filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (In thousands except per share data) | February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | |||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Uniform rental and facility services | $ | 1,876,642 | $ | 1,716,165 | $ | 5,554,009 | $ | 5,123,924 | |||||||||||||||
| Other | 529,531 | 473,821 | 1,571,671 | 1,407,374 | |||||||||||||||||||
| Total revenue | 2,406,173 | 2,189,986 | 7,125,680 | 6,531,298 | |||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of uniform rental and facility services | 960,208 | 907,993 | 2,882,022 | 2,705,486 | |||||||||||||||||||
| Cost of other | 258,117 | 247,962 | 772,691 | 741,222 | |||||||||||||||||||
| Selling and administrative expenses | 667,048 | 587,219 | 1,949,928 | 1,752,724 | |||||||||||||||||||
| Operating income | 520,800 | 446,812 | 1,521,039 | 1,331,866 | |||||||||||||||||||
| Interest income | (930) | (373) | (2,121) | (872) | |||||||||||||||||||
| Interest expense | 25,530 | 28,819 | 76,664 | 85,459 | |||||||||||||||||||
| Income before income taxes | 496,200 | 418,366 | 1,446,496 | 1,247,279 | |||||||||||||||||||
| Income taxes | 98,621 | 92,539 | 289,219 | 245,470 | |||||||||||||||||||
| Net income | $ | 397,579 | $ | 325,827 | $ | 1,157,277 | $ | 1,001,809 | |||||||||||||||
| Basic earnings per share | $ | 3.90 | $ | 3.19 | $ | 11.34 | $ | 9.82 | |||||||||||||||
| Diluted earnings per share | $ | 3.84 | $ | 3.14 | $ | 11.15 | $ | 9.65 | |||||||||||||||
| Dividends declared per share | $ | 1.35 | $ | 1.15 | $ | 4.05 | $ | 3.45 |
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (In thousands) | February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | |||||||||||||||||||
| Net income | $ | 397,579 | $ | 325,827 | $ | 1,157,277 | $ | 1,001,809 | |||||||||||||||
| Other comprehensive (loss) income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (450) | (7,972) | 371 | (37,079) | |||||||||||||||||||
| Change in fair value of interest rate lock agreements, net of tax (benefit) expense of $(1,726), $513, $4,195 and $3,364, respectively | (5,042) | 1,501 | 12,256 | 9,829 | |||||||||||||||||||
| Amortization of interest rate lock agreements, net of tax benefit of $(513), $(512), $(1,503) and $(1,537), respectively | (1,524) | (1,521) | (4,461) | (4,563) | |||||||||||||||||||
| Other, net of tax expense of $0, $0, $130 and $0, respectively | — | — | 379 | — | |||||||||||||||||||
| Other comprehensive (loss) income, net of tax (benefit) expense of $(2,239), $1, $2,822 and $1,827, respectively | (7,016) | (7,992) | 8,545 | (31,813) | |||||||||||||||||||
| Comprehensive income | $ | 390,563 | $ | 317,835 | $ | 1,165,822 | $ | 969,996 |
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
| (In thousands except per share data) | February 29, 2024 | May 31, 2023 | |||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 128,483 | $ | 124,149 | |||||||
| Accounts receivable, net | 1,262,077 | 1,152,993 | |||||||||
| Inventories, net | 451,215 | 506,604 | |||||||||
| Uniforms and other rental items in service | 1,025,597 | 1,011,918 | |||||||||
| Prepaid expenses and other current assets | 163,624 | 142,795 | |||||||||
| Total current assets | 3,030,996 | 2,938,459 | |||||||||
| Property and equipment, net | 1,505,810 | 1,396,476 | |||||||||
| Investments | 294,261 | 247,191 | |||||||||
| Goodwill | 3,212,432 | 3,056,201 | |||||||||
| Service contracts, net | 335,863 | 346,574 | |||||||||
| Operating lease right-of-use assets, net | 186,514 | 178,464 | |||||||||
| Other assets, net | 412,999 | 382,991 | |||||||||
| $ | 8,978,875 | $ | 8,546,356 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 307,941 | $ | 302,292 | |||||||
| Accrued compensation and related liabilities | 182,669 | 239,086 | |||||||||
| Accrued liabilities | 720,545 | 632,504 | |||||||||
| Income taxes, current | 18,310 | 12,470 | |||||||||
| Operating lease liabilities, current | 44,430 | 43,710 | |||||||||
| Total current liabilities | 1,273,895 | 1,230,062 | |||||||||
| Long-term liabilities: | |||||||||||
| Debt due after one year | 2,474,908 | 2,486,405 | |||||||||
| Deferred income taxes | 481,177 | 498,356 | |||||||||
| Operating lease liabilities | 146,060 | 138,278 | |||||||||
| Accrued liabilities | 368,752 | 329,269 | |||||||||
| Total long-term liabilities | 3,470,897 | 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: | 2,246,329 | 2,031,542 | |||||||||
| 425,000,000 shares authorized | |||||||||||
| FY 2024: 193,090,252 shares issued and 101,444,090 shares outstanding | |||||||||||
| FY 2023: 192,198,938 shares issued and 101,732,148 shares outstanding | |||||||||||
| Retained earnings | 10,341,248 | 9,597,315 | |||||||||
| Treasury stock: | (8,439,817) | (7,842,649) | |||||||||
| FY 2024: 91,646,162 shares | |||||||||||
| FY 2023: 90,466,790 shares | |||||||||||
| Accumulated other comprehensive income | 86,323 | 77,778 | |||||||||
| Total shareholders’ equity | 4,234,083 | 3,863,986 | |||||||||
| $ | 8,978,875 | $ | 8,546,356 |
See accompanying notes.
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 | |||||||||||||||||||||||||||||||||||
| Net income | — | — | 374,613 | — | — | — | 374,613 | ||||||||||||||||||||||||||||||||||||||||
| Comprehensive income, net of tax | — | — | — | 6,170 | — | — | 6,170 | ||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | (137,474) | — | — | — | (137,474) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | 22,940 | — | — | — | — | 22,940 | ||||||||||||||||||||||||||||||||||||||||
| Vesting of stock-based compensation awards | 3 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 200 | 35,536 | — | — | (68) | (35,087) | 449 | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | (716) | (349,852) | (349,852) | ||||||||||||||||||||||||||||||||||||||||
| Balance at November 30, 2023 | 192,861 | $ | 2,179,951 | $ | 10,081,267 | $ | 93,339 | (91,514) | $ | (8,360,076) | $ | 3,994,481 | |||||||||||||||||||||||||||||||||||
| Net income | — | — | 397,579 | — | — | — | 397,579 | ||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss, net of tax | — | — | — | (7,016) | — | — | (7,016) | ||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | (137,598) | — | — | — | (137,598) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | 31,308 | — | — | — | — | 31,308 | ||||||||||||||||||||||||||||||||||||||||
| Vesting of stock-based compensation awards | 1 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 228 | 35,070 | — | — | (58) | (34,723) | 347 | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | (74) | (45,018) | (45,018) | ||||||||||||||||||||||||||||||||||||||||
| Balance at February 29, 2024 | 193,090 | $ | 2,246,329 | $ | 10,341,248 | $ | 86,323 | (91,646) | $ | (8,439,817) | $ | 4,234,083 |
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, 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 | |||||||||||||||||||||||||||||||||||
| Net income | — | — | 324,293 | — | — | — | 324,293 | ||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss, net of tax | — | — | — | (4,028) | — | — | (4,028) | ||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | (117,338) | — | — | — | (117,338) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | 25,255 | — | — | — | — | 25,255 | ||||||||||||||||||||||||||||||||||||||||
| Vesting of stock-based compensation awards | 9 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 194 | 29,053 | — | — | (66) | (27,975) | 1,078 | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | (68) | (28,348) | (28,348) | ||||||||||||||||||||||||||||||||||||||||
| Balance at November 30, 2022 | 191,857 | $ | 1,933,145 | $ | 9,160,346 | $ | 84,096 | (90,256) | $ | (7,747,049) | $ | 3,430,538 | |||||||||||||||||||||||||||||||||||
| Net income | — | — | 325,827 | — | — | — | 325,827 | ||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss, net of tax | — | — | — | (7,992) | — | — | (7,992) | ||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | (117,495) | — | — | — | (117,495) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | 23,797 | — | — | — | — | 23,797 | ||||||||||||||||||||||||||||||||||||||||
| Vesting of stock-based compensation awards | 3 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 172 | 24,668 | — | — | (54) | (23,852) | 816 | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | (49) | (22,235) | (22,235) | ||||||||||||||||||||||||||||||||||||||||
| Balance at February 28, 2023 | 192,032 | $ | 1,981,610 | $ | 9,368,678 | $ | 76,104 | (90,359) | $ | (7,793,136) | $ | 3,633,256 |
See accompanying notes.
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | |||||||||||
| (In thousands) | February 29, 2024 | February 28, 2023 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 1,157,277 | $ | 1,001,809 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | 207,637 | 190,801 | |||||||||
| Amortization of intangible assets and capitalized contract costs | 119,815 | 113,281 | |||||||||
| Stock-based compensation | 84,490 | 75,334 | |||||||||
| Deferred income taxes | (21,366) | 22,001 | |||||||||
| Change in current assets and liabilities, net of acquisitions of businesses: | |||||||||||
| Accounts receivable, net | (109,040) | (132,473) | |||||||||
| Inventories, net | 55,834 | (60,563) | |||||||||
| Uniforms and other rental items in service | (9,060) | (85,991) | |||||||||
| Prepaid expenses and other current assets and capitalized contract costs | (104,873) | (116,842) | |||||||||
| Accounts payable | 5,771 | 32,851 | |||||||||
| Accrued compensation and related liabilities | (58,511) | (32,666) | |||||||||
| Accrued liabilities and other | 52,945 | 17,856 | |||||||||
| Income taxes, current | 5,822 | 18,793 | |||||||||
| Net cash provided by operating activities | 1,386,741 | 1,044,191 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (307,558) | (224,116) | |||||||||
| Purchases of investments | (7,592) | (4,618) | |||||||||
| Acquisitions of businesses, net of cash acquired | (185,028) | (32,983) | |||||||||
| Other, net | (3,100) | (6,894) | |||||||||
| Net cash used in investing activities | (503,278) | (268,611) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payments of commercial paper, net | — | (62,200) | |||||||||
| Repayment of debt | (13,450) | — | |||||||||
| Proceeds from exercise of stock-based compensation awards | 1,275 | 2,941 | |||||||||
| Dividends paid | (393,310) | (332,421) | |||||||||
| Repurchase of common stock | (468,146) | (370,917) | |||||||||
| Other, net | (5,839) | (11,996) | |||||||||
| Net cash used in financing activities | (879,470) | (774,593) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 341 | (2,895) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 4,334 | (1,908) | |||||||||
| Cash and cash equivalents at beginning of period | 124,149 | 90,471 | |||||||||
| Cash and cash equivalents at end of period | $ | 128,483 | $ | 88,563 |
See accompanying notes.
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) | February 29, 2024 | May 31, 2023 | |||||||||
| Raw materials | $ | 23,092 | $ | 27,878 | |||||||
| Work in process | 41,442 | 56,384 | |||||||||
| Finished goods | 386,681 | 422,342 | |||||||||
| Inventories, net | $ | 451,215 | $ | 506,604 |
Inventories are recorded net of reserves for obsolete inventory (excess and slow-moving) of $74.1 million and $80.1 million at February 29, 2024 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
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 condensed 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 condensed 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 condensed financial statements.
Note 2 - Revenue Recognition
The following table presents Cintas' total revenue disaggregated by operating segment:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Uniform Rental and Facility Services | $ | 1,876,642 | 78.0 | % | $ | 1,716,165 | 78.4 | % | $ | 5,554,009 | 78.0 | % | $ | 5,123,924 | 78.5 | % | ||||||||||||||||||||||||||||
| First Aid and Safety Services | 262,602 | 10.9 | % | 231,605 | 10.6 | % | 789,696 | 11.1 | % | 701,740 | 10.7 | % | ||||||||||||||||||||||||||||||||
| Fire Protection Services | 182,410 | 7.6 | % | 155,762 | 7.1 | % | 530,676 | 7.4 | % | 454,211 | 7.0 | % | ||||||||||||||||||||||||||||||||
| Uniform Direct Sales | 84,519 | 3.5 | % | 86,454 | 3.9 | % | 251,299 | 3.5 | % | 251,423 | 3.8 | % | ||||||||||||||||||||||||||||||||
| Total revenue | $ | 2,406,173 | 100.0 | % | $ | 2,189,986 | 100.0 | % | $ | 7,125,680 | 100.0 | % | $ | 6,531,298 | 100.0 | % |
The Fire Protection Services and Uniform Direct Sales operating segments are included within All Other as disclosed in Note 11 entitled Segment Information.
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 or nine months ended February 29, 2024 or February 28, 2023.
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 operating segment. We update our allowance for credit losses quarterly, considering recent write-offs and collections information and underlying economic conditions and 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 ASC 606 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 February 29, 2024, the current and noncurrent assets related to deferred commissions totaled $94.3 million and $260.8 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. The Company recorded amortization expense related to deferred commissions of $25.6 million and $24.0 million during the three months ended February 29, 2024 and February 28, 2023, respectively. During the nine months ended February 29, 2024 and February 28, 2023, the Company recorded amortization expense related to deferred commissions of $75.3 million and $69.8 million, respectively. These expenses are classified in selling and administrative expenses on the consolidated condensed statements of income.
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 $21.0 million and $19.8 million for the three months ended February 29, 2024 and February 28, 2023, respectively. For the nine months ended February 29, 2024 and February 28, 2023, operating lease costs, including short-term lease expense and variable lease costs which were immaterial in both periods, were $61.5 million and $59.3 million, respectively.
The following table provides supplemental information related to the Company's consolidated condensed statements of cash flows for the nine months ended:
| (In thousands) | February 29, 2024 | February 28, 2023 | |||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 38,577 | $ | 37,103 | |||||||
| Operating lease right-of-use assets obtained in exchange for new and renewed operating lease liabilities | $ | 41,506 | $ | 42,900 | |||||||
| Operating lease right-of-use assets acquired in business combinations | $ | 334 | $ | — |
Other information related to the operating lease right-of-use assets, net and operating lease liabilities was as follows:
| February 29, 2024 | May 31, 2023 | ||||||||||
| Weighted-average remaining lease term | 5.30 years | 5.28 years | |||||||||
| Weighted-average discount rate | 3.38% | 2.87% |
The contractual future minimum lease payments of Cintas' operating lease liabilities by fiscal year are as follows as of February 29, 2024:
| (In thousands) | ||||||||
| 2024 (remaining three months) | $ | 12,514 | ||||||
| 2025 | 48,456 | |||||||
| 2026 | 41,420 | |||||||
| 2027 | 32,066 | |||||||
| 2028 | 26,617 | |||||||
| Thereafter | 48,392 | |||||||
| Total payments | 209,465 | |||||||
| Less interest | (18,975) | |||||||
| Total present value of lease payments | $ | 190,490 |
Note 4 - Fair Value Measurements
All financial instruments that are measured at fair value on a recurring basis 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 February 29, 2024 | 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 | $ | 128,483 | $ | — | $ | — | $ | 128,483 | $ | 124,149 | $ | — | $ | — | $ | 124,149 | ||||||||||||||||||||||||||||||||||
| Other assets, net: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate lock agreements | — | 86,901 | — | 86,901 | — | 70,449 | — | 70,449 | ||||||||||||||||||||||||||||||||||||||||||
| Total assets at fair value | $ | 128,483 | $ | 86,901 | $ | — | $ | 215,384 | $ | 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. See Note 9 entitled Acquisitions.
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:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Basic Earnings per Share (In thousands except per share data) | February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | |||||||||||||||||||
| Net income | $ | 397,579 | $ | 325,827 | $ | 1,157,277 | $ | 1,001,809 | |||||||||||||||
| Less: net income allocated to participating securities | 1,543 | 1,351 | 4,486 | 4,155 | |||||||||||||||||||
| Net income available to common shareholders | $ | 396,036 | $ | 324,476 | $ | 1,152,791 | $ | 997,654 | |||||||||||||||
| Basic weighted average common shares outstanding | 101,477 | 101,714 | 101,681 | 101,589 | |||||||||||||||||||
| Basic earnings per share | $ | 3.90 | $ | 3.19 | $ | 11.34 | $ | 9.82 |
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Diluted Earnings per Share (In thousands except per share data) | February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | |||||||||||||||||||
| Net income | $ | 397,579 | $ | 325,827 | $ | 1,157,277 | $ | 1,001,809 | |||||||||||||||
| Less: net income allocated to participating securities | 1,543 | 1,351 | 4,486 | 4,155 | |||||||||||||||||||
| Net income available to common shareholders | $ | 396,036 | $ | 324,476 | $ | 1,152,791 | $ | 997,654 | |||||||||||||||
| Basic weighted average common shares outstanding | 101,477 | 101,714 | 101,681 | 101,589 | |||||||||||||||||||
| Effect of dilutive securities – employee stock options | 1,710 | 1,704 | 1,666 | 1,774 | |||||||||||||||||||
| Diluted weighted average common shares outstanding | 103,187 | 103,418 | 103,347 | 103,363 | |||||||||||||||||||
| Diluted earnings per share | $ | 3.84 | $ | 3.14 | $ | 11.15 | $ | 9.65 |
For both the three months ended February 29, 2024 and February 28, 2023, options granted to purchase 0.5 million shares of Cintas common stock were excluded from the computation of diluted earnings per share. For the nine months ended February 29, 2024 and February 28, 2023, options granted to purchase 0.4 million and 1.0 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:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| February 29, 2024 | February 29, 2024 | |||||||||||||||||||||||||||||||||||||
| 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 | — | $ | — | $ | — | 658 | $ | 486.58 | $ | 320,266 | ||||||||||||||||||||||||||||
| July 26, 2022 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| — | $ | — | $ | — | 658 | $ | 486.58 | $ | 320,266 | |||||||||||||||||||||||||||||
| Shares acquired for taxes due (1) | 74 | $ | 604.51 | $ | 45,018 | 277 | $ | 533.65 | $ | 147,880 | ||||||||||||||||||||||||||||
| Total repurchase of Cintas common stock | $ | 45,018 | $ | 468,146 | ||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| February 28, 2023 | February 28, 2023 | |||||||||||||||||||||||||||||||||||||
| 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 | — | $ | — | $ | — | 544 | $ | 395.97 | $ | 215,434 | ||||||||||||||||||||||||||||
| July 26, 2022 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| — | $ | — | $ | — | 544 | $ | 395.97 | $ | 215,434 | |||||||||||||||||||||||||||||
| Shares acquired for taxes due (1) | 49 | $ | 448.79 | $ | 22,235 | 375 | $ | 414.23 | $ | 155,483 | ||||||||||||||||||||||||||||
| Total repurchase of Cintas common stock | $ | 22,235 | $ | 370,917 | ||||||||||||||||||||||||||||||||||
(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:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| February 29, 2024 | February 29, 2024 | |||||||||||||||||||||||||||||||||||||
| (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 | 58 | $ | 598.80 | $ | 34,723 | 244 | $ | 528.68 | $ | 129,023 | ||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| February 28, 2023 | February 28, 2023 | |||||||||||||||||||||||||||||||||||||
| Shares | Avg. Price per Share | Non-Cash Value | Shares | Avg. Price per Share | Non-Cash Value | |||||||||||||||||||||||||||||||||
| Non-cash transaction activity | 54 | $ | 445.60 | $ | 23,852 | 313 | $ | 419.78 | $ | 131,418 |
Note 6 - Goodwill, Service Contracts and Other Assets, Net
Changes in the carrying amount of goodwill and service contracts for the nine months ended February 29, 2024, 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 | 136,952 | 962 | 18,389 | 156,303 | |||||||||||||||||||
| Foreign currency translation | (66) | (6) | — | (72) | |||||||||||||||||||
| Balance as of February 29, 2024 | $ | 2,773,493 | $ | 293,824 | $ | 145,115 | $ | 3,212,432 |
| 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 | 25,429 | 290 | 3,696 | 29,415 | |||||||||||||||||||
| Service contracts amortization | (33,373) | (3,941) | (2,893) | (40,207) | |||||||||||||||||||
| Foreign currency translation | 70 | 11 | — | 81 | |||||||||||||||||||
| Balance as of February 29, 2024 | $ | 302,156 | $ | 17,517 | $ | 16,190 | $ | 335,863 |
Information regarding Cintas’ service contracts and other assets, net is as follows:
| As of February 29, 2024 | As of May 31, 2023 | |||||||||||||||||||||||||||||||||||||
| (In thousands) | Carrying Amount | Accumulated Amortization | Net | Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||||
| Service contracts | $ | 1,034,141 | $ | 698,278 | $ | 335,863 | $ | 1,004,754 | $ | 658,180 | $ | 346,574 | ||||||||||||||||||||||||||
| Capitalized contract costs (1) | $ | 749,779 | $ | 488,954 | $ | 260,825 | $ | 665,705 | $ | 413,680 | $ | 252,025 | ||||||||||||||||||||||||||
| Noncompete and consulting agreements and other | 222,070 | 69,896 | 152,174 | 198,260 | 67,294 | 130,966 | ||||||||||||||||||||||||||||||||
| Total other assets, net | $ | 971,849 | $ | 558,850 | $ | 412,999 | $ | 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 February 29, 2024 and May 31, 2023, is $94.3 million and $92.5 million, respectively.
Amortization expense for service contracts and other assets was $40.0 million and $37.8 million for the three months ended February 29, 2024 and February 28, 2023, respectively. For the nine months ended February 29, 2024 and February 28, 2023, amortization expense for service contracts and other assets was $117.9 million and $111.5 million, respectively. These expenses are recorded in selling and administrative expenses on the consolidated condensed statements of income. As of February 29, 2024, 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 three months) | $ | 40,005 | ||||||
| 2025 | 149,298 | |||||||
| 2026 | 128,040 | |||||||
| 2027 | 104,762 | |||||||
| 2028 | 80,283 | |||||||
| Thereafter | 200,916 | |||||||
| Total future amortization expense | $ | 703,304 |
Note 7 - Debt, Derivatives and Hedging Activities
Cintas' outstanding debt is summarized as follows:
| (In thousands) | Interest Rate | Fiscal Year Issued | Fiscal Year Maturity | February 29, 2024 | May 31, 2023 | ||||||||||||||||||||||||
| Debt due after one year | |||||||||||||||||||||||||||||
| Senior notes (1) | 3.11 | % | 2015 | 2025 | $ | 50,378 | $ | 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 | 236,550 | 250,000 | |||||||||||||||||||||||
| Debt issuance costs | (12,020) | (14,225) | |||||||||||||||||||||||||||
| Total debt due after one year | $ | 2,474,908 | $ | 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 senior 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 observable market prices. The carrying value and fair value of Cintas' debt as of February 29, 2024 were $2,486.6 million and $2,410.8 million, respectively, and as of May 31, 2023 were $2,500.0 million and $2,443.8 million, respectively. During the nine months ended February 29, 2024, Cintas repurchased, and subsequently retired, $13.5 million of its 6.15%, 30-year senior notes. In conjunction with these transactions Cintas recognized a loss of $0.9 million, which is recorded in interest expense on the consolidated condensed statement of income for the nine months ended February 29, 2024. During the nine months ended February 28, 2023, Cintas paid $62.2 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 February 29, 2024 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 $1.5 million for both the three months ended February 29, 2024 and February 28, 2023. For the nine months ended February 29, 2024 and February 28, 2023, the amortization of the interest rate locks resulted in a decrease to other comprehensive income (loss) of $4.5 million and $4.6 million, 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 February 29, 2024 and May 31, 2023. The fair values of the outstanding interest rate locks, for forecasted debt issuances, are summarized as follows:
| February 29, 2024 | May 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year of Issuance (In thousands) | Other assets, net | Other assets, net | ||||||||||||||||||||||||||||||||||||||||||
| 2022 | $ | 52,867 | $ | 44,803 | ||||||||||||||||||||||||||||||||||||||||
| 2020 | $ | 34,034 | $ | 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 and nine months ended February 29, 2024 or February 28, 2023.
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. As of February 29, 2024 and May 31, 2023, recorded unrecognized tax benefits were $27.9 million and $29.3 million, respectively, 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 2018. 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 19.9% and 22.1% for the three months ended February 29, 2024 and February 28, 2023, respectively. For the nine months ended February 29, 2024 and February 28, 2023, Cintas' effective tax rate was 20.0% and 19.7%, respectively. The effective tax rate for both periods was impacted by certain discrete items (primarily the tax accounting for stock-based compensation).
Note 9 - Acquisitions
The purchase price paid for each acquisition has been allocated to the fair value of the assets acquired and liabilities assumed. Cintas acquired the following number of individually immaterial businesses by reportable operating segment and All Other during the nine months ended:
| February 29, 2024 | February 28, 2023 | |||||||||||||
| Uniform Rental and Facility Services | 7 | 3 | ||||||||||||
| First Aid and Safety Services | 1 | 4 | ||||||||||||
| All Other | 8 | 8 | ||||||||||||
The following summarizes the aggregate purchase price and fair value allocations for all businesses acquired during the nine months ended:
| (In thousands) | February 29, 2024 | February 28, 2023 | ||||||||||||
| Fair value of tangible assets acquired | $ | 14,350 | $ | 5,506 | ||||||||||
| Fair value of service contracts acquired | 28,860 | 8,448 | ||||||||||||
| Fair value of other intangibles acquired | 5,278 | 1,062 | ||||||||||||
| Net goodwill recognized | 155,653 | 20,793 | ||||||||||||
| Total fair value of assets acquired | 204,141 | 35,809 | ||||||||||||
| Total fair value of liabilities assumed | (19,113) | (2,826) | ||||||||||||
| Total consideration for acquisitions, net of cash acquired | $ | 185,028 | $ | 32,983 |
Cintas is required to provide additional disclosures about fair value measurements as part of the consolidated condensed financial statements for each major category of assets and liabilities measured at fair value on a nonrecurring basis (including business combinations). The working capital assets and liabilities, as well as the property and equipment acquired, were valued using Level 2 inputs which included data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill and separately identifiable intangible assets were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows (income approach). The results of operations of the acquisition are included in Cintas' consolidated statements of income subsequent to the date of acquisition and are not material to the consolidated condensed financial statements.
Note 10 - 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 | |||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (1,813) | 9,099 | 379 | 7,665 | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (1,495) | — | (1,495) | |||||||||||||||||||
| Net current period other comprehensive (loss) income | (1,813) | 7,604 | 379 | 6,170 | |||||||||||||||||||
| Balance at November 30, 2023 | (16,180) | 111,075 | (1,556) | 93,339 | |||||||||||||||||||
| Other comprehensive loss before reclassifications | (450) | (5,042) | — | (5,492) | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (1,524) | — | (1,524) | |||||||||||||||||||
| Net current period other comprehensive loss | (450) | (6,566) | — | (7,016) | |||||||||||||||||||
| Balance at February 29, 2024 | $ | (16,630) | $ | 104,509 | $ | (1,556) | $ | 86,323 |
| (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 | |||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (9,901) | 7,394 | — | (2,507) | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (1,521) | — | (1,521) | |||||||||||||||||||
| Net current period other comprehensive (loss) income | (9,901) | 5,873 | — | (4,028) | |||||||||||||||||||
| Balance at November 30, 2022 | (12,101) | 97,974 | (1,777) | 84,096 | |||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (7,972) | 1,501 | — | (6,471) | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (1,521) | — | (1,521) | |||||||||||||||||||
| Net current period other comprehensive loss | (7,972) | (20) | — | (7,992) | |||||||||||||||||||
| Balance at February 28, 2023 | $ | (20,073) | $ | 97,954 | $ | (1,777) | $ | 76,104 |
The following table summarizes the reclassifications out of accumulated other comprehensive income (loss):
| 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 | ||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (In thousands) | February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | ||||||||||||||||||||||
| Amortization of interest rate locks | $ | 2,037 | $ | 2,033 | $ | 5,964 | $ | 6,100 | Interest expense | |||||||||||||||||
| Tax expense | (513) | (512) | (1,503) | (1,537) | Income taxes | |||||||||||||||||||||
| Amortization of interest rate locks, net of tax | $ | 1,524 | $ | 1,521 | $ | 4,461 | $ | 4,563 | ||||||||||||||||||
Note 11 - 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 | ||||||||||||||||||||||||
| For the three months ended February 29, 2024 | |||||||||||||||||||||||||||||
| Revenue | $ | 1,876,642 | $ | 262,602 | $ | 266,929 | $ | — | $ | 2,406,173 | |||||||||||||||||||
| Income (loss) before income taxes | $ | 420,407 | $ | 57,717 | $ | 42,676 | $ | (24,600) | $ | 496,200 | |||||||||||||||||||
| For the three months ended February 28, 2023 | |||||||||||||||||||||||||||||
| Revenue | $ | 1,716,165 | $ | 231,605 | $ | 242,216 | $ | — | $ | 2,189,986 | |||||||||||||||||||
| Income (loss) before income taxes | $ | 359,995 | $ | 47,271 | $ | 39,546 | $ | (28,446) | $ | 418,366 | |||||||||||||||||||
| As of and for the nine months ended February 29, 2024 | |||||||||||||||||||||||||||||
| Revenue | $ | 5,554,009 | $ | 789,696 | $ | 781,975 | $ | — | $ | 7,125,680 | |||||||||||||||||||
| Income (loss) before income taxes | $ | 1,226,547 | $ | 175,828 | $ | 118,664 | $ | (74,543) | $ | 1,446,496 | |||||||||||||||||||
| Total assets | $ | 7,503,038 | $ | 745,633 | $ | 602,096 | $ | 128,108 | $ | 8,978,875 | |||||||||||||||||||
| As of and for the nine months ended February 28, 2023 | |||||||||||||||||||||||||||||
| Revenue | $ | 5,123,924 | $ | 701,740 | $ | 705,634 | $ | — | $ | 6,531,298 | |||||||||||||||||||
| Income (loss) before income taxes | $ | 1,093,861 | $ | 133,612 | $ | 104,393 | $ | (84,587) | $ | 1,247,279 | |||||||||||||||||||
| Total assets | $ | 7,150,227 | $ | 694,777 | $ | 532,434 | $ | 88,563 | $ | 8,466,001 |
(1) Corporate assets include cash and cash equivalents and marketable securities, if applicable, in all periods.
Note 12 - 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 March 2024, and subsequent to the consolidated condensed balance sheet date, an agreement in principle was reached with the plaintiff which would require a one-time monetary payment related to the contract dispute of $45.0 million, which was accrued for and included in accrued liabilities on the consolidated condensed balance sheet at February 29, 2024. The amount accrued for this matter did not have a material impact on the consolidated condensed statements of income for any period presented. The Company will also make certain future investments such as people and technology. These future investments will not be material to the Company. The tentative settlement remains subject to confirmatory discovery and approval of the U.S. District Court for the District of Nevada, however, we do not anticipate any material changes in the amounts reflected in the consolidated condensed financial statements.
The Company, the Board of Directors, Scott Farmer (Executive Chairman) and the Investment Policy Committee are defendants in a purported class action, filed on December 13, 2019, pending in the U.S. District Court for the Southern District of Ohio alleging violations of The Employee Retirement Income Security Act of 1974 (ERISA). The lawsuit asserts that the defendants improperly managed the costs of the employee retirement plan, breached their fiduciary duties in failing to investigate and select lower cost alternative funds and failed to monitor and control the employee retirement plan’s recordkeeping costs. In November 2023, an agreement in principle was reached with the plaintiffs, which would require a payment of an immaterial amount that would be covered by the Company's insurance. The settlement remains subject to approval of the U.S. District Court for the Southern District of Ohio.
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