ACUITY BRANDS WAY
The Acuity Brands Way is our creed – it provides the fundamentals for creating and sustaining value for our
customers, employees, and shareholders. It is the spirit of our business life together; it is what we create together.
There are four building blocks to the Acuity Brands Way:
• Our mission Our mission is to take good companies and make them great companies.
• Our values Great companies show integrity by consistently behaving in ways that reflect their core values. We place
confidence in our employees who demonstrate our four values: resolute, team-oriented, creative, and aspirational.
• How we work together We work together constructively by demonstrating leadership, respect, and commitment.
We are transparent with others and share our successes. We empower our employees to make decisions and
contribute to our communities.
• How we create value Great companies consistently create more value for their customers, employees, and
shareholders than other companies. We are committed to creating value through setting high aspirations, measuring
performance, achieving operating plans, committing to continuous improvement, and making changes faster than
our competitors.
The Acuity Brands Way guides how we do business and how we treat one another. Through the Acuity Brands Way,
we’re on our way to high performance.
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Acuity Brands, Inc.
1170 Peachtree Street, NE
Suite 2400
Atlanta, Georgia 30309-7676
404-853-1400
www.acuitybrands.com
®
2005An n ual Report
Bus iness Description
Sh ar e holder Infor m ation
Acuity Brands, Inc., with fiscal year 2005 net sales of
approximately $2.2 billion, is comprised of Acuity Brands
Lighting and Acuity Specialty Products. Acuity Brands Lighting
is one of the world’s leading providers of lighting fixtures
and includes brands such as Lithonia Lighting®, Holophane®,
Peerless®, Hydrel®, American Electric Lighting®, and Gotham®.
Acuity Specialty Products is a leading provider of specialty
chemicals and includes brands such as Zep®, Zep Commercial®,
Enforcer®, and Selig™. Headquartered in Atlanta, Georgia,
Acuity Brands employs approximately 10,000 people and
has operations throughout North America and in Europe
and Asia.
Fina ncial Highlights
For the year ended August 31
(in millions of dollars, except earnings per share)
Operations:
Net sales
Gross profit %
Operating profit
Operating profit %
Net income
Diluted earnings per share
Diluted weighted average number of shares outstanding
Return on average stockholders’ equity
Net cash provided by operating activities
Depreciation and amortization
Capital expenditures
Employees
At August 31
(in millions of dollars)
Financial Position:
2005 (1)
2004
% Change
$ 2,172.9
$ 2,104.2
3%
$
$
$
$
$
$
39.1%
106.7
4.9%
52.2
1.17
44.8
10.3%
137.1
41.1
32.6
10,000
$
$
$
$
$
$
40.4%
137.9
6.6%
67.2
1.56
43.2
15.4%
113.3
43.0
53.8
11,000
(23)%
(22)%
(25)%
21%
(4)%
(39)%
(9)%
2005
2004
% Change
Total assets
Total cash and cash equivalents
Total debt
Total stockholders’ equity
Total debt to capitalization
Operating working capital as a percentage of net sales (2)
$ 1,442.2
98.5
$
372.3
$
541.8
$
$ 1,356.5
$
14.1
$
395.7
$
478.0
40.7%
15.6%
45.3%
16.5%
6%
599%
(6)%
13%
(1) 2005 results include a $23.0 million pre-tax restructuring charge (or $0.34 per diluted share).
(2) Operating working capital is defined as net accounts receivable plus inventories minus accounts payable.
Corporate Headquarters
Acuity Brands, Inc.
1170 Peachtree Street, NE
Suite 2400
Atlanta, Georgia 30309-7676
404-853-1400
www.acuitybrands.com
Acuity Brands Lighting
One Lithonia Way
Conyers, Georgia 30012-3957
770-922-9000
www.acuitybrandslighting.com
Acuity Specialty Products
4401 Northside Parkway
Suite 700
Atlanta, Georgia 30327-3093
404-352-1680
www.acuitysp.com
Independent Registered
Public Accounting Firm
Ernst & Young LLP
600 Peachtree Street
Suite 2800
Atlanta, Georgia 30308-2215
404-874-8300
Annual Meeting
1:00 p.m. Eastern Time
Thursday, January 12, 2006
Four Seasons Hotel Ballroom
75 Fourteenth Street, NE
Atlanta, Georgia 30309
Reports Available
To Shareholders
Copies of the following company reports
may be obtained, without charge:
2005 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
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Stock Listing
New York Stock Exchange
Ticker Symbol: AYI
The Company’s CEO certified to the
NYSE on November 15, 2004, that
he is not aware of any violation by
the Company of the NYSE’s Corporate
Governance listing standards.
Shareholders of Record
The number of shareholders of record
of Acuity Brands common stock was
5,234 as of October 25, 2005.
Transfer Agent And Registrar
Questions about shareholder accounts,
dividend checks and lost stock
certificates should be directed to:
The Bank of New York
Shareholder Relations Department
P. O. Box 11258
Church Street Station
New York, New York 10286-1258
800-432-0140
212-815-3700
shareowners@bankofny.com
www.stockbny.com
Send certificates for transfer and
address change to:
The Bank of New York
Receive and Deliver Department
P.O. Box 11002
Church Street Station
New York, New York 10286-1258
Account Access
Shareholders can access their account
information at the Web site of Acuity
Brands’ transfer agent, The Bank of
New York, at www.stockbny.com or at
www.acuitybrands.com.
Shareholders can securely view their
account information and check their
holdings 24 hours a day.
Cash Dividends
Acuity Brands offers direct deposit
of dividends to financial institutions’
checking, savings, or money market
accounts. For more information contact
The Bank of New York at 800-432-0140
or 212-815-3700.
BuyDIRECTSM
Acuity Brands’ transfer agent, The Bank
of New York, offers the BuyDIRECT
investment plan, a direct purchase and
sale plan for investors wishing to purchase
Acuity Brands common stock. Dividends
can be automatically reinvested. The
plan is not sponsored or administered
by Acuity Brands. For information
regarding the plan, contact:
The Bank of New York
Church Street Station
P.O. Box 11258
New York, New York 10286-1258
800-432-0140
212-815-3700
Remittance of Optional
Cash Investments and Plan
Transaction Requests
Mail the tear-off portion of transaction
advice or account statements to:
The Bank of New York
Investment Services Department/
Acuity Brands
P.O. Box 1958
Newark, New Jersey 07101-9774
Forward-Looking Statements
This annual report includes forward-
looking statements regarding:
(a) expected future results and
(b) the impact of initiatives in each of
the Company’s businesses. A variety
of factors could cause actual results to
differ materially from expected results.
Please see the risk factors more fully
described in the accompanying financial
information, which is separately filed
with the Securities and Exchange
Commission as part of the Annual Report
on Form 10-K for the year ended
August 31, 2005.
© 2005 Acuity Brands, Inc. All referenced trademarks are the property of their respective owners.
.
To Our Stak eho ld ers
s we embarked on 2005, our mission was clear,
our plans specific, and our resolve unwavering
on the promises made to our key stakeholders:
to create a better, more effective company and to
deliver financial results consistent with our longer-
term objectives. And yet 2005 presented us with
unprecedented economic challenges, proving once
again the age-old axiom that the only constant in
business is change.
For Acuity Brands, to say that 2005 was a
year of profound challenge and change would
be an understatement. As I wrote to you a year
ago, “At Acuity Brands, our mission is to take
good companies and make them great.” Great
companies create exceptional shareholder value
by delivering profitable growth and consistent
upper quartile performance, superior customer
satisfaction, and excellence in everything they do,
by having a team-oriented desire to be the best.
Achieving these outcomes continues to be our
priority; nevertheless, our financial results in
2005 were disappointing. We believe that these
financial results do not fully reveal the extent to
which rapidly evolving market conditions impacted
our businesses, do not give a clear picture of
just how well our 10,000 associates world-wide
responded to those ever-changing dynamics, and,
most importantly, do not convey the progress
we made in becoming a “better,” more effective
company. The purpose of this letter is to give you
deeper insight into our activities and accomplish-
ments in 2005, our vision for the future, and the
basis for our confidence that the actions we are
taking will transform Acuity Brands from a good
company to a great company.
2005 RESULTS
We entered 2005 with an expectation of delivering
positive financial performance. Our results for the
year fell well short of our expectations in certain
key areas, particularly in earnings growth and
operating profit margin. Overall, net sales edged
up a respectable 3% in 2005 to $2.2 billion due
primarily to price increases as both Acuity Brands
Lighting (ABL) and Acuity Specialty Products
(ASP) responded to unprecedented cost pressures.
Diluted earnings per share declined to $1.17 from
$1.56 reported in 2004. The decline was precipi-
tated by three factors:
1) Unprecedented increases in costs, primarily
raw materials and components that were
up over $75 million;
2) The collective effects of a decline in unit
volume sales in our primary end market,
non-residential construction; and
3) A $23 million pretax charge for a reduction
in workforce as part of our ongoing efforts
to properly structure our organization.
Our organization did an extraordinary job
in responding to the challenges of managing
unrelenting increases in costs while confronting
sluggish demand in certain key markets. While
we passed along much of the rising costs through
higher selling prices, our price increases lagged
2005 Annual Report
Le tter to stakeholders continued
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the rise in material costs, creating a drag on profits
and margins. Non-residential construction, a core
market for us, declined for the sixth year in a row,
confounding industry experts who again predicted
an acceleration in demand in 2005. The decline
significantly encumbered our ability to fully leverage
our supply chain capabilities. As a consequence,
we made a very difficult decision in February to
more properly size and streamline our business
structure based on market conditions. This resulted
in a special charge for the expected reduction of
approximately 10% of our workforce. We have a
great deal of empathy for our fellow associates
impacted by this decision and have provided them
with appropriate transition assistance. However,
these actions were necessary to create a leaner,
more efficient organization that is better con-
nected to the customer, more nimble in its
decision-making processes, and more cost effec-
tive. These actions will allow Acuity Brands to be
more capable of delivering profitable growth in
the future.
Despite the disappointing earnings results,
the Company dramatically improved its financial
position in 2005. We generated $137 million in
cash flow from operations, up 21% from the year-
ago period, while funding $33 million in capital
expenditures and paying dividends of $26 million
to shareholders. Our debt position of $372 million
consisted primarily of fixed-rate, longer-term obli-
gations, while our cash position swelled to almost
$100 million by the end of August 2005. As a con-
sequence, debt net of cash declined $108 million,
or 28%, in 2005 to $274 million at year-end, pro-
viding us with the best financial flexibility we have
enjoyed in our short history as Acuity Brands.
2005 ACHIEVEMENTS
We are a results-driven organization and take no
comfort in offering explanations for our earnings
shortfall. However, it is true that sometimes a
company’s earnings are a lagging indicator of its
true momentum. Looking beyond the numbers,
we accomplished a great deal in 2005, rising to
the challenges of a very competitive marketplace
and streamlining many business processes that
served to enhance our transactional capabilities
and effectiveness.
We committed in 2004 to a long-term journey
of distinguishing ourselves in three mission-critical
areas we refer to as the “3 C’s”:
• Providing unparalleled customer service;
• Pursuing world-class cost efficiency by
eliminating non-value added activities
and transactional costs; and
• Creating a culture that demands excellence
in everything we do through continuous
improvement.
In each of these areas, we significantly enhanced
and strengthened our capabilities in 2005, thereby
creating a stronger, more effective organization.
Customers: Our focus is to deliver a competi-
tively superior value proposition to our more than
300,000 customers throughout the world. We made
great strides in enhancing the customer experience
by improving our delivery capabilities and continu-
ing to introduce new and innovative products. Our
clear objective is to fulfill each customer’s order by
delivering on time, complete, every time, without
a defect in the product or an error in the process,
and to do so faster and more cost-effectively than
our competition. The ability to provide this level of
Acuity Brands
2005 Annual Report
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unprecedented service in each of our core markets
would be profound and industry-changing. We
have established and closely monitor key metrics
that measure our progress in these service areas.
For example, we significantly enhanced the cus-
tomer experience at ABL by dramatically improving
our on-time service. While there is room for con-
siderable improvement, we have reduced our late
backlog to customers by over 80% to historical lows.
Another goal was to augment the breadth and
depth of our industry-leading product offering
with a new product development and service cre-
ation capability that is without equal. Overall, we
excelled in bringing to market in 2005 new and
innovative products and services incorporating
technology and features that lead the industry,
and we improved our development processes that
enhance our speed to market for new products.
For example, at ABL, the leading company in
the commercial lighting industry, we introduced
more than 200 new product platforms and strate-
gic product line extensions marketed under 10
primary brands. At Lithonia Lighting, we intro-
duced the RT5™, a revolutionary breakthrough
lighting fixture for the indoor specification mar-
ket, the largest in North America, which will
transform how interior workspace is illuminated.
At Holophane, we introduced numerous prod-
ucts including ISD SuperGlass™, a reflector with
dramatically more efficient prismatic qualities for
the warehouse and industrial markets. Both the
RT5 and SuperGlass incorporate innovative and
proprietary technology that creates much more
effective lighting output while allowing the
customer to use substantially less energy. These
products were recognized among the industry’s
best at the most recent Light Fair International
trade show. Similarly, at ASP, we introduced more
than 160 new products in 2005, including 50 that
were formulated to meet more stringent environ-
mental standards for VOC emissions in several
states. Our capability to specially formulate prod-
ucts to meet customers’ exacting requirements, a
core strength at ASP, continued to win us busi-
ness in 2005. For example, Zep’s Big Orange™
degreaser was approved by the U.S. Coast Guard as
the product of choice for use in the removal of oil
from all vessels entering or exiting the
Philadelphia harbor.
Also in 2005, we implemented a process to
more directly link the needs of our customers
to our market and product development strategies.
While we are in the early stages of implementation,
we expect that this “outside-in” process will enhance
our ability to respond to changing market condi-
tions and to more rapidly bring innovation and
technology to our customers.
Cost: We made tremendous progress in
reducing our overall cost structure in 2005. This
was accomplished by introducing and training
our associates in new techniques that are very
effective at eliminating waste and non-value
added activities in our transactional processes
while advancing our customer service capabilities.
Two years ago at Lithonia Lighting, we commenced
a journey to reduce our production costs. This
included the closure of eight facilities to date,
impacting over 50% of our product lines. In 2005,
we reduced our conversion cost by approximately
11% and, in the process, dramatically improved
service to our customers at Lithonia Lighting by
reducing late backlog as noted above. In addition,
Acuity Brands
2005 Annual Report
Le tter to stakeholders continued
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by accelerating our ongoing restructuring program
announced in February, we were able to reduce
consolidated overhead expense by $13 million
in 2005 and we are on our way to an annualized
goal of $50 million by the middle of fiscal 2006.
Culture: All great companies have a competitive
edge and an unrelenting passion to always be the
very best. In 2005, we embarked on a path of change
and a recommitment to delivering the kind of
value that makes the brands of Acuity Brands the
leaders in their industries. We live in a world of
constant change occurring at speeds unthinkable
only a few short years ago. And yet at Acuity Brands,
we are not only learning to better manage change,
we are the drivers of change. It is a deep and rich
part of our culture that we are competitive, entre-
preneurial winners. We have invested considerable
resources on training our organization to deploy
lean systems and on providing associates with new
techniques and more advanced tools to drive
improvements in our customer-facing business
processes, product development, and supply chain.
By arming our associates with these capabilities,
we enable them to manage and thrive on change.
I get excited about what we are doing when I see
first-hand the sense of enthusiasm, accomplish-
ment, and empowerment of associates who deploy
these toolsets to challenge the “old ways” to gener-
ate new ideas and improve performance in a very
short period of time. These techniques and tools,
which are part of a comprehensive, holistic busi-
ness system, are aligning our strategy and tactics
from the boardroom to the shop floor and from
our vendors to our customers; and in the process,
are eliminating non-value added activities while
providing greater value to all key stakeholders.
While we have a very long way to go to be consid-
ered world class, our progress to date has been
very encouraging.
2006 AND BEYOND
At Acuity Brands, we aspire to be a substantially
larger, more diversified organization capable of
delivering consistent upper quartile performance
to our shareholders. Today, Acuity Brands Lighting
and Acuity Specialty Products are leaders in their
respective industries, and yet there remains plenti-
ful opportunity for substantial profitable growth
that will allow Acuity Brands to achieve its long-
term objectives. We see a bright future full of
potential for Acuity Brands. So the question is,
“What must we do to fully realize that potential?”
First and foremost, we must continue to focus
on improving our competitive position by having
the courage to drive positive change. This means
that we must confront our challenges head-on and
take aggressive and necessary actions to drive future
performance if we are to succeed in a rapidly
changing marketplace. We must also be unrelenting
at eliminating non-value added activities in our
Company and much more effective at working
with our supply partners to bring greater value
to the marketplace in order to create clearer and
more discernible value propositions for our cus-
tomers. Second, we must have a common definition
for success. Today, we now define success in terms
of the 3 C’s of customer, cost and culture and how
these will impact each of our key stakeholders. Key
performance indicators that define our progress
in each of these areas are permeating the organi-
zation at every level and are becoming more
visible throughout the Company for all associates
Acuity Brands
2005 Annual Report
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to see. This intense focus is driving positive
changes in our processes that impact delivery,
quality, cost, and innovation, while further
strengthening our environmental, health, and
safety compliance programs. Our future success
will largely be determined by the cultural trans-
formation we make in becoming a leaner, more
cross-functionally oriented organization. For the
associates of Acuity Brands this means that we
must continue to eliminate the remaining “silos”
within our company that impede progress towards
the shared mission of achieving excellence in
everything we do. These legacy barriers to cross-
functional, transparent communications are
rapidly disappearing throughout the organization,
benefiting our service to customers, our cost
structure, and most importantly, the attitudes
of our associates. Lastly, our success in achieving
consistent upper quartile performance, like that
experienced by only a very few companies, will
be predicated on our ability to embrace and
make good on the programs we are implementing
to become a faster, leaner, and more team-oriented
company that values being the best as defined by our
customers, our employees, and our shareholders.
Is all this easy? No. But we are focused, we have
a very high sense of urgency, and we know what we
need to do. Our successes in these areas to date,
which are leading indicators of future performance,
suggest that we are on the right path to unlocking
the full potential at Acuity Brands.
Our Board of Directors shares our confidence
in the Company’s future. This confidence is
reflected in the announcement of our plan to
repurchase up to two million shares of the
Company’s common stock.
CLOSING COMMENTS
In closing, I gratefully acknowledge John Morgan’s
taking the helm of Acuity Brands Lighting as
President and Chief Executive Officer. John, a
28-year veteran of the organization, has the right
combination of diversified experiences and lead-
ership skills to extend the proud legacy of the
companies that make up Acuity Brands Lighting,
the undisputed leader in the lighting industry.
John takes over from Ken Honeycutt, Jr., who is
retiring at the end of 2005. Ken has spent his
entire 34-year career with our lighting company,
the last three as the leader of ABL. I thank Ken
for his vision, wisdom, and courage to lead the
company through a period of extraordinary
transformation. We will miss his keen intellect,
his extraordinary strategic vision, and his unwav-
ering commitment to our Company.
Finally, on behalf of the Board of Directors,
I thank all of our 10,000 associates for their con-
tinued contributions and dedication. As I noted
last year, our success in becoming a growth-oriented,
top quartile performing company depends on the
resolve of each of us to inspire team success and
on our individual efforts toward making our
collective aspirations a reality. It was true then,
and it is still true today.
Acuity Brands has the potential to be a great
company. We are committed to delivering on that
potential. Thank you for your support.
Vernon J. Nagel
Chairman, President, and Chief Executive Officer
Acuity Brands
2005 Annual Report
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Acuity Brands Lighting (ABL) is one of the world’s leading
providers of lighting fixtures. Our market-leading brands
include Lithonia Lighting®, Holophane®, Peerless®, Hydrel®,
American Electric Lighting®, and Gotham®. Through the
efforts of our 7,000 employees, we manufacture approxi-
mately 100,000 fixtures each day for various indoor and
outdoor applications, including offices, homes, schools,
manufacturing facilities, warehouses, hospitals, roadways,
and parking lots. Products are manufactured in 18
plants in the United States, Europe, and Mexico and are
delivered through strategically located distribution centers.
Participating actively in both the new construction and
renovation markets, ABL reaches the market with three
selling and distribution strategies – identified projects,
speculative stock, and international. Identified projects
offer specialized and high-volume product packages
for construction. Speculative stock includes products
resold through commercial and retail stocking
distributors. International sales efforts deliver ABL
products for projects in over 50 countries.
Per for mance
Net Sales
in millions of dollars
1,637.9
1,580.5
1,538.8
Operating Profit
in millions of dollars
Total Assets
in millions of dollars
118.9
1,094.8
1,091.2
96.8
94.6
1,029.4
2003
2004
2005
2003
2004
2005
2003
2004
2005
U. S. L igh ting Market – $8.6 Billion *
Product Segments*
in billions of dollars
Channels*
in billions of dollars
$2.0
Residential
$2.0
Fluorescent
$1.0
Architectural
Indoor & Other
$0.6
Electronic
Systems
$0.8
Industrial
$2.2
Outdoor
* Company estimates
$0.2
Other
$0.5
Utilities
$0.5
Direct/Nat’l
Accounts
$0.7
Lighting
Showrooms
$1.1
Homecenters
$5.6
Electrical
Wholesalers
Acuity Brands
2005 Annual Report
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AB L At-a-Glance
Market Segments
Leading Brands
Key Products
Value Proposition
C&I Group
Lithonia Lighting®
Commercial, Institutional,
Industrial, and
Government markets
Fluorescent, indoor
HID, downlighting, track,
emergency, rough service,
area/site, floodlighting,
building-mounted, lighting
control, modular wiring
Best Value in Lighting.
Comprehensive line of
commercial, institutional,
and industrial products for
indoor and outdoor use
Primary
Applications
Key Channels/
Customers
Offices, schools, retail,
warehouses, manufacturing,
parking, hotel, healthcare
Electrical engineers,
electrical distributors,
electrical contractors,
building owners
Gotham®
Peerless®
Hydrel®
Downlighting: recessed,
accent, surface, decorative,
pendant
Design and performance
leadership in indoor archi-
tectural downlighting
products
Offices, schools, museums,
libraries, stores, churches,
airports
Architects, engineers,
lighting designers, interior
designers, building owners
Suspended lighting,
indoor floodlighting,
accent lighting
Lighting for People®.
Leaders in design, perfor-
mance, and product
innovation
Offices, schools, museums,
media centers, airports,
churches, malls, retail,
public spaces
Architects, engineers,
lighting designers, interior
designers, building owners
Floodlighting, area/site,
landscape, wall-mounted,
in-grade, accent, border,
underwater
Illuminating architecture
and surroundings; placing
outdoor light and color for
dramatic effect
Landscape, area,
underwater, building
illumination
Architects, landscape
architects, engineers,
lighting designers,
building owners
Antique Street LampsTM
Historical and contempo-
rary decorative luminaires
and post-tops
Complete product line of
historically styled outdoor
lighting
City redevelopments,
parks, area, pedestrian
walkways
Municipalities, utilities,
electrical distributors,
electrical contractors
SpecLight® and
MetalOptics®
Energy-efficient fluorescent
specialty fixtures and
retrofit kits
Custom and specially
designed energy-efficient
indoor fluorescent lighting
Offices, schools, ware-
houses, manufacturing,
stores. New and retrofit
Electrical distributors,
energy service companies,
electrical contractors,
building owners, end users
Solutions Group
Holophane®
Infrastructure, Industrial,
Commercial, and
Institutional markets
Municipal roadway and
infrastructure highway,
historical outdoor, contem-
porary outdoor, low energy
and high output fluorescent,
HID industrial, Holophane-
designed high performance
electrical gear and ballasts
Leader in Lighting
Solutions®. Optics, sales,
and the best total cost of
ownership. The hallmark of
Holophane luminaires is
the borosilicate glass
reflector/refractor
American Electric
Lighting®
Roadway fixtures,
historical, floodlights,
DTL photocontrols
Complete product line of
public infrastructure light-
ing and photocontrols
Industrial manufacturing
and warehousing, food
processing, retail, college
and university campuses
and gyms, retail, sports
arenas, highways, municipal
roadway, parking, tunnels,
signs, airports, rail yards,
seaports
Roadway, security, area
Owners, engineers,
architects, lighting
designers, landscape
architects, utilities,
municipalities, public
infrastructure, govern-
ment, industrials
Municipalities, utilities,
roadway, distributors,
contractors
Retail Group
Lithonia Lighting®
Residential ‘Do It Yourself’
consumers as well as light
commercial contractors
Decorative fluorescent
fixtures, including flush
mounted products,
pendants, outdoor and
under-cabinet lighting.
Also a broad assortment
of Lithonia outdoor, emer-
gency exit, and commercial
products for the light
commercial market
Energy-efficient decorative
residential lighting
Residential, light
commercial
Home centers, lighting
showrooms
International
Carandini®
Holophane® UK
All Acuity Brands Lighting
Products
Roadway fixtures, area
lighting, high mast sys-
tems, floodlights, accent
HID industrial, fluorescent,
emergency
Leader in Lighting
Solutions. A comprehen-
sive portfolio including
the full range of Acuity
Brands Lighting products
Manufacturing, warehouse
facilities, street, roadway,
tunnels, retail, commercial,
offices, parks and area
Consulting engineers,
building owners, contractors,
municipalities, architects,
lighting designers
Acuity Brands
2005 Annual Report
.
.
Acuity Specialty Products (ASP) is a leading provider of spe-
cialty chemicals to a wide variety of industrial and institutional
(I&I) and retail customers. ASP’s proprietary brands include
Zep®, Zep Commercial®, Selig™, and Enforcer®. Our 1,700 fully
commissioned sales representatives make 25,000 to 35,000
customer calls each day in the United States, Canada, and
Western Europe. Our sales force is committed to providing
high-quality products, service, and industry knowledge to over
300,000 customers annually. Currently, we manufacture 2,300
different chemical formulas that are packaged in more than
9,000 catalog-listed products and resell over 6,000 additional
complementary products. The quality and breadth of our
product line allows our sales representatives to provide
customized solutions to our broad customer base consisting of
transportation industries including commercial car washes,
schools, municipalities, repair shops, food preparation and
processors, restaurants, hotels, and other hospitality industry
providers. The reach of our sales representatives allows for
penetration of national accounts while maintaining high-quality
service and industry-leading product quality and efficacy.
Net Sales
in millions of dollars
535.0
523.7
510.6
Per for mance
Operating Profit
in millions of dollars
43.6
42.3
31.3
Total Assets
in millions of dollars
236.4
222.9
215.1
2003
2004
2005
2003
2004
2005
2003
2004
2005
U .S . I&I C lea ning Chemicals Ma rket – $. Billion *
Sales Channels*
in billions of dollars
$0.3
Other
Direct Sales Product Segments*
in billions of dollars
$0.3
Other
$2.9
Direct Sales
$0.6
Vehicle
$0.7
Food & Beverage
$5.9
Distributor
* Company estimates
$0.6
Industrial
$0.7
Schools,
Hospitals, &
Other Facilities
Acuity Brands
2005 Annual Report
.
.
ASP At-a-Glance
Automotive &
Vehicle
Wash, cleaning, and
maintenance products
for automobiles, aircraft,
public transport, trucks,
trains, and construction
vehicles
Food Processing
Food Preparation
Industrial
Government
Integrated and customized
dispensing systems and
innovative approaches to
antimicrobial control
Suite of cleaning products
designed specifically for
prepared food industry
Cleaning and maintenance
products used by profes-
sional maintenance staff
Suite of products and
maintenance solutions
for cities, school districts,
military, police, and fire
departments
Contractors
& Homeowners
Products for professional
and home user for general
cleaning, drain care, and
pest control
Leading Brands
Leading Brands
Leading Brands
Leading Brands
Leading Brands
Leading Brands
Zep®
SeligTM
Armor All® Professional
(distributor)
Zep®
Zep®
SeligTM
Zep®
SeligTM
Zep®
SeligTM
Zep Commercial®
Enforcer®
Rubbermaid® Commercial
(distributor)
Key Products
Key Products
Key Products
Key Products
Key Products
Key Products
Exterior and interior cleaning
products, solvents, and
degreasers
Cleaners and sanitizers for
applications from farm to
food retailer
Cleaners and sanitizers
Cleaners, degreasers,
solvents, lubricants, parts
washers, and hand cleaners
Cleaners, sanitizers,
floor care, vehicle
wash, degreasers, and
dispensing equipment
Cleaners, sanitizers, drain
care, and pest control
Value Proposition
Value Proposition
Value Proposition
Value Proposition
Value Proposition
Value Proposition
High-quality products
sold through numerous
highly trained and certified
sales reps
Suite of products and
cleaning solutions sold
through highly trained
food-certified sales
specialists
Suite of products and
cleaning solutions sold
through highly trained
sales reps
Highly-dilutable quality
products sold through
consultative sales approach
to meet the needs of an
ever-changing industrial
environment
Suite of products and
cleaning solutions sold
through trained, certified
sales reps coordinated
through centralized sales
leadership
Commercial quality suite
of products and cleaning
solutions sold through
retail channels
Key Channels/
Customers
Key Channels/
Customers
Key Channels/
Customers
Key Channels/
Customers
Key Channels/
Customers
Key Channels/
Customers
Customers include car
washes, auto rental
agencies, airlines, and
construction companies
serviced through the
direct sales channel
Customers include food
processing plants through-
out the United States and
Canada through the direct
sales channel
Customers include grocery
chains and restaurants
throughout the United
States, Canada, and
Europe through the
direct sales channel
Customers include auto
repair and manufacturing
firms serviced through the
direct sales channel
Customers include cities,
school districts, military,
police, and fire depart-
ments through the direct
sales channel
Customers include gen-
eral contractors, contract
cleaners, apartments, and
home owners through
retail channels such as
home centers
Acuity Brands
2005 Annual Report
0.
Boar d of Dir ec tor s & Of ficers
Board of Directors
Acuity Leadership Team
Vernon J. Nagel 1
Chairman, President, and Chief Executive Officer
Acuity Brands, Inc.
Vernon J. Nagel
Chairman, President, and Chief Executive Officer
Acuity Brands, Inc.
Peter C. Browning
Former Dean
McColl Graduate School of Business
at Queens University of Charlotte;
Non-Executive Chairman
Nucor Corporation
John L. Clendenin 2
Chairman Emeritus
BellSouth Corporation
Jay M. Davis
Chairman and Chief Executive Officer
National Distributing Company, Inc.
Earnest W. Deavenport, Jr.
Former Chairman and Chief Executive Officer
Eastman Chemical Company
Robert F. McCullough
Former Chief Financial Officer
AMVESCAP PLC
Julia B. North
Former President and Chief Executive Officer
VSI Enterprises, Inc.;
Former President of Consumer Services
BellSouth Corporation
Ray M. Robinson 3
President
East Lake Golf Club;
Non-Executive Chairman
Citizens Trust Bank
Neil Williams 4
Former General Counsel
AMVESCAP PLC;
Former Managing Partner
Alston & Bird LLP
James H. Heagle
Executive Vice President
Acuity Brands, Inc.;
President and Chief Executive Officer
Acuity Specialty Products Group, Inc.
Karen J. Holcom
Vice President, Controller, and Interim
Chief Financial Officer
Acuity Brands, Inc.
Kenneth W. Honeycutt, Jr. 5
Executive Vice President
Acuity Brands, Inc.
John K. Morgan
Executive Vice President
Acuity Brands, Inc.;
President and Chief Executive Officer
Acuity Lighting Group, 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.;
Chief People Officer
Acuity Lighting Group, Inc.
Wesley E. Wittich
Senior Vice President, Audit and Risk Management
Acuity Brands, Inc.
1 Chairman of Executive Committee
2 Chairman of Audit Committee
3 Chairman of Compensation Committee
4 Chairman of Governance Committee
5 Retiring December 31, 2005
Acuity Brands
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2005.
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission file number 001-16583.
ACUITY BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
58-2632672
(I.R.S. Employer Identification Number)
1170 Peachtree Street, N.E., Suite 2400,
Atlanta, Georgia
(Address of principal executive offices)
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
Common Stock ($0.01 Par Value)
Preferred Stock Purchase Rights
Name of Each Exchange on which Registered
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 filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark if disclosure of delinquent filers 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 definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether
Act). Yes È No ‘
Indicate by check mark whether
Act). Yes ‘ No È
the registrant
is an accelerated filer
(as defined in Rule 12b-2 of
the
the registrant
is a shell company (as defined in Rule 12b-2 of
the
Based on the closing price of the Registrant’s common stock of $27.65 as quoted on the New York Stock Exchange on
February 28, 2005, the aggregate market value of the voting stock held by nonaffiliates of the registrant, was $1,203,247,207.
The number of shares outstanding of the registrant’s common stock, $0.01 par value, was 45,013,123 shares as of
October 25, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K
Part II, Item 5
Part III, Items 10, 11, 12, 13, and 14
Incorporated Document
Proxy Statement for 2005 Annual Meeting of Stockholders
Proxy Statement for 2005 Annual Meeting of Stockholders
ACUITY BRANDS, INC.
Table of Contents
Page No.
Part I
Item 1.
Item 2.
Item 3.
Item 4.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3-11
11-12
12-13
13
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7a. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9a. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
14-15
16-27
27-28
29-63
64
64
65
65
65
65
65
Part IV
Item 15. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66-74
75
76
2
PART I
Item 1. Business
Acuity Brands, Inc. (“Acuity Brands” or the “Company”) is a holding company that owns and manages two
businesses that serve distinctive markets – lighting equipment and specialty products. The lighting equipment
segment designs, produces, and distributes a broad array of indoor and outdoor lighting fixtures for commercial
and institutional, industrial, infrastructure, and residential applications for various markets throughout North
America and select international markets. The specialty products segment formulates, produces, and distributes
specialty chemical products including cleaners, deodorizers, sanitizers, and pesticides for industrial and
institutional, commercial, and residential applications primarily for various markets throughout North America
and Europe. Of the Company’s fiscal 2005 net sales of approximately $2.2 billion, the lighting equipment
segment generated approximately 75% of total net sales while the specialty products segment provided the
remaining 25%. Financial information relating to the Company’s two segments for the past three fiscal years is
reported in Note 11 to the Consolidated Financial Statements included in this report.
Business Segments
Lighting Equipment
The lighting equipment business of Acuity Brands is operated by Acuity Lighting Group, commonly known
as Acuity Brands Lighting (“ABL”). Acuity Brands Lighting is one of the world’s leading manufacturers of
lighting fixtures for new construction, renovation, and facility maintenance applications. Products include a full
range of indoor and outdoor lighting for commercial and institutional (“C&I”), industrial, infrastructure, and
residential applications. ABL manufactures and procures lighting products in the United States, Mexico, Europe,
including Lithonia Lighting®,
and China. These products are marketed under numerous brand names,
Holophane®, Gotham®, Hydrel®, Peerless®, Antique Street Lamps™, Carandini™, American Electric Lighting®,
SpecLight®, and Metal Optics™. ABL manufactures products in 15 plants in North America and three plants in
Europe.
Principal customers include electrical distributors, retail home improvement centers, national accounts,
lighting showrooms, municipalities, and electric utilities located in North America and select international
markets. In North America, ABL’s products are sold through independent sales agents and factory sales
representatives who cover specific 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 fleet. To serve international customers, ABL employs a sales force that adopts
distribution methods to meet individual customer or country requirements. In fiscal 2005, North American sales
accounted for approximately 97% of ABL’s net sales. See Note 11 of the Notes to Consolidated Financial
Statements for more information concerning the domestic and international net sales of the Company.
Specialty Products
The specialty products business of Acuity Brands is operated by Acuity Specialty Products (“ASP”). ASP is
a leading provider of specialty chemical products in the industrial and institutional (“I&I”) and retail markets.
Products include cleaners, sanitizers, disinfectants, polishes, floor finishes, degreasers, deodorizers, pesticides,
insecticides, and herbicides. ASP manufactures products in four North American plants and two European plants.
Acuity Specialty Products sells products to customers primarily in North America and Western Europe. In
fiscal 2005, North American sales accounted for approximately 92% of the net sales of ASP. ASP serves a broad
range of industrial and institutional customers, including municipalities and businesses ranging from small sole
proprietorships to the largest corporations in the U.S. The core I&I business is made up of varying sized
3
customers to whom cleaning chemicals are important to the business and, typically, where the decision to
purchase is local. While ASP services a wide array of business segments, individual markets in the I&I channel
include food processing and preparation, transportation, education, automotive, government, and hospitality.
Retail channels include large and small home improvement centers, mass merchandisers, and hardware stores.
ASP sells numerous products under such well-known brands as Zep®, Enforcer®, Zep Commercial™, and
Selig™.
Industry Overview
Lighting Equipment
The current size of the North American lighting fixture market is estimated at $10.1 billion. The North
American lighting fixture market consists of non-portable lighting fixtures and complementary lighting products
such as emergency lighting, outdoor poles, and control and flexible wiring systems. The U.S. market, which
represents approximately 85% of the North American market, is relatively fragmented. The Company estimates
that the top four manufacturers (including Acuity Brands Lighting) represent approximately 50% of the total
North American lighting market. The remainder of the market is made up of hundreds of providers.
The primary demand driver for ABL’s core businesses is non-residential construction, which includes a
broad range of commercial, institutional, and industrial buildings. Construction spending on infrastructure
projects such as highways, streets, and downtown developments also has a material
impact on ABL’s
infrastructure-focused segments. ABL’s retail lighting segments are highly dependent on economic drivers such
as consumer spending and discretionary income, along with housing construction and home improvement
spending.
Based on industry data, new construction and additions account
the
non-residential market, while renovations account for approximately 20%, though this mix can vary depending
on economic conditions. Major trends that can impact the industry include the development of new technologies
for lamps and ballasts, more effective optical designs, federal and state requirements for updated energy codes,
and design technologies addressing environmental sustainability.
for approximately 80% of
There has been a significant increase in the size and relative presence of the retail home improvement center
segment in the past several years. In addition, imports of foreign-sourced lighting fixtures continue to grow,
driven by both the foreign production of U.S. manufacturers and imports of low-cost fixtures 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 Company estimates that the current size of the U.S. I&I market is $9.1 billion and is highly fragmented.
The Company believes that six major players (including Acuity Specialty Products) represent approximately
50% of the total U.S. I&I market with the remainder divided among hundreds of regional players. In general, the
Company estimates that the U.S. 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 buffer demand downturns. Increasing legislation in the areas of food and occupational
health that require increased ranges of application and frequency of use is fueling growth in demand. In addition
to the U.S. I&I market, there is a U.S. retail chemical market that is estimated at $4.3 billion, including an
estimated $2.8 billion market for cleaners and an estimated $1.5 billion market for pest control.
The Company believes that two major trends are continuing to reshape the industry. First, health and safety
regulations are shrinking the pool of available chemicals while at the same time increasing total use rates. This
4
increased
has pushed development of improved product formulations and application methods. Second,
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 Brands Lighting produces a wide variety of lighting fixtures used in the following applications:
• Commercial & Institutional — Applications are represented by stores, hotels, offices, schools, and
hospitals, as well as other government and public buildings. Products that serve these applications
include recessed, surface and suspended fluorescent lighting products, recessed downlighting, and track
lighting, as well as special application lighting products. The outdoor areas associated with these
application segments are addressed by a variety of outdoor lighting products, such as area and flood
lighting, decorative site lighting, and landscape lighting.
•
•
Industrial — 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 fluorescent lighting products.
Infrastructure — Applications include highways, tunnels, airports, railway yards, and ports. Products
that serve these applications include street, area, high-mast, off-set roadway, and sign lighting.
• Residential — Applications are addressed with a combination of decorative fluorescent and
downlighting products, as well as utilitarian fluorescent products.
• Other Applications & Products — Other products include emergency lighting fixtures, which are
primarily used in non-residential buildings, and lighting control and flexible wiring systems.
Lighting fixtures for numerous applications in a multitude of
industry segments accounted for
approximately 65% of total consolidated net sales for Acuity Brands during fiscal years 2005, 2004, and 2003.
This does not include sales related to items such as wiring products, controls, and emergency lighting.
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 Processing — Applications include integrated and customized dispensing systems and innovative
approaches to antimicrobial control.
• Food Preparation — Applications include a suite of cleaning products designed specifically for the
prepared food industry.
•
•
Transportation — Applications include cleaning and maintenance products for automobiles, aircraft,
public transport, trucks, trains, and construction vehicles.
Industrial — Applications
maintenance staff.
include cleaning and maintenance products used by professional
• Hospitality — Applications include products and dispensing solutions for customers to supply
maintenance, housekeeping, and laundry services.
• Government — Applications include a suite of products and maintenance solutions for cities, school
districts, military, and police and fire departments.
• Contractors and Homeowners — Applications include products for contract cleaners, small business
owners, and homeowners and are supplied through retail channels. Products include a comprehensive
range of floor care, general-purpose cleaners and sanitizers, drain maintenance, and pest control in
convenient ready-to-use packaging.
5
Sales of specialty chemical products, excluding items sold to facilitate the use of chemicals, accounted for
approximately 20% of total consolidated net sales for Acuity Brands during fiscal years 2005, 2004, and 2003.
Sales and Marketing
Lighting Equipment
Sales. ABL calls on customers in the North American market with separate sales forces targeted at
delivering appropriate products and services to specific customer, channel, and geographic segments. These sales
forces consist of approximately 200 company-employed salespeople and a network of approximately 200
independent sales agencies, each of which employs numerous salespeople. ABL also operates two separate
European sales forces and an international sales group coordinating sales outside of North America and Europe.
Marketing. ABL markets its products to a multitude of end users through a broad spectrum of marketing
and promotional vehicles, including direct customer contact, on-site training, print advertising in industry
publications, product brochures, and other literature, as well as the internet and other electronic media. On-site
training is conducted at dedicated product training facilities in Conyers, Georgia, Newark, Ohio, and Austin,
Texas.
Specialty Products
Sales. The sales organization at ASP consists of approximately 1,700 sales representatives worldwide. The
compensation model in the I&I channel is primarily commission-based. Net sales are largely dependent on the
hiring, training, and retention of the commissioned sales representatives.
The ASP sales organization covers the U.S., Canada, Italy, the Benelux countries, and certain other smaller
markets. The I&I market is serviced primarily through four U.S. divisions, as well as Canadian and European
divisions. Each of the four U.S. divisions includes approximately 235 to 350 sales representatives, supplemented
by a complement of customer and technical service personnel. The Canadian and European operations have
approximately 150 and 270 sales representatives, respectively. The retail sales division utilizes approximately 50
salaried sales and management personnel to focus primarily on the home center channel.
Marketing. ASP’s marketing efforts are focused on supporting a sell-through program from ASP through
the sales organization and to the customer. ASP’s marketing focus is in four distinct areas: market planning,
product management, market-based pricing, and marketing services. Market planning includes comprehensive
strategic and tactical plan development and support emphasizing financial objectives and accountability. Product
management includes new product development and chemical dispensing equipment management. Market-based
pricing takes into account competitive analysis and leverages the flexibility of the ASP operating platform.
Marketing services provides sales support tools and collateral sales information to ASP’s worldwide sales force
and customer base.
Customers
A single customer in the home improvement channel, The Home Depot, accounted for approximately 13%,
12%, and 10% of net sales of Acuity Brands in fiscal years 2005, 2004, and 2003, respectively. The loss of that
customer could adversely affect the Company’s results of operations.
Lighting Equipment
Customers of Acuity Brands Lighting include electrical distributors, retail home improvement centers,
national accounts, electric utilities, utility distributors, municipalities, contractors, catalogs, and lighting
showrooms. In addition, there are a variety of other buying influences, which for any given project could
6
represent a significant
architects, and lighting designers.
influence in the product specification process. These generally include engineers,
Specialty Products
Customers of ASP consist of I&I customers (approximately 80% of ASP net sales) and retail customers
(approximately 20% of ASP net sales). I&I customers range from sole proprietorships to the largest corporations
in the U.S. and government agencies. These customers are in various markets, including food processing and
preparation, transportation, industrial, hospitality, government, and contractors and homeowners. The core I&I
business is made up of varying sized customers to whom cleaning chemicals are important to the business and,
typically, where the decision to purchase is local. Retail customers primarily include large and small home
improvement centers, mass merchandisers, and hardware stores.
Manufacturing
Acuity Brands, through its businesses, operates 24 manufacturing facilities, including 12 facilities in the
United States, one facility in Canada, six facilities in Mexico, and five facilities in Europe.
Lighting Equipment
ABL utilizes a blend of internal and outsourced manufacturing processes and capabilities to fulfill a variety
of customer needs in the most cost-effective manner. Critical processes, such as reflector forming and anodizing
and high-end glass production, are primarily performed at company-owned facilities, offering the ability to
differentiate end products through superior capabilities. Other critical components, such as ballasts, are
purchased primarily from outside vendors. Investment is focused on improving capabilities, product quality, and
manufacturing efficiency. The integration of local suppliers’ factories and warehouses also provides an
opportunity to lower ABL-owned component inventory while maintaining high service levels through frequent
just-in-time deliveries. ABL also utilizes contract manufacturing from U.S., Asian, and European sources for
certain products and purchases certain finished goods, including poles, to complement its area lighting fixtures
and a variety of residential and commercial lighting equipment. Net sales of product manufactured by others
currently accounts for 20% of the total net sales of ABL. Of total product manufactured by ABL, U.S. operations
produce approximately 45%; Mexico produces approximately 52%; and Europe produces approximately 3%.
ABL has one supplier of significance and a loss of that supplier could have a material adverse impact on
operations for up to approximately six months. ABL purchased approximately $76.1 million in finished goods
from this supplier in 2005.
During fiscal 2005, management continued to focus on initiatives to make the Company more globally
competitive. One of these initiatives at ABL related to enhancing its global supply chain and included the
consolidation of certain manufacturing facilities into more efficient locations. Since 2004, ABL has closed eight
facilities as part of this initiative, with two additional facilities expected to be closed in the next twelve months.
This initiative, the Manufacturing Network Transformation (“MNT”), will result in increased production in
international locations, primarily Mexico, and greater sourcing from its network of worldwide vendors. Total
square footage used for manufacturing at ABL has been reduced by approximately 15% over the past two years
as a result of MNT.
Specialty Products
ASP manufactures products at six facilities located in the United States, Canada, Holland, and Italy. The
three U.S. facilities produce approximately 89% of manufactured product; the Canadian facility produces
approximately 5%; and the two European facilities produce approximately 6%. Certain finished goods purchased
from contract manufacturers and finished goods suppliers supplement the manufactured product line. Sales of
outsourced product currently account for approximately 26% of the net sales volume of ASP. Outsourced product
7
is predominately manufactured in the U.S. Management does not believe the loss of any one supplier of
outsourced product would have a material adverse impact on the results of operations of ASP.
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 fleet.
For
individual customer or country
requirements.
international customers, distribution methods are adapted to meet
Specialty Products
Products sold to I&I markets are shipped from strategically located distribution centers and local branch
warehouses throughout North America and in Europe, while retail products are distributed nationwide from the
Georgia plants and warehouses. Products are primarily delivered through common carriers.
Research and Development
Lighting Equipment
Research and development efforts at ABL are targeted toward the development of products with an ever-
increasing performance-to-cost ratio and energy efficiency, while close relationships with lamp and ballast
manufacturers are maintained to understand technology enhancements and incorporate them in ABL’s fixture
designs. ABL operates five separate product development model facilities, incorporating eight photometers for
testing and optimizing fixture photometric performance. The Conyers, Georgia lab is approved by the National
Voluntary Laboratory Accreditation Program for both fluorescent and high intensity discharge fixtures. For the
fiscal years 2005, 2004, and 2003, research and development expense at ABL was $27.1 million, $27.9 million,
and $26.1 million, respectively.
Specialty Products
At ASP, research and development is directed at developing product systems that provide comprehensive
solutions for broad-based customer applications. Additionally, efforts to enhance existing formulations by
utilizing new raw materials or combinations of raw materials have resulted in both new and improved products.
Technical expertise is employed to move proven technologies into new applications. Research and development
expense at ASP for the fiscal years 2005, 2004, and 2003, excluding technical services, was $1.8 million, $2.1
million, and $1.3 million, respectively.
Competition
Lighting Equipment
The lighting equipment industry served by ABL 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. Primary competitors in the lighting industry include Cooper Industries Ltd., The Genlyte Group
Incorporated, and Hubbell Incorporated. The management of Acuity Brands believes that the four largest lighting
manufacturers (including ABL) possess approximately a 50% share of the total North American lighting market.
Specialty Products
The specialty products industry served by ASP is highly competitive. Overall, competition is fragmented,
with numerous local and regional operators selling directly to customers, distributors, and a few national
competitors. Many of these competitors offer 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.
8
Competitors in the specialty products industry include NCH Corporation, Rochester Midland Corporation, State
Chemical Manufacturing Company, JohnsonDiversey, Inc., and Ecolab, Inc. Management estimates ASP and its
major competitors have approximately 50% of the total U.S. I&I market and the remainder is divided among
hundreds of regional competitors.
Environmental Regulation
The operations of the Company are subject to numerous comprehensive laws and regulations relating to the
generation, storage, handling, transportation, and disposal of hazardous substances as well as solid and hazardous
wastes and to the remediation of contaminated sites. In addition, 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
modification, renewal, and revocation by issuing authorities. On an ongoing basis, Acuity Brands invests capital
and incurs operating costs relating to environmental compliance. Environmental laws and regulations have
generally become stricter in recent years. The cost of responding to future changes may be substantial.
See Item 3: Legal Proceedings below for a discussion of certain environmental matters.
Raw Materials
The products produced by Acuity Brands require certain raw materials, including aluminum, plastics,
electrical components, solvents, surfactants, other petroleum-based materials and components, and certain grades
of steel. For example, Acuity Brands purchases approximately 100,000 tons of steel and aluminum on an annual
basis depending on various factors including product mix. The Company estimates that approximately 7% of the
raw materials purchased are petroleum-based. Acuity Brands purchases most raw materials on the open market
and relies on third parties for the sourcing of some finished goods. Accordingly, the cost of products sold may be
affected by changes in the market price of the above-mentioned raw materials or the sourcing of finished goods.
Due to the mix of purchases (raw materials, components parts, and finished goods), timing of price increases, and
other economic and competitive forces within the supply chain, it is not possible to determine the financial
impact of changes in the market price of these raw materials.
Acuity Brands does not expect to engage in significant commodity hedging transactions for raw materials,
though the Company has and will continue to commit to purchase certain materials for a period of up to twelve
months. Significant increases in the prices of Acuity Brands’ products due to increases in the cost of raw
materials could have a negative effect on demand for products and on profitability, as well as a material adverse
effect on the results of operations of Acuity Brands.
Each business constantly monitors and investigates alternative suppliers and materials based on numerous
attributes including quality, service, and price. Additionally, each business has conducted internet auctions as a
method of competitive bidding. The Company’s ongoing efforts to improve the cost effectiveness of its products
and services may result in a reduction in the number of its suppliers. A reduction in the number of suppliers
could cause increased risk associated with reliance on a limited number of suppliers for certain raw materials,
component parts (such as ballasts), and finished goods. As a result of limited availability of certain materials due
to recent hurricanes in the Gulf region of the United States, ASP is receiving certain raw materials on an
allocation basis and through force majeure, which excuses vendors’ performance under existing contracts.
Current prices for these materials have risen dramatically in 2005, reflecting these market conditions. However,
the Company has received and expects to continue to receive these goods, at acceptable quality standards,
without interruption, at prevailing market prices. While the Company has generally been able to pass along these
increases in cost in the form of higher selling prices for its products, the higher selling prices have lagged behind
the increases in cost. There can be no assurance that future disruptions in either supply or price of these materials
will not negatively affect future results.
Backlog Orders
The Company produces and stocks large quantities of inventory at key distribution centers and warehouses
throughout North America. ASP satisfies a significant portion of customer demand within 24 to 48 hours from
9
the time a customer’s order is placed, and therefore, sales order backlogs for the specialty products business were
not material. Sales order backlogs of the lighting equipment business believed to be firm as of August 31, 2005
and 2004 were $152.2 million and $152.8 million, respectively.
Patents, Licenses and Trademarks
Acuity Brands owns or has licenses to use various domestic and foreign patents and trademarks related to its
products, processes, and businesses. These intellectual property rights, particularly the trademarks relating to the
products of Acuity Brands, are important factors for its businesses. To protect these proprietary rights, Acuity
Brands relies on copyright, patent, trade secret, and trademark laws. Despite these protections, unauthorized
parties may attempt to infringe on the intellectual property of Acuity Brands. Management of Acuity Brands is
not aware of any such material unauthorized use or of any pending claims where Acuity Brands does not have the
right to use any intellectual property material to the businesses of Acuity Brands. While patents and patent
applications in the aggregate are important to the competitive position of Acuity Brands, no single patent or
patent application is material to the Company.
Seasonality and Cyclicality
The businesses of Acuity Brands exhibit some seasonality, with net sales being affected 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 fiscal year ended August 31.
A significant portion of the net sales of ABL relates to customers in the new construction and renovation
industries, primarily for commercial and institutional applications. These industries are cyclical in nature and
subject to changes in general economic conditions. Volume has a major impact on the profitability of ABL and
Acuity Brands as a whole. In addition, net sales at ASP are dependent on the retail, wholesale, and industrial
markets and demand for these markets 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 effect on the net sales and operating income of Acuity Brands.
International Operations
Acuity Brands manufactures and assembles products at numerous facilities, some of which are located
outside the United States. Approximately 55% and 11% of the products manufactured by the lighting equipment
and specialty products segments, respectively, are manufactured outside the United States.
Of total product manufactured by ABL, approximately 52% is produced in Mexico. Most of 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. Many companies have established Maquiladora operations,
increasing demand for labor, particularly skilled labor and professionals. This increase in demand, from new and
existing Maquiladora operations, has resulted in increased labor costs and could result in increased labor costs in
the future. Acuity Brands may be required to make additional investments in automated equipment to partially
offset potential increased labor and wage costs and limited availability of outbound trucking.
The Company’s initiatives to become more globally competitive include streamlining each segment’s global
supply chain by reducing the number of manufacturing facilities and enhancing the Company’s worldwide
procurement and sourcing capabilities. Management believes these initiatives will result in increased production
in international locations, primarily Mexico, and will result in increased worldwide procurement and sourcing of
certain raw materials, component parts, and finished goods. As a consequence, economic, political, military, or
other events in a country where the Company manufactures, procures, or sources a significant amount of raw
10
materials, component parts, or finished goods, could interfere with the Company’s operations and negatively
impact the Company’s business.
For fiscal year 2005, net sales outside the U.S. represented approximately 10% and 18% of the total net
sales of the lighting equipment and specialty products businesses, respectively. See Note 11 of the Notes to
Consolidated Financial Statements for additional information regarding the geographic distribution of net sales,
operating profit, and long-lived assets.
Information Concerning Acuity Brands
The Company makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K (and all amendments to these reports), together with all reports filed pursuant to Section 16 of the
Securities Exchange Act of 1934 by the Company’s officers, directors, and beneficial owners of 10% or more of
the Company’s common stock, available free of charge through the “SEC Filings” link on the Company’s
website, located at www.acuitybrands.com, as soon as reasonably practicable after they are filed with or
furnished to the SEC. Information included on the Company’s website is not incorporated by reference into this
Annual Report on Form 10-K.
Additionally, the Company has adopted a written Code of Ethics and Business Conduct that applies to all of
the Company’s directors, officers, and employees, including its principal executive officer and senior financial
officers. This Code of Ethics and Business Conduct is being filed as Exhibit 14 to this Annual Report on Form
10-K. The Code of Ethics and Business Conduct and the Company’s Corporate Governance Guidelines are
available free of charge through the “Corporate Governance” link on the Company’s website. Additionally, the
Statement of Responsibilities of Committees of the Board and the Statement of Rules and Procedures of
Committees of the Board, which contain the charters for the Company’s Audit Committee, Compensation
Committee, and Governance Committee and the rules and procedures relating thereto, are available free of
charge through the “Corporate Governance” link on the Company’s website. Each of the Code of Ethics and
Business Conduct, the Corporate Governance Guidelines, the Statement of Responsibilities of Committees of the
Board, and the Statement of Rules and Procedures of Committees of the Board is available in print to any
stockholder of the Company that requests such document by contacting the Company’s Investor Relations
department.
Employees
Acuity Brands employs approximately 10,000 people, of whom approximately 6,600 are employed in the
United States, 2,600 in Mexico, 300 in Canada, and 500 in other international locations, including Europe and the
Asia/Pacific region. Union recognition and collective bargaining arrangements are in place, covering
approximately 4,500 persons (including approximately 2,000 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 offices 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
significant facility categories by business:
Division
Lighting Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialty Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owned Leased
Nature of Facilities
13
—
1
7
4
4
—
—
5 Manufacturing Facilities
6 Warehouses
6
23
Distribution Centers
Offices
2 Manufacturing Facilities
39 Warehouses/Branches
3
8
Distribution Centers
Offices
11
The following table provides additional geographic information related to Acuity Brands’ manufacturing
facilities:
United
States
Canada Mexico
Europe
Total
Lighting Equipment
Owned . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased . . . . . . . . . . . . . . . . . . . . . . . . . .
7
2
Specialty Products
Owned . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased . . . . . . . . . . . . . . . . . . . . . . . . . . —
3
Total . . . . . . . . . . . . . . . . . . . . . . . .
12
—
—
—
1
1
5
1
—
—
6
1
2
1
1
5
13
5
4
2
24
None of the individual properties of Acuity Brands is considered to have a value that is significant 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 financial 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 and that its 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 increase production without substantial capital expenditures. As noted above, initiatives related to
enhancing the global supply chain in the lighting equipment segment may continue to result in the consolidation
of certain manufacturing facilities. However, the Company believes that the remaining facilities will have
sufficient capacity to serve the current and projected needs of the customers of ABL.
Item 3. Legal Proceedings
General
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, and except as described
below, it is the opinion of management that the ultimate resolution of pending and threatened legal proceedings
will not have a material adverse effect on the financial condition or results of operations of Acuity Brands.
However, in the event of unexpected future developments, it is possible that the ultimate resolution of any such
matters, if unfavorable, could have a material adverse effect on the results of operations of Acuity Brands in
future periods. Acuity Brands establishes reserves for legal claims when the costs 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.
Environmental Matters
The operations of the Company are subject to numerous comprehensive laws and regulations relating to the
generation, storage, handling, transportation, and disposal of hazardous substances as well as solid and hazardous
wastes and to the remediation of contaminated sites. In addition, 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
modification, renewal, and revocation by issuing authorities. On an ongoing basis, Acuity Brands invests capital
and incurs operating costs relating to environmental compliance. Environmental laws and regulations have
generally become stricter in recent years. The cost of responding to future changes may be substantial. Acuity
Brands establishes reserves for known environmental claims when the costs associated with the claims become
probable and can be reasonably estimated. The actual cost of environmental issues may be substantially higher or
lower than that reserved due to difficulty in estimating such costs and potential changes in the status of
government regulations.
12
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 Company’s potential 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,
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. With respect to each of the currently active sites which it does not own and where it
has been named as a responsible party or a potentially responsible party (“PRP”), the Company believes its
liability is immaterial, based on information currently available, 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 Landfill site
in Georgia indicates that the Company’s liability is not significant, and there are more than 1,000 PRPs at the
M&J Solvents site in Georgia, which has included Acuity Brands as a PRP.
With respect to the only active site involving property which Acuity Brands does own and where it has been
named as a PRP—ASP’s property on Seaboard Industrial Boulevard in Atlanta, Georgia—the Company, together
with current and former owners of adjoining properties (the “Site Group”), has conducted an investigation on its
property and adjoining properties (the “Site”) and submitted a Compliance Status Report (“CSR”) and a proposed
Corrective Action Plan (“CAP”) to the State of Georgia Environmental Protection Division (“EPD”) pursuant to
the Georgia Hazardous Site Response Act. The EPD approved the CAP in May 2004, and the Company has
reached agreement with the other members of the Site Group to share the expected costs and responsibilities of
implementing the CAP. The CAP requires the Site Group to periodically monitor the Site for a period of five
years to confirm the Site Group’s model predicting that the site is not expected to violate applicable regulatory
standards. The first several sampling results obtained pursuant to this monitoring requirement have confirmed the
Site Group’s model, but adverse future sampling results could cause the Company to record additional charges to
earnings in future periods. However, based on information currently available, the Company believes that its
liability is immaterial in connection with the Site.
In August 2003, ASP received a grand jury subpoena from the United States Department of Justice through
the United States Attorney for the Northern District of Georgia concerning the operation of ASP’s wastewater
pretreatment plant and ASP’s management of hazardous waste at a facility in Atlanta, Georgia. ASP received a
supplemental subpoena in April 2005 related to this matter. The grand jury investigation appears to relate to the
discharge of wastewater from the facility to the City of Atlanta’s sanitary sewer system and ASP’s practices in
connection with the sampling and reporting of the facility’s wastewater discharges for permitting purposes. ASP
is cooperating fully with the investigation by the Department of Justice. The Department of Justice investigation
follows an inquiry by the City of Atlanta, which regulates the wastewater discharge at the facility. The Company
has settled with the City of Atlanta all issues arising from the inquiry. As of August 31, 2005, the Company had
an accrued liability for the estimated costs of resolution of proceedings with the Department of Justice and
certain associated legal expenses. The grand jury proceedings are ongoing, and developments in the investigation
and the terms of any final settlement or adjudication of this matter, including whether the final resolution results
in civil or criminal charges against the Company, could result in actual costs higher or lower than the amount
reserved.
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,
2005.
13
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
The common stock of Acuity Brands is listed on the New York Stock Exchange under the symbol “AYI”.
At October 25, 2005, there were 5,234 stockholders of record. The following table sets forth the New York Stock
Exchange high and low sale prices and the dividend payments for Acuity Brands’ common stock for the periods
indicated.
2005
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Price per Share
High
Low
Dividends
Per Share
$30.34
$32.24
$29.07
$29.67
$24.34
$26.44
$26.89
$27.83
$15.60
$15.26
$16.57
$19.05
$22.75
$24.53
$23.22
$23.90
$17.73
$22.60
$21.63
$21.44
$11.00
$12.24
$12.71
$14.90
$0.15
$0.15
$0.15
$0.15
$0.15
$0.15
$0.15
$0.15
$0.15
$0.15
$0.15
$0.15
The information required by this item with respect to equity compensation plans is included under the
caption Disclosure with Respect to Equity Compensation Plans in the Company’s proxy statement for the annual
meeting of stockholders to be held January 12, 2006, to be filed 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 financial data of Acuity Brands which have been
derived from the Consolidated Financial Statements of Acuity Brands for each of the five years in the period
ended August 31, 2005. The historical information may not be indicative of the Company’s future performance.
The information set forth below should be read in conjunction with Management’s Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial Statements and the notes thereto.
Prior to November 30, 2001, Acuity Brands was a wholly-owned subsidiary of National Service Industries, Inc.
(“NSI”) owning and operating the lighting equipment and specialty products businesses. Acuity Brands was spun
off from NSI into a separate publicly traded company with its own management and Board of Directors through a
tax-free distribution (“Distribution”) of 100% of the outstanding shares of common stock of Acuity Brands on
November 30, 2001. Operating expenses in the historical income statements prior to December 1, 2001 reflect
direct expenses of the businesses of Acuity Brands 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 prior to August 31, 2003 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. Pro forma basic earnings per share as
shown is calculated as net income divided by the historical NSI weighted average shares outstanding during the
period.
14
2005
2004
2003
2002
2001
Years Ended August 31,
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . .
Pro forma basic earnings per share . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt (less current maturities) . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . .
Cash dividends declared per common
$2,172,854
52,229
1.21
1.17
n/a
98,533
1,442,215
371,736
372,303
541,793
(In thousands, except per-share data)
$2,049,308
47,782
1.15
1.15
n/a
$2,104,167
67,214
1.60
1.56
n/a
$1,972,796
52,024
n/a
n/a
1.26
14,135
1,356,452
390,210
395,721
477,977
16,053
1,284,113
391,469
445,808
408,294
2,694
1,357,954
410,630
543,121
401,952
$1,982,700
40,503
n/a
n/a
0.99
8,006
1,330,575
373,707
608,830
383,298
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.60
0.60
0.60
0.45
n/a
15
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 fiscal year periods. Dollar amounts are in thousands, except share
and per-share data and as indicated.
The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of
operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands
and its subsidiaries for the years ended August 31, 2005, 2004, and 2003. For a more complete understanding of
this discussion, please read the Notes to Consolidated Financial Statements included in this report.
Overview
Company
Acuity Brands, Inc. (“Acuity Brands” or the “Company”), is a holding company that owns and manages two
businesses that serve distinctive markets—lighting equipment and specialty products. The lighting equipment
segment designs, produces, and distributes a broad array of indoor and outdoor lighting fixtures for commercial
and institutional, industrial, infrastructure, and residential applications for various markets throughout North
America and select international markets. The specialty products segment formulates, produces, and distributes
specialty chemical products including cleaners, deodorizers, sanitizers, and pesticides for industrial and
institutional, commercial, and residential applications primarily for various markets throughout North America
and Europe. Acuity Brands, with its principal office in Atlanta, Georgia, employs approximately 10,000 people
worldwide.
Acuity Lighting Group, commonly known as Acuity Brands Lighting (“ABL”), produces a broad array of
indoor and outdoor lighting fixtures for commercial and institutional, industrial, infrastructure, and residential
applications for various markets throughout North America and select international markets. ABL is one of the
world’s leading producers and distributors of lighting fixtures, with a broad, highly configurable product
offering, consisting of roughly 500,000 active products as part of over 2,000 product groups that are sold to
approximately 5,000 customers. ABL operates 25 factories and distribution facilities to serve its extensive
customer base. Acuity Specialty Products (“ASP”) is a leading producer of specialty chemical products including
cleaners, deodorizers, sanitizers, and pesticides for industrial and institutional, commercial, and residential
applications primarily for various markets throughout North America and Europe. ASP sells over 9,000 catalog-
listed products and over 6,000 other products through its salaried and commissioned direct sales force, operates
six plants, and serves over 300,000 customers through a network of distribution centers and warehouses. While
Acuity Brands has been publicly held as a stand-alone company for approximately four years, 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 diversified industrial manufacturing
company capable of delivering consistent growth in earnings and cash flow. A broader and more diversified
company has less dependency on a single customer or market and generally experiences reduced volatility in
earnings and cash flow caused by the cyclicality of a dominant industry. In 2005, Acuity Brands continued to
focus on key initiatives designed to enhance and streamline its business processes to create a stronger, more
effective organization that is capable of consistently achieving its long-term financial goals, which are as follows:
• Generating consolidated operating margins in excess of 10%
• Growing earnings per share in excess of 15% per annum
•
Providing a return on stockholders’ equity of 15% or better
• Maintaining the Company’s debt to total capitalization ratio below 40%
• Generating cash flow from operations less capital expenditures that is in excess of net income.
16
To increase the probability for the Company to achieve its long-term financial goals, management will
continue to implement programs to enhance its capabilities at providing unparalleled customer service, creating a
globally competitive cost structure by eliminating non-value added activities and lowering transactional costs,
and introducing new and innovative products rapidly and cost effectively. In addition, the Company has invested
considerable resources to teach and train associates to utilize tools and techniques that accelerate success in these
key areas as well as to create a culture that demands excellence through continuous improvement. The expected
outcome of these activities will be to better position the Company to deliver on its full potential, to provide a
platform for future growth opportunities, and to allow the Company to achieve its long-term financial goals. See
the Outlook section below for additional information.
Liquidity and Capital Resources
Principal sources of liquidity for the Company are operating cash flows generated primarily from its
business segments and various sources of borrowings. The ability of the Company to generate sufficient cash
flow from operations and to be able to access certain capital markets, including banks, is necessary for the
Company to fund its operations, to pay dividends, and to meet its obligations as they become due and to maintain
compliance with covenants contained in its financing agreements. The Company’s ongoing liquidity will depend
on a number of factors, including available cash resources, cash flow from operations, and the Company’s ability
to comply with covenants contained in certain of its financing agreements.
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 sufficient liquidity
and availability under its financing arrangements to fund its operations as currently planned and its anticipated
capital investment and profit improvement initiatives, to repay borrowings as currently scheduled, to repurchase
up to two million shares of the Company’s outstanding common stock as authorized by the Company’s Board of
Directors, to pay the same quarterly stockholder dividends in 2006 as were paid in 2005, and to make required
contributions into the Company’s defined benefit plans. The Company expects to invest between $40.0 million
and $45.0 million for new plant and equipment and new and enhanced information technology capabilities at
both businesses during 2006. See further information in the Outlook section below. The Company expects to
contribute approximately $5.2 million in 2006 to fund its defined benefit plans.
Cash Flow
Acuity Brands used available cash, cash flow from operations, and borrowings in 2005 to fund operations
and capital expenditures, to reduce outstanding debt, and to pay dividends. Contributing to available cash was
$27.1 million in cash received from the stock issuances during the year. The Company’s available cash position
at August 31, 2005 was $98.5 million, up $84.4 million from August 31, 2004 and $82.5 million from August 31,
2003.
In 2005, the Company generated $137.1 million in cash flow from operations compared to $113.3 million
and $160.3 million reported in 2004 and 2003, respectively. Cash flow from operations increased in 2005
compared to 2004 by $23.8 million due primarily to improvement in cash flow from operating working capital
(operating working capital is calculated by adding accounts receivable, net, plus inventory, and subtracting
17
accounts payable). The Company used its cash flow in 2005 primarily to reduce debt,
expenditures, and to fund quarterly dividend payments.
to fund capital
Management believes that investing in assets and programs that will over time increase the overall return on
its invested capital is a key factor in driving stockholder value. The Company spent $32.6 million and $53.8
million in 2005 and 2004, respectively, for new tooling, machinery, and equipment. The Company continues to
invest in these items primarily to improve productivity and product quality, increase manufacturing efficiencies,
and enhance customer service capabilities in each segment. The significant amount of capital spending in 2004
was due primarily to the consolidation of certain manufacturing facilities and enhancements to information
technology capabilities within ABL and investments to improve manufacturing and waste management
capabilities at ASP. As noted above, management expects capital spending in 2006 to increase over spending in
2005, primarily for greater investments in tooling for new products and for further enhancements in its
manufacturing and service capabilities. The Company believes that these investments will enhance its operations
and financial performance in the future.
Consolidated working capital (calculated as current assets minus current liabilities) at August 31, 2005 was
$318.3 million compared to $255.4 million at August 31, 2004, an increase of $62.9 million. The increase in
working capital in 2005 compared to 2004 was due primarily to the significant increase in cash and cash
equivalents and an increase in accounts receivable, partially offset by increases in accounts payable and accrued
compensation. Accrued compensation was higher than the prior year due primarily to severance to be paid in
connection with the reduction in workforce in 2005 – see further discussion in Results of Operations. Operating
working capital decreased $7.8 million to $339.5 million at August 31, 2005 from the end of 2004. The decrease
in operating working capital was due primarily to better working capital management, partially offset by the
impact of greater net sales during the year. Operating working capital as a percentage of net sales at the end of
2005 decreased to 15.6% from 16.5% in 2004. At August 31, 2005, the current ratio (calculated as current assets
divided by current liabilities) of the Company improved to 1.8 compared to 1.7 at the end of 2004.
Contractual Obligations
The following table summarizes the Company’s contractual obligations at August 31, 2005:
Long-Term Debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Leases (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Obligations (3) . . . . . . . . . . . . . . . . . . . . . . . . .
Other Long-term Liabilities (4) . . . . . . . . . . . . . . . . . . . .
Payments Due by Period
Less than
One Year
1 to 3
Years
4 to 5
Years
$ — $
19,162
100,658
6,121
848
26,837
—
10,111
$359,738
19,895
—
14,826
After
5 Years
$11,150
26,611
—
25,597
Total
$371,736
92,505
100,658
56,655
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$621,554
$125,941
$37,796
$394,459 $63,358
(1) These amounts (which represent
the amounts outstanding at August 31, 2005) are included in the
Company’s Consolidated Balance Sheets. See Note 4: Short-Term Borrowings and Long-Term Debt for
additional information regarding debt and other matters.
(2) The Company’s operating lease obligations are described in Note 6: Commitments and Contingencies.
(3) Purchase obligations include commitments to purchase goods or services that are enforceable and legally
binding and that specify all significant terms, including open purchase orders.
(4) These amounts are included in the Company’s Consolidated Balance Sheets and largely represent other
liabilities for which the Company is obligated to make future payments under certain long-term incentive
programs. Estimates of the amounts and timing of these amounts are based on various assumptions,
including expected return on plan assets, interest rates, stock price fluctuations, and other variables. The
amounts in this table do not include amounts related to future funding obligations under the defined benefit
18
pension plans. The amount and timing of these future funding obligations are subject to many variables as
well and also depend on whether or not the Company elects to make contributions to the pension plans in
excess of those required under ERISA. Such voluntary contributions may reduce or defer the funding
obligations absent
those contributions. See Note 3: Pension and Profit Sharing Plans for additional
information. Additionally, the amounts in this table do not include amounts related to certain deferred
compensation arrangements for which there is an offsetting asset included in the Company’s Consolidated
Balance Sheets.
Capitalization
The current capital structure of the Company is comprised principally of senior notes and the equity of its
stockholders. As of August 31, 2005,
the Company had no amounts outstanding under its asset-backed
securitization program or borrowings from banks. Total debt outstanding at August 31, 2005 was $372.3 million
compared to $395.7 million at August 31, 2004. Total debt decreased $23.4 million, or 5.9%, from August 31,
2004. The decrease in fiscal 2005 was due primarily to the strong cash flow from operations and cash from
option exercises, partially offset by capital expenditures and the payment of dividends.
On April 2, 2004, the Company executed a $200.0 million revolving credit facility (“Revolving Credit
Facility”) maturing in January 2009. This facility replaced the Company’s $92.5 million, 364-day committed
credit facility scheduled to mature in April 2004 and the Company’s $105.0 million, three-year credit facility
scheduled to mature in April 2005. The Revolving Credit Facility contains financial covenants including a
leverage ratio (“Maximum Leverage Ratio”) of total indebtedness to EBITDA (earnings before interest, taxes,
depreciation and amortization expense), as such terms are defined in the Revolving Credit Facility agreement,
and a minimum interest coverage ratio. These ratios are computed at the end of each fiscal quarter for the most
recent 12-month period. The Revolving Credit Facility allows for a Maximum Leverage Ratio of 3.50, subject to
certain conditions defined in the financing agreement. The Company was in compliance with all financial
covenants and had no borrowings outstanding at August 31, 2005. The Company was in compliance with all
financial covenants and had $4.0 million in outstanding borrowings under the Revolving Credit Facility at
August 31, 2004. At August 31, 2005, the Company had additional borrowing capacity of $186.3 million under
the Revolving Credit Facility, under the most restrictive covenant in effect at the time, representing the full
amount of the Revolving Credit Facility less $13.7 million of outstanding letters of credit issued under the
facility. See Note 4 of the Notes to Consolidated Financial Statements for additional information regarding
restrictions contained in the Revolving Credit Facility.
During 2005, the Company’s consolidated stockholders’ equity increased $63.8 million to $541.8 million at
August 31, 2005 due primarily to net income earned during the year, stock option exercises, the issuance of
shares under its compensation programs, and the favorable impact of foreign currency translation adjustments,
partially offset by dividend payments and an increase in the Company’s pension obligation. The Company’s debt
to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders’
equity) was approximately 40.7% at August 31, 2005, down from approximately 45.3% at August 31, 2004. The
ratio of debt, net of cash, to total capitalization was 29.9% at August 31, 2005, down from approximately 43.7%
at August 31, 2004.
Dividends
The Company paid cash dividends on common stock of $26.3 million ($0.60 per share) during 2005
compared to $25.4 million ($0.60 per share) in 2004. The Company does not currently have any plans to change
its dividend rate; however, each quarterly dividend must be approved by the Board of Directors.
19
Results of Operations
Fiscal 2005 Compared with Fiscal 2004
Consolidated Results
Consolidated net sales were $2,172.9 million in 2005 compared to $2,104.2 million reported in 2004, an
increase of $68.7 million, or 3.3%. For the year ended August 31, 2005, the Company reported net income of
$52.2 million compared to $67.2 million earned in 2004. Diluted earnings per share were $1.17 in 2005
compared to $1.56 reported in 2004.
Economic conditions in key markets continued to be challenging in fiscal 2005. The Company continued to
experience weakness in certain key markets, including non-residential construction, electrical utilities, and
industrial manufacturing, many of which have reported declines from the previous year. Non-residential
construction is estimated to decline in calendar year 2005 for the sixth year in a row. For Acuity Brands, these
conditions created a challenging business environment in 2005 characterized by weak demand in key markets
coupled with significantly higher costs for certain components and raw materials. While the Company was able
to pass along much of the cost increases through higher selling prices, the price increases lagged the rise in raw
material costs creating a drag on profits and margins.
Net sales increased approximately 3.6% and 2.2% at ABL and ASP, respectively, in spite of weak economic
conditions in key markets. The growth in net sales was due primarily to improved pricing, a more favorable mix
of product sold within certain channels in the commercial, institutional, and industrial portions of the lighting and
chemical businesses, and benefits from foreign currency fluctuation, partially offset by lower shipments in
certain channels of the commercial and institutional lighting business and the retail channel of ASP. Consolidated
gross profit margins decreased to 39.1% of net sales in 2005 from 40.4% reported in 2004. The decrease in gross
profit margins was due primarily to higher selling prices offsetting much of the raw material increases resulting
in no significant increase in gross profit, thus negatively impacting the calculation for margins. Gross profit
declined by approximately $2.2 million in 2005 compared to 2004 due primarily to increases in raw material
costs and the negative impact of lower production and shipment volume, partially offset by higher selling prices.
The Company estimates that material and component costs were approximately $75.0 million higher in 2005 as
compared to 2004.
Consolidated operating expenses were $741.8 million (34.1% of net sales), which included an aggregate
special charge of $23.0 million, in 2005, compared to $712.9 million (33.9% of net sales) in 2004. On
February 22, 2005, the Company announced additional actions to accelerate its efforts to streamline and improve
the effectiveness of its operations. As part of this program, the Company recorded a pretax charge of $17.0
million to reflect the costs associated with the elimination of approximately 1,100 positions worldwide. This
number is comprised of approximately 500 hourly and 600 salaried personnel. This ongoing Company-wide
streamlining effort includes facility consolidations and process improvement initiatives and involves ABL, ASP,
and the corporate office. The Company took an additional pretax charge of $6.0 million in the fourth quarter of
2005 related to the February reduction in workforce as well as certain follow-on actions under the Company’s
ongoing restructuring program. The Company expects to have completed a significant portion of these efforts by
the end of calendar 2005 and to have realized approximately $50.0 million in annualized savings by the end of its
second quarter in fiscal 2006. As of August 31, 2005, the Company has realized approximately $13.0 million in
benefits from these efforts. The remaining $5.9 million increase in operating expenses in 2005 was due primarily
to costs related to product recalls and higher costs for commissions, freight, and distribution, partially offset by
benefits from the streamlining efforts mentioned above. See further discussion in Note 7 of Notes to
Consolidated Financial Statements.
Consolidated operating profit was $106.7 million (4.9% of net sales) in 2005 compared to $137.9 million
(6.6% of net sales) reported in 2004, a decrease of $31.2 million, or 22.6%. Operating profit in 2005 included the
$23.0 million special charge discussed above. The decline in operating profit was due to the special charge, lower
gross profit, and higher costs for commissions, freight, and distribution, partially offset by benefits from the
streamlining efforts mentioned above.
20
Other expense for Acuity Brands was made up primarily of interest expense and other miscellaneous,
non-operating activity including gains related to sales of property of $1.9 million. Interest expense, net, was
$35.7 million and $34.9 million in 2005 and 2004, respectively. Interest expense, net, increased 2.3% in 2005
compared to 2004 due to a higher weighted average interest rate for 2005 as compared to 2004, partially offset by
lower debt balances over the course of the year in comparison to 2004.
The effective income tax rate reported by the Company was 30.2% and 34.5% in 2005 and 2004, respectively. The
decrease in the rate in fiscal 2005 was primarily the result of certain tax credits associated with the Mexican operations
and state tax benefits. The Company expects its effective income tax rate in fiscal 2006 to be approximately 35%.
Acuity Brands Lighting
Acuity Brands Lighting reported net sales of approximately $1,637.9 million and $1,580.5 million for the years
ending August 31, 2005, and 2004, respectively, an increase of $57.4 million, or 3.6%. The increase in net sales
during 2005 was due primarily to improved pricing, a more favorable mix of products sold, and benefits from
foreign currency fluctuation, partially offset by a decline in shipments in the commercial and institutional channel
and to a non-strategic customer in the home improvement channel. In 2005, non-residential construction, a core
market for ABL, declined for the sixth consecutive year, negatively impacting both shipments and production. The
backlog at ABL of $152.2 million at August 31, 2005 approximated the backlog at the end of the prior year.
Operating profit decreased $24.3 million, or 20.4% in 2005 to $94.6 million from $118.9 million reported in
2004. Operating profit margins declined to 5.8% in 2005 from 7.5% in 2004. Operating profit in 2005 included
$15.7 million of the special charge noted above. In addition to the special charge, operating profit was negatively
impacted by higher raw material costs, lower absorption of manufacturing costs due to decreased production, and
increased costs for freight and distribution. The decline in production volume was due primarily to lower orders
from certain key channels, the impact of better inventory utilization, and greater sourcing from the Company’s
network of worldwide vendors. These factors were partially offset by the improved pricing and a more favorable
mix of products sold as well as benefits from the streamlining efforts noted above.
Acuity Specialty Products
Net sales at ASP were $535.0 million in 2005 compared to $523.7 million in 2004, representing an increase
of $11.3 million or 2.2%. The increase in 2005 net sales was due primarily to improved pricing in the industrial
and institutional channel and the favorable impact of foreign currency exchange rate fluctuations, partially offset
by lower shipments to certain non-core customers in the retail channel.
Operating profit decreased $1.3 million, or 3.0%, in 2005 to $42.3 million from $43.6 million reported in
2004. Operating profit margins declined to 7.9% in 2005 from 8.3% in 2004. Operating profit in 2005 included
$3.6 million of the special charge discussed above. In addition to the special charge, operating profit was
negatively impacted by rising raw material costs, largely offset by improved pricing and benefits from the
streamlining efforts mentioned above.
Corporate
Corporate expenses increased to $30.2 million in 2005 (including $3.8 million of the special charge
discussed above) from $24.5 million reported in 2004. The increase in corporate expense in 2005 was due
primarily to the special charge, miscellaneous gains recognized in the year-ago period, increased expenses related
to long-term incentive programs, and higher costs for compliance with the Sarbanes-Oxley Act, partially offset
by lower employee-related costs.
Fiscal 2004 Compared with Fiscal 2003
Consolidated Results
Consolidated net sales were $2,104.2 million in 2004 compared to $2,049.3 million reported in 2003, an
increase of 2.7%. For the year ended August 31, 2004, the Company reported net income of $67.2 million
21
compared to $47.8 million earned in 2003. Diluted earnings per share were $1.56 in 2004 compared to $1.15
reported in 2003.
Net sales increased approximately 2.7% and 2.6% at ABL and ASP, respectively, in spite of weak economic
conditions in key markets. The growth in net sales was due primarily to greater shipments to the home
improvement channel at ABL, better pricing and product mix, and increased shipments to the industrial and
institutional channel at ASP. This was partially offset by a decline in demand in the non-residential construction
market and the absence of sales from a small product line divested during the first quarter of fiscal 2004.
Consolidated gross profit margins increased to 40.4% of net sales in 2004 from 39.7% reported in 2003. Gross
profit and margins increased due primarily to improvements in pricing, the mix of products sold, gains in
manufacturing efficiencies, and the impact of initiatives to reduce product costs, partially offset by higher costs
associated with certain raw materials and costs associated with programs to streamline the supply chain at ABL.
Consolidated operating expenses at Acuity Brands in 2004 were 33.9% of net sales compared to 34.3% of
net sales in 2003. Consolidated operating profit was $137.9 million (6.6% of net sales) in 2004 compared to
$110.3 million (5.4% of net sales) reported in 2003, an increase of 25.0%. The increase was due primarily to the
contribution margin from higher net sales, benefits from continuous improvement programs (including sourcing
initiatives to lower product costs), efficiencies resulting from the Manufacturing Network Transformation
(“MNT”) initiative at ABL, and certain pre-tax charges of $10.7 million that were not repeated in fiscal 2004 and
are more fully described below. These improvements were partially offset by higher costs for certain purchased
components and raw materials (particularly steel which increased approximately $9.0 million in 2004), higher
costs associated with programs to streamline the supply chain at ABL, and costs associated with a product recall.
Operating profit margins improved 120 basis points due primarily to higher gross profit margins. See further
information related to the product recall in Note 6 of Notes to Consolidated Financial Statements.
During fiscal 2004, management focused on initiatives to make the Company more globally competitive.
One of these initiatives, MNT, related to enhancing its global supply chain, included the consolidation of certain
manufacturing facilities into more efficient locations at ABL. This initiative is expected to result in increased
production in international locations, primarily Mexico, and greater sourcing from its network of worldwide
vendors. In 2004, total square footage was reduced to 3.2 million from 3.6 million as a result of MNT. The
overall net impact of MNT on financial results in 2004 was minimal.
Other expense for Acuity Brands was made up primarily of interest expense and other miscellaneous,
non-operating activity including the gain or loss on the sale of assets and gains or losses on foreign currency
transactions. Interest expense, net, was $34.9 million and $37.4 million in 2004 and 2003, respectively. Interest
expense, net, was down 6.7% in 2004 compared to 2003 primarily because of reduced levels of debt outstanding
throughout the period, offset slightly by a higher weighted average interest rate resulting from less short-term
debt. Miscellaneous expense (income), net, was $1.4 million of expense and $1.9 million of income in 2004 and
2003, respectively. The change was due primarily to an increase in losses on the sale of property, plant, and
equipment, and the unfavorable impact of foreign currency fluctuations.
The effective tax rate reported by the Company was 34.5% and 35.9% in 2004 and 2003, respectively. The
decrease in the rate in fiscal 2004 was primarily the result of the recognition of certain non-taxable gains.
Acuity Brands Lighting
Acuity Brands Lighting reported net sales of approximately $1,580.5 million and $1,538.8 million for the
years ending August 31, 2004, and 2003, respectively, an increase of 2.7%. The increase in net sales during 2004
was due primarily to greater shipments of products to the home improvement channel and the impact of
initiatives to improve price and product mix. This was partially offset by a decrease in shipments to certain key
commercial, industrial, and electric utility channels, reflecting continued weakness in customer demand. The
backlog at ABL increased $16.7 million, or 12.3%, to $152.8 million at August 31, 2004 from $136.1 million at
August 31, 2003.
22
Operating profit increased 22.8% in 2004 to $118.9 million from $96.8 million reported in 2003. Operating
profit margins improved to 7.5% in 2004 from 6.3% in 2003. The increase in operating profit and margin in 2004
was primarily the result of the contribution margin from the higher sales noted above, gains in manufacturing
efficiencies, savings from sourcing initiatives, and a prior year charge of $8.0 million for a patent litigation
settlement which was not repeated in fiscal 2004. These items were partially offset by higher costs of certain raw
materials, unanticipated costs of approximately $11.0 million related to programs to streamline the supply chain,
and estimated costs of $2.5 million associated with an expected product recall. See Note 6 in Notes to
Consolidated Financial Statements for more information on the product recall.
Acuity Specialty Products
Net sales at ASP were $523.7 million in 2004 compared with $510.6 million in 2003, representing an
increase of $13.1 million or 2.6%. The increase in 2004 net sales was due primarily to improved pricing in the
U.S. I&I channel and greater shipments to I&I customers in international markets, partially offset by the absence
of sales from a small product line divested during the first quarter of fiscal 2004, and lower shipments of
non-core products. International sales were also favorably impacted by changes in exchange rates.
Operating profit increased 39.3% in 2004 to $43.6 million from $31.3 million reported in 2003. Operating
profit margins advanced to 8.3% in 2004 from 6.1% in 2003. The increase in operating profit and margin in 2004
was primarily the result of the contribution margin from the higher sales noted above, 2003 charges of $2.7
million related to environmental matters, and charges related to inventory that were recorded in the prior year.
These items were partially offset by higher employee-related expenses.
Corporate
Corporate expenses increased to $24.5 million in 2004 from $17.9 million reported in 2003. The increase in
corporate expense in 2004 was due primarily to greater expense for Company-wide restricted stock incentives
and other share-based programs, reflecting, in part, a greater mix of restricted stock compared to stock options
used in the year-ago period, the effect of appreciation in the Company’s stock price on certain share-based
programs during fiscal 2004, and an increase in the number of awards outstanding. This increase was partially
offset by miscellaneous corporate gains of $1.8 million. Corporate expenses in 2004 also included expenditures
to facilitate compliance with the Sarbanes-Oxley Act of 2002.
Outlook
The Company expects the implementation of its many profit improvement programs and its ongoing
continuous improvement efforts will result in more efficient and effective operations. The Company’s service to
customers has improved in key channels and the Company continues to make progress in creating a leaner, more
efficient company. The Company believes that it is on target to achieve the previously announced annualized
savings run-rate of approximately $50.0 million by the end of its second quarter in fiscal 2006 from actions
associated with the Company’s ongoing efforts to better structure and streamline operations. Additionally, the
Company is encouraged by external forecasts that are projecting unit volume growth in calendar year 2006 in the
non-residential construction industry, a core market for the Company. To the extent this occurs, the Company
believes it will have a positive impact on its unit volume. In 2006, the Company expects to invest approximately
$40.0 to $45.0 million in capital expenditures, to pay annual dividends consistent with the year-ago period, and to
repurchase up to two million shares of the Company’s outstanding common stock as authorized by the
Company’s Board of Directors.
Although these influences should bode well for the Company in 2006, the Company expects to be faced
with formidable challenges, including the impact of rising prices for commodities used in its products, generating
profitable growth within the retail channel, and continued escalating costs in key portions of its operations.
However, in spite of these challenges, the Company expects to make positive progress in growing its business
23
and improving its operations in 2006 sufficient to allow it to make meaningful progress towards the long-term
goals including growing earnings per share in excess of 15% per annum and providing a return on stockholders’
equity of 15% or better.
Accounting Standards Yet to Be Adopted
In May 2005,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 154, Accounting Changes and Error Corrections, a replacement of APB
No. 20 and FASB Statement No. 3. SFAS No. 154 requires retrospective application to prior periods’ financial
statements of a voluntary change in accounting principle unless it is impracticable. APB Opinion No. 20
“Accounting Changes,” previously required that most voluntary changes in accounting principle be recognized
by including in net income of the period of the change the cumulative effect of changing to the new accounting
principle. This statement is effective for the Company as of September 1, 2006 and the Company continues to
evaluate the impact the adoption of the standard will have on the Company’s results of operations, if any.
In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment. The Statement
requires that compensation cost relating to share-based payment
transactions be recognized in financial
statements and that this cost be measured based on the fair value of the equity or liability instruments issued. It
does not specify a preference for a type of valuation model to be used to measure fair value. SFAS No. 123
(Revised 2004) covers a wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.
The Company adopted SFAS No. 123 (Revised 2004) on September 1, 2005 and expects to incur additional
annual pretax expense of approximately $3.0 million as a result of adoption. The Company continues to evaluate
the impact the adoption of the final standard will have on the Company’s results of operations. See Note 2 of
Notes to Consolidated Financial Statements for further information.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. The statement requires that items such as abnormal freight, handling costs, and amounts of wasted
materials be recognized as current-period charges regardless of whether or not they meet the criteria currently
dictated by ARB No. 43. Additionally, SFAS No. 151 requires that fixed overhead be allocated based on the
normal capacity of the production capabilities. The Company adopted SFAS No. 151 on September 1, 2005 and
has determined the impact of adoption to be immaterial to the Company’s results of operations.
On October 22, 2004, the American Jobs Creation Act of 2004 (“Jobs Creation Act”) was signed into law.
This legislation provides for the optional repatriation of cash from foreign subsidiaries allowing an 85%
dividends received deduction. The deduction is subject to a number of limitations. In December 2004, the FASB
issued Staff Position 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004 (“FSP No. 109-2”), indicating that the lack of
clarification of certain provisions within the Jobs Creation Act and the timing of the enactment necessitate a
practical exception to the SFAS No. 109, Accounting for Income Taxes, requirement to reflect in the period of
enactment the effect of a new tax law. Accordingly, an enterprise is allowed time beyond the financial reporting
period to evaluate the effect of the Jobs Creation Act on its plans for reinvestment or repatriation of foreign
earnings. FSP No. 109-2 requires that the provisions of SFAS No. 109 be applied as an enterprise decides on its
plan for reinvestment or repatriation of its unremitted foreign earnings. The Company has not yet determined if it
will repatriate any overseas earnings pursuant to this provision.
The FASB also recently issued Staff Position FSP 109-1, Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American
Jobs Creation Act of 2004 (“FSP No. 109-1”). Under the guidance in FSP No. 109-1, the deduction will be
treated as a “special deduction” as described in SFAS No. 109. As such, the special deduction has no effect on
deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction, if any, will
be reported in the period in which the deduction is claimed on our income tax return. The Company will not be
able to claim this tax benefit until the first quarter of fiscal 2006.
24
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the
financial condition and results of operations as reflected in the Company’s Consolidated Financial Statements,
which have been prepared in accordance with U.S. generally accepted accounting principles. As discussed in
Note 1 of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenue and expense 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. Actual results could differ from those estimates. Management discusses the development of accounting
estimates with the Company’s Audit Committee. 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
estimates:
Inventories
Acuity Brands records inventory at the lower of cost (on a first-in, first-out or average cost 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 significant change in 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 indefinite 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 difference between the carrying value of the asset and its estimated fair value,
which would be determined based on either discounted future cash flows or other appropriate fair value methods.
The evaluation of goodwill and intangibles with indefinite useful lives for impairment requires management to
use significant judgments and estimates including, but not limited to, projected future net sales, operating results,
and cash flow of each of the Company’s businesses.
Although management currently believes that
the estimates used in the evaluation of goodwill and
intangibles with indefinite lives are reasonable, differences between actual and expected net sales, operating
results, and cash flow 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
effect on the Company’s results of operations and financial position, but not its cash flow from operations.
Specifically, Acuity Brands has two unamortized trade names with an aggregate carrying value of $65.0
million. Management estimates the fair value of these unamortized trade names using a fair value model based on
discounted future cash flows. Future cash flows 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 net sales. The present value of the resulting after-tax cash flow is management’s current
25
estimate of the fair value of the trade names. This fair value model requires management to make several
significant assumptions, including estimated future net sales, the royalty rate, and the discount rate.
Differences between expected and actual results can result in significantly different valuations. If future
operating results 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 flow in the valuation model. 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 hundred basis point reduction in the theoretical royalty rate related to the 2005 valuation
of the Holophane trade name acquired in 1999 would result in a pre-tax impairment charge of approximately
$19.6 million, or 31.4% 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 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, significant differences related to the items noted above could materially affect the Company’s self-
insurance obligations and future expense.
The Company is also self-insured for the majority of its medical benefit 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, significant
differences related to claim reporting patterns, legislation, and general economic conditions could materially
affect the Company’s medical benefit 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 of identified warranty claims. Excluding costs
related to recalls due to faulty components provided by third parties, historical warranty costs have been within
expectations. However, 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 recognizes expense for legal claims when payments associated with the claims become
probable and can be reasonably estimated. Due to the difficulty in estimating costs of resolving legal claims,
actual costs may be substantially higher or lower than the amounts reserved.
Environmental Matters
The Company recognizes expense for known environmental claims when payments associated with the
claims become probable and the costs can be reasonably estimated. The actual cost of resolving environmental
issues may be higher or lower than that reserved primarily due to difficulty in estimating such costs and potential
changes in the status of government regulations.
26
Cautionary Statement Regarding Forward-Looking Information
This filing contains forward-looking statements, within the meaning of the Private Securities Litigation
Reform Act of 1995. Statements made herein that may be considered forward-looking include statements
incorporating terms such as “expects,” “believes,” “intends,” “anticipates” and similar terms that relate to future
events, performance, or results of the Company, including, without limitation, statements made relating to: (a)
the expected lack of engagement in significant commodity hedging transactions for raw materials and advanced
purchases of certain materials; (b) the expected impact of increases in the cost of raw materials or a reduction in
the number of suppliers on the Company’s operations; (c) the seasonality of the business; (d) the expected impact
of the Company’s initiatives to become more globally competitive; (e) the activities that will be implemented to
help the Company achieve its long-term goals, the expected outcome of these activities, and the Company’s
progress towards those goals; (f) the potential impact of the loss of certain of the Company’s facilities and the
related impact of various insurance programs in place; (g) the ability to increase production without substantial
capital expenditures; (h) the Company’s expectations regarding liquidity and availability under its financing
arrangements to fund its operations as currently planned and its anticipated capital investment and profit
improvement initiatives, debt payments, dividend payments, potential repurchase of up to two million shares of
the Company’s outstanding common stock, and required contributions into its defined benefit plans; (i) the
planned spending of approximately $40.0 million to $45.0 million for new plant and equipment and new and
enhanced information technology capabilities at both businesses during 2006; (j) the expected contribution by the
Company to fund its defined benefit plans and the planned payment of annual dividends in 2006 consistent with
those paid in 2005; (k) the expected realization of benefits from the additional actions to accelerate its efforts to
streamline and improve its operations and to enhance the efficiencies of its facilities, the timing of the realization
of those benefits, and the impact on fiscal 2006; (l) the expected effective income tax rate in fiscal 2006; (m)
external forecasts that are projecting unit volume growth in calendar 2006 in the non-residential construction
industry and the impact on the Company’s unit volume; (n) the impact of SFAS No. 123 (Revised 2004) and
SFAS No. 151 on the results of operations; and (o) the impact of changes in critical accounting estimates on the
results of operations.
A variety of risks and uncertainties could cause the Company’s actual results to differ 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 and other
industrial markets, changes in interest rates, and fluctuations in commodity and raw material prices or foreign
currency rates; (b) the risk of economic, political, military, or other events in a country where the Company
manufactures, procures, or sources a significant amount of raw materials, component parts, or finished goods; (c)
the Company’s ability to realize the anticipated benefits of initiatives expected to reduce costs, improve profits,
improve working capital, enhance customer service, increase manufacturing efficiency, and expand product
offerings and brands in the market through a variety of channels; (d) the risk that the Company will be unable to
execute its various initiatives within expected timeframes; (e) unexpected developments in the Company’s legal
and environmental matters, including CPSC proceedings and the investigation related to the operation of ASP’s
wastewater pretreatment plant and ASP’s management of hazardous waste at a facility in Atlanta, Georgia; (f)
the risk that projected future cash flows from operations are not realized; (g) the impact of unforeseen factors on
the Company’s critical accounting estimates; (h) the impact of competition; (i) customer and supplier
relationships and prices; and (j) unexpected changes in the Company’s share price.
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 primarily to changing
interest rates and foreign exchange rates. The following discussion provides additional information regarding the
market risks of Acuity Brands.
27
Interest Rates. Interest rate fluctuations expose the variable-rate debt of Acuity Brands to changes in interest
expense and cash flows. The variable-rate debt of Acuity Brands, primarily long-term industrial revenue bonds,
amounted to $12.6 million at August 31, 2005. Based on outstanding borrowings at year end, a 10% increase in
market interest rates at August 31, 2005 would have resulted in additional annual after-tax interest expense of
approximately $0.04 million. A fluctuation in interest rates would not affect interest expense or cash flows
related to the $360.0 million publicly traded notes, the Company’s primary fixed-rate debt. A 10% increase in
market interest rates at August 31, 2005 would have decreased the fair value of these notes by approximately
$7.4 million. See Note 4 of the Notes to Consolidated Financial Statements, contained in this Form 10-K, for
additional information regarding the Company’s long-term debt.
Foreign Exchange Rates. The majority of net sales, expense, and capital purchases of Acuity Brands are
transacted in U.S. dollars. Acuity Brands does not believe a 10% fluctuation in average foreign currency rates
would have a material effect on its consolidated financial position or results of operations.
28
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of August 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended August 31, 2005, 2004, and 2003 . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended August 31, 2005, 2004, and 2003 . . . . . . . . .
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended
August 31, 2005, 2004, and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II — Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
30
31-32
33
34
35
36
37-63
76
29
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
ACUITY BRANDS, INC.
The management of Acuity Brands, Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and
15d-15(f) promulgated under the Securities Exchange Act of 1934. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial
reporting as of August 31, 2005. In making this assessment, the Company’s management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
Control-Integrated Framework. Based on this assessment, management believes that, as of August 31, 2005, the
Company’s internal control over financial reporting is effective.
The Company’s independent registered public accounting firm has issued an audit report on this assessment
of the Company’s internal control over financial reporting. This report dated October 25, 2005 appears on page
32 of this Form 10-K.
/s/ Vernon J. Nagel
Vernon J. Nagel
Chairman, President, and
Chief Executive Officer
/s/ Karen J. Holcom
Karen J. Holcom
Vice President, Controller, and
Interim Chief Financial Officer
30
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Acuity Brands, Inc.
We have audited the accompanying consolidated balance sheets of Acuity Brands, Inc. as of August 31,
2005 and 2004, and the related consolidated statements of income, stockholders’ equity and comprehensive
income, and cash flows for each of the three years in the period ended August 31, 2005. Our audits also included
the financial statement schedule listed in the Index at Item 15(a). These consolidated financial statements and
schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Acuity Brands, Inc. at August 31, 2005 and 2004, and the consolidated results
of its operations and its cash flows for each of the three years in the period ended August 31, 2005, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States),
the effectiveness of Acuity Brands, Inc.’s internal control over financial reporting as of
August 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 25, 2005
expressed an unqualified opinion thereon.
Ernst & Young LLP
Atlanta, Georgia
October 25, 2005
31
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Acuity Brands, Inc.
We have audited management’s assessment, included in Management’s Report on Internal Control over
Financial Reporting, that Acuity Brands, Inc. maintained effective internal control over financial reporting as of
August 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Acuity Brands, Inc.’s
is responsible for maintaining effective internal control over financial reporting and for its
management
assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, evaluating management’s
assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, management’s assessment that Acuity Brands, Inc. maintained effective internal control over
financial reporting as of August 31, 2005, is fairly stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Acuity Brands, Inc. maintained, in all material respects, effective internal control over
financial reporting as of August 31, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Acuity Brands, Inc. as of August 31, 2005 and 2004, and the
related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for
each of the three years in the period ended August 31, 2005 of Acuity Brands, Inc. and our report dated
October 25, 2005 expressed an unqualified opinion thereon.
Atlanta, Georgia
October 25, 2005
Ernst & Young LLP
32
ACUITY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less reserve for doubtful accounts of $6,999 at August 31,
2005 and $8,285 at August 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, Plant, and Equipment, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Property, Plant, and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less-Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Property, Plant, and Equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
August 31,
2005
2004
$
98,533
$
14,135
345,770
215,590
24,873
33,008
717,774
12,303
166,934
382,729
561,966
342,772
219,194
331,157
222,260
18,152
36,534
622,238
13,037
167,707
375,750
556,494
330,195
226,299
Other Assets:
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
344,836
123,473
4,249
32,689
505,247
$1,442,215
343,595
126,658
3,271
34,391
507,915
$1,356,452
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Debt, less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Self-Insurance Reserves, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and Contingencies (see Note 6)
Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued . . . .
Common stock, $0.01 par value, 500,000,000 shares authorized, 44,976,720 and
42,596,015 shares issued and outstanding at August 31, 2005 and August 31,
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned compensation on restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss items . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . .
$
567
—
221,844
59,122
117,939
399,472
371,736
4,707
16,759
107,748
$
1,511
4,000
206,064
45,335
109,973
366,883
390,210
16,767
17,484
87,131
—
—
450
476,034
112,447
(12,536 )
(34,602 )
541,793
$1,442,215
426
425,807
86,560
(5,609 )
(29,207 )
477,977
$1,356,452
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
33
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
Years Ended August 31,
2005
2004
2003
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Products Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,172,854
1,324,311
$2,104,167
1,253,380
$2,049,308
1,235,900
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, Distribution, and Administrative Expenses . . . . . . . . . . . . . . . . .
Special Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Compensation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Expense (Income):
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net
(Gain) loss on sale of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Total Other Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . .
Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
848,543
710,263
23,000
664
7,871
106,745
35,731
(538 )
(3,280 )
31,913
74,832
22,603
850,787
704,470
—
1,929
6,461
137,927
34,876
(999 )
1,433
35,310
102,617
35,403
813,408
701,217
—
—
1,915
110,276
37,383
227
(1,915 )
35,695
74,581
26,799
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
52,229
$
67,214
$
47,782
Earnings Per Share:
Basic Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.21
$
1.60
$
1.15
Basic Weighted Average Number of Shares Outstanding . . . .
43,135
41,906
41,459
Diluted Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.17
$
1.56
$
1.15
Diluted Weighted Average Number of Shares Outstanding . . .
44,752
43,201
41,721
Dividends Declared per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.60
$
0.60
$
0.60
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
34
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended August 31,
2005
2004
2003
Cash Provided by (Used for) Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by (used for)
$ 52,229
$ 67,214
$ 47,782
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on the sale of property, plant, and equipment
. . . . . . . .
(Gain) loss on sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable . . . . . . . . . . . . . . . . . . .
Other non-cash charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in assets and liabilities net of effect of acquisitions and
41,075
(1,871)
(538)
4,570
9,110
42,960
623
(999)
3,200
4,619
divestitures -
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments and other current assets . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(17,439)
6,670
(2,239)
2,213
14,657
19,518
9,132
(33,713)
(34,114)
2,684
(2,107)
40,408
7,594
14,885
46,039
(699)
227
4,399
1,139
15,935
28,043
6,108
(3,782)
3,987
2,707
8,460
Net Cash Provided by Operating Activities . . . . . . . . . . .
137,087
113,254
160,345
Cash Provided by (Used for) Investing Activities:
Purchases of property, plant, and equipment
. . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of property, plant, and equipment . . . . . . . . . . . .
Sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(32,636)
2,987
251
(53,821)
1,761
2,477
(28,154)
1,907
(92)
Net Cash Used for Investing Activities . . . . . . . . . . . . . .
(29,398)
(49,583)
(26,339)
Cash Provided by (Used for) Financing Activities:
Repayments of revolving credit facility, net . . . . . . . . . . . . . . . . . . . . . . .
Repayments of short-term secured borrowings . . . . . . . . . . . . . . . . . . . .
Proceeds from issuances of long-term debt
. . . . . . . . . . . . . . . . . . . . . . .
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan issuances . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,000)
—
—
(19,486)
1,589
25,519
(26,342)
(1,000)
(48,000)
—
(1,153)
1,506
8,158
(25,409)
(35,000)
(81,200)
22,202
(3,315)
1,666
128
(24,911)
Net Cash Used for Financing Activities . . . . . . . . . . . . . .
(22,720)
(65,898)
(120,430)
Effect of Exchange Rate Changes on Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(571)
309
(217)
Net Change in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Cash and Cash Equivalents at Beginning of Year
84,398
14,135
(1,918)
16,053
13,359
2,694
Cash and Cash Equivalents at End of Year
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98,533
$ 14,135
$ 16,053
Supplemental Cash Flow Information:
Income taxes paid during the year . . . . . . . . . . . . . . . . . . . . . .
Interest paid during the year . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 27,147
36,517
$ 27,220
35,245
$ 25,674
37,650
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
35
ACUITY BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(In thousands, except share and per-share data)
Compre-
hensive
Income
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated Other Compre-
hensive Income (Loss) Items
Minimum
Pension
Liability
Forward
Contracts
Currency
Translation
Adjustment
Unearned
Compen-
sation on
Restricted
Stock
Total
Balance, August 31, 2002 . . . . . . . . . . . . . . . . . . . . . .
$414
$403,389 $ 21,884 $ (8,391)
$—
$(14,844) $
(500) $401,952
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,782 —
Other comprehensive income (loss):
Foreign currency translation adjustment
Reclassification adjustment for translation
. . . .
loss included in net income . . . . . . . . . . . .
Minimum pension liability adjustment (net of
tax benefit of $13,197) . . . . . . . . . . . . . . . .
2,757 —
185 —
(22,472) —
Other comprehensive income (loss) . . . . . . . .
(19,530)
Comprehensive income . . . . . . . . . . . . . . . $ 28,252
—
—
—
—
47,782
—
—
—
—
—
—
—
—
— (22,472) —
—
2,757
185
—
—
—
—
47,782
2,757
185
— (22,472)
Amortization, issuance, and forfeitures of
restricted stock grants . . . . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan issuances . . . . . . .
Stock issued in connection with long-term
incentive plan . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends of $0.60 per share paid on
common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . .
1
2
—
—
—
2,259
1,664
181
—
—
—
— (24,911)
128
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,234)
—
—
1,026
1,666
181
— (24,911)
128
—
Balance, August 31, 2003 . . . . . . . . . . . . . . . . . . . . . .
417
407,621
44,755
(30,863) —
(11,902)
(1,734) 408,294
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,214 —
—
67,214
Other comprehensive income (loss):
Foreign currency translation adjustment (net
of tax benefit of $427) . . . . . . . . . . . . . . . .
Forward contracts adjustment . . . . . . . . . . . . .
Minimum pension liability adjustment (net of
tax benefit of $4,623) . . . . . . . . . . . . . . . . .
5,740 —
(54) —
7,872 —
Other comprehensive income (loss) . . . . . . . .
13,558
Comprehensive income
$ 80,772
Amortization, issuance, and forfeitures of
restricted stock grants . . . . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan issuances . . . . . . .
Stock issued in connection with long-term
incentive plan . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends of $0.60 per share paid on
common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . .
Tax effect on stock options and restricted stock . . .
Balance, August 31, 2004 . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income:
3
1
—
—
5
—
426
—
—
—
6,496
1,505
140
—
—
—
—
—
—
— (25,409)
8,153
1,892
—
—
7,872 —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(54)
5,740
—
—
—
—
—
—
67,214
5,740
(54)
7,872
—
—
—
—
—
—
(3,875)
—
—
2,624
1,506
140
— (25,409)
8,158
—
1,892
—
425,807
86,560
(22,991)
(54)
(6,162)
(5,609) 477,977
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,229 —
—
52,229
Other comprehensive income (loss):
Foreign currency translation adjustment (net
of tax expense of $1,169) . . . . . . . . . . . . . .
Forward contracts adjustment . . . . . . . . . . . . .
Minimum pension liability adjustment (net of
tax benefit of $6,801) . . . . . . . . . . . . . . . . .
6,131 —
54 —
(11,580) —
—
—
—
Other comprehensive income (loss) . . . . . . . .
(5,395)
Comprehensive income . . . . . . . . . . . . . . . $ 46,834
—
—
—
—
—
54
—
—
— (11,580) —
—
6,131
—
—
—
—
—
52,229
6,131
54
— (11,580)
Amortization, issuance, and forfeitures of
restricted stock grants . . . . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan issuances . . . . . . .
Cash dividends of $0.60 per share paid on
common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . .
Tax effect on stock options and restricted stock . . .
Balance, August 31, 2005 . . . . . . . . . . . . . . . . . . . . . .
6
1
14,941
1,588
—
—
— (26,342)
25,502
8,196
—
—
—
17
—
$450
—
—
—
—
—
—
—
—
—
—
$—
—
—
(6,927)
—
8,020
1,589
— (26,342)
—
25,519
—
—
8,196
—
—
(31) $(12,536) $541,793
$
$476,034 $112,447 $(34,571)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
36
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per-share data and as indicated)
Note 1: Description of Business and Basis of Presentation
Acuity Brands, Inc. (“Acuity Brands” or the “Company”) is a holding company that owns and manages two
businesses that serve distinctive markets – lighting equipment and specialty products. The lighting equipment
segment designs, produces, and distributes a broad array of indoor and outdoor lighting fixtures for commercial
and institutional, industrial, infrastructure, and residential applications for various markets throughout North
America and select international markets. The specialty products segment formulates, produces, and distributes
specialty chemical products including cleaners, deodorizers, sanitizers, and pesticides for industrial and
institutional, commercial, and residential applications, primarily for various markets throughout North America
and Europe.
The Consolidated Financial Statements have been prepared by the Company in accordance with U.S.
generally accepted accounting principles and present the financial position, results of operations, and cash flows
of Acuity Brands and its wholly-owned subsidiaries, including Acuity Lighting Group, Inc. (“Acuity Brands
Lighting” or “ABL”) and Acuity Specialty Products Group, Inc. (“Acuity Specialty Products” or “ASP”), and
their respective subsidiaries, all of which are wholly-owned.
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Acuity Brands and its wholly-owned
subsidiaries after elimination of significant intercompany transactions and accounts.
Revenue Recognition
Acuity Brands records revenue when the following criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred, the Company’s price to the customer is fixed and determinable, and collectibility is
reasonably assured. Delivery is not considered to have occurred until the customer assumes the risks and rewards
of ownership. Customers take delivery at the time of shipment for terms designated free on board shipping point.
For sales designated free on board destination, customers take delivery when the product is delivered to the
customer’s delivery site. Provisions for certain rebates, sales incentives, product returns, and discounts to
customers are recorded in the same period the related revenue is recorded.
The Company provides for limited product return rights to certain distributors and customers primarily for
slow moving or damaged items subject to certain defined criteria. The Company monitors product returns and
records, at the time revenue is recognized, a provision for the estimated amount of future returns based primarily
on historical experience and specific notification of pending returns. Although historical product returns
generally have been within expectations, there can be no assurance that future product returns will not exceed
historical amounts. A significant increase in product returns could have a material impact on the Company’s
operating results in future periods.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expense during the reporting period. Actual results could differ from
those estimates.
37
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
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.
Accounts Receivable
The Company records accounts receivable at net realizable value. This value includes an allowance for
estimated uncollectible accounts to reflect losses anticipated on accounts receivable balances. The allowance is
based on historical write-offs, an analysis of past due accounts based on the contractual terms of the receivables,
and economic status of customers, if known. Management believes that the allowance is sufficient to cover
uncollectible amounts; however, there can be no assurance that unanticipated future business conditions of
customers will not have a negative impact on the Company’s results of operations.
Concentrations of Credit Risk
Concentrations of credit risk with respect to receivables, which are typically unsecured, are generally
limited due to the wide variety of customers and markets using Acuity Brands’ products, as well as their
dispersion across many different geographic areas. Receivables from The Home Depot were approximately $60.2
million and $55.5 million at August 31, 2005 and 2004, respectively. No other single customer accounted for
more than 10% of consolidated receivables at August 31, 2005. Additionally, The Home Depot accounted for
approximately 13% and 12% of the net sales of Acuity Brands in fiscal years 2005 and 2004, respectively.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation. These
reclassifications, among others, included tax-related balance sheet reclassifications between current and long-
term deferred income tax assets and liabilities. Additionally, the Company reclassified certain costs related to
field scrap, customer accommodations, and other product-related costs from selling, distribution, and
administrative expenses to cost of products sold. Operating profit, net income, and earnings per share were not
impacted by these reclassifications.
Inventories
Inventories are valued at the lower of cost (on a first-in, first-out or average cost basis) or market and consist
of the following:
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
August 31,
2005
2004
$ 74,048
15,561
136,825
226,434
(10,844)
$215,590
$ 86,027
19,623
126,255
231,905
(9,645)
$222,260
38
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Goodwill and Other Intangibles
Summarized information for the Company’s acquired intangible assets is as follows:
August 31, 2005
August 31, 2004
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Amortized intangible assets:
Trademarks . . . . . . . . . . . . . . . . .
Distribution network . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Other
Total . . . . . . . . . . . . . . . . . . .
$13,030
53,000
11,857
$77,887
$ (2,652)
(10,750)
(6,026)
$(19,428)
Unamortized intangible assets:
Trade names . . . . . . . . . . . . . . . . .
$65,014
$ (2,217)
(8,981)
(5,045)
$(16,243)
$13,030
53,000
11,857
$77,887
$65,014
The Company amortizes trademarks associated with specific products with finite lives and the distribution
network over their estimated useful lives of 30 years. Other amortized intangible assets consist primarily of
patented technology that is amortized over its estimated useful life of 12 years. Unamortized intangible assets
consist of trade names that are expected to generate cash flows indefinitely. The Company tests unamortized
intangible assets for impairment on an annual basis, as required by SFAS No. 142. This analysis did not result in
an impairment charge during fiscal years 2005, 2004, or 2003. The Company recorded amortization expense of
$3.2 million related to intangible assets with finite lives during fiscal 2005, fiscal 2004, and fiscal 2003.
Amortization expense is projected to be approximately $3.2 million in each of the next five years.
The changes in the carrying amount of goodwill during the year are summarized as follows:
Balance as of August 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . .
$312,703
910
$30,892
331
$343,595
1,241
Balance as of August 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$313,613
$31,223
$344,836
ABL
ASP
Total
The Company tests goodwill for impairment at the reporting unit level on an annual basis in the fiscal fourth
quarter or sooner if events or changes in circumstances indicate that the carrying amount of goodwill may exceed
its fair value. The Company’s reporting units are ABL and ASP. The goodwill impairment test has two steps. The
first step identifies potential impairments by comparing the fair value of a reporting unit with its carrying value,
including goodwill. The fair value of ABL and ASP are determined based on a combination of valuation
techniques including the expected present value of future cash flows, a market multiple approach, and a
comparable transaction approach. If the calculated fair value of a reporting unit exceeds the carrying value,
goodwill is not impaired and the second step is not necessary. If the carrying value of a reporting unit exceeds the
fair value, the second step calculates the possible impairment loss by comparing the implied fair value of
goodwill with the carrying value. If the implied fair value of the goodwill is less than the carrying value, an
impairment charge is recorded. This analysis did not result in an impairment charge during fiscal years 2005 or
2004.
39
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Other Long-Term Assets
Other long-term assets consist of the following:
Long-term investments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible pension asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issue costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
August 31,
2005
2004
$17,668
1,027
2,145
1,466
9,508
875
$23,903
1,464
—
1,573
5,956
1,495
$32,689
$34,391
(1) Long-term investments—The Company maintains certain investments that generate returns that offset
changes in certain liabilities related to deferred compensation arrangements. The investments primarily
consist of marketable equity securities and fixed income securities, are stated at fair value, and are classified
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 offset the change in the deferred compensation liability. The decrease since August 31, 2004
was due primarily to payments made to certain participants in these deferred compensation arrangements.
Other Long-Term Liabilities
Other long-term liabilities consist of the following:
Accrued pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits other than pensions (1) . . . . . . . . . . . . . . . . . . . . . . . . .
Director stock unit plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postemployment benefit obligation (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 49,391
53,934
3,240
430
753
$31,827
52,042
2,135
430
697
$107,748
$87,131
August 31,
2005
2004
(1) Postretirement benefits other than pensions—The Company maintains several non-qualified retirement
plans for
the benefit of eligible employees, primarily deferred compensation plans. The deferred
compensation plans provide for elective deferrals of an eligible employee’s compensation and, in some
cases, matching contributions by the Company. In addition, one plan provides for an automatic contribution
by the Company of 3% of an eligible employee’s compensation. Deferred compensation associated with
these plans, together with the Company’s contributions and accumulated earnings, is generally distributable
in cash pursuant to the terms of the plans, either after specified periods of time or after retirement. The
Company maintains certain long-term investments that generally offset a portion of
the deferred
compensation liability. The Company maintains life insurance policies on certain current and former
officers and other key employees as a means of satisfying a portion of these obligations.
(2) Postemployment benefit obligation—SFAS No. 112, Employers’ Accounting for Postemployment Benefits,
requires the accrual of the estimated cost of benefits 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.
40
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Shipping and Handling Fees and Costs
The Company includes shipping and handling fees billed to customers in Net Sales. Shipping and handling
costs associated with inbound freight and freight between manufacturing facilities and distribution centers are
generally recorded in Cost of Products Sold. Other shipping and handling costs are included in Selling,
Distribution, and Administrative Expenses and totaled $104.1 million, $103.4 million, and $98.6 million in fiscal
2005, 2004, and 2003, respectively.
Stock-Based Compensation
The Company issues stock options to employees and directors under certain of its benefit plans. Under all
stock option plans, the options expire no later than 10 years from the date of grant and have an exercise price no
less than the fair market value of the Company’s stock on the date of grant. The Company accounts for the
employee and director plans under the Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees and related interpretations. Additionally, Acuity Brands has adopted the disclosure provisions
portion only of SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure – an
Amendment to FASB Statement No. 123. 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 subsequent to the Distribution
(see definition of Distribution in the Long-term debt section of Note 4 of Notes to Consolidated Financial
Statements), consistent with the recognition provisions of SFAS No. 123, the Company’s net income and
earnings per share would have been impacted as follows:
Net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Compensation expense related to the Employee Stock Purchase Plan, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Stock-based compensation determined under fair value based method for
Year Ended August 31,
2005
2004
2003
$52,229
$67,214
$47,782
232
281
287
stock option awards, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,693
5,424
2,326
Net income, pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $49,304 $61,509
$45,169
Earnings per share:
Basic earnings per share – as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share – pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share – as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share – pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
1.21
1.14
1.17
1.10
$
$
$
$
1.60
$ 1.15
1.47
$ 1.09
1.56
1.42
1.15
1.08
The above pro forma calculations only include the effects of options granted subsequent to the Distribution.
The pro forma effect of applying SFAS No. 123 may not be representative of the effect on reported net income in
future years because options vest over several years and varying amounts of awards are generally made each
year.
41
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
The following weighted average assumptions were used to estimate the fair value of stock options granted in
the fiscal year:
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life of options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average fair value of options granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3%
42.4%
4.2%
3.1%
43.8%
3.3%
4.4%
43.8%
3.0%
6 years
$ 10.89
8 years
8.71
$
8 years
4.36
$
2005
2004
2003
See Note 5 of Notes to Consolidated Financial Statements for more information.
Depreciation
For financial 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 5 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
$28.9 million, $30.0 million, and $27.4 million during fiscal years 2005, 2004, and 2003, respectively.
Advertising
Advertising costs are expensed as incurred and were $20.7 million, $21.0 million, and $16.3 million during
fiscal years 2005, 2004, and 2003, respectively.
Foreign Currency Translation
The functional currency for the foreign operations of Acuity Brands is the local currency. The translation of
foreign currencies into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the
balance sheet dates and for revenue and expense accounts using a weighted average exchange rate each month
during the year. The gains or losses resulting from the 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 Operations and were insignificant in fiscal years 2005, 2004, and
2003.
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 offset by interest income on cash and cash equivalents.
The following table summarizes the components of interest expense, net:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36,735
(1,004)
$35,731
$35,553
(677)
$34,876
$37,804
(421)
$37,383
Years Ended August 31,
2005
2004
2003
42
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Miscellaneous (Income) Expense, Net
Miscellaneous (income) expense, net, is comprised primarily of gains or losses resulting from the sale of
property, plant, and equipment and gains or losses on foreign currency transactions.
Accounting Standards Yet to Be Adopted
In May 2005,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 154, Accounting Changes and Error Corrections, a replacement of APB
No. 20 and FASB Statement No. 3. SFAS No. 154 requires retrospective application to prior periods’ financial
statements of a voluntary change in accounting principle unless it is impracticable. APB Opinion No. 20
“Accounting Changes,” previously required that most voluntary changes in accounting principle be recognized
by including in net income of the period of the change the cumulative effect of changing to the new accounting
principle. This statement is effective for the Company as of September 1, 2006 and the Company continues to
evaluate the impact the adoption of the standard will have on the Company’s results of operations, if any.
In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment. The Statement
requires that compensation cost relating to share-based payment
transactions be recognized in financial
statements and that this cost be measured based on the fair value of the equity or liability instruments issued. It
does not specify a preference for a type of valuation model to be used to measure fair value. SFAS No. 123
(Revised 2004) covers a wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.
The Company adopted SFAS No. 123 (Revised 2004) on September 1, 2005 and expects to incur additional
annual pretax expense of approximately $3.0 million as a result of adoption. The Company continues to evaluate
the impact the adoption of the final standard will have on the Company’s results of operations. See Stock-Based
Compensation section of this note for further information.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. The statement requires that items such as abnormal freight, handling costs, and amounts of wasted
materials be recognized as current-period charges regardless of whether or not they meet the criteria currently
dictated by ARB No. 43. Additionally, SFAS No. 151 requires that fixed overhead be allocated based on the
normal capacity of the production capabilities. The Company adopted SFAS No. 151 on September 1, 2005 and
has determined the impact of adoption to be immaterial to the Company’s results of operations.
On October 22, 2004, the American Jobs Creation Act of 2004 (“Jobs Creation Act”) was signed into law.
This legislation provides for the optional repatriation of cash from foreign subsidiaries allowing an 85%
dividends received deduction. The deduction is subject to a number of limitations. In December 2004, the FASB
issued Staff Position 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004 (“FSP No. 109-2”), indicating that the lack of
clarification of certain provisions within the Jobs Creation Act and the timing of the enactment necessitate a
practical exception to the SFAS No. 109, Accounting for Income Taxes, requirement to reflect in the period of
enactment the effect of a new tax law. Accordingly, an enterprise is allowed time beyond the financial reporting
period to evaluate the effect of the Jobs Creation Act on its plans for reinvestment or repatriation of foreign
earnings. FSP No. 109-2 requires that the provisions of SFAS No. 109 be applied as an enterprise decides on its
plan for reinvestment or repatriation of its unremitted foreign earnings. The Company has not yet determined if it
will repatriate any overseas earnings pursuant to this provision.
The FASB also recently issued Staff Position FSP 109-1, Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American
Jobs Creation Act of 2004 (“FSP No. 109-1”). Under the guidance in FSP No. 109-1, the deduction will be
43
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
treated as a “special deduction” as described in SFAS No. 109. As such, the special deduction has no effect on
deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction, if any, will
be reported in the period in which the deduction is claimed on our income tax return. The Company will not be
able to claim this tax benefit until the first quarter of fiscal 2006.
Note 3: Pension and Profit Sharing Plans
Acuity Brands has several pension plans covering certain hourly and salaried employees. Benefits paid
under these plans are based generally on employees’ years of service and/or compensation during the final years
of employment. Acuity Brands makes annual contributions to the plans to the extent indicated by actuarial
valuations. Plan assets are invested primarily in equity and fixed income securities.
The following tables reflect the status of Acuity Brands’ domestic (U.S. based) and international pension
plans at August 31, 2005 and 2004, using measurement dates of May 31, 2005 and 2004, respectively:
Domestic Plans
August 31,
International Plans
August 31,
2005
2004
2005
2004
Change in Benefit Obligation:
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 96,896
2,396
6,121
—
18,432
(5,981)
—
$ 98,544
3,493
5,775
—
(6,305)
(4,611)
—
$ 26,111
743
1,517
23
1,414
(1,163)
(18)
$ 21,673
1,085
1,375
—
(501)
(573)
3,052
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$117,864
$ 96,896
$ 28,627
$ 26,111
Change in Plan Assets:
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 71,579
6,570
5,130
—
(5,981)
—
$ 64,730
8,512
2,949
—
(4,612)
—
$ 15,439
2,220
832
242
(1,090)
(38)
$ 12,214
994
661
300
(473)
1,743
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . .
$ 77,298
$ 71,579
$ 17,605
$ 15,439
Funded Status:
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized transition asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized prior service cost
$ (40,566) $(25,317) $(11,021) $(10,672)
10,534
—
—
45,946
(108)
754
29,423
(239)
1,148
10,300
—
—
Net amount recognized at end of year . . . . . . . . . . . . . . . . . . . . . . . .
$
6,026
$ 5,015
$
(721) $
(138)
Amounts Recognized in the Consolidated Balance Sheets
Consist of:
Accrued benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . .
$ (39,850) $(24,859) $(10,691) $ (8,167)
1,027
44,849
1,464
28,410
—
9,970
—
8,029
Net amount recognized at end of year . . . . . . . . . . . . . . . . . . . . . . . .
$
6,026
$ 5,015
$
(721) $
(138)
44
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for domestic
defined benefit pension plans with both projected and accumulated benefit obligations in excess of plan assets
were $117.9 million, $117.1 million, and $77.3 million, respectively, as of August 31, 2005, and $96.9 million,
$96.4 million, and $71.6 million, respectively, as of August 31, 2004. The projected benefit obligation,
accumulated benefit obligation, and fair value of plan assets for international defined benefit pension plans with
both projected and accumulated benefit obligations in excess of plan assets were $28.6 million, $28.2 million,
and $17.6 million, respectively, as of August 31, 2005, and $26.1 million, $23.5 million, and $15.4 million,
respectively, as of August 31, 2004.
Components of net periodic pension cost for the fiscal years ended August 31, 2005, 2004, and 2003
included the following:
. . . . . . . . . . . . . . . . . . .
Service cost
Interest cost
. . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . .
Amortization of prior service
cost . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of transitional asset
. .
Recognized actuarial loss (gain) . . .
Domestic Plans
International Plans
2005
2004
2003
2005
2004
2003
$ 2,396
6,121
(6,089)
$ 3,493
5,775
(5,392)
$ 2,729
5,532
(6,261)
$
743
1,517
(1,183)
$1,085
1,375
(988)
$ 928
1,196
(964)
89
(131)
1,428
102
(131)
2,259
385
(133)
764
—
—
368
—
—
375
—
—
(257)
Net periodic pension cost . . . . . . . . .
$ 3,814
$ 6,106
$ 3,016
$ 1,445
$1,847
$ 903
Weighted average assumptions used in computing the benefit obligation are as follows:
Domestic Plans
International Plans
2005
2004
2005
2004
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . .
5.3% 6.5% 5.0%
5.5% 5.5% 3.5%
5.8%
4.8%
Weighted average assumptions used in computing net periodic benefit cost are as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . .
6.5% 6.0% 7.5% 5.8% 5.5% 6.0%
8.5% 8.5% 9.5% 7.3% 7.0% 8.0%
5.5% 5.1% 5.1% 4.8% 4.3% 4.3%
Domestic Plans
International Plans
2005
2004
2003
2005
2004
2003
It is the Company’s policy to adjust, on an annual basis, the discount rate used to determine the projected
benefit obligation to approximate rates on high-quality, long-term obligations. The Company estimates that each
100 basis point reduction in the discount rate would result in additional net periodic pension cost, the Company’s
primary pension obligation, of approximately $1.3 million and $0.4 million for domestic plans and international
plans, respectively. The Company’s discount rate used in computing the net periodic benefit cost for its domestic
plans decreased by 150 basis points in 2005. The expected return on plan assets is derived from a periodic study
of long-term historical rates of return on the various asset classes included in the Company’s targeted pension
plan asset allocation. As a result of this study during 2003, the expected return on plan assets for the Company’s
domestic plans decreased by 100 basis points to 8.5% in 2004. The Company estimates that each 100 basis point
reduction in the expected return on plan assets would result in additional net periodic pension cost of $0.8 million
45
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
and $0.2 million for domestic plans and international plans, respectively. The rate of compensation increase is
also evaluated and is adjusted by the Company, if necessary, annually.
The Company’s investment objective for U.S. plan assets is to earn a rate of return sufficient to match or
exceed the long-term growth of the Plans’ liabilities without subjecting plan assets to undue risk. The plan assets
are invested primarily in high quality equity and debt securities. The Company conducts a periodic strategic asset
allocation study to form a basis for the allocation of pension assets between various asset categories. Specific
allocation percentages are assigned to each asset category with minimum and maximum ranges established for
each. The assets are then managed within these ranges. During 2005, the U.S. targeted asset allocation was 55%
equity securities, 40% fixed income securities, and 5% real estate securities. The Company’s investment
objective for the international plan assets is also to add value by matching or exceeding the long-term growth of
the Plans’ liabilities. During 2005, the international asset allocation was 80% equity securities, 15% fixed income
securities, and 5% real estate securities.
Acuity Brands’ pension plan asset allocation at August 31, 2005 and 2004 by asset category is as follows:
% of Plan Assets
Domestic Plans
International Plans
2005
2004
2005
2004
Equity securities . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
58.0%
35.0%
6.0%
1.0%
58.0%
36.0%
5.0%
1.0%
83.8%
6.8%
2.3%
7.1%
82.1%
9.2%
4.4%
4.3%
Total
. . . . . . . . . . . . . . . . . . . . . . .
100.0%
100.0%
100.0%
100.0%
The Company expects to contribute approximately $4.1 million and $1.1 million to its domestic and
international defined benefit plans, respectively, during 2006. These amounts are based on the total contributions
needed during 2006 to satisfy current law minimum funding requirements.
Benefit payments are made from funded benefit plan trusts. Benefit payments are expected to be paid as
follows for the years ending August 31:
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011-2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,097
5,149
5,315
5,798
5,855
34,886
$ 344
354
388
411
436
3,365
Domestic
International
Acuity Brands also has defined contribution plans to which both employees and the Company make
contributions. The cost to Acuity Brands for these plans was $5.6 million in 2005, $5.8 million in 2004, and $5.5
million in 2003. Effective February 2002, participants in all of the Company’s defined contribution 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, 2005, assets of the defined contribution plans included shares of
the Company’s common stock with a market value of approximately $13.5 million, which represented
approximately 3.7% of the total fair market value of the assets in the Company’s defined contribution plans.
46
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Note 4: Short-Term Borrowings and Long-Term Debt
Short-Term Borrowings
The Company’s short-term borrowings at August 31, 2005 and 2004, consisted of the following:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
$567
—
$567
2004
$1,511
4,000
$5,511
The Company maintains an agreement (“Receivables Facility”) to borrow, on an ongoing basis, funds
secured by undivided interests in a defined pool of trade accounts receivable of the lighting equipment and
specialty products segments. Effective September 29, 2005,
the Company renewed the $100.0 million
Receivables Facility for a one-year period with similar terms and conditions. Net trade accounts receivable
pledged as security for borrowings under the Receivables Facility totaled $301.2 million at August 31, 2005.
There were no outstanding borrowings at August 31, 2005 and 2004 under the Receivables Facility. Interest rates
under the Receivables Facility vary with commercial paper rates plus an applicable margin.
On April 2, 2004, the Company executed a $200.0 million revolving credit facility (“Revolving Credit
Facility”), which matures in January 2009. This facility replaced the Company’s $92.5 million, 364-day
committed credit facility scheduled to mature in April 2004 and the Company’s $105.0 million, three-year credit
facility scheduled to mature in April 2005. The Revolving Credit Facility contains financial covenants including
a leverage ratio (“Maximum Leverage Ratio”) of total indebtedness to EBITDA (earnings before interest, taxes,
depreciation and amortization expense), as such terms are defined in the Revolving Credit Facility agreement,
and a minimum interest coverage ratio. These ratios are computed at the end of each fiscal quarter for the most
recent 12-month period. The Revolving Credit Facility allows for a Maximum Leverage Ratio of 3.50, subject to
certain conditions defined in the financing agreement. The Company was in compliance with all financial
covenants and had no outstanding borrowings at August 31, 2005 and had $4.0 million in outstanding borrowings
under the Revolving Credit Facility at August 31, 2004. At August 31, 2005, the Company had additional
borrowing capacity under the Revolving Credit Facility of $186.3 million under the most restrictive covenant in
effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of
credit of $13.7 million discussed below.
The Company’s Receivables Facility and Revolving Credit Facility each contain “Material Adverse Effect”
provisions. Generally, if the Company were to experience an event causing a material adverse effect on the
Company’s financial condition, operations, or properties, as defined in the agreements, additional future
borrowings under either facility could be denied and payments on outstanding borrowings could be accelerated.
At August 31, 2005, the Company had outstanding letters of credit totaling $25.4 million primarily for the
purpose of securing collateral requirements under the casualty insurance programs for Acuity Brands and for
providing credit support for the Company’s industrial revenue bonds. At August 31, 2005, a total of $13.7
million of the letters of credit were issued under the Revolving Credit Facility, thereby reducing the total
availability under the line by such amount.
47
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Long-Term Debt
The Company’s long-term debt at August 31, 2005 and 2004, consisted of the following:
Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6% notes due February 2009 with an effective interest rate of 6.04%, net of
unamortized discount of $143 in 2005 and $184 in 2004 . . . . . . . . . . . . . . .
8.375% notes due August 2010 with an effective interest rate of 8.398%, net
of unamortized discount of $121 in 2005 and $146 in 2004 . . . . . . . . . . . . .
Other notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less – Amounts payable within one year included in current liabilities . . . . .
2005
2004
$ —
$ 18,734
159,857
159,816
199,879
12,567
372,303
567
199,854
13,317
391,721
1,511
$371,736
$390,210
Future annual principal payments of long-term debt are as follows:
Fiscal Year
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
$
567
565
282
159,859
199,879
11,151
$372,303
In October 2002, Acuity Brands entered into a three-year 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 then in effect and to provide the Company additional liquidity. The Term Loan was paid
in full in July 2005. Outstanding borrowings under the Term Loan at August 31, 2004 were $18.7 million at an
interest rate of approximately 3.0%.
Prior to November 30, 2001, Acuity Brands was a wholly-owned subsidiary of National Service Industries,
Inc. (“NSI”) owning and operating the lighting equipment and specialty products businesses. Acuity Brands was
spun off from NSI into a separate publicly traded company with its own management and Board of Directors
through a tax-free distribution (“Distribution”) of 100% of the outstanding shares of common stock of Acuity
Brands on November 30, 2001.
In January 1999, NSI issued $160.0 million in ten-year publicly traded notes bearing a coupon rate of 6.0%.
In August 2000, NSI issued $200.0 million in ten-year publicly traded notes bearing a coupon rate of 8.375%.
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, effective as of the Distribution,
was relieved of all obligations with respect to the notes. Because the $160.0 million and the $200.0 million notes
trade infrequently, it is difficult to obtain an accurate fair market value of the notes. However, based on
comparison of notes of similar size, ratings, and tenor, the fair values of the $160.0 million and $200.0 million
notes are believed to approximate $164.8 million and $225.8 million, respectively at August 31, 2005. Excluding
48
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
the $160.0 million and $200.0 million notes, long-term debt recorded in the accompanying Consolidated Balance
Sheets approximates fair value based on similar instruments with similar terms and average maturities.
Other notes consist primarily of two industrial revenue bonds (a $7.1 million bond maturing in 2018 and a
$4.0 million bond maturing in 2021) and a five-year note with an outstanding balance of approximately $1.5
million at August 31, 2005. The industrial revenue bonds are tax-exempt variable rate instruments that reset on a
weekly basis. The interest rates were approximately 2.5% and 1.4% for the $4.0 million bond and 2.5% and 1.3%
for the $7.1 million bond at August 31, 2005 and 2004, respectively. The five-year note is denominated in Euros
and bears interest at a variable rate, which was 4.5% and 4.3% at August 31, 2005 and 2004, respectively.
Principal payments are made in equal semi-annual installments. In addition, Acuity Brands also had uncommitted
foreign bank lines of credit totaling $2.0 million at August 31, 2005 and 2004. There were no outstanding
borrowings under the foreign bank lines at August 31, 2005 or 2004.
None of the Company’s existing debt instruments, neither short-term nor long-term, include provisions that
would require an acceleration of repayments based solely on changes in the Company’s credit ratings.
Note 5: Common Stock and Related Matters
Stockholder Protection Rights Agreement
Prior to the Distribution, 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 offer to acquire the Company, including offers 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 affiliated 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 specified 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.
49
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Common Stock
Changes in common stock for the periods ended August 31, 2003, 2004, and 2005 were as follows:
Common Stock
Shares
Amount
Balance, August 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of restricted stock grants, net of forfeitures . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issued in connection with long-term incentive plan . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, August 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of restricted stock grants, net of forfeitures . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, August 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of restricted stock grants, net of forfeitures . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,379
120
144
23
9
41,675
278
86
557
42,596
603
77
1,701
Balance, August 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,977
$414
1
2
—
—
$417
3
1
5
$426
6
1
17
$450
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, 2005 and 2004.
Earnings per Share
The Company computes earnings per share in accordance with SFAS No. 128, Earnings per Share. Under
this Statement, basic earnings per share is computed by dividing net earnings available to common stockholders
by the weighted average number of common shares outstanding during the period. Diluted earnings per share is
computed similarly but reflects the potential dilution that would occur if dilutive options were exercised and
restricted stock awards were vested.
50
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
The following table calculates basic earnings per common share and diluted earnings per common share for
the years ended August 31, 2005, 2004, and 2003:
Years Ended August 31,
2005
2004
2003
Basic earnings per share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52,229
43,135
Basic weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . .
$67,214
41,906
$47,782
41,459
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.21
$
1.60
$ 1.15
Diluted earnings per share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52,229
43,135
Basic weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,617
Common stock equivalents (stock options and restricted stock) . . . . . . .
$67,214
41,906
1,295
$47,782
41,459
262
Diluted weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . .
44,752
43,201
41,721
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.17
$
1.56
$ 1.15
Stock-Based Compensation
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 using an agreed-upon conversion ratio. All other terms of the
converted stock options remain the same as those in effect immediately prior to the Distribution. Accordingly, no
compensation expense resulted from the replacement of the options.
Effective November 30, 2001, Acuity Brands adopted the Acuity Brands, Inc. Long-Term Incentive Plan
(the “Plan”) for the benefit of officers and other key management personnel (“Participants”). An aggregate of
8.1 million shares was originally authorized for issuance under the Plan. In October 2003, the Board of Directors
approved the Acuity Brands, Inc. Amended and Restated Long-Term Incentive Plan (the “Amended Plan”),
including an increase of 5.0 million in the number of shares available for grant. However, the Board of Directors
subsequently committed that not more than 3.0 million are available without further shareholder approval. In
December 2003, the shareholders approved the Amended Plan. Stock options generally become exercisable over
a three or four-year period from the date of grant. The Amended Plan also provides for the issuance of
performance-based and restricted stock awards.
In January 2005, the Company awarded approximately 306,000 shares of restricted stock to officers and
other key employees under the Plan. The shares vest over a four-year period. At August 31, 2005, approximately
290,000 shares had been issued under this award. Compensation expense recognized related to this award was
$1.3 million in fiscal 2005.
In December 2003, the Company awarded approximately 420,000 shares of restricted stock to officers and
other key employees under the Amended Plan. The shares vest over a four-year period. Participants could elect to
defer payments under this time-based restricted stock plan into a separate deferred compensation plan. If shares
were deferred into the deferred compensation plan, the value of the restricted shares was converted to share units
that ultimately would be paid in cash. Approximately 150,000 shares were deferred into the deferred
compensation plan. At August 31, 2005, approximately 210,000 shares had been issued under this award.
Compensation expense recognized related to this award was $2.3 million and $1.8 million in fiscal 2005 and
2004, respectively.
51
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
In December 2002, the Company reserved approximately 490,000 shares of performance-based restricted
stock for issuance to officers and other key employees under the Plan. The shares are issued in 25% increments
upon the achievement of at least two of three progressive defined performance measures and the completion of
related target years (as defined in the agreement). The performance measures relate to specified levels of debt
reduction, cumulative earnings per share measured at each fiscal quarter-end for the trailing four quarters, and
stock price targets. The shares vest at the later of (a) determination by the Compensation Committee of the Board
of Directors that at least two of the three performance measures are achieved or (b) November 30 of the specified
target year. Originally, approximately two-thirds of the value of the restricted shares at the vesting date was paid
to the participants in unrestricted shares of the Company and the remainder was paid in cash to offset taxes on the
award. This provision was eliminated in August 2005 by an amendment to the award agreement that provides for
the entire award to be payable in shares. Participants could elect to defer payments under this performance-based
restricted stock plan into a separate deferred compensation plan. If shares were deferred into the deferred
compensation plan, the value of the restricted shares was converted to share units that ultimately would be paid
in cash. Approximately 110,000 shares were deferred into the deferred compensation plan. As of August 31,
2005, approximately 330,000 shares had been issued under this award, of which approximately 60,000 were
subsequently cancelled and used to offset taxes. Compensation expense recognized related to this award was $2.6
million, $3.6 million, and $1.6 million in fiscal 2005, 2004 and 2003, respectively.
In October 2000, NSI reserved approximately 240,000 shares of performance-based restricted stock for
issuance to officers and other key employees. Under this award, restricted shares are granted in 20% 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 benefits 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. 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 five years from the date of the grant. All other terms of the converted
grants remain the same as those in effect immediately prior to the Distribution. As of August 31, 2005,
approximately 210,000 shares had been issued under this award. Compensation expense recognized related to
this award was $1.2 million, $0.9 million, and $0.3 million in fiscal 2005, 2004, and 2003, respectively.
Additionally, the Company awarded restricted stock to certain employees on an individual basis in fiscal
2004 and 2005. As of August 31, 2005, approximately 60,000 shares related to these awards had been issued.
Compensation expense recognized related to these awards was $0.5 million and $0.2 million in fiscal 2005 and
fiscal 2004, respectively.
In November 2001, the Company adopted the Acuity Brands, Inc. 2001 Directors’ Stock Option Plan, under
which 300,000 shares are authorized for issuance. The stock options granted under this plan become exercisable
one year from the date of grant. As of August 31, 2005 approximately 100,000 shares had been 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. Shares available for
grant under all plans were approximately 2,200,000 at August 31, 2005, with additional shares available upon
further shareholder approval. Shares available for grant under all plans were 2,250,000 and 710,000 at August 31,
52
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
2004 and 2003, respectively. Forfeited shares and shares that are exchanged to offset taxes are returned to the
pool of shares available for grant.
Stock option transactions for the stock option plans and stock option agreements during the years ended
August 31, 2003, 2004, and 2005 were as follows:
Outstanding
Exercisable
Number of
Shares
Weighted
Average
Exercise Price
Number of
Shares
Weighted
Average
Exercise Price
Outstanding at August 31, 2002 . . . . . . . . . . . . . . . . . . . . .
7,081,298
$19.15
2,712,343
$25.25
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132,500
(8,448)
(265,211)
Outstanding at August 31, 2003 . . . . . . . . . . . . . . . . . . . . .
6,940,139
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,242,453
(573,107)
(184,836)
Outstanding at August 31, 2004 . . . . . . . . . . . . . . . . . . . . .
7,424,649
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
212,000
(1,891,813)
(187,075)
Outstanding at August 31, 2005 . . . . . . . . . . . . . . . . . . . . .
5,557,761
Range of option exercise prices:
$10.00 – $15.00 (average life – 6.3 years) . . . . .
$15.01 – $20.00 (average life – 5.2 years) . . . . .
$20.01 – $25.00 (average life – 6.6 years) . . . . .
$25.01 – $30.00 (average life – 4.3 years) . . . . .
$30.01 – $40.00 (average life – 3.5 years) . . . . .
1,492,454
1,005,513
1,483,060
1,020,864
555,870
$14.26
$13.80
$20.68
$19.08
$24.87
$14.94
$21.40
$20.32
$28.54
$16.36
$28.67
$21.70
$13.84
$16.59
$23.70
$28.36
$34.48
4,179,243
$21.78
4,936,004
$20.62
4,604,388
$20.87
1,485,794
1,005,513
933,347
723,864
455,870
$13.84
$16.59
$23.68
$28.58
$35.24
Employee Stock Purchase Plan
In November 2001, the Company adopted the Acuity Brands, Inc. Employee Stock Purchase Plan for the
benefit of eligible employees. Under the plan, employees could purchase, through payroll deduction, the
Company’s common stock at a 15% discount. Shares are purchased quarterly at 85% of the lower of the fair
market value of the Company’s common stock on the first business day of the quarterly plan period or the last
business day of the quarterly plan period. Employee contributions to this plan were suspended at the end of the
third quarter fiscal 2005. The Company expects to resume accepting contributions in the first quarter of 2006
under new terms. Employees will be able to purchase common stock at a 5% discount and shares will be
purchased on a monthly basis. There were 1,500,000 shares of the Company’s common stock reserved for
purchase under the plan, of which approximately 1,100,000 shares remain available as of August 31, 2005.
Employees may participate at their discretion.
53
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
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 revised and recorded annually.
The Company is also self-insured for the majority of its medical benefits 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, 2005, are as follows:
2006 — $19.2 million; 2007 — $14.4 million; 2008 — $12.4 million; 2009 — $10.6 million; 2010 — $9.3
million; after 2010 — $26.6 million.
Total rent expense was $27.7 million in 2005, $25.2 million in 2004, and $23.4 million in 2003.
Purchase Obligations
The Company has incurred purchase obligations in the ordinary course of business that are enforceable and
legally binding. Obligations for years subsequent to August 31, 2005 are as follows: 2006 — $121.3 million;
2007 — $22.9 million; 2008 — $6.8 million; 2009 — $6.9 million; and 2010 — $1.8 million. As of August 31,
2005, the Company had no purchase obligations extending past August 31, 2010.
Collective Bargaining Agreements
Approximately 45% of the Company’s total work force is covered by collective bargaining agreements.
Collective bargaining agreements representing approximately 25% 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
is the opinion of
liability claims. Based on information currently available,
management that the ultimate resolution of pending and threatened legal proceedings will not have a material
adverse effect on the financial 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 effect on the results of operations of Acuity Brands in future periods. Acuity Brands
establishes reserves for legal claims when the costs associated with the claims become probable and can be
reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the
amounts reserved for such claims.
it
The Company has certain matters pending before the United States Consumer Product Safety Commission
(“CPSC”) involving certain product recalls and has accrued a liability for estimated costs associated with the
recalls and CPSC proceedings. See further discussion in Product Warranty section of this note.
54
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Environmental Matters
The operations of the Company are subject to numerous comprehensive laws and regulations relating to the
generation, storage, handling, transportation, and disposal of hazardous substances as well as solid and hazardous
wastes and to the remediation of contaminated sites. In addition, 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
modification, renewal, and revocation by issuing authorities. On an ongoing basis, Acuity Brands invests capital
and incurs operating costs relating to environmental compliance. Environmental laws and regulations have
generally become stricter in recent years. The cost of responding to future changes may be substantial. Acuity
Brands establishes reserves for known environmental claims when the costs associated with the claims become
probable and can be reasonably estimated. The actual cost of environmental issues may be substantially higher or
lower than that reserved due to difficulty 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 Company’s potential 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,
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. With respect to each of the currently active sites which it does not own and where it
has been named as a responsible party or a potentially responsible party (“PRP”), the Company believes its
liability is immaterial, based on information currently available, 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 Landfill site
in Georgia indicates that the Company’s liability is not significant, and there are more than 1,000 PRPs at the
M&J Solvents site in Georgia, which has included Acuity Brands as a PRP.
With respect to the only active site involving property which Acuity Brands does own and where it has been
named as a PRP—ASP’s property on Seaboard Industrial Boulevard in Atlanta, Georgia—the Company, together
with current and former owners of adjoining properties (the “Site Group”), has conducted an investigation on its
property and adjoining properties (the “Site”) and submitted a Compliance Status Report (“CSR”) and a proposed
Corrective Action Plan (“CAP”) to the State of Georgia Environmental Protection Division (“EPD”) pursuant to
the Georgia Hazardous Site Response Act. The EPD approved the CAP in May 2004, and the Company has
reached agreement with the other members of the Site Group to share the expected costs and responsibilities of
implementing the CAP. The CAP requires the Site Group to periodically monitor the Site for a period of five
years to confirm the Site Group’s model predicting that the site is not expected to violate applicable regulatory
standards. The first several sampling results obtained pursuant to this monitoring requirement have confirmed the
Site Group’s model, but adverse future sampling results could cause the Company to record additional charges to
earnings in future periods. However, based on information currently available, the Company believes that its
liability is immaterial in connection with the Site.
In August 2003, ASP received a grand jury subpoena from the United States Department of Justice through
the United States Attorney for the Northern District of Georgia concerning the operation of ASP’s wastewater
pretreatment plant and ASP’s management of hazardous waste at a facility in Atlanta, Georgia. ASP received a
supplemental subpoena in April 2005 related to this matter. The grand jury investigation appears to relate to the
discharge of wastewater from the facility to the City of Atlanta’s sanitary sewer system and ASP’s practices in
connection with the sampling and reporting of the facility’s wastewater discharges for permitting purposes. ASP
55
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
is cooperating fully with the investigation by the Department of Justice. The Department of Justice investigation
follows an inquiry by the City of Atlanta, which regulates the wastewater discharge at the facility. The Company
has settled with the City of Atlanta all issues arising from the inquiry. As of August 31, 2005, the Company had
an accrued liability for the estimated costs of resolution of proceedings with the Department of Justice and
certain associated legal expenses. The grand jury proceedings are ongoing, and developments in the investigation
and the terms of any final settlement or adjudication of this matter, including whether the final resolution results
in civil or criminal charges against the Company, could result in actual costs higher or lower than the amount
reserved.
Guarantees and Indemnities
The Company is a party to contracts entered into in the normal course of business in which it is common for
the Company to agree to indemnify third parties for certain liabilities that may arise out of or relate to the subject
matter of the contract. In some cases, the Company cannot estimate the potential amount of future payments
under these indemnities until events arise that would result in a liability under the indemnities. In connection with
the sale of assets and the divestiture of businesses, the Company has from time to time agreed to indemnify the
purchaser from liabilities relating to events occurring prior to the sale and conditions existing at the time of the
sale. These indemnities generally include potential environmental
liabilities, general representations and
warranties concerning the asset or business, and certain other liabilities not assumed by the purchaser.
Indemnities associated with the divestiture of businesses are generally limited in amount to the sales price of the
specific business or are based on a lower negotiated amount and expire at various times, depending on the nature
of the indemnified matter, but in some cases do not expire until the applicable statute of limitations expires. The
Company does not believe that any amounts that it may be required to pay under these indemnities will be
material to the Company’s results of operations, financial position, or liquidity.
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 defined the Company’s relationship with
NSI after the Distribution, including a distribution agreement and a tax disaffiliation agreement. The distribution
indemnify NSI for pre-Distribution liabilities related to the
agreement provides that Acuity Brands will
businesses that comprise Acuity Brands and previously owned businesses in the lighting equipment and specialty
products segments. The tax disaffiliation agreement provides that Acuity Brands will indemnify NSI for certain
taxes and liabilities that may arise related to the Distribution and, generally, for deficiencies, if any, with respect
to federal, state, local, or foreign taxes of NSI for periods before the Distribution. Liabilities determined under
the tax disaffiliation agreement terminate upon the expiration of the applicable statutes of limitation for such
liabilities. There is no stated maximum potential liability included in the tax disaffiliation agreement or the
distribution agreement. The Company does not believe that any amounts it is likely to be required to pay under
these indemnities will be material to the Company’s results of operations, financial position, or liquidity. The
Company cannot estimate the potential amount of future payments under these indemnities until events arise that
would result in a liability under the indemnities.
Product Warranty
Acuity Brands records an allowance for the estimated amount of future warranty claims when the related
revenue is recognized, primarily based on historical experience of identified warranty claims. Excluding costs
related to faulty components provided by third parties, warranty costs as a percentage of net sales have generally
been consistent for the last several years. However, there can be no assurance that future warranty costs will not
56
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
exceed historical experience. If actual future warranty costs exceed historical amounts, additional allowances
may be required, which could have a material adverse impact on the Company’s results of operations in future
periods.
The Company,
in cooperation with the CPSC,
is conducting a voluntary product recall
involving
approximately 93,000 lighting fixtures manufactured by ABL from April 2002 through October 2003 that may
have incorporated faulty capacitors produced by one of ABL’s suppliers. The Company initiated this recall in
March 2004 and expanded it in March 2005. The recalled fixtures are certain models of indoor high intensity
discharge (“HID”) lighting fixtures with at least one acrylic component (reflector or lens). The capacitor used in
the recalled fixtures can leak polypropylene glycol (“PPG”) fluid onto the acrylic lens and/or reflector of the
fixture, causing the acrylic component(s) to degrade. In a number of reported instances, this has resulted in lenses
or reflectors cracking and pieces of acrylic falling from the installed fixtures. To date, there have been only
limited reports of personal injury and property damage. ABL is providing a replacement fixture or capacitor for
every fixture that meets the product recall criteria. In addition to the expenses associated with this product recall,
ABL expects to incur higher-than-normal warranty expenses in connection with certain other types of indoor and
outdoor HID fixtures that may incorporate the faulty capacitor but exhibit a less serious failure mode. In the case
of these fixtures, the PPG fluid may accumulate in or drip from the fixture. ABL will repair or replace these
fixtures upon failure.
The Company, in cooperation with the CPSC, is also conducting a voluntary product recall of certain indoor
HID lighting fixtures involving approximately 120,000 lighting fixtures that incorporate acrylic reflectors and
that utilize cords manufactured by one of ABL’s suppliers. The cords used in the fixtures may emit a plasticizer
fluid that can potentially drip onto the exterior of the acrylic reflectors, which could cause them to degrade,
crack, and fall. To date, there have been no reports of personal injury or significant property damage in
connection with this issue. The product recall involves the replacement of the cord and reflector for each fixture
subject to the recall.
During the 2005 fiscal year, the Company received document and information requests from the CPSC in
connection with investigations by the CPSC as to whether the Company had complied with the reporting
requirements of section 15(b) of the Consumer Product Safety Act with respect to products involved in the initial
scope and the expanded scope of the capacitor-related recall of HID fixtures, the cord-related recall of HID
fixtures, and a 2001 recall of emergency lighting fixtures. Between February 2005 and August 2005, the
Company received letters from the CPSC staff stating that the CPSC staff had concluded that the Company had
violated those reporting requirements with respect to each of these matters and that the staff intended to
recommend to the Commission that it take action to seek a civil penalty in each matter, and that the Company
had the opportunity in each matter to negotiate a resolution by submitting a penalty settlement offer. The
Company is currently negotiating with the CPSC staff the global resolution of these matters. The Company has
also submitted to the CPSC staff additional information about capacitor-related issues outside the date range of
the expanded recall.
At August 31, 2005, the Company had an aggregate accrued liability of $7.8 million with respect to the
current capacitor-related recall and its possible expansion, the cord-related recall, the matters pending before the
CPSC, and associated legal expenses. The actual cost of these matters could be substantially different than the
liability recorded by the Company. The Company expects to be reimbursed by a supplier for substantially all
product recall expenses and additional warranty expenses regarding the current scope of the capacitor-related
matter and at August 31, 2005 had a remaining receivable of $4.8 million from that supplier. The Company also
intends to pursue vigorously the recovery of all costs associated with the cord-related product recall, but there
can be no assurance it will be able to recover any portion of the costs because of the financial condition of the
supplier.
57
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
The changes in product warranty reserve, which includes estimated recall costs, during the years ended
August 31, 2005, 2004, and 2003 are summarized as follows:
Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in warranty reserve related to capacitors . . . . . . . . . . . . . . .
Warranty and recall expense during the year . . . . . . . . . . . . . . . . . . .
Payments made during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,694
—
4,143
(5,799)
$ 4,289
5,700
5,545
(3,840)
$ 6,879
—
1,809
(4,399)
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,038
$11,694
$ 4,289
2005
2004
2003
Note 7: Special Charge and Impairment Charge
On February 22, 2005, the Company announced additional actions to accelerate its efforts to streamline and
improve the effectiveness of its operations. As part of this program, the Company recorded a pretax charge of
$17.0 million in the second quarter of 2005 to reflect the costs associated with the elimination of approximately
1,100 positions worldwide. This number is comprised of approximately 500 hourly and 600 salaried personnel.
This ongoing Company-wide streamlining effort includes facility consolidations and process improvement
initiatives and involves ABL, ASP, and the corporate office. The Company took an additional pretax charge of
$6.0 million in the fourth quarter of 2005 related to the previously announced reduction in force as well as certain
follow-on actions under the Company’s ongoing restructuring program. The charges included severance and
related employee benefits.
The changes in the special charge reserve (included in Accrued compensation on the Consolidated Balance
Sheets) during the year ended August 31, 2005 are summarized as follows:
Balance as of August 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
23,000
(6,094)
(2,401)
Balance as of August 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,505
As part of ABL’s ongoing initiative to enhance its global supply chain through the consolidation of certain
manufacturing facilities, the Company recognized approximately $0.5 million and $1.9 million in impairment
charges on assets held for sale related to these facilities in fiscal 2005 and 2004, respectively. The carrying
amount of these assets at August 31, 2005 was approximately $9.0 million. The Company currently has the four
facilities listed for sale and plans to sell the facilities during fiscal 2006. ABL also recognized $0.2 million in
fiscal 2005 related to the impairment of a module of the Company’s enterprise resource planning system that is
no longer used.
Note 8: Derivative Financial Instruments
During fiscal 2004, the Company entered into certain foreign currency contracts to hedge its exposure to
variability in exchange rates on certain anticipated intercompany transactions with a Canadian business unit. At
August 31, 2005, the Company had no foreign currency contracts outstanding.
The Company accounts for these contracts in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, SFAS No. 138, and SFAS No. 149. The
58
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Company’s foreign currency contracts have been designated as foreign currency cash flow hedges and,
accordingly, gains or losses resulting from changes in the fair value of these contracts are included in
Accumulated other comprehensive loss items until the hedged transaction occurs, at which time the related gains
or losses are recognized. Amounts included in future earnings related to these contracts may differ from amounts
currently recorded in Accumulated other comprehensive loss items.
Note 9: Income Taxes
Prior to the Distribution, Acuity Brands was included in the consolidated federal income tax return of NSI.
The Company’s provision for income taxes in the accompanying Consolidated Statements of Income, prior to the
Distribution, reflects 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 financial statements or tax returns.
Using the enacted tax rates in effect for the year in which the differences are expected to reverse, deferred tax
liabilities and assets are determined based on the differences between the financial reporting and the tax basis of
an asset or liability.
The provision for income taxes consists of the following components:
Years Ended August 31,
2005
2004
2003
Provision for current federal taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for current state taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for current foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 24,910
1,392
7,890
(11,589)
$23,419
1,044
8,758
2,182
$16,168
1,097
6,623
2,911
Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . . .
$ 22,603
$35,403
$26,799
A reconciliation from the federal statutory rate to the total provision for income taxes is as follows:
Federal income tax computed at statutory rate . . . . . . . . . . . . . . . . .
State income tax, net of federal income tax benefit . . . . . . . . . . . . . .
Foreign permanent differences and rate differential
. . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
$26,191
722
(951)
(3,359)
$35,916
559
(513)
(559)
$26,103
891
13
(208)
Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .
$22,603
$35,403
$26,799
Years Ended August 31,
2005
2004
2003
59
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Components of the net deferred income tax asset at August 31, 2005 and 2004 include:
August 31,
2005
2004
Deferred Income Tax Liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,893
52,511
2,237
$ 6,095
50,068
303
Total deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,641
56,466
Deferred Income Tax Assets:
Self-insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accruals not yet deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,386)
(15,411)
(29,391)
(539)
(1,020)
(22,109)
(6,515)
(84,371)
2,315
(9,360)
(10,442)
(24,928)
(1,095)
(605)
(13,160)
(3,498)
(63,088)
1,966
Net deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(24,415) $ (4,656)
Acuity Brands currently intends to indefinitely reinvest all undistributed earnings of and original
investments in foreign subsidiaries, which amounted to approximately $56.0 million at August 31, 2005;
however, this amount may be adjusted based on changes in business, economic, or other conditions. If these
earnings were distributed to the U.S. in the form of dividends or otherwise, or if the shares of the relevant foreign
subsidiaries were sold or otherwise transferred, the Company would be subject to additional U.S. income taxes
(subject to an adjustment for foreign tax credits) and foreign withholding taxes. Determination of the amount of
unrecognized deferred income tax liability related to these earnings or investments is not practicable.
Deferred tax assets were partially offset by valuation allowances of $2.3 million and $2.0 million at
August 31, 2005 and August 31, 2004, respectively. These allowances are required to reflect the net realizable
value of certain foreign temporary differences and state tax credit carryforwards.
At August 31, 2005,
foreign net operating loss carryforwards were approximately $3.1 million.
Approximately $1.6 million of the foreign net operating loss carryforwards have no expiration while the
remaining carryforwards expire in 2015. Additionally, the Company has state tax credit carryforwards of
approximately $2.1 million, which will expire between 2009 and 2014.
60
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Note 10: Quarterly Financial Data (Unaudited)
Net
Sales
Gross
Profit
Income
Before
Taxes
Net
Income
Basic
Earnings
Per Share
Diluted
Earnings
Per Share
2005
1st Quarter
. . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . .
3rd Quarter . . . . . . . . . . . . .
4th Quarter . . . . . . . . . . . . .
2004
1st Quarter
. . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . .
3rd Quarter . . . . . . . . . . . . .
4th Quarter . . . . . . . . . . . . .
$525,202
505,121
545,327
597,204
$517,538
491,039
532,226
563,364
$213,651
190,048
212,344
232,500
$210,181
196,891
214,882
228,833
$ 20,285
(13,056)
29,686
37,917
$13,165
(8,437)
19,692
27,809
$ 20,183
14,874
27,085
40,475
$12,917
9,519
18,012
26,766
$ 0.31
(0.20)
0.45
0.63
$ 0.31
0.23
0.43
0.63
$ 0.30
(0.20)
0.44
0.61
$ 0.30
0.22
0.42
0.62
Certain reclassifications were made to 2004 quarterly information to conform to 2005 presentation. The
Company reclassified certain costs related to field scrap, customer accommodations, and other product-related
costs from selling, distribution, and administrative expenses to cost of products sold. Gross profit in the table
above is lower than what was previously reported by the following: $5.1 million, $5.2 million, and $3.7 million
in the first, second, and third quarters of fiscal 2005, respectively, and $4.5 million, $4.6 million, $7.5 million,
and $6.5 million in the first, second, third, and fourth quarters of fiscal 2004, respectively. Net sales, income
before taxes, net income, basic earnings per share, and diluted earnings per share were not impacted by these
reclassifications.
61
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
Note 11: Business Segment Information
2005
2004
2003
Net Sales:
ABL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,637,902
534,952
$1,580,498
523,669
$1,538,751
510,557
Total Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,172,854
$2,104,167
$2,049,308
Operating (Loss) Profit:
ABL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Charge* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Charge* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Charge* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$ 110,267
(15,652)
45,901
(3,595)
(26,423)
(3,753)
$ 118,904
—
43,570
—
(24,547)
—
96,825
—
31,313
—
(17,862)
—
Total Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 106,745
$ 137,927
$ 110,276
Depreciation:
ABL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
28,470
8,947
473
$
31,000
8,031
745
33,664
8,356
829
Total Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
37,890
$
39,776
$
42,849
Amortization:
ABL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3,159
26
—
$
3,158
26
—
Total Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,185
$
3,184
$
3,158
32
—
3,190
Capital Expenditures:
ABL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
19,787
12,505
344
$
44,251
9,555
15
20,063
8,024
67
Total Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
32,636
$
53,821
$
28,154
*
See further discussion of Special Charge in Note 7.
ABL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,091,244
236,363
114,608
$1,094,762
222,940
38,750
$1,442,215
$1,356,452
Total Assets
August 31,
2005
August 31,
2004
62
ACUITY BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, except share and per-share data and as indicated)
The geographic distribution of Acuity Brands’ net sales, operating profit, and long-lived assets is
summarized in the following table:
Net sales (1)
Domestic (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Operating profit
Domestic (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Long-lived assets (3)
Domestic (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
2005
2004 (4)
2003 (4)
$1,915,904
256,950
$1,853,669
250,498
$1,797,298
252,010
$2,172,854
$2,104,167
$2,049,308
$
84,776
21,969
$ 112,322
25,605
$
94,325
15,951
$ 106,745
$ 137,927
$ 110,276
$ 199,950
56,182
$ 209,073
54,888
$ 212,996
41,152
$ 256,132
$ 263,961
$ 254,148
(1) Net sales are attributed to each country based on the selling location.
(2) Domestic amounts include net sales, operating profit, and long-lived assets for U.S. based operations.
(3) Long-lived assets include net property, plant, and equipment, long-term deferred income tax assets, and
other long-term assets.
(4) Certain net sales amounts in 2004 and 2003 were reclassified for disclosure purposes only from
international to domestic to more accurately reflect intercompany transactions. The reclasses do not impact
total net sales and were not material.
63
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9a. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to reasonably ensure
that information required to be disclosed in the reports filed or submitted by the Company under the Securities
Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the
Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to reasonably ensure that information required to be
disclosed by the Company in the reports filed under the Securities Exchange Act
is accumulated and
communicated to management, including the principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
As required by SEC rules, the Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of August 31, 2005. This evaluation was carried out under the supervision
and with the participation of management, including the principal executive officer and principal financial
officer. Based on this evaluation, these officers have concluded that the design and operation of the Company’s
disclosure controls and procedures are effective at a reasonable assurance level. However, because all disclosure
procedures must rely to a significant degree on actions or decisions made by employees throughout the
organization, such as reporting of material events, the Company and its reporting officers believe that they cannot
provide absolute assurance that all control issues and instances of fraud or errors and omissions, if any, within the
Company will be detected. Limitations within any control system, including the Company’s control system,
include faulty judgments in decision-making or simple errors or mistakes. In addition, controls can be
circumvented by an individual, by collusion between two or more people, or by management override of the
control. Because of these limitations, misstatements due to error or fraud may occur and may not be detected.
Management’s annual report on the Company’s internal control over financial reporting and the independent
registered public accounting firm’s attestation report are included in the Company’s 2005 Financial Statements in
Item 8 of this Annual Report on Form 10-K, under the headings, “Management’s Report on Internal Control over
Financial Reporting” and “Report of Independent Registered Public Accounting Firm”, respectively, and are
incorporated herein by reference.
There have been no changes in the Company’s internal control over financial reporting that occurred during
the Company’s most recent completed fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
CEO and CFO Certifications
The Company’s Chief Executive Officer and Vice President, Controller, and Interim Chief Financial Officer
have filed with the Securities and Exchange Commission the certifications required by Section 302 of the
Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to the Company’s Annual Report on Form 10-K for the
fiscal year ended August 31, 2005. In addition, on November 15, 2004 the Company’s CEO certified to the New
York Stock Exchange that he was not aware of any violation by the Company of the NYSE corporate governance
listing standards as in effect on November 14, 2004. The foregoing certification was unqualified.
64
Item 10. Directors and Executive Officers of the Registrant
PART III
The information required by this item, with respect to directors, is included under the captions Director
Nominees for Terms Expiring at the 2008 Annual Meeting and Directors with Terms Expiring at the 2006 and
2007 Annual Meetings of the Company’s proxy statement for the annual meeting of stockholders to be held
January 12, 2006, to be filed with the Commission pursuant to Regulation 14A, and is incorporated herein by
reference.
The information required by this item, with respect to executive officers, is included under the caption
Management – Executive Officers of the Company’s proxy statement for the annual meeting of stockholders to
be held January 12, 2006, to be filed with the Commission pursuant to Regulation 14A, and is incorporated
herein by reference.
The information required by this item, with respect to beneficial ownership reporting, is included under the
caption Section 16(a) Beneficial Ownership Reporting Compliance of the Company’s proxy statement for the
annual meeting of stockholders to be held January 12, 2006, to be filed 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 Benefits of the Company’s proxy statement for the annual meeting of
stockholders to be held January 12, 2006, to be filed with the Commission pursuant to Regulation 14A, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is included under the captions Beneficial 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 January 12, 2006, to be filed 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 January 12,
2006, to be filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item is included under the caption Fees Billed by Independent Auditors of
the Company’s proxy statement for the annual meeting of stockholders to be held January 12, 2006, to be filed
with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.
65
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this report:
PART IV
(1) Management’s Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm (Ernst & Young LLP)
Consolidated Balance Sheets as of August 31, 2005 and 2004
Consolidated Statements of Income for the years ended August 31, 2005, 2004, and 2003
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended
August 31, 2005, 2004, and 2003
Consolidated Statements of Cash Flows for the years ended August 31, 2005, 2004, and 2003
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 financial statements or notes thereto.
(3) Exhibits filed 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.
66
INDEX TO EXHIBITS
EXHIBIT 2
Agreement and Plan of Distribution by and
between National Service Industries, Inc.
Inc., dated as of
and Acuity Brands,
November 30, 2001.
is made
Reference
to Exhibit 2.1 of
registrant’s Form 8-K as filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
EXHIBIT 3
(a) Restated Certificate of Incorporation of
Acuity Brands, Inc.
(b) Amended and Restated By-Laws of
Acuity Brands, Inc.
EXHIBIT 4
(a) Form of Certificate representing Acuity
Brands, Inc. Common Stock.
Protection
Stockholder
(b)
Rights
Agreement, dated as of November 12, 2001,
between Acuity Brands,
Inc. and Wells
Fargo Bank Minnesota, N.A.
(c) Letter Agreement appointing Successor
Rights Agent.
(d) 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.
(e) Indenture dated as of January 26, 1999.
(f) Form of 6% Note due February 1, 2009.
(g) Form of 8.375% Note due August 1,
2010.
67
is made
Reference
to Exhibit 3.1 of
registrant’s Form 8-K as filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
Reference is made to Exhibit 3(b) of
registrant’s Form 10-Q as filed with the
Commission on July 6, 2004, which is
incorporated herein by reference.
is made
Reference
to Exhibit 4.1 of
registrant’s Form 8-K as filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
is made
Reference
to Exhibit 4.2 of
registrant’s Form 8-K as filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
Reference is made to Exhibit 4(c) of
registrant’s Form 10-Q as filed with the
Commission on July 14, 2003, which is
incorporated herein by reference.
Reference is made to Exhibit 10.10 of
registrant’s Form 8-K as filed 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, filed 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, filed 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, filed by L&C Spinco,
Inc.* on September 6, 2001, which is
incorporated herein by reference.
EXHIBIT 10(i)A
(1)
Tax Disaffiliation Agreement, dated
as of November 30, 2001, by and
between National Service Industries,
Inc. and Acuity Brands, Inc.
Reference is made to Exhibit 10.1 of
registrant’s Form 8-K as filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
(2)
Transition Services Agreement, dated
as of November 30, 2001, by and
between National Service Industries,
Inc. and Acuity Brands, Inc.
Reference is made to Exhibit 10.2 of
registrant’s Form 8-K as filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
is made
Reference
to Exhibit 2.1 of
registrant’s Form 8-K as filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
Reference is made to Exhibit 10(i)A(12) of
the registrant’s Form 10-K as filed with the
Commission on November 12, 2002, which
is incorporated by reference.
Reference is made to Exhibit 10(i)A(13) of
the registrant’s Form 10-K as filed with the
Commission on November 12, 2002, which
is incorporated by reference.
Reference is made to Exhibit 10(i)A(1) of
the registrant’s Form 10-Q as filed with the
Commission on April 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(i)A(3) of
the registrant’s Form 10-Q as filed with the
Commission on July 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(i)A(4) of
the registrant’s Form 10-Q as filed with the
Commission on July 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(i)A(5) of
the registrant’s Form 10-Q as filed with the
Commission on July 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(i)A(19) of
the registrant’s Form 10-K as filed with the
Commission on October 31, 2003, which is
incorporated by reference.
(3) Agreement and Plan of Distribution,
dated as of November 30, 2001, by
and
Service
Industries, Inc. and Acuity Brands,
Inc.
between National
(4) Deed to Secure Debt and Security
Agreement, dated as of October 11,
2002.
(5)
Promissory Note, dated as of October
11, 2002.
(6) Amended
Inc.,
364-Day
and Restated
Revolving Credit Agreement dated as
of April 4, 2003 among Acuity
Brands,
Subsidiary
Borrowers from time to time hereto,
the Lenders from time to time parties
hereto,
as
Administrative Agent, and Wachovia
Bank, N.A. as Syndication Agent.
Bank
One,
NA,
the
(7)
First Modification to Deed to Secure
Debt and Security Agreement.
(8)
Agreement
Letter
Agreement and Plan of Distribution.
amending
(9) Agreement and Consent Relating to
Tax Disaffiliation Agreement.
(10) Credit and Security Agreement dated
as of September 2, 2003 among
Acuity Enterprise,
Inc. and Acuity
Unlimited Inc., as Borrowers, Acuity
Lighting Group,
and Acuity
Inc., as
Specialty Products Group,
Servicers, Blue Ridge Asset Funding
Corporation, the Liquidity Banks from
and
party
time
to
National
Bank,
Wachovia
Association, as Agent.
hereto
time
Inc.
68
(11) Receivables Sale and Contribution
Agreement dated as of September 2,
2003
Specialty
Products Group, Inc., as Seller, and
Acuity Enterprise, Inc., as Buyer.
between Acuity
Reference is made to Exhibit 10(i)A(20) of
the registrant’s Form 10-K as filed with the
Commission on October 31, 2003, which is
incorporated by reference.
(12) Amended and Restated Receivables
Sale
and Contribution Agreement
dated as of September 2, 2003
between Acuity Lighting Group, Inc.,
Service
successor
Industries, Inc., as Seller, and Acuity
Unlimited,
formerly know as
Inc.,
L&C Funding, Inc., as Buyer.
National
to
Reference is made to Exhibit 10(i)A(21) of
the registrant’s Form 10-K as filed with the
Commission on October 31, 2003, which is
incorporated by reference.
(13) Performance Undertaking dated as of
September 2, 2003,
executed by
Acuity Brands, Inc. in favor of Acuity
Unlimited, Inc.
Reference is made to Exhibit 10(i)A(22) of
the registrant’s Form 10-K as filed with the
Commission on October 31, 2003, which is
incorporated by reference.
(14) Performance Undertaking dated as of
September 2, 2003,
executed by
Acuity Brands, Inc. in favor of Acuity
Enterprise, Inc.
Reference is made to Exhibit 10(i)A(23) of
the registrant’s Form 10-K as filed with the
Commission on October 31, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(i)A-1(1) of
the registrant’s Form 10-Q as filed with the
Commission on April 6, 2004, which is
incorporated by reference.
(15) 5-Year Revolving Credit Agreement,
dated as of April 2, 2004 among
Acuity Brands, Inc.,
the Subsidiary
Borrowers from time to time parties
thereto, the Lenders from time to time
parties thereto, Bank One, NA (Main
Office Chicago), Wachovia Bank,
N.A. and LaSalle Bank National
Association and Key Bank National
Association, Banc One Capital
Markets, Inc.
(16) Reimbursement Agreement between
Acuity Brands
and The General
Electric Company, dated February 27,
2004.
Reference is made to Exhibit 10(iii)A-(1) of
the registrant’s Form 10-Q as filed with the
Commission on April 6, 2004, which is
incorporated by reference.
(17) Tax Disaffiliation Agreement, dated
as of October 7, 2005, by and between
National Service Industries, Inc. and
Acuity Brands, Inc.
Filed with the Commission as part of this
Form 10-K.
(18) Amendment to Receivables Facility,
dated as of September 29, 2005.
Filed with the Commission as part of this
Form 10-K.
EXHIBIT 10(iii)A Management Contracts and Compensatory
Arrangements:
(1) Acuity
Brands,
2001
Nonemployee Directors’ Stock Option
Plan.
Inc.
Reference is made to Exhibit 10.6 of
registrant’s Form 8-K as filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
(2) Amendment No. 1 to Acuity Brands,
Inc. Nonemployee Directors’ Stock
Option Plan, dated December 20,
2001.
Reference is made to Exhibit 10(iii)A(3) of
registrant’s Form 10-Q as filed with the
Commission on January 14, 2002, which is
incorporated herein by reference.
69
(3)
Form of Indemnification Agreement.
(4)
Form of
Agreement.
Severance
Protection
(5) Acuity Brands,
Inc. Supplemental
Deferred Savings Plan.
(6) Acuity Brands,
Inc. Executives’
Deferred Compensation Plan.
(7) Acuity
Inc.
Management Benefit Plan.
Brands,
Senior
(8) Acuity Brands,
Inc. Nonemployee
Director Deferred Stock Unit Plan.
(9) Acuity
Brands,
Inc.
Executive
Benefits Trust.
(10) Acuity Brands,
Inc. Supplemental
Retirement Plan for Executives.
(11) Acuity
Brands,
Inc.
Benefits
Protection Trust.
(12) Assumption Letter of Acuity Brands,
Inc. with respect
to Employment
Letter Agreement between National
Service Industries, Inc. and Joseph
G. Parham, Jr.
(13) Employment
Agreement
Letter
between National Service Industries,
Inc. and Joseph G. Parham, Jr., dated
May 3, 2000.
(14) Assumption Letter of Acuity Brands,
Inc., with respect
to Employment
Letter Agreement between National
Inc. and James
Service Industries,
H. Heagle.
70
Reference is made to Exhibit 10.7 to the
Registration Statement on Form 10, filed 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 filed 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 filed 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 filed 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 filed 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 filed 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 filed 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 filed 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 filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
Reference is made to Exhibit 10.22(b)(i) of
registrant’s Form 8-K as filed 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 filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
(15) Employment
Agreement
Letter
between National Service Industries,
Inc. and James H. Heagle, dated
March 28, 2000.
(16) Employment
Letter
between Acuity Brands,
Vernon
October 30, 2001.
J. Nagel,
dated
Agreement
Inc. and
of
as
(17) Form of Acuity Brands, Inc. Letter
regarding Bonuses.
(18) Amended Acuity
Management
Incentive Plan.
Brands,
Compensation
Inc.
and
(19) Amendment No. 1 to Acuity Brands,
Inc. Supplemental Deferred Savings
Plan.
(20) Amendment No. 1 to Acuity Brands,
Deferred
Executives’
Inc.
Compensation Plan.
(21) Amendment No. 1 to Acuity Brands,
Inc. Supplemental Retirement Plan for
Executives.
(22) Acuity
Brands,
2002
Supplemental Executive Retirement
Plan.
Inc.
(23) Letter
Agreement
to
Supplemental Executive Retirement
Plan between Acuity Brands, Inc. and
James H. Heagle.
relating
(24) Letter
Agreement
to
Supplemental Executive Retirement
Plan between Acuity Brands, Inc. and
Vernon J. Nagel.
relating
(25) Letter
Agreement
to
Supplemental Executive Retirement
Plan between Acuity Brands, Inc. and
Joseph G. Parham, Jr.
relating
(26) Letter
Agreement
to
Supplemental Executive Retirement
Plan between Acuity Brands, Inc. and
Kenyon W. Murphy.
relating
(27) Amendment No. 2 to Acuity Brands,
Inc. Supplemental Deferred Savings
Plan.
71
Reference is made to Exhibit 10.22(d) to
Amendment No. 3 to the Registration
Statement on Form 10, filed 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 filed 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 filed with the
Commission on December 14, 2001, which
is incorporated herein by reference.
is made
to Exhibit A of
Reference
registrant’s proxy statement for the Annual
Meeting of Stockholders as filed with the
Commission on November 12, 2002, which
is incorporated herein by reference.
Reference is made to Exhibit 10(iii)A(2) of
the registrant’s Form 10-Q as filed with the
Commission on January 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(iii)A(3) of
the registrant’s Form 10-Q as filed with the
Commission on January 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(iii)A(2) of
the registrant’s Form 10-Q as filed with the
Commission on April 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(iii)A(3) of
the registrant’s Form 10-Q as filed with the
Commission on April 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(iii)A(3) of
the registrant’s Form 10-Q as filed with the
Commission on July 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(iii)A(4) of
the registrant’s Form 10-Q as filed with the
Commission on July 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(iii)A(5) of
the registrant’s Form 10-Q as filed with the
Commission on July 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(iii)A(6) of
the registrant’s Form 10-Q as filed with the
Commission on July 14, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(iii)A(8) of
the registrant’s Form 10-Q as filed with the
Commission on July 14, 2003, which is
incorporated by reference.
(28) Form of Severance Agreement.
(29) Severance Agreement between Acuity
Brands, Inc. and James H. Heagle.
(30) Amended
Brands,
Plan.
and Restated Acuity
Inc. Long-Term Incentive
(31) Letter Agreement between Acuity
Brands, Inc. and Vernon J. Nagel,
dated June 29, 2004.
(32) Amended and Restated Severance
Agreement,
of
entered
January 20, 2004, by and between
Acuity Brands, Inc. and Vernon J.
Nagel.
into
as
Reference is made to Exhibit 10(iii)A(32) of
the registrant’s Form 10-K as filed with the
Commission on October 31, 2003, which is
incorporated by reference.
Reference is made to Exhibit 10(iii)A of the
registrant’s Form 10-Q as filed with the
Commission on January 14, 2004, which is
incorporated by reference.
is made
to Exhibit A of
Reference
registrant’s proxy statement for the Annual
Meeting of Stockholders as filed with the
Commission on November 7, 2003, which is
incorporated herein by reference.
Reference is made to Exhibit 10(III)A(1) of
the registrant’s Form 10-Q as filed with the
Commission on July 6, 2004, which is
incorporated by reference.
Reference is made to Exhibit 10(III)A(2) of
the registrant’s Form 10-Q as filed with the
Commission on July 6, 2004, which is
incorporated by reference.
(33) Letter Agreement between Acuity
Brands, Inc. and John K. Morgan,
dated June 24, 2004.
Reference is made to Exhibit 10(III)A(3) of
the registrant’s Form 10-Q as filed with the
Commission on July 6, 2004, which is
incorporated by reference.
(34) Amended and Restated Severance
Agreement, entered into as of January
20, 2004, by and between Acuity
Brands, Inc. and John K. Morgan.
Reference is made to Exhibit 10(III)A(4) of
the registrant’s Form 10-Q as filed with the
Commission on July 6, 2004, which is
incorporated by reference.
(35) Letter Agreement between Acuity
Brands, Inc. and Wesley E. Wittich,
dated June 17, 2004.
(36) Amendment No. 3 to Acuity Brands,
Inc. Supplemental Deferred Savings
Plan.
Reference is made to Exhibit 10(III)A(5) of
the registrant’s Form 10-Q as filed with the
Commission on July 6, 2004, which is
incorporated by reference.
Reference is made to Exhibit 10(iii)A(36) of
the registrant’s Form 10-K as filed with the
Commission on October 29, 2004, which is
incorporated by reference.
(37) Acuity Brands,
Inc. Nonemployee
Director Deferred Stock Unit Plan,
amended and restated effective as of
January 1, 2004.
Reference is made to Exhibit 10(III)A(1) of
the registrant’s Form 10-Q as filed with the
Commission on January 6, 2005, which is
incorporated by reference.
(38) Acuity Brands,
Inc. Management
Compensation and Incentive Plan
Fiscal Year 2005 Plan Rules
for
Executive Officers.
Reference is made to Exhibit 10(III)A(2) of
the registrant’s Form 10-Q as filed with the
Commission on January 6, 2005, which is
incorporated by reference.
(39) Form of
Incentive Stock Option
Agreement for Executive Officers.
Reference is made to Exhibit 10(III)A(3) of
the registrant’s Form 10-Q as filed with the
Commission on January 6, 2005, which is
incorporated by reference.
72
(40) Form of Nonqualified Stock Option
Agreement for Executive Officers.
Reference is made to Exhibit 10(III)A(4) of
the registrant’s Form 10-Q as filed with the
Commission on January 6, 2005, which is
incorporated by reference.
(41) Premium-Priced Nonqualified Stock
Option Agreement
for Executive
Officers between Acuity Brands, Inc.
and Vernon J. Nagel.
Reference is made to Exhibit 10(III)A(5) of
the registrant’s Form 10-Q as filed with the
Commission on January 6, 2005, which is
incorporated by reference.
(42) Form of Restricted Stock Award
Agreement for Executive Officers.
(43) Acuity Brands,
Inc. Long-Term
Incentive Plan Fiscal Year 2005 Plan
Rules for Executive Officers.
(44) Acuity Brands,
Program.
Inc. Matching Gift
(45) Letter Agreement dated April 26,
2005 between Acuity Brands, Inc. and
Edward H. Bastian.
(46) Amended and Restated Severance
Agreement, entered into as of August
1, 2005, by and between Acuity
Brands, Inc. and John K. Morgan.
(47) Acuity Brands,
Inc. Long-Term
Incentive Plan Fiscal Year 2006 Plan
Rules for Executive Officers.
(48) Acuity Brands,
Inc. Management
Compensation and Incentive Plan
for
Fiscal Year 2006 Plan Rules
Executive Officers.
(49) Amendment to Severance Protection
Agreement entered into as of August
1, 2005, by and between Acuity
Brands, Inc. and John K. Morgan.
(50) Letter Agreement dated August 1,
2005 between Acuity Brands, Inc. and
John K. Morgan.
Reference is made to Exhibit 10(III)A(6) of
the registrant’s Form 10-Q as filed with the
Commission on January 6, 2005, which is
incorporated by reference.
Reference is made to Exhibit 10(III)A(7) of
the registrant’s Form 10-Q as filed with the
Commission on January 6, 2005, which is
incorporated by reference.
Reference is made to Exhibit 10(III)A(1) of
the registrant’s Form 10-Q as filed with the
Commission on April 4, 2005, which is
incorporated by reference.
Reference is made to Exhibit 10.1 of
registrant’s Form 8-K as filed with the
Commission on April 27, 2005, which is
incorporated herein by reference.
Filed with the Commission as part of this
Form 10-K.
Filed with the Commission as part of this
Form 10-K.
Filed with the Commission as part of this
Form 10-K.
Filed with the Commission as part of this
Form 10-K.
Filed with the Commission as part of this
Form 10-K.
Code of Ethics and Business Conduct. Reference
is made
to Exhibit 14 of
registrant’s Form 8-K as filed with the
Commission on January 12, 2005, which is
incorporated herein by reference.
73
EXHIBIT 14
EXHIBIT 21
List of Subsidiaries.
Filed with the Commission as part of this
Form 10-K.
EXHIBIT 23
Consent
Accounting Firm.
of
Registered
Public
Filed with the Commission as part of this
Form 10-K.
EXHIBIT 24
Powers of Attorney.
Filed with the Commission as part of this
Form 10-K.
EXHIBIT 31
(a)
EXHIBIT 31
(b)
Rule
Certification,
J. Nagel.
Rule
Certification,
Holcom.
13a-14(a)/15d-14(a)
by Vernon
signed
Filed with the Commission as part of this
Form 10-K.
13a-14(a)/15d-14(a)
signed by Karen J.
Filed with the Commission as part of this
Form 10-K.
EXHIBIT 32
EXHIBIT 32
(a)
(b)
Section 1350 Certification, signed by
Vernon J. Nagel.
Filed with the Commission as part of this
Form 10-K.
Section 1350 Certification, signed by
Karen J. Holcom.
Filed with the Commission as part of this
Form 10-K.
*
Acuity Brands, Inc. operated under the name L&C Spinco, Inc. from July 27, 2001 – November 9, 2001.
74
SIGNATURES
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.
ACUITY BRANDS, INC.
Date: November 1, 2005
By:
/s/ VERNON J. NAGEL
Vernon J. Nagel
Chairman, President, and Chief Executive Officer
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/ VERNON J. NAGEL
Chairman, President, and Chief
November 1, 2005
Vernon J. Nagel
Executive Officer
/S/ KAREN J. HOLCOM
Karen J. Holcom
Vice President, Controller, and
Interim Chief Financial Officer
November 1, 2005
*
Peter C. Browning
*
John L. Clendenin
*
Jay M. Davis
*
Earnest W. Deavenport, Jr.
*
Robert F. McCullough
*
Julia B. North
*
Ray M. Robinson
*
Neil Williams
Director
Director
Director
Director
Director
Director
Director
Director
November 1, 2005
November 1, 2005
November 1, 2005
November 1, 2005
November 1, 2005
November 1, 2005
November 1, 2005
November 1, 2005
*BY: /S/ KENYON W. MURPHY
Attorney-in-Fact
November 1, 2005
Kenyon W. Murphy
75
Schedule II
Acuity Brands, Inc.
Valuation and Qualifying Accounts
for the Years Ended August 31, 2005, 2004, and 2003
(In thousands)
Balance at
Beginning
of Year
Additions Charged to
Costs and
Expenses
Other
Accounts (1)
Deductions
Balance at
End of
Year
Year Ended August 31, 2005:
Reserve for doubtful accounts . . . . . . . . . . . . . . . . . . .
$ 8,285
Reserve for estimated warranty and recall costs . . . . . .
$11,694
4,570
4,143
Reserve for estimated returns and allowances . . . . . . .
$ 5,343
74,695
Self-insurance reserve (2) . . . . . . . . . . . . . . . . . . . . . . .
$23,057
10,166
194
6,050
$ 6,999
—
—
—
5,799
$10,038
73,468
$ 6,570
11,908
$21,315
Year Ended August 31, 2004:
Reserve for doubtful accounts . . . . . . . . . . . . . . . . . . .
$ 8,634
Reserve for estimated warranty and recall costs . . . . . .
$ 4,289
3,200
5,545
161
5,700
Reserve for estimated returns and allowances (3) . . . .
$ 5,303
71,133
Self-insurance reserve (2) . . . . . . . . . . . . . . . . . . . . . . .
$23,408
13,264
Year Ended August 31, 2003:
Reserve for doubtful accounts . . . . . . . . . . . . . . . . . . .
$ 8,560
Reserve for estimated warranty costs . . . . . . . . . . . . . .
$ 6,879
4,399
1,809
Reserve for estimated returns and allowances (3) . . . .
$ 4,317
68,960
Self-insurance reserve (2) . . . . . . . . . . . . . . . . . . . . . . .
$21,650
14,165
—
—
—
—
—
—
3,710
$ 8,285
3,840
$11,694
71,093
$ 5,343
13,615
$23,057
4,325
$ 8,634
4,399
$ 4,289
67,974
$ 5,303
12,407
$23,408
(1)
Includes recoveries credited to the reserve. During fiscal 2004, the Company accrued a liability of $5.7
million for the estimated recall expenses and additional related warranty expenses. The Company also
recorded a receivable equal to the liability accrued because the supplier of the faulty component entered into
a reimbursement agreement pursuant to which it has committed to reimburse the Company on a monthly
basis for recall and warranty expenses up to the amount of the liability the Company accrued.
Includes reserves for workers’ compensation, auto, product, and general liability claims.
(2)
(3) Certain prior year amounts have been adjusted to show activity on a gross basis to be comparable to 2005
presentation.
76
Bus iness Description
Sh ar e holder Infor m ation
Acuity Brands, Inc., with fiscal year 2005 net sales of
approximately $2.2 billion, is comprised of Acuity Brands
Lighting and Acuity Specialty Products. Acuity Brands Lighting
is one of the world’s leading providers of lighting fixtures
and includes brands such as Lithonia Lighting®, Holophane®,
Peerless®, Hydrel®, American Electric Lighting®, and Gotham®.
Acuity Specialty Products is a leading provider of specialty
chemicals and includes brands such as Zep®, Zep Commercial®,
Enforcer®, and Selig™. Headquartered in Atlanta, Georgia,
Acuity Brands employs approximately 10,000 people and
has operations throughout North America and in Europe
and Asia.
Fina ncial Highlights
For the year ended August 31
(in millions of dollars, except earnings per share)
Operations:
Net sales
Gross profit %
Operating profit
Operating profit %
Net income
Diluted earnings per share
Diluted weighted average number of shares outstanding
Return on average stockholders’ equity
Net cash provided by operating activities
Depreciation and amortization
Capital expenditures
Employees
At August 31
(in millions of dollars)
Financial Position:
2005 (1)
2004
% Change
$ 2,172.9
$ 2,104.2
3%
$
$
$
$
$
$
$
39.1%
106.7
4.9%
52.2
1.17
44.8
10.3%
137.1
41.1
32.6
10,000
$
$
$
$
$
$
$
40.4%
137.9
6.6%
67.2
1.56
43.2
15.4%
113.3
43.0
53.8
11,000
(23)%
(22)%
(25)%
21%
(4)%
(39)%
(9)%
2005
2004
% Change
Total assets
Total cash and cash equivalents
Total debt
Total stockholders’ equity
Total debt to capitalization
Operating working capital as a percentage of net sales (2)
$ 1,442.2
98.5
$
372.3
$
541.8
$
$ 1,356.5
$
14.1
$
395.7
$
478.0
40.7%
15.6%
45.3%
16.5%
6%
599%
(6)%
13%
(1) 2005 results include a $23.0 million pre-tax restructuring charge (or $0.34 per diluted share).
(2) Operating working capital is defined as net accounts receivable plus inventories minus accounts payable.
Corporate Headquarters
Acuity Brands, Inc.
1170 Peachtree Street, NE
Suite 2400
Atlanta, Georgia 30309-7676
404-853-1400
www.acuitybrands.com
Acuity Brands Lighting
One Lithonia Way
Conyers, Georgia 30012-3957
770-922-9000
www.acuitybrandslighting.com
Acuity Specialty Products
4401 Northside Parkway
Suite 700
Atlanta, Georgia 30327-3093
404-352-1680
www.acuitysp.com
Independent Registered
Public Accounting Firm
Ernst & Young LLP
600 Peachtree Street
Suite 2800
Atlanta, Georgia 30308-2215
404-874-8300
Annual Meeting
1:00 p.m. Eastern Time
Thursday, January 12, 2006
Four Seasons Hotel Ballroom
75 Fourteenth Street, NE
Atlanta, Georgia 30309
Reports Available
To Shareholders
Copies of the following company reports
may be obtained, without charge:
2005 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
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Stock Listing
New York Stock Exchange
Ticker Symbol: AYI
The Company’s CEO certified to the
NYSE on November 15, 2004, that
he is not aware of any violation by
the Company of the NYSE’s Corporate
Governance listing standards.
Shareholders of Record
The number of shareholders of record
of Acuity Brands common stock was
5,234 as of October 25, 2005.
Transfer Agent And Registrar
Questions about shareholder accounts,
dividend checks and lost stock
certificates should be directed to:
The Bank of New York
Shareholder Relations Department
P. O. Box 11258
Church Street Station
New York, New York 10286-1258
800-432-0140
212-815-3700
shareowners@bankofny.com
www.stockbny.com
Send certificates for transfer and
address change to:
The Bank of New York
Receive and Deliver Department
P.O. Box 11002
Church Street Station
New York, New York 10286-1258
Account Access
Shareholders can access their account
information at the Web site of Acuity
Brands’ transfer agent, The Bank of
New York, at www.stockbny.com or at
www.acuitybrands.com.
Shareholders can securely view their
account information and check their
holdings 24 hours a day.
Cash Dividends
Acuity Brands offers direct deposit
of dividends to financial institutions’
checking, savings, or money market
accounts. For more information contact
The Bank of New York at 800-432-0140
or 212-815-3700.
BuyDIRECTSM
Acuity Brands’ transfer agent, The Bank
of New York, offers the BuyDIRECT
investment plan, a direct purchase and
sale plan for investors wishing to purchase
Acuity Brands common stock. Dividends
can be automatically reinvested. The
plan is not sponsored or administered
by Acuity Brands. For information
regarding the plan, contact:
The Bank of New York
Church Street Station
P.O. Box 11258
New York, New York 10286-1258
800-432-0140
212-815-3700
Remittance of Optional
Cash Investments and Plan
Transaction Requests
Mail the tear-off portion of transaction
advice or account statements to:
The Bank of New York
Investment Services Department/
Acuity Brands
P.O. Box 1958
Newark, New Jersey 07101-9774
Forward-Looking Statements
This annual report includes forward-
looking statements regarding:
(a) expected future results and
(b) the impact of initiatives in each of
the Company’s businesses. A variety
of factors could cause actual results to
differ materially from expected results.
Please see the risk factors more fully
described in the accompanying financial
information, which is separately filed
with the Securities and Exchange
Commission as part of the Annual Report
on Form 10-K for the year ended
August 31, 2005.
© 2005 Acuity Brands, Inc. All referenced trademarks are the property of their respective owners.
ACUITY BRANDS WAY
The Acuity Brands Way is our creed – it provides the fundamentals for creating and sustaining value for our
customers, employees, and shareholders. It is the spirit of our business life together; it is what we create together.
There are four building blocks to the Acuity Brands Way:
• Our mission Our mission is to take good companies and make them great companies.
• Our values Great companies show integrity by consistently behaving in ways that reflect their core values. We place
confidence in our employees who demonstrate our four values: resolute, team-oriented, creative, and aspirational.
• How we work together We work together constructively by demonstrating leadership, respect, and commitment.
We are transparent with others and share our successes. We empower our employees to make decisions and
contribute to our communities.
• How we create value Great companies consistently create more value for their customers, employees, and
shareholders than other companies. We are committed to creating value through setting high aspirations, measuring
performance, achieving operating plans, committing to continuous improvement, and making changes faster than
our competitors.
The Acuity Brands Way guides how we do business and how we treat one another. Through the Acuity Brands Way,
we’re on our way to high performance.
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Acuity Brands, Inc.
1170 Peachtree Street, NE
Suite 2400
Atlanta, Georgia 30309-7676
404-853-1400
www.acuitybrands.com
®
2005An n ual Report