What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-05 compared with 2023-04-06 · 86 added, 169 removed, 180 unchanged (59% of the section changed)

5 unchanged sentences

We are North America’s leading provider of corporate identity uniforms through rental and sales programs, as well as a significant provider of related business services, including entrance mats, restroom cleaning services and supplies, first aid and safety services and fire protection products and services.

Cintas’ principal objective is “to exceed customers’ expectations in order to maximize the long-term value of Cintas for shareholders and working partners,” and it provides the framework and focus for Cintas’ business strategy.

Cintas’ principal objective is “to exceed customers’ expectations in order to maximize the long-term value of Cintas for its shareholders and working partners,” and it provides the framework and focus for Cintas’ business strategy.

This strategy is to achieve revenue growth for all our products and services by increasing our penetration at existing customers and by broadening our customer base to include market segments to which we have not historically served.

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

Revenue and income before income taxes for the three and nine months ended February 28, 2023 and 2022, for the two reportable operating segments and All Other are presented in Note 11 entitled Segment Information of “Notes to Consolidated Condensed Financial Statements.”

Revenue and income before income taxes for the three months ended August 31, 2023 and 2022, for the two reportable operating segments and All Other are presented in Note 10 entitled Segment Information of “Notes to Consolidated Condensed Financial Statements.”

Consolidated Results

Three Months Ended February 28, 2023 Compared to Three Months Ended February 28, 2022

Total revenue increased 11.7% to $2,190.0 million for the three months ended February 28, 2023, compared to $1,960.5 million for the three months ended February 28, 2022.

The organic revenue growth rate, which adjusts for the impact of acquisitions and foreign currency exchange rate fluctuations, was 11.8%.

Three Months Ended August 31, 2023 Compared to Three Months Ended August 31, 2022

Total revenue increased 8.1% to $2,342.3 million for the three months ended August 31, 2023, compared to $2,166.5 million for the three months ended August 31, 2022.

The organic revenue growth rate, which adjusts for the impact of acquisitions and foreign currency exchange rate fluctuations, was also 8.1%.

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

Uniform Rental and Facility Services reportable operating segment revenue was $1,716.2 million for the three months ended February 28, 2023, compared to $1,553.3 million for the same period in the prior fiscal year, which was an increase of 10.5%.

The organic revenue growth rate for this reportable operating segment was 10.8%.

Uniform Rental and Facility Services reportable operating segment revenue was $1,826.8 million for the three months ended August 31, 2023, compared to $1,697.8 million for the same period in the prior fiscal year, which was an increase of 7.6%.

The organic revenue growth rate for this reportable operating segment was also 7.6%.

Revenue growth in the Uniform Rental and Facility Services reportable operating segment was positively impacted by 0.2% due to acquisitions and negatively impacted by 0.2% due to foreign currency exchange rate fluctuations.

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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 16.4% for the three months ended February 28, 2023, compared to the same period in the prior fiscal year, from $407.2 million to $473.8 million.

Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 10.0% for the three months ended August 31, 2023, compared to the same period in the prior fiscal year, from $468.7 million to $515.5 million.

The organic revenue growth rate for other revenue was 9.6%.

Revenue growth was positively impacted by 0.7% due to acquisitions and negatively impacted by 0.1% due to foreign currency exchange rate fluctuations.

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

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 $73.9 million, or 8.9%, for the three months ended February 28, 2023, compared to the three months ended February 28, 2022.

This change from the same period in the prior fiscal 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 achieved during the three months ended February 28, 2023.

Cost of uniform rental and facility services increased $56.8 million, or 6.4%, for the three months ended August 31, 2023, compared to the three months ended August 31, 2022.

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 $19.7 million, or 8.6%, for the three months ended February 28, 2023, compared to the three months ended February 28, 2022, primarily due to increased sales volume in each of the underlying operating segments.

Cost of other improved as a percentage of revenue, decreasing from 56.1% for three months ended February 28, 2022, to 52.3% for the three months ended February 28, 2023.

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 $96.7 million, or 19.7%, in the three months ended February 28, 2023, compared to the same period of the prior fiscal year.

The increase was due to increases in labor and other employee-partner 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.

Selling and administrative expenses as a percent of revenue were 26.8% for the three months ended February 28, 2023, compared to 25.0% for the same period in the prior fiscal year.

Selling and administrative expenses increased as a percent to revenue primarily due to the one-time gain on an equity method investment transaction recorded in the three months ended February 28, 2022.

Operating income was $446.8 million, or 20.4% of revenue, for the three months ended February 28, 2023, compared to $407.6 million, or 20.8% of revenue, for the three months ended February 28, 2022.

The decrease in operating income as a percent of revenue was due to previously mentioned gain on an equity method investment transaction recorded in the three months ended February 28, 2022.

Net interest expense (interest expense less interest income) was $28.4 million for the three months ended February 28, 2023, compared to $22.0 million for the three months ended February 28, 2022.

The change was primarily due to an increase in interest rates on outstanding debt, specifically commercial paper, during the three months ended February 28, 2023 compared to the three months ended February 28, 2022.

Cintas’ effective tax rate was 22.1% and 18.2% for the three months ended February 28, 2023 and 2022, respectively.

Cost of other increased $5.6 million, or 2.3%, for the three months ended August 31, 2023, compared to the three months ended August 31, 2022, primarily due to increased sales volume in each of the underlying operating segments.

Cost of other improved as a percentage of revenue, decreasing from 52.8% for three months ended August 31, 2022, to 49.1% for the three months ended August 31, 2023.

The improvement in cost of sales as a percent to revenue was primarily due to favorable changes in the sales mix, sourcing and productivity initiatives 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 $53.0 million, or 9.0%, in the three months ended August 31, 2023, compared to the same period of the prior fiscal year.

The increase was due to increases in labor and other employee-partner expenses.

Selling and administrative expenses as a percent of revenue were 27.4% for the three months ended August 31, 2023, compared to 27.1% for the same period in the prior fiscal year.

Selling and administrative expenses increased as a percent to revenue primarily due to labor and other employee-partner expenses.

Operating income was $500.6 million, or 21.4% of revenue, for the three months ended August 31, 2023, compared to $440.1 million, or 20.3% of revenue, for the three months ended August 31, 2022.

The change in operating income as a percent of revenue was due to operating leverage from revenue growth and productivity initiatives.

Net interest expense (interest expense less interest income) was $24.1 million for the three months ended August 31, 2023, compared to $27.6 million for the three months ended August 31, 2022.

The decrease was primarily due to a decrease in the average amount of outstanding debt during the three months ended August 31, 2023 compared to the three months ended August 31, 2022.

Cintas’ effective tax rate was 19.2% and 14.8% for the three months ended August 31, 2023 and 2022, respectively.

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

In addition, the effective tax rate for the three months ended February 28, 2022 included a one-time tax benefit from a gain on an equity method investment transaction.

Net income for the three months ended February 28, 2023 increased $10.4 million, or 3.3%, compared to the three months ended February 28, 2022.

Diluted earnings per share were $3.14 for the three months ended February 28,

2023, which was an increase of 5.7% 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 2.7 million shares of common stock under the board approved share buyback programs since the beginning of the third quarter of fiscal 2022 through the third quarter of fiscal 2023.

Net income was $385.1 million for the three months ended August 31, 2023, an increase of 9.5%, compared to the three months ended August 31, 2022.

Diluted earnings per share were $3.70 for the three months ended August 31, 2023, which was an increase of 9.1% compared to the same period in the prior fiscal year.

Diluted earnings per share increased due to the increase in net income.

Uniform Rental and Facility Services Reportable Operating Segment

Three Months Ended February 28, 2023 Compared to Three Months Ended February 28, 2022

Uniform Rental and Facility Services reportable operating segment revenue was $1,716.2 million for the three months ended February 28, 2023 compared to $1,553.3 million for the same period of the prior fiscal year.

Three Months Ended August 31, 2023 Compared to Three Months Ended August 31, 2022

Uniform Rental and Facility Services reportable operating segment revenue was $1,826.8 million for the three months ended August 31, 2023 compared to $1,697.8 million for the same period of the prior fiscal year.

The organic revenue growth rate for the reportable operating segment was 7.6%.

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The reportable operating segment’s gross margin was $879.2 million.

Gross margin as a percentage of revenue was 47.1% for the three months ended February 28, 2023 and 46.3% for the three months ended February 28, 2022.

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 $84.9 million in the three months ended February 28, 2023 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, 2023 was 26.1% compared to the 23.4% in the third quarter of the prior fiscal year.

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 the three months ended February 28, 2022, as well as investments in selling resources in the three months ended February 28, 2023.

Income before income taxes increased $4.0 million, or 1.1%, for the Uniform Rental and Facility Services reportable operating segment for the three months ended February 28, 2023, compared to the same period in the prior fiscal year.

Income before income taxes was 21.0% of the reportable operating segment’s revenue, which was a 190 basis point decrease from the third quarter of the prior fiscal year of 22.9%.

This decrease as a percent of revenue was primarily due to the previously discussed increase in selling and administrative expenses partially offset by the improvements in gross margin.

Gross margin as a percentage of revenue was 48.1% for the three months ended August 31, 2023 compared to 47.5% for the three months ended August 31, 2022.

The improvement in gross margin was primarily the result of a reduction in energy expense as a percentage of revenue.

Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $30.5 million in the three months ended August 31, 2023 compared to the same period of the prior fiscal year.

Selling and administrative expenses as a percent of revenue for the three months ended August 31, 2023 were 25.9% compared to the 26.0% in the same period of the prior fiscal year.

The improvement as a percent of revenue was primarily due to operating leverage generated from the revenue growth in the three months ended August 31, 2023.

Income before income taxes increased $41.8 million, or 11.4%, for the Uniform Rental and Facility Services reportable operating segment for the three months ended August 31, 2023, 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 80 basis point increase from the same period of the prior fiscal year of 21.5%.

This increase as a percent of revenue was primarily due to the previously discussed improvements in gross margin.

First Aid and Safety Services Reportable Operating Segment

Three Months Ended February 28, 2023 Compared to Three Months Ended February 28, 2022

First Aid and Safety Services reportable operating segment revenue increased from $213.0 million to $231.6 million, or 8.8%, for the three months ended February 28, 2023, over the same period in the prior fiscal year.

Three Months Ended August 31, 2023 Compared to Three Months Ended August 31, 2022

First Aid and Safety Services reportable operating segment revenue increased from $234.2 million to $260.7 million, or 11.3%, for the three months ended August 31, 2023, over the same period in the prior fiscal year.

The organic revenue growth rate for the reportable operating segment was 11.0%.

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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, price increases and strong customer retention.

Cost of first aid and safety services decreased $6.6 million, or 5.5%, for the three months ended February 28, 2023, over the three months ended February 28, 2022.

The gross margin as a percent of revenue was 51.6% for the quarter ended February 28, 2023, compared to the gross margin as a percent of revenue of 44.2% in the same period of the prior fiscal year.

The improvement in gross margin from the third quarter of the prior fiscal year was primarily driven by favorable changes in the sales mix, as well as i mproved leverage of fixed costs .

Selling and administrative expenses increased $4.2 million in the three months ended February 28, 2023, 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, 2023 were 31.1%, compared to 31.9% in the third quarter of the prior fiscal year.

The change as a percent of revenue from the same period in the prior fiscal year 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 increased $21.0 million to $47.3 million for the three months ended February 28, 2023, compared to the same period in the prior fiscal year.

Income before income taxes was 20.4% of the reportable operating segment’s revenue compared to the third quarter of the prior fiscal year of 12.4%.

The increase in income before income taxes was due to the previously discussed improvements in gross margin and selling and administrative expenses.

Consolidated Results

Nine Months Ended February 28, 2023 Compared to Nine Months Ended February 28, 2022

Total revenue increased 13.0% to $6,531.3 million for the nine months ended February 28, 2023, compared to $5,779.8 million for the nine months ended February 28, 2022.

Total organic revenue growth was 12.8%.

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

Revenue growth was positively impacted by a net 0.5% due primarily to acquisitions and negatively impacted by 0.3% due to foreign currency exchange rate fluctuations.

Uniform Rental and Facility Services reportable operating segment revenue was $5,123.9 million for the nine months ended February 28, 2023, compared to $4,596.8 million in the same period of the prior fiscal year, which was an increase of 11.5%.

Organic revenue growth for this reportable operating segment was 11.4%.

Uniform Rental and Facility Services reportable operating segment revenue was positively impacted by 0.4% due to acquisitions and negatively impacted by 0.3% due to foreign currency exchange rate fluctuations.

Revenue growth was a result of new business, the penetration of additional products and services into existing customers and price increases, partially offset by lost business.

New business growth resulted from an increase in the number and productivity of sales representatives.

Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, was $1,407.4 million for the nine months ended February 28, 2023, compared to $1,183.0 million for the nine months ended February 28, 2022, which was an increase of 19.0%.

Other revenue organic growth was 18.4%.

Revenue growth was positively impacted by a net 0.7% 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 $274.8 million, or 11.3%, for the nine months ended February 28, 2023, compared to the nine months ended February 28, 2022.

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.

Cost of other increased $78.1 million, or 11.8%, for the nine months ended February 28, 2023, compared to the nine months ended February 28, 2022.

Cost of other improved as a percentage of revenue, decreasing from 56.1% for nine months ended February 28, 2022, to 52.7% for the nine months ended February 28, 2023.

Selling and administrative expenses increased $249.6 million, or 16.6%, for the nine months ended February 28, 2023, compared to the same period in the prior fiscal year.

Selling and administrative expenses as a percent to revenue were 26.8% for the nine months ended February 28, 2023, compared to 26.0% for the same period of the prior fiscal year.

The change as a percent of revenue is primarily due to the $12.1 million gain on the sale of certain operating assets recorded within the Uniform Direct Sales operating segment and 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 $1,331.9 million, or 20.4% of revenue, for the nine months ended February 28, 2023, compared to $1,182.9 million, or 20.5% of revenue, for the nine months ended February 28, 2022.

The change in operating income as a percent of revenue was due to the previously mentioned one-time gains recorded during the nine months ended February 28, 2022, partially offset by the improvements in gross margin previously mentioned.

Net interest expense (interest expense less interest income) was $84.6 million for the nine months ended February 28, 2023, compared to $65.6 million for the nine months ended February 28, 2022.

The change was primarily due to an increase in the interest rates on outstanding debt, specifically commercial paper, during the nine months ended February 28, 2023.

Cintas’ effective tax rate was 19.7% and 15.8% for the nine months ended February 28, 2023 and 2022, respectively.

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

In addition, the effective tax rate for the nine months ended February 28, 2022 included a one-time tax benefit from a gain on an equity method investment transaction.

Net income for the nine months ended February 28, 2023, increased $60.5 million, or 6.4%, compared to the nine months ended February 28, 2022.

Diluted earnings per share was $9.65 for the nine months ended February 28, 2023, which was an increase of 9.2% 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

Nine Months Ended February 28, 2023 Compared to Nine Months Ended February 28, 2022

Uniform Rental and Facility Services reportable operating segment revenue increased 11.5% to $5,123.9 million for the nine months ended February 28, 2023, compared to $4,596.8 million for the same period of the prior fiscal year.

Organic revenue growth for this reportable operating segment was 11.4%.

The cost of uniform rental and facility services increased $274.8 million, or 11.3%, for the nine months ended February 28, 2023 over the same period in the prior fiscal year.

The reportable operating segment’s gross margin was $2,418.4 million, or 47.2% of revenue, for the nine months ended February 28, 2023, compared to the gross margin of 47.1% for the nine months ended February 28, 2022.

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 $181.4 million, increasing as a percent to revenue for the nine months ended February 28, 2023 to 25.9%, compared to 24.9% for the same period of the prior fiscal year.

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 the nine months ended February 28, 2022.

Income before income taxes increased $70.9 million, or 6.9%, for the Uniform Rental and Facility Services reportable operating segment for the nine months ended February 28, 2023, compared to the same period in the prior fiscal year.

Income before income taxes was 21.3% of the reportable operating segment’s revenue, compared to 22.3% for the nine months ended February 28, 2022.

The change in percent to revenue is due to the one-time gain on an equity method investment transaction recorded in the nine months ended February 28, 2022.

First Aid and Safety Services Reportable Operating Segment

Nine Months Ended February 28, 2023 Compared to Nine Months Ended February 28, 2022

First Aid and Safety Services reportable operating segment revenue increased from $614.2 million to $701.7 million, or 14.2%, for the nine months ended February 28, 2023, over the same period in the prior fiscal year.

Organic revenue growth for this reportable operating segment was 12.8%.

First Aid and Safety Services reportable operating segment revenue was positively impacted by 1.6% due to acquisitions and negatively impacted by 0.2% 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 first aid and safety services increased $4.3 million, or 1.3%, for the nine months ended February 28, 2023, from the nine months ended February 28, 2022, due to higher sales volume.

The gross margin as a percent of revenue was 50.5% for the nine months ended February 28, 2023, which was an increase of 630 basis points compared to the gross margin as a percent of revenue of 44.2% in the same period of the prior fiscal year.

change in gross margin from the same period of the prior fiscal year was primarily driven by favorable changes in the sales mix as well as i mproved leverage of fixed costs.

Selling and administrative expenses increased $23.7 million, but decreased as a percent of revenue to 31.5%, for the nine months ended February 28, 2023, compared to 32.1% for the nine months ended February 28, 2022.

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

Income before income taxes for the First Aid and Safety Services reportable operating segment was $133.6 million for the nine months ended February 28, 2023, compared to $74.1 million for the same period in the prior fiscal year.

Income before income taxes, at 19.0% of the reportable operating segment’s revenue, increased 690 basis points compared to the same period of the prior fiscal year due to the improvements in both gross margin and selling and administrative expenses.

Cost of first aid and safety services for the three months ended August 31, 2023, decreased $3.1 million, or 2.6%, compared to the three months ended August 31, 2022.

The gross margin as a percent of revenue was 55.9% for the quarter ended August 31, 2023, compared to the gross margin as a percent of revenue of 49.6% in the same period of the prior fiscal year.

The improvement in gross margin from the first quarter of the prior fiscal year was primarily driven by favorable changes in the sales mix and sourcing and productivity initiatives, as well as i mproved leverage of fixed costs and a reduction in energy expense as a percentage of revenue.

Selling and administrative expenses increased $10.9 million in the three months ended August 31, 2023, compared to the same period of the prior fiscal year.

Selling and administrative expenses as a percent of revenue for the three months ended August 31, 2023 were 33.1%, compared to 32.2% in the first quarter of the prior fiscal year.

The change as a percent of revenue from the same period in the prior fiscal year was primarily due to increases in labor and other employee-partner related expenses.

Income before income taxes for the First Aid and Safety Services reportable operating segment increased $18.7 million to $59.6 million for the three months ended August 31, 2023, compared to the same period in the prior fiscal year.

Income before income taxes was 22.9% of the reportable operating segment’s revenue compared to the same period of the prior fiscal year of 17.4%.

The increase in income before income taxes was due to the previously discussed improvements in gross margin partially offset by the increase in selling and administrative expenses.

Liquidity and Capital Resources

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

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

(In thousands) 2023 2022

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Cash and cash equivalents at the end of the period $ 88,126 $ 74,558

Cash and cash equivalents as of February 28, 2023 and 2022, include $40.4 million and $38.4 million, respectively, that is located outside of the U.S.

Cash and cash equivalents as of August 31, 2023 and 2022, include $30.2 million and $23.4 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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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 $1,044.2 million for the nine months ended February 28, 2023, compared to $987.1 million for the nine months ended February 28, 2022.

The change from the prior fiscal year was primarily due to an increase in net income and favorable changes in working capital, specifically current income taxes, accrued liabilities and accounts payable.

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

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 $224.1 million and $165.9 million for the nine months ended February 28, 2023 and 2022, respectively.

Capital expenditures in the nine months ended February 28, 2023, included $155.9 million for the Uniform Rental and Facility Services reportable operating segment and $47.6 million for the First Aid and Safety Services reportable operating segment.

The increase in capital expenditures during the nine months ended February 28, 2023 over the same period in the prior fiscal year is due to an investment in the operating segments to support continued market penetration and revenue growth.

Cash paid for acquisitions of businesses was $33.0 million and $150.8 million for the nine months ended February 28, 2023 and 2022, respectively.

The acquisitions during both the nine months ended February 28, 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.

During the nine months ended February 28, 2022, the Company received 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 includes $4.6 million and $6.0 million of purchases of investments during the nine months ended February 28, 2023 and 2022, respectively.

Net cash used in financing activities was $774.6 million and $1,078.6 million for the nine months ended February 28, 2023 and 2022, respectively.

The decrease in cash used in financing activities was primarily due to the decrease in share buyback activity and debt payments partially offset by the increase in dividends paid in the nine months ended February 28, 2023.

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

Net cash provided by operating activities was $336.9 million for the three months ended August 31, 2023, compared to $298.2 million for the three months ended August 31, 2022.

The change from the prior fiscal year was primarily due to an increase in net income.

Changes in working capital included favorable changes in accounts receivable, income taxes, current and uniforms and other rental items in service.

These improvements were partially offset by unfavorable changes in working capital, specifically, accrued compensation and related liabilities and accounts payable.

Net cash used in investing activities includes capital expenditures, purchases of investments and cash paid for acquisitions of businesses.

Capital expenditures were $106.7 million and $70.0 million for the three months ended August 31, 2023 and 2022, respectively.

Capital expenditures in the three months ended August 31, 2023, included $70.1 million for the Uniform Rental and Facility Services reportable operating segment and $22.0 million for the First Aid and Safety Services reportable operating segment.

The increase in capital expenditures during the three months ended August 31, 2023, over the same period in the prior fiscal year, was due to investments in the operating segments to support continued revenue growth, an increase in equipment purchases, primarily trucks, due to vendors clearing backlogged orders and spending associated with the SAP implementation in the Fire Protection operating segment.

Cash paid for acquisitions of businesses was $55.7 million and $7.1 million for the three months ended August 31, 2023 and 2022, respectively.

The acquisitions during both the three months ended August 31, 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.

Net cash used in investing activities also includes $6.5 million and $5.9 million of purchases of investments during the three months ended August 31, 2023 and 2022, respectively.

Net cash used in financing activities was $202.4 million and $226.2 million for the three months ended August 31, 2023 and 2022, respectively.

The decrease in cash used in financing activities was due to the decrease in share buyback activity.

This decrease was partially offset by a decrease in proceeds from the net issuance of commercial paper and an increase in dividends paid in the three months ended August 31, 2023.

On July 27, 2021, Cintas announced that 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 February 28, 2023, Cintas purchased a total of 2.7 million shares of Cintas common stock at an average price of $385.62 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 for the nine months ended February 28:

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

Buyback Activity

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per Share Purchase

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

July 27, 2021 — — — 532 396.39 210,751

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

In the period subsequent to August 31, 2023, through October 5, 2023, we purchased 0.5 million shares of Cintas common stock at an average price of $482.59 for a total purchase price of $225.5 million.

From the inception of the July 27, 2021 program through October 5, 2023, Cintas has purchased 3.2 million shares of Cintas common stock in the aggregate, at an average price of $400.08 per share, for a total purchase price of $1.3 billion.

Cintas has made no purchases under the July 26, 2022 share buyback program.

Our Board of Directors declared the following dividends:

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Per Share Total

Nine months ended February 28, 2023

Three months ended August 31, 2023

April 11, 2023 May 15, 2023 June 15, 2023 $ 1.15 $ 117.6

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

October 25, 2022 November 15, 2022 December 15, 2022 1.15 117.4

$ 3.25 $ 332.4

Nine months ended February 28, 2022

Three months ended August 31, 2022

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

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

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

$ 2.65 $ 276.9

Accrued Dividends

As of February 28, 2023

January 10, 2023 (1)

February 15, 2023 March 15, 2023 $ 1.15 $ 117.5

As of February 28, 2022

January 12, 2022 (1)

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

(1) The dividends declared during the three months ended February 28, 2023 and 2022 were included in current accrued liabilities on the consolidated condensed balance sheet at February 28, 2023 and 2022.

As of August 31, 2023

July 25, 2023 (1)

August 15, 2023 September 15, 2023 $ 1.35 $ 138.3

As of August 31, 2022

July 26, 2022 (1)

August 15, 2022 September 15, 2022 $ 1.15 $ 117.5

(1) The dividends declared during the three months ended August 31, 2023 and 2022 were included in current accrued liabilities on the consolidated condensed balance sheet at August 31, 2023 and 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 nine months ended February 28, 2023, Cintas paid a net $62.2 million of commercial paper.

During the nine months ended February 28, 2022, Cintas issued a net $559.2 million 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 three months ended August 31, 2023, Cintas repurchased, and subsequently retired, $10.0 million of its 6.15%, 30-year senior notes.

During the three months ended August 31, 2022, Cintas issued a net $196.0 million of commercial paper.

The following table summarizes Cintas' outstanding debt:

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Issued Fiscal Year

Maturity February 28,

Debt due within one year

Commercial paper 4.79 % (1)

2023 2023 $ 199,000 $ 261,200

Senior notes (2)

2.78 % 2013 2023 50,054 50,380

Debt issuance costs (1) (6)

Total debt due within one year $ 249,053 $ 311,574

Maturity August 31,

Debt due after one year

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Total debt due after one year $ 2,477,093 $ 2,486,405

(1) Variable rate debt instrument.

The rate presented is the variable borrowing rate at February 28, 2023.

(1) 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%.

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

The interest rate shown above is the effective interest rate.

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

The credit agreement that supports our commercial paper program has a revolving credit facility with a capacity of $2.0 billion.

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

As of February 28, 2023, there was $199.0 million of commercial paper outstanding with a weighted average interest rate of 4.79% and maturity dates less than 90 days and no borrowings on our revolving credit facility.

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 90 days and no borrowings on our revolving credit facility.

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

Cintas has certain covenants related to debt agreements.

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Our access to the commercial paper and long-term debt markets has historically provided us with sources of liquidity.

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.

We do not anticipate having difficulty in obtaining financing from those markets in the future based on our favorable experiences in the debt markets in the recent past.

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 February 28, 2023, our ratings were as follows:

As of August 31, 2023, our ratings were as follows:

Rating Agency Outlook Commercial

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

2 is the issuer of the $2,550.0 million aggregate principal amount of senior notes outstanding as of February 28, 2023, 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 $2,490.0 million aggregate principal amount of senior notes outstanding as of August 31, 2023, 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:

Nine Months Ended

Three Months Ended

Summarized Consolidated Condensed Statements of Income

(In thousands)

2023 February 28,

2023 August 31,

Net sales to unrelated parties $ 2,215,406 $ 2,046,494

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and the reactions of competitors in terms of price and service.

Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made.

A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2023 and in our reports on Forms 10-Q and 8-K.

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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