| Significant Accounting Policies | Significant Accounting Policies Principles of Consolidation The Consolidated Financial Statements include the accounts of Acuity Brands, Inc. and its wholly-owned subsidiaries after elimination of intercompany transactions and accounts. 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. Revenue Recognition Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for information related to our revenue recognition accounting policies. Cash and Cash Equivalents Cash in excess of daily requirements is invested in time deposits and marketable securities and is included in the accompanying balance sheets at fair value. We consider time deposits and marketable securities with an original maturity of three months or less when purchased to be cash equivalents. Accounts Receivable We record accounts receivable at net realizable value. This value includes a reserve for doubtful accounts to reflect our estimate of expected credit losses over the contractual terms of our receivables. Our estimation of current expected credit losses reflects our considerations of historical write-offs, an analysis of past due accounts based on the contractual terms of the receivables, and the economic status of customers, if known. We additionally consider the impact of general economic conditions, including construction spending, unemployment rates, and macroeconomic growth, on our customers' future ability to meet their obligations. We believe that the reserve is sufficient to cover uncollectible amounts; however, there can be no assurance that unanticipated future business conditions of customers will not have a negative impact on our results of operations, financial condition, or cash flows. Concentrations of Credit Risk Concentrations of credit risk with respect to receivables, which are typically unsecured, are generally limited due to the wide variety of customers and markets using our lighting, lighting controls, building management systems, and location-aware applications as well as their dispersion across many different geographic areas. No single customer accounted for more than 10% of receivables at August 31, 2024. One customer accounted for 10% of receivables at August 31, 2023. No single customer accounted for more than 10% of net sales in fiscal 2024, 2023, or 2022. Reclassifications We may reclassify certain prior period amounts to conform to the current year presentation. No material reclassifications occurred during the current period. Inventories Inventories include materials, direct labor, inbound freight, customs, duties, tariffs, and related manufacturing overhead. Inventories are stated on a first-in, first-out basis at the lower of cost and net realizable value and consist of the following as of the dates presented (in millions): August 31, 2024 2023 Raw materials, supplies, and work in process (1) $ 222.1 $ 214.0 Finished goods 191.1 180.3 Inventories excluding reserves 413.2 394.3 Less: Reserves (25.6) (25.8) Total inventories $ 387.6 $ 368.5 _______________________________________ (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. Although our historical experience related to demand and market conditions have been within expectations, a significant change in customer demand, market conditions, or technology could render certain inventory obsolete and thus could have a material adverse impact on our operating results in the period the change occurs. The following table summarizes the changes in our inventory reserves for the periods presented (in millions): Year Ended August 31, 2024 2023 2022 Beginning balance $ 25.8 $ 30.9 $ 38.0 Additions to reserve 10.9 16.2 15.7 Disposals of reserved inventory (11.0) (20.6) (22.5) Foreign currency translation adjustments (0.1) (0.7) (0.3) Ending balance $ 25.6 $ 25.8 $ 30.9 Assets Held for Sale We classify assets as held for sale when a plan for disposal is developed and approved, the asset is available for immediate sale, an active program to locate a buyer at a price reasonable in relation to current fair value is initiated, and transfer of the asset is expected to be completed within one year. We cease the depreciation and amortization of the assets when all of these criteria have been met and generally reflect balances within Prepayments and other current assets on our Consolidated Balance Sheets . We did not have any assets classified as held for sale at August 31, 2024 or August 31, 2023. During the year ended August 31, 2022, we sold one building classified as held for sale at August 31, 2021 with a total carrying value of $6.6 million for a gain of approximately $2.3 million. This gain is reflected in Selling, distribution, and administrative expenses within our Consolidated Statements of Comprehensive Income . Goodwill and Other Intangibles The changes in the carrying amount of goodwill during the periods presented by segment are summarized as follows (in millions): ABL ISG Total Balance as of August 31, 2022 $ 1,014.2 $ 70.1 $ 1,084.3 Additions from acquired businesses — 15.2 15.2 Adjustments to provisional amounts from acquired businesses — (0.2) (0.2) Derecognitions for divestitures (0.7) — (0.7) Foreign currency translation adjustments 0.9 (1.6) (0.7) Balance as of August 31, 2023 1,014.4 83.5 1,097.9 Foreign currency translation adjustments 0.7 0.1 0.8 Balance as of August 31, 2024 $ 1,015.1 $ 83.6 $ 1,098.7 Through multiple acquisitions, we acquired definite-lived intangible assets that are amortized over their estimated useful lives as well as indefinite-lived intangible assets, which consist of trade names that are expected to generate cash flows indefinitely. Significant estimates and assumptions were used to determine the initial fair value of these acquired intangible assets, including estimated future short-term and long-term net sales and profitability, customer attrition rates, royalty rates, and discount rates. Certain of our intangible assets are attributable to foreign operations and are impacted by currency translation due to movements in foreign currency rates year over year. Summarized information for our intangible assets is as follows as of the dates presented (in millions): August 31, 2024 2023 Gross Carrying Accumulated Gross Carrying Accumulated Definite-lived intangible assets: Patents and patented technology $ 157.5 $ (133.3) $ 158.8 $ (122.3) Trademarks and trade names 45.5 (20.5) 45.5 (18.4) Distribution networks 61.8 (51.6) 61.8 (49.4) Customer relationships 428.6 (180.1) 425.0 (155.4) Total definite-lived intangible assets $ 693.4 $ (385.5) $ 691.1 $ (345.5) Indefinite-lived trade names $ 132.6 $ 135.6 We recorded amortization expense of $39.7 million, $42.1 million, and $41.0 million related to acquired intangible assets during fiscal 2024, 2023 , and 2022, respectively. Amortization expense is generally recorded on a straight-line basis. The following table summarizes the expected amortization expense for the next five fiscal years (in millions): Fiscal Year August 31, 2024 2025 $ 32.1 2026 29.8 2027 28.3 2028 24.2 2029 22.8 Impairment Analyses We test goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first date of our fourth fiscal quarter (June 1) or more frequently if facts and circumstances indicate an asset is more likely than not impaired, as required by Accounting Standards Codification (“ASC”) Topic 350, Intangibles—Goodwill and Other (“ASC 350”). ASC 350 allows for an optional qualitative analysis for goodwill and indefinite-lived intangible assets to determine the likelihood of impairment. If the qualitative review results in a more likely than not probability of impairment, a quantitative analysis is required. The qualitative step may be bypassed entirely in favor of a quantitative test. Goodwill As of June 1, 2024, the current fiscal year testing date, we performed a qualitative analysis to assess the fair value of our reporting units as prescribed by ASC 350. Our qualitative analysis considered and assessed external factors for each reporting unit such as macroeconomic, industry, cost, and market conditions as well as Company-specific factors, including but not limited to, our actual and planned financial performance. Based on the results of our analysis, we determined there was not a more likely than not probability of impairment for each of our three reporting units. Thus, no quantitative test was required for our $1.1 billion of goodwill. In fiscal 2023 and 2022, we used a quantitative analysis to calculate the fair value of our three reporting units using a combination of discounted future cash flows and relevant market multiples. The analysis for goodwill did not result in an impairment charge during fiscal 2023, or 2022. Indefinite-Lived Intangibles As of June 1, 2024, the current fiscal year testing date, we held eight indefinite-lived intangible assets with an aggregate carrying value of $135.5 million. For fiscal 2024, we performed a qualitative analysis to assess our indefinite-lived intangible assets for impairment. Our qualitative analysis considered and assessed external factors such as macroeconomic, industry, cost, and market conditions as well as asset-specific factors, such as each trade name's actual and planned financial performance. Based on the results of our analyses, we determined there was not a more likely than not probability of impairment for seven of the indefinite-lived intangible assets, and no quantitative test for these assets was required. In the fourth quarter of fiscal 2024, management committed to a plan to rebrand certain products in ABL's portfolio. We determined this plan adversely impacted one trade name. Therefore, we performed a quantitative analysis to compare the fair value of this trade name with its carrying value. We estimated the fair value of this indefinite-lived trade name using the relief-from-royalty method, a fair value model based on discounted future cash flows. Our assumptions in valuing the trade name primarily reflected a projected decline in revenues generated by the trade name due to management’s planned reduction in future use of the asset. We additionally considered other inputs, including theoretical royalty rates and discount rates, in valuing the asset. Based on the results of the indefinite-lived intangible asset analyses for fiscal 2024, we recorded an impairment charge of $3.0 million for one indefinite-lived trade name asset within Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income related to our ABL segment. Any reasonably likely change in the assumptions used in the analysis for the trade name would not be material to the impairment charge recorded or to our financial conditions or results of operations. In fiscal 2023, we recorded an impairment charge of $14.0 million for six trade names within Special Charges in the Consolidated Statements of Comprehensive Income related to our ABL segment. We also determined five of these trade names no longer had indefinite lives. These trade names were classified as definite-lived as of June 1, 2023 and are amortized over 15 years. The impairment analyses for fiscal 2023 of the other seven indefinite-lived intangible assets indicated that their fair values exceeded their carrying values. The impairment analyses of our indefinite-lived intangible assets indicated that their fair values exceeded their carrying values for fiscal 2022. Other Long-Term Assets Other long-term assets consist of the following items whose economic benefits are expected to be realized greater than one year from the dates presented (in millions): August 31, 2024 2023 Deferred costs and other assets (1) (2) $ 12.1 $ 29.9 Investments in debt and equity securities 6.7 7.2 Pensions plans in which plan assets exceed benefit obligation 13.3 12.4 Total other long-term assets $ 32.1 $ 49.5 _______________________________________ (1) Estimated recoveries of warranty costs, net of estimated credit losses, expected to be recovered greater than one year from the respective balance sheet dates are included in this category. (2) Included within this category are company-owned life insurance investments. We maintain life insurance policies on 52 former employees primarily to satisfy obligations under certain deferred compensation plans. These company-owned life insurance policies are presented net of loans that are secured by these policies. This program is frozen, and no new policies were issued in the three-year period ended August 31, 2024. Other Current Liabilities Other current liabilities consist of the following as of the dates presented (in millions): August 31, 2024 2023 Customer incentive programs (1) $ 35.3 $ 31.6 Refunds to customers (1) 28.2 25.6 Current deferred revenues (1) 17.4 14.1 Sales commissions 35.3 35.7 Freight costs 18.1 15.0 Product warranty costs (2) 28.4 22.8 Tax-related items (3) 7.1 9.2 Interest on long-term debt (4) 2.3 2.3 Other 34.2 30.4 Total other current liabilities $ 206.3 $ 186.7 ____________________________________ (1) Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for additional information. (2) Refer to the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements for additional information. (3) Includes accruals for income, property, sales and use, and value added taxes. (4) Refer to the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for additional information. Other Long-Term Liabilities Other long-term liabilities consist of the following as of the dates presented (in millions): August 31, 2024 2023 Deferred compensation and postretirement benefits other than pensions (1) $ 47.2 $ 45.6 Deferred revenues (2) 41.5 47.6 Unrecognized tax position liabilities, including interest (3) 25.7 23.4 Product warranty costs (4) 9.1 8.8 Other 6.6 3.8 Total other long-term liabilities $ 130.1 $ 129.2 ____________________________________ (1) We maintain several non-qualified retirement plans for the benefit of eligible employees, primarily deferred compensation plans. The deferred compensation plans provide for elective deferrals of an eligible employee’s compensation and, in some cases, matching contributions by the organization. We maintain life insurance policies on certain former officers and other key employees as a means of satisfying a portion of these obligations. (2) Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for additional information. (3) Refer to the Income Taxes footnote of the Notes to Consolidated Financial Statements for additional information. (4) Refer to the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements for additional information. Shipping and Handling Fees and Costs We include shipping and handling fees billed to customers in Net sales in the Consolidated Statements of Comprehensive Income . Refer to the Revenue Recognition footnote of the Notes to Financial Statements for further information. When a product is sold, the associated shipping and handling costs are recorded in the Consolidated Statements of Comprehensive Income based on their function. Costs associated with inbound freight and freight between manufacturing facilities and distribution centers are generally recorded in Cost of products sold, which may be capitalized into inventory . Other shipping and handling costs, which primarily include amounts incurred to transfer finished goods to a customer's desired location, are included in Selling, distribution, and administrative expenses and totaled $134.2 million, $141.7 million, and $151.2 million in fiscal 2024, 2023, and 2022, respectively. Share-based Payments We account for stock options, restricted stock, performance stock units, and stock units representing certain deferrals into the Nonemployee Director Deferred Compensation Plan (the “Director Plan”) or the Supplemental Deferred Savings Plan (“SDSP”) (both of which are discussed further in the Share-based Payments footnote) based on their grant-date fair values estimated under the provisions of ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). We generally recognize compensation cost for share-based payment transactions on a straight-line basis over an award's requisite service period as defined by ASC 718. We apply the accelerated attribution method in certain circumstances, such as when a performance stock unit is subject to graded vesting. For awards subject to a market condition, we consider both actual and derived service periods, as well as the expected performance period, to determine the appropriate compensation recognition method. We have recorded share-based payment expense, net of estimated forfeitures, in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income . Share-based payment expense includes expense related to restricted stock, performance stock units, options issued, and stock units deferred into the Director Plan. We recorded $46.6 million, $42.0 million, and $37.4 million of share-based payment expense for the years ended August 31, 2024, 2023, and 2022, respectively. The total income tax benefit recognized for share-based payment expense was $8.3 million, $7.2 million, and $9.6 million for the years ended August 31, 2024, 2023, and 2022, respectively. Excess tax benefits and/or expense related to share-based payment awards are reported within Income tax expense on the Consolidated Statements of Comprehensive Income . We recognized net excess tax benefits related to share-based payment cost of $1.5 million, $1.5 million, and $4.8 million for the years ended August 31, 2024, 2023, and 2022, respectively. See the Share-based Payments footnote of the Notes to Consolidated Financial Statements for more information. Property, Plant, and Equipment Property, plant, and equipment is initially recorded at cost and depreciated principally on a straight-line basis using estimated useful lives of plant and equipment (3 to 40 years for buildings and related improvements and 2 to 15 years for machinery, equipment, and information technology) for financial reporting purposes. Accelerated depreciation methods are used for income tax purposes. Leasehold improvements are amortized over the shorter of the life of the lease or the estimated useful life of the improvement. Land is not depreciated. Depreciation expense amounted to $51.4 million, $51.1 million, and $53.8 million during fiscal 2024, 2023, and 2022, respectively. The balance of property, plant, and equipment consists of the following as of the dates presented (in millions): August 31, 2024 2023 Land $ 22.3 $ 23.0 Buildings and leasehold improvements 218.7 210.9 Machinery, equipment, and information technology 758.7 727.9 Total property, plant, and equipment, at cost 999.7 961.8 Less: Accumulated depreciation and amortization (695.8) (664.2) Property, plant, and equipment, net $ 303.9 $ 297.6 Research and Development Research and development (“R&D”) expense consists of compensation, payroll taxes, employee benefits, materials, supplies, and other administrative costs, but it does not include all new or enhanced product development costs. R&D expense is expensed as incurred and is included in Selling, distribution, and administrative expenses in our Consolidated Statements of Comprehensive Income . R&D expense amounted to $102.3 million, $97.1 million, and $95.1 million during fiscal 2024, 2023 , and 2022, respectively. Advertising Advertising costs are expensed as incurred and are included within Selling, distribution, and administrative expenses in our Consolidated Statements of Comprehensive Income . These costs totaled $20.1 million, $21.9 million, and $19.3 million during fiscal 2024, 2023 , and 2022, respectively. Other Expense The following table summarizes the components of O ther expense during the periods presented (in millions): Year Ended August 31, 2024 2023 2022 Interest (income) expense, net: Interest expense (1) $ 25.3 $ 27.9 $ 27.0 Interest income (2) (29.8) (9.0) (2.1) Interest (income) expense, net (4.5) $ 18.9 $ 24.9 Miscellaneous expense (income), net Non-service components of net periodic pension cost 4.5 5.0 (1.0) Foreign currency transaction losses (gains) 5.3 (8.4) (5.3) Loss on sale of business (3) — 11.2 — Other items (0.6) — (2.8) Miscellaneous expense (income), net 9.2 7.8 (9.1) Other expense $ 4.7 $ 26.7 $ 15.8 ____________________________________ (1) Consists primarily of interest expense on long-term debt, line of credit borrowings, and loans that are secured by and presented net of company-owned life insurance policies on our Consolidated Balance Sheets . (2) Certain cash and cash equivalents are held in interest-bearing accounts. (3) We recorded a loss on the sale of our Sunoptics prismatic skylights business in fiscal 2023. Refer to Acquisitions and Divestitures footnote of the Notes to Consolidated Financial Statements for further details. Income Taxes We are taxed at statutory corporate rates after adjusting income reported for financial statement purposes for certain items that are treated differently for income tax purposes. Deferred income tax expenses or benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. Refer to the Income Taxes footnote of the Notes to Consolidated Financial Statements for additional information. Foreign Currency Translation The functional currency for foreign operations is generally the local currency where the foreign operations are domiciled. The translation of foreign currencies into U.S. dollars is performed for asset and liability accounts using exchange rates in effect at the balance sheet dates and for revenue and expense accounts using a weighted average exchange rate each month during the year. The gains or losses resulting from the balance sheet translation are included in Foreign currency translation adjustments in the Consolidated Statements of Comprehensive Income and are excluded from net income. Comprehensive Income Comprehensive income represents a measure of all changes in equity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Other comprehensive (loss) income items includes foreign currency translation and pension adjustments. The following table presents the changes in each component of accumulated other comprehensive loss net of tax during the periods presented (in millions): Foreign Currency Items Defined Benefit Pension Plans Accumulated Other Comprehensive Loss Items Balance as of August 31, 2022 $ (73.5) $ (52.3) $ (125.8) Other comprehensive income before reclassifications 8.5 0.4 8.9 Amounts reclassified from accumulated other comprehensive loss (1) — 4.3 4.3 Net current period other comprehensive income 8.5 4.7 13.2 Balance as of August 31, 2023 (65.0) (47.6) (112.6) Other comprehensive (loss) income before reclassifications (5.9) 1.0 (4.9) Amounts reclassified from accumulated other comprehensive loss (1) — 2.6 2.6 Net current period other comprehensive (loss) income (5.9) 3.6 (2.3) Balance as of August 31, 2024 $ (70.9) $ (44.0) $ (114.9) _______________________________________ (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. The following table presents the tax expense or benefit allocated to each component of other comprehensive income (loss) during the periods presented (in millions): Year Ended August 31, 2024 2023 2022 Before Tax Amount Tax (Expense) or Benefit Net of Tax Amount Before Tax Amount Tax (Expense) or Benefit Net of Tax Amount Before Tax Amount Tax (Expense) or Benefit Net of Tax Amount Foreign currency translation adjustments $ (5.9) $ — $ (5.9) $ 8.5 $ — $ 8.5 $ (33.3) $ — $ (33.3) Defined benefit pension plans: Actuarial amounts 1.4 (0.4) 1.0 0.4 — 0.4 0.7 — 0.7 Amortization of defined benefit pension items: Prior service cost 0.1 — 0.1 2.6 (0.6) 2.0 2.9 (0.7) 2.2 Actuarial losses 3.3 (0.8) 2.5 3.0 (0.7) 2.3 3.3 (0.8) 2.5 Settlement losses — — — — — — 0.4 (0.1) 0.3 Total defined benefit plans, net 4.8 (1.2) 3.6 6.0 (1.3) 4.7 7.3 (1.6) 5.7 Other comprehensive (loss) income $ (1.1) $ (1.2) $ (2.3) $ 14.5 $ (1.3) $ 13.2 $ (26.0) $ (1.6) $ (27.6) |
