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Significant Accounting Policies | 12 Months Ended
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Aug. 31, 2022
Accounting Policies [Abstract] |
Significant Accounting Policies | Significant Accounting Policies Principles of Consolidation The Consolidated Financial Statements include the accounts of Acuity Brands, Inc. and its wholly-owned subsidiaries after elimination of intercompany transactions and accounts. Use of Estimates The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Revenue Recognition Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for information related to our revenue recognition accounting policies. Cash and Cash Equivalents Cash in excess of daily requirements is invested in time deposits and marketable securities and is included in the accompanying balance sheets at fair value. We consider time deposits and marketable securities with an original maturity of three months or less when purchased to be cash equivalents. Accounts Receivable We record accounts receivable at net realizable value. This value includes a reserve for doubtful accounts to reflect our estimate of expected credit losses over the contractual term of our receivables. Our estimation of current expected credit losses reflects our considerations of historical write-offs, an analysis of past due accounts based on the contractual terms of the receivables, and the economic status of customers, if known. We additionally consider the impact of general economic conditions, including construction spending, unemployment rates, and macroeconomic growth, on our customers' future ability to meet their obligations. We believe that the reserve is sufficient to cover uncollectible amounts; however, there can be no assurance that unanticipated future business conditions of customers will not have a negative impact on our results of operations. Concentrations of Credit Risk Concentrations of credit risk with respect to receivables, which are typically unsecured, are generally limited due to the wide variety of customers and markets using our lighting, lighting controls, building management systems, and location-aware applications as well as their dispersion across many different geographic areas. One customer accounted for approximately 10% of receivables at August 31, 2022 and at August 31, 2020. No single customer accounted for 10% of receivables at August 31, 2021. No single customer accounted for more than 10% of net sales in fiscal 2022, 2021, or 2020. Reclassifications We may reclassify certain prior period amounts to conform to the current year presentation. No material reclassifications occurred during the current period. Inventories Inventories include materials, direct labor, inbound freight, customs, duties, tariffs, and related manufacturing overhead. Inventories are stated on a first-in, first-out basis at the lower of cost and net realizable value and consist of the following as of the dates presented (in millions):
| August 31,
| 2022 |  | 2021
Raw materials, supplies, and work in process(1) | $ | 252.6 |  |  | $ | 209.5 |
Finished goods | 264.0 |  |  | 227.2 |
Inventories excluding reserves | 516.6 |  |  | 436.7 |
Less: Reserves | (30.9) |  |  | (38.0) |
Total inventories | $ | 485.7 |  |  | $ | 398.7 |
_______________________________________ (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. The following table summarizes the changes in our inventory reserves for the periods presented (in millions):
| Year Ended August 31,
| 2022 |  | 2021 |  | 2020
Beginning balance | $ | 38.0 |  |  | $ | 49.3 |  |  | $ | 22.3 |
Additions to reserve | 15.7 |  |  | 21.4 |  |  | 36.3 |
Disposals of reserved inventory | (22.5) |  |  | (32.7) |  |  | (11.1) |
Foreign currency translation adjustments | (0.3) |  |  | — |  |  | 1.8 |
Ending balance | $ | 30.9 |  |  | $ | 38.0 |  |  | $ | 49.3 |
Assets Held for Sale We classify assets as held for sale when a plan for disposal is developed and approved, the asset is available for immediate sale, an active program to locate a buyer at a price reasonable in relation to current fair value is initiated, and transfer of the asset is expected to be completed within one year. We cease the depreciation and amortization of the assets when all of these criteria have been met and generally reflect balances within Prepayments and other current assets on our Consolidated Balance Sheets. We did not have any assets classified as held for sale at August 31, 2022. During the year ended August 31, 2022, we sold one building classified as held for sale at August 31, 2021 with a total carrying value of $6.6 million for a gain of approximately $2.3 million. This gain is reflected in Selling, distribution, and administrative expenses within our Consolidated Statements of Comprehensive Income. Goodwill and Other Intangibles The changes in the carrying amount of goodwill during the periods presented by segment are summarized as follows (in millions):
| ABL |  | ISG |  | Total
Balance as of August 31, 2020 | $ | 1,012.6 |  |  | $ | 67.4 |  |  | $ | 1,080.0 |
Additions from acquired businesses | 6.9 |  |  | 3.1 |  |  | 10.0 |
Foreign currency translation adjustments | 2.7 |  |  | 2.0 |  |  | 4.7 |
Balance as of August 31, 2021 | 1,022.2 |  |  | 72.5 |  |  | 1,094.7 |
Adjustments to provisional amounts from acquired businesses | 2.3 |  |  | — |  |  | 2.3 |
Foreign currency translation adjustments | (10.3) |  |  | (2.4) |  |  | (12.7) |
Balance as of August 31, 2022 | $ | 1,014.2 |  |  | $ | 70.1 |  |  | $ | 1,084.3 |
Summarized information for our acquired intangible assets is as follows as of the dates presented (in millions except amortization periods):
| August 31,
| 2022 |  | 2021
| Gross Carrying Amount |  | Accumulated Amortization |  | Gross Carrying Amount |  | Accumulated Amortization
Definite-lived intangible assets: |  |  |  |  |  |  |
Patents and patented technology | $ | 160.8 |  |  | $ | (116.0) |  |  | $ | 164.6 |  |  | $ | (104.4) |
Trademarks and trade names | 27.2 |  |  | (18.3) |  |  | 27.2 |  |  | (17.1) |
Distribution network | 61.8 |  |  | (47.3) |  |  | 61.8 |  |  | (45.0) |
Customer relationships | 427.7 |  |  | (140.4) |  |  | 429.2 |  |  | (117.9) |
Total definite-lived intangible assets | $ | 677.5 |  |  | $ | (322.0) |  |  | $ | 682.8 |  |  | $ | (284.4) |
Indefinite-lived trade names | $ | 173.7 |  |  |  |  | $ | 174.8 |  |  |
Through multiple acquisitions, we acquired definite-lived intangible assets consisting primarily of customer relationships, patented technology, distribution networks, and trademarks and trade names associated with specific products, 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 short-term and long-term net sales and profitability, customer attrition rates, royalty rates, and discount rates. Certain of our intangible assets are attributable to foreign operations and are impacted by currency translation due to movements in foreign currency rates year over year. We recorded amortization expense of $41.0 million, $40.7 million, and $41.7 million related to acquired intangible assets during fiscal 2022, 2021, and 2020, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $42.9 million in fiscal 2023, $38.5 million in fiscal 2024, $30.9 million in fiscal 2025, $28.3 million in fiscal 2026, and $26.4 million in fiscal 2027. We test goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first date of our fourth fiscal quarter (June 1) or more frequently as facts and circumstances change, as required by Accounting Standards Codification (“ASC”) Topic 350, Intangibles—Goodwill and Other (“ASC 350”). ASC 350 allows for an optional qualitative analysis for goodwill 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 to 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 would be recorded. In fiscal 2022, 2021, and 2020, we used a quantitative analysis to calculate the fair value of our reporting units using a combination of discounted future cash flows and relevant market multiples. The analysis for goodwill did not result in an impairment charge during fiscal 2022, 2021, or 2020. The impairment test for indefinite-lived trade names compares 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 for 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 short-term and long-term net sales, royalty rates, and discount rates, are used in the determination of estimated fair value for indefinite-lived trade names. The impairment analyses of our indefinite-lived intangible assets indicated that their fair values exceeded their carrying values for fiscal 2022 and fiscal 2021, and thus no impairment charges were recorded during those years. 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. Based on the results of the indefinite-lived intangible asset analyses for fiscal 2020, we recorded an impairment charge of $1.4 million for one trade name within Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income related to our ABL segment. The impairment analyses for fiscal 2020 of the other 12 indefinite-lived intangible assets indicated that their fair values exceeded their carrying values. Other Long-Term Assets Other long-term assets consist of the following items whose economic benefits are expected to be realized greater than one year from the dates presented (in millions):
| August 31,
| 2022 |  | 2021
Deferred contract costs | $ | 13.3 |  |  | $ | 12.9 |
Investments in debt and equity securities | 11.9 |  |  | 5.3 |
Pensions plans in which plan assets exceed benefit obligation | 8.0 |  |  | 13.0 |
Other(1) (2) | 14.8 |  |  | 2.7 |
Total other long-term assets | $ | 48.0 |  |  | $ | 33.9 |
_______________________________________ (1)Estimated recoveries of warranty and recall costs are included in this category and account for the majority of the year-over-year change. (2)Included within this category are company-owned life insurance investments. We maintain life insurance policies on 60 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, 2022. Other Current Liabilities Other current liabilities consist of the following as of the dates presented (in millions):
| August 31,
| 2022 |  | 2021
Customer incentive programs(1) | $ | 40.7 |  |  | $ | 33.9 |
Refunds to customers(1) | 28.0 |  |  | 28.1 |
Current deferred revenues(1) | 11.4 |  |  | 7.7 |
Sales commissions | 41.9 |  |  | 28.9 |
Freight costs | 22.8 |  |  | 17.6 |
Warranty and recall costs(2) | 22.4 |  |  | 16.8 |
Tax-related items(3) | 13.9 |  |  | 11.7 |
Interest on long-term debt(4) | 2.3 |  |  | 2.4 |
Other | 30.7 |  |  | 42.4 |
Total other current liabilities | $ | 214.1 |  |  | $ | 189.5 |
____________________________________ (1)Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for additional information. (2)Refer to the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements for additional information. (3)Includes accruals for income, property, sales and use, and value added taxes. (4)Refer to the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for additional information. Other Long-Term Liabilities Other long-term liabilities consist of the following as of the dates presented (in millions):
| August 31,
| 2022 |  | 2021
Deferred compensation and postretirement benefits other than pensions(1) | $ | 44.4 |  |  | $ | 43.1 |
Deferred revenues(2) | 53.1 |  |  | 56.7 |
Unrecognized tax position liabilities, including interest(3) | 22.0 |  |  | 19.7 |
Self-insurance liabilities(4) | 3.7 |  |  | 3.9 |
Product warranty and recall costs(4) | 4.9 |  |  | 3.5 |
Other | 0.8 |  |  | 9.3 |
Total other long-term liabilities | $ | 128.9 |  |  | $ | 136.2 |
____________________________________ (1)We maintain several non-qualified retirement plans for the benefit of eligible employees, primarily deferred compensation plans. The deferred compensation plans provide for elective deferrals of an eligible employee’s compensation and, in some cases, matching contributions by the organization. We maintain life insurance policies on certain former officers and other key employees as a means of satisfying a portion of these obligations. (2)Refer to the Revenue Recognition footnote of the Notes to Consolidated Financial Statements for additional information. (3)Refer to the Income Taxes footnote of the Notes to Consolidated Financial Statements for additional information. (4)Refer to the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements for additional information. Shipping and Handling Fees and Costs We include shipping and handling fees billed to customers in Net sales in the Consolidated Statements of Comprehensive Income. When a product is sold, the associated shipping and handling costs are recorded in the Consolidated Statements of Comprehensive Income based on their function. Costs associated with inbound freight and freight between manufacturing facilities and distribution centers are generally recorded in Cost of products sold, which may be capitalized into inventory. Other shipping and handling costs, which primarily include amounts incurred to transfer finished goods to a customer's desired location, are included in Selling, distribution, and administrative expenses and totaled $151.2 million, $132.0 million, and $121.9 million in fiscal 2022, 2021, and 2020, respectively. Share-based Payments We recognize compensation cost for share-based payment transactions in the financial statements based on the estimated grant date fair value of the equity instrument issued. We account for stock options, restricted stock, performance stock units, and stock units representing certain deferrals into the Nonemployee Director Deferred Compensation Plan (the “Director Plan”) or the Supplemental Deferred Savings Plan (“SDSP”) (both of which are discussed further in the Share-based Payments footnote) based on 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, performance stock units, options issued, and stock units deferred into the Director Plan. We recorded $37.4 million, $32.5 million, and $38.2 million of share-based payment expense for the years ended August 31, 2022, 2021, and 2020, respectively. We generally recognize compensation cost for share-based payment transactions on a straight-line basis over an award's requisite service period as defined by ASC 718. In certain circumstances, such as when a performance award is subject to graded vesting, we apply the accelerated attribution method to recognize compensation cost related to our share-based payment awards. We have recorded share-based payment expense, net of estimated forfeitures, in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income. The total income tax benefit recognized for share-based payment expense was $9.6 million, $6.5 million, and $6.6 million for the years ended August 31, 2022, 2021, and 2020, respectively. Excess tax benefits and/or expense related to share-based payment awards are reported within Income tax expense on the Consolidated Statements of Comprehensive Income. We recognized net excess tax benefit related to share-based payment cost of $4.8 million for the year ended August 31, 2022 and net excess tax expense related to share-based payment cost of $0.5 million and $1.4 million for the years ended August 31, 2021 and 2020, respectively. See the Share-based Payments footnote of the Notes to Consolidated Financial Statements for more information. Property, Plant, and Equipment Property, plant, and equipment is initially recorded at cost and depreciated principally on a straight-line basis using estimated useful lives of plant and equipment (3 to 40 years for buildings and related improvements and 2 to 15 years for machinery and equipment) for financial reporting purposes. Accelerated depreciation methods are used for income tax purposes. Leasehold improvements are amortized over the shorter of the life of the lease or the estimated useful life of the improvement. Depreciation expense amounted to $53.8 million, $59.4 million, and $59.4 million during fiscal 2022, 2021, and 2020, respectively. The balance of property, plant, and equipment consists of the following as of the dates presented (in millions):
| August 31,
| 2022 |  | 2021
Land | $ | 22.0 |  |  | $ | 22.4 |
Buildings and leasehold improvements | 202.3 |  |  | 198.0 |
Machinery and equipment | 667.6 |  |  | 624.9 |
Total property, plant, and equipment, at cost | 891.9 |  |  | 845.3 |
Less: Accumulated depreciation and amortization | (615.4) |  |  | (576.2) |
Property, plant, and equipment, net | $ | 276.5 |  |  | $ | 269.1 |
Research and Development Research and development (“R&D”) expense consists of compensation, payroll taxes, employee benefits, materials, supplies, and other administrative costs, but it does not include all new or enhanced product development costs. R&D expense is expensed as incurred and is included in Selling, distribution, and administrative expenses in our Consolidated Statements of Comprehensive Income. R&D expense amounted to $95.1 million, $88.3 million, and $82.0 million during fiscal 2022, 2021, and 2020, 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 $19.3 million, $15.9 million, and $15.1 million during fiscal 2022, 2021, and 2020, respectively. Interest Expense, Net Interest expense, net, is comprised primarily of interest expense on long-term debt, line of credit borrowings, and loans that are secured by and presented net of company-owned life insurance policies on our Consolidated Balance Sheets. Interest expense is partially offset by interest income earned on cash and cash equivalents. The following table summarizes the components of Interest expense, net during the periods presented (in millions):
| Year Ended August 31,
| 2022 |  | 2021 |  | 2020
Interest expense | $ | 27.0 |  |  | $ | 24.2 |  |  | $ | 26.4 |
Interest income | (2.1) |  |  | (1.0) |  |  | (3.1) |
Interest expense, net | $ | 24.9 |  |  | $ | 23.2 |  |  | $ | 23.3 |
Miscellaneous (Income) Expense, Net Miscellaneous (income) expense, net, is comprised primarily of non-service related components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses. Amounts relating to foreign currency transactions consisted of net gains of $5.3 million in fiscal 2022, net losses of $1.3 million in fiscal 2021, and net losses of $5.9 million in fiscal 2020. Income Taxes We are taxed at statutory corporate rates after adjusting income reported for financial statement purposes for certain items that are treated differently for income tax purposes. Deferred income tax expenses or benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. Refer to the Income Taxes footnote of the Notes to Consolidated Financial Statements for additional information. Foreign Currency Translation The functional currency for foreign operations is generally the local currency where the foreign operations are domiciled. The translation of foreign currencies into U.S. dollars is performed for 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) items includes foreign currency translation and pension adjustments. The following table presents the changes in each component of accumulated other comprehensive loss net of tax during the periods presented (in millions):
| Foreign Currency Items |  | Defined Benefit Pension Plans |  | Accumulated Other Comprehensive Loss Items
Balance as of August 31, 2020 | $ | (53.5) |  |  | $ | (79.2) |  |  | $ | (132.7) |
Other comprehensive income before reclassifications | 13.3 |  |  | 13.9 |  |  | 27.2 |
Amounts reclassified from accumulated other comprehensive loss (1) | — |  |  | 7.3 |  |  | 7.3 |
Net current period other comprehensive income | 13.3 |  |  | 21.2 |  |  | 34.5 |
Balance as of August 31, 2021 | (40.2) |  |  | (58.0) |  |  | (98.2) |
Other comprehensive (loss) income before reclassifications | (33.3) |  |  | 0.7 |  |  | (32.6) |
Amounts reclassified from accumulated other comprehensive loss (1) | — |  |  | 5.0 |  |  | 5.0 |
Net current period other comprehensive (loss) income | (33.3) |  |  | 5.7 |  |  | (27.6) |
Balance as of August 31, 2022 | $ | (73.5) |  |  | $ | (52.3) |  |  | $ | (125.8) |
_______________________________________ (1)The before tax amounts of the defined benefit pension plan items are included in net periodic pension cost. See the Pension and Defined Contribution Plans footnote for additional details. The following table presents the tax expense or benefit allocated to each component of other comprehensive income (loss) during the periods presented (in millions):
| Year Ended August 31,
| 2022 |  | 2021 |  | 2020
| 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 | $ | (33.3) |  |  | $ | — |  |  | $ | (33.3) |  |  | $ | 13.3 |  |  | $ | — |  |  | $ | 13.3 |  |  | $ | 11.9 |  |  | $ | — |  |  | $ | 11.9 |
Defined benefit pension plans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax adjustments | — |  |  | — |  |  | — |  |  | — |  |  | (3.2) |  |  | (3.2) |  |  | — |  |  | — |  |  | — |
Actuarial gains (losses) | 0.7 |  |  | — |  |  | 0.7 |  |  | 17.5 |  |  | (3.6) |  |  | 13.9 |  |  | (0.7) |  |  | 0.1 |  |  | (0.6) |
Amortization of defined benefit pension items: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Prior service cost | 2.9 |  |  | (0.7) |  |  | 2.2 |  |  | 2.9 |  |  | (0.6) |  |  | 2.3 |  |  | 4.0 |  |  | (0.9) |  |  | 3.1 |
Actuarial losses | 3.3 |  |  | (0.8) |  |  | 2.5 |  |  | 5.5 |  |  | (1.2) |  |  | 4.3 |  |  | 5.6 |  |  | (1.3) |  |  | 4.3 |
Settlement losses | 0.4 |  |  | (0.1) |  |  | 0.3 |  |  | 3.9 |  |  | — |  |  | 3.9 |  |  | — |  |  | — |  |  | — |
Total defined benefit plans, net | 7.3 |  |  | (1.6) |  |  | 5.7 |  |  | 29.8 |  |  | (8.6) |  |  | 21.2 |  |  | 8.9 |  |  | (2.1) |  |  | 6.8 |
Other comprehensive (loss) income | $ | (26.0) |  |  | $ | (1.6) |  |  | $ | (27.6) |  |  | $ | 43.1 |  |  | $ | (8.6) |  |  | $ | 34.5 |  |  | $ | 20.8 |  |  | $ | (2.1) |  |  | $ | 18.7 |

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