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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2022
 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                         to                                        
 Commission file number 0-11399
ctas-20220228_g1.jpg
Cintas Corporation
(Exact name of registrant as specified in its charter)
Washington 31-1188630
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification Number)
6800 Cintas Boulevard
P.O. Box 625737
Cincinnati, Ohio 45262-5737
(Address of Principal Executive Offices) (Zip Code)
 
Registrant's Telephone Number, Including Area Code: (513) 459-1200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common stock, no par value CTAS The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Indicate by checkmark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No
Indicate by checkmark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). 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                 Accelerated Filer                                               Non-Accelerated Filer  
Smaller Reporting Company           Emerging Growth Company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class   Outstanding March 31, 2022
Common Stock, no par value   102,324,911



CINTAS CORPORATION
TABLE OF CONTENTS

Page
3
4
February 28, 2022 and May 31, 2021
5
6
8
9
 



Part I. Financial Information
ITEM 1.                             
FINANCIAL STATEMENTS
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)

  Three Months Ended Nine Months Ended
  February 28, 2022 February 28, 2021 February 28, 2022 February 28, 2021
Revenue:    
Uniform rental and facility services $ 1,553,320  $ 1,417,865  $ 4,596,767  $ 4,222,764 
Other 407,222  359,191  1,183,006  1,057,914 
Total revenue 1,960,542  1,777,056  5,779,773  5,280,678 
Costs and expenses:    
Cost of uniform rental and facility services
834,082  761,850  2,430,644  2,217,073 
Cost of other 228,306  205,690  663,078  608,004 
Selling and administrative expenses 490,549  483,048  1,503,117  1,426,555 
Operating income 407,605  326,468  1,182,934  1,029,046 
Interest income (56) (87) (168) (369)
Interest expense 22,030  24,552  65,786  73,659 
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.
3

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.






4

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.
5


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 —  —  —  —  —  — 
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 
6

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 —  —  —  —  —  — 
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.
7

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.
8

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.
9

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.

10

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.

11

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 

12

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.
13

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.

14

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.

15

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)
$ 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.



16

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 
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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
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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.


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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.
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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 
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(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 

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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.

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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
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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.

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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
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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
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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.
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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.