What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-07-27 compared with 2022-07-27 · 91 added, 124 removed, 275 unchanged (44% of the section changed)

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These operating segments consist of fire protection products and services and the direct sale of uniforms and related items.

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

Revenue and income before income taxes for the reportable operating segments for the years ended May 31, 2022, 2021 and 2020 are presented in Note 15 entitled Operating Segment Information of " Notes to Consolidated Financial Statements ." The Company regularly reviews its operating segments for reporting purposes based on the information its chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance and makes changes when appropriate.

We have operations throughout the U.S.

and Canada and participate in a global supply chain.

Since fiscal 2020, the existence of the COVID-19 pandemic, the fear associated with the COVID-19 pandemic and the reactions of governments around the world in response to the COVID-19 pandemic to regulate the flow of labor and products and impede the business of our customers, impacted our ability to conduct normal business operations, which had an adverse effect on our business.

Many of Cintas' customers were also impacted by the COVID-19 pandemic, and we saw an impact on some customer's ability to pay timely.

While there was minimal disruption to our supply chain, Cintas did increase inventory, primarily personal protective equipment and facility services inventory, in response to the customer needs and demand associated with the safety and cleanliness requirements of COVID-19.

The increase in inventory resulted in additional inventory reserves during fiscal 2022 and fiscal 2021.

See Note 1 entitled Significant Accounting Policies of " Notes to Consolidated Financial Statements " for additional detail on the incremental reserves placed on inventory.

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 fiscal 2022.

The impact of the on-going 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.

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

Revenue and operating income for the reportable operating segments for the years ended May 31, 2023, 2022 and 2021 are presented in Note 13 entitled Operating Segment Information of " Notes to Consolidated Financial Statements ." The Company regularly reviews its operating segments for reporting purposes based on the information its chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance and makes changes when appropriate.

The following table sets forth certain consolidated statements of income data as a percent of revenue by reportable operating segment, All Other and in total for the fiscal years ended May 31:

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Total selling and administrative expenses 26.9% 26.0%

Operating income:

Uniform Rental and Facility Services 21.4% 21.7%

First Aid and Safety Services 19.0% 12.8%

All Other 14.8% 16.0%

Total operating income 20.4% 20.2%

Interest expense, net 1.2% 1.1%

Income from continuing operations before income taxes 19.1% 18.1%

Income before income taxes 19.2% 19.1%

Fiscal 2023 Compared to Fiscal 2022

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

Total revenue was positively impacted by 0.1% due primarily to acquisitions and by 0.1% due to foreign currency exchange rate fluctuations.

As previously discussed, government enactments of temporary and indefinite closures of certain businesses in response to the COVID-19 pandemic continued to impact our ability to access and service some of our customers impacted by these mandates during fiscal 2021.

The roll out of the COVID-19 vaccines and general lifting of COVID-19 restrictions had a positive impact on our business during fiscal 2022.

Due to the constantly changing impact of the COVID-19 pandemic, uncertainty remains about the pace of the economic recovery and about its impact on future Cintas consolidated financial results.

Total revenue was positively impacted by 0.4% due primarily to acquisitions and negatively impacted by 0.4% due to foreign currency exchange rate fluctuations.

Organic revenue growth by quarter for fiscal 2023 is as follows:

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Uniform Rental and Facility Services reportable operating segment revenue consists predominantly of revenue derived from the rental of corporate identity uniforms and other garments, including flame resistant clothing and the rental and/or sale of mats, mops, shop towels, restroom supplies and other rental services.

Revenue from the Uniform Rental and Facility Services reportable operating segment increased 9.4% compared to fiscal 2021 due to an organic growth increase of 9.0%.

Revenue growth was positively impacted by 0.2% due primarily to acquisitions and by 0.2% due to foreign currency exchange rate fluctuations.

Organic revenue growth was a result of new business, the penetration of additional products and services into existing customers, the positive impact from the lifting of COVID-19 restrictions and price increases, partially offset by lost business.

Revenue from the Uniform Rental and Facility Services reportable operating segment increased 10.8% compared to fiscal 2022.

Organic revenue growth for this reportable operating segment was 10.8%.

Revenue growth was positively impacted by 0.4% due to acquisitions and negatively impacted by 0.4% 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.

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Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 17.9% compared to fiscal 2022.

Revenue improved from increases in sales representative productivity and from the lifting of COVID-19 restrictions.

Revenue improved from increases in sales representative productivity.

Revenue increased organically by 17.4%.

Revenue growth was negatively impacted by 0.8% due to divestitures.

Revenue growth was positively impacted by 0.6% due primarily to acquisitions and negatively impacted by 0.1% due to foreign currency exchange rate fluctuations.

Cost of uniform rental and facility services increased 9.5% compared to fiscal 2022.

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.

The cost of uniform rental and facility services as a percent of revenue increased compared to fiscal 2021 primarily due to increased energy costs and investments in labor to support the increased revenue growth.

The change from the prior year was primarily due to higher Uniform Rental and Facility Services reportable operating segment sales volume, as well as investments in material cost to support increased revenue growth.

The cost of uniform rental and facility services as a percent of revenue improved compared to fiscal 2022 from 53.3% to 52.7% as a result of efficiencies in labor and improved leverage of fixed costs.

Cost of other consists primarily of cost of goods sold (predominantly first aid and safety products, personal protective equipment, uniforms and fire protection products), delivery expenses and distribution expenses in the First Aid and Safety Services reportable operating segment and All Other.

Cost of other increased 11.5% in fiscal 2023 compared to fiscal 2022, but decreased as a percent of revenue to 52.7%, compared to 55.7% in fiscal 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.

The improvement in cost of sales as a percent to revenue was primarily due to favorable changes in the sales mix in the First Aid and Safety Services reportable operating segment as well as i mproved leverage of fixed costs for both the First Aid and Safety Services reportable operating segment and All Other.

Selling and administrative expenses increased $325.8 million, to 26.9% as a percent of revenue, compared to 26.0% in fiscal 2022.

The improvement as a percent of revenue was primarily due to lower labor expense as a percent of revenue as well as a $12.1 million gain on the sale of certain operating assets and a $30.2 million gain on an equity method investment transaction recorded in fiscal 2022.

The impacts from the gains recorded in fiscal 2022 were partially offset by the $22.0 million gain on the sale of certain operating assets recorded in fiscal 2021.

The change as a percent of revenue was primarily due to a $12.1 million gain on the sale of certain operating assets recorded within All Other and a $30.2 million one-time gain on an equity method investment transaction recorded in fiscal 2022.

Net interest expense (interest expense less interest income) was $109.5 million in fiscal 2023 compared to $88.6 million in fiscal 2022.

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 lower interest rate bearing commercial paper.

The change was to an due increase in the interest rates on outstanding debt, specifically commercial paper, as well as an increase in the average amount of outstanding debt during fiscal 2023.

Income before income taxes was $1,693.1 million, an increase of $194.4 million, or 13.0%, compared to fiscal 2022.

The increase in income before income taxes was primarily due to revenue growth and the decrease in selling and administrative expenses as a percent of revenue in fiscal 2022.

Income before income taxes also benefited from the previously mentioned one-time gains recorded in fiscal 2022.

Cintas' effective tax rate on continuing operations was 17.5% for fiscal 2022 compared to 13.7% in fiscal 2021.

The increase in income before income taxes was primarily due to revenue growth, as well as the improvements in gross margin previously mentioned.

Cintas' effective tax rate was 20.4% for fiscal 2023 compared to 17.5% in fiscal 2022.

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 fiscal 2022 and 2021 included tax benefits from a gain on an equity method investment transaction in fiscal 2022 and the sale of certain operating assets in both fiscal 2022 and fiscal 2021.

Net income from continuing operations for fiscal 2022 of $1,235.8 million was a 11.2% increase compared to fiscal 2021.

Diluted earnings per share from continuing operations of $11.65 was a 13.8% increase compared to fiscal 2021 diluted earnings per share from continuing operations of $10.24.

Diluted earnings per share from continuing operations 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 3.7 million shares of common stock under the Board approved share buyback programs during fiscal 2022.

In addition, the effective tax rate for fiscal 2022 included one-time tax benefits from a gain on an equity method investment transaction and from the sale of certain operating assets.

Net income for fiscal 2023 of $1,348.0 million was a 9.1% increase compared to fiscal 2022.

Diluted earnings per share of $12.99 was an 11.5% increase compared to fiscal 2022 diluted earnings per share of $11.65.

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 2.7 million shares of common stock under the Board of Directors approved share buyback programs since the beginning of the third quarter of fiscal 2022 through the fourth quarter of fiscal 2023.

Uniform Rental and Facility Services Reportable Operating Segment

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The reportable operating segment's fiscal 2023 gross margin was 47.3% of revenue compared to 46.7% in fiscal 2022.

The decrease in gross margin was primarily due to a 50 basis point increase in energy costs and investments in labor to support the increased revenue growth.

The improvement in gross margin was the result of efficiencies in labor and i mproved leverage of fixed costs , partially offset by investments in material cost to support increased revenue growth.

Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $229.1 million in fiscal 2023 compared to fiscal 2022.

Selling and administrative expense as a percent of revenue for fiscal 2023 was 25.9% compared to 25.0% in fiscal 2022.

The improvement in selling and administrative expenses as a 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 $127.7 million to $1,353.5 million for fiscal 2022 compared to fiscal 2021.

Income before income taxes as a percent of revenue at 21.7% increased 20 basis points from 21.5% in fiscal 2021.

The increase was primarily due to the previously discussed improvement in selling and administrative expenses, partially offset by decreases in gross margin as a percent of revenue.

The change as a percent of revenue was primarily due to the previously mentioned one-time gain on an equity method investment transaction of $30.2 million recorded in fiscal 2022.

Income before income taxes for the Uniform Rental and Facility Services reportable operating segment increased $125.3 million, or 9.3%, for fiscal 2023 compared to fiscal 2022.

The increase in income before income taxes was due to the previously discussed growth in revenue and gross margin improvement.

Income before income taxes as a percent of revenue was 21.4% compared to 21.7% in fiscal 2022.

The change over the prior fiscal year was primarily due to the previously discussed one-time gain on an equity method investment transaction recorded in fiscal 2022.

First Aid and Safety Services Reportable Operating Segment

First Aid and Safety Services reportable operating segment revenue increased $119.0 million in fiscal 2023, a 14.3% increase compared to fiscal 2022.

Revenue increased organically by 5.1% as a result of new business and sales productivity increases, penetration of additional products and services into existing customers and sales of personal protective equipment in response to the COVID-19 pandemic.

Revenue growth was positively impacted by 0.9% due to acquisitions and by 0.1% due to foreign currency exchange rate fluctuations.

Cost of sales for the First Aid and Safety Services reportable operating segment increased $8.3 million, or 1.8%, in fiscal 2022, primarily due to higher sales volume.

Organic revenue growth for this reportable operating segment was 13.1%.

Revenue growth was positively impacted by 1.3% due to acquisitions and negatively impacted by 0.1% due to foreign currency exchange rate fluctuations.

This increase in revenue was driven by many factors including increases in new business sold by sales representatives, penetration of additional products and services into existing customers and strong customer retention.

Cost of sales for the First Aid and Safety Services reportable operating segment increased $9.1 million, or 2.0%, in fiscal 2023, due to higher sales volume.

Gross margin for the First Aid and Safety Services reportable operating segment is defined as revenue less cost of goods, warehouse expenses and service expenses.

Gross margin as a percent of revenue was 50.7% for fiscal 2023 compared to 44.7% in fiscal 2022.

The improvement in gross margin as a percentage of revenue in fiscal 2022 was primarily due to 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.

The improvement in gross margin as a percentage of revenue was primarily due to 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, as well as i mproved leverage of fixed costs.

Selling and administrative expenses for the First Aid and Safety Services reportable operating segment increased by $36.0 million, or 13.6%, in fiscal 2023 compared to fiscal 2022, and improved as a percent of revenue to 31.7% in fiscal 2023 compared to 31.9% in fiscal 2022.

The improvement as a percent of revenue was primarily due to revenue growing at a faster pace than labor and employee-partner related expenses.

The improvement as a percent of revenue was primarily due to efficiencies realized in selling and administrative labor expenses.

Income before income taxes for the First Aid and Safety Services reportable operating segment was $180.7 million in fiscal 2023, an increase of $73.9 million, or 69.2%, compared to fiscal 2022.

Income before income taxes as a percent of revenue at 12.8%, increased from 10.4% in fiscal 2021 due to the previously discussed increases, primarily in gross margin.

Income before income taxes as a percent of revenue at 19.0%, increased from 12.8% in fiscal 2022 due to the previously discussed improvements in both gross margin and selling and administrative expenses.

Liquidity and Capital Resources

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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 amended and restated revolving credit facility, the maturity of which was extended on March 23, 2022 until March 23, 2027.

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

In addition, we have access to $2.0 billion of debt capacity from our amended and restated revolving credit facility, which matures on March 23, 2027.

We believe the Company has sufficient liquidity to operate in the current business environment for at least the next 12 months and the foreseeable future thereafter.

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 $1.60 billion for fiscal 2023, which was an increase of $60.2 million, or 3.9%, compared to fiscal 2022.

The increase was primarily the result of increased 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.

The increase was primarily the result of an increase in net income and favorable changes in working capital, specifically accrued liabilities, current income taxes and accounts payable.

These improvements were partially offset by unfavorable changes in working capital, specifically, capitalized contract costs, inventories and accounts receivable, which resulted from the growth in revenue.

Net cash used in investing activities was $388.7 million in fiscal 2023, compared to $402.6 million in fiscal 2022.

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The acquisitions in both fiscal 2023 and 2022 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.

The fiscal 2022 acquisitions also includes the acquisition of the remaining interest of an equity method investment.

In fiscal 2022 and fiscal 2021, investing activities included proceeds of $15.3 million and $31.7 million, respectively, from the sale of certain operating assets, net of cash disposed.

The fiscal 2022 acquisitions also include the acquisition of the remaining interest of an equity method investment.

In fiscal 2022 investing activities included proceeds of $15.3 million from the sale of certain operating assets, net of cash disposed in the Uniform Direct Sales operating segment, which is included in All Other.

Net cash used in investing activities also included $4.6 million and $6.1 million of purchases of investments during fiscal 2023 and fiscal 2022, respectively.

Net cash used in financing activities was $1,172.8 million for fiscal 2023, compared to $1,537.9 million in fiscal 2022.

The increase in cash used from financing activities from fiscal 2021 is primarily due to the increase in repurchases of common stock in fiscal 2022, offset by the $261.2 million net issuance of commercial paper and the $76.2 million higher dividends paid in fiscal 2021 due to the transition from an annual dividend payment in the second quarter of fiscal 2021 to quarterly dividend payments thereafter.

On October 30, 2018, we announced that the Board of Directors authorized a $1.0 billion share buyback program, which was completed during fiscal 2021.

The decrease in cash used in financing activities was due to the decrease in share buyback activity, partially offset by the $562.9 million increase in net debt payments, the $74.8 million increase in dividends paid and the $114.7 million decrease in proceeds from the exercise of stock-based compensation awards.

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

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

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

From the inception of the July 27, 2021 share buyback program through May 31, 2023, Cintas purchased a total of 2.7 million shares of Cintas common stock at an average price of $385.80 per share for a total purchase price of $1.0 billion.

On July 26, 2022, Cintas announced that the Board of Directors authorized a new $1.0 billion share buyback program, which does not have an expiration date.

The following table summarizes the buyback activity by program and fiscal year ended May 31:

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(In thousands except per share data)

Price per Share Purchase Price Shares Avg.

Price per Share Purchase Price

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

Shares Average Price

per Share Purchase Price Shares Average Price

per Share Purchase Price

October 29, 2019 — $ — $ — 1,590 $ 365.41 $ 581,220

July 27, 2021 550 396.69 218,288 2,150 383.01 823,429

July 26, 2022 — — — — — —

550 $ 396.69 $ 218,288 3,740 $ 375.53 $ 1,404,649

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430 $ 420.21 $ 180,577 305 $ 397.16 $ 121,224

Total repurchase of Cintas

common stock $ 1,525,873 $ 554,121

Total repurchase of Cintas common stock $ 398,865 $ 1,525,873

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

In the period subsequent to May 31, 2022 through July 27, 2022, we purchased 0.5 million shares of Cintas common stock at an average price of $396.39 for a total purchase price of $210.8 million.

From the inception of the July 27, 2021 share buyback program through July 27, 2022, Cintas has purchased 2.7 million shares of Cintas common stock in the aggregate, at an average price of $385.66, for a total purchase price of $1.0 billion.

Our Board of Directors declared the following dividends during the fiscal years ended May 31:

There were no share buybacks in the period subsequent to May 31, 2023, through July 27, 2023, under any share buyback program.

Our Board of Directors declared the following dividends:

Paid Dividends

Declaration Date

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Date Dividend

Per Share Amount

Per Share Total

Fiscal Year 2023

April 12, 2022 May 16, 2022 June 15, 2022 $ 0.95 $ 97.7

July 26, 2022 August 15, 2022 September 15, 2022 1.15 117.3

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January 10, 2023 February 15, 2023 March 15, 2023 1.15 117.5

April 12, 2022 (2)

May 16, 2022 June 15, 2022 0.95 97.5

Total $ 4.40 $ 449.9

Fiscal Year 2022

October 27, 2020 (1)

November 6, 2020 December 4, 2020 $ 2.81 $ 297.7

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

July 27, 2021 August 13, 2021 September 15, 2021 0.95 98.8

October 26, 2021 November 15, 2021 December 15, 2022 0.95 99.0

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

Total $ 3.60 $ 375.1

Accrued Dividends

As of May 31, 2023

April 11, 2023 (1)

May 15, 2023 June 15, 2023 $ 1.15 $ 117.6

Total $ 5.01 $ 530.5

(1) Beginning October 27, 2020, our Board of Directors authorized a change in dividend policy from an annual dividend to quarterly dividends.

(2) The dividends declared on April 12, 2022 and April 13, 2021 were included in current accrued liabilities on the consolidated balance sheet at May 31, 2022 and 2021, respectively.

As of May 31, 2022

April 12, 2022 (1)

May 16, 2022 June 15, 2022 $ 0.95 $ 97.5

(1) The dividends declared on April 11, 2023 and April 12, 2022 were included in current accrued liabilities on the consolidated balance sheets at May 31, 2023 and 2022, respectively.

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 fiscal year ended May 31, 2022, Cintas issued a net total of $261.2 million of commercial paper.

There was no commercial paper outstanding during fiscal 2021.

During the fiscal year ended May 31, 2023, Cintas paid $261.2 million, net of commercial paper.

On April 17, 2023, in accordance with the terms of the notes, Cintas paid the $50.0 million aggregate principal amount outstanding of its 3.73%, private placement, 10-year senior notes that matured on that date with proceeds from short-term commercial paper issuance.

During the fiscal year ended May 31, 2022, Cintas issued $261.2 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 outstanding of its 4.30%, 10-year senior notes that matured on that date with cash on hand.

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2.78% 2013 2023 — 50,380

Senior notes 4.30% 2012 2022 — 250,000

Senior notes 2.90% 2017 2022 — 650,000

Debt issuance costs — (6)

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Senior notes (3)

Senior notes (2)

3.11% 2015 2025 $ 50,630 $ 50,965

Senior notes 3.45% 2022 2025 400,000 400,000

3.11% 2015 2025 50,965 51,301

Senior notes 3.70% 2017 2027 1,000,000 1,000,000

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Senior notes 6.15% 2007 2037 250,000 250,000

Debt issuance costs (14,225) (17,033)

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(G&K) in the fourth quarter of fiscal 2017, and they were recorded at fair value.

The interest rate shown above is the effective interest rate.

The principal amount of these notes is $50.0 million with a stated interest rate of 3.73%.

The interest rate shown above is the effective interest rate until repayment in fiscal 2023.

(3) Cintas assumed these senior notes with the acquisition of G&K in the fourth quarter of fiscal 2017, and they were recorded at fair value.

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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 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 that supports our commercial paper program has capacity under the revolving credit facility of $2.0 billion.

The credit agreement has an accordion feature that provides Cintas the ability to request increases to the borrowing commitments under the revolving credit facility of up to $500.0 million in the aggregate, subject to customary conditions.

The maturity date of the revolving credit facility is March 23, 2027.

As of May 31, 2022, there was $261.2

million of commercial paper outstanding with a weighted average interest rate of 1.20% and maturity dates less than 120 days and no borrowings on our revolving credit facility.

As of May 31, 2023, there was no commercial paper outstanding and no borrowings on our revolving credit facility.

Subsequent to May 31, 2022, in June 2022, Cintas borrowed $125.0 million under the revolving credit facility to fund short-term operating needs and repaid the amount later in June 2022.

As of May 31, 2022, there was $261.2 million commercial paper outstanding and no borrowings on our revolving credit facility.

Cintas has certain covenants related to debt agreements.

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2 is the issuer of the $2,500.0 million aggregate principal amount of senior notes outstanding as of May 31, 2023, which are unconditionally guaranteed, jointly and severally, by Cintas Corporation and its wholly owned, direct and indirect domestic subsidiaries.

See Note 7 entitled Debt and Derivatives of " Notes to Consolidated Financial Statements " for more information on Cintas' outstanding debt.

See Note 6 entitled Debt, Derivatives and Hedging Activities of " Notes to Consolidated Financial Statements " for more information on Cintas' outstanding debt.

Basis of Preparation of the Summarized Financial Information

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Interest payments 675,043 100,115 184,490 131,750 258,688

Total contractual and other material cash obligations $ 3,774,974 $ 463,413 $ 716,876 $ 1,207,124 $ 1,387,561

(1) See Note 7 entitled Debt and Derivatives of " Notes to Consolidated Financial Statements " for a detailed presentation of Cintas' debt.

Total contractual and other material

cash obligations $ 3,371,731 $ 148,185 $ 708,111 $ 1,175,971 $ 1,339,464

(1) See Note 6 entitled Debt, Derivatives and Hedging Activities of " Notes to Consolidated Financial Statements " for a detailed presentation of Cintas' debt.

(2) See Note 7 entitled Leases of " Notes to Consolidated financial Statements " for a detailed presentation of Cintas' operating leases.

Cintas also makes payments to defined contribution plans and may make payments to defined benefit plans to satisfy minimum funding requirements.

The amount of contributions made to the defined contribution plans are at the discretion of the Board of Directors of Cintas.

The amount of contributions made to the defined contribution plans are at the discretion of the Board of Directors.

Future contributions to the defined contribution plans are expected to be $107.9 million in the next year, $232.3 million in the next two to three years and $256.2 million in the next four to five years.

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Total other commitments $ 2,098,878 $ 99,579 $ — $ 1,999,299 $ —

(1) Back-up facility for the commercial paper program (reference Note 7 entitled Debt and Derivatives of " Notes to Consolidated Financial Statements " for further discussion).

(2) These standby letters of credit and surety bonds support certain outstanding debt (reference Note 7 entitled Debt and Derivatives of " Notes to Consolidated Financial Statements "), self-insured workers' compensation and general liability insurance programs.

(1) Back-up facility for the commercial paper program (reference Note 6 entitled Debt, Derivatives and Hedging Activities of " Notes to Consolidated Financial Statements " for further discussion).

(2) These standby letters of credit and surety bonds support certain outstanding debt (reference Note 6 entitled Debt, Derivatives and Hedging Activities of " Notes to Consolidated Financial Statements "), self-insured workers' compensation and general liability insurance programs.

Inflation and Changing Prices

Changes in wages, benefits and energy costs have the potential to materially impact Cintas' consolidated results of operations.

In fiscal 2022, we experienced significant impacts from inflation, including, but not limited to, higher labor, fuel and transportation costs.

In fiscal 2023 and 2022, we experienced impacts from inflation, including, but not limited to, higher labor, fuel and transportation costs.

Management has been able to mitigate these inflationary pressures through pricing and various efficiency initiatives.

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In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows of Cintas.

The Company, the Board of Directors, Scott Farmer (Executive Chairman) and the Investment Policy Committee are defendants in a purported class action, filed on December 13, 2019, pending in the U.S.

District Court for the Southern District of Ohio alleging violations of ERISA.

The lawsuit asserts that the defendants improperly managed the costs of the employee retirement plan, breached their fiduciary duties in failing to investigate and select lower cost alternative funds and failed to monitor and control the employee retirement plan’s recordkeeping costs.

The defendants deny liability.

Cintas is also party to additional litigation not considered in the ordinary course of business.

See Note 14 entitled Litigation and Other Contingencies of " Notes to Consolidated Financial Statements " for a detailed discussion of such additional litigation.

New Accounting Standards

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

ASU 2019-12 is part of the FASB’s overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements.

ASU 2019-12 removes certain exceptions to the general principles of Accounting Standards Codification (ASC) 740, Income Taxes (ASC 740), in order to reduce the cost and complexity of its application in the areas of intraperiod tax allocation, deferred tax liabilities related to outside basis differences, year-to-date losses in interim periods and other areas within ASC 740.

The Company adopted ASU 2019-12 on June 1, 2021.

The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated condensed financial statements currently but may in future periods.

No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on the consolidated financial statements.

There are no new accounting pronouncements recently issued or newly effective that had, or are expected to have, a material impact on Cintas' consolidated financial statements.

Critical Accounting Policies and Estimates

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GAAP requires management to make estimates and judgments that have a significant effect on the amounts reported in the consolidated financial statements and accompanying notes.

These critical accounting policies should be read in conjunction with Note 1 entitled Significant Accounting Policies of " Notes to Consolidated Financial Statements ." Significant changes, estimates or assumptions related to any of the following critical accounting policies, including those impacted by the COVID-19 pandemic, could possibly have a material impact on the consolidated financial statements.

These critical accounting policies should be read in conjunction with Note 1 entitled Significant Accounting Policies of " Notes to Consolidated Financial Statements ." Significant changes, estimates or assumptions related to any of the following critical accounting policies could possibly have a material impact on the consolidated financial statements.

Revenue recognition.

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Uniforms and other rental items in service are valued at cost less amortization, calculated using the straight-line method.

Uniforms in service (other than cleanroom and flame resistant clothing) are amortized over their useful life of 18 months.

Other rental items, including shop towels, mats, mops, cleanroom garments, flame resistant clothing, linens and restroom dispensers, are amortized over their useful lives, which range from 8 to 60 months.

Uniforms in service (other than cleanroom garments) are amortized over their useful lives, which range from 18 to 30 months.

Other rental items, including shop towels, mats, mops, cleanroom garments, linens and restroom dispensers, are amortized over their useful lives, which range from 8 to 60 months.

The amortization rates used are based on industry experience, Cintas' specific experience and wear tests performed by Cintas.

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Goodwill, obtained through acquisitions of businesses, is valued at cost less any impairment.

Cintas completes an annual impairment test, that includes an assessment of qualitative factors including, but not limited to, macroeconomic conditions, industry and market conditions and entity specific factors such as strategies and financial performance.

Cintas completes an annual impairment test, that includes an assessment of quantitative and qualitative factors including, but not limited to, macroeconomic conditions, industry and market conditions and entity specific factors such as strategies and financial performance.

We test for goodwill impairment at the reporting unit level.

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These changes in estimates may be material to the consolidated financial statements.

Stock-based compensation

Compensation expense is recognized for all share-based payments to employees, including stock options and restricted stock awards, in the consolidated statements of income based on the fair value of the awards that are granted.

The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model.

Generally, measured compensation cost, net of actual forfeitures, is recognized on a straight-line basis over the vesting period of the related share-based compensation award.

See Note 13 entitled Stock-Based Compensation of " Notes to Consolidated Financial Statements " for further information.

Litigation and other contingencies

Cintas is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims.

GAAP requires that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be

reasonably estimated.

Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded.

While a significant change in assumptions and judgments could have a material impact on the amounts recorded for contingent liabilities, Cintas does not believe that they will result in a material adverse effect on the consolidated financial statements.

Income taxes.

Deferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities.

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Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized.

Accounting for uncertain tax positions requires the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements.

Companies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

Cintas is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due.

These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions.

In evaluating the exposure associated with various filing positions, Cintas records reserves as deemed appropriate.

Based on Cintas' evaluation of current tax positions, Cintas believes its tax related accruals are appropriate.

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-K

Item 7. Management’s Discussion and Analysis