2 | 43.6 | 9.2 | % | |||||||||
Percent of net sales | 14.8 | % | 14.4 | % | 40 | bps | ||||||||
Other expense (income): | ||||||||||||||
Interest expense, net | 32.5 | 32.2 | 0.3 | 0.9 | % | |||||||||
Miscellaneous income, net | (6.3 | ) | (1.6 | ) | (4.7 | ) | NM | |||||||
Total other expense | 26.2 | 30.6 | (4.4 | ) | (14.4 | )% | ||||||||
Income before provision for income taxes | 492.6 | 444.6 | 48.0 | 10.8 | % | |||||||||
Percent of net sales | 14.1 | % | 13.5 | % | 60 | bps | ||||||||
Provision for income taxes | 170.9 | 153.8 | 17.1 | 11.1 | % | |||||||||
Effective tax rate | 34.7 | % | 34.6 | % | ||||||||||
Net income | $ | 321.7 | $ | 290.8 | $ | 30.9 | 10.6 | % | ||||||
Diluted earnings per share | $ | 7.43 | $ | 6.63 | $ | 0.80 | 12.1 | % | ||||||
Net sales increased $213.8 million, or 6.5%, to $3.51 billion for the year ended August 31, 2017 compared with $3.29 billion reported for the year ended August 31, 2016. For the year ended August 31, 2017, the Company reported net income of $321.7 million compared with $290.8 million for the year ended August 31, 2016, an increase of $30.9 million, or 10.6%. For fiscal 2017, diluted earnings per share increased 12.1% to $7.43 from $6.63 for the prior-year period.
The following table reconciles certain U.S. generally accepted accounting principles (“U.S. GAAP”) financial measures to the corresponding non-U.S. GAAP measures referred to in the discussion of the Company’s results of operations, which exclude the impact of acquisition-related items, certain manufacturing inefficiencies, amortization of acquired intangible assets, share-based payment expense, impairment of intangible asset, special charges associated primarily with continued efforts to streamline the organization, and a gain on the sale of an investment in an unconsolidated affiliate. Although the impacts of these items have been recognized in prior periods and could recur in future periods, management typically excludes these charges during internal reviews of performance and uses these non-U.S. GAAP measures for baseline comparative operational analysis, decision making, and other activities. Primarily due to the impact of the four acquisitions completed during fiscal 2016, the Company experienced noticeable increases in amortization of acquired intangibles, share-based payments used to improve retention and align the interest of key leaders of acquired businesses, and special charges due to activities to streamline and integrate those acquisitions. These non-U.S. GAAP financial measures, including adjusted gross profit and margin, adjusted selling, distribution, and administrative (“SD&A”) expenses, adjusted operating profit and margin, adjusted other expense, 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 Company's results of operations. 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.
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(In millions, except per share data) | Year Ended August 31, | Increase (Decrease) | Percent Change | ||||||||||
2017 | 2016 | ||||||||||||
Gross profit | $ | 1,481.2 | $ | 1,436.2 | |||||||||
Add-back: Acquisition-related items (1) | — | 2.8 | |||||||||||
Add-back: Manufacturing inefficiencies (2) | 1.6 | — | |||||||||||
Adjusted gross profit | $ | 1,482.8 | $ | 1,439.0 | $ | 43.8 | 3.0 | % | |||||
Percent of net sales | 42.3 | % | 43.7 | % | (140 | ) | bps | ||||||
Selling, distribution, and administrative expenses | $ | 951.1 | $ | 946.0 | |||||||||
Less: Amortization of acquired intangible assets | (28.0 | ) | (21.4 | ) | |||||||||
Less: Share-based payment expense | (32.0 | ) | (27.7 | ) | |||||||||
Less: Acquisition-related items (1) | — | (8.0 | ) | ||||||||||
Less: Impairment of intangible asset | — | (5.1 | ) | ||||||||||
Adjusted selling, distribution, and administrative expenses | $ | 891.1 | $ | 883.8 | $ | 7.3 | 0.8 | % | |||||
Percent of net sales | 25.4 | % | 26.9 | % | (150 | ) | bps | ||||||
Operating profit | $ | 518.8 | $ | 475.2 | |||||||||
Add-back: Amortization of acquired intangible assets | 28.0 | 21.4 | |||||||||||
Add-back: Share-based payment expense | 32.0 | 27.7 | |||||||||||
Add-back: Acquisition-related items (1) | — | 10.8 | |||||||||||
Add-back: Impairment of intangible asset | — | 5.1 | |||||||||||
Add-back: Manufacturing inefficiencies (2) | 1.6 | — | |||||||||||
Add-back: Special charge | 11.3 | 15.0 | |||||||||||
Adjusted operating profit | $ | 591.7 | $ | 555.2 | $ | 36.5 | 6.6 | % | |||||
Percent of net sales | 16.9 | % | 16.9 | % | — | bps | |||||||
Other expense | $ | 26.2 | $ | 30.6 | |||||||||
Add-back: Gain on sale of investment in unconsolidated affiliate | 7.2 | — | |||||||||||
Adjusted other expense | $ | 33.4 | $ | 30.6 | $ | 2.8 | 9.2 | % | |||||
Net income | $ | 321.7 | $ | 290.8 | |||||||||
Add-back: Amortization of acquired intangible assets | 28.0 | 21.4 | |||||||||||
Add-back: Share-based payment expense | 32.0 | 27.7 | |||||||||||
Add-back: Acquisition-related items (1) | — | 10.8 | |||||||||||
Add-back: Impairment of intangible asset | — | 5.1 | |||||||||||
Add-back: Manufacturing inefficiencies (2) | 1.6 | — | |||||||||||
Add-back: Special charge | 11.3 | 15.0 | |||||||||||
Less: Gain on sale of investment in unconsolidated affiliate | (7.2 | ) | — | ||||||||||
Total pre-tax adjustments to net income | $ | 65.7 | $ | 80.0 | |||||||||
Income tax effect | (21.5 | ) | (27.1 | ) | |||||||||
Adjusted net income | $ | 365.9 | $ | 343.7 | $ | 22.2 | 6.5 | % | |||||
Diluted earnings per share | $ | 7.43 | $ | 6.63 | |||||||||
Adjusted diluted earnings per share | $ | 8.45 | $ | 7.84 | $ | 0.61 | 7.8 | % | |||||
______________________________
(1) Acquisition-related items include acquired profit in inventory, professional fees, and certain contract termination costs.
(2) Incremental costs incurred due to manufacturing inefficiencies directly related to the closure of a facility.
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Net Sales
Net sales for the year ended August 31, 2017 increased by 6.5% compared with the prior-year period due primarily to an increase in sales volumes of approximately 6% and an approximately 2% favorable impact of acquired revenues from acquisitions, partially offset by the impact of an unfavorable change in product prices and the mix of products sold (“price/mix”) of approximately 1%. Sales of LED-based luminaires during the year ended August 31, 2017 accounted for approximately two-thirds of total net sales. The change in price/mix was due primarily to changes in the mix of products sold and lower pricing on luminaires, reflecting the decline in certain LED component costs. Due to the changing dynamics of the Company's product portfolio, including the increase of integrated lighting and building management solutions, it is not possible to precisely quantify or differentiate the individual components of volume, price, and mix.
Gross Profit
Gross profit for fiscal 2017 increased $45.0 million, or 3.1%, to $1.48 billion compared with $1.44 billion for the prior year. Gross profit margin decreased to 42.3% for the year ended August 31, 2017 compared with 43.6% for the year ended August 31, 2016. This margin decline was primarily attributable to increased manufacturing expenses driven largely by higher wages and freight costs as well as higher quality costs, partially offset by the additional contribution on higher net sales. Materials and component costs were favorable as declining prices for certain LED components were only partially offset by rising costs for certain commodities, including steel. Gross profit margin was negatively impacted by unfavorable price/mix. Adjusted gross profit for fiscal 2017 increased $43.8 million, or 3.0%, to $1.48 billion compared with $1.44 billion for the prior year. Adjusted gross profit margin decreased 140 basis points to 42.3% compared to 43.7% in the prior year.
Operating Profit
SD&A expenses for the year ended August 31, 2017 increased $5.1 million, or 0.5%, to $951.1 million compared with $946.0 million in the prior year. The increase in SD&A expenses was due primarily to higher costs related to freight, commissions, and investments in additional headcount, which reflects the Company's investments in capabilities related to areas of future growth and enhanced customer service, as well as additional costs associated with acquired businesses, partially offset by lower incentive compensation expense. Compared with the prior-year period, SD&A expenses as a percent of sales decreased 160 basis points to 27.1% for fiscal 2017 from 28.7% in fiscal 2016. Adjusted SD&A expenses were $891.1 million, or 25.4% of net sales, in fiscal 2017 compared to $883.8 million, or 26.9% of net sales, in the year-ago period.
During the year ended August 31, 2017, the Company recognized pre-tax special charges of $11.3 million, which consisted primarily of severance and employee-related benefit costs for the elimination of certain operations and positions following a realignment of the Company’s operating structure, including positions within various SD&A departments. During fiscal 2016, the Company recognized pre-tax special charges of $15.0 million. These charges related primarily to the Company's continued efforts to integrate recent acquisitions and to streamline the organization by realigning certain responsibilities primarily within various SD&A departments, as well as the consolidation of certain production activities. Further details regarding the Company's special charges are included in the Special Charge footnote of the Notes to Consolidated Financial Statements.
Operating profit for fiscal 2017 was $518.8 million compared with $475.2 million reported for the prior-year period, an increase of $43.6 million, or 9.2%. Operating profit margin increased 40 basis points to 14.8% for fiscal 2017 compared with 14.4% for fiscal 2016 due primarily to an increase in sales volume, lower material and component costs, and lower incentive compensation expense, partially offset by higher manufacturing expenses, greater freight and commission costs, investments in additional headcount, and increased amortization of acquired intangible assets. Additionally, the Company recorded an impairment charge of $5.1 million during fiscal 2016; no such charges were recorded during fiscal 2017.
Adjusted operating profit increased $36.5 million, or 6.6%, to $591.7 million compared with $555.2 million for fiscal 2016. Adjusted operating profit margin was16.9% for both fiscal 2017 and 2016.
Other Expense (Income)
Other expense (income) for the Company consists principally of net interest expense and net miscellaneous expense (income), which includes gains and losses related to foreign exchange rate changes. Interest expense, net, was $32.5 million and $32.2 million for the years ended August 31, 2017 and 2016, respectively. The Company reported net miscellaneous income of $6.3 million in fiscal 2017 compared with net miscellaneous income of $1.6 million in fiscal 2016. Net miscellaneous income for the year ended August 31, 2017 included a gain of $7.2 million associated with the sale of an investment in an unconsolidated affiliate.
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Provision for Income Taxes and Net Income
The effective income tax rate was 34.7% and 34.6% for the years ended August 31, 2017 and 2016, respectively. The Company estimates that its effective tax rate for fiscal 2018 will be approximately 35.5% before any discrete items, assuming the rates in its taxing jurisdictions remain generally consistent throughout the year.
Net income for fiscal 2017 increased $30.9 million, or 10.6%, to $321.7 million from $290.8 million reported for the prior year. The increase in net income resulted primarily from higher operating profit and higher miscellaneous income, partially offset by a higher provision for income taxes. Adjusted net income for fiscal 2017 increased 6.5% to $365.9 million compared with $343.7 million in the year-ago period. Adjusted diluted earnings per share for fiscal 2017 was $8.45 compared with $7.84 for the prior-year period, which represented an increase of $0.61, or 7.8%.
Fiscal 2016 Compared with Fiscal 2015
The following table sets forth information comparing the components of net income for the year ended August 31, 2016 with the year ended August 31, 2015 (in millions except per share data):
Year Ended August 31, | Increase | Percent | ||||||||||||
2016 | 2015 | (Decrease) | Change | |||||||||||
Net sales | $ | 3,291.3 | $ | 2,706.7 | $ | 584.6 | 21.6 | % | ||||||
Cost of products sold | 1,855.1 | 1,561.1 | 294.0 | 18.8 | % | |||||||||
Gross profit | 1,436.2 | 1,145.6 | 290.6 | 25.4 | % | |||||||||
Percent of net sales | 43.6 | % | 42.3 | % | 130 | bps | ||||||||
Selling, distribution, and administrative expenses | 946.0 | 756.9 | 189.1 | 25.0 | % | |||||||||
Special charge | 15.0 | 12.4 | 2.6 | NM | ||||||||||
Operating profit | 475.2 | 376.3 | 98.9 | 26.3 | % | |||||||||
Percent of net sales | 14.4 | % | 13.9 | % | 50 | bps | ||||||||
Other expense (income): | ||||||||||||||
Interest expense, net | 32.2 | 31.5 | 0.7 | 2.2 | % | |||||||||
Miscellaneous (income) expense, net | (1.6 | ) | 1.2 | (2.8 | ) | NM | ||||||||
Total other expense | 30.6 | 32.7 | (2.1 | ) | (6.4 | )% | ||||||||
Income before provision for income taxes | 444.6 | 343.6 | 101.0 | 29.4 | % | |||||||||
Percent of net sales | 13.5 | % | 12.7 | % | 80 | bps | ||||||||
Provision for income taxes | 153.8 | 121.5 | 32.3 | 26.6 | % | |||||||||
Effective tax rate | 34.6 | % | 35.4 | % | ||||||||||
Net income | $ | 290.8 | $ | 222.1 | $ | 68.7 | 30.9 | % | ||||||
Diluted earnings per share | $ | 6.63 | $ | 5.09 | $ | 1.54 | 30.3 | % | ||||||
NM - not meaningful | ||||||||||||||
Net sales increased $584.6 million, or 21.6%, to $3.29 billion for the year ended August 31, 2016 compared with $2.71 billion reported for the year ended August 31, 2015. For the year ended August 31, 2016, the Company reported net income of $290.8 million compared with $222.1 million for the year ended August 31, 2015, an increase of $68.7 million, or 30.9%. For fiscal 2016, diluted earnings per share increased 30.3% to $6.63 from $5.09 for the prior-year period.
The following table reconciles certain financial measures prepared in accordance with U.S. GAAP to the corresponding non-U.S. GAAP measures referred to in the discussion of the Company’s results of operations, which exclude the impact of acquisition-related items, amortization of acquired intangible assets, share-based payment expense, impairment of intangible asset, special charges associated primarily with continued efforts to streamline the organization, and net losses associated with financial instruments.
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(In millions, except per share data) | Year Ended August 31, | Increase (Decrease) | Percent Change | ||||||||||
2016 | 2015 | ||||||||||||
Gross profit | $ | 1,436.2 | $ | 1,145.6 | |||||||||
Add-back: Acquisition-related items (1) | 2.8 | — | |||||||||||
Adjusted gross profit | $ | 1,439.0 | $ | 1,145.6 | $ | 293.4 | 25.6 | % | |||||
Percent of net sales | 43.7 | % | 42.3 | % | 140 | bps | |||||||
Selling, distribution, and administrative expenses | $ | 946.0 | $ | 756.9 | |||||||||
Less: Amortization of acquired intangible assets | (21.4 | ) | (11.0 | ) | |||||||||
Less: Share-based payment expense | (27.7 | ) | (18.2 | ) | |||||||||
Less: Acquisition-related items (1) | (8.0 | ) | (3.2 | ) | |||||||||
Less: Impairment of intangible asset | (5.1 | ) | — | ||||||||||
Adjusted selling, distribution, and administrative expenses | $ | 883.8 | $ | 724.5 | $ | 159.3 | 22.0 | % | |||||
Percent of net sales | 26.9 | % | 26.8 | % | 10 | bps | |||||||
Operating profit | $ | 475.2 | $ | 376.3 | |||||||||
Add-back: Amortization of acquired intangible assets | 21.4 | 11.0 | |||||||||||
Add-back: Share-based payment expense | 27.7 | 18.2 | |||||||||||
Add-back: Acquisition-related items (1) | 10.8 | 3.2 | |||||||||||
Add-back: Impairment of intangible asset | 5.1 | — | |||||||||||
Add-back: Special charge | 15.0 | 12.4 | |||||||||||
Adjusted operating profit | $ | 555.2 | $ | 421.1 | $ | 134.1 | 31.8 | % | |||||
Percent of net sales | 16.9 | % | 15.6 | % | 130 | bps | |||||||
Other expense (income) | $ | 30.6 | $ | 32.7 | |||||||||
Less: Net loss on financial instruments | — | (2.6 | ) | ||||||||||
Adjusted other expense | $ | 30.6 | $ | 30.1 | $ | 0.5 | 1.7 | % | |||||
Net income | $ | 290.8 | $ | 222.1 | |||||||||
Add-back: Amortization of acquired intangible assets | 21.4 | 11.0 | |||||||||||
Add-back: Share-based payment expense | 27.7 | 18.2 | |||||||||||
Add-back: Acquisition-related items (1) | 10.8 | 3.2 | |||||||||||
Add-back: Impairment of intangible asset | 5.1 | — | |||||||||||
Add-back: Special charge | 15.0 | 12.4 | |||||||||||
Add-back: Net loss on financial instruments | — | 2.6 | |||||||||||
Total pre-tax adjustments to net income | $ | 80.0 | $ | 47.4 | |||||||||
Income tax effect | (27.1 | ) | (15.4 | ) | |||||||||
Adjusted net income | $ | 343.7 | $ | 254.1 | $ | 89.6 | 35.3 | % | |||||
Diluted earnings per share | $ | 6.63 | $ | 5.09 | |||||||||
Adjusted diluted earnings per share | $ | 7.84 | $ | 5.83 | $ | 2.01 | 34.5 | % | |||||
______________________________
(1) Acquisition-related items include acquired profit in inventory, professional fees, and certain contract termination costs.
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Net Sales
Net sales for the year ended August 31, 2016 increased by 21.6% compared with the prior-year period due primarily to an increase in sales volumes of approximately 15% and the favorable impact of acquired revenues from acquisitions of 9%, partially offset by the impact of an unfavorable change in product prices and the mix of products sold (“price/mix”) of approximately 2% and unfavorable foreign currency rate changes of less than 1%. Sales volume was higher across most product categories and key sales channels. Sales of LED-based luminaires during the year ended August 31, 2016 increased almost 50% compared to the year-ago period and represented approximately 60% of total net sales. The change in price/mix was due primarily to unfavorable pricing on LED luminaires, reflecting the decline in certain LED component costs, as well as a change in sales channel mix. Due to the changing dynamics of the Company's product portfolio, including the increase of integrated lighting and building management solutions as well as the proliferation of new products due to the adoption of solid-state lighting, it is not possible to precisely quantify or differentiate the individual components of volume, price, and mix.
Gross Profit
Gross profit for fiscal 2016 increased $290.6 million, or 25.4%, to $1.44 billion compared with $1.15 billion for the prior year. The increase in gross profit was due primarily to additional contribution on higher net sales, lower material and component costs, and improved productivity. These items were partially offset by unfavorable price/mix, acquisition-related items, and specifically in the fourth quarter, certain disruptions in the supply chain. As a result of these factors, gross profit margin increased 130 basis points to 43.6% for the year ended August 31, 2016 compared with 42.3% for the year ended August 31, 2015. Adjusted gross profit for fiscal 2016 increased $293.4 million, or 25.6%, to $1.44 billion compared with $1.15 billion for the prior year. Adjusted gross profit margin increased 140 basis points to 43.7% compared to 42.3% in the prior year.
Operating Profit
SD&A expenses for the year ended August 31, 2016 increased $189.1 million, or 25.0%, to $946.0 million compared with $756.9 million in the prior year. The increase in SD&A expenses was due primarily to higher costs to support the greater sales volume, including freight and commissions, higher employee-related costs, higher amortization of acquired intangible assets related to recent acquisitions, certain other acquisition-related items, and the impairment of an intangible asset. The increase in employee costs reflects the Company's investments in capabilities related to areas of future growth as well as enhanced customer service. The increase in employee costs also includes increased variable compensation expense as well as share-based payment expense due primarily to restricted stock issued as part of certain recent acquisitions. These items were partially offset by savings from recent streamlining efforts. Compared with the prior-year period, SD&A expenses as a percent of sales increased 70 basis points to 28.7% for fiscal 2016 from 28.0% in fiscal 2015. Adjusted SD&A expenses were $883.8 million, or 26.9% of net sales, in fiscal 2016 compared to $724.5 million, or 26.8% of net sales, in the year-ago period.
The Company recognized pre-tax special charges of $15.0 million during fiscal 2016 compared with pre-tax special charges of $12.4 million during fiscal 2015. These charges related primarily to the Company's continued efforts to integrate recent acquisitions, streamline the organization by realigning certain responsibilities primarily within various selling, distribution, and administrative departments, and the consolidation of certain production activities. Further details regarding the Company's special charges are included in the Special Charge footnote of the Notes to Consolidated Financial Statements.
Operating profit for fiscal 2016 was $475.2 million compared with $376.3 million reported for the prior-year period, an increase of $98.9 million, or 26.3%. Operating profit margin increased 50 basis points to 14.4% for fiscal 2016 compared with 13.9% for fiscal 2015 due primarily to higher gross profit, partially offset by higher costs to support greater sales volume, special charges, employee-related costs, including variable incentive compensation, acquisition-related items, and the impairment of an intangible asset.
Adjusted operating profit increased $134.1 million, or 31.8%, to $555.2 million compared with $421.1 million for fiscal 2015. Adjusted operating profit margin increased 130 basis points to 16.9% compared with adjusted operating profit margin of 15.6% 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 includes gains and losses related to foreign exchange rate changes. Interest expense, net, was $32.2 million and $31.5 million for the years ended August 31, 2016 and 2015, respectively. The Company reported net miscellaneous income of $1.6 million in fiscal 2016 compared with net miscellaneous expense of $1.2 million in fiscal 2015.
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Provision for Income Taxes and Net Income
The effective income tax rate was 34.6% and 35.4% for the years ended August 31, 2016 and 2015, respectively. Net income for fiscal 2016 increased $68.7 million, or 30.9%, to $290.8 million from $222.1 million reported for the prior year. The increase in net income resulted primarily from higher operating profit partially offset by higher tax expense. Adjusted net income for fiscal 2016 increased 35.3% to $343.7 million compared with $254.1 million in the year-ago period. Adjusted diluted earnings per share for fiscal 2016 was $7.84 compared with $5.83 for the prior-year period, which represented an increase of $2.01, or 34.5%.
Outlook
Management believes that the execution of the Company's strategy will provide opportunities for continued profitable growth. The Company's strategy is to capitalize on market growth opportunities by continuing to expand and leverage its industry-leading lighting and building management solutions portfolio combined with its extensive market presence and financial strength.
Overall, the economy in North America and certain markets the Company serves in Europe continue to move along at a measured, but sometimes inconsistent pace. While various leading indicators continue to generally reflect favorable conditions for the Company’s end markets, management remains cautious regarding a meaningful rebound in the end-markets over the next several quarters as a result of various factors, including labor shortages in the construction industry and uncertainty related to both infrastructure spending as well as federal tax and trade policies. Management expects to see some volatility in demand among certain sales channels and geographies, including possible short-term volatility due to the recent hurricanes that impacted Florida, Texas, and Puerto Rico. Management currently expects the growth rate for lighting and building management solutions in the North American market, which includes renovation and retrofit activity and comprises over 97 percent of the Company’s revenues, will be up low single-digits for fiscal 2018, reflecting an expected rebound in the second half of the fiscal year. Management expects the Company to continue to outperform the growth rates of the markets it serves by executing strategies focused on growth opportunities for new construction and renovation projects, expansion into underpenetrated geographies and channels, and growth from the continued introduction of new lighting and building management solutions as part of the Company’s integrated, tiered solutions strategy.
During fiscal 2017, the Company recorded a pre-tax special charge of $11.3 million for actions initiated to streamline the organization. These streamlining activities consisted primarily of severance and employee-related benefit costs for the elimination of certain operations and positions following a realignment of the Company’s operating structure, including positions within various SD&A departments. Management expects to realize annual savings that approximate the amount of the charge and intends to reinvest these savings primarily in additional headcount to support and drive its solution strategy.
Recent changes in the U.S. political landscape have produced a great amount of rhetoric and debate regarding a wide range of policy options with respect to monetary, regulatory, tax, and trade, amongst others, that may be pursued by the current administration. Any policy changes implemented may have a positive or negative consequence on the Company’s financial performance depending on how the changes would influence many factors, including business and consumer sentiment. While management is proactively identifying and evaluating potential contingency options under various policy scenarios, it is too early to comment or speculate at this time on the potential ramification of these endless scenarios.
From a longer term perspective, management expects that the Company’s addressable markets will experience solid growth over the next decade, particularly as energy and environmental concerns come to the forefront along with emerging opportunities for digital lighting to play a key role in the IoT through the use of intelligent networked lighting and building automation systems that can collect and exchange data to increase efficiency as well as provide a host of other economic benefits resulting from data analytics. Management remains positive about the future prospects of the Company and its ability to outperform the markets it serves.
Accounting Standards Adopted in Fiscal 2017 and Accounting Standards Yet to Be Adopted
See the New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for information on recently adopted and upcoming standards.
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Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in the Company’s Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. As discussed in the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expense during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition; inventory valuation; depreciation, amortization, and the recoverability of long-lived assets, including goodwill and intangible assets; share-based payment expense; medical, product warranty and recall, and other reserves; retirement benefits; and litigation. Management bases its estimates and judgments on its substantial historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Management discusses the development of accounting estimates with the Company’s Audit Committee of the Board. See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for a summary of the accounting policies of the Company.
Management believes the following represent the Company’s critical accounting policies and estimates:
Revenue Recognition
The Company records revenue when the following criteria are met: persuasive evidence of a sales arrangement exists, delivery has occurred, the Company’s price to the customer is fixed and determinable, and collectability is reasonably assured. In the period of revenue recognition, provisions for certain rebates, sales incentives, product returns, and discounts to customers are estimated and recorded, in most instances, as a reduction of revenue. The Company also maintains one-time or on-going marketing and trade-promotion programs with certain customers that require the Company to estimate and accrue the expected costs of such programs. These items are estimated based on customer agreements, historical trends, and expected demand. Actual results could differ from estimates, which would require adjustments to accrued amounts. See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for additional information about these assumptions and estimates.
Inventories
Inventories include materials, direct labor, in-bound freight, and related manufacturing overhead, and are stated at the lower of cost (on a first-in, first-out or average-cost basis) or market. Management reviews inventory quantities on hand and records a provision for excess or obsolete inventory primarily based on estimated future demand and current market conditions. A significant change in customer demand, market conditions, or technology could render certain inventory obsolete and thus could have a material adverse impact on the Company’s operating results in the period the change occurs.
Goodwill and Indefinite-Lived Intangible Assets
The Company reviews goodwill and indefinite-lived intangible assets for impairment on an annual basis in the fiscal fourth quarter or on an interim basis, if an event occurs or circumstances change that would more likely than not indicate that the fair value of the goodwill or indefinite-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 or an indefinite-lived intangible asset 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 another appropriate fair value method. The evaluation of goodwill and indefinite-lived intangibles for impairment requires management to use significant judgments and estimates in accordance with U.S. GAAP including, but not limited to, economic, industry, and company-specific qualitative factors, projected future net sales, operating results, and cash flows.
Although management currently believes that the estimates used in the evaluation of goodwill and indefinite-lived intangibles are reasonable, differences between actual and expected net sales, operating results, and cash flows and/or changes in the discount rate or theoretical royalty rate could cause these assets to be deemed impaired. If this were to occur, the Company would be required to record a non-cash charge to earnings for the write-down in value of such assets, which could have a material adverse effect on the Company’s results of operations and financial position but not its cash flows from operations.
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Goodwill
The Company is comprised of one reporting unit with a goodwill balance of $900.9 million as of August 31, 2017. During fiscal 2017, the Company utilized a quantitative assessment of the fair value of goodwill as of June 1, 2017. In determining the fair value of the Company’s reporting unit, the Company used a discounted cash flow analysis, which requires significant assumptions about discount rates as well as short and long-term growth rates. The Company utilized an estimated discount rate of approximately 9% as of June 1, 2017, based on the Capital Asset Pricing Model, which considers the risk-free interest rate, beta, and market risk premium to determine an appropriate discount rate. Short-term growth rates were based on management’s forecasted financial results, which consider key business drivers such as specific revenue growth initiatives, market share changes, growth in the Company's addressable market, and general economic factors such as credit availability and interest rates. The Company calculated the discounted cash flows attributable to its one reporting unit for a 10-year discrete period with a terminal value and compared 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 was estimated at 3% and was primarily based on the Company’s understanding of projections for expected long-term growth in the Company’s addressable market, and historical long-term performance. The quantitative goodwill analysis did not result in an impairment charge. 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 goodwill impairment analysis.
Indefinite-Lived Intangible Assets
The Company’s indefinite-lived intangible assets consist of seven trade names with an aggregate carrying value of approximately $136.7 million. Management utilized significant assumptions to estimate the fair value of these indefinite-lived trade names using a fair value model based on discounted future cash flows (“fair value model”) in accordance with U.S. GAAP. Future cash flows associated with each of the Company’s indefinite-lived trade names are calculated by multiplying a theoretical royalty rate a willing third party would pay for use of the particular trade name by estimated future net sales attributable to the relevant trade name. The present value of the resulting after-tax cash flow is management’s current estimate of the fair value of the trade names. This fair value model requires management to make several significant assumptions, including estimated future net sales (including short and long-term growth rates), the royalty rate, and the discount rate.
Future net sales and short-term growth rates are estimated for each particular trade name based on management’s financial forecasts, which consider key business drivers, such as specific revenue growth initiatives, market share changes, expected growth in the Company's addressable market, 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% and is based primarily on the Company’s understanding of projections for expected long-term growth the Company’s addressable market, and historical long-term performance. The theoretical royalty rate is estimated primarily using management’s assumptions regarding the amount a willing third party would pay to use the particular trade name and is compared with market information for similar intellectual property within and outside of the industry. If future operating results are unfavorable compared with forecasted amounts, the Company may be required to reduce the theoretical royalty rate used in the fair value model. A reduction in the theoretical royalty rate would result in lower expected future after-tax cash flows in the valuation model. The Company utilized a range of estimated discount rates between 9% and 16% as of June 1, 2017, based on the Capital Asset Pricing Model, which considers the current risk-free interest rate, beta, market risk premium, and entity specific size premium.
During fiscal 2017, the Company performed an evaluation of the fair values of its indefinite-lived trade names. The Company’s expected revenues are based on the Company’s fiscal 2018 expectations and recent lighting, controls, and building management solutions market growth estimates for fiscal 2018 through 2022. The Company also included revenue growth estimates based on current initiatives expected to help the Company improve performance. During fiscal 2017, estimated theoretical royalty rates ranged between 1% and 4%. The indefinite-lived intangible asset analysis did not result in any impairment charges, as the fair values exceeded the carrying values for each of the trade names. Any reasonably likely change in the assumptions used in the analyses, including revenue growth rates, royalty rates, and discount rates, would not be material to the Company’s financial condition or results of operations.
Definite-Lived Intangible Assets
The Company evaluates the remaining useful lives of its definite-lived intangible assets on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that would warrant a revision to the remaining period of amortization. The Company considers each reporting period whether an event occurred or circumstances changed that would more likely than not indicate that the fair value of the definite-lived asset is below its carrying value. The Company recorded no impairment charges for its definite-lived intangible assets during fiscal 2017 or 2016.
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Self-Insurance
The Company self-insures, up to certain limits, traditional risks including workers’ compensation, comprehensive general liability, and auto liability. A provision for claims under this self-insured program, based on the Company’s estimate of the aggregate liability for claims incurred, is revised and recorded annually. The estimate is derived from both internal and external sources including, but not limited to, the Company’s independent actuary. The actuarial estimates are subject to uncertainty from various sources including, among others, changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although the Company believes that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Company’s self-insurance obligations, future expense, and cash flow. The Company is also self-insured up to certain limits for certain other insurable risks, primarily physical loss to property and business interruptions resulting from such loss lasting two days or more in duration. Insurance coverage is maintained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. The Company is fully self-insured for certain other types of liabilities, including environmental, product recall, warranty, and patent infringement.
The Company is also self-insured for the majority of its medical benefit plans up to certain limits. The Company estimates its aggregate liability for claims incurred by applying a lag factor to the Company’s historical claims and administrative cost experience. The appropriateness of the Company’s lag factor is evaluated and revised, if necessary, annually. Although management believes that the current estimates are reasonable, significant differences related to claim reporting patterns, plan design, legislation, and general economic conditions could materially affect the Company’s medical benefit plan liabilities, future expense, and cash flow.
Retirement Benefits
The Company sponsors domestic and international defined benefit pension plans, defined contribution plans, and other postretirement plans. Assumptions are used to determine the estimated fair value of plan assets, the actuarial value of plan liabilities, and the current and projected costs for these employee benefit plans and include, among other factors, estimated discount rates, expected returns on the pension fund assets, estimated mortality rates, the rates of increase in employee compensation levels, and, for one international plan, retroactive inflationary adjustments. These assumptions are determined based on Company and market data and are evaluated annually as of the plans’ measurement date. See the Pensions and Defined Contribution Plans footnote of the Notes to Consolidated Financial Statements for further information on the Company’s plans, including the potential impact of changes to certain of these assumptions.
Share-based Payment Expense
The Company recognizes compensation cost relating to share-based payment transactions in the financial statements based on the estimated fair value of the equity instrument issued. The Company accounts for stock options, restricted shares, and share units representing certain deferrals into the Director Deferred Compensation Plan or the Supplemental Deferred Savings Plan (both of which are discussed further in the Share-Based Payments footnote of the Notes to Consolidated Financial Statements) based on the grant-date fair value estimated under the provisions of ASC Topic 718, Compensation — Stock Compensation (“ASC 718”).
The Company employs the Black-Scholes model in deriving the fair value estimates of certain share-based awards and estimates forfeitures of all share-based awards at the time of grant, which are revised in subsequent periods if actual forfeitures differ from initial estimates. Forfeitures are estimated based on historical experience. If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period. See the 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.
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Product Warranty and Recall Costs
The Company records an allowance for the estimated amount of future warranty costs when the related revenue is recognized. Estimated future warranty costs are primarily based on historical experience of identified warranty claims. The Company is fully self-insured for product warranty costs. Historical warranty costs have been within expectations. The Company expects that historical activity will continue to be the best indicator of future warranty costs. There can be no assurance that future warranty costs will not exceed historical amounts or that incorporating new technologies, such as LED components into products, may not generate unexpected costs. Estimated costs related to product recalls based on a formal campaign soliciting repair or return of that product are accrued when they are deemed to be probable and can be reasonably estimated. If actual future warranty or recall costs exceed recorded amounts, additional allowances may be required, which could have a material adverse impact on the Company’s results of operations and cash flow.
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 could have a material adverse impact on the Company’s results of operations and cash flow.
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 Company’s behalf, may from time to time make forward-looking statements in reports and other documents the Company files with the SEC or in connection with oral statements made to the press, current and potential investors, or others. Forward-looking statements include, without limitation: (a) the Company’s projections regarding financial performance, liquidity, capital structure, capital expenditures, and dividends; (b) expectations about the impact of softness in demand as well as volatility and uncertainty in general economic conditions; (c) external forecasts projecting the North American lighting and building management solutions market growth rate and growth in the Company's addressable markets; (d) the Company's ability to execute and realize benefits from initiatives related to streamlining its operations, capitalize on growth opportunities, expand in key markets as well as underpenetrated geographies and channels, and introduce new lighting and building management solutions; (e) the Company’s estimate of its fiscal 2018 tax rate; (f) the Company’s estimate of future amortization expense; (g) the Company’s ability to achieve its long-term financial goals and measures and outperform the markets its serves; (h) the impact to the Company of changes in the political landscape and related policy changes; (h) the Company's projected future capital expenditures and investments; and (j) the Company's expectations about the resolution of trade compliance matters. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this annual report. Except as required by law, the Company undertakes no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. The Company’s forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the historical experience of the Company and management’s present expectations or projections. These risks and uncertainties include, but are not limited to, customer and supplier relationships and prices; competition; ability to realize anticipated benefits from initiatives taken and timing of benefits; market demand; litigation and other contingent liabilities; and economic, political, governmental, and technological factors affecting the Company. Also, additional risks that could cause the Company’s actual results to differ materially from those expressed in the Company’s forward-looking statements are discussed in Part I, Item 1a. Risk Factors of this Annual Report on Form 10-K, and are specifically incorporated herein by reference.
Item 7a. | Quantitative and Qualitative Disclosures about Market Risk |
General. The Company is exposed to worldwide market risks that may impact the Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income, Consolidated Statements of Stockholders' Equity, 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 the Company.
Interest Rates. Interest rate fluctuations expose the variable-rate debt of the Company to changes in interest expense and cash flows. At August 31, 2017, the variable-rate debt of the Company was solely comprised of the $4.0 million long-term industrial revenue bond. A 10% increase in market interest rates at August 31, 2017, would have
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resulted in a de minimis amount of additional annual after-tax interest expense. A fluctuation in interest rates would not affect interest expense or cash flows related to the Company’s fixed-rate debt which includes the $350.0 million publicly-traded fixed-rate notes. A 10% increase in market interest rates at August 31, 2017 would have decreased the estimated fair value of these debt obligations by approximately $1.8 million. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements contained in this Form 10-K for additional information regarding the Company’s debt.
Foreign Exchange Rates. The majority of net sales, expense, and capital purchases of the Company are transacted in U.S. dollars. However, exposure with respect to foreign exchange rate fluctuation exists due to the Company’s operations in Mexico and Canada, where a significant portion of products sold are produced or sourced from the United States, and, to a lesser extent, in Europe. Based on fiscal 2017 performance, a hypothetical decline in the value of the Canadian dollar in relation to the U.S. dollar of 10% would negatively impact operating profit by approximately $14 million, while a hypothetical appreciation of 10% in the value of the Canadian dollar in relation to the U.S. dollar would favorably impact operating profit by approximately $17 million. 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% decrease in the value of the Mexican peso in relation to the U.S. dollar would favorably impact operating profit by approximately $14 million, while a hypothetical increase of 10% in the value of the Mexican peso in relation to the U.S. dollar would negatively impact operating profits by approximately $17 million. The individual impacts to the operating profit of the Company of hypothetical currency fluctuations in the Canadian dollar and Mexican peso have been calculated in isolation from any potential responses to address such exchange rate changes in the Company’s foreign markets.
The Company’s exposure to foreign currency risk related to its operations in Europe is immaterial and has been excluded from this analysis.
Commodity Prices. The Company utilizes a variety of raw materials and components in its production process including petroleum-based products, steel, and aluminum. In fiscal 2017, the Company purchased approximately 109,000 tons of steel and aluminum. The Company estimates that approximately 7% of raw materials purchased are petroleum-based and that approximately five million gallons of diesel fuel were consumed in fiscal 2017. Failure to effectively manage future increases in the costs of these items could have an adverse impact on the Company's results of operations and cash flow.
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Item 8. | Financial Statements and Supplementary Data |
Index to Consolidated Financial Statements
Page | |
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
ACUITY BRANDS, INC.
The management of Acuity Brands, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of August 31, 2017. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management believes that, as of August 31, 2017, the Company’s internal control over financial reporting is effective.
The Company’s independent registered public accounting firm has issued an audit report on their audit of the Company’s internal control over financial reporting. This report dated October 26, 2017 is included within this Form 10-K.
/s/ VERNON J. NAGEL | /s/ RICHARD K. REECE | |
Vernon J. Nagel Chairman, President, and Chief Executive Officer | Richard K. Reece Executive Vice President and Chief Financial Officer | |
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Acuity Brands, Inc.
We have audited the accompanying consolidated balance sheets of Acuity Brands, Inc. as of August 31, 2017 and 2016, and the related consolidated statements of comprehensive income, cash flows, and stockholders’ equity for each of the three years in the period ended August 31, 2017. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Acuity Brands, Inc. at August 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 2017, 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, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated October 26, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 26, 2017
36
Report of Independent Registered Public Accounting Firm
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, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). Acuity Brands, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Acuity Brands, Inc. maintained, in all material respects, effective internal control over financial reporting as of August 31, 2017, 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, 2017 and 2016, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended August 31, 2017 of Acuity Brands, Inc., and our report dated October 26, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 26, 2017
37
ACUITY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
August 31, | |||||||
2017 | 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 311.1 | $ | 413.2 | |||
Accounts receivable, less reserve for doubtful accounts of $1.9 and $1.7, respectively | 573.3 | 572.8 | |||||
Inventories | 328.6 | 295.2 | |||||
Prepayments and other current assets | 32.6 | 41.7 | |||||
Total current assets | 1,245.6 | 1,322.9 | |||||
Property, plant, and equipment, at cost: | |||||||
Land | 22.5 | 23.1 | |||||
Buildings and leasehold improvements | 180.7 | 174.4 | |||||
Machinery and equipment | 484.6 | 448.2 | |||||
Total property, plant, and equipment | 687.8 | 645.7 | |||||
Less — Accumulated depreciation and amortization | (400.1 | ) | (377.9 | ) | |||
Property, plant, and equipment, net | 287.7 | 267.8 | |||||
Goodwill | 900.9 | 947.8 | |||||
Intangible assets | 448.8 | 381.4 | |||||
Deferred income taxes | 3.4 | 5.1 | |||||
Other long-term assets | 13.2 | 23.0 | |||||
Total assets | $ | 2,899.6 | $ | 2,948.0 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 395.1 | $ | 401.0 | |||
Current maturities of long-term debt | 0.4 | 0.2 | |||||
Accrued compensation | 41.8 | 95.2 | |||||
Other accrued liabilities | 163.6 | 176.1 | |||||
Total current liabilities | 600.9 | 672.5 | |||||
Long-term debt | 356.5 | 355.0 | |||||
Accrued pension liabilities | 96.9 | 119.9 | |||||
Deferred income taxes | 108.2 | 74.6 | |||||
Self-insurance reserves | 7.9 | 7.2 | |||||
Other long-term liabilities | 63.6 | 59.0 | |||||
Total liabilities | 1,234.0 | 1,288.2 | |||||
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; 53,549,840 and 53,415,687 issued, respectively | 0.5 | 0.5 | |||||
Paid-in capital | 881.0 | 856.4 | |||||
Retained earnings | 1,659.9 | 1,360.9 | |||||
Accumulated other comprehensive loss | (99.7 | ) | (139.4 | ) | |||
Treasury stock, at cost — 11,678,002 and 9,679,457 shares, respectively | (776.1 | ) | (418.6 | ) | |||
Total stockholders’ equity | 1,665.6 | 1,659.8 | |||||
Total liabilities and stockholders’ equity | $ | 2,899.6 | $ | 2,948.0 | |||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions, except per-share data)
Year Ended August 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Net sales | $ | 3,505.1 | $ | 3,291.3 | $ | 2,706.7 | |||||
Cost of products sold | 2,023.9 | 1,855.1 | 1,561.1 | ||||||||
Gross profit | 1,481.2 | 1,436.2 | 1,145.6 | ||||||||
Selling, distribution, and administrative expenses | 951.1 | 946.0 | 756.9 | ||||||||
Special charge | 11.3 | 15.0 | 12.4 | ||||||||
Operating profit | 518.8 | 475.2 | 376.3 | ||||||||
Other expense (income): | |||||||||||
Interest expense, net | 32.5 | 32.2 | 31.5 | ||||||||
Miscellaneous (income) expense, net | (6.3 | ) | (1.6 | ) | 1.2 | ||||||
Total other expense | 26.2 | 30.6 | 32.7 | ||||||||
Income before provision for income taxes | 492.6 | 444.6 | 343.6 | ||||||||
Provision for income taxes | 170.9 | 153.8 | 121.5 | ||||||||
Net income | $ | 321.7 | $ | 290.8 | $ | 222.1 | |||||
Earnings per share: | |||||||||||
Basic earnings per share | $ | 7.46 | $ | 6.67 | $ | 5.13 | |||||
Basic weighted average number of shares outstanding | 43.1 | 43.5 | 43.1 | ||||||||
Diluted earnings per share | $ | 7.43 | $ | 6.63 | $ | 5.09 | |||||
Diluted weighted average number of shares outstanding | 43.3 | 43.8 | 43.4 | ||||||||
Dividends declared per share | $ | 0.52 | $ | 0.52 | $ | 0.52 | |||||
Comprehensive income: | |||||||||||
Net income | $ | 321.7 | $ | 290.8 | $ | 222.1 | |||||
Other comprehensive income (loss) items: | |||||||||||
Foreign currency translation adjustments | 19.0 | (5.6 | ) | (24.0 | ) | ||||||
Defined benefit plans, net | 20.7 | (23.4 | ) | (14.5 | ) | ||||||
Other comprehensive income (loss) items, net of tax | 39.7 | (29.0 | ) | (38.5 | ) | ||||||
Comprehensive income | $ | 361.4 | $ | 261.8 | $ | 183.6 | |||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended August 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 321.7 | $ | 290.8 | $ | 222.1 | |||||
Adjustments to reconcile net income to net cash flows from operating activities: | |||||||||||
Depreciation and amortization | 74.6 | 62.6 | 45.8 | ||||||||
Share-based payment expense | 32.0 | 27.7 | 18.2 | ||||||||
Excess tax benefits from share-based payments | (5.2 | ) | (25.6 | ) | (17.6 | ) | |||||
Loss (gain) on the sale or disposal of property, plant, and equipment | 0.3 | (0.9 | ) | 0.7 | |||||||
Asset impairments | — | 5.1 | — | ||||||||
Deferred income taxes | (7.7 | ) | (8.2 | ) | 2.8 | ||||||
Gain on sale of investment in unconsolidated affiliate | (7.2 | ) | — | — | |||||||
Loss on financial instruments, net | — | — | 2.6 | ||||||||
Change in assets and liabilities, net of effect of acquisitions, divestitures, and exchange rate changes: | |||||||||||
Accounts receivable | 2.7 | (94.6 | ) | (46.1 | ) | ||||||
Inventories | (32.4 | ) | (24.0 | ) | (15.1 | ) | |||||
Prepayments and other current assets | 6.0 | (10.5 | ) | 0.7 | |||||||
Accounts payable | (4.6 | ) | 65.3 | 23.1 | |||||||
Other current liabilities | (63.5 | ) | 60.6 | 59.3 | |||||||
Other | (0.5 | ) | (2.6 | ) | (7.6 | ) | |||||
Net cash provided by operating activities | 316.2 | 345.7 | 288.9 | ||||||||
Cash flows from investing activities: | |||||||||||
Purchases of property, plant, and equipment | (67.3 | ) | (83.7 | ) | (56.5 | ) | |||||
Proceeds from sale of property, plant, and equipment | 5.5 | 2.2 | 1.3 | ||||||||
Acquisitions of businesses and intangible assets, net of cash acquired | — | (623.2 | ) | (14.6 | ) | ||||||
Proceeds from sale of investment in unconsolidated affiliate | 13.2 | — | — | ||||||||
Other investing activities | (0.2 | ) | — | (2.6 | ) | ||||||
Net cash used for investing activities | (48.8 | ) | (704.7 | ) | (72.4 | ) | |||||
Cash flows from financing activities: | |||||||||||
Issuance of long-term debt | 1.0 | 2.5 | — | ||||||||
Repurchases of common stock | (357.9 | ) | — | — | |||||||
Proceeds from stock option exercises and other | 3.0 | 14.2 | 11.6 | ||||||||
Excess tax benefits from share-based payments | 5.2 | 25.6 | 17.6 | ||||||||
Dividends paid | (22.7 | ) | (22.9 | ) | (22.7 | ) | |||||
Other financing activities | — | — | (10.4 | ) | |||||||
Net cash (used for) provided by financing activities | (371.4 | ) | 19.4 | (3.9 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | 1.9 | (4.0 | ) | (8.3 | ) | ||||||
Net change in cash and cash equivalents | (102.1 | ) | (343.6 | ) | 204.3 | ||||||
Cash and cash equivalents at beginning of year | 413.2 | 756.8 | 552.5 | ||||||||
Cash and cash equivalents at end of year | $ | 311.1 | $ | 413.2 | $ | 756.8 | |||||
Supplemental cash flow information: | |||||||||||
Income taxes paid during the period | $ | 173.6 | $ | 120.7 | $ | 106.3 | |||||
Interest paid during the period | $ | 33.6 | $ | 32.8 | $ | 32.2 | |||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
40
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss Items | Treasury Stock, at cost | Total | ||||||||||||||||||
Balance, August 31, 2014 | $ | 0.5 | $ | 761.5 | $ | 893.6 | $ | (71.9 | ) | $ | (420.2 | ) | $ | 1,163.5 | |||||||||
Net income | — | — | 222.1 | — | — | 222.1 | |||||||||||||||||
Other comprehensive loss | — | — | — | (38.5 | ) | — | (38.5 | ) | |||||||||||||||
Amortization, issuance, and cancellations of restricted stock grants | — | 6.4 | — | — | — | 6.4 | |||||||||||||||||
Employee stock purchase plan issuances | — | 0.5 | — | — | — | 0.5 | |||||||||||||||||
Cash dividends of $0.52 per share paid on common stock | — | — | (22.7 | ) | — | — | (22.7 | ) | |||||||||||||||
Stock options exercised | — | 11.1 | — | — | — | 11.1 | |||||||||||||||||
Excess tax benefits from share-based payments | — | 17.6 | — | — | — | 17.6 | |||||||||||||||||
Balance, August 31, 2015 | 0.5 | 797.1 | 1,093.0 | (110.4 | ) | (420.2 | ) | 1,360.0 | |||||||||||||||
Net income | — | — | 290.8 | — | — | 290.8 | |||||||||||||||||
Other comprehensive loss | — | — | — | (29.0 | ) | — | (29.0 | ) | |||||||||||||||
Common stock issued from treasury stock for acquisition of business | — | 8.4 | — | — | 1.6 | 10.0 | |||||||||||||||||
Amortization, issuance, and cancellations of restricted stock grants | — | 11.1 | — | — | — | 11.1 | |||||||||||||||||
Employee stock purchase plan issuances | — | 0.7 | — | — | — | 0.7 | |||||||||||||||||
Cash dividends of $0.52 per share paid on common stock | — | — | (22.9 | ) | — | — | (22.9 | ) | |||||||||||||||
Stock options exercised | — | 13.5 | — | — | — | 13.5 | |||||||||||||||||
Excess tax benefits from share-based payments | — | 25.6 | — | — | — | 25.6 | |||||||||||||||||
Balance, August 31, 2016 | 0.5 | 856.4 | 1,360.9 | (139.4 | ) | (418.6 | ) | 1,659.8 | |||||||||||||||
Net income | — | — | 321.7 | — | — | 321.7 | |||||||||||||||||
Other comprehensive income | — | — | — | 39.7 | — | 39.7 | |||||||||||||||||
Amortization, issuance, and cancellations of restricted stock grants | — | 16.4 | — | — | 0.4 | 16.8 | |||||||||||||||||
Employee stock purchase plan issuances | — | 0.9 | — | — | — | 0.9 | |||||||||||||||||
Cash dividends of $0.52 per share paid on common stock | — | — | (22.7 | ) | — | — | (22.7 | ) | |||||||||||||||
Stock options exercised | — | 2.1 | — | — | — | 2.1 | |||||||||||||||||
Repurchases of common stock | — | — | — | — | (357.9 | ) | (357.9 | ) | |||||||||||||||
Excess tax benefits from share-based payments | — | 5.2 | — | — | — | 5.2 | |||||||||||||||||
Balance, August 31, 2017 | $ | 0.5 | $ | 881.0 | $ | 1,659.9 | $ | (99.7 | ) | $ | (776.1 | ) | $ | 1,665.6 | |||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
41
1. | Description of Business and Basis of Presentation |
Acuity Brands, Inc. (“Acuity Brands”) is the parent company of Acuity Brands Lighting, Inc. (“ABL”) and other subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred to herein as the “Company”) and was incorporated in 2001 under the laws of the State of Delaware. The Company is one of the world’s leading providers of lighting and building management solutions and services for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. The Company’s lighting and building management solutions include devices such as luminaires, lighting controls, controllers for various building systems, power supplies, prismatic skylights, and drivers, as well as integrated systems designed to optimize energy efficiency and comfort for various indoor and outdoor applications. Additionally, the Company continues to expand its solutions portfolio, including software and services, to provide a host of other economic benefits resulting from data analytics that enables the Internet of Things (“IoT”), supports the advancement of smart buildings, smart cities, and the smart grid, and allows businesses to develop custom applications to scale their operations. The Company has one reportable segment serving the North American lighting market and select international markets.
The Consolidated Financial Statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and present the financial position, results of operations, and cash flows of Acuity Brands and its wholly-owned subsidiaries.
2. Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Acuity Brands and its wholly-owned subsidiaries after elimination of 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 Company’s 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 received at the customer’s designated 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 ongoing 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 Company’s products, introductory marketing funds for new products, and other trade-promotion activities conducted by the customer. Costs associated with these programs are reflected within the Company’s Consolidated Statements of Comprehensive Income in accordance with 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 liabilities associated with the programs totaled $38.1 million and $41.0 million as of August 31, 2017 and 2016, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets.
The Company's standard terms and conditions of sale allow returns of certain products within four months of the date of shipment. The Company also provides for limited product return rights to certain distributors and other customers, primarily for slow moving or damaged items subject to certain defined criteria. The limited product return rights generally allow customers to return resalable products purchased within a specified time period and subject to certain limitations, including, at times, when accompanied by a replacement order of equal or greater value. At the time revenue is recognized, the Company records a provision for the estimated amount of future returns primarily based on historical experience, specific notification of pending returns, or contractual terms with the respective customers. 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 adverse impact on the Company's operating results in future periods.
42
Revenue is earned on services and the sale of products. Revenue is recognized for the sale of products when the above criteria are met and for services rendered in the period of performance.
Revenue Recognition for Arrangements with Multiple Deliverables
A small portion (less than 4%) of the Company's revenues are derived from the combination of any or all of: (i) the sale and license of its products, (ii) fees associated with training, installation, and technical support services, (iii) monitoring and lighting control services, and (iv) providing services related to data analytics. Certain agreements for integrated lighting solutions represent multiple-element arrangements that include tangible products as well as services that are essential to the functionality of the solution. These services primarily relate to installation, monitoring, and lighting controls services. All of these elements are reviewed and analyzed to determine separability in relation to the delivered elements and appropriate pricing treatment based on (a) vendor-specific objective evidence, (b) third-party evidence, or (c) management estimates. If deemed separate units of accounting, the revenue and associated cost of sales related to the delivered elements are recognized at the time of delivery, while those related to the undelivered elements are recognized appropriately based on the period of performance. If the separation criterion for the undelivered elements is not met because the undelivered elements are essential to the functionality of the lighting controls systems, all revenue and cost of sales attributable to the contract are deferred at the time of sale and are both generally recognized on a straight-line basis over the respective contract periods.
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. The Company 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 a reserve for doubtful 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 the economic status of customers, if known. Management believes that the allowance is sufficient to cover uncollectible amounts; however, there can be no assurance that unanticipated future business conditions of customers will not have a negative impact on the Company’s results of operations.
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 Company’s lighting and building management solutions as well as their dispersion across many different geographic areas. Two customers each accounted for approximately 10% of receivables at August 31, 2017, and no single customer accounted for more than 10% of net sales in fiscal 2017. One customer accounted for approximately 10% of receivables at August 31, 2016, and no single customer accounted for more than 10% of net sales in fiscal 2016. A single customer accounted for approximately 11% of net sales in fiscal 2015.
Reclassifications
Certain prior-period amounts have been reclassified to conform to the current year presentation. No material reclassifications 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 consolidated financial statements as of August 31, 2017.
43
Inventories
Inventories include materials, direct 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 (in millions):
August 31, | |||||||
2017 | 2016 | ||||||
Raw materials, supplies, and work in process(1) | $ | 176.5 | $ | 170.3 | |||
Finished goods | 180.8 | 145.3 | |||||
Inventories excluding reserves | 357.3 | 315.6 | |||||
Less: Reserves | (28.7 | ) | (20.4 | ) | |||
Total inventories | $ | 328.6 | $ | 295.2 | |||
_______________________________________
(1) | Due to the immaterial amount of estimated work in process and the short lead times for the conversion of raw materials to finished goods, the Company does not believe the segregation of raw materials and work in process is meaningful information. |
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 could have a material adverse impact on the Company’s operating results in the period the change occurs.
Assets Held for Sale
In accordance with applicable U.S. GAAP, the Company classifies assets as held for sale upon the development of a plan for disposal and ceases the depreciation and amortization of the assets at that date. The Company did not classify any assets as held for sale as of August 31, 2017. As of August 31, 2016, certain property with a carrying value of $5.4 million was classified as held for sale and included within Prepayments and other current assets on the Consolidated Balance Sheets. This property was subsequently sold during the year ended August 31, 2017.
Goodwill and Other Intangibles
Goodwill amounted to $900.9 million and $947.8 million as of August 31, 2017 and 2016, respectively. The change in the carrying amount of goodwill during fiscal 2017 is summarized as follows (in millions):
Balance as of August 31, 2016 | $ | 947.8 | |
Adjustments to provisional amounts | (56.5 | ) | |
Foreign currency translation adjustments | 9.6 | ||
Balance as of August 31, 2017 | $ | 900.9 | |
Summarized information for the Company’s acquired intangible assets is as follows (in millions):
August 31, | |||||||||||||||
2017 | 2016 | ||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||
Definite-lived intangible assets: | |||||||||||||||
Patents and patented technology | $ | 124.1 | $ | (51.5 | ) | $ | 112.3 | $ | (39.9 | ) | |||||
Trademarks and trade names | 27.2 | (12.0 | ) | 27.2 | (10.7 | ) | |||||||||
Distribution network | 61.8 | (35.2 | ) | 61.8 | (33.0 | ) | |||||||||
Customer relationships | 240.8 | (43.1 | ) | 157.9 | (29.3 | ) | |||||||||
Other | 4.6 | (4.6 | ) | 4.9 | (4.8 | ) | |||||||||
Total definite-lived intangible assets | $ | 458.5 | $ | (146.4 | ) | $ | 364.1 | $ | (117.7 | ) | |||||
Indefinite-lived trade names | $ | 136.7 | $ | 135.0 | |||||||||||
44
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. Significant estimates and assumptions were used to determine the initial fair value of these acquired intangible assets, including estimated future net sales, customer attrition rates, royalty rates, and discount rates.
The current year increase in the gross carrying amounts for the acquired intangible assets and the decrease in goodwill were due primarily to the finalization of the purchase accounting allocation during the current fiscal year for Juno Lighting LLC (“Juno Lighting”) and DGLogik, Inc. (“DGLogik”) as well as foreign currency translation adjustments. Refer to the Acquisitions and Investments footnote for additional information regarding the purchase price allocations for these acquisitions.
The Company recorded amortization expense of $28.0 million, $21.4 million, and $11.0 million related to intangible assets with finite lives during fiscal 2017, 2016, and 2015, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $26.4 million in fiscal 2018, $26.4 million in fiscal 2019, $26.0 million in fiscal 2020, $25.7 million in fiscal 2021, and $22.3 million in fiscal 2022.
The Company tests goodwill and indefinite-lived intangible assets 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”). Additionally, the Company early adopted Accounting Standards Update (“ASU”), Simplifying the Test for Goodwill Impairment (“ASU 2017-04,”). Refer to the New Accounting Pronouncements footnote for more information regarding the adoption of this standard. The preliminary goodwill impairment step allows for an optional qualitative analysis to determine the likelihood of impairment. If the qualitative review results in a more likely than not probability of impairment, a quantitative analysis is required. The qualitative step may be bypassed entirely in favor of a quantitative test.
The quantitative analysis identifies impairments by comparing the fair value of a reporting unit with its carrying value, including goodwill. The fair values can be 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 its carrying value, goodwill is not considered impaired. Conversely, if the carrying value of a reporting unit exceeds its fair value, an impairment charge for the difference is recorded. In fiscal 2017, a quantitative fair value analysis, based on discounted future cash flows, was used to determine the likelihood of goodwill impairment for the Company’s one reporting unit. During fiscal 2016 and 2015, a qualitative analysis was used to determine the likelihood of impairment. The analysis for goodwill did not result in an impairment charge during fiscal 2017, 2016, or 2015.
The impairment test for indefinite-lived trade names consists of comparing the fair value of an asset with its carrying value. If the carrying amount exceeds the estimated fair value, an impairment loss would be recorded in the amount of the excess. The Company estimates the fair value of indefinite-lived trade names using a fair value model based on discounted future cash flows. Significant assumptions, including estimated future net sales, royalty rates, and discount rates, are used in the determination of estimated fair value for indefinite-lived trade names. The indefinite-lived trade name analysis did not result in an impairment charge for fiscal 2017 or 2015. However, during fiscal 2016, management began to rationalize the Company's portfolio of brands, resulting in the initiation of the phase out of one of the trade names. As a result, during fiscal 2016, the Company recognized an impairment charge of $5.1 million related to this trade name and concluded the trade name is definite-lived. The impairment charge is included in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income for the year ended August 31, 2016. The indefinite-lived intangible asset analysis for fiscal 2016 did not result in any other impairment charges, as the fair values exceeded the carrying values for each of the other trade names.
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Other Long-Term Assets
Other long-term assets consist of the following (in millions):
August 31, | |||||||
2017 | 2016 | ||||||
Deferred contract costs | $ | 6.7 | $ | 8.3 | |||
Investment in noncontrolling affiliate(1) | — | 8.0 | |||||
Other(2) | 6.5 | 6.7 | |||||
Total other long-term assets | $ | 13.2 | $ | 23.0 | |||
_______________________________________
(1) | The Company previously held an equity investment in an unconsolidated affiliate. This strategic investment was less than a 20% ownership interest in the privately-held affiliate, and the Company did not maintain power over or control of the entity. The Company accounted for this investment using the cost method. During fiscal 2017, this investment was sold, resulting in the recognition of a gain of $7.2 million. |
(2) | Amounts primarily include deferred debt issuance costs related to the Company's revolving credit facility and company-owned life insurance investments. The Company maintains life insurance policies on 73 former employees primarily to satisfy obligations under certain deferred compensation plans. These company-owned life insurance policies are presented net of loans that are secured by these policies. This program is frozen, and no new policies were issued in the three-year period ended August 31, 2017. |
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in millions):
August 31, | |||||||
2017 | 2016 | ||||||
Deferred compensation and postretirement benefits other than pensions(1) | $ | 39.7 | $ | 37.3 | |||
Long-term warranty obligations | 10.7 | 4.9 | |||||
Unrecognized tax position liabilities, including interest(2) | 7.0 | 6.1 | |||||
Other(3) | 6.2 | 10.7 | |||||
Total other long-term liabilities | $ | 63.6 | $ | 59.0 | |||
_______________________________________
(1) | 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 employee’s 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 employee’s compensation. 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) | See the Income Taxes footnote for more information. |
(3) | Amount primarily includes deferred revenue and deferred rent. The balance at August 31, 2016 includes a multi-employer pension plan withdrawal liability of $3.9 million, which was subsequently settled in full during fiscal 2017 |
Shipping and Handling Fees and Costs
The Company includes shipping and handling fees billed to customers in Net sales in the Consolidated Statements of Comprehensive Income. Shipping and handling costs associated with inbound freight and freight between manufacturing facilities and distribution centers are generally recorded in Cost of products sold in the Consolidated Statements of Comprehensive Income. Other shipping and handling costs are included in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income and totaled $138.3 million, $124.0 million, and $105.6 million in fiscal 2017, 2016, and 2015, respectively.
Share-based Payments
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 (“SDSP”) (both of which are discussed further in the Share-based Payments footnote) based on the grant-date fair value estimated under the current provisions of ASC Topic 718, Compensation — Stock Compensation (“ASC 718”).
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Share-based payment expense includes expense related to restricted stock and options issued, as well as share units deferred into the Director Deferred Compensation Plan. The Company recorded $32.0 million, $27.7 million, and $18.2 million of share-based payment expense for the years ended August 31, 2017, 2016, and 2015, respectively. The total income tax benefit recognized for share-based payment arrangements was $11.1 million, $9.6 million, and $6.4 million for the years ended August 31, 2017, 2016, and 2015, 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 at the time of grant and 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 payment expense, net of estimated forfeitures, in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income.
Benefits of tax deductions in excess of recognized share-based payment cost are reported as a financing cash flow, rather than as an operating cash flow, in the Consolidated Statements of Cash Flows and amounted to $5.2 million, $25.6 million, and $17.6 million for fiscal 2017, 2016, and 2015, 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 3 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 $46.6 million, $41.2 million, and $34.8 million during fiscal 2017, 2016, and 2015, respectively.
Research and Development
Research and development (“R&D”) expense, which is expensed as incurred, consists of compensation, payroll taxes, employee benefits, materials, supplies, and other administrative costs. R&D does not include all new product development costs and is included in Selling, distribution, and administrative expenses in the Company’s Consolidated Statements of Comprehensive Income. R&D expense amounted to $52.0 million, $47.1 million, and $41.1 million during fiscal 2017, 2016, and 2015, respectively.
Advertising
Advertising costs are expensed as incurred and are included within Selling, distribution, and administrative expenses in the Company’s Consolidated Statements of Comprehensive Income. These costs totaled $18.6 million, $18.4 million, and $12.0 million during fiscal 2017, 2016, and 2015, respectively.
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 a 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 (in millions):
Year Ended August 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Interest expense | $ | 34.1 | $ | 33.3 | $ | 32.6 | |||||
Interest income | (1.6 | ) | (1.1 | ) | (1.1 | ) | |||||
Interest expense, net | $ | 32.5 | $ | 32.2 | $ | 31.5 | |||||
Miscellaneous Expense (Income), Net
Miscellaneous expense (income), net, is composed primarily of gains or losses on foreign currency items and other non-operating items. Gains or losses relating to foreign currency items consisted of income of $0.5 million in
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fiscal 2017, expense of $0.8 million in fiscal 2016, and expense of $0.7 million in fiscal 2015. During fiscal 2017, the Company recognized a $7.2 million gain associated with the sale of an investment in an unconsolidated affiliate, which is reflected within Miscellaneous expense (income), net.
Income Taxes
The Company is taxed at statutory 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 or benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities.
Foreign Currency Translation
The functional currency for the foreign operations of the Company is the local currency where the foreign operations are domiciled. 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 Foreign currency translation adjustments in the Consolidated Statements of Comprehensive Income and are excluded from net income.
Comprehensive Income
Comprehensive income represents a measure of all changes in equity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Other comprehensive income for the Company includes foreign currency translation and pension adjustments.
The following table presents the changes in each component of accumulated other comprehensive income (loss) during the year ended August 31, 2017 (in millions):
Foreign Currency Items | Defined Benefit Pension Plans | Accumulated Other Comprehensive Loss Items | |||||||||
Balance at August 31, 2016 | $ | (47.7 | ) | $ | (91.7 | ) | $ | (139.4 | ) | ||
Other comprehensive income before reclassifications | 19.0 | 12.6 | 31.6 | ||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 8.1 | 8.1 | ||||||||
Net current period other comprehensive income | 19.0 | 20.7 | 39.7 | ||||||||
Balance at August 31, 2017 | $ | (28.7 | ) | $ | (71.0 | ) | $ | (99.7 | ) | ||
The following table presents the tax expense or benefit allocated to each component of other comprehensive income (loss) for the three years ended August 31, 2017 (in millions):
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Year Ended August 31, | |||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||
Before Tax Amount | Tax (Expense) or Benefit | Net of Tax Amount | Before Tax Amount | Tax (Expense) or Benefit | Net of Tax Amount | Before Tax Amount | Tax (Expense) or Benefit | Net of Tax Amount | |||||||||||||||||||||||||||
Foreign currency translation adjustments | $ | 19.0 | $ | — | $ | 19.0 | $ | (5.6 | ) | $ | — | $ | (5.6 | ) | $ | (24.0 | ) | $ | — | $ | (24.0 | ) | |||||||||||||
Defined benefit pension plans: | |||||||||||||||||||||||||||||||||||
Actuarial gains (losses) | 18.3 | (5.7 | ) | 12.6 | (42.2 | ) | 13.5 | (28.7 | ) | (27.9 | ) | 10.7 | (17.2 | ) | |||||||||||||||||||||
Amortization of defined benefit pension items: | |||||||||||||||||||||||||||||||||||
Prior service cost (1) | 3.1 | (0.7 | ) | 2.4 | 3.1 | (1.1 | ) | 2.0 | 1.4 | (0.6 | ) | 0.8 | |||||||||||||||||||||||
Actuarial losses (1) | 8.9 | (3.2 | ) | 5.7 | 4.9 | (1.6 | ) | 3.3 | 4.1 | (2.2 | ) | 1.9 | |||||||||||||||||||||||
Total defined benefit plans, net | 30.3 | (9.6 | ) | 20.7 | (34.2 | ) | 10.8 | (23.4 | ) | (22.4 | ) | 7.9 | (14.5 | ) | |||||||||||||||||||||
Other comprehensive income (loss) | $ | 49.3 | $ | (9.6 | ) | $ | 39.7 | $ | (39.8 | ) | $ | 10.8 | $ | (29.0 | ) | $ | (46.4 | ) | $ | 7.9 | $ | (38.5 | ) | ||||||||||||
_______________________________________
(1) | The before tax amount of these other comprehensive income (loss) components is included in net periodic pension cost. See the Pension and Defined Contribution Plans footnote for additional details. |
3. New Accounting Pronouncements
Accounting Standards Adopted in Fiscal 2017
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04. This guidance eliminates the requirement to determine the implied fair value of goodwill to measure an impairment of goodwill. Rather, goodwill impairment charges will be calculated as the amount by which a reporting unit's carrying amount exceeds its fair value. Adoption of the provisions in ASU 2017-04 is required for the Company for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted ASU 2017-04 effective beginning in the current period. The provisions of ASU 2017-04 did not have a material effect on the Company's financial condition, results of operations, or cash flows.
In July 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”), which simplifies the accounting for measurement-period adjustments to provisional amounts recognized in a business combination. ASU 2015-16 eliminates the requirement to retrospectively account for adjustments made to provisional amounts recorded in connection with a business combination and is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2015. The Company adopted ASU 2015-16 this fiscal year and presented all adjustments to provisional amounts recorded in connection within a business combination in fiscal 2017 prospectively.
In April 2015, the FASB issued ASU No. 2015-05, Customer's Accounting For Fees Paid In A Cloud Computing Arrangement (“ASU 2015-05”), which provides guidance for a customer's accounting for cloud computing costs. ASU 2015-05 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2015. The Company adopted ASU 2015-05 during fiscal 2017. The provisions of ASU 2015-05 did not have a material effect on the Company's financial condition, results of operations, or cash flows.
Accounting Standards Yet to Be Adopted
In March 2017, the FASB issued ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”), which will change the presentation of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost will be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost will be presented separately outside of operating income. Additionally, only service costs may be capitalized in assets. ASU 2017-07 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The provisions of ASU 2017-07 are not expected to have a material effect on the Company's financial condition, results of operations, or cash flows.
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In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business (“ASU 2017-01”), which requires an evaluation of whether substantially all of the fair value of assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the transaction does not qualify as a business. The guidance also requires an acquired business to include at least one substantive process and narrows the definition of outputs. The Company is required to apply this guidance to annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the impact of the provisions of ASU 2017-01 and intends to implement the standard as required in fiscal 2019.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (“ASU 2016-15”), which is intended to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows including debt prepayment and extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance. ASU 2016-15 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The Company intends to implement the standard as required in fiscal 2019, and the provisions of ASU 2016-15 are not expected to have a material impact on the Company's financial statement disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, (“ASU 2016-09”), which will change certain aspects of accounting for share-based payments to employees. ASU 2016-09 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016. The standard requires that all excess tax benefits and deficiencies currently recorded as additional paid-in capital be prospectively recorded in income tax expense. As such, implementation of this standard could create volatility in the Company's effective income tax rate on a quarter by quarter basis. The volatility in the effective income tax rate is due primarily to fluctuations in the Company's stock price and the timing of stock option exercises and vesting of restricted share grants. The standard also requires excess tax benefits to be presented as an operating activity on the statement of cash flows rather than as a financing activity and taxes paid for employee withholdings to be presented as a financing activity. The Company will implement the standard as required in fiscal 2018. Excess tax benefits will be recorded within income tax expense on a prospective basis as required by the standard; however, the Company will elect to present changes to the statement of cash flows on a retrospective basis as allowed by the update in order to maintain comparability between fiscal years.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which requires lessees to include most leases on the balance sheet. ASU 2016-02 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of ASU 2016-02 and intends to implement the standard as required in fiscal 2020.
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In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which will replace most existing revenue recognition guidance in U.S. GAAP. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard also requires additional disclosures about the nature, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09 permits two transition methods: the full retrospective method and the modified retrospective method. Under the full retrospective method, the standard would be applied to each prior reporting period presented with the cumulative effect of applying the standard recognized at the earliest period shown. Under the modified retrospective method, the cumulative effect of applying the standard would be recognized at the date of initial application. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the guidance in ASU 2014-09 and has the same effective date as the original standard. During the three months ended July 1, 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ASU 2016-11, Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting; and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients. These amendments are intended to improve and clarify the implementation guidance of ASU 2014-09 and have the same effective date as the original standard.
The Company has an implementation team tasked with identifying potential differences that will result from applying the new revenue recognition standard to the Company's contracts with its customers. The implementation team reports the findings and progress of the project to management on a frequent basis and to the Audit Committee of the Board of Directors (the “Board”) on a quarterly basis. The implementation team has completed its initial phase of contract reviews and continues to evaluate the results of those reviews with respect to potential changes from adopting the new standard on the Company's consolidated financial statements. Management anticipates the most significant changes will relate to additional deferral of revenue recognition for certain services provided and the gross presentation of right of return assets and refund liabilities for sales with a right of return. Based on the current portfolio of the Company's revenue generating activities, these changes are not expected to have a material impact on the Company's consolidated financial condition, results of operations, or cash flows. Additionally, the implementation team is in the process of identifying appropriate changes to the Company's business processes, systems, and controls to support recognition and disclosure under the new standard. Based on the implementation team's current findings and the overall expected immaterial impact of adoption, the implementation team is currently evaluating which adoption method would provide the most meaningful information to the Company's stakeholders. The Company will adopt the requirements of the new standard no later than the effective date of September 1, 2018.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
4. Acquisitions and Investments
The Company does not consider acquisitions a critical element of its strategy but seeks opportunities for growth through acquisitions and investments. In recent years, the Company has acquired or made investments in a number of businesses that participate in the lighting, building management, and related markets, including the businesses discussed below. The acquisitions and investments were made with the intent to further expand and complement the Company’s lighting and building management solutions portfolio. The purchased companies were fully incorporated into the Company’s operations at their respective acquisition dates. There were no acquisitions during fiscal 2017.
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Fiscal 2016 Acquisitions
DGLogik, Inc.
On June 30, 2016, using cash on hand and treasury stock, the Company acquired DGLogik, a provider of innovative software solutions that enable and visualize the IoT. DGLogik's solutions provide users with the intelligence to better manage energy usage and improve facility performance. DGLogik is headquartered in the San Francisco Bay Area, California. The operating results of DGLogik have been included in the Company's consolidated financial statements since the date of acquisition and are not material to the Company's financial condition, results of operations, or cash flows.
The Company finalized the acquisition accounting for DGLogik during fiscal 2017, and the amounts are reflected on the Consolidated Balance Sheets. There were no material changes to the Company’s financial statements as a result of the finalization of the acquisition accounting.
Juno Lighting LLC
On December 10, 2015, using cash on hand, the Company acquired for approximately $380.0 million all of the equity interests of Juno Lighting, a leading provider of downlighting and track lighting fixtures for both residential and commercial applications. Juno Lighting is headquartered in Des Plaines, Illinois.The operating results of Juno Lighting have been included in the Company's consolidated financial statements since the date of acquisition.
Provisional amounts recognized at the acquisition date related to the Juno Lighting acquisition were prospectively adjusted in the second quarter of fiscal 2017 to reflect the finalization of the valuation of customer relationships and certain accrued liabilities. These adjustments resulted in an increase to intangible assets, net of $81.1 million, a decrease to goodwill of $50.5 million, an increase to deferred income tax liabilities of $29.6 million, and a decrease to net operating working capital of $1.0 million in the second quarter. Additionally, the Company recorded $1.5 million of additional amortization expense during fiscal 2017 to reflect the amortization that would have been recognized in previous periods if the adjustment to intangibles was recognized as of the acquisition date. The fair values of assets acquired and liabilities assumed were finalized and reflected on the Consolidated Balance Sheets prospectively as of February 28, 2017.
Geometri LLC
On December 9, 2015, using cash on hand, the Company acquired certain assets and assumed certain liabilities of Geometri, LLC (“Geometri”), a provider of a software and services platform for mapping, navigation, and analytics. The operating results of Geometri have been included in the Company’s consolidated financial statements since the date of acquisition. The Company finalized the acquisition accounting for Geometri during fiscal 2017, and the amounts are reflected on the Consolidated Balance Sheets. There were no material changes to the Company’s financial statements as a result of the finalization of the acquisition accounting.
Distech Controls Inc.
On September 1, 2015, using cash on hand, the Company acquired for approximately $240.0 million all of the outstanding capital stock of Distech Controls Inc. (“Distech Controls”), a provider of building automation solutions that allow for the integration of lighting, HVAC, access control, closed circuit television, and related systems. Distech Controls is headquartered in Quebec, Canada. The Company finalized the acquisition accounting for Distech Controls during fiscal 2016, and the amounts are reflected on the Consolidated Balance Sheets. There were no material changes to the Company’s financial statements as a result of the finalization of the acquisition accounting.
Fiscal 2015 Acquisition
On April 15, 2015, using cash on hand, the Company acquired substantially all of the assets and assumed certain liabilities of ByteLight, Inc. (“ByteLight”), a provider of indoor location software for light-emitting diode (“LED”) lighting. The operating results of ByteLight have been included in the Company's consolidated financial statements since the date of acquisition. Management finalized the acquisition accounting for ByteLight during the fourth quarter of fiscal 2015, and the amounts are reflected in the Consolidated Balance Sheets.
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5. Fair Value Measurements
The Company determines fair value measurements based on the assumptions a market participant would use in pricing an asset or liability. ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a three level hierarchy making a distinction between market participant assumptions based on (i) unadjusted quoted prices for identical assets or liabilities in an active market (Level 1), (ii) quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (Level 2), and (iii) prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (Level 3).
The Company's cash and cash equivalents (Level 1), which are required to be carried at fair value and measured on a recurring basis, were $311.1 million and $413.2 million as of August 31, 2017 and 2016, respectively.
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 quoted market prices to determine the fair value of Level 1 assets and liabilities. 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 August 31, 2017 and 2016 (in millions):
August 31, 2017 | August 31, 2016 | ||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||
Assets: | |||||||||||||||
Investment in noncontrolling affiliate | $ | — | $ | — | $ | 8.0 | $ | 14.4 | |||||||
Liabilities: | |||||||||||||||
Senior unsecured public notes, net of unamortized discount and deferred costs | $ | 349.1 | $ | 379.7 | $ | 348.7 | $ | 388.8 | |||||||
Industrial revenue bond | 4.0 | 4.0 | 4.0 | 4.0 | |||||||||||
Bank Loans | 3.8 | 3.8 | 2.5 | 2.6 | |||||||||||
Investment in noncontrolling affiliate represents a strategic investment accounted for using the cost method. The Company based the fair value of the investment as of August 31, 2016 on an offer by a third party to purchase the business (Level 3). The Company sold the investment during October 2016, resulting in the recognition of a gain of $7.2 million, which is reflected in Miscellaneous (income) expense, net in the Consolidated Statements of Comprehensive Income.
The senior unsecured public notes are carried at the outstanding balance, net of unamortized bond discount and deferred costs, as of the end of the reporting period. Fair value is estimated based on discounted future cash flows using rates currently available for debt of similar terms and maturity (Level 2).
The 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; therefore, the Company estimates that the face amount of the bond approximates fair value as of August 31, 2017 based on bonds of similar terms and maturity (Level 2).
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The bank loans are carried at the outstanding balance as of the end of the reporting period. Fair value is estimated based on discounted future cash flows using rates currently available for debt of similar terms and maturity (Level 2).
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.
6. Pension and Defined Contribution Plans
Company-sponsored Pension Plans
The Company has several pension plans, both qualified and non-qualified, covering certain hourly and salaried employees. Benefits paid under these plans are based generally on employees’ years of service and/or compensation during the final years of employment. The Company makes annual contributions to the plans to the extent indicated by actuarial valuations and statutory requirements. Plan assets are invested primarily in equity and fixed income securities.
The following tables reflect the status of the Company’s domestic (U.S.-based) and international pension plans at August 31, 2017 and 2016 (in millions):
Domestic Plans | International Plans | ||||||||||||||
August 31, | August 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Change in benefit obligation: | |||||||||||||||
Benefit obligation at beginning of year | $ | 223.0 | $ | 192.2 | $ | 57.3 | $ | 49.8 | |||||||
Service cost | 3.5 | 3.6 | 0.2 | 0.1 | |||||||||||
Interest cost | 6.9 | 8.0 | 1.1 | 1.7 | |||||||||||
Actuarial (gain) loss | (10.2 | ) | 27.5 | (3.2 | ) | 17.9 | |||||||||
Benefits paid | (7.7 | ) | (8.3 | ) | (1.0 | ) | (3.6 | ) | |||||||
Other | — | — | (0.9 | ) | (8.6 | ) | |||||||||
Benefit obligation at end of year | 215.5 | 223.0 | 53.5 | 57.3 | |||||||||||
Change in plan assets: | |||||||||||||||
Fair value of plan assets at beginning of year | $ | 128.8 | $ | 123.9 | $ | 30.3 | $ | 32.6 | |||||||
Actual return on plan assets | 12.1 | 7.9 | 4.1 | 5.2 | |||||||||||
Employer contributions | 3.6 | 5.3 | 1.0 | 1.1 | |||||||||||
Benefits paid | (7.7 | ) | (8.3 | ) | (1.0 | ) | (3.6 | ) | |||||||
Other | — | — | (0.3 | ) | (5.0 | ) | |||||||||
Fair value of plan assets at end of year | 136.8 | 128.8 | 34.1 | 30.3 | |||||||||||
Funded status at the end of year | $ | (78.7 | ) | $ | (94.2 | ) | $ | (19.4 | ) | $ | (27.0 | ) | |||
Amounts recognized in the consolidated balance sheets consist of: | |||||||||||||||
Current liabilities | $ | (1.2 | ) | $ | (1.3 | ) | $ | — | $ | — | |||||
Non-current liabilities | (77.5 | ) | (92.9 | ) | (19.4 | ) | (27.0 | ) | |||||||
Net amount recognized in Consolidated Balance Sheets | $ | (78.7 | ) | $ | (94.2 | ) | $ | (19.4 | ) | $ | (27.0 | ) | |||
Accumulated benefit obligation | $ | 215.3 | $ | 220.4 | $ | 53.5 | $ | 57.3 | |||||||
Pre-tax amounts in accumulated other comprehensive income: | |||||||||||||||
Prior service cost | $ | (7.7 | ) | $ | (10.8 | ) | $ | — | $ | — | |||||
Net actuarial loss | (78.7 | ) | (96.9 | ) | (18.2 | ) | (28.2 | ) | |||||||
Amounts in accumulated other comprehensive income | $ | (86.4 | ) | $ | (107.7 | ) | $ | (18.2 | ) | $ | (28.2 | ) | |||
Estimated amounts that will be amortized from accumulated comprehensive income over the next fiscal year: | |||||||||||||||
Prior service cost | $ | 3.1 | $ | 3.1 | $ | — | $ | — | |||||||
Net actuarial loss | 4.5 | 5.3 | 2.2 | 3.7 | |||||||||||
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Components of net periodic pension cost for the fiscal years ended August 31, 2017, 2016, and 2015 included the following (in millions):
Domestic Plans | International Plans | ||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
Service cost | $ | 3.5 | $ | 3.6 | $ | 3.1 | $ | 0.2 | $ | 0.1 | $ | 0.1 | |||||||||||
Interest cost | 6.9 | 8.0 | 6.8 | 1.1 | 1.7 | 1.8 | |||||||||||||||||
Expected return on plan assets | (9.4 | ) | (9.2 | ) | (9.2 | ) | (1.9 | ) | (1.9 | ) | (1.8 | ) | |||||||||||
Amortization of prior service cost | 3.1 | 3.1 | 1.4 | — | — | — | |||||||||||||||||
Recognized actuarial loss | 5.3 | 3.0 | 2.2 | 3.6 | 1.9 | 1.9 | |||||||||||||||||
Net periodic pension cost | $ | 9.4 | $ | 8.5 | $ | 4.3 | $ | 3.0 | $ | 1.8 | $ | 2.0 | |||||||||||
Weighted average assumptions used in computing the benefit obligation are as follows:
Domestic Plans | International Plans | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Discount rate | 3.5 | % | 3.2 | % | 2.5 | % | 2.1 | % | |||
Rate of compensation increase | 5.5 | % | 5.5 | % | 3.2 | % | 2.8 | % | |||
Weighted average assumptions used in computing net periodic benefit cost are as follows:
Domestic Plans | International Plans | ||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||
Discount rate | 3.2 | % | 4.3 | % | 4.0 | % | 2.1 | % | 2.1 | % | 3.6 | % | |||||
Expected return on plan assets | 7.5 | % | 7.5 | % | 7.5 | % | 6.5 | % | 6.5 | % | 5.6 | % | |||||
Rate of compensation increase | 5.5 | % | 5.5 | % | 5.5 | % | 3.2 | % | 2.8 | % | 3.1 | % | |||||
It is the Company’s 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 Company’s 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 $1.2 million each for the domestic plans and international plans. 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 Company’s 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 $1.4 million and $0.3 million for domestic plans and international plans, respectively. The rate of compensation increase is also evaluated and adjusted by the Company, if necessary, annually.
The Company’s investment objective for domestic 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 fiscal 2017, the U.S. targeted asset allocation was 55% equity securities, 40% fixed income securities, and 5% real estate securities. The Company’s 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 fiscal 2017, the international asset target allocation approximated 62% equity securities, 23% fixed income securities, 10% multi-strategy funds, and 5% real estate securities.
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The Company’s pension plan asset allocation at August 31, 2017 and 2016 by asset category is as follows:
% of Plan Assets | |||||||||||
Domestic Plans | International Plans | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Equity securities | 58.1 | % | 55.4 | % | 63.9 | % | 61.1 | % | |||
Fixed income securities | 37.2 | % | 39.1 | % | 23.2 | % | 25.0 | % | |||
Multi-strategy investments | — | % | — | % | 8.2 | % | 8.9 | % | |||
Real estate | 4.7 | % | 5.5 | % | 4.7 | % | 5.0 | % | |||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
The Company’s 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.
No transfers between the levels of the fair value hierarchy occurred during the current fiscal period. In the event of a transfer in or out of a level within the fair value hierarchy, the transfers would be recognized on the date of occurrence.
The following tables present the fair value of the domestic pension plan assets by major category as of August 31, 2017 and 2016 (in millions):
Fair Value Measurements | |||||||||||||||
Fair Value as of | Quoted Market Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||
August 31, 2017 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Mutual funds: | |||||||||||||||
Domestic large cap equity fund | $ | 43.4 | $ | 43.4 | $ | — | $ | — | |||||||
Foreign equity fund | 21.5 | 21.5 | — | — | |||||||||||
Real estate fund | 6.4 | — | — | 6.4 | |||||||||||
Short-term fixed income investments | 4.7 | 4.7 | — | — | |||||||||||
Fixed-income investments | 46.2 | — | 46.2 | — | |||||||||||
Collective trust: domestic small cap equities | 14.6 | — | 14.6 | — | |||||||||||
$ | 136.8 | ||||||||||||||
Fair Value Measurements | |||||||||||||||
Fair Value as of | Quoted Market Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||
August 31, 2016 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Mutual funds: | |||||||||||||||
Domestic large cap equity fund | $ | 46.5 | $ | 46.5 | $ | — | $ | — | |||||||
Foreign equity fund | 12.3 | 12.3 | — | — | |||||||||||
Real estate fund | 7.1 | — | — | 7.1 | |||||||||||
Short-term fixed income investments | 6.2 | 6.2 | — | — | |||||||||||
Fixed-income investments | 44.2 | — | 44.2 | — | |||||||||||
Collective trust: Domestic small cap equities | 12.5 | — | 12.5 | — | |||||||||||
$ | 128.8 | ||||||||||||||
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The following tables present the fair value of the international pension plan assets by major category as of August 31, 2017 and 2016 (in millions):
Fair Value Measurements | |||||||||||||||
Fair Value as of | Quoted Market Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||
August 31, 2017 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Equity securities | $ | 21.8 | $ | — | $ | 21.8 | $ | — | |||||||
Short-term investments | 0.2 | 0.2 | — | — | |||||||||||
Real estate fund | 1.6 | — | — | 1.6 | |||||||||||
Multi-strategy investments | 2.8 | — | 2.8 | — | |||||||||||
Fixed-income investments | 7.7 | — | 7.7 | — | |||||||||||
$ | 34.1 | ||||||||||||||
Fair Value Measurements | |||||||||||||||
Fair Value as of | Quoted Market Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||
August 31, 2016 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Equity securities | $ | 18.5 | $ | — | $ | 18.5 | $ | — | |||||||
Short-term investments | 0.5 | 0.5 | — | — | |||||||||||
Real estate fund | 1.5 | — | — | 1.5 | |||||||||||
Multi-strategy investments | 2.7 | — | 2.7 | — | |||||||||||
Fixed-income investments | 7.1 | — | 7.1 | — | |||||||||||
$ | 30.3 | ||||||||||||||
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 management’s 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) the direct capitalization method; or (iii) the comparable sales method.
The tables below present a rollforward of the domestic and international pension plans’ Level 3 assets for the years ended August 31, 2017 and 2016 (in millions):
Domestic Real Estate Fund | |||||||
Year Ended August 31, | |||||||
2017 | 2016 | ||||||
Balance, beginning of year | $ | 7.1 | $ | 6.3 | |||
Net unrealized gain relating to instruments still held at the reporting date | 0.2 | 0.5 | |||||
Shares sold | (1.3 | ) | — | ||||
Shares purchased, including from dividend reinvestment | 0.4 | 0.3 | |||||
Balance, end of year | $ | 6.4 | $ | 7.1 | |||
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International Real Estate Fund | |||||||
Year Ended August 31, | |||||||
2017 | 2016 | ||||||
Balance, beginning of year | $ | 1.5 | $ | 1.6 | |||
Net unrealized loss relating to instruments still held at the reporting date | 0.1 | (0.1 | ) | ||||
Balance, end of year | $ | 1.6 | $ | 1.5 | |||
The Company expects to contribute approximately $4.0 million and $1.1 million during fiscal 2018 to its domestic and international defined benefit plans, respectively. These amounts are based on the total contributions required during fiscal 2018 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 (in millions):
Domestic Plans | International Plans | ||||||
2018 | $ | 8.3 | $ | 1.0 | |||
2019 | 8.4 | 1.0 | |||||
2020 | 8.6 | 1.0 | |||||
2021 | 12.3 | 1.1 | |||||
2022 | 11.6 | 1.1 | |||||
2023-2027 | 71.1 | 6.1 | |||||
Multi-employer Pension Plans
The Company contributes to two multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of its union-represented employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
• | Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers. |
• | If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be shared by the remaining participating employers. |
• | If a participating employer chooses to stop participating in some of its multi-employer plans, the employer may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. |
The Company’s contributions to these plans were $0.5 million, $0.7 million, and $0.5 million for the years ended August 31, 2017, 2016, and 2015, respectively. During fiscal 2016, as a result of closing a facility, the Company withdrew from one of these multi-employer pension plans and incurred a withdrawal liability of $3.9 million. During fiscal 2017, the Company early settled this withdrawal liability.
Defined Contribution Plans
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 $8.0 million, $6.9 million, and $5.6 million for the years ended August 31, 2017, 2016, and 2015, respectively. Employer matching amounts are allocated in accordance with the participants’ investment elections for elective deferrals. At August 31, 2017, assets of the domestic defined contribution plans included shares of the Company’s common stock with a market value of approximately $12.2 million, which represented approximately 3.6% of the total fair market value of the assets in the Company’s domestic defined contribution plans.
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7. Debt and Lines of Credit
Debt
The Company’s debt at August 31, 2017 and 2016 consisted of the following (in millions):
August 31, | |||||||
2017 | 2016 | ||||||
Senior unsecured public notes due December 2019, principal | $ | 350.0 | $ | 350.0 | |||
Senior unsecured public notes due December 2019, unamortized discount and deferred costs | (0.9 | ) | (1.3 | ) | |||
Industrial revenue bond due June 2021 | 4.0 | 4.0 | |||||
Bank loans | 3.8 | 2.5 | |||||
Total debt outstanding, net of unamortized discount and deferred costs | $ | 356.9 | $ | 355.2 | |||
Future principal payments of long-term debt are $0.4 million, $0.4 million, $350.5 million, $4.5 million, $0.4 million, and $1.6 million in fiscal 2018, 2019, 2020, 2021, 2022, and after 2022, respectively.
On December 1, 2009, the Company announced a private offering by ABL, Acuity Brands’ wholly-owned principal operating subsidiary, of $350.0 million aggregate principal amount of senior unsecured notes due in fiscal 2020 (the “Unsecured Notes”). The Unsecured 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 Unsecured Notes are senior unsecured obligations of ABL and rank equally in right of payment with all of ABL’s 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 Unsecured Notes bear interest at a rate of 6% per annum and were issued at a price equal to 99.797% of their face value for a term of 10 years. Interest on the Unsecured Notes is payable semi-annually on June 15 and December 15. Additionally, the Company capitalized $3.1 million of deferred issuance costs related to the Unsecured Notes that are being amortized over the 10-year term of the Unsecured Notes.
In accordance with the registration rights agreement by and between ABL and the Guarantors and the initial purchasers of the Unsecured Notes, ABL and the Guarantors 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 Unsecured Notes were exchanged.
The $4.0 million industrial revenue bond matures in June 2021. The interest rate on the $4.0 million bond was approximately 0.9% at August 31, 2017 and 0.7% at August 31, 2016.
The Company also had $3.8 million outstanding under fixed-rate bank loans. These loans have interest rates between 0.8% and 2.0% and mature over 7 to 12 years, subject to monthly or quarterly repayment schedules.
Lines of Credit
On August 27, 2014, the Company executed a $250.0 million revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility will mature, and all amounts outstanding will be due and payable on August 27, 2019. The Company had no borrowings outstanding under the Revolving Credit Facility as of August 31, 2017 or August 31, 2016.
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The Revolving Credit Facility contains financial covenants, including a minimum interest coverage ratio (“Minimum Interest Coverage Ratio”) and a leverage ratio (“Maximum Leverage Ratio”) of total indebtedness to earnings before interest, taxes, depreciation, and amortization expense (“EBITDA”), 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 Minimum Interest Coverage Ratio of 2.50 and a Maximum Leverage Ratio of 3.50, subject to certain conditions defined in the financing agreement. Generally, amounts outstanding under the Revolving Credit Facility bear interest at a “Eurocurrency Rate.” Eurocurrency rate advances can be denominated in a variety of currencies, including U.S. dollars, and amounts outstanding bear interest at a periodic fixed rate equal to the London Inter Bank Offered Rate (“LIBOR”) for the applicable currency plus a margin as determined by the Company's leverage ratio (“Applicable Margin”). The Applicable Margin is based on the Company’s leverage ratio, as defined in the Revolving Credit Facility, with such margin ranging from 1.000% to 1.575%. Additionally, the Company is required to pay certain fees in connection with the Revolving Credit Facility, including administrative service fees and an annual facility fee. The annual facility fee is payable quarterly in arrears and is determined by the Company’s leverage ratio as defined in the Revolving Credit Facility. This facility fee ranges from 0.125% to 0.300% of the aggregate $250.0 million commitment of the lenders under the Revolving Credit Facility.
The Company was compliant with all financial covenants under the Revolving Credit Facility as of August 31, 2017. As of August 31, 2017, the Company had outstanding letters of credit totaling $10.3 million, primarily for securing collateral requirements under the Company's casualty insurance programs and providing credit support for the Company’s industrial revenue bond (not an outstanding amount under the Revolving Credit Facility). At August 31, 2017, the Company had additional borrowing capacity under the Revolving Credit Facility of $244.7 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $5.3 million issued under the Revolving Credit Facility.
None of the Company’s existing debt instruments include provisions that would require an acceleration of repayments based solely on changes in the Company’s credit ratings.
8. Common Stock and Related Matters
Common Stock
Changes in common stock for the years ended August 31, 2017, 2016, and 2015 were as follows (amounts and shares in millions):
Common Stock | ||||||
Shares | Amount | |||||
(At par) | ||||||
Balance at August 31, 2014 | 52.6 | $ | 0.5 | |||
Issuance of restricted stock grants, net of cancellations | 0.2 | — | ||||
Stock options exercised | 0.2 | — | ||||
Balance at August 31, 2015 | 53.0 | $ | 0.5 | |||
Issuance of restricted stock grants, net of cancellations | 0.1 | — | ||||
Stock options exercised | 0.3 | — | ||||
Balance at August 31, 2016 | 53.4 | $ | 0.5 | |||
Issuance of restricted stock grants, net of cancellations | 0.1 | — | ||||
Stock options exercised | — | * | — | |||
Balance at August 31, 2017 | 53.5 | $ | 0.5 | |||
___________________________
* Represents shares of less than 0.1 million.
As of August 31, 2017 and 2016, the Company had 11.7 million and 9.7 million repurchased shares recorded as treasury stock at an original repurchase cost of $776.1 million and $418.6 million, respectively.
During the current year, the Company purchased two million shares of the Company’s common stock, which completed the share repurchases previously authorized by the Board. In June 2017, the Board authorized the
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repurchase of an additional two million shares of the Company's outstanding common stock in the future. No shares have been repurchased under the new authorization.
Preferred Stock
The Company has 50 million shares of preferred stock authorized. No shares of preferred stock were issued in fiscal 2017 or 2016, and no shares of preferred stock are outstanding.
Earnings per Share
Prior to fiscal 2017, basic earnings per share was computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding, which was modified to include the effects of all participating securities during the period, as prescribed by the two-class method under ASC Topic 260, Earnings Per Share (“ASC 260”). Participating securities included unvested share-based payment awards with a right to receive nonforfeitable dividends. The equity plan approved by stockholders in January 2013 changed the dividend provisions, causing share-based payment awards to lose the right to receive nonforfeitable dividends. Due to this change, any shares granted after January 2013 were not participating securities as prescribed by the two-class method under ASC 260 and were accounted for in the diluted earnings per share calculation described below. Income attributable to participating securities was $0.4 million and $1.0 million for the years ended August 31, 2016 and 2015, respectively.
The impact of participating securities was not material for the year ended August 31, 2017. Therefore, basic earnings per share for this period is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share is computed similarly but reflects the potential dilution that would occur if dilutive options were exercised, all unvested share-based payment awards were vested, and other distributions related to deferred stock agreements were incurred.
The following table calculates basic earnings per common share and diluted earnings per common share for the years ended August 31, 2017, 2016, and 2015 (in millions, except per share data):
Year Ended August 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Net income | $ | 321.7 | $ | 290.8 | $ | 222.1 | |||||
Basic weighted average shares outstanding | 43.1 | 43.5 | 43.1 | ||||||||
Common stock equivalents | 0.2 | 0.3 | 0.3 | ||||||||
Diluted weighted average shares outstanding | 43.3 | 43.8 | 43.4 | ||||||||
Basic earnings per share | $ | 7.46 | $ | 6.67 | $ | 5.13 | |||||
Diluted earnings per share | $ | 7.43 | $ | 6.63 | $ | 5.09 | |||||
Stock options of approximately 117,000, 40,000, and 44,000 were excluded from the diluted earnings per share calculation for the years ended August 31, 2017, 2016, and 2015, respectively, as the effect of inclusion would have been antidilutive. Restricted stock shares of approximately 99,000, 4,000, and 26,000, were excluded from the diluted earnings per share calculation for the years ended August 31, 2017, 2016, and 2015, respectively, as the effect of inclusion would have been antidilutive.
9. Share-based Payments
Omnibus Stock Compensation Incentive and Directors’ Equity Plans
In January 2013, the Company’s stockholders approved the Acuity Brands, Inc. 2012 Omnibus Stock Compensation Incentive Plan (“2012 Plan”). The approval authorized an aggregate of 2.3 million shares for future award grants and allowed 1.7 million shares related to outstanding awards granted under a previous plan to become issuable under the 2012 Plan to the extent that such awards are forfeited, terminated, canceled, or otherwise expire.
Shares available for grant under the 2012 Plan were approximately 1.4 million, 1.6 million, and 1.8 million at August 31, 2017, 2016, and 2015, respectively. Forfeited shares are returned to the pool of shares available for grant.
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Restricted Stock Awards
As of August 31, 2017, the Company had approximately 384,000 shares outstanding of restricted stock to officers, directors, and other key employees under the 2012 Plan, including restricted stock units granted to foreign employees. The shares vest primarily over a four-year period and are valued at the closing stock price on the date of the grant. Compensation expense recognized related to the awards under the equity incentive plans was $27.2 million, $23.7 million, and $14.8 million in fiscal 2017, 2016, and 2015, respectively.
Activity related to restricted stock awards during the fiscal year ended August 31, 2017 was as follows (in millions, except per share data):
Number of Shares | Weighted Average Grant Date Fair Value Per Share | ||||
Outstanding at August 31, 2016 | 0.4 | $ | 159.50 | ||
Granted | 0.1 | $ | 239.59 | ||
Vested | (0.1) | $ | 138.50 | ||
Outstanding at August 31, 2017 | 0.4 | $ | 197.41 | ||
As of August 31, 2017, there was $54.4 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.7 years. The total weighted average fair value of shares vested during the years ended August 31, 2017, 2016, and 2015, was approximately $24.8 million, $18.8 million, and $14.3 million, respectively.
Stock Options
As of August 31, 2017, the Company had approximately 322,000 options outstanding to officers and other key employees under the 2012 Plan. Options issued under the 2012 Plan are generally granted with an exercise price equal to the fair market value of the Company’s stock on the date of grant (but never less than the fair market value on the grant date) and expire 10 years from the date of grant. These options generally vest and become exercisable over a three-year period. Compensation expense recognized related to the awards under the current and prior equity incentive plans was $3.6 million, $2.9 million, and $2.4 million in fiscal 2017, 2016, and 2015, respectively.
The fair value of each option was estimated on the date of grant using the Black-Scholes model. The dividend yield was calculated based on annual dividends paid and the trailing 12-month average closing stock price at the time of grant. Expected volatility was based on historical volatility of the Company’s stock, calculated using the most recent time period equal to the expected life of the options. The risk-free interest rate was based on the U.S. Treasury yield for a term equal to the expected life of the options at the time of grant. The Company used historical exercise behavior data of similar employee groups to determine the expected life of options. All inputs into the Black-Scholes model are estimates made at the time of grant. Actual realized value of each option grant could materially differ from these estimates, without impact to future reported net income.
The following weighted average assumptions were used to estimate the fair value of stock options granted in the fiscal years ended August 31:
2017 | 2016 | 2015 | |||
Dividend yield | 0.2% | 0.3% | 0.4% | ||
Expected volatility | 28.5% | 30.7% | 33.9% | ||
Risk-free interest rate | 1.3% | 1.4% | 1.5% | ||
Expected life of options | 4 years | 4 years | 4 years | ||
Weighted-average fair value of options | $57.40 | $52.83 | $37.43 | ||
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Stock option activity during the years ended August 31, 2017, 2016, and 2015 was as follows:
Outstanding | Exercisable | ||||||
Number of Shares (in millions) | Weighted Average Exercise Price | Number of Shares (in millions) | Weighted Average Exercise Price | ||||
Outstanding at August 31, 2014 | 0.7 | $50.58 | 0.5 | $41.05 | |||
Granted | 0.1 | $135.63 | |||||
Exercised | (0.3) | $39.35 | |||||
Outstanding at August 31, 2015 | 0.5 | $71.95 | 0.3 | $51.05 | |||
Granted | 0.1 | $207.80 | |||||
Exercised | (0.3) | $51.34 | |||||
Outstanding at August 31, 2016 | 0.3 | $129.85 | 0.1 | $83.89 | |||
Granted | — | * | 239.76 | ||||
Exercised | — | * | 139.69 | ||||
Outstanding at August 31, 2017 | 0.3 | 156.43 | 0.2 | 106.54 | |||
Range of option exercise prices: | |||||||
$40.01 - $100.00 (average life - 5 years) | 0.1 | $61.59 | 0.1 | $61.59 | |||
$100.01 - $160.00 (average life - 6.7 years) | 0.1 | $121.77 | 0.1 | $117.73 | |||
$160.01 - $210.00 (average life - 8.2 years) | 0.1 | $207.80 | — | * | $207.80 | ||
$210.01 - $239.76 (average life - 9.1 years) | — | * | $239.76 | — | — | ||
___________________________
* Represents shares of less than 0.1 million.
The total intrinsic value of options exercised during the years ended August 31, 2017, 2016, and 2015 was $1.3 million, $50.0 million, and $33.3 million, respectively. As of August 31, 2017, the total intrinsic value of options outstanding was $13.6 million, the total intrinsic value of options expected to vest was $13.6 million, and the total intrinsic value of options exercisable was $12.6 million. As of August 31, 2017, there was $4.8 million of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted-average period of approximately 1.3 years.
Employee Deferred Share Units
The Company previously allowed employees to defer a portion of restricted stock awards granted in fiscal 2003 and fiscal 2004 into the SDSP as share units. The share units are payable in shares of stock at the time of distribution from the SDSP. As of August 31, 2017, approximately 9,000 fully vested share units remain deferred, but undistributed, under the 2012 Plan. There was no compensation expense related to these share units during fiscal years 2017, 2016, and 2015.
Director Deferred Share Units
The Company previously required its Directors to defer at least 50% of their annual retainer into the 2006 Nonemployee Director Deferred Compensation Plan (“2006 Plan”). Shares deferred under the 2006 Plan are to be paid in shares at retirement from the Board. In January 2012, the Company's stockholders approved the 2011 Nonemployee Director Deferred Compensation Plan (“2011 Plan”), following the expiration of the 2006 Plan on November 30, 2011. Pursuant to the 2011 Plan, fees deferred by nonemployee directors can be invested in deferred stock units to be paid in shares or credited to an interest-bearing account to be paid in cash at retirement from the Board. 300,000 shares of common stock were reserved for issuance under the 2011 Plan, which incorporated approximately 86,000 shares previously available for grant under the 2006 Plan. Beginning in fiscal year 2013, the deferral requirement was adjusted to 55% of the annual director fees. On September 28, 2012, the 2011 Plan was amended to allow for stock grants in lieu of mandatory deferrals for the non-cash component of a nonemployee director's annual fee if a director exceeds the stock ownership requirement of five-times the annual cash retainer fee. Total shares available for issuance under both plans were approximately 390,000 at August 31, 2017, and 400,000 at August 31, 2016 and 2015. As of August 31, 2017, approximately 132,000 share units were deferred, but undistributed, under the
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2006 Plan and the 2011 Plan. Compensation expense recognized related to the share units under these plans was $1.2 million, $1.1 million, and $1.0 million in fiscal 2017, 2016, and 2015, respectively.
Employee Stock Purchase Plan
Employees are able to purchase, through payroll deduction, common stock at a 5% discount on a monthly basis. There were 1.5 million shares of the Company’s common stock reserved for purchase under the plan, of which approximately 1.0 million shares remain available as of August 31, 2017. Employees may participate at their discretion.
10. Commitments and Contingencies
Self-Insurance
It is the policy of the Company to self-insure, up to certain limits, traditional risks, including workers’ compensation, comprehensive general liability, and auto liability. The Company’s self-insured retention for each claim involving workers’ compensation, comprehensive general liability (including product liability claims), and auto liability is limited per occurrence of such claims. A provision for claims under this self-insured program, based on the Company’s estimate of the aggregate liability for claims incurred, is revised and recorded annually. The estimate is derived from both internal and external sources including, but not limited to, the Company’s independent actuary. The Company is also self-insured up to certain limits for certain other insurable risks, primarily physical loss to property and business interruptions resulting from such loss lasting two days or more in duration. Insurance coverage is maintained for catastrophic property and casualty exposures, as well as those risks required to be insured by law or contract. The Company is fully self-insured for certain other types of liabilities, including environmental, product recall, warranty, and patent infringement. The actuarial estimates are subject to uncertainty from various sources including, among others, changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although the Company believes that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Company’s self-insurance obligations, future expense, and cash flow.
The Company is also self-insured for the majority of its medical benefit plans up to certain limits. The Company estimates its aggregate liability for claims incurred by applying a lag factor to the Company’s historical claims and administrative cost experience. The appropriateness of the Company’s lag factor is evaluated and revised annually, as necessary.
Leases
The Company leases certain of its buildings and equipment under noncancelable lease agreements. Future minimum annual lease payments under noncancelable leases are $16.2 million, $14.0 million, $11.9 million, $9.6 million, $6.2 million, and $11.4 million for fiscal 2018, 2019, 2020, 2021, 2022, and after 2022, respectively.
Total rent expense was $20.0 million, $17.6 million, and $16.0 million in fiscal 2017, 2016, and 2015, respectively.
Purchase Obligations
The Company incurs purchase obligations in the ordinary course of business that are enforceable and legally binding. Obligations for years subsequent to August 31, 2017 include $238.7 million in fiscal 2018. As of August 31, 2017, the Company had no purchase obligations extending beyond August 31, 2018.
Collective Bargaining Agreements
Approximately 76% of the Company’s total work force is covered by collective bargaining agreements. Collective bargaining agreements representing approximately 56% of the Company’s work force will expire within one year, primarily due to annual negotiations with unions in Mexico.
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Litigation
The Company is subject to various legal claims arising in the normal course of business, including patent infringement, employment matters, and product liability claims. Based on information currently available, it is the opinion of management that the ultimate resolution of pending and threatened legal proceedings will not have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. However, in the event of unexpected future developments, it is possible that the ultimate resolution of any such matters, if unfavorable, could have a material adverse effect on the financial condition, results of operations, or cash flows of the Company in future periods. The Company establishes reserves for legal claims when associated costs become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher than the amounts reserved for such claims. However, the Company cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the amounts reserved.
Environmental Matters
The operations of the Company are subject to numerous comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances, as well as solid and hazardous wastes, and to the remediation of contaminated sites. In addition, permits and environmental controls are required for certain of the Company’s operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, the Company invests capital and incurs operating costs relating to environmental compliance. Environmental laws and regulations have generally become stricter in recent years. The Company is not aware of any pending legislation or proposed regulation related to environmental issues that would have a material adverse effect on the Company. The cost of responding to future changes may be substantial. The Company establishes reserves for known environmental claims when the associated costs become probable and can be reasonably estimated. The actual cost of environmental issues may be substantially higher than that reserved due to difficulty in estimating such costs.
Guarantees and Indemnities
The Company is a party to contracts entered into in the normal course of business in which it is common for the Company to agree to indemnify third parties for certain liabilities that may arise out of or relate to the subject matter of the contract. In most cases, the Company cannot estimate the potential amount of future payments under these indemnities until events arise that would result in a liability under the indemnities.
Acquisition-Related Liabilities
During the negotiations related to business combinations, the previous owners of the acquired entity (“acquiree”) typically indemnify the Company for specific unrecognized liabilities of the acquiree in existence as of the date of acquisition. For some acquisitions of businesses, the Company acts in the place of escrow agents in the holding of funds, including accrued interest (collectively, the “holdback funds”), used to fulfill pre-acquisition obligations agreed to be paid by the acquiree. These funds represent consideration given to the previous owners of the businesses acquired and are payable to them, net of any pre-acquisition obligations satisfied within a stated amount of time, at a future date. Any potential pre-acquisition obligations for which the Company may be reimbursed through the holdback funds are usually uncertain as of the date of the change of control. In certain circumstances, the Company is capable of the identification and quantification of particular liabilities including, but not limited to, uncertain tax positions, legal issues, and other outstanding obligations not recognized in the financial statements of the acquired entity. Under ASC Topic 805, Business Combinations, these unrecognized liabilities are recorded as obligations of the Company with a corresponding receivable due from the previous owners as of the date of acquisition and are included as part of the acquisition accounting. The actual costs of resolving pre-acquisition obligations may be substantially higher than the holdback funds or amounts reserved. The Company does not believe that any amounts it is likely to be required to pay under these acquisition-related liabilities, including net holdback funds, will be material to the Company’s financial position, results of operations, or cash flow.
Product Warranty and Recall Costs
The Company's products generally have a standard warranty term of five years. The Company records an allowance for the estimated amount of future warranty costs when the related revenue is recognized. Estimated costs related to product recalls based on a formal campaign soliciting repair or return of that product are accrued when they are deemed to be probable and can be reasonably estimated. Estimated future warranty and recall costs are primarily
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based on historical experience of identified warranty and recall claims. In certain limited cases, the Company has warranty arrangements for terms that exceed the standard term. Given that these longer-term warranties are not included in the Company’s historical experience, the Company utilizes estimated failure rates from industry sources to determine the potential future warranty cost. However, there can be no assurance that future warranty or recall costs will not exceed historical amounts or that new technology products, which may include extended warranties, may not generate unexpected costs. If actual future warranty or recall costs exceed historical amounts, additional allowances may be required, which could have a material adverse impact on the Company’s results of operations and cash flow.
Reserves for product warranty and recall costs are included in Other accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets. The changes in the reserves for product warranty and recall costs during the fiscal years ended August 31, 2017, 2016, and 2015 are summarized as follows (in millions):
Year Ended August 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Beginning balance | $ | 15.5 | $ | 9.6 | $ | 8.5 | |||||
Warranty and recall costs | 41.1 | 25.7 | 16.1 | ||||||||
Payments and other deductions | (33.3 | ) | (20.8 | ) | (15.0 | ) | |||||
Acquired warranty and recall liabilities | — | 1.0 | — | ||||||||
Ending balance | $ | 23.3 | $ | 15.5 | $ | 9.6 | |||||
Trade Compliance Matters
In the course of routine reviews of import and export activity, the Company determined that it misclassified and/or inaccurately valued certain international shipments of products. The Company is conducting a detailed review of this activity to determine the extent of any liabilities and the appropriate remedial measures. At this time, the Company is unable to determine the likelihood or amount of any loss associated with these shipments.
11. Special Charge
During the year ended August 31, 2017, the Company recognized pre-tax special charges of $11.3 million, which consisted primarily of severance and employee-related benefit costs for the elimination of certain operations and positions following a realignment of the Company’s operating structure, including positions within various selling, distribution, and administrative (“SD&A”) departments. During fiscal 2016, the Company recognized pre-tax special charges of $15.0 million. These charges related primarily to the Company's continued efforts to integrate recent acquisitions and to streamline the organization by realigning certain responsibilities primarily within various SD&A departments, as well as the consolidation of certain production activities. The Company expects that these actions to streamline its business activities, in addition to those taken in previous fiscal years, will allow it to reduce spending in certain areas while permitting continued investment in future growth initiatives, such as new products, expanded market presence, and technology and innovation.
The details of the special charges during the years ended August 31, 2017 and 2016 are summarized as follows (in millions):
Year Ended August 31, | |||||||
2017 | 2016 | ||||||
Severance and employee-related costs | $ | 11.2 | $ | 9.9 | |||
Lease termination and other costs | 0.1 | 5.1 | |||||
Total special charges | $ | 11.3 | $ | 15.0 | |||
As of August 31, 2017, remaining reserves were $12.6 million and are included in Accrued compensation and Other long-term liabilities in the Consolidated Balance Sheets. The changes in the reserves related to these programs during the year ended August 31, 2017 are summarized as follows (in millions):
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Fiscal 2017 Actions | Fiscal 2016 Actions | Fiscal 2015 Actions | Total | ||||||||||||
Balance as of August 31, 2016 | $ | — | $ | 6.4 | $ | 0.2 | $ | 6.6 | |||||||
Severance costs | 12.2 | (1.0 | ) | — | $ | 11.2 | |||||||||
Lease termination costs | — | 1.1 | — | $ | 1.1 | ||||||||||
Payments made during the period | (1.0 | ) | (5.1 | ) | (0.2 | ) | $ | (6.3 | ) | ||||||
Balance as of August 31, 2017 | $ | 11.2 | $ | 1.4 | $ | — | $ | 12.6 | |||||||
12. Income Taxes
The Company accounts for income taxes using the asset and liability approach as prescribed by ASC Topic 740, Income Taxes (“ASC 740”). This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Using the enacted tax rates in effect for the year in which the differences are expected to reverse, deferred tax liabilities and assets are determined based on the differences between the financial reporting and the tax basis of an asset or liability.
The provision for income taxes consists of the following components (in millions):
Year Ended August 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Provision for current federal taxes | $ | 151.2 | $ | 139.6 | $ | 101.5 | |||||
Provision for current state taxes | 20.4 | 17.6 | 13.1 | ||||||||
Provision for current foreign taxes | 7.0 | 5.1 | 4.3 | ||||||||
(Benefit) provision for deferred taxes | (7.7 | ) | (8.5 | ) | 2.6 | ||||||
Total provision for income taxes | $ | 170.9 | $ | 153.8 | $ | 121.5 | |||||
A reconciliation of the provision at the federal statutory rate to the total provision for income taxes is as follows (in millions):
Year Ended August 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Federal income tax computed at statutory rate | $ | 172.4 | $ | 155.6 | $ | 120.3 | |||||
State income tax, net of federal income tax benefit | 12.2 | 11.0 | 8.6 | ||||||||
Foreign permanent differences and rate differential | (1.6 | ) | (2.0 | ) | (1.4 | ) | |||||
Other, net | (12.1 | ) | (10.8 | ) | (6.0 | ) | |||||
Total provision for income taxes | $ | 170.9 | $ | 153.8 | $ | 121.5 | |||||
Components of the net deferred income tax liabilities at August 31, 2017 and 2016 include (in millions):
August 31, | |||||||
2017 | 2016 | ||||||
Deferred income tax liabilities: | |||||||
Depreciation | $ | (20.0 | ) | $ | (22.5 | ) | |
Goodwill and intangibles | (194.9 | ) | (161.6 | ) | |||
Other liabilities | (4.0 | ) | (3.7 | ) | |||
Total deferred income tax liabilities | (218.9 | ) | (187.8 | ) | |||
Deferred income tax assets: | |||||||
Self-insurance | 4.1 | 4.0 | |||||
Pension | 33.7 | 41.7 | |||||
Deferred compensation | 32.9 | 28.9 | |||||
Net operating losses | 13.7 | 14.3 | |||||
Other accruals not yet deductible | 33.3 | 33.5 | |||||
Other assets | 10.6 | 12.3 | |||||
Total deferred income tax assets | 128.3 | 134.7 | |||||
Valuation allowance | (14.2 | ) | (16.4 | ) | |||
Net deferred income tax liabilities | $ | (104.8 | ) | $ | (69.5 | ) | |
The Company currently intends to indefinitely reinvest all undistributed earnings of and original investments in foreign subsidiaries unless it is determined future repatriation would give rise to little or no net tax costs. Undistributed earnings amounted to $96.7 million at August 31, 2017; however, this amount could fluctuate due to changes in business, economic, or other conditions. Undistributed earnings is the most significant component of the basis difference, which is indefinitely reinvested. If these undistributed earnings were distributed to the U.S. in the form of dividends or otherwise or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, the Company would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. Determination of the amount of unrecognized deferred income tax liabilities related to these earnings or investments is not practicable.
At August 31, 2017, the Company had state tax credit carryforwards of approximately $0.9 million, which will expire beginning in 2018. At August 31, 2017, the Company had federal net operating loss carryforwards of $23.3 million that expire beginning in 2030, state net operating loss carryforwards of $9.9 million that begin expiring in 2018, and foreign net operating loss carryforwards of $21.2 million that begin expiring in 2018.
The gross amount of unrecognized tax benefits as of August 31, 2017 and 2016 totaled $6.0 million and $5.2 million, respectively, which includes $4.4 million and $3.9 million, respectively, of net unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense; such accrued interest and penalties are not material. With few exceptions, the Company is no longer subject to United States federal, state, and local income tax examinations for years ended before 2013 or for foreign income tax examinations before 2011. The Company does not anticipate unrecognized tax benefits will significantly increase or decrease within the next twelve months.
A reconciliation of the change in the unrecognized income tax benefit (reported in Other long-term liabilities on the Consolidated Balance Sheets) for the years ended August 31, 2017 and 2016 is as follows (in millions):
Year Ended August 31, | |||||||
2017 | 2016 | ||||||
Unrecognized tax benefits balance at beginning of year | $ | 5.2 | $ | 4.5 | |||
Additions based on tax positions related to the current year | 1.2 | 1.0 | |||||
Additions for tax positions of prior years | 0.4 | 0.5 | |||||
Reductions due to lapse of statute of limitations | (0.8 | ) | (0.8 | ) | |||
Unrecognized tax benefits balance at end of year | $ | 6.0 | $ | 5.2 | |||
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Total accrued interest was $1.0 million and $0.9 million as of August 31, 2017 and 2016, respectively. There were no accruals related to income tax penalties during fiscal 2017. Interest, net of tax benefits, and penalties are included in income tax expense. The classification of interest and penalties did not change during the current fiscal year.
13. Supplemental Disaggregated Information
The Company has one reportable segment. Sales of lighting and building management solutions, excluding services, accounted for approximately 99% of total consolidated net sales in fiscal 2017, 2016, and 2015. The geographic distribution of the Company’s net sales, operating profit, income before provision for income taxes, and long-lived assets is summarized in the following table for the years ended August 31 (in millions):
Year Ended August 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Net sales(1): | |||||||||||
Domestic(2) | $ | 3,123.1 | $ | 2,928.3 | $ | 2,450.1 | |||||
International | 382.0 | 363.0 | 256.6 | ||||||||
Total | $ | 3,505.1 | $ | 3,291.3 | $ | 2,706.7 | |||||
Operating profit: | |||||||||||
Domestic(2) | $ | 497.5 | $ | 457.6 | $ | 364.0 | |||||
International | 21.3 | 17.6 | 12.3 | ||||||||
Total | $ | 518.8 | $ | 475.2 | $ | 376.3 | |||||
Income before provision for income taxes: | |||||||||||
Domestic(2) | $ | 478.5 | $ | 430.8 | $ | 329.4 | |||||
International | 14.1 | 13.8 | 14.2 | ||||||||
Total | $ | 492.6 | $ | 444.6 | $ | 343.6 | |||||
Long-lived assets(3): | |||||||||||
Domestic(2) | $ | 252.8 | $ | 254.5 | $ | 179.6 | |||||
International | 51.5 | 41.4 | 25.6 | ||||||||
Total | $ | 304.3 | $ | 295.9 | $ | 205.2 | |||||
_______________________________________
(1) | Net sales are attributed to each country based on the selling location. |
(2) | Domestic amounts include amounts for U.S. based operations. |
(3) | Long-lived assets include net property, plant, and equipment, long-term deferred income tax assets, and other long-term assets as reflected in the Consolidated Balance Sheets. |
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14. Supplemental Guarantor Condensed Consolidating Financial Statements
In December 2009, ABL, the 100% owned and principal operating subsidiary of Acuity Brands, refinanced the then current outstanding debt through the issuance of the Notes. See Debt and Lines of Credit footnote for further information.
In accordance with the registration rights agreement by and between ABL and the guarantors to the Notes and the initial purchasers of the Notes, ABL and the guarantors to the Notes filed a registration statement with the SEC for an offer to exchange the Notes for an issue of SEC-registered notes with identical terms. Due to the filing of the registration statement and offer to exchange, the Company determined the need for compliance with Rule 3-10 of SEC Regulation S-X (“Rule 3-10”). In lieu of providing separate audited financial statements for ABL and ABL IP Holding, the Company has included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(d) of SEC Regulation S-X since the Notes are fully and unconditionally guaranteed by Acuity Brands and ABL IP Holding. The column marked “Parent” represents the financial condition, results of operations, and cash flows of Acuity Brands. The column marked “Subsidiary Issuer” represents the financial condition, results of operations, and cash flows of ABL. The column entitled “Subsidiary Guarantor” represents the financial condition, results of operations, and cash flows of ABL IP Holding. Lastly, the column listed as “Non-Guarantors” includes the financial condition, results of operations, and cash flows of the non-guarantor direct and indirect subsidiaries of Acuity Brands, which consist primarily of foreign subsidiaries. Consolidating adjustments 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 the Company's financial condition, results of operations, or cash flows for any purpose other than to comply with the specific requirements for parent-subsidiary guarantor reporting.
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CONDENSED CONSOLIDATING BALANCE SHEETS
(In millions)
At August 31, 2017 | |||||||||||||||||||||||
Parent | Subsidiary Issuer | Subsidiary Guarantor | Non- Guarantors | Consolidating Adjustments | Consolidated | ||||||||||||||||||
ASSETS | |||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 237.7 | $ | — | $ | — | $ | 73.4 | $ | — | $ | 311.1 | |||||||||||
Accounts receivable, net | — | 494.6 | — | 78.7 | — | 573.3 | |||||||||||||||||
Inventories | — | 305.5 | — | 23.1 | — | 328.6 | |||||||||||||||||
Other current assets | 1.6 | 15.8 | — | 15.2 | — | 32.6 | |||||||||||||||||
Total current assets | 239.3 | 815.9 | — | 190.4 | — | 1,245.6 | |||||||||||||||||
Property, plant, and equipment, net | 0.2 | 228.3 | — | 59.2 | — | 287.7 | |||||||||||||||||
Goodwill | — | 677.7 | 2.7 | 220.5 | — | 900.9 | |||||||||||||||||
Intangible assets, net | — | 235.5 | 109.8 | 103.5 | — | 448.8 | |||||||||||||||||
Deferred income taxes | 51.6 | — | — | 8.0 | (56.2 | ) | 3.4 | ||||||||||||||||
Other long-term assets | 1.5 | 10.9 | — | 0.8 | — | 13.2 | |||||||||||||||||
Investments in and amounts due from affiliates | 1,500.3 | 330.4 | 234.2 | — | (2,064.9 | ) | — | ||||||||||||||||
Total assets | $ | 1,792.9 | $ | 2,298.7 | $ | 346.7 | $ | 582.4 | $ | (2,121.1 | ) | $ | 2,899.6 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||
Accounts payable | $ | 0.9 | $ | 366.4 | $ | — | $ | 27.8 | $ | — | $ | 395.1 | |||||||||||
Current maturities of long-term debt | — | — | — | 0.4 | — | 0.4 | |||||||||||||||||
Accrued liabilities | 27.6 | 138.9 | — | 38.9 | — | 205.4 | |||||||||||||||||
Total current liabilities | 28.5 | 505.3 | — | 67.1 | — | 600.9 | |||||||||||||||||
Long-term debt | — | 353.1 | — | 3.4 | — | 356.5 | |||||||||||||||||
Deferred income taxes | — | 134.6 | — | 29.8 | (56.2 | ) | 108.2 | ||||||||||||||||
Other long-term liabilities | 98.7 | 49.3 | — | 20.4 | — | 168.4 | |||||||||||||||||
Amounts due to affiliates | — | — | — | 128.8 | (128.8 | ) | — | ||||||||||||||||
Total stockholders’ equity | 1,665.7 | 1,256.4 | 346.7 | 332.9 | (1,936.1 | ) | 1,665.6 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,792.9 | $ | 2,298.7 | $ | 346.7 | $ | 582.4 | $ | (2,121.1 | ) | $ | 2,899.6 | ||||||||||
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CONDENSED CONSOLIDATING BALANCE SHEETS
(In millions)
At August 31, 2016 | |||||||||||||||||||||||
Parent | Subsidiary Issuer | Subsidiary Guarantor | Non- Guarantors | Consolidating Adjustments | Consolidated | ||||||||||||||||||
ASSETS | |||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 368.2 | $ | — | $ | — | $ | 45.0 | $ | — | $ | 413.2 | |||||||||||
Accounts receivable, net | — | 503.0 | — | 69.8 | — | 572.8 | |||||||||||||||||
Inventories | — | 274.7 | — | 20.5 | — | 295.2 | |||||||||||||||||
Other current assets | 2.5 | 14.3 | — | 24.9 | — | 41.7 | |||||||||||||||||
Total current assets | 370.7 | 792.0 | — | 160.2 | — | 1,322.9 | |||||||||||||||||
Property, plant, and equipment, net | 0.3 | 217.8 | — | 49.7 | — | 267.8 | |||||||||||||||||
Goodwill | — | 735.8 | 2.7 | 209.3 | — | 947.8 | |||||||||||||||||
Intangible assets, net | — | 168.1 | 113.4 | 99.9 | — | 381.4 | |||||||||||||||||
Deferred income taxes | 47.5 | — | — | 6.5 | (48.9 | ) | 5.1 | ||||||||||||||||
Other long-term assets | 1.4 | 20.4 | — | 1.2 | — | 23.0 | |||||||||||||||||
Investments in and amounts due from affiliates | 1,347.6 | 299.6 | 200.5 | — | (1,847.7 | ) | — | ||||||||||||||||
Total assets | $ | 1,767.5 | $ | 2,233.7 | $ | 316.6 | $ | 526.8 | $ | (1,896.6 | ) | $ | 2,948.0 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||
Accounts payable | $ | 1.2 | $ | 371.3 | $ | — | $ | 28.5 | $ | — | $ | 401.0 | |||||||||||
Current maturities of long-term debt | — | — | — | 0.2 | — | 0.2 | |||||||||||||||||
Other accrued liabilities | 14.5 | 215.4 | — | 41.4 | — | 271.3 | |||||||||||||||||
Total current liabilities | 15.7 | 586.7 | — | 70.1 | — | 672.5 | |||||||||||||||||
Long-term debt | — | 352.8 | — | 2.2 | — | 355.0 | |||||||||||||||||
Deferred income taxes | — | 95.5 | — | 28.0 | (48.9 | ) | 74.6 | ||||||||||||||||
Other long-term liabilities | 92.0 | 64.8 | — | 29.3 | — | 186.1 | |||||||||||||||||
Amounts due to affiliates | — | — | — | 96.9 | (96.9 | ) | — | ||||||||||||||||
Total stockholders’ equity | 1,659.8 | 1,133.9 | 316.6 | 300.3 | (1,750.8 | ) | 1,659.8 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,767.5 | $ | 2,233.7 | $ | 316.6 | $ | 526.8 | $ | (1,896.6 | ) | $ | 2,948.0 | ||||||||||
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CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Year Ended August 31, 2017 | |||||||||||||||||||||||
Parent | Subsidiary Issuer | Subsidiary Guarantor | Non- Guarantors | Consolidating Adjustments | Consolidated | ||||||||||||||||||
Net sales: | |||||||||||||||||||||||
External sales | $ | — | $ | 3,105.2 | $ | — | $ | 399.9 | $ | — | $ | 3,505.1 | |||||||||||
Intercompany sales | — | — | 49.4 | 179.2 | (228.6 | ) | — | ||||||||||||||||
Total sales | — | 3,105.2 | 49.4 | 579.1 | (228.6 | ) | 3,505.1 | ||||||||||||||||
Cost of products sold | — | 1,764.5 | — | 432.8 | (173.4 | ) | 2,023.9 | ||||||||||||||||
Gross profit | — | 1,340.7 | 49.4 | 146.3 | (55.2 | ) | 1,481.2 | ||||||||||||||||
Selling, distribution, and administrative expenses | 45.0 | 824.8 | 3.6 | 132.8 | (55.1 | ) | 951.1 | ||||||||||||||||
Intercompany charges | (56.9 | ) | 47.7 | — | 9.2 | — | — | ||||||||||||||||
Special charge | — | 11.3 | — | — | — | 11.3 | |||||||||||||||||
Operating profit | 11.9 | 456.9 | 45.8 | 4.3 | (0.1 | ) | 518.8 | ||||||||||||||||
Interest expense, net | 11.0 | 16.1 | — | 5.4 | — | 32.5 | |||||||||||||||||
Equity earnings in subsidiaries | (320.9 | ) | (7.7 | ) | — | 0.2 | 328.4 | — | |||||||||||||||
Miscellaneous (income) expense, net | — | (8.0 | ) | — | 1.7 | — | (6.3 | ) | |||||||||||||||
Income (loss) before provision for income taxes | 321.8 | 456.5 | 45.8 | (3.0 | ) | (328.5 | ) | 492.6 | |||||||||||||||
Provision (benefit) for income taxes | 0.1 | 158.0 | 15.7 | (2.9 | ) | — | 170.9 | ||||||||||||||||
Net income (loss) | 321.7 | 298.5 | 30.1 | (0.1 | ) | (328.5 | ) | 321.7 | |||||||||||||||
Other comprehensive income (loss) items: | |||||||||||||||||||||||
Foreign currency translation adjustments | 19.0 | 19.0 | — | — | (19.0 | ) | 19.0 | ||||||||||||||||
Defined benefit pension plans, net | 20.7 | 11.8 | — | 7.5 | (19.3 | ) | 20.7 | ||||||||||||||||
Other comprehensive income items after provision for income taxes | 39.7 | 30.8 | — | 7.5 | (38.3 | ) | 39.7 | ||||||||||||||||
Comprehensive income | $ | 361.4 | $ | 329.3 | $ | 30.1 | $ | 7.4 | $ | (366.8 | ) | $ | 361.4 | ||||||||||
72
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Year Ended August 31, 2016 | |||||||||||||||||||||||
Parent | Subsidiary Issuer | Subsidiary Guarantor | Non- Guarantors | Consolidating Adjustments | Consolidated | ||||||||||||||||||
Net sales: | |||||||||||||||||||||||
External sales | $ | — | $ | 2,919.7 | $ | — | $ | 371.6 | $ | — | $ | 3,291.3 | |||||||||||
Intercompany sales | — | — | 47.4 | 131.2 | (178.6 | ) | — | ||||||||||||||||
Total sales | — | 2,919.7 | 47.4 | 502.8 | (178.6 | ) | 3,291.3 | ||||||||||||||||
Cost of products sold | — | 1,602.2 | — | 379.3 | (126.4 | ) | 1,855.1 | ||||||||||||||||
Gross profit | — | 1,317.5 | 47.4 | 123.5 | (52.2 | ) | 1,436.2 | ||||||||||||||||
Selling, distribution, and administrative expenses | 47.2 | 834.6 | 3.8 | 112.6 | (52.2 | ) | 946.0 | ||||||||||||||||
Intercompany charges | (59.5 | ) | 50.4 | — | 9.1 | — | — | ||||||||||||||||
Special charge | — | 15.0 | — | — | — | 15.0 | |||||||||||||||||
Operating profit | 12.3 | 417.5 | 43.6 | 1.8 | — | 475.2 | |||||||||||||||||
Interest expense, net | 10.5 | 16.1 | — | 5.6 | — | 32.2 | |||||||||||||||||
Equity earnings in subsidiaries | (289.2 | ) | (3.2 | ) | — | 0.2 | 292.2 | — | |||||||||||||||
Miscellaneous income, net | — | — | — | (1.6 | ) | — | (1.6 | ) | |||||||||||||||
Income (loss) before provision for income taxes | 291.0 | 404.6 | 43.6 | (2.4 | ) | (292.2 | ) | 444.6 | |||||||||||||||
Provision for income taxes | 0.2 | 137.7 | 15.6 | 0.3 | — | 153.8 | |||||||||||||||||
Net income (loss) | 290.8 | 266.9 | 28.0 | (2.7 | ) | (292.2 | ) | 290.8 | |||||||||||||||
Other comprehensive income (loss) items: | |||||||||||||||||||||||
Foreign currency translation adjustments | (5.6 | ) | (5.6 | ) | — | — | 5.6 | (5.6 | ) | ||||||||||||||
Defined benefit pension plans, net | (23.4 | ) | (11.4 | ) | — | (9.5 | ) | 20.9 | (23.4 | ) | |||||||||||||
Other comprehensive loss items after provision for income taxes | (29.0 | ) | (17.0 | ) | — | (9.5 | ) | 26.5 | (29.0 | ) | |||||||||||||
Comprehensive income (loss) | $ | 261.8 | $ | 249.9 | $ | 28.0 | $ | (12.2 | ) | $ | (265.7 | ) | $ | 261.8 | |||||||||
73
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Year Ended August 31, 2015 | |||||||||||||||||||||||
Parent | Subsidiary Issuer | Subsidiary Guarantor | Non- Guarantors | Consolidating Adjustments | Consolidated | ||||||||||||||||||
Net sales: | |||||||||||||||||||||||
External sales | $ | — | $ | 2,446.9 | $ | — | $ | 259.8 | $ | — | $ | 2,706.7 | |||||||||||
Intercompany sales | — | — | 41.2 | 105.5 | (146.7 | ) | — | ||||||||||||||||
Total sales | — | 2,446.9 | 41.2 | 365.3 | (146.7 | ) | 2,706.7 | ||||||||||||||||
Cost of products sold | — | 1,388.0 | — | 276.5 | (103.4 | ) | 1,561.1 | ||||||||||||||||
Gross profit | — | 1,058.9 | 41.2 | 88.8 | (43.3 | ) | 1,145.6 | ||||||||||||||||
Selling, distribution, and administrative expenses | 34.0 | 684.4 | 4.0 | 77.8 | (43.3 | ) | 756.9 | ||||||||||||||||
Intercompany charges | (45.4 | ) | 39.7 | — | 5.7 | — | — | ||||||||||||||||
Special charge | — | 12.4 | — | — | — | 12.4 | |||||||||||||||||
Operating profit | 11.4 | 322.4 | 37.2 | 5.3 | — | 376.3 | |||||||||||||||||
Interest expense (income), net | 9.9 | 21.8 | — | (0.2 | ) | — | 31.5 | ||||||||||||||||
Equity earnings in subsidiaries | (221.2 | ) | (5.2 | ) | — | — | 226.4 | — | |||||||||||||||
Miscellaneous income, net | — | 2.8 | — | (1.6 | ) | — | 1.2 | ||||||||||||||||
Income before provision for income taxes | 222.7 | 303.0 | 37.2 | 7.1 | (226.4 | ) | 343.6 | ||||||||||||||||
Provision for income taxes | 0.6 | 103.5 | 14.9 | 2.5 | — | 121.5 | |||||||||||||||||
Net income | 222.1 | 199.5 | 22.3 | 4.6 | (226.4 | ) | 222.1 | ||||||||||||||||
Other comprehensive income (loss) items: | |||||||||||||||||||||||
Foreign currency translation adjustments | (24.0 | ) | (24.0 | ) | — | — | 24.0 | (24.0 | ) | ||||||||||||||
Defined benefit pension plans, net | (14.5 | ) | 6.3 | — | 0.5 | (6.8 | ) | (14.5 | ) | ||||||||||||||
Other comprehensive (loss) income items after provision for income taxes | (38.5 | ) | (17.7 | ) | — | 0.5 | 17.2 | (38.5 | ) | ||||||||||||||
Comprehensive income | $ | 183.6 | $ | 181.8 | $ | 22.3 | $ | 5.1 | $ | (209.2 | ) | $ | 183.6 | ||||||||||
74
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In millions)
Year Ended August 31, 2017 | |||||||||||||||||||||||
Parent | Subsidiary Issuer | Subsidiary Guarantor | Non- Guarantors | Consolidating Adjustments | Consolidated | ||||||||||||||||||
Net cash provided by operating activities | $ | 241.9 | $ | 41.4 | $ | — | $ | 32.9 | $ | — | $ | 316.2 | |||||||||||
Cash flows from investing activities: | |||||||||||||||||||||||
Purchases of property, plant, and equipment | — | (53.1 | ) | — | (14.2 | ) | — | (67.3 | ) | ||||||||||||||
Proceeds from sale of property, plant, and equipment | — | 0.2 | — | 5.3 | — | 5.5 | |||||||||||||||||
Proceeds from sale of investment in unconsolidated affiliate | — | 13.2 | — | — | — | 13.2 | |||||||||||||||||
Other investing activities | — | (0.2 | ) | — | — | — | (0.2 | ) | |||||||||||||||
Net cash used for investing activities | — | (39.9 | ) | — | (8.9 | ) | — | (48.8 | ) | ||||||||||||||
Cash flow from financing activities: | |||||||||||||||||||||||
Issuance of long-term debt | — | — | — | 1.0 | — | 1.0 | |||||||||||||||||
Proceeds from stock option exercises and other | 3.0 | — | — | — | — | 3.0 | |||||||||||||||||
Repurchases of common stock | (357.9 | ) | — | — | — | — | (357.9 | ) | |||||||||||||||
Excess tax benefits from share-based payments | 5.2 | — | — | — | — | 5.2 | |||||||||||||||||
Dividends paid | (22.7 | ) | — | — | — | — | (22.7 | ) | |||||||||||||||
Net cash (used for) provided by financing activities | (372.4 | ) | — | — | 1.0 | — | (371.4 | ) | |||||||||||||||
Effect of exchange rate changes on cash | — | (1.5 | ) | — | 3.4 | — | 1.9 | ||||||||||||||||
Net change in cash and cash equivalents | (130.5 | ) | — | — | 28.4 | — | (102.1 | ) | |||||||||||||||
Cash and cash equivalents at beginning of year | 368.2 | — | — | 45.0 | — | 413.2 | |||||||||||||||||
Cash and cash equivalents at end of year | $ | 237.7 | $ | — | $ | — | $ | 73.4 | $ | — | $ | 311.1 | |||||||||||
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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In millions)
Year Ended August 31, 2016 | |||||||||||||||||||||||
Parent | Subsidiary Issuer | Subsidiary Guarantor | Non- Guarantors | Consolidating Adjustments | Consolidated | ||||||||||||||||||
Net cash provided by operating activities | $ | 277.0 | $ | 54.8 | $ | — | $ | 13.9 | $ | — | $ | 345.7 | |||||||||||
Cash flows from investing activities: | |||||||||||||||||||||||
Purchases of property, plant, and equipment | — | (67.1 | ) | — | (16.6 | ) | — | (83.7 | ) | ||||||||||||||
Proceeds from sale of property, plant, and equipment | — | 0.2 | — | 2.0 | — | 2.2 | |||||||||||||||||
Investments in subsidiaries | (405.6 | ) | — | — | — | 405.6 | — | ||||||||||||||||
Acquisitions of businesses and intangible assets | — | (393.9 | ) | — | (229.3 | ) | — | (623.2 | ) | ||||||||||||||
Net cash used for investing activities | (405.6 | ) | (460.8 | ) | — | (243.9 | ) | 405.6 | (704.7 | ) | |||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||||
Issuance of long-term debt | — | — | — | 2.5 | — | 2.5 | |||||||||||||||||
Proceeds from stock option exercises and other | 14.2 | — | — | — | — | 14.2 | |||||||||||||||||
Excess tax benefits from share-based payments | 25.6 | — | — | — | — | 25.6 | |||||||||||||||||
Intercompany capital | — | 405.6 | — | — | (405.6 | ) | — | ||||||||||||||||
Dividends paid | (22.9 | ) | — | — | — | — | (22.9 | ) | |||||||||||||||
Net cash provided by financing activities | 16.9 | 405.6 | — | 2.5 | (405.6 | ) | 19.4 | ||||||||||||||||
Effect of exchange rate changes on cash | — | 0.4 | — | (4.4 | ) | — | (4.0 | ) | |||||||||||||||
Net change in cash and cash equivalents | (111.7 | ) | — | — | (231.9 | ) | — | (343.6 | ) | ||||||||||||||
Cash and cash equivalents at beginning of year | 479.9 | — | — | 276.9 | — | 756.8 | |||||||||||||||||
Cash and cash equivalents at end of year | $ | 368.2 | $ | — | $ | — | $ | 45.0 | $ | — | $ | 413.2 | |||||||||||
76
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In millions)
Year Ended August 31, 2015 | |||||||||||||||||||||||
Parent | Subsidiary Issuer | Subsidiary Guarantor | Non- Guarantors | Consolidating Adjustments | Consolidated | ||||||||||||||||||
Net cash provided by operating activities | $ | 212.1 | $ | 55.2 | $ | — | $ | 21.6 | $ | — | $ | 288.9 | |||||||||||
Cash flows from investing activities: | |||||||||||||||||||||||
Purchases of property, plant, and equipment | — | (41.9 | ) | — | (14.6 | ) | — | (56.5 | ) | ||||||||||||||
Proceeds from sale of property, plant, and equipment | — | 1.3 | — | — | — | 1.3 | |||||||||||||||||
Investments in subsidiaries | (254.7 | ) | (245.2 | ) | — | — | 499.9 | — | |||||||||||||||
Acquisitions of businesses and intangible assets | — | (14.6 | ) | — | — | — | (14.6 | ) | |||||||||||||||
Other investing activities | — | (2.6 | ) | — | — | — | (2.6 | ) | |||||||||||||||
Net cash used for investing activities | (254.7 | ) | (303.0 | ) | — | (14.6 | ) | 499.9 | (72.4 | ) | |||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||||
Proceeds from stock option exercises and other | 11.6 | — | — | — | — | 11.6 | |||||||||||||||||
Excess tax benefits from share-based payments | 17.6 | — | — | — | — | 17.6 | |||||||||||||||||
Intercompany capital | — | 245.2 | — | 254.7 | (499.9 | ) | — | ||||||||||||||||
Dividends paid | (22.7 | ) | — | — | — | — | (22.7 | ) | |||||||||||||||
Other financing activities | — | — | — | (10.4 | ) | — | (10.4 | ) | |||||||||||||||
Net cash provided by (used for) financing activities | 6.5 | 245.2 | — | 244.3 | (499.9 | ) | (3.9 | ) | |||||||||||||||
Effect of exchange rate changes on cash | — | (0.5 | ) | — | (7.8 | ) | — | (8.3 | ) | ||||||||||||||
Net change in cash and cash equivalents | (36.1 | ) | (3.1 | ) | — | 243.5 | — | 204.3 | |||||||||||||||
Cash and cash equivalents at beginning of year | 516.0 | 3.1 | — | 33.4 | — | 552.5 | |||||||||||||||||
Cash and cash equivalents at end of year | $ | 479.9 | $ | — | $ | — | $ | 276.9 | $ | — | $ | 756.8 | |||||||||||
77
15. Quarterly Financial Data (Unaudited)
Fiscal Year 2017 | |||||||||||||||
(In millions) | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||
Net sales | $ | 851.2 | $ | 804.7 | $ | 891.6 | $ | 957.6 | |||||||
Gross profit | $ | 359.6 | $ | 335.8 | $ | 378.9 | $ | 406.9 | |||||||
Net income | $ | 81.7 | $ | 67.3 | $ | 82.2 | $ | 90.5 | |||||||
Basic earnings per share | $ | 1.87 | $ | 1.54 | $ | 1.91 | $ | 2.16 | |||||||
Diluted earnings per share | $ | 1.86 | $ | 1.53 | $ | 1.90 | $ | 2.15 | |||||||
Fiscal Year 2016 | |||||||||||||||
(In millions) | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||
Net sales | $ | 736.6 | $ | 777.8 | $ | 851.5 | $ | 925.5 | |||||||
Gross profit | $ | 319.4 | $ | 336.9 | $ | 377.9 | $ | 402.1 | |||||||
Net income | $ | 68.4 | $ | 65.5 | $ | 74.0 | $ | 82.9 | |||||||
Basic earnings per share | $ | 1.58 | $ | 1.50 | $ | 1.70 | $ | 1.90 | |||||||
Diluted earnings per share | $ | 1.57 | $ | 1.49 | $ | 1.69 | $ | 1.89 | |||||||
Certain amounts in the tables above have been rounded. Accordingly, the sum of the quarters may not be an exact match to the full year amounts.
78
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Item 9a. | Controls and Procedures |
Disclosure controls and procedures are controls and other procedures that are designed to reasonably ensure that information required to be disclosed in the reports filed or submitted by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to reasonably ensure that information required to be disclosed by the Company in the reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by SEC rules, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of August 31, 2017. This evaluation was carried out under the supervision and with the participation of management, including the principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of the Company’s disclosure controls and procedures are effective at a reasonable assurance level as of August 31, 2017. However, because all disclosure procedures must rely to a significant degree on actions or decisions made by employees throughout the organization, such as reporting of material events, the Company and its reporting officers believe that they cannot provide absolute assurance that all control issues and instances of fraud or errors and omissions, if any, within the Company will be detected. Limitations within any control system, including the Company’s control system, include faulty judgments in decision-making or simple errors or mistakes. In addition, controls can be circumvented by an individual, by collusion between two or more people, or by management override of the control. Because of these limitations, misstatements due to error or fraud may occur and may not be detected.
Management’s annual report on the Company’s internal control over financial reporting and the independent registered public accounting firm’s attestation report are included in the Company’s 2017 Financial Statements in Item 8 of this Annual Report on Form 10-K, under the headings, Management’s Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting Firm as it relates to Internal Control Over Financial Reporting, respectively, and are incorporated herein by reference.
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9b. | Other Information |
On October 24, 2017, Mark A. Black, Executive Vice President of Acuity Brands, Inc. and President of Acuity Brands Lighting, Inc., notified the Company of his planned retirement in June 2018. Effective December 31, 2017, Mr. Black will step down from his current positions but remain an employee of the Company with a reduced set of responsibilities through the date of his retirement.
79
PART III
Item 10. | Directors, Executive Officers, and Corporate Governance |
The information required by this item, with respect to directors and corporate governance, is included under the captions Item 1 — Election of Directors and Information Concerning the Board and Its Committees of the Company’s proxy statement for the annual meeting of stockholders to be held January 5, 2018, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
The information required by this item, with respect to executive officers, will be included under the caption Executive Officers of the Company’s proxy statement for the annual meeting of stockholders to be held January 5, 2018, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
The information required by this item, with respect to beneficial ownership reporting, will be included under the caption Section 16(a) Beneficial Ownership Reporting Compliance of the Company’s proxy statement for the annual meeting of stockholders to be held January 5, 2018, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
The information required by this item, with respect to the code of ethics, will be included under the caption Questions and Answers about Communications, Governance, and Company Documents of the Company’s proxy statement for the annual meeting of stockholders to be held January 5, 2018, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Item 11. | Executive Compensation |
The information required by this item will be included under the captions Compensation of Directors, Information Concerning the Board and Its Committees, Compensation Committee Interlocks and Insider Participation, Report of the Compensation Committee, Compensation Discussion and Analysis, Fiscal 2017 Summary Compensation Table, Fiscal 2017 Grants of Plan-Based Awards, Outstanding Equity Awards at Fiscal 2017 Year-End, Option Exercises and Stock Vested in Fiscal 2017, Pension Benefits in Fiscal 2017, Fiscal 2017 Nonqualified Deferred Compensation, Employment Arrangements, Potential Payments upon Termination, and Equity Compensation Plans of the Company’s proxy statement for the annual meeting of stockholders to be held January 5, 2018, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item will be included under the captions Beneficial Ownership of the Company’s Securities and Equity Compensation Plans of the Company’s proxy statement for the annual meeting of stockholders to be held January 5, 2018, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this item will be included under the caption Certain Relationships and Related Party Transactions of the Company’s proxy statement for the annual meeting of stockholders to be held January 5, 2018, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Item 14. | Principal Accountant Fees and Services |
The information required by this item will be included under the caption Fees Billed by Independent Registered Public Accounting Firm of the Company’s proxy statement for the annual meeting of stockholders to be held January 5, 2018, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
80
PART IV
Item 15. | Exhibits and Financial Statement Schedules |
(a) The following documents are filed as a part of this report:
(2) | Financial Statement Schedules: | |
Any of Schedules I through V not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto | ||
(3) | Exhibits filed with this report (begins on next page): | |
Copies of exhibits will be furnished to stockholders upon request at a nominal fee. Requests should be sent to Acuity Brands, Inc., Investor Relations Department, 1170 Peachtree Street, N.E., Suite 2300, Atlanta, Georgia 30309-7676 | ||
81
INDEX TO EXHIBITS
EXHIBIT 3 | (a) | Reference is made to Exhibit 3.1 of registrant’s Form 8-K as filed with the Commission on September 26, 2007, which is incorporated herein by reference. | ||
(b) | Reference is made to Exhibit 3.2 of registrant’s Form 8-K as filed with the Commission on September 26, 2007, which is incorporated herein by reference. | |||
(c) | Reference is made to Exhibit 3.1 of registrant’s Form 8-K as filed with the Commission on October 5, 2016, which is incorporated herein by reference. | |||
(d) | Reference is made to Exhibit 3(c) of registrant’s Form 10-Q as filed with the Commission on January 9, 2017, which is incorporated herein by reference. | |||
(e) | Reference is made to Exhibit 3(d) of registrant’s Form 10-Q as filed with the Commission on January 9, 2017, which is incorporated herein by reference. | |||
EXHIBIT 4 | (a) | Reference is made to Exhibit 4.1 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. | ||
(b) | Reference is made to Exhibit 4.1 of registrant’s Form 8-K as filed with the Commission on December 9, 2009, which is incorporated herein by reference. | |||
(c) | Reference is made to Exhibit 4.2 of registrant’s Form 8-K as filed with the Commission on December 9, 2009, which is incorporated herein by reference. | |||
EXHIBIT 10(i) | (1) | Reference is made to Exhibit 10 (i)A(17) of the registrant’s Form 10-K as filed with the Commission on November 1, 2005, which is incorporated by reference. | ||
(2) | Reference is made to Exhibit 10.1 of registrant's Form 8-K as filed with the Commission on November 6, 2007, which is incorporated herein by reference. | |||
(3) | Reference is made to Exhibit 10.1 of registrant’s Form 8-K as filed with the Commission on August 28, 2014, which is incorporated herein by reference. | |||
82
EXHIBIT 10(iii)A | Management Contracts and Compensatory Arrangements: | |||
(1) | Reference is made to Exhibit 10.6 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. | |||
(2) | Reference is made to Exhibit 10(iii)A(3) of registrant’s Form 10-Q as filed with the Commission on January 14, 2002, which is incorporated herein by reference. | |||
(3) | Reference is made to Exhibit 99.1 of registrant’s Form 8-K filed with the Commission on October 27, 2006, which is incorporated herein by reference. | |||
(4) | Reference is made to Exhibit 10(iii)A(2) of registrant’s Form 10-Q as filed with the Commission on January 4, 2007, which is incorporated herein by reference. | |||
(5) | Reference is made to Exhibit 10(iii)A(3) of registrant’s Form 10-Q as filed with the Commission on July 10, 2007, which is incorporated herein by reference. | |||
(6) | Reference is made to Exhibit 10.14 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. | |||
(7) | Reference is made to Exhibit 10(iii)A(2) of registrant’s Form 10-Q as filed with the Commission on January 14, 2003, which is incorporated by reference. | |||
(8) | Reference is made to Exhibit 10(iii)A(8) of the registrant’s Form 10-Q as filed with the Commission on July 14, 2003, which is incorporated by reference. | |||
(9) | Reference is made to Exhibit 10(iii)A(36) of the registrant’s Form 10-K as filed with the Commission on October 29, 2004, which is incorporated by reference. | |||
(10) | Reference is made to Exhibit 99.2 of registrant’s Form 8-K filed with the Commission on July 6, 2006, which is incorporated herein by reference. | |||
(11) | Reference is made to Exhibit 10(iii)A(6) of registrant’s Form 10-Q as filed with the Commission on July 10, 2007, which is incorporated herein by reference. | |||
(12) | Reference is made to Exhibit 10 (c) of registrant’s Form 10-Q as filed with the Commission on March 31, 2010, which is incorporated herein by reference. | |||
(13) | Reference is made to Exhibit 10.15 of registrant's Form 8-K as filed with the Commission on December 14, 2001, which is incorporated here in by reference. | |||
(14) | Reference is made to Exhibit 10(iii)A(3) of the registrant’s Form 10-Q as filed with the Commission on January 14, 2003, which is incorporated by reference. | |||
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(15) | Reference is made to Exhibit 10(iii)A(61) of the registrant’s Form 10-K as filed with the Commission on November 2, 2006, which is incorporated by reference. | |||
(16) | Reference is made to Exhibit 10(iii)A(86) of the registrant’s Form 10-K as filed with the Commission on October 27, 2008, which is incorporated herein by reference. | |||
(17) | Reference is made to Exhibit 10(iii)A(68) of the registrant's Form 10-K as filed with the Commission on October 26, 2012, which is incorporated herein by reference. | |||
(18) | Reference is made to Exhibit 10.16 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. | |||
(19) | Reference is made to Exhibit 10(iii)A(5) of registrant’s Form 10-Q as filed with the Commission on July 10, 2007, which is incorporated herein by reference. | |||
(20) | Reference is made to Exhibit 10.18 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. | |||
(21) | Reference is made to Exhibit 10.19 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. | |||
(22) | Reference is made to Exhibit 10(iii)A(2) of the registrant’s Form 10-Q as filed with the Commission on April 14, 2003, which is incorporated by reference. | |||
(23) | Reference is made to Exhibit 10.21 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. | |||
(24) | Reference is made to Exhibit 10.25 of registrant’s Form 8-K as filed with the Commission on December 14, 2001, which is incorporated herein by reference. | |||
(25) | Reference is made to Exhibit 10(iii)A(1) of the registrant’s Form 10-Q as filed with the Commission on July 1, 2015, which is incorporated by reference. | |||
(26) | Reference is made to Exhibit 99.1 of registrant’s Form 8-K filed with the Commission on April 27, 2006, which is incorporated herein by reference. | |||
(27) | Reference is made to Exhibit 10(iii)A(4) of the registrant’s Form 10-Q as filed with the Commission on July 14, 2003, which is incorporated by reference. | |||
(28) | Reference is made to Exhibit 10(III)A(1) of the registrant’s Form 10-Q as filed with the Commission on July 6, 2004, which is incorporated by reference. | |||
(29) | Reference is made to Exhibit 10(III)A(2) of the registrant’s Form 10-Q as filed with the Commission on July 6, 2004, which is incorporated by reference. | |||
84
(30) | Reference is made to Exhibit 99.3 of registrant’s Form 8-K filed with the Commission on April 27, 2006, which is incorporated herein by reference. | |||
(31) | Reference is made to Exhibit 10(iii)A(2) of registrant’s Form 10-Q as filed with the Commission on April 4, 2007, which is incorporated herein by reference. | |||
(32) | Reference is made to Exhibit 10(iii)A(78) of the registrant’s Form 10-K as filed with the Commission on October 30, 2009, which is incorporated herein by reference. | |||
(33) | Reference is made to Exhibit 10(iii)A(2) of the registrant's Form 10-Q as filed with the Commission on April 2, 2014, which is incorporated herein by reference. | |||
(34) | Reference is made to Exhibit 10(III)A(3) of the registrant’s Form 10-Q filed with the Commission on January 6, 2005 incorporated by reference. | |||
(35) | Reference is made to Exhibit 10(III)A(4) of the registrant’s Form 10-Q as filed with the Commission on January 6, 2005, which is incorporated by reference. | |||
(36) | Reference is made to Exhibit 10(III)A(5) of the registrant’s Form 10-Q as filed with the Commission on January 6, 2005, which is incorporated by reference. | |||
(37) | Reference is made to Exhibit 10(III)A(1) of the registrant’s Form 10-Q as filed with the Commission on April 4, 2005, which is incorporated by reference. | |||
(38) | Reference is made to Exhibit 10.1 of registrant’s Form 8-K filed with the Commission on November 18, 2005, which is incorporated herein by reference. | |||
(39) | Reference is made to Exhibit 10(iii)A(81) of the registrant’s Form 10-K as filed with the Commission on October 30, 2009, which is incorporated herein by reference. | |||
(40) | Reference is made to Exhibit 10 (f) of registrant’s Form 10-Q as filed with the Commission on March 31, 2010, which is incorporated herein by reference. | |||
(41) | Reference is made to Exhibit 10(iii)A(4) of the registrant's Form 10-Q as filed with the Commission on April 2, 2014, which is incorporated herein by reference. | |||
(42) | Reference is made to Exhibit 10(iii)A(46) of the registrant's Form 10-K as filed with the Commission on October 29, 2014, which is incorporated herein by reference. | |||
(43) | Reference is made to Exhibit 10(iii)A(43) of the registrant's Form 10-K as filed with the Commission on October 27, 2015, which is incorporated herein by reference. | |||
(44) | Reference is made to Exhibit 10(iii)A(44) of the registrant's Form 10-K as filed with the Commission on October 27, 2016, which is incorporated herein by reference. | |||
85
(45) | Filed with the Commission as part of this Form 10-K. | |||
(46) | Reference is made to Exhibit 99.1 of registrant’s Form 8-K filed with the Commission on December 2, 2005, which is incorporated herein by reference. | |||
(47) | Reference is made to Exhibit A of the registrant’s Proxy Statement as filed with the Commission on November 16, 2007, which is incorporated herein by reference. | |||
(48) | Reference is made to Exhibit 99.1 of the registrant’s Form 8-K as filed with the Commission on January 4, 2008, which is incorporated herein by reference. | |||
(49) | Reference is made to Exhibit B of the registrant’s Proxy Statement as filed with the Commission on November 16, 2007, which is incorporated herein by reference. | |||
(50) | Reference is made to Exhibit 99.2 of the registrant’s Form 8-K as filed with the Commission on January 4, 2008, which is incorporated herein by reference. | |||
(51) | Reference is made to Exhibit 10 (i) of registrant’s Form 10-Q as filed with the Commission on April 8, 2009, which is incorporated herein by reference. | |||
(52) | Reference is made to Exhibit 10 (j) of registrant’s Form 10-Q as filed with the Commission on April 8, 2009, which is incorporated herein by reference. | |||
(53) | Reference is made to Exhibit 10 (f) of registrant’s Form 10-Q as filed with the Commission on April 8, 2009, which is incorporated herein by reference. | |||
(54) | Reference is made to Exhibit 10(iii)A(1) of the registrant's Form 10-Q as filed with the Commission on January 9, 2015. | |||
(55) | Reference is made to Exhibit 10(iii)A(79) of the registrant’s Form 10-K as filed with the Commission on October 30, 2009, which is incorporated herein by reference. | |||
(56) | Reference is made to Exhibit 10 (d) of registrant’s Form 10-Q as filed with the Commission on March 31, 2010, which is incorporated herein by reference. | |||
(57) | Reference is made to Exhibit 10(iii)A(3) of the registrant's Form 10-Q as filed with the Commission on April 2, 2014, which is incorporated herein by reference. | |||
(58) | Reference is made to Exhibit 10(iii)A(58) of the registrant's Form 10-K as filed with the Commission on October 29, 2014, which is incorporated herein by reference. | |||
(59) | Reference is made to Exhibit 10(iii)A(57) of the registrant's Form 10-K as filed with the Commission on October 27, 2015, which is incorporated herein by reference. | |||
86
(60) | Reference is made to Exhibit 10(iii)A(59) of the registrant's Form 10-K as filed with the Commission on October 27, 2016, which is incorporated herein by reference. | |||
(61) | Reference is made to Exhibit 10(iii)A(2) of the registrant's Form 10-Q as filed with the Commission on January 9, 2015. | |||
(62) | Reference is made to Exhibit 10(iii)A(84) of the registrant’s Form 10-K as filed with the Commission on October 30, 2009, which is incorporated herein by reference. | |||
(63) | Reference is made to Exhibit 10.1 of registrant’s Form 8-K as filed with the Commission on February 9, 2010, which is incorporated herein by reference. | |||
(64) | Reference is made to Exhibit A of the registrant’s Proxy Statement as filed with the Commission on November 19, 2012, which is incorporated herein by reference. | |||
(65) | Reference is made to Exhibit B of the registrant’s Proxy Statement as filed with the Commission on November 19, 2012, which is incorporated herein by reference. | |||
(66) | Reference is made to Exhibit 10(iii)A(72) of the registrant's Form 10-K as filed with the Commission on October 29, 2013, which is incorporated herein by reference. | |||
(67) | Reference is made to Exhibit 10(iii)A(1) of the registrant's Form 10-Q as filed with the Commission on April 2, 2014, which is incorporated herein by reference. | |||
(68) | Reference is made to Exhibit 10(iii)A(65) of the registrant's Form 10-K as filed with the Commission on October 29, 2014, which is incorporated herein by reference. | |||
(69) | Reference is made to Exhibit 10(iii)A(66) of the registrant's Form 10-K as filed with the Commission on October 29, 2014, which is incorporated herein by reference. | |||
(70) | Reference is made to Exhibit 10(iii)A(1) of the registrant's Form 10-Q as filed with the Commission on April 6, 2016, which is incorporated herein by reference. | |||
(71) | Reference is made to Exhibit 10(iii)A(70) of the registrant's Form 10-K as filed with the Commission on October 27, 2016, which is incorporated herein by reference. | |||
(72) | Filed with the Commission as part of this Form 10-K. | |||
(73) | Reference is made to Exhibit 10(iii)A(72) of the registrant's Form 10-K as filed with the Commission on October 27, 2016, which is incorporated herein by reference. | |||
(74) | Reference is made to Exhibit 10(iii)A(73) of the registrant's Form 10-K as filed with the Commission on October 27, 2016, which is incorporated herein by reference. | |||
EXHIBIT 21 | Filed with the Commission as part of this Form 10-K. | |||
87
EXHIBIT 23 | Filed with the Commission as part of this Form 10-K. | |||
EXHIBIT 24 | Filed with the Commission as part of this Form 10-K. | |||
EXHIBIT 31 | (a) | Filed with the Commission as part of this Form 10-K. | ||
(b) | Filed with the Commission as part of this Form 10-K. | |||
EXHIBIT 32 | (a) | Filed with the Commission as part of this Form 10-K. | ||
(b) | Filed with the Commission as part of this Form 10-K. | |||
EXHIBIT 101 | The following financial information from the Company's Annual Report on Form 10-K for the year ended August 31, 2017, filed on October 26, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of August 31, 2017 and 2016, (ii) the Consolidated Statements of Comprehensive Income for the years ended August 31, 2017, 2016, and 2015, (iii) the Consolidated Statements of Cash Flows for the years ended August 31, 2017, 2016, and 2015, (iv) the Consolidated Statements of Stockholders' Equity for the years ended August 31, 2017, 2016, and 2015 and (v) the Notes to Consolidated Financial Statements. | Filed with the Commission as part of this Form 10-K. | ||
88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ACUITY BRANDS, INC.
Date: | October 26, 2017 | By: | /S/ VERNON J. NAGEL | |
Vernon J. Nagel Chairman, President, and Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | |||
/s/ VERNON J. NAGEL | Chairman, President, and Chief Executive Officer | October 26, 2017 | |||
Vernon J. Nagel | |||||
/s/ RICHARD K. REECE | Executive Vice President and Chief Financial Officer (Principle Financial and Accounting Officer) | October 26, 2017 | |||
Richard K. Reece | |||||
* | Director | October 26, 2017 | |||
W. Patrick Battle | |||||
* | Director | October 26, 2017 | |||
Peter C. Browning | |||||
* | Director | October 26, 2017 | |||
G. Douglas Dillard, Jr. | |||||
* | Director | October 26, 2017 | |||
James H. Hance, Jr. | |||||
* | Director | October 26, 2017 | |||
Gordon D. Harnett | |||||
* | Director | October 26, 2017 | |||
Robert F. McCullough | |||||
* | Director | October 26, 2017 | |||
Julia B. North | |||||
* | Director | October 26, 2017 | |||
Dominic J. Pileggi | |||||
* | Director | October 26, 2017 | |||
Ray M. Robinson | |||||
* | Director | October 26, 2017 | |||
Norman H. Wesley | |||||
* | Director | October 26, 2017 | |||
Mary A. Winston | |||||
*BY: | /s/ RICHARD K. REECE | Attorney-in-Fact | October 26, 2017 | ||
Richard K. Reece | |||||
89
Schedule II
Acuity Brands, Inc.
Valuation and Qualifying Accounts
For the Years Ended August 31, 2017, 2016, and 2015
(In millions)
Balance at | Additions and Reductions Charged to | |||||||||||||||
Beginning of Year | Costs and Expenses | Other Accounts | Deductions | Balance at End of Year | ||||||||||||
Year Ended August 31, 2017 | ||||||||||||||||
Reserve for doubtful accounts | $ | 1.7 | 0.3 | 0.1 | 0.2 | $ | 1.9 | |||||||||
Reserve for estimated product returns, net | $ | 10.9 | 84.7 | — | 82.0 | $ | 13.6 | |||||||||
Reserve for estimated cash discounts | $ | 4.7 | 29.0 | — | 29.6 | $ | 4.1 | |||||||||
Reserve for estimated other deductions | $ | 1.7 | 20.5 | — | 18.6 | $ | 3.6 | |||||||||
Deferred tax asset valuation allowance | $ | 16.4 | 1.5 | (0.6 | ) | 3.1 | $ | 14.2 | ||||||||
Year Ended August 31, 2016 | ||||||||||||||||
Reserve for doubtful accounts | $ | 1.3 | 0.3 | 0.4 | 0.3 | $ | 1.7 | |||||||||
Reserve for estimated product returns, net | $ | 6.2 | 62.6 | 0.9 | 58.8 | $ | 10.9 | |||||||||
Reserve for estimated cash discounts | $ | 3.0 | 32.0 | 0.9 | 31.2 | $ | 4.7 | |||||||||
Reserve for estimated other deductions | $ | 1.3 | 11.9 | — | 11.5 | $ | 1.7 | |||||||||
Deferred tax asset valuation allowance | $ | 15.0 | (0.2 | ) | 1.6 | — | $ | 16.4 | ||||||||
Year Ended August 31, 2015 | ||||||||||||||||
Reserve for doubtful accounts | $ | 1.9 | 0.1 | — | 0.7 | $ | 1.3 | |||||||||
Reserve for estimated product returns, net | $ | 4.3 | 44.7 | — | 42.8 | $ | 6.2 | |||||||||
Reserve for estimated cash discounts | $ | 2.7 | 21.7 | — | 21.4 | $ | 3.0 | |||||||||
Reserve for estimated other deductions | $ | 1.3 | 9.1 | — | 9.1 | $ | 1.3 | |||||||||
Deferred tax asset valuation allowance | $ | 13.6 | (0.4 | ) | 1.8 | — | $ | 15.0 | ||||||||
90
Exhibit 10(iii)A(45)
AMENDMENT No. 7
TO
ACUITY BRANDS, INC
AMENDED AND RESTATED SEVERANCE AGREEMENT
THIS AMENDMENT made and entered into as of the 25th day of October, 2017, by and between ACUITY BRANDS, INC. (the “Company”) and RICHARD K. REECE (“Executive”);
W I T N E S S E T H
WHEREAS, the Company and Executive entered into a Severance Agreement, dated as of April 21, 2006 (“Severance Agreement”), and amended as of October 28, 2009, March 30, 2010, March 28, 2014, October 27, 2014, October 26, 2015, and October 25, 2016, providing for the payment of certain compensation and benefits to Executive if Executive’s employment is terminated under certain circumstances; and
WHEREAS, the parties now desire to amend the Severance Agreement in the manner hereinafter provided;
NOW, THEREFORE, the Severance Agreement is hereby amended, as follows:
1.
Section 4.2 is hereby amended by deleting “120%” from clause (i) and substituting “125%” in lieu thereof.
2.
This Amendment to the Severance Agreement shall be effective as of the date of this Amendment. Except as hereby modified, the Severance Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.
COMPANY
EXECUTIVE ACUITY BRANDS, INC.
______________________________ By: ______________________________
RICHARD K. REECE Vernon J. Nagel
Chairman, President and CEO
Exhibit 10(iii)A(72)
ACUITY BRANDS, INC.
2012 Omnibus Stock Incentive Compensation Plan
2012 Omnibus Stock Incentive Compensation Plan
Restricted Stock Unit Award Agreement for Non-U.S. Grantees
Grantee : /$ParticipantName$/ |
Grant Type : /$GrantType$/ |
Grant ID : /$GrantID$/ |
Grant Date : /$GrantDate$/ |
Award Amount : /$AwardsGranted$/ |
Vest Schedule : /$VestingDescription$/ |
Grantee Level : /$UserCode2$/ |
Accept By Date : /$AcceptByDate$/ |
This Restricted Stock Unit Award Agreement for Non-U.S. Grantees (the “Restricted Stock Unit Agreement”), including any special terms and conditions for the Grantee’s country set forth in the Appendix A attached hereto (the Restricted Stock Unit Agreement, the Appendix A and all other appendices attached hereto, collectively, the “Agreement”) is made by and between Acuity Brands, Inc., a Delaware corporation (the “Company”), and Grantee, effective as of the Grant Date.
RECITALS
WHEREAS, the Company maintains the Acuity Brands, Inc. 2012 Omnibus Stock Incentive Compensation Plan (the "Plan"), under which the Compensation Committee of the Company's Board of Director's (the "Committee") has authority to make awards of restricted stock units (hereinafter “RSUs”) payable in Shares of the Company’s Common Stock to select employees and members of the Board of Directors of the Company and its Subsidiaries; and
WHEREAS, the Committee has determined that it is in the best interest of the Company and its stockholders to grant RSUs to the Grantee identified above, subject to the terms and conditions set forth in the Plan and this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows:
1. | Incorporation by Reference, Etc. The provisions of the Plan are hereby incorporated by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. The Committee shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be binding and conclusive upon the Grantee and the Grantee’s legal representative with respect to any questions arising under the Plan or this Agreement. |
2. | Grant of Restricted Stock Unit Award. The Committee, on behalf of the Company, hereby grants to the Grantee, effective as of the Grant Date, RSUs equal to the Award Amount set forth above, on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan. |
3. | Terms and Conditions. |
1
Exhibit 10(iii)A(72)
(a) | Restrictions |
i. | This award of RSUs is conditioned upon Grantee’s acceptance of the terms of this Agreement, as evidenced by Grantee’s execution of this Agreement or by Grantee’s electronic acceptance of this Agreement in a manner and during the time period allowed by the Company. If the terms of this Agreement are not timely accepted by execution or by such electronic means, the award of RSUs may be cancelled by the Committee. |
ii. | Except for death, Disability or Change in Control as set forth below, if Grantee remains employed by the Company, a Subsidiary or Affiliate, the RSUs shall vest pursuant to the schedule set forth above. For purposes of this Agreement, providing active services as an Employee or as a member of the Board of Directors of the Company shall be considered employment. |
iii. | If prior to the date on which the RSUs vest and the restrictions with respect to the RSUs lapse (the "Vesting Date"), (i) Grantee dies while actively employed by the Company, or (ii) Grantee has his or her employment terminated by reason of Disability, any RSUs shall become fully vested and nonforfeitable as of the date of Grantee’s death or Disability. The Company shall transfer the Shares to be issued upon the vesting of the RSUs as a result of Grantee’s death or Disability, free and clear of any restrictions imposed by this Agreement (except for Section 3(a)(viii)) to Grantee (or, in the event of death, to Grantee's heirs, subject to the applicable laws of descent and distribution) as soon as practical after his or her date of death or termination for Disability. |
iv. | Except for death or Disability as provided above, or except as otherwise provided in a severance agreement with Grantee, if Grantee terminates his or her employment or if the Company or if different, the Subsidiary or Affiliate employing the Grantee (the "Employer") terminates Grantee prior to the Vesting Date (even in the case of unfair dismissal and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where Grantee is employed or the terms of Grantee's employment agreement, if any) the Grantee expressly acknowledges that the RSUs shall cease to vest further, the unvested RSUs shall be immediately forfeited, and Grantee shall only be entitled to the Shares issued as a result of RSUs that had vested prior to the date of termination. “Date of Termination” means the last day of active employment of the Grantee with the Employer. For greater certainty, the Date of Termination of the Grantee shall be deemed to be the date on which the notice of termination of employment provided is stated to be effective (in the case of alleged constructive dismissal the date on which the alleged constructive dismissal is alleged to have occurred), and not during or as of the end of any notice or other period following such date during which the Grantee is in receipt of, or eligible to receive, statutory, contractual or common law notice of termination or any compensation in lieu of such notice or severance pay. The Board or the Committee shall have the exclusive discretion to determine when Grantee is no longer actively providing services for purposes of the RSU grant (including whether Grantee may still be considered to be providing services while on a leave of absence). |
v. | No Shares shall be issued to Grantee prior to the Vesting Date. After any RSUs vest, and subject to the Company’s Incentive-Based Compensation Recoupment Policy (described below), the Company shall promptly cause Shares to be issued to an unrestricted account in the name of the Grantee as soon as practical after each Vesting Date, in payment of such vested RSUs. In addition, the Company will cause to be paid in cash the Dividend Equivalents (described below) attributed to the Shares issued as a result of the vesting of the RSUs, as soon as practical after the Vesting Date. |
vi. | In exchange for receipt of consideration in the form of the RSU award pursuant to this Agreement and other good and valuable consideration, Grantee agrees that he/she shall comply with the confidentiality, inventions, non-solicitation and non-competition provisions attached hereto as Exhibit C. |
vii. | Notwithstanding the other provisions of this Agreement, in the event of a Change in Control prior to the Vesting Date, all RSUs shall become fully vested and nonforfeitable as of the date |
2
Exhibit 10(iii)A(72)
of the Change in Control. The Company shall transfer the Shares to be issued upon the vesting of the RSUs pursuant to this provision to an unrestricted account in the name of the Grantee as soon as practical after the date of the Change in Control.
viii. | All awards of RSUs designated as "performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), whether unvested or vested, shall be subject to the Company`s Incentive-Based Compensation Recoupment Policy (the "Recoupment Policy"), such that any award that was made to a Grantee, who is deemed a "Covered Employee" under the Recoupment Policy, within the three (3) year period preceding the date on which the Company announces that it will prepare an accounting restatement under the Recoupment Policy shall be subject to deduction, clawback or forfeiture, as applicable. |
ix. | The RSUs may not be sold, assigned, transferred, pledged, or otherwise encumbered prior to the Vesting Date. |
(b) | Stock; Dividends; Voting |
i. | The RSUs granted pursuant to this Agreement do not and shall not entitle the Grantee to any rights of a shareholder of the Company’s Common Stock. The rights of the Grantee with respect to the RSUs shall remain forfeitable at all times prior to the Vesting Date. |
ii. | During the period that the Grantee holds RSUs granted pursuant to this Agreement, the Company shall credit to a non-interest bearing account on its books for Grantee, on each date that the Company pays a cash dividend to holders of its Common Stock, an amount equal to the United States ("U.S.") Dollar amount paid per Share of the Company’s Common Stock that is subject to this Agreement and that has not vested (the “Dividend Equivalents”). The Company will cause to be paid in cash the Dividend Equivalents attributed to the RSUs as soon as practical after each Vesting Date. The Dividend Equivalents credited to Grantee’s non-interest bearing account shall be forfeited in the event that the RSUs are forfeited. |
iii. | In the event of a Share Change (as defined in Section 4.4(a) of the Plan), the number and class of Shares or other securities that Grantee shall be entitled to, and shall hold, pursuant to this Agreement shall be appropriately adjusted or changed to reflect the Share Change, provided that any such additional Shares or additional or different shares or securities shall remain subject to the restrictions in this Agreement. |
iv. | Grantee represents and warrants that he or she is acquiring the RSUs for investment purposes only, and not with a view to distribution thereof. Grantee is aware that the RSUs may not be registered under U.S. federal or any state securities laws and that in that event, in addition to the other restrictions on the Shares, they will not be able to be transferred unless an exemption from registration is available or the Shares are registered. By making this award of RSUs, the Company is not undertaking any obligation to register the Shares under any federal or state securities laws. |
(c) | Nature of Grant. In accepting the grant, Grantee acknowledges, understands and agree that: |
i. | the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan; |
ii. | the grant of RSUs is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of RSUs, or benefits in lieu of RSUs, even if RSUs have been granted in the past; |
iii. | all decisions with respect to future RSUs or other grants, if any, will be at the sole discretion of the Company; |
3
Exhibit 10(iii)A(72)
iv. | the RSU grant and Grantee’s participation in the Plan shall not create a right to employment or be interpreted as forming or amending an employment or services contract with the Company and shall not interfere with the ability of the Employer to terminate Grantee’s employment or service relationship (if any); |
v. | Grantee is voluntarily participating in the Plan; |
vi. | the RSUs and the Shares subject to the RSUs, and the income and value of same, are not intended to replace any pension rights or compensation; |
vii. | the RSUs and the Shares subject to the RSUs, and the income and value of same, are not part of normal or expected compensation for any purposes including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments; |
viii. | the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty; |
ix. | no claim or entitlement to compensation or damages shall arise from any loss of any right or benefit, or prospective right or benefit, including the forfeiture of RSUs resulting from the termination of Grantee's employment or other service relationship (for any reason whatsoever whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Grantee is employed or the terms of Grantee’s employment agreement, if any), and in consideration of the grant of RSUs, Grantee agrees not to institute any claim against the Company; |
x. | unless otherwise agreed with the Company, the RSUs and Shares subject to the RSUs, and the income and value of same, are not granted as consideration for, or in connection with, the service Grantee may provide as a director of a Subsidiary of the Company; and |
xi. | the Company shall not be liable for any foreign exchange rate fluctuation between Grantee’s local currency and the U.S. Dollar that may affect the value of the RSUs or of any amounts due to Grantee pursuant to the settlement of the RSUs or the subsequent sale of any Shares acquired upon settlement. |
(d) | Responsibility for Taxes. |
i. | Grantee acknowledges that, regardless of any action taken by the Company or the Employer, the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Grantee’s participation in the Plan and legally applicable to Grantee (“Tax-Related Items”), is and remains Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. Grantee further acknowledges that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs or the Dividend Equivalents, including, but not limited to, the grant, vesting or settlement of the RSUs, the subsequent sale of Shares acquired pursuant to such settlement and the receipt or payment of any dividends and/or any Dividend Equivalents and (2) do not commit to and is under no obligation to structure the terms of the grant or any aspect of the RSUs or the Dividend Equivalents to reduce or eliminate Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if Grantee is subject to Tax-Related Items in more than one jurisdiction, Grantee acknowledges that the Company and/or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction. |
ii. | Prior to any relevant taxable or tax withholding event, as applicable, Grantee agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. |
4
Exhibit 10(iii)A(72)
iii. | In this regard, Grantee authorizes the Company, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: |
1. withholding from Grantee's wages or other cash compensation paid to Grantee by the Company and/or the Employer; or
2. withholding from proceeds of the sale of Shares acquired upon vesting/settlement of the RSU either through a voluntary sale or through a mandatory sale arranged by the Company (on Grantee’s behalf pursuant to this authorization); or
3. withholding in Shares to be issued upon settlement of the RSU, provided, that if Grantee is a Section 16 officer under the Exchange Act, then the Committee shall establish the method of withholding from alternatives (1)-(3) herein, and, if the Committee does not exercise its discretion prior to the Tax-Related Items withholding event, then Grantee shall be entitled to elect the method of withholding from the alternatives above.
iv. | Depending on the withholding method and subject to Section 17.2 of the Plan, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding rates or other applicable withholding rates, including maximum applicable rates, in which case Grantee will receive a refund of any over-withheld amount in cash and will have no entitlement to the Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Grantee is deemed to have been issued the full number of Shares subject to the vested RSUs, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items. |
v. | Finally, Grantee agrees to pay to the Company or the Employer, including through withholding from Grantee’s wages or other cash compensation paid to Grantee by the Company and/or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares, if Grantee fails to comply with Grantee’s obligations in connection with the Tax-Related Items. |
vi. | Notwithstanding anything in this Section 3(d) to the contrary, for U.S. taxpayer Grantees, to avoid a prohibited acceleration under Code Section 409A, if Shares subject to RSUs will be withheld (or sold on Grantee's behalf) to satisfy any-Tax Related Items arising prior to the date of settlement of the RSUs for any portion of the RSUs that is considered nonqualified deferred compensation subject to Code Section 409A, then the number of Shares withheld (or sold on Grantee's behalf) shall not exceed the number of Shares that equals the liability for Tax-Related Items. |
(e) | Data Privacy. |
Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Grantee’s personal data as described in this Agreement and any other RSU grant materials ("Data") by and among, as applicable, the Company and its other Subsidiaries and Affiliates for the exclusive purpose of implementing, administering and managing Grantee’s participation in the Plan.
Grantee understands that the Company may hold certain personal information about Grantee, including, but not limited to, Grantee’s name, home address, email address, telephone number,
5
Exhibit 10(iii)A(72)
date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any Shares of stock or directorships held in the Company, details of all RSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan.
Grantee understands that Data will be transferred to Bank of America Merrill Lynch (""Merrill Lynch"), or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Grantee understands that the recipients of the Data may be located in the U.S. or elsewhere, and that the recipients’ country (e.g., the U.S.) may have different data privacy laws and protections than Grantee’s country. Grantee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Grantee authorizes the Company, Merrill Lynch and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan. Grantee understands that Data will be held only as long as is necessary to implement, administer and manage Grantee’s participation in the Plan. Grantee understands he or she may, at any time, view Data, request information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, Grantee understands that he or she is providing the consents herein on a purely voluntary basis. If Grantee does not consent, or if Grantee later seeks to revoke his or her consent, his or her employment status will not be adversely affected; the only consequence of refusing or withdrawing Grantee’s consent is that the Company would not be able to grant RSUs or other equity awards to Grantee or administer or maintain such awards. Therefore, Grantee understands that refusing or withdrawing his or her consent may affect Grantee’s ability to participate in the Plan. For more information on the consequences of Grantee’s refusal to consent or withdrawal of consent, Grantee understands that he or she may contact his or her local human resources representative.
(f) | No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Grantee’s participation in the Plan, or Grantee’s acquisition or sale of the underlying Shares of Common Stock. Grantee should consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan. |
(g) | Governing Law and Venue. Except with respect to Exhibit C, the RSU grant and the provisions of this Agreement and the validity, interpretation, construction and performance of same shall be governed by, and subject to, the laws of the State of Delaware, without regard to its conflict of law provisions. Any and all disputes relating to, concerning or arising from this Agreement, or relating to, concerning or arising from the relationship between the parties evidenced by the RSUs or this Agreement, shall be brought and heard exclusively in the U.S. District Court for the District of Delaware or the Delaware Superior Court, New Castle County. Each of the parties hereby represents and agrees that such party is subject to the personal jurisdiction of said courts; hereby irrevocably consents to the jurisdiction of such courts in any legal or equitable proceedings related to, concerning or arising from such dispute, and waives, to the fullest extent permitted by law, any objection which such party may now or hereafter have that the laying of the venue of any legal or equitable proceedings related to, concerning or arising from such dispute which is brought in such courts is improper or that such proceedings have been brought in an inconvenient forum. |
6
Exhibit 10(iii)A(72)
(h) | Appendix. Notwithstanding any provisions in this Agreement, the RSU grant shall be subject to any special terms and conditions set forth in any Appendix to this Agreement for Grantee’s country. Moreover, if Grantee relocates to one of the countries included in the Appendix, the special terms and conditions for such country will apply to Grantee, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Agreement. |
(i) | Imposition of Other Requirements. The Company reserves the right to impose other requirements on Grantee’s participation in the Plan, on the RSUs and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. |
(j) | Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. |
(k) | Waiver. Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by Grantee. |
(l) | Language. If Grantee has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control. |
(m) | Pronouns; Including. Wherever appropriate in this Agreement, personal pronouns shall be deemed to include the other genders and the singular to include the plural. Wherever used in this Agreement, the term "including" means "including, without limitation." |
(n) | Successors in Interest. This Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns, whether by merger, consolidation, reorganization, sale of assets, or otherwise. This Agreement shall inure to the benefit of Grantee’s legal representatives. All obligations imposed upon Grantee and all rights granted to the Company under this Agreement shall be final, binding, and conclusive upon Grantee’s heirs, executors, administrators, and successors. |
(o) | Interpretation. The Committee shall have the sole and absolute authority with respect to the interpretation, construction, or application of this Agreement. Any determination made hereunder shall be final, binding, and conclusive on Grantee and the Company for all purposes. |
(p) | Integration. This Agreement, along with any Exhibit hereto, encompasses the entire agreement of the parties related to the subject matter of this Agreement, and supersedes all previous understandings and agreements between them, whether oral or written, except as otherwise described specifically in Exhibit C. The parties hereby acknowledge and represent, that they have not relied on any representation, assertion, guarantee, warranty, collateral contract or other assurance, except those set out in this Agreement, made by or on behalf of any other party or any other person or entity whatsoever, prior to the execution of this Agreement. |
(q) | Grantee Bound by the Plan. Grantee hereby acknowledges receipt of a copy of the Plan and the prospectus for the Plan, and agrees to be bound by all the terms and provisions thereof. |
(r) | Insider Trading/Market Abuse Restrictions. Depending on Grantee's country, Grantee may be subject to insider trading restriction and/or market abuse laws, which may affect Grantee's ability to acquire or sell Shares or rights to Shares (e.g., RSUs) under the Plan during such times as Grantee is considered to have "inside information" regarding the Company (as defined by the laws in Grantee's country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Grantee is |
7
Exhibit 10(iii)A(72)
responsible for ensuring Grantee's own compliance with any applicable restrictions and is advised to speak with his or her personal legal advisor on this matter.
(s) | Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or any third party designated by the Company. By Grantee’s electronic signature and the electronic signature of the Company's representative, Grantee and the Company agree that this RSU is granted under and governed by the terms and conditions of the Plan and this Agreement. |
EXHIBIT A
SPECIAL TERMS AND CONDITIONS FOR GRANTEES OUTSIDE THE U.S.
This Appendix includes additional country-specific terms and conditions that apply to Grantees residing in the countries listed below. This Appendix is part of the Agreement and contains terms and conditions material to participation in the Plan. Unless otherwise provided below, capitalized terms used but not defined herein shall have the same meanings assigned to them in the Plan and the Agreement.
The information is based on the securities and other laws in effect in the respective countries as of August 2016. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Grantee not rely on the information in this Appendix as the only source of information relating to the consequences of the Grantee’s participation in the Plan because the information may be out of date when the Grantee vests in the RSUs or Shares acquired under the Plan are sold.
In addition, the information contained herein is general in nature and may not apply to the Grantee’s particular situation, and the Company is not in a position to assure the Grantee of a particular result. Accordingly, the Grantee is advised to seek appropriate professional advice as to how the relevant laws in the Grantee’s country may apply to his or her situation.
Finally, if the Grantee is a citizen or resident of a country other than the one in which he or she is currently working or the Grantee transfers employment or residency after the Grant Date, or if the Grantee is considered resident of another country for local law purposes, then the provisions contained herein may not be applicable to the Grantee. The Company shall, in its sole discretion, determine to what extent the terms and conditions included herein will apply under these circumstances.
CANADA
Sale of Shares.
The Grantee acknowledges that he or she is permitted to sell the Shares acquired under the Plan through Bank of America Merrill Lynch or other such stock plan service provider as may be selected by the Company in the future, provided the sale of the Shares takes place outside of Canada through facilities of a stock exchange on which the Shares are listed. The Shares are currently listed on the New York Stock Exchange.
Consent to Receive Information in English for Quebec Employees.
The Grantee acknowledges that it is the express wish of the parties that this Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be written in English.
8
Exhibit 10(iii)A(72)
Le participant reconnaît que c'est son souhait exprès d'avoir exigé la rédaction en anglais de cette convention, ainsi que de tous documents exécutés, avis donnés et procédures judiciaries intentées, directement ou indirectement, relativement à ou suite à la présente convention.
Authorization to Release and Transfer Necessary Personal Information for Quebec Employees.
The following provision supplements Section 3(e) of the Agreement:
The Grantee hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information from all personnel, professional or not, involved in the administration and operation of the Plan. The Grantee further authorizes the Company, any Subsidiary or Affiliate to disclose and discuss the Plan with their advisors. The Grantee further authorizes the Company and any Subsidiary or Affiliate to record such information and to keep such information in the Grantee’s employee file.
Foreign Asset/Account Reporting Notice.
Canadian residents may be required to report foreign property on Form T1135 (Foreign Income Verification Statement) if the total cost of the foreign property exceeds C$100,000 at any time in the year. Foreign property includes Shares acquired under the Plan and may include the RSUs, and their cost generally is the adjusted cost base (“ACB”) of the Shares. The ACB ordinarily would equal the fair market value of the Shares at the time of acquisition, but if the Canadian resident owns other Shares, this ACB may have to be leveraged with the ACB of the other Shares. The Form T1135 generally must be filed by April 30 of the following year. Canadian residents should consult with a personal advisor to ensure compliance with the applicable reporting requirements.
Acknowledgement and Direction for Certain Employees in Canada.
The Grantee acknowledges that: (1) Grantee has received this Award under the terms of the Plan; (2) upon the vesting of the Award under the Plan, shares purchased on the open market will be delivered to the Grantee; and (3) a remittance of cash in satisfaction of withholding requirements under the Canadian Income Tax Act will be made so that only a net number of shares, less the amount necessary to cover the tax withholding, will be delivered to the Grantee upon the vesting of the Award. The Grantee directs that (1) the Company engage the services of a broker licensed to transact in its shares (the "Broker") and that it do so as Grantee’s agent and on Grantee’s behalf for the express purpose of acquiring and delivering to the Grantee shares that have vested under the Award pursuant to this authorization; and (2) the Company provide whatever instructions are necessary to the Broker in order to ensure that shares are delivered to Grantee’s account maintained by Merrill Lynch in connection with the operation of the Plan.
FRANCE
Consent to Receive Information in English.
By accepting the grant of the RSUs, the Grantee confirms having read and understood the Plan and the Agreement, which were provided in English language. The Grantee accepts the terms of those documents accordingly.
9
Exhibit 10(iii)A(72)
En acceptant cette attribution gratuite d’actions, le Participant confirme avoir lu et compris le Plan et ce Contrat, incluant tous leurs termes et conditions, qui ont été transmis en langue anglaise. Le Participant accepte les dispositions de ces documents en connaissance de cause.
Foreign Asset/Account Reporting Notice.
French residents may hold Shares outside France, provided that they declare all foreign accounts, whether open, current or closed, on their annual income tax return. Failure to comply could trigger significant penalties.
MEXICO
Terms and Conditions
Labor Law Policy and Acknowledgment. By participating in the Plan, Grantee expressly recognizes that Acuity Brands Inc., with registered offices at 1170 Peachtree Street, NE Suite 2300, Atlanta, GA 30309, U.S., is solely responsible for the administration of the Plan and that Grantee’s participation in the Plan and acquisition of Shares does not constitute a relationship as an Employee with the Company since Grantee is participating in the Plan on a wholly commercial basis and the sole Employer is a Subsidiary or Affiliate of the Company (“Acuity-Mexico”). Based on the foregoing, Grantee expressly recognizes that the Plan and the benefits that he may derive from participation in the Plan do not establish any rights between Grantee and the Employer, Acuity-Mexico, and do not form part of the employment conditions and/or benefits provided by Acuity-Mexico and any modification of the Plan or its termination shall not constitute a change or impairment of the terms and conditions of Grantee’s relationship as an Employee.
Grantee further understands that Grantee’s participation in the Plan is as a result of a unilateral and discretionary decision of the Company. Therefore, the Company reserves the absolute right to amend and/or discontinue Grantee’s participation at any time without any liability to Grantee.
Finally, Grantee hereby declares that Grantee does not reserve to himself or herself any action or right to bring any claim against the Company for any compensation or damages regarding any provision of the Plan or the benefits derived under the Plan, and Grantee therefore grants a full and broad release to the Company, the Employer, its Subsidiaries and Affiliates, branches, representation offices, its shareholders, officers, agents or legal representatives with respect to any claim that may arise.
Política de Ley Laboral y Reconocimiento. Participando en el Plan, el Participante reconoce expresamente que Acuity Brands Inc., con oficinas registradas en 170 Peachtree Street, NE Suite 2300, Atlanta, GA 30309, U.S., es el único responsable de la administración del Plan y que la participación del Participante en el mismo y la compra de acciones bursátiles no constituye de ninguna manera una relación laboral entre Usted y la Compañía dado que su participación en el Plan deriva únicamente de una relación comercial y que su único empleador es una Subsidiaria o Afiliada del la Compañía (“Acuity-Mexico”). Derivado de lo anterior, el Participante expresamente reconoce que el Plan y los beneficios que pudieran derivar del mismo no establecen ningún derecho entre el Participante y el empleador, Acuity-Mexico, y no forman parte de las condiciones laborales y/o prestaciones otorgadas por Acuity-Mexico, y cualquier modificación al Plan o la terminación del mismo no podrá ser interpretada como una modificación o degradación de los términos y condiciones de su trabajo.
10
Exhibit 10(iii)A(72)
Asimismo, el Participante entiende que su participación en el Plan es resultado de la decisión unilateral y discrecional de la Compañía. Por lo tanto, la Compañía se reserva el derecho absoluto para modificar y/o terminar la participación del Participante en cualquier momento, sin ninguna responsabilidad ante el Participante.
Finalmente, el Participante manifiesta que no se reserva ninguna acción o derecho que origine una demanda en contra de la Compañía por cualquier compensación o daño en relación con cualquier disposición del Plan o de los beneficios derivados del mismo, y en consecuencia el Participante otorga un amplio y total finiquito a la Compañía, el Empleador, sus Subsidiarias y Afiliadas, sucursales, oficinas de representación, sus accionistas, directores, agentes y representantes legales con respecto a cualquier demanda que pudiera surgir.
NETHERLANDS
No special provisions.
SPAIN
No Entitlement for Claims or Compensation.
The following provisions supplement Section 3(a) and Section 3(c) of the Agreement:
The Grantee understands and agrees that, as a condition of the grant of the RSUs, the termination of the Grantee’s status as an Employee prior to the Vesting Date will automatically result in the loss of the unvested RSUs that may have been granted to the Grantee, except in the event of the Employee's death or Disability. In particular, the Grantee understands and agrees that any unvested RSUs shall be forfeited without entitlement to the underlying Shares or to any amount as indemnification in the event of a termination of status as an Employee, including, but not limited to: resignation, disciplinary dismissal adjudged to be with cause, disciplinary dismissal adjudged or recognized to be without good cause (i.e., subject to a “despido improcedente”), individual or collective layoff on objective grounds, whether adjudged to be with cause or adjudged or recognized to be without cause, material modification of the terms of employment under Article 41 of the Workers’ Statute, relocation under Article 40 of the Workers’ Statute, Article 50 of the Workers’ Statute, unilateral withdrawal by the Employer, and under Article 10.3 of Royal Decree 1382/1985.
The Grantee understands that the Company has unilaterally, gratuitously and in its sole discretion decided to grant RSUs under the Plan to individuals who may be Employees or Directors throughout the world. The decision is limited and entered into based upon the express assumption and condition that any RSUs will not economically or otherwise bind the Company or any Subsidiary or Affiliate, including the Employer, on an ongoing basis, other than as expressly set forth in the Agreement. Consequently, the Grantee understands that the RSUs are granted on the assumption and condition that the RSUs shall not become part of any employment contract (whether with the Company or any Subsidiary or Affiliate, including the Employer) and shall not be considered a mandatory benefit, salary for any purpose (including severance compensation) or any other right whatsoever. Furthermore, the Grantee understands and freely accepts that there is no guarantee that any benefit whatsoever shall arise from the grant of RSUs, which is gratuitous and discretionary, since the future value of the RSUs and the underlying Shares is unknown and unpredictable. The Grantee also understands that the grant of RSUs would not be made but for the assumptions and conditions set forth hereinabove; thus, the Grantee understands, acknowledges and freely accepts that, should any or all of the assumptions be mistaken or any of the conditions not be met for any reason, the RSUs and any right to the underlying Shares shall be null and void.
11
Exhibit 10(iii)A(72)
Securities Law Notice.
No “offer of securities to the public,” as defined under Spanish law, has taken place or will take place in the Spanish territory in connection with the grant of RSUs. The Agreement, the Appendix and the Plan have not been registered with the Comisión Nacional del Mercado de Valores (Spanish Securities Exchange Commission) and do not constitute a public offering prospectus.
Exchange Control Notice.
Spanish taxpayers must declare the acquisition, ownership and disposition of Shares in a foreign company (including Shares acquired under the Plan) to the Spanish Dirección General de Comercio e Inversiones (the “DGCI”), which is a department of the Ministry of Economy and Competitiveness. Generally, the declaration must be filed in January for Shares acquired or disposed of during the prior year and/or for Shares owned as of December 31 of the prior year; however, if the value of the Shares acquired under the Plan and/or the amount of the sale proceeds exceeds €1,502,530, the declaration must be filed within one month of the acquisition or disposition, as applicable.
In addition, Spanish taxpayers may be required to declare electronically to the Bank of Spain any foreign accounts (including brokerage accounts held abroad), any foreign instruments (including any Shares acquired under the Plan) and any transactions with non-Spanish residents (including any payments of Shares made by the Company) depending on the value of such accounts and instruments and the amount of the transactions during the relevant year as of December 31 of the relevant year. This reporting requirement will apply if the balances in such accounts together with the value of such instruments as of December 31, or the volume of transactions with non-Spanish residents during the prior or current year, exceed €1,000,000. Once the €1,000,000 threshold has been surpassed in either respect, a report is required on all foreign accounts, foreign instruments and transactions with non-Spanish residents, even if the relevant threshold has not been crossed for an individual item. Generally, the report is required on an annual basis (by January 20 of each year); however, if the balances in Grantee 's foreign accounts together with value of foreign instruments or the volume of transactions with non-Spanish residents exceed €100,000,000, more frequent reporting will be required.
Foreign Asset/Account Reporting Notice.
Spanish residents are required to report rights or assets deposited or held outside of Spain (including Shares acquired under the Plan or cash proceeds from the sale of such Shares or Dividend Equivalent payments) as of December 31 of each year, if the value of such rights or assets exceeds €50,000 per type of right or asset. After such rights and/or assets are initially reported, the reporting obligation will only apply for subsequent years if the value of any previously-reported rights or assets increases by more than €20,000. If reporting is required, the report must be filed on form 720 by March 31 following the end of the relevant year.
UNITED KINGDOM
Form of Settlement.
RSUs granted to Employee residents in the United Kingdom ("U.K.") shall be paid in Shares only.
Tax Withholding Obligations.
The following supplements Section 3(d) of the Agreement:
12
Exhibit 10(iii)A(72)
The Grantee shall pay to the Company or the Employer any amount of income tax that the Company or the Employer may be required to account to HM Revenue and Customs ("HMRC") with respect to the event giving rise to the income tax (the “Taxable Event”) that cannot be satisfied by the means described in Section 3(d) of the Agreement. If payment or withholding of the income tax due is not made within ninety (90) days of the end of the U.K. tax year (April 6 - April 5) in which the Taxable Event occurs or such other period as required under U.K. law (the “Due Date”), the Grantee agrees that the amount of any uncollected income tax shall constitute a loan owed by the Grantee to the Employer, effective on the Due Date. The Grantee agrees that the loan will bear interest at the then-current HMRC Official Rate, it will be immediately due and repayable, and the Company or the Employer may recover it at any time thereafter by any of the means referred to in Section 3(d) of the Agreement. If the Grantee fails to comply with his or her obligations in connection with the income tax as described in this section, the Company may refuse to deliver the Shares acquired under the Plan.
Notwithstanding the foregoing, if the Grantee is a director or executive officer of the Company (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934), the Grantee shall not be eligible for a loan from the Company to cover income tax. In the event that the Grantee is a director or executive officer and income tax is not collected from or paid by the Grantee by the Due Date, the amount of any uncollected income tax may constitute a benefit to the Grantee on which additional income tax and National Insurance Contributions ("NICs") may be payable. The Grantee will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime, and for reimbursing the Company or the Employer (as appropriate) for the value of any employee NICs due on this additional benefit which the Company or the Employer may recover from the Grantee any time thereafter by any of the means referred to in Section 3(d) of the Agreement.
13
Exhibit 10(iii)A(72)
EXHIBIT B
SHARE OWNERSHIP AND RETENTION REQUIREMENT
It is the Company's belief and expectation that executives should own a reasonable amount of Company stock to further align their interests with those of our shareholders. Accordingly, you are expected to adhere to share ownership and share retention requirements in connection with awards under the Plan.
The share ownership requirement is stated as a multiple of your base salary and mandates that you own a an amount of shares with a value equal to the applicable multiple of your base salary. The share retention requirement is stated as a percentage of shares acquired under the Plan that must be retained, net of the cost of exercising shares and/or the taxes associated with the shares. You have until four years from first becoming subject to the requirements to satisfy your share ownership requirement. However, if you do not currently satisfy the share ownership requirement, you are subject to the share retention requirement.
Your share ownership and retention requirements are set forth below based on the Grantee Level stated on the first page of this Agreement.
Grantee Level | Ownership Multiple of Annual Base Salary | Retention Requirement Percentage |
0 | 4 | 50% |
1 | 3 | 40% |
2 | 2 | 35% |
3 | 1 | 30% |
4 or 5 | 0.5 | 20% |
6 or 7 | 0 | 0 |
Your ownership multiple is multiplied by your annual base salary and your share retention requirement is the percent of net shares acquired through the Plan (exercise of stock options or receipt of Shares). Your RSUs count toward satisfying your share ownership requirement beginning at the Grant Date.
14
Exhibit 10(iii)A(72)
EXHIBIT C
CONFIDENTIALITY, INVENTIONS, NON-SOLICITATION
AND NON-COMPETITION PROVISIONS
1. | Definitions. |
(a) | “Confidential Information” “Confidential Information” means the following: |
i. | data and information relating to the Company’s Business (as defined herein); which is disclosed to Grantee or of which Grantee became aware of as a consequence of Grantee's relationship with the Company; has value to the Company; is not generally known to the competitors of the Company; and which includes trade secrets, methods of operation, names of customers, price lists, financial information and projections, route books, personnel data, and similar information. For purposes of the Confidentiality, Inventions, Non-Solicitation and Non-Competition Provisions (the "Confidentiality Provisions"), subject to the foregoing, and according to terminology commonly used by the Company, the Company’s Confidential Information shall include, but not be limited to, information pertaining to: (1) business opportunities; (2) data and compilations of data relating to the Company’s Business; (3) compilations of information about, and communications and agreements with, customers and potential customers of the Company; (4) computer software, hardware, network and internet technology utilized, modified or enhanced by the Company or by Grantee in furtherance of Grantee’s duties with the Company; (5) compilations of data concerning Company products, services, customers, and end users including but not limited to compilations concerning projected sales, new project timelines, inventory reports, sales, and cost and expense reports; (6) compilations of information about the Company’s employees and independent contracting consultants; (7) the Company’s financial information, including, without limitation, amounts charged to customers and amounts charged to the Company by its vendors, suppliers, and service providers; (8) proposals submitted to the Company’s customers, potential customers, wholesalers, distributors, vendors, suppliers and service providers; (9) the Company’s marketing strategies and compilations of marketing data; (10) compilations of data or information concerning, and communications and agreements with, vendors, suppliers and licensors to the Company and other sources of technology, products, services or components used in the Company’s Business; (11) any information concerning services requested and services performed on behalf of customers of the Company, including planned products or services; and (12) the Company’s research and development records and data. Confidential Information also includes any summary, extract or analysis of such information together with information that has been received or disclosed to the Company by any third party as to which the Company has an obligation to treat as confidential. |
ii. | Confidential Information shall not include: |
(A) Information generally available to the public other than as a result of improper disclosure by Grantee;
(B) Information that becomes available to Grantee from a source other than the Company (provided Grantee has no knowledge that such information was obtained from a source in breach of a duty to the Company);
(C) Information disclosed pursuant to law, regulations or pursuant to a subpoena, court order or legal process; and/or
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(D) Information obtained in filings with the Securities and Exchange Commission.
(b) | “Trade Secrets” has the meaning set forth under Georgia law, O.C.G.A. §§ 10-1-760, et seq. |
(c) | “Customers” means those entities and/or individuals which, within the two-year period preceding the Date of Termination (as that term is defined in Restricted Stock Unit Agreement): (i) Grantee had material contact on behalf of the Company; (ii) about whom Grantee acquired, directly or indirectly, Confidential Information or Trade Secrets as a result of his/her employment with the Company; and/or (iii) Grantee exercised oversight or responsibility of subordinates who engaged in Material Contact on behalf of the Company. Additionally, "Customers" references only those entities and/or individuals with whom the Company currently has a business relationship, or with whom it expended resources to have or resume the same during the two-year period referenced herein. |
(d) | "Company" means Acuity Brands, Inc., along with its Subsidiaries or other Affiliates. |
(e) | “Company’s Business” means the design, manufacture, installation, servicing, and/or sale of one or more of the following and any related products and/or services: lighting fixtures and systems; lighting control components and systems (including but not limited to dimmers, switches, relays, programmable lighting controllers, sensors, timers, and range extenders for lighting and energy management and other purposes); building management and/or control systems; commercial building lighting controls; intelligent building automation and energy management technologies, products, software and solutions with respect to HVAC systems and HVAC controls and sensors; motorized shading and blind controls; building security and access control and monitoring for fire and life safety; emergency lighting fixtures and systems (including but not limited to exit signs, emergency light units, inverters, back-up power battery packs, and combinations thereof); battery powered and/or photovoltaic lighting fixtures; electric lighting track units; hardware for mounting and hanging electrical lighting fixtures; aluminum, steel and fiberglass fixture poles for electric lighting; light fixture lenses; sound and electromagnetic wave receivers and transmitters; flexible and modular wiring systems and components (namely, flexible branch circuits, attachment plugs, receptacles, connectors and fittings); LED drivers and other power supplies; daylighting systems including but not limited to prismatic skylighting and related controls; organic LED products and technology; medical and patient care lighting devices and systems; indoor positioning products and technology; sensor based information networks; and any wired or wireless communications and monitoring hardware or software related to any of the above. This shall not include any product or service of the Company if the Company is no longer in the business of providing such product or service to its customers at the relevant time of enforcement. |
(f) | “Employee Services” shall mean the duties and services of the type conducted, authorized, offered, or provided by Grantee in his/her capacity as an Employee on behalf of the Company within twelve (12) months prior to the Date of Termination. |
(g) | “Territory” means the country in which Grantee is employed by the Company (the "Country"). Grantee acknowledges that the Company is licensed to do business in the Country and in fact does business in all states, territories, provinces and other parts of the Country. Grantee further acknowledges that the services she/he has performed on behalf of the Company are at a senior level and are not limited in their territorial scope to any particular city, state, or region, but instead affect the Company's activity within the Country. Specifically, Grantee provides Employee Services on the Company's behalf throughout the Country, meets with Company agents and distributors, develops products and/or contacts throughout the Country, and otherwise engages in his/her work on behalf of the Company on a national level. Accordingly, Grantee agrees that these restrictions are reasonable and necessary to protect the Confidential Information, trade secrets, business relationships, and goodwill of the Company. |
(h) | “Material Contact” shall have the meaning set forth in O.C.G.A. § 13-8-51(10), which includes contact between an employee and each Customer or potential Customer: with whom or which Grantee dealt on behalf of the Company; whose dealings with the Company were coordinated or supervised by Grantee; about whom Grantee obtained confidential information in the ordinary course of business |
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Exhibit 10(iii)A(72)
as a result of such employee's association with the Company; and/or who receives products or services authorized by the Company, the sale or provision of which results or resulted in compensation, commissions, or earnings for Grantee within two years prior to the date of the Date of Termination.
(i) | “Termination for Cause” or “Terminated for Cause” shall mean the involuntary termination of Grantee by the Company for the following reasons: |
i. | If termination shall have been the result of an act or acts by Grantee which constitute an indictable offense, a felony or any crime involving dishonesty, theft, fraud or moral turpitude; |
ii. | If termination shall have been the result of an act or acts by Grantee which are determined, in the good faith judgment of the Company, to be in violation of written policies of the Company; |
iii. | If termination shall have been the result of an act or acts of dishonesty by Grantee resulting or intended to result directly or indirectly in gain or personal enrichment to Grantee at the expense of the Company; |
iv. | Upon the willful and continued failure by Grantee to substantially perform the duties assigned to Grantee (other than any such failure resulting from incapacity due to mental or physical illness constituting a Disability), after a demand in writing for substantial performance of such duties is delivered by the Company, which demand specifically identifies the manner in which the Company believes that Grantee has not substantially performed his or her duties; or |
v. | If termination shall have been the result of the unauthorized disclosure by Grantee of the Company's Confidential Information or violation of any other provision of the Confidentiality Provisions. |
(j) | “Inventions” and “Works For Hire.” The term “Invention” means contributions, discoveries, improvements and ideas and works of authorship, whether or not patentable or copyrightable, and: (i) which relate directly to the business of the Company, or (ii) which result from any work performed by Grantee or by Grantee’s fellow employees for the Company, or (iii) for which equipment, supplies, facilities, Confidential Information or Trade Secrets of the Company are used, or (iv) which is developed on the Company’s time. The term “Works For Hire” (“Works”) means all documents, programs, software, creative works and other expressions and information in any tangible medium created, in whole or in part, by Grantee during the period of and relating to his/her employment with the Company, whether copyrightable or otherwise protectable, other than Inventions. |
2. | Confidentiality, Inventions, Non-Solicitation and Non-Competition. |
(a) | Purpose and Reasonableness of Provisions. Grantee acknowledges that, during the term of his/her employment with the Company and after the Date of Termination, the Company has furnished and may continue to furnish to Grantee Trade Secrets and Confidential Information, which, if used by Grantee on behalf of, or disclosed to, a competitor of the Company or other person, could cause substantial detriment to the Company. Moreover, the parties recognize that Grantee, during the term of his/her employment with the Company, has developed important relationships with customers, agents, and others having valuable business relationships with the Company, and that these relationships may continue to develop after the Date of Termination. In view of the foregoing, Grantee acknowledges and agrees that the restrictive covenants contained in this Section 2 are reasonably necessary to protect the Company's legitimate business interests, Confidential Information, and good will. |
(b) | Trade Secrets and Confidential Information. Grantee agrees that he/she shall protect the Company's Trade Secrets (as defined in Section 1(b) above) and Confidential Information (as defined |
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Exhibit 10(iii)A(72)
in Section 1(a) above) and shall not disclose to any person or entity, or otherwise use or disseminate, except in connection with the performance of his/her duties for the Company, any Trade Secrets or Confidential Information. However, Grantee may make disclosures required by a valid order or subpoena issued by a court or administrative agency of competent jurisdiction, in which event Grantee will promptly notify the Company of such order or subpoena to provide it an opportunity to protect its interests. Grantee’s obligations under this Section 2(b) have applied throughout his/her active employment, shall continue after the Date of Termination, and shall survive any expiration or termination of the Confidentiality Provisions, so long as the information or material remains Confidential Information or a Trade Secret, as applicable.
Grantee further confirms that during his/her employment with the Company, including after the Date of Termination, he/she has not and will not offer, disclose or use on Grantee’s own behalf or on behalf of the Company, any information Grantee received prior to employment by the Company which was supplied to Grantee confidentially or which Grantee should reasonably know to be confidential.
Nothing in this section prohibits Grantee from reporting possible violations of law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of law or regulation. Grantee does not need the prior authorization of the Company to make any such reports or disclosures, and Grantee is not required to notify the Company that Grantee has made such reports or disclosures.
(c) | Return of Property. On or before the Date of Termination, Grantee agrees to deliver promptly to the Company all files, customer lists, management reports, memoranda, research, Company forms, financial data and reports and other documents (including all such data and documents in electronic form) of the Company, supplied to or created by him/her in connection with his/her employment hereunder (including all copies of the foregoing) in his/her possession or control, and all of the Company’s equipment and other materials in his/her possession or control. Grantee further agrees and covenants not to retain any such property and to permanently delete such information residing in electronic format to the best of his/her ability and not to attempt to retrieve it. Grantee’s obligations under this Section 2(c) shall survive any expiration or termination of the Confidentiality Provisions. |
(d) | Inventions. Grantee does hereby assign to the Company the entire right, title and interest in any Invention which is or was made or conceived, either solely or jointly with others, during his/her employment with the Company, including after the Date of Termination. Grantee attests that he/she has disclosed (or promptly will disclose, if after the Date of Termination) to the Company all such Inventions. Grantee will, if requested, promptly execute and deliver to the Company a specific assignment of title for any such Invention and will at the expense of the Company, take all reasonably required action by the Company to patent, copyright or otherwise protect the Invention. |
(e) | Non-Competition. In the event that Grantee, |
i. | voluntarily resigns from the Company, |
ii. | is Terminated for Cause (as defined above), or |
iii. | declines to sign a Confidential Severance Agreement and Release offered by the Company in the event of a termination for any reason other than a Termination for Cause (including, for example, as a result of a position elimination). |
Grantee acknowledges and agrees that during his/her employment, and for twelve (12) months after the Date of Termination, he/she has not and will not, directly or indirectly, engage in, provide, or perform any Employee Services on behalf of any person or entity (or, if organized into divisions or units, any distinct division or operating unit) in the Territory that derives revenue from providing
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Exhibit 10(iii)A(72)
goods or services substantially similar to those which comprise the Company’s Business. Notwithstanding the foregoing, if the Company terminates Grantee’s employment for any reason other than a Termination for Cause (including, for example, as a result of a position elimination), and Grantee signs a Confidential Severance Agreement and Release offered by the Company, the period covered by this non-competition covenant will be reduced to either: (i) the time within which severance payments are scheduled to be paid to Grantee under such agreement, or (ii) if severance is paid to Grantee in a lump sum, the number of weeks of Grantee’s then-current regular salary that are used to calculate such lump sum payment; provided, however, that the restrictive period calculated hereunder shall not, in any event, exceed twelve (12) months following the Date of Termination.
(f) | Non-Solicitation of Customers. Grantee acknowledges and agrees that during his/her employment, and for twenty-four (24) months after the Date of Termination, Grantee has not and will not directly or indirectly solicit Customers (as defined in Paragraph 1(c) above) with whom he/she had Material Contact (as defined in 1(g) above) for the purpose of providing goods and/or services competitive with the Company’s Business. |
(g) | Non-Solicitation of Employees and Agents. Grantee acknowledges and agrees that during his/her employment, and for a period of twenty-four (24) months after the Date of Termination, Grantee has not and will not, directly or indirectly, whether on behalf of the Grantee or others, solicit, lure or attempt to hire away any of the Company's employees or agents. |
(h) | Non-Solicitation of Sales Agents. Grantee acknowledges and agrees that during his/her employment, and for a period of twenty-four (24) months after the Date of Termination, Grantee has not and will not, directly or indirectly, whether on behalf of the Grantee or others, solicit any of the Company's Sales Agents for the purpose of disrupting their relationship with the Company and/or selling and/or facilitating the sale of products competitive with the Company's Business. For purposes of this Section 2, a ‘Sales Agent” is any third-party agency, and/or its representatives, with which or whom the Company has contracted for the purpose of facilitating the sale of the Company's products during the last twenty-four (24) months of Grantee’s employment with the Company. |
(i) | Injunctive Relief. Grantee acknowledges that if he/she breaches or threatens to breach any of the provisions of this Section 2, his/her actions may cause irreparable harm and damage to the Company which could not be compensated in damages. Accordingly, if Grantee breaches or threatens to breach any of the provisions of this Section 2, the Company shall be entitled to seek injunctive relief, in addition to any other rights or remedies the Company may have. The existence of any claim or cause of action by Grantee against the Company, whether predicated on the Confidentiality Provisions or otherwise, shall not constitute a defense to the enforcement by the Company of Grantee’s agreements under this Section 2. |
3. | Contract Non-Assignable by Grantee. The parties acknowledge that the Confidentiality Provisions have been entered into due to, among other things, the special skills and knowledge of Grantee, and agree that the Confidentiality Provisions may not be assigned or transferred by Grantee. |
4. | Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or seven days after mailing if mailed first class, certified mail, postage prepaid, addressed as follows: |
If to the Company: Acuity Brands, Inc., Attention: Corporate Secretary 1170 Peachtree Street, NE Suite 2300 Atlanta, Georgia 30309-7676
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Exhibit 10(iii)A(72)
If to Grantee: To his or her last known address on file with the Company.
Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein.
5. | Provisions Severable. If any provision or covenant, or any part thereof, contained in the Confidentiality Provisions is held by any court to be invalid, illegal, or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, in the Confidentiality Provisions, all of which shall remain in full force and effect. Each and every provision, paragraph and subparagraph of Section 2 above is severable from the other provisions, paragraphs and subparagraphs and constitutes a separate and distinct covenant. |
The restrictive covenants set forth in Section 2 of the Confidentiality Provisions represent the entire agreement of the parties with respect to the subject matter thereof and supersede any prior agreement with respect thereto; provided, however, that the restrictive covenants described in this Exhibit C shall not supersede those set forth in either: (a) any Executive Severance Agreement applicable to Grantee, if any, (b) any Confidentiality, Inventions and Non-Solicitation Agreement to which Grantee is a party, if any, or (c) any restrictive covenants to which Grantee is a party under any employment agreement or offer letter, if any. To the extent that any agreement applicable to Grantee include restrictive covenant provisions that conflict with the provisions contained in these Confidentiality Provisions, the provisions that are more restrictive on Grantee will control.
6. | Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of the Confidentiality Provisions shall not be deemed a waiver or relinquishment of any right granted in the Confidentiality Provisions or the future performance of any such term or condition or of any other term or condition of the Confidentiality Provisions, unless such waiver is contained in a writing signed by the party making the waiver. |
7. | Amendments and Modifications. The Confidentiality Provisions and any Exhibit hereto may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to the Confidentiality Provisions. However, this Section does not affect a court of competent jurisdiction or arbitrator`s ability to modify the Confidentiality Provisions, pursuant to O.C.G.A. §§ 13-8-51(11); 53(d); or 54 in the event that either party initiates legal proceedings that relate in any way to this Confidentiality Provisions, including any action brought by either party seeking to enforce any provision set forth herein. |
8. | Governing Law and Venue. The validity and effect of the Confidentiality Provisions shall be governed by and construed and enforced in accordance with the laws of the State of Georgia, United States of America, without regard to its conflict of law provisions. Any and all disputes relating to, concerning or arising from the Confidentiality Provisions, or relating to, concerning or arising from the relationship between the parties evidenced by the Confidentiality Provisions, shall be brought and heard exclusively in the U.S. District Court for the District of Delaware or the Delaware Superior Court, New Castle County. Each of the parties hereby represents and agrees that such party is subject to the personal jurisdiction of said courts; hereby irrevocably consents to the jurisdiction of such courts in any legal or equitable proceedings related to, concerning or arising from such dispute, and waives, to the fullest extent permitted by law, any objection which such party may now or hereafter have that the laying of the venue of any legal or equitable proceedings related to, concerning or arising from such dispute which |
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Exhibit 10(iii)A(72)
is brought in such courts is improper or that such proceedings have been brought in an inconvenient forum.
9. | Legal Fees. Each party shall pay its own legal fees and other expenses associated with any dispute under the Confidentiality Provisions or any Exhibit hereto. |
10. | Tender Back Provision. If, in the context of a lawsuit involving Grantee or any other person or entity arguing on Grantee’s behalf, any court determines that any provisions of Section 2 are void, invalid, illegal, or otherwise unenforceable, Grantee shall be required to immediately return to the Company 70% of all monies paid out under Paragraph 2 of the Restricted Stock Unit Agreement, or to return 70% of any unsold shares the Grantee still owns of such RSUs awarded under Paragraph 2 of the Restricted Stock Unit Agreement. For purposes of this section, the amount to be paid back shall be determined by ascertaining the value and amount the share(s) sold for at the time that the Grantee actually sold such share(s). You acknowledge and agree that this covenant does not constitute a penalty clause. |
11. | Tolling Period. If Grantee is found by a court to have violated any restriction in Section 2 of the Confidentiality Provisions, he/she agrees that the time period for such restriction shall be extended by one day for each day that he/she is found to have violated the restriction, up to a maximum of 18 months. |
12. | Language. The parties acknowledge that they have requested and are satisfied that the Confidentiality Provisions and all related documents be in the English language. |
SPECIAL TERMS AND CONDITIONS EXHIBIT TO THE CONFIDENTIALITY, INVENTIONS, NON-SOLICITATION AND NON COMPETITION PROVISIONS FOR GRANTEES OUTSIDE THE U.S.
This Appendix includes additional country-specific terms and conditions that apply to Grantees in the countries listed below with respect to the Confidentiality, Inventions, Non-Solicitation and Non-Competition Provisions (the "Confidentiality Provisions"). This Appendix is part of the Confidentiality Provisions and contains terms and conditions material to the Grantee's rights and obligations under the Confidentiality Provisions. Unless otherwise provided below, capitalized terms used but not defined herein shall have the same meanings assigned to them in the Plan and the Confidentiality Provisions.
CANADA
The following provision replaces Section 1(b) of the Confidentiality Provisions:
“Trade Secrets” means technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers which is not commonly known by or available to the public and which information: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
The following provision replaces Section 1(h) of the Confidentiality Provisions:
“Material Contact” means contact between an employee and each Customer or potential Customer: with whom or which Grantee dealt on behalf of the Company; whose dealings with the Company were
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Exhibit 10(iii)A(72)
coordinated or supervised by Grantee; about whom Grantee obtained confidential information in the ordinary course of business as a result of such employee's association with the Company; and/or who receives products or services authorized by the Company, the sale or provision of which results or resulted in compensation, commissions, or earnings for Grantee within two years prior to the date of the Date of Termination..
The following provision shall be added to Section 1(i) as sub-section (vi):
"or (vi) Any other act or omission, or a series of acts or omissions, of the Grantee which, pursuant to applicable law, constitutes a serious reason for termination of employment without notice, payment in lieu of notice or any indemnity whatsoever."
The following provision replaces Section 2(d) of the Confidentiality Provisions:
Inventions. Grantee does hereby assign to the Company the entire right, title and interest in any Invention which is or was made or conceived, either solely or jointly with others, and does hereby waive any and all other rights that are non-assignable, including common law rights, but not limited to moral rights in all Inventions or any non-economic rights, during his/her employment with the Company, including after the Date of Termination. Grantee attests that he/she has disclosed (or promptly will disclose, if after the Date of Termination) to the Company all such Inventions. Grantee will, if requested, promptly execute and deliver to the Company a specific assignment of title for any such Invention and will at the expense of the Company, take all reasonably required action by the Company to patent, copyright or otherwise protect the Invention.
The following provision replaces Section 7 of the Confidentiality Provisions:
Amendments and Modifications. The Confidentiality Provisions and any Exhibit hereto may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to the Confidentiality Provisions. However, this Section does not affect a court of competent jurisdiction or arbitrator's ability to modify the Confidentiality Provisions, as the case may be, in the event that either party initiates legal proceedings that relate in any way to the Confidentiality Provisions, including any action brought by either party seeking to enforce any provision set forth herein.
The following provision replaces Section 12 of the Confidentiality Provisions:
Language. The parties acknowledge that they have requested and are satisfied that the Confidentiality Provisions and all related documents be drawn up in the English language. Les parties aux présentes reconnaissent avoir requis que la présente entente et les documents qui y sont relatifs soient rédigés en anglais.
FRANCE
For the purpose of the provisions hereafter, the Company means the local entity in France by whom Grantee is employed.
The following provision replaces Section 1(b) of the Confidentiality Provisions:
"Trade Secrets" means technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list
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Exhibit 10(iii)A(72)
of actual or potential customers or suppliers which is not commonly known by or available to the public and which information: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
The following provision replaces Section 1(g) of the Confidentiality Provisions:
"Territory" means the location in which the non-competition restriction will apply, hereby defined as the region(s) in France in which the Grantee worked. Grantee acknowledges that the Company is licensed to do business in the Territory. Accordingly, Grantee agrees that these restrictions are reasonable and necessary to protect the Confidential Information, trade secrets, business relationships, and goodwill of the Company.
The following provision replaces Section 1(h) of the Confidentiality Provisions:
"Material Contact" means contact between an employee and each Customer or potential Customer: with whom or which Grantee dealt on behalf of the Company; whose dealings with the Company were coordinated or supervised by Grantee; about whom Grantee obtained confidential information in the ordinary course of business as a result of such employee's association with the Company; and/or who receives products or services authorized by the Company, the sale or provision of which results or resulted in compensation, commissions, or earnings for Grantee within two years prior to the date of the Date of Termination.
Section 1(i) of the Confidentiality Provisions is deleted.
Section 1(j) of the Confidentiality Provisions is deleted.
The following provision replaces Section 2(d) of the Confidentiality Provisions:
Inventions. Grantee will make full and prompt disclosure to the Company of all inventions, discoveries, designs, designations, developments, software, drawings, logos, sketches, models, articles, studies, reports, methods, modifications, improvements, processes, algorithms, databases, computer programs, formulae, techniques, trade secrets, graphics or images, and audio or visual works and other works of authorship (collectively “Developments”), whether or not patentable or copyrightable, that are created, made, conceived or reduced to practice by Grantee (alone or jointly with others) or under his/her direction in the course of Grantee's employment. Grantee acknowledges and agree that, to the fullest extent permitted by law, (i) all Developments shall automatically belong to, and shall be the sole property of the Company and that (ii) to the extent that any Development do not vest in the Company automatically, Grantee irrevocably hereby assign to the Company by way of present assignment, all right, title, and interest Grantee may have or may acquire in and to all Developments anywhere in the world. In particular, in accordance with the provisions of article L. 113-9 of the Intellectual Property Code, Grantee acknowledge that the intellectual property rights to any software and their documentation developed by Grantee in the course of his/her employment contract belong as a matter of law to the Company. In accordance with the provisions of article L. 611-7 of the Intellectual Property Code, Grantee further acknowledges that the inventions made within the context of his/her employment providing for an "inventive mission" which corresponds to his/her actual duties, or, as part of studies or research which have been specifically entrusted to Grantee, belong to the Company as a right (“Inventions of Mission”).
In accordance with the provisions of article L. 611-7 of the Intellectual Property Code, which provide that the employee is entitled to receive an additional remuneration for the Inventions of Mission, Grantee
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Exhibit 10(iii)A(72)
agrees that such additional remuneration, if any, will be determined in the following manner: Grantee will be paid an additional remuneration only to the extent Grantee personally contributed to the inventive process which led to the perfection of the Invention of Mission. Such additional remuneration shall be determined by the Company, pursuant to local law, and pursuant to the Company’s patent incentive award policies. In addition, after 5 years of exploitation of the Invention of Mission, the Company may decide to pay Grantee an additional award, which amount should be mutually agreed on between Grantee and the Company, by taking into consideration the economic and scientific interest of the invention of mission, the difficulties of development of the Invention of Mission, and Grantee's personal contribution. Grantee further acknowledges that for all the other inventions created either (i) in the performance of Grantee's duties, (ii) in the field of the Company's activity, or (iii) by using knowledge or technologies or Company's specific methods or information acquired by the Company, the Company may require that all rights to ownership and use of such inventions and the patents protecting such inventions be assigned to it. Grantee further undertakes, in particular, to disclose to the Company any copyrightable works that he/she may create, either alone or with the assistance of a third party including notably (but without limitation) any drawings, logos, sketches, models, designs, articles, studies, reports and all documentation which are susceptible to be protected under copyright law (hereafter the "Copyrightable Works").
Grantee hereby assigns to the Company, in consideration of a lump sum already included in his/her salary as provided in his/her employment contract the exploitation rights on the Copyrightable Works including (but without limitation) the rights of reproduction on any analogical or digital media, in any form and format (whether known at the execution date of the contract or discovered in the future), of communication to the public by any process (whether known at the execution date of my employment contract or discovered in the future), of distribution, rental, loan and sale, of filing any trademark, design or model applications on whole or any part of the Copyrightable Works with the relevant authorities around the world, and of adaptation, translation and modification of the Copyrightable Works for any commercial or advertising purpose whether public or private. Media and processes shall include without limitation, any means of communication, direct or indirect, spatial or terrestrial, by satellite, cable, or over the air and any wired or wireless network including the Internet. The assignment occurs as soon as the Copyrightable Works are created and is valid for the entire world for the duration of the copyright, including any legal prorogation for whatever reason. Grantee hereby assigns and transfer to the Company all results from the use of Proprietary Information, premises or personal property ("Company Related Developments"). Grantee further undertake to execute all documents and take all additional actions as may be requested by the Company to give full and proper effect to the present assignment, whether during or after the term of his/her employment, and particularly to enter into a specific assignment agreement for each work, as soon as such work is created. To preclude any possible uncertainty, Grantee has set forth on Exhibit attached hereto a complete list of Developments that he/she has, alone or jointly with others, conceived, developed or reduced to practice prior to the commencement of his/her employment with the Company that he/she wishes to have excluded from the scope of this Agreement (“Prior Inventions”). Grantee has also listed this Exhibit all patents and patent applications in which he/she is named as an inventor, other than those which have been assigned to the Company (“Other Patent Rights”). If no such disclosure is attached, Grantee represents that there are no Prior Inventions or Other Patent Rights. If, in the course of Grantee's employment with the Company, he/she incorporates a Prior Invention into a Company product, process or machine or other work done for the Company, Grantee hereby grant to the Company a nonexclusive, royalty-free, paid-up, worldwide license (with the full right to sublicense) for the duration of the rights to make, have made, modify, use, reproduce, sell, offer for sale, publicly display and perform, import and otherwise fully exercise and exploit such Prior Invention. Notwithstanding the foregoing, Grantee will not incorporate, or permit to be incorporated, Prior Inventions in any Company-Related Development without the Company’s prior written consent. Grantee will not incorporate into any Company product or otherwise deliver to the Company any open source software except as allowed pursuant to the Company’s open source software policy, which is available on the Company’s intranet.
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Exhibit 10(iii)A(72)
Section 2(e) is re-titled as "Non-Competition and Non-Solicitation of Customers and Sales Agents."
The following Section 2(e) replaces Section 2(e), Section 2(f), and Section 2(h) of the Confidentiality Provisions:
(i) Grantee acknowledges and agrees that during his/her employment, and for six (6) months as from the date of Grantee's actual departure from the Company, he/she has not and will not, directly or indirectly, engage in, provide, or perform any Employee Services on behalf of any person or entity (or, if organized into divisions or units, any distinct division or operating unit) in the Territory.
(ii) Grantee also acknowledges and agrees that during his/her employment, and for six (6) months after the Date of Termination, Grantee has not and will not directly or indirectly solicit Customers (as defined in Paragraph 1(c) above) with whom he/she had Material Contact (as defined in 1(g) above) for the purpose of providing goods and/or services competitive with the Company’s Business.
(iii) Grantee further acknowledges and agrees that during his/her employment, and for a period of six (6) months after the Date of Termination, Grantee has not and will not, directly or indirectly, whether on behalf of the Grantee or others, solicit any of the Company's Sales Agents for the purpose of disrupting their relationship with the Company and/or selling and/or facilitating the sale of products competitive with the Company's Business. For purposes of this Section 2, a "Sales Agent" is any third-party agency, and/or its representatives, with which or whom the Company has contracted for the purpose of facilitating the sale of the Company's products during the last twenty-four (24) months of Grantee’s employment with the Company.
(iv) In the event Grantee's employment is terminated, for any reason whatsoever, during this post-employment period of non-competition, under the condition that Grantee complies with this non-competition obligation, Grantee will receive a monthly gross indemnity as determined by the Company pursuant to local law, to be no less than thirty three percent (33%) of his/her average gross monthly salary received over the last 12 months prior to termination of employment, it being understood that this indemnity will be subject to social security contributions.
(v) It is agreed that, in any case, the Company shall be entitled, at the time of termination of the employment agreement, either to reduce the scope or the duration of the period of application of the non-competition and non-solicitation covenant, or to waive the latter, provided however that it informs Grantee thereof by registered letter with return receipt requested no later than within eight (3) days following the notification of the termination of the employment agreement and no later than Grantee's last day of effective work.
(vi) If Grantee breaches the post-employment non-competition obligation, the Company will no longer be required to pay the gross monthly indemnity and Grantee will be required to reimburse the Company for any amount that he/she may have been granted in this respect.
(vii) Given the extreme sensitiveness of the know-how and technical and commercial information to which Grantee has access in the framework of his/her functions and the extremely competitive and sensitive nature of the Company's activities, the parties expressly agree on the necessity of the non-competition and non-solicitation obligation in order to protect the Company's legitimate interests. Moreover, Grantee acknowledges that, in light of his/her training, the provision does not hinder his/her capacity to find new employment.
Section 2(f) of the Confidentiality Provisions is deleted.
25
Exhibit 10(iii)A(72)
Section 2(h) of the Confidentiality Provisions is deleted.
The following provision replaces Section 4 of the Confidentiality Provisions:
Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or seven days after mailing if mailed first class, certified mail, postage prepaid, addressed as follows:
If the Company: To the principal place of business of Company in France.
If to Grantee: To his or her last known address on file with the Company.
The following provision replaces Section 7 of the Confidentiality Provisions:
Amendments and Modifications. The Confidentiality Provisions and any Exhibit hereto may be amended or modified only by a writing signed by Grantee and the Company, which makes specific reference to the Confidentiality Provisions provided however that the covenant of Section 2(e) can be waived unilaterally by the Company under the conditions specified therein. However, this Section does not affect a court of competent jurisdiction or arbitrator's ability to modify the Confidentiality Provisions, as the case may be, in the event that either party initiates legal proceedings that relate in any way to the Confidentiality Provisions, including any action brought by either party seeking to enforce any provision set forth herein.
The following provision replaces Section 8 of the Confidentiality Provisions:
Governing Law and Venue. The validity and effect of the Confidentiality Provisions shall be governed by and construed and enforced in accordance with the laws of France.
The following provision replaces Section 12 of the Confidentiality Provisions:
Language. The parties acknowledge that they have requested and are satisfied that the Confidentiality Provisions and all related documents be drawn up in the French language, the English version being provided for information purposes only. In the event of a contradiction between the two versions, the French version shall prevail.
MEXICO
The following provision replaces Section 1(b) of the Confidentiality Provisions:
"Trade Secrets" has the meaning set forth under Article 84 of the Mexican Industrial Property Law.
The following provision replaces Section 1(d) of the Confidentiality Provisions:
"Company" means Acuity Brands, Inc., along with its Subsidiaries or other Affiliates, including but not limited to Acuity Brands Lighting de Mexico S de RL de CV, and Castlight de Mexico SA de CV, with the understanding that the sole and exclusive employer of the Grantee is the Mexican legal entity by whom he/she is employed.
The following provision replaces Section 1(h) of the Confidentiality Provisions:
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Exhibit 10(iii)A(72)
"Material Contact" means contact between an employee and each Customer or potential Customer: with whom or which Grantee dealt on behalf of the Company; whose dealings with the Company were coordinated or supervised by Grantee; about whom Grantee obtained confidential information in the ordinary course of business as a result of such employee's association with the Company; and/or who receives products or services authorized by the Company, the sale or provision of which results or resulted in compensation, commissions, or earnings for Grantee within two (2) years prior to the date of the Date of Termination.
Section 1(i) ("Termination for Cause" or "Terminated for Cause") of the Confidentiality Provisions is hereby deleted.
The following provision shall be added to Section 2(b), at the end of first paragraph:
"Furthermore, Grantee expressly agrees and acknowledges that all Confidential Information and Trade Secrets, constitutes (i) an industrial secret under the Mexican Industrial Property Law and (ii) an industrial and trade secret under Articles 210 and 211 of the Penal Code for the Federal District of Mexico."
The following provision shall be added to Section 2(b), at the end of the second paragraph:
"Grantee agrees to keep the Company free and clear from any claim or lawsuit that may be brought up against it by Grantee's former employers or third parties for alleged or actual breach of confidentiality or trade secrets information obligations undertaken by Grantee during the course of his/her employment with former employers or during the course of former relationships with third parties. Likewise, Grantee will be responsible for paying any damages that he/she may cause to the Company due the breach of such confidentiality or trade secrets information obligations assumed with former employers and/or with third parties."
The following provision shall be added to Section 2(d) of the Confidentiality Provisions:
"The Grantee acknowledges that any Invention he/she may conceive or reduce to practice during his/her employment with the Company and that relate to the Company’s current or future business are and shall be the Company’s sole and exclusive property and that the Grantee shall not have any patrimonial or other ownership rights in the work developed, expressly agreeing that he/she will not be entitled to the payment of royalties or any other right derived from such work, as they are already included in Grantee's compensation referred to in his/her employment contract with the Company. In addition, the Grantee expressly authorizes the modification, adaptation, transport, translation, representation, exhibition and any use, total or partial, of the developed work, with the sole exception of his/her non-economic or moral rights. The Grantee will take all necessary steps to assign any property right to the Company at the Company’s expense, but without further compensation to the Grantee."
The following provision replaces Section 2(e) of the Confidentiality Provisions:
Non-Competition. Grantee acknowledges and agrees that during his/her employment, and for twelve (12) months after the Date of Termination, he/she has not and will not, directly or indirectly, engage in, provide, or perform any Employee Services on behalf of any person or entity (or, if organized into divisions or units, any distinct division or operating unit) in the Territory that derives revenue from providing goods or services substantially similar to those which comprise the Company’s Business.
The following provision replaced Section 2(i) of the Confidentiality Provisions:
27
Exhibit 10(iii)A(72)
Injunctive Relief. Grantee acknowledges that if he/she breaches or threatens to breach any of the provisions of this Section 2, his/her actions may cause irreparable harm and damage to the Company which could not be compensated in damages. Accordingly, if Grantee breaches or threatens to breach any of the provisions of this Section 2, the Company shall be entitled to seek injunctive relief, in addition to any other rights or remedies the Company may have. The existence of any claim or cause of action by Grantee against the Company, whether predicated on the Confidentiality Provisions or otherwise, shall not constitute a defense to the enforcement by the Company of Grantee’s agreements under this Section 2.
The Grantee accepts that if he/she breaches any of the obligations set out in Sections 2(a), (b), (c), (d) related to the disclosure of Confidential Information, he/she shall be liable under applicable laws, including criminal liability referred to in Article 223(IV), (V), and (VI) of the Industrial Property Law.
The breach of any of the obligations assumed by virtue of Section 2(e), (f), (g), and (h), during the term of the employment relationship between the parties, will be considered disobedience to work, and therefore, a cause for termination of the employment relationship of Grantee, without any liability for the Company, whatsoever. Both parties agree that if the Grantee breaches any of the obligations, terms or conditions set out in Section 2 (e), (f), (g), and (h), after the termination of his/her employment relationship with the Company, the Grantee:
(a) will have no right to the Payment referred in Section 2(j) of Exhibit C, as modified by these special provisions, and must then repay to the Company the total amount of the payments made in accordance with Section 2(j)(ii) after the termination of the employment relationship between the parties, if such breach occurs or is discovered after any Payments (as defined below) have been made.
(b) In addition, he/she must pay to the Company liquidated damages equivalent to fifty percent (50%) of the gross amount paid to Grantee in consideration for the non-competition clause herein. The payment of liquidated dames shall be in addition to any other legal remedies that might be available to the Company, including moral damages, and nothing in this Section shall operate so as to prevent or limit the Company from seeking any other relief, including equitable or injunctive relief.
The following provisions are added as Section 2(j) to the Confidentiality Provisions:
Consideration for Non-Competition and Non- Solicitation Obligations.
(i) During the effective term of the employment relationship between the Company and the Grantee, the latter will not be entitled to any additional remuneration for the obligations assumed herein, but the payment of the monthly gross base salary and benefits, as agreed upon in the individual employment agreement executed between the Company and Grantee, since the obligations assumed herein represent orders given by the Company, as the employer, and are part of the obligations related to the work for which the Grantee is hired.
(ii) As fair and equal consideration for the execution of the obligations assumed under Sections 2(e), (f), (g), and (h) of this Exhibit C, upon termination of the labor relationship between the Company and the Grantee, the latter hereby accepts that the Company will pay him/her a gross amount equal to fifty percent (50%) of his/her last annual gross base salary as of the termination date of his/her employment relationship with the Company (without considering other labor benefits paid, whether in paid in cash or in kind, such as a Christmas bonus, vacation premium, and without considering any compensation derived from the 2012 Omnibus Stock Incentive Compensation Plan) (hereinafter the “Payment”), subject to the corresponding
28
Exhibit 10(iii)A(72)
applicable tax withholdings. Such payment, will be paid by the Company to the Grantee proportionally in monthly installments, according to the dates established by the Company.
(iii) This Payment shall be considered as full consideration in exchange for the strict compliance with the future obligations that the Grantee assumes upon termination of his/her employment relationship with the Company, pursuant to the terms of these Confidentiality Provisions. Both parties agree that the Company shall determine whether the Grantee has fully complied with the Confidentiality Provision at its sole reasonable discretion. The Grantee expressly acknowledges that the Payment of the consideration after the term of the employment relationship, referred in this Section, is independent from the employment relationship he/she has with the Company, and that the payments made after the term of the employment relationship between the Company and the Grantee will not imply in any manner whatsoever, the continuation of such employment relationship or the beginning of a new labor relationship between the Company and the Grantee.
The following provision replaces Section 7 of the Confidentiality Provisions:
Amendments and Modifications. The Confidentiality Provisions and any Exhibit hereto may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to the Confidentiality Provisions. However, this Section does not affect a court of competent jurisdiction or arbitrator`s ability to modify the Confidentiality Provisions as applicable under local law in the event that either party initiates legal proceedings that relate in any way to this Confidentiality Provisions, including any action brought by either party seeking to enforce any provision set forth herein.
Both parties expressly acknowledge and agree that the Company reserves the right, at its sole discretion, to reduce or waive the enforcement of the restricted period, as referred to in Section 2 above, and the Company may relieve at any time the Grantee from his/her obligations under this Agreement. If the Company, at its sole discretion, decides to waive or reduce the restricted period of the obligations assumed in Section 2(e), (f), (g), and (h), for any reason, it will inform the Grantee in writing, with the understanding that the Company will not be responsible to pay or make further payments of any compensation, as set forth in Section 2(j)(ii), for the entire restricted period or the remaining restricted period, as applicable, at the time the Company waives enforcement. If the Company waives the entire enforcement of the restrictive period established after the term of the labor relationship, no compensation will be paid to the Grantee under this Agreement, and Grantee acknowledges that the Company will not be liable as a consequence of such non-payment."
The following provision replaces Section 8 of the Confidentiality Provisions:
Governing Law and Venue. The validity and effect of the Confidentiality Provisions shall be governed by and construed and enforced in accordance with the laws of United Mexican States, without regard to conflicts of law. Any and all disputes relating to, concerning or arising from the Confidentiality Provisions, or relating to, concerning or arising from the relationship between the parties evidenced by the Confidentiality Provisions, shall be brought and heard exclusively in competent courts of Mexico City, expressly waiving any other jurisdiction that may correspond to them by reason of their present or future domiciles or for any other cause.
NETHERLANDS
The following provision replaces Section 1(b) of the Confidentiality Provisions:
"Trade Secrets" has the meaning set forth under applicable local law.
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Exhibit 10(iii)A(72)
The following provision replaces Section 1(h) of the Confidentiality Provisions:
"Material Contact" shall include contacts between an employee and each Customer or potential Customer: with whom or which Grantee dealt on behalf of the Company; whose dealings with the Company were coordinated or supervised by Grantee; about whom Grantee obtained confidential information in the ordinary course of business as a result of such employee's association with the Company; and/or who receives products or services authorized by the Company, the sale or provision of which results or resulted in compensation, commissions, or earnings for Grantee within two years prior to the date of the Date of Termination.
The following provision replaces Section 1(i) of the Confidentiality Provisions:
"Termination for Cause" or "Terminated for Cause" shall entail any reasonable grounds the Company may have within the meaning of article 7:669 paragraph 3 subsection (d), (e), (g) of the Dutch Civil Code and article 7:678 of the Dutch Civil Code. Examples of this involuntary termination of Grantee by the Company are the following reasons:
i. | If termination shall have been the result of an act or acts by Grantee which constitute an indictable offense, a felony or any crime involving dishonesty, theft, fraud or moral turpitude; |
ii. | If termination shall have been the result of an act or acts by Grantee which are determined, in the good faith judgment of the Company, to be in violation of written policies of the Company; |
iii. | If termination shall have been the result of an act or acts of dishonesty by Grantee resulting or intended to result directly or indirectly in gain or personal enrichment to Grantee at the expense of the Company; |
iv. | Upon the willful and continued failure by Grantee to substantially perform the duties assigned to Grantee (other than any such failure resulting from incapacity due to mental or physical illness constituting a Disability), after a demand in writing for substantial performance of such duties is delivered by the Company, which demand specifically identifies the manner in which the Company believes that Grantee has not substantially performed his or her duties; or |
v. | If termination shall have been the result of the unauthorized disclosure by Grantee of the Company's Confidential Information or violation of any other provision of the Confidentiality Provisions. |
The following provision replaces Section 2(e) of the Confidentiality Provisions:
References to "Confidential Severance Agreement and Release" will be replaced by "settlement agreement".
The following provision replaces Section 2(i) of the Confidentiality Provisions:
Injunctive Relief. Grantee acknowledges that if he/she breaches or threatens to breach any of the provisions of this Section 2, his/her actions may cause irreparable harm and damage to the Company which could not be compensated in damages. Accordingly, if Grantee breaches or threatens to breach any of the provisions of this Section 2, the Company shall be entitled to seek injunctive relief, instead of any other rights or remedies the Company may have.
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Exhibit 10(iii)A(72)
The following provision replaces Section 5 of the Confidentiality Provisions:
Provisions Severable. If any provision or covenant, or any part thereof, contained in the Confidentiality Provisions is held by any court to be invalid, illegal, or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, in the Confidentiality Provisions, all of which shall remain in full force and effect. Each and every provision, paragraph and subparagraph of Section 2 above is severable from the other provisions, paragraphs and subparagraphs and constitutes a separate and distinct covenant.
The restrictive covenants set forth in Section 2 of the Confidentiality Provisions represent the entire agreement of the parties with respect to the subject matter thereof and supersede any prior agreement with respect thereto; provided, however, that the restrictive covenants described in this Exhibit C shall not supersede those set forth in either: (a) any Executive Severance Agreement applicable to Grantee, if any, (b) any Confidentiality, Inventions and Non-Solicitation Agreement to which Grantee is a party, if any, or (c) any restrictive covenants to which Grantee is a party under any employment agreement or offer letter, if any.
The following provision replaces Section 7 of the Confidentiality Provisions:
Amendments and Modifications. The Confidentiality Provisions and any Exhibit hereto may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to the Confidentiality Provisions. However, this Section does not affect a court of competent jurisdiction or arbitrator`s ability to modify the Confidentiality Provisions, in the event that either party initiates legal proceedings that relate in any way to this Confidentiality Provisions, including any action brought by either party seeking to enforce any provision set forth herein.
The following provision replaces Section 8 of the Confidentiality Provisions:
Governing Law and Venue. The validity and effect of the Confidentiality Provisions shall be governed by and construed and enforced in accordance with applicable local law.
SPAIN
The following provision replaces Section 1(a)(ii) of the Confidentiality Provisions:
Confidential Information shall not include:
(A) Information generally available to the public;
(B) Information obtained by independent discovery or creation;
(C) Information obtained by observation, study, disassembly or testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret;
(D) Information disclosed pursuant to law, regulations or pursuant to a court order or legal process; and/or
(E) trivial information; and/or
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Exhibit 10(iii)A(72)
(F) the experience and skills gained by employees in the normal course of their employment.
The following provision replaces Section 1(b) of the Confidentiality Provisions:
"Trade Secrets" means information which meets all of the following requirements:
(a) it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
(b) it has commercial value because it is secret; and
(c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
The following provision replaces Section 1(h) of the Confidentiality Provisions:
"Material Contact" means contact between an employee and each Customer or potential Customer: with whom or which Grantee dealt on behalf of the Company; whose dealings with the Company were coordinated or supervised by Grantee; about whom Grantee obtained confidential information in the ordinary course of business as a result of such employee's association with the Company; and/or who receives products or services authorized by the Company, the sale or provision of which results or resulted in compensation, commissions, or earnings for Grantee within two (2) years prior to the date of the Date of Termination.
The following provision replaces Section 1(j) of the Confidentiality Provisions:
"Inventions" and "Works" The term “Invention” means contributions, developments, improvements and works of authorship, whether or not patentable or copyrightable, and: (i) which relate directly to the business of the Company, or (ii) which result from any work performed by Grantee or by Grantee’s fellow employees for the Company, or (iii) for which equipment, supplies, facilities, Confidential Information or Trade Secrets of the Company are used, or (iv) which is developed on the Company’s time. The term “Works” means all documents, programs, software, creative works and other expressions and information, in whole or in part, by Grantee during the period of and relating to his/her employment with the Company, whether copyrightable or otherwise protectable, other than Inventions.
The following provision replaces Section 2(b) of the Confidentiality Provisions:
Trade Secrets and Confidential Information. Grantee agrees that he/she shall protect the Company's Trade Secrets (as defined in Section 1(b) above) and Confidential Information (as defined in Section 1(a) above) and shall not disclose to any person or entity, or otherwise use or disseminate, except in connection with the performance of his/her duties for the Company, any Trade Secrets or Confidential Information. However, Grantee may make disclosures required by a valid order or subpoena issued by a court or administrative agency of competent jurisdiction, in which event Grantee will promptly notify the Company of such order or subpoena to provide it an opportunity to protect its interests. Grantee’s obligations under this Section 2(b) have applied throughout his/her active employment, shall continue after the Date of Termination during a period of ten (10) years, and shall survive any expiration or termination of the Confidentiality Provisions, so long as the information or material remains Confidential Information or a Trade Secret, as applicable.
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Exhibit 10(iii)A(72)
Grantee further confirms that during his/her employment with the Company, including after the Date of Termination, he/she has not and will not offer, disclose or use on Grantee’s own behalf or on behalf of the Company, any information Grantee received prior to employment by the Company which was supplied to Grantee confidentially or which Grantee should reasonably know to be confidential.
Nothing in this section prohibits Grantee from reporting possible violations of law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of law or regulation. Grantee does not need the prior authorization of the Company to make any such reports or disclosures, and Grantee is not required to notify the Company that Grantee has made such reports or disclosures.
The following provision replaces Section 2(d) of the Confidentiality Provisions:
Inventions. Grantee does hereby assign to the Company, on an exclusive basis, the entire right, title and interest in any Invention which is or was made or conceived, either solely or jointly with others, during his or her employment with the Company, including after the Date of Termination. In the event that Grantee develops Inventions referred to above, Grantee must immediately inform the Company in writing, supplying all the information Grantee has at his/her disposal and within a maximum period of one month. In this regard, Grantee attests that he/she has disclosed (or promptly will disclose, if after the Date of Termination) to the Company all such Inventions. This information includes any data and reports that may be relevant for the Company to assess his/her Invention and to exercise the rights that correspond to it.
To the extent that the full legal title to any Inventions shall fail to automatically belong to the Company by virtue of the applicable law, Grantee hereby assigns to the Company all rights to such Inventions without Grantee being entitled to any additional kind of consideration, as such reward is considered to have been satisfied by the remuneration agreed to this Agreement. The assignment of rights shall be exclusive, worldwide, irrevocable and for the entire duration of the rights. In relation to author’s and related rights, the assignment includes all economic exploitation rights (including the rights to reproduce, distribute, communicate to the public, make available to the public and transform). The Grantee acknowledges that, to the extent permitted by law, the Company will be considered the author of any computer program he/she creates within the scope of his/her employment. Grantee authorizes the Company to exploit these rights in the way and manner the Company considers convenient, using any method of exploitation, directly and indirectly, and in any activity sector. The Grantee authorizes the Company to sublicense and assign these rights to any third party.
The Grantee acknowledges and agrees that if Grantee makes an Invention (different to such that may arise from the performance of functions relating to his/her position and in the context of its employment relationship with the Company, related to his/her professional activity and the knowledge gained from the Company had a decisive influence on this Invention, or Grantee has used means provided by the Company (such as equipment, supplies and facilities), the Company will have the right to claim ownership of the Invention or to reserve a right to its use within three (3) months from the date the Grantee notifies the Company of it. In these cases, the Grantee acknowledges that he/she may have the right to additional remuneration to be agreed with the Company, the amount of which will depend on the industrial and commercial relevance of the Invention, the value of the means and knowledge provided by the Company and the Grantee’s own contributions.
Regarding any Invention that does not result from any work the Grantee has performed for the Company, where he/she has not used any means of knowledge provided by or gained from the Company, and that results in any product, service or development with potential commercial application, the Grantee will also inform
33
Exhibit 10(iii)A(72)
the Company of this Invention, and the Company shall be given the right of first refusal to obtain exclusive rights to the Invention.
Excluded Inventions and Licenses. The Grantee has attached a list describing all Inventions belonging to him/her and made by him/her prior to Grantee's employment with the Company that Grantee wishes to have excluded from this Agreement. If no such list is attached, Grantee represents that there are no such Inventions. As to any Invention in which Grantee has an interest at any time prior to or during his/her employment (including any and all Inventions that he/she may have listed), if he/she uses or incorporates such an Invention in any released or unreleased Company's product, service, program, process, machine, development or work in progress, or if he/she permits, by act or inaction, the Company to use or incorporate such an Invention, the Company is hereby granted and shall have an irrevocable, for the entire duration of the rights, perpetual, royalty-free, worldwide license to exercise any and all rights with respect to such Invention, including without limitation the right to protect, make, have made, use and sell that Invention without restriction and the right to sublicense those rights to others. This license shall be exclusive, subject to any pre-existing, non-exclusive licenses or other pre-existing rights not subject to the Grantee’s control.
The Grantee agrees to execute, acknowledge, verify and deliver to the Company, or cause the same to be accomplished, any and all further documents (including without limitation patent applications, certificates of authorship, and other instruments appropriate for the protection, maintenance and enforcement of intellectual and industrial property rights throughout the world, as well as their defense in relation to infringement by a third-party and the formalization of the exclusive and universal transfer of the rights in favor of the Company, its successors, assignees or other such persons as the Company may designate), that the Company may reasonably deem necessary or appropriate to carry out, evidence or effectuate the purposes or intent of this Agreement. The Grantee’s obligations under this paragraph will apply both during and indefinitely after the term of employment, until the date of the expiration of all the rights. In furtherance of this Agreement, the Grantee will testify at Company's request and expense in any legal proceeding arising during or after his or her employment.
The following provision is added as Section 2(j) of the Agreement:
Consideration for the Non-Solicitation and Non-Competition Restrictions. The parties agree that, as consideration for the non-solicitation and non-competition restrictions set forth in this Exhibit C, the Grantee shall receive a total compensation which, if projected throughout the restrictive period (i.e., the period lapsing between the Date of Termination and the end of the restriction), would equal fifty percent (50%) of the fixed salary that the Grantee would have received if he/she was employed during that period. This compensation shall be paid in the form of the RSU award pursuant to this Restricted Stock Unit Agreement and/or any termination severance paid above the minimum statutory requirements (if any). The parties also agree that if the value of the compensation paid in this form throughout the employment relationship does not reach the percentage agreed, the Company would pay the Grantee the necessary additional compensation to ensure that the total compensation received by the Grantee reaches the percentage agreed.
The following provision replaces Section 3 of the Confidentiality Provisions:
Contract Non-Assignable by Grantee. The parties acknowledge that the Confidentiality Provisions have been entered into due to, among other things, the special position Grantee within the Company, and agree that the Confidentiality Provisions may not be assigned or transferred by Grantee.
34
Exhibit 10(iii)A(72)
The following provision replaces Section 7 of the Confidentiality Provisions:
Amendments and Modifications. The Confidentiality Provisions and any Exhibit hereto may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to the Confidentiality Provisions. However, this Section does not affect a court of competent jurisdiction or arbitrator`s ability to modify the Confidentiality Provisions, in the event that either party initiates legal proceedings that relate in any way to this Confidentiality Provisions, including any action brought by either party seeking to enforce any provision set forth herein.
The following provision replaces Section 8 of the Confidentiality Provisions:
Governing Law and Venue. The validity and effect of the Confidentiality Provisions shall be governed by and construed and enforced in accordance with the laws of Spain.
UNITED KINGDOM
The following provision replaces Section 1(b) of the Confidentiality Provisions:
"Trade Secrets" means information which meets all of the following requirements:
(a) it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
(b) it has commercial value because it is secret; and
(c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
The following provision replaces Section 1(c) of the Confidentiality Provisions:
"Customers" means those entities and/or individuals which, within the twelve month period preceding the Date of Termination (as that term is defined in Restricted Stock Unit Agreement): (i) Grantee had material contact on behalf of the Company; (ii) about whom Grantee acquired, directly or indirectly, Confidential Information or Trade Secrets as a result of his/her employment with the Company; and/or (iii) Grantee exercised oversight or responsibility of subordinates who engaged in Material Contact on behalf of the Company. Additionally, "Customers" references only those entities and/or individuals with whom the Company currently has a business relationship, or with whom it expended resources to have or resume the same during the twelve month period referenced herein.
The following provision replaces Section 1(h) of the Confidentiality Provisions:
"Material Contact" means material contact between an employee and each Customer or potential Customer: with whom or which Grantee dealt on behalf of the Company; whose dealings with the Company were coordinated or supervised by Grantee; about whom Grantee obtained confidential information in the ordinary course of business as a result of such employee's association with the Company; and/or who receives products or services authorized by the Company, the sale or provision of which results or resulted in
35
Exhibit 10(iii)A(72)
compensation, commissions, or earnings for Grantee within two years prior to the date of the Date of Termination.
Section 1(i) ("Termination for Cause" or "Terminated for Cause") of the Confidentiality Provisions is hereby deleted.
The following provision replaces Section 1(j) of the Confidentiality Provisions:
"Inventions" and "Intellectual Property" The term “Invention” means contributions, discoveries, improvements, ideas, designs, designations, developments, methods, modifications, improvements, processes, algorithms, databases, computer programs, formulae, techniques, trade secrets, graphics or images, and audio or visual works, written text, software, code, and other works of authorship, whether or not patentable or copyrightable, whether or not recorded in any medium and: (i) which relate directly to the business of the Company, or (ii) which result from any work performed by Grantee or by Grantee’s fellow employees for the Company, or (iii) for which equipment, supplies, facilities, Confidential Information or Trade Secrets of the Company are used, or (iv) which is developed on the Company’s time. The term "Intellectual Property" means all patents, rights in inventions, supplementary protection certificates, utility models, rights in designs, trademarks, service marks, trade and business names, logos, get up and trade dress and all associated goodwill, rights to sue for passing off and/or for unfair competition, copyright, moral rights and related rights, rights in computer software, rights in databases, topography rights, domain names, rights in information (including know-how and trade secrets) and the right to use, and protect the confidentiality of, confidential information, image rights, rights of personality, and all other similar or equivalent rights subsisting now or in the future in any part of the world, in each case whether registered or unregistered and including all applications for, and renewals or extensions of, and rights to claim priority from, such rights for their full term and the right to sue for damages for past and current infringement in respect of any of the same.
The following provision replaces Section 2(d) of the Confidentiality Provisions:
Inventions. Grantee does hereby assign and transfer to the Company and its successors and assigns the entire right, title and interest in any Invention which is or was made or conceived, either solely or jointly with others, during his/her employment with the Company, including after the Date of Termination. To the extent that any Intellectual Property which is or was created or conceived, either solely or jointly with others, during his/her employment with the Company does not vest in the Company automatically and/or pending any assignment of such Intellectual Property, Grantee shall hold such Intellectual Property on trust for the Company. Grantee hereby irrevocably and unconditionally waives all claims to any moral rights or other special rights which it may have or accrue in any Inventions or Intellectual Property. Grantee attests that he/she has disclosed (or promptly will disclose, if after the Date of Termination) to the Company all Inventions. Grantee will, if requested, promptly execute and deliver to the Company a specific assignment of title for any such Invention or Intellectual Property right and will at the expense of the Company, take all reasonably required action by the Company to patent, copyright or otherwise protect the Invention."
The following provision replaces Section 2(e) of the Confidentiality Provisions:
Non-Competition. Grantee acknowledges and agrees that during his/her employment, and for twelve (12) months after the Date of Termination, he/she has not and will not, directly or indirectly, in competition with the Company, engage in, provide, or perform any Employee Services on behalf of any person or entity
36
Exhibit 10(iii)A(72)
(or, if organized into divisions or units, any distinct division or operating unit) in the Territory that derives revenue from providing goods or services substantially similar to those which comprise the Company’s Business.
The following provision replaces Section 2(f) of the Confidentiality Provisions:
Non-Solicitation of Customers. Grantee acknowledges and agrees that during his/her employment, and for twelve (12) months after the Date of Termination, Grantee has not and will not directly or indirectly solicit Customers (as defined in Paragraph 1(c) above) with whom he/she had Material Contact (as defined above) for the purpose of providing goods and/or services competitive with the Company’s Business with which Grantee was materially concerned in the period of twelve (12) months prior to the Date of Termination.
The following provision replaces Section 2(g) of the Confidentiality Provisions:
Non-Solicitation of Employees and Agents. Grantee acknowledges and agrees that during his/her employment, and for a period of twelve (12) months after the Date of Termination, Grantee has not and will not, directly or indirectly, whether on behalf of the Grantee or others, solicit, lure or attempt to hire away any of the Company's employees or agents with whom Grantee has material contact or managed in a direct line management capacity in the period of twelve (12) months prior to the Date of Termination or who had Material Contact with Customers in performing his/her duties of employment with the Company.
The following provision replaces Section 2(h) of the Confidentiality Provisions:
Non-Solicitation of Sales Agents. Grantee acknowledges and agrees that during his/her employment, and for a period of twelve (12) months after the Date of Termination, Grantee has not and will not, directly or indirectly, whether on behalf of the Grantee or others, solicit any of the Company's Sales Agents for the purpose of disrupting their relationship with the Company and/or selling and/or facilitating the sale of products competitive with the Company's Business with which Grantee was materially concerned in the period of twelve (12) months prior to the Date of Termination. For purposes of this Section 2, a "Sales Agent" is any third-party agency, and/or its representatives, with which or whom the Company has contracted for the purpose of facilitating the sale of the Company's products during the last twelve (12) months of Grantee’s employment with the Company and with whom Grantee had material contact or responsibility in his capacity as an employee of the Company during that period.
The following provision replaces Section 7 of the Confidentiality Provisions:
Amendments and Modifications. The Confidentiality Provisions and any Exhibit hereto may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to the Confidentiality Provisions. However, this Section does not affect a court of competent jurisdiction or arbitrator`s ability to modify the Confidentiality Provisions in the event that either party initiates legal proceedings that relate in any way to this Confidentiality Provisions, including any action brought by either party seeking to enforce any provision set forth herein.
The following provision replaces Section 8 of the Confidentiality Provisions:
Governing Law and Venue. The validity and effect of the Confidentiality Provisions shall be governed by and construed and enforced in accordance with the laws of England and Wales. Any and all disputes relating to, concerning or arising from the Confidentiality Provisions, or relating to, concerning or arising from the relationship between the parties evidenced by the Confidentiality Provisions, shall be brought
37
Exhibit 10(iii)A(72)
and heard exclusively in the Courts of England and Wales. Each of the parties hereby represents and agrees that such party is subject to the personal jurisdiction of said courts; hereby irrevocably consents to the jurisdiction of such courts in any legal or equitable proceedings related to, concerning or arising from such dispute, and waives, to the fullest extent permitted by law, any objection which such party may now or hereafter have that the laying of the venue of any legal or equitable proceedings related to, concerning or arising from such dispute which is brought in such courts is improper or that such proceedings have been brought in an inconvenient forum.
The following provisions are deleted in their entirety: Sections 10 ("Tender Back Provision") and Section 11 ("Tolling Period").
A following new Section 13 is inserted as follows:
Subsidiaries. The provisions of Sections 2(e) through Section 2(h) shall only apply in respect of those subsidiaries to whom Grantee provided his services, for whom he was responsible or with whom he was otherwise materially concerned in the period of twelve (12) months prior to the Date of Termination. The obligations under those provisions shall, with respect to each subsidiary, constitute a distinct and separate covenant and the invalidity or unenforceability of any such covenant shall not affect the validity or enforceability of the covenants in favor of any other Company. In relation to each subsidiary referred to in this Section 13, the Company contracts as trustee and agent for the benefit of each such subsidiary.
***
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
Vernon J Nagel
Chairman, President and CEO
C. Dan Smith
SVP, Treasurer and Secretary
PLEASE RETAIN THIS AGREEMENT AND ALL EXHIBITS FOR YOUR RECORDS.
38
Exhibit 10(iii)A(72)
39
EXHIBIT 21
LIST OF SUBSIDIARIES
ACUITY BRANDS, INC.
As of August 31, 2017
Subsidiary or Affiliate | Principal Location | State or Other Jurisdiction of Incorporation or Organization |
AB BMS C.V. | Cayman Islands | Netherlands |
AB Netherlands Holdings, LLC | Atlanta, Georgia | Delaware |
AB Netherlands Holdings C.V. | Cayman Islands | Netherlands |
ABL IP Holding LLC | Atlanta, Georgia | Georgia |
Acuity Aviation, LLC | Atlanta, Georgia | Georgia |
Acuity Brands BMS B.V. | Amsterdam, the Netherlands | Netherlands |
Acuity Brands BMS, LLC | Atlanta, Georgia | Delaware |
Acuity Brands Insurance (Bermuda) Ltd. | Hamilton, Bermuda | Bermuda |
Acuity Brands Lighting, Inc. | Atlanta, Georgia | Delaware |
Acuity Brands Lighting Canada, Inc. | Markham, Ontario | Canada |
Acuity Brands Lighting (Hong Kong) Ltd. | Hong Kong | Hong Kong |
Acuity Brands Lighting de Mexico, S. de R.L. de C.V. | Monterrey, Nuevo Leon | Mexico |
Acuity Brands Netherlands B.V. | Eindhoven, the Netherlands | Netherlands |
Acuity Brands Services, Inc. | Atlanta, Georgia | Delaware |
Acuity Brands Technology Services, Inc. | Atlanta, Georgia | Delaware |
Acuity Mexico Holdings, LLC | Atlanta, Georgia | Delaware |
Acuity Trading (Shanghai) Co. Ltd. | Shanghai, China | Shanghai |
C&G Carandini S.A. | Barcelona, Spain | Spain |
Castlight de Mexico, S.A. de C.V. | Matamoros, Tamaulipas | Mexico |
eldoLAB Holding B.V. | Eindhoven, the Netherlands | Netherlands |
eldoLED B.V. | Eindhoven, the Netherlands | Netherlands |
Holophane S.A. de C.V. | Tultitlan, Mexico City | Mexico |
Holophane Alumbrado Iberica SL | Barcelona, Spain | Spain |
Holophane Europe Ltd. | Milton Keynes, England | United Kingdom |
Holophane Lichttechnik GmbH | Düsseldorf, Germany | Germany |
Holophane Lighting Ltd. | Milton Keynes, England | United Kingdom |
HSA Acquisition Company, LLC | Atlanta, Georgia | Ohio |
ID Limited | Douglas, Isle of Man | Isle of Man |
Luxfab Ltd. | Milton Keynes, England | United Kingdom |
Distech Controls, Inc. | Brossard, Quebec, Canada | British Columbia, Canada |
9313-3510 Quebec Inc. | Brossard, Quebec, Canada | Quebec, Canada |
Distech Controls Facility Solutions, Inc. | Ottawa, Ontario, Canada | Ontario, Canada |
Distech Controls Energy Services (Canada) Inc. | Brossard, Quebec, Canada | Quebec, Canada |
Distech France Holding SAS | Brindas, France | France |
Distech Controls SAS France | Brindas, France | France |
Distech Controls Solutions SAS France | Brindas, France | France |
Distech Controls LLC | Atlanta, Georgia | Delaware |
Distech Controls USA Inc. | Atlanta, Georgia | Delaware |
Distech Controls Energy Services, Inc. | Atlanta, Georgia | Texas |
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
(1) | Registration Statement (Form S-8 No. 333-74242) pertaining to the Acuity Brands, Inc. 401(k) Plan, Acuity Lighting Group, Inc. 401(k) Plan for Hourly Employees, Holophane Division of Acuity Lighting Group 401(k) Plan for Hourly Employees, Holophane Division of Acuity Lighting Group 401(k) Plan for Hourly Employees Covered by a Collective Bargaining Agreement, | |
(2) | Registration Statement (Form S-8 No. 333-74246) pertaining to the Acuity Brands, Inc. Long-Term Incentive Plan, Acuity Brands, Inc. Employee Stock Purchase Plan, Acuity Brands, Inc. 2001 Nonemployee Directors' Stock Option Plan, | |
(3) | Registration Statement (Form S-8 No. 333-123999) pertaining to the Acuity Brands, Inc. 401(k) Plan, | |
(4) | Registration Statement (Form S-8 No. 333-126521) pertaining to the Acuity Brands, Inc. Long-Term Incentive Plan (as amended and restated), | |
(5) | Registration Statement (Form S-8 No. 333-138384) pertaining to the Acuity Brands, Inc. 2005 Supplemental Deferred Savings Plan, Acuity Brands, Inc. Nonemployee Director Deferred Compensation Plan (as amended and restated), | |
(6) | Registration Statement (Form S-8 No. 333-152134) pertaining to the Acuity Brands, Inc. Long-Term Incentive Plan (as amended and restated), | |
(7) | Registration Statement (Form S-8 No. 333-179243) pertaining to the Acuity Brands, Inc. 2011 Nonemployee Director Deferred Compensation Plan, and | |
(8) | Registration Statement (Form S-8 No. 333-185971) pertaining to the Acuity Brands, Inc. 2012 Omnibus Stock Incentive Compensation Plan; | |
of our reports dated October 26, 2017, with respect to the consolidated financial statements and schedule of Acuity Brands, Inc. and the effectiveness of internal control over financial reporting of Acuity Brands, Inc. included in this Annual Report (Form 10-K) of Acuity Brands, Inc., for the year ended August 31, 2017.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ W. Patrick Battle
W. Patrick Battle
Dated: October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Peter C. Browning
Peter C. Browning
Dated: October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ G. Douglas Dillard, Jr
G. Douglas Dillard, Jr
Dated: October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ James H. Hance, Jr.
James H. Hance, Jr.
Dated: October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Gordon D. Harnett
Gordon D. Harnett
Dated: October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Robert F. McCullough
Robert F. McCullough
Dated: October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Julia B. North
Julia B. North
Dated: October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Dominic J. Pileggi
Dominic J. Pileggi
Dated: October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Ray M. Robinson
Ray M. Robinson
Dated: October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Norman H. Wesley
Norman H. Wesley
Dated: October 26, 2017
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Richard K. Reece and Vernon J. Nagel, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of Acuity Brands, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2017, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Mary A. Winston
Mary A. Winston
Dated: October 26, 2017
EXHIBIT 31(a)
I, Vernon J. Nagel, certify that:
1. | I have reviewed this annual report on Form 10-K of Acuity Brands, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: October 26, 2017
/s/ Vernon J. Nagel | ||
Vernon J. Nagel | ||
Chairman, President, and Chief Executive Officer | ||
[A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act has been provided to Acuity Brands, Inc., and will be retained by Acuity Brands, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.]
EXHIBIT 31(b)
I, Richard K. Reece, certify that:
1. | I have reviewed this annual report on Form 10-K of Acuity Brands, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: October 26, 2017
/s/ Richard K. Reece | ||
Richard K. Reece | ||
Executive Vice President and Chief Financial Officer | ||
[A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act has been provided to Acuity Brands, Inc., and will be retained by Acuity Brands, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.]
Exhibit 32(a)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of Acuity Brands, Inc. (the “Corporation”) for the year ended August 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chairman, President, and Chief Executive Officer of the Corporation, certifies that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
/s/ Vernon J. Nagel | ||
Vernon J. Nagel | ||
Chairman, President, and Chief Executive Officer | ||
October 26, 2017 | ||
[A signed original of this written statement required by Section 906 has been provided to Acuity Brands, Inc., and will be retained by Acuity Brands, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.]
Exhibit 32(b)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of Acuity Brands, Inc. (the “Corporation”) for the year ended August 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Executive Vice President and Chief Financial Officer of the Corporation, certifies that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
/s/ Richard K. Reece | ||
Richard K. Reece | ||
Executive Vice President and Chief Financial Officer | ||
October 26, 2017 | ||
[A signed original of this written statement required by Section 906 has been provided to Acuity Brands, Inc., and will be retained by Acuity Brands, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.]