ACUITY BRANDS, INC. The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information ofAcuity Brands, Inc. ("Acuity Brands") and its subsidiaries as ofNovember 30, 2020 and for the three months endedNovember 30, 2020 and 2019. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report. Also, please refer to Acuity Brands' Annual Report on Form 10-K for the fiscal year endedAugust 31, 2020 , filed with theSecurities and Exchange Commission (the "SEC") onOctober 23, 2020 ("Form 10-K"). Overview Company Acuity Brands is the parent company ofAcuity Brands Lighting, Inc. ("ABL") and other subsidiaries (Acuity Brands, ABL, and such other subsidiaries are collectively referred to herein as "we," "our," "us," "the Company," or similar references). Our principal office is located inAtlanta, Georgia . We are a market-leading industrial technology company that designs, manufactures, and brings to market products and services for commercial, institutional, industrial, infrastructure, and residential applications throughoutNorth America and select international markets. Our products include building management systems, lighting, lighting controls, and location aware applications. We achieve growth through the development of innovative new products and services. Through the Acuity Business System, 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. As ofNovember 30, 2020 , we operate 18 manufacturing facilities and eight distribution facilities along with two warehouses to serve our extensive customer base. We do not consider acquisitions a critical element of our strategy but seek opportunities to expand and enhance our portfolio of solutions, including the following transactions during the prior fiscal year. OnSeptember 17, 2019 , using cash on hand and borrowings under available existing credit arrangements, we acquired all of the equity interests ofThe Luminaires Group ("TLG"), a leading provider of specification-grade luminaires for commercial, institutional, hospitality, and municipal markets, all of which complement our current and dynamic lighting portfolio. TLG's indoor and outdoor lighting fixtures are marketed to architects, landscape architects, interior designers, and engineers through five niche lighting brands: A-light™, Cyclone™, Eureka®, Luminaire LED™, and Luminis®. OnNovember 25, 2019 , using cash on hand, we acquired all of the equity interests ofLocusLabs, Inc ("LocusLabs"). The LocusLabs software platform supports navigation applications used on mobile devices, web browsers, and digital displays in airports, event centers, multi-floor office buildings, and campuses. The results of operations for the three months endedNovember 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the full fiscal year due primarily to continued uncertainty of general economic conditions that may impact our key end markets for fiscal 2021, seasonality, and the impact of any acquisitions, among other reasons. Additionally, we are uncertain of the future impact of the ongoing COVID-19 pandemic and of possible sustained deterioration in economic conditions to our sales channels, supply chain, manufacturing, and distribution as well as overall construction, renovation, and consumer spending. The COVID-19 Pandemic DuringMarch 2020 , theWorld Health Organization declared the COVID-19 outbreak a pandemic. This pandemic has resulted in worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets. However, our manufacturing operations are deemed essential and continue to operate. 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 policies to screen associates, contractors, and vendors for COVID-19 symptoms upon entering our manufacturing and distribution and open office facilities inthe United States ,Mexico , and other locations as permitted by law. We have also implemented one-way traffic flows, additional cleaning requirements for common spaces, mandatory face coverings, hand sanitizer stations, socially distanced workspaces, and self-serve pay stations within our cafeterias to mitigate the spread of the virus. Additionally, we are requiring certain employees whose job functions can be performed remotely to work from home for the foreseeable future. 19 -------------------------------------------------------------------------------- Table of Contents Government-mandated and voluntary social distancing measures had an adverse impact on our results of operations. The pandemic has caused reduced construction and renovation spending during the year as well as a disruption in our supply chain for certain components, both of which negatively impacted our fiscal 2021 sales. In fiscal 2020 we experienced a limited number of temporary facility shutdowns due to government-mandated closures. 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 theCenters for Disease Control and Prevention . In response to our sales declines, we have taken actions to reduce costs, including the realignment of headcount with current volumes, a freeze on all non-essential employee travel, other efforts to decrease discretionary spending, and planned reductions in our real estate footprint. 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. 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 of our Form 10-K. for further details regarding the potential impacts of COVID-19 to our results of operations, financial position, and cash flows. Liquidity and Capital Resources Our principal sources of liquidity are operating cash flows generated primarily from our business operations, cash on hand, and various sources of borrowings. Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund our operations and capital expenditures, pay dividends, repurchase shares, meet obligations as they become due, and maintain compliance with covenants contained in our financing agreements. For the first three months of fiscal 2021, we paid$11.4 million for property, plant, and equipment, primarily for tooling, new and enhanced information technology capabilities, equipment, and facility enhancements. We currently expect to invest approximately 1.5% of net sales on capital expenditures during fiscal 2021. During the first quarter of fiscal 2021, we repurchased 2.6 million shares. As ofNovember 30, 2020 , the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 5.1 million shares. We expect to repurchase the remaining shares available for repurchase on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash. Our short-term cash needs are expected to include funding operations as currently planned; making capital investments as currently anticipated; paying quarterly stockholder dividends as currently anticipated; paying principal and interest on debt as currently scheduled; making required contributions and distributions related to our employee benefit plans; funding possible acquisitions; and potentially repurchasing shares of our outstanding common stock. We believe that we will be able to meet our liquidity needs over the next 12 months based on our cash on hand, current projections of cash flow from operations, and borrowing availability under financing arrangements. Additionally, we believe that our cash flows from operations and sources of funding, including, but not limited to, future borrowings and borrowing capacity, will sufficiently support our long-term liquidity needs. However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A continued worldwide disruption could materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. Cash Flow We use available cash and cash flows from operations, borrowings, and proceeds from the exercise of stock options to fund operations, capital expenditures, and acquisitions if any; to repurchase Company stock; and to pay dividends. Our cash position atNovember 30, 2020 was$507.0 million , a decrease of$53.7 million fromAugust 31, 2020 . During the three months endedNovember 30, 2020 , we generated net cash flows from operations of$123.9 million . Borrowings completed in the first quarter of fiscal 2021, as more fully described below under the Capitalization section, contributed$493.9 million to the cash position. Cash generated from operating activities, cash on-hand, and funds from borrowings were used during the three months endedNovember 30, 2020 primarily to repay 20 -------------------------------------------------------------------------------- Table of Contents borrowings on our Term Loan Facility (defined below) of$395.0 million , to pay for share repurchases of$255.2 million , to fund capital expenditures of$11.4 million , to pay dividends to stockholders of$5.0 million , and to pay withholding taxes on the net settlement of equity awards of$3.0 million . We generated$123.9 million of cash flows from operating activities during the three months endedNovember 30, 2020 compared with$129.6 million in the prior-year period, a decrease of$5.7 million , due primarily to the timing of certain payments. We believe that investing in assets and programs that will over time increase the overall return on our invested capital is a key factor in driving stockholder value. We paid$11.4 million and$11.6 million during the first three months of fiscal 2021 and 2020, respectively, for property, plant, and equipment, primarily related to investments in tooling, new and enhanced information technology capabilities, equipment, and facility enhancements. Capitalization OnNovember 10, 2020 ,Acuity Brands Lighting, Inc. ("ABL"), our wholly-owned operating subsidiary, issued$500.0 million aggregate principal amount of 2.150% senior unsecured notes dueDecember 2030 (the "Unsecured Notes"). The Unsecured Notes bear interest at a rate of 2.150% per annum and were issued at a price equal to 99.737% of their face value. Interest on the Unsecured Notes will be paid semi-annually in arrears onJune 15 andDecember 15 of each year, beginning onJune 15, 2021 . The Unsecured Notes will mature onDecember 15, 2030 . The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis byAcuity Brands and ABL IP Holding LLC ("ABL IP Holding ", and, together with Acuity Brands, the "Guarantors"), a wholly-owned subsidiary of Acuity Brands. Additionally, we capitalized$4.8 million of deferred issuance costs related to the Unsecured Notes that are being amortized over the 10-year term. As ofNovember 30, 2020 , the balance of the bond net of unamortized discount and deferred issuance costs was$493.9 million . As ofNovember 30, 2020 , we also had$4.0 million of tax-exempt industrial revenue bonds that are scheduled to mature inJune 2021 . The carrying value of these bonds is reflected within Current maturities of debt on the Consolidated Balance Sheets as ofNovember 30, 2020 . Additionally, we had$2.0 million outstanding under fixed-rate bank loans outstanding atNovember 30, 2020 that mature inFebruary 2028 , subject to monthly or quarterly repayment schedules. There have been no other material changes outside of the ordinary course of business in our contractual obligations sinceAugust 31, 2020 . The following tables present summarized financial information for Acuity Brands, ABL, andABL 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 November 30, 2020 August 31, 2020 Current assets $ 1,027.6 $ 1,152.6 Current assets due from non-guarantor affiliates 219.4 183.3 Non-current assets 1,404.6 1,416.0 Current liabilities 498.0 530.2 Non-current liabilities 842.6 723.8 Summarized Income Statement Information Three Months Ended November 30, 2020 Net sales $ 662.2 Gross profit 280.7 Net income 60.0 As ofNovember 30, 2020 , our capital structure was comprised principally of the Unsecured Notes and equity of our stockholders. Total debt outstanding was$499.9 million atNovember 30, 2020 and consisted primarily of fixed-rate obligations. AtAugust 31, 2020 , total debt outstanding was$401.1 million and consisted primarily of variable-rate obligations. OnJune 29, 2018 , we entered into a credit agreement ("Credit Agreement") with a syndicate of banks that provides us with a$400.0 million five-year unsecured revolving credit facility ("Revolving Credit Facility") and a$400.0 million unsecured delayed draw term loan facility (the "Term Loan Facility)". We had no borrowings outstanding under the Revolving Credit Facility or the Term Loan Facility as ofNovember 30, 2020 orAugust 31, 2020 . We had$395.0 million of borrowings under the Term Loan Facility as ofAugust 31, 2020 , which we fully repaid during the first quarter of fiscal 2021 using the proceeds from the Unsecured Notes. The Credit Agreement allows for no future borrowings under the Term Loan Facility. 21 -------------------------------------------------------------------------------- Table of Contents We were in compliance with all financial covenants under the Credit Agreement as ofNovember 30, 2020 . AtNovember 30, 2020 , we had additional borrowing capacity under the Credit Agreement of$395.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less the outstanding letters of credit of$4.1 million issued under the Revolving Credit Facility. As ofNovember 30, 2020 , we had outstanding letters of credit totaling$8.3 million , primarily for securing collateral requirements under our casualty insurance programs and for providing credit support for our industrial revenue bond, which includes the$4.1 million issued under the Revolving Credit Facility. See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for more information. During the first three months of fiscal 2021, our consolidated stockholders' equity decreased$190.5 million to$1.9 billion atNovember 30, 2020 , from$2.1 billion atAugust 31, 2020 . The decrease was due primarily to repurchases of our outstanding common stock, partially offset by net income earned. Our debt to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders' equity) was 20.5% and 15.9% atNovember 30, 2020 andAugust 31, 2020 , respectively. The ratio of debt, net of cash, to total capitalization, net of cash, was (0.4)% and (8.1)% atNovember 30, 2020 andAugust 31, 2020 , respectively. Dividends We paid dividends on our common stock of$5.0 million ($0.13 per share) and$5.2 million ($0.13 per share) during the three months endedNovember 30, 2020 and 2019, respectively. All decisions regarding the declaration and payment of dividends are at the discretion of the Board and are evaluated regularly in light of our financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant. 22 -------------------------------------------------------------------------------- Table of Contents Results of Operations First Quarter of Fiscal 2021 Compared with First Quarter of Fiscal 2020 The following table sets forth information comparing the components of net income for the three months endedNovember 30, 2020 and 2019 (in millions except per share data): Three Months Ended Increase November 30, 2020 November 30, 2019 (Decrease) Percent Change Net sales $ 792.0 $ 834.7$ (42.7) (5.1) % Cost of products sold 459.6 478.9 (19.3) (4.0) % Gross profit 332.4 355.8 (23.4) (6.6) % Percent of net sales 42.0 % 42.6 % (60) bps Selling, distribution, and administrative expenses 246.0 265.3 (19.3) (7.3) % Special charges 0.7 6.9 (6.2) NM Operating profit 85.7 83.6 2.1 2.5 % Percent of net sales 10.8 % 10.0 % 80 bps Other expense: Interest expense, net 4.9 8.3 (3.4) (41.0) % Miscellaneous expense, net 1.6 1.4 0.2 NM Total other expense 6.5 9.7 (3.2) (33.0) % Income before income taxes 79.2 73.9 5.3 7.2 % Percent of net sales 10.0 % 8.9 % 110 bps Income tax expense 19.6 16.9 2.7 16.0 % Effective tax rate 24.7 % 22.9 % Net income $ 59.6 $ 57.0$ 2.6 4.6 % Diluted earnings per share $ 1.57 $ 1.44$ 0.13 9.0 % NM - not meaningful Net sales were$792.0 million for the three months endedNovember 30, 2020 compared with$834.7 million reported for the three months endedNovember 30, 2019 , a decrease of$42.7 million , or 5.1%. For the three months endedNovember 30, 2020 , we reported net income of$59.6 million , an increase of$2.6 million , or 4.6%, compared with$57.0 million for the three months endedNovember 30, 2019 . For the first quarter of fiscal 2021, diluted earnings per share increased 9.0% to$1.57 compared with$1.44 reported in the year-ago period. The following table reconciles certainU.S. generally accepted accounting principles ("U.S. GAAP") financial measures to the corresponding non-U.S. GAAP measures referred to in the discussion of our results of operations, which exclude the impact of acquisition-related items, amortization of acquired intangible assets, share-based payment expense, special charges associated primarily with continued efforts to streamline the organization and integrate recent acquisitions, and impairments of investments. Although the impacts of some of these items have been recognized in prior periods and could recur in future periods, we typically exclude these charges during internal reviews of performance and use these non-U.S. GAAP measures for baseline comparative operational analysis, decision making, and other activities. These non-U.S. GAAP financial measures, including adjusted gross profit and adjusted gross profit margin, adjusted selling, distribution, and administrative ("SD&A") expenses and adjusted SD&A expenses as a percent of net sales, adjusted operating profit and margin, adjusted other expense, adjusted net income, and adjusted diluted earnings per share, are provided to enhance the user's overall understanding of our current financial performance. Specifically, we believe these non-U.S. GAAP measures provide greater comparability and enhanced visibility into our results of operations. There are limitations to the use of non-U.S. GAAP financial measures and such non-U.S. GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, results prepared in accordance withU.S. GAAP. The non-U.S. GAAP measures as defined by us may not be comparable to similar non-U.S. GAAP measures presented by other companies. Our presentation of such measures, which may include adjustments to exclude unusual or non-recurring items, should not be construed as an inference that our future results will be unaffected by other unusual or non-recurring items. 23 -------------------------------------------------------------------------------- Table of Contents (In millions, except per share data) Three Months Ended November 30, November 30, Increase 2020 2019 (Decrease) Percent Change Gross profit$ 332.4 $ 355.8 $ (23.4) (6.6) % Percent of net sales 42.0 % 42.6 % (60) bps Add-back: Acquisition-related items (1) - 1.1 Adjusted gross profit$ 332.4 $ 356.9 $ (24.5) (6.9) % Percent of net sales 42.0 % 42.8 % (80) bps Selling, distribution, and administrative expenses$ 246.0 $ 265.3 $ (19.3) (7.3) % Percent of net sales 31.1 % 31.8 % (70) bps Less: Amortization of acquired intangible assets (10.1) (9.6) Less: Share-based payment expense (7.7) (16.7) Less: Acquisition-related items (1) - (1.1) Adjusted selling, distribution, and administrative expenses$ 228.2 $ 237.9 $ (9.7) (4.1) % Percent of net sales 28.8 % 28.5 % 30 bps Operating profit$ 85.7 $ 83.6 $ 2.1 2.5 % Percent of net sales 10.8 % 10.0 % 80 bps Add-back: Amortization of acquired intangible assets 10.1 9.6 Add-back: Share-based payment expense 7.7 16.7 Add-back: Acquisition-related items (1) - 2.2 Add-back: Special charges 0.7 6.9 Adjusted operating profit$ 104.2 $ 119.0 $ (14.8) (12.4) % Percent of net sales 13.2 % 14.3 % (110) bps Other expense$ 6.5 $ 9.7 $ (3.2) (33.0) % Less: Impairment of investment (4.0) - Adjusted other expense$ 2.5 $ 9.7 $ (7.2) (74.2) % Net income$ 59.6 $ 57.0 $ 2.6 4.6 % Add-back: Amortization of acquired intangible assets 10.1 9.6 Add-back: Share-based payment expense 7.7 16.7 Add-back: Acquisition-related items (1) - 2.2 Add-back: Special charges 0.7 6.9 Add-back: Impairment of investment 4.0 - Total pre-tax adjustments to net income 22.5 35.4 Income tax effects (5.2) (8.2) Adjusted net income$ 76.9 $ 84.2 $ (7.3) (8.7) % Diluted earnings per share$ 1.57 $ 1.44 $ 0.13 9.0 % Adjusted diluted earnings per share$ 2.03 $ 2.13 $ (0.10) (4.7) %
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(1) Acquisition-related items include profit in inventory and professional fees.Net Sales Net sales for the three months endedNovember 30, 2020 decreased 5.1% compared with the prior-year period. From a sales channel perspective, sales in the retail channel increased 3%, reflecting strength in home center opportunities. Sales through the independent sales network decreased 3% compared with the prior year due to lower volume, decreasing prices on certain products, and a changing mix of products sold due primarily to the impact of the COVID-19 pandemic. Sales in the direct sales network decreased 10%, reflecting weakness in large industrial projects, while sales in the corporate accounts channel declined 28% due primarily to lower retrofit activity in large big-box retailers. Changes in foreign currency rates did not have a meaningful impact on first quarter net sales. 24 -------------------------------------------------------------------------------- Table of Contents Gross Profit Gross profit for the first quarter of fiscal 2021 decreased$23.4 million , or 6.6%, to$332.4 million compared with$355.8 million in the prior-year period, and gross profit margin decreased 60 basis points to 42.0% from 42.6%. The declines in gross profit and margin were due primarily to lower volume and price as well as an unfavorable change in product mix, partially offset by lower product input costs from cost reduction efforts. Adjusted gross profit for fiscal 2021 decreased$24.5 million , or 6.9%, to$332.4 compared with$356.9 for the prior year. Adjusted gross profit margin decreased 80 basis points to 42.0% compared to 42.8% in the prior year. Operating Profit SD&A expenses for the three months endedNovember 30, 2020 were$246.0 million compared with$265.3 million in the prior-year period, a decrease of$19.3 million , or 7.3%. The decrease in SD&A expenses was due primarily to decreased employee costs, lower freight and commissions associated with decreased sales volumes, and lower travel as well as sales and marketing expenses due in part to the COVID-19 pandemic. In particular, share-based payment expense decreased due to the discontinuation of certain retirement provisions in the equity incentive program that resulted in the acceleration of share-based payment expense for fiscal 2020 grants. SD&A expenses for the first quarter of fiscal 2021 were 31.1% of net sales compared with 31.8% for the prior-year period. Adjusted SD&A expenses for the three months endedNovember 30, 2020 were$228.2 million (28.8% of net sales) compared with$237.9 million (28.5% of net sales) in the prior-year period. We recognized pre-tax special charges of$0.7 million during the first quarter of fiscal 2021 compared with$6.9 million recorded during the first quarter of fiscal 2020. Further details regarding our special charges are included in the Special Charges footnote of the Notes to Consolidated Financial Statements. Operating profit for the first quarter of fiscal 2021 was$85.7 million (10.8% of net sales) compared with$83.6 million (10.0% of net sales) for the prior-year period, an increase of$2.1 million , or 2.5%. The increase in operating profit was due to lower SD&A expenses and special charges, partially offset by lower gross profit. Adjusted operating profit decreased$14.8 million , or 12.4%, to$104.2 million for the first quarter of fiscal 2021 compared with$119.0 million for the first quarter of fiscal 2020. Adjusted operating profit margin decreased to 13.2% for the first quarter of fiscal 2021 compared with 14.3% for the year-ago period. Other Expense Other expense consists of net interest expense and net miscellaneous 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$4.9 million and$8.3 million for the three months endedNovember 30, 2020 and 2019, respectively. The decrease in interest expense was due primarily to the interest savings associated with refinancing the previously outstanding 6% senior unsecured notes with funds under the Term Loan Facility, which were subject to lower short-term borrowing rates. We reported net miscellaneous expense of$1.6 million and$1.4 million for the three months endedNovember 30, 2020 and 2019, respectively. During the first quarter of fiscal 2021, we recorded an impairment charge of$4.0 million for an unconsolidated equity investment, which was partially offset by net foreign currency transaction gains. Income Taxes and Net Income Our effective income tax rate was 24.7% and 22.9% for the three months endedNovember 30, 2020 and 2019, respectively. The increase in the current fiscal tax rate was due primarily to the recognition in fiscal 2021 of unfavorable discrete items related to the deductibility of certain compensation. We currently estimate that our blended consolidated effective income tax rate, before any discrete items, will be approximately 23% for fiscal 2021, assuming the rates in our taxing jurisdictions remain generally consistent throughout the year. Net income for the first quarter of fiscal 2021 increased$2.6 million , or 4.6%, to$59.6 million from$57.0 million reported for the prior-year period. The increase in net income resulted primarily from an increased operating profit and lower interest expense, partially offset by a higher income tax expense compared to the prior-year period. Diluted earnings per share for the three months endedNovember 30, 2020 increased$0.13 , or 9.0%, to$1.57 compared with diluted earnings per share of$1.44 for the prior-year period. This increase reflects higher net income as well as lower outstanding diluted shares. Adjusted net income for the first quarter of fiscal 2021 was$76.9 million , compared with$84.2 million in the prior-year period, a decrease of$7.3 million , or 8.7%. Adjusted diluted 25 -------------------------------------------------------------------------------- Table of Contents earnings per share for the three months endedNovember 30, 2020 decreased$0.10 , or 4.7%, to$2.03 compared with$2.13 for the prior-year period.
Outlook
We believe the execution of our strategy will provide attractive opportunities for profitable growth over the long term. Although we are aggressively managing our response to the current COVID-19 pandemic, its impact on our full year fiscal 2021 results and beyond is uncertain. We believe that the most significant elements of uncertainty are the intensity and duration of the impact on construction, renovation, and consumer spending as well as the ability of our sales channels, supply chain, manufacturing, and distribution to continue to operate with minimal disruption for the remainder of fiscal 2021 and beyond, all of which could negatively impact our financial position, results of operations, cash flows, and outlook. Critical Accounting Estimates Management's Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in our Consolidated Financial Statements, which have been prepared in accordance withU.S. GAAP. As discussed in the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity withU.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expense during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition; inventory valuation; amortization and the recoverability of long-lived assets, including goodwill and intangible assets; share-based payment expense; medical, product warranty and recall, and other estimated liabilities; retirement benefits; and litigation. We base our estimates and judgments on our substantial historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. We discuss the development of accounting estimates with the Audit Committee of the Board. There have been no material changes in our critical accounting estimates during the current period. For a detailed discussion of other significant accounting policies that may involve a higher degree of judgment, refer to our Form 10-K. Cautionary Statement Regarding Forward-Looking Statements and Information This filing contains forward-looking statements within the meaning of the federal securities laws. Statements made herein that may be considered forward-looking include statements incorporating terms such as "expects," "believes," "intends," "anticipates," and similar terms that relate to future events, performance, or results of the Company. In addition, the Company, or the executive officers on the Company's behalf, may from time to time make forward-looking statements in reports and other documents we file with theU.S. Securities and Exchange Commission or in connection with oral statements made to the press, current and potential investors, or others. Forward-looking statements include, without limitation: (a) our projections regarding financial performance, liquidity, capital structure, capital expenditures, investments, share repurchases, and dividends; (b) expectations about the impact of any changes in demand as well as volatility and uncertainty in general economic conditions; (c) our ability to execute and realize benefits from initiatives related to streamlining our operations and integrating recent acquisitions, realize synergies from acquisitions, capitalize on growth opportunities, and introduce new lighting and building management solutions; (d) our planned reductions in our real estate footprint; (e) our estimate of our fiscal 2021 effective income tax rate, results of operations, and cash flows; (f) our estimate of future amortization expense; (g) our ability to achieve our long-term financial goals and measures and outperform the markets we serve; (h) our expectations about the resolution of patent litigation, securities class action, and/or other legal matters; and (i) our expectations of the impact of the current COVID-19 pandemic. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this quarterly report. 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. Our forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and management's present expectations or projections. These risks and uncertainties that could cause our actual results to differ materially from those expressed in our forward-looking statements are discussed in Part I, Item 1a. Risk Factors of our Form 10-K. 26
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