Acuity Brands

2002 Annual Report
2002 Annual Report

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Acuity  Brands,  Inc.,  with  fiscal  year  2002  sales  of  approximately  $2.0  billion,  is

comprised of Acuity Lighting Group and Acuity Specialty Products Group. Acuity

Lighting  Group  is  the  world’s  leading  lighting  fixture  manufacturer  and  includes

brands  such  as  Lithonia  Lighting®‚ Holophane®‚  Peerless®‚  Hydrel®,  and American

Electric Lighting®. Acuity Specialty Products Group is a leading provider of specialty

chemicals  and  includes  brands  such  as  Zep®,  Enforcer®, and  Selig  Industries™.

Headquartered  in  Atlanta,  Georgia,  Acuity  Brands  employs  11,800  people  and  has

operations throughout North America and in Europe.

TM

Acuity Brands 2002 Annual Report

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Segment Profiles

Brands

Products

Markets

Distribution
Channels

Acuity Lighting Group

Acuity Specialty Products Group

American Electric Lighting®
Antique Street Lamps™
Carandini™
Gotham®
Holophane®
Hydrel®
Lithonia Lighting®
MetalOptics®
Peerless®
SpecLight™

Enforcer®
National Chemical™
Selig Industries™
Zep®

Exclusive distribution license: 
Armor All® Professional*

Fluorescent lighting
Industrial lighting
Outdoor area lighting
Landscape lighting
Roadway lighting
Emergency lighting
Architectural lighting
Flexible wiring and lighting controls
Downlighting and track lighting
Decorative fluorescent lighting

Cleaners
Sanitizers
Disinfectants
Polishes
Floor finishes
Degreasers
Deodorizers
Pesticides
Insecticides

Commercial and Institutional
including offices, stores, schools,
and public buildings

Industrial
including warehouses and
manufacturing facilities

Infrastructure
including highways, airports,
and ports

Consumer
including home improvement centers
and lighting showrooms

Products are sold through independent
sales agents and a direct sales force
to electrical distributors, home
improvement centers, utilities, and
lighting showrooms. The products
are delivered through a network of
strategically located distribution centers,
using both common carriers and a
company-owned truck fleet.

Institutional and Industrial
including food processing and
preparation, transportation, education,
automotive, and hospitality

Retail
including large and small home
improvement centers and mass
merchandisers

Products are sold primarily through
a direct sales force of 1,900 sales
representatives and are delivered
through regional warehouses largely
using common carriers.

*Armor All® is a registered trademark of Armor All Products Corporation.

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Financial Highlights

FOR THE YEAR  ENDED  AUGUST  31

2002

2001

%  CHANGE

(In thousands of dollars, except earnings per share)

Operations:

Net sales

Gross profit %

Operating profit

Operating profit %

Net income

Pro forma earnings per share (1)

Basic weighted average number of

shares outstanding  

Net cash provided by operating activities

Depreciation and amortization

Capital expenditures 

Employees

$ 1,972,796

$ 1,982,700

(0.5%)

$

$

$

$

$

$

40.7%

120,127

6.1%

52,024

1.26 

41,286

146,841

49,494

33,482

11,800

$

$

$

$

$

$

42.4%

139,589 

7.0%

40,503

0.99 

41,068

183,653

62,911

47,611

11,800

(13.9%)

28.4%

27.3%

0.5%

(20.0%)

(21.3%)

(29.7%)

—

AT AUGUST 31

(In thousands of dollars)

Financial Position:

Total assets

Total debt

Total stockholders’ equity

Total debt to capitalization

Operating working capital (2)

Operating working capital as a percentage

of net sales

2002

2001

%  CHANGE

$ 1,357,954

$ 1,330,575

$

$

$

543,121

401,952

57.5%

377,964

19.2%

$

$

$

608,830

383,298

61.4%

399,303

20.1%

2.1%

(10.8%)

4.9%

(5.3%)

(1) Please see Note 5 of the Notes to Consolidated Financial Statements.
(2) Operating working capital is defined as net receivables plus inventories minus accounts payable.

Acuity Brands 2002 Annual Report

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To Our Shareholders

James S. Balloun
Chairman, President, and
Chief Executive Officer

It has been almost a year since the launch of Acuity Brands on December 1, 2001—

a year during which we have achieved a great deal while facing many challenges.

While our lighting and specialty chemicals businesses have been serving customers

for decades, we embraced our first year as Acuity Brands with the vitality of a

new company. During 2002, we deployed significant resources, both human and

capital, toward initiatives that will make our very good businesses better. Our

efforts paid off with some major successes, and these successes helped offset the

negative impact of a difficult economic environment and lay the groundwork for us

to strengthen our businesses. Our vision is to join the ranks of America’s premier industrial companies.

Toward that goal, we’re clear about where to focus our energy in 2003—on the fundamentals that will

enable us to better serve our customers and to continue to improve the effectiveness of Acuity Lighting

Group (ALG) and Acuity Specialty Products Group (ASP). Through these efforts, we will become a broader

and more diverse organization that is better able to deliver consistent growth in earnings and cash flow

for our shareholders.

Our businesses are market leaders that have
long histories of delivering superior value to our
customers. As a consequence, Acuity Lighting
Group, the world’s leading lighting fixture man-
ufacturer, has more than doubled in size in the
last decade, generating sales of approximately
$1.5 billion in 2002. ALG provides an expansive
range of products marketed under such well-
recognized brand names as Lithonia Lighting,
Holophane, Peerless, Hydrel, American Electric
Lighting, and Gotham to customers operating
in numerous channels around the globe. Acuity
Specialty Products Group is a leading provider
of specialty chemical products for a wide range
of applications in commercial, industrial, and
consumer markets primarily in North America.
Its brands, including Zep, Selig Industries, Enforcer,
and National Chemical, are recognized as high
quality solutions for a multitude of applications,
including cleaning, sanitation, and water treatment.

Both businesses provide unparalleled customer
service. At ALG, we have the strongest sales and
distribution network in the industry, with the
ability to respond to orders literally overnight.
At ASP, we serve a diverse array of businesses
with a highly skilled direct sales force and with
award-winning sales and service teams who provide
our products to retail chains. 

While we have strong businesses, Acuity Brands
is a company engaged in the challenge of not
only adapting but also thriving in our rapidly
changing markets. We are taking aggressive
steps to improve and strengthen our businesses.
We are driving to become better businesses–
better in terms of delivering greater value to our
customers, employees, suppliers, and shareholders.

In this letter, I’ll review how we fared in the
challenging economic environment of 2002 and
describe what we are doing to strengthen our
businesses.

Solid Financial Performance in 2002

The energizing effect of becoming a new company
helped us meet numerous challenges in fiscal
2002. During the year, we faced a tough economy
that was further shaken by events such as well-
publicized lapses in corporate governance, large
bankruptcies, massive layoffs, and the horrible
tragedy of September 11, 2001. We met these
challenges by adapting our operations, finding
new ways to deliver value to our customers, and
reducing costs. As a result, we delivered solid
financial performance in 2002. Acuity Brands
generated sales of almost $2.0 billion, net
income of $52 million, and earnings per share

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Acuity Brands 2002 Annual Report

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of $1.26 in 2002. This was the third consecutive
year in which our businesses’ sales hovered
around the two billion dollar level, while net
income for 2002 was up 28 percent compared to
the 2001 results. Additionally, through an intense
focus on managing working capital, we were able
to pay down more than $100 million of debt since
December 1, 2001. This action lowered our debt-
to-capitalization ratio from 63 percent to under 58
percent, bringing it closer to our targeted 40 per-
cent. We’re proud that we did this while facing
the toughest market we’ve seen in ten years.

While our overall performance was impacted by
the weakened economy, Acuity Lighting Group
was particularly affected by the downward trend
of the non-residential construction market. Fiscal
2002 sales of $1.5 billion were flat with last year’s
results. Operating profit of $90 million decreased
from last year’s $119 million primarily because
of product mix changes and deflationary pricing
pressures. We are encouraged that the margins in
our core lighting businesses were approximately
two percentage points higher than the margins
we produced during the last recession in the early
1990s. This is the direct result of steps we’ve taken
over the last decade to enhance the internal capa-
bilities and efficiencies of ALG to deliver more
consistent earnings and cash flow and to better
prepare for cyclical slowdowns in construction. 

Acuity Specialty Products Group generated
sales of $498 million in 2002 compared to last
year’s $514 million. Operating profit for the seg-
ment was $45 million, an increase over last year’s
$41 million. ASP made significant strides in 2002
in improving its sales and service capabilities to
more effectively serve the changing needs of cur-
rent customers as well as prospective ones.
Meanwhile, ASP has aggressively lowered costs
and enhanced productivity. These efforts allowed
ASP to deliver sound earnings and cash flow
while fighting the effects of soft demand in key
markets for much of the year. 

For the year, Acuity Brands delivered solid and
profitable financial results in times of challenge;
we paid down a significant portion of our debt;
and we intensified our focus on cash flow and
running a leaner and more efficient organization.

Laying the Foundation for Better Businesses

Our focus is to continue to enhance the quality
of our organization, and not necessarily its size,
so we will be better able to deliver superior
results as markets improve. One of our first steps
upon launching the new company was to create
an Acuity Brands Leadership Team (ALT) consist-
ing of the top officers in both our businesses and
corporate staff. This seven-member group of
energetic and experienced leaders shares ideas
and resources across the organization. This team
is capable of quickly making decisions that impact
the total organization, which is crucial in a
rapidly changing environment. Four members
of this team have taken on new roles over the
past year. In June, we appointed John Morgan
to be our Senior Executive Vice President and
Chief Operating Officer, with overall operational
responsibility for ALG and ASP. John is well
prepared for this role after dedicating 25 years of
his career to ALG. We named Ken Honeycutt
Chief Executive Officer of Acuity Lighting
Group and Jim Heagle Chief Executive Officer
of Acuity Specialty Products Group and appoint-
ed them both members of the ALT. Vernon
Nagel joined us as Executive Vice President and
Chief Financial Officer. He brings a wealth of
experience from his successful career and has
already made a big impact on our cash flow man-
agement. These officers, along with Ken
Murphy, Senior Vice President and General
Counsel; Joe Parham, Senior Vice President,
Human Resources; and myself, serve together
on the ALT. 

In leadership and organizational development,
we’re taking steps to build the skill sets of our
talent. We intend that each of our people has
clearly defined goals, written feedback, coaching
for development, and financial rewards for
performance. We’ve introduced the “Acuity
Brands Way,” our statement of how we intend

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to preserve the strengths that our organization
has always had–loyalty, care for our customers,
and honesty, to name three–and add a tone of
greater individual responsibility for more aggres-
sive performance. ALT members are reaching
out to all Acuity Brands people to discuss these
changes in an open but demanding way. We’re
adding leadership talent with selective hiring,
and we’re investing in all of our people to build
their futures.

In the financial area, we’re implementing tools
that help us make better decisions. We are
enhancing the dissemination of information to
those who can help drive down costs and improve
efficiencies. We’ve modified our performance
metrics to emphasize profitability and cash flow.
As our 2002 results show, we are successfully
managing our working capital to reduce debt
and are also focused on redeploying our non-core
assets into areas with greater potential for return.
As a result, in 2002 we converted certain non-core
assets into $8.4 million of cash, with which we
paid down debt.

Our most important improvement efforts are
taking place in the businesses themselves. We’re
building better businesses by making aggressive
efforts to strengthen productivity and by finding
new ways to reach our markets.

Strengthening Productivity
We are seeking better, faster, and more cost-
effective ways of doing business across our
organization and have initiated a number of
processes to improve the productivity of Acuity
Brands. Major initiatives include Six Sigma,
strategic sourcing, supply chain management,
and the opening of better situated regional distri-
bution centers. We began implementing Six
Sigma programs at our lighting business three
years ago and have now provided black belt
training to over 125 employees. On an annualized
basis, Six Sigma is contributing in excess of
$10 million in annual savings. The momentum
in Six Sigma is building and becoming an impor-
tant part of the culture of our two business

segments. The significant impact of Six Sigma
and these other initiatives on productivity in our
core lighting businesses is evidenced in ALG’s
margins being two percentage points higher
than margins during the last recession. At ASP,
our sourcing initiative contributed several million
dollars of cost savings in 2002. We are actively
implementing such programs to improve
our businesses.

Expanding Into New Channels
Companies with vibrant futures continually find
new ways to take their products to market and to
expand their customer base; this is what we are
doing. Over the past few years, we have expanded
into new markets through acquisitions, such as
Enforcer Products (entering the chemical retail
channel), Holophane (obtaining a direct lighting
fixture sales force), and the more recent purchase
of American Electric Lighting (strengthening our
relationships with electric utilities). Also, we have
focused efforts in both our lighting and specialty
products segments to continue expansion into key
channels, such as retail, and to further penetrate
national accounts. At ASP, for example, our sales
to home improvement centers such as The Home
Depot® have increased by over 10 percent in each
of the past two years. In total, our expansion
efforts into new channels and markets over the
past five years have added nearly $500 million to
our 2002 top-line sales.

We believe these steps will make Acuity Brands
a better and more diverse business that is capable
of delivering more consistent growth in earnings
and cash flow in the future. We know that main-
taining our market-leading positions depends on
the reputation of our brands. Improved customer
service, new products, and more effective processes
as well as expansion into new channels will help
us strengthen our brands and position us for
growth as markets rebound. 

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Members of the Acuity
Brands Leadership Team
include (seated from left to
right): Jim Balloun, Joe
Parham, Ken Honeycutt,
and John Morgan; (standing
from left to right): Ken
Murphy, Vernon Nagel,
and Jim Heagle.

Corporate Governance

Finally, a word about governance. At Acuity
Brands, we are committed to a governance
process that instills confidence and on which all
stakeholders can rely. We were committed to this
process well before governance became an issue
across the country, and integrity is a value that
goes back to the origins of our businesses. Here
are some further steps we have taken to assure
you of the strength of our commitment.

First, aside from me, all of our directors are
independent of Acuity Brands. They have no
material relationship with the company.
Accordingly, each board member provides Acuity
Brands with wise counsel and independent judg-
ment based on his or her broad range of knowledge
and experience. We are pleased to announce the
recent additions of Earnest Deavenport, former
Chairman and Chief Executive Officer of Eastman
Chemical Company, and Julia North, former
President of Consumer Services at BellSouth
Corporation. These additions further enhance
and diversify our already strong board.

Second, Acuity Brands will be among the first
companies in America to comply with the
requirements of the Sarbanes-Oxley Act and the
related rules of the Securities and Exchange
Commission that were recently put in place to
ensure accurate financial reporting and independent

auditing. Significant costs are associated with
these additional compliance requirements, and we
are paying a heavy price for other people’s sins.
However, we are committed not only to comply
with these critical regulations but also to embrace
their spirit as we continue to carry out our daily
activities with honesty and transparency, just as
we have done since the inception of our businesses.
We have executed all required certifications.
Vernon Nagel, our Chief Financial Officer, and I
feel confident in our signatures, saying in essence
that Acuity Brands remains an honest company
with honest people who keep honest books.

Acuity Brands is a dynamic new organization
with a bright future. While the current economic
environment makes it difficult to realize the full
potential of our company, we are quietly but
effectively working to improve our businesses
and become the preferred brands by even more
customers in more channels than we serve today.
As the marketplace revives, I am confident that
the actions of our almost 12,000 employees will
enable Acuity Brands to deliver the full reward
of our tremendous capabilities. Thank you for
your investment in our businesses.

James S. Balloun
Chairman, President, and Chief Executive Officer
Acuity Brands, Inc.

Acuity Brands 2002 Annual Report

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Acuity Lighting Group

Acuity Lighting Group (ALG) is the world’s leading lighting fixture manufacturer and has such well known

brands as Lithonia Lighting‚ Holophane‚ Peerless, Hydrel, American Electric Lighting‚ and Gotham.

Headquartered in Conyers, Georgia, ALG employs 8,400 people and has 24 manufacturing facilities. Its

extensive product line includes architectural, commercial, industrial, and residential indoor and outdoor

lighting fixtures; emergency lighting systems; lighting control systems; and wiring systems. Principal

customers include wholesale electrical distributors, home improvement centers, utilities, and lighting

showrooms located throughout North America and in select international markets. 

Key to Acuity Lighting Group’s success is its breadth of market coverage, with more sales forces

providing more products to more customers than any other lighting enterprise. ALG is made up of

multiple customer-focused units, each charged with profitably growing revenues by delivering a specific

value proposition to a particular market segment. 

At Holophane, for example, that means product
innovation and leadership–delivering superior
optical performance, energy efficiency, total relia-
bility, and outstanding quality and service. At
Lithonia, it means offering “the best value in
lighting,” enabled by a state-of-the-art network
and distribution system that allows lighting
employees and distributors to oversee major proj-
ects from start to finish. It also means being able
to immediately meet the needs of distributors by
having over 1,200 key products in stock for same-
day or next-day shipment. For American Electric,
it means providing a customizable Internet appli-
cation that enables utilities to be more successful
in selling lighting to their customers. And in the
home improvement center business, it means

delivering order fill rates in excess of 98 percent
and being named The Home Depot’s Partner of
the Year for lighting each of the past two years.

ALG is focused on becoming a better organiza-
tion through:

Strengthening Productivity

As the world’s leading lighting fixture manufacturer,
ALG has the volume to leverage significant cost
savings in its operations. To that end, ALG is now
engaged in a major supply chain redesign initiative,
which is intended to improve efficiency in each
step of the lighting fixture manufacturing process.
The supply chain redesign impacts many opera-
tional functions and has many facets–inventory

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Acuity Brands 2002 Annual Report

Boy Scouts of America
recently opened a new
Volunteer Service Center
in Atlanta, Georgia.
Enhancing this magnificent
structure are ALG indoor
and outdoor lighting
fixtures.

7001 Capital narrative  11/6/02  6:48 AM  Page 9

office fluorescents to swimming pool lighting.
One way that ALG has further expanded its
offerings is through acquisitions such as Holophane
and, more recently, American Electric, which
offers an outdoor product line for the utility
industry and highway infrastructure. ALG has
leveraged its distribution network capability to
expand its customer base in existing and new
channels of distribution, including an increasing
number of national accounts that are building
large facilities both nationally and internationally
as well as maintenance and repair organizations.
In June 2002, for example, ALG was selected as
the primary lighting supplier to W.W. Grainger,
one of the world’s largest catalog service providers
for maintenance and repair organizations. This
partnership will accelerate ALG’s growth in the
industrial, government, retail, and health care
markets. Also, ALG continues its expansion into
retail outlets such as The Home Depot® and has
been selected as a lighting supplier to a number
of the nation’s largest food and drugstore chains,
including Walgreens® and Albertsons®. ALG
expects to translate this continued expansion
of its end market and customer base into more
consistent earnings and cash flow and less
dependence on any single industry. 

Acuity Lighting Group is an organization of
breadth and scale that is continuously focused on
its customer service, product offerings, and price
competitiveness. It is also an organization in the
process of bettering itself through improving its
efficiencies and expanding into new markets.

ALG Holophane brand
products light up the
Visitors Center in
San Antonio, Texas.

optimization, cycle time reductions, strategic
sourcing, better utilization of the distribution
network and enterprise resource planning plat-
form, and increasing Internet capabilities.
Six Sigma, a process improvement method that
has been implemented in much of the lighting
organization over the past few years, has driven
significant cost reductions. As a result of Six
Sigma and other initiatives, plant productivity
levels improved an average of seven percent in
2002, even in the face of declining production
volumes at most facilities. Through its efforts to
streamline and to create a leaner organization,
ALG has reduced working capital more than
$90 million over the past two years, cutting its
cash conversion cycle by more than 30 days.

Expanding Into New Channels

Acuity Lighting Group is a market-focused
organization with great breadth. Its brands are
sold in the residential, commercial and institu-
tional, transportation, and outdoor channels, and
its products range from outdoor street lamps to

The Royal and Ancient
Golf Club of St. Andrews
in Scotland was recently
renovated featuring
ALG Hydrel brand
lighting fixtures.

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Acuity Specialty Products Group

Headquartered in Atlanta, Georgia, Acuity Specialty Products Group (ASP) is a leading provider of

specialty chemical products in the institutional, industrial, and retail markets. Its brands include Zep,

Enforcer, Selig Industries, and National Chemical, with roots dating back more than 100 years.

ASP products cover a broad range of uses and applications such as cleaners, sanitizers, disinfectants,

polishes, floor finishes, degreasers, deodorizers, pesticides, and insecticides. ASP, with over 300,000

customers primarily in North America, serves a broad array of industries including auto repair shops,

food processors, restaurants, contract cleaners, car washes, hotels, and laundries. Traditionally ASP has

served smaller customers in the industrial and institutional market. In recent years, though, ASP has

increased its leadership position with an emerging presence in the retail market and an expansion of its

customer base to include larger national accounts with consolidated buying programs. 

The breadth and quality of the ASP product line,
as well as the superior network of 1,900 ASP
direct sales representatives, are key to servicing
customers–both large and small. Differentiating
the ASP sales force is a focus on being solution
providers for customers. These sales representa-
tives are knowledgeable about solving critical

problems involving sanitation, water treatments,
and a variety of environmental issues. ASP sales
representatives are found all across North
America, making it simple for ASP to provide
service to local branches of national accounts. 

Currently, the company is engaged in a number
of activities to further better itself, including:

Strengthening Productivity

The direct sales force of Acuity Specialty Products
Group is regarded as the best in the industry, and
ASP is ensuring it stays that way. A New Sales
Representative Development program recently
got under way; the first phase of this program
focuses on identifying new training, recruiting,
and motivational methods to increase the sales
volumes and retention of new sales representatives.
Second, real-time product and customer information
was recently made available to sales representa-
tives by utilizing wireless technology that accesses
information previously available only via repre-
sentatives contacting branch personnel. ASP
has made many recent improvements in its distri-
bution processes as well. In the summer of 2002,
the company opened a new world-class distribu-
tion facility in Atlanta, Georgia. The Atlanta

The Atlanta Distribution
Center is a new world-class
facility with the technological
capabilities and size to 
handle future ASP growth. 

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Acuity Brands 2002 Annual Report

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Distribution Center is over 400,000 square feet
and features 72 loading docks. Key reasons to
build this facility were to enhance productivity,
improve safety requirements, and create a center
that can most effectively handle future growth.
The creation of this superior facility made possible
the closure and sale of three other less effective
warehouses. All ASP products are being consoli-
dated at the Atlanta Distribution Center. Further
contributing to efficiency, this center is a paper-
less facility; therefore, all records of products
being moved in and out are kept through state-
of-the art inventory management technologies.

Expanding Into New Channels

ASP continues to grow in the retail channel–
Zep Commercial™ and Enforcer products are sold
at The Home Depot®; sales through the home
improvement center channel have increased sig-
nificantly over the past two years. Additionally,
an increasing number of Selig Commercial™
products are being sold at hardware stores, and
ASP has also reached a licensing agreement with
Armor All Products Corporation to sell car wash
operators more than 100 products under the
Armor All® Professional brand name. This con-
tinued expansion into retail provides more ways
for ASP to get its brands to market.

The superior sales force at ASP continues to
do an outstanding job of selling to and servicing
numerous commercial channels. Over the past

ASP’s network of 1,900
direct sales representatives
provides superior service
to customers–both large
and small.

Expansion into home improvement centers has been a key area of growth
for Acuity Specialty Products Group. The Home Depot® sells the Zep
Commercial and Enforcer product lines.

three years, growth in the North American
market has been driven by larger, value-seeking
customers, and this has created a very attractive
opportunity for ASP. This trend has been spurred
primarily by cost pressures that have driven large
companies toward unbundled services and away
from integrated solution providers. Also contribut-
ing to this trend is the formation of consolidated
buying groups, in which small customers have
joined together to become large customers. Based
on this shift, ASP continues to increase its number
of national accounts and grow its business in
niche markets, especially in the areas of vehicle
wash and food, enabling further expansion in the
institutional and industrial channel. Its extensive
network of sales representatives has the capability
to service large, technically demanding accounts
such as Midas® and Tyson Foods while maintain-
ing its quality of service to smaller customers
who make up the core business. Recently, Zep
became the only approved vendor to sell drain
care products and services to Burger King®
company-owned and franchise restaurant locations
primarily because of ASP’s access to proprietary
technology and its servicing techniques. 

Acuity Specialty Products Group is focused on
improvement in every area of the organization.
Comprised of strong and long-lasting brands,
ASP is revitalizing itself to continue to provide
the quality of products and services generations
of people have grown to depend upon. 

Acuity Brands 2002 Annual Report

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Shareholder Information

Board of Directors

James S. Balloun
Chairman, President, and
Chief Executive Officer,
Acuity Brands, Inc.

Leslie M. Baker, Jr.
Chairman, President, and
Chief Executive Officer,
Wachovia Corporation

Peter C. Browning
Dean,
McColl Graduate School
of Business at Queens
University of Charlotte;
Non-Executive Chairman,
Nucor Corporation

John L. Clendenin
Chairman Emeritus,
BellSouth Corporation

Earnest W. Deavenport, Jr.
Former Chairman and
Chief Executive Officer,
Eastman Chemical
Company

Julia B. North
Former President of
Consumer Services,
BellSouth Corporation;
Former President and
Chief Executive Officer,
VSI Enterprises, Inc.

Ray M. Robinson
President of
Southern Region,
AT&T Corporation

Neil Williams
General Counsel and
a Global Partner,
AMVESCAP PLC

Committees of the Board

Acuity Brands Leadership Team

AUDIT
John L. Clendenin*
Earnest W. Deavenport, Jr.
Julia B. North

James S. Balloun
Chairman, President, and
Chief Executive Officer,
Acuity Brands, Inc.

COMPENSATION
Ray M. Robinson*
Peter C. Browning

GOVERNANCE
Neil Williams*
Leslie M. Baker, Jr.

EXECUTIVE
James S. Balloun*
John L. Clendenin
Ray M. Robinson
Neil Williams

*Committee Chairman

John K. Morgan
Senior Executive Vice President
and Chief Operating Officer,
Acuity Brands, Inc.

James H. Heagle
Executive Vice President,
Acuity Brands, Inc.;
President and
Chief Executive Officer,
Acuity Specialty
Products Group, Inc.

Kenneth W. Honeycutt, Jr.
Executive Vice President,
Acuity Brands, Inc.;
President and
Chief Executive Officer,
Acuity Lighting Group, Inc.

Vernon J. Nagel
Executive Vice President and
Chief Financial Officer,
Acuity Brands, Inc.

Kenyon W. Murphy
Senior Vice President and
General Counsel,
Acuity Brands, Inc.

Joseph G. Parham, Jr.
Senior Vice President,
Human Resources,
Acuity Brands, Inc.

Corporate Headquarters

Acuity Brands, Inc.
1170 Peachtree Street, NE
Suite 2400
Atlanta, Georgia 30309-7676
(404) 853-1400
www.acuitybrands.com

Acuity Lighting Group, Inc.
One Lithonia Way
Conyers, Georgia 30012-3957
(770) 922-9000
www.acuitylightinggroup.com

Acuity Specialty Products Group, Inc.
1310 Seaboard Industrial Blvd., NW
Atlanta, Georgia 30318
(404) 352-1680
www.acuitysp.com

Independent Auditors

Ernst & Young LLP
600 Peachtree Street
Suite 2800
Atlanta, Georgia 30308-2215
(404) 874-8300

Annual Meeting

Thursday, December 19, 2002
1:00 p.m. EST
Renaissance Waverly Hotel
Chambers Amphitheatre
2450 Galleria Parkway
Atlanta, Georgia 30339-3177

Stock Listing

New York Stock Exchange
Ticker symbol: AYI

Reports Available to Shareholders

Copies of the following Company reports may
be obtained, without charge:

2002 Annual Report to the Securities and
Exchange Commission, filed on Form 10-K,
and Quarterly Reports to the Securities and
Exchange Commission, filed on Form 10-Q.

Requests should be directed to:

Acuity Brands, Inc.
Attention: Investor Relations
1170 Peachtree Street, NE
Suite 2400
Atlanta, Georgia 30309-7676
(404) 853-1400
www.acuitybrands.com

Remittance of optional cash investments and 
plan transaction requests should be directed to:

Acuity Brands, Inc.
c/o Investment Plan Services
P. O. Box 64863
St. Paul, Minnesota 55164-0863

Account Access

Shareholders can access their account
information on the Internet through
the Web site of Acuity Brands’ transfer
agent, Wells Fargo, at
www.wellsfargo.com/shareownerservices.
Shareholders can securely view their
account information and check their
holdings 24 hours a day.

Transfer Agent and Registrar

Cash Dividends

Questions about shareholder accounts, dividend
checks, lost stock certificates, registration changes,
and address changes should be directed to:

Wells Fargo Shareowner ServicesSM
Shareowner Relations Department
P. O. Box 64854
St. Paul, Minnesota 55164-0854
(800) 468-9716
www.wellsfargo.com/shareownerservices

Acuity Brands offers direct deposit of dividends
to bank, savings, or money market accounts.
For more information, contact Wells Fargo at
(800) 468-9716.

Shareholders of Record

The number of shareholders of record of
Acuity Brands common stock was 5,346 as
of October 24, 2002.

Shareowner Service Plus PlanSM

Forward-Looking Statements

The Shareowner Service Plus PlanSM is offered
and administered by Wells Fargo Shareowner
Services, a registered transfer agent. It offers a
direct investment program for investors wishing
to purchase Acuity Brands common stock.
Dividends can be automatically reinvested. The
plan is available to both present shareholders of
record as well as to individual investors wishing
to make an initial purchase of Acuity Brands
common stock. The plan is not sponsored or
administered by Acuity Brands.

This annual report includes forward-looking
statements regarding: (a) future earnings and
cash flow and (b) initiatives during fiscal 2003
in each of the Company’s business segments.
A variety of factors could cause actual results to
differ materially from the anticipated results or
other expectations expressed in the Company’s
forward-looking statements, including, without
limitation: (a) the uncertainty of general business
and economic conditions; (b) the level of success
of planned cost reduction and profit improvement
initiatives; and (c) the other risk factors described
in the Company’s Annual Report on Form 10-K
for the year ended August 31, 2002. 

12

Acuity Brands 2002 Annual Report

© 2002 Acuity Brands, Inc. All referenced trademarks are the property of their respective owners.

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
¥

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Ñscal year ended August 31, 2002.

or

n

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from 

 to
Commission Ñle number 001-16583

.

Acuity Brands, Inc.

(Exact name of registrant as speciÑed in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

1170 Peachtree Street, N.E.,
Suite 2400
Atlanta, Georgia
(Address of principal executive oÇces)

58-2632672
(I.R.S. Employer
IdentiÑcation Number)

30309
(Zip Code)

(404) 853-1400
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of Each Class

Name of Each Exchange on which Registered

Common Stock ($0.01 Par Value)
Preferred Stock Purchase Rights

New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the registrant (1) has Ñled all reports required to be Ñled 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  Ñle  such  reports),  and  (2)  has  been  subject  to  such  Ñling  requirements  for  the  past
90 days. Yes ¥

No n

Indicate by check mark if disclosure of delinquent Ñlers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in deÑnitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. n

Based on the closing price of $12.65 as quoted on the New York Stock Exchange on October 24, 2002, the aggregate

market value of the voting stock held by nonaÇliates of the registrant, was $521,284,476.

The number of shares outstanding of the registrant's common stock, $0.01 par value, was 41,436,856 shares as of

October 24, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Location in Form 10-K

Incorporated Document

Part II, Item 5
Part III, Items 10, 11, 12, and 13

Proxy Statement for 2002 Annual Meeting of Stockholders
Proxy Statement for 2002 Annual Meeting of Stockholders

ACUITY BRANDS, INC.

Table of Contents

PART I

Item 1.
Item 2.
Item 3.
Item 4.

Business ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Properties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Legal Proceedings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Submission of Matters to a Vote of Security Holders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ÏÏÏÏÏÏÏÏÏÏÏ
Item 6.
Selected Financial Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 7. Management's Discussion and Analysis of Financial Condition and Results of

Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 7a. Quantitative and Qualitative Disclosures about Market Risk ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial Statements and Supplementary Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

PART III

Item 10. Directors and Executive OÇcers of the Registrant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 11. Executive CompensationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 12.

Security Ownership of Certain BeneÑcial Owners and Management and Related
Stockholder Matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 13. Certain Relationships and Related Transactions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 14. Controls and Procedures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SignaturesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CertiÑcations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial Statement Schedules ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Page

2
9
10
11

11
11

12
24
25

55

55
55

55
55
55
56
63
64
66

1

Item 1. Business

PART I

Acuity Brands, Inc. (""Acuity Brands'' or the ""Company'') operates in two business segments Ì
lighting equipment and specialty products. The lighting equipment segment of the Company (""Acuity
Lighting Group'' or ""ALG'') manufactures and distributes a variety of Öuorescent and non-Öuorescent
lighting Ñxtures for markets throughout North America and other foreign markets, primarily Western
Europe. The specialty products segment of Acuity Brands (""Acuity Specialty Products Group'' or ""ASP'')
produces and distributes cleaning, maintenance, sanitation, and water treatment chemicals and other
products for customers throughout the United States, Canada, and Western Europe. Of the Company's
Ñscal 2002 revenues of approximately $2.0 billion, the lighting equipment segment generated approximately
75 percent of total revenues while the specialty products segment provided the remaining 25 percent.
Information relating to the revenues, operating proÑts or losses, and total assets of the Company's two
segments for the past three Ñscal years is reported in the Consolidated Financial Statements included in
this report.

On November 7, 2001, the board of directors of National Service Industries, Inc. (""NSI'') approved
the spin-oÅ (the ""Spin-oÅ'' or ""Distribution'') of its lighting equipment and specialty products businesses
into a separate publicly traded company with its own management and board of directors. The Spin-oÅ
was eÅected on November 30, 2001 through a tax-free distribution of 100 percent of the outstanding
shares of common stock of Acuity Brands, which at that time was a wholly-owned subsidiary of NSI
owning and operating the lighting equipment and specialty products businesses. Each NSI stockholder of
record as of November 16, 2001, the record date for the Spin-oÅ, received one share of Acuity Brands
common stock for each share of NSI common stock held on that date.

Business Segments

Lighting Equipment

The lighting equipment business of Acuity Brands is operated under Acuity Lighting Group.

Management of Acuity Brands believes that Acuity Lighting Group is the world's leading manufacturer of
lighting Ñxtures for both new construction and renovation. Products include a full range of indoor and
outdoor lighting for commercial and institutional, industrial and residential applications. Lighting products
are manufactured in the United States, Canada, Mexico, and Europe and are marketed under numerous
brand names, including Lithonia», Holophane», Home-Vue», Light Concepts», Gotham», Hydrel»,
Peerless», Antique Street LampsTM, and Reloc». ALG manufactures products in 22 plants in North
America and in two plants in Europe.

Principal customers include wholesale electrical distributors, retail home improvement centers, and
lighting showrooms located in North America and select international markets. In North America, ALG's
products are sold through independent sales agents and factory sales representatives who cover speciÑc
geographic areas and market segments. Products are delivered through a network of distribution centers,
regional warehouses, and commercial warehouses using both common carriers and a company-owned truck
Öeet. To serve international customers, ALG employs a sales force that adopts distribution methods to
meet individual customer or country requirements. In Ñscal 2002, North American sales accounted for
approximately 98 percent of ALG's net sales.

Specialty Products

The specialty products business of Acuity Brands is operated under Acuity Specialty Products Group.

ASP is a leading provider of specialty chemical products in the institutional and industrial (""I&I'') and
retail markets. Products include cleaners, sanitizers, disinfectants, polishes, Öoor Ñnishes, degreasers,
deodorizers, pesticides, insecticides, and herbicides. ASP manufactures products in four North American
plants and two European plants.

2

Acuity Specialty Products Group sells products to customers primarily in North America and Western

Europe. In Ñscal 2002, North American sales accounted for approximately 95 percent of the net sales of
ASP. ASP serves a range of institutional and industrial customers, from small sole proprietorships to
Fortune 1000 corporations. Individual markets in the I&I channel include food processing and preparation,
transportation, education, automotive, and hospitality and are serviced through a direct commissioned sales
force. ASP also sells numerous products under such well known brands as Enforcer», SeligTM and Zep»
through retail channels such as large and small home improvement centers and mass merchandisers.

Industry Overview

Lighting Equipment

The size of the North American lighting Ñxture market in 2002 was estimated at approximately
$8.5 billion. The U.S. market, which represents approximately 95 percent of the North American market,
is relatively fragmented. The Company estimates that the top four manufacturers (including Acuity
Lighting Group) represent approximately 50 percent of the total lighting market.

The primary demand driver is non-residential construction, both new and renovation. Major industry

trends include the on-going development of new and more eÇcient lamp sources and optical designs,
increased adoption of new lighting ordinances, and continued emphasis on energy eÇciency.

There has been a signiÑcant increase in the size and relative presence of the retail home improvement

center segment. In addition, imports of foreign sourced lighting Ñxtures continue to grow, driven by both
the foreign production of U.S. manufacturers and imports of low-cost Ñxtures from Asian manufacturers.
European-based electrical distributors have increased their presence in the U.S. with the acquisition of
U.S.-based local and regional distributor chains, and smaller U.S. distributors continue to seek leverage
through alignment with buying groups.

Specialty Products

The approximately $8 billion U.S. I&I janitorial cleaning and sanitation market is highly fragmented.

The Company estimates that four major players (including Acuity Specialty Products Group) represent
approximately 50 percent of the total market with the remainder divided among hundreds of regional
players. In general, the Company estimates that the I&I market grows at a rate approximating Gross
Domestic Product (""GDP''). To some extent, consumption of janitorial cleaning and sanitation products is
discretionary, but in a health-driven, sophisticated market such as the U.S., the Company believes that
health and safety regulations and customer expectations somewhat buÅer demand downturns. Increasing
legislation in the areas of food and occupational health that require increased ranges of application and
frequency of use is fueling demand increases. In addition to the I&I market, there is a U.S. retail
chemical market of approximately $4.3 billion, including a $2.8 billion market for cleaners and a
$1.5 billion market for pest control.

The Company believes that two major trends are reshaping the industry. First, health and safety
regulations are shrinking the pool of available chemicals, while at the same time increasing the total use
rates. This has pushed development of improved physical product formulations and application methods.
Second, increased centralized corporate buying and consolidation of the supply chain are threatening
reselling distributors and requiring increased base manufacturing and logistics skills.

Products

Lighting Equipment

Acuity Lighting Group produces a wide variety of lighting Ñxtures used in the following applications:

‚ Commercial & Institutional Ì Applications are represented by stores, hotels, oÇces, schools, and
hospitals, as well as other government and public buildings. Products that serve these applications
include recessed, surface and suspended Öuorescent lighting products, recessed downlighting and
track-lighting, as well as ""high-abuse'' lighting products. The outdoor areas associated with these

3

application segments are addressed by the lighting equipment business' outdoor lighting products,
such as area and Öoodlighting, decorative site lighting, and landscape lighting.

‚ Industrial Ì Applications primarily include warehouses and manufacturing facilities. The lighting
equipment business serves these applications with a variety of glass and acrylic high intensity
discharge (HID) and Öuorescent lighting products.

‚ Infrastructure Ì Applications include highways, tunnels, airports, railway yards and ports. Products

that serve these applications include high-mast, oÅ-set roadway and sign lighting.

‚ Consumer Ì Applications are addressed with a combination of decorative Öuorescent and

downlighting products, as well as utilitarian Öuorescent products.

‚ Other Applications & Products Ì Other applications and products include emergency lighting
products, which are used in non-residential buildings, and lighting control and Öexible wiring
systems.

General Öuorescent lighting products accounted for approximately 24 percent of total consolidated

revenue during Ñscal years 2002, 2001 and 2000. No other product category accounted for more than
10 percent of total consolidated revenue for these periods.

Specialty Products

ASP produces and supplies a wide variety of specialty chemical products that are used in numerous

applications in a broad range of markets. These include:

‚ Food Process and Food Preparation Ì ASP provides a total solution approach to serving customers'
sanitation needs. New products, increased technical training for the sales reps, integrated dispensing
systems and innovative approaches to antimicrobial control have been implemented to complement
the existing cleaners and sanitizers.

‚ Transportation Ì Applications include cleaning and maintenance products for numerous transporta-

tion equipment including individual or Öeets of aircraft, public transport, trucks and cars. New
products have delivered increased eÇciency, regulatory compliance and integrated application
equipment. Major products are used to provide exterior cleaning or enhanced appearance.

‚ Education Ì Applications include schools and universities. The product range is broad and covers
all cleaning and maintenance areas with speciÑc emphasis on Öoor care and general cleaning and
deodorizing.

‚ Automotive Ì Applications include original equipment manufacturers, dealerships and repair/

service facilities. A comprehensive range of products includes aerosols, powders, solvents,
absorbents, emulsions, acids and aqueous alkaline cleaners and degreasers to provide necessary
cleaning requirements.

‚ Hospitality Ì Customers include hotels and motels. Products and dispensing systems are designed
to supply maintenance, housekeeping and laundry applications with a complete cleaning solution.

‚ Contractors and Homeowners Ì Applications include contract cleaners, small business owners, and
homeowners and are supplied through retail channels. Products provide a comprehensive range of
Öoor care, general purpose cleaners and sanitizers, drain maintenance, and pest control in
convenient ready-to-use packaging.

Sales and Marketing

Lighting Equipment

Sales. ALG provides North American market coverage with approximately 15 separate sales forces
targeted at delivering appropriate products and services to speciÑc customer or channel segments. In total,
these sales forces are comprised of approximately 1,700 salespeople (200 factory-employed and 1,500

4

independent sales representatives in over 200 separate sales agencies). ALG also operates two separate
European sales forces and an international sales group coordinating sales to the balance of the globe.

Marketing. ALG markets its products through a broad spectrum of marketing and promotional

vehicles, including direct customer contact, on-site training at training facilities, print advertising in
industry publications, product brochures and other literature, as well as electronic media. Direct customer
contact is performed by market development managers, whose primary role is the promotion of select
products to the many buying inÖuences involved in the speciÑcation/bid process common in the industry.
Most on-site training is conducted at a dedicated product training facility at ALG's headquarters in
Conyers, Georgia.

Specialty Products

Sales. ASP is a selling organization of 1,900 sales representatives and over 180 support personnel

worldwide. The compensation model is primarily 100 percent commission with exceptions in certain
channels. Net sales are dependent on the hiring, training, and retention of the commissioned sales
representatives. Accordingly, the future operating results of ASP may be aÅected by signiÑcant changes in
the sales force.

The ASP sales organization covers a wide geographic territory. The I&I market is serviced through

the recently reorganized Zep business with four U.S. divisions, as well as Canadian and European
divisions. Each of the four U.S. divisions includes from 230 to 370 sales representatives supplemented by a
highly productive complement of customer and technical service personnel. The Canadian and European
divisions have approximately 150 and 240 sales representatives, respectively. ASP's I&I business in North
America uses sales automation software that allows interactive support and communication throughout
North America. The retail sales division utilizes approximately 170 salaried sales and management
personnel to focus on revenue in the do-it-yourself home improvement channel.

Marketing. ASP's marketing eÅorts are focused on supporting a sell-through program from ASP to

the sales organization and then to the customer. ASP's primary focus is in four distinct areas. Market
planning includes comprehensive strategic and tactical plan development and support emphasizing Ñnancial
objectives and accountability. Product management includes new product development and asset
management. Market-based pricing takes into account competitive analysis and leverages the Öexibility of
the ASP operating platform. Marketing services provides sales support tools and collateral sales
information to ASP's worldwide sales force and customer base.

ASP has expanded the size and scope of marketing since 1998 and now employs over 40 marketing
professionals. The expertise of these professionals includes technical support, product management, retail
marketing and market planning.

Customers

No single customer accounted for 10 percent or more of consolidated net sales of Acuity Brands in

Ñscal year 2002. However, a single customer of Acuity Brands accounted for 14 percent and 13 percent of
ASP's Ñscal year net sales in 2002 and 2001, respectively. The loss of that customer would adversely aÅect
the results of that segment and the Company as a whole.

Lighting Equipment

Customers of the Acuity Lighting Group include electrical distributors, retail home improvement
centers, national accounts, lighting showrooms, and electric utilities. In addition, there are a variety of
other buying inÖuences, which for any given project could represent a signiÑcant inÖuence in the product
speciÑcation process. These generally include engineers, architects and lighting designers. For the year
ended August 31, 2002, sales to electrical distributors represented approximately 78 percent of ALG's
revenue. For the same period, retail home improvement centers and national accounts together represented
approximately 14 percent of the revenue of ALG.

5

Specialty Products

Customers of ASP consist of I&I customers (82 percent of segment revenues) and retail customers

(18 percent of segment revenues). I&I customers range from sole proprietorships to Fortune 1000
corporations and are in the food processing and preparation, transportation, education, automotive, and
hospitality markets. Retail customers primarily include large and small home improvement centers and
mass merchandisers.

Manufacturing

Acuity Brands operates 30 manufacturing facilities in seven countries, including 18 facilities in the

United States, four facilities in Canada, four facilities in Mexico, and four facilities in Europe.

Lighting Equipment

ALG utilizes a blend of internal and outsourced manufacturing processes and capabilities to fulÑll a
variety of customer needs in the most cost eÅective manner. Critical processes, such as reÖector forming
and anodizing and high-end glass production are primarily performed at company-owned facilities, oÅering
the ability to diÅerentiate end products through superior capabilities. Investment is focused on improving
product quality and manufacturing eÇciency. The integration of local suppliers' factories and warehouses
also provides an opportunity to lower ALG-owned component inventory while maintaining high service
levels via frequent just-in-time deliveries. ALG also utilizes contract manufacturing for certain products
and purchases certain Ñnished goods, primarily poles to complement its area lighting Ñxtures, but also a
variety of residential and commercial lighting equipment, from Asian and European sources.

U.S. operations represent approximately 56 percent of production; Mexico accounts for approximately

31 percent of production; Canada accounts for approximately four percent of production; and Europe
accounts for approximately three percent of production. The remaining six percent of production is
outsourced using contract manufacturing and Ñnished good suppliers.

Specialty Products

ASP manufactures products at six facilities located in the United States, Canada, Holland and Italy.

The three U.S. facilities produce approximately 94 percent of total manufactured product; Canada
accounts for approximately three percent of manufactured product, and Europe accounts for approximately
three percent of manufactured product. Certain Ñnished goods purchased from contract manufacturers and
Ñnished goods suppliers supplement the manufactured product line.

At ASP, core manufacturing and distribution processes are being further integrated across brands in
order to reduce costs and enhance eÇciency. ASP is focused on eÅorts to maximize return on employed
capital through productivity improvement programs. In addition, eÅorts are underway to optimize
inventories through product line rationalization and product reformulation programs.

Distribution

Lighting Equipment

Products are delivered through a network of strategically located distribution centers, regional
warehouses, and commercial warehouses in North America using both common carriers and a company-
owned truck Öeet. For international customers, distribution methods are adapted to meet individual
customer or country requirements.

Specialty Products

Products sold to institutional and industrial markets are shipped from strategically located distribution

centers throughout North America, while the retail products are distributed nationwide from the
Cartersville, Georgia plant and warehouse.

6

Research and Development

Lighting Equipment

Research and development eÅorts at ALG are targeted toward the development of products with an
ever-increasing performance-to-cost ratio, and close relationships with lamp and ballast manufacturers are
maintained to understand and incorporate technology enhancements in ALG's Ñxture designs. ALG
operates six separate product development model shops and seven photometers for testing and optimizing
Ñxture photometric performance. The Conyers, Georgia lab is approved by the National Voluntary
Laboratory Accreditation Program for both Öuorescent and high intensity discharge Ñxtures. For the years
ended August 31, 2002, 2001, and 2000, research and development expense at ALG was $20.3 million,
$14.5 million, and $16.2 million, respectively.

Specialty Products

At ASP, the research and development focus is directed towards product systems aimed at

comprehensive solutions for a broad customer base. EÅorts to enhance existing formulations by utilizing
new raw materials or combinations of raw materials have resulted in both new and improved products.
Technical expertise was employed to move proven technologies into new applications. Enhanced
information systems were developed to increase the speed and quality of training and customer assistance.
Research and development expense at ASP for the years ended August 31, 2002, 2001, and 2000,
excluding technical services, was $1.7 million, $1.1 million, and $1.0 million, respectively.

Competition

Lighting Equipment

The lighting equipment industry in which ALG operates is highly competitive, with the largest
suppliers serving many of the same markets and competing for the same customers. Competition is based
on numerous factors, including brand name recognition, price, product quality and design, customer
relationships, and service capabilities. Main competitors in the lighting industry include Cooper Industries,
Genlyte Thomas Group, and Hubbell. The management of Acuity Brands believes that, together with
ALG, the four largest lighting manufacturers possess approximately a 50 percent share of the total North
American lighting market.

Specialty Products

The specialty products industry in which ASP operates is highly competitive. Overall, competition is

fragmented, with numerous local and regional operators and a few national competitors. Many of these
competitors oÅer products in some, but not all, of the markets served by ASP. Competition is based
primarily on brand name recognition, price, product quality, and customer service. Competitors in the
specialty products industry include Ecolab, NCH and SC Johnson. Management estimates that the four
major players (including ASP) have approximately 50 percent of the total U.S. market and the remainder
is divided among hundreds of regional players.

Environmental Regulation

The operations of the Company are subject to comprehensive laws and regulations relating to the
generation, storage, handling, transportation, and disposal of hazardous substances and solid and hazardous
wastes and to the remediation of contaminated sites. Permits and environmental controls are required for
certain of the Company's operations to limit air and water pollution, and these permits are subject to
modiÑcation, renewal, and revocation by issuing authorities. Acuity Brands believes that it is in substantial
compliance with all material environmental laws, regulations, and permits. On an ongoing basis, Acuity
Brands incurs capital and operating costs relating to environmental compliance. Environmental laws and
regulations have generally become stricter in recent years, and the cost of responding to future changes
may be substantial. See Item 3 Legal Proceedings below for a discussion of certain environmental matters.

7

Raw Materials

The businesses of Acuity Brands require certain raw materials to produce and distribute their
products, including aluminum, plastics, electrical components, solvents, surfactants, and certain grades of
steel and glass. Acuity Brands purchases most of these raw materials on the open market and relies on
third parties for the sourcing of some Ñnished goods. As such, the cost of products sold may be aÅected by
changes in the market price of the above-mentioned raw materials or the sourcing of Ñnished goods.
Acuity Brands does not expect to engage in signiÑcant commodity hedging transactions for raw materials.
SigniÑcant increases in the prices of Acuity Brands' products due to increases in the cost of raw materials
or sourcing could have a negative eÅect on demand for products and on proÑtability as well as a material
adverse eÅect on the results of operations of Acuity Brands.

ASP has a sole supplier of a critical packaging raw material. While this material only accounts for

approximately three percent of the total raw material costs, it is used in products that account for
approximately 10 percent of sales.

Each business constantly monitors and investigates alternative suppliers and materials. Additionally,

each business has conducted internet auctions as a new method of competitive bidding.

Backlog Orders

The Company produces and stocks large quantities of inventory at key distribution centers and
warehouses throughout North America. As a consequence, it satisÑes a signiÑcant portion of customer
demand within 24 to 48 hours from the time a customer order is placed. This is especially true at ASP.
Sales order backlogs of the lighting equipment business believed to be Ñrm as of August 31, 2002 and
2001 were $144.7 million and $141.5 million, respectively. Sales order backlogs for the specialty products
business were not material.

Patents, Licenses and Trademarks

Acuity Brands owns or has licenses to use various domestic and foreign patents, patent applications

and trademarks related to its products, processes and businesses. These intellectual property rights,
particularly the trademarks relating to the brands of Acuity Brands' products, are important factors for
Acuity Brands' business. To protect these proprietary rights, Acuity Brands relies on copyright, trade secret
and trademark laws. Despite these protections, unauthorized parties may attempt to infringe on Acuity
Brands' intellectual property. Management of Acuity Brands is not aware of any such material
unauthorized use or of any claims that Acuity Brands does not have the right to use any intellectual
property material to Acuity Brands' businesses. While patents and patent applications in the aggregate are
important to Acuity Brands' competitive position, no single patent or patent application is material to the
Company.

Seasonality and Cyclicality

The businesses of Acuity Brands are somewhat seasonal in nature, with revenues being aÅected by the

impact of weather and seasonal demand on construction and installation programs, as well as the annual
budget cycles of major customers. Because of these seasonal factors, Acuity Brands has experienced, and
generally expects to experience, its highest sales in the last two quarters of its Ñscal year ended August 31.

A signiÑcant portion of the revenues of ALG relates to customers in the new construction and
renovation industries primarily for commercial and industrial applications. These industries are cyclical in
nature and subject to changes in general economic conditions. Volume has a major impact on the
proÑtability of ALG and Acuity Brands as a whole. In addition, sales at ASP are dependent on the retail,
wholesale and industrial markets, demand for which is generally associated with GDP in the United
States. Economic downturns and the potential decline in key construction markets and demand for
specialty chemicals may have a material adverse eÅect on the net sales and operating income of Acuity
Brands.

8

International Operations

Acuity Brands manufactures and assembles products at numerous facilities, some of which are located

outside the United States. Approximately 38 percent and six percent of the lighting equipment and
specialty products segments' products, respectively, are manufactured outside the United States, primarily
in Mexico and Canada. Acuity Brands also obtains components and certain Ñnished goods from suppliers
located outside the United States. Approximately 31 percent of Acuity Brands' lighting equipment
products are produced in Mexico. Mexico has enacted legislation to promote the use of such
manufacturing operations, known as ""Maquiladoras,'' by foreign companies. These operations are
authorized to operate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows
Acuity Brands to import certain items from the United States into Mexico duty-free, provided that such
items, after processing, are re-exported from Mexico within 18 months. Maquiladora status, which is
renewed every year, is subject to various restrictions and requirements, including compliance with the
terms of the Maquiladora program and other local regulations. In recent years many companies have
established Maquiladora operations. Although the Company's manufacturing operations in Mexico
continue to be less expensive than comparable operations in the United States, increasing demand for
labor, particularly skilled labor and professionals, from new and existing Maquiladora operations has in the
past and could in the future result in increased labor costs. Acuity Brands may be required to make
additional investments in automating equipment to partially oÅset potential increased labor costs.

For the Ñscal year ended August 31, 2002, international sales represented approximately 11 percent

and 13 percent of the total sales of the lighting equipment and specialty products businesses, respectively.

Employees

Acuity Brands employs approximately 11,800 employees, of whom approximately 8,010 are employed
in the United States, 2,530 in Mexico, 680 in Canada, and 580 in other international locations, including
Europe and Asia/PaciÑc. Union recognition and collective bargaining arrangements are in place, covering
approximately 4,680 persons (including approximately 2,500 in the United States). Management believes
that it generally has a good relationship with both its unionized and non-unionized employees.

Item 2. Properties

The general corporate oÇces of Acuity Brands are located in Atlanta, Georgia. Because of the diverse

nature of operations and the large number of individual locations, it is neither practical nor meaningful to
describe each of the operating facilities owned or leased by the Company. The following listing
summarizes the signiÑcant facility categories by business:

Division

Owned

Leased

Nature of Facilities

Lighting EquipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Specialty Products ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

17
1
3
9
4
12
Ì
Ì

7
9
4
11
2
38
4
11

Manufacturing Facilities
Warehouses
Distribution Centers
OÇces
Manufacturing Facilities
Warehouses
Distribution Centers
OÇces

9

The following table provides additional geographic information related to Acuity Brands' manufactur-

ing facilities:

United States

Canada Mexico

Europe

Total

Lighting Equipment

Owned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Leased ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Specialty Products

Owned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Leased ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

13
2

3
Ì

18

1
2

Ì
1

4

3
1

Ì
Ì

4

Ì
2

1
1

4

17
7

4
2

30

None of the individual properties of Acuity Brands is considered to have a value that is signiÑcant in
relation to the assets of Acuity Brands as a whole. Though a loss at certain facilities could have an impact
on the Company's ability to serve the needs of its customers, the Company believes that the Ñnancial
impact would be partially mitigated by various insurance programs in place. Acuity Brands believes that its
properties are well maintained and are in good operating condition. Acuity Brands' properties are suitable
and adequate for its present needs. The Company believes that it has additional capacity available at most
of its production facilities and that it could signiÑcantly increase production without substantial capital
expenditures.

Item 3. Legal Proceedings

Acuity Brands is subject to various legal claims arising in the normal course of business, including
patent infringement 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 eÅect on the Ñnancial condition or results of operations of Acuity Brands. However, in
the event of unexpected future developments, it is possible that the ultimate resolution of such matters, if
unfavorable, could have a material adverse eÅect on the future Ñnancial results of Acuity Brands. Acuity
Brands establishes reserves for legal claims when payments associated with the claims become probable
and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher
than the amounts reserved for such claims.

Genlyte Thomas Group LLC (""Genlyte Thomas'') Ñled suit on March 29, 2000, in the United States

District Court, Western District of Kentucky, alleging that certain Lithonia Lighting products infringe a
patent related to a frame for recessed lighting Ñxtures and that the infringement is willful. The Company
believes that it has valid defenses to the lawsuit and is vigorously defending the asserted allegations.
SpeciÑcally, the Company has received a formal opinion from independent patent counsel that the patent
is invalid and unenforceable. In discovery, which recently has been substantially completed, Genlyte
Thomas submitted an expert report on its damages claim asserting that Genlyte Thomas has sustained
approximately $20 million in damages. Any damages awarded at trial may be increased by the court by up
to three times if willful infringement is found. The Company has reserved the expected defense costs for
this litigation. Extensive pre-trial motions have been Ñled and it is expected that the case, if it proceeds to
trial, will not be heard until late 2003.

Acuity Brands also establishes reserves for known environmental claims when payments associated
with the claims become probable and the costs can be reasonably estimated. The environmental reserves of
Acuity Brands, for all periods presented in the Consolidated Financial Statements included in this report,
are immaterial. The actual costs of environmental issues may be higher than that reserved due to diÇculty
in estimating such costs and potential changes in the status of government regulations.

Certain environmental laws can impose liability regardless of fault. The federal Superfund law is an

example of such an environmental law. However, management believes that the liability under Superfund
is mitigated by the presence of other parties who will share in the costs associated with the clean up of

10

sites. The extent of liability is determined on a case-by-case basis taking into account many factors,
including the number of other parties whose status or activities also subjects them to liability regardless of
fault.

Acuity Brands is currently a party to, or otherwise involved in, legal proceedings in connection with

state and federal Superfund sites. Based on information currently available, the Company believes its
liability is immaterial at each of the currently active sites which it does not own where it has been named
as a responsible party or a potentially responsible party (""PRP'') due to its limited involvement at the site
and/or the number of viable PRPs. For example, the preliminary allocation among 48 PRPs at the Crymes
LandÑll site in Georgia indicates that Acuity Brands' liability is not signiÑcant, and there are more than
1,000 PRPs at the M&J Solvents site in Georgia. For property that Acuity Brands owns on Seaboard
Industrial Boulevard in Atlanta, Georgia, the Company has conducted an investigation on its properties
and adjoining properties and submitted a Compliance Status Report (""CSR'') to the State of Georgia
Environmental Protection Division (""EPD'') pursuant to the Georgia Hazardous Site Response Act. Until
the EPD approves the CSR and Acuity Brands evaluates the necessity for and scope of any appropriate
corrective action, Acuity Brands will not be able to determine whether corrective action will be required
and what the costs of such action will be.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted for a vote of the security holders during the three months ended

August 31, 2002.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Acuity Brands' common stock is listed on the New York Stock Exchange under the symbol ""AYI''.

At October 24, 2002, there were 5,346 stockholders of record. The following table sets forth the New York
Stock Exchange high and low stock prices and the dividend payments for Acuity Brands' common stock
for the periods indicated.

Price Per Share
Low
High

Dividends
Per
Share

2002
First Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
*
Second QuarterÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $14.89
Third Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $19.40
Fourth Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $18.60

*
$10.70
$14.00
$11.35

*
$0.15
$0.15
$0.15

* Public trading of the Acuity Brands shares (other than on a when-issued basis) did not commence until

December 3, 2001.

The information required by this item, with respect to equity compensation plans, is included under
the caption Disclosure with Respect to Equity Compensation Plans of the Company's proxy statement for
the annual meeting of stockholders to be held December 19, 2002, Ñled with the Securities and Exchange
Commission pursuant to Regulation 14A, and is incorporated herein by reference.

Item 6. Selected Financial Data

The following table sets forth certain selected consolidated Ñnancial data of Acuity Brands, which
have been derived from the Consolidated Financial Statements of Acuity Brands for each of the Ñve years
in the period ended August 31, 2002. The historical information may not be indicative of the Company's
future performance as an independent company. The information set forth below should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations

11

and the Consolidated Financial Statements and the notes thereto. Operating expenses in the historical
income statements prior to December 1, 2001 reÖect direct expenses of the Acuity Brands' businesses
together with allocations of certain NSI corporate expenses that were charged to Acuity Brands based on
usage or other methodologies appropriate for such expenses. In the opinion of Acuity Brands management,
these allocations have been made on a reasonable basis. Actual per share data has not been presented
since the businesses that comprise Acuity Brands were wholly-owned subsidiaries of NSI during all or a
portion of such periods.

2002

Net sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,972,796
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
52,024
Pro forma basic earnings

Year Ended August 31,
2001
1999
2000
(In thousands, except per-share data)
$2,023,644
83,691

$1,701,568
89,116

$1,982,700
40,503

per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt (excluding

current portion) ÏÏÏÏÏÏÏÏ
Total debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends declared per
common share ÏÏÏÏÏÏÏÏÏ

1.26
1,357,954

0.99
1,330,575

n/a
1,422,880

n/a
1,337,038

410,630
543,121

373,707
608,830

380,518
636,434

435,199
544,577

1998

$1,555,559
81,811

n/a
700,112

78,092
81,073

0.45

n/a

n/a

n/a

n/a

In September 2001, the Company adopted Statement of Financial Accounting Standards No. 142
Goodwill and Other Intangible Assets. Refer to Note 2 of the Notes to Consolidated Financial Statements
for information related to the impact of the adoption of this standard on the Company's net income and
pro forma earnings per share.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements
and related notes. References made to years are for Ñscal year periods. Dollar amounts are in thousands,
except share and per-share data and as indicated.

Overview

History and Purpose

On November 7, 2001, the board of directors of National Service Industries, Inc. approved the spin-

oÅ (the ""Spin-oÅ'') of its lighting equipment and specialty products businesses into a separate publicly
traded company with its own management and board of directors. The Spin-oÅ was eÅected on
November 30, 2001 through a tax-free distribution to NSI stockholders (""Distribution'') of 100 percent of
the outstanding shares of common stock of Acuity Brands, Inc. (""Acuity Brands'' or ""the Company''), at
that time a wholly-owned subsidiary of NSI owning and operating the lighting equipment and specialty
products businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the
Distribution, received one share of Acuity Brands common stock for each share of NSI common stock
held at that date. The Company operates on a Ñscal year end of August 31. Therefore, the results of
operations prior to November 30, 2001 are based on certain assumptions more fully described in Note 1 of
the Notes to Consolidated Financial Statements.

The purpose of this discussion and analysis is to enhance the understanding and evaluation of the
results of operations, Ñnancial position, cash Öows, indebtedness and other key Ñnancial information of
Acuity Brands and its subsidiaries for the years ended August 31, 2002, 2001, and 2000 and to describe
certain potential risk factors associated with the Company. For a more complete understanding of this
discussion, please read the Notes to Consolidated Financial Statements included in this report. Also, please
refer to the Company's Registration Statement on Form 10/A Ñled with the Securities and Exchange

12

Commission on November 9, 2001 for additional information regarding the Company, its formation and
potential risk factors associated with the Spin-oÅ.

Company

Acuity Brands is a holding company that owns and manages two business units, each operating a
collection of businesses, which sell products and provide services to customers in numerous channels,
primarily for consumer, commercial and industrial applications. The business units of Acuity Brands
operate in two distinct segments based on the diÅerent products manufactured and the customers served:
Acuity Lighting Group (""ALG'') and Acuity Specialty Products Group (""ASP''). The Company believes
ALG is the world's leading manufacturer and distributor of lighting Ñxtures, with a broad, highly
conÑgurable product oÅering consisting of roughly 500,000 active products as part of over 2,000 product
groups that are sold to approximately 5,000 customers. ALG operates 31 factories and distribution facilities
to serve its extensive customer base. ASP is a leading producer and distributor of cleaning and
maintenance products in North America and portions of Western Europe. ASP manufactures over 9,000
diÅerent products from six plants and serves over 300,000 customers through a network of distribution
centers and warehouses. Acuity Brands, with its principal oÇce in Atlanta, Georgia, has almost 12,000
employees worldwide. While Acuity Brands is less than one year old, the two segments that make up the
Company are comprised of organizations with long histories and well-known brands.

Strategy

A long-term objective of Acuity Brands is to be a broader, more diversiÑed manufacturing and
distribution organization capable of delivering consistent growth in earnings and cash Öow. A broader and
more diversiÑed organization is one that creates less dependency on a single market or customer and
generally reduces volatility in earnings and cash Öow caused by the cyclicality of a dominant industry. The
Company's longer-term Ñnancial goals, focused on enhancing shareholder value, are to grow earnings per
share in excess of 15 percent per annum, to generate consolidated operating margins in excess of
10 percent, to provide a return on stockholders' equity of 15 percent or better and to reduce the
Company's leverage to below 40 percent of total capital.

In 2002, Acuity Brands focused on the following four initiatives directed at the achievement of these

goals:

1. Provide customers with superior, value-added products and services

2. Reduce debt

3. Implement proÑt improvement and cost containment programs

4. Diversify the customer base and channels of distribution

In Ñscal 2002, the Company made signiÑcant progress in each of these key areas. Each segment
continued to develop new products and provide high levels of service, which helped mitigate the impact of
weak demand caused by a soft economic environment in other more mature product lines, described more
fully below. As signiÑcantly, the Company was able to reduce debt by approximately $100 million from
the date of Spin-oÅ to $543 million at August 31, 2002 through a combination of operating income and
improved working capital management. Also, beneÑting the results of the Company in 2002 was the
impact of proÑt improvement and cost containment programs implemented throughout the Company. The
impact of these programs helped to partially oÅset the signiÑcant price degradation due to severe
competition in key markets, particularly non-residential construction in North America. Lastly, the
Company was able to continue with its eÅort to diversify its customer base and end markets through the
acquisition of American Electric Lighting in October 2001 and the addition of certain key accounts in both
segments.

During Ñscal 2003, management expects to build on the momentum and the accomplishments of
these and other initiatives implemented in prior years. The expected outcome of these activities will be to

13

better position the Company to deliver on its full potential and provide a platform for future growth
opportunities.

Market Conditions Ì Fiscal 2002

Fiscal 2002 was a very challenging inaugural year for Acuity Brands. Events that impacted business

generally in 2002 were well-publicized lapses in proper corporate governance by certain companies,
sensational business bankruptcies, large layoÅs and the tragedy on September 11, 2001, all of which took
their toll on an economy that had not experienced recession in a decade. Gross Domestic Product in the
United States, the Company's primary area of operation, for the Ñscal year ended August 31, 2002
increased approximately 2.2 percent, with most of the gain occurring late in the year. During that same
period, activity in the Company's primary market, non-residential commercial construction, declined
approximately 11 percent year over year (based on square footage put in place). Management believes that
was the largest annual decline in 10 years. For Acuity Brands, these conditions created an economic
environment characterized by weak demand in key markets, rising costs for raw materials and insurance,
and intense price competition.

Highlight Ì Fiscal 2002

The Company responded and adapted to these challenging and volatile market conditions by
implementing strategies and programs to reduce costs, enhance productivity and, by better managing its
capital expenditures and working capital, improve cash Öow from operations. Acuity Brands generated
almost $2 billion in revenues and produced net income of $52 million, or $1.26 per share for the year
ended August 31, 2002. More importantly, the Company strengthened its balance sheet by reducing debt
to $543 million at August 31, 2002 from $644 million on November 30, 2001. While the Company aspired
to better results, Acuity Brands is proud of these Ñnancial achievements given the economic conditions
that existed in 2002.

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations addresses

the Ñnancial condition and results of operations as reÖected in the Company's Consolidated Financial
Statements, which have been prepared in accordance with accounting principles generally accepted in the
United States. As discussed in Note 2 of the Notes to Consolidated Financial Statements, the preparation
of Ñnancial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that aÅect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the Ñnancial statements and
reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management
evaluates its estimates and judgments, including those related to inventory valuation; depreciation,
amortization and the recoverability of long-lived assets, including intangible assets; medical, product
warranty and other reserves; litigation; and environmental matters. Management bases its estimates and
judgments on its substantial historical experience and other relevant factors, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. See Note 2 of the Notes to Consolidated Financial Statements for a summary of the
accounting policies of Acuity Brands.

The management of Acuity Brands believes the following represent the Company's critical accounting

policies:

Inventories

Acuity Brands records inventory at the lower of cost (on a Ñrst-in, Ñrst-out basis) or market.

Management reviews inventory quantities on hand and records a provision for excess or obsolete inventory
primarily based on estimated future demand and current market conditions. A signiÑcant change in

14

customer demand or market conditions could render certain inventory obsolete and thus could have a
material adverse impact on the Company's operating results in the period the change occurs.

Long-Lived and Intangible Assets and Goodwill

Acuity Brands reviews goodwill and intangible assets with indeÑnite useful lives for impairment on an

annual basis or on an interim basis if an event occurs that might reduce the fair value of the long-lived
asset below its carrying value. All other long-lived and intangible assets are reviewed for impairment
whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable.
An impairment loss would be recognized based on the diÅerence between the carrying value of the asset
and its estimated fair value, which would be determined based on either discounted future cash Öows or
other appropriate fair value methods.

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting

Standards No. 142 (""SFAS No. 142''), Goodwill and Other Intangible Assets. Acuity Brands adopted
SFAS No. 142 as of September 1, 2001. SFAS No. 142 requires companies to cease amortizing goodwill
that existed at June 30, 2001 and establishes a new method for testing goodwill for impairment. SFAS
No. 142 also requires that an identiÑable intangible asset that is determined to have an indeÑnite useful
economic life not be amortized, but separately tested for impairment using a fair value based approach.
The evaluation of goodwill and intangibles with indeÑnite useful lives for impairment requires management
to use signiÑcant judgments and estimates including, but not limited to, projected future revenue, operating
results, and cash Öow of each of the Company's businesses.

Although management currently believes that the estimates used in the evaluation of goodwill and
intangibles with indeÑnite lives are reasonable, diÅerences between actual and expected revenue, operating
results, and cash Öow could cause these assets to be deemed impaired. If this were to occur, the Company
would be required to charge to earnings the write-down in value of such assets, which could have a
material adverse eÅect on the Company's results of operations and Ñnancial position.

SpeciÑcally, Acuity Brands has two unamortized intangible assets with an aggregate carrying value of

$65.0 million. The carrying value is comprised of $62.6 million and $2.4 million associated with the
Company's Holophane and American Electric Lighting trade names, respectively. Management estimates
the fair value of these unamortized trade names using a fair value model based on discounted future cash
Öows. Future cash Öows associated with each of the Company's unamortized trade names are calculated by
applying a theoretical royalty rate a willing third party would pay for use of the particular trade name to
estimated future revenue. The present value of the resulting after-tax cash Öow is management's current
estimate of the fair value of the trade names. This fair value model requires management to make several
signiÑcant assumptions, including estimated future revenue, the royalty rate, and the discount rate.

DiÅerences between expected and actual results can result in signiÑcantly diÅerent valuations. If
future operating results of Holophane are unfavorable compared to forecasted amounts, the Company may
be required to reduce the theoretical royalty rate used in the fair value model. A reduction in the
theoretical royalty rate would result in lower expected, future after-tax cash Öow. Accordingly, an
impairment charge would be recorded at that time. To illustrate the potential impact of unfavorable
changes in the assumptions underlying the fair value model, a one percent reduction in the theoretical
royalty rate related to the Holophane trade name would result in a pre-tax impairment charge of
approximately 27 percent, or $17.0 million, of the carrying value of the trade name.

Self-Insurance

It is the policy of the Company to self insure for certain insurable property and casualty risks

consisting primarily of physical loss to property, business interruptions resulting from property losses,
workers' compensation, comprehensive general liability, and auto liability. Insurance coverage is obtained
for catastrophic property and casualty exposures as well as those risks required to be insured by law or
contract. Based on an independent actuary's estimate of the aggregate liability for claims incurred, a
provision for claims under the self-insured program is recorded and revised annually. The actuarial

15

estimates are subject to uncertainty from various sources, including, among others, changes in claim
reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions.
Although Acuity Brands believes that the actuarial estimates are reasonable, signiÑcant diÅerences related
to the items noted above could materially aÅect the Company's self-insurance obligations and future
expense.

The Company is also self-insured for the majority of its medical beneÑt plans. The Company
estimates its aggregate liability for claims incurred by applying a lag factor to the Company's historical
claims and administrative cost experience. The appropriateness of the Company's lag factor is evaluated
and revised, if necessary, annually. Although management believes that the current estimates are
reasonable, signiÑcant diÅerences related to claim reporting patterns, legislation, and general economic
conditions could materially aÅect the Company's medical beneÑt plan liabilities and future expense.

Product Warranty

Acuity Brands records an allowance for the estimated amount of future warranty costs when the
related revenue is recognized, primarily based on historical experience. Although historical warranty costs
have been within expectations, there can be no assurance that future warranty costs will not exceed
historical amounts. If actual future warranty costs exceed historical amounts, additional allowances may be
required, which could have a material adverse impact on the Company's operating results in future periods.

Litigation

Acuity Brands reserves for legal claims when payments associated with the claims become probable
and can be reasonably estimated. Due to the diÇculty in estimating costs of resolving legal claims, actual
costs may be substantially higher than the amounts reserved.

Environmental Matters

The Company reserves for known environmental claims when payments associated with the claims
become probable and the costs can be reasonably estimated. Acuity Brands' environmental reserves, for all
periods presented, are immaterial. The actual cost of resolving environmental issues may be higher than
that reserved primarily due to diÇculty in estimating such costs and potential changes in the status of
government regulations.

Liquidity and Capital Resources

Principal sources of liquidity for the Company are operating cash Öows generated primarily from its
segments and various sources of borrowings, primarily from banks. The capital structure of the Company is
comprised principally of an asset-backed securitization program, borrowings from banks, senior notes, and
the equity of its stockholders. The ability of the Company to generate suÇcient cash Öow from operations
and to be able to access certain capital markets, including banks, is critical for the Company to meet its
obligations as they become due.

Based on current earnings projections and prevailing market conditions, both for customer demand
and various capital markets, the Company believes that over the next twelve months it will have suÇcient
liquidity and availability under its Ñnancing arrangements to fund its operations as currently planned and
its anticipated capital investment and proÑt improvement initiatives, to repay borrowings as currently
scheduled, and to pay the same quarterly stockholder dividends in such amounts in 2003 as were paid in
2002. The Company expects to reduce outstanding borrowings by at least $30.0 million and to invest
between $38.0 and $42.0 million in new tooling, machinery and equipment during Ñscal 2003. If
management's expectations regarding current earnings projections and cash Öow or the forecasted reduction
in outstanding borrowings are not realized, the Company may be required to modify its planned business
activities or restructure a portion of its existing debt on potentially less favorable terms.

16

Cash Flow

The Company continues to generate substantial cash Öow from operations. In 2002, the Company

generated $146.8 million in cash Öow from operations compared to $183.7 million and $53.9 million
reported in 2001 and 2000, respectively. Operating earnings in each segment and improved working capital
management were the primary contributors to the Company's cash Öow from operations in 2002, partially
oÅset by the payment of approximately $7.0 million for spin-oÅ related expenses. In addition, the
Company generated $8.4 million in cash in 2002 from the sale of certain non-core assets. Total cash Öow
generated from operations plus these additional proceeds totaled $155.2 million in 2002. The Company
used its cash Öow in 2002 primarily to fund capital expenditures, quarterly dividend payments, and activity
with NSI prior to the Distribution, to acquire American Electric Lighting and to reduce debt.

The Company believes that achieving the proper returns on its invested capital is a key factor in

driving stockholder value. Toward that objective, management continued to focus its eÅorts in 2002 on
improving the returns earned on its invested capital by redeploying under-performing, non-core assets and
making additional investments in areas where the Company can maximize its earnings potential. This
included expenditures on tooling, machinery, and equipment for internal expansion as well as an
acquisition of a business in a strategic market. As part of this eÅort, the Company spent $33.5 million in
2002 for new tooling, machinery and equipment. Over the last three years, the Company has invested a
total of $144.0 million for new plant, equipment and tooling primarily to improve productivity and product
quality, increase manufacturing eÇciencies and enhance its customer service capabilities in each segment.
The Company believes that these investments, which have exceeded depreciation expense by an average of
9.6 percent annually in the three-year period ended August 31, 2002, will enhance its operations and
Ñnancial performance in 2003 and beyond.

As part of the Company's eÅort to broaden and diversify its customer base and the end markets it
serves, Acuity Lighting Group acquired certain assets and assumed certain liabilities of American Electric
Lighting in October 2001. The total cash paid was approximately $24.8 million. American Electric
Lighting manufactures and distributes lighting Ñxtures for use by utilities and transportation departments
to light outdoor areas, streets and sidewalks. The activities of American Electric Lighting are included in
the results of operations of the Company since the date of acquisition.

Working capital management was a key element in generating the Company's cash Öow from
operations in 2002. Consolidated working capital at August 31, 2002 was $160.2 million compared to
$117.0 million at August 31, 2001, an increase of $43.2 million. Consolidated working capital at
August 31, 2000 was $155.4 million. The increase in working capital in 2002 compared to 2001 was
primarily due to the increased working capital required to operate American Electric Lighting and the
change in classiÑcation of certain debt from current to long-term resulting from a modiÑcation in the
terms of the Company's Revolving Credit Facility, partially oÅset by greater accounts payable and accrued
liabilities, including income taxes. More importantly, operating working capital (deÑned as accounts
receivable, net, plus inventory, minus accounts payable) declined $21.3 million (5.3 percent) to
$378.0 million at August 31, 2002 from the end of 2001 and $99.6 million (20.9 percent) from the end of
2000. The decline in operating working capital was primarily due to higher accounts payable resulting from
more favorable terms negotiated with certain suppliers, partially oÅset by the increase in accounts
receivable, primarily at American Electric Lighting for shipments made after the acquisition date in
October 2001, and extended dating terms typical in the home improvement channel in both segments. The
Company continued to further penetrate the home improvement market as part of its diversiÑcation eÅort
to expand into other channels of distribution. Operating working capital as a percentage of net sales at the
end of 2002 was 19.2 percent, compared to 20.1 percent and 23.6 percent in 2001 and 2000, respectively.
Despite the weak economic environment in 2002 and the diÇculty in enhancing margins, the Company did
manage to generate a signiÑcant amount of free cash Öow, which was used to reduce outstanding debt as
more fully described below. At August 31, 2002, the current ratio of the Company was 1.37 compared to
1.26 at the end of 2001. The Company's consolidated cash position was $2.7 million at August 31, 2002
compared to $8.0 million at August 31, 2001. The Company's excess cash balances were used to reduce
the outstanding debt under its credit facility in order to lower its overall interest expense.

17

Contractual Obligations

The following table summarizes the Company's contractual obligations at August 31, 2002 (in

thousands):

Total

Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $411,376
129,200
Short-term secured borrowings* ÏÏÏÏÏÏ
2,545
Notes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
62,951
Operating leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,207
Unconditional purchase obligationsÏÏÏÏ

Less than
One Year

$

746
129,200
2,545
14,252
3,207

Payments Due by Period

1 to 3
Years

4 to 5
Years

After 5
Years

$21,970
Ì
Ì
18,972
Ì

$17,973
Ì
Ì
7,894
Ì

$370,687
Ì
Ì
21,833
Ì

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $609,279

$149,950

$40,942

$25,867

$392,520

* In May 2001, NSI entered into a three-year agreement (""Receivables Facility'') to borrow, on an

ongoing basis, up to $150.0 million secured by undivided interests in a deÑned pool of trade accounts
receivable of ALG and ASP. EÅective November 30, 2001, Acuity Brands assumed all of the
outstanding borrowings and other obligations under the Receivables Facility. Borrowings under the
Receivables Facility are subject to the annual renewal of a supporting line of credit. The Company
expects to renew the supporting line of credit during Ñscal 2003.

Capitalization

Total debt outstanding of $543.1 million at August 31, 2002 declined $100.6 million (15.6 percent)

from the date of the Spin-oÅ, November 30, 2001, and $65.7 million (10.8 percent) from August 31,
2001. The decrease was due primarily to the strong cash Öow from operations, partially oÅset by capital
expenditures, the acquisition of American Electric Lighting and the payment of dividends. In April 2002,
the Company entered into a new Revolving Credit Facility with its banks, which signiÑcantly improved its
Ñnancial Öexibility. The new Revolving Credit Facility consists of two components. The Ñrst component is
a $105 million revolving credit facility to be used for general corporate purposes and is due April 2005.
Borrowings under this facility at August 31, 2002 were $40.0 million. The second component is a 364-day,
$105 million facility to fund general corporate purposes, primarily working capital requirements. At
August 31, 2002, there were no borrowings drawn on this facility. Total availability under the Company's
Revolving Credit Facility was $146.3 million at August 31, 2002. See Note 4 of the Notes to Consolidated
Financial Statements for additional information regarding restrictions contained in the Revolving Credit
Facility.

Total debt outstanding at August 31, 2002 was $543.1 million compared to $643.7 million and

$608.8 million at November 30, 2001 and August 31, 2001, respectively. During Ñscal 2002, the
Company's consolidated stockholders' equity increased $18.7 million to $402.0 million at August 31, 2002.
The Company's debt to total capital ratio was 58 percent at August 31, 2002, down from approximately
63 percent at November 30, 2001.

Dividends

The Company paid quarterly common stock dividends of $0.15 per share in each of the last three

quarters of 2002. Total dividends paid were $18.6 million in 2002. Prior to November 30, 2001, the
Company was a subsidiary of NSI, as more fully described above, and did not pay dividends separately to
stockholders of NSI.

18

Results of Operations

Consolidated Results

Fiscal 2002 can best be characterized as managing well to modestly mitigate the eÅects of a diÇcult

economic environment. While many economists were predicting a soft landing for the economy, with a
rebound expected in the second half of the Company's Ñscal year, it became evident early on that this was
not going to be the case, particularly in the Company's largest market, the non-residential, commercial
construction industry. The impact on Acuity Brands of this weak economic environment was lower
shipments of products to customers in many of its key sales channels in both segments and severe price
competition for remaining orders, primarily in the commercial construction market. This, along with rising
costs in non-discretionary areas such as insurance, made expanding proÑtability very diÇcult. As a
consequence, management initiated programs to adapt to these changing market conditions by focusing on
other levers to drive Ñnancial performance, including generating additional revenues from new products and
channels of distribution, implementing various proÑt improvement and cost containment programs to limit
spending and improve manufacturing eÇciencies and generating free cash Öow through better working
capital utilization. These concerted actions allowed the Company to generate substantial cash Öow in 2002
and modest earnings while continuing to serve its vast customer base.

Overall, consolidated net sales were $1.97 billion in 2002, compared with $1.98 billion and

$2.02 billion reported in 2001 and 2000, respectively. For the year ended August 31, 2002, the Company
reported net income of $52.0 million, compared to $40.5 million and $83.7 million earned in 2001 and
2000, respectively. Earnings per share were $1.26 in 2002, compared to $0.99 reported in 2001. Excluding
the results from the divestiture of certain foreign operations of ASP in Ñscal 2001 and the acquisition of
American Electric Lighting in early Ñscal 2002, net sales would have been $1.91 billion in 2002,
$1.96 billion in 2001 and $2.0 billion in 2000. Similarly, excluding the pretax impact of $3.2 million in
gains on the sale of assets and $0.9 million for the reversal of certain restructuring expenses, net income in
2002 would have been $49.5 million, or $1.20 per share. In 2001, net income would have been
$66.7 million, or $1.63 per share, excluding the pretax impact of the $15.3 million loss from the divested
operations at ASP, $4.1 million for restructuring and impairment charges, $3.1 million for the termination
of a purchase obligation, and $12.1 million in discontinued amortization expense from the adoption of
SFAS No. 142. Net income in 2000 would have been $95.6 million excluding the impact of the divested
foreign operations and amortization expense noted above. Please refer to Notes 2 and 7 of the Notes to
Consolidated Financial Statements, which more fully describes the discontinuation of amortization of
goodwill and certain intangibles, the acquisition of American Electric Lighting, and the divestiture of the
foreign operations of ASP.

Excluding the acquisition of American Electric and the divesture of the foreign operations noted
above, net sales at Acuity Brands decreased approximately three percent in 2002 when compared to 2001.
The decline occurred primarily at ALG and was partially oÅset by a modest increase at ASP. The decline
was primarily due to soft demand and lower selling prices at ALG for certain types of Ñxtures for
industrial and oÇce applications, partially oÅset by an increase in sales through the retail channel at both
ALG and ASP. Consolidated net sales in 2001 declined approximately two percent when compared to
2000 primarily due to a decline in general economic conditions and a slowing in construction spending,
particularly in the fourth quarter of Ñscal 2001.

Consolidated operating proÑt was down 13.9 percent in 2002 to $120.1 million (6.1 percent of net
sales) from $139.6 million (7.0 percent of net sales) reported in 2001. Operating proÑt was $179.9 million
(8.9 percent of net sales) in 2000. The decline in operating proÑt in 2002 was primarily a result of the lost
contribution margin on the lower sales noted above, including price erosion experienced in certain key
lighting Ñxture markets, and higher spending for non-discretionary items, partially oÅset by various proÑt
improvement and cost containment programs and lower corporate expenses. Consolidated gross proÑt
margins declined to 40.7 percent of net sales in 2002 from 42.4 percent and 42.3 percent reported in 2001
and 2000, respectively. The decline in gross proÑt margins occurred primarily at ALG due to the impact of
signiÑcant price competition noted above, partially oÅset by lower costs and expenses due to various proÑt

19

improvement initiatives and cost containment programs implemented in 2002. Gross proÑt margins
remained essentially Öat at ASP over the three-year period. Operating expenses at Acuity Brands in 2002
were $683.4 million (34.6 percent of sales) compared to $701.8 million (35.4 percent of sales) in 2001
and $676.2 million (33.4 percent of sales) in 2000. Excluding amortization expense, operating expenses as
a percentage of sales in 2002 remained essentially the same as 2001. BeneÑts of cost containment
programs throughout the Company were primarily oÅset by increases in non-discretionary spending.

Other income (expense) for Acuity Brands is made up primarily of interest expense and other
miscellaneous, non-operating activity including the gain or loss on the sale of assets, certain restructuring
charges and gains or losses on foreign currency transactions. Interest expense, net was $40.7 million,
$48.8 million and $43.3 million in 2002, 2001 and 2000, respectively. Interest expense, net was down
16.6 percent in 2002 compared to 2001 primarily because of reduced levels of debt outstanding throughout
the period and lower interest rates for much of 2002. Interest expense, net increased slightly in 2001
compared to 2000 primarily because of greater debt levels to fund working capital investments. In 2002,
the Company generated a pretax gain of $3.2 million on the sale of certain non-core assets. In 2001, the
Company incurred other expenses associated with non-operating activities totaling a pretax loss of
$21.6 million, primarily for the loss associated with the disposal of certain foreign assets at ASP and
restructuring and other charges related to non-operating activities of the Company.

The eÅective tax rate reported by the Company was 37.2 percent, 41.4 percent and 38.1 percent in
2002, 2001 and 2000, respectively. The decline in the tax rate was primarily the result of the legal entity
restructuring that occurred in connection with the Spin-oÅ and the elimination of amortization of goodwill.

Acuity Lighting Group

Acuity Lighting Group reported net sales of approximately $1.47 billion, $1.47 billion, and
$1.52 billion for the years ending August 31, 2002, 2001, and 2000, respectively. Excluding revenues
contributed from the acquisition of American Electric Lighting in October 2001, net sales would have
decreased 4.1 percent during 2002. The decline in net sales during 2002 was due primarily to lower
shipments to certain commercial and industrial markets and reduced selling prices for certain key products
due to intense price competition for available orders. Net sales decreased during Ñscal 2001 compared to
Ñscal 2000 primarily due to general economic conditions and a slowing in construction spending,
particularly in the fourth quarter of Ñscal 2001.

Operating proÑt was down 24.6 percent in 2002 to $89.6 million from $118.8 million reported in 2001.

Operating proÑt was $144.4 million in 2000. The decline in operating proÑt in 2002 was primarily the
result of the lost contribution on the lower sales noted above due principally to product mix changes and
price erosion experienced in certain lighting Ñxture markets, higher spending for non-discretionary items
such as medical and property insurance, and greater investments in certain sales and marketing programs.
This decline was partially oÅset by proÑt improvement initiatives and cost containment programs that
reduced costs and improved productivity in key factories in 2002. These programs included eÅorts to
source materials more eÅectively, streamline production through better integration with suppliers and
eliminate costs associated with non-value added activities. Also, ALG expanded its channels of distribution
and the types of customers served in 2002. The adoption of a new accounting standard that eliminated
amortization of goodwill and certain intangibles contributed approximately $10.0 million to operating proÑt
at ALG. Operating proÑt decreased in 2001 primarily due to lower sales, higher excess and obsolete
inventory costs, and higher non-discretionary items such as medical and casualty insurance costs.

Acuity Specialty Products

Net sales at ASP were $497.9 million in 2002, compared with $514.1 million and $508.0 million

reported in 2001 and 2000, respectively. Excluding the results from the divestiture of certain foreign
operations during 2001, net sales would have been $493.7 million and $481.0 million in 2001 and 2000,
respectively. The increase in 2002 net sales was primarily due to continued strength in the retail sector

20

and, to a lesser extent, in certain niche markets. Net sales increased during 2001 primarily as a result of
increased sales volumes in both the industrial and institutional and the retail channels.

Operating proÑt increased 8.7 percent in 2002 to $44.9 million from $41.3 million reported in 2001.
Operating proÑt was $50.1 million in 2000. Excluding the results from the divestiture of certain foreign
operations during 2001, operating proÑt would have been $42.0 million and $51.5 million in 2001 and
2000, respectively. The increase in operating proÑt in 2002 was primarily the result of the proÑt
contribution on higher volumes, the impact of proÑt improvement programs, and the elimination of
approximately $2.1 million of amortization expense. These items were partially oÅset by greater
investments in sales initiatives and higher insurance costs. ASP implemented programs such as sourcing
initiatives, cost containment programs and aggressive marketing strategies that allowed the segment to
produce solid Ñnancial performance while expanding penetration of key market niches and further
diversifying the customer base. Unfortunately in 2002, many of those eÅorts merely oÅset the impact of
rising costs for insurance programs. Operating proÑt decreased in 2001 primarily due to higher medical
costs, additional costs incurred to integrate the specialty products businesses, increased energy costs, and
greater investments in the development of specialty channel and national accounts.

Corporate

Corporate expenses decreased 30.2 percent in 2002 to $14.4 million from $20.6 million reported in

2001. Corporate expenses were $14.6 million in 2000. The decrease in corporate expense in 2002 was
primarily due to cost containment programs and the reorganization of the corporate staÅ. Allocated
corporate expenses increased in 2001 primarily due to an increase in medical and casualty insurance costs
and higher costs related to strategic and operational initiatives.

Outlook

In 2002, Acuity Brands made progress toward its objective of becoming a broader more diversiÑed

organization. Through diversiÑcation and size, management believes that Acuity Brands will be less
dependent on the business cycles of a single economy, industry or product and thus able to provide more
consistent and sustainable growth in earnings and cash Öow on which to build the Company in the future.
Actions taken in 2002 such as the acquisition of American Electric Lighting, implementation of proÑt
improvement and cost containment initiatives coupled with a signiÑcant capital investment program over
the last three years and an intense debt reduction program, have made Acuity Brands a more diversiÑed
company with greater Ñnancial resources. As noted earlier, management intends to continue to focus on
the same strategic initiatives in 2003.

As the Company concludes 2002 and enters 2003, management remains conÑdent in the long-term
potential of Acuity Brands, but extremely cautious of the next twelve months. Management's caution is
driven in part by the lack of any real sign of a meaningful recovery or a sustainable improvement in the
business climate for the Company's key markets, particularly in North America. While some economists
predict that the domestic economy will improve late in the Company's Ñscal 2003, management is
preparing for another year of very diÇcult conditions. This includes continued cost increases for insurance
and certain raw materials, including steel, and the impact of deÖationary pricing pressures driven by over-
capacity and continued weak customer demand in key markets, principally the nonresidential construction
market in North America. Therefore, the focus of the organization will remain on improving the products
and services provided to customers, becoming more productive and eÇcient, and enhancing proÑtability
while continuing to diversify and expand the many end markets and customers served. Additionally, the
Company is evaluating various alternatives, some of which it expects to implement in Ñscal 2003, to
speciÑcally address the negative impact on proÑt margins of rising costs and pricing pressures. These
actions include price increases and other initiatives to enhance price realization throughout the Company.
Assuming that economic conditions overall, and more speciÑcally in the Company's key markets, do not
deteriorate beyond their already weakened state, management expects earnings in 2003 to be between
$1.20 and $1.40 per share. The low end of this range is based on the current economic environment and is
essentially Öat with Ñscal 2002 earnings, excluding gains on asset sales and restructuring reversals. Should

21

the economy begin to improve in the second half of Ñscal 2003, however, the Company could potentially
deliver earnings per share at the high end of the range. Sales are expected to increase modestly in 2003,
based on current market conditions.

Risks Relating to the Distribution

On November 7, 2001, the board of directors of National Service Industries, Inc. approved the spin-

oÅ of its lighting equipment and specialty products businesses into a separate publicly traded company
with its own management and board of directors. The spin-oÅ was eÅected on November 30, 2001 through
a tax-free distribution of 100 percent of the outstanding shares of common stock of Acuity Brands, at that
time a wholly-owned subsidiary of NSI owning and operating the lighting equipment and specialty product
businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the Distribution,
received one share of Acuity Brands common stock for each share of NSI common stock held at that
date. The following risks associated with Acuity Brands relate principally to the Distribution. If any of
these risks develops into an actual event, the business, Ñnancial condition or results of operations of Acuity
Brands could be materially adversely aÅected.

Failure to Qualify as a Tax-Free Transaction Could Result in Substantial Liability

NSI and Acuity Brands intend for the Distribution to be tax-free for U.S. Federal income tax
purposes. Management of Acuity Brands believes the Distribution was tax-free for U.S. Federal income
tax purposes. The Distribution was conditioned upon the receipt by each of NSI and Acuity Brands of
opinions from each of King & Spalding, counsel to NSI and Acuity Brands, and Ernst & Young LLP,
special tax advisor to NSI and Acuity Brands, that for U.S. Federal income tax purposes the receipt of
Acuity Brands Shares by NSI stockholders was tax-free. Neither NSI nor Acuity Brands requested an
advance ruling from the Internal Revenue Service as to the tax consequences of the Distribution. The
opinions of King & Spalding and Ernst & Young LLP are subject to certain assumptions and the accuracy
and completeness of certain factual representations and statements made by NSI and Acuity Brands and
certain other data, documentation and other materials that each of King & Spalding and Ernst & Young
LLP deemed necessary for purposes of their respective opinions. If these assumptions and factual
representations were incorrect or incomplete in a material respect, the conclusions set forth in the opinions
may not be correct. These opinions represent the views of King & Spalding and Ernst & Young LLP as to
the interpretation of existing tax law and accordingly, such opinions are not binding on the Internal
Revenue Service or the courts and no assurance can be given that the Internal Revenue Service or the
courts will agree with their opinions.

If the Distribution does not qualify for tax-free treatment, a substantial corporate tax would be
payable by the consolidated group of which NSI is the common parent measured by the diÅerence
between (1) the aggregate fair market value of the Acuity Brands Shares on the Distribution Date and
(2) NSI's adjusted tax basis in the Acuity Brands Shares on the Distribution Date. The corporate level
tax would be payable by NSI. However, Acuity Brands agreed under certain circumstances to indemnify
NSI for all or a portion of this tax liability. This indemniÑcation obligation, if triggered, could have a
material adverse eÅect on the results of operations and Ñnancial position of Acuity Brands. In addition,
under the applicable treasury regulations, each member of NSI's consolidated group (including Acuity
Brands) is severally liable for such tax liability.

Furthermore, if the Distribution does not qualify as tax-free, each NSI stockholder who received

Acuity Brands Shares in the Distribution would be taxed as if he had received a cash dividend equal to
the fair market value of his Acuity Brands Shares on the Distribution Date.

Even if the Distribution qualiÑes as tax-free, NSI could nevertheless incur a substantial corporate tax
liability under Section 355(e) of the Internal Revenue Code of 1986, as amended (the ""Internal Revenue
Code'' or the ""Code''), if NSI or Acuity Brands were to undergo a change in control (whether by
acquisition, additional share issuance or otherwise) pursuant to a plan or series of related transactions
which include the Distribution. Any transaction, which occurs within the four-year period beginning two

22

years prior to the Distribution, is presumed to be part of a plan or series of related transactions that
includes the Distribution unless NSI establishes otherwise. Under certain circumstances, Acuity Brands
would be obligated to indemnify NSI for all or a portion of this substantial corporate tax liability under
the tax disaÇliation agreement. This indemniÑcation obligation would have a material adverse eÅect on
the results of operations and Ñnancial position of Acuity Brands.

Creditors of NSI May Challenge the Distribution as a Fraudulent Conveyance

On November 7, 2001, the NSI board of directors made a determination, based on information

provided by management and Ñnancial experts, that the Distribution was permissible under applicable
dividend and solvency laws. There is no certainty, however, that a court would Ñnd the decision of the
NSI board to be binding on creditors of NSI and Acuity Brands or that a court would reach the same
conclusions as the NSI board in determining whether NSI or Acuity Brands was insolvent at the time of,
or after giving eÅect to, the Distribution. If a court in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, were to Ñnd that at the time NSI eÅected the Distribution, NSI
or Acuity Brands (1) was insolvent; (2) was rendered insolvent by reason of the Distribution; (3) was
engaged in a business or transaction for which their respective remaining assets constituted unreasonably
small capital; or (4) intended to incur, or believed it would incur, debts beyond its ability to pay as such
debts matured, such court may be asked to void the Distribution (in whole or in part) as a fraudulent
conveyance and require that the stockholders return the Acuity Brands Shares (in whole or in part) to
NSI or require Acuity Brands to fund certain liabilities for the beneÑt of creditors. The measure of
insolvency for purposes of the foregoing would vary depending upon the jurisdiction whose law is being
applied. Generally, however, NSI or Acuity Brands would be considered insolvent if the fair value of their
respective assets were less than the amount of their respective liabilities or if they incurred debt beyond
their ability to repay such debt as it matures. Management believes the likelihood that creditors of NSI
could successfully challenge the Distribution is remote.

Cautionary Statement Regarding Forward-Looking Information

This Ñling contains forward-looking statements, within the meaning of the Private Securities Litigation
Reform Act of 1995, that involve risks and uncertainties. Consequently, actual results may diÅer materially
from those indicated by the forward-looking statements. Statements made herein that may be considered
forward-looking include statements concerning: (a) major trends shaping the specialty products industry;
(b) expectations related to future commodity hedging transactions for raw materials; (c) seasonal factors
aÅecting the Company's results of operations; (d) possible future investments in automating equipment in
Maquiladora operations to partially oÅset potential increased labor costs; (e) the expected outcome of
activities initiated in Ñscal 2002 related to the ability of the Company to deliver on its full potential and
provide a platform for future growth opportunities; (f) expectations regarding future liquidity and
availability under the Company's Ñnancing arrangements (i) to fund operations, anticipated capital
investment, and proÑt improvement initiatives as currently planned; (ii) to repay borrowings as currently
scheduled; and (iii) to pay dividends in such amounts in 2003 as were paid in 2002; (g) anticipated
beneÑts of investments in property, plant, and equipment; (h) expectations regarding the renewal of the
supporting line of credit related to the Receivables Facility during Ñscal 2003; (i) anticipated beneÑts of
diversiÑcation and size; (j) future revenue, earnings, capital expenditures, and debt reduction;
(k) management intentions related to strategic initiatives and focus in 2003; and (l) the outcome of
pending or future legal or regulatory proceedings. A variety of risks and uncertainties could cause the
Company's actual results to diÅer materially from the anticipated results or other expectations expressed in
the Company's forward-looking statements. The risks and uncertainties include without limitation the
following: (a) the uncertainty of general business and economic conditions, including the potential for a
more severe slowdown in non-residential construction, changes in interest rates, and Öuctuations in
commodity and raw material prices or foreign currency rates; (b) unexpected developments and outcomes
in the Company's legal and environmental proceedings; (c) the risk that projected future cash Öows from
operations are not realized; (d) the impact of competition; (e) the uncertainty caused by operations in
cyclical industries; (f) the risk that underlying assumptions or expectations related to the Distribution

23

prove to be inaccurate or unrealized; (g) the risk that the Distribution fails to qualify as a tax-free
transaction; (h) the risk that creditors of NSI may challenge the Distribution as a fraudulent conveyance;
(i) the risk of a work stoppage or an increase in organized labor activity; (j) the potential for the
Company's growth to be limited by the payment of dividends; and (k) the Company's ability to realize the
anticipated beneÑts of initiatives expected to reduce costs, improve proÑts, enhance customer service,
increase manufacturing eÇciency, reduce debt, and expand product oÅerings and brands in the market
through a variety of channels.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

General. Acuity Brands is exposed to market risks that may impact the Consolidated Balance Sheets,

Consolidated Statements of Income, and Consolidated Statements of Cash Flows due to changing interest
rates and foreign exchange rates. Acuity Brands does not currently participate in any signiÑcant hedging
activities, nor does it currently utilize any signiÑcant derivative Ñnancial instruments. The following
discussion provides additional information regarding Acuity Brands' market risks.

Interest Rates.

Interest rate Öuctuations expose Acuity Brands' variable-rate debt to changes in

interest expense and cash Öows. Acuity Brands' variable-rate debt, primarily short-term secured borrowings
and amounts outstanding under the Company's credit facilities, amounted to $182.9 million and $245.9
million at August 31, 2002 and 2001, respectively. Based on outstanding borrowings at year-end, a
10 percent increase in market interest rates at August 31, 2002 and 2001 would have resulted in additional
annual after-tax interest expense of approximately $0.2 million and $0.6 million, respectively. Although a
Öuctuation in interest rates would not aÅect interest expense or cash Öows related to the $360.0 million
publicly traded notes, Acuity Brands' primary Ñxed-rate debt, a 10 percent increase in market interest rates
at August 31, 2002 and 2001 would have decreased the fair value of these notes to approximately
$342.0 million and $356.1 million, respectively. See Note 4 of the Notes to Consolidated Financial
Statements for additional information regarding the Company's long-term debt.

Foreign Exchange Rates. The majority of Acuity Brands' revenue, expense, and capital purchases are

transacted in U.S. dollars. Acuity Brands does not believe a 10 percent Öuctuation in average foreign
currency rates would have a material eÅect on its consolidated Ñnancial position or results of operations.
Acuity Brands does not engage in speculative transactions, nor does Acuity Brands hold or issue Ñnancial
instruments for trading purposes. Acuity Brands attempts to reduce its exposure to unfavorable foreign
currency translation adjustments through the use of foreign-currency denominated debt agreements.

24

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of ManagementÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Report of Independent Auditors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Report of Independent Public Accountants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheets as of August 31, 2002 and 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Income for the years ended August 31, 2002, 2001, and 2000 ÏÏÏÏÏÏÏÏ
Consolidated Statements of Cash Flows for the years ended August 31, 2002, 2001, and 2000 ÏÏÏÏÏ
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended

August 31, 2002, 2001, and 2000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Schedule II Ì Valuation and Qualifying Accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Page

26
27
28
29
30
31

32
33
66

25

ACUITY BRANDS, INC.

REPORT OF MANAGEMENT

The management of Acuity Brands, Inc. is responsible for the integrity and objectivity of the Ñnancial

information in this annual report. These Ñnancial statements are prepared in conformity with accounting
principles generally accepted in the United States, using informed judgments and estimates where
appropriate. The information in other sections of this report is consistent with the Ñnancial statements. The
Company maintains a system of internal controls and accounting policies and procedures designed to
provide reasonable assurance that assets are safeguarded and transactions are executed and recorded in
accordance with management's authorization. The audit committee of the Board of Directors, composed
entirely of outside directors, is responsible for monitoring the Company's accounting and reporting
practices. The audit committee meets regularly with management, the internal auditors, and the
independent auditors to review the work of each and to assure that each performs its responsibilities. Both
the internal auditors and Ernst & Young LLP have unrestricted access to the audit committee allowing
open discussion, without management's presence, on the quality of Ñnancial reporting and the adequacy of
internal accounting controls.

JAMES S. BALLOUN
Chairman, President,

and Chief Executive
OÇcer

VERNON J. NAGEL
Executive Vice President
and Chief Financial
OÇcer

JOHN W. EHRIE
Vice President and

Controller

26

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Acuity Brands, Inc.

We have audited the accompanying consolidated balance sheet of Acuity Brands, Inc. (formerly the
National Service Industries, Inc. lighting equipment and specialty products businesses) as of August 31,
2002, and the related consolidated statements of income, stockholders' equity and comprehensive income,
and cash Öows for the year then ended. Our audit also included the Ñnancial statement schedule listed in
the Index at Item 15(a). These Ñnancial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Ñnancial statements and schedule based
on our audit. The Ñnancial statements and schedule of the National Service Industries, Inc. lighting
equipment and specialty products businesses as of August 31, 2001, and for each of the two years in the
period ended August 31, 2001, were audited by other auditors who have ceased operations and whose
report dated October 12, 2001 expressed an unqualiÑed opinion on those statements and schedule.

We conducted our audit in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the Ñnancial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Ñnancial statements. An audit also includes
assessing the accounting principles used and signiÑcant estimates made by management, as well as
evaluating the overall Ñnancial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the 2002 Ñnancial statements referred to above present fairly, in all material respects,
the consolidated Ñnancial position of Acuity Brands, Inc. at August 31, 2002, and the consolidated results
of its operations and its cash Öows for the year then ended in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related Ñnancial statement schedule,
when considered in relation to the basic Ñnancial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As discussed in Note 2 to the Consolidated Financial Statements, in 2002 the Company ceased
amortization of goodwill and other indeÑnite lived intangible assets in accordance with Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

ERNST & YOUNG LLP

Atlanta, Georgia
September 30, 2002, except for the

last paragraph of Note 4,
as to which the date is
October 11, 2002

27

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

NOTE: This is a copy of a report previously issued by Arthur Andersen LLP, the Company's former
independent accountants. The Arthur Andersen LLP report refers to certain Ñnancial information for the
year ended August 31, 1999 and certain balance sheet information at August 31, 2000, which are no
longer included in the accompanying Ñnancial statements. Arthur Andersen LLP has not reissued this
report in connection with the Ñling of this Annual Report on Form 10-K.

To National Service Industries, Inc.:

We have audited the accompanying combined balance sheets of the National Service Industries, Inc.

lighting equipment and chemicals businesses (to be reorganized as Acuity Brands, Inc. Ì Note 1) as of
August 31, 2001 and 2000 and the related combined statements of income, parent's equity and
comprehensive income, and cash Öows for each of the three years in the period ended August 31, 2001.
These combined Ñnancial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these combined Ñnancial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the Ñnancial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Ñnancial statements. An audit also includes
assessing the accounting principles used and signiÑcant estimates made by management, as well as
evaluating the overall Ñnancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the combined Ñnancial statements referred to above present fairly, in all material
respects, the combined Ñnancial position of the National Service Industries, Inc. lighting equipment and
chemicals businesses as of August 31, 2001 and 2000 and the results of their operations and their cash
Öows for each of the three years in the period ended August 31, 2001 in conformity with accounting
principles generally accepted in the United States.

Atlanta, Georgia
October 12, 2001

ARTHUR ANDERSEN LLP

28

ACUITY BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

Current Assets:

Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Receivables, less allowance for doubtful accounts of $8,560 at August 31, 2002 and $8,195 at

August 31, 2001ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepayments and other current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total Current Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Property, Plant, and Equipment, at cost:

Land ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Buildings and leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total Property, Plant, and EquipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less Ì Accumulated depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Property, Plant, and Equipment, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Other Assets:

Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other intangibles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other long term assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total Other Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

August 31,

2002

2001

(In thousands, except share
and per-share data)

$

2,694

$

8,006

322,735
216,942
24,247
24,379

590,997

14,746
162,296
339,198

516,240
275,561

240,679

344,218
133,030
49,030

526,278

296,900
210,783
16,326
27,101

559,116

16,009
161,779
326,160

503,948
255,525

248,423

331,363
137,581
54,092

523,036

Total Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$1,357,954

$1,330,575

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Current maturities of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Revolving credit facility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Short-term secured borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued salaries, commissions, and bonuses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other accrued liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

Total Current Liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Long-Term Debt, less current maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Deferred Income TaxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Self-Insurance Reserves, less current portion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Other Long-Term Liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Commitments and Contingencies
Stockholders' Equity:

NSI investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Common stock, $0.01 par value, 500,000,000 shares authorized, 41,346,730 shares issued and

outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unearned compensation on restricted stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive income (loss) items ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

746
Ì
129,200
2,545
161,713
36,459
100,144

430,807

410,630

23,480

16,517

74,568

Ì
Ì

414
403,389
21,884

(500)
(23,235)

$

357
105,000
105,100
24,666
108,380
36,070
62,494

442,067

373,707

31,759

14,350

85,394

400,296
Ì

Ì
Ì
Ì
Ì
(16,998)

Total Stockholders' Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

401,952

383,298

Total Liabilities and Stockholders' Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$1,357,954

$1,330,575

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

29

ACUITY BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME

Net sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,972,796
1,169,282
Cost of products soldÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Years Ended August 31,
2002
2000
2001
(In thousands, except per-share data)
$1,982,700
1,141,353

$2,023,644
1,167,524

Gross ProÑtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling and administrative expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Operating ProÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Expense (Income):

Interest expense, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring and other chargesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on sale of businessesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Miscellaneous (income) expense, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total Other Expense (Income) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Income before Provision for Income Taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for Income Taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

803,514
679,071
4,316

120,127

40,690
(853)
Ì

(2,546)

37,291

82,836
30,812

841,347
683,793
17,965

139,589

48,797
4,083
14,557
3,000

70,437

69,152
28,649

856,120
657,742
18,441

179,937

43,299
Ì
Ì
1,347

44,646

135,291
51,600

Net Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $

52,024

Pro Forma Earnings Per Share (Unaudited):

Basic Earnings per Share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $

1.26

Basic Weighted Average Number of Shares OutstandingÏÏÏÏÏÏ

41,286

$

$

40,503

$

83,691

0.99

41,068

n/a

n/a

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

30

ACUITY BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash Provided by (Used for) Operating Activities:

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income to net cash provided by (used for)

operating activities:
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gain on the sale of property, plant, and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on sale of businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for losses on accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring and other charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in assets and liabilities net of eÅect of acquisitions and

divestitures Ì
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepayments and other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable and accrued liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Self-insurance reserves and other long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets and liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2002

Years Ended August 31,
2001
(In thousands)

2000

$

52,024

$

40,503

$

83,691

49,494
(3,214)

Ì
5,445
(853)

(31,822)
4,471
(2,920)
1,328
81,058
(13,011)
4,841

62,911
(194)
14,557
4,930
4,083

35,258
23,189
(4,433)
(3,948)
5,137
422
1,238

58,485
(156)
Ì
2,667
Ì

(37,464)
(40,054)
321
(3,662)
(12,202)
12,038
(9,764)

Net Cash Provided by Operating Activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

146,841

183,653

53,900

Cash Provided by (Used for) Investing Activities:

Purchases of property, plant, and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from the sale of property, plant, and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from the sale of businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Acquisitions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(33,482)
8,358
Ì

(24,765)

(47,611)
1,837
1,632
Ì

(62,913)
1,866
Ì

(16,214)

Net Cash Used for Investing Activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(49,889)

(44,142)

(77,261)

Cash Provided by (Used for) Financing Activities:

Net (repayments) borrowings of notes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuances (repayments) of commercial paper, net (less than 90 days) ÏÏÏÏÏÏ
Issuances of commercial paper (greater than 90 days) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Repayments of commercial paper (greater than 90 days) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Repayments) borrowings from revolving credit facility, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from short-term secured borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from issuances of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Repayments of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employee Stock Purchase Plan share issuances ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net activity with NSIÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(22,121)

Ì
Ì
Ì

(65,000)
24,100
Ì

(2,688)
830

(18,606)
(18,632)

4,381
(221,801)
1,370
(15,200)
105,000
105,100
Ì

(7,601)

Ì
Ì

8,814
(87,762)
194,953
(222,750)

Ì
Ì
199,798

(1,196)

Ì
Ì

(103,386)

(69,296)

Net Cash (Used for) Provided by Financing Activities ÏÏÏÏÏÏÏÏÏÏÏÏÏ

(102,117)

(132,137)

22,561

EÅect of Exchange Rate Changes on Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Net Change in Cash and Cash Equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and Cash Equivalents at Beginning of YearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(147)

(5,312)
8,006

Cash and Cash Equivalents at End of YearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

2,694

Supplemental Cash Flow Information:

Income taxes paid during the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest paid during the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

11,869
41,231

173

7,547
459

8,006

32,659
43,416

$

$

(271)

(1,071)
1,530

459

55,302
42,399

$

$

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

31

ACUITY BRANDS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME

Comprehensive
Income

NSI
Investment

Common
Stock

Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)
Items

Unearned
Compensation
On
Restricted
Stock

Total

$ 441,148

(In thousands, except share and per-share data)
$ Ì $

Ì $

$ (9,294)

Ì

$ Ì

$431,854

$83,691

83,691

Ì

Balance, September 1, 1999 ÏÏÏÏÏÏÏÏ
Comprehensive income:

Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive income

(loss), net of tax:
Foreign currency translation

adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(3,448)

Minimum pension liability

adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Other comprehensive income

(loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income ÏÏÏÏÏÏÏÏ

1

(3,447)
$80,244

Net transactions with NSI ÏÏÏÏÏÏÏÏÏ
Balance, August 31, 2000 ÏÏÏÏÏÏÏÏÏÏ
Comprehensive income:

Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive income

(loss), net of tax:
Foreign currency translation

adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(2,374)

503

(2,386)

(4,257)
$36,246

$52,024

(267)

(5,970)

(6,237)
$45,787

ReclassiÑcation adjustment for

translation loss included in net
incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Minimum pension liability
adjustment (net of tax of
$1,402) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Other comprehensive income

(loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income ÏÏÏÏÏÏÏÏ

Net transactions with NSI ÏÏÏÏÏÏÏÏÏ
Balance, August 31, 2001 ÏÏÏÏÏÏÏÏÏÏ
Allocation of NSI Investment ÏÏÏÏÏÏ
Comprehensive income:

Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive income

(loss), net of tax:
Foreign currency translation

adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Minimum pension liability
adjustment (net of tax of
$3,507) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Other comprehensive income

(loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income ÏÏÏÏÏÏÏÏ

Amortization and forfeitures of

restricted stock grants ÏÏÏÏÏÏÏÏÏÏÏ

Employee Stock Purchase Plan

issuances(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Cash dividends of $0.45 per share

paid on common stock ÏÏÏÏÏÏÏÏÏÏ
Net transactions with NSI ÏÏÏÏÏÏÏÏÏ
Balance, August 31, 2002 ÏÏÏÏÏÏÏÏÏÏ

(1) 102,695 shares.

$40,503

40,503

Ì

Ì

Ì

Ì
Ì

Ì

Ì

Ì

Ì

Ì
Ì
400,560

Ì

Ì

Ì

Ì
Ì

Ì

Ì

Ì

Ì

Ì
Ì

Ì

(3,448)

1

Ì
(12,741)

Ì

(2,374)

503

(2,386)

Ì

Ì

Ì

Ì
Ì

Ì

Ì

Ì

Ì

Ì
(16,998)

Ì
Ì
(677)

Ì

52,024

Ì

Ì

Ì

Ì

829

Ì

Ì

Ì

Ì

(267)

(5,970)

Ì

Ì

Ì

Ì

Ì

177

Ì

83,691

(3,448)

1

(69,296)
442,802

40,503

(2,374)

503

(2,386)

(95,750)
383,298
Ì

52,024

(267)

(5,970)

177

830

Ì

Ì

(69,296)
455,543

Ì

Ì

Ì

(95,750)
400,296
(400,296)

Ì

Ì

Ì

Ì

Ì

Ì

Ì

Ì
Ì

Ì

Ì

Ì

Ì

Ì
Ì
413

Ì

Ì

Ì

Ì

1

Ì
Ì
Ì
Ì
Ì $414

Ì (18,606)
(11,534)
$403,389 $ 21,884

2,000

Ì
Ì
$(23,235)

$

Ì
Ì
$(500)

(18,606)
(9,534)
$401,952

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

32

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per-share data and as indicated)

Note 1: Spin-oÅ and Basis of Presentation

On November 7, 2001, the board of directors of National Service Industries, Inc. (""NSI'') approved

the spin-oÅ of its lighting equipment and specialty products businesses into a separate publicly traded
company with its own management and board of directors. The spin-oÅ was eÅected on November 30,
2001 through a tax-free distribution (""Distribution'' or ""Spin-oÅ'') of 100 percent of the outstanding
shares of common stock of Acuity Brands, Inc. (""Acuity Brands'' or the ""Company'') at that time a
wholly-owned subsidiary of NSI owning and operating the lighting equipment and specialty products
businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the Distribution,
received one share of Acuity Brands common stock for each share of NSI common stock held at that
date.

These Consolidated Financial Statements include the accounts of the NSI businesses that comprised

its lighting equipment and specialty products businesses and an allocation of corporate accounts. The
lighting equipment segment produces a full range of indoor and outdoor lighting Ñxtures for commercial
and institutional, industrial and residential applications for markets throughout the United States, Canada,
Mexico, and overseas. The specialty products segment produces maintenance, sanitation, and water
treatment products for customers throughout the United States, Canada, and Western Europe.

The Consolidated Financial Statements have been prepared on the historical cost basis in accordance

with accounting principles generally accepted in the United States and present the Ñnancial position,
results of operations, and cash Öows of Acuity Brands and its wholly-owned subsidiaries, including Acuity
Lighting Group (""ALG'') and Acuity Specialty Products Group (""ASP''). For periods prior to
December 1, 2001, these Ñnancial statements were derived from the historical Ñnancial statements of NSI.
Acuity Brands was allocated certain corporate assets, liabilities, and expenses of NSI during periods prior
to December 1, 2001 based on an estimate of the proportion of such amounts allocable to Acuity Brands,
utilizing such factors as total revenues, employee headcount, and other relevant factors. The Company
believes these allocations were made on a reasonable basis. The Company believes all amounts allocated to
Acuity Brands are a reasonable representation of the costs that would have been incurred if Acuity Brands
had performed these functions as a stand-alone company. The Consolidated Financial Statements reÖect
an allocation of debt and related interest expense, as further described in Note 4.

In conjunction with the Spin-oÅ, Acuity Brands and NSI entered into various agreements that

addressed the allocation of assets and liabilities and deÑned the Company's relationship with NSI after the
Distribution, including a distribution agreement, a tax disaÇliation agreement, an employee beneÑts
agreement, a transition services agreement, a lease agreement, and a put option agreement. The lease
agreement and the put option agreement expired prior to May 31, 2002. Under the tax disaÇliation
agreement, Acuity Brands will indemnify NSI for certain taxes and liabilities that may arise related to the
Distribution. The agreement also sets out each party's rights and obligations with respect to deÑciencies
and refunds, if any, of federal, state, local, or foreign taxes for periods before and after the Distribution.
The transition services agreement provides that NSI and Acuity Brands will provide each other services in
such areas as information management and technology, employee beneÑts administration, payroll, Ñnancial
accounting and reporting, claims administration and reporting, legal, and other areas where NSI and
Acuity Brands may need transitional assistance and support. Management believes the amounts paid or
received associated with these services under the transition services agreement are representative of the fair
value of the services provided. In addition, under the transition services agreement, the Company has
committed to provide collateral associated with various property and casualty insurance programs of NSI.
See Note 6 Commitments and Contingencies for a discussion of NSI's standby letters of credit.

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Note 2: Summary of SigniÑcant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Acuity Brands and its wholly-owned

subsidiaries after elimination of signiÑcant intercompany transactions and accounts.

Revenue Recognition and Product Warranty

Acuity Brands records revenues as products are shipped and title passes. A provision for estimated

returns, allowances, and warranty costs is recorded when products are shipped based on historical
experience.

Use of Estimates

The preparation of Ñnancial statements in conformity with accounting principles generally accepted in

the United States requires management to make estimates and assumptions, which include estimates of
NSI costs allocated to Acuity Brands, that aÅect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the Ñnancial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results could diÅer from those
estimates.

Cash and Cash Equivalents

Cash in excess of daily requirements is invested in time deposits and marketable securities and is
included in the accompanying balance sheets at fair value. Acuity Brands considers time deposits and
marketable securities purchased with an original maturity of three months or less to be cash equivalents.

Concentrations of Credit Risk

Concentrations of credit risk with respect to receivables, which are unsecured, are limited due to the

wide variety of customers and markets using Acuity Brands' products, as well as their dispersion across
many diÅerent geographic areas. As a result, as of August 31, 2002 and 2001, Acuity Brands does not
consider itself to have any signiÑcant concentrations of credit risk.

ReclassiÑcations

Certain prior period amounts have been reclassiÑed to conform to current year presentation.

Inventories

Inventories are valued at the lower of cost (on a Ñrst-in, Ñrst-out basis) or market and consist of the

following:

Raw materials and suppliesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 97,036
19,884
Work in progress ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
108,659
Finished goods ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 87,932
13,365
124,112

August 31,

2002

2001

Less: reserves ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

225,579
(8,637)

225,409
(14,626)

$216,942

$210,783

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Goodwill and Other Intangibles

In July 2001, the Financial Accounting Standards Board (""FASB'') issued Statement of Financial
Accounting Standards (""SFAS'') No. 141, Business Combinations, and SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 141 prospectively prohibits the pooling of interests method of
accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to
cease amortizing goodwill that existed at June 30, 2001 and establishes a new method for testing goodwill
for impairment on an annual basis (or an interim basis if an event occurs that might reduce the fair value
of a reporting unit below its carrying value). Any goodwill resulting from acquisitions completed after
June 30, 2001 will not be amortized. SFAS No. 142 also requires that an identiÑable intangible asset
which is determined to have an indeÑnite useful economic life not be amortized, but be separately tested
for impairment using a fair value based approach. The Company adopted SFAS No. 142 eÅective
September 1, 2001 resulting in a decrease in amortization expense of approximately $12.1 million during
the year ended August 31, 2002 when compared to the year ended August 31, 2001.

Summarized information for the Company's acquired intangible assets is as follows:

August 31, 2002

August 31, 2001

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

Amortized intangible assets:

Trade names and trademarks ÏÏÏÏÏÏ
Distribution networkÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$13,030
53,000
17,076

$ (1,347)
(5,448)
(8,295)

TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$83,106

$(15,090)

Unamortized intangible assets:

Trade names ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$65,014

$

(912)
(3,681)
(6,889)

$(11,482)

$13,030
53,000
20,470

$86,500

$62,563

The Company amortizes trade names with deÑnite lives, trademarks, and the distribution network
over their estimated useful lives of 30 years. Other amortized intangible assets consist primarily of patented
technology and restrictive covenant agreements, which are amortized over their estimated useful lives of
12 years and 3 years, respectively. The Company recorded amortization expense of $4,316 and $5,863
related to intangible assets with deÑnite lives during Ñscal 2002 and Ñscal 2001, respectively. Projected
amortization expense is approximately $3.2 million in each of the next Ñve years.

The changes in the carrying amount of goodwill during the period are summarized as follows:

ALG

ASP

Total

Balance as of August 31, 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $301,350
9,263
2,692
798

Goodwill acquired during the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SFAS No. 141/142 adoption reclassiÑcationÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$30,013
Ì
Ì
102

$331,363
9,263
2,692
900

Balance as of August 31, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $314,103

$30,115

$344,218

Acuity Lighting Group and Acuity Specialty Products Group each tested goodwill and intangible

assets with indeÑnite useful lives for impairment during Ñscal 2002, as required by SFAS No. 142,
utilizing a combination of valuation techniques including the expected present value of future cash Öows, a
market multiple approach, and a comparable transaction approach. This analysis did not result in an
impairment during Ñscal 2002.

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Prior to the adoption of SFAS No. 142, $3,460 of goodwill associated with a 1969 acquisition was not
amortized. Remaining amounts of goodwill ($327,903 at August 31, 2001) were amortized over estimated
useful lives ranging from 10 years to 40 years. Had the Company accounted for goodwill and intangibles
with indeÑnite useful lives consistent with the provisions of SFAS No. 142 in prior periods, the Company's
net income would have been aÅected as follows:

Year Ended August 31,
2001

2000

2002

Reported net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $52,024
Ì
Add back: Goodwill amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Add back: Trade name amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$40,503
9,891
990

$83,691
10,088
990

Adjusted net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $52,024

$51,384

$94,769

Basic earnings per share*:

Reported net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
Add back: Goodwill amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Add back: Trade name amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1.26
Ì
Ì

$

0.99
0.24
0.03

Adjusted net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $

1.26

$

1.26

* Earnings per share for the years ended August 31, 2002 and 2001 are pro forma. See Note 5 for

additional information.

The Company is required to test its goodwill and intangibles with indeÑnite useful lives for
impairment on a periodic basis, which could have an adverse eÅect on the Company's Consolidated
Financial Statements if these assets are deemed impaired.

Other Long Term Assets

Other long-term assets consisted of the following (in thousands):

August 31,

2002

2001

Long term investments(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $28,677
12,693
Prepaid pension costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,580
Intangible pension assetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,165
Note receivable, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,385
Debt issue costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,530
Miscellaneous ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$34,287
14,330
1,795
Ì
2,832
848

$49,030

$54,092

(1) Long Term Investments Ì The Company maintains certain investments that generate returns that
oÅset changes in certain liabilities related to deferred compensation arrangements. The investments
primarily consist of marketable equity securities and Ñxed income securities, are stated at fair value
and are classiÑed as trading in accordance with SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Realized and unrealized gains and losses are included in the Consolidated
Statements of Income and generally oÅset the change in the deferred compensation liability.

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Other Long Term Liabilities

Other long-term liabilities consisted of the following (in thousands):

August 31,

2002

2001

Accrued pension liabilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $15,622
56,380
Postretirement beneÑts other than pensions(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
970
Nonemployee director stock unit plan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
497
Postemployment beneÑt obligation(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Long term incentive plan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,099
Miscellaneous ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$10,570
64,381
2,538
446
6,421
1,038

$74,568

$85,394

(1) Postretirement BeneÑts Other Than Pensions Ì The Company maintains several non-qualiÑed

retirement plans for the beneÑt 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, for matching contributions by the Company. In addition, one plan provides for
an automatic contribution by the Company of three percent of an eligible employee's compensation.
Deferred compensation associated with these plans, together with the Company's contributions and
accumulated earnings, is distributable in cash pursuant to the terms of the plans, either after
speciÑed periods of time or after retirement.

(2) Postemployment BeneÑt Obligation Ì SFAS No. 112, Employers' Accounting for Postemployment
BeneÑts, requires the accrual of the estimated cost of beneÑts provided by an employer to former or
inactive employees after employment but before retirement. Acuity Brands' accrual relates primarily
to the liability for life insurance coverage for certain eligible employees.

Earnings Per Share

Earnings per share data has not been presented since the businesses that comprise Acuity Brands
were wholly-owned subsidiaries of NSI, or businesses thereof, during a portion of or for all of the periods
presented and were recapitalized as part of the Distribution.

Pro Forma Earnings Per Share (Unaudited)

Pro forma basic earnings per share is calculated as net income divided by the pro forma weighted
average number of common shares outstanding. Pro forma weighted average shares outstanding has been
computed by applying the distribution ratio of one share of Acuity Brands common stock to the historical
NSI weighted average shares outstanding for the same period presented. Pro forma earnings per share
information is unaudited and has been presented for the years ended August 31, 2002 and 2001 only.

Shipping and Handling Fees and Costs

In September 2000, the Emerging Issues Task Force issued EITF 00-10, Accounting for Shipping and

Handling Fees and Costs. EITF 00-10 requires shipping and handling fees billed to customers to be
classiÑed as revenue and shipping and handling costs to be either classiÑed as cost of sales or disclosed in
the notes to the Ñnancial statements. The Company includes shipping and handling fees billed to
customers in Net sales. Shipping and handling costs associated with inbound freight are generally recorded
in Cost of products sold. Other shipping and handling costs are included in Selling and administrative

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

expenses and totaled $114.1 million, $114.6 million, and $114.7 million in Ñscal 2002, 2001, and 2000,
respectively.

Depreciation

For Ñnancial reporting purposes, depreciation is determined principally on a straight-line basis using

estimated useful lives of plant and equipment (20 to 40 years for buildings and 3 to 15 years for
machinery and equipment) while accelerated depreciation methods are used for income tax purposes.
Leasehold improvements are amortized over the life of the lease or the useful life of the improvement
whichever is shorter.

Research and Development

Research and development costs are expensed as incurred. Research and development expenses
amounted to $22.0 million, $15.6 million, and $17.2 million during Ñscal years 2002, 2001, and 2000,
respectively.

Foreign Currency Translation

The functional currency for the foreign operations of Acuity Brands is the local currency in most
cases. The translation of foreign currencies into U.S. dollars is performed for balance sheet accounts using
exchange rates in eÅect at the balance sheet dates and for revenue and expense accounts using a weighted
average exchange rate during the year. The gains or losses resulting from the translation are included in
Accumulated Other Comprehensive Income (Loss) Items in the Consolidated Statements of Stockholders'
Equity and Comprehensive Income and are excluded from net income.

Gains or losses resulting from foreign currency transactions are included in Miscellaneous (income)
expense, net in the Consolidated Statements of Income and were insigniÑcant in Ñscal years 2002, 2001,
and 2000.

Interest Expense, Net

Interest expense, net, is comprised primarily of interest expense on long-term debt, revolving credit
facility borrowings, and short-term secured borrowings partially oÅset by interest income on cash and cash
equivalents.

The following table summarizes the components of interest expense, net:

Years Ended August 31,
2001

2002

2000

Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $41,196
(506)
Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$49,421

$43,638

(624)

(339)

Interest expense, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $40,690

$48,797

$43,299

Miscellaneous (Income) Expense, net

Miscellaneous (income) expense, net, is comprised primarily of gains or losses resulting from the sale

of Ñxed assets and gains or losses on foreign currency transactions. Additionally, during 2001,
Miscellaneous (income) expense, net, includes a charge of approximately $3.1 million related to the early
termination of a purchase contract.

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Accounting Standards Adopted in Fiscal 2002

As mentioned above, Acuity Brands adopted SFAS No. 141 and SFAS No. 142 in the Ñrst quarter of

Ñscal 2002.

Accounting Standards Yet to Be Adopted

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of

Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of and supersedes the provisions of Accounting
Principles Board Opinion No. 30, Reporting the Results of Operations Ì Reporting the EÅects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions with regard to reporting the eÅects of a disposal of a segment of a business. SFAS No. 144
provides a single accounting model for long-lived assets to be disposed of and signiÑcantly changes the
criteria required to classify an asset as held-for-sale. Under SFAS No. 144, more dispositions will qualify
for discontinued operations treatment in the income statement and expected future operating losses from
discontinued operations will be displayed in discontinued operations in the period in which the losses are
incurred. SFAS No. 144 is eÅective for all Ñscal years beginning after December 15, 2001. Acuity Brands
will adopt this statement eÅective September 1, 2002. Adoption of this statement will not have a
signiÑcant eÅect on the Company's consolidated results of operations or Ñnancial position.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 addresses Ñnancial accounting and reporting for costs associated with
exit or disposal activities and nulliÑes Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination BeneÑts and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring). The principal diÅerence between SFAS No. 146 and Issue No. 94-3 relates
to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when
the liability is incurred. Under Issue No. 94-3, a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. A fundamental conclusion reached by the FASB in SFAS No. 146 is
that an entity's commitment to a plan, by itself, does not create a present obligation to others that meets
the deÑnition of a liability. Therefore, SFAS No. 146 eliminates the deÑnition and requirements for
recognition of exit costs in Issue No. 94-3. SFAS No. 146 also establishes that fair value is the objective
for initial measurement of the liability. SFAS No. 146 is eÅective for exit or disposal activities that are
initiated after December 31, 2002. Acuity Brands will adopt SFAS No. 146 eÅective September 1, 2002.
Adoption of this statement will not have a signiÑcant eÅect on the Company's consolidated results of
operations or Ñnancial position.

Note 3: Pension and ProÑt Sharing Plans

Acuity Brands has several pension plans covering certain hourly and salaried employees. BeneÑts paid
under these plans are based generally on employees' years of service and/or compensation during the Ñnal
years of employment. Acuity Brands makes annual contributions to the plans to the extent indicated by
actuarial valuations. Plan assets are invested primarily in equity and Ñxed income securities.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

The following tables reÖect the status of Acuity Brands' pension plans at August 31, 2002 and 2001:

August 31,

2002

2001

Change in BeneÑt Obligation:
BeneÑt obligation at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 87,222
3,437
Service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6,534
Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(952)
CurtailmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,972
Actuarial loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(5,911)
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,362
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 77,590
2,553
6,270
Ì
5,095
(3,699)
(587)

BeneÑt obligation at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 94,664

$ 87,222

Change in Plan Assets:
Fair value of plan assets at beginning of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 83,489
Actual return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employer contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employee contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(3,878)
4,828
226
(5,911)
408

$ 86,917
46
1,138
229
(3,699)
(1,142)

Fair value of plan assets at end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 79,162

$ 83,489

Funded Status:
Funded status ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(15,502)
25,768
Unrecognized actuarial loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(503)
Unrecognized transition asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,153
Unrecognized prior service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ (3,733)
11,164

(629)
2,541

Prepaid pension expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 11,916

$

9,343

Amounts Recognized in the Consolidated
Balance Sheets Consist of:
Prepaid beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 12,693
(15,622)
Accrued beneÑt liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,580
Intangible assetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
13,265
Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 14,330

(10,570)
1,795
3,788

Net amount recognized at year-endÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 11,916

$

9,343

The projected beneÑt obligation, accumulated beneÑt obligation, and fair value of plan assets for

deÑned beneÑt pension plans with both projected and accumulated beneÑt obligations in excess of plan
assets were $51.6 million, $48.8 million, and $34.1 million, respectively, as of August 31, 2002, and
$28.7 million, $27.4 million, and $17.4 million, respectively, as of August 31, 2001.

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Components of net periodic pension cost for the Ñscal years ended August 31, 2002, 2001, and 2000

included the following:

2002

2001

2000

Service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3,437
6,534
Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(7,600)
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
434
Amortization of prior service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(126)
Amortization of transitional asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
205
Recognized actuarial loss (gain)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 2,553
6,270
(8,038)
418
(140)
(18)

$ 2,877
5,851
(7,511)
386
(148)
53

Net periodic pension costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,884

$ 1,045

$ 1,508

Weighted average assumptions in Ñscal year 2002 and 2001 included the following:

2002

2001

Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rate of compensation increase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

7.2% 7.7%
9.3% 9.3%
4.9% 5.0%

It is Acuity Brands' policy to adjust, on an annual basis, the discount rate used to determine the

projected beneÑt obligation to approximate rates on high-quality, long-term obligations.

Acuity Brands also has proÑt sharing and 401(k) plans to which both employees and the Company
make contributions. The cost to Acuity Brands for these plans was $5.0 million in 2002, $4.3 million in
2001, and $4.7 million in 2000. EÅective February 2002, participants in all of the Company's proÑt sharing
and 401(k) plans were permitted to direct the investments of all funds in their respective plan, thereby
eliminating the nonparticipant-directed funds. Employer matching amounts are allocated in accordance
with the participants' investment elections for elective deferrals. At August 31, 2002, assets of the 401(k)
plans included shares of the Company's common stock with a market value of approximately $7.3 million,
which represented approximately three percent of the total fair market value of assets in the Company's
401(k) plans.

Note 4: Long-Term Debt and Lines of Credit

As part of the distribution agreement between NSI and Acuity Brands, all but approximately
$5.0 million of NSI's total consolidated outstanding debt was assumed by Acuity Brands or reÑnanced
with new borrowings by Acuity Brands. Accordingly, for purposes of the historical presentation of the
Company's Ñnancial position as of August 31, 2001, all but $5.0 million of NSI's total consolidated
outstanding debt has been presented as obligations of Acuity Brands. For purposes of the historical
presentation of the results of operations of Acuity Brands, the Company has reÖected interest expense
related to the debt allocated to it.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Long-term debt at August 31, 2002 and 2001, consisted of the following:

3-Year Revolving Credit Facility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 40,000
6% notes due February 2009 with an eÅective interest rate of 6.04%, net

$

   Ì

of unamortized discount of $268 in 2002 and $310 in 2001 ÏÏÏÏÏÏÏÏÏÏÏ

159,732

159,690

2002

2001

8.375% notes due August 2010 with an eÅective interest rate of 8.398%,

net of unamortized discount of $195 in 2002 and $219 in 2001ÏÏÏÏÏÏÏÏ
Other notes, payable in installments to 2021 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Less Ì Amounts payable within one year included in current liabilities ÏÏ

199,805
11,839

411,376
746

199,781
14,593

374,064
357

$410,630

$373,707

Future annual principal payments of long-term debt are as follows:

Fiscal Year

2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Amount

$

746
1,211
20,759
17,973
Ì
370,687

$411,376

In May 2001, NSI entered into a three-year agreement (""Receivables Facility'') to borrow, on an

ongoing basis, up to $150.0 million secured by undivided interests in a deÑned pool of trade accounts
receivable of ALG and ASP. Borrowings under the Receivables Facility are subject to the annual renewal
of a supporting line of credit. EÅective November 30, 2001, Acuity Brands assumed all of the outstanding
borrowings and other obligations under the Receivables Facility. Net trade accounts receivable pledged as
security for borrowings under the Receivables Facility totaled $239.1 million at August 31, 2002.
Borrowings at August 31, 2002 and 2001 under the Receivables Facility totaled $129.2 million and
$105.1 million, respectively, and are included in Short-term secured borrowings in the accompanying
Consolidated Balance Sheets. Interest rates under the Receivables Facility vary with commercial paper
rates plus an applicable margin. The interest rate was 1.80 percent and 3.90 percent at August 31, 2002
and 2001, respectively.

During Ñscal 2002, Acuity Brands entered into a new Ñnancing agreement (""Revolving Credit

Facility''), which replaced the Company's $240.0 million, 364-day committed credit facility which was due
to mature in October 2002. This Revolving Credit Facility, which has two components, allows for
borrowings of up to $210.0 million. The Ñrst component is a 364-day committed credit facility of
$105.0 million, which is scheduled to mature in April 2003. The second component is a three-year credit
facility of $105.0 million and is scheduled to mature in April 2005. At August 31, 2002, the Company had
$40.0 million in outstanding borrowings under the three-year component of the Revolving Credit Facility,
which are classiÑed as long-term in the accompanying Consolidated Balance Sheets. The interest rate on
outstanding borrowings was 3.05 percent at August 31, 2002. At August 31, 2002, $23.7 million in letters
of credit related to both the Company's and NSI's property and casualty insurance programs was
outstanding under the Revolving Credit Facility. See Note 6 Commitments and Contingencies for a
discussion of NSI's standby letters of credit. These letters of credit decrease the amount of credit available

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

under the Revolving Credit Facility. Outstanding borrowings under the Company's credit facility at
August 31, 2001 were $105.0 million at an interest rate of 4.1 percent. Additional borrowings of $11.7
million were outstanding under NSI's uncommitted bank lines at August 31, 2001 at an interest rate of
5.0 percent.

The Revolving Credit Facility contains Ñnancial covenants calculated quarterly including a leverage

ratio of total indebtedness at the end of each quarter to EBITDA for the trailing four quarters and an
interest coverage ratio. Interest rates under the Revolving Credit Facility are based on LIBOR plus a
margin that is based on the Company's credit rating for unsecured long-term public debt and its leverage
ratio. Acuity Brands pays an annual fee on the commitment based on the Company's credit rating for
unsecured long-term public debt. The Company was in compliance with all covenants contained in its
credit agreement for each quarter end in 2002.

The Company's Receivables Facility and Revolving Credit Facility each contain ""Material Adverse

EÅect'' provisions. Generally, if the Company were to experience an event causing a material adverse
eÅect on the Company's Ñnancial condition, operations, or properties, as deÑned in the agreements,
additional future borrowings under either facility may be denied. None of the Company's existing debt
instruments include provisions that would require an acceleration of repayments based solely on changes in
the Company's credit ratings.

At August 31, 2002, the Company had total availability under its Revolving Credit Facility of $146.3

million. Acuity Brands also had uncommitted foreign bank lines of credit totaling $4.5 million at
August 31, 2002. Outstanding borrowings under the foreign bank lines at August 31, 2002 were
$2.5 million, at a weighted-average interest rate of 4.19 percent. At August 31, 2001, outstanding
borrowings under NSI's foreign bank lines were $13.0 million, at a weighted-average interest rate of
4.90 percent.

At August 31, 2002, the Company had an additional $11.7 million in letters of credit outstanding that
provide back-up support for the Company's industrial revenue bonds. These letters of credit do not reduce
the amount of credit available under the Revolving Credit Facility.

In January 1999, NSI issued $160.0 million in ten-year publicly traded notes bearing a coupon rate of
6.0 percent. In August 2000, NSI issued $200.0 million in ten-year publicly traded notes bearing a coupon
rate of 8.375 percent. Pursuant to a supplemental indenture executed in contemplation of the Distribution,
Acuity Brands and its principal operating subsidiaries have become the obligors of the notes, and NSI,
eÅective as of the Distribution, was relieved of all obligations with respect to the notes. The fair values of
the $160.0 million and $200.0 million notes, based on quoted market prices, were approximately
$148.4 million and $208.1 million, respectively, at August 31, 2002. Excluding the $160.0 million and
$200.0 million notes, long-term debt recorded in the accompanying Consolidated Balance Sheets
approximates fair value based on the borrowing rates currently available to Acuity Brands for bank loans
with similar terms and average maturities.

In October 2002, Acuity Brands entered into a new loan agreement (""Term Loan''), secured by
certain land and buildings of the Company. Proceeds from the Term Loan were used to reduce borrowings
under the Revolving Credit Facility and to provide the Company additional liquidity. The Term Loan
contains Ñnancial covenants similar to the Company's credit facility including a leverage ratio of total
indebtedness to EBITDA and an interest coverage ratio. Interest rates under the Term Loan are based on
one-month LIBOR plus a margin. The principal payment table above reÖects future annual principal
payments associated with the Term Loan.

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Note 5: Common Stock and Related Matters

NSI's Investment

Upon completion of the Distribution on November 30, 2001, Acuity Brands became an independent

Company owned by the NSI shareholders of record as of November 16, 2001. Prior to November 30,
2001, Acuity Brands (previously and temporarily named L & C Spinco, Inc.) and the subsidiaries
comprising the lighting equipment and specialty products businesses were wholly-owned by NSI.
Accordingly, prior to November 30, 2001, stockholders' equity was comprised of NSI's investment in these
subsidiaries. Beginning on November 30, 2001 stockholders' equity reÖected the outstanding stock, paid-in
capital, and other stockholders' equity items of Acuity Brands and its wholly owned subsidiaries.

Stockholder Protection Rights Agreement

Prior to the Spin-oÅ, the Company's board of directors adopted a Stockholder Protection Rights

Agreement (the ""Rights Agreement''). The Rights Agreement contains provisions that are intended to
protect the Company's stockholders in the event of an unsolicited oÅer to acquire the Company, including
oÅers that do not treat all stockholders equally and other coercive, unfair, or inadequate takeover bids and
practices that could impair the ability of the Company's board of directors to fully represent stockholders'
interests. Pursuant to the Rights Agreement, the Company's board of directors declared a dividend of one
""Right'' for each outstanding share of the Company's common stock as of November 16, 2001. The Rights
will be represented by, and trade together with, the Company's common stock until and unless certain
events occur, including the acquisition of 15% or more of the Company's common stock by a person or
group of aÇliated or associated persons (with certain exceptions, ""Acquiring Persons''). Unless previously
redeemed by the Company's board of directors, upon the occurrence of one of the speciÑed triggering
events, each Right that is not held by an Acquiring Person will entitle its holder to purchase one share of
common stock or, under certain circumstances, additional shares of common stock at a discounted price.
The Rights will cause substantial dilution to a person or group that attempts to acquire the Company on
terms not approved by the Company's board of directors. Thus, the Rights are intended to encourage
persons who may seek to acquire control of the Company to initiate such an acquisition through
negotiation with the board of directors.

Preferred Stock

The Company has 50,000,000 shares of preferred stock authorized, 5,000,000 of which have been

reserved for issuance under the Stockholder Protection Rights Agreement. No shares of preferred stock
had been issued at August 31, 2002 and 2001.

Earnings per Share

Pro forma basic earnings per share is calculated as net income divided by the pro forma weighted
average number of common shares outstanding. Pro forma weighted average shares outstanding has been
computed by applying the distribution ratio of one share of Acuity Brands common stock to the historical
NSI weighted average shares outstanding for the same period presented. Public trading of Acuity Brands
stock did not commence until December 3, 2001 (other than on a when-issued basis); therefore, no
historical market share prices exist for the calculation of the potential dilutive eÅect of stock options for
periods prior to the second quarter of Ñscal 2002. As a result, pro forma diluted earnings per share are not
presented.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

The following table calculates pro forma basic earnings per common share for the years ended

August 31, 2002 and 2001:

Pro Forma basic earnings per common share:

Net income (in thousands) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $52,024
41,286
Basic weighted average shares outstanding (in thousands)ÏÏÏÏÏÏÏÏÏÏÏÏÏ

$40,503
41,068

Basic earnings per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $

1.26

$

0.99

Years Ended August 31,

2002

2001

Stock-Based Compensation

Pursuant to the employee beneÑts agreement, NSI stock options held by employees of Acuity Brands

were converted to, and replaced by, Acuity Brands stock options at the time of the Distribution. Acuity
Brands multiplied the number of shares purchasable under each converted stock option by a ratio
determined at the time of the Distribution, based on the respective trading prices of NSI and Acuity
Brands shares, and divided the exercise price per share of each option by the same ratio. Fractional shares
were rounded down to the nearest whole number of shares. All other terms of the converted stock options
remain the same as those in eÅect immediately prior to the Distribution. Accordingly, no compensation
expense resulted from the replacement of the options.

EÅective November 30, 2001, Acuity Brands adopted the Acuity Brands, Inc. Long-Term Incentive

Plan (the ""Plan'') for the beneÑt of oÇcers and other key management personnel (""Participants''). An
aggregate of 8.1 million shares are authorized for issuance under the Plan. Stock options generally become
exercisable over a three or four-year period from the date of grant. The Plan also provides for the issuance
of performance-based and restricted stock awards.

Aspiration Achievement Incentive Awards may be earned and issued to Participants based on a level

of achievement of performance over a multi-year performance cycle. Amounts (credited) charged to
compensation expense for 2002, 2001, and 2000 were approximately $(1.1 million), $0.7 million, and
$6.7 million, respectively. No Aspiration Achievement Incentive Awards are currently outstanding, except
with respect to the performance cycle ended August 31, 2002.

At August 31, 2002, 218,180 shares of Acuity Brands common stock were subject to restricted stock
awards held by the Company's oÇcers and other key employees. Under the awards, restricted shares are
granted in 20 percent increments when the Company's stock price equals or exceeds certain stock price
targets for thirty consecutive calendar days (the vesting start date) and vest ratably in four equal annual
installments beginning one year from the vesting start date. At the time of the Distribution and in
accordance with the employee beneÑts agreement, each employee of Acuity Brands holding outstanding
shares of NSI restricted stock received a dividend of one Acuity Brands restricted share for each NSI
restricted share held. Acuity Brands restricted shares received as a dividend on NSI restricted stock are
subject to the same restrictions and terms, including vesting provisions of the NSI restricted stock.
Compensation expense of $0.2 million was recognized in the Consolidated Financial Statements during
Ñscal 2002 for the restricted stock awards. Restricted share awards that had not reached a vesting start
date, and their related stock price targets, were converted to Acuity Brands restricted share awards in the
same manner as stock options. Shares that have not reached a vesting start date expire Ñve years from the
date of the grant. All other terms of the converted grants remain the same as those in eÅect immediately
prior to the Distribution.

In November 2001, the Company's board of directors approved the Acuity Brands, Inc. 2001

Nonemployee Directors' Stock Option Plan, under which 300,000 shares are authorized for issuance. The

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

stock options granted under this plan become exercisable one year from the date of grant. During Ñscal
2002, options for 50,000 shares were granted under this plan.

Under all stock option plans, the options generally expire 10 years from the date of grant and have an

exercise price equal to the fair market value of the Company's stock on the date of grant. At August 31,
2002, shares available for grant under all plans were 1,063,489, less 22,566 shares required for the payment
of outstanding Aspiration Achievement Incentive Awards.

Stock option transactions for the stock option plans and stock option agreements during the year

ended August 31, 2002 were as follows:

Outstanding

Exercisable

Number of Shares

Weighted
Average
Exercise Price

Number of Shares

Weighted
Average
Exercise Price

Outstanding at August 31, 2001

Ì

Ì

Ì

Ì

NSI options converted at the

Spin-oÅ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ExercisedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cancelled ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4,278,325
3,004,051

(1,053)
(200,025)

Outstanding at August 31, 2002

7,081,298

$22.97
$13.84
$16.50
$16.38

$19.15

Range of option exercise prices:

$10.00 Ó $15.00

2,712,343

$25.25

(average life Ó 9.3 years) ÏÏÏ

2,900,928

$13.80

35,554

$13.80

$15.01 Ó $20.00

(average life Ó 8.1 years) ÏÏÏ

1,755,900

$16.61

606,954

$16.70

$20.01 Ó $25.00

(average life Ó 5.5 years) ÏÏÏ

1,094,189

$23.11

843,589

$22.96

$25.01 Ó $30.00

(average life Ó 4.6 years) ÏÏÏ

826,540

$28.59

723,750

$28.43

$30.01 Ó $40.00

(average life Ó 4.4 years) ÏÏÏ

503,741

$35.63

502,496

$35.64

The Company accounts for the employee and director plans under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. Additionally,
Acuity Brands has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation expense has been recognized for these stock option plans in
the Consolidated Financial Statements. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards during Ñscal year 2002, consistent with the
provisions of SFAS No. 123, the Company's net income and pro forma earnings per share would have
been reduced to the following pro forma amounts:

2002

Pro Forma Information:

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$49,282
1.19

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

The pro forma eÅect of applying SFAS No. 123 may not be representative of the eÅect on reported

net income in future years because options vest over several years and additional awards are generally
made each year.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model. The weighted-average grant-date fair value of options was $3.98. The following
weighted average assumptions were used to estimate fair value:

Dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected volatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Risk-free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected life of options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Turnover rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2002

4.3%
34.0%
5.2%
10 years
5.0%

Employee Stock Purchase Plan

In November 2001, Acuity Brands adopted the Acuity Brands, Inc. Employee Stock Purchase Plan

for the beneÑt of eligible employees. Under the plan, employees may purchase, through payroll deduction,
the Company's common stock at a 15 percent discount. Shares are purchased quarterly at 85 percent of
the lower of the fair market value of the Company's common stock on the Ñrst business day of the
quarterly plan period or the last business day of the quarterly plan period. There were 1,500,000 shares of
the Company's common stock reserved for purchase under the plan, of which 1,397,305 shares remain
available for purchase under the plan. Employees may participate at their discretion. Management neither
encourages nor discourages employee participation.

Note 6: Commitments and Contingencies

Self-Insurance

It is the current policy of Acuity Brands to self insure, up to certain limits, for certain insurable risks

consisting primarily of physical loss to property; business interruptions resulting from such loss; and
workers' compensation, comprehensive general, and auto liability. Insurance coverage is obtained for
catastrophic property and casualty exposures as well as those risks required to be insured by law or
contract. Based on an independent actuary's estimate of the aggregate liability for claims incurred, a
provision for claims under the self-insured program is recorded and revised annually.

The Company is also self-insured for the majority of its medical beneÑts plans. The Company
estimates its aggregate liability for claims incurred by applying a lag factor to the Company's historical
claims and administrative cost experience. The appropriateness of the Company's lag factor is evaluated
and revised annually, if necessary.

Leases

Acuity Brands leases certain of its buildings and equipment under noncancelable lease agreements.

Minimum lease payments under noncancelable leases for years subsequent to August 31, 2002, are as
follows: 2003 Ó $14.3 million; 2004 Ó $11.5 million; 2005 Ó $7.4 million; 2006 Ó $4.5 million; 2007 Ó
$3.3 million; after 2007 Ó $21.8 million.

Total rent expense was $17.8 million in 2002, $12.3 million in 2001, and $14.5 million in 2000.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Collective Bargaining Agreements

Approximately 40 percent of the Company's total work force is covered by collective bargaining

agreements. Collective bargaining agreements representing approximately 24 percent of the Company's
work force will expire within one year.

Litigation

Acuity Brands is subject to various legal claims arising in the normal course of business, including
patent infringement 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 eÅect on the Ñnancial condition or results of operations of Acuity Brands. However, in
the event of unexpected future developments, it is possible that the ultimate resolution of such matters, if
unfavorable, could have a material adverse eÅect on the future Ñnancial results of Acuity Brands. Acuity
Brands establishes reserves for legal claims when payments associated with the claims become probable
and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher
than the amounts reserved for such claims.

Genlyte Thomas Group LLC (""Genlyte Thomas'') Ñled suit on March 29, 2000, in the United States

District Court, Western District of Kentucky, alleging that certain Lithonia Lighting products infringe a
patent related to a frame for recessed lighting Ñxtures and that the infringement is willful. The Company
believes that it has valid defenses to the lawsuit and is vigorously defending the asserted allegations.
SpeciÑcally, the Company has received a formal opinion from independent patent counsel that the patent
is invalid and unenforceable. In discovery, which recently has been substantially completed, Genlyte
Thomas submitted an expert report on its damages claim asserting that Genlyte Thomas has sustained
approximately $20 million in damages. Any damages awarded at trial may be increased by the court by up
to three times if willful infringement is found. The Company has reserved the expected defense costs for
this litigation. Extensive pre-trial motions have been Ñled and it is expected that the case, if it proceeds to
trial, will not be heard until late 2003.

Environmental Matters

The operations of the Company are subject to comprehensive laws and regulations relating to the
generation, storage, handling, transportation, and disposal of hazardous substances and solid and hazardous
wastes and to the remediation of contaminated sites. Permits and environmental controls are required for
certain of the Company's operations to limit air and water pollution, and these permits are subject to
modiÑcation, renewal, and revocation by issuing authorities. Acuity Brands believes that it is in substantial
compliance with all material environmental laws, regulations, and permits. On an ongoing basis, Acuity
Brands incurs capital and operating costs relating to environmental compliance. Environmental laws and
regulations have generally become stricter in recent years, and the cost of responding to future changes
may be substantial.

Acuity Brands establishes reserves for known environmental claims when payments associated with

the claims become probable and the costs can be reasonably estimated. The environmental reserves of
Acuity Brands, for all periods presented in the Consolidated Financial Statements, are immaterial. The
actual cost of environmental issues may be higher than that reserved due to diÇculty in estimating such
costs and potential changes in the status of government regulations.

Certain environmental laws can impose liability regardless of fault. The federal Superfund law is an

example of such an environmental law. However, management believes that the liability under Superfund
is mitigated by the presence of other parties who will share in the costs associated with the clean up of
sites. The extent of liability is determined on a case-by-case basis taking into account many factors,

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

including the number of other parties whose status or activities also subjects them to liability regardless of
fault.

Acuity Brands is currently a party to, or otherwise involved in, legal proceedings in connection with

state and federal Superfund sites. Based on information currently available, the Company believes its
liability is immaterial at each of the currently active sites which it does not own where it has been named
as a responsible party or a potentially responsible party (""PRP'') due to its limited involvement at the site
and/or the number of viable PRPs. For example, the preliminary allocation among 48 PRPs at the Crymes
LandÑll site in Georgia indicates that Acuity Brands' liability is not signiÑcant, and there are more than
1,000 PRPs at the M&J Solvents site in Georgia. For property that Acuity Brands owns on Seaboard
Industrial Boulevard in Atlanta, Georgia, the Company has conducted an investigation on its properties
and adjoining properties and submitted a Compliance Status Report (""CSR'') to the State of Georgia
Environmental Protection Division (""EPD'') pursuant to the Georgia Hazardous Site Response Act. Until
the EPD approves the CSR and Acuity Brands evaluates the necessity for and scope of any appropriate
corrective action, Acuity Brands will not be able to determine whether corrective action will be required
and what the costs of such action will be.

Standby Letters of Credit

In conjunction with the separation of their businesses, Acuity Brands and NSI entered into various
agreements that addressed the allocation of assets and liabilities and that deÑned the future relationships
between Acuity Brands and NSI after the Distribution, including a transition services agreement. In
addition to other services described in the agreement, the transition services agreement provides that
Acuity Brands will, for a fee, provide collateral associated with various property and casualty insurance
programs of NSI not to exceed the following amounts:

Period

Beginning

September 1, 2002
November 1, 2002
November 1, 2003
November 1, 2004

Ending

October 31, 2002
October 31, 2003
October 31, 2004
October 31, 2005

Letters of Credit

$10.4 million
$ 8.0 million
$ 5.0 million
$ 2.0 million

Standby letters of credit provided to state regulatory authorities to support self-insurance programs for
property and casualty liabilities decrease the amount of credit available on revolving credit facilities. At
August 31, 2002, $10.4 million on the Revolving Credit Facility of Acuity Brands related to these standby
letters of credit was unavailable for use by Acuity Brands. The management of Acuity Brands believes it
has suÇcient capacity under its Revolving Credit Facility to accommodate this requirement under the
transition services agreement.

In the event NSI is unable to fulÑll its obligations under certain of its property and casualty

programs, the standby letters of credit could be drawn upon and Acuity Brands would be required to fund
the drawn amount. In such event, NSI would be obligated to reimburse Acuity Brands for such amounts.
The management of Acuity Brands believes it is unlikely that these letters of credit will be drawn upon.

Risks and Uncertainties Related to the Distribution

On November 7, 2001, the NSI board of directors made a determination, based on information

provided by management and Ñnancial experts, that the Distribution was permissible under applicable
dividend and solvency laws. There is no certainty, however, that a court would Ñnd the decision of the
NSI board to be binding on creditors of NSI and Acuity or that a court would reach the same conclusions
as the NSI board in determining whether NSI or Acuity was solvent and adequately capitalized at the

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

time of, or after giving eÅect to, the Distribution. If a court in a lawsuit by an unpaid creditor or
representative of creditors, such as a trustee in bankruptcy, were to Ñnd that at the time NSI eÅected the
Distribution, NSI or Acuity (1) was insolvent; (2) was rendered insolvent by reason of the Distribution;
(3) was engaged in a business or transaction for which their respective remaining assets constituted
unreasonably small capital; or (4) intended to incur, or believed it would incur, debts beyond its ability to
pay as such debts matured, such court may be asked to void the Distribution (in whole or in part) as a
fraudulent conveyance and require that the stockholders return the Acuity Brands shares (in whole or in
part) to NSI or require Acuity Brands to fund certain liabilities for the beneÑt of creditors. The measure
of insolvency for purposes of the foregoing will vary depending upon the jurisdiction whose law is being
applied. Generally, however, NSI or Acuity Brands would be considered insolvent if the fair value of their
respective assets was less than the amount of their respective liabilities or if either incurred debt beyond its
ability to repay such debt as it matures. Management believes the likelihood that creditors of NSI could
successfully challenge the Distribution is remote.

Note 7: Acquisitions and Dispositions

In October 2001, Acuity Brands acquired certain assets and assumed certain liabilities of the
American Electric Lighting» and Dark-to-Light» product lines of the Thomas & Betts Corporation for
approximately $24.8 million in cash. The activities of American Electric Lighting are included in the
results of operations of the Company since the date of acquisition. The allocation of the purchase price
resulted in goodwill of approximately $9.3 million. Additionally, the Company recorded $2.5 million related
to the trade names American Electric Lighting» and Dark-to-Light». The Company will not amortize
these trade names, as the Company believes the useful lives are indeÑnite. The Company believes that the
acquisition will provide the lighting equipment segment with greater presence in the utility and
transportation infrastructure markets and will add breadth to the current utility oÅerings in high-end
decorative street and area lighting of Acuity Brands. The allocation of the purchase price was as follows:

Current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property, plant, and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangibles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GoodwillÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2002

$11,601
8,493
2,451
9,263
(7,043)

$24,765

Acquisition spending in 2000 totaled $16.2 million and related to the cash-out of remaining

Holophane Corporation (""Holophane'') shares. NSI purchased Holophane in July 1999 for approximately
$470.8 million. Of the total purchase price, $454.6 million was paid during Ñscal 1999 and $16.2 million
was paid during Ñscal 2000.

During Ñscal 2001, as part of an initiative to refocus the overseas operations of the specialty products
segment, Acuity Brands sold its Australian subsidiary resulting in a pretax loss of $5.6 million. In addition,
Acuity Brands sold its French operations, as well as certain trademarks and formulas for a pretax loss of
$9.0 million. The combined pretax loss of $14.6 million is included in Loss on sale of businesses in the
Consolidated Statements of Income.

Note 8: Restructuring Expense and Other Charges

In the Ñrst quarter of Ñscal 2000, the lighting equipment segment recorded a $1.0 million pretax
charge for closing a manufacturing facility in California. This charge represented termination beneÑts for

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

341 hourly employees and was recorded in Cost of products sold in the 2000 Consolidated Statements of
Income. All amounts accrued were paid during Ñscal 2000 with no signiÑcant revisions to either the
number of terminated employees or the amount of beneÑts initially accrued.

During Ñscal 2001, the lighting equipment segment incurred severance charges of $1.6 million for the
termination of 116 manufacturing and salaried employees, all of whom were terminated prior to the end of
the Ñscal year. Additionally, the specialty products segment recorded $0.7 million of severance costs
related to the termination of 18 manufacturing and salaried employees, all of whom were terminated prior
to the end of the Ñscal year. Unrelated to the severance charges, the lighting equipment and specialty
products segments disposed of certain Ñxed assets, resulting in losses of $1.4 million and $0.4 million,
respectively. The resulting losses were included in the Consolidated Statements of Income under the
caption Restructuring and other charges.

During Ñscal 2002, management realized lower than anticipated costs associated with severance
charges in the lighting equipment segment. Accordingly, the related reserve was reversed and $0.9 million
in income was recorded and is included in Restructuring and other charges in the Consolidated Statements
of Income.

Note 9:

Income Taxes

Prior to the Distribution, Acuity Brands was included in the consolidated federal income tax return of

NSI. Acuity Brands' provision for income taxes in the accompanying statements of income reÖects
Federal, state, and foreign income taxes calculated using the separate return basis. Acuity Brands accounts
for income taxes using the asset and liability approach as prescribed by SFAS No. 109, Accounting for
Income Taxes. This approach requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the Ñnancial statements or tax returns. Using
the enacted tax rates in eÅect for the year in which the diÅerences are expected to reverse, deferred tax
liabilities and assets are determined based on the diÅerences between the Ñnancial reporting and the tax
basis of an asset or liability.

The provision for income taxes consists of the following components:

Years Ended August 31,
2001

2002

2000

Provision for current Federal taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $23,509
2,225
Provision for current state taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4,189
Provision for current foreign taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
889
Provision for deferred taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$29,171
1,744
5,058
(7,324)

$40,527
2,134
4,657
4,282

Total provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $30,812

$28,649

$51,600

A reconciliation from the Federal statutory rate to the total provision for income taxes is as follows:

Years Ended August 31,
2001

2000

2002

Federal income tax computed at statutory rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $28,993
1,657
State income tax, net of Federal income tax beneÑt ÏÏÏÏÏÏÏÏÏÏÏ
162
Foreign and other, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$24,203
1,342
3,104

$47,352
3,518
730

Total provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $30,812

$28,649

$51,600

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Components of the net deferred income tax (asset) liability at August 31, 2002 and 2001 include:

Deferred Income Tax Liabilities:
Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
Pension ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangibles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total deferred income tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Deferred Income Tax Assets:
Self-insurance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign tax lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring and other accruals not yet deductible ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

August 31,

2002

2001

1,745
Ì
47,900
718

50,363

$11,583
4,468
48,614
2,613

67,278

(9,991)
(4,060)
(25,245)
(959)
(10,025)
(850)

(6,898)

Ì
(23,025)
(969)
(12,804)
(8,149)

Total deferred income tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(51,130)

(51,845)

Net deferred income tax (asset) liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $

(767)

$15,433

At August 31, 2002, Acuity Brands had foreign net operating loss carryforwards of $2.8 million that

can be carried forward indeÑnitely.

Note 10: Quarterly Financial Data (Unaudited)

Sales

Gross
ProÑt

Income
Before
Taxes

Net
Income

Basic
Earnings
Per
Share*

Pro
Forma
Basic
Earnings
Per
Share*

Diluted
Earnings
Per
Share*

2002
1st Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2nd Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3rd Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4th Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
1st Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2nd Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3rd Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4th Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$481,691
468,245
507,576
515,284

$502,646
471,283
503,132
505,639

$196,510
189,982
208,392
208,630

$216,288
200,685
216,090
208,284

$18,600
17,033
23,506
23,697

$22,512
21,802
14,174
10,664

$11,534
10,558
14,571
15,361

$13,507
13,081
7,516
6,399

n/a
$0.26
0.35
0.37

n/a
n/a
n/a
n/a

$0.28
n/a
n/a
n/a

$0.33
0.32
0.18
0.16

n/a
$0.26
0.35
0.37

n/a
n/a
n/a
n/a

* Earnings per share for the periods prior to second quarter Ñscal 2002 are pro forma. See Note 5 for

additional information.

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

Note 11: Business Segment Information

Sales

Operating
ProÑt
(Loss)

Total
Assets

Depreciation
Expense

Amortization
Expense

Capital
Expenditures
and
Acquisitions

2002
ALG ÏÏÏÏÏÏÏÏÏ $1,474,882
497,914
ASPÏÏÏÏÏÏÏÏÏÏ
Ì
Corporate ÏÏÏÏÏ

$ 89,553
44,931
(14,357)

$1,100,175
220,165
37,614

$36,323
8,047
808

$1,972,796

$120,127

$1,357,954

$45,178

2001
ALG ÏÏÏÏÏÏÏÏÏ $1,468,558
514,142
ASPÏÏÏÏÏÏÏÏÏÏ
Ì
Corporate ÏÏÏÏÏ

$118,829
41,337
(20,577)

$1,082,676
211,579
36,320

$36,197
8,131
618

$1,982,700

$139,589

$1,330,575

$44,946

2000
ALG ÏÏÏÏÏÏÏÏÏ $1,515,652
507,992
ASPÏÏÏÏÏÏÏÏÏÏ
Ì
Corporate ÏÏÏÏÏ

$144,417
50,107
(14,587)

$1,142,227
241,645
39,008

$31,792
7,705
547

$2,023,644

$179,937

$1,422,880

$40,044

$ 4,196
120
Ì

$ 4,316

$14,861
3,104
Ì

$17,965

$14,994
3,447
Ì

$18,441

$47,342
10,456
449

$58,247

$37,389
8,912
1,310

$47,611

$68,721
9,946
460

$79,127

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

ACUITY BRANDS, INC.

The geographic distribution of Acuity Brands' net sales, operating proÑt, and long-lived assets is

summarized in the following table:

2002

2001

2000

Net Sales (1)
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,749,387
103,061
Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
63,643
European countries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
56,705
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$1,749,498
105,825
72,568
54,809

$1,786,901
102,821
80,785
53,137

$1,972,796

$1,982,700

$2,023,644

Operating proÑt
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 114,877
822
Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,582
European countries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
846
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 130,044
5,150
2,315
2,080

$ 169,869
7,058
1,096
1,914

$ 120,127

$ 139,589

$ 179,937

Long-lived assets (2)
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 696,447
12,949
Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
22,058
European countries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
35,503
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 730,590
13,434
18,279
9,156

$ 746,548
15,196
26,041
14,116

$ 766,957

$ 771,459

$ 801,901

(1) Sales are attributed to each country based on the selling location.

(2) Long-lived assets include net property, plant, and equipment, goodwill and intangibles, and other long-

term assets.

54

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

At a meeting held on April 29, 2002, the Audit Committee of the board of directors of Acuity Brands

voted to dismiss Arthur Andersen LLP as its independent accountant eÅective April 30, 2002 and
approved the engagement of Ernst & Young LLP as its independent auditor for the Ñscal year ending
August 31, 2002. Further information is contained in the Company's Form 8-K Ñled with the Securities
and Exchange Commission (the ""Commission'') on April 30, 2002 and is incorporated herein by
reference.

PART III

Item 10. Directors and Executive OÇcers of the Registrant

The information required by this item, with respect to directors, is included under the caption Director

Nominees for Three-Year Term Expiring at the 2005 Annual Meeting and Directors with Terms Expiring
at the 2003 and 2004 Annual Meetings of the Company's proxy statement for the annual meeting of
stockholders to be held December 19, 2002, Ñled with the Commission pursuant to Regulation 14A, and is
incorporated herein by reference.

The information required by this item, with respect to executive oÇcers, is included under the caption

Management Ì Executive OÇcers of the Company's proxy statement for the annual meeting of
stockholders to be held December 19, 2002, Ñled with the Commission pursuant to Regulation 14A, and is
incorporated herein by reference.

The information required by this item, with respect to beneÑcial ownership reporting, is included
under the caption Section 16(a) BeneÑcial Ownership Reporting Compliance of the Company's proxy
statement for the annual meeting of stockholders to be held December 19, 2002, Ñled with the
Commission pursuant to Regulation 14A, and is incorporated herein by reference.

Item 11. Executive Compensation

The information required by this item is included under the captions Compensation of Directors,

Other Information Concerning the Board and its Committees, Compensation Committee Interlocks and
Insider Participation, Summary Compensation Table, Option Grants in Last Fiscal Year, Aggregated
Option Exercises and Fiscal Year-End Option Values, Employment Contracts, Severance Arrangements,
and Other Agreements, and Pension and Supplemental Retirement BeneÑts of the Company's proxy
statement for the annual meeting of stockholders to be held December 19, 2002, Ñled with the
Commission pursuant to Regulation 14A, and is incorporated herein by reference.

Item 12. Security Ownership of Certain BeneÑcial Owners and Management and Related Stockholder
Matters

The information required by this item is included under the captions BeneÑcial Ownership of the
Corporation's Securities and Disclosure with Respect to Equity Compensation Plans of the Company's
proxy statement for the annual meeting of stockholders to be held December 19, 2002, Ñled with the
Commission pursuant to Regulation 14A, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

The information required by this item is included under the caption Certain Relationships and

Related Party Transactions of the Company's proxy statement for the annual meeting of stockholders to be
held December 19, 2002, Ñled with the Commission pursuant to Regulation 14A, and is incorporated
herein by reference.

Item 14. Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that
information required to be disclosed in the reports Ñled or submitted under the Securities Exchange Act is

55

recorded, processed, summarized and reported, within the time periods speciÑed in the Commission's rules
and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in the reports Ñled under the Securities
Exchange Act is accumulated and communicated to management, including the principal executive oÇcer
and principal Ñnancial oÇcer as appropriate, to allow timely decisions regarding required disclosure.

As required by Commission's rules, the Company has evaluated the eÅectiveness of the design and
operation of its disclosure controls and procedures within 90 days of the Ñling date of this annual report.
This evaluation was carried out under the supervision and with the participation of management, including
the principal executive oÇcer and principal Ñnancial oÇcer. Based on this evaluation, these oÇcers have
concluded that the design and operation of the Company's disclosure controls and procedures are eÅective.
However, the Company is enhancing disclosure controls and procedures during the Ñrst quarter of Ñscal
2003 by formalizing certain policies and procedures, primarily those involving the reporting of Ñnancial
results of its businesses. Because all disclosure procedures must rely to some degree on actions to be taken
by employees throughout the organization, such as reporting of material events, the Company believes that
it cannot fully eliminate risks relating to disclosure requirements.

Internal controls, which may be viewed as part of disclosure controls and procedures, are designed to

provide reasonable assurances that: (a) transactions are executed in accordance with management's general
or speciÑc authorization; (b) transactions are recorded as necessary (i) to permit preparation of Ñnancial
statements in conformity with accounting principles generally accepted in the United States or any other
criteria applicable to such statements, and (ii) to maintain accountability for assets; (c) access to assets is
permitted only in accordance with management's general or speciÑc authorization; and (d) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any diÅerences. There were no signiÑcant changes in internal controls or in other
factors that could signiÑcantly aÅect internal controls subsequent to the date they were evaluated.
However, during the Company's Ñrst quarter of Ñscal 2003, it began a comprehensive assessment of its
internal controls utilizing its internal audit eÅorts. The Company is in the process of reviewing internal
controls and other risk areas and changes to the internal control structure could result from that review.

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) The following documents are Ñled as a part of this report:

(1) Report of Management

Report of Independent Auditors (Ernst & Young LLP)
Report of Independent Public Accountants (Arthur Andersen LLP)
Consolidated Balance Sheets Ì as of August 31, 2002 and 2001
Consolidated Statements of Income for the years ended August 31, 2002, 2001, and 2000
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years
ended August 31, 2002, 2001, and 2000
Consolidated Statements of Cash Flows for the years ended August 31, 2002, 2001, and
2000
Notes to Consolidated Financial Statements

(2) Financial Statement Schedules:

Schedule II Valuation and Qualifying Accounts
Any of schedules I through V not listed above have been omitted because they are not
applicable or the required information is included in the consolidated Ñnancial statements or
notes thereto.

(3) Exhibits Ñled with this report (begins on next page):

Copies of exhibits will be furnished to stockholders upon request at a nominal fee. Requests
should be sent to Acuity Brands, Inc., Investor Relations Department, 1170 Peachtree
Street, N.E., Suite 2400, Atlanta, Georgia 30309.

56

EXHIBIT 2

INDEX TO EXHIBITS

Agreement and Plan of Distribution by
and between National Service
Industries, Inc. and Acuity Brands, Inc.,
dated as of November 30, 2001.

EXHIBIT 3

(a) Restated CertiÑcate of Incorporation
of Acuity Brands, Inc.

(b) Amended and Restated By-Laws of
Acuity Brands, Inc.

EXHIBIT 4

(a) Form of CertiÑcate representing
Acuity Brands, Inc. Common Stock.

(b) Stockholder Protection Rights
Agreement, dated as of November 12,
2001, between Acuity Brands, Inc. and
Wells Fargo Bank Minnesota, N.A.

(c) First Supplemental Indenture, dated
as of October 23, 2001, to Indenture
dated January 26, 1999, between
National Service Industries, Inc., L&C
Spinco, Inc., L&C Lighting Group, Inc.,
The Zep Group, Inc. and SunTrust
Bank.
(d) Indenture dated as of January 26,
1999.

(e) Form of 6% Note due February 1,
2009.

(f) Form of 8.375% Note due August 1,
2010.

57

Reference is made to Exhibit 2.1 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 3.1 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 3.2 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 4.1 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 4.2 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.10 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.

Reference is made to Exhibit 10.11 to
Amendment No. 2 to the Registration
Statement on Form 10, Ñled by L&C
Spinco, Inc. on September 6, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.12 to
Amendment No. 2 to the Registration
Statement on Form 10, Ñled by L&C
Spinco, Inc. on September 6, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.13 to
Amendment No. 2 to the Registration
Statement on Form 10, Ñled by L&C
Spinco, Inc. on September 6, 2001,
which is incorporated herein by
reference.

Reference is made to Exhibit 10.1 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.2 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 2.1 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.

Reference is made to Exhibit 10.4 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.24 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.9 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.23 to
Amendment No. 4 to the Registration
Statement on Form 10, Ñled by L&C
Spinco, Inc. on October 29, 2001, which
is incorporated herein by reference.

Reference is made to Exhibit 10(i)A(1)
of registrant's Form 10-Q as Ñled with
the Commission on April 12, 2002,
which is incorporated herein by
reference.

EXHIBIT 10(i)A

(1) Tax DisaÇliation Agreement,

dated as of November 30, 2001,
by and between National Service
Industries, Inc. and Acuity
Brands, Inc.

(2) Transition Services Agreement,
dated as of November 30, 2001,
by and between National Service
Industries, Inc. and Acuity
Brands, Inc.

(3) Agreement and Plan of
Distribution, dated as of
November 30, 2001, by and
between National Service
Industries, Inc. and Acuity
Brands, Inc.

(4) Employee BeneÑts Agreement, by
and between National Service
Industries, Inc. and Acuity
Brands, Inc., dated as of
November 30, 2001.

(5) Put Option Agreement, dated as

of November 30, 2001, by and
between National Service
Industries, Inc. and Acuity
Brands, Inc.

(6) Lease Agreement, dated as of

November 30, 2001, by and
between National Service
Industries, Inc. and Acuity
Brands, Inc.

(7) 364-Day Revolving Credit

Agreement, dated as of October 3,
2001, among L&C Spinco, Inc.,
the Subsidiary Borrowers from
time to time parties thereto, the
Lenders from time to time parties
thereto, Bank One, N.A., as
Administrative Agent, Wachovia
Bank, N.A., as Syndication Agent
and SunTrust Bank as
Documentation Agent.
(8) 364-Day Revolving Credit

Agreement dated as of April 8,
2002, among Acuity Brands, Inc.,
the Subsidiary Borrowers from
time to time parties hereto, the
Lenders, from time to time parties
hereto, Bank One, NA as
Administrative Agent, and
Wachovia Bank, N.A., as
Syndication Agent.

58

(9) Assignment Agreement and

Amendment to Increase Aggregate
Commitment to 364-Day
Revolving Credit Agreement,
dated as of May 14, 2002, by and
among Bank One, NA and
Wachovia Bank, N.A., Dresdner
Bank AG New York & Grand
Cayman Branches, Acuity Brands,
Inc., Acuity Lighting Group, Inc.
and Acuity Specialty Products
Group, Inc., and Bank One, NA,
in its capacity as Administrative
Agent.

(10) 3-Year Revolving Credit

Agreement, dated as of April 8,
2002, among Acuity Brands, Inc.,
the Subsidiary Borrowers from
time to time parties hereto, Bank
One, NA as Administrative Agent,
and Wachovia Bank, N.A., as
Syndication Agent.

(11) Assignment Agreement and

Amendment to Increase Aggregate
Commitment to 3-Year Revolving
Credit Agreement, dated as of
May 14, 2002, by and among
Bank One, NA and Wachovia
Bank, N.A., Dresdner Bank AG
New York & Grand Cayman
Branches, Acuity Brands, Inc.,
Acuity Lighting Group, Inc. and
Acuity Specialty Products Group,
Inc., and Bank One, NA, in its
capacity as Administrative Agent.
(12) Deed to Secure Debt and Security

Agreement, dated as of
October 11, 2002.

Reference is made to Exhibit 10(i)A(1)
of registrant's Form 10-Q as Ñled with
the Commission on July 12, 2002, which
is incorporated herein by reference.

Reference is made to Exhibit 10(i)A(2)
of registrant's Form 10-Q as Ñled with
the Commission on April 12, 2002,
which is incorporated herein by
reference.

Reference is made to Exhibit 10(i)A(2)
of registrant's Form 10-Q as Ñled with
the Commission on July 12, 2002, which
is incorporated herein by reference.

Filed with the Securities and Exchange
Commission as part of this Form 10-K.

(13) Promissory Note, dated as of

October 11, 2002.

Filed with the Securities and Exchange
Commission as part of this Form 10-K.

EXHIBIT 10(iii)A Management Contracts and

Compensatory Arrangements:
(1) Acuity Brands, Inc. Long-Term

Incentive Plan.

(2) Acuity Brands, Inc. 2001

Nonemployee Directors' Stock
Option Plan.

Reference is made to Exhibit 10.5 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.6 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.

59

(3) Amendment No. 1 to Acuity
Brands, Inc. Nonemployee
Directors' Stock Option Plan,
dated December 20, 2001.

(4) Form of IndemniÑcation

Agreement.

(5) Form of Severance Protection

Agreement.

(6) Acuity Brands, Inc. Supplemental

Deferred Savings Plan.

(7) Acuity Brands, Inc. Executives'

Deferred Compensation Plan.

(8) Acuity Brands, Inc. Senior
Management BeneÑt Plan.

(9) Acuity Brands, Inc. Nonemployee
Director Deferred Stock Unit
Plan.

(10) Acuity Brands, Inc. Executive

BeneÑts Trust.

(11) Acuity Brands, Inc. Supplemental

Retirement Plan for Executives.

(12) Acuity Brands, Inc. Management
Compensation and Incentive Plan.

(13) Acuity Brands, Inc. BeneÑts

Protection Trust.

60

Reference is made to
Exhibit 10(iii)A(3) of registrant's
Form 10-Q as Ñled with the
Commission on January 14, 2002, which
is incorporated herein by reference.
Reference is made to Exhibit 10.7 to the
Registration Statement on Form 10,
Ñled by L&C Spinco, Inc. with the
Commission on July 3, 2001, which is
incorporated herein by reference.
Reference is made to Exhibit 10.8 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.14 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.15 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.16 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.17 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.18 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.19 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.20 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 10.21 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.

(14) Assumption Letter of Acuity
Brands, Inc. with respect to
Employment Letter Agreement
between National Service
Industries, Inc. and James S.
Balloun.

(15) Employment Letter Agreement
between National Service
Industries, Inc. and James S.
Balloun, dated February 1, 1996.

(16) Assumption Letter of Acuity
Brands, Inc. with respect to
Employment Letter Agreement
between National Service
Industries, Inc. and Joseph G.
Parham, Jr.

(17) Employment Letter Agreement
between National Service
Industries, Inc. and Joseph G.
Parham, Jr., dated May 3, 2000.

(18) Assumption Letter of Acuity
Brands, Inc., with respect to
Employment Letter Agreement
between National Service
Industries, Inc. and James H.
Heagle.

(19) Employment Letter Agreement
between National Service
Industries, Inc. and James H.
Heagle, dated March 28, 2000.

(20) Employment Letter Agreement

between Acuity Brands, Inc. and
Vernon J. Nagel, dated as of
October 30, 2001.

(21) Form of Acuity Brands, Inc.

Letter regarding Bonuses.

EXHIBIT 16

Letter of Arthur Andersen regarding
Change in Certifying Accountant.

EXHIBIT 21

List of Subsidiaries.

EXHIBIT 23

Consent of Independent Auditors.

61

Reference is made to
Exhibit 10.22(a)(i) of registrant's
Form 8-K as Ñled with the Commission
on December 14, 2001, which is
incorporated herein by reference.

Reference is made to
Exhibit 10(iii)A(2) of the Form 10-Q
of National Service Industries, Inc. for
the quarter ended November 30, 1997,
which is incorporated herein by
reference.
Reference is made to
Exhibit 10.22(b)(i) of registrant's
Form 8-K as Ñled with the Commission
on December 14, 2001, which is
incorporated herein by reference.

Reference is made to
Exhibit 10(iii)A(2) of the Form 10-Q
of National Service Industries, Inc. for
the quarter ended May 31, 2000, which
is incorporated herein by reference.
Reference is made to Exhibit 10.22(c)
of registrant's Form 8-K as Ñled with
the Commission on December 14, 2001,
which is incorporated herein by
reference.

Reference is made to Exhibit 10.22(d)
to Amendment No. 3 to the
Registration Statement on Form 10,
Ñled by L&C Spinco, Inc. on
September 27, 2001, which is
incorporated herein by reference.
Reference is made to
Exhibit 10(iii)A(20) of registrant's
Form 10-Q as Ñled with the
Commission on January 14, 2002, which
is incorporated herein by reference.
Reference is made to Exhibit 10.25 of
registrant's Form 8-K as Ñled with the
Commission on December 14, 2001,
which is incorporated herein by
reference.
Reference is made to Exhibit 16 of
registrant's Form 8-K/A as Ñled with
the Commission on May 1, 2002, which
is incorporated herein by reference.
Filed with the Securities and Exchange
Commission as part of this Form 10-K.
Filed with the Securities and Exchange
Commission as part of this Form 10-K.

EXHIBIT 24

Powers of Attorney.

EXHIBIT 99

(1) CertiÑcation pursuant to

Section 906 of the Sarbanes-Oxley
Act of 2002, signed by James S.
Balloun.

(2) CertiÑcation pursuant to

Section 906 of the Sarbanes-Oxley
Act of 2002, signed by Vernon J.
Nagel.

(b) None.

Filed with the Securities and Exchange
Commission as part of this Form 10-K.
Filed with the Securities and Exchange
Commission as part of this Form 10-K.

Filed with the Securities and Exchange
Commission as part of this Form 10-K.

62

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SIGNATURES

ACUITY BRANDS, INC.

By:

/s/ VERNON J. NAGEL

Vernon J. Nagel
Executive Vice President and
Chief Financial OÇcer

Date: November 11, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/

JAMES S. BALLOUN
James S. Balloun

/s/ VERNON J. NAGEL

Vernon J. Nagel

/s/

JOHN W. EHRIE
John W. Ehrie

*
John L. Clendenin

*
Peter C. Browning

*
Neil Williams

*
L. M. Baker, Jr.

*
Julia B. North

*
Ray M. Robinson

Chairman, President, and
Chief Executive OÇcer and
Director

November 11, 2002

Executive Vice President and
Chief Financial OÇcer

November 11, 2002

Vice President and Controller

November 11, 2002

Director

November 11, 2002

Director

November 11, 2002

Director

November 11, 2002

Director

November 11, 2002

Director

November 11, 2002

Director

November 11, 2002

Director

November 11, 2002

*
Earnest W. Deavenport, Jr.

By:

/s/ KENYON W. MURPHY

Kenyon W. Murphy
Attorney-in-Fact

63

I, James S. Balloun, certify that:

CERTIFICATIONS

1. I have reviewed this annual report on Form 10-K of Acuity Brands, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material

fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the Ñnancial statements, and other Ñnancial information included in this
annual report, fairly present in all material respects the Ñnancial condition, results of operations and cash
Öows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying oÇcers and I are responsible for establishing and maintaining

disclosure controls and procedures (as deÑned in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating

to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;

b) evaluated the eÅectiveness of the registrant's disclosure controls and procedures as of a date

within 90 days prior to the Ñling date of this annual report (the ""Evaluation Date''); and

c) presented in this annual report our conclusions about the eÅectiveness of the disclosure

controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying oÇcers and I have disclosed, based on our most recent evaluation,

to the registrant's auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) all signiÑcant deÑciencies in the design or operation of internal controls which could adversely

aÅect the registrant's ability to record, process, summarize and report Ñnancial data and have
identiÑed for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a

signiÑcant role in the registrant's internal controls; and

6. The registrant's other certifying oÇcers and I have indicated in this annual report whether there

were signiÑcant changes in internal controls or in other factors that could signiÑcantly aÅect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard
to signiÑcant deÑciencies and material weaknesses.

Date: November 11, 2002

/s/

JAMES S. BALLOUN
James S. Balloun
Chairman, President and Chief Executive OÇcer

64

I, Vernon J. Nagel, certify that:

1. I have reviewed this annual report on Form 10-K of Acuity Brands, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material

fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the Ñnancial statements, and other Ñnancial information included in this
annual report, fairly present in all material respects the Ñnancial condition, results of operations and cash
Öows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying oÇcers and I are responsible for establishing and maintaining

disclosure controls and procedures (as deÑned in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;

b) evaluated the eÅectiveness of the registrant's disclosure controls and procedures as of a date

within 90 days prior to the Ñling date of this annual report (the ""Evaluation Date''); and

c) presented in this annual report our conclusions about the eÅectiveness of the disclosure

controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying oÇcers and I have disclosed, based on our most recent evaluation,

to the registrant's auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) all signiÑcant deÑciencies in the design or operation of internal controls which could adversely

aÅect the registrant's ability to record, process, summarize and report Ñnancial data and have
identiÑed for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a

signiÑcant role in the registrant's internal controls; and

6. The registrant's other certifying oÇcers and I have indicated in this annual report whether there

were signiÑcant changes in internal controls or in other factors that could signiÑcantly aÅect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard
to signiÑcant deÑciencies and material weaknesses.

Date: November 11, 2002

/s/ VERNON J. NAGEL

Vernon J. Nagel
Executive Vice President and Chief Financial OÇcer

65

ACUITY BRANDS, INC.

SCHEDULE II

Valuation and Qualifying Accounts
for the Years Ended August 31, 2002, 2001, and 2000

Balance at
Beginning
of Year

Costs and
Expenses

Additions Charged to
Other
Accounts(1)
(In thousands)

Deductions

Balance at
End of
Year

Year Ended August 31, 2002:
Reserve for doubtful accountsÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 8,195

Reserve for estimated warranty costs ÏÏÏÏÏÏÏÏ

$ 1,823

5,445

2,787

55

6,209

Reserve for estimated returns and allowances

$ 4,079

57,206

Self-insurance reserve(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$17,938

13,007

Reserve for restructuring(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 2,130

(853)

Year Ended August 31, 2001:
Reserve for doubtful accountsÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 6,570

Reserve for warranty costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 1,164

4,930

1,806

Reserve for estimated returns and allowances

$ 4,006

37,266

Self-insurance reserve(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$13,621

11,254

Reserve for restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ Ì

2,298

Year Ended August 31, 2000:
Reserve for doubtful accountsÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 5,470

Reserve for warranty costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 1,086

2,667

1,030

Reserve for estimated returns and allowances

$ 4,416

36,736

Self-insurance reserve(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$15,158

5,055

5,135

4,156

$ 8,560

$ 6,663

56,968

$ 4,317

9,295

1,277

3,305

1,147

$21,650

$ Ì

$ 8,195

$ 1,823

37,193

$ 4,079

6,937

$17,938

168

$ 2,130

Ì

Ì

Ì

Ì

Ì

Ì

Ì

Ì

1,927

3,494

$ 6,570

Ì

Ì

Ì

952

$ 1,164

37,146

$ 4,006

6,592

$13,621

(1) Recoveries credited to the reserve and reserves recorded in acquisitions.

(2) Includes reserves for workers' compensation, auto, product, and general liability claims.

(3) During Ñscal 2002, management realized lower than anticipated costs associated with severance

charges in the lighting equipment segment. Accordingly, the related reserve was reversed and
$0.9 million in income was recorded and is included in Restructuring and other charges in the
Consolidated Statements of Income.

66

Acuity Brands, Inc.
1170 Peachtree Street, NE
Suite 2400
Atlanta, Georgia 30309-7676
(404) 853-1400

www.acuitybrands.com