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Item 7. Management’s Discussion and Analysis

2024-07-25 compared with 2023-07-27 · 98 added, 98 removed, 268 unchanged (42% of the section changed)

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Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations focuses on discussion of fiscal 2023 results compared to fiscal 2022 results.

For discussion of fiscal 2022 results compared to fiscal 2021 results, see the "Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report on Form 10-K for the fiscal year ended May 31, 2022, filed with the SEC on July 27, 2022.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations section focuses on discussion of fiscal 2024 results compared to fiscal 2023 results and should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this filing.

The discussion contains forward-looking statements that involve known and unknown risks and uncertainties, including those set forth under " Item 1A.

Risk Factors ." For discussion of fiscal 2023 results compared to fiscal 2022 results, see the "Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report on Form 10-K for the fiscal year ended May 31, 2023, filed with the SEC on July 27, 2023.

Cintas classifies its business into two reportable operating segments and places the remainder of its operating segments in an All Other category.

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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.

Revenue and operating income for the reportable operating segments for the fiscal years ended May 31, 2024, 2023 and 2022 are presented in Note 14 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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Fiscal 2024 total revenue was $9.6 billion, an increase of 8.9% over the prior fiscal year.

Revenue increased organically by 12.2% as a result of increased sales volume.

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

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.

Revenue increased organically by 8.0% primarily as a result of increased sales volume.

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

Total revenue was positively impacted by 0.4% due to acquisitions and by 0.5% due to one more workday in fiscal 2024 compared to fiscal 2023.

Organic revenue growth by quarter for fiscal 2024 is as follows:

Organic Growth

First quarter ended August 31, 2023

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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 10.8% compared to fiscal 2022.

Revenue from the Uniform Rental and Facility Services reportable operating segment increased 8.2%, to $7,465.2 million compared to $6,897.1 million in fiscal 2023.

Organic revenue growth for this reportable operating segment was 7.4%.

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 positively impacted by 0.4% due to acquisitions and 0.4% due to one more workday in fiscal 2024 compared to fiscal 2023.

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.

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Generally, sales productivity improvements are due to increased tenure and improved training, which produce a higher number of products and services sold.

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.

Other revenue, consisting of revenue from the First Aid and Safety Services reportable operating segment and All Other, increased 11.1%, to $2,131.4 million compared to $1,918.6 million in fiscal 2023.

Revenue improved from increases in sales representative productivity and price increases.

Revenue increased organically by 10.2%.

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.

Revenue growth was positively impacted by 0.5% due to acquisitions and by 0.4% due to one more workday in fiscal 2024 compared to fiscal 2023.

Cost of uniform rental and facility services increased 6.4% compared to fiscal 2023.

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 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.

The change from the prior year was primarily due to higher Uniform Rental and Facility Services reportable operating segment sales volume, as well as an increase 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 2023 from 52.7% to 51.8% primarily due to efficiency gains in energy usage, more efficient use of in-service inventory, 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 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.

Cost of other increased 3.5% in fiscal 2024 compared to fiscal 2023, as a result of higher other revenue, but decreased as a percent of revenue to 49.0%, compared to 52.7% in fiscal 2023.

The improvement in cost of sales as a percent to revenue was primarily due to favorable changes in the sales mix and 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 $247.1 million, to 27.3% as a percent of revenue, compared to 26.9% in fiscal 2023.

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.

The change as a percent of revenue was primarily due to investing in additional selling resources, investing in our management trainee program, expanding our talent acquisition efforts for future growth, as well as costs associated with a tentative legal settlement discussed in Note 15 entitled Litigation and Other Contingencies of "Notes to Consolidated Financial Statements."

Net interest expense (interest expense less interest income) was $95.0 million in fiscal 2024 compared to $109.5 million in fiscal 2023.

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.

The change was primarily due to a decrease in the average amount of outstanding debt during fiscal 2024.

Income before income taxes was $1,973.6 million, an increase of $280.5 million, or 16.6%, compared to fiscal 2023.

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 increase in income before income taxes was primarily due to revenue growth, as well as the improvements in gross margin previously mentioned, which were partially offset by the change in selling and administrative expenses.

Cintas' effective tax rate for both fiscal 2024 and fiscal 2023 was 20.4%.

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 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 2024 of $1,571.6 million was a 16.6% increase compared to fiscal 2023.

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.

Diluted earnings per share of $15.15 was a 16.6% increase compared to fiscal 2023 diluted earnings per share of $12.99.

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

Uniform Rental and Facility Services Reportable Operating Segment

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The reportable operating segment's fiscal 2024 gross margin was 48.2% of revenue compared to 47.3% in fiscal 2023.

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.

The improvement in gross margin was primarily the result of efficiency gains in energy usage, more efficient use of in-service inventory, and improved leverage of fixed costs.

Selling and administrative expenses for the Uniform Rental and Facility Services reportable operating segment increased $154.4 million in fiscal 2024 compared to fiscal 2023 in order to support revenue growth as well as invest in technology and selling resources.

Selling and administrative expense as a percent of revenue for fiscal 2024 was 26.0% compared to 25.9% in fiscal 2023.

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.

As a percent of revenue, selling and administrative expenses were largely consistent as compared to the prior fiscal year.

Income before income taxes for the Uniform Rental and Facility Services reportable operating segment increased $180.7 million, or 12.2%, for fiscal 2024 compared to fiscal 2023.

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

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

Income before income taxes as a percent of revenue was 22.2% compared to 21.4% in fiscal 2023.

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.

The improvement over the prior fiscal year was primarily a result of the previously discussed improvement in gross margin.

First Aid and Safety Services Reportable Operating Segment

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Organic revenue growth for this reportable operating segment was 11.6%.

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.

Revenue growth was positively impacted by 0.2% due to acquisitions, positively impacted by 0.5% due to one more workday in fiscal 2024 compared to fiscal 2023 and negatively impacted by 0.1% due to foreign currency exchange rate fluctuations.

The 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, price increases and strong customer retention.

Cost of sales for the First Aid and Safety Services reportable operating segment increased $5.3 million, or 1.1%, in fiscal 2024, due to higher sales volume.

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Gross margin as a percent of revenue was 55.5% for fiscal 2024 compared to 50.7% in fiscal 2023.

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 efficiencies realized in selling and administrative labor expenses.

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

Selling and administrative expenses for the First Aid and Safety Services reportable operating segment increased by $52.1 million, or 17.3%, in fiscal 2024 compared to fiscal 2023, and increased as a percent of revenue to 33.1% in fiscal 2024 compared to 31.7% in fiscal 2023.

The change as a percent of revenue was primarily due to increases in labor and other employee-partner related expenses, including investing in additional selling resources for future growth.

Income before income taxes for the First Aid and Safety Services reportable operating segment was $239.2 million in fiscal 2024, an increase of $58.5 million, or 32.4%, compared to fiscal 2023.

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.

Income before income taxes as a percent of revenue at 22.4%, increased from 19.0% in fiscal 2023 due to the previously discussed growth in revenue and improvements in gross margin, partially offset by the change in 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, which matures on March 23, 2027.

In addition, we have access to $2.0 billion of debt capacity from our amended and restated revolving credit facility.

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 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 provided by operating activities was $2,079.8 million for fiscal 2024, which was an increase of $482.0 million, or 30.2%, compared to fiscal 2023.

The increase was primarily the result of an increase in net income and favorable changes in working capital, specifically inventories, net and uniforms and other rental items in service and accounts receivable, net.

These improvements were partially offset by unfavorable changes in working capital, primarily current liabilities and deferred income taxes.

Net cash used in investing activities was $608.6 million in fiscal 2024, compared to $388.7 million in fiscal 2023.

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

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

Capital expenditures were $409.5 million and $331.1 million for fiscal 2024 and fiscal 2023, respectively.

Capital expenditures for fiscal 2024 included $261.2 million for the Uniform Rental and Facility Services reportable operating segment and $100.0 million for the First Aid and Safety Services reportable operating segment.

The increase in capital expenditures from fiscal 2022 to fiscal 2023 was due to an investment in the operating segments to support continued market penetration and revenue growth.

The increase in capital expenditures from fiscal 2023 to fiscal 2024 was due to investments in the reportable 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 Services operating segment, which is included in All Other.

Cash paid for acquisitions of businesses, net of cash acquired, was $186.8 million and $46.4 million for fiscal 2024 and fiscal 2023, respectively.

The acquisitions in both fiscal 2024 and 2023 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 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 $7.5 million and $4.6 million of purchases of investments during fiscal 2024 and fiscal 2023, respectively.

Net cash used in financing activities was $1,253.5 million for fiscal 2024, compared to $1,172.8 million in fiscal 2023.

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 $1.5 billion share buyback program, which does not have an expiration date.

The increase in cash used in financing activities was due to the increase in share buyback activity and dividends paid.

These increases were partially offset by a decrease in payments of debt and commercial paper in fiscal 2024 compared to fiscal 2023.

On July 27, 2021, we announced the Board authorized a $1.5 billion share buyback program, which was completed during the fourth quarter of fiscal 2024.

From the inception of the July 27, 2021 share buyback program through May 2024, Cintas purchased a total of 3.6 million shares of Cintas common stock at an average price of $421.77 per share for a total purchase price of $1.5 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:

On July 26, 2022, Cintas announced that the Board 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 years ended May 31:

Buyback Program

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Shares Average Price

per Share Purchase Price Shares Average Price

per Share Purchase Price

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

per Share Purchase

Price Shares Average Price

per Share Purchase

July 27, 2021 856 $ 535.21 $ 458,284 550 $ 396.69 $ 218,288

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Total repurchase of Cintas common stock $ 700,033 $ 398,865

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

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

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

In the period subsequent to May 31, 2024, through July 25, 2024, under the July 26, 2022 share buyback plan, we purchased 0.7 million shares of Cintas common stock at an average price of $693.58 for a total purchase price of $473.6 million.

From the inception of the July 26, 2022 share buyback program through July 25, 2024, Cintas has purchased 0.8 million shares of Cintas common stock in the aggregate, at an average price of $691.40 per share, for a total purchase price of $530.7 million.

Our Board of Directors declared the following dividends:

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(1) The dividends declared on April 9, 2024 and April 11, 2023 were included in current accrued liabilities on the consolidated balance sheets at May 31, 2024 and 2023, 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.

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

During the fiscal year ended May 31, 2024, Cintas repurchased, and subsequently retired, $13.5 million of its 6.15%, 30-year senior notes.

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.

On April 1, 2022, in accordance with the terms of the notes, Cintas paid the $650.0 million aggregate principal amount outstanding of its 2.90%, 5-year senior notes that matured on that date with proceeds from short-term borrowings.

On May 1, 2022, Cintas redeemed at par value the $300.0 million aggregate principal amount outstanding of its 3.25%, 10-year senior notes 30 days in advance of the maturation date with proceeds from short-term borrowings.

On May 3, 2022, Cintas issued $400.0 million aggregate principal amount of senior notes that bear an interest rate of 3.45% and mature on May 1, 2025.

On May 3, 2022, Cintas also issued $800.0 million aggregate principal amount of senior notes that bear an interest rate of 4.00% and mature on May 1, 2032.

The net proceeds from these issuances were utilized for general business purposes, including reducing Cintas’ short-term borrowings.

The following table summarizes Cintas' outstanding debt at May 31:

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Debt due within one year

Commercial paper 1.20% (1)

2022 2023 $ — $ 261,200

Senior notes (1)

3.11% 2015 2025 $ 50,294 $ —

Senior notes 3.45% 2022 2025 400,000 —

Debt issuance costs (699) —

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Total debt due after one year $ 2,025,934 $ 2,486,405

(1) Variable rate debt instrument.

The rate presented is the variable borrowing rate at May 31, 2022.

(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.

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

The interest rate shown above is the effective interest rate until repayment in fiscal 2025.

(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 capacity under the revolving credit facility of $2.0 billion.

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

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

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.

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.

As of both May 31, 2024 and 2023, there was no commercial paper outstanding and no borrowings on our revolving credit facility.

Cintas' debt agreements contain certain covenants.

These covenants limit our ability to incur certain liens and priority debt, 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.

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Cintas was in compliance with all of the debt covenants for all periods presented.

Our access to the commercial paper and long-term debt markets has historically provided us with sources of both short-term and long-term liquidity to meet material cash obligations.

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.

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.

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 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 rates and other terms will depend, to a significant degree, on the ratings assigned by the credit rating agencies to our indebtedness.

As of May 31, 2024, our ratings were as follows:

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In the event that the ratings of our commercial paper or our outstanding long-term debt issues were substantially lowered or withdrawn for any reason, or if the ratings assigned to any new issue of long-term debt securities were significantly lower than those noted above, particularly if we no longer had investment grade ratings, our ability to access the debt markets may be adversely affected.

In addition, in such a case, our cost of funds for new issues of commercial paper and long-term debt would be higher than our cost of funds would have been had the ratings of those new issues been at or above the level of the ratings noted above.

In addition, in such a case, our cost of funds for new issues of

commercial paper and long-term debt would be higher than our cost of funds would have been had the ratings of those new issues been at or above the level of the ratings noted above.

The rating agency ratings are not recommendations to buy, sell or hold our commercial paper or debt securities.

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The Obligor Group’s amounts due from, amounts due to and transactions with non-guarantors have been presented in separate line items, if they are material.

Summarized financial information of the Obligor Group is as follows for the fiscal years ended May 31:

Summarized financial information of the Obligor Group is as follows as of and for the fiscal years ended May 31:

Summarized Consolidated Statements of Income

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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.

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.

Future contributions to the defined benefit plans are expected to be $0.8 million in the next year, $9.5 million in the next two to three years and $6.0 million in the next four to five years.

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

Future contributions to the defined contribution plans are expected to be $125.3 million in the next fiscal year, $269.6 million in the next two to three fiscal years and $297.3 million in the next four to five fiscal years.

Future contributions to the defined benefit plans are expected to be $5.1 million in the next fiscal year, $4.7 million in the next two to three fiscal years and $4.7 million in the next four to five fiscal years.

Other Commitments

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

Management has mitigated these impacts such that net of the mitigation strategy and initiatives, inflation and changing prices has not had a material impact on Cintas' consolidated financial condition or a negative impact on the consolidated results of operations.

Management has mitigated these impacts such that net of the mitigation strategy and initiatives, inflation and changing prices have not had a material impact on Cintas' consolidated financial condition or a negative impact on the consolidated results of operations.

Litigation and Other Contingencies

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New Accounting Standards

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.

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures (ASU 2023-07).

ASU 2023-07 requires additional disclosures pertaining to significant expenses and other items of an entity’s reportable operating segments.

ASU 2023-07 is effective for annual periods beginning after December 15, 2023 (fiscal 2025).

Early adoption is permitted.

The Company is currently evaluating the impact of ASU 2023-07 on the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures (ASU 2023-09), which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S.

and foreign jurisdictions.

ASU 2023-09 will be effective for annual periods beginning after December 15, 2024 (fiscal 2026).

The Company is currently evaluating the impact of ASU 2023-09 on the consolidated financial statements.

There are no other 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

The preparation of Cintas' consolidated financial statements in conformity with U.S.

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 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." The preparation of Cintas' consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and judgments, specifically the insurance reserve, which have an effect on the amounts reported in the consolidated financial statements and accompanying notes.

Significant changes in critical accounting policies or significant changes in estimates or assumptions, specifically related to the insurance reserve, could possibly have a material impact on the consolidated financial statements.

Revenue recognition.

Rental revenue, which is recorded in the Uniform Rental and Facility Services reportable operating segment, is recognized when services are performed or the obligations under the terms of a contract with a customer are satisfied.

Other revenue, which is recorded in the First Aid and Safety Services reportable operating segments and All Other, is recognized when either services are performed or the obligations under the terms of a contract with a customer are satisfied.

See Note 2 entitled Revenue Recognition of the " Notes to Consolidated Financial Statements " for more information on Cintas' revenue.

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 fiscal years ended May 31, 2024, 2023 or 2022.

See Note 2 entitled Revenue Recognition of "Notes to Consolidated Financial Statements".

Uniforms and other rental items in service.

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

These factors are critical to determining the amount of in service inventory and related cost of uniforms and ancillary products that are presented in the consolidated financial statements.

These factors are critical to determining the amount of in service inventory and related cost of uniforms and facility services that are presented in the consolidated financial statements.

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

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.

Cintas completes an annual impairment test that includes an assessment of qualitative factors, and quantitative, if necessary, 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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Insurance reserve.

The insurance reserve represents the estimated ultimate cost of all asserted and unasserted claims, primarily related to workers' compensation, auto liability and other general liability exposure through the consolidated balance sheet dates.

The insurance reserve represents the estimated ultimate cost of all asserted and unasserted claims (incurred but not reported), primarily related to workers' compensation, auto liability and other general liability exposure through the consolidated balance sheet dates.

Our incurred but not reported reserves are estimated through actuarial procedures, with the assistance of third-party actuarial specialists, of the insurance industry and by using industry assumptions, adjusted for specific expectations based on our claims history.

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These changes in estimates may be material to 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.

See Note 8 entitled Income Taxes of " Notes to Consolidated Financial Statements " for the types of items that give rise to significant deferred income tax assets and liabilities.

Deferred income taxes are classified as assets or liabilities based on the classification of the related asset or liability for financial reporting purposes.

Cintas regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences.

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.

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