The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes included within this report. References made to years are for fiscal year periods. Dollar amounts are in thousands, except share and per-share data and as indicated.

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 of Acuity Brands and its subsidiaries for the years ended August 31, 2009 and 2008. For a more complete understanding of this discussion, please read the Notes to Consolidated Financial Statements included in this report.

Overview

Company

Acuity Brands Inc. ("Acuity Brands") is the parent company of Acuity Brands Lighting and other subsidiaries (collectively referred to herein as "the Company"). The Company, with its principal office in Atlanta, Georgia, employs approximately 6,000 people worldwide.

The Company designs, produces, and distributes a broad array of indoor and outdoor lighting fixtures and related products, including lighting controls, and services for commercial and institutional, industrial, infrastructure, and residential applications for various markets throughout North America and select international markets. The Company is one of the world's leading producers and distributors of lighting fixtures, with a broad, highly configurable product offering, consisting of roughly 500,000 active products as part of over 2,000 product groups, as well as lighting controls and other products, that are sold to approximately 5,000 customers. As of August 31, 2009, the Company operates 16 manufacturing facilities and six distribution facilities along with two warehouses to serve its extensive customer base.

Acuity Brands completed the Spin-off of its specialty products business, Zep, on October 31, 2007, by distributing all of the shares of Zep common stock, par value $.01 per share, to the Company's stockholders of record as of October 17, 2007. The Company's stockholders received one Zep share, together with an associated preferred stock purchase right, for every two shares of the Company's common stock they owned. Stockholders received cash in lieu of fractional shares for amounts less than one full Zep share.

As a result of the Spin-off, the Company's financial statements have been prepared with the net assets, results of operations, and cash flows of the specialty products business presented as discontinued operations. All historical statements have been restated to conform to this presentation.

Strategy

Throughout 2009, the Company made significant progress towards key initiatives designed to enhance and streamline its operations, including its product development and service capabilities, and create a stronger, more effective organization that is capable of more consistently achieving its long-term financial goals, which are as follows:

• Generating operating margins in excess of 12%;

• Growing earnings per share in excess of 15% per annum;

• Providing a return on stockholders' equity of 20% or better;

• Maintaining the Company's debt to total capitalization ratio below 40%; and

• Generating cash flow from operations less capital expenditures that is in excess of net income.

To increase the probability of the Company achieving these financial goals, management will continue to implement programs to enhance its capabilities at providing unparalleled customer service; creating a globally competitive cost structure; improving productivity; and introducing new and innovative products and services more rapidly and cost effectively. In addition, the Company has invested considerable resources to teach and train associates to utilize tools and techniques that accelerate success in these key areas as well as to create a culture that demands excellence through continuous improvement. Additionally, the Company promotes a "pay-for-performance" culture that rewards achievement, while closely monitoring appropriate risk-taking. The expected outcome of these activities will be to better position the Company to deliver on its full potential, to provide a platform for future growth opportunities, and to allow the Company to achieve its long-term financial goals. See the Outlook section below for additional information.

Liquidity and Capital Resources

The Company's principle sources of liquidity are operating cash flows generated primarily from its business operations, cash on hand, and various sources of borrowings. The ability of Acuity Brands to generate sufficient cash flow from operations and access certain capital markets, including borrowing from banks, is necessary for the Company to fund its operations, to pay dividends, to meet its obligations as they become due, and to maintain compliance with covenants contained in its financing agreements.

Based on its cash on hand, availability under existing financing arrangements and current projections of cash flow from operations, the Company believes that it will be able to meet its liquidity needs over the next 12 months. These needs are expected to include funding its operations as currently planned, making anticipated capital investments, funding certain potential acquisitions, funding foreseen improvement initiatives, paying quarterly stockholder dividends as currently anticipated, paying principal and interest on borrowings as currently scheduled, and making required contributions into the Company's employee benefit plans, as well as potentially repurchasing shares of Acuity Brands' outstanding common stock as authorized by the Company's Board of Directors. The Company currently expects to invest approximately $35.0 million primarily for equipment, tooling, and new and enhanced information technology capabilities during fiscal 2010.

The Company has $200 million of public notes scheduled to mature on August 2, 2010, and intends to refinance the notes prior to their maturity. While the Company believes it will be able to refinance the notes, the Company believes it will also have the ability to retire the notes as they come due based on available borrowing capacity under the Revolving Credit Facility, future cash provided by operations, and current cash balances. See Note 5: Debt and Lines of Credit of the Notes to Consolidated Financial Statements.

Cash Flow

The Company uses available cash and cash flow from operations, as well as proceeds from the exercise of stock options, if any, to fund operations and capital expenditures, to pay principal and interest on debt, to repurchase stock, to fund acquisitions, and to pay dividends. The Company's available cash position at August 31, 2009 was $18.7 million, a decrease of $278.4 million from August 31, 2008. The decrease in the Company's available cash position was due primarily to the repayment of $162.4 million of debt, $162.1 million used for acquisitions, $21.6 million used for dividends paid, partially offset by cash provided by operating activities and proceeds from the exercise of stock options.

During fiscal 2009, the Company generated $92.7 million of net cash from operating activities compared with $221.8 million generated in the prior-year period, a decrease of $129.1 million. Net cash provided by operating activities decreased due primarily to lower net income and the payment of employee incentive compensation totaling approximately $37.8 million, which was attributable to fiscal 2008 performance.

Operating working capital (calculated by adding accounts receivable, net, plus inventories, and subtracting accounts payable) as a percentage of net sales increased to 12.4% at the end of fiscal 2009 from 10.3% at the end of fiscal 2008, due primarily to higher inventory levels as a percentage of net sales. At August 31, 2009, the current ratio (calculated as total current assets divided by total current liabilities) of the Company was 0.9 compared with 1.4 at August 31, 2008. This reduction in the current ratio was due primarily due to the reduction in cash described above and the short-term classification at August 2009 of the $200 million notes that are due in August 2010.

Management believes that investing in assets and programs that will over time increase the overall return on its invested capital is a key factor in driving stockholder value. The Company invested $21.2 million and $27.2 million in fiscal 2009 and 2008, respectively, primarily for new tooling, machinery, equipment, and information technology. As noted above, the Company expects to invest approximately $35.0 million for new plant, equipment, tooling, and new and enhanced information technology capabilities during fiscal 2010.

Contractual Obligations

The following table summarizes the Company's contractual obligations at
August 31, 2009:



                                                          Payments Due by Period
                                                Less than     1 to 3     4 to 5     After
                                      Total      One Year     Years      Years     5 Years
   Debt(1)                          $ 231,582   $  209,535   $ 18,047   $     -    $  4,000
   Interest Obligations(2)            127,366       30,327     18,878     20,257     57,904
   Operating Leases(3)                 48,427       14,427     21,940      8,936      3,124
   Purchase Obligations(4)             82,356       81,739        617         -          -
   Other Long-term Liabilities(5)      52,278        6,356     12,002      9,762     24,158

   Total                            $ 542,009   $  342,384   $ 71,484   $ 38,955   $ 89,186

(1) These amounts (which represent the amounts outstanding at August 31, 2009) are included in the Company's Consolidated Balance Sheets. See Note 5: Debt and Lines of Credit for additional information regarding debt and other matters.

(2) These amounts represent the expected future interest payments on debt held by the Company at August 31, 2009 and the Company's loans related to its corporate-owned life insurance policies ("COLI"). The substantial majority of interest payments on debt included in this table are based on fixed rates. COLI-related interest payments included in this table are estimates. These estimates are based on various assumptions, including age at death, loan interest rate, and tax bracket. The amounts in this table do not include COLI-related payments after ten years due to the difficulty in calculating a meaningful estimate that far in the future. Note that payments related to debt and the COLI are reflected on the Company's Consolidated Statements of Cash Flows.

(3) The Company's operating lease obligations are described in Note 8:
Commitments and Contingencies.

(4) Purchase obligations include commitments to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including open purchase orders.

(5) These amounts are included in the Company's Consolidated Balance Sheets and largely represent other liabilities for which the Company is obligated to make future payments under certain long-term employee benefit programs. Estimates of the amounts and timing of these amounts are based on various assumptions, including expected return on plan assets, interest rates, and other variables. The amounts in this table do not include amounts related to future funding obligations under the defined benefit pension plans. The amount and timing of these future funding obligations are subject to many variables and also depend on whether or not the Company elects to make contributions to the pension plans in excess of those required under ERISA. Such voluntary contributions may reduce or defer the funding obligations. See Note 4: Pension and Profit Sharing Plans for additional information. These amounts exclude $7.2 million of unrecognized tax benefits, including interest and penalties, as a reasonably reliable estimate of the period of cash settlement with the respective taxing authorities cannot be determined.

Capitalization

The current capital structure of the Company is comprised principally of senior notes and equity of its stockholders. As of August 31, 2009, the Company had total debt outstanding of $231.6 million which consisted primarily of fixed-rate obligations. During fiscal 2009, total debt outstanding decreased $132.3 million from $363.9 million at August 31, 2008, due primarily to the repayment of the $160 million 6% notes, which matured on February 2, 2009, partially offset by the issuance of a $30 million unsecured promissory note issued as partial consideration for the acquisition of Sensor Switch.

On October 19, 2007, the Company executed a $250 million revolving credit facility (the "Revolving Credit Facility"). The Revolving Credit Facility matures in October 2012 and contains financial covenants including a minimum interest coverage ratio and a leverage ratio ("Maximum Leverage Ratio") of total indebtedness to EBITDA (earnings before interest, taxes, depreciation and amortization expense), as such terms are defined in the Revolving Credit Facility agreement. These ratios are computed at the end of each fiscal quarter for the most recent 12-month period. The Revolving Credit Facility allows for a Maximum Leverage Ratio of 3.50, subject to certain conditions defined in the financing agreement. The Company was in compliance with all financial covenants and had no outstanding borrowings at August 31, 2009 under the Revolving Credit Facility. At August 31, 2009, the Company had borrowing capacity under the Revolving Credit Facility of $242.7 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $7.3 million.

In December 2008, the Company commenced a cash tender offer to purchase any and all of its outstanding $160 million 6% notes due February 2, 2009 (the "Notes"). On December 9, 2008, a total aggregate principal amount of $12.6 million, representing approximately 7.9% of the outstanding Notes, was validly tendered in the offer at a discounted price of $990.00 per $1,000.00. The total consideration plus the applicable accrued and unpaid interest was paid to the tendering holders on the settlement date, December 10, 2008. The gain, net of expenses, was immaterial. The remaining $147.4 million of the Notes matured on February 2, 2009, and the Company repaid the outstanding balance with cash on hand.

The Company has $200 million of outstanding public notes scheduled to mature on August 2, 2010. The Company intends to refinance the notes prior to their maturity. While the Company believes it will be able to refinance the notes, the Company believes it will also have the ability to retire the notes as they come due based on available borrowing capacity under the Revolving Credit Facility, future cash provided by operations, and current cash balances. See Note 5: Debt and Lines of Credit of the Notes to Consolidated Financial Statements. In addition, the Company's Board of Directors may authorize the Company's management to explore opportunistic repurchases of indebtedness.

On April 20, 2009, the Company issued a three-year $30 million 6% unsecured promissory note to the sole shareholder of Sensor Switch, who continued as an employee of the Company upon completion of the acquisition, as partial consideration for the acquisition of Sensor Switch. Scheduled quarterly payments on the note began on July 1, 2009 with the last payment due April 1, 2012. The lender has certain rights to accelerate the note should the Company refinance the $200 million public notes.

During fiscal 2009, the Company's consolidated stockholders' equity increased $96.6 million to $672.1 million at August 31, 2009 from $575.5 million at August 31, 2008. The increase was due primarily to net income earned in the period, stock issued as partial consideration for acquired businesses, and stock issuances associated with employee incentive compensation programs, partially offset by the payment of dividends, unfavorable currency translation adjustments, and an increase in pension obligations. The Company's debt to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders' equity) was 25.6% and 38.7% at August 31, 2009 and August 31, 2008, respectively. The ratio of debt, net of cash, to total capitalization, net of cash, was 24.1% at August 31, 2009 and 10.4% at August 31, 2008.

Dividends

Acuity Brands paid dividends on its common stock of $21.6 million ($0.52 per share) during 2009 compared with $22.5 million ($0.54 per share) in 2008. Acuity Brands currently plans to pay quarterly dividends at a rate of $0.13 per share. All decisions regarding the declaration and payment of dividends by Acuity Brands are at the discretion of the Board of Directors of Acuity Brands and will be evaluated from time to time in light of the Company's financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Acuity Brands' board deems relevant.

Results of Operations

Fiscal 2009 Compared with Fiscal 2008

The following table sets forth information comparing the components of net
income for the year ended August 31, 2009 with the year ended August 31, 2008:



($ in millions, except per-share                Years Ended
data)                                            August 31,                  Increase            Percent
                                           2009             2008            (Decrease)           Change
Net Sales                                $ 1,657.4        $ 2,026.6        $     (369.2 )          (18.2 )%
Cost of Products Sold                      1,022.3          1,210.8              (188.5 )          (15.6 )%

Gross Profit                                 635.1            815.8              (180.7 )          (22.2 )%

Percent of net sales                          38.3 %           40.3 %              (200 )bp
Selling, Distribution, and
Administrative Expenses                      454.6            540.1               (85.5 )          (15.8 )%
Special Charge                                26.7             14.6                12.1             82.9 %

Operating Profit                             153.8            261.1              (107.3 )          (41.1 )%

Percent of net sales                           9.3 %           12.9 %              (360 )bp
Other Expense (Income)
Interest Expense, net                         28.5             28.4                 0.1              0.4 %
Miscellaneous Expense (Income)                (2.1 )            2.1                (4.2 )         (200.0 )%

Total Other Expense (Income)                  26.4             30.5                (4.1 )          (13.4 )%

Income from Continuing Operations
before Provision for Income Taxes            127.4            230.6              (103.2 )          (44.8 )%

Percent of net sales                           7.7 %           11.4 %              (370 )bp
Provision for Taxes                           42.1             81.9               (39.8 )          (48.6 )%

Effective tax rate                            33.1 %           35.5 %
Income from Continuing Operations             85.3            148.6               (63.3 )          (42.6 )%
Loss from Discontinued Operations,
net of tax                                    (0.3 )           (0.4 )               0.1             25.0 %

Net Income                               $    85.0        $   148.3        $      (63.3 )          (42.7 )%

Diluted Earnings per Share from
Continuing Operations                    $    2.05        $    3.57        $      (1.52 )          (42.6 )%
Diluted Loss per Share from
Discontinued Operations                  $   (0.01 )      $   (0.01 )      $         -                -  %

Diluted Earnings per Share               $    2.04        $    3.56        $      (1.52 )          (42.7 )%

Results from Continuing Operations

Net sales were $1,657.4 million for fiscal 2009 compared with $2,026.6 million reported in the prior-year period, a decrease of $369.2 million, or 18.2%. For fiscal 2009, the Company reported income from continuing operations of $85.3 million compared with $148.6 million earned in fiscal 2008. Diluted

earnings per share from continuing operations were $2.05 for fiscal 2009 as compared with $3.57 reported for fiscal 2008, a decrease of 42.6%. Results for fiscal 2009 and 2008 include pre-tax special charges of $26.7 million, or $0.41 per diluted share, and $14.6 million, or $0.21 per diluted share, respectively.

On December 31, 2008, Acuity Brands acquired for cash and stock substantially all the assets and assumed certain liabilities of Lighting Control & Design, Inc. ("LC&D"). Located in Glendale, California, LC&D is a manufacturer of comprehensive digital lighting controls and software. LC&D offers a wide range of products, including dimming and building interfaces as well as digital thermostats, all within a single, scalable system. LC&D had calendar year 2008 sales of approximately $18 million.

On April 20, 2009, the Company acquired Sensor Switch, Inc. ("Sensor Switch"), an industry-leading developer and manufacturer of lighting controls and energy management systems for an aggregate consideration of the $205 million comprised of (i) 2 million shares of common stock of the Company, (ii) a $30 million note of Acuity Brands Lighting, and (iii) approximately $130 million of cash. A cash payment of approximately $130 million was funded from available cash on hand and from borrowings under the Company's Revolving Credit Facility. The $30 million unsecured promissory note is payable over three years. Sensor Switch, based in Wallingford, Connecticut, offers a wide-breadth of products and solutions that substantially reduce energy consumption including occupancy sensors, photocontrols, and distributed lighting control devices. Sensor Switch generated sales in excess of $37 million during its fiscal year ending October 31, 2008.

The operating results of Sensor Switch and LC&D have been included in the Company's consolidated financial statements since their respective dates of acquisition.

Net Sales

Net sales decreased approximately 18% in 2009 compared with 2008 due primarily to lower shipments and unfavorable impact of foreign currency fluctuation, partially offset by revenues from recent acquisitions. The lower volume of product shipments was due primarily to continued decline in demand on the residential and non-residential construction markets, particularly for commercial and office buildings. The Company estimates shipment volumes declined by approximately 19% in fiscal 2009 compared with 2008, partially offset by an estimated 1% improvement in price and product mix. Additionally, unfavorable foreign currency rate fluctuations negatively impacted net sales in fiscal 2009 by slightly less than 2% compared with the prior year, which was largely offset by $26 million of net sales from acquisitions.

Gross Profit

Gross profit margin decreased by 200 basis points to 38.3% of net sales for fiscal 2009 from 40.3% reported for the prior-year period. Gross profit for fiscal 2009 decreased $180.7 million, or 22.2%, to $635.1 million compared with $815.8 million for the prior-year period. The decline in gross profit and gross profit margin was largely attributable to the decline in net sales noted above, increased cost for raw material and components, and unfavorable foreign currency fluctuations. The Company estimates raw material and component costs increased cost of goods sold by approximately $40 million compared with the year-ago period, with only a small portion of the increase recovered in higher prices. Savings from ongoing streamlining efforts, benefits from productivity improvements, and contributions from acquisitions helped to partially offset the negative impact of the aforementioned items on gross profit and gross profit margin.

Operating Profit

Selling, Distribution, and Administrative ("SD&A") expenses for fiscal 2009 were $454.6 million compared with $540.1 million in the prior-year period, which represented a decrease of $85.5 million, or 15.8%. Approximately half of the decrease in SD&A expenses was due to lower commissions paid to the Company's sales forces and agents and lower freight costs, which both typically vary directly with sales. Additionally, reduced incentive compensation and benefits from streamlining efforts contributed to lower fiscal 2009 SD&A expense. Partially offsetting these reductions was the additional SD&A expense related to the businesses acquired in fiscal 2009.

In fiscal 2009, gross profit less SD&A expenses was $180.5 million compared with $275.7 million in the prior-year period, which represents a decrease of $95.2 million, or 17.6%. The decrease was due to lower volume, increased raw material and component costs, and unfavorable foreign currency fluctuations, partially offset by savings from streamlining efforts, benefits from productivity improvements, and contributions from acquisitions. The Company believes this measure provides greater comparability and enhanced visibility into the improvements realized.

As part of the Company's initiative to streamline and simplify operations, the Company recorded in fiscal 2009 and 2008 pre-tax charges of $26.7 million and $14.6 million, respectively, to reflect severance and related employee benefit costs associated with the elimination of certain positions worldwide and the costs associated with the early termination of certain leases. The fiscal 2009 charge included a non-cash expense of $1.6 million for the impairment of assets associated with the closing of a facility. The Company estimates that it realized $39 million ($28 million and $11 million from actions initiated in fiscal 2009 and 2008, respectively) in savings during fiscal 2009 compared with the prior year related to these actions.

Operating profit for fiscal 2009 was $153.8 million compared with $261.1 million reported for the prior-year period, a decrease of $107.3 million, or 41.1%. Operating profit margin decreased 360 basis points to 9.3% compared with 12.9% in the year-ago period. The decrease in operating profit in fiscal 2009 compared with the prior-year period was due primarily to the decrease in gross profit noted above and the $12.1 million incremental special charge related to streamlining efforts, partially offset by decreased SD&A expense as noted above.

Income from Continuing Operations before Provision for Taxes

Other expense consists primarily of interest expense, net, and miscellaneous income (or expense) resulting from changes in exchange rates on foreign currency items as well as other non-operating items. Interest expense, net, was $28.5 million and $28.4 million for fiscal 2009 and 2008, respectively. Fiscal 2009 interest expense, net reflects lower interest expense resulting from the maturity of the $160 million public notes that was more than offset by reduced interest income resulting from both lower cash balances and lower short-term interest rates. For fiscal 2009, the Company reported $2.1 million of other . . .