What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-10-26 compared with 2022-10-26 · 412 added, 267 removed, 1169 unchanged (37% of the section changed)

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Note 3 — New Accounting Pronouncements

Note 4 — Acquisitions

Note 4 — Acquisitions and Divestitures

Note 5 — Fair Value Measurements

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Note 12 — Pension and Defined Contribution Plans

Note 13 — Special Charges

Note 14 — Common Stock and Related Matters

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Based on this assessment, management believes that, as of August 31, 2023, 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 business of KE2 Therm Solutions, Inc., (“KE2 Therm”), which is included in the Company’s consolidated financial statements as of August 31, 2023 and for the period from the acquisition date of May 15, 2023 through August 31, 2023.

As of August 31, 2023, KE2 Therm constituted less than 2% of both the Company’s consolidated assets and stockholders' equity.

For the year ended August 31, 2023, KE2 Therm constituted less than 1% of both the Company's net sales and pre-tax income.

Ernst & Young LLP (PCAOB ID:

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Acuity Brands, Inc.

To the Stockholders and the Board of Directors of Acuity Brands, Inc.

Opinion on the Financial Statements

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Valuation of Indefinite-Lived Trade Names

Description of the Matter At August 31, 2022, the Company’s indefinite-lived intangible assets consisted of thirteen trade names with an aggregate carrying value of approximately $173.7 million.

As explained in Note 2 to the consolidated financial statements, the Company tests indefinite-lived trade names for impairment on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not indicate that the fair value of the indefinite-lived trade name is below its carrying amount.

Description of the Matter As explained in Notes 2 and 5 to the consolidated financial statements, the Company tests indefinite-lived trade names for impairment on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not indicate that the fair value of the indefinite-lived trade name is below its carrying amount.

The Company’s indefinite-lived intangible assets consisted of thirteen trade names with an aggregate carrying value of approximately $173.4 million as of June 1, 2023, the Company’s annual indefinite-lived trade name testing date.

If the carrying amount exceeds the estimated fair value, an impairment loss would be recorded in the amount equal to the excess.

As described in Notes 2 and 5, the Company recognized an impairment charge of approximately $14.0 million for six of these trade names.

Auditing the Company’s impairment tests for indefinite-lived trade names was especially complex due to the judgmental nature of the significant assumptions used in the determination of estimated fair values for trade names.

The Company estimates the fair values of trade names using a fair value model based on discounted future cash flows.

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.

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 materially affected by economic, industry and company-specific qualitative factors.

How We Addressed the Matter in Our Audit

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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, 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.

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

For the six trade names that were impaired, we involved our valuation specialists to assist in evaluating the Company’s discounted cash flow model and certain assumptions including the discount rates and royalty rates.

In addition, we considered the accuracy of the Company’s historical projections of net sales compared to actual net sales.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Acuity Brands, Inc.

To the Stockholders and the Board of Directors of Acuity Brands, Inc.

Opinion on Internal Control Over Financial Reporting

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of August 31, 2023, 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 business of KE2 Therm Solutions, Inc.

(KE2 Therm), which is included in the 2023 consolidated financial statements of the Company and constituted less than 2% of both the Company’s consolidated assets and stockholders’ equity, as of August 31, 2023 and less than 1% of both 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 KE2 Therm.

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, 2023 and 2022, the related consolidated statements of comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended August 31, 2023, and the related notes and our report dated October 26, 2023 expressed an unqualified opinion thereon.

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Interest expense, net 18.9 24.9 23.2

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

Miscellaneous expense (income), net 7.8 ( 9.1 ) 8.2

Total other expense 26.7 15.8 31.4

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Net income $ 346.0 $ 384.0 $ 306.3

Other comprehensive income (loss) items:

Other comprehensive income (loss) items, net of tax:

Foreign currency translation adjustments 8.5 ( 33.3 ) 13.3

Defined benefit plans, net of tax 5.7 21.2 6.8

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

Defined benefit plans 4.7 5.7 21.2

Other comprehensive income (loss) items, net of tax 13.2 ( 27.6 ) 34.5

Comprehensive income $ 359.2 $ 356.4 $ 340.8

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Share-based payment expense 42.0 37.4 32.5

(Gain) loss on the sale or disposal of property, plant, and equipment ( 2.3 ) ( 0.1 ) 0.3

Gain on the sale or disposal of property, plant, and equipment — ( 2.3 ) ( 0.1 )

Asset impairments 20.8 1.7 6.0

Loss on sale of a business 11.2 — —

Deferred income taxes ( 47.8 ) 0.6 ( 2.7 )

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Common Stock Outstanding

Shares Amount Paid-in

Amount Paid-in

Capital Retained

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Net income — — — 306.3 — — 306.3

Other comprehensive income — — — — 18.7 — 18.7

Other comprehensive income, net of tax — — — — 34.5 — 34.5

Share-based payment amortization, issuances, and cancellations 0.1 — 28.8 — — — 28.8

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Stock options exercised — — 2.2 — — — 2.2

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

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

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Net income — — — 384.0 — — 384.0

Other comprehensive income — — — — 34.5 — 34.5

Other comprehensive loss, net of tax — — — — ( 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

Net income — — — 346.0 — — 346.0

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

Other comprehensive income, net of tax — — — — 13.2 — 13.2

Share-based payment amortization, issuances, and cancellations 0.2 — 27.8 — — — 27.8

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Balance, August 31, 2023 31.1 $ 0.5 $ 1,066.8 $ 3,505.4 $ ( 112.6 ) $ ( 2,444.7 ) $ 2,015.4

______________________________

(1) Share activity and balances above calculated using rounded numbers.

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

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

Our ABL strategy is to increase product vitality, improve service levels, use technology to improve and differentiate both our products and our services, and drive productivity.

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 ® , 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.

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

Our customers are located in North America and select international markets that serve 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, directly to large corporate accounts, and directly to OEM customers.

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, 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 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.

Our ISG strategy is to make spaces smarter, safer, and greener by connecting the edge to the cloud.

ISG offers building management solutions and building management software.

Our building management solutions include products for controlling heating, ventilation, air conditioning (“HVAC”);

refrigeration;

and building access that deliver end-to-end optimization of those building systems.

Our 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 software delivers different applications, allows clients to upgrade over time with natural refresh cycles, and deploys new capabilities.

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 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.

ISG products and solutions are marketed under multiple brand names, including but not limited, to Atrius ® , Distech Controls ® , and KE2 Therm Solutions ® .

Basis of Presentation

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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.

however, there can be no assurance that unanticipated future business conditions of customers will not have a negative impact on our results of operations, financial condition, or cash flows.

Concentrations of Credit Risk

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One customer accounted for approximately 10 % of receivables at August 31, 2023 and at August 31, 2022.

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 2023, 2022, or 2021.

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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.

We did not have any assets classified as held for sale at August 31, 2023 or 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.

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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 )

Balance as of August 31, 2022 1,014.2 70.1 1,084.3

Additions from acquired businesses — 15.2 15.2

Adjustments to provisional amounts from acquired businesses — ( 0.2 ) ( 0.2 )

Derecognitions for divestitures ( 0.7 ) — ( 0.7 )

Foreign currency translation adjustments 0.9 ( 1.6 ) ( 0.7 )

Balance as of August 31, 2023 $ 1,014.4 $ 83.5 $ 1,097.9

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

Through multiple acquisitions, we acquired definite-lived intangible assets that are amortized over their estimated useful lives.

Indefinite-lived intangible assets consist of trade names that are expected to generate cash flows indefinitely.

Significant estimates and assumptions were used to determine the initial fair value of these acquired intangible assets, including estimated future short-term and long-term net sales and profitability, customer attrition rates, royalty rates, and discount rates.

Certain of our intangible assets are attributable to foreign operations and are impacted by currency translation due to movements in foreign currency rates year over year.

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

Gross Carrying

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Indefinite-lived trade names $ 135.6 $ 173.7

Through multiple acquisitions, we acquired definite-lived intangible assets consisting primarily of customer relationships, patented technology, distribution networks, and trademarks and trade names associated with specific products, which are amortized over their estimated useful lives.

Indefinite-lived intangible assets consist of trade names that are expected to generate cash flows indefinitely.

Certain of our intangible assets are attributable to foreign operations and are impacted by currency translation due to movements in foreign currency rates year over year.

We recorded amortization expense of $ 42.1 million, $ 41.0 million, and $ 40.7 million related to acquired intangible assets during fiscal 2023, 2022 , and 2021, respectively.

Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $ 39.6 million in fiscal 2024, $ 32.2 million in fiscal 2025, $ 29.5 million in fiscal 2026, $ 28.0 million in fiscal 2027, and $ 23.9 million in fiscal 2028.

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”).

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 if facts and circumstances indicate an asset is more likely than not impaired, 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 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.

The quantitative analysis for goodwill tests for impairments by comparing the fair value of a reporting unit to its carrying value, including goodwill.

Reporting unit fair values can be determined based on a combination of valuation techniques including the expected present value of future cash flows, a market multiple approach, and a comparable transaction approach.

If the fair value of a reporting unit exceeds its carrying value, goodwill is not

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the fair value of a reporting unit exceeds its carrying value, goodwill is not considered impaired.

considered impaired.

Conversely, if the carrying value of a reporting unit exceeds its fair value, an impairment charge for the difference would be recorded.

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The analysis for goodwill did no t result in an impairment charge during fiscal 2023, 2022, or 2021.

We performed our annual indefinite-lived intangible asset impairment analyses on the first day of our fiscal fourth quarter (June 1) for each period presented.

As of June 1, 2023, the current fiscal year testing date, we held 13 indefinite-lived intangible assets with an aggregate carrying value of $ 173.4 million.

The impairment test for indefinite-lived trade names compares the fair value of a trade name with its carrying value.

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Significant assumptions, including estimated future short-term and long-term net sales, royalty rates, and discount rates, are used in the determination of estimated fair value for indefinite-lived trade names.

The impairment analyses of our indefinite-lived intangible assets indicated that their fair values exceeded their carrying values for fiscal 2022 and fiscal 2021, and thus no impairment charges were recorded during those years.

Any reasonably likely change in the assumptions used in the analyses for our trade names would not be material to our financial condition or results of operations.

Based on the results of the indefinite-lived intangible asset analyses for fiscal 2020, we recorded an impairment charge of $ 1.4 million for one trade name within Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income related to our ABL segment.

The impairment analyses for fiscal 2020 of the other 12 indefinite-lived intangible assets indicated that their fair values exceeded their carrying values.

Refer to the Fair Value Measurement footnote of the Notes to Consolidated Financial Statements for further information regarding significant assumptions used in our fiscal 2023 impairment test.

Based on the results of the indefinite-lived intangible asset analyses for fiscal 2023, we recorded an impairment charge of $ 14.0 million for six trade names within Special Charges in the Consolidated Statements of Comprehensive Income related to our ABL segment.

We also determined five of these trade names no longer have indefinite lives.

These trade names were classified as definite-lived as of June 1, 2023 and will be amortized over 15 years.

The impairment analyses for fiscal 2023 of the other seven indefinite-lived intangible assets indicated that their fair values exceeded their carrying values.

The impairment analyses of our indefinite-lived intangible assets indicated that their fair values exceeded their carrying values for fiscal 2022 and fiscal 2021.

Other Long-Term Assets

Other long-term assets consist of the following items whose economic benefits are expected to be realized greater than one year from the dates presented (in millions):

Deferred contract costs $ 13.3 $ 12.9

Deferred costs and other assets (1) (2)

$ 29.9 $ 28.1

Investments in debt and equity securities 7.2 11.9

Pensions plans in which plan assets exceed benefit obligation 12.4 8.0

Other (1) (2)

Total other long-term assets $ 49.5 $ 48.0

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(1) Estimated recoveries of warranty and recall costs are included in this category and account for the majority of the year-over-year change.

(1) Estimated recoveries of warranty and recall costs, net of estimated credit losses, expected to be recovered greater than one year from the respective balance sheet dates are included in this category.

(2) Included within this category are company-owned life insurance investments.

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Product warranty and recall costs (4)

Other 0.8 9.3

Total other long-term liabilities $ 129.2 $ 128.9

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Share-based Payments

We recognize compensation cost for share-based payment transactions in the financial statements based on the estimated grant date fair value of the equity instrument issued.

We account for stock options, restricted stock, performance stock units, and stock units representing certain deferrals into the Nonemployee Director Deferred Compensation Plan (the “Director Plan”) or the Supplemental Deferred Savings Plan (“SDSP”) (both of which are discussed further in the Share-based Payments footnote) based on the grant-date fair value estimated under the current provisions of ASC Topic 718, Compensation—Stock Compensation (“ASC 718”).

Share-based payment expense includes expense related to restricted stock, performance stock units, options issued, and stock units deferred into the Director Plan.

We recorded $ 37.4 million, $ 32.5 million, and $ 38.2 million of share-based payment expense for the years ended August 31, 2022, 2021, and 2020, respectively.

We 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 their grant-date fair values estimated under the provisions of ASC Topic 718, Compensation—Stock Compensation (“ASC 718”).

We generally recognize compensation cost for share-based payment transactions on a straight-line basis over an award's requisite service period as defined by ASC 718.

In certain circumstances, such as when a performance award is subject to graded vesting, we apply the accelerated attribution method to recognize compensation cost related to our share-based payment awards.

We apply the accelerated attribution method in certain circumstances, such as when a performance stock unit is subject to graded vesting.

For awards subject to a market condition, we consider both actual and derived service periods, as well as the expected performance period, to determine the appropriate compensation recognition method.

We have recorded share-based payment expense, net of estimated forfeitures, in Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income .

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 $ 42.0 million, $ 37.4 million, and $ 32.5 million of share-based payment expense for the years ended August 31, 2023, 2022, and 2021, respectively.

The total income tax benefit recognized for share-based payment expense was $ 7.2 million, $ 9.6 million, and $ 6.5 million for the years ended August 31, 2023, 2022, and 2021, respectively.

Excess tax benefits and/or expense related to share-based payment awards are reported within Income tax expense on the Consolidated Statements of Comprehensive Income .

We recognized net excess tax benefit related to share-based payment cost of $ 4.8 million for the year ended August 31, 2022 and net excess tax expense related to share-based payment cost of $ 0.5 million and $ 1.4 million for the years ended August 31, 2021 and 2020, respectively.

We recognized net excess tax benefit related to share-based payment cost of $ 1.5 million and $ 4.8 million for the years ended August 31, 2023 and 2022, respectively.

We recognized net excess tax expense related to share-based payment cost of $ 0.5 million for the year ended August 31, 2021.

See the Share-based Payments footnote of the Notes to Consolidated Financial Statements for more information.

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Leasehold improvements are amortized over the shorter of the life of the lease or the estimated useful life of the improvement .

Land is not depreciated.

Depreciation expense amounted to $ 51.1 million, $ 53.8 million, and $ 59.4 million during fiscal 2023, 2022, and 2021, respectively.

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Interest expense, net $ 18.9 $ 24.9 $ 23.2

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.

Miscellaneous Expense (Income), Net

Miscellaneous expense (income), 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.

During fiscal 2023 we reported an $ 11.2 million loss of the sale of our Sunoptics prismatic skylights business.

The details of the Sunoptics sale are described in the Acquisitions and Divestitures footnote of the Notes to Consolidated Financial Statements .

Amounts relating to foreign currency transactions consisted of net gains of $ 8.4 million in fiscal 2023, net gains of $ 5.3 million in fiscal 2022, and net losses of $ 1.3 million in fiscal 2021.

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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The translation of foreign currencies into U.S.

dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet dates and for revenue and expense accounts using a weighted average exchange rate each month during the year.

dollars is performed for asset and liability accounts using exchange rates in effect at the balance sheet dates and for revenue and expense accounts using a weighted average exchange rate each month during the year.

The gains or losses resulting from the balance sheet translation are included in Foreign currency translation adjustments in the Consolidated Statements of Comprehensive Income and are excluded from net income.

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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

Amounts reclassified from accumulated other comprehensive loss (1)

Net current period other comprehensive income 13.3 21.2 34.5

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

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

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Balance as of August 31, 2022 ( 73.5 ) ( 52.3 ) ( 125.8 )

Other comprehensive income before reclassifications 8.5 0.4 8.9

Amounts reclassified from accumulated other comprehensive loss (1)

Net current period other comprehensive income 8.5 4.7 13.2

Balance as of August 31, 2023 $ ( 65.0 ) $ ( 47.6 ) $ ( 112.6 )

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Tax adjustments — — — — — — — ( 3.2 ) ( 3.2 )

Actuarial gains (losses) 0.7 — 0.7 17.5 ( 3.6 ) 13.9 ( 0.7 ) 0.1 ( 0.6 )

Actuarial gains 0.4 — 0.4 0.7 — 0.7 17.5 ( 3.6 ) 13.9

Amortization of defined benefit pension items:

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Total defined benefit plans, net 6.0 ( 1.3 ) 4.7 7.3 ( 1.6 ) 5.7 29.8 ( 8.6 ) 21.2

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other comprehensive income (loss) $ 14.5 $ ( 1.3 ) $ 13.2 $ ( 26.0 ) $ ( 1.6 ) $ ( 27.6 ) $ 43.1 $ ( 8.6 ) $ 34.5

Note 3 — New Accounting Pronouncements

Accounting Standards Adopted in Fiscal 2023

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 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 Standards Update (“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.

In October 2021, the Financial Accounting Standards Board (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, including in an interim period.

We early adopted ASU 2021-08 as of May 15, 2023, on a prospective basis, as permitted by the standard, and applied its provisions to our current period acquisition.

This standard did not have a material effect on our fiscal 2023 acquisition or our financial condition, results of operations, or cash flows.

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Accounting Standards Yet to Be Adopted

ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (“ASU 2023-02” )

In March 2023, the FASB issued ASU 2023-02, which expands the permitted use of the proportional amortization method of accounting for certain tax-related investments if certain conditions are met.

ASU 2023-02 is effective for fiscal years beginning after December 15, 2023, or our fiscal 2025, with early adoption permitted, including in an interim period.

As of August 31, 2023, we do not hold any qualifying investments.

Therefore, we do not expect ASU 2023-02 to have a material impact on our financial condition, results of operations, or cash flows.

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

Note 4 — Acquisitions

Note 4 — Acquisitions and Divestitures

The following discussion relates to fiscal 2023 and 2021 acquisitions.

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Fiscal 2023 Acquisitions

On May 15, 2023, using cash on hand, we acquired all of the equity interests of KE2 Therm Solutions, Inc.

(“KE2 Therm”).

KE2 Therm develops and provides intelligent refrigeration control solutions that deliver the precision of digital controls to promote safety, efficiency, and reliability, while delivering cost savings to the customer.

This acquisition is intended to expand ISG's technology and controls product portfolio and reach new customers .

We accounted for the acquisition of KE2 Therm in accordance with Accounting Standards Codification (“ASC”) Topic 805 , Business Combinations (“ASC 805”).

Acquired assets and liabilities were recorded at their estimated acquisition-date fair values.

Acquisition-related costs were expensed as incurred and were not material to our financial statements.

The aggregate purchase price of these acquisitions reflects preliminary goodwill within the ISG segment of $ 15.0 million at August 31, 2023, which is not expected to be deductible for tax purposes.

The goodwill is primarily comprised of expected benefits related to expanding ISG's technology and controls product portfolio as well as the trained workforce acquired with these businesses and expected synergies from combining the operations of KE2 Therm with our operations.

We additionally recorded preliminary gross intangible assets of $ 18.0 million as of August 31, 2023, which reflect estimates for definite-lived intangibles with a preliminary estimated weighted average useful life of approximately 15 years.

Amounts recorded for acquired assets and liabilities 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, intangible assets and tax-related items.

The operating results of KE2 Therm have been included in our financial statements since the date of acquisition and are not material to our financial condition, results of operations, or cash flows.

Fiscal 2021 Acquisitions

ams OSRAM's North American Digital Systems Business

On July 1, 2021, using cash on hand, we acquired certain assets and liabilities of ams OSRAM’s North American Digital Systems business (“OSRAM DS”).

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.

Rockpile Ventures

On May 18, 2021, using cash on hand, we acquired all of the equity interests of Rockpile Ventures, an accelerator of edge artificial intelligence (“AI”) startups.

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 OEM product offering, and give us more control over our supply chain.

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Rockpile Ventures, Inc.

On May 18, 2021, using cash on hand, we acquired all of the equity interests of Rockpile Ventures, Inc., ( “Rockpile Ventures”) an accelerator of edge artificial intelligence (“AI”) startups.

Rockpile Ventures helps early-stage artificial intelligence companies drive co-engineering and co-selling partnerships with major cloud ecosystems, enabling faster adoption from proof-of-concept trials to market scale.

Accounting for Fiscal 2021 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 accounted for the acquisitions of Rockpile Ventures and OSRAM DS (collectively the “2021 Acquisitions”) in accordance with 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

On September 17, 2019, using cash on hand and borrowings under available existing credit arrangements at that time, we acquired all of the equity interests of The Luminaires Group (“TLG”), a leading provider of specification-grade luminaires for commercial, institutional, hospitality, and municipal markets, all of which complement our dynamic lighting portfolio.

TLG’s indoor and outdoor lighting fixtures are marketed to architects, landscape architects, interior designers, and engineers through five niche lighting brands:

A-light™, Cyclone™, Eureka ® , Luminaire LED™, and Luminis ® .

LocusLabs, Inc.

On November 25, 2019, using cash on hand, we acquired all of the equity interests of LocusLabs, Inc (“LocusLabs”).

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.

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.

There were no material changes to our financial statements as a result of the finalization of the acquisition accounting for the 2020 Acquisitions.

The aggregate purchase price of the 2020 Acquisitions reflects total goodwill and identified intangible assets of approximately $ 107.6 million and $ 180.6 million, respectively.

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 of the acquired businesses with our operations.

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

Goodwill from the 2021 Acquisitions totaling $ 9.2 million is tax deductible.

We sold our Sunoptics prismatic skylights business in November 2022.

We transferred assets with a total carrying value of $ 15.1 million, which primarily consisted of intangibles with definite lives, inventories, and allocated goodwill from the ABL segment.

We recognized a pre-tax loss on the sale of $ 11.2 million within Miscellaneous expense (income), net on the Consolidated Statements of Comprehensive Income .

Additionally, we recorded impairment charges for certain retained assets as well as associate severance and other costs related to the sale.

These items are included within Special charges on the Consolidated Statements of Comprehensive Income .

See the Special Charges and Fair Value Measurements footnotes of the Notes to Consolidated Financial Statements for further details.

There were no divestitures during fiscal 2022 or 2021.

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.

We may from time to time be required to remeasure the carrying value of certain assets and liabilities to fair value on a nonrecurring basis.

Such adjustments typically arise if we determine that certain of our assets are impaired.

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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.

The following table summarizes balances and the fair value hierarchy level of our financial instruments recorded at fair value on a recurring basis as of the dates presented (in millions):

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 397.9 $ — $ — $ 397.9 $ 223.2 $ — $ — $ 223.2

Other financial instruments — 0.4 — 0.4 — — — —

Assets in fair value hierarchy 397.9 0.4 — 398.3 223.2 — — 223.2

Other investments (1)

Total assets at fair value $ 397.9 $ 0.4 $ — $ 405.5 $ 223.2 $ — $ — $ 235.1

____________________________________

(1) Includes strategic investments in privately-held entities over which we do not exercise significant influence or control without readily determinable fair values.

Amounts are recorded at cost less any impairment adjusted for observable price changes, if any.

During the second quarter of fiscal 2023, we received cash for the cancellation of a strategic investment, whose underlying company was acquired by a third party.

We also received preferred equity in the third party with a cost basis of $ 2.5 million that is accounted for under ASC 320, Investments—Debt Securities using discounted cash flows based on rates of similar instruments (Level 2).

During the year ended August 31, 2023, we recorded an allowance for credit loss for this investment for its full cost basis.

This credit loss reflected a decline in the underlying company's financial condition and long-term prospects, which included a suspension of dividend payments owed to us as well as a significant market decline in its publicly traded securities, including similar preferred equities.

This impairment charge is reflected in Miscellaneous expense (income), net for the year ended August 31, 2023 within our Consolidated Statements of Comprehensive Income.

Accrued interest related to this investment was not material to our financial statements.

We had no credit losses on our investments at August 31, 2022.

Nonrecurring Fair Value Measurements

The following table summarizes information related to our nonrecurring fair value measurements during the current fiscal year (in millions):

Measurement Date Fair Value Hierarchy Level Fair Value

Indefinite-lived trade names June 1, 2023 Level 3 $ 46.5

Right of use operating lease asset group November 30, 2022 Level 3 3.4

Total assets at nonrecurring fair value $ 49.9

Indefinite-Lived Trade Names

We performed an evaluation of the fair values of our indefinite-lived trade names as of June 1, 2023.

Our analyses indicated that the carrying values of six of our trade names exceeded their fair values due primarily to expectations of the associated brands' future performance compared to original expectations at acquisition date as well as increases in overall discount rates.

The total fair value of these trade names at June 1, 2023 totaled $ 46.5 million, which resulted in an impairment charge of $ 14.0 million.

This charge is reflected within Special Charges on the Consolidated Statements of Comprehensive Income and relates to our ABL segment.

We also determined the remaining value for five of these indefinite-lived trade names no longer have indefinite lives.

These trade names were classified as definite-lived as of June 1, 2023 and will be amortized over 15 years.

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

We utilized significant assumptions to estimate the fair values of our indefinite-lived trade names using a fair value model based on discounted future cash flows (“fair value model”) in accordance with ASC 820.

Future cash flows associated with our indefinite-lived trade names were calculated by multiplying a theoretical royalty rate a willing

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third party would pay for use of the particular trade name by estimated future net sales attributable to the relevant trade name.

The present value of the resulting after-tax cash flows reflected our estimate of the fair value of each trade name.

This fair value model required us to make several significant assumptions, including specific estimated future net sales (including short and long-term growth rates), a royalty rate, and a discount rate for each trade name.

Future net sales and short-term growth rates are estimated for trade names based on management’s financial forecasts, which consider key business drivers, such as specific revenue growth initiatives, market share changes, expected growth in our addressable market, and general economic factors, such as macroeconomic conditions, credit availability, and interest rates.

Our expected revenues as of June 1, 2023 were based on our fiscal 2023 and 2024 projections as well as recent third-party lighting, controls, and building technology solutions market growth estimates through 2028.

We also included revenue growth estimates based on current initiatives expected to help improve performance, as appropriate.

The long-term growth rate used in determining terminal value was estimated at 2.5 % and was based primarily on our understanding of projections for expected long-term growth for our addressable market and historical long-term performance.

The theoretical royalty rate was estimated primarily using management’s assumptions regarding the amount a willing third party would pay to use the particular trade name and was compared with market information for similar intellectual property within and outside of the industry.

During fiscal 2023, estimated theoretical royalty rates ranged between 1 % and 3 %.

We based discount rates on the Capital Asset Pricing Model, which considers a current risk-free interest rate, beta, market risk premium, and size premium appropriate for each intangible.

We utilized a range of estimated discount rates between 11 % and 13 % as of June 1, 2023.

Any reasonably likely change in the assumptions used in the analyses for our trade names, including revenue growth rates, royalty rates, and discount rates, would not be material to our financial condition or results of operations.

Right of Use Operating Lease Asset Group

In connection with our sale of our Sunoptics prismatic skylights business in November 2022, we retained certain assets, primarily right of use lease assets, that we did not plan to continue using in our manufacturing operations.

Accordingly, 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, which triggered an impairment test for these assets.

Our impairment test indicated that the fair value of the assets totaled $ 3.4 million, which resulted in an impairment charge of $ 4.3 million.

This amount is included within Special charges on the Consolidated Statements of Comprehensive Income .

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

Future cash flows were largely based both on third-party market date for sublease rental rates as well as our historic experience in subleasing properties.

The discount rate was calculated using a methodology consistent with our incremental borrowing rate for leases initiated at that time and approximated the high end of our weighted average discount rate for operating leases described in the Leases footnote of the Notes to Consolidated Financial Statements.

Disclosures of Fair Value of Financial Instruments

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The estimated fair value of our senior unsecured public notes was $ 401.4 million and $ 399.2 million as of August 31, 2023 and 2022, 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.

We had no short-term borrowings and $ 18.0 million of short-term borrowings outstanding under our revolving credit facility as of August 31, 2023 and 2022, respectively.

These borrowings are variable-rate instruments that reset on a

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frequent short-term basis;

therefore, we estimate that any outstanding carrying values of these instruments, which are equal to their face amounts, approximate their fair values.

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

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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 components for all

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

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

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 .

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

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

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The weighted average remaining lease term for our operating leases was six years as of August 31, 2023.

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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.

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ROU assets obtained in exchange for lease liabilities during the year ended August 31, 2023 and 2022 were $ 29.9 million and $ 37.3 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 no significant leases that have not yet commenced as of August 31, 2023 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.

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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.

During fiscal 2023 and 2022, 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 .

We recorded impairment charges of $ 4.3 million related to these assets using a discounted cash flow model to estimate their fair values in fiscal 2023.

The fiscal 2023 impairment was related to the ABL segment.

The impairments were recorded within Special charges in the Consolidated Statements of Comprehensive Income .

See the Special Charges footnote of the Notes to Consolidated Financial Statements for further details on the fiscal 2023 impairment.

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.

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Our next scheduled future principal payment of long-term debt is $ 500.0 million due upon the maturity of the senior unsecured notes in December 2030.

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Long-term Debt

On November 10, 2020, Acuity Brands Lighting, Inc.

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

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

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.

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.

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

Lines of Credit

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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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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 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 had no short-term borrowings at August 31, 2023 and $ 18.0 million in short-term borrowings at August 31, 2022 outstanding under the Revolving Credit Facility.

We were in compliance with all financial covenants under the Credit Agreement as of August 31, 2023.

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, 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.

At August 31, 2023, we had additional borrowing capacity under the Credit Agreement of $ 596.2 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $ 3.8 million issued under the Revolving Credit Facility, primarily for securing collateral requirements under our casualty insurance premiums.

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

Borrowings and repayments on our Revolving Credit Facility with terms of three months or less are reported on a net basis on our Consolidated Statements of Cash Flows .

Note 8 — Commitments and Contingencies

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We are also self-insured up to certain limits for certain other insurable risks, primarily physical loss to property and business interruptions resulting from such loss lasting two days or more in duration.

Insurance coverage is maintained for catastrophic property and casualty exposures, as well as those risks required to be insured by law or contract.

Insurance coverage is maintained for catastrophic property and casualty exposures, as

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well as those risks required to be insured by law or contract.

We are fully self-insured for certain other types of liabilities, including environmental, product recall, warranty, and patent infringement.

The actuarial estimates are subject to uncertainty from various sources including, among others, changes in claim reporting patterns, claim settlement patterns, actual claims, judicial decisions, legislation, and economic conditions.

Although we believe that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect our self-insurance obligations, future expense, and cash flow.

We are also self-insured for the majority of our medical benefit plans up to certain limits.

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Collective bargaining agreements representing approximately 57 % of our work force will expire within one year , primarily due to annual negotiations of union contracts in Mexico.

Shareholder 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.

Prior to filing the Derivative Complaint, the derivative plaintiffs sent letters to the Company’s Board of Directors (the “Board”) demanding that the Company investigate and pursue substantially the same claims against the individual defendants that are asserted in the Derivative Complaint.

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.

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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 Derivative Complaint.

Data Security Incidents

On December 14, 2022, a former associate filed a putative class action complaint against the Company in the United States District Court for the Northern District of Georgia on behalf of all persons whose personal information was compromised as a result of data security incidents we experienced in October 2020 and/or December 2021.

On January 25, 2023, a second putative class action complaint was filed in the same venue by two other former associates.

Both complaints contain similar allegations and claim that the Company failed to exercise reasonable caution in securing and safeguarding associate information.

On that basis, the complaints assert claims for negligence, breach of contract, breach of implied contract, unjust enrichment, breach of fiduciary duty, invasion of privacy, and breach of confidence.

The plaintiffs seek class certification, monetary damages, certain injunctive relief regarding our data-security measures, additional credit-monitoring services, other equitable relief (including disgorgement), attorneys’ fees, costs, and pre- and post-judgment interest.

The plaintiffs in both cases recently filed a notice of voluntary dismissal without prejudice of the suits in the Northern District of Georgia and refiled in state court.

We continue to prepare our response strategy.

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

In addition, we have received inquiries from, and it is also possible that investigations or other actions are taken by, state and/or federal agencies regarding the data security incidents and related data privacy matters.

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

We have insurance, subject to certain terms and conditions, for these types of matters.

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.

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

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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 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.

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

Estimated future warranty 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.

Recoveries are recorded net of allowances for credit losses.

There can be no assurance that future warranty or recall costs will not exceed historical amounts, new technology products may not generate unexpected costs, and/or loss recoveries will not be fully collectible.

If actual future warranty or recall costs exceed historical amounts or recoveries are no longer collectible, adjustments to our accruals and/or receivables may be warranted, which could have a material adverse impact on our results of operations and cash flows.

Estimated liabilities for product warranty and recall costs are included in Other accrued liabilities or Other long-term liabilities on the Consolidated Balance Sheets based upon when we expect to settle the incurred warranty.

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

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 — Segment Information

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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.

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

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

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

Additionally, net interest expense, net miscellaneous expense (income), and income tax expense are not allocated to segments.

Beginning in fiscal 2023, we allocated special charges to operating segment information presented to the chief operating decision maker on a prospective basis.

We allocated $ 25.0 million of the $ 26.9 million in special charges incurred during the year ended August 31, 2023 to the ABL segment;

the remaining amounts of the fiscal 2023 charge were not allocated to a segment.

We recorded no special charges during the year ended August 31, 2022.

Special charges during the year ended August 31, 2021 of $ 3.3 million were not allocated to a segment.

Also beginning in fiscal 2023, we allocated certain working capital assets and capital expenditures to our segments primarily to assess each segment's contribution to our consolidated operating cash flows and capital expenditures.

Segment assets include accounts receivable and inventory.

Unallocated assets are presented in corporate as a reconciling item to our total consolidated assets.

We have restated prior periods to reflect allocated assets and capital expenditures by segment at August 31, 2022 and 2021.

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

ABL ISG Corporate Eliminations (1)

Year Ended August 31,

Net sales $ 3,810.1 $ 216.1 $ — $ ( 20.1 ) $ 4,006.1

Operating profit (loss) 545.6 22.7 ( 58.6 ) — 509.7

Depreciation and amortization 79.3 14.4 1.1 — 94.8

Year Ended August 31, 2021:

Net sales $ 3,287.3 $ 190.0 $ — $ ( 16.3 ) $ 3,461.0

Operating profit (loss) 476.2 9.9 ( 58.5 ) — 427.6

Depreciation and amortization 84.3 14.7 1.1 — 100.1

Year Ended August 31, 2020:

Net sales $ 3,180.9 $ 157.0 $ — $ ( 11.6 ) $ 3,326.3

2023 2022 2021

ABL $ 3,722.8 $ 3,810.1 $ 3,287.3

ISG 252.7 216.1 190.0

Eliminations (1)

( 23.3 ) ( 20.1 ) ( 16.3 )

Total $ 3,952.2 $ 4,006.1 $ 3,461.0

Operating profit (loss):

$ 509.5 $ 545.6 $ 476.2

ISG 32.1 22.7 9.9

Unallocated corporate amounts ( 68.2 ) ( 58.6 ) ( 58.5 )

Total $ 473.4 $ 509.7 $ 427.6

Depreciation and amortization:

ABL $ 77.4 $ 79.3 $ 84.3

ISG 14.4 14.4 14.7

Unallocated corporate amounts 1.4 1.1 1.1

Total $ 93.2 $ 94.8 $ 100.1

Segment assets:

ABL $ 870.1 $ 1,097.8 $ 925.3

ISG 53.7 53.8 45.2

Unallocated corporate amounts 2,484.7 2,328.6 2,604.6

Total $ 3,408.5 $ 3,480.2 $ 3,575.1

Capital expenditures:

ABL $ 59.3 $ 51.7 $ 42.9

ISG 3.5 2.6 0.8

Unallocated corporate amounts 3.9 2.2 0.1

Total $ 66.7 $ 56.5 $ 43.8

____________________________

(1) This column represents intersegment sales.

(1) These amounts represent intersegment sales.

Profit on these sales eliminates within gross profit on a consolidated basis.

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles operating profit by segment to income before income taxes (in millions):

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Operating profit - ABL $ 509.5 $ 545.6 $ 476.2

Operating profit (loss) - ISG 22.7 9.9 ( 3.9 )

Operating profit - ISG 32.1 22.7 9.9

Unallocated corporate amounts ( 68.2 ) ( 58.6 ) ( 58.5 )

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Interest expense, net 18.9 24.9 23.2

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

Miscellaneous expense (income), net 7.8 ( 9.1 ) 8.2

Income before income taxes $ 446.7 $ 493.9 $ 396.2

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the fourth quarter of fiscal 2023, we recognized charges within our ABL segment of $ 14.0 million for trade name impairments, $ 4.1 million for employee severance costs, and $ 13.0 million for the collectability of a supplier warranty obligation owed to us for components we used in products manufactured and sold between 2017 and 2019.

Note 10 — Revenue Recognition

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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 $ 28.0 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 .

Refund liabilities recorded under ASC 606 relating to rights of return, cash discounts, and other miscellaneous credits to customers were $ 25.6 million and $ 28.0 million as of August 31, 2023 and 2022, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets .

Additionally, we recorded 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 .

Such assets totaled $ 4.9 million and $ 3.7 million as of August 31, 2023 and 2022, respectively.

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Costs associated with these programs are generally estimated based on the most likely amount expected to be settled based on the context of the individual contract and are reflected within the Consolidated Statements of Comprehensive Income in accordance with ASC 606, which in most instances requires such costs to be recorded as reductions of revenue.

Amounts due to our customers associated with these programs totaled $ 40.7 million and $ 33.9 million as of August 31, 2022 and 2021, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets .

Costs to obtain and fulfill contracts, such as sales commissions, are generally short-term in nature and are expensed as incurred.

Amounts due to our customers

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

associated with these programs totaled $ 31.6 million and $ 40.7 million as of August 31, 2023 and 2022, respectively, and are reflected within Other accrued liabilities on the Consolidated Balance Sheets .

Costs to obtain and fulfill contracts, such as sales commissions, are generally short-term in nature and are generally expensed as incurred.

Nature of Goods and Services

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For sales designated free on board destination, customers take control and revenue is recognized when a product is delivered to the customer’s delivery site.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Professional Services

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The amount of transaction price from contracts with customers allocated to our contract liabilities consist of the following as of the dates presented (in millions):

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Current deferred revenues $ 14.1 $ 11.4

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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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unsatisfied performance obligations that do not represent contract liabilities are expected to be satisfied within one year from August 31, 2023 and consist primarily of orders for physical goods that have not yet been shipped.

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, directly to large corporate accounts, and through other distribution methods, including directly to original equipment manufacturer customers.

ISG sells predominantly to system integrators.

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Corporate accounts 200.3 222.7 168.7

Other 310.8 178.5 157.5

OEM and other 242.2 310.8 178.5

Total ABL 3,722.8 3,810.1 3,287.3

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Shares available for grant under the Stock Incentive Plan were approximately 1.0 million, 1.1 million, and 0.3 million at August 31, 2023, 2022, and 2021, 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 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.

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.

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

Any shares subject to an award under the Stock Incentive Plan

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

that are forfeited, canceled, expired, or settled for cash will be available for future grant under the Stock Incentive Plan.

Our share-based payment awards are valued based on their grant date fair values as described further below.

We recognize compensation cost for share-based payment transactions in accordance with ASC 718.

For most of our awards, compensation cost is recognized on a straight-line basis over the award's requisite service period.

We apply the accelerated attribution method in certain circumstances, such as when a performance stock unit is subject to graded vesting.

Compensation expense recognized related to the awards under the current and prior equity incentive plans during the periods presented is summarized as follows (in millions):

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Restricted stock awards and units $ 19.6 $ 17.2 $ 15.1

Stock options 8.8 9.2 4.9

Performance stock units 15.2 9.9 6.8

Stock options 5.7 8.8 9.2

Director stock units 1.5 1.5 1.4

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Outstanding at August 31, 2023 0.3 $ 159.33

___________________________

* Represents shares of less than 0.1 million.

As of August 31, 2023, there was $ 31.8 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.3 years.

The total fair value of stock vested during the years ended August 31, 2022, 2021, and 2020 was approximately $ 16.4 million, $ 19.5 million, and $ 22.8 million, respectively.

The total fair

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

value of stock vested during the years ended August 31, 2023, 2022, and 2021 was approximately $ 19.9 million, $ 16.4 million, and $ 19.5 million, respectively.

Performance Stock Units

As of August 31, 2023, we had approximately 0.2 million performance stock units outstanding to officers, directors, and other key employees under the Stock Incentive Plan.

Our performance stock units vest primarily over a three-year period.

For most of these grants, the actual number of performance stock units earned for these awards will be determined at the end of the related performance period based on the level of achievement of established performance thresholds.

Such grants are valued at the closing stock price of the grant.

We recognize compensation expense for these grants proportionately over the requisite service period for each employee when it becomes probable that the performance metric will be satisfied.

A small subset of our performance stock units granted in fiscal 2023 have a payout based on a total shareholder return relative to a peer group index over a three-year period.

These awards are valued using a Monte-Carlo simulation and are expensed over the longer of the requisite service period and the derived service period.

Stock compensation may be accelerated if a market condition is met prior to the derived service period lapsing.

All inputs into the Monte Carlo simulation are estimates made at the time of grant, which are summarized in the table below.

Actual realized value of each award could materially differ from these estimates, without impact to future reported net income.

Dividends were assumed to be reinvested on the ex-dividend date for us and peer companies.

Expected volatility was based on historical volatility of our stock as well as our peer group.

The risk-free interest rate was based on the U.S.

Treasury yield consistent with the derived performance period.

Dividend yield — %

Expected volatility 46.7 %

Risk-free interest rate 4.5 %

Fair value of awards $ 254.19

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

Shares Weighted Average

Fair Value Per

Outstanding at August 31, 2020 0.1 $ 124.29

Granted 0.1 $ 91.34

Forfeited — * $ 104.34

Outstanding at August 31, 2021 0.2 $ 109.99

Granted — * $ 207.02

Forfeited — * $ 113.51

Outstanding at August 31, 2022 0.2 $ 145.46

Granted 0.1 $ 186.78

Vested ( 0.1 ) $ 124.29

Forfeited — * $ 195.67

Outstanding at August 31, 2023 0.2 $ 171.01

___________________________

* Represents shares of less than 0.1 million.

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of August 31, 2023 there was $ 11.7 million of total unrecognized compensation cost related to unvested performance stock units.

This cost is expected to be recognized over a weighted-average period of approximately 1.4 years.

The total fair value of performance units vested during the year ended August 31, 2023 was approximately $ 11.5 million.

No awards vested during the years ended August 31, 2022 or 2021, respectively.

Stock 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").

As of August 31, 2023, we had approximately 1.0 million options outstanding to officers as well as other key current and former employees under the Stock Incentive Plan, all of which were granted in previous fiscal years.

Of these options 0.3 million were granted in fiscal 2021 and become exercisable over a four-year period.

These options 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.

The fair value of each Service Option was estimated on the date of grant using the Black-Scholes model, and the fair value of each Market Option was estimated on the date of grant using the Monte Carlo simulation model.

The fair value of each Market Option was estimated on the date of grant using the Monte Carlo simulation model.

The dividend yield was calculated based on annual dividends paid and the trailing 12-month average closing stock price at the time of grant.

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The risk-free interest rate was based on the U.S.

Treasury yield for a term equal to the expected life of the options at the time of grant for the Service Options and equal to the contractual term for the Market Options.

We used historical exercise behavior data of similar employee groups to determine the expected life of the Service Options.

Treasury yield for a term equal to the contractual term for the Market Options.

The expected life of the Market Options is based on projected exercise dates resulting from the Monte Carlo simulation for each award tranche.

All inputs noted above are estimates made at the time of grant.

All inputs into the Black-Scholes model and the Monte Carlo simulation are estimates made at the time of grant.

All inputs into the Monte Carlo simulation are estimates made at the time of grant.

Actual realized value of each option grant could materially differ from these estimates, without impact to future reported net income.

The following weighted average assumptions were used to estimate the fair value of the stock options granted in the fiscal years presented:

Market Options Service Options

2021 2020 2020

The following weighted average assumptions were used to estimate the fair value of the stock options granted in the fiscal year presented:

Market Options

Dividend yield 0.5 %

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Risk-free interest rate 0.7 %

Expected life of options 8 years 7 years 5 years

Expected life of options 8 years

Weighted-average fair value of options $ 40.45

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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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Exercised — * $ 126.92

Forfeitures ( 0.1 ) $ 227.15

Outstanding at August 31, 2023 1.0 $ 131.81 0.9 $ 135.91

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* Represents amounts of less than 0.1 million.

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.

The total intrinsic value of options exercised during the years ended August 31, 2023, 2022, and 2021 was approximately $ 0.5 million, $ 14.0 million, and $ 1.2 million, respectively.

As of August 31, 2023, the total intrinsic value of options outstanding was $ 37.9 million, the total intrinsic value of options expected to vest was $ 8.3 million, and the total intrinsic value of options exercisable was $ 29.6 million.

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This cost is expected to be recognized over a weighted-average period of approximately 1.2 years.

Performance Stock Units

Beginning in fiscal 2020, the Board approved grants of performance stock units to certain executives and key employees.

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

The actual number of performance stock units earned for these awards will be determined at the end of the related performance period based on the level of achievement of established performance thresholds.

We recognize compensation expense for these grants proportionately over the requisite service period for each employee when it becomes probable that the performance metric will be satisfied.

For performance stock units subject to graded vesting, we apply the accelerated attribution method for expense recognition.

As of August 31, 2022, we had approximately 0.2 million performance stock units outstanding.

As of August 31, 2022 there was $ 9.0 million of total unrecognized compensation cost related to unvested performance stock units.

This cost is expected to be recognized over a weighted-average period of approximately 1.5 years.

Employee Deferred Stock Units

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There was no compensation expense related to these stock units during fiscal years 2023, 2022, and 2021.

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Director Deferred Stock Units

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.

As of August 31, 2023, approximately 45,000 stock units were deferred but undistributed under the Director Plan.

Employee Stock Purchase Plan

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We have several pension plans, both qualified and non-qualified, covering certain hourly and salaried employees.

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Benefits paid under these plans are based generally on employees’ years of service and/or compensation during the final years of employment.

We historically have made at least the minimum annual contributions to the plans to the extent indicated by actuarial valuations and statutory requirements.

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

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

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

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Interest cost 7.4 5.3 1.6 0.9

Actuarial (gains) losses ( 43.1 ) ( 5.2 ) ( 17.1 ) 1.7

Actuarial gains ( 16.2 ) ( 43.1 ) ( 1.2 ) ( 17.1 )

Benefits paid ( 11.2 ) ( 15.3 ) ( 1.9 ) ( 2.1 )

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Certain pension assets valued at net asset value (“NAV”) per share as a practical expedient are excluded from the fair value hierarchy.

Investments in pension plan assets are described in further detail below.

Investments in pension plan assets as of August 31, 2023 are described in further detail below.

Short-term Fixed Income Investments

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Fixed Income Investments

The fixed income fund seeks to maximize total return by investing primarily in a diversified portfolio of intermediate and long-term debt securities and is valued using the NAV of units of a management investment company’s trust.

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

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

The NAV is based on the fair value of the underlying investments held by the fund less the fund's liabilities.

The fixed income investment seeks to maximize total return by investing primarily in a diversified portfolio of investment-grade fixed income securities, primarily publicly traded corporate bonds as well as U.S.

government and municipal bonds.

The investment is valued on each business day based on the values of the underlying holdings and is not actively traded (Level 2).

Treasury Investments

The domestic plans hold several fixed-income U.S.

Treasury securities that are valued based on discounted future cash flows using rates currently available for debt of similar terms and maturity (Level 2)

Real Estate Fund

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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 hierarchy.

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

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

ACUITY BRANDS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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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Assets included in the fair value hierarchy:

Fixed-income investments $ 58.2 $ — $ 58.2 $ —

US Treasury investments 36.9 — 36.9 —

Mutual funds:

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Assets calculated at net asset value:

Fixed-income investments 84.5

Real estate fund 8.9

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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 $ 0.5 million for the year ended August 31, 2022, and $ 0.6 million for the years ended August 31, 2021 and 2020.

Our contributions to these plans were $ 0.5 million for the years ended August 31, 2023 and 2022, and $ 0.6 million for the year ended August 31, 2021.

Defined Contribution Plans

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At August 31, 2023, assets of the domestic defined contribution plans included shares of our common stock with a market value of approximately $ 6.9 million, which represented approximately 1.5 % 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, 2023, we recognized pre-tax special charges of $ 26.9 million, which primarily included impairment charges of indefinite-lived intangible assets;

impairments of certain retained assets associated with our previously owned Sunoptics prismatic skylights business that were not transferred in connection with the sale;

and severance and employee-related costs in connection with the Sunoptics divestiture as well as streamlining activities initiated during the fourth quarter of fiscal 2023.

We recognized no special charges during the year ended August 31, 2022.

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

Year Ended August 31,

Trade name impairment charges $ 14.0 $ —

Severance and employee-related costs 7.7 1.7

Operating lease asset group impairment charge 4.3 —

Other restructuring costs 0.9 1.6

Total special charges $ 26.9 $ 3.3

As of August 31, 2023, remaining accruals related to special charges totaled $ 5.2 million and are included in Accrued compensation in the Consolidated Balance Sheets .

These amounts related to unpaid severance and employee-related costs from our fourth quarter fiscal 2023 actions.

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Common Stock and Related Matters

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Balance at August 31, 2020 53.9 $ 0.5

Issuance of restricted stock grants, net of cancellations 0.1 —

Vesting of share-based payment awards 0.1 —

Stock options exercised — * —

Balance at August 31, 2021 54.0 0.5

Issuance of restricted stock grants, net of cancellations 0.1 —

Vesting of share-based payment awards 0.1 —

Stock options exercised 0.1 —

Balance at August 31, 2022 54.2 0.5

Issuance of restricted stock grants, net of cancellations 0.1 —

Vesting of share-based payment awards 0.2 —

Stock options exercised — * —

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* Represents shares of less than 0.1 million.

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.

As of August 31, 2023 and 2022, we had 23.4 million and 21.8 million of repurchased shares, respectively, recorded as treasury stock at an original repurchase cost of $ 2.44 billion and $ 2.18 billion, respectively.

During fiscal 2023, we repurchased approximately 1.6 million shares of our outstanding common stock.

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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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No shares of preferred stock were issued in fiscal 2023 or 2022, and no shares of preferred stock are outstanding.

ACUITY BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Earnings per Share

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Diluted earnings per share is computed similarly but reflects the potential dilution that would occur if dilutive options were exercised, unvested share-based payment awards were vested, and other distributions related to deferred stock agreements were incurred.

Common stock equivalents are calculated using the treasury stock method.

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.

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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.

Among other provisions, the IRA includes a 15% corporate alternative minimum tax rate applicable for our fiscal 2024 taxable year as well as a 1% federal excise tax on corporate stock repurchases made after December 31, 2022, which we account for as an increase to the cost basis of our share repurchases.

The IRA has not had, and we do not expect it to have, a material impact on our financial condition, results of operations, or cash flows.

Internal Revenue Code (“IRC”) Section 174 was enacted as part of the Tax Cuts and Jobs Act of 2017 (“TCJA”).

IRC Section 174, which became effective for us during fiscal 2023, requires us to capitalize research and development expenditures and amortize them on our U.S.

tax return over five or fifteen years, depending on where research is conducted.

The year over year change in both our provision for current federal taxes and provision for (benefit from) deferred taxes relates principally to the application of IRC Section 174.

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 27.0 25.4 14.4

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

(Benefit from) provision for deferred taxes ( 47.8 ) 0.6 ( 2.7 )

Total provision for income taxes $ 100.7 $ 109.9 $ 89.9

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Goodwill and intangibles ( 151.2 ) ( 154.2 )

Operating lease right of use asset ( 18.3 ) ( 14.3 )

Operating lease right of use assets ( 19.8 ) ( 18.3 )

Other liabilities ( 3.4 ) ( 7.4 )

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Operating lease liabilities 22.6 20.3

Capitalized research and development 41.5 —

Other assets 15.4 9.3

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We have recorded a deferred income tax liability of $ 0.7 million for certain foreign withholding taxes and U.S.

state taxes related to foreign earnings for which we do not assert indefinite reinvestment.

taxes related to foreign earnings for which we do not assert indefinite reinvestment.

With respect to unremitted earnings and original investments in foreign subsidiaries where we are continuing to assert indefinite reinvestment, any future remittances could be subject to additional foreign withholding taxes, U.S.

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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, 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, 2023, we had federal tax credit carryforwards of approximately $ 8.3 million that begin to expire in 2029, and state tax credit carryforwards of approximately $ 0.9 million that begin to expire in 2027.

Approximately $ 7.6 million of the total $ 8.3 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, 2023, we had federal net operating loss carryforwards of $ 14.4 million that begin to expire in 2029, state net operating loss carryforwards of $ 47.1 million that begin to expire in 2024, and foreign net operating loss carryforwards of $ 7.8 million that begin to expire in 2028.

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Interest, net of tax benefits, and penalties are included in Income tax expense within the Consolidated Statements of Comprehensive Income .

The classification of interest and penalties did not change during the current fiscal year.

We are routinely under audit from various tax jurisdictions.

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Sales of lighting, lighting controls, and building technology solutions, excluding services, accounted for approximately 99 % of total consolidated net sales in fiscal 2023, 2022, and 2021.

Our geographic distribution of net sales, operating profit, income before provision for income taxes, and long-lived assets is summarized in the following table during and as of the periods presented (in millions):

Our geographic distribution of net sales, operating profit, income before income taxes, and long-lived assets is summarized in the following table during and as of the periods presented (in millions):

Year Ended August 31,

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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