What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-07 compared with 2022-01-06 · 149 added, 139 removed, 200 unchanged (59% of the section changed)

26 unchanged sentences

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

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.”

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.

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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 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.

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 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.

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 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 $1,535.3 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 positively impacted by 0.3% due to foreign currency exchange rate fluctuations.

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 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.

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 1.2% due to acquisitions and divestitures and positively impacted by 0.1% due to foreign currency exchange rate fluctuations.

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 $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 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 $22.5 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.

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 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.

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.

Selling and administrative expenses as a percent of revenue were 25.0% for the three months ended February 28, 2022, which is a 220 basis point improvement compared to 27.2% for the same period in the prior fiscal year.

The improvement as a percent of revenue was due to revenue growth outpacing the growth in expenses as well as a one-time gain on an equity method investment transaction of $30.2 million recorded in the three months ended February 28, 2022.

Operating income was $407.6 million, or 20.8% of revenue, for the three months ended February 28, 2022, compared to $326.5 million, or 18.4% of revenue, for the three months ended February 28, 2021.

The 240 basis point increase in operating income as a percent of revenue was due to the increase in revenue, improvements in both gross margin and selling and administrative expenses as well as a one-time gain of $30.2 million on an equity method investment transaction recorded in the three months ended February 28, 2022.

Net interest expense (interest expense less interest income) was $22.0 million for the three months ended February 28, 2022, compared to $24.5 million for the three months ended February 28, 2021.

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 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.

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 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.

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 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 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.

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 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.

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 0.6% due to acquisitions and by 0.2% due to foreign currency exchange rate fluctuations.

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%.

First Aid and Safety Services reportable operating segment revenue was positively impacted by 1.1% due to acquisitions.

The increase in revenue was driven by many factors including new business sold by sales representatives, penetration of additional products and

services into existing customers and strong customer retention, which more than offset the significant one-time sales of personal protective equipment in the prior fiscal year period.

Cost of first aid and safety services increased $6.6 million, or 5.9%, for the three months ended February 28, 2022, over the three months ended February 28, 2021, due to higher sales volume.

The gross margin as a percent of revenue was 44.2% for the quarter ended February 28, 2022, compared to the gross margin as a percent of revenue of 43.5% in the same period of the prior fiscal year.

The improvement in gross margin from the third quarter of the prior year was primarily driven by a decrease in the proportion of sales related to personal protective equipment, which typically have lower gross margins than first aid cabinet sales.

Selling and administrative expenses increased $7.4 million in the three months ended February 28, 2022, compared to the same period of the prior fiscal year.

Selling and administrative expenses as a percent of revenue for the three months ended February 28, 2022 were 31.9%, compared to 30.5% in the third quarter of the prior fiscal year.

The change as a percent of revenue from the prior year was primarily due to an investment in the sales force to support our strong current revenue growth and anticipated future revenue growth.

Income before income taxes for the First Aid and Safety Services reportable operating segment increased $0.5 million to $26.3 million for the three months ended February 28, 2022, compared to the same period in the prior fiscal year.

Income before income taxes was 12.4% of the reportable operating segment’s revenue compared to the third quarter of the prior fiscal year of 13.0%.

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

Consolidated Results

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.

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%.

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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 $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%.

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 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.

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 $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, 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%.

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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 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 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.

Cost of other increased $55.1 million, or 9.1%, for the nine months ended February 28, 2022, compared to the nine months ended February 28, 2021.

Cost of other improved as a percentage of revenue, decreasing from 57.5% for nine months ended February 28, 2021 to 56.1% for the nine months ended February 28, 2022.

The improvement in cost of sales as a percent to revenue was

primarily due to favorable changes in the sales mix, including a decrease in the proportion of sales related to personal protective equipment, which typically have lower gross margins compared to the first aid cabinet sales in the First Aid and Safety Services reportable operating segment.

Selling and administrative expenses increased $76.6 million, or 5.4%, for the nine months ended February 28, 2022, compared to the same period in the prior fiscal year.

Selling and administrative expenses improved as a percent to revenue for the nine months ended February 28, 2022 to 26.0%, compared to 27.0% for the same period of the prior fiscal year.

The improvement as a percent of revenue was primarily due to lower labor as well as a one-time gain on an equity method investment transaction of $30.2 million recorded in the nine months ended February 28, 2022.

Operating income was $1,182.9 million, or 20.5% of revenue, for the nine months ended February 28, 2022, compared to $1,029.0 million, or 19.5% of revenue, for the nine months ended February 28, 2021.

The improvement in operating income as a percent of revenue was due to the increase in revenue and improvement in selling and administrative expenses noted above.

Net interest expense (interest expense less interest income) was $65.6 million for the nine months ended February 28, 2022, compared to $73.3 million for the nine months ended February 28, 2021.

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 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.

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.

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%.

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 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.

The cost of uniform rental and facility services increased $213.6 million, or 9.6%, for the nine months ended February 28, 2022 over the same period in the prior fiscal year.

The reportable operating segment’s gross margin was $2,166.1 million, or 47.1% of revenue, for the nine months ended February 28, 2022, compared to the gross margin of 47.5% for the nine months ended February 28, 2021.

The change in gross margin was primarily due to a 50 basis point increase in energy costs in the current year.

Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $51.5 million improving as a percent to revenue for the nine months ended February 28, 2022 to 24.9%, compared to 25.9% for the same period of the prior fiscal year.

The improvements in percent of revenue was primarily due to efficiencies in labor and the previously mentioned one-time gain of $30.2 million on an equity method investment transaction.

Income before income taxes increased $108.9 million, or 11.9%, for the Uniform Rental and Facility Services reportable operating segment for the nine months ended February 28, 2022, compared to the same period in the prior fiscal year.

Income before income taxes was 22.3% of the reportable operating segment’s revenue, which was an improvement from 21.6% for the nine months ended February 28, 2021.

This increase was primarily due to the reasons previously discussed.

First Aid and Safety Services Reportable Operating Segment

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%.

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.

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.

Cost of first aid and safety services decreased $2.6 million, or 0.8%, for the nine months ended February 28, 2022, from the nine months ended February 28, 2021, 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 nine months ended February 28, 2022, which was an increase of 200 basis points compared to the gross margin as a percent of revenue of 42.2% 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.

Selling and administrative expenses increased $11.2 million, and increased as a percent of revenue to 32.1%, for the nine months ended February 28, 2022, compared to 31.2% for the nine months ended February 28, 2021.

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 future revenue growth through the remainder of the fiscal year.

Income before income taxes for the First Aid and Safety Services reportable operating segment was $74.1 million for the nine months ended February 28, 2022, compared to $65.9 million for the same period in the prior fiscal year.

Income before income taxes, at 12.1% of the reportable operating segment’s revenue, increased 110 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 six months ended November 30:

The following is a summary of our cash flows and cash and cash equivalents as of and for the nine months ended February 28:

(In thousands) 2022 2021

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Net cash used in investing activities $ (316,311) $ (88,664)

Net cash (used in) provided by financing activities $ (819,876) $ 34,461

Net cash used in financing activities $ (1,078,574) $ (410,095)

Cash and cash equivalents at the end of the period $ 84,136 $ 553,611

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 and cash equivalents as of February 28, 2022 and 2021, include $38.4 million and $28.9 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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We may also use cash flows provided by operating activities, as well as proceeds from long-term debt and short-term borrowings, to fund growth and expansion opportunities, as well as other cash requirements such as the repurchase of our common stock and payment of long-term debt.

We expect our cash flows from operating activities to remain sufficient to provide us with adequate levels of short-term liquidity.

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

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

We expect our cash flows from operating activities to remain sufficient to provide us with adequate levels of liquidity.

In addition, we have access to $2.0 billion of debt capacity from our recently amended and restated revolving credit facility, the maturity of which was extended.

Although the impact of the on-going 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, 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.

Net cash provided by operating activities was $987.1 million for the nine months ended February 28, 2022, compared to $904.8 million for the nine months ended February 28, 2021.

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 revenue.

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 $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.

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 six months ended November 30, 2021.

Capital expenditures were $165.9 million and $100.4 million for the nine months ended February 28, 2022 and 2021, respectively.

Capital expenditures in the nine months ended February 28, 2022 included $115.8 million for the Uniform Rental and Facility Services reportable operating segment and $39.5 million for the First Aid and Safety Services reportable operating segment.

The increase in capital expenditures during the nine months ended February 28, 2022, over the same period in the prior year is due to an investment in the operating segments to support the on-going growth in revenue.

Cash paid for acquisitions of businesses was $150.8 million and $7.6 million for the nine months ended February 28, 2022 and 2021, respectively.

The acquisitions during both the nine months ended February 28, 2022 and 2021 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 nine months ended February 28, 2022, the Company received proceeds of $15.3 million from the sale of certain operating assets in All Other.

During the nine months ended February 28, 2021, the Company received proceeds of $32.5 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 $7.9 million of purchases of investments during the nine months ended February 28, 2022 and 2021, respectively.

Net cash used in financing activities was $1,078.6 million and $410.1 million for the nine months ended February 28, 2022 and 2021, respectively.

The increase 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 nine months ended February 28, 2022.

On October 30, 2018, we 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 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 for the six months ended November 30:

The following table summarizes the buyback activity by program for the nine months ended February 28:

Buyback Program

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October 30, 2018 — $ — $ — 190 $ 319.88 $ 60,877

October 29, 2019 1,590 365.41 581,220 66 321.51 21,080

July 27, 2021 1,386 388.03 537,655 — — —

2,976 $ 375.94 $ 1,118,875 256 $ 320.30 $ 81,957

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 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.

On April 13, 2021, our Board of Directors declared a quarterly dividend of $0.75 per share on outstanding common stock.

These dividends, totaling $79.1 million, were paid on June 15, 2021, to shareholders of record as of May 15, 2021.

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

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.

Shares acquired for taxes due (1)

261 $ 394.84 $ 102,966 241 $ 301.49 $ 72,533

Total repurchase of Cintas

common stock $ 1,221,841 $ 154,490

(1) Shares of Cintas stock acquired for employee payroll taxes due on options exercised and vested restricted stock awards.

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 share buyback 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, for a total purchase price of $584.2 million.

Our Board of Directors declared the following dividends:

Quarter Dividend

Per Share Amount

(in millions)

Date Shareholders

of Record Date

Q4 FY21 $ 0.75 $ 79.1 April 13, 2021 June 15, 2021 May 15, 2021

Q1 FY22 $ 0.95 $ 98.8 July 27, 2021 September 15, 2021 August 13, 2021

Q2 FY22 $ 0.95 $ 99.1 October 26, 2021 December 15, 2021 November 15, 2021

$ 0.95 $ 98.2 January 12, 2022 March 15, 2022 February 15, 2022

(1) The dividend declared on January 12, 2022 was included in current accrued liabilities on the consolidated condensed balance sheet at February 28, 2022.

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

During the nine months ended February 28, 2022, Cintas issued $559.2 million, net of commercial paper.

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 next 12 months, Cintas expects to issue long-term debt to pay the $650 million principal amount of its 2.90%, 5-year senior notes that mature in the fourth quarter of fiscal 2022 and the $300 million principal amount of its 3.25%, 10-year senior notes that mature in the first quarter of fiscal 2023.

In the near term, Cintas expects to issue long-term debt to pay the $650.0 million principal amount of its 2.90%, 5-year senior notes that mature in the fourth quarter of fiscal 2022 and the $300.0 million principal amount of its 3.25%, 10-year senior notes that mature in the first quarter of fiscal 2023.

The following table summarizes Cintas' outstanding debt:

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Issued Fiscal Year

Maturity November 30, 2021 May 31,

Maturity February 28,

Debt due within one year

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(1) Variable rate debt instrument.

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

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.

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The principal amount of these notes is $50.0 million with a stated interest rate of 3.88%.

The credit agreement that supports our commercial paper program has a revolving credit facility with capacity to $1.0 billion.

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 May 23, 2024.

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

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.

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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We do not anticipate having difficulty in obtaining financing from those markets in the future in view of our favorable experiences in the debt markets in the recent past, including, without limitation, to repay our long-term debt that is maturing in the next twelve months.

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 November 30, 2021, our ratings were as follows:

As of February 28, 2022, 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 November 30, 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 February 28, 2022, 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:

Six Months Ended

Nine Months Ended

Summarized Consolidated Condensed Statement of Income

(In thousands)

2021 November 30,

2022 February 28,

Net sales to unrelated parties $ 5,445,091 $ 4,976,885

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the performance and costs of integration of acquisitions;

fluctuations in costs of materials and labor including increased medical costs;

inflationary pressures and fluctuations in costs of materials and labor, including increased medical costs;

costs and possible effects of union organizing activities;

failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety;

the effect on operations of exchange rate fluctuations, tariffs and other political, economic and regulatory risks;

the effect on operations of exchange rate fluctuations, interest rate volatility, tariffs and other political, economic and regulatory risks;

uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation;

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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