Acuity Brands, Inc.

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Acuity Brands, Inc.

1170 Peachtree Street NE, Suite 2400
Atlanta, Georgia 30309-7676
U.S.A.
Telephone: (404) 853-1400
Fax: (404) 853-1411
Web site: http://www.acuitybrands.com

Public Company
Incorporated: 2001 as L&C Spinco, Inc.
Employees: 10,600
Sales: $2.39 billion (2006)
Stock Exchanges: New York
Ticker Symbol: AYI
NAIC: 335129 Other Lighting Equipment Manufacturing; 325998 All Other Miscellaneous Chemical Product Manufacturing

Acuity Brands, Inc., is an Atlanta, Georgia-based company that operates a pair of business units: Acuity Brands Lighting and Acuity Specialty Products. The company maintains operations in North America, Europe, and Asia. Products of the Lighting Group are sold to commercial and institutional, industrial, consumer, and infrastructure (such as highways) customers, and include fluorescent lighting, decorative fluorescent lighting, roadway lighting, emergency lighting, industrial lighting, outdoor area lighting, landscape lighting, and architectural lighting. Some of the unit's leading brands are American Electric Lighting, Antique Street Lamps, Carandini, Gotham, Holophane, Hydrel, Peerless, and SpecLight. Acuity maintains a direct sales force, and its lighting products are also sold through independent representatives, home improvement retailers, lighting showrooms, utilities, and electrical distributors.

The Acuity Specialty Products Group provides cleaners, sanitizers, disinfectants, degreasers, deodorizers, polishes, floor finishes, pesticides, and insecticides to mass retailers, home improvement centers, and institutional and industrial customers. The unit's key brands include Enforcer, National Chemical, Selig Industries, and Zep. Acuity also has an exclusive license to distribute Armor All Professional products. Specialty products are mostly sold through a direct sales force. Spun off from National Industries in 2001, Acuity Brands is listed on the New York Stock Exchange. In July 2007 management announced that it intended to spin off the Specialty Products Group to create a pair of publicly traded companies.

EARLY 20TH-CENTURY ROOTS

Acuity Brands grew out of the holdings of National Service Industries, Inc., its lineage linked to Isadore M. Weinstein, New York City–born but raised in Cleveland, where he became involved in the towel supply business. After serving in World War I he struck out on his own, launching the Atlanta Linen Supply company in Atlanta in 1919 to rent towels as well as linens and uniforms. In the 1920s the company opened branches throughout the south and changed its name to Southern Linen Service Corporation. The company went public in 1928 as National Linen Service Corporation. Despite the Great Depression of the 1930s, National Linen continued to add branches and by the end of the decade had spread to the Southwest and established a toehold on the West Coast with a Los Angeles branch. The company was so successful that in 1944 it gained a coveted listing on the New York Stock Exchange.

Following World War II the idea of renting instead of buying durable goods grew in popularity, resulting in tremendous growth for National Linen during the postwar years. Under the leadership of Weinstein's son, Milton N. Weinstein, National Linen became such a dominant player in its highly fragmented field that in the 1950s it faced an antitrust suit, a matter settled with the U.S. Department of Justice in 1956. Because of antitrust concerns, the company began to diversify and acquire assets unrelated to linen and uniforms, thus planting the seed that would one day grow into Acuity Brands.

National Linen's first acquisition outside of its industry was Zep Manufacturing Company, an Atlanta janitorial supplies company purchased in 1962. The deal also brought an executive, Erwin Zaban, a neighbor of Milton Weinstein whose father had founded Zep. Zaban stayed on to run the business for Weinstein, and in 1966 he became president of the parent company. Two years earlier it had taken the name National Service Industries. The new name better reflected the scope of the company, which in the early 1960s had used its stock to fund acquisitions in envelope manufacturing. An insulation service company was added in 1966, bringing the number of business lines to four: linen, chemicals, envelopes, and insulation.

National Service continued to grow externally, unconcerned with achieving synergy between units, instead looking for profitable companies with strong management teams in place. Another piece of what would become Acuity Brands was added in 1969 with the acquisition of Georgia lighting fixture manufacturer Lithonia Lighting, Inc., laying the foundation for a fifth division at National Service. Originally begun in 1946 Lithonia had been involved in both incandescent and fluorescent lighting fixtures, selling to residential, commercial, and industrial customers. It had since narrowed its focus to the commercial and industrial fluorescent market.

In 1970 National Service established another division, commercial printing. While these six business lines would remain at the core of the parent company for the next quarter-century, some other divisions would come and go, such as furniture, packaging, and a recreation division. Essentially, Zaban divested lines as soon as they became unprofitable. The ones that showed growth would receive further investment. Many of Acuity's lighting assets were assembled in the late 1970s and early 1980s through the acquisition of Kaiser Aluminum's aluminum lighting pole business, ITT Corporation's indoor lighting business, Chicago-based Major Corporation, and Acme Manufacturing Company, maker of commercial and residential fluorescent lighting fixtures.

By the early 1990s the lighting equipment division provided the lion's share of National Service's revenues, about 38.4 percent of revenues and 29.4 percent of operating income. The third largest unit was the chemical division, contributing 17.6 percent of revenues and 25.4 percent of operating income. The parent company continued to grow these units with further acquisitions, both domestically and internationally. In 1992 Graham Group, the second largest specialty chemicals company in Europe, and Canadian specialty chemical manufacturer Kleen Canada, Inc., were added to the chemical division. The lighting group was also bolstered. In 1995 Infranor Canada, Inc., manufacturer of high-performance outdoor lighting products, was acquired. In that same year National Service also showed its willingness to invest in lighting by build a 100,000-square-foot fluorescent lighting plant near Monterrey, Mexico, which would supply all of the division's needs in North America. In 1996 a 96,000-square-foot space was added.

COMPANY PERSPECTIVES

From a classroom to a corner car wash to the world's largest aquarium, our more than 300,000 customers have needs that range from the ordinary to the extraordinary. Each day, Acuity Brands associates look for better, more effective ways to meet those needs.

After Zaban's retirement, he was replaced as chairman and chief executive officer by James S. Balloun, destined to hold the same posts at Acuity Brands. The son of a professor at Iowa State University, Balloun received a bachelor of science degree in industrial engineering at the school in 1960, followed by a three-year stint in the U.S. Navy Civil Engineering Corps. Afterward he earned a master of business administration from Harvard Business School, where he graduated with honors. He then went to work for a top consulting firm, McKinsey & Company, Inc., becoming a director in 1976. During his 31-year tenure at McKinsey, Balloun became familiar with many industries, experience that would be put to good use in leading National Service and later Acuity Brands.

Balloun took over a company in National Service that had seen its growth stall. After taking a hard look at the situation Balloun devoted the second half of the 1990s to restructuring the company. The insulation business was sold and the linen rental unit significantly cut in size. At the same time, he engineered acquisitions to build up other parts of the company. The chemical division grew with the 1997 $20 million acquisition of Emerson, Georgia-based Enforcer Products, Inc., manufacturer of home pesticide, cleaning, and pet care products, a move that provided entry to the chemical retail channel. Later in the year specialty chemical company Pure Corporation was added, and a year later an Australian company was purchased, Calman Australia Pty Ltd. The lighting division also received its share of support. The largest acquisition for the group came in July 1999 when National Service paid $470.8 million for Columbus, Ohio-based Holophane Corporation, a leading outdoor and industrial lighting equipment manufacturer that brought with it a direct lighting fixture sales force. In addition, four small lighting companies were acquired in the late 1990s.

Although National Service was able to grow revenues to a record $2.22 billion in fiscal 1999, the debt taken on for the acquisition of Holophane, as well as major investments in the envelope line, suppressed earnings. As a result investors bid down the price of National Service stock. A weakening economy in 2001 only worsened the situation. To improve the company's performance Balloun attempted to divest two of its units, National Linen Service and Atlantic Envelope, but could not field any acceptable offers. Instead, in June 2001, National Service announced that it would package its two largest divisions, Lithonia Lighting Group and NSO Chemicals, and spin them off as a separate, publicly traded company, leaving behind a much smaller National Service. Balloun would also go with the spinoff to serve as CEO, president, and chairman. A corporation called L&C Spinco, Inc., was formed in Delaware that month. Even before the spinoff took place, the new entity added assets. In October 2001 it acquired American Electric Lighting, a deal that strengthened the company's relationship with utilities, and the Dark-to-Light product lines of the Thomas & Betts Corporation.

ACUITY BRANDS BORN: 2001

L&C Spinco was renamed Acuity Brands, Inc., in November 2001. Balloun explained to the press, "The name Acuity Brands implies strong, focused leadership and a culture that aspires to high performance." The spinoff was completed later in November, with National Service shareholders receiving one share of Acuity for each share of National Service they owned. In essence Acuity was a reconstituted National Service, shorn of its textile rental and envelope assets. The new company gained an immediate listing on the New York Stock Exchange.

It was not the best of economic times to launch Acuity brands, however. The nonresidential construction market was hit especially hard, a situation that adversely impacted the lighting group, which experienced flat sales in 2002 and a drop in operating profit. Specialty Products also saw declines, although the unit was showing improvements in its ability to sell to home improvement centers like Home Depot. All told, Acuity posted revenues of $1.98 billion and net income of $40.5 million in 2002.

KEY DATES

1919:: Atlanta Linen Supply founded.
1928:: Company taken public as National Linen Service Company.
1944:: Company listed on New York Stock Exchange.
1962:: First specialty chemical asset acquired.
1964:: Company renamed National Service Industries.
1969:: First lighting assets acquired.
2001:: Lighting and specialty chemicals assets spun off as Acuity Brands, Inc.
2004:: James Balloun retires as chairman and CEO.
2007:: Plans announced to spin off specialty chemical business.

Still contending with a weak economy and a poor construction market, Acuity experienced a slight increase in sales to more than $2 billion in 2003. The company did what it could in terms of reducing inventory, negotiating better terms with customers, and cutting costs, but net income dipped to $47.8 million for the year. Nevertheless, Acuity was able to pay down debt, make some capital improvements, and still reward shareholders with a modest dividend. The company continued to show improvement over the next two years, despite a persistent slump in the nonresidential construction field. Revenues topped $2.1 billion in 2004 and totaled $2.17 billion in 2005, but that gain resulted from price increases. Net income, on the other hand, improved to $67.2 million in 2004 and fell off to $52.2 million in 2005. The reasons for disappointing earnings were due to a surge in the price of raw materials and costs entailed in cutting the workforce by about 1,100, part of a larger effort to restructure the business in line with economic conditions. During this period there was also a changing of the guard at the top ranks. In September 2004 Balloun retired at the age of 65. Replacing him as president, CEO, and chairman of the board was 46-year-old Vernon J. Nagel. A University of Michigan graduate and a certified public accountant, Nagel joined the company in December 2001. He was the former chief financial officer at Kuhlman Corporation, an industrial manufacturing company, and prior to becoming Acuity's CFO he served as a principal with the private investment firm of Jepson Associates, Inc.

SPINOFF PLANNED: 2007

Acuity's restructuring efforts, as well as the ongoing introduction of new products, began to show results in 2006. Revenues approached the $2.4 billion mark while net income more than doubled to $107 million. The company was especially pleased that shareholders saw the value of their stock increase by 45 percent over the course of the year, outperforming its chief rivals. In July 2007 the company decided to take a bolder step to unlock and maximize stockholder value by splitting Acuity brands into two standalone publicly traded companies, to be effected by spinning off Acuity Specialty Products, which would be renamed. In this way, the two companies with be better able to develop strategies and seize growth opportunities appropriate to their fields. If and when the spinoff was completed, expected to occur in the fall of 2007, Acuity Brands Inc. would become the holding company of Acuity Brands Lighting, which accounted for about three-quarters of the parent company's revenues. Even while the final touches were being put on the spinoff, Acuity seized an opportunity to grow the lighting business by acquiring Mark Lighting Fixture Company, Inc., and the Mark Architectural Lighting business.

Ed Dinger