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What changed in ACUITY INC. (DE)'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ACUITY INC. (DE)'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+233 added−254 removedSource: 10-K (2023-10-26) vs 10-K (2022-10-26)

Top changes in ACUITY INC. (DE)'s 2023 10-K

233 paragraphs added · 254 removed · 169 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeEconomic downturns and the potential decline in key construction markets may have a material adverse effect on our net sales, operating income, financial position, and cash flows. The COVID-19 Pandemic The COVID-19 pandemic has resulted in intermittent worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets.
Biggest changeThe construction market is cyclical in nature and subject to changes in general economic conditions and fiscal policies. Sales volume has a major impact on our profitability. Economic downturns and the potential decline in key construction markets may have a material adverse effect on our net sales, operating income, financial position, and cash flows.
Research and Development Research and development (“R&D”) is defined as the critical investigation aimed at discovery of new knowledge and the conversion of that knowledge into the design of a new product or significant improvement to an existing product or service.
Research and Development Research and development (“R&D”) is defined as the critical investigation aimed at discovery of new knowledge and the conversion of that knowledge into the design of a new product service or significant improvement to an existing product or service.
Marketing We market our product portfolio and service capabilities to customers and/or end users in multiple channels through a broad spectrum of marketing and promotional methods, including direct customer contact, trade shows, on-site training, print and digital advertising in industry publications, product brochures, and other literature, as well as through digital marketing and social media.
We market our product portfolio and service capabilities to customers and/or end users in multiple channels through a broad spectrum of marketing and promotional methods, including direct customer contact, trade shows, on-site training, print and digital advertising in industry publications, product brochures, and other literature, as well as through digital marketing and social media.
Non-residential construction spending on commercial, institutional, industrial, and infrastructure projects has a material impact on the demand for our lighting and building technology solutions. Demand for our residential lighting products is highly dependent on economic drivers, such as consumer spending and discretionary income, along with housing construction and home improvement spending. Our market is influenced by evolving technologies.
Non-residential construction spending on commercial, institutional, industrial, and infrastructure projects has a material impact on the demand for our lighting and building solutions. Demand for our residential lighting products is highly dependent on economic drivers, such as consumer spending and discretionary income, along with housing construction and home improvement spending. Our market is influenced by evolving technologies.
We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (and all amendments to these reports) and proxy statements, together with all reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 by our officers, directors, and beneficial owners of 10% or more of our common stock, available free of charge through the “SEC Filings” link under the "Financials" heading within the “For Investors” section on our website, located at www.acuitybrands.com , as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission.
We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (and all amendments to these reports) and proxy statements, together with all reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 by our officers, directors, and beneficial owners of 10% or more of our common stock, available free of charge through the “SEC Filings” link under the “Financials” heading within the “For Investors” section on our website, located at www.acuitybrands.com , as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission.
We currently source raw materials and components from a number of suppliers, but our ongoing efforts to improve the cost effectiveness and availability of our products and services may result in a reduction in the number of our suppliers.
We currently source raw materials and components from a number of suppliers, but our ongoing efforts to improve the cost effectiveness, quality, and availability of our products and services may result in a reduction in the number of our suppliers.
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 ® .
ABL's portfolio of products includes but is not limited to the following brands: 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 .
Through our two business segments, Acuity Brands Lighting and Lighting Controls (“ABL”) and the Intelligent Spaces Group (“ISG”), we design, manufacture, and bring to market products and services that make a valuable difference in people's lives. We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management systems, and location-aware applications.
Through our two business segments, Acuity Brands Lighting and Lighting Controls (“ABL”) and the Intelligent Spaces Group (“ISG”), we design, manufacture, and bring to market products and services that make a valuable difference in people's lives. We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management solutions, and location-aware applications.
However, we may be affected by current or future standards, laws, or regulations, including those imposed in response to energy, substances in or components in or used in the manufacturing of our products, climate change, product functionality, geopolitical, corporate social responsibility, employee health and safety, privacy, or similar concerns.
However, we may be affected by current or future standards, laws, or regulations, including those imposed in response to energy, substances in or components in or used in the manufacturing of our products, climate change, product functionality, geopolitics, corporate social responsibility, employee health and safety, privacy, or similar concerns.
The Code of Ethics and Business Conduct, the Corporate Governance Guidelines, and the committee charters are available in print to any of our stockholders that request such document by contacting our Investor Relations department. 6 Table of Contents
The Code of Ethics and Business Conduct, the Corporate Governance Guidelines, and the committee charters are available in print to any of our stockholders that request such document by contacting our Investor Relations department. 5 Table of Contents
Through a connected and converged building system architecture, our Atrius ® software delivers different applications, allows clients to upgrade over time with natural refresh cycles, and deploys new capabilities through both software and hardware updates. Customers of ISG primarily include system integrators as well as retail stores, airports, and enterprise campuses throughout North America and select international locations.
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.
We operate in a highly competitive industry that is affected by a number of general business and economic factors, such as, but not limited to, gross domestic product growth, employment levels, credit availability, interest rates and inflation, building costs, freight, construction-related labor availability, building occupancy rates, imports and trade, energy costs, freight costs, and commodity costs (including tariffs) and availability.
We operate in highly competitive industries that are affected by a number of general business and economic factors, such as, but not limited to, gross domestic product growth, employment levels, credit availability, interest rates and inflation, building costs, freight, construction-related labor availability, building occupancy rates, imports and trade, energy costs, freight costs, tariffs, commodity costs, and commodity availability.
During fiscal 2022, net sales initiated outside of the U.S. represented approximately 13% of total net sales. See the Supplemental Disaggregated Information footnote of the Notes to Consolidated Financial Statements for additional information regarding the geographic distribution of net sales, operating profit, and long-lived assets.
During fiscal 2023, net sales initiated outside of the U.S. represented approximately 14% of total net sales. See the Supplemental Disaggregated Information footnote of the Notes to Consolidated Financial Statements for additional information regarding the geographic distribution of net sales, operating profit, and long-lived assets.
Our management practices promote Environmental, Health & Safety (“EHS”) excellence. To achieve this standard, we have instituted an EHS Management System based on the goals and guidelines of the International Standards of Operation for Environmental Management, International Standards for Occupational Health & Safety Management, and our own guiding principles.
To achieve this standard, we have instituted an EHS Management System based on the goals and guidelines of the International Standards of Operation for Environmental Management, International Standards for Occupational Health & Safety Management, and our own guiding principles.
R&D expenses consist of compensation, payroll taxes, employee benefits, materials, supplies, and other administrative costs, but the amounts do not include all new product development costs. For fiscal 2022, 2021, and 2020, R&D expenses totaled $95.1 million, $88.3 million, and $82.0 million, respectively.
R&D expenses consist of compensation, payroll taxes, employee benefits, materials, supplies, and other administrative costs, but the amounts do not include all new product development costs. For fiscal 2023, 2022, and 2021, R&D expenses totaled $97.1 million, $95.1 million, and $88.3 million, respectively.
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.
Our building management solutions include products for controlling heating, ventilation, air conditioning (“HVAC”); lighting; shades; 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.
We invest in product vitality, including enhancement of existing offerings, with a focus on improving the performance-to-cost ratio and energy efficiency as well as redesigning products based on component availability. We also develop software applications and capabilities to enhance data analytics offerings for building performance, enterprise operations, and personal experiences.
We invest in product vitality, including enhancement of existing offerings, with a focus on improving the performance-to-cost ratio and energy efficiency. We also develop software applications and capabilities to enhance data analytics offerings for building performance, enterprise operations, and personal experiences.
These regulations include but are not limited to, the Clean Water Act; the Safe Harbor data privacy program between the U.S. and European Union; the United States-Mexico-Canada-Free Trade Agreement (“USMCA”); regulations from the Occupational Safety and Health Administration agency (“OSHA”); the European Union’s General Data Protection Regulation; California’s Consumer Privacy Act and Connected Device Privacy Act; the Civil Rights Act of 1964; the U.S.
These laws and regulations include but are not limited to, the Clean Air Act and the Toxic Substances Control Act; the Clean Water Act; the Safe Harbor data privacy program between the U.S. and European Union; the United States-Mexico-Canada-Free Trade Agreement (“USMCA”); regulations from the Occupational Safety and Health Administration agency; the European Union’s General Data Protection Regulation; California’s Consumer Privacy Act and Connected Device Privacy Act; the Civil Rights Act of 1964 and other federal and state labor and employment laws and regulations; the U.S.
Raw Materials Our production requires raw materials, including certain grades of steel and aluminum, electrical and electronic components, plastics, and other petroleum-based materials and components. We purchase most raw materials and other components on the open market and rely on third parties to provide certain finished goods.
See Part I. Item 1a. Risk Factors for additional information. Raw Materials Our production requires raw materials, including certain grades of steel and aluminum, electrical and electronic components, plastics, and other petroleum-based materials and components. We purchase most raw materials and other components on the open market and rely on third parties to provide certain finished goods.
Our Performance Management and other processes are intended to align associate aspirations, interests, performance, and experiences with the talent needs that enable the business. Managers and associates conduct periodic check-in discussions to encourage continuous performance feedback and improvement. These discussions also act to hold leaders accountable for creating an associate development culture.
In fiscal 2023, we remained focused on development through development plans for associates, training opportunities, and other activities. Our performance management and other processes are intended to align associate aspirations, interests, performance, and experiences with the talent needs that enable the business. Managers and associates conduct periodic check-in discussions to encourage continuous performance feedback and improvement.
Seasonality and Cyclicality Our business exhibits some seasonality, with net sales being affected by weather and seasonal demand on construction and installation programs, particularly during the winter months, as well as the annual budget cycles of major customers.
While patents and patent applications in the aggregate are important to our competitive position, no single patent or patent application is individually material to us. 3 Table of Contents Seasonality and Cyclicality Our business exhibits some seasonality, with net sales being affected by weather and seasonal demand on construction and installation programs, particularly during the winter months, as well as the annual budget cycles of major customers.
Arrangements related to approximately 100 associates in the United States will expire after the next fiscal year, and arrangements for approximately 7,000 associates in Mexico will expire within the next fiscal year, primarily due to annual negotiations of union contracts. We believe that we have strong relationships with both our unionized and non-unionized associates.
Arrangements for approximately 6,500 associates in Mexico will expire within the next fiscal year, primarily due to annual negotiations of union contracts. We believe that we have strong relationships with both our unionized and non-unionized associates. Growth and Development A key pillar to attract, develop, and retain top talent is our focus on the growth and development of our associates.
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.
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 an internally-managed truck fleet.
In fiscal 2022, we piloted a management effectiveness series focused on coaching to performance, which we offered through in-person events and a virtual series. We provide self-learning resources to help associates expand their lighting, controls, and building management technical knowledge through Acuity Academy and other resources.
We provide self-learning resources to help associates expand their lighting, controls, and building management technical knowledge through Acuity Academy and other resources.
We operate training and education facilities in several locations throughout North America and Europe designed to enhance the lighting knowledge of customers and industry professionals. 2 Table of Contents Industry Overview Our addressable market includes non-portable luminaires as defined by the National Electrical Manufacturers Association; poles for outdoor lighting; emergency lighting fixtures and lighting equipment; daylighting; lighting controls; HVAC controls; and building technology controls, software, and systems.
Industry Overview Our addressable market includes non-portable luminaires as defined by the National Electrical Manufacturers Association; poles for outdoor lighting; emergency lighting fixtures and lighting equipment; lighting controls; HVAC controls; refrigeration; and building technology controls, software, and systems.
ABL Segment 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. We offer devices such as luminaires that predominantly utilize light emitting diode (“LED”) technology designed to optimize energy efficiency and comfort for various indoor and outdoor applications.
We offer devices such as luminaires that predominantly utilize light emitting diode (“LED”) technology designed to optimize energy efficiency and comfort for various indoor and outdoor applications.
Certain global and more diversified manufacturers may provide a broader product offering utilizing electrical, lighting, and building technology products and services as well as pricing benefits from the bundling of various offerings. In addition, there are competitors, including Asian importers, small startup companies, and global electronics, technology, and software companies, offering competing solutions, sometimes deploying different technologies.
Additionally, the market for artificial intelligence and software solutions is active with a wide range of competitors, from existing large companies to startup organizations. Certain global and more diversified manufacturers may provide a broader product offering utilizing electrical, lighting, and building technology products and services as well as pricing benefits from the bundling of various offerings.
They may also place restrictions and other requirements or impediments on the 3 Table of Contents products and solutions we can sell in certain geographical locations or may impact the willingness of certain investors to own our shares. See Part I. Item 1a. Risk Factors for additional information.
These standards, laws, and regulations may impact our costs of operation, the sourcing of raw materials, and the manufacture and distribution of our products and services. They may also place restrictions and other requirements or impediments on the products and solutions we can sell in certain geographical locations or may impact the willingness of certain investors to own our shares.
We currently have three employee resource groups: Minorities Amplifying Growth, Inclusion, and Community (“MAGIC”); the Women’s Network; and People Respecting Identity, Diversity, and Equity (“PRIDE”). These groups are designed to embrace, celebrate, and recognize the power of diversity. 5 Table of Contents Health and Safety We strive to ensure our associates have a safe and collaborative work environment.
These groups are designed to embrace, celebrate, and recognize the power of diversity. 4 Table of Contents Health and Safety We strive to ensure our associates have a safe and collaborative work environment. Our management practices promote Environmental, Health & Safety (“EHS”) excellence.
Environmental Sustainability We save energy and help reduce carbon emissions through our lighting, lighting controls, and building management solutions replacing older technologies, and we drive innovation and performance across our business to minimize our impact on the environment. We also seek to use raw materials more efficiently and to operate our own facilities in a more intelligent, environmentally-friendly manner.
A variety of different metrics are averaged to determine a facility’s performance, which is used to find continuous improvement opportunities. Environmental Sustainability We save energy and help reduce carbon emissions through our lighting, lighting controls, and building management solutions by replacing older technologies, and we drive innovation and performance across our business to minimize our impact on the environment.
The following table shows the percentage of finished goods manufactured and purchased in fiscal 2022 by significant geographic region. 1 Table of Contents Manufactured Purchased Total United States 14 % 9 % 23 % Mexico 56 % — % 56 % Asia — % 16 % 16 % Others 5 % — % 5 % Total 75 % 25 % 100 % We operate seven manufacturing facilities in Mexico, some of which are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico.
Manufactured Purchased Total United States 15 % 7 % 22 % Mexico 57 % — % 57 % Asia — % 15 % 15 % Others 6 % — % 6 % Total 78 % 22 % 100 % We operate seven manufacturing facilities in Mexico, some of which are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico.
Our investment in our production facilities is focused primarily on improving capabilities, product quality, and manufacturing efficiency as well as environmental, health, and safety compliance. We also utilize contract manufacturing from U.S., Asian, and European sources for certain products.
We utilize a blend of internal and outsourced manufacturing processes and capabilities to fulfill a variety of customer needs. Our investment in our production facilities is focused primarily on improving capabilities, product quality, and manufacturing efficiency as well as environmental, health, and safety 1 Table of Contents compliance.
Our remaining associates were employed in other international locations including Europe, Canada, and the Asia/Pacific region. Union recognition and collective bargaining arrangements in place or in process cover approximately 1,600 and 7,000 associates in the United States and Mexico, respectively.
Human Capital We employed approximately 12,200 associates at August 31, 2023 of which approximately 3,600 were employed in the United States and approximately 7,700 were employed in Mexico. Our remaining associates were employed in other international locations including Europe, Canada, and the Asia/Pacific region.
Regulations We are subject to various federal, state, and local laws and regulations that impose increasingly complex, stringent and costly compliance activities.
In addition, there are competitors, including Asian importers, small startup companies, and global electronics, technology, and software companies, offering competing solutions, sometimes deploying different technologies. Regulations We are subject to various federal, state, and local laws and regulations that impose increasingly complex, stringent and costly compliance activities.
New entrants continue to develop capabilities and solutions that are both complementary as well as competitive to those of traditional industry participants. Additionally, the market for artificial intelligence and software solutions is active with a wide range of competitors, from existing large companies to startup organizations.
The markets for lighting and building management solutions are competitive and continue to evolve through acquisition and consolidation activities. Existing and new entrants continue to develop capabilities and solutions that are both complementary as well as competitive to those of traditional industry participants.
We have extended the capabilities of our energy data management software, Atrius Building Insights, to enable users to track and report their full carbon footprint. We regularly communicate progress as part of our EarthLIGHT sustainability program. Information Concerning Acuity Brands Acuity Brands, Inc. was incorporated in 2001 under the laws of the State of Delaware.
We also seek to use raw materials more efficiently and to operate our own facilities in a more intelligent, environmentally-friendly manner. We have extended the capabilities of our energy data management software to help enable users to track and report their full carbon footprint. We regularly communicate progress on our environmental commitments as part of our EarthLIGHT sustainability program.
Competition We experience competition based on numerous factors, including product vitality, service capabilities, price, brand name recognition, product quality, product and system design, energy efficiency, and customer relationships. The market for lighting and building technology services and solutions is competitive and continues to evolve through acquisition and consolidation activities.
We are a leading provider of integrated lighting and building technology solutions based on these technologies and utilize internally developed, licensed, or acquired intellectual property. 2 Table of Contents Competition We experience competition based on numerous factors, including product vitality, service capabilities, price, brand name recognition, product quality, product and system design, energy efficiency, and customer relationships.
As of August 31, 2022, we had approximately 2,700 total patent assets including issued United States and foreign patents as well as pending United States and foreign patent applications. While patents and patent applications in the aggregate are important to our competitive position, no single patent or patent application is individually material to us.
As of August 31, 2023, we had approximately 1,600 total patent assets including issued United States and foreign patents as well as pending United States and foreign patent applications.
Our lighting and building technology solutions are sold to customers in both the new construction as well as renovation and retrofit markets for residential and non-residential applications. The construction market is cyclical in nature and subject to changes in general economic conditions and fiscal policies. Sales volume has a major impact on our profitability.
Historically, with certain exceptions, we have experienced our highest sales in the last two quarters of each fiscal year due to these factors. Our lighting and building technology solutions are sold to customers in both the new construction as well as renovation and retrofit markets for residential and non-residential applications.
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 ® . Manufacturing and Distribution We operate eighteen manufacturing facilities, including six facilities in the United States, seven facilities in Mexico, two facilities in Europe, and three in Canada.
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ABL comprised approximately 95% of consolidated revenues during fiscal 2022, 2021 , and 2020. ISG Segment ISG delivers products and services that make spaces smarter, safer, and greener. ISG offers a building management platform and location-aware applications.
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ABL Segment 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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Manufacturing and Distribution We operate 18 manufacturing facilities, including six facilities in the United States, seven facilities in Mexico, two facilities in Europe, and three in Canada. We utilize a blend of internal and outsourced manufacturing processes and capabilities to fulfill a variety of customer needs in the most cost-effective manner.
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We operate training and education facilities in several locations throughout North America and Europe designed to enhance the lighting knowledge of customers and industry professionals. ISG Segment 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.
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Lighting and building technology solutions are delivered to our customers through a network of strategically located distribution centers, regional warehouses, and commercial warehouses in North America or directly to our customers from manufacturing facilities using both common carriers and a company-managed truck fleet. For international customers, distribution methods are adapted to meet individual customer or country requirements.
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We also utilize contract manufacturing from U.S., Asian, and European sources for certain products. The following table shows the percentage of finished goods manufactured and purchased in fiscal 2023 by significant geographic region.
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Sales and Marketing Sales We sell lighting and building technology solutions to customers utilizing numerous sales forces, including internal direct salespeople and independent sales agencies, based on the channel and geography served. We also operate an international sales group coordinating export sales outside of North America.
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Union recognition and collective bargaining arrangements in place or in process cover approximately 1,300 and 6,500 associates in the United States and Mexico, respectively. Arrangements related to approximately 400 associates in the United States will expire within the next fiscal year.
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See the Segment Information, Revenue Recognition, and Supplemental Disaggregated Information footnotes of the Notes to Consolidated Financial Statements for more information concerning our sales by segment, type, and geography.
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These discussions also act to hold leaders accountable for creating an associate development culture. Investing in the development of our associates is part of our operating system and correlates to our preparedness to meet current and future strategic priorities of the business.
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We expect that the industry’s addressable market is likely to expand due to the benefits and value creation provided by our intelligent building platform services and location-aware and asset tracking applications.
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In fiscal 2023, we continued a management effectiveness series focused on coaching to performance, which we offered through in-person events. We also provide a digital platform with learning content and resources to help associates expand their knowledge, skills, and abilities through self-directed learning initiatives.
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We are a leading provider of integrated lighting and building technology solutions based on these technologies and utilize internally developed, licensed, or acquired intellectual property. Solid-state lighting and digital building technology systems can be converged allowing for an optimal local operating system to increase efficiency and reduce costs while also delivering productivity benefits.
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We currently have five employee resource groups: Mind Matters; Minorities Amplifying Growth, Inclusion, and Community (“MAGIC”); People Respecting Identity, Diversity, and Equity (“PRIDE”); the Women’s Network; and the Veterans Network.
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These standards, laws, or regulations may impact our costs of operation, the sourcing of raw materials, and the manufacture and distribution of our products and services.
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Information Concerning Acuity Brands Acuity Brands, Inc. was incorporated in 2001 under the laws of the State of Delaware.
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Because of these seasonal factors we historically have experienced our highest sales in the last two quarters of each fiscal year; however, in the prior years presented our seasonality was meaningfully impacted by the COVID-19 pandemic.
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We remain committed to prioritizing the health and well-being of our associates and their families and ensuring that we operate effectively. We have implemented various health and safety policies and processes at our facilities in the United States, Mexico, Canada, and other locations as permitted by law. The COVID-19 pandemic has had an adverse impact on our results of operations.
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The pandemic has caused reduced construction and renovation spending as well as a disruption in our supply chain for certain components, both of which negatively impacted our operating results.
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Although our facilities are open, a resurgence in COVID-19 cases, including as a result of new variants, may lead to the reimposition of previously lifted business closure requirements, the imposition of new restrictions, or the issuance of new or revised local or national health guidance.
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We also continue to incur additional health and safety costs including expenditures for personal protection equipment and facility enhancements to maintain proper distancing guidelines issued by the Centers for Disease Control and Prevention and other agencies.
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We have taken actions to reduce costs, including the realignment of headcount with current volumes, a limit on all non-essential employee travel, other efforts to decrease discretionary spending, and reductions in our real estate footprint.
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Additionally, we elected to defer certain employer payroll taxes 4 Table of Contents as allowable under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) signed into law on March 27, 2020. Half of these deferrals were paid in December 2021, and the remaining deferrals are due in December 2022.
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Although we have implemented significant measures to mitigate further spread of the virus, our employees, customers, suppliers, and contractors may continue to experience disruptions to business activities due to potential further government-mandated or voluntary shutdowns, general economic conditions, or other negative impacts of the COVID-19 pandemic.
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We are continuously monitoring the adverse effects of the pandemic and identifying steps to mitigate those effects. As the COVID-19 pandemic is continually evolving, we are uncertain of its ultimate duration and impact. See Part I, Item 1a.
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Risk Factors for further details regarding the potential impacts of the COVID-19 pandemic to our results of operations, financial position, and cash flows. Human Capital We employed approximately 13,200 associates at August 31, 2022 of which approximately 3,900 were employed in the United States and approximately 8,400 were employed in Mexico.
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Growth and Development A key pillar to attract, develop, and retain top talent is our focus on the growth and development of our associates. In fiscal 2022, we remained focused on development through the creation of development plans for associates, training opportunities, and other activities.
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In fiscal 2022, we enhanced our career framework through the completion of our Global Career Architecture project. The focus of this project was to enable a culture that more effectively attracts, retains, rewards, and mobilizes talent.
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This project will continue to underpin our initiatives in fiscal 2023, including the launch of several new development programs and tools aimed at helping both managers and associates respond to the desire to learn and grow.
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A variety of different metrics are averaged to determine a facility’s performance, which is used to find continuous improvement opportunities. COVID-19 Response We remain committed to prioritizing the health and well-being of our associates and their families in light of the COVID-19 pandemic.
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We continue to follow guidelines issued by the World Health Organization, Centers for Disease Control and Prevention, and local health providers, adapting our policies and procedures quickly in response to continually evolving information, statistics, and best practices. We expanded paid and unpaid leave policies to cover exposures, quarantines, vaccination, and testing.
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At our manufacturing and distribution facilities, we continue to have in place safety protocols, regularly clean work areas, and encourage all associates to engage in good handwashing and hygiene practices. We also offered on-site vaccination clinics at several facilities and strongly encouraged our associates to get vaccinated.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changePotential decreased demand for our products resulting from factors including uncertainty in the global economy, the ongoing impacts of COVID-19, the current inflationary environment, and a potential global recession may influence competitor pricing. We may also decide to lower prices to match the competition or to adjust for current demand levels, as well as for other reasons.
Biggest changeAggressive pricing actions by competitors may affect our ability to manage the price/cost relationship to achieve desired revenue growth and profitability levels. Potential decreased demand for our products resulting from factors including uncertainty in the global economy, the current inflationary environment, rising interest rates, and a potential global recession may influence competitor pricing.
It is uncertain whether, when, and in what form a federal mandatory carbon dioxide emissions reduction program, or other state programs, may be adopted. Similarly, certain countries have adopted the Kyoto Protocol, and in February 2021, the U.S. rejoined the Paris Accord, and these and other existing or potential international initiatives and regulations could affect our international operations.
It is uncertain whether, when, and in what form a federal mandatory carbon dioxide emissions reduction program, or other state programs, may be adopted. Similarly, certain countries have adopted the Kyoto Protocol, and in February 2021, the U.S. rejoined the Paris Accord. These and other existing or potential international initiatives and regulations could affect our international operations.
Certain global and more diversified electrical manufacturers as well as certain global technology and building solution providers may be able to obtain a competitive advantage, either through internal development or acquisitions, over us by offering broader and more integrated solutions utilizing electrical, lighting, controls, building automation systems, and data analytics, and small startup companies may offer more localized product sales and support services within individual regions.
Certain global and more diversified electrical manufacturers as well as certain global technology and building solution providers may be able to obtain a competitive advantage, either through internal development or acquisitions, over us by offering broader and more integrated solutions utilizing electrical, lighting, controls, building automation solutions, and data analytics, and small startup companies may offer more localized product sales and support services within individual regions.
We generally source these goods from a number of suppliers. However, there are a limited number of suppliers for certain components and certain purchased finished goods, which on a limited basis, results in sole-source supplier situations. Our competitors supply certain of those items, and those competitors may, for various strategic reasons, choose to cease selling to us.
We generally source our goods from a number of suppliers. However, there are a limited number of suppliers for certain components and certain purchased finished goods, which on a limited basis, results in sole-source supplier situations. Our competitors supply certain of those items, and those competitors may, for various strategic reasons, choose to cease selling to us.
As we expand our service offerings, reliance on the technical infrastructure to provide services to customers will increase. If we fail to appropriately manage and secure the technical infrastructure required, customers could experience service outages or delays in implementation of services. If we are unable to manage and mitigate these risks, we could incur liabilities and other losses.
As we expand our service and solutions offerings, reliance on the technical infrastructure to provide services to customers will increase. If we fail to appropriately manage and secure the technical infrastructure required, customers could experience service outages or delays in implementation of services. If we are unable to manage and mitigate these risks, we could incur liabilities and other losses.
These standards, laws, or regulations may impact our costs of operation, the sourcing of raw materials, and the manufacture and distribution of our products and may place restrictions and other requirements or impediments on the products and solutions we can sell in certain geographical locations or on the willingness of certain investors to own our shares.
These standards, laws, or regulations may also impact our costs of operation, the sourcing of raw materials, and the manufacture and distribution of our products and may place restrictions and other requirements or impediments on the products and solutions we can sell in certain geographical locations or on the willingness of certain investors to own our shares.
In addition, investors and stakeholders are increasingly focused on ESG matters, and as stakeholder ESG expectations and standards are evolving, our failure to sufficiently respond to these evolving standards and expectations may cause us to suffer from reputational damage, and our business or financial condition could be adversely affected.
In addition, investors and stakeholders are increasingly focused on ESG matters, and as stakeholder ESG expectations and standards evolve, our failure to sufficiently respond to these evolving standards and expectations may cause us to suffer from reputational damage, and our business or financial condition could be adversely affected.
Alternatively, supply chain disruptions and shortages could require us to rely on relatively high-cost spot market purchases for certain materials or products. Future increases in our costs and/or continued disruptions in the supply chain could negatively impact our profitability, as there can be no assurance that future price increases will be successfully passed through to customers.
Alternatively, supply chain disruptions and shortages could require us to rely on relatively high-cost spot market purchases for certain materials or products. Future increases in our costs could negatively impact our profitability as there can be no assurance that future price increases will be successfully passed through to customers. Disruptions in the supply chain could also negatively impact us.
Approximately 56% of our finished products are manufactured in Mexico, a country that periodically experiences heightened civil unrest or may experience trade disputes with the U.S., both of which could cause a disruption of the supply of products to or from these facilities.
Approximately 57% of our finished products are manufactured in Mexico, a country that periodically experiences heightened civil unrest or may experience trade disputes with the U.S., both of which could cause a disruption of the supply of products to or from these facilities.
We may also be subject to disruptions of any of these systems arising from events that are wholly or partially beyond our control (for example, natural disasters, acts of terrorism, cyber-attacks, including but not limited to hacking, malware, ransomware attacks, denial-of-service 10 Table of Contents attacks, social engineering, exploitation of internet-connected devises, and other attacks, epidemics, computer viruses, and electrical/telecommunications outages).
We may also be subject to disruptions of any of these systems arising from events that are wholly or partially beyond our control (for example, natural disasters, acts of terrorism, cyber-attacks, including but not limited to hacking, malware, ransomware attacks, denial-of-service attacks, social engineering, exploitation of internet-connected devises, and other attacks, epidemics, computer viruses, and electrical/telecommunications outages).
Although no individual customer exceeded 10% of sales during fiscal 2022, the loss of or a substantial decrease in the volume of purchases by certain larger customers could harm our business in a meaningful manner. We have relationships with channel partners such as electrical distributors, home improvement retailers, independent sales agencies, system integrators, and value-added resellers.
Although no individual customer exceeded 10% of net sales during fiscal 2023, the loss of or a substantial decrease in the volume of purchases by certain larger customers could harm our business in a meaningful manner. We have relationships with channel partners such as electrical distributors, home improvement retailers, independent sales agencies, system integrators, and value-added resellers.
Additionally, the continual development of new technologies by existing and new source suppliers — including non-traditional competitors with 9 Table of Contents significant resources — looking for either direct market access or partnerships with competing large manufacturers, coupled with significant associated exclusivity and/or patent activity, could adversely affect our ability to sustain operating profit margins and desirable levels of sales volume.
Additionally, the continual development of new technologies by existing and new source suppliers — including non-traditional competitors with significant resources — looking for either direct market access or partnerships with competing large manufacturers, coupled with significant associated exclusivity and/or patent activity, could adversely affect our ability to sustain operating profit margins and desirable levels of sales volume.
A material network breach in the security of these systems could include the theft of intellectual property, trade secrets, the unauthorized release, gathering, monitoring, misuse, loss, change, or destruction of our or our clients' confidential, proprietary and other information (including personal identifying information of individuals), or otherwise disrupt our or our clients' or other third parties' business operations.
A material network breach in the security of these systems could include the theft of intellectual property, trade secrets, the unauthorized release, gathering, monitoring, misuse, loss, change, or destruction of our or our customers', suppliers', or other third-party's confidential, proprietary and other information (including personal identifying information of individuals), or otherwise disrupt our or our clients' or other third parties' business operations.
In addition to the risks that are common to both our domestic and international operations, we face risks specifically related to our foreign operations and sourcing activities, including but not limited to: foreign currency fluctuations; unstable political, social, regulatory, economic, financial, and market conditions; laws that prohibit shipments to certain countries or restricted parties and that prohibit improper payments to government officials such as the Foreign Corrupt Practices Act and the U.K.
In addition to the risks that are common to both our domestic and 10 Table of Contents international operations, we face risks specifically related to our foreign operations and sourcing activities, including but not limited to: foreign currency fluctuations; unstable political, social, regulatory, economic, financial, and market conditions; laws that prohibit shipments to certain countries or restricted parties and that prohibit improper payments to government officials such as the Foreign Corrupt Practices Act and the U.K.
Risks inherent in the sale of solutions and services include assuming greater responsibility for successfully delivering projects that meet a particular customer specification, including: defining and controlling contract scope and timing, efficiently executing projects, and managing the performance and quality of subcontractors and suppliers.
Risks inherent in the sale of solutions and services include assuming greater responsibility for successfully delivering projects that meet a particular customer specification, including: defining and controlling contract scope and timing, efficiently executing projects, and managing the performance and quality of subcontractors and suppliers and our own systems.
Uncertainty is inherent within the facility consolidation process, and unforeseen circumstances could offset the anticipated benefits, disrupt service to customers, and impact product quality. 8 Table of Contents General business, political, and economic conditions, including the strength of the construction market, political events, or other factors may affect demand for our products and services.
Uncertainty is inherent within the facility consolidation process, and unforeseen circumstances could offset the anticipated benefits, disrupt service to customers, and impact product quality. General business, political, and economic conditions, including the strength of the construction and renovation market, political events, or other factors may affect demand for our products and services.
We could be adversely affected by disruptions to our operations.
We could be adversely affected by external disruptions to our operations.
We believe that we do not need or will be able to invalidate or access such patents through licensing, cross-licensing, or other mutually beneficial arrangements, 14 Table of Contents although to the extent we are required but unable to enter into such arrangements on acceptable economic terms, it could adversely impact us.
We believe that we do not need or will be able to invalidate or access such patents through licensing, cross-licensing, or other mutually beneficial arrangements, although to the extent we are required but unable to enter into such arrangements on acceptable economic terms, it could adversely impact us.
Our performance could be different than analyst expectations, causing a decline in our stock price. To the extent that other large companies within our industry experience declines in share price, our share price may decline as well.
Our performance could be different than analyst expectations or issued guidance, causing a decline in our stock price. To the extent that other large companies within our industry experience declines in share price, our share price may decline as well.
A majority of our sales are subject to USMCA. In addition, the US government has initiated or is considering imposing tariffs on certain foreign goods, including steel and aluminum. Related to this action, certain foreign governments, including China, have instituted or are considering imposing tariffs on certain U.S. goods.
A majority of our sales are subject to USMCA. In addition, the US government has initiated or is considering imposing tariffs on certain foreign goods, including steel and aluminum. Related to this action, certain foreign governments, including China, have instituted or are considering imposing tariffs on certain U.S. goods. It remains unclear what the U.S.
The breakdown of equipment or other events, including, but not limited to, labor disputes, strikes, workplace violence, public health epidemics (including the COVID-19 pandemic), climate change, brown outs and other power outages, earthquakes, fires, explosions, terrorism, adverse weather conditions, water scarcity, cyber-attacks, civil disruptions, or catastrophic events such as war or natural disasters, leading to production interruptions in our or one or more of our suppliers’ facilities could adversely affect us.
The breakdown of equipment or other events, including, but not limited to, labor disputes, strikes, workplace violence, public health crises, pandemics and epidemics (such as the recent COVID-19, or similar or related, pandemics or endemics), climate change, brown outs and other power outages, earthquakes, fires, explosions, terrorism, adverse weather conditions, water scarcity, cyber-attacks, civil disruptions, or catastrophic events such as war or natural disasters, leading to production interruptions in our or one or more of our suppliers’ facilities could adversely affect us.
Union recognition and collective bargaining agreements are in place or in process covering approximately 66% of our workforce. Collective bargaining agreements representing approximately 54% of our workforce will expire within one year, primarily due to annual negotiations with unions in Mexico.
Union recognition and collective bargaining agreements are in place or in process covering approximately 65% of our workforce. Collective bargaining agreements representing approximately 57% of our workforce will expire within one year, primarily due to annual negotiations with unions in Mexico.
If our ESG-related data, processes, and reporting are incomplete or inaccurate, or if we fail, or are perceived to fail, to achieve progress with respect to our ESG goals on a timely basis, or at all, our reputation, business, financial performance, and growth could be adversely affected.
If our ESG-related data, processes, and reporting are incomplete or inaccurate, or if we fail, or are perceived to fail, to achieve 11 Table of Contents progress with respect to our ESG targets or goals on a timely basis, or at all, our reputation, business, financial performance, and growth could be adversely affected.
System failures, ineffective system implementation or disruptions, failure to comply with data privacy and security laws or regulations, or the compromise of security with respect to internal or external systems or portable electronic devices could damage our systems or infrastructure, subject us to liability claims, or regulatory fines, penalties, or intervention, harm our reputation, interrupt our operations, disrupt customer operations, and adversely affect our internal control over financial reporting, business, financial condition, results of operations, or cash flows.
The legal and regulatory data privacy framework is evolving and uncertain. 9 Table of Contents System failures, ineffective system implementation or disruptions, failure to comply with data privacy and security laws or regulations, or the compromise of security with respect to internal or external systems or portable electronic devices could damage our systems or infrastructure, subject us to liability claims, or regulatory fines, penalties, or intervention, harm our reputation, interrupt our operations, disrupt customer operations, and adversely affect our internal control over financial reporting, business, financial condition, results of operations, or cash flows.
In addition, if our Mexican facilities cease to qualify for Maquiladora status or if the Mexican government adopts 12 Table of Contents additional adverse changes to the program, including nationalization, our manufacturing costs in Mexico would increase.
In addition, if our Mexican facilities cease to qualify for Maquiladora status or if the Mexican government adopts additional adverse changes to the program, including nationalization, our manufacturing costs in Mexico would increase.
These disruptions in the supply chain and shortages could affect our ability to procure components for our products on a timely basis, or at all, or could require us to commit to increased purchases and provide longer lead times to secure critical components by entering into longer term guaranteed supply agreements.
Although these disruptions have subsided from their peaks, future disruptions in the supply chain and shortages could affect our ability to procure components for our products on a timely basis, or at all, or could require us to commit to increased purchases and provide longer lead times to secure critical components by entering into longer term guaranteed supply agreements.
Further, statements about our ESG initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
Further, statements about our ESG initiatives, targets, and goals, and progress against those targets and goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, as well as assumptions, estimates and climate scenarios that are subject to change in the future.
Our business could be negatively impacted by social impact and sustainability matters. There is an increasing focus from U.S. and foreign government agencies, certain investors, customers, consumers, employees, and other stakeholders concerning environmental, social and governance (“ESG”) matters.
Our business could be negatively impacted by social impact and sustainability matters. There has been, and may continue to be, an increasing focus from U.S. and foreign government agencies, certain investors, customers, consumers, employees, and other stakeholders concerning environmental, social and governance (“ESG”) matters.
Changes in our relationship with employees, changes in U.S. or international employment regulations, an inability to attract and retain talented employees, or a loss of key employees could adversely impact the effectiveness of our operations. We employed approximately 13,200 people as of August 31, 2022, approximately 9,300 of whom are employed in international locations.
Changes in our relationship with employees, changes in U.S. or international employment regulations, an inability to attract and retain talented employees, or a loss of key employees could adversely impact the effectiveness of our operations. We employed approximately 12,200 people as of August 31, 2023, approximately 8,600 of whom are employed in international locations.
In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals.
In addition, we could be criticized or subject to litigation for the scope or nature of such initiatives, targets, or goals, or for any revisions to such targets or goals.
These valuations reflect assumptions about financial markets and interest 15 Table of Contents rates, which may change based on economic conditions. Funding requirements for the defined benefit plans are dependent upon, among other things, interest rates, underlying asset returns, and the impact of legislative or regulatory changes related to defined benefit funding obligations.
These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements for the defined benefit plans are dependent upon, among other things, interest rates, underlying asset returns, and the impact of legislative or regulatory changes related to defined benefit funding obligations. Unfavorable changes in these factors could adversely affect our results.
As a result, any of such events could adversely impact us. While we have developed business continuity plans, including alternative capacity, to support responses to such events or disruptions and maintain insurance policies covering, among other things, physical damage and business interruptions, these policies may not cover all losses.
While we have developed business continuity plans, including alternative capacity, to support responses to such events or disruptions and maintain insurance policies covering, among other things, physical damage and business interruptions, these policies may not cover all losses.
In addition, our ongoing efforts to improve the cost effectiveness of our products and services may result in a reduction in the number of our suppliers, and in turn, increased risk associated with reliance on a single or a limited number of suppliers.
In addition, our ongoing efforts to improve the effectiveness of our supply chain could result in a reduction in the number of our suppliers, and in turn, increased risk associated with reliance on a single or a limited number of suppliers.
We source certain components and approximately 16% of our finished goods from Asia, a significant portion of which are subject to import tariffs. These tariffs could increase in future periods resulting in higher costs and/or lower demand.
We source certain components and approximately 15% of our finished goods from Asia, a significant portion of which are subject to import tariffs. These tariffs could increase in future periods resulting in higher costs and/or lower demand. We could be adversely affected to the extent we are unable to mitigate the impacts of the tariffs.
Environmental laws and regulations have generally 13 Table of Contents become stricter in recent years, and federal, state, and local governments domestically and internationally are considering new laws and regulations, including those governing raw material composition, carbon dioxide and other air emissions, end-of-life product dispositions, and energy efficiency.
Environmental laws and regulations have generally become stricter in recent years, and certain federal, state, and local governments domestically and internationally, have enacted, or are considering enacting, new laws and regulations, including those governing raw material composition, carbon dioxide and other air emissions, end-of-life product dispositions, energy efficiency, and certain additional disclosure obligations related to the above.
While there are a number of suppliers of these services, the cost to change service providers and set up new processes could be significant. In addition, the labor market for skilled manufacturing remains tight as the U.S. economy recovers after the COVID-19 pandemic shutdowns, and our labor costs have increased as a result.
While there are a number of suppliers of these services, the cost to change service providers and set up new processes could be significant. In addition, the labor market for skilled manufacturing remains tight, and our labor costs have increased as a result, particularly in the U.S. and Mexico. Our results may be adversely affected by market and competitive pricing.
Risks Related to Legal and Regulatory Matters Failure to comply with the broad range of standards, laws, and regulations in the jurisdictions in which we operate may result in exposure to substantial disruptions, costs, and liabilities.
Any such cybersecurity incidents related to our use of AI capabilities could adversely affect our business. Risks Related to Legal and Regulatory Matters Failure to comply with the broad range of standards, laws, and regulations in the jurisdictions in which we operate may result in exposure to substantial disruptions, costs, and liabilities.
Failure to comply with such laws and regulations could result in the imposition of fines, penalties and other costs. The legal and regulatory data privacy framework is evolving and uncertain.
Failure to comply with such laws and regulations could result in the imposition of fines, penalties and other costs.
Technological developments and increased competition could affect our operating profit margins and sales volume. We compete in an industry and markets where technology and innovation play major roles in the competitive landscape. We are highly engaged in the investigation, development, and implementation of new technologies and services.
We compete in an industry and markets where technology and innovation play major roles in the competitive landscape. We are highly engaged in the investigation, development, and implementation of new technologies and services.
We may develop unexpected legal contingencies or matters that exceed insurance coverage. We are subject to and in the future may be subject to various claims, including legal claims arising in the normal course of business.
We are subject to and in the future may be subject to various claims, including legal claims arising in the normal course of business.
Such benefits will only be realized to the extent that we can effectively leverage assets, personnel, and operating processes in the transition of production between manufacturing facilities.
We expect to benefit from potential programs to streamline operations, including the consolidation of certain facilities and the reduction of overhead costs. Such benefits will only be realized to the extent that we can effectively leverage assets, personnel, and operating processes in the transition of production between manufacturing facilities.
Additionally, the continued effects of COVID-19 on the global economy, including economic slowdowns, supply chain disruptions, or recessions, could adversely affect our ability to access the capital and other financial markets, and if so, we may need to consider alternative sources of funding for some of our operations and for working capital, which may increase our cost of, as well as adversely impact our access to, capital.
Additionally, current uncertain economic conditions, including economic slowdowns, supply chain disruptions, and a potential global recession, could adversely affect our ability to access the capital and other financial markets, and may require us to consider alternative sources of funding for some of our operations and for working capital, which may increase our cost of, as well as adversely impact our access to, capital.
We may incur costs to correct any of these problems in addition to facing claims from customers. Further, our reputation among actual and potential customers may be harmed and result in a loss of business. Further, these types of events may negatively impact residential, commercial, and industrial spending in impacted regions or, depending on the severity, globally.
We may incur costs to correct any of these problems in addition to facing claims from customers. Further, our reputation among actual and potential customers may be harmed and result in a loss of business.
An inability to attract and retain a sufficient number of employees could adversely impact our ability to execute key operational functions. There are inherent risks in our solutions and services businesses.
Our competitors may be able to offer a work environment with higher compensation or more opportunities than we can. An inability to attract and retain a sufficient number of employees could adversely impact our ability to execute key operational functions. There are inherent risks in our solutions and services businesses.
We may not be able to adequately protect our intellectual property and could be the target of intellectual property claims. We own certain patents, trademarks, copyrights, trade secrets, and other intellectual property. In addition, we continue to file patent applications, when appropriate.
We own certain patents, trademarks, copyrights, trade secrets, and other intellectual property. In addition, we continue to file patent applications, when appropriate.
These uncertain economic conditions may also result in the inability of our customers and other counter-parties to make payments to us, on a timely basis or at all.
These uncertain economic conditions may also result in the inability 7 Table of Contents of our customers and other counter-parties to make payments to us, on a timely basis or at all. Risks Related to Our Operations Technological developments and increased competition could affect our operating profit margins and sales volume.
We may not be able to obtain indemnity or reimbursement from our suppliers or other third parties for the warranty costs or liabilities associated with our products. A significant product recall, warranty claim, or product liability case could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our products.
A significant product recall, warranty claim, or product liability case could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our products. We may not be able to adequately protect our intellectual property and could be the target of intellectual property claims.
During fiscal 2022, the ongoing effects of the COVID-19 pandemic have continued to disrupt our supply chain for certain components, including, notably, microchips and electronic, and have resulted in higher prices for significant commodities, including oil and steel, as well as increased warehousing and container costs, which have continued to negatively impact our business.
During early fiscal 2023, supply chain disruptions for certain components, including, notably, microchips and electronics, have resulted in higher prices for significant commodities, including oil and steel, as well as increased warehousing, freight, and container costs, which have negatively impacted our business.
While we believe that we have good relationships with both our unionized and non-unionized employees, we may become vulnerable to a strike, work stoppage, or other labor action by these employees. 11 Table of Contents Our success is also dependent upon our ability to attract, retain, and motivate a qualified and diverse workforce, and there can be no assurance that we will be able to do so, particularly during times of increased labor costs or labor shortages.
Our success is also dependent upon our ability to attract, retain, and motivate a qualified and diverse workforce, and there can be no assurance that we will be able to do so, particularly during times of increased labor costs or labor shortages.
In addition, our growth may be constrained by resource limitations as competitors and customers compete for increasingly scarce human capital resources. The demand for skilled workers is currently high.
In addition, our growth may be constrained by resource limitations as competitors and customers compete for increasingly scarce human capital resources. The demand for skilled workers is currently high. We face an increasingly competitive labor market due to sustained labor shortages in part and are subject to inflationary pressures on employee wages and salaries, which may increase labor costs.
Some investors may use ESG criteria to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies relating to corporate responsibilities are inadequate. In addition, if our competitors’ corporate responsibility performance is perceived to be greater than ours, potential or current investors may elect to invest in our competitors instead.
Some investors may use ESG criteria to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies relating to corporate responsibilities do not align with their ESG criteria.
These initiatives and goals could be difficult and expensive to implement, and we could be criticized for the accuracy, adequacy, or completeness of the disclosure of our ESG initiatives.
We may, from time to time, communicate certain initiatives, targets, and goals, regarding environmental matters, diversity, responsible sourcing and social investments and other ESG matters. These initiatives, targets, and goals could be difficult and expensive to implement, and we could be criticized for the accuracy, adequacy, or completeness of the disclosure thereof.
Maquiladora status allows us to import raw materials into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame. Maquiladora status, which is renewed periodically, is subject to various restrictions and requirements, including compliance with the terms of the Maquiladora program and other local regulations, which have become stricter in recent years.
Maquiladora status, which is renewed periodically, is subject to various restrictions and requirements, including compliance with the terms of the Maquiladora program and other local regulations, which have become stricter in recent years.
We cannot be certain that others have not and will not infringe on our intellectual property rights; however, we seek to establish and protect those rights, which could result in significant legal expenses and adversely affect our financial condition and results of operations.
We cannot be certain that others have not and will not infringe on our intellectual property rights; however, we seek to establish and protect those rights, which could result in significant legal expenses and adversely affect our financial condition and results of operations. 13 Table of Contents Over the last several years, we and others in the industry have received an increased number of allegations of patent infringement from competitors and from non-practicing entity patent holders, often coupled with offers to license such patents for our use.
Alternatively, if costs were to decline, the marketplace may not allow us to hold prices at their current levels. 7 Table of Contents Our inability to effectively innovate could adversely affect our ability to compete.
Alternatively, if costs were to decline, the marketplace may not allow us to hold prices at their current levels. 6 Table of Contents Innovations of new products and services may not yield desired returns.
These disruptions and challenges may continue for an indefinite period of time and may also materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments.
Decreased construction and renovation spending and consumer demand for our products and services, along with rising commodity costs may materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments.
In addition, such investment transactions may limit our ability to invest in other activities, which could be more profitable or advantageous. The inability to effectively execute our business strategies could adversely affect our financial condition and results of operations.
In addition, such investment transactions may limit our ability to invest in other activities, which could be more profitable or advantageous. We may experience difficulties in streamlining activities, which could impact shipments to customers, product quality, and the realization of expected savings from streamlining actions.
We source certain components and approximately 16% of our finished goods from Asia, a significant portion of which are subject to Chinese tariffs. It remains unclear what the U.S. Administration or foreign governments will or will not do with respect to tariffs, the USMCA, or other international trade agreements and policies.
Administration or foreign governments will or will not do with respect to tariffs, the USMCA, or other international trade agreements and policies.
Risks Related to Financial Matters The market price and trading volume of our shares may be volatile.
Additionally, our future income tax obligations could be adversely affected by changes in, or interpretations of, tax laws, regulations, policies, or decisions in the United States or in the other jurisdictions in which we operate. Risks Related to Financial Matters The market price and trading volume of our shares may be volatile.
We could be adversely affected to the extent we are unable to mitigate the impacts of the tariffs. We operate seven manufacturing facilities in Mexico, some of which are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico.
We operate seven manufacturing facilities in Mexico, some of which are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows us to import raw materials into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame.
Removed
Our results may be adversely affected by our inability to maintain pricing. Aggressive pricing actions by competitors may affect our ability to achieve desired revenue growth and profitability levels under our current pricing strategies.
Added
Further, these types of events may negatively impact residential, commercial, and industrial spending, including construction and renovation spending as well as consumer spending on our products, in impacted regions or, depending on the severity, globally. As a result, any of such events could adversely impact us.
Removed
Various uncertainties and risks are associated with the implementation of a number of aspects of our global business strategies, including but not limited to, the development, marketing, and selling of lighting, building technology, and software-based solutions; the development, marketing, and selling of new or enhanced products and solutions; effective integration of acquisitions; and our environmental strategies and climate change commitments.
Added
Current global conflicts, such as the those between Russia and Ukraine as well as within the Middle East, have created substantial uncertainty in the global economy, including sanctions and penalties imposed on certain 8 Table of Contents countries from several governments.
Removed
Those uncertainties and risks include, but are not limited to: diversion of management’s attention; difficulty in retaining or attracting employees; negative impact on relationships with distributors and customers; obsolescence of current products and slow new product development; inability to effectively participate in opportunities utilizing our digital lighting and building technology systems; additional streamlining efforts; inability to produce certain components with quality, performance, and cost attributes equal to or better than provided by other component manufacturers; and unforeseen difficulties in the implementation of the management operating structure.
Added
While we do not have operations in these locations and do not have significant direct exposure to customers and vendors in those countries, we are unable to predict the impact that these actions will have on the global economy or on our financial condition, results of operations, and cash flows as of the date of these financial statements.
Removed
Problems with strategy execution could offset anticipated benefits, disrupt service to customers, and impact product quality as well as adversely affect our business and reputation. With the addition of new products and solutions, we may encounter new and different competitors that may have more experience with respect to such products and solutions.
Added
While we believe that we have good relationships with both our unionized and non-unionized employees, we may become vulnerable to a strike, work stoppage, or other labor action by these employees.
Removed
We may experience difficulties in streamlining activities, which could impact shipments to customers, product quality, and the realization of expected savings from streamlining actions. We expect to benefit from potential programs to streamline operations, including the consolidation of certain facilities and the reduction of overhead costs.
Added
In addition, different stakeholder groups have divergent views on ESG matters, which increases the risk that any action or lack thereof with respect to ESG matters will be perceived negatively by at least some stakeholders and could adversely affect our reputation, business, financial performance, and growth.
Removed
Risks Related to Our Operations The ongoing effects of the COVID-19 pandemic could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital investments.
Added
We have begun to incorporate artificial intelligence capabilities in our product offerings, and challenges with properly managing the use of artificial intelligence and machine learning could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations, financial condition, and/or cash flows. We have begun incorporating artificial intelligence (“AI”) capabilities into certain product offerings.
Removed
The COVID-19 pandemic has negatively impacted, and may continue to (along with similar events in the future) negatively impact, our ability to operate, results of operations, financial condition, liquidity, and capital investments.
Added
These features may become important in our operations over time. Our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations.
Removed
Several public health organizations have recommended, and some governments have implemented, certain measures to slow and limit the transmission of the virus, including shelter in place, social distancing ordinances, and business shutdowns, which temporarily disrupted our ability to manufacture or distribute our products in some of these markets.
Added
Additionally, if the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, or biased, we could be subject to competitive risks, potential legal liability, and reputational harm, and our business, financial condition, and results of operations may be adversely affected. The use of AI capabilities may also result in cybersecurity incidents.
Removed
A reoccurrence of these disruptions could materially adversely impact our ability to operate and results of operations.
Added
We are subject to various foreign and domestic federal, state, and local laws and regulations that include but are not limited to, the Clean Air Act and the Toxic Substances Control Act; the Clean Water Act; the Safe Harbor data privacy program between the U.S. and European Union; the United States-Mexico-Canada-Free Trade Agreement (“USMCA”); regulations from the Occupational Safety and Health Administration agency; the European Union’s General Data Protection Regulation; California’s Consumer Privacy Act and Connected Device Privacy Act; the Civil Rights Act of 1964 and other federal and state labor and employment laws and regulations; the U.S.
Removed
There is considerable uncertainty regarding the extent to which the COVID-19 outbreak will continue to spread, including the impact of identified and potential new variants, the extent and duration of governmental and other measures implemented to try to slow the spread of the virus, and public response to the pandemic.
Added
Foreign Corrupt Practices Act (the “FCPA”); and the U.K. Bribery Act. The laws and regulations impacting us impose increasingly complex, stringent, and costly compliance activities. Concerns regarding climate change may also lead to significant legislative and regulatory responses, including efforts to limit greenhouse gas (“GHG”) emissions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table provides additional geographic information related to our manufacturing facilities as of August 31, 2022: United States Mexico Europe Canada Total ABL: Owned 4 5 1 — 10 Leased 2 2 — 2 6 Total 6 7 1 2 16 ISG: Owned — — 1 1 2 Total — — 1 1 2 We believe that our properties are well maintained and in good operating condition and that our properties are suitable and adequate for our present needs.
Biggest changeThe following listing summarizes the significant facility categories by which reportable segment, Acuity Brands Lighting and Lighting Controls (“ABL”) or the Intelligent Spaces Group (“ISG”), the facility primarily benefits as of August 31, 2023: ABL ISG Corporate Total Nature of Facilities Owned Leased Owned Leased Leased Owned Leased Manufacturing facilities 10 5 2 1 — 12 6 Warehouses — 1 — — — — 1 Distribution centers 2 6 — — — 2 6 Offices 5 10 — 3 1 5 14 Total 17 22 2 4 1 19 27 The following table provides additional geographic information related to our manufacturing facilities as of August 31, 2023: United States Mexico Europe Canada Total ABL: Owned 4 5 1 — 10 Leased 1 2 — 2 5 Total 5 7 1 2 15 ISG: Owned — — 1 1 2 Leased 1 — — — 1 Total 1 — 1 1 3 We believe that our properties are well maintained and in good operating condition and that our properties are suitable and adequate for our present needs.
Removed
The following listing summarizes the significant facility categories by which reportable segment, Acuity Brands Lighting and Lighting Controls (“ABL”) or the Intelligent Spaces Group (“ISG”), the facility primarily benefits as of August 31, 2022: ABL ISG Corporate Total Nature of Facilities Owned Leased Owned Leased Leased Owned Leased Manufacturing facilities 10 6 2 — — 12 6 Warehouses — 1 — — — — 1 Distribution centers* 2 6 — — — 2 6 Offices 5 12 — 2 1 5 15 Total 17 25 2 2 1 19 28 ______________________________________ * Many of the distribution centers also have certain manufacturing and assembly capabilities.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table summarizes share repurchase activity by month for the quarter ended August 31, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs 6/1/2022 through 6/30/2022 339,454 $ 166.98 339,454 3,111,550 7/1/2022 through 7/31/2022 215,320 $ 166.92 215,320 2,896,230 8/1/2022 through 8/31/2022 78,030 $ 179.42 78,030 2,818,200 Total 632,804 $ 168.50 632,804 2,818,200 17 Table of Contents Company Stock Performance The following information in this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and it will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent specifically incorporated by reference into such filing.
Biggest changeThe following table summarizes share repurchase activity by month for the quarter ended August 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs 6/1/2023 through 6/30/2023 129,774 $ 163.44 129,774 1,406,752 7/1/2023 through 7/31/2023 75,027 $ 167.12 75,027 1,331,725 8/1/2023 through 8/31/2023 101,935 $ 164.33 101,935 1,229,790 Total 306,736 $ 164.64 306,736 1,229,790 17 Table of Contents Company Stock Performance The following information in this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and it will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent specifically incorporated by reference into such filing.
The following graph compares the cumulative total return to shareholders on our outstanding stock during the five years ended August 31, 2022, with the cumulative total returns of the Standard & Poor’s (“S&P”) Midcap 400 Index, the Dow Jones U.S. Electrical Components & Equipment Index, and the Dow Jones U.S. Building Materials & Fixtures Index.
The following graph compares the cumulative total return to shareholders on our outstanding stock during the five years ended August 31, 2023, with the cumulative total returns of the Standard & Poor’s (“S&P”) Midcap 400 Index, the Dow Jones U.S. Electrical Components & Equipment Index, and the Dow Jones U.S. Building Materials & Fixtures Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN* Among Acuity Brands, Inc., the S&P Midcap 400 Index, the Dow Jones U.S. Electrical Components & Equipment Index, and the Dow Jones U.S. Building Materials & Fixtures Index *Assumes $100 invested on August 31, 2017 in stock or index, including reinvestment of dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN* Among Acuity Brands, Inc., the S&P Midcap 400 Index, the Dow Jones U.S. Electrical Components & Equipment Index, and the Dow Jones U.S. Building Materials & Fixtures Index *Assumes $100 invested on August 31, 2018 in stock or index, including reinvestment of dividends.
The information required by this item with respect to equity compensation plans is included under the caption Equity Compensation Plans in our proxy statement for the annual meeting of stockholders to be held January 25, 2023, which we will file with the Securities and Exchange Commission pursuant to Regulation 14A. The proxy statement is incorporated herein by reference.
The information required by this item with respect to equity compensation plans is included under the caption Equity Compensation Plans in our proxy statement for the annual meeting of stockholders to be held January 24, 2024, which we will file with the Securities and Exchange Commission pursuant to Regulation 14A. The proxy statement is incorporated herein by reference.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. Our common stock is listed on the New York Stock Exchange under the symbol “AYI.” At October 21, 2022, there were 1,856 stockholders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. Our common stock is listed on the New York Stock Exchange under the symbol “AYI.” At October 20, 2023, there were 1,785 stockholders of record.
As of August 31, 2022, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 2.8 million shares.
As of August 31, 2023, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 1.2 million shares.
Building Materials & Fixtures Index 100 106 117 138 219 172 Item 6. [Reserved] 18 Table of Contents
Building Materials & Fixtures Index 100 111 130 206 162 205 Item 6. [Reserved] 18 Table of Contents
Aug-17 Aug-18 Aug-19 Aug-20 Aug-21 Aug-22 Acuity Brands, Inc. $ 100 $ 87 $ 71 $ 63 $ 106 $ 95 S&P Midcap 400 Index 100 120 112 117 169 152 Dow Jones U.S. Electrical Components & Equipment Index 100 117 105 121 176 156 Dow Jones U.S.
Aug-18 Aug-19 Aug-20 Aug-21 Aug-22 Aug-23 Acuity Brands, Inc. $ 100 $ 82 $ 72 $ 122 $ 109 $ 108 S&P Midcap 400 Index 100 94 98 141 127 140 Dow Jones U.S. Electrical Components & Equipment Index 100 90 104 150 133 161 Dow Jones U.S.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table sets forth information comparing the components of net income for the year ended August 31, 2022 with the year ended August 31, 2021 (in millions except per share data): Year Ended August 31, Increase Percent 2022 2021 (Decrease) Change Net sales $ 4,006.1 $ 3,461.0 $ 545.1 15.7 % Cost of products sold 2,333.4 1,986.0 347.4 17.5 % Gross profit 1,672.7 1,475.0 197.7 13.4 % Percent of net sales 41.8 % 42.6 % (80) bps Selling, distribution, and administrative expenses 1,163.0 1,044.1 118.9 11.4 % Special charges — 3.3 (3.3) NM Operating profit 509.7 427.6 82.1 19.2 % Percent of net sales 12.7 % 12.4 % 30 bps Other expense: Interest expense, net 24.9 23.2 1.7 7.3 % Miscellaneous (income) expense, net (9.1) 8.2 (17.3) NM Total other expense 15.8 31.4 (15.6) (49.7) % Income before income taxes 493.9 396.2 97.7 24.7 % Percent of net sales 12.3 % 11.4 % 90 bps Income tax expense 109.9 89.9 20.0 22.2 % Effective tax rate 22.3 % 22.7 % Net income $ 384.0 $ 306.3 $ 77.7 25.4 % Diluted earnings per share $ 11.08 $ 8.38 $ 2.70 32.2 % NM - not meaningful Net Sales Net sales of $4.01 billion for the year ended August 31, 2022 increased by $545.1 million, or 15.7%, compared with the prior-year period.
Biggest changeThe following table sets forth information comparing the components of net income for the year ended August 31, 2023 with the year ended August 31, 2022 (in millions except per share data): Year Ended August 31, Increase Percent 2023 2022 (Decrease) Change Net sales $ 3,952.2 $ 4,006.1 $ (53.9) (1.3) % Cost of products sold 2,239.0 2,333.4 (94.4) (4.0) % Gross profit 1,713.2 1,672.7 40.5 2.4 % Percent of net sales 43.3 % 41.8 % 150 bps Selling, distribution, and administrative expenses 1,212.9 1,163.0 49.9 4.3 % Special charges 26.9 — 26.9 NM Operating profit 473.4 509.7 (36.3) (7.1) % Percent of net sales 12.0 % 12.7 % (70) bps Other expense: Interest expense, net 18.9 24.9 (6.0) (24.1) % Miscellaneous expense (income), net 7.8 (9.1) 16.9 NM Total other expense 26.7 15.8 10.9 NM Income before income taxes 446.7 493.9 (47.2) (9.6) % Percent of net sales 11.3 % 12.3 % (100) bps Income tax expense 100.7 109.9 (9.2) (8.4) % Effective tax rate 22.5 % 22.3 % Net income $ 346.0 $ 384.0 $ (38.0) (9.9) % Diluted earnings per share $ 10.76 $ 11.08 $ (0.32) (2.9) % NM - not meaningful 21 Table of Contents Net Sales Net sales of $3.95 billion for the year ended August 31, 2023 decreased by $53.9 million, or 1.3%, compared with the prior-year period due to declines in sales within our ABL segment, partially offset by higher sales within our ISG segment.
The present value of the resulting after-tax cash flows is our current estimate of the fair value of each trade name. This fair value model requires us to make several significant assumptions, including specific estimated future net sales (including short and long-term growth rates), the royalty rate, and the discount rate for each trade name.
The present value of the resulting after-tax cash flows is our current estimate of the fair value of each trade name. This fair value model requires 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.
The long-term growth rate used in determining terminal value was estimated at 3.5% and was primarily based on our understanding of projections for expected long-term growth in our addressable market and historical long-term performance. We corroborate the values determined from our discounted cash flow models using a relevant market multiple, generally published earnings and/or revenue multiples.
The long-term growth rate used in determining terminal value was estimated at 2.5% and was primarily based on our understanding of projections for expected long-term growth in our addressable market and historical long-term performance. We corroborate the values determined from our discounted cash flow models using a relevant market multiple, generally published earnings and/or revenue multiples.
(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries for the fiscal years ended August 31, 2022 and 2021. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report.
(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries for the fiscal years ended August 31, 2023 and 2022. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report.
Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to meet our capital allocation priorities, which are to invest in our current business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases.
Our ability to generate sufficient cash flows from operations or to access certain capital markets, including banks, is necessary to meet our capital allocation priorities, which are to invest in our current business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases.
A significant change in customer demand, market conditions, or technology could render certain inventory obsolete and thus could have a material adverse impact on our operating results in the period the change occurs. 24 Table of Contents Goodwill and Indefinite-Lived Intangible Assets Indefinite-lived intangible assets consist of trade names acquired through multiple acquisitions that are expected to generate cash flows indefinitely.
A significant change in customer demand, market conditions, or technology could render certain inventory obsolete and thus could have a material adverse impact on our operating results in the period the change occurs. Goodwill and Indefinite-Lived Intangible Assets Indefinite-lived intangible assets consist of trade names acquired through multiple acquisitions that are expected to generate cash flows indefinitely.
See the Share-based Payments footnote of the Notes to Consolidated Financial Statements for further information on these awards, including assumptions used in estimating the fair value of our awards. Product Warranty and Recall Costs Our products generally have a standard warranty term of five years.
See the Share-based Payments footnote of the Notes to Consolidated Financial Statements for further information on these awards, including assumptions used in estimating the fair value of our awards. 25 Table of Contents Product Warranty and Recall Costs Our products generally have a standard warranty term of five years.
Accounting Standards Adopted in Fiscal 2022 and Accounting Standards Yet to Be Adopted See the New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for information on recently adopted and upcoming standards.
Accounting Standards Adopted in Fiscal 2023 and Accounting Standards Yet to Be Adopted See the New Accounting Pronouncements footnote of the Notes to Consolidated Financial Statements for information on recently adopted and upcoming standards.
Future cash flows associated with each of our indefinite-lived trade names are calculated by multiplying a theoretical royalty rate a willing third party would pay for use of the particular trade name by estimated future net sales attributable to the 25 Table of Contents relevant trade name.
Future cash flows associated with each of our indefinite-lived trade names are calculated by multiplying a theoretical royalty rate a willing third party would pay for use of the particular trade name by estimated future net sales attributable to the relevant trade name.
A discussion of the year ended August 31, 2021 compared to the year ended August 31, 2020 can be found within Part II, Item 7. Management's Discussion and Analysis within our fiscal 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 27, 2021. Overview Company We are a market-leading industrial technology company.
A discussion of the year ended August 31, 2022 compared to the year ended August 31, 2021 can be found within Part II, Item 7. Management's Discussion and Analysis within our fiscal 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 26, 2022. Overview Company We are a market-leading industrial technology company.
We discuss the development of accounting estimates with our Audit Committee of the Board of Directors on a recurring basis. See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for a summary of our accounting policies. We believe the following accounting topics represent our critical accounting estimates.
We discuss the development of accounting estimates with our Audit Committee of the Board of Directors on a recurring basis. See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for a summary of our accounting policies. 23 Table of Contents We believe the following accounting topics represent our critical accounting estimates.
As of August 31, 2022, our cash on hand combined with the additional borrowing capacity under the revolving credit facility totaled approximately $801.1 million. The Unsecured Notes were issued by Acuity Brands Lighting, Inc., a wholly-owned subsidiary of Acuity Brands, Inc.
As of August 31, 2023, our cash on hand combined with the additional borrowing capacity under the revolving credit facility totaled approximately $994.1 million. The Unsecured Notes were issued by Acuity Brands Lighting, Inc., a wholly-owned subsidiary of Acuity Brands, Inc.
A discussion of our fiscal 2021 results of operations compared to fiscal 2020 can be found within Part II, Item 7. Management's Discussion and Analysis within our fiscal 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 27, 2021.
A discussion of our fiscal 2022 results of operations compared to fiscal 2021 can be found within Part II, Item 7. Management's Discussion and Analysis within our fiscal 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 26, 2022.
The following tables present summarized financial information for Acuity Brands, Inc., Acuity Brands Lighting, Inc., and ABL IP Holding LLC on a combined basis after the elimination of all intercompany balances and transactions between the combined group as well as any investments in non-guarantors as of the dates and during the period presented (in millions): Summarized Balance Sheet Information August 31, 2022 August 31, 2021 Current assets $ 1,056.6 $ 1,172.0 Current assets due from non-guarantor affiliates 280.2 213.4 Non-current assets 1,414.3 1,391.7 Current liabilities 620.4 595.1 Non-current liabilities 821.0 815.7 Summarized Income Statement Information Year Ended August 31, 2022 Net sales $ 3,397.2 Gross profit 1,406.4 Net income 366.0 Capital Allocation Priorities Our capital allocation priorities are to invest in our current business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases.
The following tables present summarized financial information for Acuity Brands, Inc., Acuity Brands Lighting, Inc., and ABL IP Holding LLC on a combined basis after the elimination of all intercompany balances and transactions between the combined group as well as any investments in non-guarantors as of the dates and during the period presented (in millions): Summarized Balance Sheet Information August 31, 2023 August 31, 2022 Current assets $ 995.7 $ 1,056.6 Current assets due from non-guarantor affiliates 326.4 280.2 Non-current assets 1,377.9 1,414.3 Current liabilities 464.2 620.4 Non-current liabilities 785.4 821.0 Summarized Income Statement Information Year Ended August 31, 2023 Net sales $ 3,310.4 Gross profit 1,417.2 Net income 329.7 Capital Allocation Priorities Our capital allocation priorities are to invest in our current business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases.
ISG operating profit was $22.7 million (10.5% of ISG net sales) for the year ended August 31, 2022 compared with $9.9 million (5.2% of ISG net sales) in the prior-year period, an increase of $12.8 million. This increase was due primarily to higher sales, partially offset by increased employee costs.
ISG operating profit was $32.1 million (12.7% of ISG net sales) for the year ended August 31, 2023 compared with $22.7 million (10.5% of ISG net sales) in the prior-year period, an increase of $9.4 million. This increase was due primarily to contributions from higher sales, partially offset by increased employee costs.
We are fully self-insured for product warranty costs. Although we expect that historical activity will continue to be the best indicator of future warranty costs, there can be no assurance that future warranty costs will not exceed historical amounts.
Although we expect that historical activity will continue to be the best indicator of future warranty costs, there can be no assurance that future warranty costs will not exceed historical amounts.
Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.
Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events, whether as a result of new information, future events, or otherwise.
Restricted stock awards, performance stock awards, and director stock units representing certain deferrals into the Nonemployee Director Deferred Compensation Plan (the “Director Plan”) are valued based on the fair value of our common stock on the grant date.
Restricted stock awards, performance stock awards, stock options, and director stock units representing certain deferrals into the Nonemployee Director Deferred Compensation Plan (the “Director Plan”) are valued based on their estimated grant date fair values.
ISG net sales for the year ended August 31, 2022 increased 13.7% compared with the prior-year period driven primarily by strong demand for building and heating, ventilation, and air conditioning controls as well as price 23 Table of Contents increases.
ISG net sales for the year ended August 31, 2023 increased 16.9% compared with the prior-year period driven primarily by strong demand for building and heating, ventilation, and air conditioning controls as well as price increases.
Share Repurchases During fiscal 2022, we repurchased 2.9 million shares of our outstanding common stock for $511.7 million. Total cash outflows for share repurchases during fiscal 2022 were $514.8 million. We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash.
Share Repurchases During fiscal 2023, we repurchased 1.6 million shares of our outstanding common stock for $269.3 million. Total cash outflows for share repurchases during fiscal 2023 were $266.6 million. We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash.
At August 31, 2022, we had additional borrowing capacity under the revolving credit facility of $577.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the facility less the outstanding letters of credit of $4.1 million issued under the facility.
At August 31, 2023, we had additional borrowing capacity under the Revolving Credit Facility of $596.2 million under the most restrictive covenant in effect at the time, which represents the full amount of the facility less the outstanding letters of credit of $3.8 million issued under the facility.
Cash Our cash position at August 31, 2022 was $223.2 million, a decrease of $268.1 million from August 31, 2021. Cash generated from operating activities and cash on hand were used during the current year to fund our capital allocation priorities as discussed below.
Cash Our cash position at August 31, 2023 was $397.9 million, an increase of $174.7 million from August 31, 2022. Cash generated from operating activities and cash on hand were used during the current year to fund our capital allocation priorities as discussed below.
These estimates are subject to a higher level of estimation uncertainty than other estimates, as we have less experience in costs in the extended warranty period. Claims related to service-type warranties are expensed as incurred. Cautionary Statement Regarding Forward-Looking Statements and Information This filing contains forward-looking statements within the meaning of the federal securities laws.
These estimates are subject to a higher level of estimation uncertainty than other estimates, as we have less experience in costs in the extended warranty period. Claims related to service-type warranties are expensed as incurred.
We utilized estimated discount rates ranging from 9% to 13% as of June 1, 2022, based on the Capital Asset Pricing Model, which considers a risk-free interest rate, beta, market risk premium, and size premium to determine an appropriate discount rate for a reporting unit.
These rates were based on the 24 Table of Contents Capital Asset Pricing Model, which considers a risk-free interest rate, beta, market risk premium, and size premium to determine an appropriate discount rate for a reporting unit.
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. 26 Table of Contents Any estimated or actual loss recoveries that offset our costs and payments are reflected as assets based on the timing of receipt of recovery.
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.
Goodwill We perform our annual goodwill impairment analysis on the first day of our fiscal fourth quarter (June 1). Goodwill is tested for impairment at the reporting unit level using a combination of discounted future cash flows and relevant market multiples. Our discounted cash flow analyses required significant assumptions about discount rates, short and long-term growth rates, and future profitability.
Goodwill was tested for impairment at the reporting unit level using a combination of discounted future cash flows and relevant market multiples. Our discounted cash flow analyses required significant assumptions about discount rates, short and long-term growth rates, and future profitability. For the tests performed as of June 1, 2023, we utilized estimated discount rates ranging from 11% to 13%.
Operating profit for ABL was $545.6 million (14.3% of ABL net sales) for the year ended August 31, 2022 compared to $476.2 million (14.5% of ABL net sales) in the prior-year period, an increase of $69.4 million.
Operating profit for ABL was $509.5 million (13.7% of ABL net sales) for the year ended August 31, 2023 compared to $545.6 million (14.3% of ABL net sales) in the prior-year period, a decrease of $36.1 million.
See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for further details. Indefinite-Lived Intangible Assets We perform our annual indefinite-lived intangible asset impairment analyses on the first day of our fiscal fourth quarter (June 1). Our indefinite-lived intangible assets consist of 13 trade names with an aggregate carrying value of $173.7 million at August 31, 2022.
See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for further details. Indefinite-Lived Intangible Assets 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.
At August 31, 2022, our outstanding debt balance was $513.0 million compared to our cash position of $223.2 million. We were in compliance with all financial covenants under our financing arrangements as of August 31, 2022.
At August 31, 2023, our outstanding debt balance was $495.6 million, which consisted solely of our Unsecured Notes, compared to our cash position of $397.9 million. We were in compliance with all covenants under our financing arrangements as of August 31, 2023.
Gross Profit Gross profit for the year ended August 31, 2022 increased $197.7 million, or 13.4%, to $1.67 billion compared with $1.48 billion for the prior year. Gross profit margin decreased 80 basis points to 41.8% for fiscal 2022 compared with 42.6% in the prior-year period.
Gross Profit Gross profit for the year ended August 31, 2023 increased $40.5 million, or 2.4%, to $1.71 billion compared with $1.67 billion for the prior year, and gross profit margin increased 150 basis points to 43.3% for fiscal 2023 compared with 41.8% in the prior-year period.
We generated $316.3 million of cash flows from operating activities during fiscal 2022 compared with $408.7 million in the prior-year period, a decrease of $92.4 million.
We generated $578.1 million of cash flows from operating activities during fiscal 2023 compared with $316.3 million in the prior-year period, an increase of $261.8 million.
Further details on our borrowings and operating lease liabilities are outlined in the Debt and Lines of Credit and Leases footnotes of the Notes to Consolidated Financial Statements , respectively, within this Form 10-K. Additionally, we incur purchase obligations in the ordinary course of business that are enforceable and legally binding.
We had no borrowings outstanding under our credit agreement as of August 31, 2023. Further details on our borrowings and operating lease liabilities are outlined in the Debt and Lines of Credit and Leases footnotes of the Notes to Consolidated Financial Statements , respectively, within this Annual Report on Form 10-K.
Operating Profit Selling, distribution, and administrative expenses of $1.16 billion for the year ended August 31, 2022 increased $118.9 million, or 11.4%, compared with the prior year. This increase was due primarily to higher commissions and freight costs associated with higher sales as well as increased employee-related costs due, in part, to recent acquisitions.
Operating Profit Selling, distribution, and administrative expenses of $1.21 billion for the year ended August 31, 2023 increased $49.9 million, or 4.3%, compared with the prior year. This increase was due primarily to higher employee-related costs and higher commissions. We also recognized special charges of $26.9 million during fiscal year 2023.
Financial Condition, Capital Resources, and Liquidity We have numerous sources of capital, including cash on hand and cash flows generated from operations as well as various sources of financing.
We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management solutions, and location-aware applications. Financial Condition, Capital Resources, and Liquidity We have numerous sources of capital, including cash on hand and cash flows generated from operations, as well as various sources of financing.
This decline was due primarily to higher working capital investments to support year-over-year growth as well as to mitigate inconsistent supply availability at our production facilities. 19 Table of Contents Financing Arrangements See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for discussion of our various financing arrangements, including the $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”) as well as the terms of our $600.0 million five-year unsecured revolving credit facility (the “Revolving Credit Facility”).
This increase was due primarily to increased cash collections from customers and fewer inventory purchases during the current period, partially offset by the timing of payments for purchases on account. 19 Table of Contents Financing Arrangements See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements within this Annual Report on Form 10-K for discussion of the terms of our various financing arrangements, including the $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”) as well as the terms of our $600.0 million five-year unsecured revolving credit facility (the “Revolving Credit Facility”).
You are cautioned not to place undue reliance on any forward looking statements, which speak only as of the date of this annual report.
You are cautioned not to place undue reliance on any forward-looking statements.
Please refer to the Acquisitions footnote of the Notes to Consolidated Financial Statements for more information. 20 Table of Contents Dividends We paid dividends on our common stock of $18.1 million ($0.52 per share) in fiscal 2022 and $19.1 million ($0.52 per share) in fiscal 2021, indicating a quarterly dividend rate of $0.13 per share.
Dividends We paid dividends on our common stock of $16.8 million ($0.52 per share) in fiscal 2023 and $18.1 million ($0.52 per share) in fiscal 2022, indicating a quarterly dividend rate of $0.13 per share.
Segment Results The following tables set forth information comparing the operating results of our segments, ABL and ISG, for the year ended August 31, 2022 with the year ended August 31, 2021 (in millions): Year Ended August 31, ABL: 2022 2021 Increase (Decrease) Percent Change Net sales $ 3,810.1 $ 3,287.3 $ 522.8 15.9 % Operating profit 545.6 476.2 69.4 14.6 % Operating profit margin 14.3 % 14.5 % (20) bps ISG: Net sales $ 216.1 $ 190.0 $ 26.1 13.7 % Operating profit 22.7 9.9 12.8 129.3 % Operating profit margin 10.5 % 5.2 % 530 bps ABL net sales for the year ended August 31, 2022 increased 15.9% compared with the prior-year period.
Segment Results The following tables set forth information comparing the operating results of our segments, ABL and ISG, for the year ended August 31, 2023 with the year ended August 31, 2022 (in millions): Year Ended August 31, 2023 2022 Increase (Decrease) Percent Change ABL: Net sales $ 3,722.8 $ 3,810.1 $ (87.3) (2.3) % Operating profit 509.5 545.6 (36.1) (6.6) % Operating profit margin 13.7 % 14.3 % (60) bps ISG: Net sales $ 252.7 $ 216.1 $ 36.6 16.9 % Operating profit 32.1 22.7 $ 9.4 41.4 % Operating profit margin 12.7 % 10.5 % 220 bps ABL net sales for the year ended August 31, 2023 decreased 2.3% compared with the prior-year period due primarily to lower net sales within original equipment manufacturer ("OEM") and other, independent sales network, and corporate accounts channels, partially offset by higher net sales in direct sales network and retail sales channels.
Our forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the historical experience of the organization and management’s present expectations or projections.
Our forward-looking statements are based on our current beliefs, expectations, and assumptions, which may not prove to be accurate, and are subject to known and unknown risks and uncertainties, many of which are outside of our control. These risks and uncertainties could cause actual events or results to differ materially from our historical experience and management’s present expectations or projections.
Additionally, we estimate forfeitures of all share-based awards at the time of grant, which are revised in subsequent periods if actual forfeitures differ from initial estimates. Forfeitures are estimated based on historical experience. If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period.
If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period.
Sufficient cash flow generation is also critical to fund our operations in the short and long terms and to maintain compliance with covenants contained in our financing agreements.
Sufficient cash flow generation is also critical to fund our operations in the short and long terms and to maintain compliance with covenants contained in our financing agreements. Our significant contractual cash requirements as of August 31, 2023 primarily include principal and interest on our unsecured notes, accounts payable, accrued employee compensation, and operating lease liabilities.
Strategic Acquisitions and Investments We seek opportunities to strategically expand and enhance our portfolio of solutions. There were no acquisitions during fiscal 2022. The $12.9 million of cash outflows in fiscal 2022 reflected in Consolidated Statements of Cash Flows primarily relate to working capital settlements for fiscal 2021 acquisitions.
The $12.9 million of cash outflows in fiscal 2022 reflected in the Consolidated Statements of Cash Flows primarily relate to working capital settlements for fiscal 2021 acquisitions. Please refer to the Acquisitions and Divestitures footnote of the Notes to Consolidated Financial Statements for more information.
Other Expense Other expense consists of net interest expense and net miscellaneous (income) expense, which includes non-service related components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses. Interest expense, net, was $24.9 million and $23.2 million for the years ended August 31, 2022 and 2021, respectively.
Miscellaneous Expense (Income), net Miscellaneous expense (income), net consists 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. We reported net miscellaneous expense of $7.8 million in fiscal 2023 compared with net miscellaneous income of $9.1 million in fiscal 2022.
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.
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. When the actual number of awards earned is based on future performance, we recognize expense when it becomes probable that the performance metric will be satisfied.
Diluted earnings per share for fiscal 2022 was $11.08 compared with $8.38 for the prior-year period, an increase of $2.70, or 32.2%. This increase reflects higher net income as well as lower outstanding diluted shares.
The decrease in net income resulted primarily from a decrease in operating profit compared to the prior-year period. 22 Table of Contents Diluted earnings per share for fiscal 2023 was $10.76 compared with $11.08 for the prior-year period, a decrease of $0.32, or 2.9%. This decrease reflects lower net income, partially offset by lower outstanding diluted shares.
If this occurs, we are required to record a non-cash charge to earnings for the write-down in the value of such assets. Such charges could have a material adverse effect on our results of operations and financial position but not our cash flows from operations.
Such charges could have a material adverse effect on our results of operations and financial position but not our cash flows from operations. Goodwill We performed our annual goodwill impairment analyses on the first day of our fiscal fourth quarter (June 1) for each period presented.
As of August 31, 2022, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 2.8 million shares. The COVID-19 Pandemic The COVID-19 pandemic has resulted in intermittent worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets.
As of August 31, 2023, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 1.2 million shares. Results of Operations The following is a discussion of our results of operations in fiscal 2023 compared to fiscal 2022.
Contractual purchase obligations for years subsequent to August 31, 2022 include $533.1 million in fiscal 2023. Contractual purchase obligations beyond fiscal 2023 are not significant.
Additionally, we incur purchase obligations in the ordinary course of business that are enforceable and legally binding. Contractual purchase obligations subsequent to August 31, 2023 include $302.6 million in fiscal 2024. Contractual purchase obligations beyond fiscal 2024 are not significant.
Although we currently believe that the estimates used in the evaluation of goodwill and indefinite-lived intangibles are reasonable, differences between actual and expected net sales, operating results, and cash flows and/or changes in the discount rates or theoretical royalty rates used could cause these assets to be deemed impaired.
However, future differences between actual and expected net sales, operating results, and cash flows and/or changes in the discount rates or theoretical royalty rates used could require us to record additional non-cash impairment charges to earnings for the write-down in the value of such assets.
Investments in Current Business Growth We invested $56.5 million and $43.8 million in fiscal 2022 and 2021, respectively, in property, plant, and equipment, primarily related to investments in new and enhanced information technology capabilities, tooling, equipment, and facility enhancements. Additionally, we invested in working capital to support growth and to mitigate inconsistent supply availability at our production facilities.
Investments in Current Business for Growth We invested $66.7 million and $56.5 million in property, plant, and equipment in fiscal 2023 and 2022, respectively. We invested more in fiscal 2023 primarily on new and enhanced equipment, facility improvements, and information technology. Strategic Acquisitions, Investments, and Divestitures We seek opportunities to strategically expand and enhance our portfolio of solutions.
Both our ABL and ISG segments benefited from recent price increases as well as higher volumes. Revenues from acquired companies contributed an approximately 3% increase in net sales compared to the prior year. Changes in foreign currency rates did not have a meaningful impact on net sales for the year ended August 31, 2022.
The divestiture from our Sunoptics prismatic skylight business, the acquisition of KE2 Therm, and changes in foreign currency rates did not have a meaningful impact on net sales for the year ended August 31, 2023.
We reported net miscellaneous income of $9.1 million in fiscal 2022 compared with net miscellaneous expense of $8.2 million in fiscal 2021. During fiscal 2021, we recorded impairment charges totaling $6.0 million for certain unconsolidated equity investments. Further details regarding the impairment charges are included in the Fair Value Measurements footnote of the Notes to Consolidated Financial Statements .
Further details regarding income taxes are included in the Income Taxes footnote of the Notes to Consolidated Financial Statements . Net income for fiscal 2023 decreased $38.0 million, or 9.9%, to $346.0 million from $384.0 million reported for the prior year.
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. See the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements for further details.
See the Significant Accounting Policies and Fair Value Measurement footnotes of the Notes to Consolidated Financial Statements for further details regarding the assumptions used and results of our annual impairment tests for the periods presented.
The change in our effective income tax rate year over year is due primarily to the impact of discrete items. Further details regarding income taxes are included in the Income Taxes footnote of the Notes to Consolidated Financial Statements .
The details of the equity investment impairment charge are included in the Fair Value Measurements footnote of the Notes to Consolidated Financial Statements . Income Taxes and Net Income Our effective income tax rate was 22.5% and 22.3% for the years ended August 31, 2023 and 2022, respectively.
Removed
We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management systems, and location-aware applications. We achieve customer-focused efficiencies that allow us to increase market share and deliver superior returns. We look to aggressively deploy capital to grow the business and to enter attractive new verticals.
Added
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.
Removed
Our significant contractual cash requirements as of August 31, 2022 primarily include principal and interest on our unsecured notes and borrowings under our credit agreement as well as payments for operating lease liabilities.
Added
This acquisition is intended to expand ISG's technology and controls product portfolio and reach new customers. We sold our Sunoptics prismatic skylights business in November 2022. We recognized a pre-tax loss of $11.2 million on the sale of this business. 20 Table of Contents There were no acquisitions or divestitures during fiscal 2022.
Removed
We invested in acquisitions of businesses, net of cash acquired, of $75.3 million in fiscal 2021.
Added
Our gross profit increased compared with the prior year on lower sales as we strategically managed price.
Removed
We remain committed to prioritizing the health and well-being of our associates and their families and ensuring that we operate effectively. We have implemented various health and safety policies and processes at our facilities in the United States, Mexico, Canada, and other locations as permitted by law. The COVID-19 pandemic has had an adverse impact on our results of operations.
Added
This increase was partially offset by higher labor costs as well as the recognition of a $13.0 million charge resulting from the collectability of a supplier warranty obligation owed to us for components we used in products manufactured and sold between 2017 and 2019.
Removed
The pandemic has caused reduced construction and renovation spending as well as a disruption in our supply chain for certain components, both of which negatively impacted our operating results.
Added
Please refer to the Special Charges footnote of the Notes to Consolidated Financial Statements within this Annual Report on Form 10-K for further details. Operating profit for fiscal 2023 was $473.4 million compared with $509.7 million reported for the prior-year period, a decrease of $36.3 million, or 7.1%.
Removed
Although our facilities are open, a resurgence in COVID-19 cases, including as a result of new variants, may lead to the reimposition of previously lifted business closure requirements, the imposition of new restrictions, or the issuance of new or revised local or national health guidance.
Added
The decrease in operating profit for fiscal 2023 compared with fiscal 2022 was due to the recognition of special charges in fiscal 2023 as well as increased operating expenses, partially offset by an increase in gross profit. Interest Expense, net Interest expense, net, was $18.9 million and $24.9 million for the years ended August 31, 2023 and 2022, respectively.
Removed
We also continue to incur additional health and safety costs including expenditures for personal protection equipment and facility enhancements to maintain proper distancing guidelines issued by the Centers for Disease Control and Prevention.
Added
The decrease in net interest expense was due to increased investing rates on our interest-bearing cash cash equivalents. compared to the prior year, partially offset by changes in average short-term borrowings outstanding.
Removed
We have taken actions to reduce costs, including the realignment of headcount with current volumes, a limit on all non-essential employee travel, other efforts to decrease discretionary spending, and reductions in our real estate footprint.
Added
This year-over-year change was due primarily to the recognition of an $11.2 million loss on the sale of our Sunoptics prismatic skylights business in fiscal 2023 and an impairment charge of $2.5 million for one unconsolidated equity investment, as well as higher pension cost.
Removed
Additionally, we elected to defer certain employer payroll taxes as allowable under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) signed into law on March 27, 2020. Half of these deferrals were paid in December 2021, and the remaining deferrals are due in December 2022.
Added
These amounts were partially offset by higher gains on foreign currency-related items compared to the prior year. The details of the Sunoptics sale are described in the Acquisitions and Divestitures footnote of the Notes to Consolidated Financial Statements .
Removed
Although we have implemented significant measures to mitigate further spread of the virus, our employees, customers, suppliers, and contractors may continue to experience disruptions to business activities due to potential further government-mandated or voluntary shutdowns, general economic conditions, or other negative impacts of the COVID-19 pandemic.
Added
The decrease in operating profit was due primarily to special charges of $25.0 million, the recognition of a $13.0 million charge related to the collectability of a supplier receivable, and lower net sales. These declines were partially offset by our strategic management of price.
Removed
We are continuously monitoring the adverse effects of the pandemic and identifying steps to mitigate those effects. As the COVID-19 pandemic is continually evolving, we are uncertain of its ultimate duration and impact. See Part I, Item 1a. Risk Factors for further details regarding the potential impacts of COVID-19 to our results of operations, financial position, and cash flows.
Added
We currently believe that the estimates used in the evaluation of goodwill and indefinite-lived intangibles are reasonable, including our calculations of fiscal 2023 trade name impairment charges described below.
Removed
Russia and Ukraine Conflict The current conflict between Russia and Ukraine and the related sanctions and other penalties imposed by countries across the globe against Russia are creating substantial uncertainty in the global economy.
Added
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.
Removed
While we do not have operations in Russia or Ukraine and do not have significant direct exposure to customers and vendors in those countries, we are unable to predict the impact that these actions will have on the global economy or on our financial condition, results of operations, and cash flows as of the date of these financial statements. 21 Table of Contents Results of Operations The following is a discussion of our results of operations in fiscal 2022 compared to fiscal 2021.
Added
Our fiscal 2023 analyses resulted in impairment charges and the determination that certain assets no longer had indefinite lives. As of August 31, 2023, we held eight indefinite-lived intangible assets with an aggregate carrying value of $135.6 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeBased on fiscal 2022 performance, a hypothetical decline in the value of the Canadian dollar in relation to the U.S. dollar of 10% would negatively impact operating profit by approximately $13 million, while a hypothetical appreciation of 10% in the value of the Canadian dollar in relation to the U.S. dollar would favorably impact operating profit by approximately $16 million.
Biggest changeBased on fiscal 2023 performance, a hypothetical depreciation of 10% in the value of the Canadian dollar in relation to the U.S. dollar would negatively impact operating profit by approximately $11.9 million, while a hypothetical 10% appreciation in the value of the Canadian dollar in relation to the U.S. dollar would favorably impact operating profit by approximately $14.5 million.
We do not currently engage in significant commodity hedging transactions for raw materials. The following discussion provides additional information regarding our market risks. Interest Rates Interest rate fluctuations expose variable-rate debt of the organization to changes in interest expense and cash flows. As of August 31, 2022, our long-term debt consisted primarily of fixed-rate senior unsecured notes.
We do not currently engage in significant commodity hedging transactions for raw materials. The following discussion provides additional information regarding our market risks. Interest Rates Interest rate fluctuations expose variable-rate debt of the organization to changes in interest expense and cash flows. As of August 31, 2023, our long-term debt consisted primarily of fixed-rate senior unsecured notes.
Our exposure to foreign currency risk related to our operations in Europe is immaterial and has been excluded from this analysis. 28 Table of Contents
Our exposure to foreign currency risk related to our operations in Europe is immaterial and has been excluded from this analysis. 27 Table of Contents
A fluctuation in interest rates would not affect interest expense or cash flows related to the Company’s fixed-rate debt. However, a 10% increase in market interest rates at August 31, 2022 would have decreased the estimated fair value of our senior unsecured notes by approximately $14.9 million.
A fluctuation in interest rates would not affect interest expense or cash flows related to the Company’s fixed-rate debt. 26 Table of Contents However, a 10% increase in market interest rates at August 31, 2023 would have decreased the estimated fair value of our senior unsecured notes by approximately $14.2 million.
Additionally, as of August 31, 2022, we had $18.0 million of borrowings outstanding on our credit facility. Interest incurred on these borrowings is not significant to our overall results of operations. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements contained in this Form 10-K for additional information.
As of August 31, 2023, we had no borrowings outstanding on our credit facility. Interest incurred on these borrowings is not significant to our overall results of operations or cash flows. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements contained in this Form 10-K for additional information.
A hypothetical 10% decrease in the value of the Mexican peso in relation to the U.S. dollar would favorably impact operating profit by approximately $15 million, while a hypothetical increase of 10% in the value of the Mexican peso in relation to the U.S. dollar would negatively impact operating profits by approximately $18 million.
A hypothetical 10% decrease in the value of the Mexican peso in relation to the U.S. dollar would favorably impact operating profit by approximately $19.4 million, while a hypothetical 10% increase in the value of the Mexican peso in relation to the U.S. dollar would negatively impact operating profit by approximately $23.7 million.

Other AYI 10-K year-over-year comparisons