Acuity Brands(AYI) - 2022 Q4 - Annual Report

PART I Item 1. Business. Acuity Brands, Inc, a leading industrial technology company, operates through its ABL and ISG segments to market advanced lighting and building management solutions - Acuity Brands, Inc is a market-leading industrial technology company focused on solving problems in spaces and light through technology[8] - The company operates two business segments: Acuity Brands Lighting and Lighting Controls (ABL) and the Intelligent Spaces Group (ISG)[8] Segment Revenue Contribution (Fiscal 2020-2022) | Segment | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :------ | :---------- | :---------- | :---------- | | ABL | ~95% | ~95% | ~95% | | ISG | ~5% | ~5% | ~5% | - ABL's portfolio includes commercial, architectural, and specialty lighting, lighting controls, and components, predominantly utilizing LED technology for energy efficiency[9] - ISG delivers products and services for smarter, safer, and greener spaces, including a building management platform (Atrius software) for HVAC, lighting, shades, and building access control[11] Manufacturing and Sourcing (Fiscal 2022) | Geographic Region | Manufactured | Purchased | Total | | :---------------- | :----------- | :-------- | :------ | | United States | 14% | 9% | 23% | | Mexico | 56% | —% | 56% | | Asia | —% | 16% | 16% | | Others | 5% | —% | 5% | | Total | 75% | 25% | 100% | Research and Development Expenses (Fiscal 2020-2022) | Fiscal Year | R&D Expenses (Millions USD) | | :---------- | :-------------------------- | | 2022 | $95.1 | | 2021 | $88.3 | | 2020 | $82.0 | - The company operates in a highly competitive industry influenced by general business and economic factors, including non-residential and residential construction activity[20] - The market is influenced by evolving technologies such as solid-state lighting, embedded controls, and intelligent building systems, as well as energy codes and sustainability incentives[21] - The COVID-19 pandemic negatively impacted operations through reduced construction/renovation spending and supply chain disruptions, leading to increased costs and cost reduction measures[32] Employee Count (August 31, 2022) | Location | Number of Associates | | :-------------- | :------------------- | | United States | ~3,900 | | Mexico | ~8,400 | | Other Int'l | ~900 | | Total | ~13,200 | Item 1a. Risk Factors. The company faces material risks from raw material costs, competitive pressures, operational disruptions, regulatory compliance, and financial market volatility - Risks related to strategy include fluctuations in raw material costs and availability, inability to maintain pricing, and challenges in effective innovation[47][52][54] - Operational risks encompass the ongoing effects of the COVID-19 pandemic, technological developments and increased competition, disruptions to operations (e.g, labor disputes, natural disasters, cyber-attacks), and the inability to attract and retain talented employees[62][65][71][79] - Legal and regulatory risks involve failure to comply with a broad range of standards and laws (environmental, data privacy), unexpected legal contingencies, product liability claims, and intellectual property disputes[92][95][96][98] - Financial risks include volatility in the market price and trading volume of shares, and risks related to defined benefit retirement plans[104][106] Item 1b. Unresolved Staff Comments. There are no unresolved staff comments from the SEC - The company has no unresolved staff comments[108] Item 2. Properties. The company operates 18 manufacturing facilities and numerous other properties globally, which are considered well-maintained and adequate for current needs - General corporate offices are located in Atlanta, Georgia[108] Significant Facility Categories (August 31, 2022) | Nature of Facilities | ABL Owned | ABL Leased | ISG Owned | ISG Leased | Corporate Leased | Total Owned | Total Leased | | :------------------- | :-------- | :--------- | :-------- | :--------- | :--------------- | :---------- | :----------- | | Manufacturing | 10 | 6 | 2 | — | — | 12 | 6 | | Warehouses | — | 1 | — | — | — | — | 1 | | Distribution Centers | 2 | 6 | — | — | — | 2 | 6 | | Offices | 5 | 12 | — | 2 | 1 | 5 | 15 | | Total | 17 | 25 | 2 | 2 | 1 | 19 | 28 | Manufacturing Facilities by Geography (August 31, 2022) | Segment | United States | Mexico | Europe | Canada | Total | | :------ | :------------ | :----- | :----- | :----- | :---- | | ABL | 6 | 7 | 1 | 2 | 16 | | ISG | — | — | 1 | 1 | 2 | | Total | 6 | 7 | 2 | 3 | 18 | Item 3. Legal Proceedings. Information regarding legal proceedings is detailed in the Commitments and Contingencies footnote of the financial statements - Legal proceedings information is provided in the Commitments and Contingencies footnote[111] Item 4. Mine Safety Disclosures. Mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[111] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. The company's common stock trades on the NYSE under 'AYI', with an active share repurchase program and stock performance that has underperformed key indices - Common stock is listed on the New York Stock Exchange under the symbol 'AYI'[112] - As of October 21, 2022, there were 1,856 stockholders of record[112] - The Board of Directors authorized the repurchase of up to five million shares on March 31, 2022; as of August 31, 2022, 2.8 million shares remained under this authorization[114] Issuer Purchases of Equity Securities (Quarter Ended August 31, 2022) | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :------------------------- | :--------------------- | :------------------------------- | | 6/1/2022 through 6/30/2022 | 339,454 | 166.98 | | 7/1/2022 through 7/31/2022 | 215,320 | 166.92 | | 8/1/2022 through 8/31/2022 | 78,030 | 179.42 | | Total | 632,804 | 168.50 | Five-Year Cumulative Total Return (August 31, 2017 - August 31, 2022) | Index | Aug-17 ($) | Aug-18 ($) | Aug-19 ($) | Aug-20 ($) | Aug-21 ($) | Aug-22 ($) | | :------------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Acuity Brands, Inc. | 100 | 87 | 71 | 63 | 106 | 95 | | S&P Midcap 400 Index | 100 | 120 | 112 | 117 | 169 | 152 | | Dow Jones U.S. Electrical Components & Equipment Index | 100 | 117 | 105 | 121 | 176 | 156 | | Dow Jones U.S. Building Materials & Fixtures Index | 100 | 106 | 117 | 138 | 219 | 172 | Item 6. [Reserved] This item is reserved and contains no information - Item 6 is reserved[122] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Fiscal 2022 saw significant growth in net sales and operating profit driven by price increases, though operating cash flow decreased due to working capital investments - Acuity Brands is a market-leading industrial technology company focused on growth through innovative products and services, customer-focused efficiencies, and strategic capital deployment[124] - The company's capital allocation priorities are to invest in current business for growth, pursue mergers and acquisitions, maintain its dividend, and execute share repurchases[133] Key Financial Highlights (Fiscal 2022 vs. 2021) | Metric | FY2022 (Millions USD) | FY2021 (Millions USD) | Change (Millions USD) | % Change | | :------------------------- | :-------------------- | :-------------------- | :-------------------- | :------- | | Net Sales | $4,006.1 | $3,461.0 | $545.1 | 15.7% | | Gross Profit | $1,672.7 | $1,475.0 | $197.7 | 13.4% | | Gross Profit Margin | 41.8% | 42.6% | (80) bps | | | Operating Profit | $509.7 | $427.6 | $82.1 | 19.2% | | Operating Profit Margin | 12.7% | 12.4% | 30 bps | | | Net Income | $384.0 | $306.3 | $77.7 | 25.4% | | Diluted EPS | $11.08 | $8.38 | $2.70 | 32.2% | - Net sales increased by 15.7% in fiscal 2022, driven by price increases and higher volumes in both ABL and ISG segments, with acquisitions contributing approximately 3%[145] - Gross profit margin decreased by 80 basis points to 41.8% in fiscal 2022 due to material, labor, and freight escalations, partially offset by pricing actions and the dilutive effects of recent acquisitions[146] - Operating profit margin increased by 30 basis points to 12.7% in fiscal 2022, primarily due to improved leveraging of operating costs and lower special charges, despite a lower gross profit margin[147][148] Segment Performance (Fiscal 2022 vs. 2021) | Segment | Metric | FY2022 (Millions USD) | FY2021 (Millions USD) | Change (Millions USD) | % Change | | :------ | :----------------- | :-------------------- | :-------------------- | :-------------------- | :------- | | ABL | Net Sales | $3,810.1 | $3,287.3 | $522.8 | 15.9% | | | Operating Profit | $545.6 | $476.2 | $69.4 | 14.6% | | | Operating Profit Margin | 14.3% | 14.5% | (20) bps | | | ISG | Net Sales | $216.1 | $190.0 | $26.1 | 13.7% | | | Operating Profit | $22.7 | $9.9 | $12.8 | 129.3% | | | Operating Profit Margin | 10.5% | 5.2% | 530 bps | | - Cash and cash equivalents decreased by $268.1 million to $223.2 million at August 31, 2022, primarily due to higher working capital investments and share repurchases[128] - Cash flows from operating activities decreased by $92.4 million to $316.3 million in fiscal 2022, mainly due to increased working capital investments[128] - The company repurchased 2.9 million shares for $511.7 million in fiscal 2022[137] - Critical accounting estimates include revenue recognition, inventories, goodwill and indefinite-lived intangible assets, share-based payment expense, and product warranty and recall costs, all requiring significant management judgment and assumptions[157][159][161][163][172][174] Item 7a. Quantitative and Qualitative Disclosures About Market Risk. The company is exposed to market risks from interest rate fluctuations and foreign exchange rate changes, particularly for its Mexican and Canadian operations - The company is exposed to market risks from changing interest and foreign exchange rates[181] - Long-term debt primarily consists of fixed-rate senior unsecured notes, limiting exposure to interest rate fluctuations[182] - A hypothetical 10% increase in market interest rates would decrease the estimated fair value of senior unsecured notes by approximately $14.9 million[182] - Foreign exchange rate exposure exists due to operations in Mexico and Canada[183] Hypothetical Foreign Exchange Rate Impact on Operating Profit (Fiscal 2022) | Currency | Change in Value | Impact on Operating Profit (Millions USD) | | :------- | :-------------- | :---------------------------------------- | | CAD | -10% | -$13 | | CAD | +10% | +$16 | | MXN | -10% | +$15 | | MXN | +10% | -$18 | Item 8. Financial Statements and Supplementary Data. This section presents the audited consolidated financial statements, management's report on internal controls, independent auditor reports, and detailed notes Management's Report on Internal Control over Financial Reporting Management asserts that the company maintained effective internal control over financial reporting as of August 31, 2022, based on the COSO framework - Management believes the company's internal control over financial reporting was effective as of August 31, 2022, based on the COSO (2013 Framework) criteria[189] Reports of Independent Registered Public Accounting Firm Ernst & Young LLP issued unqualified opinions on the financial statements and internal controls, identifying the valuation of trade names as a critical audit matter - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the three years ended August 31, 2022[192] - An unqualified opinion was also issued on the effectiveness of the company's internal control over financial reporting as of August 31, 2022[193][205] - The critical audit matter was the valuation of indefinite-lived trade names, due to the judgmental nature of significant assumptions used in the discounted future cash flow model[198][199] Consolidated Balance Sheets Total assets decreased to $3,480.2 million in 2022, driven by a reduction in cash and an increase in treasury stock, while total stockholders' equity also declined Consolidated Balance Sheet Summary (Millions USD) | Metric | August 31, 2022 | August 31, 2021 | | :-------------------------- | :-------------- | :-------------- | | Cash and cash equivalents | $223.2 | $491.3 | | Total current assets | $1,466.0 | $1,544.3 | | Property, plant, and equipment, net | $276.5 | $269.1 | | Goodwill | $1,084.3 | $1,094.7 | | Intangible assets, net | $529.2 | $573.2 | | Total assets | $3,480.2 | $3,575.1 | | Total current liabilities | $733.6 | $692.2 | | Long-term debt | $495.0 | $494.3 | | Total liabilities | $1,568.4 | $1,530.6 | | Total stockholders' equity | $1,911.8 | $2,044.5 | Consolidated Statements of Comprehensive Income Fiscal 2022 showed significant growth, with net sales reaching $4,006.1 million and net income increasing to $384.0 million, resulting in diluted EPS of $11.08 Consolidated Statements of Comprehensive Income Summary (Millions USD, except per-share data) | Metric | FY2022 | FY2021 | FY2020 | | :------------------------- | :-------- | :-------- | :-------- | | Net sales | $4,006.1 | $3,461.0 | $3,326.3 | | Gross profit | $1,672.7 | $1,475.0 | $1,402.4 | | Operating profit | $509.7 | $427.6 | $353.9 | | Income before income taxes | $493.9 | $396.2 | $324.7 | | Net income | $384.0 | $306.3 | $248.3 | | Diluted earnings per share | $11.08 | $8.38 | $6.27 | | Comprehensive income | $356.4 | $340.8 | $267.0 | Consolidated Statements of Cash Flows Operating cash flow decreased in fiscal 2022 due to higher working capital, while financing cash outflows increased significantly from substantial share repurchases Consolidated Statements of Cash Flows Summary (Millions USD) | Metric | FY2022 | FY2021 | FY2020 | | :-------------------------------------- | :-------- | :-------- | :-------- | | Net cash provided by operating activities | $316.3 | $408.7 | $504.8 | | Net cash used for investing activities | $(62.2) | $(117.9) | $(359.8) | | Net cash used for financing activities | $(512.4) | $(362.6) | $(50.3) | | Net change in cash and cash equivalents | $(268.1) | $(69.4) | $99.7 | | Cash and cash equivalents at end of year | $223.2 | $491.3 | $560.7 | - Cash flows from operating activities decreased by $92.4 million in fiscal 2022, primarily due to higher working capital investments to support growth and mitigate supply chain inconsistencies[128] - Purchases of property, plant, and equipment increased to $56.5 million in fiscal 2022 from $43.8 million in 2021[134] - Acquisitions of businesses, net of cash acquired, resulted in cash outflows of $12.9 million in fiscal 2022, primarily for working capital settlements of fiscal 2021 acquisitions[135] - Repurchases of common stock totaled $514.8 million in fiscal 2022, a significant increase from $434.9 million in 2021[137][218] Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $1,911.8 million in 2022, driven by $511.7 million in share repurchases that offset net income of $384.0 million Consolidated Statements of Stockholders' Equity Summary (Millions USD) | Metric | August 31, 2022 | August 31, 2021 | August 31, 2020 | | :-------------------------------------- | :-------------- | :-------------- | :-------------- | | Common Stock Amount | $0.5 | $0.5 | $0.5 | | Paid-in Capital | $1,036.3 | $995.6 | $963.6 | | Retained Earnings | $3,176.2 | $2,810.3 | $2,523.3 | | Accumulated Other Comprehensive Loss | $(125.8) | $(98.2) | $(132.7) | | Treasury Stock, at cost | $(2,175.4) | $(1,663.7) | $(1,227.2) | | Total Stockholders' Equity | $1,911.8 | $2,044.5 | $2,127.5 | - Net income contributed $384.0 million to retained earnings in fiscal 2022[221] - Share repurchases amounted to $511.7 million in fiscal 2022, increasing treasury stock[221] - Accumulated other comprehensive loss increased by $27.6 million in fiscal 2022, primarily due to foreign currency translation adjustments[214][221] Note 1 — Description of Business and Basis of Presentation The company operates through its ABL and ISG segments, with ABL consistently accounting for approximately 95% of consolidated revenues - Acuity Brands operates two segments: Acuity Brands Lighting and Lighting Controls (ABL) and the Intelligent Spaces Group (ISG)[224] - ABL's primary customers include electrical distributors, retail home improvement centers, and national accounts, with sales mainly through independent sales agencies[225] - ISG's customers are primarily system integrators, retail stores, airports, and enterprise campuses, offering building management platforms and location-aware applications[227] - ABL comprised approximately 95% of consolidated revenues, and ISG comprised approximately 5% during fiscal 2022, 2021, and 2020[226][227] Note 2 — Significant Accounting Policies This note details key accounting policies, including revenue recognition, inventory valuation, annual goodwill impairment testing, and share-based payment expense - Financial statements are prepared in conformity with U.S GAAP, requiring management to make estimates and assumptions[231] - Inventories are stated on a first-in, first-out basis at the lower of cost and net realizable value, with a provision for excess or obsolete inventory[239] Inventory Composition (Millions USD) | Inventory Category | August 31, 2022 | August 31, 2021 | | :----------------------------- | :-------------- | :-------------- | | Raw materials, supplies, and work in process | $252.6 | $209.5 | | Finished goods | $264.0 | $227.2 | | Inventories excluding reserves | $516.6 | $436.7 | | Less: Reserves | $(30.9) | $(38.0) | | Total inventories | $485.7 | $398.7 | - Goodwill and indefinite-lived intangible assets are tested for impairment annually in the fiscal fourth quarter, or more frequently if circumstances change[249] Goodwill by Segment (Millions USD) | Segment | August 31, 2022 | August 31, 2021 | August 31, 2020 | | :------ | :-------------- | :-------------- | :-------------- | | ABL | $1,014.2 | $1,022.2 | $1,012.6 | | ISG | $70.1 | $72.5 | $67.4 | | Total | $1,084.3 | $1,094.7 | $1,080.0 | - Amortization expense for acquired intangible assets was $41.0 million in fiscal 2022, with expected future amortization of $42.9 million in fiscal 2023[248] Share-based Payment Expense (Millions USD) | Award Type | FY2022 | FY2021 | FY2020 | | :------------------------ | :------ | :------ | :------ | | Restricted stock awards and units | $17.2 | $15.1 | $24.6 | | Stock options | $8.8 | $9.2 | $4.9 | | Performance stock units | $9.9 | $6.8 | $7.3 | | Director stock units | $1.5 | $1.4 | $1.4 | | Total | $37.4 | $32.5 | $38.2 | Research and Development Expenses (Millions USD) | Fiscal Year | R&D Expense | | :---------- | :---------- | | 2022 | $95.1 | | 2021 | $88.3 | | 2020 | $82.0 | Interest Expense, Net (Millions USD) | Component | FY2022 | FY2021 | FY2020 | | :---------------- | :------ | :------ | :------ | | Interest expense | $27.0 | $24.2 | $26.4 | | Interest income | $(2.1) | $(1.0) | $(3.1) | | Interest expense, net | $24.9 | $23.2 | $23.3 | Note 3 — New Accounting Pronouncements The company adopted ASU 2019-12 for income taxes without material impact and is currently assessing the future impact of ASU 2021-08 for business combinations - ASU 2019-12, Simplifying the Accounting for Income Taxes, was adopted in fiscal 2022 with no material effect[284] - ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, is effective for fiscal 2024, with early adoption permitted; the company is assessing its impact[285] Note 4 — Acquisitions No acquisitions occurred in fiscal 2022, with cash outflows related to settlements for prior year acquisitions of ams OSRAM's DS business and Rockpile Ventures - No acquisitions occurred in fiscal 2022; $12.9 million cash outflow related to fiscal 2021 acquisition settlements[287] - Fiscal 2021 acquisitions included ams OSRAM's North American Digital Systems business (LED driver and controls technology) and Rockpile Ventures (edge AI startups accelerator)[288][289] - Fiscal 2020 acquisitions included The Luminaires Group (specification-grade luminaires) and LocusLabs, Inc (navigation software platform)[292][293] - Goodwill from 2021 acquisitions totaled $12.3 million, primarily for expected synergies and acquired workforce[291] - Goodwill from 2020 acquisitions totaled approximately $107.6 million, for expanding solutions portfolio and synergies[295] Note 5 — Fair Value Measurements Fair value is determined using a three-level hierarchy, with cash as Level 1, debt obligations as Level 2, and strategic investments measured at cost - Fair value measurements are based on a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[296] - Cash and cash equivalents are Level 1 assets, totaling $223.2 million in 2022 and $491.3 million in 2021[300] - Strategic investments in privately-held entities are measured at cost less impairment, totaling $11.9 million in 2022 and $5.3 million in 2021[301] - The estimated fair value of senior unsecured public notes was $399.2 million in 2022 and $496.5 million in 2021, a decrease due to increases in market bond yields[304] Note 6 — Leases The company leases property and equipment, primarily for distribution and manufacturing, with total lease costs of $25.8 million in fiscal 2022 - The company leases property and equipment under operating lease arrangements, mainly for distribution and manufacturing facilities[306] - Lease liabilities are discounted using the estimated incremental borrowing rate, which was 2.5% in 2022 and 2.0% in 2021[309] Operating Lease Liabilities (Millions USD, August 31, 2022) | Fiscal Year | Total Undiscounted Lease Payments | | :---------- | :-------------------------------- | | 2023 | $17.3 | | 2024 | $17.0 | | 2025 | $15.6 | | 2026 | $11.5 | | 2027 | $8.5 | | Thereafter | $21.1 | | Total | $91.0 | | Less: Discount | $(7.9) | | Present Value | $83.1 | - The weighted average remaining lease term for operating leases was six years as of August 31, 2022[310] Total Lease Cost (Millions USD) | Component | FY2022 | FY2021 | FY2020 | | :------------------ | :------ | :------ | :------ | | Operating lease cost | $18.8 | $18.3 | $18.1 | | Variable lease cost | $2.7 | $2.0 | $2.3 | | Short-term lease cost | $4.3 | $2.2 | $2.8 | | Total lease cost | $25.8 | $22.5 | $23.2 | - Impairment charges of $1.7 million were recorded in fiscal 2022 for certain leased properties[314] Note 7 — Debt and Lines of Credit Total debt was $513.0 million as of August 31, 2022, primarily consisting of senior unsecured notes, with $577.9 million available under a revolving credit facility Debt Composition (Millions USD) | Debt Component | August 31, 2022 | August 31, 2021 | | :----------------------------------------------------- | :-------------- | :-------------- | | Senior unsecured public notes due December 2030, principal | $500.0 | $500.0 | | Senior unsecured public notes due December 2030, unamortized discount and deferred costs | $(5.0) | $(5.7) | | Short-term borrowings under credit facility | $18.0 | — | | Total debt | $513.0 | $494.3 | - The company has a $600.0 million five-year unsecured revolving credit facility, with an ability to request an additional $400.0 million[318] - As of August 31, 2022, there was $18.0 million outstanding under the credit facility and $577.9 million in additional borrowing capacity[321] - The company was in compliance with all financial covenants under its credit agreement as of August 31, 2022[321] Note 8 — Commitments and Contingencies The company self-insures certain risks, manages collective bargaining agreements, and accrues for product warranty costs, which totaled $27.3 million at year-end - The company self-insures traditional risks (workers' compensation, general liability, auto liability) up to certain limits and is fully self-insured for environmental, product recall, warranty, and patent infringement[322] - Approximately 66% of the total workforce is covered by collective bargaining agreements, with 54% expiring within one year[325] - A shareholder derivative complaint was filed on October 1, 2021, against former executives; the Board rejected the demands and directed the company to seek dismissal[326][328] - Management believes the ultimate resolution of pending legal proceedings will not have a material adverse effect on financial condition, results of operations, or cash flows[330] Product Warranty and Recall Costs (Millions USD) | Metric | FY2022 | FY2021 | FY2020 | | :-------------------------- | :------ | :------ | :------ | | Beginning balance | $20.3 | $16.1 | $11.5 | | Warranty and recall costs | $52.4 | $32.3 | $32.0 | | Payments and other deductions | $(45.4) | $(28.4) | $(27.5) | | Ending balance | $27.3 | $20.3 | $16.1 | Note 9 — Segment Information The company reports results for its ABL and ISG segments, with ABL generating $3,810.1 million in sales and $545.6 million in operating profit in fiscal 2022 - Financial results are presented for two reportable segments: Acuity Brands Lighting and Lighting Controls (ABL) and the Intelligent Spaces Group (ISG)[337] - Corporate expenses, net interest expense, net miscellaneous expense, special charges, and assets are not allocated to segments[338] Segment Financial Information (Millions USD) | Segment | Metric | FY2022 | FY2021 | FY2020 | | :------ | :----------------- | :-------- | :-------- | :-------- | | ABL | Net sales | $3,810.1 | $3,287.3 | $3,180.9 | | | Operating profit | $545.6 | $476.2 | $425.8 | | | Depreciation and amortization | $79.3 | $84.3 | $83.7 | | ISG | Net sales | $216.1 | $190.0 | $157.0 | | | Operating profit | $22.7 | $9.9 | $(3.9) | | | Depreciation and amortization | $14.4 | $14.7 | $16.3 | | Corporate | Operating loss | $(58.6) | $(58.5) | $(68.0) | | Total | Net sales | $4,006.1 | $3,461.0 | $3,326.3 | | | Operating profit | $509.7 | $427.6 | $353.9 | Note 10 — Revenue Recognition Revenue is recognized upon transfer of control to customers, net of returns and incentives, with the majority derived from short-term contracts for tangible goods - Revenue is recognized when control of goods and services is transferred to customers, net of rebates, sales incentives, product returns, and discounts[345] - Refund liabilities for product returns were $28.0 million in 2022 and $28.1 million in 2021[348] - Amounts due to customers for incentive programs totaled $40.7 million in 2022 and $33.9 million in 2021[349] - Substantially all revenues are from short-term contracts for tangible goods (luminaires, lighting controls, building systems)[351] - Professional services and software sales (licenses, data usage, SaaS) are also revenue streams, recognized when service is performed or ratably over the contractual period[353][354] Disaggregated Revenues by Sales Channel (Millions USD) | Sales Channel | FY2022 | FY2021 | FY2020 | | :------------------------ | :-------- | :-------- | :-------- | | ABL: Independent sales network | $2,714.1 | $2,400.5 | $2,284.3 | | ABL: Direct sales network | $384.2 | $358.1 | $329.0 | | ABL: Retail sales | $178.3 | $181.5 | $218.3 | | ABL: Corporate accounts | $222.7 | $168.7 | $191.8 | | ABL: Other | $310.8 | $178.5 | $157.5 | | Total ABL | $3,810.1 | $3,287.3 | $3,180.9 | | ISG | $216.1 | $190.0 | $157.0 | | Eliminations | $(20.1) | $(16.3) | $(11.6) | | Total | $4,006.1 | $3,461.0 | $3,326.3 | Note 11 — Share-based Payments The company's stock incentive plan authorizes various equity awards, resulting in a total share-based payment expense of $37.4 million in fiscal 2022 - The Amended and Restated Acuity Brands, Inc 2012 Omnibus Stock Compensation Incentive Plan was approved in January 2022, increasing authorized shares for issuance[363] - Shares available for grant under the Stock Incentive Plan were approximately 1.1 million at August 31, 2022[364] Total Share-based Payment Expense (Millions USD) | Fiscal Year | Total Share-based Payment Expense | | :---------- | :-------------------------------- | | 2022 | $37.4 | | 2021 | $32.5 | | 2020 | $38.2 | - As of August 31, 2022, there was $30.0 million of total unrecognized compensation cost for restricted stock, expected to be recognized over 1.5 years[370] - As of August 31, 2022, there was $8.9 million of total unrecognized compensation cost for unvested stock options, expected to be recognized over 1.7 years[379] - As of August 31, 2022, there was $9.0 million of total unrecognized compensation cost for unvested performance stock units, expected to be recognized over 1.5 years[381] - The Employee Stock Purchase Plan allows employees to purchase common stock at a 5% discount[386] Note 12 — Pension and Defined Contribution Plans The company sponsors pension plans with a combined underfunded status of $37.5 million and contributes to defined contribution plans for its employees Pension Plan Funded Status (Millions USD, August 31, 2022) | Plan Type | Benefit Obligation | Plan Assets | Funded Status | | :---------- | :----------------- | :---------- | :------------ | | Domestic | $176.0 | $141.5 | $(34.5) | | International | $31.5 | $28.5 | $(3.0) | Net Periodic Pension Cost (Millions USD, before tax) | Component | Domestic Plans FY2022 | International Plans FY2022 | | :------------------------- | :-------------------- | :------------------------- | | Service cost | $4.4 | $0.4 | | Interest cost | $5.3 | $0.9 | | Expected return on plan assets | $(11.2) | $(2.6) | | Amortization of prior service cost | $2.9 | — | | Settlement | $0.4 | — | | Recognized actuarial loss | $2.4 | $0.9 | | Net periodic pension cost | $4.2 | $(0.4) | Weighted Average Assumptions for Benefit Obligation (August 31, 2022) | Assumption | Domestic Plans | International Plans | | :------------------------ | :------------- | :------------------ | | Discount rate | 4.4% | 4.9% | | Rate of compensation increase | 5.0% | 3.5% | Pension Plan Asset Allocation (August 31, 2022) | Asset Category | Domestic Plans | International Plans | | :----------------------- | :------------- | :------------------ | | Equity securities | 31.6% | 16.8% | | Fixed income securities | 61.2% | 22.8% | | Multi-strategy investments | —% | 60.4% | | Real estate | 7.2% | —% | | Total | 100.0% | 100.0% | - Contributions to multi-employer pension plans were $0.5 million in fiscal 2022[415] - Employer matching contributions to defined contribution plans totaled $10.5 million in fiscal 2022[416] Note 13 — Common Stock and Related Matters The company repurchased 2.9 million shares in fiscal 2022, resulting in diluted EPS of $11.08 based on 34.645 million weighted average shares Common Stock Changes (Millions of Shares) | Metric | Shares (Millions) | | :---------------------------------------- | :---------------- | | Balance at August 31, 2019 | 53.8 | | Issuance of restricted stock grants, net of cancellations | 0.1 | | Balance at August 31, 2020 | 53.9 | | Issuance of restricted stock grants, net of cancellations | 0.1 | | Stock options exercised | — | | Balance at August 31, 2021 | 54.0 | | Issuance of restricted stock grants, net of cancellations | 0.1 | | Stock options exercised | 0.1 | | Balance at August 31, 2022 | 54.2 | - As of August 31, 2022, 21.8 million repurchased shares were recorded as treasury stock at a cost of $2.18 billion[419] - The company repurchased approximately 2.9 million shares of common stock in fiscal 2022[419] - No preferred stock was issued or outstanding in fiscal 2022 or 2021[421] Earnings Per Share Calculation (Millions, except per share data) | Metric | FY2022 | FY2021 | FY2020 | | :-------------------------------------- | :-------- | :-------- | :-------- | | Net income | $384.0 | $306.3 | $248.3 | | Basic weighted average shares outstanding | 34.182 | 36.284 | 39.453 | | Common stock equivalents | 0.463 | 0.270 | 0.148 | | Diluted weighted average shares outstanding | 34.645 | 36.554 | 39.601 | | Basic earnings per share | $11.23 | $8.44 | $6.29 | | Diluted earnings per share | $11.08 | $8.38 | $6.27 | Note 14 — Income Taxes The company's effective income tax rate was 22.3% in fiscal 2022, with net deferred tax liabilities of $(100.8) million at year-end - Income taxes are accounted for using the asset and liability approach[427] - The Inflation Reduction Act (IRA) is not expected to have a material impact on financial condition, results of operations, or cash flows[428] Provision for Income Taxes (Millions USD) | Component | FY2022 | FY2021 | FY2020 | | :-------------------------------- | :------ | :------ | :------ | | Provision for current federal taxes | $67.6 | $65.4 | $54.6 | | Provision for current state taxes | $16.3 | $12.8 | $12.5 | | Provision for current foreign taxes | $25.4 | $14.4 | $16.0 | | Provision for (benefit from) deferred taxes | $0.6 | $(2.7) | $(6.7) | | Total provision for income taxes | $109.9 | $89.9 | $76.4 | Reconciliation of Federal Statutory Rate to Total Provision (Millions USD) | Item | FY2022 | FY2021 | FY2020 | | :---------------------------------------- | :------ | :------ | :------ | | Federal income tax computed at statutory rate | $103.7 | $83.2 | $68.2 | | State income tax, net of federal income tax benefit | $13.5 | $10.7 | $9.7 | | Research and development tax credits | $(7.6) | $(7.6) | $(7.1) | | Unrecognized tax benefits | $2.1 | $0.7 | $1.8 | | Total provision for income taxes | $109.9 | $89.9 | $76.4 | Net Deferred Income Tax Liabilities (Millions USD) | Component | August 31, 2022 | August 31, 2021 | | :-------------------------------- | :-------------- | :-------------- | | Total deferred income tax liabilities | $(198.5) | $(196.7) | | Total deferred income tax assets | $109.2 | $107.1 | | Valuation allowance | $(11.5) | $(9.5) | | Net deferred income tax liabilities | $(100.8) | $(99.1) | - Gross unrecognized tax benefits totaled $19.5 million at August 31, 2022, with $18.8 million impacting the effective tax rate if recognized[435] Note 15 — Supplemental Disaggregated Information Domestic operations generated $3,486.4 million in net sales and $428.3 million in operating profit in fiscal 2022, representing the majority of the company's business - Sales of lighting, lighting controls, and building technology solutions accounted for approximately 99% of total consolidated net sales in fiscal 2022, 2021, and 2020[439] Geographic Distribution of Financial Information (Millions USD) | Metric | Geographic | FY2022 | FY2021 | FY2020 | | :-------------------------- | :--------- | :-------- | :-------- | :-------- | | Net sales | Domestic | $3,486.4 | $2,982.4 | $2,925.0 | | | International | $519.7 | $478.6 | $401.3 | | | Total | $4,006.1 | $3,461.0 | $3,326.3 | | Operating profit | Domestic | $428.3 | $369.9 | $300.6 | | | International | $81.4 | $57.7 | $53.3 | | | Total | $509.7 | $427.6 | $353.9 | | Income before income taxes | Domestic | $409.6 | $343.7 | $274.2 | | | International | $84.3 | $52.5 | $50.5 | | | Total | $493.9 | $396.2 | $324.7 | | Long-lived assets | Domestic | $325.9 | $284.4 | $298.6 | | | International | $73.5 | $76.6 | $64.8 | | | Total | $399.4 | $361.0 | $363.4 | PART III Item 10. Directors, Executive Officers, and Corporate Governance. Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 proxy statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the proxy statement for the annual meeting on January 25, 2023[447][448] Item 11. Executive Compensation. Details on executive compensation are incorporated by reference from the company's 2023 proxy statement - Executive compensation information is incorporated by reference from the proxy statement for the annual meeting on January 25, 2023[449] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Information concerning security ownership is incorporated by reference from the company's 2023 proxy statement - Security ownership information is incorporated by reference from the proxy statement for the annual meeting on January 25, 2023[450] Item 13. Certain Relationships and Related Transactions, and Director Independence. Information regarding related party transactions and director independence is incorporated by reference from the company's 2023 proxy statement - Information on certain relationships, related party transactions, and director independence is incorporated by reference from the proxy statement for the annual meeting on January 25, 2023[451] Item 14. Principal Accountant Fees and Services. Information concerning principal accountant fees and services is incorporated by reference from the company's 2023 proxy statement - Information concerning principal accountant fees and services is incorporated by reference from the proxy statement for the annual meeting on January 25, 2023[452] PART IV Item 15. Exhibits and Financial Statement Schedules. This section lists all documents filed as part of the report, including financial statements, auditor reports, and an index to all exhibits - This item lists all documents filed as part of the report, including financial statements, reports of independent registered public accounting firm, and an index to exhibits[454] - Exhibits include corporate organizational documents (Restated Certificate of Incorporation, Bylaws), debt instruments (Indenture, Supplemental Indenture), and various management contracts and compensatory arrangements[456][457][458][459][460][461][462][463][464][465][466][467][468][469] Item 16. Form 10-K Summary. This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[476] SIGNATURES The report is duly signed by the company's principal executive and financial officers, along with other directors, as of October 26, 2022 - The report was signed by Neil M Ashe, Chairman, President and Chief Executive Officer, and Karen J Holcom, Senior Vice President and Chief Financial Officer, on October 26, 2022[477][478]