Company Quick10K Filing
Quick10K
Acuity Brands
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$143.20 40 $5,710
10-Q 2019-02-28 Quarter: 2019-02-28
10-Q 2018-11-30 Quarter: 2018-11-30
10-K 2018-08-31 Annual: 2018-08-31
10-Q 2018-05-31 Quarter: 2018-05-31
10-Q 2018-02-28 Quarter: 2018-02-28
10-Q 2017-11-30 Quarter: 2017-11-30
10-K 2017-08-31 Annual: 2017-08-31
10-Q 2017-05-31 Quarter: 2017-05-31
10-Q 2017-02-28 Quarter: 2017-02-28
10-Q 2016-11-30 Quarter: 2016-11-30
10-K 2016-08-31 Annual: 2016-08-31
10-Q 2016-05-31 Quarter: 2016-05-31
10-Q 2016-02-29 Quarter: 2016-02-29
10-Q 2015-11-30 Quarter: 2015-11-30
10-K 2015-08-31 Annual: 2015-08-31
10-Q 2015-05-31 Quarter: 2015-05-31
10-Q 2015-02-28 Quarter: 2015-02-28
10-Q 2014-11-30 Quarter: 2014-11-30
10-K 2014-08-31 Annual: 2014-08-31
10-Q 2014-05-31 Quarter: 2014-05-31
10-Q 2014-02-28 Quarter: 2014-02-28
10-Q 2013-11-30 Quarter: 2013-11-30
8-K 2019-04-23 Enter Agreement, Exhibits
8-K 2019-04-03 Earnings, Other Events, Exhibits
8-K 2019-01-09 Earnings, Other Events, Exhibits
8-K 2018-10-03 Earnings, Officers, Other Events, Exhibits
8-K 2018-07-03 Earnings, Exhibits
MMC Marsh & Mclennan Companies 47,650
GWW Grainger W W 15,160
TTWO Take Two Interactive Software 11,560
RTRX Retrophin 744
WAAS Aquaventure Holdings 489
TCI Transcontinental Realty Investors 275
GASS Stealthgas 130
NTZ Natuzzi 45
SFAR Steadfast Apartment REIT 0
RBOI Results Based Outsourcing 0
AYI 2019-02-28
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Description of Business and Basis of Presentation
Note 2 - Significant Accounting Policies
Note 3 - Acquisitions and Investments
Note 4 - New Accounting Pronouncements
Note 5 - Revenue Recognition
Note 6 - Fair Value Measurements
Note 7 - Goodwill and Intangible Assets
Note 8 - Inventories
Note 9 - Earnings per Share
Note 10 - Changes in Stockholders' Equity
Note 11 - Comprehensive Income
Note 12 - Debt and Lines of Credit
Note 13 - Commitments and Contingencies
Note 14 - Share-Based Payments
Note 15 - Pension Plans
Note 16 - Special Charge
Note 17 - Income Taxes
Note 18 - Supplemental Guarantor Condensed Consolidating Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-10.A ayi-20190228xex10a.htm
EX-10.B ayi-20190228xex10b.htm
EX-31.A ayi-20190228xex31a.htm
EX-31.B ayi-20190228xex31b.htm
EX-32.A ayi-20190228xex32a.htm
EX-32.B ayi-20190228xex32b.htm

Acuity Brands Earnings 2019-02-28

AYI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
Form 10-Q
_____________________________________________
(Mark One)
 
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended February 28, 2019.
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from to .
Commission file number 001-16583.
_____________________________________________
ACUITY BRANDS, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________
Delaware
 
58-2632672
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
1170 Peachtree Street, N.E., Suite 2300, Atlanta, Georgia
(Address of principal executive offices)
 
30309-7676
(Zip Code)
(404) 853-1400
(Registrant’s telephone number, including area code)

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

_____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
 
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock $0.01 par value 39,907,302 shares as of March 29, 2019.
 


Table of Contents

ACUITY BRANDS, INC.
Table of Contents

 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 


Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
ACUITY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 
February 28, 2019

August 31, 2018
 
(unaudited)


ASSETS



Current assets:
 




Cash and cash equivalents
$
232.0


$
129.1

Accounts receivable, less reserve for doubtful accounts of $1.4 and $1.3, respectively
520.1


637.9

Inventories
413.0


411.8

Prepayments and other current assets
67.5


32.3

Total current assets
1,232.6


1,211.1

Property, plant, and equipment, at cost:
 




Land
22.8


22.9

Buildings and leasehold improvements
188.7


189.1

Machinery and equipment
537.0


516.6

Total property, plant, and equipment
748.5


728.6

Less  Accumulated depreciation and amortization
(464.3
)

(441.9
)
Property, plant, and equipment, net
284.2


286.7

Goodwill
968.5


970.6

Intangible assets, net
482.4


498.7

Deferred income taxes
2.9


2.9

Other long-term assets
21.2


18.8

Total assets
$
2,991.8


$
2,988.8

LIABILITIES AND STOCKHOLDERS’ EQUITY



Current liabilities:
 




Accounts payable
$
351.1


$
451.1

Current maturities of long-term debt
7.0


0.4

Accrued compensation
61.0


67.0

Other accrued liabilities
165.3


164.2

Total current liabilities
584.4


682.7

Long-term debt
349.7


356.4

Accrued pension liabilities
62.9


64.6

Deferred income taxes
89.8


92.5

Self-insurance reserves
8.3


7.9

Other long-term liabilities
94.9


67.9

Total liabilities
1,190.0


1,272.0

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; 53,744,644 and 53,667,327 issued, respectively
0.5


0.5

Paid-in capital
917.5


906.3

Retained earnings
2,121.6


1,999.2

Accumulated other comprehensive loss
(114.7
)

(114.8
)
Treasury stock, at cost — 14,075,197 and 13,676,689 shares, respectively
(1,123.1
)

(1,074.4
)
Total stockholders’ equity
1,801.8


1,716.8

Total liabilities and stockholders’ equity
$
2,991.8


$
2,988.8

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

1

Table of Contents

ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In millions, except per-share data)
 
Three Months Ended
 
Six Months Ended
 
February 28, 2019

February 28, 2018
 
February 28, 2019
 
February 28, 2018
Net sales
$
854.4


$
832.1

 
$
1,787.0

 
$
1,674.9

Cost of products sold
520.5


497.6

 
1,085.6

 
990.5

Gross profit
333.9


334.5

 
701.4

 
684.4

Selling, distribution, and administrative expenses
237.6


244.4

 
487.7

 
473.9

Special charge
0.4


0.6

 
1.4

 
0.8

Operating profit
95.9


89.5

 
212.3

 
209.7

Other expense (income):
 




 


 


Interest expense, net
8.6


8.0

 
17.3

 
16.1

Miscellaneous expense, net
1.1


2.8

 
2.4

 
4.0

Total other expense
9.7


10.8

 
19.7

 
20.1

Income before income taxes
86.2


78.7

 
192.6

 
189.6

Income tax expense (benefit)
19.9


(18.2
)
 
46.7

 
21.2

Net income
$
66.3


$
96.9

 
$
145.9

 
$
168.4







 


 


Earnings per share:
 




 


 


Basic earnings per share
$
1.68


$
2.34

 
$
3.67

 
$
4.05

Basic weighted average number of shares outstanding
39.5


41.4

 
39.7

 
41.6

Diluted earnings per share
$
1.67


$
2.33

 
$
3.66

 
$
4.04

Diluted weighted average number of shares outstanding
39.6


41.5

 
39.8

 
41.7

Dividends declared per share
$
0.13


$
0.13

 
$
0.26

 
$
0.26







 


 


Comprehensive income:





 


 


Net income
$
66.3


$
96.9

 
$
145.9

 
$
168.4

Other comprehensive income (loss) items:





 


 


Foreign currency translation adjustments
4.9


2.5

 
(3.9
)
 
(8.0
)
Defined benefit plans, net of tax
1.4


1.8

 
4.0

 
3.4

Other comprehensive income (loss), net of tax
6.3


4.3

 
0.1

 
(4.6
)
Comprehensive income
$
72.6


$
101.2

 
$
146.0

 
$
163.8

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



2

Table of Contents

ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
 
Six Months Ended
 
February 28, 2019
 
February 28, 2018
Cash flows from operating activities:
 
 
 
Net income
$
145.9

 
$
168.4

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
43.3

 
38.3

Share-based payment expense
15.3

 
16.8

Loss on sale or disposal of property, plant, and equipment
0.4

 
0.1

Deferred income taxes
0.4

 
(32.0
)
Change in assets and liabilities, net of effect of acquisitions, divestitures, and exchange rate changes:
 
 
 
Accounts receivable
139.6

 
73.2

Inventories
(1.3
)
 
6.8

Prepayments and other current assets
(21.8
)
 
(9.2
)
Accounts payable
(102.6
)
 
(54.0
)
Other current liabilities
(38.9
)
 
(39.8
)
Other
8.0

 
9.0

Net cash provided by operating activities
188.3

 
177.6

Cash flows from investing activities:
 

 
 

Purchases of property, plant, and equipment
(24.9
)
 
(20.9
)
Acquisition of businesses, net of cash acquired

 
(26.4
)
Other investing activities
2.9

 
0.7

Net cash used for investing activities
(22.0
)
 
(46.6
)
Cash flows from financing activities:
 

 
 

Borrowings on credit facility
86.5

 

Repayments of borrowings on credit facility
(86.5
)
 

Repayments of long-term debt
(0.2
)
 
(0.2
)
Repurchases of common stock
(48.7
)
 
(194.3
)
Proceeds from stock option exercises and other
0.3

 
1.4

Payments of taxes withheld on net settlement of equity awards
(4.3
)
 
(6.7
)
Dividends paid
(10.5
)
 
(10.9
)
Net cash used for financing activities
(63.4
)
 
(210.7
)
Effect of exchange rate changes on cash and cash equivalents

 
(1.6
)
Net change in cash and cash equivalents
102.9

 
(81.3
)
Cash and cash equivalents at beginning of period
129.1

 
311.1

Cash and cash equivalents at end of period
$
232.0

 
$
229.8

Supplemental cash flow information:
 

 
 

Income taxes paid during the period
$
63.2

 
$
80.3

Interest paid during the period
$
24.5

 
$
23.4

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

3

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



Note 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 “we,” “our,” “us,” “the Company," or similar references) and was incorporated in 2001 under the laws of the State of Delaware. We are 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. Our 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, we continue to expand our 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. We have one reportable segment serving the North American lighting market and select international markets.
We prepared the Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) to present the financial position, results of operations, and cash flows of Acuity Brands and its wholly-owned subsidiaries.
These unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present fairly our consolidated financial position as of February 28, 2019, our consolidated comprehensive income for the three and six months ended February 28, 2019 and 2018, and our consolidated cash flows for the six months ended February 28, 2019 and 2018. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. However, we believe that the disclosures included herein are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company as of and for the three years ended August 31, 2018 and notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on October 25, 2018 (File No. 001-16583) (“Form 10-K”).
The results of operations for the three and six months ended February 28, 2019 and 2018 are not necessarily indicative of the results to be expected for the full fiscal year due primarily to seasonality, which results in our net sales and net income generally being higher in the second half of our fiscal year, the impact of any acquisitions, and, among other reasons, the continued uncertainty of general economic conditions that may impact our key end markets for the remainder of fiscal 2019.

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

4

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


Note 3 — Acquisitions and Investments
No acquisitions were completed during the first six months of fiscal 2019. The following discussion relates to acquisitions completed during fiscal 2018.
IOTA Engineering, LLC
On May 1, 2018, using cash on hand and borrowings available under existing credit arrangements, we acquired all of the equity interests of IOTA Engineering, LLC (“IOTA”). IOTA is headquartered in Tucson, Arizona and manufactures highly engineered emergency lighting products and power equipment for commercial and institutional applications both in the U.S. and international markets. The operating results of IOTA have been included in our consolidated financial statements since the date of acquisition and are not material to our financial condition, results of operations, or cash flows.
Lucid Design Group, Inc.
On February 12, 2018, using cash on hand, we acquired all of the equity interests of Lucid Design Group, Inc (“Lucid”). Lucid is headquartered in Oakland, California and provides a data and analytics platform to make data-driven decisions to improve building efficiency and drive energy conservation and savings. The operating results of Lucid have been included in our consolidated financial statements since the date of acquisition and are not material to our financial condition, results of operations, or cash flows.
Accounting for Fiscal 2018 Acquisitions
Acquisition-related costs were expensed as incurred. Amounts related to the acquisition accounting for these acquisitions are reflected in the Consolidated Balance Sheets. The aggregate purchase price of these acquisitions reflects total goodwill and identified intangible assets of approximately $77.0 million and $81.8 million, respectively, as of February 28, 2019. Identified intangible assets consist of indefinite-lived marketing-related intangibles as well as definite-lived customer-based and technology-based assets, which have a weighted average useful life of approximately 14 years. We finalized the acquisition accounting for Lucid during the current quarter. There were no material changes to our financial statements as a result of the finalization of this acquisition accounting. However, the acquisition accounting for IOTA is deemed provisional as we continue to gather information related to the identification and valuation of certain deferred tax items.

Note 4 — New Accounting Pronouncements
Accounting Standards Adopted in Fiscal 2019
ASU 2017-01 -— Clarifying the Definition of a Business
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 obtained in an acquisition 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. We adopted ASU 2017-01 effective September 1, 2018 and applied the guidance prospectively. The provisions of ASU 2017-01 did not have a material effect on our financial condition, results of operations, or cash flows.
ASU 2016-15 — Statement of Cash Flows
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. These cash flows include 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. We adopted ASU 2016-15 effective September 1, 2018 and applied the changes retrospectively. We maintain life insurance policies on certain former employees primarily to satisfy obligations under certain deferred compensation plans. As required by the standard, proceeds from these policies are now classified as cash inflows from investing activities. We received $0.8 million and $0.7 million from corporate-owned

5

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


life insurance policies during the six months ended February 28, 2019 and 2018, respectively. As such, cash flows from operations for the six months ended February 28, 2018 decreased $0.7 million, with a corresponding increase to cash flows from investing activities, compared to amounts previously reported. The remaining provisions of ASU 2016-15 do not apply to us for the periods presented.
ASU 2017-07 — Presentation of Net Periodic Pension Cost
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 changes the presentation of net periodic pension cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost is now 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 pension cost are presented separately outside of operating income. Additionally, only service costs may be capitalized in assets. We adopted ASU 2017-07 effective as of September 1, 2018. We applied the standard retrospectively for the presentation of the service cost component and the other components of net periodic pension cost within our income statements. As a practical expedient, we used amounts previously disclosed in the Pension and Defined Contribution Plans footnote of the Notes to Consolidated Financial Statements within our Form 10-K as the basis for retrospective application because amounts capitalized in inventory at a given point in time are de minimis and determining these amounts was impractical. Upon adoption of ASU 2017-07, our previously reported Operating profit for the three and six months ended February 28, 2018 increased $1.5 million and $3.1 million, respectively, with a corresponding increase to Miscellaneous expense, net. The provisions of ASU 2017-07 have no impact to our net income or earnings per share.
The impact of the provisions of ASU 2017-07 on the Consolidated Statement of Comprehensive Income for the three and six months ended February 28, 2018 are as follows (in millions):
 
Three Months Ended February 28, 2018
 
Six Months Ended February 28, 2018
 
As Revised
 
Previously Reported
 
Higher (Lower)
 
As Revised
 
Previously Reported
 
Higher (Lower)
Cost of products sold
$
497.6

 
$
497.2

 
$
0.4

 
$
990.5

 
$
989.8

 
$
0.7

Selling, distribution, and administrative expenses
244.4

 
246.3

 
(1.9
)
 
473.9

 
477.7

 
(3.8
)
Miscellaneous expense, net
2.8

 
1.3

 
1.5

 
4.0

 
0.9

 
3.1

ASC 606 Revenue from Contracts with Customers
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which replaced the existing revenue recognition guidance in U.S. GAAP. Since the issuance of ASU 2014-09, the FASB released several amendments to improve and clarify the implementation guidance, as well as to change the effective date. These standards have been collectively codified within Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 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 those judgments.
We adopted ASC 606 effective September 1, 2018 using the modified retrospective method and recognized a cumulative effect of applying ASC 606 of $13.0 million in Retained earnings on the Consolidated Balance Sheet as of this date. We applied the standard to all contracts as of the transition date. Information for prior years presented has not been restated and continues to reflect the authoritative accounting standards in effect for those periods.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Adjustments related to the adoption of ASC 606 include additional deferrals of revenue recognition for service-type warranties and the gross presentation of right of return assets and refund liabilities for sales with a right of return. The effects of the adoption of ASC 606 on our Consolidated Statement of Comprehensive Income for the three and six months ended February 28, 2019, and the Consolidated Balance Sheet as of February 28, 2019 are as follows (in millions except per share amounts):
Consolidated Statement of Comprehensive Income
 
Three Months Ended February 28, 2019
 
Six Months Ended February 28, 2019
 
 
As Currently Reported
 
Without ASC 606 Adoption
 
Higher (Lower)
 
As Currently Reported
 
Without ASC 606 Adoption
 
Higher (Lower)
Net sales
 
$
854.4

 
$
856.0

 
$
(1.6
)
 
$
1,787.0

 
$
1,791.0

 
$
(4.0
)
Cost of products sold
 
520.5

 
521.0

 
(0.5
)
 
1,085.6

 
1,087.4

 
(1.8
)
Selling, distribution, and administrative expenses
 
237.6

 
237.5

 
0.1

 
487.7

 
487.5

 
0.2

Operating profit
 
95.9

 
97.1

 
(1.2
)
 
212.3

 
214.7

 
(2.4
)
Income tax expense
 
19.9

 
20.2

 
(0.3
)
 
46.7

 
47.3

 
(0.6
)
Net income
 
66.3

 
67.2

 
(0.9
)
 
145.9

 
147.7

 
(1.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.68

 
$
1.70

 
$
(0.02
)
 
$
3.67

 
$
3.72

 
$
(0.05
)
Diluted earnings per share
 
1.67

 
1.69

 
(0.02
)
 
3.66

 
3.71

 
(0.05
)
Consolidated Balance Sheet
 
February 28, 2019
 
 
As Currently Reported
 
Without ASC 606 Adoption
 
Higher (Lower)
Accounts receivable, net
 
$
520.1

 
500.5

 
$
19.6

Prepayments and other current assets
 
67.5

 
52.3

 
15.2

Other accrued liabilities
 
165.3

 
130.3

 
35.0

Deferred income tax liabilities
 
89.8

 
94.6

 
(4.8
)
Other long-term liabilities
 
94.9

 
75.5

 
19.4

Retained earnings
 
2,121.6

 
2,136.4

 
(14.8
)

Accounting Standards Yet to Be Adopted
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”), which will require customers to apply internal-use software guidance to determine the implementation costs that are able to be capitalized. Capitalized implementation costs will be required to be amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use. ASU 2018-15 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2019. The standard allows changes to be applied either retrospectively or prospectively. We will adopt the standard as required in fiscal 2021. The provisions of ASU 2018-15 are not expected to have a material effect on our financial condition, results of operations, or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. The provisions of ASU 2016-13 are effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2019. Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We will adopt the amendments as required in fiscal 2021. The provisions of ASU 2016-13 are not expected to have a material effect on our financial condition, results of operations, or cash flows.
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. Since the issuance of ASU 2016-02, the FASB released several amendments to improve and clarify the implementation guidance, as well as to change the allowable adoption methods. These standards have been collectively codified within ASC 842, Leases (“ASC 842”). The standard allows entities to present the effects of the accounting change as either a cumulative adjustment as of the beginning of the earliest period

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


presented or as of the date of adoption. We have an implementation team tasked with reviewing our lease obligations and determining the impact of the new standard to our financial statements. The team is also tasked with identifying appropriate changes to our business processes, systems, and controls to support recognition and disclosure under the new standard. Currently, the implementation team has completed its review of outstanding property leases, which account for a substantial portion of our outstanding lease obligations. The team is in the process of reviewing and analyzing equipment leases, information technology contracts, and other contracts that may have ASC 842 impacts. At this time, we cannot reasonably estimate the impact of adopting the standard. The implementation team reports its findings and progress of the project to management on a frequent basis and to the Audit Committee of the Board of Directors on a quarterly basis. We will adopt the standard as required on September 1, 2019.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.

Note 5 — Revenue Recognition
We recognize revenue when we transfer control of goods and services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for goods and services and is recognized net of allowances for rebates, sales incentives, product returns, and discounts to customers. Sales and use taxes collected on behalf of governmental authorities are excluded from revenues. Payment is generally due and received within 60 days from the point of sale or prior to the transfer of control of certain goods and services. No payment terms extend beyond one year, and we apply the practical expedient within ASC 606 to conclude that no significant financing terms exist within our contracts with customers. Allowances for cash discounts to customers are estimated using the expected value method based on historical experience and are recorded as a reduction to sales. Our standard terms and conditions of sale allow for the return of certain products within four months of the date of shipment. We also provide 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, we record a refund liability for the expected value of future returns primarily based on historical experience, specific notification of pending returns, or based on 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 our operating results in future periods.
Total refund liabilities recorded under ASC 606 related to rights of return, cash discounts, and other miscellaneous credits to customers were $36.9 million and $41.2 million as of February 28, 2019 and September 1, 2018, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets. Additionally, we record right of return assets for products expected to be returned to our distribution centers, which are included within Prepayments and other current assets on the Consolidated Balance Sheets. Such assets totaled $15.2 million and $16.4 million as of February 28, 2019 and September 1, 2018, respectively.
We also maintain one-time or ongoing marketing and trade-promotion programs with certain customers that require us to estimate and accrue the expected costs of such programs. These arrangements include cooperative marketing programs, merchandising of our products, introductory marketing funds for new products, and other trade-promotion activities conducted by the customer. Costs associated with these programs are generally estimated based on the most likely amount expected to be settled based on the context of the individual contract and are reflected within the Consolidated Statements of Comprehensive Income in accordance with ASC 606, which in most instances requires such costs to be recorded as reductions of revenue. The refund liabilities associated with these programs totaled $32.9 million and $43.9 million as of February 28, 2019 and September 1, 2018, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets.
Costs to obtain and fulfill contracts, such as sales commissions and shipping and handling activities, are short-term in nature and are expensed as incurred.

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


Nature of Goods and Services
Products
Approximately 94% of revenue is generated from short-term contracts with our customers to deliver tangible goods such as luminaires, lighting controllers, controllers for various building systems, power supplies, prismatic skylights, and drivers. We record revenue from these contracts when the customer obtains control of those goods. For sales designated free on board shipping point, control is transferred at the time of shipment. For sales designated free on board destination, customers take control when a product is delivered to the customer’s delivery site.
Professional Services
We collect fees associated with training, installation, and technical support services, primarily related to the set up of our lighting solutions. We recognize revenue for these one-time services at the time the service is performed. We also sell certain service-type warranties that extend coverages for products beyond their base warranties. We account for service-type warranties as distinct performance obligations and recognize revenue for these contracts ratably over the life of the additional warranty period. Claims related to service-type warranties are expensed as incurred.
Software
Software sales include licenses for software, data usage fees, and software as a service arrangements, which generally extend for one year or less. We recognize revenue for software based on the contractual rights provided to a customer, which typically results in the recognition of revenue ratably over the contractual service period.
Shipping and Handling Activities
We account for all shipping and handling activities as activities to fulfill the promise to transfer products to our customers. As such, we do not consider shipping and handling activities to be separate performance obligations, and we expense these costs as incurred.
Contracts with Multiple Performance Obligations
A small portion (approximately 6%) of our revenue is derived from the combination of any or all of products, professional services, and software licenses. Significant judgment may be required to determine which performance obligations are distinct and should be accounted for separately. We allocate the expected consideration to be collected to each distinct performance obligation based on its standalone selling price. Standalone selling price is generally determined using a cost plus margin valuation when no observable input is available. The amount of consideration allocated to each performance obligation is recognized as revenue in accordance with the timing for products, professional services, and software as described above.
Contract Balances
Our rights related to collections from customers are unconditional and are reflected within Accounts receivable on the Consolidated Balance Sheets. We do not have any other significant contract assets. Contract liabilities arise when we receive cash or an unconditional right to collect cash prior to the transfer of control of goods or services.
The amount of transaction price from contracts with customers allocated to our contract liabilities as of February 28, 2019 and September 1, 2018 consists of the following (in millions):
 
February 28, 2019
 
September 1, 2018
Current deferred revenues
$
4.4

 
$
4.8

Non-current deferred revenues
40.3

 
35.0


Current deferred revenues primarily consist of software licenses, and to a lesser extent professional service and sales-type warranty fees collected prior to performing the related service. Current deferred revenues are included within Other current liabilities on the Consolidated Balance Sheets. These services are expected to be performed within one year. Non-current deferred revenues primarily consist of long-term service-type warranties, which are typically recognized ratably as revenue between five and ten years from the date of sale, and are included within Other long-

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


term liabilities on the Consolidated Balance Sheets. Revenue recognized from beginning balances of contract liabilities during the six months ended February 28, 2019 totaled $3.1 million.
Unsatisfied performance obligations that do not represent contract liabilities consist primarily of orders for physical goods that have not yet been shipped. This 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.
Disaggregated Revenues
Our lighting and building management solutions are sold primarily through independent sales agents who cover specific geographic areas and market channels, by internal sales representatives, through consumer retail channels, and directly to large corporate accounts. The following table shows revenue from contracts with customers by sales channel for the three and six months ended February 28, 2019 (in millions):
 
Three Months Ended
 
Six Months Ended
 
February 28, 2019
 
February 28, 2019
Independent sales network
$
571.3

 
$
1,221.1

Direct sales network
87.3

 
186.3

Retail sales
73.6

 
159.1

Corporate accounts
75.3

 
127.4

Other
46.9

 
93.1

Total
$
854.4

 
$
1,787.0



Note 6 — Fair Value Measurements
We determine fair value measurements based on the assumptions a market participant would use in pricing an asset or liability. ASC 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).
Our cash and cash equivalents (Level 1), which are required to be carried at fair value and measured on a recurring basis, were $232.0 million and $129.1 million as of February 28, 2019 and August 31, 2018, respectively.
We utilize valuation methodologies to determine the fair values of our 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.
We 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 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.

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


The carrying values and estimated fair values of certain of our financial instruments were as follows at February 28, 2019 and August 31, 2018 (in millions):
 
February 28, 2019
 
August 31, 2018
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Senior unsecured public notes, net of unamortized discount and deferred costs
$
349.7

 
$
357.0

 
$
349.5

 
$
361.7

Industrial revenue bond
4.0

 
4.0

 
4.0

 
4.0

Bank loans
3.0

 
3.1

 
3.3

 
3.3


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, we estimate that the face amount of the bond approximates fair value as of February 28, 2019 based on bonds of similar terms and maturity (Level 2).
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 us. 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 our management of liquidity and other risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.

Note 7 — Goodwill and Intangible Assets
Through multiple acquisitions, we 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.
We recorded amortization expense of $7.7 million and $6.7 million during the three months ended February 28, 2019 and 2018, respectively, and $15.4 million and $13.3 million during the six months ended February 28, 2019 and 2018, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $30.8 million in fiscal 2019, $30.8 million in fiscal 2020, $28.0 million in fiscal 2021, $27.0 million in fiscal 2022, and $25.9 million in fiscal 2023.
The changes in the carrying amount of goodwill during the six months ended February 28, 2019 and 2018 are summarized below (in millions):
 
Six Months Ended
 
February 28, 2019
 
February 28, 2018
Beginning balance
$
970.6

 
$
900.9

Additions from acquired businesses

 
13.4

Foreign currency translation adjustments
(2.1
)
 
(2.4
)
Ending balance
$
968.5

 
$
911.9


Further discussion of goodwill and other intangible assets is included within the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements within our Form 10-K.


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


Note 8 — Inventories
Inventories include materials, labor, inbound 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):
 
February 28, 2019
 
August 31, 2018
Raw materials, supplies, and work in process (1)
$
183.8

 
$
196.8

Finished goods
259.5

 
251.8

Inventories excluding reserves
443.3

 
448.6

Less: Reserves
(30.3
)
 
(36.8
)
Total inventories
$
413.0

 
$
411.8


_______________________________________
(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, we do not believe the segregation of raw materials and work in process is meaningful information.

Note 9 — Earnings Per Share

Basic earnings per share for the periods presented 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 three and six months ended February 28, 2019 and 2018 (in millions, except per share data):
 
Three Months Ended
 
Six Months Ended
 
February 28, 2019
 
February 28, 2018
 
February 28, 2019
 
February 28, 2018
Net income
$
66.3

 
$
96.9

 
$
145.9

 
$
168.4

Basic weighted average shares outstanding
39.5

 
41.4

 
39.7

 
41.6

Common stock equivalents
0.1

 
0.1

 
0.1

 
0.1

Diluted weighted average shares outstanding
39.6


41.5

 
39.8

 
41.7

Basic earnings per share
$
1.68

 
$
2.34

 
$
3.67

 
$
4.05

Diluted earnings per share
$
1.67


$
2.33


$
3.66


$
4.04


The following table presents stock options and restricted stock awards that were excluded from the diluted earnings per share calculation for the three and six months ended February 28, 2019 and 2018 as the effect of inclusion would have been antidilutive:
 
Three Months Ended
 
Six Months Ended
 
February 28, 2019
 
February 28, 2018
 
February 28, 2019
 
February 28, 2018
Stock options
314,673

 
189,428

 
290,360

 
176,549

Restricted stock awards
189,683

 
198,186

 
194,232

 
216,746


Further discussion of our stock options and restricted stock awards is included within the Common Stock and Related Matters and Share-based Payments footnotes of the Notes to Consolidated Financial Statements within our Form 10-K.


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


Note 10 — Changes in Stockholders' Equity
The following tables summarize changes in the components of stockholders' equity for the three and six months ended February 28, 2019 and 2018 (in millions):
 
Common Stock Outstanding
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Loss
 
Treasury
Stock, at cost
 
Total
Balance, August 31, 2018
40.0

 
$
0.5

 
$
906.3

 
$
1,999.2

 
$
(114.8
)
 
$
(1,074.4
)
 
$
1,716.8

Net income

 

 

 
79.6

 

 

 
79.6

Other comprehensive loss

 

 

 

 
(6.2
)
 

 
(6.2
)
ASC 606 adjustments

 

 

 
(13.0
)
 

 

 
(13.0
)
Amortization, issuance, and cancellations of restricted stock grants
0.1

 

 
3.8

 

 

 

 
3.8

Employee stock purchase plan issuances

 

 
0.1

 

 

 

 
0.1

Cash dividends of $0.13 per share paid on common stock

 

 

 
(5.2
)
 

 

 
(5.2
)
Repurchases of common stock
(0.2
)
 

 

 

 

 
(25.0
)
 
(25.0
)
Balance, November 30, 2018
39.9

 
0.5

 
910.2

 
2,060.6

 
(121.0
)
 
(1,099.4
)
 
1,750.9

Net income

 

 

 
66.3

 

 

 
66.3

Other comprehensive income

 

 

 

 
6.3

 

 
6.3

Amortization, issuance, and cancellations of restricted stock grants

 

 
7.1

 

 

 

 
7.1

Employee stock purchase plan issuances

 

 
0.2

 

 

 

 
0.2

Cash dividends of $0.13 per share paid on common stock

 

 

 
(5.3
)
 

 

 
(5.3
)
Repurchases of common stock
(0.2
)
 

 

 

 

 
(23.7
)
 
(23.7
)
Balance, February 28, 2019
39.7

 
$
0.5

 
$
917.5

 
$
2,121.6

 
$
(114.7
)
 
$
(1,123.1
)
 
$
1,801.8


 
Common Stock Outstanding
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Loss
 
Treasury
Stock, at cost
 
Total
Balance, August 31, 2017
41.8

 
$
0.5

 
$
881.0

 
$
1,659.9

 
$
(99.7
)
 
$
(776.1
)
 
$
1,665.6

Net income

 

 

 
71.5

 

 

 
71.5

Other comprehensive loss

 

 

 

 
(8.9
)
 

 
(8.9
)
Amortization, issuance, and cancellations of restricted stock grants
0.1

 

 
2.5

 

 

 
0.1

 
2.6

Employee stock purchase plan issuances

 

 
0.2

 

 

 

 
0.2

Cash dividends of $0.13 per share paid on common stock

 

 

 
(5.5
)
 

 

 
(5.5
)
Stock options exercised

 

 
0.6

 

 

 

 
0.6

Balance, November 30, 2017
41.9

 
0.5

 
884.3

 
1,725.9

 
(108.6
)
 
(776.0
)
 
1,726.1

Net income

 

 

 
96.9

 

 

 
96.9

Other comprehensive income

 

 

 

 
4.3

 

 
4.3

Reclassification of stranded tax effects of the TCJA (1)

 

 

 
11.1

 
(11.1
)
 

 

Amortization, issuance, and cancellations of restricted stock grants
0.1

 

 
7.6

 

 

 

 
7.6

Employee stock purchase plan issuances

 

 
0.1

 

 

 

 
0.1

Cash dividends of $0.13 per share paid on common stock

 

 

 
(5.4
)
 

 

 
(5.4
)
Stock options exercised

 

 
0.5

 

 

 

 
0.5

Repurchases of common stock
(1.2
)