PART I
($ in millions, except per-share data and as indicated)
Overview
Acuity Brands, Inc. (“Acuity Brands”), the parent company of Acuity Brands Lighting, Inc. (“ABL”), and other subsidiaries (collectively referred to herein as “the Company”), was incorporated in 2001 under the laws of the State of Delaware. The Company is one of the world’s leading providers of lighting solutions for commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets. The Company’s lighting solutions include devices such as luminaires using a wide range of light sources (including fluorescent and light emitting diodes (“LED”)), lighting controls, power supplies, prismatic skylights, LED lamps, and integrated lighting systems for indoor and outdoor applications utilizing a combination of light sources, including daylight, and other devices controlled by software that monitors and manages light levels while optimizing energy consumption (collectively referred to herein as “lighting solutions”). As a goal-oriented, customer-centric company, we expect to continue to align the unique capabilities and resources of our organization to drive profitable growth through a keen focus on providing comprehensive and differentiated lighting solutions for our customers, driving world-class cost efficiency, and leveraging a culture of continuous improvement.
The Company manufactures or procures lighting devices primarily in North America, Europe and Asia. These devices can be sold separately or as part of a lighting system. Devices used in lighting systems vary significantly in terms of functionality and performance and are selected based on a customer's specifications, including the aesthetic desires and performance requirements for a given lighting application. The Company’s lighting solutions are marketed under numerous brand names, including Lithonia Lighting®, Holophane®, Peerless®, Mark Architectural Lighting™, Hydrel®, American Electric Lighting®, Gotham®, Carandini®, RELOC®, Antique Street Lamps™, Tersen™, Winona® Lighting, Synergy® Lighting Controls, Sensor Switch®, Lighting Control & Design™, Dark to Light®, ROAM®, Sunoptics®, acculamp™, and Healthcare Lighting®. As of August 31, 2011, the Company manufactures products in 19 plants in North America and two plants in Europe.
Principal customers include electrical distributors, retail home improvement centers, electric utilities, municipalities, and lighting showrooms located in North America and select international markets serving new construction, renovation, and facility maintenance applications. In North America, the Company’s lighting solutions are sold primarily by independent sales agents, electrical wholesalers, and factory sales representatives who cover specific geographic areas and market segments. Products are delivered directly or through a network of distribution centers, regional warehouses, and commercial warehouses using both common carriers and a company-owned truck fleet. To serve international customers, the sales forces utilize a variety of distribution methods to meet specific individual customer or country requirements. In fiscal 2011, North American sales accounted for approximately 98% of net sales. See the Geographic Information footnote of the Notes to Consolidated Financial Statements for more information concerning the domestic and international net sales of the Company. The Company has one operating segment serving the North American lighting market and select international markets.
Specialty Products Business Spin-off
Acuity Brands completed the spin-off of its specialty products business (the “Spin-off”), Zep Inc. (“Zep”), on October 31, 2007, by distributing all of the shares of Zep common stock, par value $.01 per share, to the Company’s stockholders of record as of October 17, 2007. The Company’s stockholders received one Zep share, together with an associated preferred stock purchase right, for every two shares of the Company’s common stock they owned. Stockholders received cash in lieu of fractional shares for amounts less than one full Zep share.
Refer to the Discontinued Operations footnote of the Notes to Consolidated Financial Statements for information regarding the impact of the Spin-off.
Industry Overview
Based on industry sources and government information, the Company estimates that in fiscal 2011 the size of the North American lighting market served by the Company (also referred herein as “N.A. addressable lighting market”) was approximately $11 billion and includes non-portable luminaires (as defined by the National Electrical Manufacturers Association), poles for outdoor lighting, emergency lighting fixtures, and energy management and architectural lighting control solutions. This market estimate is based on a combination of external industry data and internal estimates, and excludes portable and vehicular lighting fixtures and certain related lighting components, such as lighting ballasts and most lamps. The U.S. market, which represents approximately 76% of the North American market, is relatively fragmented. The Company estimates that the top four manufacturers (including Acuity Brands Lighting) participate in varying degrees in the total N.A.
addressable lighting market and have approximately half of the total market share. The remainder of the N.A. addressable lighting market is served by hundreds of other manufacturers, including privately-owned companies.
The Company operates in a highly competitive industry that is affected by volatility in a number of general business and economic factors, such as gross domestic product growth, employment levels, credit availability, energy costs, and commodity costs. The Company’s primary market is based on non-residential construction, both new and alteration activity, which is sensitive to the volatility of these general economic factors. While there is no data that the Company is aware of that accurately quantifies the split of the non-residential construction market between new construction and alterations based on industry sources and Company estimates, recent trends suggest that alteration activity, including renovation, represents a growing proportion of the total non-residential market. Construction spending on infrastructure projects such as highways, streets, and urban developments has a material impact on the demand for the Company’s infrastructure-focused lighting solutions. Demand for the Company’s lighting solutions sold through its retail channels is highly dependent on economic drivers, such as consumer spending and discretionary income, along with housing construction and home improvement spending.
A growing source of demand for the lighting industry is attributed to the renovation and replacement of lighting systems in existing buildings. The Company estimates the potential U.S. market size to be significant (approximately $200 billion of installed base) based on square footage of existing non-residential buildings, of which a majority represents potential space for relighting activities as they contain older, less efficient lighting systems.
The industry is influenced by the development of new lighting technologies, including LED, electronic ballasts, embedded lighting controls, and more effective optical designs and lamps; federal and state requirements for updated energy codes; incentives by federal, state, and local municipal authorities, as well as utility companies for using more energy-efficient lighting solutions; and design technologies addressing sustainability. Traditional lighting manufacturers, including the Company, are offering lighting solutions based on these technologies utilizing internally developed, licensed, or acquired intellectual property. In addition, traditional lighting manufacturers are experiencing competition from new entrants with a focus on new technology-based lighting devices.
Consolidation remains a key trend in the lighting industry, as well as the broader electrical industry leading to more extensive lighting systems and product offerings, as well as increased globalization. Evidence of this trend is the recent combinations among electrical distributors and among lighting companies, including the Company’s acquisitions in the current and two prior fiscal years.
The Company provides a wide variety of lighting solutions, as well as services used in the following applications:
Lighting Solutions and Services:
Sales of lighting devices and systems accounted for approximately 99% of total consolidated net sales for Acuity Brands in fiscal 2011, 2010, and 2009.
Sales and Marketing
Sales. The Company sells to customers in the North American market with separate sales forces targeted at delivering value added lighting solutions and services to specific customer, channel, and geographic segments. As of August 31, 2011,
these sales forces consist of approximately 300 company-employed salespeople and a network of approximately 200 independent sales agencies, each of which employs numerous salespeople. The Company also operates two separate European sales forces and an international sales group coordinating export sales outside of North America and Europe.