CINTAS CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) Three Months Ended (In thousands except per share data) August 31, 2023 August 31, 2022 Revenue: Uniform rental and facility services $ 1,826,825 $ 1,697,772 Other 515,505 468,682 Total revenue 2,342,330 2,166,454 Costs and expenses: Cost of uniform rental and facility services 947,583 890,766 Cost of other 253,176 247,576 Selling and administrative expenses 641,015 587,992 Operating income 500,556 440,120 Interest income ( 422 ) ( 155 ) Interest expense 24,544 27,720 Income before income taxes 476,434 412,555 Income taxes 91,349 60,866 Net income $ 385,085 $ 351,689 Basic earnings per share $ 3.76 $ 3.45 Diluted earnings per share $ 3.70 $ 3.39 Dividends declared per share $ 1.35 $ 1.15 See accompanying notes. 3 Table of Contents CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended (In thousands) August 31, 2023 August 31, 2022 Net income $ 385,085 $ 351,689 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 2,634 ( 19,206 ) Change in fair value of interest rate lock agreements, net of tax expense of $ 2,806 and $ 320 , respectively 8,199 934 Amortization of interest rate lock agreements, net of tax benefit of $( 487 ) and $( 512 ), respectively ( 1,442 ) ( 1,521 ) Other comprehensive income (loss), net of tax expense (benefit) of $ 2,319 and $( 192 ), respectively 9,391 ( 19,793 ) Comprehensive income $ 394,476 $ 331,896 See accompanying notes. 4 Table of Contents CINTAS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands except per share data) August 31, 2023 May 31, 2023 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 88,126 $ 124,149 Accounts receivable, net 1,197,342 1,152,993 Inventories, net 498,354 506,604 Uniforms and other rental items in service 1,021,515 1,011,918 Prepaid expenses and other current assets 182,191 142,795 Total current assets 2,987,528 2,938,459 Property and equipment, net 1,439,266 1,396,476 Investments 266,930 247,191 Goodwill 3,104,955 3,056,201 Service contracts, net 340,266 346,574 Operating lease right-of-use assets, net 181,677 178,464 Other assets, net 399,059 382,991 $ 8,719,681 $ 8,546,356 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 314,743 $ 302,292 Accrued compensation and related liabilities 116,892 239,086 Accrued liabilities 592,370 632,504 Income taxes, current 101,031 12,470 Operating lease liabilities, current 43,803 43,710 Total current liabilities 1,168,839 1,230,062 Long-term liabilities: Debt due after one year 2,477,093 2,486,405 Deferred income taxes 499,935 498,356 Operating lease liabilities 141,459 138,278 Accrued liabilities 354,720 329,269 Total long-term liabilities 3,473,207 3,452,308 Shareholders’ equity: Preferred stock, no par value: — — 100,000 shares authorized, none outstanding Common stock, no par value, and paid-in capital: 2,121,475 2,031,542 425,000,000 shares authorized FY 2024: 192,657,768 shares issued and 101,927,462 shares outstanding FY 2023: 192,198,938 shares issued and 101,732,148 shares outstanding Retained earnings 9,844,128 9,597,315 Treasury stock: ( 7,975,137 ) ( 7,842,649 ) FY 2024: 90,730,306 shares FY 2023: 90,466,790 shares Accumulated other comprehensive income 87,169 77,778 Total shareholders’ equity 4,077,635 3,863,986 $ 8,719,681 $ 8,546,356 See accompanying notes. 5 Table of Contents CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Common Stock and Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Total Shareholders' Equity (In thousands) Shares Amount Shares Amount Balance at June 1, 2023 192,199 $ 2,031,542 $ 9,597,315 $ 77,778 ( 90,467 ) $ ( 7,842,649 ) $ 3,863,986 Net income — — 385,085 — — — 385,085 Comprehensive income, net of tax — — — 9,391 — — 9,391 Dividends — — ( 138,272 ) — — — ( 138,272 ) Stock-based compensation — 30,242 — — — — 30,242 Vesting of stock-based compensation awards 156 — — — — — — Stock options exercised 303 59,691 — — ( 118 ) ( 59,212 ) 479 Repurchase of common stock — — — — ( 145 ) ( 73,276 ) ( 73,276 ) Balance at August 31, 2023 192,658 $ 2,121,475 $ 9,844,128 $ 87,169 ( 90,730 ) $ ( 7,975,137 ) $ 4,077,635 Common Stock and Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Total Shareholders' Equity (In thousands) Shares Amount Shares Amount Balance at June 1, 2022 190,838 $ 1,771,917 $ 8,719,163 $ 107,917 ( 89,127 ) $ ( 7,290,801 ) $ 3,308,196 Net income — — 351,689 — — — 351,689 Comprehensive loss, net of tax — — — ( 19,793 ) — — ( 19,793 ) Dividends — — ( 117,461 ) — — — ( 117,461 ) Stock-based compensation — 26,282 — — — — 26,282 Vesting of stock-based compensation awards 273 — — — — — — Stock options exercised 543 80,638 — — ( 193 ) ( 79,591 ) 1,047 Repurchase of common stock — — — — ( 802 ) ( 320,334 ) ( 320,334 ) Balance at August 31, 2022 191,654 $ 1,878,837 $ 8,953,391 $ 88,124 ( 90,122 ) $ ( 7,690,726 ) $ 3,229,626 See accompanying notes. 6 Table of Contents CINTAS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended (In thousands) August 31, 2023 August 31, 2022 Cash flows from operating activities: Net income $ 385,085 $ 351,689 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 67,613 63,057 Amortization of intangible assets and capitalized contract costs 39,199 36,989 Stock-based compensation 30,242 26,282 Deferred income taxes ( 1,367 ) 14,829 Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable, net ( 43,892 ) ( 79,397 ) Inventories, net 8,541 ( 2,476 ) Uniforms and other rental items in service ( 7,414 ) ( 39,327 ) Prepaid expenses and other current assets and capitalized contract costs ( 66,791 ) ( 63,641 ) Accounts payable 12,443 41,681 Accrued compensation and related liabilities ( 124,408 ) ( 59,957 ) Accrued liabilities and other ( 48,952 ) ( 49,105 ) Income taxes, current 86,646 57,532 Net cash provided by operating activities 336,945 298,156 Cash flows from investing activities: Capital expenditures ( 106,697 ) ( 70,016 ) Purchases of investments ( 6,525 ) ( 5,930 ) Acquisitions of businesses, net of cash acquired ( 55,651 ) ( 7,060 ) Other, net ( 963 ) ( 3,589 ) Net cash used in investing activities ( 169,836 ) ( 86,595 ) Cash flows from financing activities: Issuance of commercial paper, net — 196,000 Repayment of debt ( 10,000 ) — Proceeds from exercise of stock-based compensation awards 479 1,047 Dividends paid ( 117,565 ) ( 97,655 ) Repurchase of common stock ( 73,276 ) ( 320,334 ) Other, net ( 2,013 ) ( 5,257 ) Net cash used in financing activities ( 202,375 ) ( 226,199 ) Effect of exchange rate changes on cash and cash equivalents ( 757 ) ( 1,275 ) Net decrease in cash and cash equivalents ( 36,023 ) ( 15,913 ) Cash and cash equivalents at beginning of period 124,149 90,471 Cash and cash equivalents at end of period $ 88,126 $ 74,558 See accompanying notes. 7 Table of Contents CINTAS CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation The consolidated condensed financial statements of Cintas Corporation (Cintas, the Company, we, us or our) included herein have been prepared by Cintas, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. While we believe that the disclosures are adequately presented, we suggest that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023 (Annual Report) filed with the SEC on July 27, 2023. See Note 1 entitled Significant Accounting Policies of "Notes to Consolidated Financial Statements" of that Annual Report for a summary of our significant accounting policies. There have been no material changes in the accounting policies followed by Cintas during the current fiscal year. Interim results are subject to variations and are not necessarily indicative of the results of operations for a full fiscal year. In the opinion of management, adjustments (which include only normal recurring adjustments) necessary for a fair statement of the consolidated results of the interim periods shown have been made. Inventories, net are valued at the lower of cost (first-in, first-out) or net realizable value. Inventory is comprised of the following at: (In thousands) August 31, 2023 May 31, 2023 Raw materials $ 23,199 $ 27,878 Work in process 49,017 56,384 Finished goods 426,138 422,342 Inventories, net $ 498,354 $ 506,604 Inventories are recorded net of reserves for obsolete inventory (excess and slow-moving) of $ 74.1 million and $ 80.1 million at August 31, 2023 and May 31, 2023, respectively. The inventory obsolescence reserve is determined by specific identification, as well as an estimate based on Cintas' historical rates of obsolescence. Once a specific inventory item is written down to the lower of cost or net realizable value, a new cost basis has been established, and that inventory item cannot subsequently be marked up. New Accounting Pronouncements There are no new accounting pronouncements recently issued or newly effective that had, or are expected to have, a material impact on Cintas' consolidated condensed financial statements. Note 2 - Revenue Recognition The following table presents Cintas' total revenue disaggregated by operating segment for the three months ended August 31: (In thousands) 2023 2022 Uniform Rental and Facility Services $ 1,826,825 78.0 % $ 1,697,772 78.4 % First Aid and Safety Services 260,693 11.1 % 234,161 10.8 % Fire Protection Services 174,316 7.5 % 151,847 7.0 % Uniform Direct Sales 80,496 3.4 % 82,674 3.8 % Total revenue $ 2,342,330 100.0 % $ 2,166,454 100.0 % The Fire Protection Services and Uniform Direct Sales operating segments are included within All Other as disclosed in Note 10 entitled Segment Information. 8 Table of Contents Revenue Recognition Policy Approximately 95 % of the Company's revenue is derived from fees for route servicing of Uniform Rental and Facility Services, First Aid and Safety Services and Fire Protection Services customers, performed by a Cintas employee-partner, at the customer's location of business. Revenue from our route servicing customer contracts represent a single-performance obligation. The Company recognizes revenue over time as services are performed, based on the nature of services provided and contractual rates (output method) or at a point in time when the performance obligation under the terms of the contract with a customer are satisfied, at the customer's location of business. The Company's remaining revenue, primarily within the Uniform Direct Sales operating segment, and representing approximately 5 % of the Company's total revenue, is recognized when the obligations under the terms of a contract with a customer are satisfied. This generally occurs when the goods are transferred to the customer. Revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities. Shipping and handling costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Certain of our customer contracts include pricing terms and conditions that include components of variable consideration. The variable consideration is typically in the form of consideration paid to a customer based on performance metrics specified within the contract and is not material in any period presented. When determining if variable consideration should be constrained, the Company considers whether factors outside its control could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal. The Company's performance period generally corresponds with the monthly invoice period. No constraints on our revenue recognition were applied during the three months ended August 31, 2023 or 2022. We are exposed to credit losses primarily through our trade receivables. We determine the allowance for credit losses using both an estimate, based on historical rates of collections, and reserves for specific accounts identified as uncollectible. The portion of the allowance for credit losses that is an estimate based on Cintas' historical rates of collections is recorded for overdue amounts, beginning with a nominal percentage when the account is current and increasing substantially as the account ages. The amount provided as the account ages will differ slightly between the Uniform Rental and Facility Services reportable operating segment, the First Aid and Safety Services reportable operating segment and All Other because of differences in customers served and the nature of each business. We update our allowance for credit losses quarterly, considering recent write-offs and collections information and underlying economic expectations. Costs to Obtain a Contract The Company capitalizes commission expenses paid to our employee-partners when the commissions are deemed to be incremental for obtaining the route servicing customer contract. As permitted by Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), the Company has elected to apply the guidance to a portfolio of contracts (or performance obligations) with similar characteristics because the Company reasonably expects that the effects on the consolidated condensed financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within the portfolio. The Company also continues to expense certain costs to obtain a contract if those costs do not meet the criteria of the standard or the amortization period of the asset would have been one year or less. The deferred commissions are amortized on a straight-line basis over the expected period of benefit. We review the deferred commission balances for impairment on an ongoing basis. Deferred commissions are classified as current or noncurrent based on the timing of when we expect to recognize the expense. The current portion is included in prepaid expenses and other current assets and the noncurrent portion is included in other assets, net on the Company's consolidated condensed balance sheets. As of August 31, 2023, the current and noncurrent assets related to deferred commissions totaled $ 94.1 million and $ 255.1 million, respectively. As of May 31, 2023, the current and noncurrent assets related to deferred commissions totaled $ 92.5 million and $ 251.6 million, respectively. We recorded amortization expense related to deferred commissions of $ 24.4 million and $ 22.4 million during the three months ended August 31, 2023 and 2022, respectively. These expenses are classified in selling and administrative expenses on the consolidated condensed statements of income. 9 Table of Contents Note 3 - Leases Cintas has operating leases for certain operating facilities, vehicles and equipment, which provide the right to use the underlying asset and require lease payments over the term of the lease. Each new contract is evaluated to determine if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. All identified leases are recorded on the consolidated condensed balance sheets with a corresponding operating lease right-of-use asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the consolidated condensed balance sheets. Operating lease right-of-use assets, net and operating lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. Lease expense for operating leases is recorded on a straight-line basis over the lease term and variable lease costs are recorded as incurred. Both lease expense and variable lease costs are primarily recorded in cost of uniform rental and facility services and other on the Company's consolidated condensed statements of income. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating lease costs, including short-term lease expense and variable lease costs which were immaterial in both periods, were $ 19.7 million and $ 19.5 million for the three months ended August 31, 2023 and 2022, respectively. The following table provides supplemental information related to the Company's consolidated condensed statements of cash flows for the three months ended August 31: (In thousands) 2023 2022 Cash paid for amounts included in the measurement of operating lease liabilities $ 12,696 $ 12,608 Operating lease right-of-use assets obtained in exchange for new and renewed operating lease liabilities $ 14,286 $ 15,836 Other information related to the operating lease right-of-use assets, net and operating lease liabilities was as follows: August 31, 2023 May 31, 2023 Weighted-average remaining lease term 5.26 years 5.28 years Weighted-average discount rate 3.03 % 2.87 % The contractual future minimum lease payments of Cintas' operating lease liabilities by fiscal year are as follows as of August 31, 2023: (In thousands) 2024 (remaining nine months) $ 36,821 2025 43,650 2026 36,102 2027 27,205 2028 22,158 Thereafter 35,134 Total payments 201,070 Less interest ( 15,808 ) Total present value of lease payments $ 185,262 10 Table of Contents Note 4 - Fair Value Measurements All financial instruments that are measured at fair value on a recurring basis (at least annually) have been classified within the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the consolidated condensed balance sheet dates. These financial instruments measured at fair value on a recurring basis are summarized below: As of August 31, 2023 As of May 31, 2023 (In thousands) Level 1 Level 2 Level 3 Fair Value Level 1 Level 2 Level 3 Fair Value Cash and cash equivalents $ 88,126 $ — $ — $ 88,126 $ 124,149 $ — $ — $ 124,149 Other assets, net: Interest rate lock agreements — 81,455 — 81,455 — 70,449 — 70,449 Total assets at fair value $ 88,126 $ 81,455 $ — $ 169,581 $ 124,149 $ 70,449 $ — $ 194,598 Cintas’ cash and cash equivalents are generally classified within Level 1 or Level 2 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets, and financial instruments classified as Level 2 are based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The types of financial instruments Cintas classifies within Level 1 include most bank deposits and money market securities. Cintas does not adjust the quoted market price for such financial instruments. The fair values of Cintas' interest rate lock agreements are based on similar exchange traded derivatives (market approach) and are, therefore, included within Level 2 of the fair value hierarchy. The fair value was determined by comparing the locked rates against the benchmarked treasury rate. No other amounts included in other assets, net, are recorded at fair value on a recurring basis. The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while Cintas believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the consolidated condensed balance sheet dates. In addition to assets and liabilities that are recorded at fair value on a recurring basis, Cintas records assets and liabilities at fair value on a nonrecurring basis as required under U.S. GAAP. The assets and liabilities measured at fair value on a nonrecurring basis primarily relate to assets and liabilities acquired in a business acquisition. Note 5 - Earnings Per Share Cintas uses the two-class method to calculate basic and diluted earnings per share as a result of outstanding participating securities in the form of restricted stock awards. The following tables set forth the computation of basic and diluted earnings per share using the two-class method for amounts attributable to Cintas’ common shares for the three months ended August 31: Basic Earnings per Share (In thousands except per share data) 2023 2022 Net income $ 385,085 $ 351,689 Less: net income allocated to participating securities 1,560 1,520 Net income available to common shareholders $ 383,525 $ 350,169 Basic weighted average common shares outstanding 101,895 101,428 Basic earnings per share $ 3.76 $ 3.45 11 Table of Contents Diluted Earnings per Share (In thousands except per share data) 2023 2022 Net income $ 385,085 $ 351,689 Less: net income allocated to participating securities 1,560 1,520 Net income available to common shareholders $ 383,525 $ 350,169 Basic weighted average common shares outstanding 101,895 101,428 Effect of dilutive securities – employee stock options 1,677 1,909 Diluted weighted average common shares outstanding 103,572 103,337 Diluted earnings per share $ 3.70 $ 3.39 For the three months ended August 31, 2023 and 2022, options granted to purchase 0.2 million and 0.8 million shares of Cintas common stock, respectively, were excluded from the computation of diluted earnings per share. The exercise prices of these options were greater than the average market price of the common stock (anti-dilutive). On 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. 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 share buyback activity by program and period for the three months ended August 31: 2023 2022 Buyback Activity (In thousands except per share data) Shares Avg. Price per Share Purchase Price Shares Avg. Price per Share Purchase Price July 27, 2021 — $ — $ — 532 $ 396.39 $ 210,751 July 26, 2022 — — — — — — — $ — $ — 532 $ 396.39 $ 210,751 Shares acquired for taxes due (1) 145 $ 503.20 $ 73,276 270 $ 405.93 $ 109,583 Total repurchase of Cintas common stock $ 73,276 $ 320,334 (1) Shares of Cintas common stock acquired for employee payroll taxes due on options exercised and vested restricted stock awards. In addition to the share buyback activity presented above, Cintas acquired shares of Cintas common stock, via non-cash transactions, in connection with net-share settlements of option exercises. The following table summarizes Cintas' non-cash share buyback activity for the three months ended August 31: 2023 2022 (In thousands except per share data) Shares Avg. Price per Share Non-Cash Value Shares Avg. Price per Share Non-Cash Value Non-cash transaction activity 118 $ 502.24 $ 59,212 193 $ 411.93 $ 79,591 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. 12 Table of Contents Note 6 - Goodwill, Service Contracts and Other Assets, Net Changes in the carrying amount of goodwill and service contracts for the three months ended August 31, 2023, by reportable operating segment and All Other, are as follows: Goodwill (In thousands) Uniform Rental and Facility Services First Aid and Safety Services All Other Total Balance as of June 1, 2023 $ 2,636,607 $ 292,868 $ 126,726 $ 3,056,201 Goodwill acquired 45,369 1,013 1,115 47,497 Foreign currency translation 1,150 103 4 1,257 Balance as of August 31, 2023 $ 2,683,126 $ 293,984 $ 127,845 $ 3,104,955 Service Contracts (In thousands) Uniform Rental and Facility Services First Aid and Safety Services All Other Total Balance as of June 1, 2023 $ 310,030 $ 21,157 $ 15,387 $ 346,574 Service contracts acquired 5,954 290 533 6,777 Service contracts amortization ( 11,015 ) ( 1,313 ) ( 981 ) ( 13,309 ) Foreign currency translation 212 12 — 224 Balance as of August 31, 2023 $ 305,181 $ 20,146 $ 14,939 $ 340,266 Information regarding Cintas’ service contracts and other assets, net is as follows: As of August 31, 2023 As of May 31, 2023 (In thousands) Carrying Amount Accumulated Amortization Net Carrying Amount Accumulated Amortization Net Service contracts $ 1,012,036 $ 671,770 $ 340,266 $ 1,004,754 $ 658,180 $ 346,574 Capitalized contract costs (1) $ 693,140 $ 438,074 $ 255,066 $ 665,705 $ 413,680 $ 252,025 Noncompete and consulting agreements and other 212,122 68,129 143,993 198,260 67,294 130,966 Total other assets, net $ 905,262 $ 506,203 $ 399,059 $ 863,965 $ 480,974 $ 382,991 (1) The current portion of capitalized contract costs, included in prepaid expenses and other current assets on the consolidated condensed balance sheets as of August 31, 2023 and May 31, 2023, is $ 94.1 million and $ 92.5 million, respectively. Amortization expense for service contracts and other assets, was $ 38.5 million and $ 36.4 million for the three months ended August 31, 2023 and 2022, respectively. These expenses are recorded in selling and administrative expenses on the consolidated condensed statements of income. As of August 31, 2023, the estimated future amortization expense for service contracts and other assets, excluding any future acquisitions and commissions to be earned, is as follows: Fiscal Year (In thousands) 2024 (remaining nine months) $ 114,023 2025 138,387 2026 117,129 2027 95,398 2028 71,829 Thereafter 163,288 Total future amortization expense $ 700,054 13 Table of Contents Note 7 - Debt, Derivatives and Hedging Activities Cintas' outstanding debt is summarized as follows: (In thousands) Interest Rate Fiscal Year Issued Fiscal Year Maturity August 31, 2023 May 31, 2023 Debt due after one year Senior notes (1) 3.11 % 2015 2025 $ 50,546 $ 50,630 Senior notes 3.45 % 2022 2025 400,000 400,000 Senior notes 3.70 % 2017 2027 1,000,000 1,000,000 Senior notes 4.00 % 2022 2032 800,000 800,000 Senior notes 6.15 % 2007 2037 240,000 250,000 Debt issuance costs ( 13,453 ) ( 14,225 ) Total debt due after one year $ 2,477,093 $ 2,486,405 (1) Cintas assumed these senior notes with the acquisition of G&K Services, Inc. (G&K) in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $ 50.0 million with a stated interest rate of 3.88 %. Cintas' senior notes, excluding the G&K senior notes assumed with the acquisition of G&K in fiscal 2017, are recorded at cost, net of debt issuance costs. The fair value of the long-term debt is estimated using Level 2 inputs based on general market prices. The carrying value and fair value of Cintas' debt as of August 31, 2023 were $ 2,490.0 million and $ 2,396.5 million, respectively, and as of May 31, 2023 were $ 2,500.0 million and $ 2,443.8 million, respectively. During the three months ended August 31, 2023, Cintas repurchased, and subsequently retired, $ 10.0 million of its 6.15 %, 30-year senior notes. In conjunction with this transaction, Cintas recognized a loss of $ 0.8 million during the three months ended August 31, 2023, which is recorded in interest expense on the consolidated condensed statement of income. During the three months ended August 31, 2022, Cintas issued $ 196.0 million, net of commercial paper. 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 both August 31, 2023 and May 31, 2023, there was no commercial paper outstanding and no borrowings on our revolving credit facility. Cintas uses interest rate locks to manage its overall interest expense as interest rate locks effectively change the interest rate of specific debt issuances. The interest rate locks are entered into to protect against unfavorable movements in the benchmark treasury rate related to forecasted debt issuances. Cintas used interest rate locks, which represent cash flow hedges, to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2007, fiscal 2017 and fiscal 2022. The amortization of the interest rate locks resulted in a decrease to other comprehensive income (loss) of $ 1.4 million and $ 1.5 million for the three months ended August 31, 2023 and 2022, respectively. During fiscal 2022 and fiscal 2020, Cintas entered into interest rate lock agreements for forecasted debt issuances. The aggregate notional value of outstanding cash flow hedges was $ 500.0 million at both August 31, 2023 and May 31, 2023. The fair values of the outstanding interest rate locks, for forecasted debt issuances, are summarized as follows: August 31, 2023 May 31, 2023 Fiscal Year of Issuance (In thousands) Other assets, net Other assets, net 2022 $ 50,009 $ 44,803 2020 $ 31,446 $ 25,646 The changes in fair value of the interest rate locks are recorded in other comprehensive income (loss), net of tax. These interest rate locks had no impact on net income or cash flows for the three months ended August 31, 2023 or 2022. 14 Table of Contents Cintas has certain covenants related to debt agreements. These covenants limit Cintas' ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. Cintas was in compliance with all of the debt covenants for all periods presented. Note 8 - Income Taxes In the normal course of business, Cintas provides for uncertain tax positions and the related interest and adjusts its unrecognized tax benefits and accrued interest accordingly. The recorded unrecognized tax benefits were $ 29.3 million as of both August 31, 2023 and May 31, 2023, and are included in long-term accrued liabilities on the consolidated condensed balance sheets. The majority of Cintas' operations are in North America. Cintas is required to file U.S. federal income tax returns, as well as state income tax returns in a majority of the domestic states and also in certain Canadian provinces. At times, Cintas is subject to audits in these jurisdictions. The audits, by nature, are sometimes complex and can require several years to resolve. The final resolution of any such tax audit could result in either a reduction in Cintas' accruals or an increase in its income tax provision, either of which could have an impact on the consolidated results of operations in any given period. All U.S. federal income tax returns are closed to audit through fiscal 2019. Cintas is currently in various audits in certain foreign jurisdictions and certain domestic states. The years under foreign and domestic state audits cover fiscal years back to 2014. Based on the status and resolution of the various audits and other potential regulatory developments, it is expected that the balance of unrecognized tax benefits will not materially change for the fiscal year ending May 31, 2024. 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 for both periods was impacted by certain discrete items (primarily the tax accounting for stock-based compensation). 15 Table of Contents Note 9 - Accumulated Other Comprehensive Income (Loss) The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive income (loss), net of tax: (In thousands) Foreign Currency Unrealized Income on Interest Rate Locks Other Total Balance at June 1, 2023 $ ( 17,001 ) $ 96,714 $ ( 1,935 ) $ 77,778 Other comprehensive income before reclassifications 2,634 8,199 — 10,833 Amounts reclassified from accumulated other comprehensive income (loss) — ( 1,442 ) — ( 1,442 ) Net current period other comprehensive income 2,634 6,757 — 9,391 Balance at August 31, 2023 $ ( 14,367 ) $ 103,471 $ ( 1,935 ) $ 87,169 (In thousands) Foreign Currency Unrealized Income on Interest Rate Locks Other Total Balance at June 1, 2022 $ 17,006 $ 92,688 $ ( 1,777 ) $ 107,917 Other comprehensive (loss) income before reclassifications ( 19,206 ) 934 — ( 18,272 ) Amounts reclassified from accumulated other comprehensive income (loss) — ( 1,521 ) — ( 1,521 ) Net current period other comprehensive loss ( 19,206 ) ( 587 ) — ( 19,793 ) Balance at August 31, 2022 $ ( 2,200 ) $ 92,101 $ ( 1,777 ) $ 88,124 The following table summarizes the reclassifications out of accumulated other comprehensive income (loss) for the three months ended August 31: Details about Accumulated Other Comprehensive Income (Loss) Components Amount Reclassified from Accumulated Other Comprehensive Income (Loss) Affected Line in the Consolidated Condensed Statements of Income (In thousands) 2023 2022 Amortization of interest rate locks $ 1,929 $ 2,033 Interest expense Tax expense ( 487 ) ( 512 ) Income taxes Amortization of interest rate locks, net of tax $ 1,442 $ 1,521 16 Table of Contents Note 10 - Segment Information Cintas’ reportable operating segments are Uniform Rental and Facility Services and First Aid and Safety Services. The Uniform Rental and Facility Services reportable operating segment consists of the rental and servicing of uniforms and other garments including flame resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies, and the sale of items from our catalogs to our customers on route are included within this reportable operating segment. The First Aid and Safety Services reportable operating segment consists of first aid and safety products and services. The remainder of Cintas’ operating segments, which consists of the Fire Protection Services operating segment and the Uniform Direct Sale operating segment, is included in All Other. Cintas evaluates the performance of each operating segment based on several factors of which the primary financial measures are operating segment revenue and income before income taxes. The accounting policies of the operating segments are the same as those described in Note 1 entitled Basis of Presentation. Information related to the operations of Cintas’ reportable operating segments and All Other is set forth below: (In thousands) Uniform Rental and Facility Services First Aid and Safety Services All Other Corporate (1) Total As of and for the three months ended August 31, 2023 Revenue $ 1,826,825 $ 260,693 $ 254,812 $ — $ 2,342,330 Income (loss) before income taxes $ 406,529 $ 59,580 $ 34,447 $ ( 24,122 ) $ 476,434 Total assets $ 7,346,364 $ 723,687 $ 561,504 $ 88,126 $ 8,719,681 As of and for the three months ended August 31, 2022 Revenue $ 1,697,772 $ 234,161 $ 234,521 $ — $ 2,166,454 Income (loss) before income taxes $ 364,771 $ 40,846 $ 34,503 $ ( 27,565 ) $ 412,555 Total assets $ 7,036,979 $ 680,864 $ 468,625 $ 74,558 $ 8,261,026 (1) Corporate assets include cash and cash equivalents and marketable securities, if applicable, in all periods. Note 11 - Litigation and Other Contingencies Cintas is subject to legal proceedings, insurance receipts, legal settlements and claims arising from the ordinary course of its business, including personal injury, customer contract, environmental and employment claims. 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. Cintas is party to additional litigation not considered in the ordinary course of business, including the litigation discussed below. The Company is a defendant in a purported class action lawsuit, City of Laurel, Mississippi v. Cintas Corporation No. 2 , filed on March 12, 2021. This is a contract dispute whereby plaintiffs allege that Cintas breached its contracts with participating public agencies and seek, among other things, contract-based damages in an unspecified amount. In March 2022, the District Court denied Cintas’ motion to compel arbitration, and on March 6, 2023, the Ninth Circuit Court of Appeals affirmed. Any liability in this matter is not probable nor estimable at this time. Cintas records an accrual for legal contingencies when Cintas determines that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of August 31, 2023 and 2022, Cintas did not accrue any additional sums in excess of its other legal contingency accruals for adverse jury verdicts arising in the ordinary course of its business. The litigation discussed above, if decided or settled adversely to Cintas, may result in liability material to Cintas' consolidated financial condition, consolidated results of operations or consolidated cash flows and could increase costs of operations on an ongoing basis. Any estimated liability relating to this proceeding is not determinable at this time. Cintas may enter into discussions regarding settlement of this and other lawsuits and may enter into settlement agreements if it believes such settlement is in the best interest of Cintas' shareholders. 17 Table of Contents