Acuity Brands, Inc.
10-Q on 01/07/2021   Download
SEC Document
SEC Filing
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
Form 10-Q
_____________________________________________
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2020.
OR
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 30309-7676
(Address of principal executive offices)
(404853-1400
(Registrant’s telephone number, including area code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common stock, $0.01 par value per shareAYINew York Stock Exchange
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      No 
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      No 
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes      No 
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 36,026,752 shares as of January 4, 2021.



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ACUITY BRANDS, INC.
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PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
ACUITY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 November 30, 2020August 31, 2020
 (unaudited)
ASSETS
Current assets: 
Cash and cash equivalents$507.0 $560.7 
Accounts receivable, less reserve for doubtful accounts of $2.4 and $2.6, respectively
445.3 500.3 
Inventories316.1 320.1 
Prepayments and other current assets79.3 58.6 
Total current assets1,347.7 1,439.7 
Property, plant, and equipment, net268.8 270.5 
Operating lease right-of-use assets65.8 63.4 
Goodwill1,080.6 1,080.0 
Intangible assets, net596.0 605.9 
Deferred income taxes2.7 2.7 
Other long-term assets27.0 29.5 
Total assets$3,388.6 $3,491.7 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: 
Accounts payable$317.3 $326.5 
Current maturities of debt4.3 24.3 
Current operating lease liabilities18.1 17.2 
Accrued compensation75.3 85.4 
Other accrued liabilities168.4 164.2 
Total current liabilities583.4 617.6 
Long-term debt495.6 376.8 
Long-term operating lease liabilities58.1 56.8 
Accrued pension liabilities69.2 91.6 
Deferred income taxes95.3 94.9 
Self-insurance reserves6.7 6.5 
Other long-term liabilities143.3 120.0 
Total liabilities1,451.6 1,364.2 
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; 53,960,200 and 53,885,165 issued, respectively
0.5 0.5 
Paid-in capital968.6 963.6 
Retained earnings2,577.7 2,523.3 
Accumulated other comprehensive loss(126.5)(132.7)
Treasury stock, at cost — 17,571,980 and 15,012,449 shares, respectively
(1,483.3)(1,227.2)
Total stockholders’ equity1,937.0 2,127.5 
Total liabilities and stockholders’ equity$3,388.6 $3,491.7 
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 (Unaudited)
(In millions, except per-share data)
 Three Months Ended
 November 30, 2020November 30, 2019
Net sales$792.0 $834.7 
Cost of products sold459.6 478.9 
Gross profit332.4 355.8 
Selling, distribution, and administrative expenses246.0 265.3 
Special charges0.7 6.9 
Operating profit85.7 83.6 
Other expense: 
Interest expense, net4.9 8.3 
Miscellaneous expense, net1.6 1.4 
Total other expense6.5 9.7 
Income before income taxes79.2 73.9 
Income tax expense19.6 16.9 
Net income$59.6 $57.0 
Earnings per share: 
Basic earnings per share$1.58 $1.44 
Basic weighted average number of shares outstanding37.6 39.5 
Diluted earnings per share$1.57 $1.44 
Diluted weighted average number of shares outstanding37.8 39.6 
Dividends declared per share$0.13 $0.13 
Comprehensive income:
Net income$59.6 $57.0 
Other comprehensive income (loss) items:
Foreign currency translation adjustments4.6 1.9 
Defined benefit plans, net of tax1.6 1.9 
Other comprehensive income items, net of tax6.2 3.8 
Comprehensive income$65.8 $60.8 
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 (Unaudited)
(In millions)
 Three Months Ended
 November 30, 2020November 30, 2019
Cash flows from operating activities:
Net income$59.6 $57.0 
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization25.0 24.2 
Share-based payment expense7.7 16.7 
Asset impairment4.0  
Accounts receivable56.3 66.3 
Inventories4.1 4.9 
Prepayments and other current assets(20.3)(3.3)
Accounts payable(9.2)(22.7)
Other(3.3)(13.5)
Net cash provided by operating activities123.9 129.6 
Cash flows from investing activities:  
Purchases of property, plant, and equipment(11.4)(11.6)
Proceeds from sale of property, plant, and equipment0.4  
Acquisition of businesses, net of cash acquired (302.0)
Other investing activities(3.1)(1.5)
Net cash used for investing activities(14.1)(315.1)
Cash flows from financing activities:  
Issuance of long-term debt493.9  
Repayments of long-term debt(395.1)(0.4)
Repurchases of common stock(255.2) 
Proceeds from stock option exercises and other0.3 0.2 
Payments of taxes withheld on net settlement of equity awards(3.0)(4.1)
Dividends paid(5.0)(5.2)
Net cash used for financing activities(164.1)(9.5)
Effect of exchange rate changes on cash and cash equivalents0.6 0.6 
Net change in cash and cash equivalents(53.7)(194.4)
Cash and cash equivalents at beginning of period560.7 461.0 
Cash and cash equivalents at end of period$507.0 $266.6 
Supplemental cash flow information:  
Income taxes paid during the period$9.3 $4.6 
Interest paid during the period$15.1 $12.9 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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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 wholly-owned 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 a market-leading industrial technology company that develops, manufactures, and provides lighting and building technology solutions and services for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. Our lighting and building technology solutions include devices such as luminaires, lighting controls, controls 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 evolve Atrius as the intelligent building platform upon which a host of problem-solving applications can be deployed. Our solution, built on our local operating system, delivers increased efficiency and productivity by solving facility, operational, and line of business problems through location awareness. 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 November 30, 2020, our consolidated comprehensive income for the three months ended November 30, 2020 and 2019, and our consolidated cash flows for the three months ended November 30, 2020 and 2019. 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 as of and for the three years ended August 31, 2020 and notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on October 23, 2020 (File No. 001-16583) (“Form 10-K”).
The results of operations for the three months ended November 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the full fiscal year due primarily to continued uncertainty of general economic conditions that may impact our key end markets for the remainder of fiscal 2021, seasonality, and the impact of any acquisitions, among other reasons. Additionally, we are uncertain of the future impact of the ongoing COVID-19 pandemic and of possible sustained deterioration in economic conditions to our sales channels, supply chain, manufacturing, and distribution as well as overall construction, renovation, and consumer spending.

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.
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ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3 — Acquisitions
The following discussion relates to acquisitions completed during fiscal 2020. No acquisitions were completed during fiscal 2021.
Fiscal 2020 Acquisitions
The Luminaires Group
On September 17, 2019, using cash on hand and borrowings under available existing credit arrangements, we acquired all of the equity interests of The Luminaires Group (“TLG”), a leading provider of specification-grade luminaires for commercial, institutional, hospitality, and municipal markets, all of which complement our current and dynamic lighting portfolio. TLG's indoor and outdoor lighting fixtures are marketed to architects, landscape architects, interior designers, and engineers through five niche lighting brands: A-light™, Cyclone™, Eureka®, Luminaire LED™, and Luminis®.
LocusLabs, Inc.
On November 25, 2019, using cash on hand, we acquired all of the equity interests of LocusLabs, Inc (“LocusLabs”). The LocusLabs software platform supports navigation applications used on mobile devices, web browsers, and digital displays in airports, event centers, multi-floor office buildings, and campuses.
Accounting for Fiscal 2020 Acquisitions
We accounted for the acquisitions of TLG and LocusLabs (collectively, the “2020 Acquisitions”) in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). Acquired assets and liabilities were recorded at their estimated acquisition-date fair values, and acquisition-related costs were expensed as incurred. As of November 30, 2020, we have finalized the acquisition accounting for the 2020 Acquisitions. There were no material changes to our financial statements as a result of the finalization of the acquisition accounting for the 2020 Acquisitions.
The aggregate purchase price of these acquisitions reflects total goodwill and identified intangible assets of approximately $107.6 million and $180.6 million, respectively, as of November 30, 2020. 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 16 years. Goodwill recognized from these acquisitions is comprised primarily of expected benefits related to complementing and expanding our solutions portfolio, including dynamic lighting and software, as well as the trained workforce acquired with these businesses and expected synergies from combining the operations of the acquired businesses with our operations. Goodwill from these acquisitions totaling $77.7 million is expected to be tax deductible.

Note 4 — New Accounting Pronouncements
Accounting Standards Adopted in Fiscal 2021
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on the entity's estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. These standards have been collectively codified within ASC Topic 326, Credit Losses (“ASC 326”). The provisions of ASC 326 are effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2019. We adopted the provisions of ASC 326 as of September 1, 2020 and applied these changes through an immaterial cumulative-effect adjustment of $0.2 million to retained earnings as of the date of adoption. Our estimation of current expected credit losses reflects our considerations of the impact of general economic conditions, including construction spending, unemployment rates, the effects of the COVID-19 pandemic, and macroeconomic growth, on our customers' ability to meet their obligations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 requires customers to apply internal-use software guidance to determine the implementation costs that are able to be capitalized. Capitalized implementation costs are 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. We adopted ASU 2018-15 prospectively, and this standard did not have a material effect on our financial condition, results of operations, or cash flows.
Accounting Standards Yet to Be Adopted
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We are currently evaluating the impacts of the provisions of ASU 2019-12 on our financial condition, results of operations, and cash flows.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
Note 5 — 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 that categorizes 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).
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. 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.
We used quoted market prices to determine the fair value of Level 1 assets and liabilities. Our cash and cash equivalents (Level 1), which are required to be carried at fair value and measured on a recurring basis, were $507.0 million and $560.7 million as of November 30, 2020 and August 31, 2020, respectively.
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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The carrying values and estimated fair values of certain of our financial instruments were as follows as of the dates presented (in millions):
 November 30, 2020August 31, 2020
 Carrying ValueFair ValueCarrying ValueFair Value
Assets:
Investments in unconsolidated affiliates$5.5 $5.5 $6.0 $6.0 
Liabilities:  
Senior unsecured public notes, net of unamortized discount and deferred costs$493.9 $501.0 $ $ 
Borrowings under Term Loan Facility  395.0 395.0 
Industrial revenue bond4.0 4.0 4.0 4.0 
Bank loans2.0 2.2 2.1 2.3 
We hold equity investments in three unconsolidated affiliates without readily determinable fair value. These strategic investments represent less than a 20% ownership interest in each of the privately-held affiliates, and we do not maintain power over or control of the entities. We have elected the practical expedient in ASC 321, Investments—Equity Securities, to measure these investments at cost less any impairment adjusted for observable price changes, if any. Based on these considerations, we estimate that the carrying value of the acquired shares represents the fair value of the investment as of November 30, 2020. During the first quarter of fiscal 2021, we recorded an impairment charge for one of these investments of $4.0 million as a recapitalization of the underlying company diluted our holding value. This impairment is reflected in Miscellaneous expense, net within our Consolidated Statements of Comprehensive Income.
Our 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). Our industrial revenue bond (“IRB”) is carried at the outstanding balance as of the end of the reporting period. The IRB is a variable-rate instrument that resets on a frequent short-term basis; therefore, we estimate that the face amount of this bond approximates its fair value as of November 30, 2020 based on instruments 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). See Note 9 — Debt and Lines of Credit for further details on our borrowings.
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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6 — 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) and net realizable value, and consist of the following as of the dates presented (in millions):
 November 30, 2020August 31, 2020
Raw materials, supplies, and work in process (1)
$161.4 $170.3 
Finished goods196.4 199.1 
Inventories excluding reserves357.8 369.4 
Less: Reserves(41.7)(49.3)
Total inventories$316.1 $320.1 
_______________________________________
(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.
We review inventory quantities on hand and record 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 our operating results in the period the change occurs.

Note 7 — Property, Plant, and Equipment
Property, plant, and equipment consisted of the following as of the dates presented (in millions):
 November 30, 2020August 31, 2020
Land$22.4 $22.2 
Buildings and leasehold improvements194.4 192.2 
Machinery and equipment601.6 588.4 
Total property, plant, and equipment, at cost818.4 802.8 
Less: Accumulated depreciation and amortization(549.6)(532.3)
Property, plant, and equipment, net$268.8 $270.5 

Note 8 — Goodwill and Intangible Assets
Through multiple acquisitions, we have acquired definite-lived intangible assets consisting primarily of trademarks and trade names associated with specific products, 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 $10.1 million and $9.6 million during the three months ended November 30, 2020 and 2019, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $40.7 million in fiscal 2021, $40.6 million in fiscal 2022, $40.3 million in fiscal 2023, $40.1 million in fiscal 2024, and $33.3 million in fiscal 2025.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following table summarizes the changes in the carrying amount of goodwill during the periods presented (in millions):
Three Months Ended
November 30, 2020November 30, 2019
Beginning balance$1,080.0 $967.3 
Provisional additions from acquired businesses 147.8 
Foreign currency translation adjustments0.6 0.4 
Ending balance$1,080.6 $1,115.5 
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.

Note 9 — Debt and Lines of Credit
Long-term Debt
On November 10, 2020, Acuity Brands Lighting, Inc. (“ABL”), our wholly-owned operating subsidiary, issued $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 2030 (the "Unsecured Notes"). The Unsecured Notes bear interest at a rate of 2.150% per annum and were issued at a price equal to 99.737% of their face value. Interest on the Unsecured Notes will be paid semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2021. The Unsecured Notes will mature on December 15, 2030. The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands and ABL IP Holding LLC, a wholly-owned subsidiary of Acuity Brands. Additionally, we recorded $4.8 million of deferred issuance costs related to the Unsecured Notes as a direct deduction from the face amount of the Unsecured Notes. These issuance costs are amortized over the 10-year term of the Unsecured Notes. As of November 30, 2020, the balance of the bond net of unamortized discount and deferred issuance costs was $493.9 million.
As of November 30, 2020, we also had $4.0 million of tax-exempt industrial revenue bonds that are scheduled to mature in June 2021. The carrying value of these bonds is reflected within Current maturities of debt on the Consolidated Balance Sheets as of November 30, 2020. Additionally, we had $2.0 million outstanding under fixed-rate bank loans at November 30, 2020 that mature in February 2028, subject to monthly or quarterly repayment schedules. Further discussion of our long-term debt is included within the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
Lines of Credit
On June 29, 2018, we entered into a credit agreement (“Credit Agreement”) with a syndicate of banks that provides us with a $400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) and provided us with a $400.0 million unsecured delayed draw term loan facility (the “Term Loan Facility”). We had no borrowings outstanding under the Revolving Credit Facility as of November 30, 2020 or August 31, 2020. We had $395.0 million of borrowings under the Term Loan Facility as of August 31, 2020, which we fully repaid during the first quarter of fiscal 2021 using the proceeds from the Unsecured Notes. The Credit Agreement allows for no future borrowings under the Term Loan Facility.
Generally, amounts outstanding under the Revolving Credit Facility allow for borrowings to bear interest at either the Eurocurrency Rate or the base rate at our option, plus an applicable margin. 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”) or screen rate for the applicable currency plus an applicable margin. The Eurocurrency Rate applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 1.000% to 1.375%. Base rate advances bear interest at an alternate base rate plus an applicable margin. The base rate applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.000% to 0.375%.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
We are required to pay certain fees in connection with the Credit Agreement, including administrative service fees and annual facility fees. The annual facility fee is payable quarterly, in arrears, and is determined by our leverage ratio as defined in the Credit Agreement. The facility fee ranges from 0.125% to 0.250% of the aggregate $800.0 million commitment of the lenders under the Credit Agreement. The Credit Agreement contains financial covenants, including a minimum interest expense coverage ratio (“Minimum Interest Expense Coverage Ratio”) and a leverage ratio (“Maximum Leverage Ratio”) of total indebtedness to earnings before interest, tax, depreciation, and amortization (“EBITDA”), as such terms are defined in the Credit Agreement. These ratios are computed at the end of each fiscal quarter for the most recent 12-month period. The Credit Agreement generally allows for a Minimum Interest Expense Coverage Ratio of 2.50 and a Maximum Leverage Ratio of 3.50, subject to certain conditions, as such terms are defined in the Credit Agreement.
We were in compliance with all financial covenants under the Credit Agreement as of November 30, 2020. At November 30, 2020, we had additional borrowing capacity under the Credit Agreement of $395.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less the outstanding letters of credit of $4.1 million issued under the Revolving Credit Facility. As of November 30, 2020, we had outstanding letters of credit totaling $8.3 million, primarily for securing collateral requirements under our casualty insurance programs and for providing credit support for our industrial revenue bond, which includes the $4.1 million issued under the Revolving Credit Facility.
Borrowings and repayments on our Revolving Credit Facility with terms of three months or less are reported on a net basis on our Consolidated Statements of Cash Flows.
Interest Expense, net
Interest expense, net, is comprised primarily of interest expense on long-term debt, obligations in connection with non-qualified retirement benefits, and Revolving Credit Facility borrowings, partially offset by interest income earned on cash and cash equivalents.
The following table summarizes the components of interest expense, net for the periods presented (in millions):
 Three Months Ended
 November 30, 2020November 30, 2019
Interest expense$5.1 $9.0 
Interest income(0.2)(0.7)
Interest expense, net$4.9 $8.3 

Note 10 — Commitments and Contingencies
In the normal course of business, we are subject to the effects of certain contractual stipulations, events, transactions, and laws and regulations that may, at times, require the recognition of liabilities, such as those related to self-insurance estimated liabilities and claims, legal and contractual issues, environmental laws and regulations, guarantees, and indemnities. We establish estimated liabilities when the associated costs related to uncertainties or guarantees become probable and can be reasonably estimated. For the period ended November 30, 2020, no material changes have occurred in our estimated liabilities for self-insurance, litigation, environmental matters, guarantees and indemnities, or relevant events and circumstances, from those disclosed in the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
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ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Product Warranty and Recall Costs
Our products generally have a standard warranty term of five years that assure our products comply with agreed upon specifications. We record an accrual for the estimated amount of future warranty costs when the related revenue is recognized. Estimated costs related to product recalls based on a formal campaign soliciting repair or return of that product are accrued when they are deemed to be probable and can be reasonably estimated. Estimated future warranty and recall costs are primarily based on historical experience of identified warranty and recall claims. However, there can be no assurance that future warranty or recall costs will not exceed historical amounts or that new technology products may not generate unexpected costs. If actual future warranty or recall costs exceed historical amounts, additional increases in the accrual may be required, which could have a material adverse impact on our results of operations and cash flows.
Estimated liabilities for product warranty and recall costs are included in Other accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets. The following table summarizes changes in the estimated liabilities for product warranty and recall costs for the periods presented (in millions):
Three Months Ended
November 30, 2020November 30, 2019
Beginning balance$16.1 $11.5 
Warranty and recall costs6.6 7.9 
Payments and other deductions(5.9)(7.8)
Acquired warranty and recall liabilities 0.1 
Ending balance$16.8 $11.7 
Lighting Science Group Patent Litigation
On April 30, 2019 and May 1, 2019, Lighting Science Group Corp. (“LSG”) filed complaints with the International Trade Commission and United States District Court for the District of Delaware, respectively, alleging infringement of eight patents by the Company and others. On May 17, 2019, LSG amended both of its complaints and dropped its claims regarding one of the patents. On October 9, 2019 and November 6, 2019, LSG dropped from the International Trade Commission action its claims regarding four additional patents. For the remaining three patents, LSG’s infringement allegations relate to certain of our LED luminaires. On April 7, 2020 and October 1, 2020, the International Trade Commission made final determinations that LSG was not entitled to any relief. In the District of Delaware action, LSG separately sought unspecified monetary damages, costs, and attorneys’ fees. During fiscal 2021, LSG and the Company reached an agreement to resolve their patent disputes pending before the International Trade Commission, United States District Court for the District of Delaware, and the Patent Trial and Appeal Board. According to the terms of the settlement, the various pending actions will be dismissed with prejudice, each party will bear its own fees and costs, and the Company will pay no compensation for the rights granted under the settlement agreement.
Securities Class Action    
On January 3, 2018, a shareholder filed a class action complaint in the United States District Court for the District of Delaware against us and certain of our officers on behalf of all persons who purchased or otherwise acquired our stock between June 29, 2016 and April 3, 2017. On February 20, 2018, a different shareholder filed a second class action complaint in the same venue against the same parties on behalf of all persons who purchased or otherwise acquired our stock between October 15, 2015 and April 3, 2017. The cases were transferred on April 30, 2018, to the United States District Court for the Northern District of Georgia and subsequently were consolidated as In re Acuity Brands, Inc. Securities Litigation, Civil Action No. 1:18-cv-02140-MHC (N.D. Ga.). On October 5, 2018, the court-appointed lead plaintiff filed a consolidated amended class action complaint (the “Consolidated Complaint”), which supersedes the initial complaints. The Consolidated Complaint is brought on behalf of all persons who purchased our common stock between October 7, 2015 and April 3, 2017 and alleges that we and certain of our current and former officers/executives violated the federal securities laws by making false or misleading statements and/or omitting to disclose material adverse facts that (i) concealed known trends negatively impacting sales of our products and (ii) overstated our ability to achieve profitable sales growth. The plaintiffs seek unspecified monetary damages, costs, and attorneys’ fees. We dispute the allegations in the complaints and intend to vigorously defend against the claims. We filed a motion to dismiss the Consolidated Complaint. On August 12, 2019, the court entered
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
an order granting our motion to dismiss in part and dismissing all claims based on 42 of the 47 statements challenged in the Consolidated Complaint but also denying the motion in part and allowing claims based on five challenged statements to proceed to discovery. The Eleventh Circuit Court of Appeals has granted the Company permission to file an interlocutory appeal of the District Court’s class certification order. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we are currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from the matters described above. We are insured, in excess of a self-retention, for Directors and Officers liability.
Litigation
We are subject to various other 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 our financial condition, results of operations, or cash flows. 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 our financial condition, results of operations, or cash flows in future periods. We establish estimated liabilities 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 accrued for such claims. However, we cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the accrued amounts.

Note 11 — Changes in Stockholders' Equity
The following tables summarize changes in the components of stockholders' equity for the periods presented (in millions):
Common Stock Outstanding
SharesAmountPaid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Loss
Treasury
Stock, at cost
Total
Balance, August 31, 202038.9 $0.5 $963.6 $2,523.3 $(132.7)$(1,227.2)$2,127.5 
Net income— — — 59.6 — — 59.6 
Other comprehensive income— — — — 6.2 — 6.2 
Cumulative effect of adoption of ASC 326 (1)
— — — (0.2)— — (0.2)
Share-based payment amortization, issuances, and cancellations0.1 — 4.7 — — — 4.7 
Employee stock purchase plan issuances— — 0.3 — — — 0.3 
Cash dividends of $0.13 per share paid on common stock
— — — (5.0)— — (5.0)
Repurchases of common stock(2.6)— — — — (256.1)(256.1)
Balance, November 30, 202036.4 $0.5 $968.6 $2,577.7 $(126.5)$(1,483.3)$1,937.0 
____________________________________
(1) See Note 4 - New Accounting Pronouncements for further details on our adoption of ASC 326.
Common Stock Outstanding
SharesAmountPaid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Loss
Treasury
Stock, at cost
Total
Balance, August 31, 201939.5 $0.5 $930.0 $2,295.8 $(151.4)$(1,156.0)$1,918.9 
Net income— — — 57.0 — — 57.0 
Other comprehensive income— — — — 3.8 — 3.8 
Share-based payment amortization, issuances, and cancellations — 12.6 — — — 12.6 
Employee stock purchase plan issuances— — 0.2 — — — 0.2 
Cash dividends of $0.13 per share paid on common stock
— — — (5.2)— — (5.2)
Balance, November 30, 201939.5 $0.5 $942.8 $2,347.6 $(147.6)$(1,156.0)$1,987.3 

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ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 12 — 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. Further details regarding revenue recognition are included within the Revenue Recognition footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
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 consists of the following as of the periods presented (in millions):
November 30, 2020August 31, 2020
Current deferred revenues$5.2 $5.4 
Non-current deferred revenues54.2 53.6 
Current deferred revenues primarily consist of software licenses as well as 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-term liabilities on the Consolidated Balance Sheets. Revenue recognized from beginning balances of contract liabilities during the three months ended November 30, 2020 totaled $2.8 million.
Unsatisfied performance obligations as of November 30, 2020 that do not represent contract liabilities consist primarily of orders for physical goods that have not yet been shipped, which are typically shipped within a few weeks of order receipt.
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 periods presented (in millions):
Three Months Ended
November 30, 2020November 30, 2019
Independent sales network$599.5 $618.0 
Direct sales network76.3 84.3 
Retail sales55.0 53.4 
Corporate accounts24.0 33.5 
Other37.2 45.5 
Total $792.0 $834.7 

Note 13 — Share-based Payments
We account for share-based payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors over the related requisite service period, including stock options, performance share units, and restricted shares (all part of our equity incentive plan), as well as share units representing certain deferrals into our director deferred compensation plan or our supplemental deferred
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
savings plan.
The following table presents share-based payment expense for the periods presented (in millions):
Three Months Ended
November 30, 2020November 30, 2019
Share-based payment expense$7.7 $16.7 
Further details regarding our stock options, restricted shares, and director compensation award programs as well as our share-based payments are included within the Share-based Payments footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
Equity Plan Updates
Effective for restricted stock and performance share grants awarded in October 2020 and thereafter, the Board of Directors (the “Board”) discontinued a policy that provided for the continued vesting of stock awards following retirement for all eligible participants who have attained age 60 and have at least ten years of service with the Company. This policy required acceleration of share-based payment expense in certain circumstances.
Stock Options
As of November 30, 2020, we had approximately 1,192,000 options outstanding to officers and other key employees. The increase from the prior fiscal year end was due to a grant on September 1, 2020 of approximately 277,000 options that have an exercise price equal to or greater than the fair market value of our stock as of the grant date. These options vest and become exercisable over a four-year period and are also subject to a market condition (the "Market Options"). All of these options expire after ten years from the date of grant.
The following weighted average assumptions were used to estimate the fair value of the Market Options granted in the first quarter of fiscal 2021:
Market Options
Valuation MethodologyMonte Carlo Simulation
Dividend yield0.5%
Expected volatility36.5%
Risk-free interest rate0.7%
Expected life of options8 years
Weighted-average fair value of options$40.45
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 our 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 contractual term for the Market Options. The expected life of the options is based on projected exercise dates resulting from the Monte Carlo simulation for each award tranche. All inputs noted above 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 share-based payment expense.
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ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Stock option activity during the periods presented was as follows:
 OutstandingExercisable
Number of
Shares
(in millions)
Weighted Average
Exercise Price
Number of
Shares
(in millions)
Weighted Average
Exercise Price
Outstanding at August 31, 20200.9$133.190.4$151.07
Granted0.3$108.96  
Canceled*  
Outstanding at November 30, 20201.2$127.560.4$148.90
Range of option exercise prices:    
$40.01 - $100.00 (average life - 1.9 years)
0.1$62.250.1$62.25
$100.01 - $160.00 (average life - 8.6 years)
1.0$119.110.2$126.85
$160.01 - $210.00 (average life - 4.9 years)
0.1$207.800.1$207.80
$210.01 - $239.76 (average life - 5.9 years)
*$239.76*$239.76
___________________________
* Represents shares of less than 0.1 million.
No options were exercised during the three months ended November 30, 2020 or 2019. As of November 30, 2020, the total intrinsic value of options outstanding was $7.5 million, the total intrinsic value of options expected to vest was $2.9 million, and the total intrinsic value of options exercisable was $4.5 million. As of November 30, 2020, there was $23.6 million of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted-average period of approximately 2.5 years.
Note 14 — Pension Plans
We have 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. We make at least the minimum 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.
Service cost of net periodic pension cost is allocated between Cost of products sold and Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the nature of the employee's services. All other components of net periodic pension cost are included within Miscellaneous expense, net in the Consolidated Statements of Comprehensive Income. Net periodic pension cost included the following components before tax for the periods presented (in millions):
 Three Months Ended
 November 30, 2020November 30, 2019
Service cost$1.2 $1.2 
Interest cost1.6 1.8 
Expected return on plan assets(3.3)(3.1)
Amortization of prior service cost0.7 1.0 
Recognized actuarial loss1.4 1.4 
Net periodic pension cost$1.6 $2.3 
Further details regarding our pension plans are included within the Pension and Defined Contribution Plans 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 15 — Special Charges
During the first three months of fiscal 2021, we recognized pre-tax special charges of $0.7 million, which consisted of severance costs and charges for relocation costs associated with the previously announced transfer of activities from planned facility closures. We expect these actions to streamline our business activities, integrate recent acquisitions, and respond to reduced demand due to the COVID-19 pandemic will allow us 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. Further details regarding our special charges are included within the Special Charges footnote of the Notes to Consolidated Financial Statements within our Form 10-K.
The following table summarizes costs reflected within Special charges on the Consolidated Statements of Comprehensive Income for the periods presented (in millions):
Three Months Ended
November 30, 2020November 30, 2019
Severance and employee-related costs$0.3 $5.1 
Relocation and other restructuring costs0.4 1.8 
Total special charges$0.7 $6.9 
As of November 30, 2020, remaining restructuring reserves were $2.0 million and are included in Accrued compensation on the Consolidated Balance Sheets. The changes in the reserves related to these programs during the period presented are summarized as follows (in millions):
Fiscal 2020 Actions
Balance at August 31, 2020$3.0 
Severance and employee-related costs0.3 
Payments made during the period(1.3)
Balance at November 30, 2020$2.0 

Note 16 — Earnings Per Share
Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding. 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 periods presented (in millions, except per share data):
Three Months Ended
November 30, 2020November 30, 2019
Net income$59.6 $57.0 
Basic weighted average shares outstanding37.6 39.5 
Common stock equivalents0.2 0.1 
Diluted weighted average shares outstanding37.8 39.6 
Basic earnings per share$1.58 $1.44 
Diluted earnings per share$1.57 $1.44 
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ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following table presents stock options, performance stock awards, and restricted stock awards that were excluded from the diluted earnings per share calculation for the periods presented as the effect of inclusion would have been antidilutive:
Three Months Ended
November 30, 2020November 30, 2019
Stock options1,127,837 278,972 
Restricted stock awards185,419 118,036 
No performance share units were antidilutive for the three months ended November 30, 2020 and 2019.
Further discussion of our stock options and restricted stock awards is included within the Common Stock and Related Matters and Share-based Payments footnotes of the Notes to Consolidated Financial Statements within our Form 10-K.
Note 17 — Comprehensive Income
Comprehensive income represents a measure of all changes in equity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Other comprehensive income (loss) items includes foreign currency translation and pension adjustments.
The following tables summarize the changes in each component of accumulated other comprehensive loss during the periods presented (in millions):
 Foreign Currency Items Defined Benefit Pension Plans Accumulated Other Comprehensive Loss Items
Balance at August 31, 2020$(53.5)$(79.2)$(132.7)
Other comprehensive income before reclassifications4.6  4.6 
Amounts reclassified from accumulated other comprehensive loss (1)
 1.6 1.6 
Net current period other comprehensive income4.6 1.6 6.2 
Balance at November 30, 2020$(48.9)$(77.6)$(126.5)
 Foreign Currency Items Defined Benefit Pension Plans Accumulated Other Comprehensive Loss Items
Balance at August 31, 2019$(65.4)$(86.0)$(151.4)
Other comprehensive income before reclassifications1.9  1.9 
Amounts reclassified from accumulated other comprehensive loss (1)
 1.9 1.9 
Net current period other comprehensive income1.9 1.9 3.8 
Balance at November 30, 2019$(63.5)$(84.1)$(147.6)
_______________________________________
(1) The before tax amounts of the defined benefit pension plan items are included in net periodic pension cost. See the Pension and Defined Contribution Plans footnote for additional details.
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ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following table summarizes the tax expense or benefit allocated to each component of other comprehensive income (loss) for the periods presented (in millions):
Three Months Ended
November 30, 2020November 30, 2019
 Before Tax Amount Tax (Expense) Benefit Net of Tax Amount Before Tax Amount Tax (Expense) Benefit Net of Tax Amount
Foreign currency translation adjustments$4.6 $ $4.6 $1.9 $ $1.9 
Defined benefit pension plans:
Amortization of defined benefit pension items:
Prior service cost
0.7 (0.2)0.5 1.0 (0.2)0.8 
Actuarial losses1.4 (0.3)1.1 1.4 (0.3)1.1 
Total defined benefit pension plans, net2.1 (0.5)1.6 2.4 (0.5)1.9 
Other comprehensive income$6.7 $(0.5)$6.2 $4.3 $(0.5)$3.8 

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Item 2.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 as of November 30, 2020 and for the three months ended November 30, 2020 and 2019. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report. Also, please refer to Acuity Brands' Annual Report on Form 10-K for the fiscal year ended August 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) on October 23, 2020 (“Form 10-K”).
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 “we,” “our,” “us,” “the Company,” or similar references). Our principal office is located in Atlanta, Georgia.
We are a market-leading industrial technology company that designs, manufactures, and brings to market products and services for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. Our products include building management systems, lighting, lighting controls, and location aware applications. We achieve growth through the development of innovative new products and services. Through the Acuity Business System, we achieve customer-focused efficiencies that allow us to increase market share and deliver superior returns. We look to aggressively deploy capital to grow the business and to enter attractive new verticals. As of November 30, 2020, we operate 18 manufacturing facilities and eight distribution facilities along with two warehouses to serve our extensive customer base.
We do not consider acquisitions a critical element of our strategy but seek opportunities to expand and enhance our portfolio of solutions, including the following transactions during the prior fiscal year.
On September 17, 2019, using cash on hand and borrowings under available existing credit arrangements, we acquired all of the equity interests of The Luminaires Group (“TLG”), a leading provider of specification-grade luminaires for commercial, institutional, hospitality, and municipal markets, all of which complement our current and dynamic lighting portfolio. TLG’s indoor and outdoor lighting fixtures are marketed to architects, landscape architects, interior designers, and engineers through five niche lighting brands: A-light™, Cyclone™, Eureka®, Luminaire LED™, and Luminis®.
On November 25, 2019, using cash on hand, we acquired all of the equity interests of LocusLabs, Inc (“LocusLabs”). The LocusLabs software platform supports navigation applications used on mobile devices, web browsers, and digital displays in airports, event centers, multi-floor office buildings, and campuses.
The results of operations for the three months ended November 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the full fiscal year due primarily to continued uncertainty of general economic conditions that may impact our key end markets for fiscal 2021, seasonality, and the impact of any acquisitions, among other reasons. Additionally, we are uncertain of the future impact of the ongoing COVID-19 pandemic and of possible sustained deterioration in economic conditions to our sales channels, supply chain, manufacturing, and distribution as well as overall construction, renovation, and consumer spending.
The COVID-19 Pandemic
During March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. This pandemic has resulted in worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets. However, our manufacturing operations are deemed essential and continue to operate. We remain committed to prioritizing the health and well-being of our associates and their families and ensuring that we operate effectively. We have implemented policies to screen associates, contractors, and vendors for COVID-19 symptoms upon entering our manufacturing and distribution and open office facilities in the United States, Mexico, and other locations as permitted by law. We have also implemented one-way traffic flows, additional cleaning requirements for common spaces, mandatory face coverings, hand sanitizer stations, socially distanced workspaces, and self-serve pay stations within our cafeterias to mitigate the spread of the virus. Additionally, we are requiring certain employees whose job functions can be performed remotely to work from home for the foreseeable future.
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Government-mandated and voluntary social distancing measures had an adverse impact on our results of operations. The pandemic has caused reduced construction and renovation spending during the year as well as a disruption in our supply chain for certain components, both of which negatively impacted our fiscal 2021 sales. In fiscal 2020 we experienced a limited number of temporary facility shutdowns due to government-mandated closures. We also continue to incur additional health and safety costs including expenditures for personal protection equipment and facility enhancements to maintain proper distancing guidelines issued by the Centers for Disease Control and Prevention. In response to our sales declines, we have taken actions to reduce costs, including the realignment of headcount with current volumes, a freeze on all non-essential employee travel, other efforts to decrease discretionary spending, and planned reductions in our real estate footprint.

Although we have implemented significant measures to mitigate further spread of the virus, our employees, customers, suppliers, and contractors may continue to experience disruptions to business activities due to potential further government-mandated or voluntary shutdowns, general economic conditions, or other negative impacts of the COVID-19 pandemic. We are continuously monitoring the adverse effects of the pandemic and identifying steps to mitigate those effects. As the COVID-19 pandemic is continually evolving, we are uncertain of its ultimate duration and impact. See Part I, Item 1a. Risk Factors of our Form 10-K. for further details regarding the potential impacts of COVID-19 to our results of operations, financial position, and cash flows.
Liquidity and Capital Resources
Our principal sources of liquidity are operating cash flows generated primarily from our business operations, cash on hand, and various sources of borrowings. Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund our operations and capital expenditures, pay dividends, repurchase shares, meet obligations as they become due, and maintain compliance with covenants contained in our financing agreements.
For the first three months of fiscal 2021, we paid $11.4 million for property, plant, and equipment, primarily for tooling, new and enhanced information technology capabilities, equipment, and facility enhancements. We currently expect to invest approximately 1.5% of net sales on capital expenditures during fiscal 2021.
During the first quarter of fiscal 2021, we repurchased 2.6 million shares. As of November 30, 2020, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 5.1 million shares. We expect to repurchase the remaining shares available for repurchase on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash.
Our short-term cash needs are expected to include funding operations as currently planned; making capital investments as currently anticipated; paying quarterly stockholder dividends as currently anticipated; paying principal and interest on debt as currently scheduled; making required contributions and distributions related to our employee benefit plans; funding possible acquisitions; and potentially repurchasing shares of our outstanding common stock. We believe that we will be able to meet our liquidity needs over the next 12 months based on our cash on hand, current projections of cash flow from operations, and borrowing availability under financing arrangements. Additionally, we believe that our cash flows from operations and sources of funding, including, but not limited to, future borrowings and borrowing capacity, will sufficiently support our long-term liquidity needs. However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A continued worldwide disruption could materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions.
Cash Flow
We use available cash and cash flows from operations, borrowings, and proceeds from the exercise of stock options to fund operations, capital expenditures, and acquisitions if any; to repurchase Company stock; and to pay dividends.
Our cash position at November 30, 2020 was $507.0 million, a decrease of $53.7 million from August 31, 2020. During the three months ended November 30, 2020, we generated net cash flows from operations of $123.9 million. Borrowings completed in the first quarter of fiscal 2021, as more fully described below under the Capitalization section, contributed $493.9 million to the cash position. Cash generated from operating activities, cash on-hand, and funds from borrowings were used during the three months ended November 30, 2020 primarily to repay
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borrowings on our Term Loan Facility (defined below) of $395.0 million, to pay for share repurchases of $255.2 million, to fund capital expenditures of $11.4 million, to pay dividends to stockholders of $5.0 million, and to pay withholding taxes on the net settlement of equity awards of $3.0 million.
We generated $123.9 million of cash flows from operating activities during the three months ended November 30, 2020 compared with $129.6 million in the prior-year period, a decrease of $5.7 million, due primarily to the timing of certain payments.
We believe that investing in assets and programs that will over time increase the overall return on our invested capital is a key factor in driving stockholder value. We paid $11.4 million and $11.6 million during the first three months of fiscal 2021 and 2020, respectively, for property, plant, and equipment, primarily related to investments in tooling, new and enhanced information technology capabilities, equipment, and facility enhancements.
Capitalization
On November 10, 2020, Acuity Brands Lighting, Inc. (“ABL”), our wholly-owned operating subsidiary, issued $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 2030 (the "Unsecured Notes"). The Unsecured Notes bear interest at a rate of 2.150% per annum and were issued at a price equal to 99.737% of their face value. Interest on the Unsecured Notes will be paid semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2021. The Unsecured Notes will mature on December 15, 2030. 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. Additionally, we capitalized $4.8 million of deferred issuance costs related to the Unsecured Notes that are being amortized over the 10-year term. As of November 30, 2020, the balance of the bond net of unamortized discount and deferred issuance costs was $493.9 million.
As of November 30, 2020, we also had $4.0 million of tax-exempt industrial revenue bonds that are scheduled to mature in June 2021. The carrying value of these bonds is reflected within Current maturities of debt on the Consolidated Balance Sheets as of November 30, 2020. Additionally, we had $2.0 million outstanding under fixed-rate bank loans outstanding at November 30, 2020 that mature in February 2028, subject to monthly or quarterly repayment schedules. There have been no other material changes outside of the ordinary course of business in our contractual obligations since August 31, 2020.
The following tables present summarized financial information for Acuity Brands, ABL, and ABL IP Holding LLC on a combined basis after the elimination of all intercompany balances and transactions between the combined group as well as any investments in non-guarantors as of the dates and during the period presented (in millions):
Summarized Balance Sheet InformationNovember 30, 2020August 31, 2020
Current assets$1,027.6 $1,152.6 
Current assets due from non-guarantor affiliates219.4 183.3 
Non-current assets1,404.6 1,416.0 
Current liabilities498.0 530.2 
Non-current liabilities842.6 723.8 
Summarized Income Statement InformationThree Months Ended November 30, 2020
Net sales$662.2 
Gross profit280.7 
Net income60.0 
As of November 30, 2020, our capital structure was comprised principally of the Unsecured Notes and equity of our stockholders. Total debt outstanding was $499.9 million at November 30, 2020 and consisted primarily of fixed-rate obligations. At August 31, 2020, total debt outstanding was $401.1 million and consisted primarily of variable-rate obligations.
On June 29, 2018, we entered into a credit agreement (“Credit Agreement”) with a syndicate of banks that provides us with a $400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) and a $400.0 million unsecured delayed draw term loan facility (the “Term Loan Facility)”. We had no borrowings outstanding under the Revolving Credit Facility or the Term Loan Facility as of November 30, 2020 or August 31, 2020. We had $395.0 million of borrowings under the Term Loan Facility as of August 31, 2020, which we fully repaid during the first quarter of fiscal 2021 using the proceeds from the Unsecured Notes. The Credit Agreement allows for no future borrowings under the Term Loan Facility.
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We were in compliance with all financial covenants under the Credit Agreement as of November 30, 2020. At November 30, 2020, we had additional borrowing capacity under the Credit Agreement of $395.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less the outstanding letters of credit of $4.1 million issued under the Revolving Credit Facility. As of November 30, 2020, we had outstanding letters of credit totaling $8.3 million, primarily for securing collateral requirements under our casualty insurance programs and for providing credit support for our industrial revenue bond, which includes the $4.1 million issued under the Revolving Credit Facility. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for more information.
During the first three months of fiscal 2021, our consolidated stockholders’ equity decreased $190.5 million to $1.9 billion at November 30, 2020, from $2.1 billion at August 31, 2020. The decrease was due primarily to repurchases of our outstanding common stock, partially offset by net income earned. Our debt to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders’ equity) was 20.5% and 15.9% at November 30, 2020 and August 31, 2020, respectively. The ratio of debt, net of cash, to total capitalization, net of cash, was (0.4)% and (8.1)% at November 30, 2020 and August 31, 2020, respectively.
Dividends
We paid dividends on our common stock of $5.0 million ($0.13 per share) and $5.2 million ($0.13 per share) during the three months ended November 30, 2020 and 2019, respectively. All decisions regarding the declaration and payment of dividends are at the discretion of the Board and are evaluated regularly in light of our financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.

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Results of Operations
First Quarter of Fiscal 2021 Compared with First Quarter of Fiscal 2020
The following table sets forth information comparing the components of net income for the three months ended November 30, 2020 and 2019 (in millions except per share data):
Three Months Ended
 November 30, 2020November 30, 2019Increase (Decrease) Percent Change
Net sales$792.0 $834.7 $(42.7)(5.1)%
Cost of products sold459.6 478.9 (19.3)(4.0)%
Gross profit332.4 355.8 (23.4)(6.6)%
Percent of net sales42.0 %42.6 %(60)bps 
Selling, distribution, and administrative expenses246.0 265.3 (19.3) (7.3)%
Special charges0.7 6.9 (6.2)NM
Operating profit85.7 83.6 2.1  2.5 %
Percent of net sales10.8 %10.0 %80 bps 
Other expense:     
Interest expense, net4.9 8.3 (3.4) (41.0)%
Miscellaneous expense, net1.6 1.4 0.2  NM
Total other expense6.5 9.7 (3.2) (33.0)%
Income before income taxes79.2 73.9 5.3 7.2 %
Percent of net sales10.0 %8.9 %110 bps
Income tax expense19.6 16.9 2.7 16.0 %
Effective tax rate24.7 %22.9 %   
Net income$59.6 $57.0 $2.6 4.6 %
Diluted earnings per share$1.57 $1.44 $0.13 9.0 %
NM - not meaningful
Net sales were $792.0 million for the three months ended November 30, 2020 compared with $834.7 million repor