What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-10-26 compared with 2021-10-27 · 252 added, 305 removed, 1184 unchanged (32% of the section changed)

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Note 12 — Pension and Defined Contribution Plans

Note 13 — Special Charges

Note 13 — Common Stock and Related Matters

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Based on this assessment, management believes that, as of August 31, 2022, the Company’s internal control over financial reporting is effective.

Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the acquired businesses of Rockpile Ventures and ams OSRAM’s North American Digital Systems, (collectively, the “2021 Acquisitions”), which are included in the Company’s consolidated financial statements as of August 31, 2021 and for the period from the respective acquisition dates through August 31, 2021.

As of August 31, 2021, the 2021 Acquisitions constituted less than 4% of the Company’s consolidated assets and stockholders' equity.

For the year ended August 31, 2021, the 2021 Acquisitions constituted less than 1% of both the Company's net sales and pre-tax income.

The Company’s independent registered public accounting firm has issued an audit report on their audit of the Company’s internal control over financial reporting.

Ernst & Young LLP (PCAOB ID:

42 ), the Company’s independent registered public accounting firm, has issued an audit report on its audit of the Company’s internal control over financial reporting.

This report dated October 26, 2022 is included within this Form 10-K.

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Significant assumptions used to estimate the value of the trade names included estimated future net sales (including short- and long-term growth rates), discount rates and royalty rates, all of which are forward-looking and could be affected by economic, industry and company-specific qualitative factors.

Short-term growth rates reflect increased estimation uncertainty as a result of the COVID-19 pandemic.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s annual impairment process.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s annual impairment process.

This included testing controls over management’s review of the discounted cash flow model, including the significant assumptions described above.

To test the fair values of the Company’s indefinite-lived trade names, our audit procedures included, among others, evaluating the Company’s use of the discounted cash flow model, the completeness and accuracy of the underlying data and the significant assumptions described above.

We compared the significant assumptions to current industry, market and economic trends, including the impact of the COVID-19 pandemic, the Company’s historical results and other relevant factors.

We compared the significant assumptions to current industry, market and economic trends, the Company’s historical results and other relevant factors.

We involved our valuation specialists to assist in evaluating the Company’s discount rates and royalty rates.

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of August 31, 2022, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the acquired businesses of Rockpile Ventures and ams Osram's North American Digital Systems (collectively, the 2021 Acquisitions), which are included in the 2021 consolidated financial statements of the Company and constituted less than 4% of total assets and stockholders' equity as of August 31, 2021 and less than 1% of net sales and pre-tax income for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the 2021 Acquisitions.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 31, 2022 and 2021, the related consolidated statements of comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended August 31, 2022, and the related notes and our report dated October 26, 2022 expressed an unqualified opinion thereon.

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Interest expense, net 24.9 23.2 23.3

Miscellaneous expense, net 8.2 5.9 4.7

Miscellaneous (income) expense, net ( 9.1 ) 8.2 5.9

Total other expense 15.8 31.4 29.2

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Defined benefit plans, net of tax 5.7 21.2 6.8

Other comprehensive income (loss) items, net of tax 34.5 18.7 ( 36.6 )

Other comprehensive (loss) income items, net of tax ( 27.6 ) 34.5 18.7

Comprehensive income $ 356.4 $ 340.8 $ 267.0

______________________________

(1) Earnings per share is calculated using unrounded numbers.

Amounts in the table may not recalculate exactly due to rounding.

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

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Net income $ 384.0 $ 306.3 $ 248.3

Adjustments to reconcile net income to net cash flows from operating activities:

Adjustments to reconcile net income to cash flows from operating activities

Depreciation and amortization 94.8 100.1 101.1

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Cash flows from financing activities:

Borrowings on credit facility, net of repayments 18.0 — —

Issuances of long-term debt — 493.8 400.0

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Dividends paid ( 18.1 ) ( 19.1 ) ( 20.8 )

Other financing activities ( 1.4 ) — —

Net cash used for financing activities ( 512.4 ) ( 362.6 ) ( 50.3 )

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Net income — — — 248.3 — — 248.3

Other comprehensive loss — — — — ( 36.6 ) — ( 36.6 )

Other comprehensive income — — — — 18.7 — 18.7

Share-based payment amortization, issuances, and cancellations 0.1 — 32.7 — — — 32.7

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— — — ( 20.8 ) — — ( 20.8 )

Stock options exercised — — 0.1 — — — 0.1

Repurchases of common stock ( 0.7 ) — — — — ( 71.2 ) ( 71.2 )

ASC 606 adjustments — — — ( 13.0 ) — — ( 13.0 )

Balance, August 31, 2020 38.9 0.5 963.6 2,523.3 ( 132.7 ) ( 1,227.2 ) 2,127.5

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Repurchases of common stock ( 3.8 ) — — — — ( 436.5 ) ( 436.5 )

Cumulative effect of adoption of ASC 326 — — — ( 0.2 ) — — ( 0.2 )

Balance, August 31, 2021 35.2 0.5 995.6 2,810.3 ( 98.2 ) ( 1,663.7 ) 2,044.5

Net income — — — 384.0 — — 384.0

Other comprehensive income — — — — 34.5 — 34.5

Other comprehensive loss — — — — ( 27.6 ) — ( 27.6 )

Share-based payment amortization, issuances, and cancellations 0.1 — 28.2 — — — 28.2

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Repurchases of common stock ( 2.9 ) — — — — ( 511.7 ) ( 511.7 )

Cumulative effect of adoption of ASC 326 — — — ( 0.2 ) — — ( 0.2 )

Balance, August 31, 2022 32.5 $ 0.5 $ 1,036.3 $ 3,176.2 $ ( 125.8 ) $ ( 2,175.4 ) $ 1,911.8

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Acuity Brands, Inc.

(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) was incorporated in 2001 under the laws of the State of Delaware.

We are a market-leading industrial technology company.

Through our two business segments, Acuity Brands Lighting and Lighting Controls (“ABL”) and the Intelligent Spaces Group (“ISG”) we design, manufacture, and bring to market products and services that make the world more brilliant, productive, and connected.

We achieve growth through the development of innovative new products and services, including building management systems, lighting, lighting controls, and location-aware applications.

(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) is a market-leading industrial technology company.

We use technology to solve problems in spaces and light.

Through our two business segments, Acuity Brands Lighting and Lighting Controls (“ABL”) and the Intelligent Spaces Group (“ISG”), we design, manufacture, and bring to market products and services that make a valuable difference in people's lives.

We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management systems, and location-aware applications.

ABL's portfolio of lighting solutions includes commercial, architectural, and specialty lighting in addition to lighting controls and components that can be combined to create integrated lighting controls systems.

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ABL's portfolio of products includes but is not limited to the following brands:

Lithonia Lighting ® , Holophane ® , Peerless ® , Gotham ® , Mark Architectural Lighting TM , Winona ® Lighting, Juno ® , Indy TM , Aculux TM , Healthcare Lighting ® , Hydrel ® , American Electric Lighting ® , Sunoptics ® , eldoLED ® , nLight ® , Sensor Switch ® , IOTA ® , A-Light TM , Cyclone TM , Eureka ® , Lumniaire LED TM , Luminis ® , Dark to Light ® , and RELOC Wiring Solutions.

Principal customers of ABL include electrical distributors, retail home improvement centers, electric utilities, national accounts, digital retailers, lighting showrooms, and energy service companies located in North America and select international markets serving new construction, renovation and retrofit, and maintenance and repair applications.

ABL's lighting and lighting controls solutions are sold primarily through a network of independent sales agencies that cover specific geographic areas and market channels, by internal sales representatives, through consumer retail channels, and directly to large corporate accounts.

Lithonia Lighting ® , Holophane ® , Peerless ® , Gotham ® , Mark Architectural Lighting TM , Winona ® Lighting, Juno ® , Indy TM , Aculux TM , Healthcare Lighting ® , Hydrel ® , American Electric Lighting ® , Sunoptics ® , eldoLED ® , nLight ® , Sensor Switch ® , IOTA ® , A-Light TM , Cyclone TM , Eureka ® , Luminaire LED TM , Luminis ® , Dark to Light ® , RELOC ® Wiring Solutions, and OPTOTRONIC ® .

Principal customers of ABL include electrical distributors, retail home improvement centers, electric utilities, national accounts, original equipment manufacturer (“OEM”) customers, digital retailers, lighting showrooms, and energy service companies located in North America and select international markets serving new construction, renovation and retrofit, and maintenance and repair applications.

Products are delivered directly from our manufacturing facilities or through a network of distribution centers, regional warehouses, and commercial warehouses using both common carriers and a company-managed truck fleet.

To serve international customers, the sales forces utilize a variety of distribution methods to meet specific individual customer or country requirements.

To serve international customers, our sales forces utilize a variety of distribution methods to meet specific individual customer or country requirements.

ABL comprised approximately 95 % of consolidated revenues during fiscal 2022, 2021 , and 2020.

ISG offers building management systems and location-aware applications and sells predominantly to system integrators.

Our building management system includes products for controlling heating, ventilation, and air conditioning (“HVAC”), lighting, shades, and building access that deliver end-to-end optimization of those building systems.

Atrius TM , our intelligent building platform, enhances the occupant experience, improves building system management, and automates labor intensive tasks while delivering operational energy efficiency and cost reductions.

Through a connected and converged building system architecture, our platform delivers different applications, allows clients to upgrade over time with natural refresh cycles, and deploys new capability through both software and hardware updates.

ISG delivers products and services that make spaces smarter, safer, and greener.

ISG offers a building management platform and location-aware applications.

Our building management platform includes products for controlling heating, ventilation, and air conditioning (“HVAC”), lighting, shades, and building access that deliver end-to-end optimization of those building systems.

Our Atrius ® intelligent building software enhances the occupant experience, improves building system management, and automates labor intensive tasks while delivering operational energy efficiency and cost reductions.

Through a connected and converged building system architecture, our Atrius ® software delivers different applications, allows clients to upgrade over time with natural refresh cycles, and deploys new capabilities through both software and hardware updates.

Customers of ISG primarily include system integrators as well as retail stores, airports, and enterprise campuses throughout North America and select international locations.

ISG products and solutions are marketed under numerous brand names, including but not limited to Distech Controls ® , Atrius TM , and Rockpile Ventures.

ISG products and solutions are marketed under multiple brand names, including but not limited to Distech Controls ® and Atrius ® .

ISG comprised approximately 5 % of consolidated revenues during fiscal 2022, 2021 , and 2020.

Basis of Presentation

We have prepared the Consolidated Financial Statements in accordance with U.S.

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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 allowance is sufficient to cover uncollectible amounts;

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.

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Concentrations of credit risk with respect to receivables, which are typically unsecured, are generally limited due to the wide variety of customers and markets using our lighting, lighting controls, building management systems, and location-aware applications as well as their dispersion across many different geographic areas.

No customer accounted for 10 % of receivables at August 31, 2021;

however, one customer accounted for approximately 10 % of receivables at August 31, 2020 and 2019.

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

Certain prior-period amounts have been reclassified to conform to the current year presentation.

We may reclassify certain prior period amounts to conform to the current year presentation.

No material reclassifications occurred during the current period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories include materials, direct labor, inbound freight, customs, duties, tariffs, 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 as of the dates presented (in millions):

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):

Raw materials, supplies, and work in process (1)

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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.

We classified as held for sale one building with a total carrying value of $ 6.6 million and three buildings with a total carrying value of $ 4.1 million within Prepayments and other current assets on the Consolidated Balance Sheets as of August 31, 2021 and 2020, respectively.

At each balance sheet date, we concluded the fair value less costs to sell exceeded the carrying value of each of these assets.

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 .

ACUITY BRANDS, INC

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Additions from acquired businesses 6.9 3.1 10.0

Adjustments to provisional amounts from acquired businesses ( 41.9 ) 0.4 ( 41.5 )

Foreign currency translation adjustments 2.7 2.0 4.7

Balance as of August 31, 2021 1,022.2 72.5 1,094.7

Additions from acquired businesses 6.9 3.1 10.0

Adjustments to provisional amounts from acquired businesses 2.3 — 2.3

Foreign currency translation adjustments ( 10.3 ) ( 2.4 ) ( 12.7 )

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Summarized information for our acquired intangible assets is as follows as of the dates presented (in millions except amortization periods):

Weighted Average Amortization Period in Years Gross Carrying

Gross Carrying

Amount Accumulated

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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 or more frequently as facts and circumstances change, as required by Accounting Standards Codification (“ASC”) Topic 350, Intangibles — Goodwill and Other (“ASC 350”).

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.

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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 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.

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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.

In fiscal 2019, we used a qualitative fair value analysis to determine the likelihood of goodwill impairment.

The analysis for goodwill did no t result in an impairment charge during fiscal 2022, 2021, or 2020.

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.

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 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 2021, and thus no impairment charges were recorded during that year.

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 in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income related to our ABL segment.

The impairment analyses of the other 12 indefinite-lived intangible assets indicated that their fair values exceeded their carrying values.

Based on the results of the indefinite-lived intangible asset analyses performed in fiscal 2019, we concluded that our analyses supported the indefinite-lived trade names' values;

therefore, no impairment charges were recorded.

Short-term growth rates used in the fiscal 2021 and 2020 impairment analyses reflected additional estimation uncertainty as a result of the COVID-19 pandemic.

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 as of the dates presented (in millions):

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):

Deferred contract costs $ 13.3 $ 12.9

$ 12.9 $ 12.3

Investments in debt and equity securities 11.9 5.3

Pensions plans in which plan assets exceed benefit obligation 8.0 13.0

Tax credits (2)

Other (1) (2)

Total other long-term assets $ 48.0 $ 33.9

_______________________________________

(1) Amount includes costs incurred whose economic benefit will be realized greater than one year from August 31, 2021.

(2) Amount represents research and development tax credit receivables related to certain amended prior year tax returns.

(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.

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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.

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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 $ 132.0 million, $ 121.9 million, and $ 138.4 million in fiscal 2021, 2020, and 2019, respectively.

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.

ACUITY BRANDS, INC

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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 instrument issued.

We account for stock options, restricted stock, performance stock units, and director 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”).

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.

The total income tax benefit recognized for share-based payment expense was $ 6.5 million, $ 6.6 million, and $ 6.5 million for the years ended August 31, 2021, 2020, and 2019, 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.

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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 expense related to share-based payment cost of $ 0.5 million , $ 1.4 million, and $ 1.6 million for the years ended August 31, 2021 , 2020, and 2019, respectively.

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.

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Depreciation expense amounted to $ 53.8 million, $ 59.4 million, and $ 59.4 million during fiscal 2022, 2021, and 2020, respectively.

The balance in property, plant, and equipment consisted of the following as of the dates presented (in millions):

The balance of property, plant, and equipment consists of the following as of the dates presented (in millions):

Land $ 22.0 $ 22.4

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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

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.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statements of Comprehensive Income .

R&D expense amounted to $ 88.3 million, $ 82.0 million, and $ 74.7 million during fiscal 2021, 2020 , and 2019, respectively.

Advertising costs are expensed as incurred and are included within Selling, distribution, and administrative expenses in our Consolidated Statements of Comprehensive Income .

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Interest Expense, Net

Interest expense, net , is comprised primarily of interest expense on long-term debt and line of credit borrowings, partially offset by interest income earned on cash and cash equivalents.

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):

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Interest expense, net $ 24.9 $ 23.2 $ 23.3

Miscellaneous Expense, Net

Miscellaneous 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 expense of $ 1.3 million in fiscal 2021, net expense of $ 5.9 million in fiscal 2020, and net gains of $ 0.6 million in fiscal 2019.

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.

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.

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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.

Other comprehensive income (loss) items includes foreign currency translation and pension adjustments.

ACUITY BRANDS, INC

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Balance as of August 31, 2020 $ ( 53.5 ) $ ( 79.2 ) $ ( 132.7 )

Other comprehensive income (loss) before reclassifications 11.9 ( 0.6 ) 11.3

Other comprehensive income before reclassifications 13.3 13.9 27.2

Amounts reclassified from accumulated other comprehensive loss (1)

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Balance as of August 31, 2021 ( 40.2 ) ( 58.0 ) ( 98.2 )

Other comprehensive income before reclassifications 13.3 13.9 27.2

Other comprehensive (loss) income before reclassifications ( 33.3 ) 0.7 ( 32.6 )

Amounts reclassified from accumulated other comprehensive loss (1)

Net current period other comprehensive income 13.3 21.2 34.5

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 )

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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 income (loss) $ 43.1 $ ( 8.6 ) $ 34.5 $ 20.8 $ ( 2.1 ) $ 18.7 $ ( 44.3 ) $ 7.7 $ ( 36.6 )

Other comprehensive (loss) income $ ( 26.0 ) $ ( 1.6 ) $ ( 27.6 ) $ 43.1 $ ( 8.6 ) $ 34.5 $ 20.8 $ ( 2.1 ) $ 18.7

ACUITY BRANDS, INC

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Accounting Standards Adopted in Fiscal 2022

ASC Topic 326 — Credit Losses (“ASC 326”)

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on the entity's estimate of expected credit losses.

Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance.

These standards have been collectively codified within ASC 326.

The provisions of ASC 326 are effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2019.

We adopted the provisions of ASC 326 as of September 1, 2020, the beginning of fiscal 2021, and applied these changes through an immaterial cumulative-effect adjustment of $ 0.2 million to retained earnings as of the date of adoption.

Our estimation of current expected credit losses reflects our considerations of the impact of general economic conditions, including construction spending, unemployment rates, the effects of the COVID-19 pandemic, and macroeconomic growth, on our customers' ability to meet their obligations.

ASU 2018-15 — Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”)

In August 2018, the FASB issued ASU 2018-15, which requires customers to apply internal-use software guidance to determine the implementation costs that are able to be capitalized.

Capitalized implementation costs are required to be amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use.

ASU 2018-15 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2019.

We adopted ASU 2018-15 as of September 1, 2020 on a prospective basis.

This standard did not have a material effect on our financial condition, results of operations, or cash flows.

Accounting Standards Yet to Be Adopted

ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”)

In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC Topic 740, Income Taxes , and clarifies certain aspects of the current guidance to promote consistency among reporting entities.

Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”)

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC Topic 740, Income Taxes , and clarifies certain aspects of the current guidance to promote consistency among reporting entities.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, or our fiscal 2022.

Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

We do not expect the provisions of ASU 2019-12 to have a material impact on our financial condition, results of operations, and cash flows.

We adopted ASU 2019-12 as of September 1, 2021 as required by the standard.

This standard did not have a material effect on our financial condition, results of operations, or cash flows.

Accounting Standards Yet to Be Adopted

ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”)

In October 2021, the FASB issued ASU 2021-08, which requires companies to recognize and measure contract assets and contract liabilities acquired in a business combination as if the acquiring company originated the related revenue contracts.

ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, or our fiscal 2024, with early adoption permitted.

We are currently assessing the impacts of ASU 2021-08 to determine whether we will adopt early or in fiscal 2024.

Amendments within the standard are required to be applied on a prospective basis from the date of adoption.

We will apply the provisions of ASU 2021-08 after adoption to future acquisitions, if any.

All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.

Note 4 — Acquisitions

The following discussion relates to acquisitions completed during fiscal 2021, 2020, and 2019.

The following discussion relates to fiscal 2021 and 2020 acquisitions.

There were no acquisitions during fiscal 2022.

The $ 12.9 million of cash outflows reflected in the fiscal 2022 Consolidated Statements of Cash Flows relate to fiscal 2021 acquisitions primarily for working capital settlements.

Fiscal 2021 Acquisitions

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This acquisition is intended to enhance our LED driver and controls technology portfolio and accelerate our innovation, expand our access to market through a more fulsome original equipment manufacturer (“OEM”) product offering, and give us more control over our supply chain.

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Rockpile Ventures

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Accounting for Fiscal 2021 Acquisitions

We accounted for the acquisitions of Rockpile Ventures and OSRAM DS in accordance with ASC Topic 805, Business Combinations (“ASC 805”).

Acquired assets and liabilities were recorded at their estimated acquisition-date fair values, and acquisition-related costs were expensed as incurred.

The aggregate purchase price of these acquisitions reflects preliminary goodwill of $ 10.0 million and definite-lived customer-based intangible assets of $ 6.1 million, which have a preliminary useful life of approximately 11 years.

Goodwill recognized from these acquisitions is comprised primarily of expected synergies from obtaining more control over our supply chain and technology, combining the operations of the acquired business with our operations, and acquiring the associated trained workforce.

As of August 31, 2021, goodwill from these acquisitions totaling $ 6.9 million is expected to be tax deductible.

Amounts recognized for these acquisitions are deemed to be provisional until disclosed otherwise, as we continue to gather information related to the identification and valuation of acquired assets and liabilities, including but not limited to, acquired interests in technology startups, tax-related items, final net working capital purchase adjustments, if any, and the residual impacts on the valuation of intangible assets.

Fiscal 2020 and 2019 Acquisitions

We accounted for the acquisitions of Rockpile Ventures and OSRAM DS (collectively the “2021 Acquisitions”) in accordance with ASC Topic 805, Business Combinations (“ASC 805”).

We finalized the acquisition accounting for the 2021 Acquisitions during fiscal 2022.

There were no material changes to our financial statements as a result of the finalization of the acquisition accounting for these acquisitions.

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The aggregate purchase price of the 2021 Acquisitions reflects goodwill of $ 12.3 million and definite-lived customer-based intangible assets of $ 6.7 million, which have a useful life of approximately 11 years.

Goodwill recognized from the 2021 Acquisitions is comprised primarily of expected synergies from obtaining more control over our supply chain and technology, combining the operations of the acquired business with our operations, and acquiring the associated trained workforce.

As of August 31, 2022, goodwill from the 2021 Acquisitions totaling $ 9.2 million is tax deductible.

Fiscal 2020 Acquisitions

The Luminaires Group

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The LocusLabs software platform supports navigation applications used on mobile devices, web browsers, and digital displays in airports, event centers, multi-floor office buildings, and campuses.

WhiteOptics, LLC

On June 20, 2019, using cash on hand, we acquired all of the equity interests of WhiteOptics, LLC (“WhiteOptics”).

WhiteOptics manufactures advanced optical components used to reflect, diffuse, and control light for LED lighting used in commercial and institutional applications.

The operating results of WhiteOptics have been included in our consolidated financial statements since the date of acquisition.

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Accounting for Fiscal 2020 and Fiscal 2019 Acquisitions

Accounting for Fiscal 2020 Acquisitions

The TLG and LocusLabs acquisitions are referred to herein collectively as the “2020 Acquisitions.” We finalized the acquisition accounting for the 2020 Acquisitions during the first quarter of fiscal 2021.

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Identified intangible assets consist of indefinite-lived marketing-related intangibles as well as definite-lived customer-based and technology-based assets, which have a weighted average useful life of approximately 16 years.

Goodwill recognized from these acquisitions is comprised primarily of expected benefits related to complementing and expanding our solutions portfolio, including dynamic lighting and software, as well as the trained workforce acquired with these businesses and expected synergies from combining the operations the acquired businesses with our operations.

Goodwill from these acquisitions totaling $ 77.7 million is tax deductible.

We finalized the acquisition accounting for WhiteOptics in fiscal 2020 in accordance with ASC 805.

There were no material changes to our financial statements as a result of the finalization of the acquisition accounting.

Note 5 — Fair Value Measurements

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In the event of a transfer in or out of a level within the fair value hierarchy, the transfers would be recognized on the date of occurrence.

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Financial Instruments Recorded at Fair Value

We use quoted market prices to determine the fair value of Level 1 assets and liabilities.

Our cash and cash equivalents (Level 1), which are required to be carried at fair value and measured on a recurring basis, were $ 223.2 million and $ 491.3 million as of August 31, 2022 and 2021, respectively.

We hold a small number of strategic investments totaling $ 11.9 million and $ 5.3 million as of August 31, 2022 and 2021, respectively.

These investments are primarily equity instruments in privately-held entities over which we do not exercise significant influence or control.

We generally account for these investments at fair value on a recurring basis;

however, these investments do not have readily determinable fair value.

We have elected the practical expedient in ASC Topic 321, Investments—Equity Securities , to measure these investments at cost less any impairment adjusted for observable price changes, if any.

As such, these investments are excluded from the fair value hierarchy.

During the year ended August 31, 2021, we recorded impairment charges totaling $ 6.0 million for two of these investments, one due to the recapitalization of the underlying company diluting our value and one due to a deterioration in the financial condition and long-term prospects of the underlying company.

These impairment charges are reflected in Miscellaneous (income) expense, net for the year ended August 31, 2021 within our Consolidated Statements of Comprehensive Income.

Changes in the fair values of these financial instruments during the year ended August 31, 2022 and 2021 were not material to our financial condition, results of operations, or cash flows.

Disclosures of Fair Value of Financial Instruments

Disclosures of fair value information about financial instruments, for which it is practicable to estimate that value, are required each reporting period in addition to any financial instruments carried at fair value on a recurring basis as prescribed by ASC Topic 825, Financial Instruments (“ASC 825”).

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Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.

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The carrying values and estimated fair values of certain financial instruments as of the dates presented were as follows (in millions):

August 31, 2021 August 31, 2020

Carrying Value Fair Value Carrying Value Fair Value

Investments in debt and equity securities $ 5.3 $ 5.3 $ 6.0 $ 6.0

Senior unsecured public notes, net of unamortized discount and deferred costs $ 494.3 $ 496.5 $ — $ —

Borrowings under Term Loan Facility — — 395.0 395.0

Industrial revenue bond — — 4.0 4.0

Bank loans — — 2.1 2.3

We hold one convertible debt security investment with a carrying value of $ 4.0 million that is scheduled to mature in September 2023.

At August 31, 2021, the fair value for this instrument approximated its cost based on the contractual terms of the arrangement as well as prevailing market interest rates for debt of similar terms and maturity (Level 2).

We hold equity investments in unconsolidated affiliates without readily determinable fair value.

These strategic investments represent less than a 20% ownership interest in each of the privately-held affiliates, and we do not maintain power over or control of the entities.

We have elected the practical expedient in ASC Topic 321, Investments—Equity Securities , to measure these investments at cost less any impairment adjusted for observable price changes, if any.

Based on these considerations, we estimate that the historical cost less impairments of the acquired shares represents the fair value of the investments as of August 31, 2021.

During the first quarter of fiscal 2021, we recorded an impairment charge for one of these investments for $ 4.0 million as a recapitalization of the underlying company diluted our holding value.

We additionally recorded an impairment charge of $ 2.0 million during the fourth quarter of fiscal 2021 for another investment due to a deterioration in the financial condition and long-term prospects of the underlying company.

These impairments are reflected in Miscellaneous expense, net for the year ended August 31, 2021 within our Consolidated Statements of Comprehensive Income .

Fair value for our outstanding debt obligations is estimated based on discounted future cash flows using rates currently available for debt of similar terms and maturity (Level 2).

Our senior unsecured public notes are carried at the outstanding balance, net of unamortized bond discount and deferred costs, as of the end of the reporting period.

Fair value is estimated based on discounted future cash flows using rates currently available for debt of similar terms and maturity (Level 2).

See Debt and Lines of Credit footnote for further details on our long-term borrowings.

The estimated fair value of our senior unsecured public notes was $ 399.2 million and $ 496.5 million as of August 31, 2022 and 2021, respectively.

The decrease in fair value is due to increases in market bond yields since the end of fiscal 2021.

As of August 31, 2022, we also had $ 18.0 million of short-term borrowings outstanding under our revolving credit facility.

These borrowings are variable-rate instruments that reset on a frequent short-term basis;

therefore, we estimate that the carrying values, which is equal to the face amounts, of these instruments approximate their fair values as of August 31, 2022.

See Debt and Lines of Credit footnote for further details on our outstanding borrowings.

ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.

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Related assets are equal to the calculated lease liabilities adjusted for incentives and other items as prescribed by ASC Topic 842, Leases (“ASC 842”).

We apply the short-term lease exception to leases with a term of 12 months or less and exclude such leases from our Consolidated Balance Sheets .

Payments related to these short-term leases are expensed on a straight-line basis over the lease term and reflected as a component of lease cost within our Consolidated Statements of Comprehensive Income .

Lease payments generally consist of fixed amounts, and variable amounts based on a market rate or an index are not material to our consolidated lease cost.

We have elected to use the practical expedient present in ASC 842 to not separate lease and non-lease

We have elected to use the practical expedient present in ASC 842 to not separate lease and non-lease components for all

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components for all significant underlying asset classes and instead account for them together as a single lease component in the measurement of our lease liabilities.

Generally, the rate implicit in our leases is not readily determinable.

significant underlying asset classes and instead account for them together as a single lease component in the measurement of our lease liabilities.

We apply the short-term lease exception to leases with a term of 12 months or less and exclude such leases from our Consolidated Balance Sheets .

Generally, the rates implicit in our leases are not readily determinable.

Therefore, we discount future lease payments using our estimated incremental borrowing rate at lease commencement.

We determine this rate based on a credit-adjusted risk-free rate, which approximates a secured rate over the lease term.

The weighted average discount rate for operating leases was 2 % as of August 31, 2021 and 2020.

The weighted average discount rate for operating leases was 2.5 % and 2.0 % as of August 31, 2022 and 2021, respectively.

The following table presents the future undiscounted payments due on our operating lease liabilities as well as a reconciliation of those payments to our operating lease liabilities recorded as of the date presented (in millions):

Fiscal year 2021

Fiscal year August 31, 2022

Thereafter 21.1

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Present value of lease liabilities $ 83.1

The weighted average remaining lease term for our operating leases was five years as of August 31, 2021.

Lease cost is recorded within Cost of products sold or Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the primary use of the related right of use (“ROU”) asset.

The weighted average remaining lease term for our operating leases was six years as of August 31, 2022.

Lease cost is recorded within Cost of products sold, and may be capitalized into inventory as manufacturing overhead, or Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the primary use of the related right of use (“ROU”) asset.

The components of total lease cost were as follows during the periods presented (in millions):

Year Ended August 31,

2022 2021 2020

Operating lease cost $ 18.8 $ 18.3 $ 18.1

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Total lease cost $ 25.8 $ 22.5 $ 23.2

Prior to the adoption of ASC 842, we recognized rent expense of $ 22.6 million during the year ended August 31, 2019.

Cash paid for operating lease liabilities during the year ended August 31, 2021 and 2020 was $ 26.2 million and $ 18.7 million, respectively.

ROU assets obtained in exchange for lease liabilities, including those obtained from recent acquisitions, during the year ended August 31, 2021 and 2020 were $ 12.9 million and $ 27.2 million, respectively.

We do not have material leases that have not yet commenced as of August 31, 2021 that create significant rights and obligations.

Cash paid for operating lease liabilities during the year ended August 31, 2022, 2021, and 2020 was $ 18.5 million, $ 26.2 million, and $ 18.7 million, respectively.

ROU assets obtained in exchange for lease liabilities during the year ended August 31, 2022 and 2021 were $ 37.3 million and $ 12.9 million, respectively.

We have entered into an agreement to lease a production facility in Mexico currently under construction that has not commenced as of August 31, 2022.

This lease has an estimated term of ten years and estimated gross payments of approximately $ 18.0 million, which are subject to changes based on a consumer price index throughout the lease term.

We expect the lease to commence during fiscal 2023.

We have no other significant leases that have not yet commenced as of August 31, 2022 that create significant rights and obligations.

We have subleased certain properties.

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We do not have any other significant transactions in which we are the lessor.

During fiscal 2020, we committed to plans to vacate certain leased properties, which indicated that it was more likely than not that the fair value of the related ROU assets were below their carrying values.

We assessed the recoverability of these assets using an undiscounted cash flow model and concluded that the carrying values of the assets were not fully recoverable.

We recorded impairment charges of $ 7.4 million related to these assets using a

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discounted cash flow model to estimate their fair values.

During fiscal 2022 and fiscal 2020, we committed to plans to vacate certain leased properties, which indicated that it was more likely than not that the fair value of the related ROU assets were below their carrying values.

We assessed the recoverability of these assets using an undiscounted cash flow model and concluded that the carrying values of the assets were not fully recoverable.

We recorded impairment charges of $ 1.7 million and $ 7.4 million related to these assets using a discounted cash flow model to estimate their fair values in fiscal 2022 and 2020, respectively.

The fiscal 2022 and 2020 impairments were recorded within Selling, distribution, and administrative expenses and Special charges, respectively in the Consolidated Statements of Comprehensive Income .

The recoverability and impairment tests required significant assumptions including estimated future cash flows, the identification of assets within each asset group, and the determination of appropriate discount rates.

No impairments were recorded for leases in fiscal 2021 or fiscal 2019.

No impairments were recorded for leases in fiscal 2021.

Note 7 — Debt and Lines of Credit

Our debt is carried at the outstanding balance net of any related unamortized discounts and deferred costs and consisted of the following as of the dates presented (in millions):

Our debt is carried at the outstanding balance net of any related unamortized discounts and deferred costs and consists of the following as of the dates presented (in millions):

Senior unsecured public notes due December 2030, principal $ 500.0 $ 500.0

Senior unsecured public notes due December 2030, unamortized discount and deferred costs ( 5.0 ) ( 5.7 )

Borrowings under Term Loan Facility — 395.0

Industrial revenue bond due June 2021 — 4.0

Bank loans — 2.1

Short-term borrowings under credit facility 18.0 —

Total debt $ 513.0 $ 494.3

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issued $ 500.0 million aggregate principal amount of 2.150 % senior unsecured notes due December 15, 2030 (the “Unsecured Notes”).

The Unsecured Notes bear interest at a rate of 2.150 % per annum and were issued at a price equal to 99.737 % of their face value.

Interest on the Unsecured Notes is paid semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2021.

The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands, Inc.

and ABL IP Holding LLC, a wholly-owned subsidiary of Acuity Brands, Inc.

The Unsecured Notes bear interest at a rate of 2.150 % per annum and were issued at a price equal to 99.737 % of their face value.

Additionally, we recorded $ 4.8 million of deferred issuance costs related to the Unsecured Notes as a direct deduction from the face amount of the Unsecured Notes.

These issuance costs are amortized over the 10-year term of the Unsecured Notes.

As of August 31, 2021, the balance of the Unsecured Notes net of unamortized discount and deferred issuance costs was $ 494.3 million.

Additionally, we had $ 4.0 million of tax-exempt industrial revenue bonds and $ 2.1 million under fixed-rate bank loans outstanding as of August 31, 2020.

We repaid the industrial revenue bonds at maturity on June 1, 2021, and we repaid the bank loans in the second quarter of fiscal 2021, prior to their maturity date.

Interest on the Unsecured Notes is paid semi-annually in arrears on June 15 and December 15 of each year.

Lines of Credit

On June 29, 2018, we entered into a credit agreement (“Credit Agreement”) with a syndicate of banks that provides us with a $ 400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) and provided us with a $ 400.0 million Term Loan Facility.

We had $ 395.0 million in borrowings outstanding under the Term Loan Facility as of August 31, 2020, which we fully repaid during the first quarter of fiscal 2021 using the proceeds from the Unsecured Notes.

The Credit Agreement allows for no future borrowings under the Term Loan Facility.

The Credit Agreement expires in June 2023.

Generally, amounts outstanding under the Revolving Credit Facility allow for borrowings to bear interest at either the Eurocurrency Rate or the base rate at our option, plus an applicable margin.

Eurocurrency Rate advances can be denominated in a variety of currencies, including U.S.

Dollars, and amounts outstanding bear interest at a periodic fixed rate equal to the LIBOR for the applicable currency plus an applicable margin.

The Eurocurrency applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 1.000 % to 1.375 % Base rate advances bear interest at an alternate base rate plus an applicable margin.

The base rate applicable margin is based on our leverage ratio, as defined in the Credit Agreement, with such margin ranging from 0.000 % to 0.375 %.

On June 30, 2022, we entered into a credit agreement (the “Credit Agreement”) with a syndicate of banks that provides us with a $ 600.0 million five-year unsecured revolving credit facility (the “Revolving Credit Facility”) with the ability to request an additional $ 400.0 million of borrowing capacity.

The Revolving Credit Facility replaced our previous credit agreement set to expire on June 30, 2022, the details of which can be found in the fiscal 2021 Debt and Lines of Credit footnote of the Notes to Consolidated Footnotes within our 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 27, 2021.

The Revolving Credit Facility uses the Secured Overnight Financing Rate (“SOFR”) as the applicable benchmark for U.S.

Dollar borrowings and an applicable benchmark rate for non-U.S.

Dollar borrowings as defined in the Credit Agreement.

The applicable margin pricing grid mechanics are based on the better of our public credit ratings or our net leverage ratio and range from 0.80 % to 1.20 % for base rate borrowings and from 0.00 % to 0.20 % for floating rate advances.

We are also required to pay certain fees in connection with the Credit Agreement, including administrative service fees and annual facility fees, which range from 0.075 % to 0.175 % of the aggregate $ 600.0 million remaining commitment of the lenders under the Credit Agreement.

The Credit Agreement contains a leverage ratio covenant (“Maximum Leverage Ratio”) of total indebtedness to earnings before interest, tax, depreciation, and amortization (“EBITDA”), as such terms are defined in the Credit

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We are required to pay certain fees in connection with the Credit Agreement, including administrative service fees and annual facility fees.

The annual facility fee is payable quarterly, in arrears, and is determined by our leverage ratio as defined in the Credit Agreement.

The facility fee ranges from 0.125 % to 0.250 % of the aggregate $ 400.0 million remaining commitment of the lenders under the Credit Agreement.

The Credit Agreement contains financial covenants, including a minimum interest expense coverage ratio (“Minimum Interest Expense Coverage Ratio”) and a leverage ratio (“Maximum Leverage Ratio”) of total indebtedness to earnings before interest, tax, depreciation, and amortization (“EBITDA”), as such terms are defined in the Credit Agreement.

These ratios are computed at the end of each fiscal quarter for the most recent 12-month period.

The Credit Agreement generally allows for a Minimum Interest Expense Coverage Ratio of 2.50 and a Maximum Leverage Ratio of 3.50 , subject to certain conditions, as such terms are defined in the Credit Agreement.

The Credit Agreement generally allows for a Maximum Leverage Ratio of 3.75 (subject to temporary increase to 4.25 in the event of a significant acquisition) and allows netting of all unrestricted cash and cash equivalents against debt.

We were in compliance with all financial covenants under the Credit Agreement as of August 31, 2022.

As of August 31, 2022, we had outstanding letters of credit totaling $ 4.1 million, primarily for securing collateral requirements under our casualty insurance programs.

At August 31, 2021, we had additional borrowing capacity under the Credit Agreement of $ 395.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less the outstanding letters of credit of $ 4.1 million issued under the Revolving Credit Facility.

At August 31, 2022, we had additional borrowing capacity under the Credit Agreement of $ 577.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less the outstanding borrowings of $ 18.0 million and letters of credit of $ 4.1 million issued under the Revolving Credit Facility.

None of our existing debt instruments include provisions that would require an acceleration of repayments based solely on changes in our credit ratings.

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Collective bargaining agreements representing approximately 54 % of our work force will expire within one year, primarily due to annual negotiations of union contracts in Mexico.

Securities Class Action

On October 5, 2021, the parties to the shareholder class action litigation previously disclosed (and further described below) executed a term sheet for settlement of the litigation, subject to documentation of the settlement and

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approval of the District Court after notice to class members.

If the settlement is approved, we expect that the agreed-upon settlement payment of $ 15.8 million will be funded entirely by applicable Directors and Officers liability insurance.

As such, we do not anticipate a significant net loss or cash outflow as a result of the settlement of this matter.

The case was originally filed on January 3, 2018, in the United States District Court for the District of Delaware against the Company and certain of our officers on behalf of all persons who purchased or otherwise acquired our stock between June 29, 2016 and April 3, 2017.

On February 20, 2018, a different shareholder filed a second class action complaint in the same venue against the same parties on behalf of all persons who purchased or otherwise acquired our stock between October 15, 2015 and April 3, 2017.

The cases were transferred on April 30, 2018, to the United States District Court for the Northern District of Georgia and subsequently were consolidated as In re Acuity Brands, Inc.

Securities Litigation, Civil Action No.

1:18-cv-02140-MHC (N.D.

On October 5, 2018, the court-appointed lead plaintiff filed a consolidated amended class action complaint (the “Consolidated Complaint”), which supersedes the initial complaints.

The Consolidated Complaint is brought on behalf of all persons who purchased our common stock between October 7, 2015 and April 3, 2017 and alleges that we and certain of our former officers/executives violated the federal securities laws by making false or misleading statements and/or omitting to disclose material adverse facts that (i) concealed known trends negatively impacting sales of our products and (ii) overstated our ability to achieve profitable sales growth.

The plaintiffs seek unspecified monetary damages, costs, and attorneys’ fees.

We dispute the allegations in the complaints.

We filed a motion to dismiss the Consolidated Complaint.

On August 12, 2019, the court entered an order granting our motion to dismiss in part and dismissing all claims based on 42 of the 47 statements challenged in the Consolidated Complaint but also denying the motion in part and allowing claims based on five challenged statements to proceed to discovery.

The Eleventh Circuit Court of Appeals granted the Company permission to file an interlocutory appeal of the District Court’s class certification order, and the briefing of that appeal has been completed.

On October 7, 2021, the Eleventh Circuit Court of Appeals entered an order holding the appeal from the class certification order in abeyance pending a decision from the District Court concerning approval of the proposed settlement.

Shareholder Derivative Complaint

On October 1, 2021, certain alleged shareholders of the Company filed a putative derivative complaint in the United States District Court for the Northern District of Georgia asserting claims against three of the individuals named as defendants in the above securities action for breach of fiduciary duty and certain other claims arising out of the alleged facts and circumstances upon which the claims in the above securities class action are based (the “Derivative Complaint”).

As previously disclosed, on October 1, 2021, certain alleged shareholders of the Company filed a putative derivative complaint in the United States District Court for the Northern District of Georgia asserting claims against three former executives for breach of fiduciary duty and certain other claims (the “Derivative Complaint”).

The Company is named as a nominal defendant, and the plaintiffs seek on behalf of the Company unspecified damages from the individual defendants and other relief.

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The Company’s Board formed a demand evaluation committee consisting of independent directors to investigate these matters and make a recommendation to the Board regarding the best interests of the Company in connection therewith.

The committee’s work is ongoing.

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December 14, 2021, the Company filed a motion to stay the derivative action pending the conclusion of the related securities class action or, in the alternative, to dismiss the derivative action without prejudice as premature, given the demand evaluation committee’s ongoing work.

Also on December 14, 2021, the individual defendants filed a motion to dismiss the Derivative Complaint for failure to adequately plead any claim for relief against them.

On August 3, 2022, the Court entered a stipulated consent order extending the deadline for the individual defendants and the Company to answer, move against, or otherwise respond to the Derivative Complaint until thirty days after the filing of an amended complaint or the designation of an operative complaint.

Subsequently, the demand evaluation committee completed its investigation and recommended that the Board reject the demands and direct the Company to seek dismissal of the Derivative Complaint.

The Board approved and adopted the recommendation from the committee and rejected the demands and directed the Company to seek dismissal of the Derivative Complaint.

The parties advised the Court of the Board’s decision during the status conference held on October 6, 2022.

The Court directed the parties to submit a written status report within forty-five days as to the litigation.

Estimating an amount or range of possible losses or gains resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key evidential and legal issues have not been resolved.

For these reasons, we are currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or gains or a range of possible losses or gains resulting from the matters described above.

We are subject to various other legal claims arising in the normal course of business, including patent infringement, employment matters, and product liability claims.

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The actual costs of resolving legal claims may be substantially higher than the amounts accrued for such claims.

However, we cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or

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lower than the accrued amounts.

However, we cannot make a meaningful estimate of actual costs to be incurred that could possibly be higher or lower than the accrued amounts.

Environmental Matters

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Our products generally have a standard warranty term of five years that assure our products comply with agreed upon specifications.

We record an accrual for the estimated amount of future warranty costs when the related revenue is recognized.

Estimated costs related to product recalls based on a formal campaign soliciting repair or return of that product are accrued when they are deemed to be probable and can be reasonably estimated.

Estimated future warranty and recall costs are primarily based on historical experience of identified warranty and recall claims.

However, there can be no assurance that future warranty or recall costs will not exceed historical amounts or that new technology products may not generate unexpected costs.

We record an accrual for the estimated amount of future warranty costs when the related revenue is recognized in accordance with ASC Topic 450, Contingencies (“ASC 450”).

Estimated future warranty

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and recall costs are primarily based on historical experience of identified warranty and recall claims.

Estimated costs related to product warranty and recall costs outside of our historical experience, which could include significant product recalls or formal campaigns soliciting repair or return of a product, are accrued when they are deemed to be probable and can be reasonably estimated.

Any estimated or actual loss recoveries that offset our costs and payments are reflected as assets and included within Other current assets or Other long-term assets based on the timing of receipt of recovery.

There can be no assurance that future warranty or recall costs will not exceed historical amounts or that new technology products may not generate unexpected costs.

If actual future warranty or recall costs exceed historical amounts, additional increases in the accrual may be required, which could have a material adverse impact on our results of operations and cash flows.

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Warranty and recall costs (1)

52.4 32.3 32.0

Payments and other deductions (1)

( 45.4 ) ( 28.4 ) ( 27.5 )

Acquired warranty and recall liabilities — 0.3 0.1

ASC 606 adjustments (1)

Ending balance $ 27.3 $ 20.3 $ 16.1

____________________________

(1) Certain service-type warranties accounted for as contingent liabilities prior to the adoption of ASC 606 (defined below) are now reflected as contract liabilities effective September 1, 2018.

(1) Amounts exclude any estimated or actual loss recoveries.

Note 9 — Segment Information

During the third quarter of fiscal 2021, we completed a realignment of our operations and structure to better support our business strategy.

As a result, beginning in the third quarter of fiscal 2021, we now report our financial results of operations in two reportable segments, ABL and ISG, consistent with how our chief operating decision maker

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

currently evaluates operating results, assesses performance, and allocates resources within the Company.

We have recast historical information to conform to the current segment structure.

The accounting policies of our reportable segments are the same as those described in the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements within our Form 10-K.

We present our financial results of operations for our two reportable segments, ABL and ISG, consistent with how our chief operating decision maker evaluates operating results, assesses performance, and allocates resources within the Company.

The accounting policies of our reportable segments are the same as those described in the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements .

Corporate expenses that are primarily administrative in function and benefit the Company on an entity-wide basis are not allocated to our segments.

These include expenses related to governance, policy setting, compliance, and certain other shared services functions.

Additionally, we do not allocate net interest expense, miscellaneous expense, special charges, or assets to our segments.

Additionally, we do not allocate net interest expense, net miscellaneous expense, special charges, or assets to our segments.

Accordingly, this information is not used by the chief operating decision maker to make operating decisions and assess performance and is therefore excluded from our disclosures.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents financial information by operating segment for the periods presented (in millions):

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Interest expense, net 24.9 23.2 23.3

Miscellaneous expense, net 8.2 5.9 4.7

Miscellaneous (income) expense, net ( 9.1 ) 8.2 5.9

Income before income taxes $ 493.9 $ 396.2 $ 324.7

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Sales and use taxes collected on behalf of governmental authorities are excluded from revenues.

Payment is generally due and received within 60 days from the point of sale or prior to the transfer of control of certain goods and services.

No payment terms extend beyond one year, and we apply the practical expedient within ASC Topic 606 — Revenue from Contracts with Customers (“ASC 606”) to conclude that no significant financing terms exist within our contracts with customers.

Allowances for cash discounts to customers are estimated using the expected value method based on historical experience and are recorded as a reduction to sales.

Our standard terms and conditions of sale allow for the return of certain products within four months of the date of shipment.

Payment is generally due and received within 60 days from the point of sale.

In some instances, such as for software as a service agreements, payment is made prior to the transfer of control of goods and services.

Payment terms generally do not extend beyond one year, and we apply the significant financing component practical expedient within ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Accruals for cash discounts to customers are estimated using the expected value method based on historical experience and are recorded as a reduction to sales.

Our standard terms and conditions of sale generally allow for the return of certain products within four months of the date of shipment.

We also provide for limited product return rights to certain distributors and other customers, primarily for slow moving or damaged items subject to certain defined criteria.

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A significant increase in product returns could have a material adverse impact on our operating results in future periods.

Refund liabilities recorded under ASC 606 related to rights of return, cash discounts, and other miscellaneous credits to customers were $ 28.1 million and $ 31.0 million as of August 31, 2021 and August 31, 2020, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets .

Refund liabilities recorded under ASC 606 related to rights of return, cash discounts, and other miscellaneous credits to customers were $ 28.0 million and $ 28.1 million as of August 31, 2022 and 2021, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets .

Additionally, we record right of return assets for products expected to be returned to our distribution centers, which are included within Prepayments and other current assets on the Consolidated Balance Sheets .

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Shipping and Handling Activities

We account for all shipping and handling activities as activities to fulfill the promise to transfer products to our customers.

We account for all shipping and handling activities for customers as activities to fulfill the promise to transfer products to our customers.

As such, we do not consider shipping and handling activities to be separate performance obligations, and we expense these costs as incurred.

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Revenue earned from beginning contract balances during the year ended August 31, 2022 approximated the current deferred revenue balance at August 31, 2021.

Non-current deferred revenues primarily consist of long-term service-type warranties, which are typically recognized ratably as revenue between five and ten years from the date of sale, and are included within Other long-term liabilities on the Consolidated Balance Sheets.

Non-current deferred revenues primarily consist of long-term service-type warranties, which are typically recognized ratably as revenue between five years and ten years from the date of sale, and are included within Other long-term liabilities on the Consolidated Balance Sheets.

ACUITY BRANDS, INC

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Disaggregated Revenues

Our ABL segment's lighting and lighting controls are sold primarily through independent sales agents who cover specific geographic areas and market channels, by internal sales representatives, through consumer retail channels, and directly to large corporate accounts.

ISG sells predominantly to system integrators.

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In January 2022, our stockholders approved the Amended and Restated Acuity Brands, Inc.

2012 Omnibus Stock Compensation Incentive Plan (the “Stock Incentive Plan”), which, among other things, resulted in an aggregate of 2.7 million of shares authorized for issuance pursuant to the Stock Incentive Plan.

The Compensation Committee of the Board of Directors (the “Compensation Committee") is authorized to issue awards consisting of incentive and non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock awards, performance stock units, stock bonus awards, and cash-based awards to eligible employees, non-employee directors, and outside consultants.

Shares available for grant under the Stock Incentive Plan, including those previously issued and outstanding prior to the amendment, were approximately 0.3 million, 0.7 million, and 1.4 million at August 31, 2021, 2020, and 2019, respectively.

2012 Omnibus Stock Compensation Incentive Plan (the “Stock Incentive Plan”), which, among other things, increased the total number of shares authorized for issuance pursuant to the Stock Incentive Plan from 2.7 million to 3.6 million, with a corresponding increase to shares available for grant.

The Compensation and Management Development Committee of the Board of Directors (the “Compensation Committee") is authorized to issue awards consisting of incentive and non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock awards, performance stock units, stock bonus awards, and cash-based awards to eligible employees, non-employee directors, and outside consultants.

Shares available for grant under the Stock Incentive Plan were approximately 1.1 million, 0.3 million, and 0.7 million at August 31, 2022, 2021, and 2020, respectively.

Any shares subject to an award under the Stock Incentive Plan that are forfeited, canceled, expired, or settled for cash will be available for future grant under the Stock Incentive Plan.

Restricted stock awards, performance stock awards, and director stock units representing certain deferrals into the Director Deferred Compensation Plan are valued based on the fair value of our common stock on the grant date.

Restricted stock awards, performance stock awards, and director stock units representing certain deferrals into the Director Plan are valued based on the fair value of our common stock on the grant date.

We review the values of our performance awards on a frequent and recurring basis and adjust those values based on the probability that the related performance metric will be satisfied.

We utilize the Black-Scholes model in deriving the fair value estimates of our stock option awards that only have a service requirement, and we utilize the Monte Carlo simulation model to determine grant date fair value estimates of stock options also subject to a market condition.

Effective for certain restricted stock and performance stock grants awarded in fiscal 2020, the Compensation Committee reinstated a policy that provides for the continued vesting of stock awards following retirement for all eligible participants who have attained age 60 and have at least ten years of service with the Company.

Restricted stock and performance stock awards granted from October 2019 to September 2020 provided for the continued vesting of stock awards following retirement for all eligible participants who have attained age 60 and have at least ten years of service with the Company.

We deem the requisite service period for these awards for a participant to be the shorter of either the award's stated vesting period or the time from grant until the participant satisfies the age and service criteria.

The Compensation Committee discontinued this policy effective for restricted stock and performance stock grants awarded in October 2020 and thereafter.

This provision was removed from any restricted stock and performance stock awards granted during or after October 2020.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effective for performance stock unit grants awarded in fiscal 2021, the Compensation Committee approved an amendment to replace the retirement provision that states if a person who receives a performance stock unit award has five years of service, a portion of the award becomes non-forfeitable on each anniversary date of the grant.

Effective for performance stock unit grants awarded in fiscal 2021 and after, the Compensation Committee amended the retirement provision to provide that a portion of any performance stock unit granted becomes non-forfeitable on the anniversary of the date of grant if the recipient has five years of service.

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.

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Restricted Stock

As of August 31, 2021, we had approximately 0.4 million shares outstanding of restricted stock to officers, directors, and other key employees under the Stock Incentive Plan, including restricted stock units.

The grants vest primarily over a four-year period and are valued at the closing stock price on the date of the grant.

As of August 31, 2022, we had approximately 0.3 million shares outstanding of restricted stock to officers, directors, and other key employees under the Stock Incentive Plan.

Grants awarded prior to fiscal 2022 vest primarily over a four-year period, and grants awarded beginning in fiscal 2022 vest primarily over a three-year period.

Our restricted stock grants are valued at the closing stock price on the date of the grant.

Activity related to restricted stock awards during the periods presented was as follows (in millions, except per share data):

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Outstanding at August 31, 2022 0.3 $ 144.51

___________________________

* Represents amounts of less than 0.1 million.

As of August 31, 2022, there was $ 30.0 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.5 years.

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Stock Options

As of August 31, 2021, we had approximately 1.2 million options outstanding to officers and other key employees under the Stock Incentive Plan.

Of these options, 0.8 million vest and become exercisable over a three-year period (the "Service Options").

The remaining 0.4 million vest and become exercisable over a four-year period and are also subject to a market condition (the "Market Options").

As of August 31, 2022, we had approximately 1.1 million options outstanding to officers and other key employees under the Stock Incentive Plan, all of which were granted in previous fiscal years.

Of these options, 0.7 million were granted in fiscal 2020 or prior and vest and become exercisable over a three-year period (the "Service Options").

The remaining 0.4 million were granted in fiscal 2021 and 2020, become exercisable over a four-year period, and are also subject to a market condition (the "Market Options").

Options issued under the Stock Incentive Plan are generally granted with an exercise price equal to the fair market value of our stock on the date of grant, but never less than the fair market value on the grant date, and expire 10 years from the date of grant.

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Risk-free interest rate 0.7 % 1.5 % 1.3 %

Expected life of options 8 years 7 years 5 years 4 years

Expected life of options 8 years 7 years 5 years

Weighted-average fair value of options $ 40.45 $ 44.74 $ 34.22

There were no Market Options granted in fiscal 2019.

There were no Service Options granted during the fiscal year ended August 31, 2021.

ACUITY BRANDS, INC

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Granted 0.5 $ 121.87

Exercised — * $ 116.36

Outstanding at August 31, 2020 0.9 $ 133.19 0.4 $ 151.07

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Outstanding at August 31, 2021 1.2 $ 127.98 0.5 $ 142.36

Granted 0.3 $ 108.96

Exercised ( 0.1 ) $ 88.94

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0.1 $ 239.76 0.1 $ 239.76

$ 210.01 - $ 239.76 (average life - 5.1 years)

___________________________

* Represents amounts of less than 0.1 million.

The total intrinsic value of options exercised was $ 1.2 million during the year ended August 31, 2021 and de minimis during the year ended August 31, 2020.

The total intrinsic value of options exercised was $ 14.0 million during the year ended August 31, 2022 and $ 1.2 million during the year ended August 31, 2021.

There were no options exercised during fiscal 2020.

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Director Deferred Stock Units

Total shares available for issuance under the Director Plan were approximately 0.3 million, 0.3 million, and 0.4 million at August 31, 2021, 2020, and 2019, respectively.

In January 2022, the total remaining shares available for issuance under the Director Plan were transferred into the Stock Incentive Plan.

As of August 31, 2022, approximately 0.1 million stock units were deferred but undistributed under the Director Plan.

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Plan assets are invested primarily in equity and fixed income securities.

Current period net actuarial gains in our projected benefit obligation primarily reflect an increase in the discount rate from our prior year valuation, partially offset by settlement losses during the year ended August 31, 2021.

Current period net actuarial gains in our projected benefit obligation primarily reflect an increase in the discount rate from our prior year valuation.

ACUITY BRANDS, INC

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Plan assets 141.5 156.0 28.5 —

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Service cost of net periodic pension cost is allocated between Cost of products sold and Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the function of the employee's services.

All other components of net periodic pension cost are included within Miscellaneous expense, net in the Consolidated Statements of Comprehensive Income .

Service cost of net periodic pension cost is allocated between Cost of products sold, and may be capitalized into inventory as labor costs, and Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the function of the employee's services.

All other components of net periodic pension cost are included within Miscellaneous (income) expense, net in the Consolidated Statements of Comprehensive Income .

We utilize a corridor approach to amortize cumulative unrecognized actuarial gains or losses over either the average expected future service of active participants or average life expectancy of plan participants based on each plan’s composition.

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Amounts related to prior service cost are amortized over the average remaining expected future service period for active participants in each plan.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net periodic pension cost during the periods presented included the following components before tax (in millions):

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At August 31, 2022, the U.S.

targeted asset allocation was 40 % equity securities, 55 % fixed income

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

securities, and 5 % real estate securities.

targeted asset allocation was 30 % equity securities, 65 % fixed income securities, and 5 % real estate securities.

Our investment objective for the international plan assets is also to add value by exceeding the long-term growth of the plans’ liabilities.

At August 31, 2022, the international asset target allocation approximated 15 % equity securities, 25 % fixed income securities, and 60 % multi-strategy investments.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our pension plan asset allocation by asset category as of the dates presented is as follows:

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Collective Trust

The collective trust seeks to outperform the overall small-cap stock market and is comprised of small-cap equity securities with quoted prices in active markets for identical investments.

The collective trust seeks to outperform the overall small-cap stock market and is comprised primarily of small-cap equity securities with quoted prices in active markets for identical investments.

The value of this fund is calculated on each business day based on its daily net asset value;

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This investment is valued based on the NAV per share, without further adjustment.

The NAV, as provided by the fund's trustee, is used as a practical expedient to estimate fair value and is therefore excluded from the fair value

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The NAV, as provided by the fund's trustee, is used as a practical expedient to estimate fair value and is therefore excluded from the fair value hierarchy.

NAV is based on the fair value of the underlying investments.

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Each investor must provide a written redemption request at least sixty days prior to the end of the quarter for which the request is to be effective.

If insufficient funds are available to honor all redemption requests at any point in time, available funds will be allocated pro-rata based on the total number of shares held by each investor.

If insufficient funds are available to honor all redemption requests at any point in time, available funds will be allocated pro-rata based on the total number of

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

shares held by each investor.

All decisions regarding whether to honor redemption requests are made by the fund’s board of directors.

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Multi-employer Pension Plans

We contribute to two multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of our union-represented employees.

We have contributed to two multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of our union-represented employees.

The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:

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• If a participating employer chooses to stop participating in some of its multi-employer plans, the employer may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Our contributions to these plans were $ 0.6 million for the years ended August 31, 2021 and 2020, and $ 0.5 million for the year ended August 31, 2019.

Our contributions to these plans were $ 0.5 million for the year ended August 31, 2022, and $ 0.6 million for the years ended August 31, 2021 and 2020.

Defined Contribution Plans

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At August 31, 2022, assets of the domestic defined contribution plans included shares of our common stock with a market value of approximately $ 7.3 million, which represented approximately 1.7 % of the total fair market value of the assets in our domestic defined contribution plans.

Note 13 — Special Charges

During the year ended August 31, 2021, we recognized pre-tax special charges of $ 3.3 million.

These charges consisted primarily of charges for relocation costs and adjustments related to severance costs associated with the previously announced transfer of activities from planned facility closures as well as other streamlining activities.

The details of the special charges during the periods presented are summarized as follows (in millions):

Year Ended August 31,

2021 2020 2019

Severance and employee-related costs $ 1.7 $ 9.3 $ ( 0.5 )

ROU lease asset impairment charges — 7.4 —

Relocation and other restructuring costs 1.6 3.3 2.3

Total special charges $ 3.3 $ 20.0 $ 1.8

As of August 31, 2021, remaining accruals were $ 1.7 million and are included in Accrued compensation in the Consolidated Balance Sheets .

The changes in the accruals related to these programs during the period presented are summarized as follows (in millions):

August 31, 2021

Balance as of August 31, 2020 $ 3.0

Severance costs 1.7

Relocation and other restructuring costs 1.6

Payments made during the period ( 4.6 )

Balance as of August 31, 2021 $ 1.7

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 — Common Stock and Related Matters

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As of August 31, 2022 and 2021, we had 21.8 million and 18.8 million of repurchased shares recorded as treasury stock at an original repurchase cost of $ 2.18 billion and $ 1.66 billion, respectively.

During fiscal 2021, we repurchased 3.8 million shares of our outstanding common stock.

During fiscal 2022, we repurchased approximately 2.9 million shares of our outstanding common stock.

As of August 31, 2022, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 2.8 million shares.

We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible capital allocation priorities.

We may repurchase shares of our common stock from time to time at prevailing market prices, depending on market conditions, through open market or privately negotiated transactions.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Preferred Stock

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The dilutive effects of share-based payment awards subject to market and/or performance conditions that were not met during the period are excluded from the computation of diluted earnings per share.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table calculates basic earnings per common share and diluted earnings per common share during the periods presented (in millions, except per share data):

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Basic earnings per share (1)

$ 11.23 $ 8.44 $ 6.29

Diluted earnings per share (1)

$ 11.08 $ 8.38 $ 6.27

____________________

(1) Earnings per share is calculated using unrounded numbers.

Amounts in the table may not recalculate exactly due to rounding.

The following table presents stock options, restricted stock awards, and performance stock units that were excluded from the diluted earnings per share calculation for the periods presented as the effect of inclusion would have been antidilutive (in millions):

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* Represents shares of less than 0.1 million.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Income Taxes

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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.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States.

Among other provisions, the IRA includes a 15% corporate alternative minimum tax rate applicable for our fiscal 2024 taxable year and a 1% federal excise tax on corporate stock repurchases made after December 31, 2022.

We do not expect the IRA to have a material impact on our financial condition, results of operations, or cash flows.

The provision for income taxes consists of the following components during the periods presented (in millions):

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Provision for current foreign taxes 25.4 14.4 16.0

(Benefit) provision for deferred taxes ( 2.7 ) ( 6.7 ) 9.3

Provision for (benefit from) deferred taxes 0.6 ( 2.7 ) ( 6.7 )

Total provision for income taxes $ 109.9 $ 89.9 $ 76.4

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles the provision at the federal statutory rate to the total provision for income taxes during the periods presented (in millions):

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State income tax, net of federal income tax benefit 13.5 10.7 9.7

Federal permanent differences ( 4.3 ) 0.6 0.9

Foreign permanent differences and rate differential 4.3 2.4 2.4

Discrete income tax benefits of the U.S.

Tax Cuts and Jobs Act — — ( 2.2 )

Research and development tax credits ( 7.6 ) ( 7.6 ) ( 7.1 )

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Total provision for income taxes $ 109.9 $ 89.9 $ 76.4

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Components of the net deferred income tax liabilities as of the dates presented include (in millions):

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We account for the tax on Global Intangible Low-Taxed Income (“GILTI”) as a period cost and, therefore, do not record deferred taxes related to GILTI on our foreign subsidiaries.

At August 31, 2021, we had state tax credit carryforwards of approximately $ 1.5 million, which will expire beginning in 2022.

At August 31, 2021, we had federal net operating loss carryforwards of $ 28.7 million that expire beginning in 2029, state net operating loss carryforwards of $ 30.1 million that began expiring in 2022, and foreign net operating loss carryforwards of $ 3.4 million that expire beginning in 2026.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At August 31, 2022, we had federal tax credit carryforwards of approximately $ 4.9 million that begin to expire in 2029, and state tax credit carryforwards of less than $ 0.1 million, that begin to expire in 2028.

The $ 4.9 million in federal tax credit carryforwards are subject to a full valuation allowance as we do not expect to realize any future tax benefit.

At August 31, 2022, we had federal net operating loss carryforwards of $ 13.6 million that begin to expire in 2029, state net operating loss carryforwards of $ 33.9 million that begin to expire in 2023, and foreign net operating loss carryforwards of $ 7.1 million that begin to expire in 2028.

The gross amount of unrecognized tax benefits as of August 31, 2022 and 2021 totaled $ 19.5 million and $ 17.7 million, respectively, which includes $ 18.8 million and $ 17.1 million, respectively, of net unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.

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With few exceptions, we are no longer subject to United States federal, state, and local income tax examinations for years ended before 2016 or for foreign income tax examinations before 2017.

We do not anticipate unrecognized tax benefits will significantly increase or decrease within the next twelve months.

We do not anticipate unrecognized tax benefits will significantly increase or decrease within the next 12 months.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles the change in the unrecognized income tax benefit (reported in Other long-term liabilities on the Consolidated Balance Sheets ) during the periods presented (in millions):

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We do not currently anticipate material audit assessments.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Supplemental Disaggregated Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data