UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the quarterly period ended | November 30, 2019 | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to | |
Commission file number 0-11399
(Exact name of Registrantregistrant as specified in its charter)
| 31-1188630 | ||
| (State or | ( | |
| 6800 Cintas Boulevard | |||
| P.O. Box 625737 | |||
| Cincinnati, | Ohio | 45262-5737 | |
| (Address of Principal Executive Offices) | (Zip Code) | ||
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| Common stock, no par value | CTAS | The NASDAQ Stock Market LLC | ||
| (NASDAQ Global Select Market) | ||||
Indicate by checkmark 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☑ No ☐
Indicate by checkmark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yesü☑No _
☐
Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filerü☑ Accelerated Filer _ ☐ Non-Accelerated Filer _☐
Smaller Reporting Company _ ☐ Emerging Growth Company _☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. _ ☐
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding December 31, | |
| Common Stock, no par value | ||
CINTAS CORPORATION
TABLE OF CONTENTS
| Page No. | ||||
| Part I. | Financial Information | |||
Three and Six Months Ended November 30, | ||||
Three and Six Months Ended November | ||||
November 30, | ||||
Six Months Ended November 30, 2019 and 2018 | ||||
| Part II. | Other Information | |||
| Item 5. | ||||
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)
| Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
| November 30, 2018 | November 30, 2017 | November 30, 2018 | November 30, 2017 | November 30, 2019 | November 30, 2018 | November 30, 2019 | November 30, 2018 | |||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||
| Uniform rental and facility services | $ | 1,390,778 | $ | 1,308,038 | $ | 2,765,716 | $ | 2,619,822 | $ | 1,469,976 | $ | 1,390,778 | $ | 2,924,503 | $ | 2,765,716 | ||||||||||||||
| Other | 327,490 | 298,403 | 650,527 | 598,122 | 373,773 | 327,490 | 730,385 | 650,527 | ||||||||||||||||||||||
| Total revenue | 1,718,268 | 1,606,441 | 3,416,243 | 3,217,944 | 1,843,749 | 1,718,268 | 3,654,888 | 3,416,243 | ||||||||||||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||||||||
| Cost of uniform rental and facility services | 761,119 | 723,960 | 1,507,572 | 1,430,823 | 784,937 | 761,119 | 1,553,613 | 1,507,572 | ||||||||||||||||||||||
| Cost of other | 181,991 | 166,112 | 358,801 | 331,399 | 206,421 | 181,991 | 399,742 | 358,801 | ||||||||||||||||||||||
| Selling and administrative expenses | 491,671 | 468,084 | 996,305 | 954,367 | 517,927 | 491,671 | 1,060,923 | 996,305 | ||||||||||||||||||||||
| G&K Services, Inc. integration expenses | 7,847 | 13,074 | 12,697 | 17,045 | — | 7,847 | — | 12,697 | ||||||||||||||||||||||
| Operating income | 275,640 | 235,211 | 540,868 | 484,310 | 334,464 | 275,640 | 640,610 | 540,868 | ||||||||||||||||||||||
| Gain on sale of a cost method investment | 69,373 | — | 69,373 | — | — | 69,373 | — | 69,373 | ||||||||||||||||||||||
| Interest income | (391 | ) | (291 | ) | (887 | ) | (588 | ) | (283 | ) | (391 | ) | (445 | ) | (887 | ) | ||||||||||||||
| Interest expense | 24,880 | 29,129 | 49,184 | 59,446 | 26,177 | 24,880 | 53,498 | 49,184 | ||||||||||||||||||||||
| Income before income taxes | 320,524 | 206,373 | 561,944 | 425,452 | 308,570 | 320,524 | 587,557 | 561,944 | ||||||||||||||||||||||
| Income taxes | 77,530 | 68,636 | 106,403 | 126,607 | 62,127 | 77,530 | 90,302 | 106,403 | ||||||||||||||||||||||
| Income from continuing operations | 242,994 | 137,737 | 455,541 | 298,845 | 246,443 | 242,994 | 497,255 | 455,541 | ||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax expense of $6, tax benefit of $624, tax benefit of $4 and tax expense of $41,103, respectively | 19 | (628 | ) | (13 | ) | 55,475 | ||||||||||||||||||||||||
| (Loss) income from discontinued operations, net of tax benefit of $107, tax expense of $6, tax benefit of $107 and tax benefit of $4, respectively | (323 | ) | 19 | (323 | ) | (13 | ) | |||||||||||||||||||||||
| Net income | $ | 243,013 | $ | 137,109 | $ | 455,528 | $ | 354,320 | $ | 246,120 | $ | 243,013 | $ | 496,932 | $ | 455,528 | ||||||||||||||
| Basic earnings (loss) per share: | ||||||||||||||||||||||||||||||
| Basic earnings per share: | ||||||||||||||||||||||||||||||
| Continuing operations | $ | 2.25 | $ | 1.27 | $ | 4.21 | $ | 2.77 | $ | 2.35 | $ | 2.25 | $ | 4.75 | $ | 4.21 | ||||||||||||||
| Discontinued operations | 0.00 | (0.01 | ) | 0.00 | 0.51 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||
| Basic earnings per share | $ | 2.25 | $ | 1.26 | $ | 4.21 | $ | 3.28 | $ | 2.35 | $ | 2.25 | $ | 4.75 | $ | 4.21 | ||||||||||||||
| Diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||
| Diluted earnings per share: | ||||||||||||||||||||||||||||||
| Continuing operations | $ | 2.18 | $ | 1.24 | $ | 4.07 | $ | 2.69 | $ | 2.27 | $ | 2.18 | $ | 4.60 | $ | 4.07 | ||||||||||||||
| Discontinued operations | 0.00 | (0.01 | ) | 0.00 | 0.50 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||
| Diluted earnings per share | $ | 2.18 | $ | 1.23 | $ | 4.07 | $ | 3.19 | $ | 2.27 | $ | 2.18 | $ | 4.60 | $ | 4.07 | ||||||||||||||
| Dividends declared per share | $ | 2.05 | $ | 1.62 | $ | 2.05 | $ | 1.62 | $ | 2.55 | $ | 2.05 | $ | 2.55 | $ | 2.05 | ||||||||||||||
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
| Three Months Ended | Six Months Ended | ||||||||||||||
| November 30, 2019 | November 30, 2018 | November 30, 2019 | November 30, 2018 | ||||||||||||
| Net income | $ | 246,120 | $ | 243,013 | $ | 496,932 | $ | 455,528 | |||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||
| Foreign currency translation adjustments | 1,413 | (10,623 | ) | 8,137 | (13,642 | ) | |||||||||
Change in fair value of interest rate lock agreements | 22,761 | 4,921 | (7,142 | ) | 1,753 | ||||||||||
| Amortization of interest rate lock agreements | (358 | ) | (294 | ) | (653 | ) | (589 | ) | |||||||
| Other comprehensive income (loss) | 23,816 | (5,996 | ) | 342 | (12,478 | ) | |||||||||
| Comprehensive income | $ | 269,936 | $ | 237,017 | $ | 497,274 | $ | 443,050 | |||||||
| Three Months Ended | Six Months Ended | ||||||||||||||
| November 30, 2018 | November 30, 2017 | November 30, 2018 | November 30, 2017 | ||||||||||||
| Net income | $ | 243,013 | $ | 137,109 | $ | 455,528 | $ | 354,320 | |||||||
Other comprehensive (loss) income, net of tax: | |||||||||||||||
| Foreign currency translation adjustments | (10,623 | ) | (11,374 | ) | (13,642 | ) | 23,810 | ||||||||
Change in fair value of interest rate lock agreements | 4,921 | — | 1,753 | — | |||||||||||
| Amortization of interest rate lock agreements | (294 | ) | (172 | ) | (589 | ) | (344 | ) | |||||||
| Change in fair value of available-for-sale securities | — | (20 | ) | — | — | ||||||||||
| Other comprehensive (loss) income | (5,996 | ) | (11,566 | ) | (12,478 | ) | 23,466 | ||||||||
| Comprehensive income | $ | 237,017 | $ | 125,543 | $ | 443,050 | $ | 377,786 | |||||||
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
| November 30, 2018 | May 31, 2018 | November 30, 2019 | May 31, 2019 | |||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 88,479 | $ | 138,724 | $ | 226,535 | $ | 96,645 | ||||||
| Accounts receivable, net | 904,062 | 804,583 | 949,122 | 910,120 | ||||||||||
| Inventories, net | 321,874 | 280,347 | 348,304 | 334,589 | ||||||||||
| Uniforms and other rental items in service | 758,246 | 702,261 | 817,859 | 784,133 | ||||||||||
| Income taxes, current | 36,595 | 19,634 | 24,878 | 7,475 | ||||||||||
| Prepaid expenses and other current assets | 106,614 | 32,383 | 123,589 | 103,318 | ||||||||||
| Total current assets | 2,215,870 | 1,977,932 | 2,490,287 | 2,236,280 | ||||||||||
| Property and equipment, net | 1,410,530 | 1,382,730 | 1,425,584 | 1,430,685 | ||||||||||
| Investments | 183,548 | 175,581 | 218,873 | 192,346 | ||||||||||
| Goodwill | 2,845,244 | 2,846,888 | 2,852,801 | 2,842,441 | ||||||||||
| Service contracts, net | 521,505 | 545,768 | 469,933 | 494,595 | ||||||||||
| Operating lease right-of-use assets, net | 169,233 | — | ||||||||||||
| Other assets, net | 228,386 | 29,315 | 260,626 | 240,315 | ||||||||||
| $ | 7,405,083 | $ | 6,958,214 | $ | 7,887,337 | $ | 7,436,662 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 211,900 | $ | 215,074 | $ | 254,611 | $ | 226,020 | ||||||
| Accrued compensation and related liabilities | 117,645 | 140,654 | 124,349 | 155,509 | ||||||||||
| Accrued liabilities | 611,641 | 420,129 | 674,240 | 433,940 | ||||||||||
| Operating lease liabilities, current | 44,263 | — | ||||||||||||
| Debt due within one year | 173,500 | — | 199,788 | 312,264 | ||||||||||
| Total current liabilities | 1,114,686 | 775,857 | 1,297,251 | 1,127,733 | ||||||||||
| Long-term liabilities: | ||||||||||||||
| Debt due after one year | 2,536,408 | 2,535,309 | 2,538,606 | 2,537,507 | ||||||||||
| Deferred income taxes | 435,461 | 352,581 | 443,857 | 438,179 | ||||||||||
| Operating lease liabilities | 130,580 | — | ||||||||||||
| Accrued liabilities | 291,284 | 277,941 | 372,073 | 330,522 | ||||||||||
| Total long-term liabilities | 3,263,153 | 3,165,831 | 3,485,116 | 3,306,208 | ||||||||||
| Shareholders’ equity: | ||||||||||||||
| Preferred stock, no par value: | — | — | — | — | ||||||||||
| 100,000 shares authorized, none outstanding | ||||||||||||||
| Common stock, no par value: | 804,234 | 618,464 | 1,066,814 | 840,328 | ||||||||||
| 425,000,000 shares authorized | ||||||||||||||
| FY 2019: 184,152,836 shares issued and 105,123,513 shares outstanding | ||||||||||||||
| FY 2018: 182,723,471 shares issued and 106,326,383 shares outstanding | ||||||||||||||
| FY 2020: 186,298,161 shares issued and 103,702,675 shares outstanding | ||||||||||||||
| FY 2019: 184,790,626 shares issued and 103,284,401 shares outstanding | ||||||||||||||
| Paid-in capital | 166,837 | 245,211 | 134,041 | 227,928 | ||||||||||
| Retained earnings | 6,261,756 | 5,837,827 | 6,917,310 | 6,691,236 | ||||||||||
| Treasury stock: | (4,209,448 | ) | (3,701,319 | ) | (4,976,360 | ) | (4,717,619 | ) | ||||||
| FY 2019: 79,029,323 shares | ||||||||||||||
| FY 2018: 76,397,088 shares | ||||||||||||||
| Accumulated other comprehensive income | 3,865 | 16,343 | ||||||||||||
| FY 2020: 82,595,486 shares | ||||||||||||||
| FY 2019: 81,506,225 shares | ||||||||||||||
| Accumulated other comprehensive loss | (36,835 | ) | (39,152 | ) | ||||||||||
| Total shareholders’ equity | 3,027,244 | 3,016,526 | 3,104,970 | 3,002,721 | ||||||||||
| $ | 7,405,083 | $ | 6,958,214 | $ | 7,887,337 | $ | 7,436,662 | |||||||
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
| Common Stock | Paid-In Capital | Retained Earnings | Other Accumulated Comprehensive Loss | Treasury Stock | Total Shareholders' Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
| Balance at June 1, 2019 | 184,791 | $ | 840,328 | $ | 227,928 | $ | 6,691,236 | $ | (39,152 | ) | (81,506 | ) | $ | (4,717,619 | ) | $ | 3,002,721 | ||||||||||||
| Net income | — | — | — | 250,812 | — | — | — | 250,812 | |||||||||||||||||||||
| Comprehensive loss, net of tax | — | — | — | — | (23,474 | ) | — | — | (23,474 | ) | |||||||||||||||||||
| Stock-based compensation | — | — | 40,395 | — | — | — | — | 40,395 | |||||||||||||||||||||
Vesting of stock-based compensation awards | 605 | 157,882 | (157,882 | ) | — | — | — | — | — | ||||||||||||||||||||
Stock options exercised, net of shares surrendered | 557 | 37,915 | — | — | — | — | — | 37,915 | |||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (1,082 | ) | (256,830 | ) | (256,830 | ) | ||||||||||||||||||
Cumulative effect of change in accounting principle | — | — | — | (2,808 | ) | 1,975 | — | — | (833 | ) | |||||||||||||||||||
| Balance at August 31, 2019 | 185,953 | $ | 1,036,125 | $ | 110,441 | $ | 6,939,240 | $ | (60,651 | ) | (82,588 | ) | $ | (4,974,449 | ) | $ | 3,050,706 | ||||||||||||
| Net income | — | — | — | 246,120 | — | — | — | 246,120 | |||||||||||||||||||||
| Comprehensive income, net of tax | — | — | — | — | 23,816 | — | — | 23,816 | |||||||||||||||||||||
| Dividends | — | — | — | (268,050 | ) | — | — | — | (268,050 | ) | |||||||||||||||||||
| Stock-based compensation | — | — | 29,003 | — | — | — | — | 29,003 | |||||||||||||||||||||
Vesting of stock-based compensation awards | 21 | 5,403 | (5,403 | ) | — | — | — | — | — | ||||||||||||||||||||
Stock options exercised, net of shares surrendered | 324 | 25,286 | — | — | — | — | — | 25,286 | |||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (7 | ) | (1,911 | ) | (1,911 | ) | ||||||||||||||||||
| Balance at November 30, 2019 | 186,298 | $ | 1,066,814 | $ | 134,041 | $ | 6,917,310 | $ | (36,835 | ) | (82,595 | ) | $ | (4,976,360 | ) | $ | 3,104,970 | ||||||||||||
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
| Common Stock | Paid-In Capital | Retained Earnings | Other Accumulated Comprehensive Income | Treasury Stock | Total Shareholders' Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
| Balance at June 1, 2018 | 182,723 | $ | 618,464 | $ | 245,211 | $ | 5,837,827 | $ | 16,343 | (76,397 | ) | $ | (3,701,319 | ) | 3,016,526 | ||||||||||||||
Cumulative effect of change in accounting principle | — | — | — | 189,192 | — | — | — | 189,192 | |||||||||||||||||||||
| Net income | — | — | — | 212,515 | — | — | — | 212,515 | |||||||||||||||||||||
| Comprehensive loss, net of tax | — | — | — | — | (6,482 | ) | — | — | (6,482 | ) | |||||||||||||||||||
| Dividends | — | — | — | 1 | — | — | — | 1 | |||||||||||||||||||||
| Stock-based compensation | — | — | 46,172 | — | — | — | — | 46,172 | |||||||||||||||||||||
Vesting of stock-based compensation awards | 739 | 151,012 | (151,012 | ) | — | — | — | — | — | ||||||||||||||||||||
Stock options exercised, net of shares surrendered | 594 | 27,512 | — | — | — | — | — | 27,512 | |||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (689 | ) | (139,468 | ) | (139,468 | ) | ||||||||||||||||||
| Balance at August 31, 2018 | 184,056 | $ | 796,988 | $ | 140,371 | $ | 6,239,535 | $ | 9,861 | (77,086 | ) | $ | (3,840,787 | ) | $ | 3,345,968 | |||||||||||||
| Net income | — | — | — | 243,013 | — | — | — | 243,013 | |||||||||||||||||||||
| Comprehensive loss, net of tax | — | — | — | — | (5,996 | ) | — | — | (5,996 | ) | |||||||||||||||||||
| Dividends | — | — | — | (220,792 | ) | — | — | — | (220,792 | ) | |||||||||||||||||||
| Stock-based compensation | — | — | 28,612 | — | — | — | — | 28,612 | |||||||||||||||||||||
Vesting of stock-based compensation awards | 11 | 2,146 | (2,146 | ) | — | — | — | — | — | ||||||||||||||||||||
Stock options exercised, net of shares surrendered | 86 | 5,100 | — | — | — | — | — | 5,100 | |||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (1,943 | ) | (368,661 | ) | (368,661 | ) | ||||||||||||||||||
| Balance at November 30, 2018 | 184,153 | $ | 804,234 | $ | 166,837 | $ | 6,261,756 | $ | 3,865 | (79,029 | ) | $ | (4,209,448 | ) | $ | 3,027,244 | |||||||||||||
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Six Months Ended | Six Months Ended | |||||||||||||
| November 30, 2018 | November 30, 2017 | November 30, 2019 | November 30, 2018 | |||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | $ | 455,528 | $ | 354,320 | $ | 496,932 | $ | 455,528 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation | 107,112 | 107,578 | 115,367 | 107,112 | ||||||||||
| Amortization of intangible assets and capitalized contract costs | 67,559 | 31,261 | 70,963 | 67,559 | ||||||||||
| Stock-based compensation | 74,784 | 55,204 | 69,398 | 74,784 | ||||||||||
| Gain on sale of a cost method investment | (69,373 | ) | — | — | (69,373 | ) | ||||||||
| Gain on sale of business | — | (99,060 | ) | |||||||||||
| Deferred income taxes | 19,227 | 42,162 | 7,632 | 19,227 | ||||||||||
| Change in current assets and liabilities, net of acquisitions of businesses: | ||||||||||||||
| Accounts receivable, net | (85,748 | ) | (24,800 | ) | (37,940 | ) | (85,748 | ) | ||||||
| Inventories, net | (53,227 | ) | 2,595 | (13,402 | ) | (53,227 | ) | |||||||
| Uniforms and other rental items in service | (57,684 | ) | (33,294 | ) | (32,744 | ) | (57,684 | ) | ||||||
Prepaid expenses and other current assets and capitalized contract costs | (58,161 | ) | (18,573 | ) | (68,409 | ) | (58,161 | ) | ||||||
| Accounts payable | (1,955 | ) | (8,706 | ) | 28,055 | (1,955 | ) | |||||||
| Accrued compensation and related liabilities | (20,969 | ) | (36,480 | ) | (29,326 | ) | (20,969 | ) | ||||||
| Accrued liabilities and other | (15,322 | ) | (1,940 | ) | (17,883 | ) | (15,322 | ) | ||||||
| Income taxes, current | (17,204 | ) | 8,742 | (17,292 | ) | (17,204 | ) | |||||||
| Net cash provided by operating activities | 344,567 | 379,009 | 571,351 | 344,567 | ||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Capital expenditures | (137,614 | ) | (132,466 | ) | (126,167 | ) | (137,614 | ) | ||||||
| Proceeds from redemption of marketable securities | — | 100,259 | ||||||||||||
| Purchase of marketable securities and investments | (14,071 | ) | (99,877 | ) | ||||||||||
| Purchases of investments | (10,121 | ) | (14,071 | ) | ||||||||||
| Proceeds from sale of a cost method investment | 73,342 | — | — | 73,342 | ||||||||||
| Proceeds from sale of business | — | 127,835 | ||||||||||||
| Proceeds from sale of assets | 13,300 | — | ||||||||||||
| Acquisitions of businesses, net of cash acquired | (6,580 | ) | (1,099 | ) | (6,582 | ) | (6,580 | ) | ||||||
| Other, net | (1,717 | ) | (870 | ) | (2,103 | ) | (1,717 | ) | ||||||
| Net cash used in investing activities | (86,640 | ) | (6,218 | ) | (131,673 | ) | (86,640 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||||
| Issuance (payments) of commercial paper, net | 173,500 | (50,500 | ) | |||||||||||
| Repayment of debt | — | (250,000 | ) | |||||||||||
| (Payments) issuance of commercial paper, net | (112,500 | ) | 173,500 | |||||||||||
| Proceeds from exercise of stock-based compensation awards | 32,612 | 28,558 | 63,201 | 32,612 | ||||||||||
| Repurchase of common stock | (508,129 | ) | (35,697 | ) | (258,741 | ) | (508,129 | ) | ||||||
| Other, net | (5,362 | ) | (1,882 | ) | (1,952 | ) | (5,362 | ) | ||||||
| Net cash used in financing activities | (307,379 | ) | (309,521 | ) | (309,992 | ) | (307,379 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (793 | ) | 3,466 | 204 | (793 | ) | ||||||||
| Net (decrease) increase in cash and cash equivalents | (50,245 | ) | 66,736 | |||||||||||
| Net increase (decrease) in cash and cash equivalents | 129,890 | (50,245 | ) | |||||||||||
| Cash and cash equivalents at beginning of period | 138,724 | 169,266 | 96,645 | 138,724 | ||||||||||
| Cash and cash equivalents at end of period | $ | 88,479 | $ | 236,002 | $ | 226,535 | $ | 88,479 | ||||||
See accompanying notes.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The consolidated condensed financial statements of Cintas Corporation (Cintas, the Company, we, us or our) included herein have been prepared by Cintas, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. While we believe that the disclosures are adequately presented, we suggest that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2018.2019. A summary of our significant accounting policies is presented beginning on page 3941 of that report. There have been no material changes in the accounting policies followed by Cintas during the current fiscal year other than the adoption of new accounting pronouncements discussed below.
Interim results are subject to variations and are not necessarily indicative of the results of operations for a full fiscal year. In the opinion of management, adjustments (which include only normal recurring adjustments) necessary for a fair statement of the consolidated results of the interim periods shown have been made.
Inventories, net are measured at the lower of cost (first-in, first-out) or net realizable value. Inventory is comprised of the following amounts at:following:
| (In thousands) | November 30, 2019 | May 31, 2019 | |||||
| Raw materials | $ | 15,550 | $ | 17,812 | |||
| Work in process | 27,148 | 28,820 | |||||
| Finished goods | 305,606 | 287,957 | |||||
| $ | 348,304 | $ | 334,589 | ||||
| (In thousands) | November 30, 2018 | May 31, 2018 | |||||
| Raw materials | $ | 14,005 | $ | 17,042 | |||
| Work in process | 32,420 | 27,350 | |||||
| Finished goods | 275,449 | 235,955 | |||||
| $ | 321,874 | $ | 280,347 | ||||
Inventories are recorded net of reserves for obsolete inventory of $31.9$33.8 million and $37.0$32.7 million at November 30, 20182019 and May 31, 2018,2019, respectively.
New Accounting Pronouncements
Impacts of Adopting ASU 2014-09 | |||||||||||||||
| (In thousands) | May 31, 2018 | Capitalization of Contract Costs | Assets With No Alternative Use | June 1, 2018 | |||||||||||
| ASSETS | |||||||||||||||
| Accounts receivable, net | $ | 804,583 | $ | — | $ | 13,426 | $ | 818,009 | |||||||
| Inventories, net | 280,347 | — | (11,265 | ) | 269,082 | ||||||||||
| Prepaid expenses and other current assets | 32,383 | 63,463 | — | 95,846 | |||||||||||
| Total current assets | 1,977,932 | 63,463 | 2,161 | 2,043,556 | |||||||||||
| Other assets, net | 29,315 | 187,503 | — | 216,818 | |||||||||||
| Total assets | $ | 6,958,214 | $ | 250,966 | $ | 2,161 | $ | 7,211,341 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||
| Deferred income taxes | $ | 352,581 | $ | 63,389 | $ | 546 | $ | 416,516 | |||||||
| Total long-term liabilities | 3,165,831 | 63,389 | 546 | 3,229,766 | |||||||||||
| Retained earnings | 5,837,827 | 187,577 | 1,615 | 6,027,019 | |||||||||||
| Total shareholders' equity | 3,016,526 | 187,577 | 1,615 | 3,205,718 | |||||||||||
| Total liabilities and shareholders' equity | $ | 6,958,214 | $ | 250,966 | $ | 2,161 | $ | 7,211,341 | |||||||
Six Months Ended November 30, 2018 | |||||||||||
Consolidated Condensed Statement of Income (In thousands) | As Reported | Under Historical Guidance | Impact of Adopting ASU 2014-09 | ||||||||
| Revenue: | |||||||||||
| Uniform rental and facility services | $ | 2,765,716 | $ | 2,767,884 | $ | (2,168 | ) | ||||
| Other | 650,527 | 649,802 | 725 | ||||||||
| Total revenue | 3,416,243 | 3,417,686 | (1,443 | ) | |||||||
| Costs and expenses: | |||||||||||
| Cost of other | 358,801 | 357,902 | 899 | ||||||||
| Selling and administrative expenses | 996,305 | 1,010,394 | (14,089 | ) | |||||||
| Operating income | 540,868 | 529,121 | 11,747 | ||||||||
| Income before income taxes | 561,944 | 550,197 | 11,747 | ||||||||
| Income taxes | 106,403 | 103,537 | 2,866 | ||||||||
| Income from continuing operations | 455,541 | 446,660 | 8,881 | ||||||||
| Net income | $ | 455,528 | $ | 446,647 | $ | 8,881 | |||||
| Diluted earnings per share | $ | 4.07 | $ | 3.99 | $ | 0.08 | |||||
Balance at November 30, 2018 | |||||||||||
Consolidated Condensed Balance Sheet (In thousands) | As Reported | Under Historical Guidance | Impact of Adopting ASU 2014-09 | ||||||||
| ASSETS | |||||||||||
| Accounts receivable, net | $ | 904,062 | $ | 889,716 | $ | 14,346 | |||||
| Inventories, net | 321,874 | 334,038 | (12,164 | ) | |||||||
| Income taxes, current | 36,595 | 36,600 | (5 | ) | |||||||
| Prepaid expenses and other current assets | 106,614 | 39,642 | 66,972 | ||||||||
| Total current assets | 2,215,870 | 2,146,721 | 69,149 | ||||||||
| Other assets, net | 228,386 | 32,666 | 195,720 | ||||||||
| Total assets | $ | 7,405,083 | $ | 7,140,214 | $ | 264,869 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Long-term liabilities: | |||||||||||
| Deferred income taxes | $ | 435,461 | $ | 368,665 | $ | 66,796 | |||||
| Total long-term liabilities | 3,263,153 | 3,196,357 | 66,796 | ||||||||
| Retained earnings | 6,261,756 | 6,063,683 | 198,073 | ||||||||
| Total shareholders' equity | 3,027,244 | 2,829,171 | 198,073 | ||||||||
| Total liabilities and shareholders' equity | $ | 7,405,083 | $ | 7,140,214 | $ | 264,869 | |||||
Effective June 1, 2019, Cintas adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 allows companies to elect to reclassify the disproportionate income tax effects resulting from the Tax Cuts and Jobs Act (Tax Act) on items within accumulated other comprehensive income to retained earnings. The adoption of ASU 2018-02, on a prospective basis, resulted in a $2.0 million reclassification adjustment of the stranded tax effects from retained earnings to accumulated other comprehensive loss that was determined using a specific identification method.
In August 2016,April 2019, the FASB issued ASU 2016-15, “Classification2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Certain Cash Receipts and Cash Payments.Credit Losses on Financial Instruments.” ASU 2016-15 makes eight targeted changes2016-13 will replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to how certain cash receiptsinform credit loss estimates. In connection with recognizing credit losses on accounts receivable and cash payments are presented and classified inother financial instruments, Cintas will be required to use a forward-looking expected loss model rather than the statement of cash flows.incurred loss model. ASU 2016-152016-13 is effective for interim and annual reporting periods beginning after December 15, 2017,2019, with early adoption permitted. The Company’s adoption of this standard on June 1, 2018 did notwill be through a cumulative-effect adjustment to retained earnings as of the effective date. Cintas is currently evaluating the impact that ASU 2016-13 will have a material impact on its consolidated condensed statements of cash flows.financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). This standardASU 2017-04 is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The adoption of this standardASU 2017-04 is not expected to have an impact on the consolidated condensed financial statements.
No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on Cintas' consolidated condensed financial statements.
The following table presents Cintas' total revenue disaggregated by service type:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| November 30, 2019 | November 30, 2018 | November 30, 2019 | November 30, 2018 | ||||||||||||||||||||
| (In thousands) | Revenue | % | Revenue | % | Revenue | % | Revenue | % | |||||||||||||||
Uniform Rental and Facility Services | $ | 1,469,976 | 79.7 | % | $ | 1,390,778 | 81.0 | % | $ | 2,924,503 | 80.0 | % | $ | 2,765,716 | 81.0 | % | |||||||
First Aid and Safety Services | 169,668 | 9.2 | % | 153,348 | 8.9 | % | 341,758 | 9.4 | % | 306,765 | 9.0 | % | |||||||||||
Fire Protection Services | 106,735 | 5.8 | % | 96,183 | 5.6 | % | 216,861 | 5.9 | % | 194,292 | 5.7 | % | |||||||||||
Uniform Direct Sales | 97,370 | 5.3 | % | 77,959 | 4.5 | % | 171,766 | 4.7 | % | 149,470 | 4.3 | % | |||||||||||
| Total revenue | $ | 1,843,749 | 100.0 | % | $ | 1,718,268 | 100.0 | % | $ | 3,654,888 | 100.0 | % | $ | 3,416,243 | 100.0 | % | |||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
November 30, 2018 | November 30, 2017 | November 30, 2018 | November 30, 2017 | ||||||||||||||||||||
| (In thousands) | Revenue | % | Revenue | % | Revenue | % | Revenue | % | |||||||||||||||
Uniform Rental and Facility Services | $ | 1,390,778 | 81.0 | % | $ | 1,308,038 | 81.4 | % | $ | 2,765,716 | 81.0 | % | $ | 2,619,822 | 81.4 | % | |||||||
First Aid and Safety Services | 153,348 | 8.9 | % | 139,090 | 8.7 | % | 306,765 | 9.0 | % | 279,672 | 8.7 | % | |||||||||||
Fire Protection Services | 96,183 | 5.6 | % | 80,949 | 5.0 | % | 194,292 | 5.7 | % | 167,496 | 5.2 | % | |||||||||||
| Uniform Direct Sales | 77,959 | 4.5 | % | 78,364 | 4.9 | % | 149,470 | 4.3 | % | 150,954 | 4.7 | % | |||||||||||
| Total revenue | $ | 1,718,268 | 100.0 | % | $ | 1,606,441 | 100.0 | % | $ | 3,416,243 | 100.0 | % | $ | 3,217,944 | 100.0 | % | |||||||
Revenue Recognition Policy
More than 95% of the Company's revenues are derived from fees for route servicing of Uniform Rental and Facility Services, First Aid and Safety Services and Fire Protection Services, performed by a Cintas employee-partner, at the customer's location of business. Revenues from our route servicing customer contracts represent a single-performance obligation. The Company recognizes these revenues over time as services are performed based on the nature of services provided and contractual rates (input method). The Company's remaining revenues, primarily within the Uniform Direct Sales operating segment, and representing less than 5% of the Company's total revenues, are recognized when the obligations under the terms of a contract with a customer are satisfied. This generally occurs when the goods are transferred to the customer.
Revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities. Shipping and handling costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Certain of our customer contracts, primarily within our Uniform Direct Sales business, include pricing terms and conditions that include components of variable consideration. The variable consideration is typically in the form of consideration paid to a customer based on performance metrics specified within the contract. Specifically, some contracts contain discounts or rebates that the customer can earn through the achievement of specified volume levels. Each component of variable consideration is earned based on the Company's actual performance during the measurement period specified within the contract. To determine the transaction price, the Company estimates the variable consideration using the most likely amount method, based on the specific contract provisions and known performance results during the relevant measurement period. When determining if variable consideration should be constrained, the Company considers whether factors outside its control could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal. The Company's performance period generally corresponds with the monthly invoice period. No constraints on our revenue recognition were applied during the three or six months ended November 30, 2019 or 2018. The Company reassesses these estimates during each reporting period. Cintas maintains a liability for these discounts and rebates within accrued liabilities on the consolidated condensed balance sheets. Variable consideration also includes consideration paid to a customer at the beginning of a contract. Cintas capitalizes this consideration and amortizes it over the life of the contract as a reduction to revenue in accordance with ASC 606.Accounting Standards Codification (ASC) Topic 606, Revenue (ASC 606). These assets are included in Other Assets,other assets, net on the consolidated condensed balance sheet.
Additionally, in accordance with ASC 606, certain Uniform Direct Sales customer contracts contain a provision with an enforceable right of payment and the underlying product has no alternative use to Cintas. Consequently, when both aforementioned provisions are prevalent in a customer contract, the revenue is recorded for finished goods that the customer is obligated to purchase under the termination terms of the contract.
Costs to Obtain a Contract
The Company capitalizes commission expenses paid to our employee-partners when the commissions are deemed to be incremental for obtaining the route servicing customer contract. The deferred commissions are amortized on a straight-line basis over the expected period of benefit. We review the deferred commission balances for impairment on an ongoing basis. Deferred commissions are classified as current or noncurrent based on the timing of when we expect to recognize the expense. The current portion is included in prepaid expenses and other current assets and the noncurrent portion is included in other assets, net on the Company's consolidated condensed balance sheets. As of November 30, 2018,2019, the current and noncurrent assets related to deferred commissions totaled $67.0$74.9 million and $199.7$216.1 million, respectively. As of May 31, 2019, the current and noncurrent assets related to deferred commissions totaled $69.6 million and $206.0 million, respectively. We recorded amortization expense related to deferred commissions of $17.6$19.2 million and $34.7$17.6 million during the three months ended November 30, 2019 and 2018, respectively. During the six months ended November 30, 2019 and 2018, we recorded amortization expense related to deferred commissions of $38.0 million and $34.7 million, respectively. These expenses are classified in selling and administrative expense on the consolidated condensed statements of income.
Note 3 - Leases
Cintas has operating leases for certain operating facilities, vehicles and equipment, which provide the right to use the underlying asset and require lease payments over the term of the lease. Each new contract is evaluated to determine if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. All identified leases are recorded on the consolidated condensed balance sheet with a corresponding operating lease right-of-use asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the consolidated condensed balance sheet.
Operating lease right-of-use assets, net and operating lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. Lease expense for operating leases is recorded on a straight-line basis over the lease term and variable lease costs are recorded as incurred. Both lease expense and variable lease costs are primarily recorded in Cost of uniform rental and facility services and other on the Company's consolidated condensed statements of income. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating lease costs, including short-term lease expense and variable lease costs, which were immaterial in each period, were $17.7 million and $34.9 million, respectively, for the three and six months ended November 30, 2019.
The following table provides supplemental information related to the Company's consolidated condensed statement of cash flows for the six months ended November 30, 2019:
| (In thousands) | November 30, 2019 | |||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 24,927 | ||
| Operating lease right-of-use assets obtained in exchange for new operating lease liabilities | $ | 24,770 | ||
Other information related to the operating lease right-of-use assets, net and operating lease liabilities was as follows:
| November 30, 2019 | ||
| Weighted-average remaining lease term - operating leases | 5.35 years | |
| Weighted-average discount rate - operating leases | 2.71% | |
The contractual future minimum lease payments of Cintas' operating lease liabilities by fiscal year are as follows as of November 30, 2019:
| (In thousands) | ||||
2020 (remaining six months) | $ | 24,836 | ||
| 2021 | 44,642 | |||
| 2022 | 35,528 | |||
| 2023 | 27,414 | |||
| 2024 | 18,313 | |||
| Thereafter | 37,869 | |||
| Total payments | 188,602 | |||
| Less interest | (13,759 | ) | ||
| Total present value of lease payments | $ | 174,843 | ||
Note 4 - Fair Value Measurements
All financial instruments that are measured at fair value on a recurring basis (at least annually) have been classified within the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the consolidated condensed balance sheet date. These financial instruments measured at fair value on a recurring basis are summarized below:
| As of November 30, 2018 | As of November 30, 2019 | |||||||||||||||||||||||||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 88,479 | $ | — | $ | — | $ | 88,479 | $ | 226,535 | $ | — | $ | — | $ | 226,535 | ||||||||||||||
| Other assets, net: | ||||||||||||||||||||||||||||||
| Interest rate lock agreements | — | 2,307 | — | 2,307 | — | 12,241 | — | 12,241 | ||||||||||||||||||||||
| Total assets at fair value | $ | 88,479 | $ | 2,307 | $ | — | $ | 90,786 | $ | 226,535 | $ | 12,241 | $ | — | $ | 238,776 | ||||||||||||||
| Long-term accrued liabilities: | ||||||||||||||||||||||||||||||
| Interest rate lock agreements | $ | — | $ | 58,274 | $ | — | $ | 58,274 | ||||||||||||||||||||||
| Total liabilities at fair value | $ | — | $ | 58,274 | $ | — | $ | 58,274 | ||||||||||||||||||||||
| As of May 31, 2019 | |||||||||||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||
| Cash and cash equivalents | $ | 96,645 | $ | — | $ | — | $ | 96,645 | |||||||
| Total assets at fair value | $ | 96,645 | $ | — | $ | — | $ | 96,645 | |||||||
| Long-term accrued liabilities: | |||||||||||||||
| Interest rate lock agreements | $ | — | $ | 36,393 | $ | — | $ | 36,393 | |||||||
| Total liabilities at fair value | $ | — | $ | 36,393 | $ | — | $ | 36,393 | |||||||
| As of May 31, 2018 | |||||||||||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||
| Cash and cash equivalents | $ | 138,724 | $ | — | $ | — | $ | 138,724 | |||||||
| Total assets at fair value | $ | 138,724 | $ | — | $ | — | $ | 138,724 | |||||||
Cintas’ cash and cash equivalents and marketable securities are generally classified within Level 1 or Level 2 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets, and financial instruments classified as Level 2 are based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency.markets. The types of financial instruments Cintas classifies within Level 1 include most bank deposits and money market securities. Cintas does not adjust the quoted market price for such financial instruments.
Interest, realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included in interest income or expense. The cost of the securities sold is based on the specific identification method. There were no0 outstanding marketable securities as of November 30, 20182019 or May 31, 2018.2019.
The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while Cintas believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the consolidated condensed balance sheet dates.
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the CompanyCintas records assets and liabilities at fair value on a nonrecurring basis as required under GAAP.
Note 5 - Investments
Investments at November 30, 20182019 of $183.5$218.9 million include the cash surrender value of insurance policies of $165.4$196.6 million, equity method investments of $16.9$19.1 million and cost method investments of $1.2$3.2 million. Investments at May 31, 20182019 of $175.6$192.3 million include the cash surrender value of insurance policies of $154.0$170.5 million, equity method investments of $16.4$18.6 million and cost method investments of $5.2$3.2 million. Investments are generally evaluated for impairment on an annual basis or when indicators of impairment exist. For the three and six months ended November 30, 2019 and 2018, and 2017, no0 impairment losses were recorded.
During the three months ended November 30, 2018, Cintas sold a cost method investment to a third party. Proceeds from the one-time sale were $73.3 million, which resulted in a pre-tax gain of $69.4 million.
The following table setstables set forth the computation of basic and diluted earnings per share from continuing operations using the two-class method for amounts attributable to Cintas’ common shares:
| Three Months Ended | Six Months Ended | ||||||||||||||
Basic Earnings per Share from Continuing Operations (in thousands except per share data) | November 30, 2019 | November 30, 2018 | November 30, 2019 | November 30, 2018 | |||||||||||
| Income from continuing operations | $ | 246,443 | $ | 242,994 | $ | 497,255 | $ | 455,541 | |||||||
| Less: income from continuing operations allocated to participating securities | 2,425 | 3,376 | 4,904 | 6,308 | |||||||||||
| Income from continuing operations available to common shareholders | $ | 244,018 | $ | 239,618 | $ | 492,351 | $ | 449,233 | |||||||
| Basic weighted average common shares outstanding | 103,959 | 106,475 | 103,638 | 106,652 | |||||||||||
| Basic earnings per share from continuing operations | $ | 2.35 | $ | 2.25 | $ | 4.75 | $ | 4.21 | |||||||
| Three Months Ended | Six Months Ended | ||||||||||||||
Basic Earnings per Share from Continuing Operations (in thousands except per share data) | November 30, 2018 | November 30, 2017 | November 30, 2018 | November 30, 2017 | |||||||||||
| Income from continuing operations | $ | 242,994 | $ | 137,737 | $ | 455,541 | $ | 298,845 | |||||||
| Less: income from continuing operations allocated to participating securities | 3,376 | 2,111 | 6,308 | 5,298 | |||||||||||
| Income from continuing operations available to common shareholders | $ | 239,618 | $ | 135,626 | $ | 449,233 | $ | 293,547 | |||||||
| Basic weighted average common shares outstanding | 106,475 | 106,340 | 106,652 | 106,039 | |||||||||||
| Basic earnings per share from continuing operations | $ | 2.25 | $ | 1.27 | $ | 4.21 | $ | 2.77 | |||||||
| Three Months Ended | Six Months Ended | ||||||||||||||
Diluted Earnings per Share from Continuing Operations (in thousands except per share data) | November 30, 2019 | November 30, 2018 | November 30, 2019 | November 30, 2018 | |||||||||||
| Income from continuing operations | $ | 246,443 | $ | 242,994 | $ | 497,255 | $ | 455,541 | |||||||
| Less: income from continuing operations allocated to participating securities | 2,425 | 3,376 | 4,904 | 6,308 | |||||||||||
| Income from continuing operations available to common shareholders | $ | 244,018 | $ | 239,618 | $ | 492,351 | $ | 449,233 | |||||||
| Basic weighted average common shares outstanding | 103,959 | 106,475 | 103,638 | 106,652 | |||||||||||
| Effect of dilutive securities – employee stock options | 3,376 | 3,399 | 3,476 | 3,605 | |||||||||||
| Diluted weighted average common shares outstanding | 107,335 | 109,874 | 107,114 | 110,257 | |||||||||||
| Diluted earnings per share from continuing operations | $ | 2.27 | $ | 2.18 | $ | 4.60 | $ | 4.07 | |||||||
| Three Months Ended | Six Months Ended | ||||||||||||||
Diluted Earnings per Share from Continuing Operations (in thousands except per share data) | November 30, 2018 | November 30, 2017 | November 30, 2018 | November 30, 2017 | |||||||||||
| Income from continuing operations | $ | 242,994 | $ | 137,737 | $ | 455,541 | $ | 298,845 | |||||||
| Less: income from continuing operations allocated to participating securities | 3,376 | 2,111 | 6,308 | 5,298 | |||||||||||
| Income from continuing operations available to common shareholders | $ | 239,618 | $ | 135,626 | $ | 449,233 | $ | 293,547 | |||||||
| Basic weighted average common shares outstanding | 106,475 | 106,340 | 106,652 | 106,039 | |||||||||||
| Effect of dilutive securities – employee stock options | 3,399 | 3,478 | 3,605 | 2,899 | |||||||||||
| Diluted weighted average common shares outstanding | 109,874 | 109,818 | 110,257 | 108,938 | |||||||||||
| Diluted earnings per share from continuing operations | $ | 2.18 | $ | 1.24 | $ | 4.07 | $ | 2.69 | |||||||
For the three and six months ended November 30, 2019 and 2018, both basic and diluted earnings per share from discontinued operations were $0.00. Both basic and diluted loss per share from discontinued operations were $0.01 for the three months ended November 30, 2017. For the six months ended November 30, 2017, basic and diluted earnings per share from discontinued operations were $0.51 and $0.50, respectively.rounded to 0.
For the three months ended November 30, 20182019 and 2017,2018, options granted to purchase 0.40.2 million and 0.50.4 million shares of Cintas common stock, respectively, were excluded from the computation of diluted earnings per share. For the six months ended November 30, 20182019 and 2017,2018, options granted to purchase 0.40.3 million and 0.60.4 million shares of Cintas common stock, respectively, were excluded from the computation of diluted earnings per share. The exercise prices of these options were greater than the average market price of the common stock (anti-dilutive).
On August 2, 2016,October 30, 2018, Cintas announced that the Board of Directors authorized a $500.0 million$1.0 billion share buyback program, which does not have an expiration date. The August 2, 2016There were 0 share buyback program was completed duringbuybacks for the second quarter of fiscalthree months ended November 30, 2019. FromFor the inception of the August 2, 2016 share buyback program throughsix months ended November 2018, Cintas30, 2019, we purchased a total of 2.60.8 million shares of Cintas common stock at an average price of $188.82$230.66 per share for a total purchase price of $500.0$193.1 million. OnAdditionally, on October 30, 2018,29, 2019, we announced that the Board of Directors authorized a new $1.0 billion share buyback program, which does not have an expiration date. The following table summarizes theThere have been 0 share buybacks under this new share buyback activity by program and fiscal period.
| (In thousands except per share data) | Three Months Ended November 30, 2018 | Six Months Ended November 30, 2018 | |||||||||||||||||||
| Buyback Program | Shares | Avg. Price per Share | Purchase Price | Shares | Avg. Price per Share | Purchase Price | |||||||||||||||
| August 2, 2016 | 1,740 | $ | 190.66 | $ | 331,547 | 2,130 | $ | 192.55 | $ | 410,003 | |||||||||||
| October 30, 2018 | 201 | $ | 181.41 | $ | 36,579 | 201 | $ | 181.41 | $ | 36,579 | |||||||||||
| 1,941 | $ | 189.69 | $ | 368,126 | 2,331 | $ | 191.58 | $ | 446,582 | ||||||||||||
For the three months ended November 30, 2018,2019, Cintas acquired less than 0.1 million shares of Cintas common stock for employee payroll taxes duesdue on restricted stock awards that vested during the three months ended November 30, 2018.2019. These shares were acquired at an average price of $194.14$259.17 per share for a total purchase price of $0.4$0.3 million. During the six months ended November 30, 2018,2019, Cintas acquired 0.3 million shares of Cintas common stock for employee payroll taxes due on restricted stock awards that vested during the six months ended November 30, 2018.2019. These shares were acquired at an average price of $204.32$260.89 per share for a total purchase price of $61.5$65.7 million.
Changes in the carrying amount of goodwill and service contracts for the six months ended November 30, 2018,2019, by reportable operating segment and All Other, are as follows:
Goodwill (in thousands) | Uniform Rental and Facility Services | First Aid and Safety Services | All Other | Total | |||||||||||
| Balance as of June 1, 2019 | $ | 2,496,402 | $ | 243,459 | $ | 102,580 | $ | 2,842,441 | |||||||
| Goodwill acquired | — | 164 | 5,624 | 5,788 | |||||||||||
| Foreign currency translation | 4,219 | 339 | 14 | 4,572 | |||||||||||
| Balance as of November 30, 2019 | $ | 2,500,621 | $ | 243,962 | $ | 108,218 | $ | 2,852,801 | |||||||
Service Contracts (in thousands) | Uniform Rental and Facility Services | First Aid and Safety Services | All Other | Total | |||||||||||
| Balance as of June 1, 2019 | $ | 445,016 | $ | 23,380 | $ | 26,199 | $ | 494,595 | |||||||
| Service contracts acquired | — | 325 | 2,049 | 2,374 | |||||||||||
| Service contracts amortization | (23,551 | ) | (1,940 | ) | (2,759 | ) | (28,250 | ) | |||||||
| Foreign currency translation | 1,185 | 29 | — | 1,214 | |||||||||||
| Balance as of November 30, 2019 | $ | 422,650 | $ | 21,794 | $ | 25,489 | $ | 469,933 | |||||||
Goodwill (in thousands) | Uniform Rental and Facility Services | First Aid and Safety Services | All Other | Total | |||||||||||
| Balance as of June 1, 2018 | $ | 2,505,476 | $ | 244,279 | $ | 97,133 | $ | 2,846,888 | |||||||
| Goodwill acquired | 15 | — | 5,092 | 5,107 | |||||||||||
| Foreign currency translation | (6,233 | ) | (499 | ) | (19 | ) | (6,751 | ) | |||||||
| Balance as of November 30, 2018 | $ | 2,499,258 | $ | 243,780 | $ | 102,206 | $ | 2,845,244 | |||||||
Service Contracts (in thousands) | Uniform Rental and Facility Services | First Aid and Safety Services | All Other | Total | |||||||||||
| Balance as of June 1, 2018 | $ | 492,067 | $ | 27,294 | $ | 26,407 | $ | 545,768 | |||||||
| Service contracts acquired | 739 | 14 | 4,959 | 5,712 | |||||||||||
| Service contracts amortization | (23,477 | ) | (1,926 | ) | (2,680 | ) | (28,083 | ) | |||||||
| Foreign currency translation | (1,845 | ) | (47 | ) | — | (1,892 | ) | ||||||||
| Balance as of November 30, 2018 | $ | 467,484 | $ | 25,335 | $ | 28,686 | $ | 521,505 | |||||||
Information regarding Cintas’ service contracts and other assets is as follows:
| As of November 30, 2018 | |||||||||||
| (In thousands) | Carrying Amount | Accumulated Amortization | Net | ||||||||
| Service contracts | $ | 928,010 | $ | 406,505 | $ | 521,505 | |||||
Capitalized contract costs (1) | $ | 234,446 | $ | 34,726 | $ | 199,720 | |||||
| Noncompete and consulting agreements | 42,116 | 40,190 | 1,926 | ||||||||
| Other | 41,282 | 14,542 | 26,740 | ||||||||
| Total other assets | $ | 317,844 | $ | 89,458 | $ | 228,386 | |||||
| As of November 30, 2019 | |||||||||||
| (In thousands) | Carrying Amount | Accumulated Amortization | Net | ||||||||
| Service contracts | $ | 932,833 | $ | 462,900 | $ | 469,933 | |||||
Capitalized contract costs (1) | $ | 325,160 | $ | 109,055 | $ | 216,105 | |||||
| Noncompete and consulting agreements | 42,687 | 40,937 | 1,750 | ||||||||
| Other | 63,780 | 21,009 | 42,771 | ||||||||
| Total other assets | $ | 431,627 | $ | 171,001 | $ | 260,626 | |||||
| As of May 31, 2019 | |||||||||||
| (In thousands) | Carrying Amount | Accumulated Amortization | Net | ||||||||
| Service contracts | $ | 928,635 | $ | 434,040 | $ | 494,595 | |||||
Capitalized contract costs (2) | $ | 277,016 | $ | 71,062 | $ | 205,954 | |||||
| Noncompete and consulting agreements | 42,308 | 40,524 | 1,784 | ||||||||
| Other | 50,306 | 17,729 | 32,577 | ||||||||
| Total other assets | $ | 369,630 | $ | 129,315 | $ | 240,315 | |||||
(1) | The current portion of capitalized contract costs, included in prepaid expenses and other current assets on the consolidated condensed balance sheet as of November 30, 2019, is $74.9 million. |
(2) | The current portion of capitalized contract costs, included in prepaid expenses and other current assets on the consolidated condensed balance sheet as of May 31, 2019, is $69.6 million. |
| As of May 31, 2018 | |||||||||||
| (In thousands) | Carrying Amount | Accumulated Amortization | Net | ||||||||
| Service contracts | $ | 924,978 | $ | 379,210 | $ | 545,768 | |||||
| Noncompete and consulting agreements | $ | 41,710 | $ | 39,877 | $ | 1,833 | |||||
| Other | 38,787 | 11,305 | 27,482 | ||||||||
| Total other assets | $ | 80,497 | $ | 51,182 | $ | 29,315 | |||||
Amortization expense for service contracts and other assets for continuing operations was $33.3$35.3 million and $15.6$33.3 million for the three months ended November 30, 20182019 and 2017,2018, respectively. AmortizationFor the six months ended November 30, 2019 and 2018, amortization expense for service contracts and other assets for continuing operations was $69.9 million and $66.2 million, and $29.8 million for the six months ended November 30, 2018 and 2017, respectively. EstimatedThe estimated future amortization expense for service contracts and other assets, excluding any future acquisitions and commissions to be earned, for eachas of the next five full fiscal years and thereafterNovember 30, 2019 is $132.6 million, $124.7 million, $109.6 million, $97.7 million, $79.7 million and $323.1 million, respectively.as follows:
Fiscal Year (In thousands) | ||||
2020 (remaining six months) | $ | 68,366 | ||
| 2021 | 125,140 | |||
| 2022 | 113,263 | |||
| 2023 | 94,309 | |||
| 2024 | 82,990 | |||
| Thereafter | 284,200 | |||
| Total future amortization expense | $ | 768,268 | ||
Note 8 - Debt, Derivatives and Hedging Activities
Cintas' outstanding debt is summarized as follows:
| (In thousands) | Interest Rate | Fiscal Year Issued | Fiscal Year Maturity | November 30, 2018 | May 31, 2018 | Interest Rate | Fiscal Year Issued | Fiscal Year Maturity | November 30, 2019 | May 31, 2019 | ||||||||||||||||||
| Debt due within one year | ||||||||||||||||||||||||||||
| Commercial paper | 2.60 | % | (1) | Various | Various | $ | 173,500 | $ | — | 2.68 | % | (1) | 2019 | 2020 | $ | — | $ | 112,500 | ||||||||||
| Term loan | 2.44 | % | (2) | 2019 | 2020 | 200,000 | 200,000 | |||||||||||||||||||||
| Debt issuance costs | (212 | ) | (236 | ) | ||||||||||||||||||||||||
| Total debt due within one year | $ | 173,500 | $ | — | $ | 199,788 | $ | 312,264 | ||||||||||||||||||||
| Debt due after one year | ||||||||||||||||||||||||||||
| Senior notes | 4.30 | % | 2012 | 2022 | $ | 250,000 | $ | 250,000 | 4.30 | % | 2012 | 2022 | $ | 250,000 | $ | 250,000 | ||||||||||||
| Senior notes | 2.90 | % | 2017 | 2022 | 650,000 | 650,000 | 2.90 | % | 2017 | 2022 | 650,000 | 650,000 | ||||||||||||||||
| Senior notes | 3.25 | % | 2013 | 2023 | 300,000 | 300,000 | 3.25 | % | 2013 | 2023 | 300,000 | 300,000 | ||||||||||||||||
Senior notes (2) | 2.78 | % | 2013 | 2023 | 51,902 | 52,119 | ||||||||||||||||||||||
Senior notes (3) | 3.11 | % | 2015 | 2025 | 52,140 | 52,309 | 2.78 | % | 2013 | 2023 | 51,467 | 51,684 | ||||||||||||||||
Senior notes (4) | 3.11 | % | 2015 | 2025 | 51,805 | 51,973 | ||||||||||||||||||||||
| Senior notes | 3.70 | % | 2017 | 2027 | 1,000,000 | 1,000,000 | 3.70 | % | 2017 | 2027 | 1,000,000 | 1,000,000 | ||||||||||||||||
| Senior notes | 6.15 | % | 2007 | 2037 | 250,000 | 250,000 | 6.15 | % | 2007 | 2037 | 250,000 | 250,000 | ||||||||||||||||
| Debt issuance costs | (17,634 | ) | (19,119 | ) | (14,666 | ) | (16,150 | ) | ||||||||||||||||||||
| Total debt due after one year | $ | 2,536,408 | $ | 2,535,309 | $ | 2,538,606 | $ | 2,537,507 | ||||||||||||||||||||
(1) | Variable rate debt instrument. The rate presented is the variable borrowing rate at May 31, 2019 |
(2) | Variable rate debt instrument. The rate presented is the variable borrowing rate at November 30, 2019. |
(3) | Cintas assumed these senior notes with the acquisition of G&K Services, Inc. (G&K) in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.73%. |
(4) | Cintas assumed these senior notes with the acquisition of G&K in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.88%. |
Cintas' senior notes, excluding the G&K senior notes assumed with the acquisition of G&K in fiscal 2017 and term loan, are recorded at cost, net of debt issuance costs. The fair value of the long-term debt is estimated using Level 2 inputs based on general market prices. The carrying value and fair value of Cintas' debt as of November 30, 20182019 were $2,723.5$2,750.0 million and $2,715.0$2,954.3 million, respectively, and as of May 31, 20182019 were $2,550.0$2,866.2 million and $2,582.0$2,998.7 million, respectively. During the six months ended November 30, 2018,2019, Cintas issued $173.5paid a net total of $112.5 million net of commercial paper.
The credit agreement that supports our commercial paper program was amended and restated on September 16, 2016.May 24, 2019. The amendment increased the capacity of the revolving credit facility from $450.0$600.0 million to $600.0 million$1.0 billion and addedcreated a $250.0 millionnew term loan facility.of $200.0 million. The credit agreement has an accordion feature that provides Cintas the ability to request increases to the borrowing commitments under either the revolving credit facility or a newthe term loan of up to $250.0 million in the aggregate, subject to customary conditions. The maturity date of the revolving credit agreementfacility is September 15, 2021.May 23, 2024, and the maturity date of the term loan in May 23, 2020, which can be extended 12 months, annually, for up to four years. As of November 30, 2018,2019, there was $173.5 million of0 commercial paper outstanding with a weighted average interest rate of 2.60% and maturity dates less than 30 days and no0 borrowings on our revolving credit facility. As of May 31, 2018,2019, there was no$112.5 million of commercial paper outstanding with maturity dates less than 30 days and nowith a weighted average interest rate of 2.68% and 0 borrowings on our revolving credit facility.
Cintas uses interest rate locks to manage our overall interest expense as interest rate locks effectively change the interest rate of specific debt issuances. The interest rate locks are entered into to protect against unfavorable movements in the benchmark treasury rate related to forecasted debt issuances. Cintas used interest rate lock agreements to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2007, fiscal 2012, fiscal 2013 and fiscal 2017. The amortization of the cash flow hedges resulted in a decrease to other comprehensive income of $0.3$0.4 millionand $0.1$0.3 million for the three months ended November 30, 20182019 and 2017,2018, respectively. For the six months ended November 30, 20182019 and 2017,2018, the amortization of the cash flow hedges resulted in a decrease
to other comprehensive income of $0.6$0.7 million and $0.3$0.6 million, respectively. During the first quarterthree months ended November 30, 2019, Cintas entered into interest rate lock agreements with a notional value of $700.0 million for a forecasted debt issuance. As of November 30, 2019, the fair values of these interest rate locks were an asset of $12.2 million and were recorded in other assets, net and in other comprehensive income, net of tax. During fiscal 2019, Cintas entered into interest rate lock agreements with a notional value of $500.0 million for a forecasted debt issuance. As of November 30, 2018,2019 and May 31, 2019, the fair valuevalues of these interest rate locks was an assetwere a liability of $2.3$58.3 million and $36.4 million, respectively and were recorded in other assetslong-term accrued liabilities and in other comprehensive income, net of tax. TheThese interest rate locks had no impact on net income or cash flows from continuing operations for the three and six months endedNovember 30, 2019 or 2018.
Cintas has certain covenants related to debt agreements. These covenants limit Cintas’ ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas’ assets. These covenants also require Cintas to maintain certain debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. As of November 30, 2019, Cintas was in compliance with all debt covenants for all periods presented.covenants.
In the normal course of business, Cintas provides for uncertain tax positions and the related interest and adjusts its unrecognized tax benefits and accrued interest accordingly. As of November 30, 20182019 and May 31, 2018,2019, recorded unrecognized tax benefits were $28.8$34.7 million and $26.9$37.3 million, respectively, and are included in long-term accrued liabilities on the consolidated condensed balance sheet.
The majority of Cintas' operations are in North America. Cintas is required to file federal income tax returns, as well as state income tax returns in a majority of the domestic states and also in certain Canadian provinces. At times, Cintas is subject to audits in these jurisdictions. The audits, by nature, are sometimes complex and can require several years to resolve. The final resolution of any such tax audit could result in either a reduction in Cintas' accruals or an increase in its income tax provision, either of which could have an impact on the consolidated condensed results of operations in any given period.
All U.S. federal income tax returns are closed to audit through fiscal 2014.2015. Cintas is currently in various audits in certain foreign jurisdictions and certain domestic states. The years under foreign and domestic state audits cover fiscal years back to 2013. Based on the resolution of the various audits and other potential regulatory developments, it is reasonably possible that the balance of unrecognized tax benefits would not change for the fiscal year ending May 31, 2019.2020.
Cintas’ effective tax rate for continuing operations was 24.2%20.1% and 33.3%24.2% for the three months ended November 30, 20182019 and 2017,2018, respectively. For the six months ended November 30, 20182019 and 2017,2018, Cintas' effective tax rate for continuing operations was 18.9%15.4% and 29.8%18.9%, respectively. The effective tax rate for all periods was largelywere impacted by certain discrete items (primarily the tax accounting for stock-based compensation). The three and six-month periods ended November 30, 2018 were also impacted by the reduced U.S. corporate tax rate as a result of the enactment of the Tax Act.
Note 10 - Pension Plans
In conjunction with the acquisition of G&K in fiscal 2017, Cintas assumed G&K's noncontributory frozen defined benefit pension plan (the Pension Plan) that covers substantially all G&K employees who were employed as of July 1, 2005, except certain employees who were covered by union-administered plans. Benefits are based on the number of years of service and each employee’s compensation near retirement. We will make annual contributions to the Pension Plan consistent with federal funding requirements. The Pension Plan was frozen by G&K effective December 31, 2006. Future growth in benefits will not occur beyond this date. Applicable accounting standards require that the consolidated condensed balance sheet reflect the funded status of the Pension Plan. The funded status of the Pension Plan is measured as the difference between the plan assets at fair value and the projected benefit obligation. The net pension liability is included in long-term accrued liabilities on the consolidated condensed balance sheets. Unrecognized differences between actual amounts and estimates based on actuarial assumptions are included in accumulated other comprehensive income in our consolidated condensed balance sheets. The difference between actual amounts and estimates based on actuarial assumptions are recognized in other comprehensive income in the period in which they occur. The Pension Plan assumptions are evaluated annually and are updated as deemed necessary.
The components of net periodic pensionbenefit cost (benefit) recognized in other comprehensive income for the Pension Plan are summarized as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||
| (In thousands) | November 30, 2019 | November 30, 2018 | November 30, 2019 | November 30, 2018 | |||||||||||
| Interest cost | $ | 721 | $ | 781 | $ | 1,441 | $ | 1,562 | |||||||
| Expected return on assets | (741 | ) | (720 | ) | (1,481 | ) | (1,441 | ) | |||||||
| Net periodic benefit cost | $ | (20 | ) | $ | 61 | $ | (40 | ) | $ | 121 | |||||
| Three Months Ended | Six Months Ended | ||||||||||||||
| (In thousands) | November 30, 2018 | November 30, 2017 | November 30, 2018 | November 30, 2017 | |||||||||||
| Interest cost | $ | 781 | $ | 711 | $ | 1,562 | $ | 1,421 | |||||||
| Expected return on assets | (720 | ) | (716 | ) | (1,441 | ) | (1,432 | ) | |||||||
| Total net periodic pension cost (benefit) | $ | 61 | $ | (5 | ) | $ | 121 | $ | (11 | ) | |||||
The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss), net of tax:
| (In thousands) | Foreign Currency | Unrealized Income on Interest Rate Hedges | Other | Total | |||||||||||
| Balance at June 1, 2018 | $ | 6,550 | $ | 10,449 | $ | (656 | ) | $ | 16,343 | ||||||
| Other comprehensive loss before reclassifications | (3,019 | ) | (3,168 | ) | — | (6,187 | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (295 | ) | — | (295 | ) | |||||||||
| Net current period other comprehensive loss | (3,019 | ) | (3,463 | ) | — | (6,482 | ) | ||||||||
| Balance at August 31, 2018 | 3,531 | 6,986 | (656 | ) | 9,861 | ||||||||||
Other comprehensive (loss) income before reclassifications | (10,623 | ) | 4,921 | — | (5,702 | ) | |||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (294 | ) | — | (294 | ) | |||||||||
| Net current period other comprehensive (loss) income | (10,623 | ) | 4,627 | — | (5,996 | ) | |||||||||
| Balance at November 30, 2018 | $ | (7,092 | ) | $ | 11,613 | $ | (656 | ) | $ | 3,865 | |||||
| (In thousands) | Foreign Currency | Unrealized Loss on Interest Rate Hedges | Other | Total | |||||||||||
| Balance at June 1, 2019 | $ | (15,022 | ) | $ | (18,389 | ) | $ | (5,741 | ) | $ | (39,152 | ) | |||
| Other comprehensive income (loss) before reclassifications | 6,724 | (29,903 | ) | — | (23,179 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | (295 | ) | — | (295 | ) | |||||||||
| Net current period other comprehensive income (loss) | 6,724 | (30,198 | ) | — | (23,474 | ) | |||||||||
Cumulative effect of change in accounting principle (1) | — | 2,058 | (83 | ) | 1,975 | ||||||||||
| Balance at August 31, 2019 | (8,298 | ) | (46,529 | ) | (5,824 | ) | (60,651 | ) | |||||||
| Other comprehensive income before reclassifications | 1,413 | 22,761 | — | 24,174 | |||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (358 | ) | — | (358 | ) | |||||||||
| Net current period other comprehensive income | 1,413 | 22,403 | — | 23,816 | |||||||||||
| Balance at November 30, 2019 | $ | (6,885 | ) | $ | (24,126 | ) | $ | (5,824 | ) | $ | (36,835 | ) | |||
(1) | See new accounting pronouncements in Note 1 entitled Basis of Presentation for more information. |
| (In thousands) | Foreign Currency | Unrealized Income on Interest Rate Hedges | Other | Total | |||||||||||
| Balance at June 1, 2018 | $ | 6,550 | $ | 10,449 | $ | (656 | ) | $ | 16,343 | ||||||
| Other comprehensive loss before reclassifications | (3,019 | ) | (3,168 | ) | — | (6,187 | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (295 | ) | — | (295 | ) | |||||||||
| Net current period other comprehensive loss | (3,019 | ) | (3,463 | ) | — | (6,482 | ) | ||||||||
| Balance at August 31, 2018 | 3,531 | 6,986 | (656 | ) | 9,861 | ||||||||||
| Other comprehensive (loss) income before reclassifications | (10,623 | ) | 4,921 | — | (5,702 | ) | |||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (294 | ) | — | (294 | ) | |||||||||
| Net current period other comprehensive (loss) income | (10,623 | ) | 4,627 | — | (5,996 | ) | |||||||||
| Balance at November 30, 2018 | $ | (7,092 | ) | $ | 11,613 | $ | (656 | ) | $ | 3,865 | |||||
| (In thousands) | Foreign Currency | Unrealized Income on Interest Rate Hedges | Other | Total | |||||||||||
| Balance at June 1, 2017 | $ | (12,726 | ) | $ | 11,382 | $ | (1,685 | ) | $ | (3,029 | ) | ||||
| Other comprehensive income before reclassifications | 35,184 | — | 20 | 35,204 | |||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (172 | ) | — | (172 | ) | |||||||||
| Net current period other comprehensive income (loss) | 35,184 | (172 | ) | 20 | 35,032 | ||||||||||
| Balance at August 31, 2017 | 22,458 | 11,210 | (1,665 | ) | 32,003 | ||||||||||
| Other comprehensive loss before reclassifications | (11,374 | ) | — | (20 | ) | (11,394 | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (172 | ) | — | (172 | ) | |||||||||
| Net current period other comprehensive loss | (11,374 | ) | (172 | ) | (20 | ) | (11,566 | ) | |||||||
| Balance at November 30, 2017 | $ | 11,084 | $ | 11,038 | $ | (1,685 | ) | $ | 20,437 | ||||||
Details about Accumulated Other Comprehensive Income (Loss) Components | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | Affected Line in the Consolidated Condensed Statements of Income | ||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| (In thousands) | November 30, 2019 | November 30, 2018 | November 30, 2019 | November 30, 2018 | ||||||||||||
| Amortization of interest rate locks | $ | 474 | $ | 474 | $ | 948 | $ | 948 | Interest expense | |||||||
| Tax expense | (116 | ) | (180 | ) | (295 | ) | (359 | ) | Income taxes | |||||||
| Amortization of interest rate locks, net of tax | $ | 358 | $ | 294 | $ | 653 | $ | 589 | Net income | |||||||
| Reclassifications out of Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||
| Details about Accumulated Other Comprehensive Income (Loss) Components | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | Affected Line in the Consolidated Condensed Statements of Income | ||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| (In thousands) | November 30, 2018 | November 30, 2017 | November 30, 2018 | November 30, 2017 | ||||||||||||
Amortization of interest rate locks | $ | 474 | $ | 278 | $ | 948 | $ | 556 | Interest expense | |||||||
| Tax expense | (180 | ) | (106 | ) | (359 | ) | (212 | ) | Income taxes | |||||||
Amortization of interest rate locks, net of tax | $ | 294 | $ | 172 | $ | 589 | $ | 344 | Net income | |||||||
Cintas classifies its business into 2 reportable operating segments and places the remainder of its operating segments in an All Other category. Cintas’ 2 reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and Facility Services reportable operating segment, consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies, carpet and tile cleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. The First Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’ business, which consists of Fire Protection Services and its Uniform Direct Sale business, is included in All Other.
Cintas evaluates the performance of each operating segment based on several factors of which the primary financial measures are operating segment revenue and income before income taxes. The accounting policies of the operating segments are the same as those described in Note 1 entitled Basis of Presentation. Information related to the operations of Cintas’ operating segments is set forth below:
| (In thousands) | Uniform Rental and Facility Services | First Aid and Safety Services | All Other | Corporate (1) | Total | ||||||||||||||
| For the three months ended November 30, 2019 | |||||||||||||||||||
| Revenue | $ | 1,469,976 | $ | 169,668 | $ | 204,105 | $ | — | $ | 1,843,749 | |||||||||
Income (loss) before income taxes | $ | 286,360 | $ | 24,640 | $ | 23,464 | $ | (25,894 | ) | $ | 308,570 | ||||||||
| For the three months ended November 30, 2018 | |||||||||||||||||||
| Revenue | $ | 1,390,778 | $ | 153,348 | $ | 174,142 | $ | — | $ | 1,718,268 | |||||||||
| Income before income taxes | $ | 242,891 | $ | 21,328 | $ | 11,421 | $ | 44,884 | $ | 320,524 | |||||||||
| As of and for the six months ended November 30, 2019 | |||||||||||||||||||
| Revenue | $ | 2,924,503 | $ | 341,758 | $ | 388,627 | $ | — | $ | 3,654,888 | |||||||||
Income (loss) before income taxes | $ | 555,371 | $ | 49,409 | $ | 35,830 | $ | (53,053 | ) | $ | 587,557 | ||||||||
| Total assets | $ | 6,699,166 | $ | 537,740 | $ | 423,896 | $ | 226,535 | $ | 7,887,337 | |||||||||
| As of and for the six months ended November 30, 2018 | |||||||||||||||||||
| Revenue | $ | 2,765,716 | $ | 306,765 | $ | 343,762 | $ | — | $ | 3,416,243 | |||||||||
| Income before income taxes | $ | 474,425 | $ | 43,311 | $ | 23,132 | $ | 21,076 | $ | 561,944 | |||||||||
| Total assets | $ | 6,438,400 | $ | 495,054 | $ | 383,150 | $ | 88,479 | $ | 7,405,083 | |||||||||
(1) Corporate assets include cash and marketable securities in all periods.
Note 13 - G&K Services, Inc. Integration Expenses
As a result of the acquisition of G&K in fiscal 2017, the Company incurred $7.8 million and $12.7 million in expenses during the three and six months ended November 31, 2018, respectively, which represented integration expenses directly related to the acquisition, primarily facility closure expenses. NaN such costs were incurred during the three or six months ended November 30, 2019.
As of November 30, 2019 and May 31, 2019, employee termination benefits included in accrued compensation and related liabilities on the consolidated condensed balance sheet was $2.5 million and $2.8 million, respectively. The amount of employee termination benefits paid during the three and six months ended November 30, 2019 was $0.2 million and $0.3 million, respectively. During the three and six months ended November 30, 2018, the amount of employee termination benefits paid was $0.9 million and $3.3 million, respectively. We anticipate the remaining accrued employee termination benefits will be paid by the end of this fiscal year.
Note 14 - Supplemental Guarantor Information
Cintas Corporation No. 2 (Corp. 2) is the indirectly, wholly-owned principal operating subsidiary of Cintas. Corp. 2 is the obligor for the term loan of $200.0 million and the $2,550.0 million aggregate principal amount of senior notes outstanding as of November 30, 2019, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and certain wholly-owned, direct and indirect domestic subsidiaries.
As allowed by SEC rules, the following consolidating condensed financial statements are provided as an alternative to filing separate financial statements of the guarantors. Each of the subsidiaries presented in the following consolidating condensed financial statements has been fully consolidated in Cintas’ consolidated condensed financial statements. The following consolidating condensed financial statements should be read in conjunction with the consolidated condensed financial statements of Cintas and notes thereto of which this note is an integral part. Consolidating condensed financial statements for Cintas, Corp. 2, the subsidiary guarantors and non-guarantors are presented on the following pages:
Consolidating Condensed Income Statement
Three Months Ended November 30, 2019
(In thousands)
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Uniform rental and facility services | $ | — | $ | 1,167,960 | $ | 194,468 | $ | 108,195 | $ | (647 | ) | $ | 1,469,976 | ||||||||||
| Other | — | 606,540 | 171 | 24,360 | (257,298 | ) | 373,773 | ||||||||||||||||
| Equity in net income of affiliates | 246,443 | — | — | — | (246,443 | ) | — | ||||||||||||||||
| Total revenue | 246,443 | 1,774,500 | 194,639 | 132,555 | (504,388 | ) | 1,843,749 | ||||||||||||||||
| Costs and expenses (income): | |||||||||||||||||||||||
| Cost of uniform rental and facility services | — | 635,235 | 112,505 | 69,362 | (32,165 | ) | 784,937 | ||||||||||||||||
| Cost of other | — | 427,776 | (26,862 | ) | 18,954 | (213,447 | ) | 206,421 | |||||||||||||||
| Selling and administrative expenses | — | 591,422 | (99,163 | ) | 32,740 | (7,072 | ) | 517,927 | |||||||||||||||
| Operating income | 246,443 | 120,067 | 208,159 | 11,499 | (251,704 | ) | 334,464 | ||||||||||||||||
| Interest income | — | (157 | ) | (108 | ) | (20 | ) | 2 | (283 | ) | |||||||||||||
| Interest expense (income) | — | 26,264 | (87 | ) | — | — | 26,177 | ||||||||||||||||
| Income before income taxes | 246,443 | 93,960 | 208,354 | 11,519 | (251,706 | ) | 308,570 | ||||||||||||||||
| Income taxes | — | 18,660 | 40,652 | 2,851 | (36 | ) | 62,127 | ||||||||||||||||
| Income from continuing operations | 246,443 | 75,300 | 167,702 | 8,668 | (251,670 | ) | 246,443 | ||||||||||||||||
Loss from discontinued operations, net of tax | (323 | ) | (323 | ) | — | — | 323 | (323 | ) | ||||||||||||||
| Net income | $ | 246,120 | $ | 74,977 | $ | 167,702 | $ | 8,668 | $ | (251,347 | ) | $ | 246,120 | ||||||||||
Consolidating Condensed Income Statement
Three Months Ended November 30, 2018
(In thousands)
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Uniform rental and facility services | $ | — | $ | 1,134,118 | $ | 182,876 | $ | 101,830 | $ | (28,046 | ) | $ | 1,390,778 | ||||||||||
| Other | — | 522,081 | 50 | 25,918 | (220,559 | ) | 327,490 | ||||||||||||||||
| Equity in net income of affiliates | 242,994 | — | — | — | (242,994 | ) | — | ||||||||||||||||
| Total revenue | 242,994 | 1,656,199 | 182,926 | 127,748 | (491,599 | ) | 1,718,268 | ||||||||||||||||
| Costs and expenses (income): | |||||||||||||||||||||||
Cost of uniform rental and facility services | — | 640,859 | 111,555 | 65,316 | (56,611 | ) | 761,119 | ||||||||||||||||
| Cost of other | — | 375,764 | (27,133 | ) | 19,319 | (185,959 | ) | 181,991 | |||||||||||||||
| Selling and administrative expenses | — | 536,276 | (68,617 | ) | 32,559 | (8,547 | ) | 491,671 | |||||||||||||||
G&K Services, Inc. integration expenses | — | 5,973 | 1,270 | 604 | — | 7,847 | |||||||||||||||||
| Operating income | 242,994 | 97,327 | 165,851 | 9,950 | (240,482 | ) | 275,640 | ||||||||||||||||
Gain on sale of a cost method investment | — | — | 69,373 | — | — | 69,373 | |||||||||||||||||
| Interest income | — | (294 | ) | (93 | ) | (5 | ) | 1 | (391 | ) | |||||||||||||
| Interest expense (income) | — | 25,046 | (173 | ) | 7 | — | 24,880 | ||||||||||||||||
| Income before income taxes | 242,994 | 72,575 | 235,490 | 9,948 | (240,483 | ) | 320,524 | ||||||||||||||||
| Income taxes | — | 19,166 | 55,788 | 2,613 | (37 | ) | 77,530 | ||||||||||||||||
| Income from continuing operations | 242,994 | 53,409 | 179,702 | 7,335 | (240,446 | ) | 242,994 | ||||||||||||||||
Income from discontinued operations, net of tax | 19 | 19 | — | — | (19 | ) | 19 | ||||||||||||||||
| Net income | $ | 243,013 | $ | 53,428 | $ | 179,702 | $ | 7,335 | $ | (240,465 | ) | $ | 243,013 | ||||||||||
Consolidating Condensed Income Statement
Six Months Ended November 30, 2019
(In thousands)
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Uniform rental and facility services | $ | — | $ | 2,326,851 | $ | 385,203 | $ | 213,589 | $ | (1,140 | ) | $ | 2,924,503 | ||||||||||
| Other | — | 1,189,516 | 268 | 47,606 | (507,005 | ) | 730,385 | ||||||||||||||||
| Equity in net income of affiliates | 497,255 | — | — | — | (497,255 | ) | — | ||||||||||||||||
| Total revenue | 497,255 | 3,516,367 | 385,471 | 261,195 | (1,005,400 | ) | 3,654,888 | ||||||||||||||||
| Costs and expenses (income): | |||||||||||||||||||||||
| Cost of uniform rental and facility services | — | 1,257,116 | 224,239 | 134,957 | (62,699 | ) | 1,553,613 | ||||||||||||||||
| Cost of other | — | 831,260 | (49,539 | ) | 36,653 | (418,632 | ) | 399,742 | |||||||||||||||
| Selling and administrative expenses | — | 1,190,825 | (183,420 | ) | 67,194 | (13,676 | ) | 1,060,923 | |||||||||||||||
| Operating income | 497,255 | 237,166 | 394,191 | 22,391 | (510,393 | ) | 640,610 | ||||||||||||||||
| Interest income | — | (307 | ) | (107 | ) | (34 | ) | 3 | (445 | ) | |||||||||||||
| Interest expense (income) | — | 53,624 | (140 | ) | 14 | — | 53,498 | ||||||||||||||||
| Income before income taxes | 497,255 | 183,849 | 394,438 | 22,411 | (510,396 | ) | 587,557 | ||||||||||||||||
| Income taxes | — | 26,861 | 57,630 | 5,872 | (61 | ) | 90,302 | ||||||||||||||||
| Income from continuing operations | 497,255 | 156,988 | 336,808 | 16,539 | (510,335 | ) | 497,255 | ||||||||||||||||
Loss from discontinued operations, net of tax | (323 | ) | (323 | ) | — | — | 323 | (323 | ) | ||||||||||||||
| Net income | $ | 496,932 | $ | 156,665 | $ | 336,808 | $ | 16,539 | $ | (510,012 | ) | $ | 496,932 | ||||||||||
Consolidating Condensed Income Statement
Six Months Ended November 30, 2018
(In thousands)
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Uniform rental and facility services | $ | — | $ | 2,273,247 | $ | 366,039 | $ | 201,513 | $ | (75,083 | ) | $ | 2,765,716 | ||||||||||
| Other | — | 1,013,371 | 93 | 50,250 | (413,187 | ) | 650,527 | ||||||||||||||||
| Equity in net income of affiliates | 455,541 | — | — | — | (455,541 | ) | — | ||||||||||||||||
| Total revenue | 455,541 | 3,286,618 | 366,132 | 251,763 | (943,811 | ) | 3,416,243 | ||||||||||||||||
| Costs and expenses (income): | |||||||||||||||||||||||
Cost of uniform rental and facility services | — | 1,284,600 | 221,105 | 129,329 | (127,462 | ) | 1,507,572 | ||||||||||||||||
| Cost of other | — | 717,097 | (49,162 | ) | 37,461 | (346,595 | ) | 358,801 | |||||||||||||||
| Selling and administrative expenses | — | 1,081,186 | (133,238 | ) | 66,922 | (18,565 | ) | 996,305 | |||||||||||||||
G&K Services, Inc. integration expenses | — | 8,649 | 3,133 | 915 | — | 12,697 | |||||||||||||||||
| Operating income | 455,541 | 195,086 | 324,294 | 17,136 | (451,189 | ) | 540,868 | ||||||||||||||||
Gain on sale of a cost method investment | — | — | 69,373 | — | — | 69,373 | |||||||||||||||||
| Interest income | — | (503 | ) | (365 | ) | (21 | ) | 2 | (887 | ) | |||||||||||||
| Interest expense (income) | — | 49,707 | (535 | ) | 12 | — | 49,184 | ||||||||||||||||
| Income before income taxes | 455,541 | 145,882 | 394,567 | 17,145 | (451,191 | ) | 561,944 | ||||||||||||||||
| Income taxes | — | 29,829 | 71,832 | 4,800 | (58 | ) | 106,403 | ||||||||||||||||
| Income from continuing operations | 455,541 | 116,053 | 322,735 | 12,345 | (451,133 | ) | 455,541 | ||||||||||||||||
Loss from discontinued operations, net of tax | (13 | ) | (13 | ) | — | — | 13 | (13 | ) | ||||||||||||||
| Net income | $ | 455,528 | $ | 116,040 | $ | 322,735 | $ | 12,345 | $ | (451,120 | ) | $ | 455,528 | ||||||||||
Consolidating Condensed Statement of Comprehensive Income
Three Months Ended November 30, 2019
(In thousands)
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Net income | $ | 246,120 | $ | 74,977 | $ | 167,702 | $ | 8,668 | $ | (251,347 | ) | $ | 246,120 | ||||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | 1,413 | — | — | 1,413 | (1,413 | ) | 1,413 | ||||||||||||||||
| Change in fair value of interest rate lock agreements | 22,761 | 22,761 | — | — | (22,761 | ) | 22,761 | ||||||||||||||||
Amortization of interest rate lock agreements | (358 | ) | (358 | ) | — | — | 358 | (358 | ) | ||||||||||||||
| Other comprehensive income | 23,816 | 22,403 | — | 1,413 | (23,816 | ) | 23,816 | ||||||||||||||||
| Comprehensive income | $ | 269,936 | $ | 97,380 | $ | 167,702 | $ | 10,081 | $ | (275,163 | ) | $ | 269,936 | ||||||||||
Consolidating Condensed Statement of Comprehensive Income
Three Months Ended November 30, 2018
(In thousands)
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Net income | $ | 243,013 | $ | 53,428 | $ | 179,702 | $ | 7,335 | $ | (240,465 | ) | $ | 243,013 | ||||||||||
Other comprehensive (loss) income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (10,623 | ) | — | — | (10,623 | ) | 10,623 | (10,623 | ) | ||||||||||||||
Change in fair value of interest rate lock agreements | 4,921 | 4,921 | — | — | (4,921 | ) | 4,921 | ||||||||||||||||
| Amortization of interest rate lock agreements | (294 | ) | (294 | ) | — | — | 294 | (294 | ) | ||||||||||||||
Other comprehensive (loss) income | (5,996 | ) | 4,627 | — | (10,623 | ) | 5,996 | (5,996 | ) | ||||||||||||||
| Comprehensive income (loss) | $ | 237,017 | $ | 58,055 | $ | 179,702 | $ | (3,288 | ) | $ | (234,469 | ) | $ | 237,017 | |||||||||
Consolidating Condensed Statement of Comprehensive Income
Six Months Ended November 30, 2019
(In thousands)
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Net income | $ | 496,932 | $ | 156,665 | $ | 336,808 | $ | 16,539 | $ | (510,012 | ) | $ | 496,932 | ||||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | 8,137 | — | — | 8,137 | (8,137 | ) | 8,137 | ||||||||||||||||
| Change in fair value of interest rate lock agreements | (7,142 | ) | (7,142 | ) | — | — | 7,142 | (7,142 | ) | ||||||||||||||
Amortization of interest rate lock agreements | (653 | ) | (653 | ) | — | — | 653 | (653 | ) | ||||||||||||||
Other comprehensive income (loss) | 342 | (7,795 | ) | — | 8,137 | (342 | ) | 342 | |||||||||||||||
| Comprehensive income | $ | 497,274 | $ | 148,870 | $ | 336,808 | $ | 24,676 | $ | (510,354 | ) | $ | 497,274 | ||||||||||
Consolidating Condensed Statement of Comprehensive Income
Six Months Ended November 30, 2018
(In thousands)
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Net income | $ | 455,528 | $ | 116,040 | $ | 322,735 | $ | 12,345 | $ | (451,120 | ) | $ | 455,528 | ||||||||||
Other comprehensive (loss) income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (13,642 | ) | — | — | (13,642 | ) | 13,642 | (13,642 | ) | ||||||||||||||
Change in fair value of interest rate lock agreements | 1,753 | 1,753 | — | — | (1,753 | ) | 1,753 | ||||||||||||||||
| Amortization of interest rate lock agreements | (589 | ) | (589 | ) | — | — | 589 | (589 | ) | ||||||||||||||
Other comprehensive (loss) income | (12,478 | ) | 1,164 | — | (13,642 | ) | 12,478 | (12,478 | ) | ||||||||||||||
| Comprehensive income (loss) | $ | 443,050 | $ | 117,204 | $ | 322,735 | $ | (1,297 | ) | $ | (438,642 | ) | $ | 443,050 | |||||||||
Consolidating Condensed Balance Sheet
As of November 30, 2019
(In thousands)
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| ASSETS | |||||||||||||||||||||||
| Current assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 50,716 | $ | 127,948 | $ | 47,871 | $ | — | $ | 226,535 | |||||||||||
| Accounts receivable, net | — | 744,116 | 133,546 | 71,460 | — | 949,122 | |||||||||||||||||
| Inventories, net | — | 297,396 | 29,796 | 21,112 | — | 348,304 | |||||||||||||||||
Uniforms and other rental items in service | — | 677,309 | 92,726 | 63,349 | (15,525 | ) | 817,859 | ||||||||||||||||
| Income taxes, current | — | 3,831 | 15,457 | 5,590 | — | 24,878 | |||||||||||||||||
Prepaid expenses and other current assets | — | 85,738 | 35,962 | 1,889 | — | 123,589 | |||||||||||||||||
| Total current assets | — | 1,859,106 | 435,435 | 211,271 | (15,525 | ) | 2,490,287 | ||||||||||||||||
| Property and equipment, net | — | 968,662 | 357,032 | 99,890 | — | 1,425,584 | |||||||||||||||||
Investments (1) | 321,083 | 3,589,691 | 990,871 | 1,697,996 | (6,380,768 | ) | 218,873 | ||||||||||||||||
| Goodwill | — | — | 2,592,194 | 260,719 | (112 | ) | 2,852,801 | ||||||||||||||||
| Service contracts, net | — | 405,201 | — | 64,732 | — | 469,933 | |||||||||||||||||
Operating lease right-of-use assets, net | — | 141,697 | 12,905 | 14,631 | — | 169,233 | |||||||||||||||||
| Other assets, net | 2,318,640 | 233,167 | 5,847,006 | 1,298 | (8,139,485 | ) | 260,626 | ||||||||||||||||
| $ | 2,639,723 | $ | 7,197,524 | $ | 10,235,443 | $ | 2,350,537 | $ | (14,535,890 | ) | $ | 7,887,337 | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||
| Current liabilities: | |||||||||||||||||||||||
| Accounts payable | $ | (465,247 | ) | $ | (1,998,351 | ) | $ | 2,753,017 | $ | (72,014 | ) | $ | 37,206 | $ | 254,611 | ||||||||
Accrued compensation and related liabilities | — | 77,493 | 36,653 | 10,203 | — | 124,349 | |||||||||||||||||
| Accrued liabilities | — | 78,371 | 580,340 | 15,529 | — | 674,240 | |||||||||||||||||
Operating lease liabilities, current | — | 35,402 | 4,533 | 4,328 | — | 44,263 | |||||||||||||||||
| Debt due within one year | — | 199,788 | — | — | — | 199,788 | |||||||||||||||||
| Total current liabilities | (465,247 | ) | (1,607,297 | ) | 3,374,543 | (41,954 | ) | 37,206 | 1,297,251 | ||||||||||||||
| Long-term liabilities: | |||||||||||||||||||||||
| Debt due after one year | — | 2,538,606 | — | — | — | 2,538,606 | |||||||||||||||||
| Deferred income taxes | — | 311,326 | 101,464 | 31,067 | — | 443,857 | |||||||||||||||||
| Operating lease liabilities | — | 110,833 | 9,010 | 10,737 | — | 130,580 | |||||||||||||||||
| Accrued liabilities | — | 132,109 | 223,232 | 16,732 | — | 372,073 | |||||||||||||||||
| Total long-term liabilities | — | 3,092,874 | 333,706 | 58,536 | — | 3,485,116 | |||||||||||||||||
| Total shareholders’ equity | 3,104,970 | 5,711,947 | 6,527,194 | 2,333,955 | (14,573,096 | ) | 3,104,970 | ||||||||||||||||
| $ | 2,639,723 | $ | 7,197,524 | $ | 10,235,443 | $ | 2,350,537 | $ | (14,535,890 | ) | $ | 7,887,337 | |||||||||||
(1) | Investments include inter-company investment activity. Corp 2 and Subsidiary Guarantors hold $20.3 million and $198.6 million, respectively, of the $218.9 millionconsolidated net investments. |
Consolidating Condensed Balance Sheet
As of May 31, 2019
(In thousands)
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| ASSETS | |||||||||||||||||||||||
| Current assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 54,963 | $ | 13,151 | $ | 28,531 | $ | — | $ | 96,645 | |||||||||||
| Accounts receivable, net | — | 719,914 | 121,803 | 68,403 | — | 910,120 | |||||||||||||||||
| Inventories, net | — | 278,666 | 35,081 | 20,842 | — | 334,589 | |||||||||||||||||
Uniforms and other rental items in service | — | 645,862 | 90,458 | 60,061 | (12,248 | ) | 784,133 | ||||||||||||||||
| Income taxes, current | — | (9,728 | ) | 11,722 | 5,481 | — | 7,475 | ||||||||||||||||
Prepaid expenses and other current assets | — | 81,117 | 20,334 | 1,867 | — | 103,318 | |||||||||||||||||
| Total current assets | — | 1,770,794 | 292,549 | 185,185 | (12,248 | ) | 2,236,280 | ||||||||||||||||
| Property and equipment, net | — | 948,830 | 369,006 | 112,849 | — | 1,430,685 | |||||||||||||||||
Investments (1) | 321,083 | 3,589,234 | 964,802 | 1,716,870 | (6,399,643 | ) | 192,346 | ||||||||||||||||
| Goodwill | — | — | 2,586,406 | 256,147 | (112 | ) | 2,842,441 | ||||||||||||||||
| Service contracts, net | — | 427,437 | — | 67,158 | — | 494,595 | |||||||||||||||||
| Other assets, net | 2,216,391 | 211,102 | 5,424,413 | 1,716 | (7,613,307 | ) | 240,315 | ||||||||||||||||
| $ | 2,537,474 | $ | 6,947,397 | $ | 9,637,176 | $ | 2,339,925 | $ | (14,025,310 | ) | $ | 7,436,662 | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||
| Current liabilities: | |||||||||||||||||||||||
| Accounts payable | $ | (465,247 | ) | $ | (2,090,954 | ) | $ | 2,793,558 | $ | (48,769 | ) | $ | 37,432 | $ | 226,020 | ||||||||
Accrued compensation and related liabilities | — | 117,404 | 26,870 | 11,235 | — | 155,509 | |||||||||||||||||
| Accrued liabilities | — | 84,296 | 328,267 | 21,377 | — | 433,940 | |||||||||||||||||
| Debt due within one year | — | 312,264 | — | — | — | 312,264 | |||||||||||||||||
| Total current liabilities | (465,247 | ) | (1,576,990 | ) | 3,148,695 | (16,157 | ) | 37,432 | 1,127,733 | ||||||||||||||
| Long-term liabilities: | |||||||||||||||||||||||
| Debt due after one year | — | 2,537,507 | — | — | — | 2,537,507 | |||||||||||||||||
| Deferred income taxes | — | 307,334 | 100,162 | 30,683 | — | 438,179 | |||||||||||||||||
| Accrued liabilities | — | 116,469 | 197,934 | 16,119 | — | 330,522 | |||||||||||||||||
| Total long-term liabilities | — | 2,961,310 | 298,096 | 46,802 | — | 3,306,208 | |||||||||||||||||
| Total shareholders’ equity | 3,002,721 | 5,563,077 | 6,190,385 | 2,309,280 | (14,062,742 | ) | 3,002,721 | ||||||||||||||||
| $ | 2,537,474 | $ | 6,947,397 | $ | 9,637,176 | $ | 2,339,925 | $ | (14,025,310 | ) | $ | 7,436,662 | |||||||||||
(1) | Investments include inter-company investment activity. Corp 2 and Subsidiary Guarantors hold $19.8 million and $172.5 million, respectively, of the $192.3 million consolidated net investments. |
Consolidating Condensed Statement of Cash Flows
Six Months Ended November 30, 2019
(In thousands)
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||
| Net income | $ | 496,932 | $ | 156,665 | $ | 336,808 | $ | 16,539 | $ | (510,012 | ) | $ | 496,932 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||||||||||||||
| Depreciation | — | 75,691 | 32,499 | 7,177 | — | 115,367 | |||||||||||||||||
Amortization of intangible assets and capitalized contract costs | — | 64,325 | 2,559 | 4,079 | — | 70,963 | |||||||||||||||||
| Stock-based compensation | 69,398 | — | — | — | — | 69,398 | |||||||||||||||||
| Deferred income taxes | — | 6,490 | 1,309 | (167 | ) | — | 7,632 | ||||||||||||||||
| Changes in current assets and liabilities, net of acquisitions of businesses: | |||||||||||||||||||||||
| Accounts receivable, net | — | (24,190 | ) | (11,743 | ) | (2,007 | ) | — | (37,940 | ) | |||||||||||||
| Inventories, net | — | (18,709 | ) | 6,042 | (735 | ) | — | (13,402 | ) | ||||||||||||||
Uniforms and other rental items in service | — | (31,448 | ) | (2,268 | ) | (2,305 | ) | 3,277 | (32,744 | ) | |||||||||||||
Prepaid expenses and other current assets and capitalized contract costs | — | (52,765 | ) | (15,629 | ) | (15 | ) | — | (68,409 | ) | |||||||||||||
| Accounts payable | — | 92,602 | (65,280 | ) | 959 | (226 | ) | 28,055 | |||||||||||||||
| Accrued compensation and related liabilities | — | (39,911 | ) | 9,298 | 1,287 | — | (29,326 | ) | |||||||||||||||
| Accrued liabilities and other | — | 3,820 | (18,688 | ) | (3,015 | ) | — | (17,883 | ) | ||||||||||||||
| Income taxes, current | — | (13,559 | ) | (3,732 | ) | (1 | ) | — | (17,292 | ) | |||||||||||||
| Net cash provided by operating activities | 566,330 | 219,011 | 271,175 | 21,796 | (506,961 | ) | 571,351 | ||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||
| Capital expenditures | — | (95,361 | ) | (20,584 | ) | (10,222 | ) | — | (126,167 | ) | |||||||||||||
| Purchases of investments | — | (457 | ) | (9,664 | ) | — | — | (10,121 | ) | ||||||||||||||
| Proceeds from sale of assets | — | — | — | 13,300 | — | 13,300 | |||||||||||||||||
| Acquisitions of businesses, net of cash acquired | — | (6,582 | ) | — | — | — | (6,582 | ) | |||||||||||||||
| Other, net | (370,790 | ) | (6,406 | ) | (126,130 | ) | (5,738 | ) | 506,961 | (2,103 | ) | ||||||||||||
| Net cash used in investing activities | (370,790 | ) | (108,806 | ) | (156,378 | ) | (2,660 | ) | 506,961 | (131,673 | ) | ||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||
| Payments of commercial paper, net | — | (112,500 | ) | — | — | — | (112,500 | ) | |||||||||||||||
| Proceeds from exercise of stock-based compensation awards | 63,201 | — | — | — | — | 63,201 | |||||||||||||||||
| Repurchase of common stock | (258,741 | ) | — | — | — | — | (258,741 | ) | |||||||||||||||
| Other, net | — | (1,952 | ) | — | — | — | (1,952 | ) | |||||||||||||||
| Net cash used in financing activities | (195,540 | ) | (114,452 | ) | — | — | — | (309,992 | ) | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | — | 204 | — | 204 | |||||||||||||||||
Net (decrease) increase in cash and cash equivalents | — | (4,247 | ) | 114,797 | 19,340 | — | 129,890 | ||||||||||||||||
| Cash and cash equivalents at beginning of period | — | 54,963 | 13,151 | 28,531 | — | 96,645 | |||||||||||||||||
| Cash and cash equivalents at end of period | $ | — | $ | 50,716 | $ | 127,948 | $ | 47,871 | $ | — | $ | 226,535 | |||||||||||
Consolidating Condensed Statement of Cash Flows
Six Months Ended November 30, 2018
(In thousands)
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||
| Net income | $ | 455,528 | $ | 116,040 | $ | 322,735 | $ | 12,345 | $ | (451,120 | ) | $ | 455,528 | ||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||||||||||||||
| Depreciation | — | 68,929 | 31,274 | 6,909 | — | 107,112 | |||||||||||||||||
Amortization of intangible assets and capitalized contract costs | — | 61,044 | 2,339 | 4,176 | — | 67,559 | |||||||||||||||||
| Stock-based compensation | 74,784 | — | — | — | — | 74,784 | |||||||||||||||||
| Gain on sale of a cost method investment | — | — | (69,373 | ) | — | — | (69,373 | ) | |||||||||||||||
| Deferred income taxes | — | 10,865 | 5,519 | 2,843 | — | 19,227 | |||||||||||||||||
| Changes in current assets and liabilities, net of acquisitions of businesses: | |||||||||||||||||||||||
| Accounts receivable, net | — | (52,953 | ) | (20,151 | ) | (10,183 | ) | (2,461 | ) | (85,748 | ) | ||||||||||||
| Inventories, net | — | (52,989 | ) | 3,546 | (2,153 | ) | (1,631 | ) | (53,227 | ) | |||||||||||||
| Uniforms and other rental items in service | — | (39,481 | ) | (11,051 | ) | (7,152 | ) | — | (57,684 | ) | |||||||||||||
Prepaid expenses and other current assets and capitalized contract costs | — | (52,392 | ) | (5,570 | ) | (199 | ) | — | (58,161 | ) | |||||||||||||
| Accounts payable | — | (98,465 | ) | 90,324 | 6,502 | (316 | ) | (1,955 | ) | ||||||||||||||
Accrued compensation and related liabilities | — | (16,186 | ) | (6,468 | ) | 1,685 | — | (20,969 | ) | ||||||||||||||
| Accrued liabilities and other | — | (1,908 | ) | (9,983 | ) | (3,431 | ) | — | (15,322 | ) | |||||||||||||
| Income taxes, current | — | (5,329 | ) | (7,109 | ) | (4,766 | ) | — | (17,204 | ) | |||||||||||||
Net cash provided by (used in) operating activities | 530,312 | (62,825 | ) | 326,032 | 6,576 | (455,528 | ) | 344,567 | |||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||
| Capital expenditures | — | (92,461 | ) | (37,357 | ) | (7,796 | ) | — | (137,614 | ) | |||||||||||||
| Purchases of investments | — | (466 | ) | (13,605 | ) | — | — | (14,071 | ) | ||||||||||||||
Proceeds from sale of a cost method investment | — | — | 73,342 | — | — | 73,342 | |||||||||||||||||
| Acquisitions of businesses, net of cash acquired | — | (6,580 | ) | — | — | — | (6,580 | ) | |||||||||||||||
| Other, net | (54,795 | ) | (2,534 | ) | (398,963 | ) | (953 | ) | 455,528 | (1,717 | ) | ||||||||||||
| Net cash used in investing activities | (54,795 | ) | (102,041 | ) | (376,583 | ) | (8,749 | ) | 455,528 | (86,640 | ) | ||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||
| Issuance of commercial paper, net | — | 173,500 | — | — | — | 173,500 | |||||||||||||||||
| Proceeds from exercise of stock-based compensation awards | 32,612 | — | — | — | — | 32,612 | |||||||||||||||||
| Repurchase of common stock | (508,129 | ) | — | — | — | — | (508,129 | ) | |||||||||||||||
| Other, net | — | (5,362 | ) | — | — | — | (5,362 | ) | |||||||||||||||
| Net cash (used in) provided by financing activities | (475,517 | ) | 168,138 | — | — | — | (307,379 | ) | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | — | (793 | ) | — | (793 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | — | 3,272 | (50,551 | ) | (2,966 | ) | — | (50,245 | ) | ||||||||||||||
| Cash and cash equivalents at beginning of period | — | 44,499 | 60,310 | 33,915 | — | 138,724 | |||||||||||||||||
| Cash and cash equivalents at end of period | $ | — | $ | 47,771 | $ | 9,759 | $ | 30,949 | $ | — | $ | 88,479 | |||||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Business Strategy
Cintas helps more than one million businesses of all types and sizes, primarily in North America, as well as Latin America, Europe and Asia, get Ready™ to open their doors with confidence every day by providing a wide range of products and services that enhance our customers’ image and help keep their facilities and employees clean, safe and looking their best. With products and services including uniforms, mats, mops, restroom supplies, first aid and safety products, fire extinguishers and testing, and training and compliance courses, Cintas helps customers get Ready for the Workday™.
We are North America’s leading provider of corporate identity uniforms through rental and sales programs, as well as a significant provider of related business services, including entrance mats, restroom cleaning services and supplies, carpet and tile cleaning services, first aid and safety services and fire protection products and services.
Cintas’ principal objective is “to exceed customers’ expectations in order to maximize the long-term value of Cintas for shareholders and working partners,” and it provides the framework and focus for Cintas’ business strategy. This strategy is to achieve revenue growth for all our products and services by increasing our penetration at existing customers and by broadening our customer base to include business segments to which we have not historically served. We will also continue to identify additional product and service opportunities for our current and future customers.
To pursue the strategy of increasing penetration, we have a highly talented and diverse team of service professionals visiting our customers on a regular basis. This frequent contact with our customers enables us to develop close personal relationships. The combination of our distribution system and these strong customer relationships provides a platform from which we launch additional products and services.
We pursue the strategy of broadening our customer base in several ways. Cintas has a national sales organization introducing all its products and services to prospects in all business segments. Our broad range of products and services allows our sales organization to consider any type of business a prospect. We also broaden our customer base through geographic expansion, especially in our fire protection businesses. Finally, we evaluate strategic acquisitions as opportunities arise.
Results of Operations
Cintas classifies its business into two reportable operating segments and places the remainder of its operating segments in an All Other category. Cintas’ two reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and Facility Services reportable operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies, carpet and tile cleaning services and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. The First Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’ business, which consists of Fire Protection Services and its Uniform Direct Sale business, is included in All Other.
| (In thousands) | Uniform Rental and Facility Services | First Aid and Safety Services | All Other | Corporate (1) | Total | ||||||||||||||
| For the three months ended November 30, 2018 | |||||||||||||||||||
| Revenue | $ | 1,390,778 | $ | 153,348 | $ | 174,142 | $ | — | $ | 1,718,268 | |||||||||
| Income before income taxes | $ | 242,891 | $ | 21,328 | $ | 11,421 | $ | 44,884 | $ | 320,524 | |||||||||
| For the three months ended November 30, 2017 | |||||||||||||||||||
| Revenue | $ | 1,308,038 | $ | 139,090 | $ | 159,313 | $ | — | $ | 1,606,441 | |||||||||
| Income (loss) before income taxes | $ | 203,814 | $ | 17,975 | $ | 13,422 | $ | (28,838 | ) | $ | 206,373 | ||||||||
| As of and for the six months ended November 30, 2018 | |||||||||||||||||||
| Revenue | $ | 2,765,716 | $ | 306,765 | $ | 343,762 | $ | — | $ | 3,416,243 | |||||||||
| Income before income taxes | $ | 474,425 | $ | 43,311 | $ | 23,132 | $ | 21,076 | $ | 561,944 | |||||||||
| Total assets | $ | 6,438,400 | $ | 495,054 | $ | 383,150 | $ | 88,479 | $ | 7,405,083 | |||||||||
| As of and for the six months ended November 30, 2017 | |||||||||||||||||||
| Revenue | $ | 2,619,822 | $ | 279,672 | $ | 318,450 | $ | — | $ | 3,217,944 | |||||||||
| Income (loss) before income taxes | $ | 422,724 | $ | 37,386 | $ | 24,200 | $ | (58,858 | ) | $ | 425,452 | ||||||||
| Total assets | $ | 5,899,010 | $ | 467,902 | $ | 353,155 | $ | 258,734 | $ | 6,978,801 | |||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||
| (In thousands) | November 30, 2018 | November 30, 2017 | November 30, 2018 | November 30, 2017 | |||||||||||
| Revenue | $ | — | $ | — | $ | — | $ | 10,773 | |||||||
| Income (loss) before income taxes | 25 | (43 | ) | (17 | ) | (2,482 | ) | ||||||||
| Income tax (expense) benefit | (6 | ) | 18 | 4 | 920 | ||||||||||
| (Loss) gain on sale of business | — | (1,209 | ) | — | 99,060 | ||||||||||
| Income tax benefit (expense) on net gain | — | 606 | — | (42,023 | ) | ||||||||||
Net income (loss) from discontinued operations | $ | 19 | $ | (628 | ) | $ | (13 | ) | $ | 55,475 | |||||
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Uniform rental and facility services | $ | — | $ | 1,134,118 | $ | 182,876 | $ | 101,830 | $ | (28,046 | ) | $ | 1,390,778 | ||||||||||
| Other | — | 522,081 | 50 | 25,918 | (220,559 | ) | 327,490 | ||||||||||||||||
| Equity in net income of affiliates | 242,994 | — | — | — | (242,994 | ) | — | ||||||||||||||||
| Total revenue | 242,994 | 1,656,199 | 182,926 | 127,748 | (491,599 | ) | 1,718,268 | ||||||||||||||||
| Costs and expenses (income): | |||||||||||||||||||||||
| Cost of uniform rental and facility services | — | 640,859 | 111,555 | 65,316 | (56,611 | ) | 761,119 | ||||||||||||||||
| Cost of other | — | 375,764 | (27,133 | ) | 19,319 | (185,959 | ) | 181,991 | |||||||||||||||
| Selling and administrative expenses | — | 536,276 | (68,617 | ) | 32,559 | (8,547 | ) | 491,671 | |||||||||||||||
G&K Services, Inc. integration expenses | — | 5,973 | 1,270 | 604 | — | 7,847 | |||||||||||||||||
| Operating income | 242,994 | 97,327 | 165,851 | 9,950 | (240,482 | ) | 275,640 | ||||||||||||||||
Gain on sale of a cost method investment | — | — | 69,373 | — | — | 69,373 | |||||||||||||||||
| Interest income | — | (294 | ) | (93 | ) | (5 | ) | 1 | (391 | ) | |||||||||||||
| Interest expense (income) | — | 25,046 | (173 | ) | 7 | — | 24,880 | ||||||||||||||||
| Income before income taxes | 242,994 | 72,575 | 235,490 | 9,948 | (240,483 | ) | 320,524 | ||||||||||||||||
| Income taxes | — | 19,166 | 55,788 | 2,613 | (37 | ) | 77,530 | ||||||||||||||||
| Income from continuing operations | 242,994 | 53,409 | 179,702 | 7,335 | (240,446 | ) | 242,994 | ||||||||||||||||
Income from discontinued operations, net of tax | 19 | 19 | — | — | (19 | ) | 19 | ||||||||||||||||
| Net income | $ | 243,013 | $ | 53,428 | $ | 179,702 | $ | 7,335 | $ | (240,465 | ) | $ | 243,013 | ||||||||||
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Uniform rental and facility services | $ | — | $ | 1,086,667 | $ | 170,320 | $ | 100,933 | $ | (49,882 | ) | $ | 1,308,038 | ||||||||||
| Other | — | 435,539 | (313 | ) | 21,982 | (158,805 | ) | 298,403 | |||||||||||||||
| Equity in net income of affiliates | 137,737 | — | — | — | (137,737 | ) | — | ||||||||||||||||
| Total revenue | 137,737 | 1,522,206 | 170,007 | 122,915 | (346,424 | ) | 1,606,441 | ||||||||||||||||
| Costs and expenses (income): | |||||||||||||||||||||||
Cost of uniform rental and facility services | — | 628,123 | 105,954 | 65,220 | (75,337 | ) | 723,960 | ||||||||||||||||
| Cost of other | — | 302,065 | (25,046 | ) | 15,438 | (126,345 | ) | 166,112 | |||||||||||||||
| Selling and administrative expenses | — | 528,369 | (85,417 | ) | 31,211 | (6,079 | ) | 468,084 | |||||||||||||||
G&K Services, Inc. integration expenses | — | 4,192 | 8,319 | 563 | — | 13,074 | |||||||||||||||||
| Operating income | 137,737 | 59,457 | 166,197 | 10,483 | (138,663 | ) | 235,211 | ||||||||||||||||
| Interest income | — | (45 | ) | (59 | ) | (187 | ) | — | (291 | ) | |||||||||||||
| Interest expense (income) | — | 29,444 | (313 | ) | (2 | ) | — | 29,129 | |||||||||||||||
| Income before income taxes | 137,737 | 30,058 | 166,569 | 10,672 | (138,663 | ) | 206,373 | ||||||||||||||||
| Income taxes | — | 11,449 | 54,414 | 2,798 | (25 | ) | 68,636 | ||||||||||||||||
| Income from continuing operations | 137,737 | 18,609 | 112,155 | 7,874 | (138,638 | ) | 137,737 | ||||||||||||||||
Loss from discontinued operations, net of tax | (628 | ) | (628 | ) | — | — | 628 | (628 | ) | ||||||||||||||
| Net income | $ | 137,109 | $ | 17,981 | $ | 112,155 | $ | 7,874 | $ | (138,010 | ) | $ | 137,109 | ||||||||||
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Uniform rental and facility services | $ | — | $ | 2,273,247 | $ | 366,039 | $ | 201,513 | $ | (75,083 | ) | $ | 2,765,716 | ||||||||||
| Other | — | 1,013,371 | 93 | 50,250 | (413,187 | ) | 650,527 | ||||||||||||||||
| Equity in net income of affiliates | 455,541 | — | — | — | (455,541 | ) | — | ||||||||||||||||
| Total revenue | 455,541 | 3,286,618 | 366,132 | 251,763 | (943,811 | ) | 3,416,243 | ||||||||||||||||
| Costs and expenses (income): | |||||||||||||||||||||||
| Cost of uniform rental and facility services | — | 1,284,600 | 221,105 | 129,329 | (127,462 | ) | 1,507,572 | ||||||||||||||||
| Cost of other | — | 717,097 | (49,162 | ) | 37,461 | (346,595 | ) | 358,801 | |||||||||||||||
| Selling and administrative expenses | — | 1,081,186 | (133,238 | ) | 66,922 | (18,565 | ) | 996,305 | |||||||||||||||
G&K Services, Inc. integration expenses | — | 8,649 | 3,133 | 915 | — | 12,697 | |||||||||||||||||
| Operating income | 455,541 | 195,086 | 324,294 | 17,136 | (451,189 | ) | 540,868 | ||||||||||||||||
Gain on sale of a cost method investment | — | — | 69,373 | — | — | 69,373 | |||||||||||||||||
| Interest income | — | (503 | ) | (365 | ) | (21 | ) | 2 | (887 | ) | |||||||||||||
| Interest expense (income) | — | 49,707 | (535 | ) | 12 | — | 49,184 | ||||||||||||||||
| Income before income taxes | 455,541 | 145,882 | 394,567 | 17,145 | (451,191 | ) | 561,944 | ||||||||||||||||
| Income taxes | — | 29,829 | 71,832 | 4,800 | (58 | ) | 106,403 | ||||||||||||||||
| Income from continuing operations | 455,541 | 116,053 | 322,735 | 12,345 | (451,133 | ) | 455,541 | ||||||||||||||||
Loss from discontinued operations, net of tax | (13 | ) | (13 | ) | — | — | 13 | (13 | ) | ||||||||||||||
| Net income | $ | 455,528 | $ | 116,040 | $ | 322,735 | $ | 12,345 | $ | (451,120 | ) | $ | 455,528 | ||||||||||
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Uniform rental and facility services | $ | — | $ | 2,186,536 | $ | 335,215 | $ | 197,528 | $ | (99,457 | ) | $ | 2,619,822 | ||||||||||
| Other | — | 862,841 | (6 | ) | 42,290 | (307,003 | ) | 598,122 | |||||||||||||||
| Equity in net income of affiliates | 298,845 | — | — | — | (298,845 | ) | — | ||||||||||||||||
| Total revenue | 298,845 | 3,049,377 | 335,209 | 239,818 | (705,305 | ) | 3,217,944 | ||||||||||||||||
| Costs and expenses (income): | |||||||||||||||||||||||
| Cost of uniform rental and facility services | — | 1,250,271 | 204,973 | 125,737 | (150,158 | ) | 1,430,823 | ||||||||||||||||
| Cost of other | — | 590,984 | (44,715 | ) | 30,173 | (245,043 | ) | 331,399 | |||||||||||||||
| Selling and administrative expenses | — | 1,039,324 | (132,955 | ) | 61,117 | (13,119 | ) | 954,367 | |||||||||||||||
G&K Services, Inc. integration expenses | — | 5,713 | 10,754 | 578 | — | 17,045 | |||||||||||||||||
| Operating income | 298,845 | 163,085 | 297,152 | 22,213 | (296,985 | ) | 484,310 | ||||||||||||||||
| Interest income | — | (76 | ) | (158 | ) | (354 | ) | — | (588 | ) | |||||||||||||
| Interest expense (income) | — | 60,005 | (452 | ) | (107 | ) | — | 59,446 | |||||||||||||||
| Income before income taxes | 298,845 | 103,156 | 297,762 | 22,674 | (296,985 | ) | 425,452 | ||||||||||||||||
| Income taxes | — | 31,019 | 89,537 | 6,095 | (44 | ) | 126,607 | ||||||||||||||||
| Income from continuing operations | 298,845 | 72,137 | 208,225 | 16,579 | (296,941 | ) | 298,845 | ||||||||||||||||
Income (loss) from discontinued operations, net of tax | 55,475 | 64,374 | (8,899 | ) | — | (55,475 | ) | 55,475 | |||||||||||||||
| Net income | $ | 354,320 | $ | 136,511 | $ | 199,326 | $ | 16,579 | $ | (352,416 | ) | $ | 354,320 | ||||||||||
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Net income | $ | 243,013 | $ | 53,428 | $ | 179,702 | $ | 7,335 | $ | (240,465 | ) | $ | 243,013 | ||||||||||
Other comprehensive (loss) income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (10,623 | ) | — | — | (10,623 | ) | 10,623 | (10,623 | ) | ||||||||||||||
| Change in fair value of interest rate lock agreements | 4,921 | 4,921 | — | (4,921 | ) | 4,921 | |||||||||||||||||
Amortization of interest rate lock agreements | (294 | ) | (294 | ) | — | — | 294 | (294 | ) | ||||||||||||||
Other comprehensive (loss) income | (5,996 | ) | 4,627 | — | (10,623 | ) | 5,996 | (5,996 | ) | ||||||||||||||
| Comprehensive income (loss) | $ | 237,017 | $ | 58,055 | $ | 179,702 | $ | (3,288 | ) | $ | (234,469 | ) | $ | 237,017 | |||||||||
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Net income | $ | 137,109 | $ | 17,981 | $ | 112,155 | $ | 7,874 | $ | (138,010 | ) | $ | 137,109 | ||||||||||
Other comprehensive loss, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (11,374 | ) | — | — | (11,374 | ) | 11,374 | (11,374 | ) | ||||||||||||||
| Amortization of interest rate lock agreements | (172 | ) | (172 | ) | — | — | 172 | (172 | ) | ||||||||||||||
| Change in fair value of available-for-sale securities | (20 | ) | — | — | (20 | ) | 20 | (20 | ) | ||||||||||||||
| Other comprehensive loss | (11,566 | ) | (172 | ) | — | (11,394 | ) | 11,566 | (11,566 | ) | |||||||||||||
| Comprehensive income (loss) | $ | 125,543 | $ | 17,809 | $ | 112,155 | $ | (3,520 | ) | $ | (126,444 | ) | $ | 125,543 | |||||||||
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Net income | $ | 455,528 | $ | 116,040 | $ | 322,735 | $ | 12,345 | $ | (451,120 | ) | $ | 455,528 | ||||||||||
Other comprehensive (loss) income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (13,642 | ) | — | — | (13,642 | ) | 13,642 | (13,642 | ) | ||||||||||||||
| Change in fair value of interest rate lock agreements | 1,753 | 1,753 | — | — | (1,753 | ) | 1,753 | ||||||||||||||||
Amortization of interest rate lock agreements | (589 | ) | (589 | ) | — | — | 589 | (589 | ) | ||||||||||||||
Other comprehensive (loss) income | (12,478 | ) | 1,164 | — | (13,642 | ) | 12,478 | (12,478 | ) | ||||||||||||||
| Comprehensive income (loss) | $ | 443,050 | $ | 117,204 | $ | 322,735 | $ | (1,297 | ) | $ | (438,642 | ) | $ | 443,050 | |||||||||
| Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Net income | $ | 354,320 | $ | 136,511 | $ | 199,326 | $ | 16,579 | $ | (352,416 | ) | $ | 354,320 | ||||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | 23,810 | — | — | 23,810 | (23,810 | ) | 23,810 | ||||||||||||||||
Amortization of interest rate lock agreements | (344 | ) | (344 | ) | — | — | 344 | (344 | ) | ||||||||||||||
Other comprehensive income (loss) | 23,466 | (344 | ) | — | 23,810 | (23,466 | ) | 23,466 | |||||||||||||||
| Comprehensive income | $ | 377,786 | $ | 136,167 | $ | 199,326 | $ | 40,389 | $ | (375,882 | ) | $ | 377,786 | ||||||||||
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| ASSETS | |||||||||||||||||||||||
| Current assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 47,771 | $ | 9,759 | $ | 30,949 | $ | — | $ | 88,479 | |||||||||||
| Accounts receivable, net | — | 689,606 | 143,378 | 71,078 | — | 904,062 | |||||||||||||||||
| Inventories, net | — | 267,335 | 34,467 | 17,611 | 2,461 | 321,874 | |||||||||||||||||
Uniforms and other rental items in service | — | 624,589 | 90,914 | 59,701 | (16,958 | ) | 758,246 | ||||||||||||||||
| Income taxes, current | — | 10,875 | 16,362 | 9,358 | — | 36,595 | |||||||||||||||||
Prepaid expenses and other current assets | — | 75,840 | 29,394 | 1,380 | — | 106,614 | |||||||||||||||||
| Total current assets | — | 1,716,016 | 324,274 | 190,077 | (14,497 | ) | 2,215,870 | ||||||||||||||||
| Property and equipment, net | — | 923,931 | 376,274 | 110,325 | — | 1,410,530 | |||||||||||||||||
Investments (1) | 321,083 | 3,596,134 | 957,740 | 1,718,070 | (6,409,479 | ) | 183,548 | ||||||||||||||||
| Goodwill | — | — | 2,584,875 | 260,481 | (112 | ) | 2,845,244 | ||||||||||||||||
| Service contracts, net | — | 449,590 | — | 71,915 | — | 521,505 | |||||||||||||||||
| Other assets, net | 2,240,914 | 203,378 | 4,783,008 | 2,143 | (7,001,057 | ) | 228,386 | ||||||||||||||||
| $ | 2,561,997 | $ | 6,889,049 | $ | 9,026,171 | $ | 2,353,011 | $ | (13,425,145 | ) | $ | 7,405,083 | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||
| Current liabilities: | |||||||||||||||||||||||
| Accounts payable | $ | (465,247 | ) | $ | (1,828,417 | ) | $ | 2,495,759 | $ | (27,826 | ) | $ | 37,631 | $ | 211,900 | ||||||||
Accrued compensation and related liabilities | — | 88,374 | 18,410 | 10,861 | — | 117,645 | |||||||||||||||||
| Accrued liabilities | — | 87,221 | 504,186 | 20,234 | — | 611,641 | |||||||||||||||||
| Debt due within one year | — | 173,500 | — | — | — | 173,500 | |||||||||||||||||
| Total current liabilities | (465,247 | ) | (1,479,322 | ) | 3,018,355 | 3,269 | 37,631 | 1,114,686 | |||||||||||||||
| Long-term liabilities: | |||||||||||||||||||||||
| Debt due after one year | — | 2,536,018 | — | 390 | — | 2,536,408 | |||||||||||||||||
| Deferred income taxes | — | 291,233 | 110,089 | 34,139 | — | 435,461 | |||||||||||||||||
| Accrued liabilities | — | 61,597 | 213,289 | 16,398 | — | 291,284 | |||||||||||||||||
| Total long-term liabilities | — | 2,888,848 | 323,378 | 50,927 | — | 3,263,153 | |||||||||||||||||
| Total shareholders’ equity | 3,027,244 | 5,479,523 | 5,684,438 | 2,298,815 | (13,462,776 | ) | 3,027,244 | ||||||||||||||||
| $ | 2,561,997 | $ | 6,889,049 | $ | 9,026,171 | $ | 2,353,011 | $ | (13,425,145 | ) | $ | 7,405,083 | |||||||||||
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| ASSETS | |||||||||||||||||||||||
| Current assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 44,499 | $ | 60,310 | $ | 33,915 | $ | — | $ | 138,724 | |||||||||||
| Accounts receivable, net | — | 620,920 | 120,767 | 62,896 | — | 804,583 | |||||||||||||||||
| Inventories, net | — | 225,581 | 38,844 | 15,922 | — | 280,347 | |||||||||||||||||
Uniforms and other rental items in service | — | 585,108 | 81,494 | 54,248 | (18,589 | ) | 702,261 | ||||||||||||||||
| Income taxes, current | — | 5,546 | 9,258 | 4,830 | — | 19,634 | |||||||||||||||||
Prepaid expenses and other current assets | — | 9,453 | 21,688 | 1,242 | — | 32,383 | |||||||||||||||||
| Total current assets | — | 1,491,107 | 332,361 | 173,053 | (18,589 | ) | 1,977,932 | ||||||||||||||||
| Property and equipment, net | — | 900,014 | 370,186 | 112,530 | — | 1,382,730 | |||||||||||||||||
Investments (1) | 321,083 | 3,595,668 | 950,239 | 1,716,070 | (6,407,479 | ) | 175,581 | ||||||||||||||||
| Goodwill | — | — | 2,579,769 | 267,231 | (112 | ) | 2,846,888 | ||||||||||||||||
| Service contracts, net | — | 468,283 | — | 77,485 | — | 545,768 | |||||||||||||||||
| Other assets, net | 2,230,196 | 593 | 4,381,476 | 8,656 | (6,591,606 | ) | 29,315 | ||||||||||||||||
| $ | 2,551,279 | $ | 6,455,665 | $ | 8,614,031 | $ | 2,355,025 | $ | (13,017,786 | ) | $ | 6,958,214 | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||
| Current liabilities: | |||||||||||||||||||||||
| Accounts payable | $ | (465,247 | ) | $ | (1,724,844 | ) | $ | 2,395,434 | $ | (28,216 | ) | $ | 37,947 | $ | 215,074 | ||||||||
Accrued compensation and related liabilities | — | 104,560 | 24,878 | 11,216 | — | 140,654 | |||||||||||||||||
| Accrued liabilities | — | 88,949 | 308,485 | 22,695 | — | 420,129 | |||||||||||||||||
| Total current liabilities | (465,247 | ) | (1,531,335 | ) | 2,728,797 | 5,695 | 37,947 | 775,857 | |||||||||||||||
| Long-term liabilities: | |||||||||||||||||||||||
| Debt due after one year | — | 2,534,919 | — | 390 | — | 2,535,309 | |||||||||||||||||
| Deferred income taxes | — | 215,881 | 104,559 | 32,141 | — | 352,581 | |||||||||||||||||
| Accrued liabilities | — | 63,073 | 198,181 | 16,687 | — | 277,941 | |||||||||||||||||
| Total long-term liabilities | — | 2,813,873 | 302,740 | 49,218 | — | 3,165,831 | |||||||||||||||||
| Total shareholders’ equity | 3,016,526 | 5,173,127 | 5,582,494 | 2,300,112 | (13,055,733 | ) | 3,016,526 | ||||||||||||||||
| $ | 2,551,279 | $ | 6,455,665 | $ | 8,614,031 | $ | 2,355,025 | $ | (13,017,786 | ) | $ | 6,958,214 | |||||||||||
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||
| Net income | $ | 455,528 | $ | 116,040 | $ | 322,735 | $ | 12,345 | $ | (451,120 | ) | $ | 455,528 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||||||||||||||
| Depreciation | — | 68,929 | 31,274 | 6,909 | — | 107,112 | |||||||||||||||||
Amortization of intangible assets and capitalized contract costs | — | 61,044 | 2,339 | 4,176 | — | 67,559 | |||||||||||||||||
| Stock-based compensation | 74,784 | — | — | — | — | 74,784 | |||||||||||||||||
| Gain on sale of a cost method investment | — | — | (69,373 | ) | — | — | (69,373 | ) | |||||||||||||||
| Deferred income taxes | — | 10,865 | 5,519 | 2,843 | — | 19,227 | |||||||||||||||||
| Changes in current assets and liabilities, net of acquisitions of businesses: | |||||||||||||||||||||||
| Accounts receivable, net | — | (52,953 | ) | (20,151 | ) | (10,183 | ) | (2,461 | ) | (85,748 | ) | ||||||||||||
| Inventories, net | — | (52,989 | ) | 3,546 | (2,153 | ) | (1,631 | ) | (53,227 | ) | |||||||||||||
Uniforms and other rental items in service | — | (39,481 | ) | (11,051 | ) | (7,152 | ) | — | (57,684 | ) | |||||||||||||
Prepaid expenses and other current assets and capitalized contract costs | — | (52,392 | ) | (5,570 | ) | (199 | ) | — | (58,161 | ) | |||||||||||||
| Accounts payable | — | (98,465 | ) | 90,324 | 6,502 | (316 | ) | (1,955 | ) | ||||||||||||||
| Accrued compensation and related liabilities | — | (16,186 | ) | (6,468 | ) | 1,685 | — | (20,969 | ) | ||||||||||||||
| Accrued liabilities and other | — | (1,908 | ) | (9,983 | ) | (3,431 | ) | — | (15,322 | ) | |||||||||||||
| Income taxes, current | — | (5,329 | ) | (7,109 | ) | (4,766 | ) | — | (17,204 | ) | |||||||||||||
| Net cash provided by (used in) operating activities | 530,312 | (62,825 | ) | 326,032 | 6,576 | (455,528 | ) | 344,567 | |||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||
| Capital expenditures | — | (92,461 | ) | (37,357 | ) | (7,796 | ) | — | (137,614 | ) | |||||||||||||
| Purchase of marketable securities and investments | — | (466 | ) | (13,605 | ) | — | — | (14,071 | ) | ||||||||||||||
Proceeds from sale of a cost method investment | — | — | 73,342 | — | — | 73,342 | |||||||||||||||||
| Acquisitions of businesses | — | (6,580 | ) | — | — | — | (6,580 | ) | |||||||||||||||
| Other, net | (54,795 | ) | (2,534 | ) | (398,963 | ) | (953 | ) | 455,528 | (1,717 | ) | ||||||||||||
| Net cash used in investing activities | (54,795 | ) | (102,041 | ) | (376,583 | ) | (8,749 | ) | 455,528 | (86,640 | ) | ||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||
| Issuance of commercial paper, net | — | 173,500 | — | — | — | 173,500 | |||||||||||||||||
| Proceeds from exercise of stock-based compensation awards | 32,612 | — | — | — | — | 32,612 | |||||||||||||||||
| Repurchase of common stock | (508,129 | ) | — | — | — | — | (508,129 | ) | |||||||||||||||
| Other, net | — | (5,362 | ) | — | — | — | (5,362 | ) | |||||||||||||||
| Net cash (used in) provided by financing activities | (475,517 | ) | 168,138 | — | — | — | (307,379 | ) | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | — | (793 | ) | — | (793 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | — | 3,272 | (50,551 | ) | (2,966 | ) | — | (50,245 | ) | ||||||||||||||
| Cash and cash equivalents at beginning of period | — | 44,499 | 60,310 | 33,915 | — | 138,724 | |||||||||||||||||
| Cash and cash equivalents at end of period | $ | — | $ | 47,771 | $ | 9,759 | $ | 30,949 | $ | — | $ | 88,479 | |||||||||||
Cintas Corporation | Corp. 2 | Subsidiary Guarantors | Non- Guarantors | Eliminations | Cintas Corporation Consolidated | ||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||
| Net income | $ | 354,320 | $ | 136,511 | $ | 199,326 | $ | 16,579 | $ | (352,416 | ) | $ | 354,320 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||||||||||||||
| Depreciation | — | 65,942 | 34,789 | 6,847 | — | 107,578 | |||||||||||||||||
| Amortization of intangible assets | — | 24,522 | 2,547 | 4,192 | — | 31,261 | |||||||||||||||||
| Stock-based compensation | 55,204 | — | — | — | — | 55,204 | |||||||||||||||||
| (Gain) loss on sale of business | — | (114,581 | ) | 15,521 | — | — | (99,060 | ) | |||||||||||||||
| Deferred income taxes | — | — | 40,555 | 1,607 | — | 42,162 | |||||||||||||||||
| Changes in current assets and liabilities, net of acquisitions of businesses: | |||||||||||||||||||||||
| Accounts receivable, net | — | (42,881 | ) | 20,790 | (2,709 | ) | — | (24,800 | ) | ||||||||||||||
| Inventories, net | — | 17,728 | (13,863 | ) | 115 | (1,385 | ) | 2,595 | |||||||||||||||
| Uniforms and other rental items in service | — | (29,520 | ) | (112 | ) | (3,305 | ) | (357 | ) | (33,294 | ) | ||||||||||||
Prepaid expenses and other current assets | — | (5,428 | ) | (13,609 | ) | 464 | — | (18,573 | ) | ||||||||||||||
| Accounts payable | — | 155,461 | (153,831 | ) | (10,176 | ) | (160 | ) | (8,706 | ) | |||||||||||||
| Accrued compensation and related liabilities | — | 6,341 | (39,311 | ) | (3,510 | ) | — | (36,480 | ) | ||||||||||||||
| Accrued liabilities and other | — | (26,847 | ) | 26,373 | (1,466 | ) | — | (1,940 | ) | ||||||||||||||
| Income taxes, current | — | 32,963 | (22,794 | ) | (1,427 | ) | — | 8,742 | |||||||||||||||
| Net cash provided by operating activities | 409,524 | 220,211 | 96,381 | 7,211 | (354,318 | ) | 379,009 | ||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||
| Capital expenditures | — | (90,497 | ) | (36,875 | ) | (5,094 | ) | — | (132,466 | ) | |||||||||||||
| Proceeds from redemption of marketable securities | — | 12,400 | — | 87,859 | — | 100,259 | |||||||||||||||||
| Purchase of marketable securities and investments | — | 5,510 | (20,064 | ) | (87,323 | ) | 2,000 | (99,877 | ) | ||||||||||||||
| Proceeds from sale of business | — | 127,835 | — | — | — | 127,835 | |||||||||||||||||
| Acquisitions of businesses, net of cash acquired | — | (1,099 | ) | — | — | — | (1,099 | ) | |||||||||||||||
| Other, net | (402,385 | ) | 21,470 | 26,771 | 956 | 352,318 | (870 | ) | |||||||||||||||
| Net cash (used in) provided by investing activities | (402,385 | ) | 75,619 | (30,168 | ) | (3,602 | ) | 354,318 | (6,218 | ) | |||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||
| Payments of commercial paper, net | — | (50,500 | ) | — | — | — | (50,500 | ) | |||||||||||||||
| Repayment of debt | — | (250,000 | ) | — | — | — | (250,000 | ) | |||||||||||||||
| Proceeds from exercise of stock-based compensation awards | 28,558 | — | — | — | — | 28,558 | |||||||||||||||||
| Repurchase of common stock | (35,697 | ) | — | — | — | — | (35,697 | ) | |||||||||||||||
| Other, net | — | (1,862 | ) | — | (20 | ) | — | (1,882 | ) | ||||||||||||||
| Net cash used in financing activities | (7,139 | ) | (302,362 | ) | — | (20 | ) | — | (309,521 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | — | 3,466 | — | 3,466 | |||||||||||||||||
Net (decrease) increase in cash and cash equivalents | — | (6,532 | ) | 66,213 | 7,055 | — | 66,736 | ||||||||||||||||
| Cash and cash equivalents at beginning of period | — | 48,658 | 17,302 | 103,306 | — | 169,266 | |||||||||||||||||
| Cash and cash equivalents at end of period | $ | — | $ | 42,126 | $ | 83,515 | $ | 110,361 | $ | — | $ | 236,002 | |||||||||||
Consolidated Results
Three Months Ended November 30, 2019 Compared to Three Months Ended November 30, 2018 Compared to Three Months EndedNovember 30, 2017
Total revenue increased 7.0%7.3% for the three months ended November 30, 20182019 over the same period in the prior fiscal year, from $1,606.4$1,718.3 million to $1,718.3$1,843.7 million. Revenue also increased organically by 7.0%7.3% as a result of increased sales volume. Organic growth adjusts for the impact of acquisitions and foreign currency exchange rate fluctuations.
Total revenue was positively impacted by 0.3%0.1% due to acquisitions and negatively impacted by 0.3%0.1% due to foreign currency exchange rate fluctuations.
Uniform Rental and Facility Services reportable operating segment revenue increased 6.3%5.7% for the three months ended November 30, 20182019 over the same period in the prior fiscal year, from $1,308.0$1,390.8 million to $1,390.8$1,470.0 million. Revenue increased organically by 6.6%5.8%. Revenue growth was negatively impacted by 0.3% due to foreign currency exchange rate fluctuations. Growth was driven by many factors includinga result of new business, sold by sales representatives,the penetration of additional products and services into existing customers and strong customer retention.price increases, partially offset by lost business. New business growth resulted from an increase in the number and productivity of sales representatives. Generally, sales productivity improvements are due to increased tenure and improved training, which produce a higher number of products and services sold. Revenue growth was negatively impacted by 0.1% due to foreign currency exchange rate fluctuations.
Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 9.7%14.1% for the three months ended November 30, 20182019, compared to the same period in the prior fiscal year, from $298.4$327.5 million to $327.5 million.$373.8 million. Revenue increased organically by 8.4%13.7%. Revenue growth was positively impacted by 1.4%0.4% due to growth derived through acquisitions primarily in our Fire Protection business, which is included in All Other and our First Aid and Safety Services reportable operating segment and negatively impacted by 0.1% due to foreign currency exchange rate fluctuations.segment.
Cost of uniform rental and facility services consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillary items. Cost of uniform rental and facility services increased $37.2$23.8 million, or 5.1%3.1%, for the three months ended November 30, 2018,2019, compared to the three months ended November 30, 2017. This increase was due to higher Uniform Rental and Facility Services reportable operating segment sales volume.
Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, uniforms, and fire protection products), delivery expenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other. Cost of other increased $27.4$24.4 million, or 8.3%13.4%, for the sixthree months ended November 30, 2018,2019, compared to the sixthree months ended November 30, 2017.2018. The increase was primarily due to higher sales volume in the First Aid and Safety Services reportable operating segment and All Other.
Selling and administrative expenses increased $41.9$26.3 million, but decreased as a percent of revenue to 28.1% for the three months ended November 30, 2019, compared to 28.6% for the same period in the prior fiscal year. The decrease as a percent of revenue was due to efficiencies in labor and employee-partner related expenses.
Operating income was $334.5 million for the three months ended November 30, 2019, compared to $275.6 million for the three months ended November 30, 2018. Operating income was positively impacted by higher sales and lower cost of sales as a percent to revenue for the three months ended November 30, 2019. Operating income in the three months ended November 30, 2018 was negatively impacted by $7.8 million of integration expenses incurred in connection with the G&K acquisition. The after-tax effect of these integration expenses was a negative impact of $0.05 per share on diluted earnings per share.
During the three months ended November 30, 2018, Cintas sold a cost method investment for $73.3 million, resulting in a pre-tax gain of $69.4 million. For the three months ended November 30, 2018, the after-tax effect of the gain represents a positive impact of $0.47 per share on diluted earnings per share.
Net interest expense (interest expense less interest income) was $25.9 million for the three months ended November 30, 2019, compared to $24.5 million for the three months ended November 30, 2018. The increase was primarily due to interest paid on commercial paper borrowings and a term loan during the three months ended November 30, 2019.
Cintas’ effective tax rate for continuing operations was 20.1% and 24.2% for the three months ended November 30, 2019 and 2018, respectively. The effective tax rate in both periods was impacted by certain discrete items, primarily the tax accounting for stock-based compensation.
Net income from continuing operations for the three months ended November 30, 2019 increased $3.4 million, or 4.4%1.4%, compared to the three months ended November 30, 2018. Diluted earnings per share from continuing operations was $2.27 for the three months ended November 30, 2019, which was an increase of 4.1% compared to the same period in the prior fiscal year. Diluted earnings per share from continuing operations increased due to the increase in earnings from continuing operations.
Uniform Rental and Facility Services Reportable Operating Segment
Three Months Ended November 30, 2019 Compared to Three Months Ended November 30, 2018
Uniform Rental and Facility Services reportable operating segment revenue increased from $1,390.8 million to $1,470.0 million, or 5.7%, for the three months ended November 30, 2019, over the same period in the prior fiscal year, and the cost of uniform rental and facility services increased $23.8 million, or 3.1%. Revenue increased organically by 5.8%. The reportable operating segment’s gross margin was $685.0 million, or 46.6% of revenue. The gross margin was 130 basis points higher than the prior fiscal year’s second quarter gross margin of 45.3%. The increase in gross margin as a percent to revenue was driven by the increase in revenue and continuous improvements in process efficiency.
Selling and administrative expenses increased $19.8 million but decreased as a percent of revenue to 27.1%, compared to 27.2% in the second quarter of the prior fiscal year. The decrease as a percent of revenue was primarily due to efficiencies in labor and employee-partner related expenses.
Income before income taxes increased $43.5 million, or 17.9%, for the Uniform Rental and Facility Services reportable operating segment for the three months ended November 30, 2019 compared to the same period in the prior fiscal year. Income before income taxes was 19.5% of the reportable operating segment’s revenue, which was a 200 basis point increase compared to the second quarter of the prior fiscal year of 17.5%. This increase was primarily due to the increase in sales and gross margin and the elimination of G&K integration expenses.
First Aid and Safety Services Reportable Operating Segment
Three Months Ended November 30, 2019 Compared to Three Months Ended November 30, 2018
First Aid and Safety Services reportable operating segment revenue increased from $153.3 million to $169.7 million, or 10.6%, for the three months ended November 30, 2019, over the same period in the prior fiscal year. Revenue also increased organically by 10.6%. Growth was driven by many factors including new business sold by sales representatives, penetration of additional products and services into existing customers and strong customer retention.
Cost of first aid and safety services increased $7.9 million, or 9.9%, for the three months ended November 30, 2019, over the three months ended November 30, 2018, due to higher sales volume. The gross margin as a percent of revenue was 48.4% for the quarter ended November 30, 2019, which was an increase of 40 basis points compared to the gross margin as a percent of revenue of 48.0% in the same period of the prior fiscal year. The increase was driven primarily by improved sourcing, leveraging of existing warehouses and optimization of delivery routes.
Selling and administrative expenses increased $5.1 million, but decreased as a percent of revenue to 33.9%, compared to 34.1% in the second quarter of the prior fiscal year. The decrease as a percent of revenue was primarily due to efficiencies in labor and employee-partner related expenses.
Income before income taxes for the First Aid and Safety Services reportable operating segment increased $3.3 million to $24.6 million for the three months ended November 30, 2019, compared to the same period in the prior fiscal year, due to the previously discussed growth in revenue and improvement in the gross margin percentage. Income before income taxes, at 14.5% of the reportable operating segment’s revenue, was a 60 basis point increase compared to the same quarter of the prior fiscal year due to the reasons previously mentioned.
Consolidated Results
Six Months Ended November 30, 2019 Compared to Six Months Ended November 30, 2018
Total revenue increased 7.0% for the six months ended November 30, 2019, over the same period in the prior fiscal year, from $3,416.2 million to $3,654.9 million. Revenue increased organically by 7.8% as a result of increased sales volume. Organic growth adjusts for the impact of acquisitions, foreign currency exchange rate fluctuations and workday differences. Total revenue was positively impacted by 0.1% due to acquisitions and negatively impacted by 0.1% due to foreign currency exchange rate fluctuations and negatively impacted by 0.8% due to one less workday in the six months ended November 30, 2019, compared to the six months ended November 30, 2018.
Uniform Rental and Facility Services reportable operating segment revenue increased 5.7% for the six months ended November 30, 2019, over the same period in the prior fiscal year, from $2,765.7 million to $2,924.5 million. Revenue increased organically by 6.6%. Revenue growth was a result of new business, the penetration of additional products
and services into existing customers and price increases, partially offset by lost business. New business growth resulted from an increase in the number and productivity of sales representatives. Generally, sales productivity improvements are due to increased tenure and improved training, which produce a higher number of products and services sold. Revenue growth was negatively impacted by 0.1% due to foreign currency exchange rate fluctuations and negatively impacted by 0.8% due to one less workday in the six months ended November 30, 2019, compared to the six months ended November 30, 2018.
Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 12.3% for the six months ended November 30, 2019 compared to the same period in the prior fiscal year, from $650.5 million to $730.4 million. Revenue increased organically by 12.7%. Revenue growth was positively impacted by 0.4% due to growth derived through acquisitions primarily in our Fire Protection business, which is included in All Other and our First Aid and Safety Services reportable operating segment. Total revenue was negatively impacted by 0.8% due to one less workday in the six months ended November 30, 2019, compared to the six months ended November 30, 2018.
Cost of uniform rental and facility services consists primarily of production expenses, delivery expenses and the amortization of in service inventory, including uniforms, mats, shop towels and other ancillary items. Cost of uniform rental and facility services increased $46.0 million, or 3.1%, for the six months ended November 30, 2018,2019, compared to the six months ended November 30, 2018. This increase was due to higher Uniform Rental and Facility Services reportable operating segment sales volume.
Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, uniforms, and fire protection products), delivery expenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other. Cost of other increased $40.9 million, or 11.4%, for the six months ended November 30, 2019, compared to the six months ended November 30, 2018. The increase was primarily due to higher sales volume in the First Aid and Safety Services reportable operating segment and All Other.
Selling and administrative expenses increased $64.6 million, or 6.5%, but decreased as a percent of revenue from 29.2% to 29.0% for the six months ended November 30, 2019, compared to the same period in the prior fiscal year. The majority of the increase was due to higher Uniform Rental and Facility Services and First Aid and Safety Services reportable operating segment sales volume as well as increased employee-partner related expenses.expenses, particularly medical expense.
Operating income was $640.6 million for the six months ended November 30, 2019, compared to $540.9 million for the six months ended November 30, 2018. Operating income was positively impacted by higher sales and lower cost of sales as a percent to revenue for the six months ended November 30, 2019. Operating income in the six months ended November 30, 2018 was negatively impacted by $12.7 million of integration expenses incurred in connection with the G&K acquisition. For the six months ended November 30, 2018, theThe after-tax effect of these integration expenses representswas a negative impact of $0.09 per share on diluted earnings per share.
During the six months ended November 30, 2018, Cintas sold a cost method investment for $73.3 million, resulting in a pre-tax gain of $69.4 million. For the six months ended November 30, 2018, the after-tax effect of the gain represents a positive impact of $0.47 per share on diluted earnings per share.
Net interest expense (interest expense less interest income) was $53.1 million for the six months ended November 30, 2019, compared to $48.3 million for the six months ended November 30, 2018, compared2018. The increase was primarily due to $58.9 million forinterest paid on commercial paper borrowings and a term loan during the six months ended November 30, 2017. The decrease was primarily due to lower debt outstanding during the current period as a result of the payment of $300.0 million aggregate principal amount of our 6.13% 10-year senior notes that matured on December 1, 2017. Also, during the first half of the prior fiscal year, Cintas made payments of $50.5 million, net on commercial paper borrowings and paid off the term loan balance of $250.0 million with cash on hand.2019.
Cintas’ effective tax rate for continuing operations was 18.9%15.4% and 29.8%18.9% for the six months ended November 30, 20182019 and 2017,2018, respectively. The effective tax rate forin both periods was largely impacted by certain discrete items, (primarilyprimarily the tax accounting for stock-based compensation). The six months ended November 30, 2018 was also impacted by the reduced U.S. corporate tax rate as a result of the enactment of the Tax Act.compensation.
Net income from continuing operations for the six months ended November 30, 20182019 increased $156.7$41.7 million, or 52.4%9.2%, compared to the six months ended November 30, 2017.2018. Diluted earnings per share from continuing operations was $4.07$4.60 for the six months ended November 30, 2018,2019, which was an increase of 51.3%13.0% compared to the same period in the prior fiscal year. Diluted earnings per share from continuing operations increased due to the increase in earnings from continuing operations.
Uniform Rental and Facility Services Reportable Operating Segment
Six Months Ended November 30, 20182019 Compared to Six Months Ended November 30, 20172018
Uniform Rental and Facility Services reportable operating segment revenue increased from $2,619.8$2,765.7 million to $2,765.7$2,924.5 million, or 5.6%5.7%, for the six months ended November 30, 2018,2019, over the same period in the prior fiscal year, and the cost of uniform rental and facility services increased $76.7$46.0 million, or 5.4%3.1%. Revenue increased organically by 5.8%6.6%. The reportable operating segment’s gross margin was $1,258.1$1,370.9 million, or 45.5%46.9% of revenue. The gross margin was 10140 basis points higher than the first six months of the prior fiscal year’s gross margin of 45.4%45.5%. The increase in gross margin as a percent to revenue was driven by lower production related supplies expenses.the increase in revenue and continuous improvements in process efficiency.
Selling and administrative expenses increased $21.8$44.5 million, but decreasedremained the same as a percent of revenue toat 27.9%, compared to 28.6% infor both the first six months of the prior fiscal year.ended November 30, 2019 and 2018. The decrease inincrease was primarily due to higher labor and employee-partner related expenses, particularly medical expense, as a percent of revenue was primarily due to lower labor and employee-partner related expenses.revenue.
Income before income taxes increased $51.7$80.9 million, or 12.2%17.1%, for the Uniform Rental and Facility Services reportable operating segment for the six months ended November 30, 20182019, compared to the same period in the prior fiscal year. Income before income taxes was 17.2%19.0% of the reportable operating segment’s revenue, which was a 110180 basis point increase compared to the first six months of the prior fiscal year of 16.1%17.2%. This increase was primarily due primarily to the increase in sales as previously discussed and a reduction ingross margin and the elimination of G&K integration expenses compared to the same period in the prior year.expenses.
First Aid and Safety Services Reportable Operating Segment
Six Months Ended November 30, 20182019 Compared to Six Months Ended November 30, 20172018
First Aid and Safety Services reportable operating segment revenue increased from $279.7$306.8 million to $306.8$341.8 million, or 9.7%11.4%, for the six months ended November 30, 20182019, over the same period in the prior fiscal year. Revenue increased organically by 9.6%12.2% as a result of increased sales volume andvolume. Revenue growth was positively impacted by 0.1% due primarily to acquisitions.growth derived through acquisitions and was negatively impacted by 0.9% due to one less workday in the six months ended November 30, 2019, compared to the six months ended November 30, 2018. Growth was driven by many factors including new business sold by sales representatives, penetration of additional products and services into existing customers and strong customer retention.
Cost of first aid and safety services increased $12.0$15.8 million, or 8.1%9.9%, for the six months ended November 30, 2018,2019, over the six months ended November 30, 2017,2018, due to higher sales volume. The gross margin as a percent of revenue was 48.0%48.7% for the six months ended November 30, 2018,2019, which iswas an increase of 8070 basis points compared to the gross margin as a percent of revenue of 47.2%48.0% in the same period of the prior fiscal year. The increase was driven primarily by improved sourcing, leveraging of existing warehouses and optimization of delivery routes.
Selling and administrative expenses increased $9.2$13.1 million, during the six months ended November 30, 2018 compared to the same period in the prior fiscal year. The increase was due primarily toand increased employee-partner related expenses. Selling and administrative expenses as a percent of revenue increasedto 34.2%, compared to 33.9% compared to 33.8% in the first six months of the prior fiscal year. The increase in sellingwas primarily due to higher labor and administrativeemployee-partner related expenses, particularly medical expense, as a percent to revenue was due to higher employee-partner related expenses.of revenue.
Income before income taxes for the First Aid and Safety Services reportable operating segment increased $5.9$6.1 million to $43.3$49.4 million for the six months ended November 30, 2018,2019, compared to the same period in the prior fiscal year, due to the previously discussed growth in revenue and improvement in the gross margin percentage. Income before income taxes, at 14.1%14.5% of the reportable operating segment’s revenue, was a 7040 basis point increase compared to the same period of the prior fiscal year due to the reasons previously mentioned.
Liquidity and Capital Resources
The following is a summary of our cash flows and cash and cash equivalents and marketable securities as of and for the six months ended November 30, 20182019 and 2017:2018:
| (In thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||
| Net cash provided by operating activities | $ | 344,567 | $ | 379,009 | $ | 571,351 | $ | 344,567 | ||||||
| Net cash used in investing activities | $ | (86,640 | ) | $ | (6,218 | ) | $ | (131,673 | ) | $ | (86,640 | ) | ||
| Net cash used in financing activities | $ | (307,379 | ) | $ | (309,521 | ) | $ | (309,992 | ) | $ | (307,379 | ) | ||
| Cash and cash equivalents at the end of the period | $ | 88,479 | $ | 236,002 | $ | 226,535 | $ | 88,479 | ||||||
| Marketable securities at the end of the period | $ | — | $ | 22,732 | ||||||||||
Cash and cash equivalents and marketable securities as of November 30, 20182019 and 20172018 include $30.9$47.9 million and $133.1$30.9 million, respectively, that is located outside of the United States.
Cash flows provided by operating activities have historically supplied us with a significant source of liquidity. We generally use these cash flows to fund most, if not all, of our operations and expansion activities and dividends on our common stock. We may also use cash flows provided by operating activities, as well as proceeds from long-term debt and short-term borrowings, to fund growth and expansion opportunities, as well as other cash requirements such as the repurchase of our common stock and payment of long-term debt.
Net cash provided by operating activities was $344.6$571.4 million for the six months ended November 30, 2018, a decrease2019, an increase of $34.4$226.8 million compared to the six months ended November 30, 2017.2018. The decreaseincrease was primarily the result of increased net income and favorable changes in working capital, which were partially offset by an increase in net income.specifically accounts receivable, inventories and accounts payable.
Net cash used in investing activities includes capital expenditures, purchases of investments, proceeds from the sale of investmentsassets and businessescost method investments and cash paid for acquisitions of businesses. Capital expenditures were $137.6$126.2 million and $132.5$137.6 million for the six months ended November 30, 20182019 and 2017,2018, respectively. Capital expenditures in fiscal 20192020 primarily relate to expansion efforts in the Uniform Rental and Facility Services reportable operating segment, representing $109.8$101.7 million of the current fiscal year amount. Cash paid for acquisitions of businesses was $6.6 million and $1.1 million for both the six months ended November 30, 20182019 and 2017, respectively.2018. The acquisitions during the six months ended November 30, 20182019 occurred in our Uniform Rental and Facility Services reportable operating segment, our First Aid and Safety Services reportable operating segment and our Fire Protection business, which is included in All Other. Also, during the six months ended November 30, 2019, the Company received proceeds of $13.3 million from the sale of assets and during the six months ended November 30, 2018, investing activities includedreceived proceeds of $73.3 million from the sale of a cost method investment, and during the six months ended November 30, 2017, included proceeds of $127.8 million related to the sale of Discontinued Services.investment. Net cash used in investing activities also includes $10.1 million and $14.1 million from purchases of marketable securitiesinvestments during the six months ended November 30, 2019 and investments of $14.12018, respectively.
Net cash used in financing activities was $310.0 million and $307.4 million for the six months ended November 30, 20182019 and net proceeds from redemptions and purchases of marketable securities and investments of $0.4 million for the six months ended November 30, 2017.
During the six months ended November 30, 2019, Cintas made payments of $112.5 million, net of commercial paper borrowings, and during the six months ended November 30, 2018, Cintas issued $173.5 million, net, of commercial paper borrowings. During the six months ended November 30, 2017, Cintas made payments of $50.5 million, net on commercial paper borrowings and paid off the term loan balance of $250.0 million with cash on hand.
The following table summarizes Cintas' outstanding debt:
| (In thousands) | Interest Rate | Fiscal Year Issued | Fiscal Year Maturity | November 30, 2018 | May 31, 2018 | Interest Rate | Fiscal Year Issued | Fiscal Year Maturity | November 30, 2019 | May 31, 2019 | ||||||||||||||||||
| Debt due within one year | ||||||||||||||||||||||||||||
| Commercial paper | 2.60 | % | (1) | Various | Various | $ | 173,500 | $ | — | 2.68 | % | (1) | 2019 | 2020 | $ | — | $ | 112,500 | ||||||||||
| Term loan | 2.44 | % | (2) | 2019 | 2020 | 200,000 | 200,000 | |||||||||||||||||||||
| Debt issuance costs | (212 | ) | (236 | ) | ||||||||||||||||||||||||
| Total debt due within one year | $ | 173,500 | $ | — | $ | 199,788 | $ | 312,264 | ||||||||||||||||||||
| Debt due after one year | ||||||||||||||||||||||||||||
| Senior notes | 4.30 | % | 2012 | 2022 | $ | 250,000 | $ | 250,000 | 4.30 | % | 2012 | 2022 | $ | 250,000 | $ | 250,000 | ||||||||||||
| Senior notes | 2.90 | % | 2017 | 2022 | 650,000 | 650,000 | 2.90 | % | 2017 | 2022 | 650,000 | 650,000 | ||||||||||||||||
| Senior notes | 3.25 | % | 2013 | 2023 | 300,000 | 300,000 | 3.25 | % | 2013 | 2023 | 300,000 | 300,000 | ||||||||||||||||
Senior notes (2) | 2.78 | % | 2013 | 2023 | 51,902 | 52,119 | ||||||||||||||||||||||
Senior notes (3) | 3.11 | % | 2015 | 2025 | 52,140 | 52,309 | 2.78 | % | 2013 | 2023 | 51,467 | 51,684 | ||||||||||||||||
Senior notes (4) | 3.11 | % | 2015 | 2025 | 51,805 | 51,973 | ||||||||||||||||||||||
| Senior notes | 3.70 | % | 2017 | 2027 | 1,000,000 | 1,000,000 | 3.70 | % | 2017 | 2027 | 1,000,000 | 1,000,000 | ||||||||||||||||
| Senior notes | 6.15 | % | 2007 | 2037 | 250,000 | 250,000 | 6.15 | % | 2007 | 2037 | 250,000 | 250,000 | ||||||||||||||||
| Debt issuance costs | (17,634 | ) | (19,119 | ) | (14,666 | ) | (16,150 | ) | ||||||||||||||||||||
| Total debt due after one year | $ | 2,536,408 | $ | 2,535,309 | $ | 2,538,606 | $ | 2,537,507 | ||||||||||||||||||||
(1) | Variable rate debt instrument. The rate presented is the variable borrowing rate at May 31, 2019. |
(2) | Variable rate debt instrument. The rate presented is the variable borrowing rate at November 30, 2019. |
The credit agreement that supports our commercial paper program was amended and restated on September 16, 2016.May 24, 2019. The amendment increased the capacity of the revolving credit facility from $450.0$600.0 million to $600.0 million$1.0 billion and addedcreated a $250.0 millionnew term loan facility.of $200.0 million. The credit agreement has an accordion feature that provides Cintas the ability to request increases to the borrowing commitments under either the revolving credit facility or a newthe term loan of up to $250.0 million in the aggregate, subject to customary conditions. The maturity date of the revolving credit agreementfacility is September 15, 2021.May 23, 2024, and the maturity date of the term loan is May 23, 2020, which can be extended 12 months, annually, for up to four years. As of November 30, 2018,2019, there was $173.5 millionno commercial paper outstanding and no borrowings on our revolving credit facility. As of May 31, 2018,2019, there was no$112.5 million of commercial paper outstanding and no borrowings on our revolving credit facility.
Cintas has certain covenants related to debt agreements. These covenants limit our ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. As of November 30, 2018,2019, Cintas was in compliance with all debt covenants.
Our access to the commercial paper and long-term debt markets has historically provided us with sources of liquidity. We do not anticipate having difficulty in obtaining financing from those markets in the future in view of our favorable experiences in the debt markets in the recent past. Our ability to continue to access the commercial paper and long-term debt markets on favorable interest rate and other terms will depend, to a significant degree, on the ratings assigned by the credit rating agencies to our indebtedness. As of November 30, 2018,2019, our ratings were as follows:
| Rating Agency | Outlook | Commercial Paper | Long-term Debt | |||
| Standard & Poor’s | A-2 | |||||
| Moody’s Investors Service | Stable | P-2 | A3 | |||
In the event that the ratings of our commercial paper or our outstanding long-term debt issues were substantially lowered or withdrawn for any reason, or if the ratings assigned to any new issue of long-term debt securities were significantly lower than those noted above, particularly if we no longer had investment grade ratings, our ability to access the debt markets may be adversely affected. In addition, in such a case, our cost of funds for new issues of commercial paper and long-term debt would be higher than our cost of funds would have been had the ratings of those new issues been at or above the level of the ratings noted above. The rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities. Each rating may be subject to revision or withdrawal at any time by the assigning rating organization and should be evaluated independently of any other rating. Moreover, each credit rating is specific to the security to which it applies.
To monitor our credit rating and our capacity for long-term financing, we consider various qualitative and quantitative factors. One such factor is the ratio of our total debt to EBITDA. For the purpose of this calculation, debt is defined as the sum of short-term borrowings, long-term debt due within one year, obligations under capital leases due in one year, long-term debt and long-term obligations under capital leases.
Litigation and Other Contingencies
Cintas is subject to other legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position or results of operation of Cintas.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. You should not place undue reliance on any forward-looking statement. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Quarterly Report. Factors that might cause such a difference include, but are not limited to, risks inherent with the G&K transaction in the achievement of cost synergies and the timing thereof, including whether the transaction will be accretive and within the expected timeframe and the actual amounts of future integration expenses; the possibility of greater than anticipated operating costs including energy and fuel costs; lower sales volumes; loss of customers due to outsourcing trends; the performance and costs of integration of acquisitions, including G&K; fluctuations in costs of materials and labor including increased medical costs; costs and possible effects of union organizing activities; failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety; the effect on operations of exchange rate fluctuations, tariffs and other political, economic and regulatory risks; uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation; the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002; the effect of new accounting pronouncements; costs of our SAP system implementation; disruptions caused by the inaccessibility of computer systems data, including cybersecurity risks; the initiation or outcome of litigation, investigations or other proceedings; higher assumed sourcing or distribution costs of products; the disruption of operations from catastrophic or extraordinary events; the amount and timing of repurchases of our common stock, if any; changes in federal and state tax and labor laws; and the reactions of competitors in terms of price and service. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 20182019 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us, or that we currently believe to be immaterial, may also harm our business.
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.RISK
In our normal operations, Cintas has market risk exposure to interest rates. There has been no material change to this market risk exposure to interest rates from that which was previously disclosed on page 3031 of our Annual Report on Form 10-K for the year ended May 31, 2018.2019.
Through its foreign operations, Cintas is exposed to foreign currency risk. Foreign currency exposures arise from transactions denominated in a currency other than the functional currency and from foreign currency denominated revenue and profit translated into U.S. dollars. The primary foreign currency to which Cintas is exposed is the Canadian dollar.
ITEM 4.
CONTROLS AND PROCEDURES.PROCEDURES
Disclosure Controls and Procedures
With the participation of Cintas’ management, including Cintas’ Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, Cintas has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of November 30, 20182019. Based on such evaluation, Cintas’ management, including Cintas’ Chief Executive Officer, Chief Financial Officer, General Counsel and Controllers, has concluded that Cintas’ disclosure controls and procedures were effective as of November 30, 20182019, in ensuring (i) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by Cintas in the reports that it files or submits under the Exchange Act is accumulated and communicated to Cintas’ management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Part II. Other Information
ITEM 2.1. LEGAL PROCEEDINGS
The Company and three executive officers are defendants in a purported class action, filed on December 12, 2019, pending in the U.S. District Court for the Southern District of Ohio alleging violations of federal securities laws. The lawsuit asserts that the defendants made material misstatements regarding the Company’s margins, earnings guidance and regulatory compliance that caused the Company's stock to trade at artificially inflated prices between March 2017 and November 2019. The defendants deny liability.
The Company, the Board of Directors, CEO and the Investment Policy Committee are defendants in a purported class action, filed on December 13, 2019, pending in the U.S. District Court for the Southern District of Ohio alleging violations of ERISA. The lawsuit asserts that the defendants improperly managed the costs of the employee retirement plan, breached their fiduciary duties in failing to investigate and select lower cost alternative funds, and failed to monitor and control the employee retirement plan’s recordkeeping costs. The defendants deny liability.
Cintas is also subject to other legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position or results of operation of Cintas.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
Period (In millions, except share and per share data) | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of the publicly announced plan (1) | Maximum approximate dollar value of shares that may yet be purchased under the plan (1) | |||||||||
September 1 - 30, 2018 (2) | 111,424 | $ | 204.68 | 111,153 | $ | 308.8 | |||||||
October 1 - 31, 2018 (3) | 994,552 | $ | 196.76 | 993,400 | $ | 1,113.3 | |||||||
November 1 - 30, 2018 (4) | 836,831 | $ | 179.32 | 836,069 | $ | 963.4 | |||||||
| Total | 1,942,807 | $ | 189.70 | 1,940,622 | $ | 963.4 | |||||||
Period (In millions, except share and per share data) | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of the publicly announced plan (1) | Maximum approximate dollar value of shares that may yet be purchased under the plan (1) | |||||||||
September 1 - 30, 2019 (2) | 831 | $ | 255.12 | — | $ | 263.5 | |||||||
October 1 - 31, 2019 (3) | 419 | $ | 268.62 | — | $ | 1,263.5 | |||||||
November 1 - 30, 2019 (4) | 72 | $ | 250.87 | — | $ | 1,263.5 | |||||||
| Total | 1,322 | $ | 259.17 | — | $ | 1,263.5 | |||||||
(1) On August 2, 2016, the Board of Directors authorized a $500.0 million share buyback program, which does not have an expiration date. From the inception of the August 2, 2016 share buyback program through November 2018, Cintas has purchased a total of 2.6 million shares of Cintas common stock at an average price of $188.82 per share for a total purchase price of $500.0 million. On October 30, 2018, Cintas announced that the Board of Directors authorized a new $1.0 billion share buyback program, which does not have an expiration date. From the inception of the October 30, 2018 share buyback program through November 30, 2018,2019, Cintas has purchased a total of 0.23.5 million shares of Cintas common stock at an average price of $181.41$209.82 per share for a total purchase price of $36.6$736.5 million. Additionally, on October 29, 2019, Cintas announced that the Board of Directors authorized a new $1.0 billion share buyback program, which does not have an expiration date. Cintas has not made any purchases under the October 29, 2019 share buyback program through November 30, 2019.
(2) During September 2018,2019, Cintas acquired 271831 shares of Cintas common stock in trade for employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were acquired at an average price of $214.61$255.12 per share for a total purchase price of less than $0.1$0.2 million.
(3) During October 2018,2019, Cintas acquired 1,152419 shares of Cintas common stock in trade for employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were acquired at an average price of $193.28$268.62 per share for a total purchase price of $0.2$0.1 million.
(4) During November 2018,2019, Cintas acquired 76272 shares of Cintas common stock in trade for employee payroll taxes due on restricted stock awards that vested during the fiscal year. These shares were acquired at an average price of $187.38$250.87 per share for a total purchase price of less than $0.1 million.
ITEM 5.
OTHER INFORMATION
On October 30, 2018,29, 2019, Cintas declared an annual cash dividend of $2.05$2.55 per share on outstanding common stock, a 26.5%
24.4% increase over the annual dividend paid in the prior year. The dividend was paid on December 7, 2018,6, 2019, to shareholders of record as of November 9, 2018.8, 2019.
ITEM 6.
EXHIBITS
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CINTAS CORPORATION | ||||||
| (Registrant) | ||||||
| Date: | January | /s/ | J. Michael Hansen | |||
| J. Michael Hansen | ||||||
| Executive Vice President and Chief Financial Officer | ||||||
| (Principal Financial and Accounting Officer) | ||||||
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