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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the quarterly period ended |
February 28, 2022 |
OR
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from
to
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Commission
file number 0-11399
Cintas Corporation
(Exact name of registrant as specified in its charter)
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Washington |
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31-1188630 |
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(State or Other Jurisdiction of Incorporation or
Organization) |
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(IRS Employer Identification Number) |
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6800 Cintas Boulevard |
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P.O. Box 625737 |
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Cincinnati, |
Ohio |
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45262-5737 |
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(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant's Telephone Number, Including Area Code:
(513) 459-1200
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading symbol(s) |
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Name of each exchange on which registered |
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Common stock, no par value |
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CTAS |
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The NASDAQ Stock Market LLC |
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(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). Yes
☑
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.
Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated
Filer ☐
Smaller Reporting Company
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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
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No ☑
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable
date.
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Class |
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Outstanding March 31, 2022 |
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Common Stock, no par value |
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102,324,911 |
CINTAS CORPORATION
TABLE OF CONTENTS
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February 28, 2022 and May 31, 2021
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Part I. Financial Information
ITEM 1.
FINANCIAL STATEMENTS
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)
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Three Months Ended |
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Nine Months Ended |
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February 28, 2022 |
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February 28, 2021 |
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February 28, 2022 |
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February 28, 2021 |
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Revenue: |
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Uniform rental and facility services |
$ |
1,553,320 |
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$ |
1,417,865 |
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$ |
4,596,767 |
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$ |
4,222,764 |
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Other |
407,222 |
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359,191 |
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1,183,006 |
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1,057,914 |
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Total revenue |
1,960,542 |
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1,777,056 |
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5,779,773 |
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5,280,678 |
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Costs and expenses: |
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Cost of uniform rental and facility services
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834,082 |
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761,850 |
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2,430,644 |
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2,217,073 |
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Cost of other |
228,306 |
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205,690 |
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663,078 |
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608,004 |
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Selling and administrative expenses |
490,549 |
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483,048 |
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1,503,117 |
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1,426,555 |
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Operating income |
407,605 |
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326,468 |
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1,182,934 |
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1,029,046 |
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Interest income |
(56) |
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(87) |
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(168) |
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(369) |
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Interest expense |
22,030 |
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24,552 |
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65,786 |
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73,659 |
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|
|
|
|
Income before income taxes |
385,631 |
|
|
302,003 |
|
|
1,117,316 |
|
|
955,756 |
|
|
Income taxes |
70,183 |
|
|
43,619 |
|
|
176,020 |
|
|
112,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
315,448 |
|
|
$ |
258,384 |
|
|
$ |
941,296 |
|
|
$ |
843,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
3.04 |
|
|
$ |
2.44 |
|
|
$ |
9.05 |
|
|
$ |
7.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
$ |
2.97 |
|
|
$ |
2.37 |
|
|
$ |
8.84 |
|
|
$ |
7.78 |
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
$ |
0.95 |
|
|
$ |
0.75 |
|
|
$ |
2.85 |
|
|
$ |
4.26 |
|
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE
INCOME
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
February 28,
2022 |
|
February 28,
2021 |
|
February 28,
2022 |
|
February 28,
2021 |
|
|
|
|
|
|
|
|
|
Net income |
$ |
315,448 |
|
|
$ |
258,384 |
|
|
$ |
941,296 |
|
|
$ |
843,246 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
5,297 |
|
|
8,947 |
|
|
(26,191) |
|
|
38,853 |
|
|
Change in fair value of interest rate lock
agreements, net of tax expense
of $11,832, $25,689, $3,022 and
$34,761, respectively
|
34,567 |
|
|
75,850 |
|
|
8,828 |
|
|
102,634 |
|
|
Amortization of interest rate lock
agreements, net of tax benefit of
$149,
$116, $445 and $347, respectively
|
(459) |
|
|
(358) |
|
|
(1,378) |
|
|
(1,075) |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of
tax expense of $11,981, $25,805,
$3,467
and $35,108, respectively
|
39,405 |
|
|
84,439 |
|
|
(18,741) |
|
|
140,412 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
$ |
354,853 |
|
|
$ |
342,823 |
|
|
$ |
922,555 |
|
|
$ |
983,658 |
|
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28,
2022 |
|
May 31,
2021 |
|
|
(Unaudited) |
|
|
|
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
84,136 |
|
|
$ |
493,640 |
|
|
|
|
|
|
Accounts receivable, net |
1,004,632 |
|
|
901,710 |
|
|
Inventories, net |
486,750 |
|
|
481,797 |
|
|
Uniforms and other rental items in service |
881,734 |
|
|
810,104 |
|
|
Income taxes, current |
66,047 |
|
|
22,282 |
|
|
Prepaid expenses and other current assets |
163,442 |
|
|
133,776 |
|
|
Total current assets |
2,686,741 |
|
|
2,843,309 |
|
|
|
|
|
|
|
Property and equipment, net |
1,312,176 |
|
|
1,318,438 |
|
|
|
|
|
|
|
Investments |
259,930 |
|
|
274,616 |
|
|
Goodwill |
3,032,738 |
|
|
2,913,069 |
|
|
Service contracts, net |
402,366 |
|
|
408,445 |
|
|
Operating lease right-of-use assets, net |
167,995 |
|
|
168,532 |
|
|
Other assets, net |
306,654 |
|
|
310,414 |
|
|
|
$ |
8,168,600 |
|
|
$ |
8,236,823 |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ |
235,051 |
|
|
$ |
230,786 |
|
|
Accrued compensation and related liabilities |
212,481 |
|
|
241,469 |
|
|
Accrued liabilities |
622,797 |
|
|
518,910 |
|
|
|
|
|
|
Operating lease liabilities, current |
44,105 |
|
|
43,850 |
|
|
Debt due within one year |
1,509,056 |
|
|
899,070 |
|
|
Total current liabilities |
2,623,490 |
|
|
1,934,085 |
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
Debt due after one year |
1,343,513 |
|
|
1,642,833 |
|
|
Deferred income taxes |
430,695 |
|
|
386,647 |
|
|
Operating lease liabilities |
131,224 |
|
|
130,774 |
|
|
Accrued liabilities |
345,778 |
|
|
454,637 |
|
|
Total long-term liabilities |
2,251,210 |
|
|
2,614,891 |
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
Preferred stock, no par value: |
— |
|
|
— |
|
|
100,000 shares authorized, none outstanding
|
|
|
|
|
Common stock, no par value, and paid-in capital: |
1,729,525 |
|
|
1,516,202 |
|
|
425,000,000 shares authorized
|
|
|
|
|
FY 2022: 190,693,424 shares issued and 102,415,971 shares
outstanding
|
|
|
|
|
FY 2021: 189,071,185 shares issued and 104,061,391 shares
outstanding
|
|
|
|
|
|
|
|
|
Retained earnings |
8,522,327 |
|
|
7,877,015 |
|
|
Treasury stock: |
(6,970,099) |
|
|
(5,736,258) |
|
|
FY 2022: 88,277,453 shares
|
|
|
|
|
FY 2021: 85,009,794 shares
|
|
|
|
|
Accumulated other comprehensive income |
12,147 |
|
|
30,888 |
|
|
Total shareholders’ equity |
3,293,900 |
|
|
3,687,847 |
|
|
|
$ |
8,168,600 |
|
|
$ |
8,236,823 |
|
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS'
EQUITY
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
and Paid-In Capital |
|
|
|
Retained
Earnings |
|
Other
Accumulated
Comprehensive
Income (Loss) |
|
Treasury Stock |
|
Total
Shareholders'
Equity |
|
Shares |
|
Amount |
|
|
|
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 1, 2021 |
189,071 |
|
|
$ |
1,516,202 |
|
|
|
|
$ |
7,877,015 |
|
|
$ |
30,888 |
|
|
(85,010) |
|
|
$ |
(5,736,258) |
|
|
$ |
3,687,847 |
|
|
Net income |
— |
|
|
— |
|
|
|
|
331,179 |
|
|
— |
|
|
— |
|
|
— |
|
|
331,179 |
|
|
Comprehensive loss, net of tax |
— |
|
|
— |
|
|
|
|
— |
|
|
(61,154) |
|
|
— |
|
|
— |
|
|
(61,154) |
|
|
Dividends |
— |
|
|
— |
|
|
|
|
(98,826) |
|
|
— |
|
|
— |
|
|
— |
|
|
(98,826) |
|
|
Stock-based compensation |
— |
|
|
36,496 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
36,496 |
|
|
Vesting of stock-based compensation awards |
493 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock options exercised |
564 |
|
|
72,896 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
72,896 |
|
|
Repurchase of common stock |
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(1,788) |
|
|
(659,235) |
|
|
(659,235) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2021 |
190,128 |
|
|
$ |
1,625,594 |
|
|
|
|
$ |
8,109,368 |
|
|
$ |
(30,266) |
|
|
(86,798) |
|
|
$ |
(6,395,493) |
|
|
$ |
3,309,203 |
|
|
Net income |
— |
|
|
— |
|
|
|
|
294,669 |
|
|
— |
|
|
— |
|
|
— |
|
|
294,669 |
|
|
Comprehensive income, net of tax |
— |
|
|
— |
|
|
|
|
— |
|
|
3,008 |
|
|
— |
|
|
— |
|
|
3,008 |
|
|
Dividends |
— |
|
|
— |
|
|
|
|
(98,961) |
|
|
— |
|
|
— |
|
|
— |
|
|
(98,961) |
|
|
Stock-based compensation |
— |
|
|
24,397 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
24,397 |
|
|
Vesting of stock-based compensation awards |
31 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock options exercised |
317 |
|
|
36,302 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
36,302 |
|
|
Repurchase of common stock |
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(13) |
|
|
(5,491) |
|
|
(5,491) |
|
|
Balance at November 30, 2021 |
190,476 |
|
|
$ |
1,686,293 |
|
|
|
|
$ |
8,305,076 |
|
|
$ |
(27,258) |
|
|
(86,811) |
|
|
$ |
(6,400,984) |
|
|
$ |
3,563,127 |
|
|
Net income |
— |
|
|
— |
|
|
|
|
315,448 |
|
|
— |
|
|
— |
|
|
— |
|
|
315,448 |
|
|
Comprehensive income, net of tax |
— |
|
|
— |
|
|
|
|
— |
|
|
39,405 |
|
|
— |
|
|
— |
|
|
39,405 |
|
|
Dividends |
— |
|
|
— |
|
|
|
|
(98,197) |
|
|
— |
|
|
— |
|
|
— |
|
|
(98,197) |
|
|
Stock-based compensation |
— |
|
|
22,794 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
22,794 |
|
|
Vesting of stock-based compensation awards |
2 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock options exercised |
215 |
|
|
20,438 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
20,438 |
|
|
Repurchase of common stock |
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(1,466) |
|
|
(569,115) |
|
|
(569,115) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 28, 2022 |
190,693 |
|
|
$ |
1,729,525 |
|
|
|
|
$ |
8,522,327 |
|
|
$ |
12,147 |
|
|
(88,277) |
|
|
$ |
(6,970,099) |
|
|
$ |
3,293,900 |
|
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS'
EQUITY
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
and Paid-In Capital |
|
|
|
Retained
Earnings |
|
Other
Accumulated
Comprehensive
Loss |
|
Treasury Stock |
|
Total
Shareholders'
Equity |
|
Shares |
|
Amount |
|
|
|
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 1, 2020 |
186,793 |
|
|
$ |
1,274,210 |
|
|
|
|
$ |
7,296,509 |
|
|
$ |
(153,380) |
|
|
(83,378) |
|
|
$ |
(5,182,137) |
|
|
$ |
3,235,202 |
|
|
Net income |
— |
|
|
— |
|
|
|
|
300,005 |
|
|
— |
|
|
— |
|
|
— |
|
|
300,005 |
|
|
Comprehensive income, net of tax |
— |
|
|
— |
|
|
|
|
— |
|
|
37,430 |
|
|
— |
|
|
— |
|
|
37,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
— |
|
|
29,055 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
29,055 |
|
|
Vesting of stock-based compensation awards |
568 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock options exercised |
795 |
|
|
72,123 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
72,123 |
|
|
Repurchase of common stock |
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(230) |
|
|
(69,011) |
|
|
(69,011) |
|
|
Balance at August 31, 2020 |
188,156 |
|
|
$ |
1,375,388 |
|
|
|
|
$ |
7,596,514 |
|
|
$ |
(115,950) |
|
|
(83,608) |
|
|
$ |
(5,251,148) |
|
|
$ |
3,604,804 |
|
|
Net income |
— |
|
|
— |
|
|
|
|
284,857 |
|
|
— |
|
|
— |
|
|
— |
|
|
284,857 |
|
|
Comprehensive income, net of tax |
— |
|
|
— |
|
|
|
|
— |
|
|
18,543 |
|
|
— |
|
|
— |
|
|
18,543 |
|
|
Dividends |
— |
|
|
— |
|
|
|
|
(371,827) |
|
|
— |
|
|
— |
|
|
— |
|
|
(371,827) |
|
|
Stock-based compensation |
— |
|
|
28,547 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
28,547 |
|
|
Vesting of stock-based compensation awards |
21 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock options exercised |
424 |
|
|
35,407 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
35,407 |
|
|
Repurchase of common stock |
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(7) |
|
|
(2,371) |
|
|
(2,371) |
|
|
Balance at November 30, 2020 |
188,601 |
|
|
$ |
1,439,342 |
|
|
|
|
$ |
7,509,544 |
|
|
$ |
(97,407) |
|
|
(83,615) |
|
|
$ |
(5,253,519) |
|
|
$ |
3,597,960 |
|
|
Net income |
— |
|
|
— |
|
|
|
|
258,384 |
|
|
— |
|
|
— |
|
|
— |
|
|
258,384 |
|
|
Comprehensive income, net of tax |
— |
|
|
— |
|
|
|
|
— |
|
|
84,439 |
|
|
— |
|
|
— |
|
|
84,439 |
|
|
Dividends |
— |
|
|
— |
|
|
|
|
(79,503) |
|
|
— |
|
|
— |
|
|
— |
|
|
(79,503) |
|
|
Stock-based compensation |
— |
|
|
25,819 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
25,819 |
|
|
Vesting of stock-based compensation awards |
9 |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock options exercised |
304 |
|
|
12,519 |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
12,519 |
|
|
Repurchase of common stock |
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(260) |
|
|
(83,108) |
|
|
(83,108) |
|
|
Balance at February 22, 2021 |
188,914 |
|
|
$ |
1,477,680 |
|
|
|
|
$ |
7,688,425 |
|
|
$ |
(12,968) |
|
|
(83,875) |
|
|
$ |
(5,336,627) |
|
|
$ |
3,816,510 |
|
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
February 28, 2022 |
|
February 28, 2021 |
|
Cash flows from operating activities: |
|
|
|
|
Net income |
$ |
941,296 |
|
|
$ |
843,246 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
Depreciation |
184,464 |
|
|
182,132 |
|
|
Amortization of intangible assets and capitalized contract
costs |
112,859 |
|
|
107,689 |
|
|
Stock-based compensation |
83,687 |
|
|
83,421 |
|
|
Gain on equity method investment transaction |
(30,151) |
|
|
— |
|
|
Gain on sale of operating assets |
(12,129) |
|
|
(21,861) |
|
|
|
|
|
|
Deferred income taxes |
42,652 |
|
|
(36,259) |
|
|
Change in current assets and liabilities, net of acquisitions of
businesses: |
|
|
|
|
Accounts receivable, net |
(99,223) |
|
|
(63,178) |
|
|
Inventories, net |
2,311 |
|
|
(123,678) |
|
|
Uniforms and other rental items in service |
(77,584) |
|
|
(6,269) |
|
|
Prepaid expenses and other current assets and capitalized contract
costs |
(77,450) |
|
|
(76,971) |
|
|
Accounts payable |
6,168 |
|
|
5,113 |
|
|
Accrued compensation and related liabilities |
(28,400) |
|
|
97,474 |
|
|
Accrued liabilities and other |
(17,717) |
|
|
(1,357) |
|
|
Income taxes, current |
(43,728) |
|
|
(84,687) |
|
|
Net cash provided by operating activities |
987,055 |
|
|
904,815 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Capital expenditures |
(165,851) |
|
|
(100,410) |
|
|
|
|
|
|
Purchases of investments |
(6,024) |
|
|
(7,873) |
|
|
|
|
|
|
Proceeds from sale of operating assets, net of cash
disposed |
15,347 |
|
|
32,490 |
|
|
Acquisitions of businesses, net of cash acquired |
(150,844) |
|
|
(7,570) |
|
|
Other, net |
(8,939) |
|
|
(5,301) |
|
|
Net cash used in investing activities |
(316,311) |
|
|
(88,664) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Issuance of commercial paper, net |
559,210 |
|
|
— |
|
|
|
|
|
|
Repayment of debt |
(250,000) |
|
|
— |
|
|
Proceeds from exercise of stock-based compensation
awards |
117,636 |
|
|
120,049 |
|
|
Dividends paid |
(276,922) |
|
|
(371,818) |
|
|
Repurchase of common stock |
(1,221,841) |
|
|
(154,490) |
|
|
Other, net |
(6,657) |
|
|
(3,836) |
|
|
Net cash used in financing activities |
(1,078,574) |
|
|
(410,095) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
(1,674) |
|
|
2,153 |
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
(409,504) |
|
|
408,209 |
|
|
Cash and cash equivalents at beginning of period |
493,640 |
|
|
145,402 |
|
|
Cash and cash equivalents at end of period |
$ |
84,136 |
|
|
$ |
553,611 |
|
See accompanying notes.
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
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 United States generally accepted accounting
principles (U.S. 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, 2021. A summary of our significant accounting
policies is presented beginning on page 40 of that report.
There have been no material changes in the accounting policies
followed by Cintas during the current fiscal
year.
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 valued at the lower of cost (first-in,
first-out) or net realizable value. Inventory is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
February 28,
2022 |
|
May 31,
2021 |
|
|
|
|
|
|
Raw materials |
$ |
23,218 |
|
|
$ |
15,109 |
|
|
Work in process |
33,858 |
|
|
37,664 |
|
|
Finished goods |
429,674 |
|
|
429,024 |
|
|
|
$ |
486,750 |
|
|
$ |
481,797 |
|
Inventories are recorded net of reserves for obsolete inventory
(excess and slow-moving) of $103.0 million and $111.0 million at
February 28, 2022 and May 31, 2021, respectively. The
inventory obsolescence reserve is determined by specific
identification, as well as an estimate based on Cintas' historical
rates of obsolescence. Once a specific inventory item is written
down to the lower of cost or net realizable value, a new cost basis
has been established, and that inventory item cannot subsequently
be marked up.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency
with the current year presentation. The reclassification has been
reflected in the consolidated condensed balance sheet and
consolidated condensed statement of shareholders' equity for the
fiscal year ended May 31, 2021 and the three and nine months ended
February 28, 2021, to combine common stock and paid-in capital for
presentation purposes. These reclassifications had no effect on the
Company's reported results of operations.
New Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes.
ASU 2019-12 is part of the FASB’s overall simplification initiative
to reduce costs and complexity of applying accounting standards
while maintaining or improving the usefulness of the information
provided to users of financial statements. ASU 2019-12 removes
certain exceptions to the general principles of Accounting
Standards Codification (ASC) 740,
Income Taxes
(ASC 740), in order to reduce the cost and complexity of its
application in the areas of intraperiod tax allocation, deferred
tax liabilities related to outside basis differences, year-to-date
losses in interim periods and other areas within ASC 740. The
Company adopted ASU 2019-12 on June 1, 2021. The adoption of ASU
2019-12 did not have a material impact on the Company’s
consolidated condensed financial statements currently but may in
future periods.
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.
Note 2 - Revenue Recognition
The following table presents Cintas' total revenue disaggregated by
operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
(In thousands) |
February 28,
2022 |
|
|
February 28,
2021 |
|
|
February 28,
2022 |
|
|
February 28,
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uniform Rental and
Facility Services |
$ |
1,553,320 |
|
79.2 |
% |
|
|
$ |
1,417,865 |
|
79.8 |
% |
|
|
$ |
4,596,767 |
|
79.5 |
% |
|
|
$ |
4,222,764 |
|
80.0 |
% |
First Aid and Safety
Services |
212,958 |
|
10.9 |
% |
|
|
198,474 |
|
11.2 |
% |
|
|
614,234 |
|
10.6 |
% |
|
|
597,373 |
|
11.3 |
% |
Fire Protection
Services |
128,727 |
|
6.6 |
% |
|
|
110,212 |
|
6.2 |
% |
|
|
380,199 |
|
6.6 |
% |
|
|
322,913 |
|
6.1 |
% |
|
Uniform Direct Sales |
65,537 |
|
3.3 |
% |
|
|
50,505 |
|
2.8 |
% |
|
|
188,573 |
|
3.3 |
% |
|
|
137,628 |
|
2.6 |
% |
|
Total revenue |
$ |
1,960,542 |
|
100.0 |
% |
|
|
$ |
1,777,056 |
|
100.0 |
% |
|
|
$ |
5,779,773 |
|
100.0 |
% |
|
|
$ |
5,280,678 |
|
100.0 |
% |
Fire Protection Services and Uniform Direct Sales operating
segments are included within All Other as disclosed in
Note
12
entitled Segment Information.
Revenue Recognition Policy
Approximately 95% of the Company's revenue is derived from fees for
route servicing of Uniform Rental and Facility Services, First Aid
and Safety Services and Fire Protection Services customers,
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
revenues over time as services are performed based on the nature of
services provided and contractual rates (output method) or at a
point in time when the performance obligation under the terms of
the contract with a customer are satisfied, at the customer's
location of business. The Company's remaining revenue, primarily
within the Uniform Direct Sales operating segment, and representing
approximately 5% of the Company's total revenue, is 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 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 nine months ended February 28, 2022 or 2021.
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. These assets are included
in prepaid expenses and other current assets and in other assets,
net on the consolidated condensed balance sheets.
Additionally, certain Uniform Direct Sales operating segment
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.
We are exposed to credit losses primarily through our trade
receivables. We determine the allowance for credit losses using
both an estimate, based on historical rates of collections, and
reserves for specific accounts identified as uncollectible. The
portion of the allowance that is an estimate based on Cintas'
historical rates of collections is recorded for overdue amounts,
beginning with a nominal percentage when the account is current and
increasing substantially as the account ages. The amount provided
as the account ages will differ slightly between the Uniform Rental
and Facility Services reportable operating segment, the First Aid
and Safety Services reportable operating segment and All Other
because of differences in customers served and the nature of each
business. We update our estimate of credit loss reserves quarterly,
considering recent write-offs and collections information and
underlying economic expectations.
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. As permitted
by ASC 606, "Revenue from Contracts with Customers (Topic 606)",
the Company has elected to apply the guidance to a portfolio of
contracts (or performance obligations) with similar characteristics
because the Company reasonably expects that the effects on the
consolidated condensed financial statements of applying this
guidance to the portfolio would not differ materially from applying
this guidance to the individual contracts within the portfolio. The
Company also continues to expense certain costs to obtain a
contract if those costs do not meet the criteria of the standard or
the amortization period of the asset would have been one year or
less. 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 February 28,
2022, the current and noncurrent assets related to deferred
commissions totaled $82.8 million and $232.7 million,
respectively. As of May 31, 2021, the current and noncurrent
assets related to deferred commissions totaled $79.4 million
and $227.1 million, respectively. We recorded amortization
expense related to deferred commissions of $22.0 million and $20.9
million during the three months ended February 28, 2022 and 2021,
respectively. During the nine months ended February 28, 2022 and
2021, we recorded amortization expense related to deferred
commissions of $65.1 million and $62.0 million, respectively. These
expenses are classified in selling and administrative expenses 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 both periods, were
$19.0 million and $17.7 million for the three months ended
February 28, 2022 and 2021, respectively. For the nine months ended
February 28, 2022 and 2021, operating lease costs, including
short-term lease expense and variable lease costs which were
immaterial in both periods, were $55.2 million and
$52.9 million, respectively.
The following table provides supplemental information related to
the Company's consolidated condensed statements of cash flows for
the nine months ended February 28:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating
lease liabilities |
$ |
36,923 |
|
|
$ |
36,654 |
|
Operating lease right-of-use assets obtained in exchange for new
and renewed
operating lease liabilities |
$ |
17,452 |
|
|
$ |
27,771 |
|
|
Operating lease right-of-use assets acquired in business
combinations |
$ |
17,734 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information related to the operating lease right-of-use
assets, net and operating lease liabilities was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28,
2022 |
|
May 31,
2021 |
|
|
|
|
|
|
Weighted-average remaining lease term - operating
leases |
5.54 years |
|
5.33 years |
|
Weighted-average discount rate - operating leases |
2.17% |
|
2.32% |
The contractual future minimum lease payments of Cintas' operating
lease liabilities by fiscal year are as follows as of February 28,
2022:
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
2022
(remaining three months)
|
|
$ |
12,455 |
|
|
2023 |
|
45,345 |
|
|
2024 |
|
34,896 |
|
|
2025 |
|
26,924 |
|
|
2026 |
|
21,255 |
|
|
Thereafter |
|
45,506 |
|
|
Total payments |
|
186,381 |
|
|
Less interest |
|
(11,052) |
|
|
Total present value of lease payments |
|
$ |
175,329 |
|
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 February 28, 2022 |
|
(In thousands) |
Level 1 |
|
Level 2 |
|
Level 3 |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
84,136 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
84,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets: |
|
|
|
|
|
|
|
|
Interest rate lock agreements |
— |
|
|
22,645 |
|
|
— |
|
|
22,645 |
|
|
Other assets, net: |
|
|
|
|
|
|
|
|
Interest rate lock agreements |
— |
|
|
21,370 |
|
|
— |
|
|
21,370 |
|
|
Total assets at fair value |
$ |
84,136 |
|
|
$ |
44,015 |
|
|
$ |
— |
|
|
$ |
128,151 |
|
|
|
|
|
|
|
|
|
|
|
Current accrued liabilities: |
|
|
|
|
|
|
|
|
Interest rate lock agreements |
$ |
— |
|
|
$ |
52,540 |
|
|
$ |
— |
|
|
$ |
52,540 |
|
|
Long-term accrued liabilities: |
|
|
|
|
|
|
|
|
Interest rate lock agreements |
— |
|
|
793 |
|
|
— |
|
|
793 |
|
|
Total liabilities at fair value |
$ |
— |
|
|
$ |
53,333 |
|
|
$ |
— |
|
|
$ |
53,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, 2021 |
|
(In thousands) |
Level 1 |
|
Level 2 |
|
Level 3 |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
493,640 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
493,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net: |
|
|
|
|
|
|
|
|
Interest rate lock agreements |
— |
|
|
40,400 |
|
|
— |
|
|
40,400 |
|
|
Total assets at fair value |
$ |
493,640 |
|
|
$ |
40,400 |
|
|
$ |
— |
|
|
$ |
534,040 |
|
|
|
|
|
|
|
|
|
|
|
Long-term accrued liabilities: |
|
|
|
|
|
|
|
|
Interest rate lock agreements |
$ |
— |
|
|
$ |
61,567 |
|
|
$ |
— |
|
|
$ |
61,567 |
|
|
Total liabilities at fair value |
$ |
— |
|
|
$ |
61,567 |
|
|
$ |
— |
|
|
$ |
61,567 |
|
Cintas’ cash and cash equivalents 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. 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.
The fair values of Cintas' interest rate lock agreements are based
on similar exchange traded derivatives (market approach) and are,
therefore, included within Level 2 of the fair value hierarchy. The
fair value was determined by comparing the locked rates against the
benchmarked treasury rate. No other amounts included in prepaid
expenses and other current assets, other assets, net, current
accrued liabilities or long-term accrued liabilities are recorded
at fair value on a recurring basis.
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, Cintas records assets and liabilities
at fair value on a nonrecurring basis as required under U.S. GAAP.
The assets and liabilities measured at fair value on a nonrecurring
basis primarily relate to assets and liabilities acquired in a
business acquisition. The Company's acquisition of the remaining
interest of an equity method investment during the three months
ended February 28, 2022 was recorded at fair value. See
Note
10
entitled Acquisitions for additional information.
Note 5 - Investments
Cintas' investments are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
February 28,
2022 |
|
May 31,
2021 |
|
|
|
|
|
|
Cash surrender value of insurance policies |
$ |
254,245 |
|
|
$ |
252,061 |
|
|
Equity method investments |
3,522 |
|
|
19,388 |
|
|
Cost method investments |
2,163 |
|
|
3,167 |
|
|
Total investments |
$ |
259,930 |
|
|
$ |
274,616 |
|
Investments are generally evaluated for impairment on an annual
basis or when indicators of impairment exist. For the three and
nine months ended February 28, 2022 and 2021, no impairment losses
were recorded.
During the three months ended February 28, 2022, Cintas acquired
the remaining interest of an equity method investment, and as a
result, such investment is no longer accounted for as an equity
method investment and is no longer included in the table above.
See
Note
10
entitled Acquisitions for more information.
Note 6 - Earnings Per Share
Cintas uses the two-class method to calculate basic and diluted
earnings per share as a result of outstanding participating
securities in the form of restricted stock awards. The following
tables set forth the computation of basic and diluted earnings per
share using the two-class method for amounts attributable to
Cintas’ common shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
Basic Earnings per Share
(In thousands except per share data)
|
February 28, 2022 |
|
February 28, 2021 |
|
February 28, 2022 |
|
February 28, 2021 |
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
315,448 |
|
|
$ |
258,384 |
|
|
$ |
941,296 |
|
|
$ |
843,246 |
|
|
Less: income allocated to participating securities |
1,581 |
|
|
1,894 |
|
|
4,706 |
|
|
5,908 |
|
|
Income available to common shareholders |
$ |
313,867 |
|
|
$ |
256,490 |
|
|
$ |
936,590 |
|
|
$ |
837,338 |
|
|
Basic weighted average common shares outstanding
|
103,388 |
|
|
105,264 |
|
|
103,438 |
|
|
104,782 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
3.04 |
|
|
$ |
2.44 |
|
|
$ |
9.05 |
|
|
$ |
7.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
Diluted Earnings per Share
(In thousands except per share data)
|
February 28, 2022 |
|
February 28, 2021 |
|
February 28, 2022 |
|
February 28, 2021 |
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
315,448 |
|
|
$ |
258,384 |
|
|
$ |
941,296 |
|
|
$ |
843,246 |
|
|
Less: income allocated to participating securities |
1,581 |
|
|
1,894 |
|
|
4,706 |
|
|
5,908 |
|
|
Income available to common shareholders |
$ |
313,867 |
|
|
$ |
256,490 |
|
|
$ |
936,590 |
|
|
$ |
837,338 |
|
|
Basic weighted average common shares outstanding
|
103,388 |
|
|
105,264 |
|
|
103,438 |
|
|
104,782 |
|
|
Effect of dilutive securities – employee stock options
|
2,253 |
|
|
2,732 |
|
|
2,458 |
|
|
2,914 |
|
|
Diluted weighted average common shares outstanding
|
105,641 |
|
|
107,996 |
|
|
105,896 |
|
|
107,696 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
$ |
2.97 |
|
|
$ |
2.37 |
|
|
$ |
8.84 |
|
|
$ |
7.78 |
|
For the three months ended February 28, 2022 and 2021, options
granted to purchase 0.6 million and 0.1 million shares of Cintas
common stock, respectively, were excluded from the computation of
diluted earnings per share. For the nine months ended February 28,
2022 and 2021, options granted to purchase 0.5 million and 0.2
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 October 30, 2018, Cintas announced that the Board of Directors
authorized a $1.0 billion share buyback program, which was
completed during the third quarter of fiscal 2021. On October 29,
2019, we announced that the Board of Directors authorized a $1.0
billion share buyback program, which was completed during the first
quarter of fiscal 2022. From the inception of the October 29, 2019
share buyback program through July 2021, Cintas purchased a total
of 2.8 million shares of Cintas common stock at an average
price of $358.93 per share for a total purchase price of
$1.0 billion. On July 27, 2021, Cintas announced that the
Board of Directors authorized a new $1.5 billion share buyback
program, which does not have an expiration date.
The following tables summarize the share buyback activity by
program and period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
February 28, 2022 |
|
|
February 28, 2022 |
|
Buyback Activity
(In thousands except per share data)
|
Shares |
|
Avg. Price
per Share |
|
Purchase
Price |
|
|
Shares |
|
Avg. Price
per Share |
|
Purchase
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2019 |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
1,590 |
|
|
$ |
365.41 |
|
|
$ |
581,220 |
|
|
July 27, 2021 |
1,386 |
|
|
388.03 |
|
|
537,655 |
|
|
|
1,386 |
|
|
388.03 |
|
|
537,655 |
|
|
|
1,386 |
|
|
$ |
388.03 |
|
|
$ |
537,655 |
|
|
|
2,976 |
|
|
$ |
375.94 |
|
|
$ |
1,118,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares acquired for taxes due
(1)
|
50 |
|
|
$ |
390.60 |
|
|
$ |
19,460 |
|
|
|
261 |
|
|
$ |
394.84 |
|
|
$ |
102,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total repurchase of Cintas
common stock |
|
|
|
|
$ |
557,115 |
|
|
|
|
|
|
|
$ |
1,221,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
February 28, 2021 |
|
|
February 28, 2021 |
|
Buyback Activity
(In thousands except per share data)
|
Shares |
|
Avg. Price
per Share |
|
Purchase
Price |
|
|
Shares |
|
Avg. Price
per Share |
|
Purchase
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30, 2018 |
190 |
|
|
$ |
319.88 |
|
|
$ |
60,877 |
|
|
|
190 |
|
|
$ |
319.88 |
|
|
$ |
60,877 |
|
|
October 29, 2019 |
66 |
|
|
$ |
321.51 |
|
|
$ |
21,080 |
|
|
|
66 |
|
|
$ |
321.51 |
|
|
$ |
21,080 |
|
|
|
256 |
|
|
$ |
320.30 |
|
|
$ |
81,957 |
|
|
|
256 |
|
|
$ |
320.30 |
|
|
$ |
81,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares acquired for taxes due
(1)
|
4 |
|
|
$ |
332.73 |
|
|
$ |
1,151 |
|
|
|
241 |
|
|
$ |
301.49 |
|
|
$ |
72,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total repurchase of Cintas
common stock |
|
|
|
|
$ |
83,108 |
|
|
|
|
|
|
|
$ |
154,490 |
|
(1)
Shares of Cintas stock acquired for employee payroll taxes due on
options exercised and vested restricted stock awards.
In addition to the share buyback activity presented above, Cintas
acquired shares of Cintas common stock, via non-cash transactions,
in connection with net-share settlements of option exercises.
During the three and nine months ended February 28, 2022, Cintas
acquired less than 0.1 million shares of Cintas common stock
via such non-cash transactions at an average price of $391.03 for a
total non-cash value of $12.0 million.
In the period subsequent to February 28, 2022, through
April 7, 2022, we purchased 0.1 million shares of Cintas
common stock at an average price of $368.75 for a total purchase
price of $46.5 million. From the inception of the July 27,
2021 program through April 7, 2022, Cintas has purchased
1.5 million shares of Cintas common stock in the aggregate, at
an average price of $386.42 per share, for a total purchase price
of $584.2 million.
Note 7 - Goodwill, Service Contracts and Other Assets
Changes in the carrying amount of goodwill and service contracts
for the nine months ended February 28, 2022, 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, 2021 |
$ |
2,547,510 |
|
|
$ |
248,571 |
|
|
$ |
116,988 |
|
|
$ |
2,913,069 |
|
|
Goodwill acquired |
99,826 |
|
|
28,655 |
|
|
5,073 |
|
|
133,554 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
(12,715) |
|
|
(1,126) |
|
|
(44) |
|
|
(13,885) |
|
|
Balance as of February 28, 2022 |
$ |
2,634,621 |
|
|
$ |
276,100 |
|
|
$ |
122,017 |
|
|
$ |
3,032,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Contracts
(in thousands)
|
Uniform Rental
and Facility Services |
|
First Aid
and Safety Services |
|
All
Other |
|
Total |
|
|
|
|
|
|
|
|
|
|
Balance as of June 1, 2021 |
$ |
369,141 |
|
|
$ |
18,294 |
|
|
$ |
21,010 |
|
|
$ |
408,445 |
|
|
Service contracts acquired |
32,695 |
|
|
7,331 |
|
|
1,534 |
|
|
41,560 |
|
|
Service contracts amortization |
(37,679) |
|
|
(3,157) |
|
|
(3,598) |
|
|
(44,434) |
|
|
Foreign currency translation |
(3,062) |
|
|
(143) |
|
|
— |
|
|
(3,205) |
|
|
Balance as of February 28, 2022 |
$ |
361,095 |
|
|
$ |
22,325 |
|
|
$ |
18,946 |
|
|
$ |
402,366 |
|
Information regarding Cintas’ service contracts and other assets is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2022 |
|
|
As of May 31, 2021 |
|
(In thousands) |
Carrying
Amount |
|
Accumulated
Amortization |
|
Net |
|
|
Carrying
Amount |
|
Accumulated
Amortization |
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service contracts |
$ |
997,923 |
|
|
$ |
595,557 |
|
|
$ |
402,366 |
|
|
|
$ |
961,942 |
|
|
$ |
553,497 |
|
|
$ |
408,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized contract
costs
(1)
|
$ |
529,698 |
|
|
$ |
297,027 |
|
|
$ |
232,671 |
|
|
|
$ |
459,079 |
|
|
$ |
231,940 |
|
|
$ |
227,139 |
|
Noncompete and
consulting agreements |
50,028 |
|
|
43,319 |
|
|
6,709 |
|
|
|
44,683 |
|
|
42,408 |
|
|
2,275 |
|
|
Other |
92,023 |
|
|
24,749 |
|
|
67,274 |
|
|
|
105,371 |
|
|
24,371 |
|
|
81,000 |
|
|
Total other assets |
$ |
671,749 |
|
|
$ |
365,095 |
|
|
$ |
306,654 |
|
|
|
$ |
609,133 |
|
|
$ |
298,719 |
|
|
$ |
310,414 |
|
(1) The
current portion of capitalized contract costs, included in prepaid
expenses and other current assets on the consolidated condensed
balance sheets as of February 28, 2022 and May 31, 2021, is
$82.8 million and $79.4 million,
respectively.
Amortization expense for service contracts and other assets was
$38.0 million and $35.6 million for the three months ended February
28, 2022 and 2021, respectively. For the nine months ended February
28, 2022 and 2021, amortization expense for service contracts and
other assets was $111.4 million and $106.0 million, respectively.
These expenses are recorded in selling and administrative expenses
on the consolidated condensed statements of income. As of February
28, 2022, the estimated future amortization expense for service
contracts and other assets, excluding any future acquisitions and
commissions to be earned, is as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal Year
(In thousands)
|
|
|
|
|
|
|
|
2022
(remaining three months)
|
|
$ |
36,700 |
|
|
2023 |
|
134,129 |
|
|
2024 |
|
121,678 |
|
|
2025 |
|
107,037 |
|
|
2026 |
|
89,415 |
|
|
Thereafter |
|
237,557 |
|
|
Total future amortization expense |
|
$ |
726,516 |
|
Note 8 - Debt, Derivatives and Hedging Activities
Cintas' outstanding debt is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Interest
Rate |
|
Fiscal Year
Issued |
|
Fiscal Year
Maturity |
|
February 28,
2022 |
|
May 31,
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
Debt due within one year |
|
|
|
|
|
|
|
|
|
|
Senior notes |
4.30 |
% |
|
2012 |
|
2022 |
|
$ |
— |
|
|
$ |
250,000 |
|
|
Senior notes |
2.90 |
% |
|
2017 |
|
2022 |
|
650,000 |
|
|
650,000 |
|
|
Senior notes |
3.25 |
% |
|
2013 |
|
2023 |
|
300,000 |
|
|
— |
|
|
Commercial paper |
0.43 |
% |
(1)
|
2022 |
|
2022 |
|
559,210 |
|
|
— |
|
|
Debt issuance costs |
|
|
|
|
|
|
(154) |
|
|
(930) |
|
|
Total debt due within one year |
|
|
|
|
|
|
$ |
1,509,056 |
|
|
$ |
899,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt due after one year |
|
|
|
|
|
|
|
|
|
|
Senior notes |
3.25 |
% |
|
2013 |
|
2023 |
|
$ |
— |
|
|
$ |
300,000 |
|
|
Senior notes
(2)
|
2.78 |
% |
|
2013 |
|
2023 |
|
50,489 |
|
|
50,815 |
|
|
Senior notes
(3)
|
3.11 |
% |
|
2015 |
|
2025 |
|
51,049 |
|
|
51,301 |
|
|
Senior notes |
3.70 |
% |
|
2017 |
|
2027 |
|
1,000,000 |
|
|
1,000,000 |
|
|
Senior notes |
6.15 |
% |
|
2007 |
|
2037 |
|
250,000 |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
|
|
|
|
(8,025) |
|
|
(9,283) |
|
|
Total debt due after one year |
|
|
|
|
|
|
$ |
1,343,513 |
|
|
$ |
1,642,833 |
|
(1) Variable
rate debt instrument. The rate presented is the variable borrowing
rate at February 28, 2022.
(2)
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%.
(3) 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, 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
February 28, 2022 were $2,859.0 million and $2,994.0 million,
respectively, and as of May 31, 2021 were $2,550.0 million and
$2,788.8 million, respectively. On June 1, 2021, in accordance with
the terms of the notes, Cintas paid the $250.0 million
aggregate principal amount of its 4.30%, 10-year senior notes that
matured on that date with cash on hand. During the nine months
ended February 28, 2022, Cintas issued $559.2 million, net of
commercial paper.
The credit agreement that supports our commercial paper program was
amended and restated on March 23, 2022. The amendment increased the
capacity of the revolving credit facility from $1.0 billion to
$2.0 billion. The credit agreement has an accordion feature
that provides Cintas the ability to request increases to the
borrowing commitments under the revolving credit facility of up to
$500.0 million in the aggregate, subject to customary conditions.
The maturity date of the revolving credit facility is March 23,
2027. As of February 28, 2022, there was $559.2 million of
commercial paper outstanding with a weighted average interest rate
of 0.43% and maturity dates less than 120 days and no borrowings on
our revolving credit facility. The fair value of the commercial
paper, which approximates carrying value, is estimated using level
2 inputs based on general market prices and interest
rates.
Cintas uses interest rate locks to manage its 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 locks, which represent cash flow hedges, 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 interest rate locks resulted
in a decrease to other comprehensive income of $0.5 million and
$0.4 million for the three months ended February 28, 2022 and 2021,
respectively. For the nine months ended February 28, 2022 and 2021,
the
amortization of the interest rate locks resulted in a decrease to
other comprehensive income of $1.4 million and $1.1 million,
respectively.
The notional and fair values of the outstanding interest rate
locks, for forecasted debt issuances, are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2022 |
|
May 31, 2021 |
|
Fiscal Year of Issuance
(in thousands)
|
Notional
Value |
|
Prepaid expenses
and other
current assets |
|
Other
assets, net |
|
Current
accrued liabilities |
|
Long-term
accrued
liabilities |
|
|
Other
assets, net |
|
Long-term
accrued
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
$ |
250,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
793 |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
2020 |
$ |
950,000 |
|
|
$ |
22,645 |
|
|
$ |
21,370 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
40,400 |
|
|
$ |
— |
|
|
2019 |
$ |
500,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
52,540 |
|
|
$ |
— |
|
|
|
$ |
— |
|
|
$ |
61,657 |
|
The interest rate locks are also recorded in other comprehensive
income (loss), net of tax. These interest rate locks had no impact
on net income or cash flows for the three and nine months ended
February 28, 2022 or 2021.
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. Cintas was in compliance with all
of the debt covenants for all periods presented.
Note 9 - Income Taxes
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 February 28,
2022 and May 31, 2021, recorded unrecognized tax benefits were
$32.6 million and $34.2 million, respectively, and are included in
long-term accrued liabilities on the consolidated condensed balance
sheets.
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 results of
operations in any given period.
All United States federal income tax returns are closed to audit
through fiscal 2017. 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 2014. 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, 2022.
Cintas’ effective tax rate was 18.2% and 14.4% for the three months
ended February 28, 2022 and 2021, respectively. For the nine months
ended February 28, 2022 and 2021, Cintas' effective tax rate was
15.8% and 11.8%, respectively. The effective tax rate for all
periods was impacted by certain discrete items (primarily the tax
accounting for stock-based compensation). In addition, the
effective tax rate for the three and nine months ended February 28,
2022, included a one-time tax benefit from a gain on an equity
method investment transaction. The effective tax rate for the nine
months ended February 28, 2021, included a one-time tax benefit on
the sale of certain operating assets.
Note 10 - Acquisitions
On December 10, 2021, Cintas acquired the remaining interest of an
equity method investment. The acquisition will operate as a
component of Cintas' supply chain within the Uniform Rental and
Facility Services reportable operating segment. The cash
consideration transferred to acquire the remaining interest of the
equity method investment was $48.0 million, net of cash
acquired of $1.7 million. Under applicable accounting
guidance, the Company was required to record its historical equity
method investment at fair value ($43.5 million), resulting in
a gain of $30.2 million, which is recorded as a reduction in
selling and administrative expenses in the three and nine months
ended February 28, 2022. The fair value of the historical equity
method investment was determined using a combination of a market
and income approach (discounted cash flow analysis). The key
assumptions and estimates utilized in these approaches included
market data and market multiples, discount rates, as well as future
levels of revenue growth and operating margins. The Company
believes these assumptions and estimate are reasonable and based on
the best information available at the valuation date.
Cintas accounted for the acquisition using the acquisition method
of accounting.
The preliminary purchase price allocation was determined by
management with the assistance of third-party valuation specialists
and is based on estimates of the fair value of assets acquired and
liabilities assumed as of December 10, 2021. Goodwill is calculated
as the excess of the consideration transferred over the net assets
recognized and represents the estimated future economic benefits
arising from other assets acquired that could not be individually
identified and separately recognized. The factors contributing to
the recognition of the amount of goodwill are based on several
strategic supply chain and synergistic benefits that will allow for
Cintas to further vertically integrate the operations for certain
product lines, and are expected to be realized from the
acquisition. None of the goodwill is expected to be deductible for
income tax purposes.
The allocation of the preliminary purchase price, including the
value of the previously held equity method investment, at fair
value is as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
December 10, 2021 |
|
|
|
|
|
ASSETS |
|
|
|
Working capital assets |
|
$ |
17,352 |
|
|
Property and equipment |
|
16,230 |
|
|
Operating lease right-of-use assets |
|
16,882 |
|
|
Goodwill |
|
55,986 |
|
|
Separately identifiable intangible assets |
|
9,201 |
|
|
|
|
|
|
LIABILITIES |
|
|
|
Total current liabilities |
|
(6,425) |
|
|
Operating lease liabilities |
|
(17,734) |
|
|
Total allocation (consideration) |
|
$ |
91,492 |
|
As additional information is obtained, adjustments may be made to
the preliminary purchase price allocation. The Company is still
finalizing the estimated fair value of certain of the tangible and
identifiable intangible assets acquired and liabilities assumed.
The separately identifiable intangible assets are primarily made up
of a customer relationship intangible asset that will be amortized
over a period of 9 years, which represents the estimated useful
life of the economic benefit.
Cintas is required to provide additional disclosures about fair
value measurements as part of the consolidated condensed financial
statements for each major category of assets and liabilities
measured at fair value on a nonrecurring basis (including business
combinations). The working capital assets and liabilities, as well
as the property and equipment acquired, were valued using Level 2
inputs which included data points that are observable, such as
definitive sales agreements, appraisals or established market
values of comparable assets (market approach). Goodwill and
separately identifiable intangible assets were valued using Level 3
inputs, which are unobservable by nature, and included internal
estimates of future cash flows (income approach).
The results of operations of the acquisition are included in
Cintas' consolidated condensed statements of income subsequent to
the date of acquisition, and are not material to the consolidated
condensed financial statements.
Other Acquisitions During Fiscal 2022
The purchase price paid for each acquisition in fiscal 2022 has
been allocated to the fair value of the assets acquired and
liabilities assumed. Excluding the acquisition of the remaining
interest in an equity method investment discussed above, during the
nine months ended February 28, 2022, Cintas acquired three
businesses included in the Uniform Rental and Facility Services
reportable operating segment, seven businesses included in the
First Aid and Safety Services reportable operating segment and six
businesses included in All Other. During the nine months ended
February 28, 2021, Cintas acquired two business included in the
Uniform Rental and Facility Services reportable operating segment,
three businesses included in the First Aid and Safety Services
reportable operating segment and three businesses included in All
Other.
The following summarizes the aggregate purchase price and fair
value allocations for all businesses acquired during the nine
months ended February 28:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
Fair value of tangible assets acquired |
|
$ |
36,736 |
|
|
$ |
476 |
|
|
Fair value of service contracts acquired |
|
41,560 |
|
|
4,203 |
|
|
Fair value of other intangibles acquired |
|
5,439 |
|
|
432 |
|
|
Fair value of operating lease right-of-use assets, net |
|
16,882 |
|
|
— |
|
|
Net goodwill recognized |
|
132,206 |
|
|
5,850 |
|
|
Total fair value of assets acquired |
|
232,823 |
|
|
10,961 |
|
|
Fair value of liabilities assumed |
|
(20,746) |
|
|
(3,391) |
|
|
Fair value of operating lease liabilities |
|
(17,734) |
|
|
— |
|
|
Total fair value of liabilities assumed |
|
(38,480) |
|
|
(3,391) |
|
|
Total consideration for acquisitions, net of cash
acquired |
|
$ |
194,343 |
|
|
$ |
7,570 |
|
Note 11 - Accumulated Other Comprehensive Income
(Loss)
The following tables summarize the changes in the accumulated
balances for each component of accumulated other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Foreign
Currency |
|
Unrealized (Loss) Income
on Interest Rate Locks |
|
Other |
|
Total |
|
|
|
|
|
|
|
|
|
|
Balance at June 1, 2021 |
$ |
41,839 |
|
|
$ |
(7,308) |
|
|
$ |
(3,643) |
|
|
$ |
30,888 |
|
|
Other comprehensive loss before reclassifications |
(24,016) |
|
|
(36,679) |
|
|
— |
|
|
(60,695) |
|
|
Amounts reclassified from accumulated other
comprehensive income (loss)
|
— |
|
|
(459) |
|
|
— |
|
|
(459) |
|
|
Net current period other comprehensive loss |
(24,016) |
|
|
(37,138) |
|
|
— |
|
|
(61,154) |
|
|
Balance at August 31, 2021 |
17,823 |
|
|
(44,446) |
|
|
(3,643) |
|
|
(30,266) |
|
Other comprehensive (loss) income before
reclassifications |
(7,472) |
|
|
10,940 |
|
|
— |
|
|
3,468 |
|
|
Amounts reclassified from accumulated other
comprehensive income (loss)
|
— |
|
|
(460) |
|
|
— |
|
|
(460) |
|
|
Net current period other comprehensive (loss) income |
(7,472) |
|
|
10,480 |
|
|
— |
|
|
3,008 |
|
|
Balance at November 30, 2021 |
10,351 |
|
|
(33,966) |
|
|
(3,643) |
|
|
(27,258) |
|
|
Other comprehensive income before reclassifications |
5,297 |
|
|
34,567 |
|
|
— |
|
|
39,864 |
|
|
Amounts reclassified from accumulated other
comprehensive income (loss)
|
— |
|
|
(459) |
|
|
— |
|
|
(459) |
|
|
Net current period other comprehensive income |
5,297 |
|
|
34,108 |
|
|
— |
|
|
39,405 |
|
|
Balance at February 28, 2022 |
$ |
15,648 |
|
|
$ |
142 |
|
|
$ |
(3,643) |
|
|
$ |
12,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Foreign
Currency |
|
Unrealized Loss on
Interest Rate Locks |
|
Other |
|
Total |
|
|
|
|
|
|
|
|
|
|
Balance at June 1, 2020 |
$ |
(26,343) |
|
|
$ |
(112,718) |
|
|
$ |
(14,319) |
|
|
$ |
(153,380) |
|
|
Other comprehensive income before reclassifications |
26,946 |
|
|
10,842 |
|
|
— |
|
|
37,788 |
|
|
Amounts reclassified from accumulated other
comprehensive income (loss)
|
— |
|
|
(358) |
|
|
— |
|
|
(358) |
|
|
Net current period other comprehensive income |
26,946 |
|
|
10,484 |
|
|
— |
|
|
37,430 |
|
|
Balance at August 31, 2020 |
603 |
|
|
(102,234) |
|
|
(14,319) |
|
|
(115,950) |
|
|
Other comprehensive income before reclassifications |
2,960 |
|
|
15,942 |
|
|
— |
|
|
18,902 |
|
|
Amounts reclassified from accumulated other
comprehensive income (loss)
|
— |
|
|
(359) |
|
|
— |
|
|
(359) |
|
|
Net current period other comprehensive income |
2,960 |
|
|
15,583 |
|
|
— |
|
|
18,543 |
|
|
Balance at November 30, 2020 |
3,563 |
|
|
(86,651) |
|
|
(14,319) |
|
|
(97,407) |
|
|
Other comprehensive income before reclassifications |
8,947 |
|
|
75,850 |
|
|
— |
|
|
84,797 |
|
|
Amounts reclassified from accumulated other
comprehensive income (loss)
|
— |
|
|
(358) |
|
|
— |
|
|
(358) |
|
|
Net current period other comprehensive income |
8,947 |
|
|
75,492 |
|
|
— |
|
|
84,439 |
|
|
Balance at February 28, 2021 |
$ |
12,510 |
|
|
$ |
(11,159) |
|
|
$ |
(14,319) |
|
|
$ |
(12,968) |
|
The following table summarizes the 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 |
|
Nine Months Ended |
|
|
(In thousands) |
February 28,
2022 |
|
February 28,
2021 |
|
February 28,
2022 |
|
February 28,
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of interest rate locks
|
$ |
608 |
|
|
$ |
474 |
|
|
$ |
1,823 |
|
|
$ |
1,422 |
|
Interest expense |
|
Tax expense |
(149) |
|
|
(116) |
|
|
(445) |
|
|
(347) |
|
Income taxes |
|
Amortization of interest rate locks, net of tax |
$ |
459 |
|
|
$ |
358 |
|
|
$ |
1,378 |
|
|
$ |
1,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12 - Segment Information
Cintas’ 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, 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’ operating segments,
which consists of the Fire Protection Services operating segment
and the Uniform Direct Sale operating segment, 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’ reportable operating segments and All Other
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 February 28, 2022 |
|
|
|
|
|
|
|
Revenue |
$ |
1,553,320 |
|
|
$ |
212,958 |
|
|
$ |
194,264 |
|
|
$ |
— |
|
|
$ |
1,960,542 |
|
|
Income (loss) before income taxes |
$ |
355,990 |
|
|
$ |
26,304 |
|
|
$ |
25,311 |
|
|
$ |
(21,974) |
|
|
$ |
385,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended February 28, 2021 |
|
|
|
|
|
|
|
Revenue |
$ |
1,417,865 |
|
|
$ |
198,474 |
|
|
$ |
160,717 |
|
|
$ |
— |
|
|
$ |
1,777,056 |
|
|
Income (loss) before income taxes |
$ |
283,403 |
|
|
$ |
25,820 |
|
|
$ |
17,245 |
|
|
$ |
(24,465) |
|
|
$ |
302,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the nine months ended February 28, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
4,596,767 |
|
|
$ |
614,234 |
|
|
$ |
568,772 |
|
|
$ |
— |
|
|
$ |
5,779,773 |
|
|
Income (loss) before income taxes |
$ |
1,022,987 |
|
|
$ |
74,109 |
|
|
$ |
85,838 |
|
|
$ |
(65,618) |
|
|
$ |
1,117,316 |
|
|
Total assets |
$ |
7,022,646 |
|
|
$ |
668,475 |
|
|
$ |
393,343 |
|
|
$ |
84,136 |
|
|
$ |
8,168,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the nine months ended February 28, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
4,222,764 |
|
|
$ |
597,373 |
|
|
$ |
460,541 |
|
|
$ |
— |
|
|
$ |
5,280,678 |
|
|
Income (loss) before income taxes |
$ |
914,040 |
|
|
$ |
65,853 |
|
|
$ |
49,153 |
|
|
$ |
(73,290) |
|
|
$ |
955,756 |
|
|
Total assets |
$ |
6,783,655 |
|
|
$ |
653,662 |
|
|
$ |
356,569 |
|
|
$ |
553,611 |
|
|
$ |
8,347,497 |
|
(1)
Corporate assets include cash and cash equivalents and marketable
securities, if applicable, in all periods.
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 the United States (U.S.), as well as Canada and
Latin America, 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 safety training,
Cintas helps customers get
Ready for the Workday®.
Cintas is also the creator of the Total Clean
Program™
— a first-of-its-kind service that includes scheduled delivery of
essential cleaning supplies, hygienically clean laundering, and
sanitizing and disinfecting products and services.
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, 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 market 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 market 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. 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 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 the Fire Protection Services operating segment
and the Uniform Direct Sale operating segment, is included in All
Other. These operating segments consist of fire protection
products and services and the direct sale of uniforms and related
items. Cintas evaluates operating segment performance based on
revenue and income before income taxes. Revenue and income before
income taxes for the three and nine months ended February 28, 2022
and 2021, for the two reportable operating segments and All Other
are presented in
Note
12
entitled Segment Information of “Notes to Consolidated Condensed
Financial Statements.”
We have operations throughout the U.S. and Canada and participate
in a global supply chain. During most of fiscal 2021, the existence
of the novel
strain of coronavirus (COVID-19)
pandemic, the fear associated with the COVID-19 pandemic and the
reactions of governments around the world in response to the
COVID-19 pandemic to regulate the flow of labor and products and
impede the business of
our customers, impacted our ability to conduct normal business
operations, which had an adverse effect on our business. Many of
Cintas' customers were also impacted by the COVID-19 pandemic, and
we saw an impact on some customer's ability to pay timely. While
there was
minimal disruption to our supply chain, Cintas did increase
inventory, primarily personal protective equipment and facility
services inventory, in response to the customer needs and demand
associated with the safety and cleanliness requirements of
COVID-19. The increase in inventory resulted in additional
inventory reserves during fiscal 2021 and could result in future
inventory reserve increases if demand for personal protective
equipment materially declines. The on-going roll out of the
COVID-19 vaccines and gradual lifting of COVID-19 restrictions had
a positive impact on our business during the three and nine months
ended February 28, 2022. The impact of the on-going COVID-19
pandemic, including the emergence of the Omicron variant, is fluid
and continues to evolve, and therefore, we cannot predict the
extent to which our business, consolidated results of operations,
consolidated financial condition or liquidity will ultimately be
impacted.
Consolidated Results
Three Months Ended February 28, 2022 Compared to Three Months Ended
February 28, 2021
Total revenue increased 10.3% to $1,960.5 million for the three
months ended February 28, 2022, compared to $1,777.1 million for
the three months ended February 28, 2021. The organic revenue
growth rate, which adjusts for the impact of acquisitions,
divestitures and foreign currency exchange rate fluctuations, was
10.0%. Revenue growth was positively impacted by a net 0.3% due to
acquisitions and divestitures.
Uniform Rental and Facility Services reportable operating segment
revenue was $1,553.3 million for the three months ended February
28, 2022, compared to $1,417.9 million for the same period in the
prior fiscal year, which was an increase of 9.6%. The organic
revenue growth rate for this reportable operating segment was 8.9%.
Revenue growth in the Uniform Rental and Facility Services
reportable operating segment was positively impacted by 0.7% due to
acquisitions. 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.
Other revenue, consisting of revenue from the First Aid and Safety
Services reportable operating segment and All Other, increased
13.4% for the three months ended February 28, 2022, compared to the
same period in the prior fiscal year, from $359.2 million to $407.2
million. The organic revenue growth rate for other revenue was
14.4%. Revenue growth was negatively impacted by a net 1.0% due to
acquisitions and divestitures.
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 $72.2 million, or 9.5%, for the three months ended
February 28, 2022, compared to the three months ended February 28,
2021. This change from the prior fiscal year was primarily due
to higher Uniform Rental and Facility Services reportable operating
segment sales volume, as well as increased energy costs and labor
to generate the revenue growth achieved during the three months
ended February 28, 2022 as well as anticipated revenue growth
during the remainder of the current fiscal year.
Cost of other consists primarily of cost of goods sold
(predominantly first aid and safety products, personal protective
equipment, 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 $22.6 million, or 11.0%, for the three months ended
February 28, 2022, compared to the three months ended February 28,
2021, primarily due to increased sales volume in each of the
underlying operating segments. Cost of other improved as a
percentage of revenue, decreasing from 57.3% for three months ended
February 28, 2021 to 56.1% for the three months ended February 28,
2022. The improvement in cost of sales as a percent to revenue was
primarily due to favorable changes in the sales mix for each of the
underlying operating segments, including a decrease in the
proportion of sales related to personal protective equipment, which
typically have lower gross margins compared to the first aid
cabinet sales in the First Aid and Safety Services reportable
operating segment.
Selling and administrative expenses increased $7.5 million, or
1.6%, in the three months ended February 28, 2022, compared to the
same period of the prior fiscal year. The increase in expense was
primarily due to increases in selling labor and increased travel
and meeting expenses. Selling and administrative expenses as a
percent of revenue were 25.0% for the three months ended February
28, 2022, which is a 220 basis point improvement compared to 27.2%
for the same period in the prior fiscal year. The improvement as a
percent of revenue was due to revenue growth outpacing the growth
in expenses as well as a one-time gain on an equity method
investment transaction of $30.2 million recorded in the three
months ended February 28, 2022.
Operating income was $407.6 million, or 20.8% of revenue, for the
three months ended February 28, 2022, compared to $326.5 million,
or 18.4% of revenue, for the three months ended February 28, 2021.
The 240 basis point increase in operating income as a percent of
revenue was due to the increase in revenue, improvements in both
gross margin and selling and administrative expenses as well as a
one-time gain of $30.2 million on an equity method investment
transaction recorded in the three months ended February 28,
2022.
Net interest expense (interest expense less interest income) was
$22.0 million for the three months ended February 28, 2022,
compared to $24.5 million for the three months ended February 28,
2021. The change was primarily due to the replacement of the $250.0
million of senior notes with an interest rate of 4.30% that matured
on June 1, 2021, with commercial paper that had an interest rate of
0.43% at February 28, 2022.
Cintas’ effective tax rate for continuing operations was 18.2% and
14.4% for the three months ended February 28, 2022 and 2021,
respectively. The effective tax rate in both periods was impacted
by certain discrete items, primarily the tax accounting impact for
stock-based compensation. In addition, the effective tax rate for
the three months ended February 28, 2022 included a one-time tax
benefit from a gain on an equity method investment
transaction.
Net income for the three months ended February 28, 2022, increased
$57.1 million, or 22.1%, compared to the three months ended
February 28, 2021. Diluted earnings per share were $2.97 for the
three months ended February 28, 2022, which was an increase of
25.3% compared to the same period in the prior fiscal year. Diluted
earnings per share increased primarily due to the increase in net
income combined with the decrease in diluted weighted average
common shares outstanding. The decrease in diluted weighted average
common shares outstanding resulted from purchasing an aggregate of
approximately 4.4 million shares of common stock under the board
approved share buyback programs since the beginning of the third
quarter of fiscal 2021 through the third quarter of fiscal
2022.
Uniform Rental and Facility Services Reportable Operating
Segment
Three Months Ended February 28, 2022 Compared to Three Months Ended
February 28, 2021
Uniform Rental and Facility Services reportable operating segment
revenue was $1,553.3 million for the three months ended February
28, 2022 compared to $1,417.9 million for the same period of the
prior fiscal year. The organic revenue growth rate for the
reportable operating segment was 8.9%. The cost of uniform rental
and facility services increased $72.2 million, or 9.5%. The
reportable operating segment’s gross margin was $719.2 million.
Gross margin as a percentage of revenue was 46.3% for both the
three months ended February 28, 2022 and 2021.
Improved leverage of fixed costs was offset by an increase in
energy-related expenses, which increased 50 basis points from the
same period of the prior fiscal year.
Selling and administrative expenses for the Uniform Rental and
Facility Services reportable operating segment decreased $9.4
million in the three months ended February 28, 2022 compared to the
same period of the prior fiscal year. Selling and administrative
expenses as a percent of revenue for the three months ended
February 28, 2022 improved to 23.4% compared to the 26.3% in the
third quarter of the prior fiscal year. The improvement in both
actual spend and percent of revenue was primarily due to the
previously mentioned one-time gain on an equity method investment
transaction of $30.2 million as well as efficiencies in labor
realized in the three months ended February 28, 2022.
Income before income taxes increased $72.6 million, or 25.6%, for
the Uniform Rental and Facility Services reportable operating
segment for the three months ended February 28, 2022, compared to
the same period in the prior fiscal year. Income before income
taxes was 22.9% of the reportable operating segment’s revenue,
which was a 290 basis point increase from the third quarter of the
prior fiscal year of 20.0%. This increase was primarily due to
the previously discussed increase in revenue and improvements in
selling and administrative expenses.
First Aid and Safety Services Reportable Operating
Segment
Three Months Ended February 28, 2022 Compared to Three Months Ended
February 28, 2021
First Aid and Safety Services reportable operating segment revenue
increased from $198.5 million to $213.0 million, or 7.3%, for the
three months ended February 28, 2022, over the same period in the
prior fiscal year. The organic revenue growth rate for the
reportable operating segment was 6.2%. First Aid and Safety
Services reportable operating segment revenue was positively
impacted by 1.1% due to acquisitions. The increase in revenue 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,
which more than offset the significant one-time sales of personal
protective equipment in the prior fiscal year period.
Cost of first aid and safety services increased $6.6 million, or
5.9%, for the three months ended February 28, 2022, over the three
months ended February 28, 2021, due to higher sales
volume. The gross margin as a percent of revenue was 44.2% for
the quarter ended February 28, 2022, compared to the gross margin
as a percent of revenue of 43.5% in the same period of the prior
fiscal year. The improvement in gross margin from the third quarter
of the prior year was primarily driven by a decrease in the
proportion of sales related to personal protective equipment, which
typically have lower gross margins than first aid cabinet
sales.
Selling and administrative expenses increased $7.4 million in the
three months ended February 28, 2022, compared to the same period
of the prior fiscal year. Selling and administrative expenses as a
percent of revenue for the three months ended February 28, 2022
were 31.9%, compared to 30.5% in the third quarter of the prior
fiscal year. The change as a percent of revenue from the prior year
was primarily due to an investment in the sales force to support
our strong current revenue growth and anticipated future revenue
growth.
Income before income taxes for the First Aid and Safety Services
reportable operating segment increased $0.5 million to $26.3
million for the three months ended February 28, 2022, compared to
the same period in the prior fiscal year. Income before income
taxes was 12.4% of the reportable operating segment’s revenue
compared to the third quarter of the prior fiscal year of 13.0%.
The increase in income before income taxes was due to the
previously discussed increase in gross margin.
Consolidated Results
Nine Months Ended February 28, 2022 Compared to Nine Months Ended
February 28, 2021
Total revenue increased 9.5% to $5,779.8 million for the nine
months ended February 28, 2022, compared to $5,280.7 million for
the nine months ended February 28, 2021. Total organic revenue
growth was 9.3%. Organic growth adjusts for the impact of
acquisitions, divestitures and foreign currency exchange rate
fluctuations. Revenue growth was negatively impacted by a net 0.1%
due to acquisitions and divestitures and positively impacted by
0.3% due to foreign currency exchange rate
fluctuations.
Uniform Rental and Facility Services reportable operating segment
revenue was $4,596.8 million for the nine months ended February 28,
2022, compared to $4,222.8 million in the same period of the prior
fiscal year, which was an increase of 8.9%. Organic revenue growth
for this reportable operating segment was 8.5%. Uniform Rental and
Facility Services reportable operating segment revenue was
positively impacted by a net 0.1% due to acquisitions and
divestitures and by 0.3% due to foreign currency exchange rate
fluctuations. 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.
Other revenue, consisting of revenue from the First Aid and Safety
Services reportable operating segment and All Other, was $1,183.0
million for the nine months ended February 28, 2022, compared to
$1,057.9 million for the nine months ended February 28, 2021, which
was an increase of 11.8%. Other revenue organic growth was 12.5%.
Revenue growth was negatively impacted by a net 0.8% due to
acquisitions and divestitures and positively impacted by 0.1% due
to foreign currency exchange rate fluctuations.
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 $213.6 million, or 9.6%, for the nine months ended
February 28, 2022, compared to the nine months ended February 28,
2021. This increase over the same period of the prior fiscal
year was due to higher Uniform Rental and Facility Services
reportable operating segment sales volume, as well as a 50 basis
point increase in energy costs.
Cost of other consists primarily of cost of goods sold
(predominantly first aid and safety products, personal protective
equipment, 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 $55.1 million, or 9.1%, for the nine months ended
February 28, 2022, compared to the nine months ended February 28,
2021. Cost of other improved as a percentage of revenue, decreasing
from 57.5% for nine months ended February 28, 2021 to 56.1% for the
nine months ended February 28, 2022. The improvement in cost
of sales as a percent to revenue was
primarily due to favorable changes in the sales mix, including a
decrease in the proportion of sales related to personal protective
equipment, which typically have lower gross margins compared to the
first aid cabinet sales in the First Aid and Safety Services
reportable operating segment.
Selling and administrative expenses increased $76.6 million, or
5.4%, for the nine months ended February 28, 2022, compared to the
same period in the prior fiscal year. Selling and administrative
expenses improved as a percent to revenue for the nine months ended
February 28, 2022 to 26.0%, compared to 27.0% for the same period
of the prior fiscal year. The improvement as a percent of revenue
was primarily due to lower labor as well as a one-time gain on an
equity method investment transaction of $30.2 million recorded in
the nine months ended February 28, 2022.
Operating income was $1,182.9 million, or 20.5% of revenue, for the
nine months ended February 28, 2022, compared to $1,029.0 million,
or 19.5% of revenue, for the nine months ended February 28, 2021.
The improvement in operating income as a percent of revenue was due
to the increase in revenue and improvement in selling and
administrative expenses noted above.
Net interest expense (interest expense less interest income) was
$65.6 million for the nine months ended February 28, 2022, compared
to $73.3 million for the nine months ended February 28, 2021. The
change was primarily due to the replacement of the $250.0 million
of senior notes with an interest rate of 4.30% that matured on June
1, 2021, with commercial paper that had an interest rate of 0.43%
at February 28, 2022.
Cintas’ effective tax rate was 15.8% and 11.8% for the nine months
ended February 28, 2022 and February 28, 2021, respectively. The
effective tax rate in both periods was impacted by certain discrete
items, primarily the tax accounting for stock-based compensation.
In addition, the effective tax rate for the nine months ended
February 28, 2022 and 2021, included one-time tax benefits from a
gain on an equity method investment transaction in fiscal 2022 and
the sale of certain operating assets in fiscal 2021.
Net income for the nine months ended February 28, 2022, increased
$98.1 million, or 11.6%, compared to the nine months ended February
28, 2021. Diluted earnings per share was $8.84 for the nine months
ended February 28, 2022, which was an increase of 13.6% compared to
the same period in the prior fiscal year. Diluted earnings per
share increased due to the increase in net income combined with the
decrease in diluted weighted average common shares outstanding. The
decrease in diluted weighted average common shares outstanding
resulted from purchasing an aggregate of approximately 4.4 million
shares of common stock under the board approved share buyback
programs since the beginning of the third quarter of fiscal 2021
through the third quarter of fiscal 2022.
Uniform Rental and Facility Services Reportable Operating
Segment
Nine Months Ended February 28, 2022 Compared to Nine Months Ended
February 28, 2021
Uniform Rental and Facility Services reportable operating segment
revenue increased 8.9% to $4,596.8 million for the nine months
ended February 28, 2022, compared to $4,222.8 million for the same
period of the prior fiscal year. Organic revenue growth for this
reportable operating segment was 8.5%. The cost of uniform rental
and facility services increased $213.6 million, or 9.6%, for the
nine months ended February 28, 2022 over the same period in the
prior fiscal year. The reportable operating segment’s gross margin
was $2,166.1 million, or 47.1% of revenue, for the nine months
ended February 28, 2022, compared to the gross margin of 47.5% for
the nine months ended February 28, 2021. The change in gross
margin
was primarily due to a
50
basis point increase in energy costs in the current
year.
Selling and administrative expenses for the Uniform Rental and
Facility Services reportable operating segment increased $51.5
million improving as a percent to revenue for the nine months ended
February 28, 2022 to 24.9%, compared to 25.9% for the same period
of the prior fiscal year. The improvements in percent of revenue
was primarily due to efficiencies in labor and the previously
mentioned one-time gain of $30.2 million on an equity method
investment transaction.
Income before income taxes increased $108.9 million, or 11.9%, for
the Uniform Rental and Facility Services reportable operating
segment for the nine months ended February 28, 2022, compared to
the same period in the prior fiscal year. Income before income
taxes was 22.3% of the reportable operating segment’s revenue,
which was an improvement from 21.6% for the nine months ended
February 28, 2021. This increase was primarily due to the
reasons previously discussed.
First Aid and Safety Services Reportable Operating
Segment
Nine Months Ended February 28, 2022 Compared to Nine Months Ended
February 28, 2021
First Aid and Safety Services reportable operating segment revenue
increased from $597.4 million to $614.2 million, or 2.8%, for the
nine months ended February 28, 2022, over the same period in the
prior fiscal year. Organic revenue growth for this reportable
operating segment was 2.0%. First Aid and Safety Services
reportable operating segment revenue was positively impacted by
0.7% due to acquisitions and by 0.1% due to foreign currency
exchange rate fluctuations. Increases in new business sold by sales
representatives, penetration of additional products and services
into existing customers and strong customer retention offset
significant, non-recurring sales of personal protective equipment
in the prior fiscal year period.