What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-06 compared with 2021-10-07 · 148 added, 84 removed, 191 unchanged (55% of the section changed)

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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 projects 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.

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Cintas evaluates operating segment performance based on revenue and income before income taxes.

Revenue and income before income taxes for the three months ended August 31, 2021 and 2020, for the two reportable operating segments and All Other are presented in Note 12 entitled Segment Information of “Notes to Consolidated Condensed Financial Statements.”

Revenue and income before income taxes for the three and six months ended November 30, 2021 and 2020, for the two reportable operating segments and All Other are presented in Note 1 1 entitled Segment Information of “Notes to Consolidated Condensed Financial Statements.”

We have operations throughout the U.S.

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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 months ended August 31, 2021.

The impact of the COVID-19 pandemic 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.

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 six months ended November 30 2021.

The impact of the 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 August 31, 2021 Compared to Three Months Ended August 31, 2020

Total revenue increased 8.6% to $1,897.0 million for the three months ended August 31, 2021, compared to $1,746.6 million for the three months ended August 31, 2020.

Three Months Ended November 30, 2021 Compared to Three Months Ended November 30, 2020

Total revenue increased 9.4% to $1,922.3 million for the three months ended November 30, 2021, compared to $1,757.0 million for the three months ended November 30, 2020.

The organic revenue growth rate, which adjusts for the impact of acquisitions, divestitures and foreign currency exchange rate fluctuations, was 9.3%.

Revenue growth was negatively impacted by a net 0.2% 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 $1,508.2 million for the three months ended August 31, 2021, compared to $1,394.4 million for the same period in the prior fiscal year, which was an increase of 8.2%.

Uniform Rental and Facility Services reportable operating segment revenue was $1,535.3 million for the three months ended November 30, 2021, compared to $1,410.5 million for the same period in the prior fiscal year, which was an increase of 8.8%.

The organic revenue grow rate for this reportable operating segment was 8.5%.

Revenue growth in the Uniform Rental and Facility Services reportable operating segment was negatively impacted by a net 0.5% due to acquisitions and divestitures and positively impacted by 0.5% due to foreign currency exchange rate fluctuations.

Revenue growth in the Uniform Rental and Facility Services reportable operating segment was positively impacted 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 of sales representatives.

Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 10.4% for the three months ended August 31, 2021, compared to the same period in the prior fiscal year, from $352.2 million to $388.8 million.

The organic revenue grow rate for other revenue was 10.3%.

Revenue growth was positively impacted by 0.1% due to foreign currency exchange rate fluctuations.

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 11.7% for the three months ended November 30, 2021, compared to the same period in the prior fiscal year, from $346.6 million to $387.0 million.

The organic revenue growth rate for other revenue was 12.8%.

Revenue growth was negatively impacted by a net 1.2% 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 $63.9 million, or 8.9%, for the three months ended August 31, 2021, compared to the three months ended August 31, 2020.

This change from prior fiscal year was primarily due to higher Uniform Rental and Facility Services reportable operating segment sales volume, as well as increased labor and energy costs.

Cost of uniform rental and facility services increased $77.5 million, or 10.5%, for the three months ended November 30, 2021, compared to the three months ended November 30, 2020.

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 November 30, 2021 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 $9.9 million, or 4.8%, for the three months ended August 31, 2021, compared to the three months ended August 31, 2020.

Cost of other improved as a percentage of revenue, decreasing from 58.2% for three months ended August 31, 2020 to 55.3% for the three months ended August 31, 2021.

The decrease in cost of sales as a percent to revenue was primarily due to a favorable change sales mix, including a decrease in the proportion of sales related to personal protective equipment.

Selling and administrative expenses increased $32.2 million, or 6.7%, in the three months ended August 31, 2021, compared to the same period of the prior fiscal year.

The increase in expense was due to increases in selling labor and increased travel and meeting expenses, partially offset by a gain on the sale of certain operating assets within the Uniform Direct Sales operating segment.

Selling and administrative expenses as a percent of revenue were 26.8% for the three months ended August 31, 2021, which is a 50 basis point improvement compared to 27.3% for the same period in the prior fiscal year.

Cost of other increased $22.5 million, or 11.4%, for the three months ended November 30, 2021, compared to the three months ended November 30, 2020, primarily due to increased sales volume in each of the underlying operating segments.

Cost of other improved as a percentage of revenue, decreasing from 56.9% for three months ended November 30, 2020 to 56.8% for the three months ended November 30, 2021.

The improvement in cost of sales as a percent to revenue was primarily due to a favorable change in sales mix, including a decrease in the proportion of sales related to personal protective equipment.

Selling and administrative expenses increased $36.9 million, or 7.9%, in the three months ended November 30, 2021, 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 26.2% for the three months ended November 30, 2021, which is a 40 basis point improvement compared to 26.6% for the same period in the prior fiscal year.

The improvement as a percent of revenue was primarily due to revenue growth outpacing the growth in expenses.

Operating income was $394.1 million, or 20.8% of revenue, for the three months ended August 31, 2021, compared to $349.7 million, or 20.0% of revenue, for the three months ended August 31, 2020.

The 80 basis point increase in operating income as a percent of revenue was due to both cost of sales and selling and administrative expenses decreasing as a percent of revenue for the three months ended August 31, 2021.

Net interest expense (interest expense less interest income) was $21.8 million for the three months ended August 31, 2021, compared to $24.5 million for the three months ended August 31, 2020.

The change was primarily due to the refinancing of $250.0 million from senior debt with an interest rate of 4.30% which matured on June 1, 2021, into commercial paper which had an interest rate of 0.20% at August 31, 2021.

Cintas’ effective tax rate for continuing operations was 11.0% and 7.8% for the three months ended August 31, 2021 and 2020, respectively.

In addition, lower labor and employee-partner

related expenses during the three months ended November 30, 2021 more than offset a one-time benefit from the gain on the sale of certain operating assets during the three months ended November 30, 2020.

Operating income was $381.2 million, or 19.8% of revenue, for the three months ended November 30, 2021, compared to $352.9 million, or 20.1% of revenue, for the three months ended November 30, 2020.

The 30 basis point decrease in operating income as a percent of revenue was due to a one-time benefit from the gain on the sale of certain operating assets for the three months ended November 30, 2020.

Net interest expense (interest expense less interest income) was $21.8 million for the three months ended November 30, 2021, compared to $24.3 million for the three months ended November 30, 2020.

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 0.22% at November 30, 2021.

Cintas’ effective tax rate for continuing operations was 18.0% and 13.3% for the three months ended November 30, 2021 and 2020, respectively.

The effective tax rate in both periods was impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation.

Net income for the three months ended August 31, 2021 increased $31.2 million, or 10.4%, compared to the three months ended August 31, 2020.

Diluted earnings per share were $3.11 for the three months ended August 31, 2021, which was an increase of 11.9% 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 weighted average common shares outstanding.

The decrease in common shares outstanding resulted from purchasing an aggregate of approximately 3.0 million shares of common stock under the October 30, 2018 and October 29, 2019 share buyback programs since the beginning of the third quarter of fiscal 2021 through the first quarter of fiscal 2022.

In addition, the effective tax rate for the three months ended November 30, 2020 included a one-time tax benefit on the sale of certain operating assets.

Net income for the three months ended November 30, 2021 increased $9.8 million, or 3.4%, compared to the three months ended November 30, 2020.

Diluted earnings per share were $2.76 for the three months ended November 30, 2021, which was an increase of 5.3% 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 3.0 million shares of common stock under the October 30, 2018 and October 29, 2019 share buyback programs since the beginning of the third quarter of fiscal 2021 through the first quarter of fiscal 2022.

Uniform Rental and Facility Services Reportable Operating Segment

Three Months Ended August 31, 2021 Compared to Three Months Ended August 31, 2020

Uniform Rental and Facility Services reportable operating segment revenue was $1,508.2 million for the three months ended August 31, 2021 compared to $1,394.4 million for the same period of the prior fiscal year, and the cost of uniform rental and facility services increased $63.9 million, or 8.9%.

Three Months Ended November 30, 2021 Compared to Three Months Ended November 30, 2020

Uniform Rental and Facility Services reportable operating segment revenue was $1,535.3 million for the three months ended November 30, 2021 compared to $1,410.5 million for the same period of the prior fiscal year, and the cost of uniform rental and facility services increased $77.5 million, or 10.5%.

The organic revenue grow rate for the reportable operating segment was 8.5%.

The reportable operating segment’s gross margin was $718.0 million, or 46.8% of revenue.

The gross margin was 40 basis points lower than the prior fiscal year’s first quarter gross margin of 48.7%.

The difference in gross margin as a percent to revenue was driven primarily by an increase in labor and energy costs.

Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $35.5 million in the three months ended August 31, 2021 compared to the same period of the prior fiscal year.

Selling and administrative expenses as a percent of revenue for the three months ended August 31, 2021 was 26.5% compared to 26.1% in the first quarter of the prior fiscal year.

The increase as a percent of revenue was primarily due to increases in selling labor and increased travel and meeting expenses.

Income before income taxes increased $14.4 million, or 4.6%, for the Uniform Rental and Facility Services reportable operating segment for the three months ended August 31, 2021, compared to the same period in the prior fiscal year.

Income before income taxes was 21.8% of the reportable operating segment’s revenue, which was a 80 basis point decrease compared to the first quarter of the prior fiscal year of 22.6%.

The gross margin was 70 basis points lower than the prior fiscal year’s second quarter gross margin of 47.5%.

The difference in gross margin as a percent to revenue was driven primarily by a 40 basis point increase in energy costs and labor to generate the revenue growth achieved during the six months ended November 30, 2021 as well as anticipated revenue growth during the remainder of the current fiscal year.

Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $25.3 million in the three months ended November 30, 2021 compared to the same period of the prior fiscal year primarily due to an investment in the sales force and the inclusion of a one-time gain on sale of certain assets in the prior fiscal year period.

Selling and administrative expenses as a percent of revenue for the three months ended November 30, 2021 improved to 24.8% compared to the 25.2% in the second quarter of the prior fiscal year.

The improvement in percent of revenue was primarily due to efficiencies in labor and employee-partner related expenses during the three months ended November 30, 2021, that more than offset the gain on sale of certain operating assets during the three months ended November 30, 2020.

Income before income taxes increased $22.0 million, or 7.0%, for the Uniform Rental and Facility Services reportable operating segment for the three months ended November 30, 2021, compared to the same period in the prior fiscal year.

Income before income taxes was 22.0% of the reportable operating segment’s revenue, which was a 40 basis point decrease from the second quarter of the prior fiscal year of 22.4%.

This decrease was primarily due to the previously discussed changes in gross margin and selling and administrative expenses as a percent of revenue.

First Aid and Safety Services Reportable Operating Segment

Three Months Ended August 31, 2021 Compared to Three Months Ended August 31, 2020

First Aid and Safety Services reportable operating segment revenue decreased from $204.5 million to $199.1 million, or 2.6%, for the three months ended August 31, 2021, over the same period in the prior fiscal year.

Revenue for the reportable operating segment declined organically by 3.3%.

Three Months Ended November 30, 2021 Compared to Three Months Ended November 30, 2020

First Aid and Safety Services reportable operating segment revenue increased from $194.4 million to $202.2 million, or 4.0%, for the three months ended November 30, 2021, over the same period in the prior fiscal year.

The organic revenue growth rate for the reportable operating segment was 3.2%.

First Aid and Safety Services reportable operating segment revenue was positively impacted by 0.6% due to acquisitions and by 0.2% due to foreign currency exchange rate fluctuations.

The change in revenue was caused by a decrease in demand for personal protective equipment.

Cost of first aid and safety services decreased $12.5 million, or 10.2%, for the three months ended August 31, 2021, over the three months ended August 31, 2020, due to lower sales volume.

The gross margin as a percent of revenue was 44.8% for the quarter ended August 31, 2021, compared to the gross margin as a percent of revenue of 40.2% in the same period of the prior fiscal year.

The improvement in gross margin from the first 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 remained at $63.5 million, which is in line with the first quarter of the prior fiscal year, but increased as a percent of revenue to 31.9%, compared to 31.1% in the first quarter of the prior fiscal year.

The change as a percent of revenue from the prior year was primarily due to lower revenue.

Income before income taxes for the First Aid and Safety Services reportable operating segment increased $7.2 million to $25.7 million for the three months ended August 31, 2021, compared to the same period in the prior fiscal year.

Income before income taxes was 12.9% of the reportable operating segment’s revenue compared to the first quarter of the prior fiscal year of 9.1%.

This change was primarily due to the previously discussed increase in gross margin.

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 $3.3 million, or 3.0%, for the three months ended November 30, 2021, over the three months ended November 30, 2020, due to higher sales volume.

The gross margin as a percent of revenue was 43.5% for the quarter ended November 30, 2021, compared to the gross margin as a percent of revenue of 43.0% in the same period of the prior fiscal year.

The improvement in gross margin from the second 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 $3.9 million in the three months ended November 30, 2021, compared to the same period of the prior fiscal year, Selling and administrative expenses as a percent of revenue for the three months ended November 30, 2021 were 32.6%, compared to 31.9% in the second 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 revenue growth.

Income before income taxes for the First Aid and Safety Services reportable operating segment increased $0.6 million to $22.1 million for the three months ended November 30, 2021, compared to the same period in the prior fiscal year.

Income before income taxes was 10.9% of the reportable operating segment’s revenue compared to the second quarter of the prior fiscal year of 11.1%.

The increase in income before income taxes was due to the previously discussed increase in gross margin.

Consolidated Results

Six Months Ended November 30, 2021 Compared to Six Months Ended November 30, 2020

Total revenue increased 9.0% to $3,819.2 million for the six months ended November 30, 2021, compared to $3,503.6 million for the six months ended November 30, 2020.

Total organic revenue growth was 9.0%.

Organic growth adjusts for the impact of acquisitions, divestitures and foreign currency exchange rate fluctuations.

Revenue growth was negatively impacted by a net 0.3% 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 $3,043.4 million for the six months ended November 30, 2021, compared to $2,804.9 million in the same period of the prior fiscal year, which was an increase of 8.5%.

Organic revenue growth for this reportable operating segment was 8.3%.

Uniform Rental and Facility Services reportable operating segment revenue was negatively impacted by a net 0.3% due to acquisitions and divestitures and positively impacted by 0.5% 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 $775.8 million for the six months ended November 30, 2021, compared to $698.7 million for the six months ended November 30, 2020, which was an increase of 11.0%.

Other revenue organic growth was 11.5%.

Revenue growth was negatively impacted by a net 0.7% due to acquisitions and divestitures and positively impacted by 0.2% due to foreign currency exchange rate fluctuations.

Cost of uniform rental and facility services increased $141.3 million, or 9.7%, for the six months ended November 30, 2021, compared to the six months ended November 30, 2020.

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 higher energy costs.

Cost of other increased $32.5 million, or 8.1%, for the six months ended November 30, 2021, compared to the six months ended November 30, 2020.

Cost of other improved as a percentage of revenue, decreasing from 57.6% for six months ended November 30, 2020 to 56.0% for the six months ended November 30, 2021.

The decrease as a percent of revenue was due to a decrease in the proportion of sales in the First Aid and Safety Services reportable operating segment of personal protective equipment, which typically have lower gross margins compared to the First Aid cabinet sales.

Selling and administrative expenses increased $69.1 million, or 7.3%, for the six months ended November 30, 2021, compared to the same period in the prior fiscal year.

Selling and administrative expenses improved as a percent to revenue for the six months ended November 30, 2021 to 26.5%, compared to 26.9% for the same period of the prior fiscal year.

The improvement as a percent of revenue was primarily due to lower labor and employee-partner related expenses during the six months ended November 30, 2021, which more than offset the year over year net negative impact of the gains on the sale of certain operating assets.

Operating income was $775.3 million, or 20.3% of revenue, for the six months ended November 30, 2021, compared to $702.6 million, or 20.1% of revenue, for the six months ended November 30, 2020.

The improvement in operating income as a percent of revenue was due to the reasons previously discussed.

Net interest expense (interest expense less interest income) was $43.6 million for the six months ended November 30, 2021, compared to $48.8 million for the six months ended November 30, 2020.

Cintas’ effective tax rate was 14.5% and 10.5% for the six months ended November 30, 2021 and November 30, 2020, 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 six months ended November 30, 2020 included a one-time tax benefit on the sale of certain operating assets.

Net income for the six months ended November 30, 2021 increased $41.0 million, or 7.0%, compared to the six months ended November 30, 2020.

Diluted earnings per share was $5.87 for the six months ended November 30, 2021, which was an increase of 8.7% 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.

Uniform Rental and Facility Services Reportable Operating Segment

Six Months Ended November 30, 2021 Compared to Six Months Ended November 30, 2020

Uniform Rental and Facility Services reportable operating segment revenue increased 8.5% to $3,043.4 million for the six months ended November 30, 2021, compared to $2,804.9 million for the same period of the prior fiscal year, and the cost of uniform rental and facility services increased $141.3 million, or 9.7%.

Organic revenue growth for this reportable operating segment was 8.3%.

The reportable operating segment’s gross margin was $1,446.9 million, or 47.5% of revenue.

The change in gross margin from the gross margin of 48.1% for the six months ended November 30, 2020, was primarily due to an increase of 40 basis points in energy costs.

Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $60.8 million but remained the same as a percent of revenue at 25.6% for both the six months ended November 30, 2021 and 2020.

Efficiencies in labor and employee-partner related expense during the six months ended November 30, 2021 offset a prior year gain on the sale of certain operating assets during the six months ended November 30, 2020.

Income before income taxes increased $36.4 million, or 5.8%, for the Uniform Rental and Facility Services reportable operating segment for the six months ended November 30, 2021, compared to the same period in the prior fiscal year.

Income before income taxes was 21.9% of the reportable operating segment’s revenue, which was a 60 basis point decrease compared to 22.5% for the six months ended November 30, 2020.

This increase was primarily due to the decrease in gross margin.

First Aid and Safety Services Reportable Operating Segment

Six Months Ended November 30, 2021 Compared to Six Months Ended November 30, 2020

First Aid and Safety Services reportable operating segment revenue increased from $398.9 million to $401.3 million, or 0.6%, for the six months ended November 30, 2021, over the same period in the prior fiscal year.

Revenue for this reportable operating segment declined organically by 0.1%.

First Aid and Safety Services reportable operating segment revenue was positively impacted by 0.6% 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.

Cost of first aid and safety services decreased $9.2 million, or 4.0%, for the six months ended November 30, 2021, from the six months ended November 30, 2020, due to a decrease in the proportion of sales related to personal protective equipment, which typically have lower gross margins than First Aid cabinet sales.

The gross margin as a percent of revenue was 44.2% for the six months ended November 30, 2021, which was an increase of 270 basis points compared to the gross margin as a percent of revenue of 41.5% in the same period of the prior fiscal year.

The change in gross margin from the first half of the prior fiscal year was primarily a result of the decrease in the proportion of sales related to personal protective equipment.

Selling and administrative expenses increased $3.8 million, and increased as a percent of revenue to 32.3%, compared to 31.5% for the six months ended November 30, 2020.

The increase in expenses as a percent of revenue was primarily due to an investment in the sales force to support our strong current fiscal year revenue growth as well as anticipated revenue growth through the remainder of the fiscal year.

Income before income taxes for the First Aid and Safety Services reportable operating segment was $47.8 million for the six months ended November 30, 2021, compared to $40.0 million for the same period in the prior fiscal year.

Income before income taxes, at 11.9% of the reportable operating segment’s revenue, increased 190 basis points compared to the same period of the prior fiscal year due to the increase in gross margin.

Liquidity and Capital Resources

The following is a summary of our cash flows and cash and cash equivalents as of and for the three months ended August 31:

The following is a summary of our cash flows and cash and cash equivalents as of and for the six months ended November 30:

(In thousands) 2021 2020

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Cash and cash equivalents at the end of the period $ 113,170 $ 703,175

Cash and cash equivalents as of August 31, 2021 and 2020, include $38.1 million and $36.3 million, respectively, that is located outside of the U.S.

Cash and cash equivalents as of November 30, 2021 and 2020, include $64.8 million and $37.5 million, respectively, that is located outside of the U.S.

Cash flows provided by operating activities have historically supplied us with a significant source of liquidity.

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In addition, we have access to $1.0 billion of short-term debt from our revolving credit facility.

Although the impact of the COVID-19 pandemic is fluid and continues to evolve, we believe our long-term liquidity position remains strong.

the impact of the COVID-19 pandemic is fluid and continues to evolve, we believe our long-term liquidity position remains strong.

We believe the Company has sufficient liquidity to operate in the current business environment.

Acquisitions and dividends remain strategic objectives, but they will be dependent on the economic outlook and liquidity of the Company.

Net cash provided by operating activities was $262.1 million for the three months ended August 31, 2021, compared to $312.3 million for the three months ended August 31, 2020.

The change from the prior fiscal year was primarily due to an increase in accounts receivable and uniforms and other rental items in service which resulted from the growth in sales.

Additionally, there were uses of cash from the change in accrued compensation and other related liabilities, which was caused by the differences in the annual bonus payments and accounts payable, which was due to timing.

These uses of cash were partially offset by increased net income and favorable changes in working capital, specifically, inventories, net.

Acquisitions, repurchases of our common stock and dividends remain strategic objectives, but they will be dependent on the economic outlook and liquidity of the Company.

Net cash provided by operating activities was $593.8 million for the six months ended November 30, 2021, compared to $573.0 million for the six months ended November 30, 2020.

The change from the prior fiscal year was primarily due to an increase in net income, which was partially offset by unfavorable changes in working capital, specifically, accounts receivable and Uniforms and other rental items in service, which resulted from the growth in sales.

In addition, we had a favorable change in inventories, net, which was the result of a large amount of inventory purchases in the prior fiscal year period related to the COVID-19 pandemic, including sanitizer, sanitizer stands, masks and gloves.

Net cash used in investing activities includes capital expenditures, purchases of investments, proceeds from sale of operating assets and cash paid for acquisitions of businesses.

Capital expenditures were $48.7 million and $30.9 million for the three months ended August 31, 2021 and 2020, respectively.

Capital expenditures in three months ended August 31, 2021 included $34.5 million for the Uniform Rental and Facility Services reportable operating segment and $10.7 million for the First Aid and Safety Services reportable operating segment.

Cash paid for acquisitions of businesses was $35.7 million and $2.0 million for the three months ended August 31, 2021 and

2020, respectively.

The acquisitions during the three months ended August 31, 2021 occurred in our Uniform Rental and Facility Services reportable operating segment and our Fire Protection operating segment, which is included in All Other.

The acquisitions during the three months ended August 31, 2020 occurred in our Uniform Rental and Facility Services reportable operating segment.

Also, during the three months ended August 31, 2021, the Company received proceeds of $15.1 million from the sale of certain operating assets in All Other.

Net cash used in investing activities also includes $8.7 million and $4.9 million of purchases of investments during the three months ended August 31, 2021 and 2020, respectively.

Net cash used in financing activities was $590.1 million for the three months ended August 31, 2021, and net cash provided by financing activities was $2.2 million for the three months ended August 31, 2020.

The change in cash used in financing activities was primarily due to the increase in share buyback activity, debt payments and dividend payments, partially offset by the net issuance of commercial paper in the three months ended August 31, 2021.

Capital expenditures were $108.6 million and $57.7 million for the six months ended November 30, 2021 and 2020, respectively.

Capital expenditures in the six months ended November 30, 2021 included $76.3 million for the Uniform Rental and Facility Services reportable operating segment and $25.1 million for the First Aid and Safety Services reportable operating segment.

Cash paid for acquisitions of businesses was $45.7 million and $6.9 million for the six months ended November 30, 2021 and 2020, respectively.

The acquisitions during both the six months ended November 30, 2021 and 2020 occurred in our Uniform Rental and Facility Services reportable operating segment, our First Aid and Safety Services reportable operating segment and our Fire Protection operating segment, which is included in All Other.

Also, during the six months ended November 30, 2021, the Company received proceeds of $15.3 million from the sale of certain operating assets in All Other.

During the six months ended November 30, 2020, the Company received proceeds of $23.4 million from the sale of certain operating assets, net of cash disposed in the Uniform Rental and Facility Services reportable operating segment.

Net cash used in investing activities also includes $6.0 million and $7.2 million of purchases of investments during the six months ended November 30, 2021 and 2020, respectively.

Net cash used in financing activities was $819.9 million for the six months ended November 30, 2021, and net cash provided by financing activities was $34.5 million for the six months ended November 30, 2020.

On October 29, 2019, we announced the Board of Directors authorized a $1.0 billion share buyback program, which was completed during the first quarter of fiscal 2022.

On July 27, 2021, we announced that the Board of Directors authorized a new $1.5 billion share buyback program, which does not have an expiration date.

The following table summarizes the buyback activity by program and for the three months ended August 31:

The following table summarizes the buyback activity by program for the six months ended November 30:

Buyback Program

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1,590 $ 365.41 $ 581,220 — $ — $ —

There were no share buybacks in the period subsequent to August 31, 2021, through October 7, 2021 under any share buyback program.

In addition, for the three months ended August 31, 2021, Cintas acquired 0.2 million shares of Cintas common stock for employee payroll taxes due on restricted stock awards that vested during the three months ended August 31, 2021.

In addition, for the six months ended November 30, 2021, Cintas acquired 0.2 million shares of Cintas common stock for employee payroll taxes due on restricted stock awards that vested during the six months ended November 30, 2021.

These shares were acquired at an average price of $395.84 per share for a total purchase price of $83.5 million.

For the three months ended August 31, 2020, Cintas acquired 0.2 million shares of Cintas common stock for employee payroll taxes due on restricted stock awards that vested during the three months ended August 31, 2020.

For the six months ended November 30, 2020, Cintas acquired 0.2 million shares of Cintas common stock for employee payroll taxes due on restricted stock awards that vested during the six months ended November 30, 2020.

These shares were acquired at an average price of $301.01 per share for a total purchase price of $71.4 million.

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On July 27, 2021, the Board of Directors declared a quarterly dividend of $0.95 per share on outstanding common stock.

This dividend of $98.8 million was accrued on the August 31, 2021 consolidated condensed balance sheet and was paid on September 15, 2021, during the second quarter of fiscal 2022, to shareholders of record as of August 13, 2021.

These dividends, totaling $98.8 million, were paid on September 15, 2021, to shareholders of record as of August 13, 2021.

On October 26, 2021, the Board of Directors declared a quarterly dividend of $0.95 per

share on outstanding common stock.

This dividend of $99.1 million was accrued on the November 30, 2021 consolidated condensed balance sheet and was paid on December 15, 2021, during the third quarter of fiscal 2022, to shareholders of record as of November 15, 2021.

Any future dividend declarations, including the amount of any dividends, are at the discretion of the Board of Directors and dependent upon then-existing conditions, including the Company's consolidated operating results and consolidated financial condition, capital requirements, contractual restrictions, business prospects and other factors that the Board of Directors may deem relevant.

During the three months ended August 31, 2021, Cintas issued $326.0 million, net of commercial paper borrowings.

During the six months ended November 30, 2021, Cintas issued $167.0 million, net of commercial paper borrowings.

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.

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Issued Fiscal Year

Maturity August 31, 2021 May 31,

Maturity November 30, 2021 May 31,

Debt due within one year

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(1) Variable rate debt instrument.

The rate presented is the variable borrowing rate at August 31, 2021.

The rate presented is the variable borrowing rate at November 30, 2021.

(2) Cintas assumed these senior notes with the acquisition of G&K Services, Inc.

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The maturity date of the revolving credit facility is May 23, 2024.

As of August 31, 2021, there was $326.0 million of commercial paper outstanding and no borrowings on our revolving credit facility.

As of November 30, 2021, there was $167.0 million of commercial paper outstanding and no borrowings on our revolving credit facility.

As of May 31, 2021, there was no commercial paper outstanding and no borrowings on our revolving credit facility.

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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.

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.

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However, the COVID-19 pandemic, which has caused disruption in the capital markets, could make financing more difficult and/or expensive.

Additionally, our ability to continue to access the commercial paper and long-term debt markets on favorable interest rate and other terms will depend, to

a significant degree, on the ratings assigned by the credit rating agencies to our indebtedness.

As of August 31, 2021, our ratings were as follows:

Additionally, our ability to continue to access the commercial paper and long-term debt markets on favorable interest rate and other terms will depend, to a significant degree, on the ratings assigned by the credit rating agencies to our indebtedness.

As of November 30, 2021, our ratings were as follows:

Rating Agency Outlook Commercial

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For the purpose of this calculation, debt is defined as the sum of short-term borrowings, long-term debt due within one year, long-term debt and standby letters of credit.

Subsequent to November 30, 2021, Cintas purchased the remaining shares of an equity method investment for cash consideration of $47.7 million.

Financial and Nonfinancial Disclosure About Issuers and Guarantors of Cintas’ Senior Notes

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2) is the indirectly, wholly owned principal operating subsidiary of Cintas.

2 is the issuer of the $2,300.0 million aggregate principal amount of senior notes outstanding as of August 31, 2021, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly owned, direct and indirect domestic subsidiaries.

2 is the issuer of the $2,300.0 million aggregate principal amount of senior notes outstanding as of November 30, 2021, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly owned, direct and indirect domestic subsidiaries.

Basis of Preparation of the Summarized Financial Information

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Summarized financial information of the Obligor Group is as follows:

Three Months Ended

Six Months Ended

Summarized Consolidated Condensed Statement of Income

(In thousands)

2021 August 31,

2021 November 30,

Net sales to unrelated parties $ 3,599,543 $ 3,301,634

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis