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Significant Accounting Policies | 12 Months Ended
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Aug. 31, 2019
Accounting Policies [Abstract] |
Significant Accounting Policies | Significant Accounting Policies Principles of Consolidation The Consolidated Financial Statements include the accounts of Acuity Brands and its wholly-owned subsidiaries after elimination of intercompany transactions and accounts. Revenue Recognition We recognize revenue when we transfer control of goods and services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for goods and services and is recognized net of allowances for rebates, sales incentives, product returns, service-type warranties, and discounts to customers. Please refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for additional information. Use of Estimates The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash in excess of daily requirements is invested in time deposits and marketable securities and is included in the accompanying balance sheets at fair value. We consider time deposits and marketable securities with an original maturity of three months or less when purchased to be cash equivalents. Accounts Receivable We record accounts receivable at net realizable value. This value includes a reserve for doubtful accounts to reflect 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 the economic status of customers, if known. We believe 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 our results of operations. Prior to the adoption of the new revenue accounting standard described in the New Accounting Pronouncements footnote, we recorded reserves for product returns, cash discounts, and other deductions due to customers as a reduction to our outstanding receivables. The changes in these reserves during the fiscal years ended August 31, 2019, 2018, and 2017 are summarized as follows (in millions):
| Year Ended August 31,
| 2019 |  | 2018 |  | 2017
Beginning balance | $ | 23.4 |  |  | $ | 21.3 |  |  | $ | 17.3 |
Refund costs | — |  |  | 133.4 |  |  | 134.2 |
Payments and other deductions | — |  |  | (131.3 | ) |  | (130.2 | )
ASC 606 adjustments (1) | (23.4 | ) |  | — |  |  | — |
Ending balance | $ | — |  |  | $ | 23.4 |  |  | $ | 21.3 |
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(1) | Estimated liabilities for returns, cash discounts, and other deductions are now reflected as Other current liabilities within our consolidated financial statements. Refer to the New Accounting Pronouncements and Revenue Recognition footnotes for additional information.
Concentrations of Credit Risk Concentrations of credit risk with respect to receivables, which are typically unsecured, are generally limited due to the wide variety of customers and markets using our lighting and building management solutions as well as their dispersion across many different geographic areas. One customer accounted for approximately 10% of receivables at August 31, 2019, and 2018. Two customers each accounted for approximately 10% of receivables at August 31, 2017. No single customer accounted for more than 10% of net sales in fiscal 2019, 2018, or 2017. Reclassifications Certain prior-period amounts have been reclassified to conform to the current year presentation. No material reclassifications occurred during the current period. Refer to the New Accounting Pronouncements footnote for additional information regarding retrospective reclassifications related to accounting standards adopted in the current year. Subsequent Events We have evaluated subsequent events for recognition and disclosure for occurrences and transactions after the date of the consolidated financial statements as of August 31, 2019. See Subsequent Event footnote for additional details regarding subsequent events. Inventories Inventories include materials, direct labor, inbound freight, and related manufacturing overhead, are stated at the lower of cost (on a first-in, first-out or average cost basis) and net realizable value, and consist of the following (in millions):
| August 31,
| 2019 |  | 2018
Raw materials, supplies, and work in process(1) | $ | 179.4 |  |  | $ | 196.8 |
Finished goods | 183.7 |  |  | 251.8 |
Inventories excluding reserves | 363.1 |  |  | 448.6 |
Less: Reserves | (22.3 | ) |  | (36.8 | )
Total inventories | $ | 340.8 |  |  | $ | 411.8 |
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(1) | Due to the immaterial amount of estimated work in process and the short lead times for the conversion of raw materials to finished goods, we do not believe the segregation of raw materials and work in process is meaningful information.
We review inventory quantities on hand and record a provision for excess or obsolete inventory primarily based on estimated future demand and current market conditions. A significant change in customer demand or market conditions could render certain inventory obsolete and could have a material adverse impact on our operating results in the period the change occurs. Assets Held for Sale In accordance with U.S. GAAP, we classify assets as held for sale upon the development of a plan for disposal and cease the depreciation and amortization of the assets at that date. We did not classify any assets as held for sale as of August 31, 2019 or 2018. Goodwill and Other Intangibles Goodwill amounted to $967.3 million and $970.6 million as of August 31, 2019 and 2018, respectively. The changes in the carrying amount of goodwill during fiscal 2019 and 2018 are summarized as follows (in millions):
| Carrying Amount
Balance, August 31, 2017 | $ | 900.9 |
Additions from acquired businesses | 77.0 |
Foreign currency translation adjustments | (7.3 | )
Balance, August 31, 2018 | 970.6 |
Additions from an acquired business | 2.0 |
Adjustments to provisional amounts | (0.2 | )
Foreign currency translation adjustments | (5.1 | )
Balance as of August 31, 2019 | $ | 967.3 |
Summarized information for our acquired intangible assets is as follows (in millions except amortization periods):
|  |  | August 31,
|  |  | 2019 |  | 2018
| Weighted Average Amortization Period in Years |  | Gross Carrying Amount |  | Accumulated Amortization |  | Gross Carrying Amount |  | Accumulated Amortization
Definite-lived intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Patents and patented technology | 12 |  | $ | 135.7 |  |  | $ | (72.9 | ) |  | $ | 137.2 |  |  | $ | (62.2 | )
Trademarks and trade names | 19 |  | 27.2 |  |  | (14.5 | ) |  | 27.2 |  |  | (13.2 | )
Distribution network | 28 |  | 61.8 |  |  | (39.7 | ) |  | 61.8 |  |  | (37.5 | )
Customer relationships | 21 |  | 299.2 |  |  | (72.1 | ) |  | 300.0 |  |  | (56.3 | )
Total definite-lived intangible assets | 17 |  | $ | 523.9 |  |  | $ | (199.2 | ) |  | $ | 526.2 |  |  | $ | (169.2 | )
Indefinite-lived trade names |  |  | $ | 141.3 |  |  |  |  |  | $ | 141.7 |  |  |  |
Through multiple acquisitions, we acquired intangible assets consisting primarily of trademarks and trade names associated with specific products with finite lives, definite-lived distribution networks, patented technology, non-compete agreements, and customer relationships, which are amortized over their estimated useful lives. Indefinite-lived intangible assets consist of trade names that are expected to generate cash flows indefinitely. Significant estimates and assumptions were used to determine the initial fair value of these acquired intangible assets, including estimated future net sales, customer attrition rates, royalty rates, and discount rates. Certain of our intangible assets are attributable to foreign operations and are impacted by currency translation due to movements in foreign currency rates year over year. We recorded amortization expense of $30.8 million, $28.5 million, and $28.0 million related to intangible assets with finite lives during fiscal 2019, 2018, and 2017, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $30.8 million in fiscal 2020, $28.0 million in fiscal 2021, $27.0 million in fiscal 2022, $25.9 million in fiscal 2023, and $25.4 million in fiscal 2024. We test goodwill and indefinite-lived intangible assets for impairment on an annual basis or more frequently as facts and circumstances change, as required by ASC Topic 350, Intangibles — Goodwill and Other (“ASC 350”). ASC 350 allows for an optional qualitative analysis for goodwill to determine the likelihood of impairment. If the qualitative review results in a more likely than not probability of impairment, a quantitative analysis is required. The qualitative step may be bypassed entirely in favor of a quantitative test. The quantitative analysis identifies impairments by comparing the fair value of a reporting unit with its carrying value, including goodwill. The fair values can be 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 fair value of a reporting unit exceeds its carrying value, goodwill is not considered impaired. Conversely, if the carrying value of a reporting unit exceeds its fair value, an impairment charge for the difference is recorded. In fiscal 2019 and 2018, a qualitative fair value analysis was used to determine the likelihood of goodwill impairment for our one reporting unit. During fiscal 2017, a quantitative analysis, based on discounted future cash flows, was used to determine the likelihood of impairment. The analysis for goodwill did not result in an impairment charge during fiscal 2019, 2018, or 2017. The impairment test for indefinite-lived trade names consists of comparing the fair value of a trade name with its carrying value. If the carrying amount exceeds the estimated fair value, an impairment loss would be recorded in the amount of the excess. We estimate the fair value of indefinite-lived trade names using a fair value model based on discounted future cash flows. Significant assumptions, including estimated future net sales, royalty rates, and discount rates, are used in the determination of estimated fair value for indefinite-lived trade names. Based on the results of the indefinite-lived intangible asset analyses, we concluded that our indefinite-lived trade names are fairly stated for the years presented; therefore, no impairment charges were recorded for fiscal 2019, 2018, or 2017. Any reasonably likely change in the assumptions used in the analyses for our trade names would not be material to our financial condition or results of operations. Other Long-Term Assets Other long-term assets consist of the following (in millions):
| August 31,
| 2019 |  | 2018
Deferred contract costs | $ | 15.4 |  |  | $ | 12.8 |
Net overfunded pension plans | — |  |  | 1.6 |
Other(1) | 2.3 |  |  | 4.4 |
Total other long-term assets | $ | 17.7 |  |  | $ | 18.8 |
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(1) | Amounts primarily include deferred debt issuance costs related to our credit facilities and company-owned life insurance investments. We maintain life insurance policies on 66 former employees primarily to satisfy obligations under certain deferred compensation plans. These company-owned life insurance policies are presented net of loans that are secured by these policies. This program is frozen, and no new policies were issued in the three-year period ended August 31, 2019.
Other Long-Term Liabilities Other long-term liabilities consist of the following (in millions):
| August 31,
| 2019 |  | 2018
Deferred compensation and postretirement benefits other than pensions(1) | $ | 41.6 |  |  | $ | 40.0 |
Service-type warranties(2) | 46.3 |  |  | 14.8 |
Unrecognized tax position liabilities, including interest(3) | 17.6 |  |  | 4.9 |
Other(4) | 5.2 |  |  | 8.2 |
Total other long-term liabilities | $ | 110.7 |  |  | $ | 67.9 |
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(1) | We maintain several non-qualified retirement plans for the benefit of eligible employees, primarily deferred compensation plans. The deferred compensation plans provide for elective deferrals of an eligible employee’s compensation and, in some cases, matching contributions by the organization. In addition, one plan provides an automatic contribution of 3% of an eligible employee’s compensation. We maintain life insurance policies on certain former officers and other key employees as a means of satisfying a portion of these obligations.
(2) | Certain service-type warranties accounted for as contingent liabilities prior to the adoption of ASC 606 are now reflected as contract liabilities effective September 1, 2018. Refer to the New Accounting Pronouncements and Revenue Recognition footnotes for additional information.
(3) | See the Income Taxes footnote for more information.
(4) | Amount primarily includes deferred rent.
Shipping and Handling Fees and Costs We include shipping and handling fees billed to customers in Net sales in the Consolidated Statements of Comprehensive Income. Shipping and handling costs associated with inbound freight and freight between manufacturing facilities and distribution centers are generally recorded in Cost of products sold in the Consolidated Statements of Comprehensive Income. Other shipping and handling costs are included in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income and totaled $138.4 million, $154.9 million, and $138.3 million in fiscal 2019, 2018, and 2017, respectively. Share-based Payments We recognize compensation cost relating to share-based payment transactions in the financial statements based on the estimated grant date fair value of the equity or liability instrument issued. We account for stock options, restricted shares, and share units representing certain deferrals into the Nonemployee Director Deferred Compensation Plan (the “Director Plan”) or the Supplemental Deferred Savings Plan (“SDSP”) (both of which are discussed further in the Share-based Payments footnote) based on the grant-date fair value estimated under the current provisions of ASC Topic 718, Compensation — Stock Compensation (“ASC 718”). Share-based payment expense includes expense related to restricted stock and options issued, as well as share units deferred into the Director Plan. We recorded $29.2 million, $32.3 million, and $32.0 million of share-based payment expense for the years ended August 31, 2019, 2018, and 2017, respectively. The total income tax benefit recognized for share-based payment expense was $6.5 million, $8.4 million, and $11.1 million for the years ended August 31, 2019, 2018, and 2017, respectively. We account for any awards with graded vesting on a straight-line basis. Additionally, forfeitures of share-based awards are estimated based on historical experience at the time of grant and are revised in subsequent periods if actual forfeitures differ from initial estimates. We did not capitalize any expense related to share-based payments and have recorded share-based payment expense, net of estimated forfeitures, in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income. Excess tax benefits and/or expense related to share-based payment awards are reported within Income tax expense on the Consolidated Statements of Comprehensive Income for fiscal 2019 and fiscal 2018. We recognized net excess tax expense related to share-based payment cost of $1.6 million and $0.8 million for the years ended August 31, 2019 and 2018, respectively. For fiscal 2017, we reported net excess tax benefits related to share-based payment cost of $5.2 million within Paid-in capital on the Consolidated Balance Sheets. See the Share-based Payments footnote of the Notes to Consolidated Financial Statements for more information. Depreciation Depreciation is determined principally on a straight-line basis using estimated useful lives of plant and equipment (10 to 40 years for buildings and related improvements and 3 to 15 years for machinery and equipment) for financial reporting purposes, while accelerated depreciation methods are used for income tax purposes. Leasehold improvements are amortized over the shorter of the life of the lease or the estimated useful life of the improvement. Depreciation expense amounted to $57.5 million, $51.8 million, and $46.6 million during fiscal 2019, 2018, and 2017, respectively. Research and Development Research and development (“R&D”) expense, which is expensed as incurred, consists of compensation, payroll taxes, employee benefits, materials, supplies, and other administrative costs. R&D does not include all new product development costs and is included in Selling, distribution, and administrative expenses in our Consolidated Statements of Comprehensive Income. R&D expense amounted to $74.7 million, $63.9 million, and $52.0 million during fiscal 2019, 2018, and 2017, respectively. Advertising Advertising costs are expensed as incurred and are included within Selling, distribution, and administrative expenses in our Consolidated Statements of Comprehensive Income. These costs totaled $18.5 million, $20.6 million, and $18.6 million during fiscal 2019, 2018, and 2017, respectively. Interest Expense, Net Interest expense, net, is comprised primarily of interest expense on long-term debt, obligations in connection with non-qualified retirement benefits, and line of credit borrowings, partially offset by interest income earned on cash and cash equivalents. The following table summarizes the components of interest expense, net (in millions):
| Year Ended August 31,
| 2019 |  | 2018 |  | 2017
Interest expense | $ | 36.4 |  |  | $ | 35.5 |  |  | $ | 34.1 |
Interest income | (3.1 | ) |  | (2.0 | ) |  | (1.6 | )
Interest expense, net | $ | 33.3 |  |  | $ | 33.5 |  |  | $ | 32.5 |
Miscellaneous Expense, Net Miscellaneous expense, net, is comprised primarily of non-service related components of net periodic pension cost, gains or losses on foreign currency items, and other non-operating items. Gains or losses relating to foreign currency items consisted of net gains of $0.6 million in fiscal 2019, net gains of $0.1 million in fiscal 2018, and net expense of $0.5 million in fiscal 2017. During fiscal 2018, we recognized a $5.4 million gain on the sale of a foreign domiciled business, which included the reclassification of $8.7 million in accumulated foreign currency gains from Accumulated other comprehensive loss. During fiscal 2017, we recognized a $7.2 million gain associated with the sale of an investment in an unconsolidated affiliate. Income Taxes We are taxed at statutory corporate rates after adjusting income reported for financial statement purposes for certain items that are treated differently for income tax purposes. Deferred income tax expenses or benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. Foreign Currency Translation The functional currency for foreign operations is the local currency where the foreign operations are domiciled. 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 balance sheet translation are included in Foreign currency translation adjustments in the Consolidated Statements of Comprehensive Income and are excluded from net income. Comprehensive Income Comprehensive income represents a measure of all changes in equity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Other comprehensive income (loss) includes foreign currency translation and pension adjustments. The following table presents the changes in each component of accumulated other comprehensive loss net of tax during the year ended August 31, 2019 (in millions):
| Foreign Currency Items |  | Defined Benefit Pension Plans |  | Accumulated Other Comprehensive Loss Items
Balance as of August 31, 2017 | $ | (28.7 | ) |  | $ | (71.0 | ) |  | $ | (99.7 | )
Other comprehensive (loss) income before reclassifications | (16.5 | ) |  | 14.0 |  |  | (2.5 | )
Amounts reclassified from accumulated other comprehensive loss (1) | (8.7 | ) |  | 7.2 |  |  | (1.5 | )
Net current period other comprehensive (loss) income | (25.2 | ) |  | 21.2 |  |  | (4.0 | )
Reclassification of stranded tax effects of TCJA | — |  |  | (11.1 | ) |  | (11.1 | )
Balance as of August 31, 2018 | (53.9 | ) |  | (60.9 | ) |  | (114.8 | )
Other comprehensive loss before reclassifications | (11.5 | ) |  | (31.1 | ) |  | (42.6 | )
Amounts reclassified from accumulated other comprehensive loss (1) | — |  |  | 6.0 |  |  | 6.0 |
Net current period other comprehensive loss | (11.5 | ) |  | (25.1 | ) |  | (36.6 | )
Balance at August 31, 2019 | $ | (65.4 | ) |  | $ | (86.0 | ) |  | $ | (151.4 | )
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(1) | The before tax amounts of the defined benefit pension plan items are included in net periodic pension cost. See the Pension and Defined Contribution Plans footnote for additional details. The reclassification of foreign currency items relates to the sale of a foreign domiciled business and is included within Miscellaneous expense, net on the Consolidated Statements of Comprehensive Income.
The following table presents the tax expense or benefit allocated to each component of other comprehensive income (loss) for the three years ended August 31, 2019 (in millions):
| Year Ended August 31,
| 2019 |  | 2018 |  | 2017
| Before Tax Amount |  | Tax (Expense) or Benefit |  | Net of Tax Amount |  | Before Tax Amount |  | Tax (Expense) or Benefit |  | Net of Tax Amount |  | Before Tax Amount |  | Tax (Expense) or Benefit |  | Net of Tax Amount
Foreign currency translation adjustments | $ | (11.5 | ) |  | $ | — |  |  | $ | (11.5 | ) |  | $ | (25.2 | ) |  | $ | — |  |  | $ | (25.2 | ) |  | $ | 19.0 |  |  | $ | — |  |  | $ | 19.0 |
Defined benefit pension plans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Actuarial (losses) gains | (40.8 | ) |  | 9.7 |  |  | (31.1 | ) |  | 18.4 |  |  | (4.4 | ) |  | 14.0 |  |  | 18.3 |  |  | (5.7 | ) |  | 12.6 |
Amortization of defined benefit pension items: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Prior service cost | 3.5 |  |  | (0.9 | ) |  | 2.6 |  |  | 3.1 |  |  | (0.7 | ) |  | 2.4 |  |  | 3.1 |  |  | (0.7 | ) |  | 2.4 |
Actuarial losses | 4.1 |  |  | (1.0 | ) |  | 3.1 |  |  | 6.8 |  |  | (2.0 | ) |  | 4.8 |  |  | 8.9 |  |  | (3.2 | ) |  | 5.7 |
Settlement losses | 0.4 |  |  | (0.1 | ) |  | 0.3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total defined benefit plans, net | (32.8 | ) |  | 7.7 |  |  | (25.1 | ) |  | 28.3 |  |  | (7.1 | ) |  | 21.2 |  |  | 30.3 |  |  | (9.6 | ) |  | 20.7 |
Other comprehensive (loss) income | $ | (44.3 | ) |  | $ | 7.7 |  |  | $ | (36.6 | ) |  | $ | 3.1 |  |  | $ | (7.1 | ) |  | $ | (4.0 | ) |  | $ | 49.3 |  |  | $ | (9.6 | ) |  | $ | 39.7 |

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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