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UNITED STATES

Form 10-K

(Mark One)

Commission file number 001-16583

Acuity Brands, Inc.

(404) 853-1400

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Securities registered pursuant to Section 12(g) of the Act:

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ         No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Based on the closing price of $12.65 as quoted on the New York Stock Exchange on October 24, 2002, the aggregate market value of the voting stock held by nonaffiliates of the registrant, was $521,284,476.

     The number of shares outstanding of the registrant’s common stock, $0.01 par value, was 41,436,856 shares as of October 24, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

ACUITY BRANDS, INC.

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PART I

Item 1.     Business

      Acuity Brands, Inc. (“Acuity Brands” or the “Company”) operates in two business segments — lighting equipment and specialty products. The lighting equipment segment of the Company (“Acuity Lighting Group” or “ALG”) manufactures and distributes a variety of fluorescent and non-fluorescent lighting fixtures for markets throughout North America and other foreign markets, primarily Western Europe. The specialty products segment of Acuity Brands (“Acuity Specialty Products Group” or “ASP”) produces and distributes cleaning, maintenance, sanitation, and water treatment chemicals and other products for customers throughout the United States, Canada, and Western Europe. Of the Company’s fiscal 2002 revenues of approximately $2.0 billion, the lighting equipment segment generated approximately 75 percent of total revenues while the specialty products segment provided the remaining 25 percent. Information relating to the revenues, operating profits or losses, and total assets of the Company’s two segments for the past three fiscal years is reported in the Consolidated Financial Statements included in this report.

      On November 7, 2001, the board of directors of National Service Industries, Inc. (“NSI”) approved the spin-off (the “Spin-off” or “Distribution”) of its lighting equipment and specialty products businesses into a separate publicly traded company with its own management and board of directors. The Spin-off was effected on November 30, 2001 through a tax-free distribution of 100 percent of the outstanding shares of common stock of Acuity Brands, which at that time was a wholly-owned subsidiary of NSI owning and operating the lighting equipment and specialty products businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the Spin-off, received one share of Acuity Brands common stock for each share of NSI common stock held on that date.

Business Segments

      The lighting equipment business of Acuity Brands is operated under Acuity Lighting Group. Management of Acuity Brands believes that Acuity Lighting Group is the world’s leading manufacturer of lighting fixtures for both new construction and renovation. Products include a full range of indoor and outdoor lighting for commercial and institutional, industrial and residential applications. Lighting products are manufactured in the United States, Canada, Mexico, and Europe and are marketed under numerous brand names, including Lithonia®, Holophane®, Home-Vue®, Light Concepts®, Gotham®, Hydrel®, Peerless®, Antique Street Lamps^TM, and Reloc®. ALG manufactures products in 22 plants in North America and in two plants in Europe.

      Principal customers include wholesale electrical distributors, retail home improvement centers, and lighting showrooms located in North America and select international markets. In North America, ALG’s products are sold through independent sales agents and factory sales representatives who cover specific geographic areas and market segments. Products are delivered through a network of distribution centers, regional warehouses, and commercial warehouses using both common carriers and a company-owned truck fleet. To serve international customers, ALG employs a sales force that adopts distribution methods to meet individual customer or country requirements. In fiscal 2002, North American sales accounted for approximately 98 percent of ALG’s net sales.

      The specialty products business of Acuity Brands is operated under Acuity Specialty Products Group. ASP is a leading provider of specialty chemical products in the institutional and industrial (“I&I”) and retail markets. Products include cleaners, sanitizers, disinfectants, polishes, floor finishes, degreasers, deodorizers, pesticides, insecticides, and herbicides. ASP manufactures products in four North American plants and two European plants.

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      Acuity Specialty Products Group sells products to customers primarily in North America and Western Europe. In fiscal 2002, North American sales accounted for approximately 95 percent of the net sales of ASP. ASP serves a range of institutional and industrial customers, from small sole proprietorships to Fortune 1000 corporations. Individual markets in the I&I channel include food processing and preparation, transportation, education, automotive, and hospitality and are serviced through a direct commissioned sales force. ASP also sells numerous products under such well known brands as Enforcer®, Selig^TM and Zep® through retail channels such as large and small home improvement centers and mass merchandisers.

Industry Overview

      The size of the North American lighting fixture market in 2002 was estimated at approximately $8.5 billion. The U.S. market, which represents approximately 95 percent of the North American market, is relatively fragmented. The Company estimates that the top four manufacturers (including Acuity Lighting Group) represent approximately 50 percent of the total lighting market.

      The primary demand driver is non-residential construction, both new and renovation. Major industry trends include the on-going development of new and more efficient lamp sources and optical designs, increased adoption of new lighting ordinances, and continued emphasis on energy efficiency.

      There has been a significant increase in the size and relative presence of the retail home improvement center segment. In addition, imports of foreign sourced lighting fixtures continue to grow, driven by both the foreign production of U.S. manufacturers and imports of low-cost fixtures from Asian manufacturers. European-based electrical distributors have increased their presence in the U.S. with the acquisition of U.S.-based local and regional distributor chains, and smaller U.S. distributors continue to seek leverage through alignment with buying groups.

      The approximately $8 billion U.S. I&I janitorial cleaning and sanitation market is highly fragmented. The Company estimates that four major players (including Acuity Specialty Products Group) represent approximately 50 percent of the total market with the remainder divided among hundreds of regional players. In general, the Company estimates that the I&I market grows at a rate approximating Gross Domestic Product (“GDP”). To some extent, consumption of janitorial cleaning and sanitation products is discretionary, but in a health-driven, sophisticated market such as the U.S., the Company believes that health and safety regulations and customer expectations somewhat buffer demand downturns. Increasing legislation in the areas of food and occupational health that require increased ranges of application and frequency of use is fueling demand increases. In addition to the I&I market, there is a U.S. retail chemical market of approximately $4.3 billion, including a $2.8 billion market for cleaners and a $1.5 billion market for pest control.

      The Company believes that two major trends are reshaping the industry. First, health and safety regulations are shrinking the pool of available chemicals, while at the same time increasing the total use rates. This has pushed development of improved physical product formulations and application methods. Second, increased centralized corporate buying and consolidation of the supply chain are threatening reselling distributors and requiring increased base manufacturing and logistics skills.

Products

      Acuity Lighting Group produces a wide variety of lighting fixtures used in the following applications:

	•	Commercial & Institutional — Applications are represented by stores, hotels, offices, schools, and hospitals, as well as other government and public buildings. Products that serve these applications include recessed, surface and suspended fluorescent lighting products, recessed downlighting and track-lighting, as well as “high-abuse” lighting products. The outdoor areas associated with these

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		application segments are addressed by the lighting equipment business’ outdoor lighting products, such as area and floodlighting, decorative site lighting, and landscape lighting.
	•	Industrial — Applications primarily include warehouses and manufacturing facilities. The lighting equipment business serves these applications with a variety of glass and acrylic high intensity discharge (HID) and fluorescent lighting products.
	•	Infrastructure — Applications include highways, tunnels, airports, railway yards and ports. Products that serve these applications include high-mast, off-set roadway and sign lighting.
	•	Consumer — Applications are addressed with a combination of decorative fluorescent and downlighting products, as well as utilitarian fluorescent products.
	•	Other Applications & Products — Other applications and products include emergency lighting products, which are used in non-residential buildings, and lighting control and flexible wiring systems.

      General fluorescent lighting products accounted for approximately 24 percent of total consolidated revenue during fiscal years 2002, 2001 and 2000. No other product category accounted for more than 10 percent of total consolidated revenue for these periods.

      ASP produces and supplies a wide variety of specialty chemical products that are used in numerous applications in a broad range of markets. These include:

	•	Food Process and Food Preparation — ASP provides a total solution approach to serving customers’ sanitation needs. New products, increased technical training for the sales reps, integrated dispensing systems and innovative approaches to antimicrobial control have been implemented to complement the existing cleaners and sanitizers.
	•	Transportation — Applications include cleaning and maintenance products for numerous transportation equipment including individual or fleets of aircraft, public transport, trucks and cars. New products have delivered increased efficiency, regulatory compliance and integrated application equipment. Major products are used to provide exterior cleaning or enhanced appearance.
	•	Education — Applications include schools and universities. The product range is broad and covers all cleaning and maintenance areas with specific emphasis on floor care and general cleaning and deodorizing.
	•	Automotive — Applications include original equipment manufacturers, dealerships and repair/ service facilities. A comprehensive range of products includes aerosols, powders, solvents, absorbents, emulsions, acids and aqueous alkaline cleaners and degreasers to provide necessary cleaning requirements.
	•	Hospitality — Customers include hotels and motels. Products and dispensing systems are designed to supply maintenance, housekeeping and laundry applications with a complete cleaning solution.
	•	Contractors and Homeowners — Applications include contract cleaners, small business owners, and homeowners and are supplied through retail channels. Products provide a comprehensive range of floor care, general purpose cleaners and sanitizers, drain maintenance, and pest control in convenient ready-to-use packaging.

Sales and Marketing

      Sales. ALG provides North American market coverage with approximately 15 separate sales forces targeted at delivering appropriate products and services to specific customer or channel segments. In total, these sales forces are comprised of approximately 1,700 salespeople (200 factory-employed and 1,500

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      Marketing. ALG markets its products through a broad spectrum of marketing and promotional vehicles, including direct customer contact, on-site training at training facilities, print advertising in industry publications, product brochures and other literature, as well as electronic media. Direct customer contact is performed by market development managers, whose primary role is the promotion of select products to the many buying influences involved in the specification/ bid process common in the industry. Most on-site training is conducted at a dedicated product training facility at ALG’s headquarters in Conyers, Georgia.

      Sales. ASP is a selling organization of 1,900 sales representatives and over 180 support personnel worldwide. The compensation model is primarily 100 percent commission with exceptions in certain channels. Net sales are dependent on the hiring, training, and retention of the commissioned sales representatives. Accordingly, the future operating results of ASP may be affected by significant changes in the sales force.

      The ASP sales organization covers a wide geographic territory. The I&I market is serviced through the recently reorganized Zep business with four U.S. divisions, as well as Canadian and European divisions. Each of the four U.S. divisions includes from 230 to 370 sales representatives supplemented by a highly productive complement of customer and technical service personnel. The Canadian and European divisions have approximately 150 and 240 sales representatives, respectively. ASP’s I&I business in North America uses sales automation software that allows interactive support and communication throughout North America. The retail sales division utilizes approximately 170 salaried sales and management personnel to focus on revenue in the do-it-yourself home improvement channel.

      Marketing. ASP’s marketing efforts are focused on supporting a sell-through program from ASP to the sales organization and then to the customer. ASP’s primary focus is in four distinct areas. Market planning includes comprehensive strategic and tactical plan development and support emphasizing financial objectives and accountability. Product management includes new product development and asset management. Market-based pricing takes into account competitive analysis and leverages the flexibility of the ASP operating platform. Marketing services provides sales support tools and collateral sales information to ASP’s worldwide sales force and customer base.

      ASP has expanded the size and scope of marketing since 1998 and now employs over 40 marketing professionals. The expertise of these professionals includes technical support, product management, retail marketing and market planning.

Customers

      No single customer accounted for 10 percent or more of consolidated net sales of Acuity Brands in fiscal year 2002. However, a single customer of Acuity Brands accounted for 14 percent and 13 percent of ASP’s fiscal year net sales in 2002 and 2001, respectively. The loss of that customer would adversely affect the results of that segment and the Company as a whole.

      Customers of the Acuity Lighting Group include electrical distributors, retail home improvement centers, national accounts, lighting showrooms, and electric utilities. In addition, there are a variety of other buying influences, which for any given project could represent a significant influence in the product specification process. These generally include engineers, architects and lighting designers. For the year ended August 31, 2002, sales to electrical distributors represented approximately 78 percent of ALG’s revenue. For the same period, retail home improvement centers and national accounts together represented approximately 14 percent of the revenue of ALG.

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      Customers of ASP consist of I&I customers (82 percent of segment revenues) and retail customers (18 percent of segment revenues). I&I customers range from sole proprietorships to Fortune 1000 corporations and are in the food processing and preparation, transportation, education, automotive, and hospitality markets. Retail customers primarily include large and small home improvement centers and mass merchandisers.

Manufacturing

      Acuity Brands operates 30 manufacturing facilities in seven countries, including 18 facilities in the United States, four facilities in Canada, four facilities in Mexico, and four facilities in Europe.

      ALG utilizes a blend of internal and outsourced manufacturing processes and capabilities to fulfill a variety of customer needs in the most cost effective manner. Critical processes, such as reflector forming and anodizing and high-end glass production are primarily performed at company-owned facilities, offering the ability to differentiate end products through superior capabilities. Investment is focused on improving product quality and manufacturing efficiency. The integration of local suppliers’ factories and warehouses also provides an opportunity to lower ALG-owned component inventory while maintaining high service levels via frequent just-in-time deliveries. ALG also utilizes contract manufacturing for certain products and purchases certain finished goods, primarily poles to complement its area lighting fixtures, but also a variety of residential and commercial lighting equipment, from Asian and European sources.

      U.S. operations represent approximately 56 percent of production; Mexico accounts for approximately 31 percent of production; Canada accounts for approximately four percent of production; and Europe accounts for approximately three percent of production. The remaining six percent of production is outsourced using contract manufacturing and finished good suppliers.

      ASP manufactures products at six facilities located in the United States, Canada, Holland and Italy. The three U.S. facilities produce approximately 94 percent of total manufactured product; Canada accounts for approximately three percent of manufactured product, and Europe accounts for approximately three percent of manufactured product. Certain finished goods purchased from contract manufacturers and finished goods suppliers supplement the manufactured product line.

      At ASP, core manufacturing and distribution processes are being further integrated across brands in order to reduce costs and enhance efficiency. ASP is focused on efforts to maximize return on employed capital through productivity improvement programs. In addition, efforts are underway to optimize inventories through product line rationalization and product reformulation programs.

Distribution

      Products are delivered through a network of strategically located distribution centers, regional warehouses, and commercial warehouses in North America using both common carriers and a company-owned truck fleet. For international customers, distribution methods are adapted to meet individual customer or country requirements.

      Products sold to institutional and industrial markets are shipped from strategically located distribution centers throughout North America, while the retail products are distributed nationwide from the Cartersville, Georgia plant and warehouse.

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Research and Development

      Research and development efforts at ALG are targeted toward the development of products with an ever-increasing performance-to-cost ratio, and close relationships with lamp and ballast manufacturers are maintained to understand and incorporate technology enhancements in ALG’s fixture designs. ALG operates six separate product development model shops and seven photometers for testing and optimizing fixture photometric performance. The Conyers, Georgia lab is approved by the National Voluntary Laboratory Accreditation Program for both fluorescent and high intensity discharge fixtures. For the years ended August 31, 2002, 2001, and 2000, research and development expense at ALG was $20.3 million, $14.5 million, and $16.2 million, respectively.

      At ASP, the research and development focus is directed towards product systems aimed at comprehensive solutions for a broad customer base. Efforts to enhance existing formulations by utilizing new raw materials or combinations of raw materials have resulted in both new and improved products. Technical expertise was employed to move proven technologies into new applications. Enhanced information systems were developed to increase the speed and quality of training and customer assistance. Research and development expense at ASP for the years ended August 31, 2002, 2001, and 2000, excluding technical services, was $1.7 million, $1.1 million, and $1.0 million, respectively.

Competition

      The lighting equipment industry in which ALG operates is highly competitive, with the largest suppliers serving many of the same markets and competing for the same customers. Competition is based on numerous factors, including brand name recognition, price, product quality and design, customer relationships, and service capabilities. Main competitors in the lighting industry include Cooper Industries, Genlyte Thomas Group, and Hubbell. The management of Acuity Brands believes that, together with ALG, the four largest lighting manufacturers possess approximately a 50 percent share of the total North American lighting market.

      The specialty products industry in which ASP operates is highly competitive. Overall, competition is fragmented, with numerous local and regional operators and a few national competitors. Many of these competitors offer products in some, but not all, of the markets served by ASP. Competition is based primarily on brand name recognition, price, product quality, and customer service. Competitors in the specialty products industry include Ecolab, NCH and SC Johnson. Management estimates that the four major players (including ASP) have approximately 50 percent of the total U.S. market and the remainder is divided among hundreds of regional players.

Environmental Regulation

      The operations of the Company are subject to comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances and solid and hazardous wastes and to the remediation of contaminated sites. Permits and environmental controls are required for certain of the Company’s operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. Acuity Brands believes that it is in substantial compliance with all material environmental laws, regulations, and permits. On an ongoing basis, Acuity Brands incurs capital and operating costs relating to environmental compliance. Environmental laws and regulations have generally become stricter in recent years, and the cost of responding to future changes may be substantial. See Item 3 Legal Proceedings below for a discussion of certain environmental matters.

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Raw Materials

      The businesses of Acuity Brands require certain raw materials to produce and distribute their products, including aluminum, plastics, electrical components, solvents, surfactants, and certain grades of steel and glass. Acuity Brands purchases most of these raw materials on the open market and relies on third parties for the sourcing of some finished goods. As such, the cost of products sold may be affected by changes in the market price of the above-mentioned raw materials or the sourcing of finished goods. Acuity Brands does not expect to engage in significant commodity hedging transactions for raw materials. Significant increases in the prices of Acuity Brands’ products due to increases in the cost of raw materials or sourcing could have a negative effect on demand for products and on profitability as well as a material adverse effect on the results of operations of Acuity Brands.

      ASP has a sole supplier of a critical packaging raw material. While this material only accounts for approximately three percent of the total raw material costs, it is used in products that account for approximately 10 percent of sales.

      Each business constantly monitors and investigates alternative suppliers and materials. Additionally, each business has conducted internet auctions as a new method of competitive bidding.

Backlog Orders

      The Company produces and stocks large quantities of inventory at key distribution centers and warehouses throughout North America. As a consequence, it satisfies a significant portion of customer demand within 24 to 48 hours from the time a customer order is placed. This is especially true at ASP. Sales order backlogs of the lighting equipment business believed to be firm as of August 31, 2002 and 2001 were $144.7 million and $141.5 million, respectively. Sales order backlogs for the specialty products business were not material.

Patents, Licenses and Trademarks

      Acuity Brands owns or has licenses to use various domestic and foreign patents, patent applications and trademarks related to its products, processes and businesses. These intellectual property rights, particularly the trademarks relating to the brands of Acuity Brands’ products, are important factors for Acuity Brands’ business. To protect these proprietary rights, Acuity Brands relies on copyright, trade secret and trademark laws. Despite these protections, unauthorized parties may attempt to infringe on Acuity Brands’ intellectual property. Management of Acuity Brands is not aware of any such material unauthorized use or of any claims that Acuity Brands does not have the right to use any intellectual property material to Acuity Brands’ businesses. While patents and patent applications in the aggregate are important to Acuity Brands’ competitive position, no single patent or patent application is material to the Company.

Seasonality and Cyclicality

      The businesses of Acuity Brands are somewhat seasonal in nature, with revenues being affected by the impact of weather and seasonal demand on construction and installation programs, as well as the annual budget cycles of major customers. Because of these seasonal factors, Acuity Brands has experienced, and generally expects to experience, its highest sales in the last two quarters of its fiscal year ended August 31.

      A significant portion of the revenues of ALG relates to customers in the new construction and renovation industries primarily for commercial and industrial applications. These industries are cyclical in nature and subject to changes in general economic conditions. Volume has a major impact on the profitability of ALG and Acuity Brands as a whole. In addition, sales at ASP are dependent on the retail, wholesale and industrial markets, demand for which is generally associated with GDP in the United States. Economic downturns and the potential decline in key construction markets and demand for specialty chemicals may have a material adverse effect on the net sales and operating income of Acuity Brands.

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International Operations

      Acuity Brands manufactures and assembles products at numerous facilities, some of which are located outside the United States. Approximately 38 percent and six percent of the lighting equipment and specialty products segments’ products, respectively, are manufactured outside the United States, primarily in Mexico and Canada. Acuity Brands also obtains components and certain finished goods from suppliers located outside the United States. Approximately 31 percent of Acuity Brands’ lighting equipment products are produced in Mexico. Mexico has enacted legislation to promote the use of such manufacturing operations, known as “Maquiladoras,” by foreign companies. These operations are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows Acuity Brands to import certain items from the United States into Mexico duty-free, provided that such items, after processing, are re-exported from Mexico within 18 months. Maquiladora status, which is renewed every year, is subject to various restrictions and requirements, including compliance with the terms of the Maquiladora program and other local regulations. In recent years many companies have established Maquiladora operations. Although the Company’s manufacturing operations in Mexico continue to be less expensive than comparable operations in the United States, increasing demand for labor, particularly skilled labor and professionals, from new and existing Maquiladora operations has in the past and could in the future result in increased labor costs. Acuity Brands may be required to make additional investments in automating equipment to partially offset potential increased labor costs.

      For the fiscal year ended August 31, 2002, international sales represented approximately 11 percent and 13 percent of the total sales of the lighting equipment and specialty products businesses, respectively.

Employees

      Acuity Brands employs approximately 11,800 employees, of whom approximately 8,010 are employed in the United States, 2,530 in Mexico, 680 in Canada, and 580 in other international locations, including Europe and Asia/ Pacific. Union recognition and collective bargaining arrangements are in place, covering approximately 4,680 persons (including approximately 2,500 in the United States). Management believes that it generally has a good relationship with both its unionized and non-unionized employees.

Item 2.     Properties

      The general corporate offices of Acuity Brands are located in Atlanta, Georgia. Because of the diverse nature of operations and the large number of individual locations, it is neither practical nor meaningful to describe each of the operating facilities owned or leased by the Company. The following listing summarizes the significant facility categories by business:

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      The following table provides additional geographic information related to Acuity Brands’ manufacturing facilities:

      None of the individual properties of Acuity Brands is considered to have a value that is significant in relation to the assets of Acuity Brands as a whole. Though a loss at certain facilities could have an impact on the Company’s ability to serve the needs of its customers, the Company believes that the financial impact would be partially mitigated by various insurance programs in place. Acuity Brands believes that its properties are well maintained and are in good operating condition. Acuity Brands’ properties are suitable and adequate for its present needs. The Company believes that it has additional capacity available at most of its production facilities and that it could significantly increase production without substantial capital expenditures.

      Acuity Brands is subject to various legal claims arising in the normal course of business, including patent infringement and product liability claims. Based on information currently available, it is the opinion of management that the ultimate resolution of pending and threatened legal proceedings will not have a material adverse effect on the financial condition or results of operations of Acuity Brands. However, in the event of unexpected future developments, it is possible that the ultimate resolution of such matters, if unfavorable, could have a material adverse effect on the future financial results of Acuity Brands. Acuity Brands establishes reserves for legal claims when payments associated with the claims become probable and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher than the amounts reserved for such claims.

      Genlyte Thomas Group LLC (“Genlyte Thomas”) filed suit on March 29, 2000, in the United States District Court, Western District of Kentucky, alleging that certain Lithonia Lighting products infringe a patent related to a frame for recessed lighting fixtures and that the infringement is willful. The Company believes that it has valid defenses to the lawsuit and is vigorously defending the asserted allegations. Specifically, the Company has received a formal opinion from independent patent counsel that the patent is invalid and unenforceable. In discovery, which recently has been substantially completed, Genlyte Thomas submitted an expert report on its damages claim asserting that Genlyte Thomas has sustained approximately $20 million in damages. Any damages awarded at trial may be increased by the court by up to three times if willful infringement is found. The Company has reserved the expected defense costs for this litigation. Extensive pre-trial motions have been filed and it is expected that the case, if it proceeds to trial, will not be heard until late 2003.

      Acuity Brands also establishes reserves for known environmental claims when payments associated with the claims become probable and the costs can be reasonably estimated. The environmental reserves of Acuity Brands, for all periods presented in the Consolidated Financial Statements included in this report, are immaterial. The actual costs of environmental issues may be higher than that reserved due to difficulty in estimating such costs and potential changes in the status of government regulations.

      Certain environmental laws can impose liability regardless of fault. The federal Superfund law is an example of such an environmental law. However, management believes that the liability under Superfund is mitigated by the presence of other parties who will share in the costs associated with the clean up of

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      Acuity Brands is currently a party to, or otherwise involved in, legal proceedings in connection with state and federal Superfund sites. Based on information currently available, the Company believes its liability is immaterial at each of the currently active sites which it does not own where it has been named as a responsible party or a potentially responsible party (“PRP”) due to its limited involvement at the site and/or the number of viable PRPs. For example, the preliminary allocation among 48 PRPs at the Crymes Landfill site in Georgia indicates that Acuity Brands’ liability is not significant, and there are more than 1,000 PRPs at the M&J Solvents site in Georgia. For property that Acuity Brands owns on Seaboard Industrial Boulevard in Atlanta, Georgia, the Company has conducted an investigation on its properties and adjoining properties and submitted a Compliance Status Report (“CSR”) to the State of Georgia Environmental Protection Division (“EPD”) pursuant to the Georgia Hazardous Site Response Act. Until the EPD approves the CSR and Acuity Brands evaluates the necessity for and scope of any appropriate corrective action, Acuity Brands will not be able to determine whether corrective action will be required and what the costs of such action will be.

      No matters were submitted for a vote of the security holders during the three months ended August 31, 2002.

      Acuity Brands’ common stock is listed on the New York Stock Exchange under the symbol “AYI”. At October 24, 2002, there were 5,346 stockholders of record. The following table sets forth the New York Stock Exchange high and low stock prices and the dividend payments for Acuity Brands’ common stock for the periods indicated.

*	Public trading of the Acuity Brands shares (other than on a when-issued basis) did not commence until December 3, 2001.

      The information required by this item, with respect to equity compensation plans, is included under the caption Disclosure with Respect to Equity Compensation Plans of the Company’s proxy statement for the annual meeting of stockholders to be held December 19, 2002, filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.

      The following table sets forth certain selected consolidated financial data of Acuity Brands, which have been derived from the Consolidated Financial Statements of Acuity Brands for each of the five years in the period ended August 31, 2002. The historical information may not be indicative of the Company’s future performance as an independent company. The information set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations

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      In September 2001, the Company adopted Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets. Refer to Note 2 of the Notes to Consolidated Financial Statements for information related to the impact of the adoption of this standard on the Company’s net income and pro forma earnings per share.

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

Overview

      On November 7, 2001, the board of directors of National Service Industries, Inc. approved the spin-off (the “Spin-off”) of its lighting equipment and specialty products businesses into a separate publicly traded company with its own management and board of directors. The Spin-off was effected on November 30, 2001 through a tax-free distribution to NSI stockholders (“Distribution”) of 100 percent of the outstanding shares of common stock of Acuity Brands, Inc. (“Acuity Brands” or “the Company”), at that time a wholly-owned subsidiary of NSI owning and operating the lighting equipment and specialty products businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the Distribution, received one share of Acuity Brands common stock for each share of NSI common stock held at that date. The Company operates on a fiscal year end of August 31. Therefore, the results of operations prior to November 30, 2001 are based on certain assumptions more fully described in Note 1 of the Notes to Consolidated Financial Statements.

      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, 2002, 2001, and 2000 and to describe certain potential risk factors associated with the Company. For a more complete understanding of this discussion, please read the Notes to Consolidated Financial Statements included in this report. Also, please refer to the Company’s Registration Statement on Form 10/ A filed with the Securities and Exchange

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      Acuity Brands is a holding company that owns and manages two business units, each operating a collection of businesses, which sell products and provide services to customers in numerous channels, primarily for consumer, commercial and industrial applications. The business units of Acuity Brands operate in two distinct segments based on the different products manufactured and the customers served: Acuity Lighting Group (“ALG”) and Acuity Specialty Products Group (“ASP”). The Company believes ALG is the world’s leading manufacturer and distributor 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 that are sold to approximately 5,000 customers. ALG operates 31 factories and distribution facilities to serve its extensive customer base. ASP is a leading producer and distributor of cleaning and maintenance products in North America and portions of Western Europe. ASP manufactures over 9,000 different products from six plants and serves over 300,000 customers through a network of distribution centers and warehouses. Acuity Brands, with its principal office in Atlanta, Georgia, has almost 12,000 employees worldwide. While Acuity Brands is less than one year old, the two segments that make up the Company are comprised of organizations with long histories and well-known brands.

      A long-term objective of Acuity Brands is to be a broader, more diversified manufacturing and distribution organization capable of delivering consistent growth in earnings and cash flow. A broader and more diversified organization is one that creates less dependency on a single market or customer and generally reduces volatility in earnings and cash flow caused by the cyclicality of a dominant industry. The Company’s longer-term financial goals, focused on enhancing shareholder value, are to grow earnings per share in excess of 15 percent per annum, to generate consolidated operating margins in excess of 10 percent, to provide a return on stockholders’ equity of 15 percent or better and to reduce the Company’s leverage to below 40 percent of total capital.

      In 2002, Acuity Brands focused on the following four initiatives directed at the achievement of these goals:

	1. Provide customers with superior, value-added products and services
	2. Reduce debt
	3. Implement profit improvement and cost containment programs
	4. Diversify the customer base and channels of distribution

      In fiscal 2002, the Company made significant progress in each of these key areas. Each segment continued to develop new products and provide high levels of service, which helped mitigate the impact of weak demand caused by a soft economic environment in other more mature product lines, described more fully below. As significantly, the Company was able to reduce debt by approximately $100 million from the date of Spin-off to $543 million at August 31, 2002 through a combination of operating income and improved working capital management. Also, benefiting the results of the Company in 2002 was the impact of profit improvement and cost containment programs implemented throughout the Company. The impact of these programs helped to partially offset the significant price degradation due to severe competition in key markets, particularly non-residential construction in North America. Lastly, the Company was able to continue with its effort to diversify its customer base and end markets through the acquisition of American Electric Lighting in October 2001 and the addition of certain key accounts in both segments.

      During fiscal 2003, management expects to build on the momentum and the accomplishments of these and other initiatives implemented in prior years. The expected outcome of these activities will be to

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      Fiscal 2002 was a very challenging inaugural year for Acuity Brands. Events that impacted business generally in 2002 were well-publicized lapses in proper corporate governance by certain companies, sensational business bankruptcies, large layoffs and the tragedy on September 11, 2001, all of which took their toll on an economy that had not experienced recession in a decade. Gross Domestic Product in the United States, the Company’s primary area of operation, for the fiscal year ended August 31, 2002 increased approximately 2.2 percent, with most of the gain occurring late in the year. During that same period, activity in the Company’s primary market, non-residential commercial construction, declined approximately 11 percent year over year (based on square footage put in place). Management believes that was the largest annual decline in 10 years. For Acuity Brands, these conditions created an economic environment characterized by weak demand in key markets, rising costs for raw materials and insurance, and intense price competition.

      The Company responded and adapted to these challenging and volatile market conditions by implementing strategies and programs to reduce costs, enhance productivity and, by better managing its capital expenditures and working capital, improve cash flow from operations. Acuity Brands generated almost $2 billion in revenues and produced net income of $52 million, or $1.26 per share for the year ended August 31, 2002. More importantly, the Company strengthened its balance sheet by reducing debt to $543 million at August 31, 2002 from $644 million on November 30, 2001. While the Company aspired to better results, Acuity Brands is proud of these financial achievements given the economic conditions that existed in 2002.

Critical Accounting Policies

      Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. As discussed in Note 2 of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management 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 revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to inventory valuation; depreciation, amortization and the recoverability of long-lived assets, including intangible assets; medical, product warranty and other reserves; litigation; and environmental matters. Management bases its estimates and judgments on its 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. See Note 2 of the Notes to Consolidated Financial Statements for a summary of the accounting policies of Acuity Brands.

      The management of Acuity Brands believes the following represent the Company’s critical accounting policies:

      Acuity Brands records inventory at the lower of cost (on a first-in, first-out basis) or market. Management reviews inventory quantities on hand and records a provision for excess or obsolete inventory primarily based on estimated future demand and current market conditions. A significant change in

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      Acuity Brands reviews goodwill and intangible assets with indefinite useful lives for impairment on an annual basis or on an interim basis if an event occurs that might reduce the fair value of the long-lived asset below its carrying value. All other long-lived and intangible assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would be determined based on either discounted future cash flows or other appropriate fair value methods.

      In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”), Goodwill and Other Intangible Assets. Acuity Brands adopted SFAS No. 142 as of September 1, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed at June 30, 2001 and establishes a new method for testing goodwill for impairment. SFAS No. 142 also requires that an identifiable intangible asset that is determined to have an indefinite useful economic life not be amortized, but separately tested for impairment using a fair value based approach. The evaluation of goodwill and intangibles with indefinite useful lives for impairment requires management to use significant judgments and estimates including, but not limited to, projected future revenue, operating results, and cash flow of each of the Company’s businesses.

      Although management currently believes that the estimates used in the evaluation of goodwill and intangibles with indefinite lives are reasonable, differences between actual and expected revenue, operating results, and cash flow could cause these assets to be deemed impaired. If this were to occur, the Company would be required to charge to earnings the write-down in value of such assets, which could have a material adverse effect on the Company’s results of operations and financial position.

      Specifically, Acuity Brands has two unamortized intangible assets with an aggregate carrying value of $65.0 million. The carrying value is comprised of $62.6 million and $2.4 million associated with the Company’s Holophane and American Electric Lighting trade names, respectively. Management estimates the fair value of these unamortized trade names using a fair value model based on discounted future cash flows. Future cash flows associated with each of the Company’s unamortized trade names are calculated by applying a theoretical royalty rate a willing third party would pay for use of the particular trade name to estimated future revenue. The present value of the resulting after-tax cash flow is management’s current estimate of the fair value of the trade names. This fair value model requires management to make several significant assumptions, including estimated future revenue, the royalty rate, and the discount rate.

      Differences between expected and actual results can result in significantly different valuations. If future operating results of Holophane are unfavorable compared to forecasted amounts, the Company may be required to reduce the theoretical royalty rate used in the fair value model. A reduction in the theoretical royalty rate would result in lower expected, future after-tax cash flow. Accordingly, an impairment charge would be recorded at that time. To illustrate the potential impact of unfavorable changes in the assumptions underlying the fair value model, a one percent reduction in the theoretical royalty rate related to the Holophane trade name would result in a pre-tax impairment charge of approximately 27 percent, or $17.0 million, of the carrying value of the trade name.

      It is the policy of the Company to self insure for certain insurable property and casualty risks consisting primarily of physical loss to property, business interruptions resulting from property losses, workers’ compensation, comprehensive general liability, and auto liability. Insurance coverage is obtained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. Based on an independent actuary’s estimate of the aggregate liability for claims incurred, a provision for claims under the self-insured program is recorded and revised annually. The actuarial

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      The Company is also self-insured for the majority of its medical benefit plans. The Company estimates its aggregate liability for claims incurred by applying a lag factor to the Company’s historical claims and administrative cost experience. The appropriateness of the Company’s lag factor is evaluated and revised, if necessary, annually. Although management believes that the current estimates are reasonable, significant differences related to claim reporting patterns, legislation, and general economic conditions could materially affect the Company’s medical benefit plan liabilities and future expense.

      Acuity Brands records an allowance for the estimated amount of future warranty costs when the related revenue is recognized, primarily based on historical experience. Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts. If actual future warranty costs exceed historical amounts, additional allowances may be required, which could have a material adverse impact on the Company’s operating results in future periods.

      Acuity Brands reserves for legal claims when payments associated with the claims become probable and can be reasonably estimated. Due to the difficulty in estimating costs of resolving legal claims, actual costs may be substantially higher than the amounts reserved.

      The Company reserves for known environmental claims when payments associated with the claims become probable and the costs can be reasonably estimated. Acuity Brands’ environmental reserves, for all periods presented, are immaterial. The actual cost of resolving environmental issues may be higher than that reserved primarily due to difficulty in estimating such costs and potential changes in the status of government regulations.

Liquidity and Capital Resources

      Principal sources of liquidity for the Company are operating cash flows generated primarily from its segments and various sources of borrowings, primarily from banks. The capital structure of the Company is comprised principally of an asset-backed securitization program, borrowings from banks, senior notes, and the equity of its stockholders. The ability of the Company to generate sufficient cash flow from operations and to be able to access certain capital markets, including banks, is critical for the Company to meet its obligations as they become due.

      Based on current earnings projections and prevailing market conditions, both for customer demand and various capital markets, the Company believes that over the next twelve months it will have sufficient liquidity and availability under its financing arrangements to fund its operations as currently planned and its anticipated capital investment and profit improvement initiatives, to repay borrowings as currently scheduled, and to pay the same quarterly stockholder dividends in such amounts in 2003 as were paid in 2002. The Company expects to reduce outstanding borrowings by at least $30.0 million and to invest between $38.0 and $42.0 million in new tooling, machinery and equipment during fiscal 2003. If management’s expectations regarding current earnings projections and cash flow or the forecasted reduction in outstanding borrowings are not realized, the Company may be required to modify its planned business activities or restructure a portion of its existing debt on potentially less favorable terms.

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Cash Flow

      The Company continues to generate substantial cash flow from operations. In 2002, the Company generated $146.8 million in cash flow from operations compared to $183.7 million and $53.9 million reported in 2001 and 2000, respectively. Operating earnings in each segment and improved working capital management were the primary contributors to the Company’s cash flow from operations in 2002, partially offset by the payment of approximately $7.0 million for spin-off related expenses. In addition, the Company generated $8.4 million in cash in 2002 from the sale of certain non-core assets. Total cash flow generated from operations plus these additional proceeds totaled $155.2 million in 2002. The Company used its cash flow in 2002 primarily to fund capital expenditures, quarterly dividend payments, and activity with NSI prior to the Distribution, to acquire American Electric Lighting and to reduce debt.

      The Company believes that achieving the proper returns on its invested capital is a key factor in driving stockholder value. Toward that objective, management continued to focus its efforts in 2002 on improving the returns earned on its invested capital by redeploying under-performing, non-core assets and making additional investments in areas where the Company can maximize its earnings potential. This included expenditures on tooling, machinery, and equipment for internal expansion as well as an acquisition of a business in a strategic market. As part of this effort, the Company spent $33.5 million in 2002 for new tooling, machinery and equipment. Over the last three years, the Company has invested a total of $144.0 million for new plant, equipment and tooling primarily to improve productivity and product quality, increase manufacturing efficiencies and enhance its customer service capabilities in each segment. The Company believes that these investments, which have exceeded depreciation expense by an average of 9.6 percent annually in the three-year period ended August 31, 2002, will enhance its operations and financial performance in 2003 and beyond.

      As part of the Company’s effort to broaden and diversify its customer base and the end markets it serves, Acuity Lighting Group acquired certain assets and assumed certain liabilities of American Electric Lighting in October 2001. The total cash paid was approximately $24.8 million. American Electric Lighting manufactures and distributes lighting fixtures for use by utilities and transportation departments to light outdoor areas, streets and sidewalks. The activities of American Electric Lighting are included in the results of operations of the Company since the date of acquisition.

      Working capital management was a key element in generating the Company’s cash flow from operations in 2002. Consolidated working capital at August 31, 2002 was $160.2 million compared to $117.0 million at August 31, 2001, an increase of $43.2 million. Consolidated working capital at August 31, 2000 was $155.4 million. The increase in working capital in 2002 compared to 2001 was primarily due to the increased working capital required to operate American Electric Lighting and the change in classification of certain debt from current to long-term resulting from a modification in the terms of the Company’s Revolving Credit Facility, partially offset by greater accounts payable and accrued liabilities, including income taxes. More importantly, operating working capital (defined as accounts receivable, net, plus inventory, minus accounts payable) declined $21.3 million (5.3 percent) to $378.0 million at August 31, 2002 from the end of 2001 and $99.6 million (20.9 percent) from the end of 2000. The decline in operating working capital was primarily due to higher accounts payable resulting from more favorable terms negotiated with certain suppliers, partially offset by the increase in accounts receivable, primarily at American Electric Lighting for shipments made after the acquisition date in October 2001, and extended dating terms typical in the home improvement channel in both segments. The Company continued to further penetrate the home improvement market as part of its diversification effort to expand into other channels of distribution. Operating working capital as a percentage of net sales at the end of 2002 was 19.2 percent, compared to 20.1 percent and 23.6 percent in 2001 and 2000, respectively. Despite the weak economic environment in 2002 and the difficulty in enhancing margins, the Company did manage to generate a significant amount of free cash flow, which was used to reduce outstanding debt as more fully described below. At August 31, 2002, the current ratio of the Company was 1.37 compared to 1.26 at the end of 2001. The Company’s consolidated cash position was $2.7 million at August 31, 2002 compared to $8.0 million at August 31, 2001. The Company’s excess cash balances were used to reduce the outstanding debt under its credit facility in order to lower its overall interest expense.

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Contractual Obligations

      The following table summarizes the Company’s contractual obligations at August 31, 2002 (in thousands):

*

In May 2001, NSI entered into a three-year agreement (“Receivables Facility”) to borrow, on an ongoing basis, up to $150.0 million secured by undivided interests in a defined pool of trade accounts receivable of ALG and ASP. Effective November 30, 2001, Acuity Brands assumed all of the outstanding borrowings and other obligations under the Receivables Facility. Borrowings under the Receivables Facility are subject to the annual renewal of a supporting line of credit. The Company expects to renew the supporting line of credit during fiscal 2003.

Capitalization

      Total debt outstanding of $543.1 million at August 31, 2002 declined $100.6 million (15.6 percent) from the date of the Spin-off, November 30, 2001, and $65.7 million (10.8 percent) from August 31, 2001. The decrease was due primarily to the strong cash flow from operations, partially offset by capital expenditures, the acquisition of American Electric Lighting and the payment of dividends. In April 2002, the Company entered into a new Revolving Credit Facility with its banks, which significantly improved its financial flexibility. The new Revolving Credit Facility consists of two components. The first component is a $105 million revolving credit facility to be used for general corporate purposes and is due April 2005. Borrowings under this facility at August 31, 2002 were $40.0 million. The second component is a 364-day, $105 million facility to fund general corporate purposes, primarily working capital requirements. At August 31, 2002, there were no borrowings drawn on this facility. Total availability under the Company’s Revolving Credit Facility was $146.3 million at August 31, 2002. See Note 4 of the Notes to Consolidated Financial Statements for additional information regarding restrictions contained in the Revolving Credit Facility.

      Total debt outstanding at August 31, 2002 was $543.1 million compared to $643.7 million and $608.8 million at November 30, 2001 and August 31, 2001, respectively. During fiscal 2002, the Company’s consolidated stockholders’ equity increased $18.7 million to $402.0 million at August 31, 2002. The Company’s debt to total capital ratio was 58 percent at August 31, 2002, down from approximately 63 percent at November 30, 2001.

Dividends

      The Company paid quarterly common stock dividends of $0.15 per share in each of the last three quarters of 2002. Total dividends paid were $18.6 million in 2002. Prior to November 30, 2001, the Company was a subsidiary of NSI, as more fully described above, and did not pay dividends separately to stockholders of NSI.

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Consolidated Results

      Fiscal 2002 can best be characterized as managing well to modestly mitigate the effects of a difficult economic environment. While many economists were predicting a soft landing for the economy, with a rebound expected in the second half of the Company’s fiscal year, it became evident early on that this was not going to be the case, particularly in the Company’s largest market, the non-residential, commercial construction industry. The impact on Acuity Brands of this weak economic environment was lower shipments of products to customers in many of its key sales channels in both segments and severe price competition for remaining orders, primarily in the commercial construction market. This, along with rising costs in non-discretionary areas such as insurance, made expanding profitability very difficult. As a consequence, management initiated programs to adapt to these changing market conditions by focusing on other levers to drive financial performance, including generating additional revenues from new products and channels of distribution, implementing various profit improvement and cost containment programs to limit spending and improve manufacturing efficiencies and generating free cash flow through better working capital utilization. These concerted actions allowed the Company to generate substantial cash flow in 2002 and modest earnings while continuing to serve its vast customer base.

      Overall, consolidated net sales were $1.97 billion in 2002, compared with $1.98 billion and $2.02 billion reported in 2001 and 2000, respectively. For the year ended August 31, 2002, the Company reported net income of $52.0 million, compared to $40.5 million and $83.7 million earned in 2001 and 2000, respectively. Earnings per share were $1.26 in 2002, compared to $0.99 reported in 2001. Excluding the results from the divestiture of certain foreign operations of ASP in fiscal 2001 and the acquisition of American Electric Lighting in early fiscal 2002, net sales would have been $1.91 billion in 2002, $1.96 billion in 2001 and $2.0 billion in 2000. Similarly, excluding the pretax impact of $3.2 million in gains on the sale of assets and $0.9 million for the reversal of certain restructuring expenses, net income in 2002 would have been $49.5 million, or $1.20 per share. In 2001, net income would have been $66.7 million, or $1.63 per share, excluding the pretax impact of the $15.3 million loss from the divested operations at ASP, $4.1 million for restructuring and impairment charges, $3.1 million for the termination of a purchase obligation, and $12.1 million in discontinued amortization expense from the adoption of SFAS No. 142. Net income in 2000 would have been $95.6 million excluding the impact of the divested foreign operations and amortization expense noted above. Please refer to Notes 2 and 7 of the Notes to Consolidated Financial Statements, which more fully describes the discontinuation of amortization of goodwill and certain intangibles, the acquisition of American Electric Lighting, and the divestiture of the foreign operations of ASP.

      Excluding the acquisition of American Electric and the divesture of the foreign operations noted above, net sales at Acuity Brands decreased approximately three percent in 2002 when compared to 2001. The decline occurred primarily at ALG and was partially offset by a modest increase at ASP. The decline was primarily due to soft demand and lower selling prices at ALG for certain types of fixtures for industrial and office applications, partially offset by an increase in sales through the retail channel at both ALG and ASP. Consolidated net sales in 2001 declined approximately two percent when compared to 2000 primarily due to a decline in general economic conditions and a slowing in construction spending, particularly in the fourth quarter of fiscal 2001.

      Consolidated operating profit was down 13.9 percent in 2002 to $120.1 million (6.1 percent of net sales) from $139.6 million (7.0 percent of net sales) reported in 2001. Operating profit was $179.9 million (8.9 percent of net sales) in 2000. The decline in operating profit in 2002 was primarily a result of the lost contribution margin on the lower sales noted above, including price erosion experienced in certain key lighting fixture markets, and higher spending for non-discretionary items, partially offset by various profit improvement and cost containment programs and lower corporate expenses. Consolidated gross profit margins declined to 40.7 percent of net sales in 2002 from 42.4 percent and 42.3 percent reported in 2001 and 2000, respectively. The decline in gross profit margins occurred primarily at ALG due to the impact of significant price competition noted above, partially offset by lower costs and expenses due to various profit

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      Other income (expense) for Acuity Brands is made up primarily of interest expense and other miscellaneous, non-operating activity including the gain or loss on the sale of assets, certain restructuring charges and gains or losses on foreign currency transactions. Interest expense, net was $40.7 million, $48.8 million and $43.3 million in 2002, 2001 and 2000, respectively. Interest expense, net was down 16.6 percent in 2002 compared to 2001 primarily because of reduced levels of debt outstanding throughout the period and lower interest rates for much of 2002. Interest expense, net increased slightly in 2001 compared to 2000 primarily because of greater debt levels to fund working capital investments. In 2002, the Company generated a pretax gain of $3.2 million on the sale of certain non-core assets. In 2001, the Company incurred other expenses associated with non-operating activities totaling a pretax loss of $21.6 million, primarily for the loss associated with the disposal of certain foreign assets at ASP and restructuring and other charges related to non-operating activities of the Company.

      The effective tax rate reported by the Company was 37.2 percent, 41.4 percent and 38.1 percent in 2002, 2001 and 2000, respectively. The decline in the tax rate was primarily the result of the legal entity restructuring that occurred in connection with the Spin-off and the elimination of amortization of goodwill.

Acuity Lighting Group

      Acuity Lighting Group reported net sales of approximately $1.47 billion, $1.47 billion, and $1.52 billion for the years ending August 31, 2002, 2001, and 2000, respectively. Excluding revenues contributed from the acquisition of American Electric Lighting in October 2001, net sales would have decreased 4.1 percent during 2002. The decline in net sales during 2002 was due primarily to lower shipments to certain commercial and industrial markets and reduced selling prices for certain key products due to intense price competition for available orders. Net sales decreased during fiscal 2001 compared to fiscal 2000 primarily due to general economic conditions and a slowing in construction spending, particularly in the fourth quarter of fiscal 2001.

      Operating profit was down 24.6 percent in 2002 to $89.6 million from $118.8 million reported in 2001. Operating profit was $144.4 million in 2000. The decline in operating profit in 2002 was primarily the result of the lost contribution on the lower sales noted above due principally to product mix changes and price erosion experienced in certain lighting fixture markets, higher spending for non-discretionary items such as medical and property insurance, and greater investments in certain sales and marketing programs. This decline was partially offset by profit improvement initiatives and cost containment programs that reduced costs and improved productivity in key factories in 2002. These programs included efforts to source materials more effectively, streamline production through better integration with suppliers and eliminate costs associated with non-value added activities. Also, ALG expanded its channels of distribution and the types of customers served in 2002. The adoption of a new accounting standard that eliminated amortization of goodwill and certain intangibles contributed approximately $10.0 million to operating profit at ALG. Operating profit decreased in 2001 primarily due to lower sales, higher excess and obsolete inventory costs, and higher non-discretionary items such as medical and casualty insurance costs.

Acuity Specialty Products

      Net sales at ASP were $497.9 million in 2002, compared with $514.1 million and $508.0 million reported in 2001 and 2000, respectively. Excluding the results from the divestiture of certain foreign operations during 2001, net sales would have been $493.7 million and $481.0 million in 2001 and 2000, respectively. The increase in 2002 net sales was primarily due to continued strength in the retail sector

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      Operating profit increased 8.7 percent in 2002 to $44.9 million from $41.3 million reported in 2001. Operating profit was $50.1 million in 2000. Excluding the results from the divestiture of certain foreign operations during 2001, operating profit would have been $42.0 million and $51.5 million in 2001 and 2000, respectively. The increase in operating profit in 2002 was primarily the result of the profit contribution on higher volumes, the impact of profit improvement programs, and the elimination of approximately $2.1 million of amortization expense. These items were partially offset by greater investments in sales initiatives and higher insurance costs. ASP implemented programs such as sourcing initiatives, cost containment programs and aggressive marketing strategies that allowed the segment to produce solid financial performance while expanding penetration of key market niches and further diversifying the customer base. Unfortunately in 2002, many of those efforts merely offset the impact of rising costs for insurance programs. Operating profit decreased in 2001 primarily due to higher medical costs, additional costs incurred to integrate the specialty products businesses, increased energy costs, and greater investments in the development of specialty channel and national accounts.

Corporate

      Corporate expenses decreased 30.2 percent in 2002 to $14.4 million from $20.6 million reported in 2001. Corporate expenses were $14.6 million in 2000. The decrease in corporate expense in 2002 was primarily due to cost containment programs and the reorganization of the corporate staff. Allocated corporate expenses increased in 2001 primarily due to an increase in medical and casualty insurance costs and higher costs related to strategic and operational initiatives.

Outlook

      In 2002, Acuity Brands made progress toward its objective of becoming a broader more diversified organization. Through diversification and size, management believes that Acuity Brands will be less dependent on the business cycles of a single economy, industry or product and thus able to provide more consistent and sustainable growth in earnings and cash flow on which to build the Company in the future. Actions taken in 2002 such as the acquisition of American Electric Lighting, implementation of profit improvement and cost containment initiatives coupled with a significant capital investment program over the last three years and an intense debt reduction program, have made Acuity Brands a more diversified company with greater financial resources. As noted earlier, management intends to continue to focus on the same strategic initiatives in 2003.

      As the Company concludes 2002 and enters 2003, management remains confident in the long-term potential of Acuity Brands, but extremely cautious of the next twelve months. Management’s caution is driven in part by the lack of any real sign of a meaningful recovery or a sustainable improvement in the business climate for the Company’s key markets, particularly in North America. While some economists predict that the domestic economy will improve late in the Company’s fiscal 2003, management is preparing for another year of very difficult conditions. This includes continued cost increases for insurance and certain raw materials, including steel, and the impact of deflationary pricing pressures driven by over-capacity and continued weak customer demand in key markets, principally the nonresidential construction market in North America. Therefore, the focus of the organization will remain on improving the products and services provided to customers, becoming more productive and efficient, and enhancing profitability while continuing to diversify and expand the many end markets and customers served. Additionally, the Company is evaluating various alternatives, some of which it expects to implement in fiscal 2003, to specifically address the negative impact on profit margins of rising costs and pricing pressures. These actions include price increases and other initiatives to enhance price realization throughout the Company. Assuming that economic conditions overall, and more specifically in the Company’s key markets, do not deteriorate beyond their already weakened state, management expects earnings in 2003 to be between $1.20 and $1.40 per share. The low end of this range is based on the current economic environment and is essentially flat with fiscal 2002 earnings, excluding gains on asset sales and restructuring reversals. Should

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Risks Relating to the Distribution

      On November 7, 2001, the board of directors of National Service Industries, Inc. approved the spin-off of its lighting equipment and specialty products businesses into a separate publicly traded company with its own management and board of directors. The spin-off was effected on November 30, 2001 through a tax-free distribution of 100 percent of the outstanding shares of common stock of Acuity Brands, at that time a wholly-owned subsidiary of NSI owning and operating the lighting equipment and specialty product businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the Distribution, received one share of Acuity Brands common stock for each share of NSI common stock held at that date. The following risks associated with Acuity Brands relate principally to the Distribution. If any of these risks develops into an actual event, the business, financial condition or results of operations of Acuity Brands could be materially adversely affected.

      NSI and Acuity Brands intend for the Distribution to be tax-free for U.S. Federal income tax purposes. Management of Acuity Brands believes the Distribution was tax-free for U.S. Federal income tax purposes. The Distribution was conditioned upon the receipt by each of NSI and Acuity Brands of opinions from each of King & Spalding, counsel to NSI and Acuity Brands, and Ernst & Young LLP, special tax advisor to NSI and Acuity Brands, that for U.S. Federal income tax purposes the receipt of Acuity Brands Shares by NSI stockholders was tax-free. Neither NSI nor Acuity Brands requested an advance ruling from the Internal Revenue Service as to the tax consequences of the Distribution. The opinions of King & Spalding and Ernst & Young LLP are subject to certain assumptions and the accuracy and completeness of certain factual representations and statements made by NSI and Acuity Brands and certain other data, documentation and other materials that each of King & Spalding and Ernst & Young LLP deemed necessary for purposes of their respective opinions. If these assumptions and factual representations were incorrect or incomplete in a material respect, the conclusions set forth in the opinions may not be correct. These opinions represent the views of King & Spalding and Ernst & Young LLP as to the interpretation of existing tax law and accordingly, such opinions are not binding on the Internal Revenue Service or the courts and no assurance can be given that the Internal Revenue Service or the courts will agree with their opinions.

      If the Distribution does not qualify for tax-free treatment, a substantial corporate tax would be payable by the consolidated group of which NSI is the common parent measured by the difference between (1) the aggregate fair market value of the Acuity Brands Shares on the Distribution Date and (2) NSI’s adjusted tax basis in the Acuity Brands Shares on the Distribution Date. The corporate level tax would be payable by NSI. However, Acuity Brands agreed under certain circumstances to indemnify NSI for all or a portion of this tax liability. This indemnification obligation, if triggered, could have a material adverse effect on the results of operations and financial position of Acuity Brands. In addition, under the applicable treasury regulations, each member of NSI’s consolidated group (including Acuity Brands) is severally liable for such tax liability.

      Furthermore, if the Distribution does not qualify as tax-free, each NSI stockholder who received Acuity Brands Shares in the Distribution would be taxed as if he had received a cash dividend equal to the fair market value of his Acuity Brands Shares on the Distribution Date.

      Even if the Distribution qualifies as tax-free, NSI could nevertheless incur a substantial corporate tax liability under Section 355(e) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or the “Code”), if NSI or Acuity Brands were to undergo a change in control (whether by acquisition, additional share issuance or otherwise) pursuant to a plan or series of related transactions which include the Distribution. Any transaction, which occurs within the four-year period beginning two

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      On November 7, 2001, the NSI board of directors made a determination, based on information provided by management and financial experts, that the Distribution was permissible under applicable dividend and solvency laws. There is no certainty, however, that a court would find the decision of the NSI board to be binding on creditors of NSI and Acuity Brands or that a court would reach the same conclusions as the NSI board in determining whether NSI or Acuity Brands was insolvent at the time of, or after giving effect to, the Distribution. If a court in a lawsuit by an unpaid creditor or representative of creditors, such as a trustee in bankruptcy, were to find that at the time NSI effected the Distribution, NSI or Acuity Brands (1) was insolvent; (2) was rendered insolvent by reason of the Distribution; (3) was engaged in a business or transaction for which their respective remaining assets constituted unreasonably small capital; or (4) intended to incur, or believed it would incur, debts beyond its ability to pay as such debts matured, such court may be asked to void the Distribution (in whole or in part) as a fraudulent conveyance and require that the stockholders return the Acuity Brands Shares (in whole or in part) to NSI or require Acuity Brands to fund certain liabilities for the benefit of creditors. The measure of insolvency for purposes of the foregoing would vary depending upon the jurisdiction whose law is being applied. Generally, however, NSI or Acuity Brands would be considered insolvent if the fair value of their respective assets were less than the amount of their respective liabilities or if they incurred debt beyond their ability to repay such debt as it matures. Management believes the likelihood that creditors of NSI could successfully challenge the Distribution is remote.

Cautionary Statement Regarding Forward-Looking Information

      This filing contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Consequently, actual results may differ materially from those indicated by the forward-looking statements. Statements made herein that may be considered forward-looking include statements concerning: (a) major trends shaping the specialty products industry; (b) expectations related to future commodity hedging transactions for raw materials; (c) seasonal factors affecting the Company’s results of operations; (d) possible future investments in automating equipment in Maquiladora operations to partially offset potential increased labor costs; (e) the expected outcome of activities initiated in fiscal 2002 related to the ability of the Company to deliver on its full potential and provide a platform for future growth opportunities; (f) expectations regarding future liquidity and availability under the Company’s financing arrangements (i) to fund operations, anticipated capital investment, and profit improvement initiatives as currently planned; (ii) to repay borrowings as currently scheduled; and (iii) to pay dividends in such amounts in 2003 as were paid in 2002; (g) anticipated benefits of investments in property, plant, and equipment; (h) expectations regarding the renewal of the supporting line of credit related to the Receivables Facility during fiscal 2003; (i) anticipated benefits of diversification and size; (j) future revenue, earnings, capital expenditures, and debt reduction; (k) management intentions related to strategic initiatives and focus in 2003; and (l) the outcome of pending or future legal or regulatory proceedings. A variety of risks and uncertainties could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties include without limitation the following: (a) the uncertainty of general business and economic conditions, including the potential for a more severe slowdown in non-residential construction, changes in interest rates, and fluctuations in commodity and raw material prices or foreign currency rates; (b) unexpected developments and outcomes in the Company’s legal and environmental proceedings; (c) the risk that projected future cash flows from operations are not realized; (d) the impact of competition; (e) the uncertainty caused by operations in cyclical industries; (f) the risk that underlying assumptions or expectations related to the Distribution

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Item 7a.     Quantitative and Qualitative Disclosures about Market Risk

      General. Acuity Brands is exposed to market risks that may impact the Consolidated Balance Sheets, Consolidated Statements of Income, and Consolidated Statements of Cash Flows due to changing interest rates and foreign exchange rates. Acuity Brands does not currently participate in any significant hedging activities, nor does it currently utilize any significant derivative financial instruments. The following discussion provides additional information regarding Acuity Brands’ market risks.

      Interest Rates. Interest rate fluctuations expose Acuity Brands’ variable-rate debt to changes in interest expense and cash flows. Acuity Brands’ variable-rate debt, primarily short-term secured borrowings and amounts outstanding under the Company’s credit facilities, amounted to $182.9 million and $245.9 million at August 31, 2002 and 2001, respectively. Based on outstanding borrowings at year-end, a 10 percent increase in market interest rates at August 31, 2002 and 2001 would have resulted in additional annual after-tax interest expense of approximately $0.2 million and $0.6 million, respectively. Although a fluctuation in interest rates would not affect interest expense or cash flows related to the $360.0 million publicly traded notes, Acuity Brands’ primary fixed-rate debt, a 10 percent increase in market interest rates at August 31, 2002 and 2001 would have decreased the fair value of these notes to approximately $342.0 million and $356.1 million, respectively. See Note 4 of the Notes to Consolidated Financial Statements for additional information regarding the Company’s long-term debt.

      Foreign Exchange Rates. The majority of Acuity Brands’ revenue, expense, and capital purchases are transacted in U.S. dollars. Acuity Brands does not believe a 10 percent fluctuation in average foreign currency rates would have a material effect on its consolidated financial position or results of operations. Acuity Brands does not engage in speculative transactions, nor does Acuity Brands hold or issue financial instruments for trading purposes. Acuity Brands attempts to reduce its exposure to unfavorable foreign currency translation adjustments through the use of foreign-currency denominated debt agreements.

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Item 8.     Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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ACUITY BRANDS, INC.

REPORT OF MANAGEMENT

      The management of Acuity Brands, Inc. is responsible for the integrity and objectivity of the financial information in this annual report. These financial statements are prepared in conformity with accounting principles generally accepted in the United States, using informed judgments and estimates where appropriate. The information in other sections of this report is consistent with the financial statements. The Company maintains a system of internal controls and accounting policies and procedures designed to provide reasonable assurance that assets are safeguarded and transactions are executed and recorded in accordance with management’s authorization. The audit committee of the Board of Directors, composed entirely of outside directors, is responsible for monitoring the Company’s accounting and reporting practices. The audit committee meets regularly with management, the internal auditors, and the independent auditors to review the work of each and to assure that each performs its responsibilities. Both the internal auditors and Ernst & Young LLP have unrestricted access to the audit committee allowing open discussion, without management’s presence, on the quality of financial reporting and the adequacy of internal accounting controls.

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

      We have audited the accompanying consolidated balance sheet of Acuity Brands, Inc. (formerly the National Service Industries, Inc. lighting equipment and specialty products businesses) as of August 31, 2002, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. The financial statements and schedule of the National Service Industries, Inc. lighting equipment and specialty products businesses as of August 31, 2001, and for each of the two years in the period ended August 31, 2001, were audited by other auditors who have ceased operations and whose report dated October 12, 2001 expressed an unqualified opinion on those statements and schedule.

      We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Acuity Brands, Inc. at August 31, 2002, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

      As discussed in Note 2 to the Consolidated Financial Statements, in 2002 the Company ceased amortization of goodwill and other indefinite lived intangible assets in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

	ERNST & YOUNG LLP

Atlanta, Georgia

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

NOTE: This is a copy of a report previously issued by Arthur Andersen LLP, the Company’s former independent accountants. The Arthur Andersen LLP report refers to certain financial information for the year ended August 31, 1999 and certain balance sheet information at August 31, 2000, which are no longer included in the accompanying financial statements. Arthur Andersen LLP has not reissued this report in connection with the filing of this Annual Report on Form 10-K.

To National Service Industries, Inc.:

      We have audited the accompanying combined balance sheets of the National Service Industries, Inc. lighting equipment and chemicals businesses (to be reorganized as Acuity Brands, Inc. — Note 1) as of August 31, 2001 and 2000 and the related combined statements of income, parent’s equity and comprehensive income, and cash flows for each of the three years in the period ended August 31, 2001. These combined financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the National Service Industries, Inc. lighting equipment and chemicals businesses as of August 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2001 in conformity with accounting principles generally accepted in the United States.

	ARTHUR ANDERSEN LLP

Atlanta, Georgia

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ACUITY BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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ACUITY BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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ACUITY BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS